DigitalBridge Group Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 1, 2023

There are 11 speakers on the call.

Operator

Greetings, and welcome to the Digital Bridge Growth Third 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kevin White.

Operator

Please go ahead.

Speaker 1

Good morning, everyone, and welcome to Digital Bridge's 3rd quarter 2023 earnings conference call. Speaking on the call today from the company is Mark Ganzi, Our CEO and Jackie 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, November 1, 2023, InvisibleBridge does not intend and undertakes no duty to update it for future events or circumstances.

Speaker 1

For more information, Please refer to the risk factors discussed in our most recent Form 10 ks 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 September 30, 2023. Great. Let's get started with Mark providing an update on our key objectives for 2023. Jackie will outline our financial results and turn it back over to Mark to talk about the opportunities we are capitalizing on at Digital Bridge Credit. With that, I'll turn the call over to Mark Ganzi, our CEO.

Speaker 1

Mark?

Speaker 2

Thanks, Severin. I'm pleased to share our results for 3Q 2023 as we posted some very strong financial performance that was a function of both the steady progress we've made building a predictable fee income earnings stream and the one time benefits we realized from our simplification initiatives. So first, let's start by covering our top three priorities for 2023, Beginning with fundraising. In Q3, we generated strong year over year growth in our investment management platform With fee income up 57% and segment level FRE up 36%, both slightly higher than last quarter's already strong growth, powered by higher fee income from core, credit and co investment along with our 2nd full quarter of contribution from InfraBridge. New capital formation came in at $2,000,000,000 with our flagship Gingerbridge partner series leading the way and the balance from new strategies including credit, which I'll cover in Section 3 today.

Speaker 2

LP interest in digital infrastructure is robust. On the back of AI driven demand, I'm pleased to confirm we are on track to achieve our fundraising goals for the year. On the simplification front, We completed the databank recap in September, which resulted in another $50,000,000 back to you, DigiBridge shareholders, bringing our total proceeds to $471,000,000 and generating a 32% internal rate of return to DigiBrid shareholders. Our balance sheet also got a lot simpler with $2,300,000,000 of debt deconsolidated in connection with the datavant closing as we brought our ownership in that asset under 10%. We're also advancing our simplification objective by rolling out additional disclosures on fund performance, consistent with our alternative asset management peers.

Speaker 2

Investors have consistently asked for this and we're delivering. On that point, portfolio performance, our 3rd key priority. We demonstrated strong results, particularly in the data center vertical With monthly recurring revenue up 20% and the other 3 verticals all delivering mid to high single digit growth. Let's detail fundraising and our simplification progress before we get into the financials. Next slide please.

Speaker 2

On new capital formation, I'm pleased to report we raised $2,000,000,000 since last quarter's earnings, bringing us to a total of $5,400,000,000 year to date. The majority of that around $1,000,000,000 came from continuing commitments to our flagship DigiBridge partner series, which will start generating fee income today triggered by the strategy's first closing. We've also completed additional co invest indications and brought in more capital in our liquid and credit strategies during Q3. We believe this progress puts us on track to hit our fundraising targets as we come into the Q4, which has been seasonally very strong for us given our fundraising cadence. Look, it's been a tough year for Capital Information.

Speaker 2

It's been one of the toughest that I can remember. But the key here is perseverance, Perseverance of the team and persistent interest in data center infrastructure spurred by advances in generative AI has put us in a good position to deliver on our goals. Again, I want to reaffirm our guidance and our belief that we'll hit our fundraising goals for 2023. Next page please. So as you can see here, we continue to generate solid year over year growth in both Feum and AUM.

Speaker 2

We ended last quarter with about $30,000,000,000 in PM, up almost $10,000,000,000 over the prior year. That's 46% annual growth driven by equal measures of organic capital formation and contribution from the InfraBridge acquisition we closed earlier this year. On the right, Asset Center Management, which tracks the NAV of the assets that we manage, was up to $75,000,000,000 last quarter, Again, 48% higher over the prior year. Next slide please. So on the simplification front, it's quite simple.

Speaker 2

We deconsolidated DataBank. I can't tell you how thrilled I am to use the past tense here For a couple of reasons. 1, the recap was a huge success for DigiBridge. We doubled our money in only a few years, generating a 32% IRR for DigiBridge shareholders. Just this last quarter, we added another $50,000,000 in proceeds, including $28,000,000 in carried interest, bringing the total monetized value to Digitridge to $471,000,000 This was a smart use of our balance sheet.

Speaker 2

And look, we're retaining a stake in the business. The stake is worth $434,000,000 at the price We just transacted. DataBank, as most of you know, is experiencing explosive strong growth led by Edge AI Leasing. So we're excited to be retaining a meaningful stake in the business. We don't anticipate any additional sell down here in the near term As we're excited about the future prospects, we're delighted to continue to support Raul and the DataBank team.

Speaker 2

The other reason I'm pleased to finalize the process is the closing resulted in the deconsolidation of DataBank from our financial statements, Most notably, the transformation of our balance sheet. As of September 14, 2023, $2,300,000,000 of consolidated debt comes off the books, a reduction of 42%. While most of this debt at share was not really attributable to DigiBridge, it did create a lot of unnecessary complexity for investors that were new to evaluating our business. So it's a big milestone in our drive to simplify the DigiBridge story. One to go.

Speaker 2

Vantage SEC is next and I remain confident the next time we report earnings There'll be some more good news, if not sooner. Next slide please. As we complete our transition to a pure play alternative asset manager, a second facet of our simplification initiative has been improved and amplify our financial reporting. This quarter, I'm pleased to announce we're introducing fund performance metrics into our quarterly 10 ks and Q reporting, further aligning with our peer data set in recent quarters. So we're pleased to provide shareholders with insight into the performance of our platforms.

Speaker 2

A couple of important notes here. First, these include solely the commingled funds we've managed for over 1 year. So our core and credit platforms will be incorporated in 2024 as these are new products on our platform. And because it just includes commingled funds, it does not incorporate returns from the SPVs or continuation funds that were formed in the original DB Holdings Investments or from GTP, the tower company that I built and sold to American Tower. These returns will always be out of the perimeter.

Speaker 2

2nd, as you know, our long dated funds are early in their lifecycle and in some cases, multiple uninvested capital calculations or MOICs include recent investments that have not benefited from the compounding effects of our value add investment strategy. 3rd, We've incorporated the InfraBridge funds which we acquired earlier this year into our reporting framework. With the investment and asset management teams now integrated, we expect this to further strengthen the Jif Fund performance over time as we overlay our asset management framework and our value add cookbook to enhance the performance of those assets. So stepping back, These fund performance metrics highlight how we're delivering for LPs, generating steady, risk adjusted returns consistent with their expectations and with the broader infrastructure sector. Next slide please.

Speaker 2

Finally, I want to highlight the portfolio company performance that ultimately underpins and drives those investment returns over time, specifically our discounted cash flows. Monthly reoccurring revenue across the portfolio is up again in all 4 of our verticals. This is driven by organic and investment led growth. I want to highlight data centers inside the quarter. They were really the standout with monthly recurring revenue up over 20% and the rest of our verticals performing well.

Speaker 2

Towers up 6.6%, fueled principally by 5 gs overlays and 5 gs amendment traffic. As we then calibrate in the next 3 to 7 years into densification across the 4 geographies we serve, We expect towers to be a consistent performer in organic growth. Fiber is up 10%. This is really driven by the fact that folks are returning back to office and we're seeing steady contributions in enterprise fiber, long haul fiber and data center connectivity, including recent performance at Zayo. And small cells up 5.5% as we've seen a nice turn And leasing activity driven by mobile carriers moving from 5 gs overlays and amendments into 5 gs densification.

Speaker 2

We're really excited about what's happening in small cells because it's not just the mobile carriers that are driving traffic. It's private enterprises, it's IoT networks and even cable companies. So we remain really optimistic about what's going to happen in the small cell segment in the coming years. Look, take a step back to still this at 50,000 feet. It's really simple.

Speaker 2

The demand for compute and connectivity continues to grow steadily and our ability to deliver for customers continues to expand along with our portfolio. Digital Bridge's unique ability to show up anywhere at any time for a customer Across the planet is true differentiation. With that, I'd like to turn it over to Jackie to cover the financials. Jackie?

Speaker 3

Thank you, Mark, and good morning, everyone. As a reminder, in addition to the release of our 3rd quarter earnings, We filed a supplemental financial report this morning, which is available within the Shareholders section of our website. Starting on Page 15, all of our quarterly key operating and financial metrics increased significantly year over year, driven by our robust fundraising efforts and acquisition of InfraBridge platform. We anticipate the strong momentum to continue as we progress in the Q4. Turning to Page 16.

Speaker 3

Total company distributable earnings was $35,000,000 or $0.20 per share, including $28,000,000 of carried interest realized from the final closing of DataBank recapitalization. Assets under management increased to $75,000,000,000 in the 3rd quarter, which grew by 48% from the same period last year and fee earning equity under management increased to $30,000,000,000 a 46% increase from the same period last year. AUM and BUM growth were primarily driven by the InfraBridge acquisition and capital raised in our new strategies and fee paying co investments. Our fundraising pipeline remains robust, and we look forward to closing out the year with a strong Q4, principally from commitments to our latest flagship fund, Digital Bridge Partners 3 or DBP3. I would also like to highlight that Effective today, we will begin generating management fees, coinciding with the first closing in DBP 3.

Speaker 3

Moving to Page 17, the company achieved healthy year over year growth propelled by the expansion of the Investment Management business and further enhanced by our streamlined corporate structure. For the Q3, consolidated revenues were $477,000,000 which represents an 11% increase from the same period last year. As a reminder, consolidated revenues include realized and unrealized carried interest. Total company adjusted EBITDA was $34,000,000 up 15% from the same period last year. This growth is primarily attributable to an increase in investment management fee revenues, offset partially by the reduced ownership in operating assets, which we will cover in more detail on the following pages.

Speaker 3

Moving to Page 18, the company continues to grow its Investment Management earnings and be earning equity under management generated by additional fundraising and deployments in our flagship funds. New strategies, fee paying co investments and contributions from IntraBridge Funds. Fee income excluding incentive fees was $66,000,000 and fee related earnings was $29,000,000 representing 57% and 36% increases from the same period last year, respectively. Investment Management segment distributable earnings Increased by 51 percent to $53,000,000 from the same period last year, benefiting primarily from carried interest recognized as part of the recapitalization of DataBank, which closed on September 14. It is also important to note that as a result of the deconsolidation of DataBank, the company's leverage profile and balance sheet continue to improve and become materially simpler and more asset light, as Mark and I had previewed, was our corporate strategy and mission going forward.

Speaker 3

Turning to Page 19. Last quarter, we began including new disclosures designed to provide additional detail On carried interest allocations and expenses, for the Q3, net carried interest income before non controlling interest was $96,000,000 due to the fair value of our managed funds increasing at a rate that exceeds the preferred return hurdles in our investment vehicles, which generates carried interest to Digital Bridge as the manager. Moving to Page 20. The company's share of digital operating revenues and earnings have continued to decline due to lower ownership interest. On September 14, we announced the completion of the recapitalization of our interest in DataBank, reducing our ownership to 9.9%.

Speaker 3

This transaction generated nearly $50,000,000 in proceeds, inclusive of $28,000,000 in carried interest for Digital Bridge. Going forward, our remaining interest in the DataBank platform will be treated as an equity method investment, and we expect to sell A portion of our ownership interest in Vantage SDC in the near future, which would complete our planned deconsolidation of the operating segment. Turning to Page 21, fee revenues in our high margin Investment Management segment continue to grow, partially offset by the realization of 2 assets within the InfraBridge platform. Since the Q3 of 2022, our annualized fee revenues increased from $182,000,000 to $264,000,000 and fee related earnings increased from $100,000,000 to $125,000,000 We expect fee related earnings to grow materially as we continue to raise Capital for DBP3 and as mentioned earlier, effective today, the commencement of DBP3 management fee billings. Looking at the right side of the page, run rate annual fee revenues are $276,000,000 We are on track to meet our previously provided fee revenue and FRA guidance ranges.

Speaker 3

Turning to Page 22. Our balance sheet has significantly changed following the deconsolidation of Databank, highlighted by the substantial reduction in investment level debt. And upon the deconsolidation of Vantage SDC, In the near future, our debt profile will be similar to those of our peers in the alternative investment management space, especially as we continue to monitor the capital markets and consider further opportunistic optimization of our leverage profile through both preferred and common equity redemptions and distributions. Turning to Page 23. As we have completed another milestone in our progress to simplify our capital structure, We have almost reached our target corporate debt level with no near term debt maturities.

Speaker 3

And with approximately $530,000,000 of liquidity, Including the full $300,000,000 available from our securitization revolver, our balance sheet and liquidity remain strong and poised for accretive uses. In summary, Mark and I are proud of the substantial strides We've taken this year to simplify the business and solidify Digital Bridge's position as a preferred partner of choice in the digital infrastructure space. Our financial performance continues to show market improvement despite a difficult fundraising environment, and we remain committed to generating long term shareholder success by scaling new products in our dynamic investment management platform led by our robust fundraising abilities. We look forward to closing out the year strong, already highlighted by the completion of a first close and our flagship fund DBP3 and continued progress in deconsolidating our balance sheet interest in Vantage SDC. And with that, I will turn it back to Mark.

Speaker 3

Thank you.

Speaker 2

Thanks, Jackie. So this quarter in Section 3, We always talk about executing the digital playbook. I want to talk about Digital Bridge Credit and how we've extended our platform organically into the private credit asset class. Let's start with some context for the strong growth the asset class is experiencing. Before I walk you through a case study that highlights how we're bringing skilled capital to the game here, it's clear to most of you that Private credit is a growing force in global capital markets.

Speaker 2

Since 2010, over $1,800,000,000,000 in capital Has been formed by alternative asset managers to fill a growing demand for credit that traditional lenders, hampered by tightening restrictions and regulations, have not been able to keep up with. On the right, you can see in just the last 5 years that private credit is taking share, Filling the gap led by traditional lenders to meet growing demand from borrowers that need liquidity and growth capital. At the same time, institutional LPs are increasingly being drawn to the sector, attracted by better risk adjusted returns on the back of higher interest rates and the reliability of credit products in an uncertain macro. Next slide please. As you can see here, Credit's attractive risk adjusted profile is driving increasing institutional interest in private credit.

Speaker 2

On the right side, over $1,000,000,000,000 has been raised in private credit in the past 5 years alone. This is doubling AUM over that time period. The average fund size continues to increase and it's expected that 2023 will generate another $200,000,000,000 plus of capital formation, the 4th year in a row exceeding that level. As you can see, this is not just a fad, it's sustainable. The best part is, as you can see on the left, Digital Bridge is at the intersection of the 2 asset classes, with the highest intent to increase allocation among institutional investors.

Speaker 2

Private Credit, 1, Infrastructure, 2 are the only 2 asset classes where that intent is greater than 50%. The intention here is everything. We're talking to LPs on a global basis and they want to be exposed to digital infrastructure and they want great exposure to private credit. So why not give them both in the same product set and this is where we've landed. This puts us in a real sweet spot in an already fast growing market.

Speaker 2

Next slide please. So what have we built so far? Over the past couple of years, we have organically grown a private credit business led by Dean Carreras, dedicated to supporting the growth of companies across the digital infrastructure sector and ecosystem. We finished Q3 2023 with $1,000,000,000 in fee paying capital, delivering private credit investment solutions to other financial sponsors. And in essence, we're providing the key skill capital that leverages our ecosystem.

Speaker 2

Those investment solutions span the full spectrum from 1st lien senior secured debt all the way to preferred equity. Most of the lending is floating rate securities with check sizes in the $20,000,000 to $300,000,000 range across all of the verticals inside of digital infrastructure, fiber, towers, data centers and emerging infrastructure such as small cells and other parts of the ecosystem. It's important to note digital infrastructure is an incredibly capital intensive sector. So we're just getting started in servicing a really big and growing TAM. As I mentioned in previous years On our earnings calls, BATAM grows approximately about $500,000,000,000 per year in terms of the total wallet size.

Speaker 2

So on a reasonable loan to value Equation, one could assume about $250,000,000,000 of new credit could be written every year. This is a sleeve that can become an evergreen source of growth for DigimBridge. We are really excited about the future prospects of this business. Let's cover a case study on the next couple of slides to give you a sense for how Digital Bridge Credit since financing the growth of the digital economy. Next slide please.

Speaker 2

This summer, Gingerbread Credit participated in the financing for Corweave, a company many of you are familiar with. Corweave is a leading Next generation specialized cloud provider focused on servicing AI workloads at scale with the latest technology. It fit alongside the large cloud service providers within the infrastructure layer of the AI tech stack you see on the left, but with a business purpose built for artificial intelligence. That means access to thousands of the latest generation GPUs, A specialized networking fabric built to reduce latency and boost ship utilization and value add software and technical resources. To distill it, simply put, this is GPU as a service serving rapidly growing AI workloads.

Speaker 2

CoreReve represents an incredibly compelling customer value prop focused on delivering first, The best pound for pound AI compute second, a very fast and flexible and cost effective service 3, it's incredibly scalable. And then 4, they're targeting a large and growing market estimated to reach $160,000,000,000 by 2027. Just recently, CorWeave unveiled the world's fastest AI supercomputer built in partnership with one of their equity investors, NVIDIA. This is a terrific company with a terrific CEO that was seeking capital to finance the incredible growth they're experiencing. So let's turn to the next slide to cover the financing and how we leverage our DigiRidge ecosystem.

Speaker 2

As you can see on the left, in July of 2023, DigiBridge Credit participated in a $2,300,000,000 financing for CoreWeave alongside Blackstone, Magnetar and Co2. CoreWeave is looking to fund a significant amount of growth CapEx ramp to be contracted AI compute demand, including the purchase of 1,000 of the latest generation GPUs, securing significant new data center capacity, as well as continued working capital investment in their platform. It's a financing backed ultimately by Correvive's high quality investment grade counterparties and supported by a durable asset backed collateral. This at the end of the day Really is in parallel with how we underwrite our investments at Digital Bridge. We're always focused on long term contracts, investment grade counterparties and asset backed collateral.

Speaker 2

This is seminal to our investment thesis in DigiBridge Credit. Over the course of the financing, DigitBridge levered its ecosystem in unique ways to source, debt and accelerate the transaction, highlighting the strategic value of our platform. So let's start with The Source. Here, our significant market intelligence and tangible value Prop attracted CoreWeave to working with DigitalBridge. Given the breadth of our data center assets and industry expertise, We've actively sought to work with DigitalBridge.

Speaker 2

Next, that in terms of vetting, the ability to de risk Transaction is always really important to us in the underwriting process. In this case, our credit underwriting process was enhanced by access to Gingerbread's data center portfolio companies and the long term relationships we maintain with leading global technology companies. Basically, in a nutshell, we talk to the logos. Finally, accelerate. Here, we already actively we're supporting Correvio's time to market advantage, Leveraging Digiridge's global datacenter footprint including Switch, Vantage, Databank, Scala, AIMS and Atlas Edge.

Speaker 2

The Correv transaction is a great example of the next gen digital infrastructure we're financing at Digiver's Credit and Our team and portfolio companies can both benefit from what we call the power of the platform. With that, I'll turn now to the CEO checklist for the quarter before we wrap it up and open it up the line for Q and A. Next slide please. Great. As always, let's wrap it up with the review from the CEO's checklist.

Speaker 2

1st, on fundraising, our number one KPI, $5,400,000,000 year to date and we remain again on target to hit our fundraising targets for the year. The last quarter will be busy. I can promise you that. And I'm confident we're going to get the job done. Also, the DigiBridge partner Series VM kicks in this quarter.

Speaker 2

So we'll start to see the flow through from our fundraising efforts, which is really important. Next up on simplification, we closed DataBank, Generating a great return for our shareholders, while reducing complexity in our financial statements and delevering our balance sheet. Managed SEC is up next and we'll get it done. We've also introduced fund performance metrics, Further aligning our profile with other alternative asset management peers, this is an important step. It's delivering on something that you, our investors, have been asking for And now we're presenting it to you.

Speaker 2

We're pleased with our performance and we're excited about the future of our funds in our flagship series. Finally, and most importantly, down in the trenches at the portfolio level, we have continued to support the growing compute and connectivity needs for the most powerful investment grade logos in the world, including through our growing credit franchise that benefits from the power of the Gingerbread platform. Thank you for your support as we continue to execute on the final stage of our transition to a fast growing alternative asset management levered towards the powerful tailwinds in digital infrastructure. I look forward to updating you next quarter on our continued progress. With that, I'll hand it over to the operator to begin the Q and A section.

Speaker 2

Thank you.

Operator

Thank you. We will now be conducting a question and answer session. And our first question comes from Michael Elias with Cowen and Company. Please go ahead.

Speaker 4

Great. Thanks for taking the questions. To start, with the boom in data center leasing that we've seen, it also appears that there's been a boom in demand for debt capital to build new data centers. Mark, I'm just curious if you could share any observations related to the depth of the debt capital markets for data centers relative to the demand for debt. And as part of that, any observations around where spreads are going for data center debt?

Speaker 4

And then I have a follow-up.

Speaker 5

Yes. Thanks. Thanks, Mike. Appreciate it. How are you?

Speaker 5

So we think that the data center marketplace over the next Call it next 7 years is somewhere around 35 gigawatts of new leasing capacity that needs to be delivered. As you know, Michael, most of that will be greenfield. So when we contextualize that, it's literally 100 of 1,000,000,000 of dollars of new construction activity in the data center industry. It depends on what your metric is on the price per megawatt. And then obviously you can compute that to a price per gigawatt.

Speaker 5

So we think that the market is literally shaping up from a CapEx perspective Somewhere in the $1,500,000,000 range just for us just this year in terms of the stuff that we're financing. So If you contextualize that and there's probably $1,000,000,000,000 of data center spend and you assume a reasonable capital structure of a 50% loan to value, You can assume that there's $500,000,000,000 of data center financings coming up here in the next 7 years. We think that most of that As new construction loans will go, will be financed by private credit. Banks obviously given bank regulations are somewhat hand tied in terms of financing greenfield construction as you know. And traditional real estate lenders are going through a significant amount of digestion and what to do with office space and other forms of commercial real estate that are under stress.

Speaker 5

So we are seeing a surge And interest, particularly in our credit side and financing new data center builds and keep in mind our credit team finances for Portfolio companies that don't belong to us. So there's a huge universe of potential folks that we're working with in terms of developers that we know well That we don't have the equity in but certainly have the dead end. So contextually $500,000,000,000 TAM and pretty expansive. On the pricing side, it really depends, Michael on structure, whether it's a HoldCo note to help finance A data center operator, whether it's actually a construction loan, but what we're seeing is obviously with base rates near 5 And new construction loans certainly being riskier, which is where we're playing and old co notes which are above the senior. As you take the capital structure north of a 50% loan to value, you can obviously begin to see spreads with credit enhancements in those loans, entry fees, exit fees.

Speaker 5

You could see total yields on those loans in the 12% to 14% range with coupons somewhere on the low side for the high quality assets And the 7s and the mediocre to perhaps less quality assets in the 8.5% to 9.5% range. So We're seeing all kinds of opportunities, in the data center space and obviously it is driven by public cloud and private cloud and those AI workloads that you and I have talked about over the summer. So it's a big marketplace. We're very active. We've got a pipeline of over 60 loans that we're working on right now.

Speaker 5

We can't stress enough how big The private credit opportunity is in data centers, but also in fiber and towers as well, Michael.

Speaker 4

Thank you. I appreciate the color there. And then just as a follow-up, You're talking about the 35 gigawatt incremental opportunity here. 2 parter question. First is, Can you talk about how Digital Bridge is positioning itself to win more than its fair share of that opportunity?

Speaker 4

And then as part of that, perhaps at the portfolio company level, if you could just talk about The unlevered return targets across the data center platforms as you think about these large scale AI workloads. Thank you, Mark.

Speaker 5

Yes, thanks. So we do think we're taking within our market share. I mean, we've had a tremendous year of leasing and Not quite sure where it all lands, but it's measured in the 100 of megawatts across Switch, Vantage, Databank And Scala and AIMS and AtlasEdge. So as you know, we play the sector in multiple different ways. We play it from a private cloud perspective Up at Switch, we play it from a public cloud perspective at Vantage Europe and Vantage North America, Vantage Asia and Scala.

Speaker 5

And then we're playing the Edge compute business at AIMS databank and Atlas Edge. So we've got multiple platforms to go attack the different verticals and the different workloads. And I think you have to understand that AZ's availability zones, which are essentially the search rings of the data center sector, having localized teams From Sao Paulo to Europe, to North America to Asia is really helpful. It allows us to obviously think globally with our big customers, but indeed act locally in terms of securing power and the ability to execute and deliver for customers. So I think that we don't love to give out yields.

Speaker 5

It's somewhat of a Competitive advantage, but here's what I can share with you Michael. I can tell you that cash on cash yields are up year over year significantly Somewhere between 20% 30% on average in terms of the CAGR growth of the yields. What I can also share with you is that rents are up. Rents are up 21% year over year on a global basis. When you distill the 6 portfolio companies that we own and operate and you look at their results year over year, We've seen rental rates come up significantly.

Speaker 5

This is really a function of supply and demand. And there's more demand than there's supply. And so our existing locations where we have land, where we have power, where we have entitlements, those are renting at a premium. So I think look, the punch line is rents are up, Development yields are up. We've got the biggest platform in the world to go attack this.

Speaker 5

Today, we have just a little under 300 data centers And we have over 1.7 gigawatts of compute power to offer to our customers. So we do think on a global basis, We are one of the largest, if not the largest operators of edge cloud, public cloud and private cloud data centers in the world. And just looking at absorption, if we end up leasing somewhere between 7 70 Megawatts and 1.2 Gigawatts this year, I think that's going to lead the league in leasing, certainly far bigger than DLR and far bigger than Equinix. So we think we're

Operator

Our next question comes from Jay J. Ramani with KBW. Please go ahead.

Speaker 6

Thank you very much. From your vantage point today, and I understand the lumpiness of fundraising and that these Things have long cycle times given the complexity. Is there anything today that would give you a read through to 2024 as to whether fundraising is on pace or even could potentially accelerate. The second question would be, If we get past some of the macro uncertainties that are weighing on so many sectors, will that accelerate and provide more tailwinds to your fundraising efforts.

Speaker 5

Thanks, Jade. Appreciate it. Well, look, let's start with the quarter, right? I mean, we raised we formed $2,000,000,000 in new capital in the quarter. Really delighted with the $2,300,000,000 first close for our 3rd fund.

Speaker 5

I think as you peer set that against other alternative asset managers, we definitely believe we've outkicked our coverage. We're having a very strong Q4 in fundraising. Historically, we've always performed well in the Q4. I think one of the dynamics that's happened here, Jade, is that a lot of LPs have sat on their hands In Q2 and Q3, we got investors motivated and into our new flagship series and that's why we're pretty happy to have the first closing yesterday. And we do have optimism around the Q4 and we have even further optimism for next year.

Speaker 5

Asset allocators have already given us a sense of where they're allocating capital for next year. I just finished a 3 week tour where I saw 80 of our LPs. Told me they thought I went around the world twice. I don't think that was exactly true, but definitely it was in Asia and the Gulf and North America and pulsing all of our And look, I think there's 3 takeaways from that trip Jade over the last 3 weeks. 1, investors want to be with the best of the best.

Speaker 5

They're generally shrinking their GP list. They want to be with less GPs and they want to be with the best GP in credit. They want to be at the Best GPs in Private Equity and Infrastructure. And then most importantly, they want to be allocated to the best manager in digital and renewables. So we think we sit in a pretty protected place there as we are the largest alternative asset manager in digital infrastructure and that's why we had a good print in Q3 and while we'll have A very strong print in Q4 and I reaffirmed our guidance for 2023 this year.

Speaker 5

I think next year will be very constructive. We have over 200 investors still working in our flagship fund. We've had today, we've had 23 investors come into the first close. We believe this fund will attract anywhere from the low side of 80 investors to the high side of over 120 investors given our market intelligence And we've had so far 100 percent re up from Fund 2 to Fund 3. There hasn't been a Fund 2 investor that's told us they're not committing to Fund 3 and many of those investors haven't closed with us yet.

Speaker 5

So Our calculus may be a little different than other folks. We have a lot of precision. I study the data every week coming out of Salesforce. And as most of you know, I'm somebody who really likes data and I study the data and we're hitting our points And that's the key. But I am optimistic, Jade, about next year.

Speaker 5

And I think our guidance for next year will demonstrate that. But we're very pleased with the performance inside this Order and look, the key here is we just activated $25,000,000 in fees. We literally start billing those fees as of yesterday And all of those fees will get caught up in the Q4 and there'll be more catch up in Q1 and Q2 next year. And so there'll be a profound impact to our earnings in Q4 As now that the closing has occurred, we finally get to start building on Fund 3. That is absolutely important as investors think about what to look at these numbers

Speaker 6

And the follow-up would just be as it relates to macro, do you believe that that is one of the reasons why fundraising Cycle times are a little extended?

Speaker 5

Yes, no doubt. I think the macro has forced investors to Move with a little more, what I would call, patience. And I think investors are being incredibly thoughtful about how to deploy capital. And certainly, certain pension systems want to cover their liabilities. So it's easier for them not to commit to funds and to make sure that they can cover their liabilities as pensioners take money out of the pension.

Speaker 5

So these are called outflows and inflows. And so in a market like this where investors get nervous, Pensioners get nervous, they may elect to take money out of their pension jade. And so on that, you get more outflows than you get inflows, which is taxes And the percentage that gets taken from someone's paycheck that gets put into a pension system, like in places like Canada or places like Europe, And even here in the U. S. Where certain U.

Speaker 5

S. State pensions are definitely watching very carefully and taking a risk off mentality. That being said, there's pockets of great optimism. We've done incredibly well in Asia. That's been a really good market for us.

Speaker 5

We had a brand new fundraising team we put in place last year. We're seeing terrific results out of that region. We've seen very good results out of the GCC region. And Europe's been a little slow. The U.

Speaker 5

S. Coming on right now, Canada is coming back on. So as I said, the macro certainly makes people slow down a little bit and have some pause. But one thing we are seeing is the pension systems are being very cautious, Jade, just given that outflow inflow dynamic and that should stabilize next year, is what our belief is. That's what We see and that's what fundraising consultants are telling us as well.

Speaker 6

Thank you very much.

Speaker 5

Yes. Thanks, Jade.

Operator

Our next question comes from Rick Prentiss with Raymond James. Please go ahead.

Speaker 7

Thanks. Good morning, everybody.

Speaker 5

Good morning, Rick. Hey, Rick.

Speaker 8

Hey, Rick.

Speaker 7

A couple of questions. First, timing in life is everything. Obviously, you're working on the advantage to consolidation. Help us understand what are you trying to achieve? How much are you trying to sell Down to how many people are involved in the discussions?

Speaker 7

What's kind of the process as you think about either by next time you report earnings, if not sooner? I think you said that we could get So just help us understand the process to get to this next final deconsolidation simplification story.

Speaker 5

Yes. Thanks, Rick. So look, we're having good conversations with some of our biggest investors. I can't give you the exact color of who it is for confidentiality reasons, but rest assured they're long term core type investors. There are pension systems generally that value these U.

Speaker 5

S. Assets that are 97% investment grade, close to 6% yield and offers investors incredible safety. Even in light of today's interest rate conditions, these are some of the best data centers in the world. I think our process is obviously we want to sell down $60,000,000 of our position. We've made that perfectly clear to the investors we're talking to.

Speaker 5

We do have interest and we do have ongoing negotiations with a couple of investors. And the key is also not just to sell down the 60, But also to continue, Rick, to introduce new capital into Vantage SDC, new third party capital, As Vantage North America now has other data centers that they want to push into this long term REIT that we own. We like the REIT. We want to own literally 9.9% of it. It's a good it's the best of the best.

Speaker 5

And I think you cannot find a better set of U. S. Data center assets in the world. And just the credit quality and the duration of the leases being greater than 11 years, it's a really unique set of assets. So as you can imagine, it's not been for lack of interest.

Speaker 5

We have multiple parties looking at the position. We're looking at ultimately who can provide us with the most capital, who can join us And the fundraising of some primary capital as we're going to grow that sleeve of assets, Rick. I want to be clear about that. Vantage SDC is a growth vehicle. As we continue to develop some of the best public lab campuses in the U.

Speaker 5

S, we want Vantage SCC to keep growing. It's attracting capital. Obviously, interest rate narrative has been a bit of a headwind, but the counter to that is we've got great customers, great leases, and we've got a great yield on this portfolio. So it pays a nice dividend and there's a lot of interest from various pension fund clients of ours and we will make a decision this quarter on what to do with it. So That's about as much granular detail as I can give you.

Speaker 5

And by the way, Vantage SDC had great results this quarter. Revenue, NOI And EBITDA and same store sales growth, all four metrics beat our budget. So we're really happy with what's going on at Vantage SDC And we do anticipate that that sleeve of assets, Rick, will grow next year as we look to go acquire more assets in that vehicle.

Speaker 7

Okay. Second question, I think your stock buyback program maybe expired as far as the authorization program, Jackie, you alluded to Looking at preferred stock, some other items out there. Stocks been under some the public stock,

Speaker 5

Well, look, we're always looking to buyback our preferreds. I think we've made that no secret. We have a formula for how we use our cash. As you know, we've got close to $590,000,000 of cash and cash coming out of this quarter. We're well capitalized.

Speaker 5

We're putting some money into our 3rd fund. That capital won't be called until reasonably as we do new investments in the 3rd fund until 3rd or Q4 next year. But we do see an opportunity. When we do see an opportunity, Rick, we make those purchases. On the stock buybacks, we've been in a blackout period.

Speaker 5

We're hopeful to end that blackout period soon, so that we can go back to buying some of our stock back when it makes sense. And then certainly we as the leadership of the team want to buy back our stock too. So we love our stock. We think it's a good value. Once that blackout period ends and we're unrestricted, we can go back to having that conversation.

Speaker 5

So That's really it. I think in addition to that, Rick, we've always cited that there's 4 sources of cash, right? Share buybacks, debt pay down, and then certainly GP commitments into our new fund products. We really like where credit is going. We're really looking to build that credit strategy.

Speaker 5

I think that was really clear. From my commentary earlier today, we like credit. We're growing our credit team. We want to grow credit assets under management and we're in flight in doing that. So we think that's a huge opportunity for us in terms of the TAM and our market positioning.

Speaker 5

The last thing I would say, Rick, is we do see other GPs from time to time that are adjacent to what we do, Whether it's adjacencies in digital infrastructure, whether it's adjacencies in other verticals like infrastructure or private equity or renewable energy, We're constantly evaluating like we did with A and P over a year ago, whether or not we put our balance sheet to work to acquire other folks of our ilk that are subscale When you integrate them with us, like we did with AMP, you can see incredible margin enhancement and you can see obviously revenue growth, feeM growth and FRE growth. So we're measuring all of that, Rick, right? It's a box, right? There's 4 quadrants in that box and we're carefully evaluating that literally every day as a management team.

Speaker 7

And any update, I know I think originally Jackie might have been leaving at the end of the calendar year. Any update All that hard work he's been putting in, is there a replacement coming or what's the process of CFO?

Speaker 5

Yes, that process is ongoing. We've had really good Great conversations. I mean, I'd first tell you that Jackie is in place and he's extended with us Through I think through the Q2 of next year, we'd like him to stay. He's happy here. He's I won't put words in his mouth.

Speaker 5

I'll let him tell you If he's happy or not, we're having a good time. He's worked really hard to get this company to where it is. So a lot of the effort and a lot of the we're having is a function of Jackie's hard work. So I for 1 would like to see him stick around a little bit longer. He's got personal goals that he wants to achieve that I support fully as does the Board.

Speaker 5

And I'm not in a rush to hire the wrong CFO. I've got the right CFO in the chair right now. And so, as We do feel confident we're going to announce the right candidate here and inside this quarter hopefully. But in the meantime, I'm very happy with my partnership with Jackie as is severance. We work well together.

Speaker 5

We're getting the results. We're delivering for shareholders. And I think he's pretty happy to be extended through And needed if we need them through to the end of June next year.

Speaker 7

Great. Thanks everybody.

Speaker 5

Thanks Rick. Thanks.

Operator

Our next question comes from Richard Choe with JPMorgan. Please go ahead.

Speaker 9

Great. I just wanted to follow-up on the capital formation that's been strong to the year, but the flow through So, FEM has been a little bit volatile. How much of the $5,400,000,000 or target $8,000,000,000 should we expect to hit FEM in this year?

Speaker 5

Well, as I said, we're activating $25,000,000 of FIM Of fees, officially yesterday. So that's going to flow through into the Q4. All of that 5.4 will now Flow through because before we did not turn on the DBP3 office closing. Yes. And so the other key to that Richard is there's no expenses associated with that $5,400,000,000 of fees that we're turning on.

Speaker 5

So that is 100% pure profit. And the challenge in our business, Richard, as you know is, You spend 6 months raising the capital, you spend a lot of money, a lot of T and E, you've got a lot of people, you've got sales you've got a sales team And you have no revenue to show for that. And now we're through that period and the fundraising has now got good escape velocity. And as I said, we're having a strong 4th quarter And we anticipate having a very strong first and second quarter next year. So as we go forward, this now starts to move into pure profit.

Speaker 5

And as we've told you, our strategy for our 3rd fund is a $8,000,000,000 strategy. We have every clear belief and conviction will hit that $8,000,000,000 we actually have some conviction that we're going to push through that and exceed the $8,000,000,000 target for this fund. So that's what the data suggests, but we're excited to turn on the $25,000,000 in fees. As I said, 100% profit associated with that. In the Q4, you'll see a pure flow through on that revenue and we should anticipate the financial results in the 4th quarter to be incredibly strong, big on revenue, lower on expenses.

Speaker 3

And candidly, some of that volatility is associated with just a geography flip between corporate Expenses being now allocated to I'm So you'll see almost a dollar for dollar flip between those two segments. But obviously, our digital earnings is way up because that obviously gets neutralized that geography.

Speaker 9

Great. And then thank you for the fund performance reporting slide that is very helpful. The performance has been good so far, but can you give us a sense of how they're tracking? Granted, there's still a lot of time in the second one, but Just overall, how your current projections are standing out?

Speaker 5

I'm not sure I repeat the first part of that question, Richard, sorry.

Speaker 9

Sorry, just tell the gross MOIC is tracking for DP1 and DP2 DBP12.

Speaker 5

Yes. So this is our Q1 of reporting fund level performance, I think is what you're indicating to Richard. But what I would tell you is gross mix have been Quarter over quarter on Fund 1 and Fund 2. Fund 2 as you can tell from the vintage is going through the J curve phase. And so those points will catch up and we actually think Fund II, where it sits today vis a vis Fund I is performing better than Fund I.

Speaker 5

So we're pretty Optimistic. I know other firms, and not that we stand around watching other firms, but we know from Q1 to Q2 and Q2 to Q3 and Q3 to Q4 Other financial sponsors, other GPs have had some challenges and there's been markdowns. We've not suffered from that at all. Actually our marks have moved up Through Q1, through Q2 and Q3, we anticipate both Fund 1 and Fund 2 at Digital Bridge to continue to perform as The discounted cash flows across all of our portfolios are up quarter over quarter and year over year. And then I think also with respect to Jif 1 and Jif 2, We've got very good solid performance in the InfraBridge 1 Fund.

Speaker 5

As you can see from the table, that's performing at our expectations And we're continuing to deliver DPI. We've made it very clear that we are in the process of unwinding and exiting out of Jif I some of those assets. We've also had tremendous DPI across our first fund and some of the continuation vehicles. So returning capital right now is super important to LPs, Richard. If you want to go out and raise money right now, you've got to produce DPI and we've done a very good job there.

Speaker 5

We've produced over cumulatively about $4,200,000,000 of DPI this year in the 14 months for RLP. So returning capital and raising capital, that's the cycle.

Speaker 9

Great. Thank you.

Speaker 5

Thanks, Richard. Appreciate it.

Operator

Our next question comes from Eric with Wells Fargo. Please go ahead.

Speaker 8

Great. Appreciate the question. Just wanted to touch on kind of the M and A landscape across The different digital infrastructure verticals you operate in, are you seeing any traction on higher interest rates recently moving down multiples for private infrastructure? Sure. Or are they kind of still remaining in pretty elevated ranges?

Speaker 8

And does that shift at all your desire to just accelerate greenfield development versus M and A as you look at You know ways to deploy capital going forward?

Speaker 5

Yes, it's super interesting you should ask that question because I'm actually giving a speech later today where I'm going to talk exactly about this. It's So fiber has come down significantly. Eric, we've seen private market multiples move from the mid-20s into the low teens. We even think there's further compression in fiber multiples, particularly in residential fiber, Where the investor is exposed exactly to the household, where the cash flows are month to month, 30 days. And then certain aspects of fiber, Enterprise fiber, wholesale transport fiber down a little bit, but not quite as heavily hit as fiber to the home.

Speaker 5

Data centers actually you could make the argument, Eric, that multiples have gone up in the good assets and you know what the good assets are. Those are the hyperscale public cloud Focused campuses where there's a lot of growth and there's a lot of opportunity and you've got a wallet that's growing. On the enterprise side, you've seen on the flip of that coin, which is Older legacy data centers that are 20 plus years old like Seixtera have suffered and really don't have a growth story. So there's really not even a bid for those kinds of data centers. They're just so impaired.

Speaker 5

So, whether it's enterprise and then you've got databank, which is doing edge and they're performing really well and there's been no degradation in the valuation of that equity. So, Data centers are tricky. I always tell investors that. There's 6 different ways that you can invest, Eric, in data centers. There's 6 different sub industries in the data center sector.

Speaker 5

Where are valuations holding? They're holding in hyperscale and they're holding in edge. Where are they going down? Managed services, Hybrid cloud, enterprise, those are the areas that are suffering. And then I would say private cloud, which is what Switch does, is performing quite well.

Speaker 5

So 3 good verticals, 3 probably less good verticals. And so there's a wide range of valuation there. You could see as high as 30 times EBITDA And you can see all the way down in enterprise and managed services like 6 to 7 times EBITDA because in some instances there's just no bid because of the debt. Towers have actually held in pretty well. On the private side, we've seen private transactions in Europe recently trade in the mid-20s, 24 times to 25 times, there hasn't been a material degradation in tower valuations, maybe they've lost 3 to 4 turns in Europe.

Speaker 5

In the U. S, there just hasn't been any material M and A. And while the public multiples are down 20% to 30%, Private multiples actually have hung in and the smaller transactions that VerticalBridge is chasing, they're still losing deals at 25 times to 26 times. Now those were the deals they were losing at 32 to 36 times a year ago. So there's probably been a 6 to 8 turn compression in what I would call small ball M and A.

Speaker 5

But there hasn't been a material big M and A trade in the space to really see where those multiples are. And I think you could basically Push private markets, small cell multiples into the same bucket as U. S. Towers. And then in Southeast Asia and Latin America, we've Tower multiples trade in the high teens and in some parts of Asia, Jackie, we've seen towers hanging at 20 to 21 times.

Speaker 5

The market is still one that's really attractive from a tower multiple perspective. But again, Digital infrastructure sort of painting it with 1 paintbrush isn't fair. I think you got to sort of lay out the canvas and bring 12 paintbrushes to the canvas because you're going to have to paint it a lot of different ways

Speaker 8

Yes, that makes sense. And just to follow-up, your comments on residential fiber, fiber to the home. There's obviously been some speculation about a big consolidation wave coming in that market. You kind of touched on this a little bit. But I guess given where cost of capital have gone For a lot of those over builders, is that an area that traditionally I know you've shied away from, but if we see an appropriate discount in evaluations here, is that an area we So you potentially play in further going forward?

Speaker 5

I think look right now we're very focused from a credit perspective and we're providing credit to some of those companies. So Certainly, up at the investment committee level, we're very supportive of residential fiber and there are certain management teams who really like and backing them and we're giving them capital in the form of credit. And the equity investment committees were not constructive on residential fiber right now. We haven't been and I think we've been pretty vocal about that. We've had our reasons.

Speaker 5

Now that the valuations are moving in line, if we do find the right geography, management team and the right set of competitive dynamics, we're happy to write an equity check behind a great management team in the residential fiber I mean we're doing that now in Europe with NetOMNIA. We're rolling up the Tier 2, Tier 3 markets in the U. K. With a lot of success, we got a great management team. He's building it 20% to 30% cheaper than his competitors and his penetration is 20% to 30% higher.

Speaker 5

And they weren't just chasing homes in London. They were focused on the Tier 2 and Tier 3 markets where there's less competition. So the investment thesis stood up. Same thing in Chile. We have a wholesale residential fiber business, but we also have a business that same business also sells directly to home, where we've seen underpenetrated homes, a lot of streets We're going down the street and we're the only fiber carrier.

Speaker 5

And so we will play in residential fiber, Eric. We're just doing it through Muuto and through NetOMNIA And doing it very carefully and very surgically. I think there's probably a little more pain left in residential fiber in Europe and the U. S. And we're going to watch it carefully, and we'll play.

Speaker 5

I mean, Beanfield is our Canadian residential and enterprise fiber play. It's mostly focused on Toronto, Montreal and it's done really well. We sold a third of that to Omer's for an incredible multiple. They've been a great partner. They're providing a ton of primary capital.

Speaker 5

And we're going into Toronto and Montreal. We're facing Rogers and Bell who are very formidable and we're taking market share. But it's hard. It's a tougher business, Eric. It's Not like signing a 15 year lease with Microsoft or a 25 or 30 year lease with Deutsche Telekom.

Speaker 5

You got to wake up every day, get in the trenches, you got to fight. And that's the fight we're up for, but it's got to be priced correctly. The equity has to be priced correctly.

Speaker 8

Okay. Appreciate it, Mark. Thank you.

Speaker 5

Thanks, Eric.

Operator

Our next question comes from John Agtine with RBC. Please go ahead.

Speaker 10

Thanks. I wanted to ask you about the comments you made about small cells and the scripts. And maybe focusing On outdoor small cells, you sound a little bit more positive than you have in the past. What's driving that in terms of U. S.

Speaker 10

Demand? And how capital intensive is that for Extonets and maybe any of your other platforms? In other words, are you seeing Sort of same store lease up on existing plans or are you having to kind of build to meet the demand? Thanks.

Speaker 5

Well, look, I think the reason we see optimism is because we're watching our pipelines at Boingo and Exinet and Freshwave. And also our land tower businesses like Highline and ATP, EdgePoint in Asia, all these businesses have small cell divisions. And we're not only seeing green shoots, we're seeing bookings. And we've seen a turn in the bookings at XNET. We've seen a really big turn in bookings and Boingo.

Speaker 5

Look, there's close to as you know, Jonathan, there's a little under a 500,000 small cell stay in the U. S. Depends on whose numbers you believe. And Jonathan, what do you count as a node or what's not a node, right? What I can tell you is, we believe the reforecast on small cell growth between now and 2,030 It's about 1,100,000 to 1,200,000 nodes.

Speaker 5

So we think there's about another 600,000 to 700,000 nodes that will be built and we're talking to our customers and look, yes, Some of it will be self performed, but even now in this market where the cost of capital has gone up, our conversations with all 4 of the U. S. Carriers have picked up significantly. I know at Exane, for example, they just signed a new MLA with DISH and DISH now has capital and they're going to put some work put some money to work in small cells, But all 3 of the major carriers are also putting money into small cells. Now, while CapEx has been curtailed, if we can come in and provide a good solution, The carriers are willing to listen provided they don't fund the CapEx.

Speaker 5

So we're seeing more opportunity. We've seen our pipelines grow. I think you saw a little bit of that color from Crown. I think there was a competitor research paper out today. I think, one of your competitors At a non deal roadshow with Crown and they were talking about the same thing.

Speaker 5

They've seen an increase in pipeline. So I see a market that's growing. This is exactly what happened with 4 gs. We spent the 1st 3 years in LTE, basically doing macro overlays 1 for 1. And then when Alta and LTE moved into 2015, 2016 and moved into densification, it was all small cells And it was a little tougher on towers.

Speaker 5

We're probably another 6 to 9 months away from hardcore densification ramping on 5 gs, but we're starting to see it. It's starting to happen. So I am very optimistic around small cell growth and we're looking forward to putting more capital work, raising more capital at these platforms and investors understand it. We've been out there talking to them about it and it's not just small cells for the carriers, but you have to think in other dimensions. You have to think about IoT networks, private 5 gs networks.

Speaker 5

And then of course as generative AI starts to penetrate Towards the edge and moves towards mobile edge, we've always talked about how generative AI ultimately is going to be dispersed in low latency environments that are less than 1 tenth of a millisecond. The only way you get there is through small cells. That's the only way that you're going to have true autonomous vehicles, true machine to machine learning And true public safety that has true early responders getting in front of the threats is by having essentially a no latency environment And small cells take you there. We're very constructive on how AI is going to change the small cell space in the next 5 to 6 years.

Speaker 10

Great. And then maybe just pivoting briefly, but anything you could elaborate on in terms of Updating us on your venture strategy and things you're looking at?

Speaker 5

Well, look, I mean, now that we've announced the closing of the 3rd fund, the first closing, it's We can start to pull back the curtain on what we're doing. What I would tell you is we built a really good diversified fund 1 and diversified fund 2. We did 10 investments, 13 investments. In this fund, same thing. We're targeting 12 to 16 investments.

Speaker 5

Probably check size is a little smaller is what I would tell you. We're very constructive on Asia. We're a little less constructive on Europe. We're certainly constructive on the U. S.

Speaker 5

And Canada and Latin America. So what I would tell you is our strategy Is much of the same, but if we're thinking about that strategy, we're seeing a lot of positive things in Asia. We're seeing a lot of positive things here in our home market in North America. And there's a couple of interesting things in Latin America. And Europe is going to be a tough road out.

Speaker 5

Those guys have a much tougher road. So as we're thinking strategically about where to deploy capital, Europe is probably 3rd or 4th on my list right now. The U. S. And Asia stand to be 1 and 2.

Speaker 5

And then in terms of sectors, we like of course we like data centers that face AI. We do like wholesale fiber that again faces AI. We do like private 5 gs networking. We do like small cells. That's a thematic that we like in our new strategy.

Speaker 5

And then, if there's a right tower opportunity, if it's EM or if it's in the primary world, we'll look at towers. We think we've got some great companies, but There's always room to further invest. And then the last thing I would say is, we have spent some time thinking about how to grow the private cloud. We've had so much success at Switch. The question is can we translate that success to Europe and Asia.

Speaker 5

So we're working on that really hard right now. Private cloud networking and owning private cloud infrastructure that's highly secure, There's a huge market for that and no one's doing it. No one's doing it the way Switch does it. So we've now that we've owned that company for almost a year, We feel like we have the DNA to take that strategy forward. There's some other things we're working on that are proprietary, but Now that we've got the 3rd fund closed the next strategy closed, we can deploy capital from that strategy.

Speaker 5

So you'll start to see some new deals announced here in this quarter. As I said, we've got a big pipeline. We're tracking over $30,000,000,000 of new ideas in our pipeline. Our pipeline has never been bigger in terms of new platform information. So we're excited.

Speaker 5

This is a big call today. It was important for us to get the first close done. It's important for us to turn on the billing and activate those fees. Everyone loves those fees. And then of course, go execute.

Speaker 5

So what you'll see from us going forward is now new deals, new execution and continued thinking around DPI and how we return capital Back to our investors. So it will be a busy Q4 for us, Jonathan, and we'll look forward to hosting you hopefully soon down in Florida.

Speaker 10

Thanks very much.

Speaker 5

Thank you.

Operator

There are no further questions at this time. I would like to turn the floor back over to Mark Genzis for closing comments. Please go ahead.

Speaker 5

Yes. Thank you, operator. Well, first, I want to thank everyone for showing up on the call today. As I think you hear in my tone and my tenor, we're very optimistic. This was exciting to get to the first close of our new strategy and we're again reaffirming our guide for fundraising this year.

Speaker 5

It's been a tough market out there, but we seem to be defying gravity in terms of fundraising. We've done a great job returning capital to LPs. We've done a very good job managing our assets in our portfolio companies and the state of Digital Bridge is quite strong as we sit here today. As we move into the Q4, you can expect more of the same. As I said before, we're pretty excited about the fact that now we convert into fees on our new strategy.

Speaker 5

You'll see a strong financial performance here in the Q4 and that will persist into next year. We remain incredibly optimistic around the fundraising environment and exactly where we are in terms of our key accounts and where our fundraising is. And then in terms of capital deployment, as I said just a few moments ago, sitting on a $33,000,000,000 pipeline of new opportunity in terms of where to invest capital and we will start deploying that capital in short order. So To sum it up, it's really about hitting the marks on capital formation, maintaining our portfolio, maintaining our competitive advantage, And of course, raising more capital and deploying that capital in what we think are some of the best strategies in the world in digital infrastructure. It's a privilege to represent your capital.

Speaker 5

We appreciate your support and we'll look forward to talking to most of you soon. Thank you. Have a great weekend and have a great rest of your week. Take care.

Operator

This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation, and have a great day.

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Key Takeaways

  • Digital Bridge raised $2 billion of new capital in Q3, bringing $5.4 billion year-to-date and on track for its $8 billion fundraising target, with fee income up 57% and fee-related earnings up 36% year-over-year.
  • The company simplified its structure by completing the DataBank recapitalization—returning $50 million in Q3 ($471 million total) at a 32% IRR—and deconsolidating $2.3 billion of debt, with a Vantage SDC sale expected soon to further reduce complexity.
  • Portfolio performance remained strong, with monthly recurring revenue up 20% in data centers and mid-to-high single-digit growth in towers (+6.6%), fiber (+10%) and small cells (+5.5%), driven by AI-led demand and organic expansion.
  • Q3 financial results included $35 million of distributable earnings ($0.20 per share), revenues of $477 million (up 11%), adjusted EBITDA of $34 million (up 15%), total AUM of $75 billion (up 48%) and fee-earning AUM of $30 billion (up 46%).
  • The newly launched Digital Bridge Credit platform secured $1 billion of fee-paying capital in Q3 and participated in a $2.3 billion financing for CoreWeave, leveraging its ecosystem to provide senior secured and preferred debt solutions to digital infrastructure companies.
AI Generated. May Contain Errors.
Earnings Conference Call
DigitalBridge Group Q3 2023
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