DigitalBridge Group Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 1, 2025

There are 7 speakers on the call.

Operator

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Severin White.

Operator

Please go ahead.

Speaker 1

Good morning, everyone, and welcome to Digital Bridge's first quarter twenty twenty five earnings conference call. Speaking on the call today from the company is Mark Ganzi, our CEO and Tom Marofer, our CFO. I'll quickly cover the Safe Harbor. 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, 05/01/2025, and Digital Bridge 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 12/31/2024, and our Form 10 Q to be filed with the SEC for the quarter ended 03/31/2025. With that, let's get started. I'll turn the call over

Speaker 2

to Mark Ganzi, our CEO. Mark? Thanks, Severin. Let's start with our business update and cover the first quarter highlights. The two key takeaways for me in Q1 really center around two things.

Speaker 2

Number one, we delivered financial performance and fundraising in line with our objectives, on track to deliver on our 2025 goals. Second, which became increasingly relevant in April, is the resilience of the digital infrastructure asset class and the value of owning and operating a diversified portfolio across the ecosystem. Let's start with scale. Here, we delivered strong financial performance with solid revenue and earnings growth in the first quarter. Fee revenues of $90,000,000 and FRE of $35,000,000 up almost 80% year over year.

Speaker 2

Fundamentally, that's really strong growth, double digit revenue growth with expanding margins. This is what we talked about last quarter, as the key to our business model and to the DBRG investment case. Next up, fundraising. Look, here we raised one point one one point two billion dollars in the quarter, led principally by commitments to our flagship Digital Ridge Partner strategy, which represented over 70% of our fundraising. Last quarter, we highlighted that the ratio of fund capital to co invest would revert towards the longer trend, 60 fivethirty five in twenty twenty five.

Speaker 2

Fundraising in Q1 was consistent with that. We're at $6,300,000,000 in our third flagship fund as of March 31, and we continue to take in commitments and we continue to fundraise in that flagship product through the July. And look, what I can tell you is despite some of the headwinds out there and some of the noise around many things in our economy, allocators are still putting capital to work in digital infrastructure, and our pipeline continues to expand with investor interest. The third component on our roadmap, invest. This centers around our support for Zayo's four point five billion dollars acquisition of Crown Castle's fiber business that we announced in March.

Speaker 2

We'll talk a bit more about that later, but the key from a Digital Bridge investor standpoint that lowers our effective entry multiple, allows us to delever the business, and positions us for improved returns down the road. Say it was a critical investment in our first fund, and we've got that investment now in the right place. Next page, please. So, we put up a pretty solid first quarter. I think we can all agree on that.

Speaker 2

That makes two quarters back to back where we've essentially gone out and done exactly what we said we would do. We took care of business. But I want to take a minute to cover what I think is really top of mind on investors today, which is how the recent financial market volatility and trade tariff policy is impacting your business, specifically our business, the digital infrastructure business. The way I always evaluate these macro factors is by looking at the short and long term implications both at the corporate level and down at the portfolio company level, where we're looking at how to support our portfolio companies through these interesting periods. In the short term, it's not surprising some final fundraising decisions are being delayed a little bit by LPs that are monitoring uncertain market conditions.

Speaker 2

That's natural investor behavior. We've taken stock of all the LP conversations we're having. We've looked at the pipeline. We've looked at the timetable and investor intentions, and we continue to be confident that we are 100% on track to deliver our goals for 2025. Even if a few closings occur later than expected, we built that into our model this year.

Speaker 2

I'm not interested in repeating what happened last year. When you look at the longer term fundraising implications of the environment today for our business, there's actually some real silver linings here. Notably, and most importantly in this quarter, it's an opportunity to highlight the resilience of our portfolio and the defensive characteristics of digital infrastructure. By the way, it's not just digital infrastructure that's resilient. At the corporate level, we have an incredibly durable business model at Digital Bridge that's positioned to grow this year.

Speaker 2

And as we think about a fully derisked scenario, we can accelerate growth into the back end of the year and into next year. Down at the portfolio company level, the near term implications of our existing businesses are pretty de minimis, with almost all of our company revenues tied to steady, long term contracts, and their inflation protected given their real asset profile. When we head into periods of uncertainty like this, our businesses are well positioned, again, at the asset level and most importantly at the public level, which is our alternative asset manager. So, when you distill this and you think about new business and incremental CapEx at the portfolio company level, this is where you naturally see customers pausing today to assess the impact of markets and trade policy. Specifically around tariffs and trade policy, the best breakdown we've seen around potential data center construction impacts is in the range of 3% to 7% of total build cost, assuming a range of 10% to 20% cumulative tariffs.

Speaker 2

Honestly, that's pretty manageable. When you look at how tight data center markets continue to be, the challenges around power, we expect to be able to recover most of that in our new contracts, and for there to be minimal impacts to our development yields. Again, this is, of course, given the fact that we own 11 different data center businesses around the world, We have over 100 data centers in construction, and we've committed over $28,000,000,000 of CapEx to new site development over the next twenty four months. These are commitments that we made many, many quarters ago with signed contracts. When you look at the long term, the contract durations that I referenced earlier really protect the businesses.

Speaker 2

This is why investors love digital infrastructure. It's also important to note that we are responding to secular demand, not cyclical demand. So it's persistent and it's growing steadily. Secondly, while we build hard assets, we are ultimately supporting digital services. So we're not caught up in the crosshairs of trade policy, the way many other goods based businesses are today.

Speaker 2

When it comes to new business and CapEx spending, this is another area where the long term implications are pretty interesting. You see, look, periods of uncertainty present opportunity for our portfolio companies, and they're really able to differentiate themselves because they operate at scale. Their ability to step in as a reliable partner and a trusted set of hands and leverage their scale to deliver on time is what separates leaders from the new kids on the block. Frankly, we've done this before. We saw it in the 'eight mortgage crisis.

Speaker 2

We saw it in the beginning of COVID, which created an immense amount of pressure both in financial markets and in global supply chains. This is when Digital Bridge and Digital Infrastructure as an asset class really shined. Look, I don't want to downplay the impacts of uncertainty we're seeing in markets today, but it's important to put in perspective the resilience of our asset class and our track record performing through these periods. I've been doing this for over thirty years. I've seen the up cycles, I've seen the down cycles, and one thing I can tell you is the assets that we build, own, and operate perform in moments of uncertainty and volatility.

Speaker 2

I'm really excited actually about what sits ahead for us. Next page please. Over the next two slides I want to highlight empirically what I just talked about around the resilience and durability of infrastructures and asset asset class. It's one thing to have a talk track. It's another thing to really give you the math behind it.

Speaker 2

Infrastructure has performed through market cycles, including during periods of macro uncertainty, where it's a combination of lower volatility and lack of correlation making the asset class highly attractive to LPs. The uncorrelated natures of our cash flows tethered to investment grade customers is why investors are allocating with us in this moment of uncertainty. The chart on the left hand highlights how private infrastructure has delivered solid, high single digit returns with much better risk adjusted returns relative to real estate, global equities, and bonds. The middle block explains the why, demonstrating infrastructure's built in protection against periods of low growth. These two charts compare the earnings growth of listed infrastructure stocks to the broader equity market over the past four years during COVID and the recovery period.

Speaker 2

This is truly the tale of two cities, with the contracted long term cash flows and infrastructure sector protecting it against periods of volatility. And look, at the end of the day, it's quite obvious if you take a look at the three listed public tower stocks today here in The U. S, they're all up effectively 15%, seventeen %, and 20%, Crown, SBA, and American Tower. Investors know where to go in moments of volatility and uncertainty. Finally, the chart on the far right highlights another attractive characteristic of infrastructure to LPs, its lack of correlation to other asset classes.

Speaker 2

If you look at the performance of infrastructure, from just before the financial crisis in 02/2006 through 2024, the correlation to stocks is low, 0.3, and close to zero relative to bonds. That's really attractive to investors. Integrating infrastructure into a diversified portfolio not only generates good returns, but volatility goes down and you generate better risk adjusted returns. And that's really what LPs are looking at today, risk adjusted returns. Let's cover a bit more about diversification on the next slide, On the last slide, we covered how private infrastructure has proven to be resilient over cycles.

Speaker 2

But how is infrastructure and, more importantly, digital infrastructure performing today in these conditions? Here, even public markets are highlighting the defensive, low volatility performance of diversified digital infrastructure portfolio, with a large cap portfolio comprised of Big five digital REITs up 6% for the year, widely outperforming the broader market in AI centric indices. A lot of investors have just focused on AI and data centers and missed the strong year to date performance of the tower sector. It turns out boring is pretty cool during periods of market volatility. Again, the truth is limited partners want diversified exposure for exactly these reasons.

Speaker 2

Yes, they want growth that we're seeing across AI and cloud. That will continue to be a strong driver for our business in the near and long term, but they also love the persistence and the stability of the tower sector. That's how and why we build a balanced and diversified portfolio for investors. Yes, we build hyperscale data centers. Yes, we build private cloud data centers.

Speaker 2

Yes, we're building edge infrastructure. But you can't sleep on fiber, small cells, and mobile infrastructure, which is towers. It's no accident that we're not only the top three data center provider globally, but we operate a top four independent global tower portfolio, with 10 tower companies around the world today, and all of our tower companies are performing quite well right now. Today, public markets are only reinforcing what we know and our LPs believe, diversification matters. Next slide, please.

Speaker 2

Let's finish our business update covering a really interesting transaction we led and supported across our portfolio. As many of you know, last month, Zayo, a portfolio company in our first flagship fund, announced the acquisition of Crown Castle's fiber business for $4,500,000,000 It's an acquisition that increases Zayo's scale by over 50%, adding 90,000 route miles to Zayo's existing 147,000 route miles. This really creates a market leading fiber footprint that crisscrosses the entire United States. Even more importantly, that footprint is highly complementary, boosting sales capacity in a number of key metros, including Silicon Valley, Los Angeles, Chicago, Atlanta, and the Mid Atlantic. Many of these markets are critical to serving growing AI and cloud workloads, both for training and positioning the Zayo network to serve growing inference workloads with high speed, low latency, which is absolutely critical to our customers.

Speaker 2

It's a compelling transaction that we've been working on for many years, supporting Zayo's analysis and financing strategy, leveraging our experience and relationships throughout the industry to help close a highly complex transaction. What's most interesting to me and to Digibred shareholders is this is an accretive transaction with this acquisition, which effectively lowers our entry multiple on the transaction without requiring any additional new equity. In fact, as I told you earlier, it's a deleveraging event for Zayo. A lot of conversation around the Zayo capital structure, the bonds, the long term viability of the capital structure, we not only put that to bed with our securitization structure, we're now actually effectively deleveraging the balance sheet, derisking the asset and allowing it to continue to grow and perform. We believe this will drive better returns and more carry for our investors as this asset matures.

Speaker 2

So with that, I'd like to wrap up the business update, hand the call over to Tom to cover our financial performance in Q1. Thank you, Tom.

Speaker 3

Thanks, Mark, and good morning, everyone. As a reminder, this earnings presentation is available within the Shareholders section of our website. As usual, I'll start with our financial highlights, which Mark touched on briefly. In the first quarter, we recorded $90,000,000 of fee revenue, an increase of 24% over the first quarter of twenty twenty four. Our fee revenue in the quarter benefited from strong organic platform expansion and $12,000,000 of catch up fees.

Speaker 3

This growth in fee revenue helped us generate $35,000,000 of FRE in the quarter, an increase of almost 80% over Q1 of last year. We also delivered $55,000,000 of distributable earnings this quarter, which includes a $34,000,000 gain from the partial realization of our investment in DataBank and benefited from growth in recurring management fees. As of quarter end, our available corporate cash was $2.00 $1,000,000 providing material liquidity and flexibility for us as we continue to evaluate both our capital structure and opportunities to invest in and grow our business. Moving to the next page. Fee earning equity under management increased to $37,300,000,000 as of March 31, a 15% increase from last year and consistent with our guidance for 2025.

Speaker 3

This growth was anchored by a strong start to the year from a fundraising perspective, with $1,200,000,000 of new FEI paying commitments raised during the first quarter, along with the activation of fees on certain previously raised capital from co invests and our credit strategy, which typically begin earning fees once capital has been invested. This more than offset the step down in fees that resulted from the transition of our second InfraBridge fund from charging fees on committed capital to invested capital, which occurred in late December of last year, and we discussed on the fourth quarter earnings call. Turning to the next page, which summarizes our non GAAP financial results. Fee revenues for the quarter exceeded $90,000,000 annual growth of 24%. Our FRE margin was 39% in the first quarter, benefiting from 100 flow through on catch up fees.

Speaker 3

We expect FRE margin to remain higher in the first part of this year through the expected final close of our flagship fund in early Q3 due to the contribution of catch up fees. As mentioned earlier, the partial realization of our DataBank investment contributed to strong distributable earnings, in addition to the continued growth in fee related earnings. Stepping back, we're really pleased with our start to the year and the realization of principal investment income and carried interest, which we expect to become more consistent over time alongside the growth in management fees. Moving to the next page, which summarizes our carried interest and principal investment income, we reported a $5,000,000 reversal of carry to income during the quarter. As a reminder, the company accrues carried interest based on quarterly changes in the fair value of our funds investments.

Speaker 3

The reversal in our first quarter stems mainly from net increases in the fair value of our portfolio assets, which came in slightly below the preferred return hurdle on certain funds, resulting in a mark to market reduction in accrued carried interest. As we've discussed in prior quarters, carried interest compensation expense tracks these changes, and therefore, there was a commensurate reversal of a small amount of unrealized carried interest compensation this quarter. Principal investment income, which is accrued income and realized income earned on the company's GP investments in our various funds, was $5,000,000 Turning to the next page. This chart continues to highlight the stability and consistency in growth, both in revenues and margin, that we've experienced over the last two years. LTM FRE margin has grown to 35% as of the first quarter, which is consistent with our target of increasing our FRE margin by 200 basis points this year.

Speaker 3

This quarter, we saw $2,000,000,000 of fee and inflows, primarily from fundraising in our DBP funds and the activation of fees on co investments and in our credit business upon the deployment of capital that I discussed earlier. These inflows were partially offset by $300,000,000 of outflows largely associated with the DataBank transaction in which we and certain of our limited partners sold down a portion of our investment. Finally, the company continues to maintain a strong balance sheet with approximately $1,500,000,000 of corporate assets, largely reflecting our material investments alongside our limited partners and available corporate cash. Additionally, we have a fully undrawn corporate revolver and no debt maturities within the next twelve months. With positive free cash flow generation and strong liquidity, we're well positioned to deploy capital strategically to support growth in our business, and we continue to evaluate the appropriate capital structure for the company, including our preferred stock obligations.

Speaker 3

We're off to a strong start for the year, and we're very excited about the opportunity set that we see ahead of us. With that, I'll turn the call back over to Mark.

Speaker 2

Thanks, Tom. I want to finish today touching on the progress we continue to make building our private credit platform. It's one of the key strategies that's going to help drive 2025 performance, particularly in the first half of the year, and be an engine for growth over the coming years. Let's cover some of our goals, what our pipeline looks like, highlighting an interesting transaction we just led, and profile our team that has executed this great opportunity that we see in front of us. Let me start with fundraising.

Speaker 2

Here, we've got a tremendous pipeline. We have over 100 accounts working right now, evaluating our private credit strategies. We're looking to build on the $650,000,000 we've already raised in our second credit strategy. As I referenced earlier, in periods of market volatility, private credit's appeal naturally elevates. This year, in addition to capital formation, we're originating and closing new loans, and four have already closed year to date, And we're targeting to deploy up to $2,000,000,000 over the course of 2025, which in turn lights revenue, which is really important for our business plan this year.

Speaker 2

Another way we're scaling and leveraging our presence in the sector is through SMAs. You've heard this, of course, with many of our competitors who have long had the SMA strategy to grow and leverage their credit platform. TLPs want to invest additional capital alongside of our loan book. This allows us to syndicate down large loans very easily, and we generate incremental fee income, while at the same time strengthening our LP relationships and bringing them back around to our core products. It's a really virtuous cycle in terms of how LPs think about deploying capital in private credit, but also how they think about deploying capital in our other strategies.

Speaker 2

Finally, we're focused on top of funnel, building a pipeline of new loans where today we have over 90 discrete opportunities representing $13,000,000,000 in new loan origination. I'm not going to tell you we're going to close every loan and that we're going to ultimately activate $13,000,000,000 of new loan activity. But what I can tell you is we have a deep pipeline, we have a great team, and we're now really executing at scale in private credit. This is a really exciting development at Digital Bridge. So that's a high level of our plan for 2025.

Speaker 2

Let's go to the next slide, please. Let's talk about the state of play in digital private credit today and the opportunity that we're addressing. Here, our strategy is focused on the Skill Capital segment of the roughly $200,000,000,000 annual digital private credit opportunity. That's a TAM of over $65,000,000,000 for digital focused credit that fits our mandate. As the scaled specialist in our ecosystem, today, we've got a robust pipeline of $13,000,000,000 that we believe is actionable over the next twelve to eighteen months.

Speaker 2

These are largely proprietary deals, where we are engaged one on one with the company and the senior leadership team. Again, as the leader in digital infrastructure, CEOs count on us. They call us. They trust us. We've been doing it for thirty years.

Speaker 2

That operational capability, that know how, and being able to sit in that chair and look another CEO across the table and say, I've sat in your chair, I understand your capital structure issues, I understand your customer issues, and I understand how to support your business, is a conversation that no other private lender in the world can have. Again, it's about thirty years of operational experience and having experienced what those CEOs are going through today. Turning to the right, about two weeks ago, we led a really interesting transaction, a $500,000,000 debt facility at Allo Fiber, one of the largest pure play fiber providers serving 45 communities across the Mid And Southwest United States. It's a fantastic business. It's a business with a very strong reoccurring revenue base, low churn, favorable competitive dynamics, and we're backing a sponsor that we've known for a long time that has a distinguished track record in execution.

Speaker 2

What's really impressed us the most is the management team. Their CEO, Brad Malin, has built an impressive, high quality business with high market penetration and excellent execution. It's the perfect example of how we deploy Skill Capital in the credit space to support top management teams as they execute. And, by the way, that's pattern recognition. It's the same thing we do in our flagship equity product.

Speaker 2

We look for the best CEOs. When we find them, we get to know them, and then we back up the truck and we support them. We're really excited to support Brad and his business. We're refinancing some of the existing debt here and providing growth CapEx towards new success based fiber builds, with strong asset coverage and a unique insight into the trajectory of the business at the same time. Our ability to lead significant transactions like the Allo transaction activates NuFium, which in turn drives the growth of our credit platform and our corporate performance.

Speaker 2

Next slide, please. And again, I'm going come right back to people. It all starts with the team. Our people are the alpha, as I always like to say, and we're building the leading team in digital credit, starting with veterans Dean Carreras and Mike Zupan, who I recruited a few years ago along with my partner Ben Jenkins to lead the credit platform. It's a team with deep experience, with over twenty years of originating digital infrastructure loans, and the strategic execution capabilities to continue to scale our business and our private credit platform.

Speaker 2

As with other successful investment programs, we're supporting a dedicated team with deep expertise across our sector and across our organization. The ability to tap into the insights of our firm and the digital infrastructure ecosystem is second to none. And our team, as well as their existing portfolio companies, benefit from this combined expertise and experiences. So, we've got an experienced team that's executing, raising, originating, and closing loans in an attractive market, generating attractive returns for LPs with a lot of growth ahead. Bottom line, I'm really excited about the momentum that our private credit business is seeing.

Speaker 2

I believe it can scale into a three to four times its current size over the next few years. We'll continue to monitor this opportunity, and we'll continue to talk about private credit as 2025 evolves. Next slide, please. So, let's wrap up the call today, summarizing our progress across the CEO checklist I laid out at the beginning of the year. First, it starts with fundraising.

Speaker 2

With respect to our $40,000,000,000 fee and target, I'm confident we're on track to deliver here. As you saw this quarter, we had a solid fundraise on our flagship strategy, and the Allo deal I just highlighted activated NuFium to support continuing growth in the second quarter. We also feel really good about the progress we're making on our new strategies around digital energy, stabilized data centers, and the launch of a very distinct private wealth offering that centers on ecosystem investing in AI, which we believe is very unique and very differentiated for private wealth clients. More to follow here in the second half of the year, and that was the teaser. From an investment standpoint, we're continuing to support the growth of our portfolio companies across the entire ecosystem.

Speaker 2

And ideally, we'll be able to capitalize on some of this market disruption to acquire assets and businesses at better prices. This was on display in the quarter as we announced the Zayo Crown Castle transaction. By being patient and not overpaying and ultimately working hard for over a two to three year period, we eventually were able to land that asset in the right price that was accretive and most importantly, really builds our investment case, and most importantly, grows carried interest for you, our investors. Finally, I'm focused on continuing to scale Digital Bridge, driving double digit revenue growth and expanding margins. This quarter was a great example of that.

Speaker 2

Revenue was up over 20% and earnings almost up 80 year over year. This is phenomenal performance. These are the benefits of being exposed to a rapidly scaling business with lots of growth potential in a sector benefiting from secular tailwinds. And at the same time, we remain committed to improving our margins, something that both Tom and I laid out for you in the last quarterly call that we're going to make our business more profitable, and we're going to make it more efficient, and we're going to outperform the markers that we put out on the road for you, our investors. We'll look forward to connecting with you again next quarter and updating you on our progress towards our 2025 objectives.

Speaker 2

I really think this is another solid quarter where we delivered strong performance, and most importantly, continue to grow our asset base and continue to deliver on what we think is the most interesting value proposition in digital infrastructure today on the globe. I deeply appreciate your ongoing interest in Dittoridge. And with that, I'm happy to open up the call to Q and A. Operator?

Operator

Thank you. We will now be conducting a question and answer session. You may press 2 if you would like to remove your question from the queue. First question, Rick Prentiss with Raymond James. Please go ahead.

Speaker 4

Hey, good morning, everybody.

Speaker 2

Good morning, Godfather. How are you?

Speaker 4

I'm great. Hey, a couple of questions. One, I know you said you're on track, but just wanted to get at. So we're saying basically reiterating the guidance that total company FRE grow 10% to 20%, forty billion fee 34.5% FRE margins. Is that fair to say that those three key guidance items are maintained and reaffirmed today?

Operator

Yes.

Speaker 3

I think I said in the fourth quarter that we expected kind of the performance to be a little bit front loaded, but we are very comfortable with the guidance for the year.

Speaker 4

Yeah. And that front line, obviously, the catch up fees. Yeah. Okay. Just always like to get that out because if we don't see it explicitly, people always get nervous.

Speaker 4

One question I've got for you, obviously, appreciate that chart, Mark, on the market volatility, tariffs, and trade policy, short term, long term impacts. What does it do to potential carried interest events? I know you guys have talked about wanting to make that more consistent, hoping you might have a couple this year, but how is the market volatility impacting your thoughts on the timing and likelihood of carried interest events this year?

Speaker 2

Well, I think we see deal making has slowed down a little bit in The U. S. But interestingly enough, in the rest of the world, as you saw yesterday from David Solomons at Goldman Sachs, dealmaking is up globally over 50%. So it's very interesting that dealmaking is down in The U. S, Rick, by 30%, and that global M and A is up 50% rest of the world.

Speaker 2

So, you know, this has happened in times before. Go back a couple of years and you saw deal making in The US slump a little bit and rest of the world came up. And I think the key to us, Rick, is that we're a global firm today. We are not a US only firm. And so when you look at our assets and you look at our portfolio and we look at places where we think we can get liquidity, we don't have to look just here to The US.

Speaker 2

We've got great businesses in Latin America, Europe and Asia. We get inbound inquiries every day for the 50 plus portfolio companies that we own. And when we do search for carried interest and liquidity this year, we are still looking in The U. S. There are some interesting things that we see in our portfolio that others value.

Speaker 2

So we have a series of ongoing strategic reviews across a number of companies that could produce some really good results. You know, as we've always said, Rick, carried interest right now is episodic, but the goal is, you know, moving into this year and into next year is to move it from episodic into consistent. So we do expect, you know, some carried interest to be delivered this year. I can't give you with any precision given NDAs and processes that are ongoing, which portfolio companies are going to monetize. But we do have confidence and conviction that we can create those outcomes.

Speaker 2

Now, the guidance that Tom has given you does not include any significant carried interest this year. We were very clear about that when we set the guidance last year that that range of FRE was not going to have any material carried interest distributions for 2025. We do have some things that are happening in one of our portfolio companies in Europe that will trigger some carried interest. But you know, by and large, I would say Tom, we're not expecting with the guidance we've given The Street, there's nothing here that it would be a beat to the guidance essentially.

Speaker 3

Yes. And I wouldn't necessarily interchange principal investment returns in carry, but from our perspective there are some similarities. And we did have the data bank exit in Q1 that kind of doesn't flow through FRE but it's distributable earnings and sort of we were really pleased with that.

Speaker 4

Makes sense. Last one for me. You guys still trade a pretty significant discount to your peer group. Obviously, skill important to get scale. You touched on that a little bit, but help us understand what steps you can do to try and close that disconnect.

Speaker 4

I think there's a disconnect, but maybe dispersed. Do you see the disconnect and how can you close that disconnect?

Speaker 2

Well, think the disconnect last year was, you know, we set a guidance target that didn't carefully plan for impact of timing around fundraising. And I think this year, we've done the opposite of that. We've put out a guidance that carefully does think through the timing and ultimately the delivery of the FRE as it plays out in Q1 and Q2. And you know, we've delivered a strong Q1. We anticipate delivering a strong Q2.

Speaker 2

And you know, I think from our perspective, it's about execution, Rick. Investors want to know that Digibridge can be trusted to execute against its fundraising targets, its FRE goals, and ultimately, we want to be a consistent distributor of earnings at some point. That's a real key for us. I think Tom's done a great job creating strong liquidity. You see the distributable earnings are up significantly year over year this quarter against last year first quarter.

Speaker 2

And so that consistency and that execution is going to be what will really carry the day. Certainly, we can scale, we talked about private credit in our presentation today, Rick. We're really bullish on private credit. We've got a massive, you know, loan pipeline of over 90 loans, dollars 13,000,000,000 in the backlog. You know, we've got an easy target to hit of $2,000,000,000 of loan origination this year, which we think we can exceed.

Speaker 2

And we've got a great team. And most importantly, management teams trust Digital Bridge. You know, when we're sitting across the table from a CEO and they're borrowing money from us, they're not just getting money, they're also getting our mind space, our thirty years of experience. And you know, we think that's a swim lane as you've heard from other asset managers, whether it's, you know, Aries or Apollo, private credit is here to stay Rick. And having a team that is the expert in private credit, similar to what we've done in equities for the last decade, we think that's a big place for us to scale.

Speaker 2

That's a huge area of white space. We've obviously talked about power. We've talked about stabilized real estate and data centers. These are big areas of growth. As we scale this year and prove out that those funds and those, not funds, but strategies can work for us, that's going to really be a proof point for investors.

Speaker 2

Scaling the business into power that's adjacent to data centers, and being a clearinghouse for stabilized data centers, these are big ideas that we're currently executing. And I think as we execute those ideas and we execute against, you know, the earnings and FRE growth, investors are going to come back to us. And look, investors are voting with their wallets today, Rick. You've seen that in cell towers here in the last thirty days. You know, in the moments of the storm, in the moments of volatility, what we find is that it's, you know, digital infrastructure is the place investors want to be.

Speaker 2

It's uncorrelated, long term contracts, escalators, and us running a global firm, you know, where we have somewhat immunity to tariffs as we build out in different parts of the world and we're regional, it really gives Digital Bridge a huge advantage to scale in this year. So we're very excited about what we're doing. And I think investors will come back to us this year and we'll close that gap pretty quickly because the stuff that we're doing is differentiated vis a vis our peers. And so this is a great opportunity for us to close that gap.

Speaker 4

That makes sense. Appreciate it. The focus on communication we like and the focus on what industry you're focused on is really good too. I appreciate it. Thanks, guys.

Speaker 2

Yeah, thanks, Rick.

Operator

Richard Cho with JPMorgan. Please proceed.

Speaker 5

Great. Two quick questions. One, you talked about the delays in LP decision making, but kind of what are you hearing more recently? I know it's only been a month of real volatility, but any more insight you can give on what you're hearing more recently from potential investors? And then two, are you seeing some shift to investor interest in towers and a little bit away from data centers overall?

Speaker 2

Yeah. Good morning, Richard. How are you? Thank you for your questions. Let me start with the first one, which is just around fundraising.

Speaker 2

We've been on the road for the last thirty days, the top partners in the firm sort of in Asia, Middle East, Europe, here in North America. I was in Canada last week seeing all of our LPs in Canada. And look, investors are still allocating. I mean, that's the key. We closed fund commitments in the last couple of weeks during this moment of volatility.

Speaker 2

And talking to investors directly, they really haven't changed their allocation strategy for twenty twenty five. I would say there's been in the two eighty plus investors that are currently in diligence across our various fund products, We've only had two investors come to us in the last thirty days and say they're on pause. That feels pretty good actually. I was expecting more, to be honest with you, and it just hasn't manifested itself. I think at the end of the day, the people that we deal with, Richard, are large institutions.

Speaker 2

These are sovereign wealth funds. These are pension funds. You know, they set their commitment schedules well in advance. You probably saw a press release from the State of New York last week around their allocation policy for this year. Their board met last week, and they're proceeding with private markets and Digital Bridge is one of their choices.

Speaker 2

So we're really excited to have, you know, New York State Teachers Retirement System in our flagship fund. And this is what's happening. People are still committing. Why are they committing? What is the intention?

Speaker 2

The intention is people want to be exposed to digital infrastructure. And particularly our current strategy, our third fund strategy is about ecosystem investing, which is of course you said it right Richard, towers. People are coming back to towers. We're investing in fiber. You've seen some of the activity that we've done in fiber in this quarter, where there's the Al alone, the Zayo transaction, or one of the investments we made in fund three and fiber.

Speaker 2

And so it just doesn't have to be a data center narrative. AI is more about than just building data centers. Now, at the same token, we've actually not seen a material retreat from data centers in our business. In fact, we took commitments into co investment vehicles in this quarter in our data center, you know, in some of our data center platforms. So, our data center businesses are growing.

Speaker 2

We had a fantastic quarter in terms of performance. We can get into that a little bit at some point if you wish. But what I like the most is what I heard from my customers in the last forty eight hours. Particularly, I loved the print from Microsoft. I loved what Zuck had to say about they're doing in terms of their intention for CapEx, moving their CapEx guidance up.

Speaker 2

Our customers are not retreating. You know, whatever narrative that the press wants to put out there that data centers are in a retreat, the arithmetic completely does not support that view. You saw it in full bloom with Digital Realty and Equinix. You're seeing it here today with DigitalRidge and our results. People are allocating.

Speaker 2

Investors are putting money to work, and our customers are putting money to work. So the data center thesis is 100% intact. I know it was really easy to take a punch at it last quarter in terms of what was happening between Microsoft and OpenAI and some of the commentary around what Alibaba had to say, but the math just doesn't lie. And investors are continuing to deploy capital in digital infrastructure. Most importantly, Richard, they're putting capital to work with us.

Speaker 2

And that was on display in this quarter.

Speaker 5

No. It makes sense that maybe there's some move away from US equities, could easily go to global private equity platforms and digital infrastructure. Okay. Thank you.

Operator

Next question, Randy Binner with B. Riley Securities. Please go ahead.

Speaker 6

Hey, thank you. I was wondering, Tom, if you could review on carried interest, the mark to market impact. I missed that in the opening commentary, and I think that'll be a question we'll get from some investors. But just a little bit more color and detail on how that mark impacted where carried interest came through the income statement.

Speaker 3

Yeah, sure. Our marks were sort of broadly flat, a little bit up in the quarter, but kind of right around a little bit less than what the preferred return hurdle was for the quarter. So the value of the assets were up a little bit, but a little bit below the preferred return. So we gave back a little bit of accrued carried interest, if that makes sense.

Speaker 6

Yeah. And then how do you expect kind of pulling everything together from the call here and a good outlook and kind of a stabilization after this pause and kind of your markets, how would you expect that line item to progress as we go through the year and as you all perform on these goals you've laid out?

Speaker 3

Yes, look, I don't really expect any meaningful disruption from the sort of short term volatility that we've seen. Our assets are long term assets. They have long term business plans, long term cash flows. So I would not expect sort of any unusual trends in terms of the asset values over the course of the year.

Speaker 6

Yes, I guess I'm getting to is when would we be able to expect that to turn more positive?

Speaker 3

Yes, look, mean, go through the process sort of on a quarterly basis. We feel good about our assets. We believe they'll continue to appreciate, but I'm not going to project sort of future values of assets or kind of carry, but we sit down every quarter and do a rigorous process, and we'll do that again towards the end of this quarter. And we feel good about the assets that we have.

Speaker 2

Yeah. I think also it's a philosophy around here in particular, which is we tend to be very conservative on how we mark our assets. Our framework really relies on three methodologies that we're not going to change. Since I started the firm eleven years ago, I've never changed our asset management framework. I've never changed our valuation framework.

Speaker 2

We have an independent committee that does that work. I'm not on that committee. We don't put our investment management team on that committee specifically. And we allow at the end of the year, we allow E and Y to audit our results. We take our marks very seriously.

Speaker 2

And I think, you know, the genesis of that is having numbers that are credible. And so when we do go to sell assets, like if you look in the past at you know, whether it's Vantage Towers or whether it was Wildstone, we sold those assets anywhere from 27% to 40% premium to NAV. And everything we've ever sold since the inception of the firm, we've had an average of 25 to 40% premium to NAV. And I think that's important. It's important to mark your assets realistically.

Speaker 2

We're not paid on paper marks. It's really important. I know some funds actually get paid. They pay themselves quarterly on their paper marks. We don't do that.

Speaker 2

And I think having that transparency and having that independence in how we mark the assets really gives our LPs a lot of confidence that when we do publish our NAV, it sticks and it's defensible. And so that's been our track record. I think obviously, like what Tom said, we have a lot of confidence in what we're doing. Some of our portfolio companies really are performing well right now. And we'll revisit that in the second quarter, but we also don't want to get too exuberant at the same time.

Speaker 2

I think there's a lot of really positive things happening at Zayo. There's some incredible things happening at Switch. There's amazing things going on at Vertical Bridge right now in U. S. Towers.

Speaker 2

But again, it's about consistency. It's about being conservative. And it's about creating a framework that when we do go to monetize those assets, we have that premium to NAV. And we like that architecture better. And we think it's a bit more authentic, I guess, is the word I would use.

Speaker 3

Yeah, again, and, you know, what we say they're worth today matters, but what's more important is what we actually sell them for. Yep.

Speaker 6

Got it. Okay, that's great color. Appreciate it. Thank you.

Speaker 2

Thanks, Randy.

Operator

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

Speaker 2

Hey, Jonathan.

Operator

Jonathan, your line is live. Hey, we will move on to Jade Rahmani with KBW. Please go ahead.

Speaker 2

Hi, good morning. This is actually Jason Zapshon on for Jade. So just one question on the fundraising outlook. Perhaps have you seen any shift in LP interest more towards credit strategies versus the flagship funds in the current macro environment? Thanks.

Speaker 2

That's a really thoughtful question, Jason. Thank you for asking. I was hoping somebody was going to ask that today. We've actually seen an uptick in terms of the pipeline in credit. We have over 100 LPs now working on the credit fund which is fantastic.

Speaker 2

That's up over 50% from where we were same time period ninety days ago. So, I think the performance of our first credit fund was really spectacular. The performance of the second fund is working really well and investors see that. But I think also Jason, the magnet is the opportunity to co invest, as I said on the call today. The chance to work with new investors on an SMA structure is something that's super undervalued I think in our business today.

Speaker 2

And the Yellow transaction is only one of many transactions that we've closed this year and we're closing other transactions. So think what gets lost a little bit in the print is obviously we're excited about the deep pipeline of interest in the credit fund. We highlighted that, that there's over 100 accounts working in the data room. We've closed $650,000,000 in commitments. We feel like we've got really strong line of sight to hitting the fund target and exceeding the fund target.

Speaker 2

But what's not in that print is the SMAs. And what I really liked about the Allo transaction is at the end of the day, we put $70,000,000 from the fund. We did $430,000,000 in SMAs. And those are new investors that are not in the fund. Some are in the fund, but there were a lot of new logos there.

Speaker 2

And now they're looking at the fund. And so interest has gained in private credit, Jason. But remember private credit investors are not the same investors always that look at flagship. So for example, you have insurance companies really looking at private credit and a lot of those insurance companies don't go into our flagship product, where you see pension funds, sovereign wealth funds, fund of funds and family offices. So both strategies are working quite well.

Speaker 2

And as we wrap up the flagship fund, we'll put all of our energy to the end of the year in credit. And then at the same time as we launch digital energy and we launch the, you know, data center income fund strategy, data center income strategy, you know, we're there. We're fishing in different pockets as well. I think this is the key to our fundraising program today, Jason, is the diversity at which we're fundraising. Much bigger team today, 38 people.

Speaker 2

We're still adding people to that team. And the importance is in flagship there's a certain set of investors that are infrastructure investors. In digital power, we're looking at people that are allocating to new forms of energy and energy transition, which is actually a different sleeve than infrastructure at most major pensions and sovereign wealth funds. Then in the, you know, data center income strategy, we're solely focused on real estate investors, which again is another pool of capital. And then we get to private credit.

Speaker 2

Every major LP in the world has a different team that works on private credit. So this very surgical approach to fundraising is working. We took in allocations in this quarter in credit and in flagship and in co investments and SMAs. And that's really important. The fact that we're hitting on all four of those cylinders at the same time gives us a lot of optimism as we work into the back half of this year, finish out our flagship fund, finish out Credit two and launch the new strategies.

Speaker 2

We've never been more organized from a fundraising perspective. Our team leaders know where they're going. They know how to approach accounts. And that's what's giving us all this conviction around our performance for 2025. Great.

Speaker 2

Thank you. Thanks, Jason.

Operator

Next question comes from Anthony Howe with Truist Securities. Please go ahead.

Speaker 2

Good morning. Thanks for taking my question. Mark, can you bridge the gap between total capital that's signed and committed and the portion that's currently fee earning? So in other words, how much the committed capital has not yet commenced and therefore sits outside FEON? And what timing should we expect for those dollars to start generating management fees?

Speaker 2

So today that number is at $4,000,000,000 And as we deploy that capital into specific co investments, which are portfolio companies that are lighting CapEx every quarter, we build into fees. And then of course credit. Credit's the big one. And you saw that on display this quarter. You know, had a great quarter, almost lighting a billion dollars of new loans.

Speaker 2

We've got a strategy to do $2,000,000,000 We think we're going to exceed that obviously. But credit is really the big driver of lighting up Nucym in Q2 and Q3. And so as we originate loans, at the same time we're also lighting in parallel path SMAs, like I talked about the Alo loan. And so you're going to see more of that. I think what we're telegraphing to you is that, you know, one of the areas where we could be a slight beat or a surprise would be in lighting new loans and lighting fee and credit.

Speaker 2

And then of course, as you look at, you know, big co investments like Switch, Yonder, Vantage, DataBank, you know, we have a significant amount of commitments lined up there. And as we light those commitments and we light up new construction, we're going to light up fees. And that's important because in data centers, as you know, it requires a lot of CapEx. And you know, today we've got, you know, we're in the process of building out over 2.3 gigawatts of data centers. And so that's a lot of CapEx that's going to be lit in the next, you know, twelve to eighteen months.

Speaker 2

And, you know, that 2.3 gigawatts for the leases that are currently signed but not yet commenced. And so that requires a lot of CapEx and we're going to light AUM and we're going to light FEM at the same time. So, this backlog of leases that sit in data centers is huge. The backlog of loans is significant. And so, there's a lot of fee on that's going to be activated here between now and the end of the year.

Speaker 2

That's already capital that's committed we don't have to raise. I don't know Tom if you want to give any color.

Speaker 3

No. It is disproportionately co investment and credit in terms of the kind of fee rates, but nothing else to add.

Speaker 2

Thank you.

Operator

Thank you. I would like to turn the floor over to Mark for closing remarks.

Speaker 2

Well, I want to thank everyone for their interest today in Digital Bridge and your continued interest in digital infrastructure. I think it was a really solid quarter. We came out. We executed. We delivered exactly against what we told you we would deliver, probably a little bit of a beat to what the expectation was.

Speaker 2

I'm really proud of our team. The team is working harder than ever across fundraising, asset management, new deal execution, and you know, importantly, for our shareholders at the end of the day. You've seen the performance year over year up versus last Q1. Fundraising was up. Distributable earnings was up.

Speaker 2

FRE was up. FEM was up. Every metric that matters to you as a shareholder is up year over year. It's important to note that we still have strong conviction around the things that are happening today, particularly in the data center landscape where you've seen our peers, Digital Realty and Equinix, put up strong numbers. Well, we did the same thing.

Speaker 2

We also put up strong numbers. Our pipeline, in terms of the amount of activity across our data center portfolio today, sits at 9.9 gigawatts. This is up 38% year over year. 38% interest is up across our data center portfolio around the globe today. That is not a contraction.

Speaker 2

That is an acceleration. You've heard it from Microsoft. You've heard it from Meta. You're going to hear it from the other hyperscalers. The AI economy is not slowing down.

Speaker 2

In fact, it is accelerating, and it will require mission critical infrastructure. The way we think you need to play mission critical infrastructure is with Digital Bridge. We are, we believe, the most diversified global builder, owner and manager of digital infrastructure. And you're proving today, as you've seen in tower stocks and you're seeing in data center stocks the last few days, that these assets hold up in times of volatility and market uncertainty. We're going to continue to work hard for you.

Speaker 2

We're going to continue to keep fundraising. And our expectation is to continue to deliver outperformance against our guidance. Thank you for your time today. We look forward to engaging with all of our investors over the next few days. And again, we appreciate your interest in Ditto Bridge.

Speaker 2

Thank you.

Operator

This concludes today's teleconference. You may disconnect your lines, and have a wonderful day.

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Earnings Conference Call
DigitalBridge Group Q1 2025
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