Hi. I would like to welcome everyone to J.P. Morgan's 51st annual Global Tech Media and Communications Conference. My name is Richard Cho. I am part of the communications and media team here at J.P. Morgan. I'd like to welcome Jacky Wu, CFO of DigitalBridge. Thanks for being with us today.
Thank you.
I just wanted to start because a lot has changed with the company over the past year. You've, I guess, simplified and focused the business, added on a business. Can you give people a sense of where DigitalBridge is today and, I guess what there's left to do in terms of completing the plan that you've set out to focus on?
Sure. We're principally a leading, global alternative asset manager focused on digital infrastructure investing. We're over $65 billion assets under management, nearly $30 billion of fee earning equity under management. We've got 44 portfolio companies across the globe, and that's principally our book of business.
We do have a digital operating segment, like a REIT, no different from, you know, Equinix or those guys, but it's our equity interest in DataBank and Vantage. We have our plan to deconsolidate those businesses by selling down a little bit of our stake on those businesses, and we'll be singularly focused on alternative asset management. That should be done by really the end of the summer this year.
Got it. In terms of at that point, you'll be able to deconsolidate some of the debt, and I think, some of the investors that look at DigitalBridge see a very highly levered balance sheet, which isn't the right way to view it. Can you walk through, I guess, a little bit on, how investors should view the pro forma balance sheet and debt level?
Yeah, sure. On our books, if you just pull up the balance sheet, it looks like we've got over $5 billion of debt, but almost all of it is associated with Vantage and DataBank. They're great businesses, and that's where they can support asset-backed securities and debt levels at the asset level, at a higher clip. We really only own 13% and 11% of Vantage and DataBank.
Because of the consolidation rules, it looks like we've got over $5 billion. Once we sell down below 10%, most of that debt goes away and we're left with really our $300 million fee securitization that's on the corporate balance sheet. That puts our leverage ratios in the low single digits, which is commensurate to other alternative asset managers.
I think there's still some non-core assets that you can sell to even kind of provide more liquidity. What can you know, give us a sense of how much that is and what that process, where we are in that process?
Yeah, sure. You're literally only talking about less than $50 million left associated with legacy assets. Almost everything has been sold. We monetized the BrightSpire position, actually with the help of J.P. Morgan in a cleanup trade. You know, really all the other things like hotels or healthcare have already been sold down. We've only got a little bit left, little less than $50 million.
To kind of finish up the conversation on digital operating and the deconsolidation, there's been, I guess, some view that data centers are a bad business and things aren't going well. It's very levered and commodity-like, but Vantage and DataBank have done very well. Can you talk a little on how they're doing and maybe in the recapitalization that was done with DataBank as a example of how the business is?
Yeah, sure. Our, our data center businesses continue to perform very nicely. DataBank in a recap, which was announced last year, with our anchor investor, Swiss Life, effectively got a valuation of over 30 times, which is a huge markup to what we entered the market in, when we acquired DataBank, on the balance sheet.
That's a testament to how well these businesses have done. Our perspective is it's a flight to quality. If you've got good assets, good data centers, great customers, long duration of contracts, you're gonna trade very well.
They're very well built, and they are growing very consistently and well. We're very pleased with our data center businesses, and we really can't comment on some of the other guys that are not seeing the growth that we're seeing.
I think, on the call, you mentioned that the bookings number and you reported some of the bookings has been really strong.
Very strong, yeah. Over 10% year-over-year growth in terms of monthly recurring revenues year-over-year on the data center segment across the globe for us. Our bookings are at a higher rate than has been in the past.
We do believe that our customers, whether it's hyper-scalers or other trusted customers, are preferring to work with us versus going to build it on their own, and that's helping with the bookings pipeline as well.
My last question regarding it is, would you be selling down to people or firms already invested in the properties, or are you looking for outside buyers or-?
I think both. I mean, the most natural buyers would be the folks that are already in existing investors. They're great assets. We certainly wanna keep our stake in it too, but not to the degree that it requires us to consolidate $5 billion of debt on our balance sheet and confusing the heck out of a lot of investors that are just looking at our balance sheet and trying to understand the stock.
Got it. Focusing on the core investment management business, I guess you've guided to $8 billion in fee increase this year. I think the timing of that, I guess is a little uncertain in that it depends on a few things. How should investors see the timing of that $8 billion raise in general? That don't know the business that well.
Yeah, sure. In alternative asset management space, under rules, you typically only announce 1 or 2 or 3 closings at a time. You typically aggregate them. You're only allowed to do it 1 or 2 or 3 times. You can't do it every single time.
The second piece of it is, if you look at the last time we fundraised a flagship product, which was our DBP2 fundraising in 2021. It spanned about 18 months. We started in 2020, middle of 2020. We closed December 31st of 2021, the cadence of when we announced it were pretty lumpy, too, right? That's natural because of that 2 or 3 type of closing announcements that we did.
It was a pretty cricket, you know, quiet first 1/4 and then, you know, we did a big unveil in that middle of 2021, and then we got to a final closing at the end of the year. I would kinda guide folks to looking at that as a, as a, as a nice proxy to what it should be like.
Got it. 1 of the acquisitions you did was of AMP, and it's part of the, I guess, InfraBridge funds under DigitalBridge. Can you talk through what it brought you and what those funds look like and how they should grow as part of DigitalBridge?
Sure. It, it really centers around our digital plus and small and midcap strategy within digital infrastructure. We're very pleased with it. It added over $5 billion of fee-earning equity under management, about 20%. It gave us $30+ million of fee-related earnings. The yields on that day 1 is well over 10% double digits.
If you look at just what we acquired in the investment management platform, you're talking about almost 20% yield. It was a great price. It gave us a distribution team in Asia, so it added a lot of LP presence as well for us in Asia, and that's a big focal point for us in our future of products and strategy, and we're very pleased with that region.
It gave us a distribution channel in Asia, it also gave us, you know, investment talent, specifically in the small and midcap space. Which we feel like our flagship products have almost outgrown. The average check size in our flagship funds is about $1 billion. We're looking here is something in that $300 million-$500 million check size range.
Okay. I guess you still have the core strategy for the bigger stuff, but this can address a lot of smaller needs.
Exactly.
I guess in terms of where you're seeing opportunities around the world, and we can go into different parts later. In terms of, I guess, the U.S. versus Europe and Asia, let's just start with the U.S. Where do opportunities seem the most promising? I know residential fiber was not a focus but has become a little bit more so. You've mentioned data centers, towers have been a focus. Can you talk through maybe some of those initiatives?
Yeah, sure. I mean, what we've invested in, most recently within the U.S., if you look at our Switch acquisition, we're very long in terms of the enterprise private networks. We think there's a huge opportunity there, especially as large enterprises look to build data center capacity or requirements and edge compute needs, and compute power needs for their specific businesses that can't be replicated in the public cloud.
We're very excited about those opportunities. Sectors like healthcare, banks, transport, they're ripe for a Switch, that type of product set. We're pretty long on that. mobile edge compute continues to be something that we're very interested in.
As, you know, certainly AI, especially as that 5G continues to densify, as new demand applications comes about, that's gonna require more mobile edge compute needs as well. We've been very long on that sector. On the tower side, you know, we'll continue to invest in our flagship towers platform, Vertical Bridge.
It's doing very well in terms of having great customer relationship with Verizon and AT&T and T-Mobile, and really supporting the 5G densification requirements and needs for the carriers there. That's our focal point in the U.S. side. We are looking at fiber opportunities for sure. We do think that pricing has come down pretty materially, to the degree that it could be interesting. We obviously like the wholesale dark fiber aspect of things versus resi.
To the degree pricing makes sense, we'll definitely look at it.
Something We had American Tower and SBA earlier, and they talked about U.S. build-to-suits. Not to focus on too many of your portfolio companies, but this one's kind of made some news with Vertical Bridge and the Verizon deal.
I think there's some view that, you know, is this a good deal? What makes it a little bit different than others? Are you worried about, and this can kinda go with the resi part, that you're competing in someone else's backyard...
Mm-hmm.
-in this case, other tower companies. When you're looking at investments, how much of it is an opportunity to grow versus take share? How is Vertical Bridge looking at the build-to-suits?
Yeah, sure. I mean, our perspective on build-to-suit partnership with Verizon is that Verizon historically has been a leader in terms of, in terms of getting their cell site de-deployments out faster than others. I spent 4 years at American Tower, you know, almost a decade at Verizon.
Just put that into perspective in the sense that when Verizon is already on a tower, typically others follow, because they are earlier and faster adopters than others. That gave us an opportunity to build great towers, get more in bed with a top-tier carrier in Verizon, and also know that we're gonna get really good lease-up activity from it. I think that's another testament to how we build our businesses. We're not adversarial with the carriers.
We try to strategically partner with them, and we think that we can build some win-win solutions there, and that's what that was.
No, that makes sense. You mentioned Switch, but just in looking at your platform of companies, is there a synergy between the companies, or is it more kind of being able to move capital around and invest in the different growth areas that it might be 1 segment or industry 1 year versus another? I guess you did talk a lot about greenfield capital deployment versus necessarily growing through M&A for your companies.
I think that's the secret sauce, and that's what we're most excited about at DigitalBridge. We're not just an ordinary alternative asset manager, where we just look at balance sheets and financial statements and look at hedging and looking at a diversification of assets.
We actually all come from a background of being operators, owners, network builders within digital infrastructure or digital TMT companies. We understand and we feel like we understand well, not just the customer's needs, but why they need certain things, how networks are built, and what's good versus bad. Having that operational expertise, it gives us, we believe, an operational and a strategic advantage when we are investing.
Why we do what we do with not just having all these different asset classes within our family of funds, not just because of the diversification, but because we believe in a couple things. 1 is, over time, with demand applications, with autonomous electric vehicles, with telehealth, with content, with AI, there's gonna be more convergence opportunities across the different assets.
You need all these asset classes to make it work, and ultimately, satellite needs to be fully incorporated as well to make a lot of these things work, whether it's lower latency with delivery of content, whether it's, you know, powering autonomous electric vehicles, those types of things, there needs to be that convergence. Having that family of different portfolio companies specializing in these type of asset classes allows us to do a couple things.
1 is certainly for customer relationship building with our end customers. Having the consortium and partnerships with our portfolio companies to kinda go up to Verizon or go up to Amazon and give them a comprehensive package, I think is certainly revenue synergistic.
From a procurement and cost perspective, there's various aspects to get better pricing from a cost synergies perspective across our portfolio companies. And also idea sharing at the end of the day, and the learnings associated with our end customers. We believe we're a market maker in digital infrastructure because of that expansive platform beyond just the diversification of the assets.
Got it. It seems like in the U.S., most of the opportunities are organic, CapEx deployment, and you mentioned Switch earlier. Is that fair to say that it's less M&A driven and more organic for the U.S. business?
We think so, I think it's because also we already have invested in great platforms and management teams in the U.S., right? We've got a premier towers platform with Vertical Bridge and Alex Gellman and Ron Bizick and the team has done a phenomenal job. We've got a great team in Raul Martynek and DataBank. We've got a great team with Sureel Choksi at Vantage.
We're investing in them. We're betting on them. We're pleased with that in the U.S. In other countries, however, and we're very long in Asia, we continue to invest in Europe, but we've seen Asian or allocation of Asian investments actually now almost be equivalent to that of Europe, is because there, we're now just starting to invest in new platforms. In those regions, a bit more M&A.
Mm.
There's still a lot of greenfield opportunity there, but a little bit more M&A. In the U.S., more greenfield.
I guess, as you look out, of your investments, where do you expect the mix to kinda trend to? Do you expect Asia to become a lot bigger than Europe over time? Is there a significant opportunity?
We think certainly right now with the dynamics with Ukraine, but also with inflationary pressures being a little bit more prominent in Europe, some of the geopolitical issues in Europe is a bit more pronounced than Asia.
That's allowed for us to say, well, as we're looking at new vintages of our flagship fund, we made the decision to be a little bit more long in Asia. If you look at our Fund 1, we were not in Asia at all. Fund 2, we allocated about 15%. Going forward, it's 25%-30%. We like Asia for a couple reasons. 1 is the. It's a huge region. Secondly, you can really build a very balanced portfolio in Asia.
You've got core OECD-type countries with Japan, Korea, Australia, Singapore, Hong Kong, Taiwan, but you can also mix it with really great growth opportunities in EMs, Malaysia, Indonesia, the Philippines, for example.
That type of mix gives us that balance that we look for when we're doing fund construction. There's a huge amount of growth opportunity with Asia, and also the underlying segment health is very strong there. You have 3 or 4 major customers, well, pretty equivalent in terms of market share and sizing that compete very well against each other. It's a pretty healthy market in Southeast Asia.
In the data center side, it seems like a lot of the growth in general is driven by the cloud providers wanting to land in new places. Part that's been talked about a lot is going into South America for some of the cloud providers. It seems like they're just starting to consider Asia. Do you see more of the near term Asia opportunity related to data centers, or are there also tower opportunities? How should we think about Asia?
I would say we're long on both. If you look at what we've done in fund 2, for example, we really launched Vantage Asia as our flagship hyper scale platform in Asia. Then we also launched EdgePoint Infrastructure, which I happen to be on the board of, and we're very long in cell towers, and they operate in Malaysia, Indonesia, Singapore, and in the Philippines.
We're long on both, for sure. On the data center front, we're seeing a lot of activity with submarine cabling across the Pacific and new investments there, which means that there's gonna need to have hyper scale data centers right around where those entry points are landing in Asia. I, we're very bullish on that.
The other piece of data centers that's interesting in Asia is it's almost neutral territory where you get Microsoft, Amazon coexisting with the Chinese hyper scalers, which have a significant presence, whether it's Tencent, Alibaba, Fosun, et cetera. It's really a nice, you know, environment for us to incubate growth, and that's why we went long on the data center side in Asia.
The tower side, you know, you're seeing really good balanced market share, right? Whether it's Digi, whether it's DITO launching a third carrier in the Philippines, whether it's continued growth at Globe or Telkomsel. They're well balanced. They're really launching 5G now. They still have 4G and coverage needs that need to be built out. From a cell tower side, we see a lot of growth in those markets.
The consumer ARPU in those sectors are pretty healthy. Unlike, you know, the India market, which has seen a lot of degradation in margins. These other countries that we're in has been very healthy, we're long there.
I guess in mentioning India, is there any part of, in terms of the different types of businesses you invest in that you find India at all attractive right now? Because it seems like towers is not at the forefront right now.
I'll let you ask American Tower that question, I guess. Look, I think that the data center space in India, how we enter markets is typically following the logos, right? By building out a strategic relationship with Amazon or Microsoft, for example, we guarantee our investors get a good return off of it, and it's anchored by 1 of those customers, and we have a local team that we can feel like we can win there, then we'll go and do it, right?
Those things need to check. India has been a tough market for a lot of folks who have entered in it. Not to say that we won't ever, but we gotta make sure we check those boxes for us to build that environment.
I think data centers is probably the more likely asset from that aspect than, you know, dealing with the consumer wireless, you know, margin degradation as we've seen in the India market.
No, that makes sense. I guess in terms of Latin America, what opportunities do you see there? Because it seems like we mentioned data centers. There's been some fiber plays. It looks like towers are picking back up again.
Yep.
How is DigitalBridge approaching Latin America or South America?
optimistic. We were pretty long on South America in our fund 1. Our 3 major platforms in South America, 1 Scala, which is a hyper scale data center business, fantastic business, grown tremendously. Top-tier customers in Amazon, et cetera, in that market in Brazil. And then our 2 towers businesses have been Highline, which is a towers business in Brazil.
We've got a towers business and towers fiber business in Andean Telecom Partners in Chile, Peru, Colombia. And then we've got Mundo Pacifico, which is a fiber business in Chile. So we've done a fair bit in South America. I would say there's still a lot of growth opportunity.
The contracts and the growth opportunities that have built the suits have been fantastic there, and they're all growing in the like double-digit, consistently on an organic basis. We're very pleased with it. Where we're cautious is, you know, we continue to monitor the geopolitical issues in the region. Obviously the risk and FX issues there has been tough too. You know, we're, we've been very pleased with the 4 investments we've had there.
Yeah. Something that impacts data centers and towers in emerging markets is, you know.
Mm-hmm.
-and solutions for power, obviously very different needs. In your portfolio companies, do you see an opportunity in providing power solutions for towers, where there isn't a reliable electrical grid? Is that a business you can explore kind of through multiple regions?
I mean, I think it's a challenge for every single data center operator and business out there. We don't enter a market unless we know that we can operate there and there's access to power. And for us, we are, you know, very bullish on clean power and making sure that we can get there.
For example, with Scala, when we went into Brazil, their power is sourced by hydroelectric, and there's plentiful associated with it. You know, we do monitor it. We do not go into markets if we don't believe we can get it. That's just part of our underwriting for sure.
Can you talk a little bit more about where the greenfield CapEx is being deployed in the different regions outside the U.S.? You know, how much of it is, I guess, being done for towers, build-to-suits versus data centers versus fiber opportunities, kind of what that mix looks like.
Yeah. I would say most of the mix has been towards towers and data centers. You know, obviously that's just purely because we've got more of those platforms and those businesses across the globe. We've got almost 8 towers businesses across the globe.
So a lot of that build-to-suit activity, I would say is coming from the tower side. On the data center side in the emerging markets, we are continuing to build opportunities, but I would say what we're looking at a bit more is on the tuck-in acquisition side on the data center front.
In terms of the build-to-suits, do you see this at a steady level? Do you think there's more to come? How long can this build-to-suit business last in the different markets?
I think on the emerging market side, you know, certainly in Asia and in South America, I think the build-to-suit activity is gonna stay pretty high over the course of next 3-5 years. In Europe, I would say it's probably gonna slow down at some point, just purely because of density and zoning and permitting, and there will need to be need for small cells at some point for Europe as well as certainly in North America. But I would say in Asia and in South America, we're seeing that activity. I don't see it stopping anytime soon.
All right. You've talked about M&A for the core investment management business. At this point, it seems like a lot of the strategies are filled out.
Mm-hmm.
In terms of, I guess, other M&A, what would you be looking for to acquire something in the investment management business? Is it strategy related? Is it region related? Maybe different expertise or people that you feel like add to the overall team?
Yeah, sure. Our underwriting on the investment management side is a couple things. 1 is we gotta make sure that it adds to our LP base, right? It's not gonna create concentration issues with existing LPs. That's important for us, because then that's just value destructive. The second piece is we will not skew too far away from what we know we can win in, which is digital infrastructure.
When we did AMP and now the InfraBridge platform, you know, over 60% of their funds was actually in digital infrastructure. Other sectors that they were in were sectors that were actually gonna be digitized, whether it's energy transition, et cetera. Transport hubs, for example, those are interesting for us because of the digitization in those sectors.
If we are going to go into a new sector, it's gotta be something that we believe is synergistic with digital infrastructure, and we have that knowledge base, and we can win in that. Thirdly, obviously the price. You know, the price has gotta be right.
If we can check those boxes and we believe it's additive, we'll go and do it. We've got about $500 million of liquidity on our balance sheet to go and deploy that. The bar is gonna be high because we compare it, always compare it to what would we do with that cash otherwise, whether it's share buybacks or whether it's preferred redemptions. It's gotta, you know, clear those hurdles.
I guess let's follow up on that. You've done some share buybacks and, I guess with the deconsolidation and having some liquidity, how should investors view where the stock's valued today versus where you think it should be? How much of that is maybe dependent on when rates settle out and you end up assuming that a flagship raises happens again at some point in the future?
Yeah, sure. I mean, our primary focus is just continue to execute on fundraising and operating our assets well. Our capital allocation strategy will continue to be a balance of all 3, to optimize our, certainly to opportunistically buy our common shares back, to redeem preferreds, where appropriate, and to the degree M&A is accretive above and beyond that, we'll do M&A that's added to our platform.
We'll continue to do all 3 in a balanced way. Our perspective is that, you know, we will use excess liquidity for all 3 of those purposes, and we'll just continue to, you know, keep grinding it out.
Something that I guess will be coming up in the next few years, and you've had a few exits, but as, I guess, more exits come to fruition or funds come to term, the carried interest value that DigitalBridge should see, how should investors kind of value that piece, or what should they be considering when looking at that potential?
I mean, if we do a good job, and we believe we do a good job because the 3 exits that we had last year all generated carry, and they all generated returns well in excess of 20% or 30%. Our track record's built out there, and we've proven that we've been able to do that, and we'll continue to do that.
As we do that, we'll continue to raise more funds, and that in itself will generate more carried interest associated with those future funds. We actually recently laid out a framework which is published on our website as how we look at the business. As a result of that, we believe there's opportunities with our company and with the stock.
That's why we're all here, and that's why we're so passionate about what we do. You know, as long as we just continue to asset manage and get good return for LPs and fundraise. That carried interest should have material value, and we've laid it out in that valuation frame.
I probably should have hit on this earlier, near the start, but I guess with rates rising and you know, debt ceiling issues, like there's been a lot of concerns about how fundraising would be in an uncertain rate environment.
Are we starting to hopefully, you know, post debt ceiling drama, seeing any kind of stabilization or as you talk to potential investors, are there concerns kind of fading in terms of the rate environment, or is it still top of mind?
I think it has faded a bit, because, you know, this time last year, people were worried about how much it's going to be. I think now folks are starting to see the light at the end of the tunnel on it. I think the fear factor of the unknown of how much more has dissipated.
At the same time, we've been very blessed to be in digital infrastructure because our asset class and our sector has a tremendous amount of tailwind. It certainly, you know, if you're looking at a private LP, deciding on where to allocate your dollars, is it to, you know, commercial office? No. Is it to multifamily or healthcare? Absolutely not. Our sector ends up being a secular winner, that's been positive from that perspective.
Fundraising is definitely harder today than it was 2 years ago, for sure. We are continuing to see really good re-up rates. We are seeing some check sizes be a little smaller than historical in the past, and it has taken a little longer, but I would say that fear factor is not what we're hearing, and people have been very happy with the exits that we've had and what we've been able to deliver.
The other concern that we get a lot of is that how, I guess, our companies will do in a recession, and there's that fear that the rates have gone too far and will create 1. I guess a lot of our companies that we deal with, like, are not maybe recession-proof, but recession-resistant. Are you seeing more interest because of the defensibility of your investments or?
Yeah. I would say the beta aspect is real, you know, especially in our sector. You know, especially what we do, right? We're not exposed to consumer risks. We have long-term duration of our contracts and our portfolio companies.
They're all credit-worthy customers. All those things are positives. Oh, by the way, they're not just stable, and they just stay. We continue to grow, right? There's continued bookings at a prolific rate because of the underlying factors with demand applications and new services coming down the pipe. We've continued to see marks go up in our businesses, and that's been very positive, and that's where LPs are liking, you know, what we invest in and allocating dollars to us.
Great. I think I'll leave it at that.
Great.
Thank you for coming.
Awesome. Thank you.
All right.