Q2 2021 Bridge Investment Group Holdings Inc Earnings Call
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Ladies and gentlemen, thank you for your patience and please remain on the line today is bridge investment groups conference, we'll be starting in a few minutes. Once again, we do thank you for your patience and ask that you. Please remain on the line today is bridge investment groups conference call will be beginning in a few minutes.
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Yes.
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Greetings and welcome to the bridge investment group's second quarter 2021 earnings call and webcast.
At this time all participants are in a listen only mode.
Question and answer session will follow the formal presentation.
If you would like to ask a question. Please press star one on your telephone keypad, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Sloan Bohlen Investor Relations. Thank you. Please go ahead.
Thank you and good morning, everyone I'm Sloan Bohlen, we appreciate you joining us for the bridge investment group second quarter 2021 financial results Conference call.
<unk> remarks will include comments from our executive Chairman, Robert Morris, Our Chief Executive Officer, Jonathan Slager, Our Vice Chairman and head of our client solutions Group D and Allegra and our Chief Accounting Officer, Katy I'll step, we will hold a Q&A session. Following the prepared remarks from our leaders.
During the call today, we will reference slides highlighting key points of discussion as well as certain non-GAAP financial metrics. A reconciliation of the non-GAAP metrics are provided in the appendix of our supplemental slides supplemental materials are accessible on our IR website at www Dot IR Dot bridge Iga Dot com. These slides can be found under the events and presentations.
<unk> of the site along with our second quarter earnings call event like they're also available line. During the webcast. It is now my pleasure to turn the call over to Bob.
Good morning, Thank you slowed for the introductions on behalf of my senior management colleagues and the entire bridge team.
We're delighted to host this second quarter earnings call. Thank you to all the investors and analysts who are joining today.
Before we begin I'd like to thank all of our 1700 bridge colleagues the talented and dedicated employees who are baked bridge. What it is today our successful IPO earlier. This summer is a milestone in our company evolution and establishes a platform that we believe will be the foundation of significant future.
Success.
Our IPO will engender some changes that bridge and many of our characteristics will remain the same we.
We will continue to perform as a specialized differentiated and forward integrated real estate investment manager with a focus on selected large and growing real estate sectors dedicated to delivering top tier results to our public shareholders and fund investors and we'll continue to execute on the strategic vision, which has created our scale and profitability.
We have meaningful dry powder from our primary IPO proceeds our unused credit line at existing modest term debt to take advantage of opportunities to consolidate our fragmented industry. We will continue to invest in our company and our team.
And then our capabilities more on all that later and in subsequent quarters. Our IPO has given us the opportunity to bring some fresh perspective and benefit from the enormous knowledge of.
Of our newly constituted board of directors, our outside Board members, Debbie Hopkins Debora, Barton Chase and Chadli bring years of success and experience to our board and we've already begun to benefit from that expertise.
If you turn to slide five as this is our first quarterly earnings presentation and with the understanding that some of our constituency did not attend our roadshow I wanted to start by providing a brief introduction to bridge and our differentiated approach to real estate investment management on this slide we depict visually the scale of our business.
We manage approximately 29 billion of AUM and touch the lives of almost 100000 residents across our residential communities as well as thousands of office tenants. We operate in over 30 states across the U S. Carefully selected after intensive data analytics, we are specialized across our areas of focus are.
Desperate professionals are sharp shooters, who know their sectors intimately understand that real estate is both national and local appreciate the nuance is required to make informed investment decisions and we enjoy unparalleled deal flow, we have over 100 investment professionals and most bring decades of successful experience to their jobs.
We look forward integrated high touch property managers, who operate virtually everything that we acquire or develop a per.
Pretty management teams of our bridge to create alpha at the asset level by finding opportunities for revenue enhancement and cost savings every day, we have thousands of property management specialists that represent an invaluable asset we built the team the approach and the expertise over the past decade.
As you will hear we deliver world class service at a cost equal to or less than hiring an outside manager with better results. We have carefully curated where we invest in the U S, which we believe is the pre eminent global investment destination and in selected verticals within real estate that offer above market growth.
Such as multifamily work force and affordable housing logistics and income generating fixed income we start our investment process with a top down data driven proprietary approach, which helps to determine by vertical which cities in which to invest and where to avoid as we've grown we've invested massively in our.
Research and data capabilities, and our research financial planning and analysis business intelligence strategy and related teams aggregate to over 20 professionals. We further amplified our capabilities through selected partnerships with leading prop tech firms, which partnerships have already paid meaningful dividends.
This dual focus on specialized sectors and the bridge target markets has driven our strong performance most of our multifamily funds are ranked first quartile by pretty quick and six of our funds are in fact ranked number one for their vintage and investment focus we count as L. P. As some of the largest and most prominent investors globally and we have over <unk>.
<unk> 600 total investors many of our investors have invested in multiple vehicles as evidence of their trust and bridge we.
We have built a scalable state of the art infrastructure platform to accommodate significant growth and have demonstrated repeatedly the ability to launch new products and new verticals and deliver attractive returns to our investors in a successful manner. We've created a strong income statement composed primarily of fee related income have long.
Duration sticky revenue and a growing base, we are solidly profitable with strong margins and opportunities for growth are.
Growth has been strategic deliberate and carefully curated we seek to compete only when we have a differentiated advantage in the last seven years, we've successfully inserted efforts in real estate fixed income both debt strategies in a M. B S opportunity zones, and more recently in logistics by hiring and attracting.
<unk> talented women and men who want to work at bridge. We believe our best years are ahead of us as we build further on the platform we've created.
On slide six we outlined the key investment highlights for bridge.
Only in the most attractive sectors of U S. Real estate carefully selected after much research we've avoided most of the problem areas such as retail and hospitality. Our focus is differentiated and in fact, we believe we are unique in the industry as an investor in property management specialist or high touch boots on the ground model.
<unk> asset level Alpha our model has a deep moat around it and it would be harder impossible to replicate across our verticals, we focus on prime growth markets, where we invest with tailwind, which takes a very low coal and data driven approach to our investments, but can do so while leveraging our national scale. Our average investment is in the range of 20.
$5 billion and to do that across 29 billion of AUM requires both local insight and national scale to source and manage a broad portfolio efficiently.
Our strategies have highly visible and recurring fee streams.
Both because of the long duration of our funds, but also because many of our investors invest in multiple funds or cross strategies.
In fact, 59% of bridge fund investors have invested into a more funds at 40% of investors are in at least three bonds. The embedded growth that sits within our existing funds as a result of that loyalty affords us the ability to pursue larger funds organically or considered growth through inorganic means within the U S footprint or potential.
Beyond the.
The tailwind for alternative asset management and differentiated real estate, specifically had been in place for many years. The alternatives market is projected to grow at nearly a 10% CAGR over the next five years to over 17 trillion by 2025, nearly 30% of institutions are expecting to increase.
<unk> two real estate this year and in this market, even a 10 basis point increase in total allocations implies new demand of approximately $100 billion per real estate.
We believe that our culture is second to none and we celebrate mutual success and own our mistakes collectively.
On slide seven our AUM has grown by a compound annual growth rate of 40% over the past five years, which has driven strong fee related revenues, including our record highest recorded in this past quarter.
On slide eight you can see our funds are invested entirely within the U S, which we believe is the pre eminent global investment destination bridge investments are made with highly developed local knowledge, but applied with the full advantage of our national scale and scale matters. In this business as we were able to deploy a record 998 billion.
Over just the past quarter, our investment mix by strategy is in selected verticals that offer above market growth.
I mentioned before our attractive performance most of our multifamily funds were ranked first quartile by pre Quinn in six of our funds are in fact ranked number one for their vintage and investment focus as shown on slide nine we count as Lps some of the largest and most prominent investors globally and we have from over 6600 total.
Investors.
Slide 10 depicts the strength experience and diversity of the leaders of our specialized investment teams most of whom bring decades of successful experience to their jobs.
Like many managers our investment professionals are sharp shooters, who know their sectors intimately and understand that real estate is both national and local.
Before I turn the call to Jonathan Let me review the slide 11, and some of the things. We're proud of it bridge, we operate with a careful focus on our residents and tenants and have years of action in line with ESG best principals before ESG, even had a name as but one example, when COVID-19 struck last year, we mobilized to provide.
Meaningful relief to our residents in the form of the bridge cares Covid relief fund versions, one dot two dot zero as partners and employees, we donated over $2 million to our residents those most affected in most indeed, we delivered over 60000 meals and we provided access to public assistance and other options.
Each of our employees has a lot of pride in what bridge means to our communities and as chairman I'd like to state upfront that it.
It is our clear mission to take the same approach to our shareholders and we look forward to doing just that for what we believe will be the best years of this firm with that let me turn the call over to CEO, Jonathan Swagger to take a closer look at our quarter and what we believe sets bridge apart.
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Thank you Bob and thank you to all of our investors and analysts for joining us before I detailed the results I'd like to Echo Bob's excitement and also thank everyone for their hard work during the IPO.
This milestone could not have been achieved without the talent and determination of each of you and without the passion for our common vision the.
The growth of this company over the last decade, it's been phenomenal.
We've proven that we can scale, our business with consistent execution, while continuing to be sector specialists. We have proven we can maintain a strong culture built on the belief that every employee every resident every investor and now every shareholder matters.
Today, we are poised for significant organic growth within our existing segments.
And with the IPO capital and public profile, we anticipate even more growth from inorganic activities.
With that.
Let us turn to slide 13.
It was a record second quarter for bridge across a number of our key performance indicators total revenue was $72 million up 31 per cent from Q2.2020.
Net income was $83.2 million compared to $7.8 million from the prior year.
As a result, we drove very strong fee related earnings to the operating company of $24.9 million, which is up 33 per cent compared to a year ago and for the year FRE was $38.6 million up 22% from the same period in 2020.
The strength in the quarter was driven primarily by fund management fees from growth in our in our fee, earning AUM. These fees were supplemented by transaction fees.
Which which are also core to our business and in part of our vertically integrated model.
Performance fees were also very strong in the quarter driven by increased realizations from from <unk>.
Versus a year ago, when COVID-19 slowed activity for CRE transactions.
Our second quarter realized performance allocation was a record $35.6 million and was driven across a number of our funds strategies, but led by our multifamily in depth verticals.
Even as we had record realizations unrealized accrued carry grew by $43.2 million up 300% from a year ago due largely to our multifamily asset appreciation.
Our strong fee related earnings.
Bind with performance fees that I, just noted yielded 136% in our year over year distributable earnings to the operating company, which ended the quarter at $55.7 million.
Over the trailing year distributable earnings now total $139.3 million, which is up 25 per cent from the prior period.
Pro forma distributable earnings for the operating company were $36.6 million in the quarter up 69% from the prior year and pro forma distributable earnings to unitholders of record as of June 30th was 25 cents for the quarter.
We ended Q2 with gross AUM of $28.7 billion, and we enjoyed record deployment of $998 million of equity.
In the quarter. We also launched multifamily fund five and logistics net lease line, which is our second open ended fund.
As you know bridge successfully completed our initial public offering last month, which delivered $137 million of net proceeds to our balance sheet to help accelerate future growth.
Lastly, we are proud to announce that our board declared that all $55.7 million of our distributable earnings from Q2 would be paid out to our unit holders of record as of June 32021.
As a reminder, we expect to pay out substantially all of our distributable earnings in the form of dividends to shareholders.
If we can turn to slide 14.
A detailed some of the same key operating metrics highlighted as you can see fee, earning AUM has grown an astounding, 50% compounded annual growth rate over the last five calendar years and continues to have built in organic growth for the foreseeable future. This growth from comes from a combination of.
Standing our vertical investment fund offerings and the natural growth from these funds from the time, we launch until the strategies mature.
Since 2017, we've added six new strategies, including our two open ended funds.
Typical fund two has generally raised two times the amount of capital from the fund one and we generally have tripled our AUM from the end of raising a fund one to the deployment of a fun too.
So we expect these new funds will generate outsized growth. In addition to our three still growing more mature fund strategy.
Our fee related earnings has grown at a 35% compounded annual growth rate since 2015 Q.
Q2 reflects our continued growth in fund management fee revenues as well as a regular transaction fees.
Which are built into our structure.
Would highlight that the the steady and durable growth of our recurring fund management fees. It's also evident there and these have grown at a 43% compounded annual growth rate since 2015.
Our realized performance related earnings reflects the harvesting of assets in our multifamily three and depth line three.
Strategies.
And we are optimistic that our performance related fees will continue to be a meaningful income stream to our shareholders find.
Finally, the growth in our pretax distributable earnings to the operating company reflect strong growth in distributable earnings driven by the underlying factors. We just walked through since 2015 distributable earnings has grown at a 37% compounded annual growth rate.
Now, let's turn to slide 15, which highlights the value of our vertically integrated business model.
As you've heard many times already bridge believes that its outperformance is driven in large part by its vertical integration we.
We drive value in our ability to make direct change at the operating level and to create alignment through a common vision with our entire team bridge.
Bridge delivers better and more consistent results at a lower cost to our investors, we derive specific differentiated advantages in sourcing and underwriting to our actual boots on the ground and real time data ex.
Execution operations and management, our property management leasing and acquisition teams build the business plan together and jointly are accountable to it throughout the life of the asset.
Like most publicly traded real estate managers, who rely on third parties.
Who often have competing agendas bridge manages most all of its assets directly.
In each of the areas, we provide integrated services, we seek true.
We seek to drive tens of millions of distributed distributable cash flow each year to our Lps higher net income and higher residual values and better and more consistent outcomes across the board.
Yeah.
On Slide 16, let me give you a brief overview of how the top down.
Research and local level data drive our investment decision, making.
First we.
We have top down research capabilities, which utilize demographics and proprietary metrics to prioritize the markets that had the highest population and job growth on.
On average bridge markets have 69% higher job growth and 26% higher household formation rate versus the U S averages.
We then reinforced that data with our own asset level knowledge because in these high growth Metros Bridge currently operates tens of thousands of multifamily seniors housing units and millions of square feet of commercial office.
First of all our investment in proprietary technology provides us with real time accurate data on rents rent growth operating costs construction costs and very specific local insights to drive better decision, making across all our segments.
Because bridge underwrite every deal and all of these markets. We have exact real time information on cap rates expense comparisons and rents we know long before the data comes out the capital Allocators, what is actually happening on the ground in these markets. They study data that may be as much as six months old we simply look at the real time data.
In front of us and talk to our teams.
On slide 17, we show the Alpha generation and multifamily fun too that was produced by our vertically integrated business model.
Here, we show what Matt what drives the results that matter most to our investors.
We evaluated the results from our last fully realized fund, which was multifamily fun too.
We recognize that we had rent growth that was 20% from acquisition that's just true.
This level of rent growth for context was 104% higher than the U S National average.
Our net operating income, which includes expenses of running the assets increased by an average of 36% from acquisition to exit.
And we beat the U S national average by 111% during that period.
When we analyze the rent growth in our chosen submarkets, we recognize that about half of our outperformance came from our market selection. The other half came from our execution or performance locally on the ground.
So this gives a clearer idea of exactly why we think the vertical integration is such a powerful valuable tool.
On slide 18, we show the extent today, a bridge as local knowledge and national footprint across the entire United States.
Today Bridge operates nine investment platforms across 32 states and 77 unique markets.
The amount of information that we gather from this is significant bridge, but it's our holistic approach and vertical integration through every piece of the investment that allows our firm to deploy capital and achieve outsized returns for our investors on a consistent basis as we have for the past decade with that over to Dean.
Thank you Jonathan as you and Bob noted, our Lp's industrials because of our.
The track record in many cases, which result from them and investing with us as you raise future funds.
We have a long history of delivering for our fund investors have compelling growth opportunities both within our existing strategies as well as future strategies as we bring them to market.
And numbers, we reached an average of $2.4 billion per year over the past five years, which has driven a 40% CAGR in our AUR I've mentioned before.
The bridge fundraising team is unique and it's up to cover globally, both institutional and individual investors.
We have dedicated team solely focused on our largest warehouse some retrofit retrofit investment advisors in the World. Currently has seven offerings from wire house platforms anticipate that come to nine by year end.
It's worth noting in the past year, we opened.
Offices in Asia, and EMEA with senior managers focused solely on raising capital. Additionally, we hired two senior members here in the U S to focus on North American institutional investors net result.
Great University crossing vessel types from them.
From individual investors to large institutions in a world in total our investors. They spend 150 institutional won over 6500 individual investors.
First of all.
We are world class at Pori that offers a high touch investor experience, just because the opportunity to cross sell products as evidenced by 40% of our investors participating in three or more of our fund offerings.
On Slide 20, let me give you a quick overview of how our fund raising success drives from British growth.
As you can see on the left we have raised nearly $3.7 billion to $8 billion and just over the top in just the past 18 months, including nearly $1.3 billion year to date.
Funds that were raised notable capital for include bridge opportunities Unfunded for bridge work Force Portable housing fund two as well as bridge debt strategies from four.
As we look into the second half of this year, we expect continued capital raising success in these funds. In addition to our flagship bridge multifamily fund five or two new logistics offerings.
Aside from growing our fee, earning AUM, our fundraising success works hand in hand, with our ability to deploy capital at scale as Bob and Jonathan noted before.
Which is local market knowledge and asset level vertical integration enables us to deploy capital at attractive returns that's the key.
Key growth differentiates Raj insurance to our per Lp's and they understand it.
Further aid in our fundraising efforts with that let me turn it back to Bob to summarize our growth profile.
Thank you Dean.
On slide 21.
We show how we will continue to pursue growth as we have done successfully in the past capital is critical to express our investment decisions. We will continue to strengthen and expand our fund investor network domestically and abroad. As we profiled the returns bridge is delivered to investors. We expect that several of our current funds will be oversubscribe.
Which portends well for the future we have successfully launched new platforms and new products, such as opportunities zones, and logistics, and we're tireless and evaluating and expanding our product offerings, where we could offer a compelling differentiated advantage the investments in our state of the art infrastructure are scalable.
And we are nimble and we can leverage that scale to enhance margins as we grow.
And finally, we've demonstrated an ability to grow inorganically and look forward to opportunities fragmented industry in which we operate.
With that I'll conclude our remarks and turn the call to our Chief Accounting Officer, Katie else net Kt has nearly 20 years of experience in asset management real estate and financial services. We were lucky to have her attention exciting point in our company's progression Katie over to you.
Thank you Bob I'm very excited to speak to you as well and share the spread story as a public company I'm going to spend a few minutes walking you through our GAAP income statement on slide 23, after which I will discuss our non-GAAP metrics.
Our total revenue for the three months ended June 30th 'twenty, 'twenty, one was $72 million compared to $55.1 million in prior year net.
This day to a 34% increase in fund management fees, including $6.6 million of Cat M D.
Additionally, our transaction fees are up 96 per cent over prior year, which is driven by almost $1 billion of deployment during the quarter.
As you can see we had a strong quarter related to our investment income, which is driven both by realized carried interest of 36 million and unrealized of 43 million.
We have had a significant increase employee compensation and benefits, which is due to two factors first we awarded our 2021 profits interest and warrants during the corner.
The majority of which are investing when awarded they're designed to be anti dilutive Doctor partners.
Resulted in one time share based compensation expense at 14 million. The majority of this expense relates to the Big P. I program that was collapsed upon the IPO.
Actually in 2020, we paid rudi's bonuses due to Covid waffle bonuses were paid in 2021.
Overall, it was a strong quarter with GAAP net income of $83.2 million versus $7.8 million in prior year.
On Slide 24, let me provide a little more detail on the high level drivers of our non-GAAP metrics.
Our total fund level fees grew at 49% over last year, driven by a balanced mix of our contractually reoccurring and management fees, which are up 34% as well as strong transaction fees, which nearly doubled from last year given the strong pick up in activity from the impact of Covid last spring.
Turning to our total fee related revenue bridge grew by nearly 40% over the last year to end the quarter at $95.5 million. The growth was driven by strong fee, earning AUM growth, particularly in our opportunities now than before and our debt strategy on for <unk>.
We maintained a very strong margin of 55 per cent per.
For reference this margin is in the neighborhood of top asset managers, who do not have the same forward integration capabilities with bridge.
Property management business by definition has lower margin. However, it contributes meaningfully to the value of the assets in God's alpha at the asset level, which we see in our performance related income.
The strong growth in fees drove total fee related earnings to the operating company at $24.9 million are up 33 per cent compared to the second quarter last year.
Moving down the P&L bridge had a very strong quarter for realized performance and incentive fees, which totaled $35.6 million. This is up materially versus an easier compare last year with COVID-19, but for context, it's a record quarter and it's 25% higher than our next highest quarter, which I'll show you in a few slides.
Finally, driven by all day, but our distributable earnings for the quarter was $55.7 million or 136% higher compared to a year ago.
If we turn to slide 25 lets drill down on our fee, earning AUM and fee related earnings trend.
Jonathan mentioned, we grew our fee, earning AUM by 16% over a year ago, driven by the fund raising the range as Dean mentioned them on the income since 2015, we have now grown our AUM by an average of 40 per cent per year. In addition, we currently have a number of new and next generation phones in the market that we expect will continue to drive our growth.
If we move down the page the stronger U M trends Diclinous aircrafts in our contractually recurring fund management fees, which were up 34% over a year ago and have grown by a CAGR of 43% over the past five years.
Additionally, our vertically integrated and high touch approach to the assets, we manage our sports bridge for revenue opportunities that are activity based.
These revenues were at 96 per cent compared to a year ago in the second quarter and were primarily driven by acquisition and origination fees on transaction.
Families will tend to move around market per tariff on management piece that said we.
We view them as a regular component of our revenue growth, especially given our ground scale across a diverse set of fund strategies.
The last point I'd like to call your attention to on this page is the right hand Pie chart, which shows the long term duration of our U N. As you can see two thirds of our fans have a duration longer than five years and 40% of our funds have a duration longer than seven years the.
The point here is a very significant portion of our revenue is based upon the reoccurring management fees and other fees. The vast majority of them have visibility that is in excess of five years, which we believe is unique even amongst the alternative asset managers.
Let's flip to slide 26.
And detail on performance and incentive fees in the second quarter as mentioned it was a strong quarter driven primarily by great execution on realizations in our multifamily index strategies.
For example bridge multifamily three generated 22 million across per pharmacies law.
Bridge debt strategy from three generated 14 million and similar fees that were realized by branch during the period.
We are optimistic about the concentration in the multifamily sector. We will continue to harvest assets from multifamily fund three.
Work Force and Affordable housing fund, one and multifamily fund for which are now fully deployed and we are raising capital in multifamily.
And work force affordable housing too as you can see here, we split out growth in net performance fees based upon noncontrolling interest I will speak to that dynamic in a minute for your modeling here off day for those new to the company that on a pro forma basis bridge on average for Buckeye, approximately 35% of our performance needs to the operating company depending on.
The mix of realizations in the quarter.
Yeah.
As you can see on slide 27, we have split out our summary, non-GAAP income statement to show the impact of Noncontrolling interest as I noted on the previous slide.
We are going to spend more time on the NCI this quarter than we normally do we have had a lot of questions on MTI until we want to make it very clear.
The easiest way to look at our NCI is to separate our fee related earnings from our performance fees.
Within our fee related earnings we have essentially tamp assets and NCI first NCI related to our fund managers as we launch new strategies, we provide our new teams and minority interest in their respective fund manager that can later be collapsed into the operating structure.
We believe that this strategy differentiates us and provides us the ability to attract top talent.
We also have NCI related to aircraft insurance program.
Programs that relate to profits interest grant from managers prior to the IPO and will be collapsed into the operating company over the next several years. The one thing to clarify is that when these interest are converted into interest and bridge. It will be accretive to the public company. This will be done on a formula basis is M. D E. Their respective fund manager and then determine that value.
Manager of interesting convert it well then discount that amount by 20 per cent.
As such it will be accretive to the public shareholders.
Our MD&A discusses the allocation of the NCI between profit interest in fund manager for your reference.
Now performance fees that are likely to see shacks right the allocation between compensation and NCI is somewhat complex. The easiest way to think about it is to play around 35 per cent to the performance allocation income to determine the amount that will be applicable to the operating company.
And finally on slide 28, let's take a look at the trend in our pro forma distributable earnings as well as summarize our capital following the successful IPO in July.
First our pre tax distributable earnings has experienced strong growth driven by the underlying factors, we just walked through.
Profit and growth results in reoccurring revenue growth and our attractive investment performance drives performance and incentive fees, which all drive our distributable earnings.
As we noted during the IPO our targets to face to essentially all of our distributable earnings as dividends to shareholders.
Finally, as you can see in the pro forma balance sheet bridge has ample capital a substantial amount of unrealized performance fees in relatively low debt to jonathan's point. We believe there are significant opportunities to grow both within existing strategies as long as a niche strategy geographies or if the opportunity presents itself via M&A.
With that let me conclude my remarks, and turn the call back to the operating so we can take your questions.
Thank you. The floor is now opened for questions. If he would like to ask a question. Please press star one on your telephone keypad at this time.
Confirmation tone will indicate your line is in the question queue.
You May press star two if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys. Once again Thats Star one to register your questions at this time and the interest of time, we do ask that you. Please limit yourself to one question and one follow up.
First question is coming from Bill Katz of Citigroup. Please go ahead.
Okay. Thank you very much from the detailed update I appreciate it very much. My first question I think one of the themes you talked about.
A bunch of guys is just sort of inorganic opportunities just sort of wondering as you said, obviously you have a lot of in a de novo growth, but so as you think about where to from here from an acquisition perspective could you talk a little bit about what platforms are verticals would be of interest. Thank you.
Thanks very much for the question. This is Bob speaking.
I would answer that question as far as we first I do want to emphasize that we currently operate and enormous total addressable market in terms of what we're doing.
And we think we have a significant amount of organic growth going forward larger funds.
Follow on funds et cetera.
In terms of inorganic growth over the years, we've been presented with a number of opportunities currently were.
We're aware of.
A number of opportunities to either enter additional related verticals in the U S to contemplate <unk>.
Expansion outside the U S doing what we do so well in the U S. In other jurisdictions.
We as a company spend most of our energy and focus on the value add part of the real estate market at this point.
Certainly aware that the that other parts of real estate, particularly the core plus market offers some significant opportunity core plus is of particular interest because.
Unlike the.
The most developed core markets, there's still an element of value add in the core plus market our specialized investment teams.
<unk> a lot of opportunity.
That we that doesn't really fit the current fund metrics of our vehicles today.
Some of our institutional relationships have allocations to core plus markets and they are increasingly starting to look to us as an investment manager to help them deploy that capital. So we hope and expect that we will have an opportunity in the in the core plus markets over the coming.
Orders as well.
Okay. Thank you interest as a follow up just coming back to organic growth for a moment maybe tie a couple of things together I think you mentioned that you have the opportunity to get added to maybe got us to two more wire houses, where if you can maybe flesh out sort of what incremental products are there and then maybe the broader question and I appreciate the length the duration of your port.
He was quite long, but the perpetual capital is still somewhat low number within that it seems to be just a tremendous growth opportunity in retail for permanent capital and just given your strong relationships in retail is there an opportunity here to craft similar type of permanent capital vehicles that have just tremendous demand opportunity.
Many of our most recent fund launches have been of longer duration.
Our our most recent launches have have for the most part extended fund lives from eight years to 10 years.
We've launched two open ended vehicles, one in MBS and one in logistics net lease which which comprise.
A permanent capital component as well and I think the overall tenor of our capital.
As we launch new vehicles has continued to increase.
On the on the retail side.
We count as very strong relationships.
The relationships that we have with a number of warehouses at this point in addition to those national warehouses in the U S. We're expanding our presence overseas with selected disc.
Distribution platforms.
We've established and are continuing to strengthen a number of of RIAA and other relationships that access the retail investor as well today, our minimum ticket size is generally speaking about $250000.
As an investment with.
With our distribution partners.
And again, our focus is on the higher octane value add.
Investments that don't really compete with the true retail vehicles that are out there in the marketplace today.
That we we would say that we have.
Examined very carefully.
<unk>.
The more.
Smaller ticket size retail opportunities, it's something that we continue to to examine as we as we proceed in 2021 and we May we may have an offering in that area at some point no current plans.
But we always look for opportunities to expand our presence in the in the broader retail market.
Thank you very much.
Thanks for your question.
Thank you. Our next question is coming from Ken Worthington of Jpmorgan. Please go ahead.
Hi, good morning, Thanks for taking my question.
First congratulations on the first conference call here its a nice milestone.
You went public just a month ago can you talk about the early feedback you're getting from your sales force in terms of the tone of conversations.
From either institution to retail intermediaries.
As a result of the IPO maybe.
Maybe along the same lines any change and reception that youre hearing from property targets I think the assumptions that we've had is that.
Things would change I know, it's very early days, it's been just a months but.
Any feedback you're getting in terms of being a higher profile as a public company.
Senior on the front lines as it relates to our dialogue with.
And our retail partners do you want to handle that yes, I mean, I'll handle that piece absolutely yes. Thanks for the good question.
And if anything.
Positive to quite positive.
Thank you you may have as I noted in my in my prepared remarks.
With the expansion of the team in both EMEA and <unk>.
And Asia and here in North America.
Got more boots on the ground, if you will from a marketing perspective.
The IPO has been well received.
Are the amount of <unk>.
Meetings were getting has.
<unk> never been stronger institutional net wells <unk> wells warehouses. So if anything I would put a pretty positive comment on that piece of your question.
Okay, and then any change from the target perspective.
Our targets are viewing you differently, its just going to make it easier to to get transactions done there.
Yeah.
I think bridge.
Has enjoyed an incredibly strong reputation and all of the markets that chooses to participate in Franco that's been one of the hallmarks of our success to date is is that I call. It tie goes to the runner Bridge is generally had a very high.
Percentage of winning tie goes to the runner.
I also used to have this expression greatest rebound in the league because oftentimes when someone kind of reached out above the past they would always come back to us when they they couldnt perform at the end of the day.
Think this has done nothing but improve our.
You know kind of the confidence that people have in our ability to perform especially in complex transaction. So absolutely.
Absolutely yes.
Okay, Great and then maybe a numbers question for.
Performance fees carry elevated this quarter, you mentioned I think twice during the call and I didn't get it down either time.
Some funds that contributed to the majority of performance fees.
The question really is what what is the accrued carry in those funds.
That contributed to the performance fees this quarter and maybe if you can give us a aggregate accrued carry firm wide I know you have some balance sheet disclosure, but it looks like things were aggregated and I wasn't quite sure if I could rely on it for our crude carry so thanks.
Sure.
This is Katie.
So overall at quarter end, we did have $246 million of carry.
And fund one at 91, three <unk> three at $91.3 million.
And Bds three is $37.3 million.
Yeah. Some of the factors that contributed to the outperform.
The first off really is related to our PDF free fund.
We completed the liquidation of the opportunistic case series of investments that we purchased.
During the market dislocation in late March 2020 in the second quarter.
Background information you know in Q1.2020, we were well positioned we have substantial dry powder.
And we weren't really impacted by the margin calls with some of our parents weren't being impacted by and so as a result during that time, we were very opportunistic and we were able to raise and deploy about $700 million capital during the first month of Covid.
And as you know opportunistic sales generated 160% IRR to our Lps and resulted in substantial carry per bed.
And we generally have not modeled for.
Our opportunistic sales.
Or we haven't modeled carry per opportunistic Dallas.
And then additionally related to be asked Terry we did Hasan.
Task force reasons that weren't modeled.
On the other side on the multifamily side, we all we brought broadly outperformed.
With those assets that were disposed off and then additionally, our model didn't contemplate the realization of carry on from assets that had previously been disposed of at the carrier was realized during the current quarter.
Okay, great excellent. Thank you so much.
Thank you once again, ladies and gentlemen that is star one to register a question at this time.
Our next question is coming from Mike Cyprus of Morgan Stanley. Please go ahead.
Hey, good morning, congratulations on the first quarter out of the gate and thanks for taking the question just wanted to come back to some of your M&A commentary I guess as you look out over the next three years to five years can you talk a little bit about your vision for bridge, how it might look differently in five years versus how it looks today is more of a real estate focused manager.
And I guess as you're thinking about that whats the appetite opportunity for extending into other asset classes infrastructure. It seems like it could be any relatively easier adjacency then maybe private equity what are your thoughts there and also a broader geographies around the world.
Thanks, Mike I think that.
We've established a history, where we've been able to successfully launch new verticals.
And get to a leading position pretty quickly I would I would note our launch on the fixed income side in 2014, our launch on the work force side in in 2017 opportunity zones in 2018, and more recently in logistics and so.
And so finding additional verticals, where we have a compelling differentiated advantage is something that we spend a great deal of time thinking about and we have a couple of things on the on the planning horizon at this point nothing set at this point, but we would we.
We would expect that we can continue to expand into areas of related diversification.
Amongst those with nothing guaranteed at this point could be could be an opportunity offered by.
The secondaries market could be an opportunity offered in some other related areas too to what we're doing now you mentioned infrastructure infrastructure broadly defined is is something that obviously is of great interest. The fact that we have a bipartisan.
And bill two to invest in infrastructure in the U S shows how how much need there is we think our two new logistics offerings plays directly into that theme of providing infrastructure, particularly the infrastructure that powers e-commerce in some of the other trends directly in.
That regard as well.
Now as we look back we we are very comfortable with our decision to focus on the U S. Over the course of the past 10 years or so the US has has been the best performing market head and shoulders, we think over other markets, but we certainly are aware that there are.
<unk> in.
In other markets outside the U S. If we if we were to expand outside the U S. We probably would put in place a priority not a necessity, but a priority on an inorganic expansion.
Were we to find a complementary organization that had the same approach to the markets the same approach to.
Investing in culture that bridge does.
Such that we could we could have a synergistic.
Combination with with somebody like that and we're scoping out the the that opportunity on an ongoing basis, we do have a pretty significant investment in our strategy team.
That interest intersects with with other firms with various advisors as we as we parse through the markets at this 0.5 years from now.
We may be to answer that part of your question. We think we're at a pretty steep part of our growth curve at this point when you combined.
The organic growth that we have embedded in our verticals I believe we said on our roadshow that we think our logistics vertical could be as big as all bridge at this point, it's just brand new at this point. So there's a lot of embedded growth in what we have but if we can supplement that embedded growth.
With with some inorganic opportunities that allow us to extend our capabilities in a way that we have a differentiated.
Our competitive position.
We're going to pursue that with with a great deal of enthusiasm.
Great and just as a follow up if you could just talk a little bit about the build out of your international distribution capabilities. How that's progressing what sort of traction are you seeing if you can maybe give us a sense of your team overseas and some of the initiatives that you have in place over the next 2012 months to 24 months to further expand and grow.
Your international distribution footprint.
Most of the investment that we've made to date has been on the client solutions group side Dean do you want to talk a little bit about the.
The momentum and progress and accomplishments we've made internationally.
Yes.
<unk> opened an office last year in Seoul Korea.
We have had quite a bit of success in some closings into this quarter as well from capital in that space. We're just I think we are.
We are just the beginning of quite a quite a bit of additional opportunity from a fund raising perspective.
In both the Korean market as well as the rest of Asia we.
We have had a number of currently have a number of diligence meetings going on in it.
Ross out parts of that region of the country.
Same is true over in EMEA, a little bit different because you have licensing issues to deal with that.
We're in the midst of finalizing right now we've been working with us.
Third party using their licensing, it's a little bit little bit hamstrung.
That should be all in our court as of January of next year.
And we just the meetings we've been had are having continued to have.
Institutions, you're seeing we're having these niche with discontinued should just be very strong.
I mentioned, both logistics multifamily fund fives or flagship.
And in those spaces that particular, all those funds just continue to be strong I would I would expect that we will continue to further resource both those areas.
With.
With with human capital over the coming.
Three to 18 months as we continue to grow there and success on the capital raising side.
What's really interesting.
Just to add onto that what's really interesting is how effective a local presence is.
The.
And Korea is a great example, we had very modest fund raising success in Korea prior to hiring and placing in an office in Korea and outstanding professional.
Who who is intimately familiar with the Korean market, we now count as investors many of the most prominent Korean institutional investors and that's had a great knock on effect.
In the overall Asia Pacific region.
So so we expect that our our current activities will continue to pay dividends and we will continue to invest.
In additional resources going forward as well.
Great. Thanks for taking my questions.
Thanks for your interest.
Thank you at this time I'd like to turn the floor back over to management for any additional or closing comments.
Thank you. Thank you operator.
We've tried today to provide a detailed overview of bridge our approach to real estate investment management, and our second quarter results.
If if I may I'd like to suggest the number of attribute to.
Two perhaps.
Remember as takeaways.
And wide bridge is is differentiated from from many other real estate investment managers, we're specialized where high touch with forward integrated not just a capital allocator.
We're data driven both from a top down markets perspective, and an operating perspective, we're focused on high growth markets and local within those markets.
Where high performing we're accessible to our Lps, that's been a hallmark for us and now to our public shareholders.
Work in an enormous total addressable market with a great deal of room to grow.
As an organization, we're culturally aligned we share mutual successes, we embrace diversity and inclusion we strive to hire the best and brightest and provide them with an unparalleled opportunity to build lasting careers. We believe that excellence is only achieved by a diversity and thats reflected in the team on the field.
Real estate is a special financial assets, we seek to create vibrant communities where people are excited to live and work.
And as part of that we're environmentally sensitive to make sure that our carbon footprint and our impact.
Is minimized and optimize in.
In so many ways.
With our investors, whether they be our shareholders or our Lps from cradle to grave fully aligned financially and operationally and we only succeed.
When you succeed in.
And with that we.
Thank you for your for your time and focus on the bridge today, we look forward to subsequent quarters.
Of dialogue with you and and wish you good day. Thank you.
Ladies and gentlemen, thank you for your interest and participation in today's bridge investment Group Holdings teleconference. You may disconnect your lines of log off the webcast at this time and have a wonderful day.
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