Q3 2021 Bridge Investment Group Holdings Inc Earnings Call
[music].
Greetings and welcome to the bridge investment groups third quarter 2021 earnings call and webcast. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.
If you require operator assistance during the conference. Please press star one starting here on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Charlotte Moore director of Investor Relations and marketing. Thank you Charlotte you may begin.
Good morning, everyone I'm Charlotte North we appreciate you joining us for the company's third quarter 'twenty 'twenty financial results Conference call.
Our prepared remarks will include comments from our executive Chairman Robert Moore.
Richest chief Executive officer of giant Tiger, and our Chief Accounting Officer Katie Alexander.
We will hold a Q&A session. Following the prepared remarks for nine years.
During the call today, we will reference slides highlighting key points of discussion they smell like certain non-GAAP financial metric.
Conciliation of the non-GAAP metrics are provided in the appendix separate supplemental slides.
The supplemental materials that are accessible on our IR website at www Dot IR Dot bridge I G Dot com.
These slides can be found under the events and presentations portion of the site along with the third quarter earnings call at that time.
They are also available live during the webcast.
It is now my pleasure to turn the call over to Robert.
Thank you Charlotte and thank you to everybody joining us this morning.
We're proud to report another strong quarter for bridge and our first quarter as a public company.
As you May recall, we executed our IPO on July 16th of this year and some of the financial data is as of and after that date. During our road show, we highlighted a number of differentiating factors that position bridge to succeed in the real estate alternative asset investment business.
Not the least of which is our purpose built organization centered around the two pillars of real estate specialization and forward integration into property management to capture alpha at the asset level. They.
These two pillars in combination with our carefully curated focus on the most attractive areas of commercial real estate in the U S.
<unk> strong results this quarter and we believe we will continue to power our company forward in the quarters to come.
As I mentioned at the time of our two Q results, which were disclosed after the IPO date, but for the benefit of the company as it was prior to the IPO.
The bridge focus on the U S as the preeminent global investment destination.
Selected rapidly growing sectors of the market with specialized in forward integrated operations and a professional team second to none all help to propel our company forward since the IPO. We have continued to invest in our company and our professionals in the infrastructure that effectively serves our funds and fund investors and.
In our industry, leading research and analytics.
On slide five we highlight some of the important metrics from <unk> financial results first.
Had another strong quarter of gross AUM growth.
Which ended the third quarter totaling $31 8 billion up 37% year over year and represents a compound annual growth rate of 35% over the past five years, we continue to be pleased that our growth in both mature and newly launched strategies in the aggregate our strategies are designed to address and bent.
Fit from three of the major theme defining the U S economy and financial markets.
Current and seemingly protracted housing shortage in virtually all parts of the U S, which we address through a residential offerings in multifamily workforce and affordable housing opportunity zone development in seniors housing.
Second the dire need for infrastructure investment, which we address through our logistics offerings logistics value added logistics net lease and third the search for meaningful yield in a low structural interest rate environment, which we address through a residential focused CRE backed fixed income offerings debt strategies.
N a M B S.
Our fund offerings are completed by an office fund, which addresses the growing need of office using employers in fast growing areas of the U S.
In all of these offerings, we seek to provide investors with leading returns characterized by current distributions and capital appreciation is appropriate we do so while ensuring that our investments benefit our residents and tenants via social and community programming at many of our residential communities through the development and preservation of.
Affordable housing and by carefully considering and incorporating leading ESG and dei principles in all that we do as we continue the three Q review on the right side of Slide five you can see that bridge also grew trailing fee related revenue by 38% in the third quarter to $220 million.
The growth in our fees was driven by strong and diverse AUM growth. In addition, we had another strong quarter for realized performance fees as bridge funds continue to harvest gains our outperformance in realized performance fees is related to a combination of timing of asset sales and outperformance of our assets and disposition.
Jonathan will give me some more color on our unrealized gains as well, which will give you some context on how long the runway for outperformance fee growth is as.
As you can see it has been a good track record recently as our aggregate fee related revenues have grown at a compound annual growth rate of 21% over the past five years.
Finally, as you saw in our release our results drove another strong quarter for distributable earnings to the operating company before taxes, which were $42 $4 million or <unk> 38 per share in the third quarter, which represents growth of 185% compared to a year ago on a pro forma basis.
For the stub period from the date of IPO to September 30th.
Distributable earnings to the operating company before taxes was <unk> 34 per share. This translates into approximately 26 cents per share after tax as a reminder, we plan to pay out substantially all of our distributable earnings in the form of dividends to shareholders and as a result, our board declared a dividend for public shareholders are too.
94 per share, which is 95% of our estimate due to potential tax variance and will be payable to shareholders of record on December 3rd.
If we turn to slide six let me give a little more color on bridges achievements over the quarter that drive the types of financial results I just reviewed.
First bridge had another strong fund raising quarter at over $1 $5 billion fund.
Fund raising and three Q was largely comprised of our housing oriented funds, which include opportunity Zone fund for multifamily fund five.
And that strategy sponge for we also had our first successful closing of our logistics net lease fund and continued capital raising into our a M. Best Fund we are seeing strong demand in next generation funds such as multifamily fund five and also in new strategies like logistics, Nat leaf and logistics value.
In the aggregate our fund raising in the third quarter was a record for a third quarter and nearly double the previous third quarter fundraising record year to date bridges raised.
$2 $7 billion, and we expect our full year 2021 fund raising to meet or exceed our expectations for the year.
If we move to the second heading strong fund raising fueled an equally strong pace of development and bridge funds our teams excelled in identifying and executing against our disciplined investment opportunity pipeline in total deployments for the quarter were $1 $3 billion, which is at 127% increase.
Over a year ago and marks another record in bridge's history. In addition to our record deployment, we had $241 million of realizations at attractive valuations that resulted in 31 million in performance fees.
Turning to slide seven let me give a quick update on our fund performances to date.
As mentioned <unk> 2021 was a strong quarter, which followed earlier performance in our specialized strategies across the board. Our funds recorded impressive results in the third quarter as a result of growing occupancy, especially pronounced in our seniors housing assets, which were disproportionately affected by the Covid pandemic.
Strong rent growth in residential strategies and careful expense controls, we believe that the quality assets, we operate coupled with a compelling suite.
<unk> and community services and amenities resonate well with our target audiences on this slide we show the returns for those funds for which the capital raising period and deployment period have expired or later funds performed equally well and in some cases, even better which is recognized by the value. It offers for residents.
And tenants and that positively influences occupancy and the rent that we can charge in fact in many of our assets. We believe that we are in effect under market in terms of rent charge. So there's more upside looking forward all things being equal.
I want to speak to three key takeaways regarding our fund performance and track record first.
Want to reemphasize, how critical bridges specialized and operational approach to commercial real estate is to our investment performance Rich manages the majority of the assets, we acquire or develop we have a nationwide operating team and we strongly believe that local knowledge is key to making smart investment decisions. We strive to know more about the markets we invest in.
And act more quickly than other institutional investors, which translates into alpha and the types of performance results that we've been able to post.
Secondly, we are operating in an environment with substantial tailwind household formation is high migration to the select cities in which we invest both personally and buy companies continues and the economic health of the middle class and lower economic cohort of the U S. Workforce is growing in part by needed wage growth and in part by.
The massive fiscal stimulus coursing through the economy. The bridge focus on prime growth markets and class B and class C multifamily puts our investments directly in the intersection of these positive trends.
Third our track record as a key driver to fundraising success on our funds outperformed that performance is one of the best tools to broaden our investor base and we're doing just that more on that later when we talk about fund raising for the quarter.
In connection with slide eight I'll give a brief market commentary.
First.
Commercial real estate continues to be an asset class with significant demand allocations among institutional investors continue to rise and are expected to rise further in the coming years, We believe bridge should disproportionately benefit from this overall trend given our investment track record as to the topic of inflation in rates. We would also note that many of our.
Investors are specifically allocated to commercial real estate because of the natural inflation hedge embedded in the underlying cash flows for instance, the average multifamily asset is seen and over 10% increase in rental rates over the past year, Similarly, industrial warehouse or logistics assets.
<unk> seen a 7% increase in rents over that same period.
At this point dovetails with the second heading which is that bridge is strategically focused on fund raising and investment within the fastest growing property sectors, specifically residential and logistics to be clear.
While the inflation hedge as a positive attribute for these asset classes. The rental rate increases are a byproduct of what we believe are long lasting demand drivers for each sector.
First we have long believed and continue to see the U S. Residential market is significantly under supplied in the wake of the great financial crisis. Similarly, we believe the drivers of E. Commerce combined with issues. We are seeing in the supply chain are key multiyear drivers for demand in the logistics space.
Lastly, I will quickly reiterate that while bridge benefits from industry or market trends, we will always be most focused on the value. Our unique forward integration model creates as defined by our relative fund performance.
On slide nine I wanted to share with our constituency some of the commitment and progress we have made towards our ESG and dei objectives, all of which are part of our mission and core values, which include the core value that the only way to achieve excellence is to diversity and inclusion.
Specifically, our workforce and affordable housing strategy recently received several awards, including the ESG private market strategy of the year by pension bridge that strategy also one social fund of the year from environmental Finance and best ESG investment fund in the private equity cap.
Gory from ESG investing.
For us in Affordable housing strategy Bridge partners also contribute individually and collectively towards amplifying, our social and community programming at our communities in fact across all of our residential activities, we invest to provide numerous opportunities for our residents and we celebrate their accomplishments as our own and while I won't.
Detail each the whole team at bridge is very proud of our broad efforts to drive diversity and inclusion we supported the establishment of multiple new employee affinity groups to support our commitment to diversity.
More than 1650 colleagues are the cornerstones of our business success, and we continue to invest in them rich believes that the best ideas from come from the collaboration of many our teams have always been built that way and we are very happy to work at a place that fosters that goal as part of our core business strategy.
Our demonstrated commitment to the wellbeing of our residents and tenants is one of the key factors that distinguishes us in the marketplace with that let me turn the call to Jonathan Jonathan.
Thank you Bob and good morning, everyone if.
If we turn to slide 11, let me quickly review our quarter and then provide some additional color on our AUM growth and performance as.
As you heard from Bob our third quarter was another record at bridge across a number of our key performance indicators.
I'll run through some of the highlights quickly and you can all review them in detail after the call.
$92 2 million of total revenue was our second best quarter ever and by far the best third quarter up 79% from Q3 2020.
Investment income of $84 nine.
And sets a new quarterly record and is up over 300% from Q3 of 2020.
Net income of $118 9 million for the quarter compares to $31 3 million in Q3 of 2020 and far exceeds our previous record of $92 5 million set in Q4 of 2020.
Our third quarter fee related earnings of $29 9 million are up 116% from the same quarter in 2020 and year to date $90 3 million is up 38% from the same period. In 2020. This was driven mostly by record deployment with the help of strong capital raising.
Realized performance fees for Q3 of $31 million is our second best quarter ever and unrealized accrued carry is at record levels sitting at $302 million, which is 117% up from Q3 of 2020.
This strong growth is a result of bridge being in the right sectors and our outperformance in these sectors is due to our strong operating capabilities.
<unk> earnings of $42 4 million for the quarter are up 185% for the same period in 2020 distributable.
Earnings for the trailing 12 months of $166 million is up 124% from the previous trailing 12.
AUM finished at $31 8 billion up 37% from Q3 of 2020 and dry powder today at the end of last quarter sits at $2 1 billion.
If we turn to slide 12, we can further highlight some of our key performance indicators at the top left our fee, earning AUM finished at $12 1 billion in Q3, 32% above Q3 of 2020.
This was driven by another strong quarter of fund raising totaling $1 5 billion third quarter fund raising activity has the third highest in the company's history and was driven both by legacy follow on funds as well as new fund strategies.
As Bob noted we are excited about our progress on both our mature and our new strategies or new strategies in particular have so much potential to rapidly scale and the early reception in the market has been tremendous.
Our logistics net lease funds and value at logistics funds are really well positioned to benefit from the strong sector tailwind that Bob described earlier.
Turning to the fee related earnings on the upper right Fridges trailing 12 months fee related earnings of $109 million is 23% above the prior 12 months in fact fee related earnings for the nine months year to date of $90 3 million exceeds our previous full year record of $80.
7 million set in 2019.
The majority of the earnings growth was driven by recurring fund management fees, which as Bob noted have grown at a compounded annual growth rate of 56% for the past five years.
Recurring fund management fees were at 118 in the trailing 12 months.
As bridge launches new strategies and continues to rollout next generation funds, we see a good pipeline for continued growth in these fees and as we will discuss later they continue to lengthen and average duration with each passing quarter.
On the bottom left you can see that realized performance related earnings have had their two largest quarters in our history.
That form has grown and the size and scale of our overall dollars at work grow.
We anticipate that we will continue to see strong increase in the overall growth trajectory of both total investment income and realized performance fees.
It is important however to note that these fees will vary quite significantly from quarter to quarter as many of our newer funds operate with European carry structure, which realizations are heavily concentrated towards the end of fund life.
Lastly, at the bottom right of the page as we said our growth in distributable earnings has been dramatic and our trailing 12 months at just 3% off of a record year in 2019, we.
We are on pace to substantially beat our prior record of $134 million in distributable earnings set in 2019.
If we turn to slide 13, let me put some context around what we believe is a very compelling growth story of bridge.
First as noted.
We had a record third quarter of fund raising.
At $1.5 billion, which drove strong growth in fee, earning AUM. Despite the fact that we executed on $241 million in realizations in that same quarter.
Bob will give more detail on both in a minute, but I'd like to make a point about the stickiness and the visibility of the fees that are.
Driven by that fund raising.
It is probably well understood that these management fees are contractual but if you turn your attention to the Pie chart. You can also see that our funds are very long dated in fact, the $1 5 billion that we raised in the third quarter has an average duration of over 10 years and as of the end of Q and as at the end of Q3 2021.
Our overall average duration of fun tenor sits at seven and a half years.
By eight months or 10% from Q3 2020.
This increase in duration, along with the increase of 32% or $2 9 billion of incremental fee, earning AUM illustrates the stickiness and visibility of our fee streams and allows bridge to plan strategy with a well defined view of our future revenue.
As we have said many times before the robust growth of our recurring fund management fees combined with the long tenure of these fee streams offer an attractive well defined roadmap for our shareholders as they valued the components of their return in the form of distributable earnings in future years.
If we turn to slide 14, again, we show our recent history of performance fees and the chart on the left you can see that in the quarter, we earned $31 million, which was primarily driven by realizations in our multifamily funds.
Some additional support from our debt strategies fund.
This $31 million is our second highest quarter and follows last quarter's all time record of $35 6 million.
Clearly the market environment has been strong and bridge has done well and both deploying capital and also in realizing attractive returns in the past two quarters.
It bears repeating that well on a strong upward long term trajectory.
Over the long term realized realized performance fees will vary dramatically from quarter to quarter based on the timing of realizations of our funds.
While quarter to quarter timing of realized performance fees can vary we thought it made sense to add disclosure to give you all a sense of the pipeline of value creation embedded in the performance fees that sit in our funds.
To turn your attention to the graph on the upper right illustrates bridges accrued performance fees.
Which have grown 107% since Q1 of 2020 and today sit at $302 million in aggregate.
If you look at the Pie chart on the bottom right, we break down that to $302 million by Sun vintage. It shows two things $75 million of this accrued unpaid income is in funds that are approaching seven years in vintage. This means they're nearing realizations and nearly all of it is three years and longer he takeaway here.
<unk> is that bridge funds have significant future performance fund realizations that should accrue to the benefit of our shareholders in the form of distributable earnings and dividends in future years.
Before I turn the time back to Bob I'd like to leave you with some thoughts about why we believe bridge is so well positioned.
Bridget Corp core business is well suited to perform an inflationary times and our strong operating platform is simply built for this.
Our operating performance continues to meaningfully outpace the very strong national numbers that Bob referred to in his opening remarks.
<unk> real estate has long been considered a great inflation hedge and youre seeing that play out in the numbers in this quarter's announcements.
<unk>, 85% of our current AUM is residential equity residential back debt and moving forward the largest growth part of our business is in industrial which is experiencing unprecedented demand and is expected to continue for the foreseeable future.
With that I'll turn the time back over to Bob to discuss discuss our fundraising.
Thank you Jonathan.
On Slide 15, we show that we had a successful quarter for fund raising at over $1 5 billion in the quarter.
Over the past five years, we've grown our AUM at a compound annual growth rate of 35%, including $4 9 billion raised in the past 18 months.
Fund raising highlights from the third quarter include successful closes in our multifamily debt strategies agency MBS development and logistics net lease funds. The bridge C. S. G team and I've made several successful capital raising trips over the last 30 days within the U S to Europe, and the Middle East and.
Our access to prominent institutional investors has never been higher in fact, Dean Alero, our vice chairman and head of the client solutions group is in the Middle East through this week to continue our efforts in that region, which is why he is not on our call today.
Turning to the right side of the page our fund raising is inherently tied to our ability to identify investments and deploy capital, which delivered there as well with over $1 3 billion invested in the quarter that breadth of investment shows the scale of bridge as well as the local knowledge to source and execute on both large and small deals that satisfy.
Our return requirements.
First of all is that our deployment over the quarter spans seven specialized investment strategies and now let me turn the call over to Katie else Nab to review our financials Katie.
Thank you Bob.
I'll start on slide 17 and 18.
As Jonathan Bob have noted it has been a record breaking quarter for branch related to our capital raising and deployment as I walk you through our GAAP financial statements and non-GAAP metrics, you will see the impact of our execution on our financial performance.
Our total revenue for the three months ended September 32021 was $92 2 million compared to $51 4 million in the prior year. This is due to a 52% increase in fund management team, which is primarily due to an increase of 32% of our fee, earning AUM year over year and $4 2 million of catch up.
Which will increase our reoccurring on management fees.
Additionally, our transaction fees are up 331% over the prior year, which is driven by $1 $3 billion of deployment during the quarter.
Finally, there is an $8 8 million increase in property management and leasing fees, which was largely driven by an increasingly seeing activities in our commercial office.
If we turn to investment performance, you've already heard that it was a record breaking quarter that was driven both by realized carried interest at 31 million and unrealized carried interest of $53 million. This again is driven by assets in the multifamily sector as Jonathan spoke to previously we believe that our portfolio overall, especially given our diverse real estate asset strategy as well.
Session for future cycles.
We also have a significant increase in employee compensation and benefits, which is largely due to our increase in corporate employee head count related to our increase in fee, earning AUM and these strategies.
Finally, our third party operating expenses are up $5 5 million, primarily due to the increased commercial leasing activity previously mentioned.
Overall, it was a strong quarter with GAAP net income to the operating company of $118 9 million versus $31 3 million in the prior year our earnings per share for the period from July 15, 2021 to September 32021, lots 41 cents per share.
Next to our non-GAAP measures.
First on a pro forma basis, our total fund model fees grew at 97% over last year to $62 5 million driven by strong growth in our contractually reoccurring fund management fees driven by continued <unk> growth that Jonathan and Bob spoke about our transaction fee growth was also very strong at more than four times compared to the same period last year the compare it.
Easier due to Covid, but also aided by elevated transaction activity during the quarter.
Total fee related revenues grew 94% over last year to end the quarter at $70 million. The performance was driven by strong fundraising fee, earning AUM growth and effective deployment.
As you have heard many times already we believe that bridges. The outperformance is driven in large part by a vertical integration.
We drive value in our ability to make the direct changes at the operating level and to create alignment through a common vision with the entire team that starts with our deployment and acquisition.
Our operations are fantastic.
Our transaction fees and net earnings from property operating <unk> to be an extension of our fund management fees.
Based upon the growth in our fee, earning AUM and execution of our strategy, we generated very strong fee related margins of 60% as we mentioned last quarter. These margins are top tier for asset managers and that includes expense, we bear for vertical integration and our property management functions.
This strong growth in fees up total fee related earnings at the operating company of $29 9 million up 116% compared to the third quarter of last year.
As Jonathan highlighted which also had a very strong quarter for realized performance and incentive fees totaling $31 million as now that they realize that they shouldn't outperformed compared to our plan for the quarter given the attractive market dynamics.
Lastly, our distributable earnings for the quarter were $42 4 million or 185% higher compared to a year ago on a pro forma basis.
As you can see on slide 19, we have split our summary income statement to show the impact of Noncontrolling interests.
We're going to walk through this one last time as we're still getting a few questions on this the easiest way to look at our MTI is this separate out fee related earnings from our performance fees.
But they're not being related earnings we essentially have two buckets of noncontrolling interests.
These noncontrolling interests related to our fund managers.
As we launch new strategies, we've provided our new teams and minority interest in their respective fund manager that can be later collapsed into the operating company. We believe that strategy differentiates us and provides us the ability to attract top talent.
We also have the NCI related to our profits interest program news.
Programs relate to profits interest granted at the fund manager prior to the IPO and will be collapsed into the operating company over the next several years one thing to clarify is that when these interests are converted into interest in branch. It is expected to be accretive to the public company.
This will be done on a formula basis using D E of their respective fund manager and then determine the value of the fund manager interest being converted.
And then discount that amount by 20% as such it is expected to be accretive to public shareholders.
Our MD&A and our forthcoming 10-Q discloses the allocation MTI between profits interest and fund managers for your reference.
No performance fees.
Our legacy sector the allocation between compensation and NCI is somewhat complex.
Yes, the way to think about this is currently a supply around 35% to the performance allocation income just determined amount that will be applicable for the operating company.
Our MTA breaks out the NCI related to their realized and unrealized components.
Additionally, on the face of the statement of operations. You'll note that we also have noncontrolling interests related to the operating company.
At present, the allocation of the earnings of the operating company to bridge its pre IPO, continuing donors, which represents approximately 77% of the operating company as of September 32021.
And lastly on slide 20, let's review, our distributable earnings and capitalization.
First our pretax distributable earnings for the third quarter to the operating company totaled $42 4 million or 38 cents per share up 185% compared to a year ago on a pro forma basis, driven by all of the components of our business, we have detailed including a strong AGM growth fee related earnings and realized performance allocations.
As you saw from our earnings release, but you're also declared a dividend of 24 cents per share, which is consistent with our target to pay substantially all of our distributable earnings as dividends to shareholders.
Finally, similar to last quarter, which has a significant available capital and relatively low debt as we noted during our IPO. We believe that there are numerous opportunities to grow the business, both organically and via strategic acquisitions with that let me conclude my remarks, and turn the call back to the operator, so we can take your questions.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad confirmation tone will indicate that your line is in the question queue. You May press star two if he would like to remove your question from the queue.
Participants using speaker equipment, and they would be necessary to pick up your handset before pressing the star keys, one moment. Please while we poll for questions.
Okay.
Thank you. Our first question is from Bill Katz with Citigroup. Please proceed with your question.
Okay. Thank you very much for taking the questions. This morning first question is you.
This is off a ton of net new asset opportunities.
Help us just maybe frame out where you are in terms of the legacy footprint between.
Sort of absorbing some of the existing footprint versus maybe successor funds and then maybe on some of the newer products. So it give us a sense of where we are today and how big They may get I know you have a little more disclosure coming up in the queue, but just trying to level set between like sort of capacity in the existing versus opportunity and so his successor and new with new initiatives. Thank you.
Thanks, Phil. This is this is Bob more speaking.
And hopefully interpreting your question correctly, we're seeing a significant amount of opportunity in our so called mature strategies, which for the most part are aligned against the residential opportunity in the U S or are both capital raising and deployment for multifamily.
For workforce and affordable.
<unk> are going well for the current funds in the.
In those areas and we think that the U S is in the.
Early stages of a protracted housing shortage, we believe that we're well positioned to help address that housing shortage not only by renovating.
Existing assets, but through our opportunity zone fund of developing new assets, we have about 70 developments around the country, which are bringing us significant stock of multifamily with a meaningful component of affordable units to the to the market I'd say, we are equally excited about the.
<unk> in logistics.
Which is the focus of much of our our new strategies, both value added logistics as well as logistics net lease.
The fact that.
U S Congress, which has been so bitterly divided for so long came together in a bipartisan way to produce an infrastructure bill of one two trillion I think I think messages how important infrastructure and logistics are and we think that we're really well positioned to benefit from from those continued.
Government investments and supplement those with with investments at the on the logistics side.
I'd say also not to not to leave it out that we're seeing a dramatic recovery.
In the.
The appeal and value of seniors housing as.
As well as a reoccupation offices, particularly in the prime growth markets in which we.
Both have office assets and are investing actively in office, we think that the opportunistic nature of of.
The office market is particularly interesting.
<unk> been seeing transactions that are priced very very attractively.
At a meaningful discount to replacement cost and and we think that long term that that messages that will have a very competitive profile.
Yeah.
Okay, Great and just one follow up for me, maybe it's sort of a tethered question.
The certainly the deployment.
Actually the fees were quite strong as was the British property.
Income a so how to think about maybe a normalization of that and how might that tie into your FRE, 60% margin on a go forward look thank you.
Jonathan do you want to address that.
Sure happy to.
Hey, Bill.
Yes, we are.
I think the way to think about transaction fees as transaction fees are always going to be.
Part of our business, but as we've talked about before as the business grows they become.
A smaller overall percentage and we see most of our growth coming from long term fee related asset management fees and.
And in other areas of the business.
But we don't see.
Dramatic drop off between like 21, and 'twenty two on the transaction fee, we just see.
Nuts, we were not forecasting meaningful growth quarter to quarter.
Youre going to see some quarters that are really strong like like this quarter.
And some of the quarters, you might see a slow quarter and I think we've always kind of try to let you know that you shouldn't ever.
Kind of measure our margins by a single quarter's margin because of the business.
As you know is is going to be impacted by both deployment and meaningful capital raising.
Because significant portion of our business is still closed end funds. So you understand about the nature of that so at the end of the day.
We had a very good quarter overall, we're looking as we look forward to as the business scales.
Longer term modest improvements in our margins, but the margins that we had in this quarter. Obviously, you know really fantastic and not something that should be modeled out as it is a.
<unk> margin level.
Yeah.
Okay. Thank you for taking my questions.
Thanks for your interest.
Thank you. Our next question is from Ken Worthington with Jpmorgan. Please proceed with your question.
Hi, good morning.
In terms of commitments to the that contributed to the increase in fee paying AUM. It.
It looks like about one 4 billion and we were anticipating good fund raising this quarter, but also next quarter with three quarters. So good I'm curious do you think there was any pull forward.
In fund raising from four Q3, Q and Bob you mentioned that you expected fundraising this year to beat your expectations can you remind us what those are fund raising expectations are for this year.
Thanks, Ken.
Where we're seeing a great deal of momentum in.
Our capital raising efforts the world is reopening.
We're traveling much more.
I just came back from a very productive trip to the middle East some of the team is remains in the middle East now.
We're seeing that that.
Investors institutional investors, both existing investors as well as new investors are.
They are finding themselves after 18 months or so of less activity.
With with an enthusiasm to commit.
We found that the track record that we posted in the past we reviewed that.
As a significant marketing tool for us people like to invest with top quartile producers and so I think we have a we have a great deal of momentum.
It's a it's an interesting question we have not interpreted.
The third quarter success as a roll forward from.
From year end activity and in fact, I would I would say that as the as the year comes to a conclusion invest.
Investors are interested in making sure that they meet their annual targets. So we would anticipate.
Sure.
A fourth quarter, which is.
Which is strong as well we are I believe have have message to the to the street that.
We hope to be.
Be well in excess of $4 billion of fresh capital raised and in.
2021, and more in the $4 $5 billion range or so and we are we're sticking by that that estimate for the year.
Okay, Great and then maybe a little bit more color on multifamily and logistics can you remind us on your your target for multifamily and even the hard cap.
And really how much you've raised thus far versus your targets. So how far along that funded and then with the two logistic funds that I believe both launched in the quarter and maybe I'm wrong on that but.
But the same thing is sort of what what what is the target that you have for those funds and just how far along are those funds and actually fundraising.
Different different status for each one of those were in the market today with our fifth multifamily fund and our second workforce and affordable housing fund and in those two those two funds or are in the first case multifamily in the beginning stages of capital raising.
Case of workforce, and affordable sort of midway through and coming up towards the towards the latter part of capital raising we have a we have a $2 5 billion target for multifamily fund five.
And confidence that we'll be able to achieve that we have a $1 5 billion dollar target for workforce and affordable excited about that.
Because it's way more than a drop in the bucket to addressing the affordable housing crisis in the U S and believe that we're well on the way to achieve that as well. So both of those funds. We have closings that are coming up in the in the fourth quarter and so we will be able to give you more of an update.
When we announce fourth quarter results, but.
But the amount of interest is as strong as it's ever been.
For for both of those funds both from returning investors who've had a really good experience in earlier funds as well as as new investors, who are looking for exposure into.
In the multifamily and I think we in both cases have.
<unk> who's who of a prominent institutional investors in particular as well as a strong reach.
Retail interest in.
Participating in.
And those sectors.
Youre correct about logistics, we are just out of the gates.
With respect to logistics logistics net lease is an open ended fund.
And so there's no target for for that we feel that the opportunity set is very broad.
<unk>.
We've really just begun the outreach for.
For logistics net lease, but the combination of.
High current income.
And attractive.
Net.
Two the Investor IRR and the tax advantaged nature of an equity fund all combined to make net lease appealing both to folks who want to be invested in logistics as well as investors who are interested in high current yield which is so hard to find in today's market. So are we.
We have a really broad runway there, but we're just getting started.
We showed at <unk>.
In the second quarter results.
De Minimis contribution to overall <unk>.
Either gross or fee paying AUM that logistics broadly speaking represents and we hope and expect that that's going to grow.
On a fast and disproportionate basis as we as we move forward with respect to logistics value add.
We really are just at the point of launching that fund now so no real early returns.
Other other than to report a great deal of interest and we hope and expect that when we do have a closing.
It'll be a strong closing it'll be representative of what we think is a very solid investment thesis that we have for for logistics value add providing.
<unk> infill those infill investments in a.
In a sector that's in dire need of investment what's what's really interesting is the is the long term secular growth prospects, we think for logistics and for E. Commerce in particular, the U S. I think today.
E Commerce represents about 18% of all.
Total commerce and and in other countries that.
That percentage is much much higher we've seen we've seen the COVID-19 pandemic accelerate e-commerce penetration to that 18%, but we think it's really just the beginning of the wave and our team is so well positioned to to find and to renovate and to expand in some.
So many cases develop.
New appropriate assets that that get in the way of that of that secular growth.
I think the success of that fund is as predicted and to us really exciting it's garnering a lot of attention both internally and externally.
Great. Thank you very much.
Thanks for your question.
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Our next question is from Michael Cyprus with Morgan Stanley. Please proceed with your question.
Hey, good morning, Thanks for taking the question I wanted to ask about the <unk>.
REIT space, which has attracted a lot of attention lately. So just curious what sort of opportunity you see putting that sort of retail oriented vehicle, what sort of strategies can make the most sense and actions that you might need to take to bring something like that to the marketplace and maybe more broadly you can just give us an update on your retail distribution initiatives.
Thanks, Mike.
Retail is a big component of what we do we have distribution relationships with.
Virtually all of the of the leading wire houses.
Including Morgan Stanley Wells Fargo, UBS, JP Morgan first Republic.
A number of regional firms et cetera, and we raised a great deal of capital every year through those retail channels. Our our current profile is different from and differentiated from the the retail Reits we invest in.
Value add assets I would say that our investment profile is higher octane.
Then it is for the for the Reits and our.
Performance generally speaking has been been far above those of the REIT. So.
It's a different product that's oriented towards a different more affluent or higher net worth.
Qualified purchaser universe at this point.
And that and that has been very successful and we certainly are aware of and focused on the fact that the retail market is is it extends.
Two a.
That's bigger than than qualified purchasers in and we are aware of how popular some of the.
Retail REIT non traded REIT have been we're continuing to examine opportunities how we can take our already strong retail presence and extend it further into the market we think that.
If and when we do that we would like to maintain the specialized nature of our investment teams and perhaps.
Combined that specialized nature into a diversified vehicle that has a competitive.
Differentiation from what is in the market now we know what we know it's a crowded space, but we think that we think the bridge.
When and if we launch a vehicle would be would be competitively positioned to attract a meaningful amount of capital.
Great. Thanks, So just a follow up question if I could just on real estate credit, which is a meaningful portion of your of your AUM. Today I was hoping you could just talk a little bit about the opportunity set that you see to grow the credit platform and further what what might be more meaningful would you say over the next couple of years scaling <unk>.
<unk> strategies that you have on the credit side or any sort of extensions into adjacencies and new strategies and credit and what can make the most sense there or do you think about building out your credit platform.
It's interesting how the how the credit markets have evolved we've we've dramatically expanded our direct lending activities against transitional real estate in our bridge debt strategies in our bridge debt strategies series of funds.
And and the opportunities there we think remain very significant to continue to expand that the fact that we now have a meaningful logistics capability.
We think will allow us to intelligently learned not only against multifamily assets, which has been the bread and butter of our business in the past, but also industrial assets.
Uh huh.
Where are we where we have a much more informed point of view at this point so that represents some organic growth and related diversification. If you will we've also we've also seen a.
A great deal of of continuing interest in our agency mortgage backed Securities Open ended monthly liquidity fund.
Playing on the residential theme, but but offering an open ended vehicle that that in many respects serves as a quasi money market equivalent not exactly the same but offering 8% to 10% current returns with monthly liquidity.
And a great deal of structural principal protection. So so so that.
That more newly launched effort is gaining meaningful traction and momentum as we as we go forward as well.
<unk>.
We thought that we had exquisitely bad timing when we when we launched that in literally in the face of the market catharsis of of April of 2020. In fact, the performance of that fund was strong and stable and allowed us to translate that.
Unfortunate launch timing into a marketing point, which a lot of investors are taking comfort from now that we can navigate that that fund and its structure can navigate through tough times as well as.
<unk> succeeded in good times. So so we're we're excited about about the future for that as well. We always are and this is a comment that we would make not limited just to real estate credit but across all of our.
Strategies, we're always looking for areas of of appropriate related diversification to further expand what is already a pretty significant total addressable market I will give you. An example of that in our in our workforce and affordable housing fund too.
Unlike fund one we're now investing amongst other things in the conversion of extended stay hospitality assets to work for us in affordable housing at better returns than that then.
Then workforce and affordable housing and it's plain Vanilla way. We've also expanded in a number of of assets in the manufactured housing space in in workforce and Affordable housing Fund fund too and that's a pretty significant market, where we've developed some some some some meaningful capabilities too.
SaaS and invest in.
In manufactured in manufactured housing assets across the country really all designed to provide a.
Spectrum.
<unk>.
Choices for the for the renter between market rate workforce, and affordable and manufactured housing et cetera. The unifying theme around all of that is we.
We work hard to find ways to deploy our.
Social and community and community programming capabilities too in live in the communities to to enrich the lives of the residents to end with the knock on beneficial effects of lower turnover ability to raise rents et cetera, I would say as well just because we think it's really <unk>.
Portance all the fiscal stimulus that and growth of the economy that youre seeing that those those financial metrics are benefiting the middle income and lower income cohorts of the U S population disproportionately in many respects and that's precisely the.
The part of the U S.
Resident population that we focus our energies on so we have some meaningful tailwind.
In terms of in terms of ability to.
Two to afford our our communities.
In terms of the growth of the U S economy.
Great. Thank you sorry.
Sorry for the long answer to your question.
Thank you. Our next question is from Bill Katz with Citigroup. Please proceed with your question.
Hey, Thanks, just a couple of technical follow ups just I.
Katie you or John just the share count from here.
Can we assume that this is the right run rate now now that the IPO sort of fully quarter is if you will and then on the NCI discussion as you collapse. It over the next three years is that and I apologize I'm pretty sure I noticed is that a cliff event or is that a ratable then how should we be thinking about maybe the phasing of that thank you.
Sure. So on your first question related to the share count.
We have done our annual grant of approximately 2% well do a similar grant in the first six months of 'twenty 'twenty. Two so you can layer that into your forecast for.
The second question I, you'll see that we do break out the NCI related to the 2019, 2020 one programs in our MD&A.
Spectation as it will collapse at the end of January.
January one 2020 to January one 2023, and so on.
Thank you again.
The biggest.
Most significant one is the 2019, so that will that will kind of have a meaningful impact I think in terms of reducing NCI in 2022.
Okay.
Okay. Thanks again.
Okay.
Okay.
Thank you there are no further questions at this time I would like to turn the floor back over to management for any closing comments.
Well. Thank you operator, and thank you to all who are participating in this Q earnings call.
We are as a group pleased with our strong quarter. We're excited about the opportunities ahead of us both to continue to grow our mature strategies and to expand and extend our newly launched strategies. We feel as we've said before in the bridge is well positioned with carefully curated.
<unk>.
Which are aligned against strong and fast growing sectors of real estate, we continue to.
And best and our capabilities invest in our teams.
We continue to see strong momentum on the on the capital raising side is and and work tirelessly to be selective in our deployment.
And we very much appreciate the support and interest of all of you in our business. So thank you.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Thank you.
Goodbye.
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