Q2 2022 DigitalBridge Group Inc Earnings Call
Greetings and welcome to the Digital Bridge Group, Inc. Second quarter 2022 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. 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 I would now like to turn the conference over to your host Severin White managing director head of public work really public Investor Relations for Digital Bridge group. Thank you you may begin.
Good morning, everyone and welcome to the digital bridge's second quarter 2022 earnings Conference call speaking on the call today from the company as Marc Ganzi, our CEO and Jackie will our CFO .
I'll quickly cover the Safe Harbor, and then we can get started.
Some of the statements that we make today regarding our business operations and financial performance may be considered forward looking and such statements may involve a number of risks and uncertainties that could cause actual results to differ materially all.
All information discussed on this call is as of today August four 2022, and digital bridge does not intend and undertakes no duty to update it for future events or circumstances.
For more information please refer to the risk factors discussed in our most recent Form 10-K filed with the SEC and in our Form 10-Q for the quarter ended June 32022.
Great. So we're going to start by covering our quarterly agenda.
Mark will outline some of the key drivers of our upgraded roadmap in the first section and then get into our <unk> business update and section two Jacky will cover our financial results in section three and then Mark will wrap up with some interesting case studies on our <unk> is executing the digital playbook followed by <unk>.
Q&A.
<unk> made some great progress towards our 2022 goals from generating initial commitments to our new strategies to leading some of the most important digital infrastructure transactions. This year. So let's get started with that I'll turn the call over to Marc Ganzi, Our CEO Mark.
Thanks Aaron.
Before we get into the Q2 quarter business update and financials.
Wanted to take investors through our upgraded strategic roadmap.
Blaine, how it's going to create.
And drive strong value creation for them over the next few years and beyond.
It's a roadmap.
But as you can see in the middle of this slide was unlocked earlier this year with the repurchase of a minority stake in our investment management platform.
And our related transition to a traditional C Corp.
Those were seminal decision that allowed us to leverage our competitive advantage, which is centered around our long history of operating successfully investing institutional capital across the digital infrastructure ecosystem.
These are decisions that will enable us to achieve accelerated growth and our highly scalable investment management platform.
As you can see on the right. This is our growth engine.
Doubling our AUM over the next few years by expanding extending new and existing investment offerings.
When you complement that with the steady growth that we're seeing in our digital operating assets. It has a unique profile. That's built on giving you our investors access to what we think are the most compelling investment platform and opportunities at scale in the digital infrastructure sector today.
Let's explore our growth profile in greater detail on the next slide please.
When investors ask me, where are you going to create the most shareholder value over the next few years.
Total conviction I can say this is it.
<unk> <unk> platform and deploying that capital intelligently and prudently into the kind of high quality signature investments you've seen us make already this year.
That is what generates returns for our investors we.
We invest.
One and operate and platforms that are growing.
And then of long dated revenue and earnings streams.
JJ rich participates in the business building economics, as a seasoned investor operator in the digital infrastructure sector.
The combination of growing secular demand for digital and the full stack capability that we've built to capitalize on positions us to take them from just under 25 billion to over $50 billion in the next three years.
As the partner of choice and a resilient growing asset class, we have high confidence in our ability to execute on this strategy through the good times.
In the challenging ones.
Through the first two quarters of 2022, we have demonstrated our ability to execute on this plan against the backdrop of a challenging macro.
That's it.
We believe this is not hard to understand it's not complex.
We double our fee them in three years.
This drives long term predictable earnings and cash flows that we believe shareholders will increasingly appreciate.
Next page please.
Great.
So we're going to double <unk>, what does that mean for you our investors. It's really simple we've got an easy algorithm that translates into incremental fee paying AUM into higher revenue.
At an average fee rate of 90 basis points across our portfolio.
With very attractive incremental margins this drives strong earnings accretion.
The earnings margins should remind you of other great digital infrastructure businesses many of you own today.
The growth rate of digital bridge on the other hand is unlike anyone else in our peer set as we will continue to deliver double digit organic growth through 2025. This is incredibly unique in our sector.
I'll, let you apply your own multiples to the incremental FRE to understand the value creation opportunity over the next few years.
Just on management fee streams alone.
Next slide please.
So doubling theme over the next three years is the business plan. Our team is focused on delivering for you today.
Many of you asked me is this possible and how does that compare to our track record well.
What I can share with you as it compares very well in fact, we're on track to more than triple fee them.
Since 2019 by the end of this year.
To greater than 25 billion.
The key here is since Jackie and I took over the firm we have delivered on our fund raising commitments to you our shareholders.
We believe we have earned your trust in this regard with actual outperformance results and.
And when you factor in our expanded new full stack capabilities with the fact that we're likely to be in a position to refresh our flagship strategy sooner than later.
Given that <unk> is now fully deployed.
We think this roadmap makes a ton of sense. It is very easy for investors to understand.
Next slide please.
So as a part of our upgraded roadmap.
I want to refresh our sources and uses with respect to the balance sheet capital, we've crystallized as part of our digital transformation.
Today, following the warfare in A&P transactions, which will boost future revenue and cash flows to digit rich at.
At the same time, setting aside $300 million for future GP commitments and our own funds.
We're looking at about around $900 million of total digital firepower set to redeploy over the next year or so.
And look it's really easy we've got three different buckets that we can deploy that capital first strategic digital M&A.
With our flexibility our corporate transition has afforded us that means we can buy a.
<unk> strategic investment platforms, like A&P, which increased earnings and extend our investment management capabilities.
Or alternatively, we can buy more digital operating assets that meet our quality and return parameters.
Both of these are incredibly good uses of the capital.
Second <unk>.
Capital structure optimization, which.
Which is really a fancy way of saying, we intend to buy back our preferred stock over time, we've telegraphed. This to all of you this shouldnt be something new.
Expect this to be a use of capital as current liquidity increases with the data bank recap.
And warehouse investments returning to the balance sheet later this year.
Lastly, <unk>.
Share purchases and dividends.
As you know our board recently approved a $200 million stock repurchase authorization.
That allows us to be opportunistic and take advantage of our stock trading below what we believe is the intrinsic value.
Additionally, we've committed to re initiating the dividend in the third quarter.
Which will detail further in the coming months I remain steadfast to this commitment and unwavering.
We've described that as a low but grow dividend since we expect the vast majority of our free cash flow to be reinvested back in our business given the accretive opportunities we see to compound value for you our shareholders.
Next slide please.
So let's take a step back before we wrap up this section and put the roadmap into proper context.
I understand how realigning our business to an asset light model manifest itself in the numbers.
And most importantly, our earnings growth.
Today, when we look forward to 2023, we see a business that's going from roughly one third investment management, two thirds operating to really flipping that around with most of our earnings coming from our <unk> platform.
That starts with the incremental cash flow from warfarin and A&P transactions and.
And it's boosted by increasing guidance around capital formation that I've referenced and Jackie we will share with you in greater detail later.
This roadmap has important structural implications too.
It's the past our balance sheet was perceived as a potential competitor to our iam business that is no longer the case now it's our partner.
Helping to accelerate the investment management platforms growth with GP commitments.
Warehousing capabilities.
And positioned to co invest alongside our Lps and great digital infrastructure opportunities not competing with them.
Importantly, we are still targeting over $300 million and segment level EBITDA next year with $900 million of dry powder. We believe we are in a very good position to fill the remaining $60 million in digital learnings.
We will get this done organically and Inorganically.
Finally, this roadmap positions us not only to reach our near term financial goals, but our investment management platform fundamentally grows faster.
It's less capital intensive and.
And it's highly scalable against our other publicly traded digital infrastructure peer set.
These are incredibly attractive attributes in our view.
We could not be more excited about executing on this next stage of our growth strategy.
Next slide please.
So, let's get a bit more granular on the second quarter and cover some of the highlights.
I want to start by revisiting some of the macro factors, we outlined earlier this year on our Q4 earnings call.
As you can see on the right. Many of these have continued to present challenges with interest rates and inflation in particular continuing to climb.
But look let's not dwell on the headwinds I want to talk about opportunities that adversity presents.
Because that's the perspective that digital bridge brings to changing conditions.
First this is an amazing opportunity for us to really step up and deliver for customers and our clients.
Whether it's showing Lps, how we can continue to deliver strong returns through the tough times.
Or whether it is helping our portfolio companies cut through the supply chain issues before anyone else.
We've been doing this for three decades and to other downturns and one thing we've learned in that deleveraging and delivering for customers and clients and challenging periods. As this is the basis for deep relationships.
And through that you gained more trust.
And that trust in turn builds over time.
Second point when.
When capital becomes more scarce.
The logic of outsourcing improves and the neutral host model that we operate in digital infrastructure actually makes more sense as our customers' balance sheets are constrained.
By the way we're already seeing this across our data center platforms with strong bookings growth, which I'm going to share with you later.
Number three.
Lower M&A prices are a good thing.
If like US your net a buyer.
In the shorter term, it's allowed us to buy some top tier assets.
When pure financial buyers are less competitive lacking.
Lacking the operational expertise.
We are able to create incremental value.
Ideally, we will see more rational pricing in the future.
Which will only improve returns on long dated investments that we're making today.
Finally this is the this is crucial to the roadmap I laid out earlier.
Around our capital formation targets as the partner of choice to institutional capital and digital infrastructure, we expect to benefit.
As investors are going to focus their capital on scaled Goto names and specific asset classes.
I'm already hearing this as we talk to our LP base around the world who have impressed that <unk>.
<unk> been very impressed by our portfolio resilience, which I'll cover on the next slide.
Look the bottom line is simple we've been doing this for three decades through many market cycles and economic conditions.
<unk> like this are actually with our experience.
And expertise are even more relevant than when the Sun is shining.
So we are prepared.
We are vigilant.
And we're positioned to reinforce our standing as the leader in the digital infrastructure ecosystem.
Next slide please.
Another question we've gotten this summer is how are your portfolio companies performing through this period.
Well the short answer is quite well.
I've told investors investors, we'd give them some insight into our four key verticals of digital infrastructure in this earning season, so let's get into the details.
Here on this page you have some forward looking stats across the 25, plus digital infrastructure portfolio companies that we own and operate today around the world.
All of our core verticals are showing positive growth and in some cases really impressive increases relative to last year.
So this is driven by factors that I described on the last slide.
Like our ability to deliver.
And our increased focused on outsourcing by our customers.
Bookings across our global tower portfolios are up 5% year over year.
And they are up over 28% and our fiber businesses.
These stats are even more impressive when you take a look at the data center space with the six X growth factor in bookings.
And at $2 seven factor increase in our small cell vertical.
On the right hand side, you can see some of the stats from our digital operating businesses, where EBITDA is up 23% year over year and bookings were almost up to five X over the prior year.
This is the kind of performance that investors are looking for in periods of distress.
Who is growing.
It was resilient.
Digital ridges.
The credit honestly goes to all of the management teams across the globe that are executing day to day for customers at our portfolio companies.
The takeaway here is simple.
Digital richest operating businesses continued to perform well despite the macro environment.
Next slide please.
Next capital formation.
Here I'm very pleased to report that we're two thirds of the way to our 2022 target at the halfway point.
This of course was led by the $1 2 billion recap the data bank that we announced in June .
That transaction created a permanent capital vehicle, giving new investors access to data bank as it enters the next phase of growth as the leading edge focused data center platform in the U S.
In fact, we're very optimistic about our ability to bring in new additional investors into that transaction during the third quarter.
We expect to raise more capital for Databank.
Even more importantly, we've closed an initial commitments from early anchor investors and our new credit and core strategies.
This is just the first proof of concept that we are set to form significant capital around both of these strategies as we enter the second half of this year.
In both cases, we've capitalized investor interest by seeding investments on our balance sheet too.
To give L. P is a very clear picture of the assets.
And the strategies that we're focused on this is the power of utilizing the balance sheet.
Uncertain macro conditions have elevated the investment rationale behind credit and core strategies.
Which fit lower on the risk return premium spectrum. So we're optimistic about our ability to meet and exceed our initial fund raising targets in these strategies.
When I look forward to the second half of 'twenty two the other area, we expect to have further successes and co investments.
Where some of the new signature transactions, we've announced create opportunities for existing and prospective investors to partner alongside alongside of us and some of the highest quality global infrastructure businesses.
Expect to hear more from us on co investment as the year progresses in fact, the switch in Gd towers transactions.
We'll take our flagship digital rich partner to fund.
Up to around 90% of committed capital.
This creates conditions for us to begin evaluating future flagship strategy.
This is one of the key catalysts for the updated guidance that Jackie we will share with you shortly.
In summary, we have built incredible momentum into a busy second half of the year.
As we get early validation on our new strategies, we experienced strong investor interest in co invest which positions us well to exceed our 2022 targets.
Next page.
Establishing new platforms was the headline story at digital bridge in Q2 of 2022.
Capital deployment is an essential part of our investment process and success this quarter.
Was very successful on this measure.
Our investors look to us to identify acquire and grow highest quality digital infrastructure businesses globally, and I think this quarter typifies our ability to serve not only as the partner of choice to institutional investors.
To act in the same capacity to some of the leading corporate and management teams in our industry.
I was incredibly impressed by the entire digit regime and their ability to execute these two signature transactions during turbulent market conditions.
This is where our deep domain expertise combined with our determination to create the desired outcome.
Form the right capital and execute when others could not.
Look there's a lot more work to do on switching Gd towers, but we believe these are incredibly compelling new platforms with a lot of room for continued investment and growth.
Next slide please.
Before I wrap up the second quarter update and hand, it over to Jackie.
I would like to touch on just two examples where digital ridge is continuing to create value for our shareholders.
First databank not.
Not only does this recap in permanent capital vehicle create a long term fund that brings in new investors with fee and carry.
It's really an opportunity to harvest and highlight the digital bits playbook at work.
In just two and a half years, we've turned a $500 million investment off our balance sheet almost into a $1 billion of value for our shareholders.
And the first part of the transaction, we will be harvesting $230 million.
And that may rise over to over $400 million through subsequent closings.
Allowing us to both recycle capital into new digital M&A.
As well as maintain a significant participation in the continued growth of database.
During the second quarter. We also closed on a 745 million Euro Telenet tower co transaction.
Which we have now renamed Belgian Tower partners.
This was the deal we did to seed our new core strategy dips.
Deploying $290 million of equity from our balance sheet.
And what's really interesting is that during that we expect to be about a six month old not only do we generate the underlying earnings for the business.
But we also earn a warehousing and a ticking fee.
This is a great way for us to generate returns for our shareholders with York capital.
As we evaluate long term capital allocation opportunities in a disciplined manner.
So those are just two great examples of how we've executed the digit rich playbook to build value for you our shareholder.
With that I'm going to wrap up our Q2 update in summary, our businesses are performing really well despite the challenging macroeconomic conditions.
We're seeing strong momentum in our capital formation activities with early validation of our new core and credit strategies.
And we're executing on exciting new investments that we believe will be the foundation of future returns.
So I'll hand, it over to Jacky to walk you through the financials Jackie.
Thank you Mark and good morning, everyone.
As a reminder, in addition to the release of our second quarter earnings We filed a supplemental financial report this morning, which is available within the shareholder section of our website.
Starting with our second quarter results on page 18, the company continues to see strong year over year growth driven by successful I am fundraising.
But the second quarter reported total consolidated revenues were $289 million, which represents a 22% increase from the same period last year driven by our continued expansion in <unk> and the U N.
GAAP net income attributable to common stockholders was $37 million loss or <unk> <unk> per share representing a $104 million increase compared to the same quarter of last year.
Total company adjusted EBITDA was $31 million, which grew from $15 billion in the same period last year as we continue to see growth in our high margin digital Im business.
Distributable earnings was $8 million as recurring cash flows continue to be positive in the second quarter accelerated by the <unk> transaction, which closed in may and significantly reduced corporate debt servicing as we rotate out of our legacy capital structure.
We expect this measure to grow as we fund raise and close on our recently announced A&P capital transactions.
Digital Lam with $48 billion in the second quarter, which grew by 37% from $35 billion in the same period last year.
As Mark mentioned, we have continued our strong growth trajectory and will be over 65 billion on a pro forma.
Form a basis, including the recently announced pending transactions.
Moving to page 19, the company continued to grow revenue and earnings driven by higher levels of fee, earning equity under management.
Year over year comparison was impacted by one time catch up fees received Darren <unk> fund raising last year, which when excluded consolidated revenues increased by approximately 18% and <unk> by 28% year over year.
On a pro rata basis, we saw improved flow through following the closing of the whopper transaction with fee revenues, increasing by 35% and FRE by 47%.
Moving to page 20, our digital operating segment has continued its growth in the second quarter consolidated adjusted EBITDA was $101 million during the second quarter, which is a 24% increase from the same period last year driven by lease up at vantage STC and the.
Our Houston area data centers at Databank.
Turning to page 21, we have seen continued growth in our digital reporting segments, particularly in our high margin investment management business we.
We should note that the pro forma amounts shown on this page include the pending A&P transaction, we now own 100% of the Iam revenues and FRE. Following the acquisition of <unk> a share in the business.
Both transactions are highly accretive and generate strong recurring cash flows.
Since last year, our annualized fee revenues increased from $94 million to $240 million in FRE increased from $53 million to $125 million.
We are excited to have increased exposure to this high growth <unk> business, which has materially improved the company's cash flow profile. Since it is an asset light and anchored by long dated fee streams.
Looking at the right side of the page our digital operating segment has continued its growth with annualized revenues, increasing from $131 million last year to $160 million in annualized EBITDA, increasing from $55 million last year to $68 million driven primarily by successful.
Acquisitions advantaged SDC and data bank.
Moving to slide 22, I will now outline our updated corporate guidance forecast.
Starting with the digital investment management, our recent fund raising success has demonstrated that digital bridge is the partner of choice to investors deploying capital into high growth digital infrastructure sector.
The unique investor operator model with a talented and experienced team that has been the key to our growth and this model has enabled us to expand into key digital infrastructure adjacent verticals, including core credit and ventures, which we expect will further accelerate our growth.
As a result of recent successes and our near term fund raising pipeline, we are increasing our 2023 and 2025 investment management framework.
Our 2023 digital in management fee revenues guidance target range has been updated to 300 million to $360 million and our digital fee related earnings target range is now 175 million to $195 million.
Moving to 2025, our digital investment management fee revenue guidance target range has been updated to $460 million to $520 million and our digital fee related earnings target range is now $270 million to $310 million.
Next our digital operating targets have been adjusted to separate out organic growth on our existing investment from anticipated feature digital M&A driven by utilizing dry powder that we will receive following monetization of the remaining legacy investments and the return of warehouse investments that mark outlined.
And earlier.
We used a portion of our dry powder for the whopper in A&P transaction and our remaining capital will be allocated based on our strong pipeline of both organic and inorganic opportunities.
Turning to page 23, we've laid out a framework primarily based on an earnings driven model, including fee related earnings and adjusted EBITDA.
At the core of our business is the recurring earnings from our digital business, which is based on a simple formula We project how much capital, we will raise in the future, which become fee, earning equity under management or <unk>.
AUM is multiplied by an applicable fee rate to give us our fee revenues. We then analyze how we can use our operational leverage to improve margins more invest in developing new strategies to derive the projected FRE.
Turning next to our digital operating segment, which constitutes the value of our pro rata ownership and data bank and vantage SDC. These businesses are very much in line with some of the most common names with digital rates, which are anchored by long term tenant leases high quality counterparty customers' fixed annual escalators.
<unk> rates and high <unk> flow through.
A third but often overlooked value driver is our performance fees on our investment management business.
If our funds performed well.
And we deliver outsized investment returns to our limited partners, we will generate performance fees, which a portion will be return to our common shareholders.
And lastly, we look at the net asset value of our current balance sheet to arrive at the company's total enterprise value, which we will walk through on the next page.
Page 24 summarizes the remaining net value of our balance sheet first is our digital principal investments, which include our GP interest in our digital eye on funds.
Second is our remaining legacy investments, which consist primarily of our remaining shares in bright spire.
We expect to monetize these remaining investments in the near to medium term.
Third is our corporate capital structure, which includes our preferred equity funds the securitization and remaining convertible notes that we expect to repay at maturity next year.
The sum of all three together with corporate cash equates to our total corporate and other net asset value.
In summary, and as I continue to reiterate our company is strong and healthy driven by our sector, leading asset light investment management business that generates high quality predictable and long data fee earnings.
We continue to be excited for the rest of 2022, as our fund raising and our growth prospects remain robust.
And with that I'd like to turn it back to Mark.
Thanks Jackie.
One questions, we've gotten this quarter, particularly in light of the new signature transactions. We've signed is how do you create value and generate differentiated returns.
The simple answer is we are specialists.
We are business builders and digital infrastructure.
And while our business model is investment management focused we are not your traditional financial buyer splitting an unlevered return into debt and equity components.
What we do have as a platform strategy.
Reuven Playbooks.
That we've developed and refined over the past three decades I don't want to walk you through a few recent examples.
We have context for how we approach value creation.
I'll cover our framework briefly starting with establishing the right platform. This is critical in my experience if you get the assets and the team right from the start the degree of difficulty.
It goes way down.
We spent a lot of time upfront, making sure we have the right setup from the start that need buying high quality assets.
They can handle our second stage transform and scale.
This is where we buy and bill you've heard me say it before you have to pair capital with the right business plan.
Most always investing in both greenfield projects and bolt on M&A.
Finally stage III, you've heard me say it before follow the logos, we follow logos to support the continued growth.
With our customers as they build networks to meet increasing demand, we follow them and we build facilities for them.
So let's cover a few case studies, where you can see the strategy inaction.
Next slide please.
First vantage data centers most of you know vantage, which today is one of the leading global Hyperscale Hyperscale data center companies operating state of the art facilities on behalf of the world's largest technology and cloud companies.
It starts with one key tenants.
And the right leader find the right CEO and we have that.
When we partnered with <unk> and his team advantaged five years ago. They were in two markets with three campuses on the west coast in the United States.
They literally had 66 megawatts of installed capacity.
Our view at that time was vantage was the right platform.
It was capable of scaling to meet the demand for public cloud compute that we had anticipated.
Would continue to grow exponentially.
Look it's also worth noting a few people felt that the original acquisition looked a bit 40 at the time it took a little bit of heat for the acquisition price and that multiple.
Fast forward to five years, nobody is talking about the multiple <unk>.
<unk> is now on five continents, with 25 campuses online or underdevelopment EBITDA across the platform is now seven X.
Was five years ago.
That's an incredible growth trajectory that qualifies as a successful completion of stage two.
As it moves out of transform and scale phase of the plan now today advantages in the third phase of the digital rich platform strategy of following the logos.
As cereals key customers extend their global footprint into new markets and vantage is going there with them in Asia.
Africa and Europe .
We're thrilled to support <unk> and his team as they deliver for customers on a global basis.
Next slide please.
Next up data Bank look this is another great example, six years ago, we partnered with <unk>, who I've known and worked with for 25 years to build a nationwide edge data center platform, starting with a regional Midwest operator, serving free markets.
Again, it's really critical to understand we partnered with the right management team.
We acquired the right core assets and then we built from there.
Today, we're in 26 markets around the United States more markets than any of our competitors that purport to be in the edge compute space.
With a network of data centers optimized to serve not just enterprise customers.
But increasing demand from cloud providers as they look to grow their footprints in tier two and tier three markets.
Data gravity and latency are becoming increasingly relevant and.
And data banks robust interconnection profile makes them the ideal partner to meet that demand.
No.
Six facilities to 64.
<unk> eight times EBITDA growth another successful transform and scale case study buying.
Buying and building selectively.
The ability to do both is critical.
Data Bank now is also in the third phase of our platform strategy growing their business and partnership with key customers who value their low latency multimarket nationwide footprint.
There's plenty of room for continued growth year in phase III, which is one of the reasons. We're so pleased to welcome Swiss life Eds.
Invest in other new investment investors to the platform alongside of our significant commitment from our balance sheet to continue to grow databank.
Next slide please.
Last case study edge point.
This was launched a year and a half ago to build and scale a southeast Asian tower platform.
This is our <unk> power platform in the portfolio on a global basis.
By the way that we mentioned we love towers.
Here, we partnered with a team led by Suresh to do to execute a buy and build strategy.
Capitalizes on strong regional demand and healthy carrier dynamics in the markets, we serve Malaysia, Indonesia, and we've just recently added the Philippines.
This investment is now in phase II.
Transform and scale.
We're making incredible progress here in year, two we've already hit our five year underwriting model in terms of scale.
With almost tripled the number of sites since we started its truly incredible with Suresh and the team have done here on top of that we've built a robust regional build to suit program.
With key regional carriers and have already delivered 800 Bts sites since inception, and recently had built our first group of <unk> small cells and ran hubs to support the next phase of network growth in southeast Asia for our customers.
This has been a terrific example of our ability to leverage successful playbooks and experienced in other geographies.
Partnering with strong proven local teams to build and create value for our investors.
I look forward to keeping you updated on the progress we make here, we're very excited about edge point, South East Asia and its future prospects.
So this brings us to our conclusion today.
Which is the results and the key outputs of the execution piece of the digital bridge story.
It's been exactly two years since Jackie and I took the helm here with the faith and support of our board our employees and you our shareholders.
We laid out a plan over this time period that was brave as it was both.
And we've executed against that plan at every road marker that we have a place for you.
In fact, we've exceeded those markers and guidance.
This quarter is no exception.
Let me again summarize a series of key and successful outcomes for <unk> and <unk>.
We transitioned our data bank investment into a continuation fund to.
To help the company get permanent capital.
Proof that we can use the balance sheet intelligently and tactically to create a fantastic IRR of 37% for you our public shareholders.
We sold our European based digital infrastructure media business Wild stone booking our first full exit from DB P. One proof that Carey will accrue to you our shareholders.
We had formal first closes in our credit and SaaS strategies.
Proof again that we could enter new verticals in our digital infrastructure investment management ecosystem.
Next we acquired switch and DT towers, two very valuable and highly sought after platforms growing at scale.
We have deployed and committed over 90% of digital Bridge partners Fund too.
Lastly, we have already achieved two thirds of our fund raising goals and we're only halfway through 2022.
This is critical proof that even in a challenging macro digital rich continues to successfully formed capital around what we believe are best in class ideas in digital infrastructure investing.
The key in this quarter is simple execution matters.
And let's be honest with each other winning matters I love to win our team loves to win in.
And you win with us in the digital infrastructure business model that digital bridge's executing today.
We've aligned our ideas people and capital to create long term value for you our shareholders.
I want to end and thanking my team.
For their tireless dedication to our business plan and I want to thank you our shareholders for your trust and continued interest in digital bridge.
Thank you.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue.
Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Our first question comes from the line of Michael Ellis with <unk>.
Cowen and company. Please proceed with your question.
Hey, guys. Thanks for taking the questions I have two just to start.
Talking about the challenging macro environment, but you had really strong bookings within the data center business I'd love to get a sense for what Youre seeing in your pipeline across the verticals of digital infrastructure that you operate in just given what's happened with the macro and then I have a follow up.
Yes, Thanks, Michael Good morning, how are you.
So yes look it was a tremendous second quarter in terms of new bookings.
But was also quite interesting is that the backlogs are.
Our data center businesses.
Continued decline year over year so.
<unk> quarter backlogs in terms of pipeline growth, which is leases that.
That have not been yet executed but are in what I would call diligence or discussions those pipelines are up over 128% year over year.
So there is not only just profound movement in bookings, but theres also been a profound movement.
The pipelines. So that's obviously quite quite strong we've had similar growth in our pipelines and fiber and towers as well.
Bts backlogs are up close to almost 30% globally.
We've got a tower companies around the world So.
Some of that is stronger in certain regions versus others, but very strong demand here in the U S for VTS very strong demand for Bts as we discussed in southeast Asia.
Those two markets are really sort of a leading indicator markets for build to suit.
And then on the fiber side, we've just seen a return of the.
The Hyperscale are needing more data center connectivity, that's been one of the fastest growing verticals in terms of new bookings, but also pipeline and enterprise customers have returned back in 2022.
Positive net bookings, but also positive.
Forecasting pipelines in the fiber business, mostly in PPO and its data. So it's been an incredible quarter and it's hard right because you've got this macro that's difficult to understand you have got some some businesses declining got some businesses talking about job layoffs were trying to hire people who are trying to keep people digging ditches, we're trying to.
People stacking towers and turning on datacenter capacity so.
It's really interesting.
Our business the digital infrastructure World.
And we saw that in.
The dot com crash, we saw that in the mortgage crisis.
People continue to need digital infrastructure irrespective of the macro setup and thesis.
Awesome. Thanks for that and then just my second question would be it looks like in your guidance Youre still expecting the contribution to the operating business on the EBIT aside from seem to be determined M&A could you just give us an update on what youre looking to add on that side of the business and as part of that earlier. This year. You had mentioned that you were seeing hairline cracks.
And valuations, which was presenting a window of opportunity just love to get an update on what youre seeing on the private market valuation front since you made those comments.
Yes look so we're beginning to see valuations come down that Shouldnt surprise, I think anybody I think.
Deals that we saw that were bankers were expecting 30 times have now come into the mid twenties range fiber deals that people thought were going to trade at 22% to 24 move down into the low to middle teens and so we're seeing.
Our remark to market and we're seeing a correction in private M&A multiples Lars.
Largely because theres less liquidity and less people hunting.
Mentioned in my commentary, our ability to land switch and Gd towers was a function that our lenders showed up for US we have the capital we have the conviction and we can act quickly and I think those results speak to why.
We're the leaders in what we do.
And to be honest the public guys were kind of on the sidelines.
They couldnt get switched on and they Couldnt get the DTE tower portfolio done. So we got that done and in fact I would offer to you. If you look at recently, what American Tower did with core site there to go out and find private capital.
To go finance core site, we don't have to do that we have that capital at our discretion. So we can move quicker look the balance sheet light model people are going to have to get used to it right. It takes time, it's a different form of how you can own digital infrastructure.
And we think this is a smarter way to own it.
As my CFO reminding me yesterday, we actually don't have maintenance capex in our numbers. When you are running an investment management business, where your average weighted average funds as 11 to 12 years, that's actually longer than a data center lease our fiber leased thats five years to 10 years long.
We think the durability of the cash flows in the SaaS like asset like model are really strong the resilience of our business model was proven out this quarter.
And now we're in a mode, where we're raising capital we're playing offense in our underlying portfolio companies are performing this is a really good setup.
We have room for optimism and we believe that we can execute strongly.
Through this macro setup. This is I think where investors need and want to be.
Thank you so I apologize.
Looking forward to seeing you guys in a bolt on next week.
Yes, the next week.
Thank you.
Thank you. Our next question comes from the line of Richard Choe with Jpmorgan. Please proceed with your question.
I just wanted to follow up and see given the inflationary environment.
To talk on pricing.
What segments or digital infrastructure assets do you think has the.
The most pricing power going forward.
Well look right now I think the data center sector has experienced Richard the highest increase in price per megawatts in that price per rack.
We've seen that globally across vantage Databank Atlas edge and scholar.
All of those businesses have reported not only positive up net bookings, but they have also seen increase in price per.
Per metric.
And I think thats been to be honest with you it's been as low as 10% has been as high as 20%. So.
And that is a function of I think obviously not only.
A lack of supply in terms of where hyperscale or it can go I think this notion of outsourcing has been more amplified in the last two quarters I believe Richard over the next four quarters that will continue to be amplify it I think we see the.
The scarcity and will serve letters the scarcity and permits the scarcity in land, we see that more pronounced in Europe than in North America, and Asia, but we have a very strong footprint in Europe , we have a massive pipeline of opportunity in Europe that we're executing on and we got there early.
We got the power, we got the well serve letters, we got the permits a lot of that foundational groundwork we did three or four years ago is now coming home to bear fruit for us and the same thing in the U S and the same thing in Canada at the same thing in Asia, and certainly what we're seeing in Latin America as well.
And recently lighting up Johannesburg, where we landed up a 100 megawatts for a couple of Hyperscale tenants there. So.
Really feel very strong about our pricing power in the data center business I would say towers.
Just interesting when it came out of a conference with <unk>.
One of our portfolio companies last week, and we talked about pricing a lot Richard there clearly is a window to move pricing up in towers up significantly.
About 5%, but 10% or 15%, we've opted not to do that a vertical bridge.
We've been we've been a partner to Verizon and AT&T and T mobile for almost three decades now over three decades.
I've learned is that in these moments, where you have the opportunity to move higher on price.
We've taken the the <unk>.
Hi, Ron and yes, we've moved our prices, but certainly my attitude is I don't want to gouge customers because inflation will be teens. Eventually these customers will be there they will need us. These are multi decade relationships and so whilst pricing in towers has moved up it hasnt moved up as precipitously as it has in data centers.
Say fiber pricing has also moved up.
It's largely due to the fact that.
We're putting on new capacity, we are building new routes building new laterals, we built some interesting interesting new web scale routes long haul routes that have performed really well for us.
Construction costs haven't really been the problem there Richard it's really been the sourcing of materials and crews just getting the right construction crews to get out there and do either full trenching or micro trenching or suboceanic cables Lang. These are really high in demand jobs and the most important thing that you've got to do in the fiber space right now.
You need to retain and hire great people can understand how to work in the field.
I think probably the biggest thing small cell pricing has moved up a little bit as well.
<unk> seen a tremendous amount of five G overlays across the fresh wave of network and the <unk> network. There clearly is some room for more pricing, but we also have to be sensitive to the fact that carriers can self perform and small cells.
So we haven't seen a demonstrative move and rental prices like we've seen perhaps in the data center space.
Great. Thank you.
Thanks Richard.
Thank you. Our next question comes from the line of Dan <unk> with B Riley Securities. Please proceed with your question.
Yeah. Good morning, guys I appreciate you taking my questions and thanks for the update on the longer term guidance very helpful.
So so clearly our focus here on scaling the <unk> platform and I think there is an ongoing debate right now among the public asset managers out there around the best way to divvy up the carried interest between shareholders and employees a lot of them have started to give.
More carry to employees.
It goes.
Goose FRE margins that way a lot of times the stocks just don't get the credit from the carriers. So just if you could remind us what the corporate share carried interest right. Now is in your funds and then whether you think that might change over time.
Yes look I think we've demonstrated that we feel very comfortable about the split between where the carried interest goes to our investment team and where it goes to you our public shareholders.
Storage really we've kind of been in this.
Either 60, 40, 65, $35 70, 30 split depending on the product and the team.
Feel very comfortable with our splits we think it's in range with where the market is.
And obviously the street has not given us credit for.
For carried interest yet.
We do have a lot of capital at work.
As I mentioned earlier, our funds are performing and they are performing exceptionally well.
So we do believe that.
At one point in time.
The analyst community will give us credit for Kerry heretofore. They have not we did reference an exit inside the quarter that will trigger carried interest for fund one.
Not at Liberty to give specific details on that today, but I would say it was a very very positive result for the company and most importantly, it demonstrates our ability to return carried back to public shareholders, which is sort of us portending whats coming in the future.
We have other assets, where we've got a lot of interest and we're going to continue to raise capital we're going to continue to sell assets. This is part of the business model that we're in and we're really pleased with.
With what happened in this quarter proving out the concept that we could return carrying back to public shareholders.
And no matter, what split and obviously market the range of it but we love the alignment between the balance sheet, the GP and our employees right. So as we do well as we build up our track record is we make money for our limited partners. The GP with its share of the carried interest obviously went out at you as a common shareholder went out.
We love the alignment we have we're sticking to it.
Awesome. Thanks, guys for all of that just one more for me you talked about taking the preferred shares out.
I guess should we be thinking about that being like the use of balance sheet capital or should that be like you're layering on more debt securitization that you did to effectively replace that in the capital structure and then I guess just related how do you think about the total debt that this business.
Level that I should say that this business can hold is it some multiple of that late 'twenty three digital operating EBITDA puts FRE or is there some other way youre thinking about the debt level.
Yes sure Dan.
We'll break it out into a couple different ways to look at it. So if you look at an asset light investment management, principally an asset light investment management model you back out the preferred equity as well.
Non recourse debt that sits at the data bank advantage books and records.
Subsequent lead time.
Net debt to EBITDA leverage level, and I would say that that leveling is short or on par with other alternative asset managers. So we are really right on par with that and I will say absolutely yes.
<unk> type of.
Leverage is.
The optimal for us as an asset light alternative asset manager the highest growth alternative asset manager management manage are out there.
And so yes, we will look at them back principally off of just pure retirement of those preferred equity Stakes.
To be able to be able to delever, our balance sheet, but at the end of the day, we're always going to look at what the best return for our shareholders and we do believe that digital acquisition digital M&A continues to be the best use of capital because of the fact that it's going to give us not just long term fee stream for a long period of time.
But the secular tailwind in the industry itself is bar, none the best use of our cash so to the degree there is opportunities there, we'll do that if not that we won't be very opportunistic with optimizing our capital structure.
I think also Jackie appreciate another yes, just one add on to that is I think we've given you pretty strong guidance about where we're going in the next three years.
This tripling of our ability to raise capital is really important.
Moment in time for the company, we have a lot of confidence and conviction around that I think we've always been clear we put out fund raising targets, we've always candidly we beat them.
We've given a very clear guide on where the investment management platform is going over the next three years Whats interesting is Jacky and I created the first securitization related to an investment management business last year that was a really successful securitization like other securitizations, we have an accordion feature and we have the ability to tack onto that.
And good opportunity there can certainly be to take up more securitized debt, which has a lower cost and most important we have no covenants, except maybe one which is the <unk> ratio the simplicity of the capital structure gets easier I actually think as Jackie does we can delever.
At the same time, we can tack on our existing trust because as we continue to grow long term revenue streams and the investment management platform. You also have the ability to take on additional leverage in that trust, but at the same time, we are paying out press, which are typically costing us 17%, but mark to market more like all in yield 9% to 10%.
There is an awesome accretion trade here, which creates more free cash flow, which is something that Jackie are both focused on which is continuing to grow free cash flow and to grow the earnings potential of this business.
Awesome I appreciate your time and best of luck.
Thank you.
Thank you. Our next question comes from the line of Jon Atkin with RBC capital markets. Please proceed with your question.
Thanks, you talked about data center pricing just interested in any commentary you have around.
Targeted development yields and as that.
And have moved in line with pricing held steady.
And then secondly on towers, given Germany than earlier.
Telling that in an edge points.
Kind of shifted the geographic mix that you have.
How does that affect.
Youre thinking on geographic focus for salad transactions going forward. Thanks.
Well look I think on the single tenant development yields for data centers. They really haven't moved that much Jonathan I think whilst we've been able to get higher pricing.
Construction costs have moved up so what we've tried to do is align that cost an increase in the facilities and then to align that with the right rental rates. So that were getting to all in about the same yield so single tenant yields based on certain geographies can be as low as 7% that can be as high as.
<unk>, 9% to 11% like in Latin America.
Just very geographic dependent its customer dependent and it's also whether it's an edge facility or whether it's a hyperscale facility, we're seeing slightly different yields as well.
So.
I like the yields I like where we're at.
Data center space, our construction pipeline has moved up over 136% year over year. So we've got more shovels in the ground and we're lighting up more capacity this year versus last year.
So we're seeing no no demonstrative change.
Change there I would tell you it's been net net an increase in yields have moved up slightly I would say on the tower side, we're very happy with the partnership with Deutsche Telekom.
We look at that on an adjusted.
Q4 run rate Tcf, multiple or Q1 run rate Tcf multiple were going to close it as effectively at 22% to 23 times Tcf deal given the amount of towers and the amendments that are going on in the lease up that's happening there. So I feel like that's a really good price for arguably sorry, not arguably the most high quality tower port.
<unk> in Europe . This is.
For us the.
The sort of diamond asset in Europe , and I think when you hear about private multiples still for small tuck in deals SBA talking about mid <unk> are almost as high as 40 times Tcf for developer portfolios.
I really feel good about what we did.
In Germany, I think also whats interesting about the Gd tower deal Jonathan is that.
We had the right long term capital to go Chase this and we have the capital ready. So we can play and we can play effectively.
Partnering up with Brookfield was certainly smart, but we had a great new core fund that can play in that asset and these are exactly the types of assets, we want to put into our core fund.
Long term leases, a 30 year lease with Deutsche Telekom stay.
Stabilized yield of about three 5% to 4% that grows over time as we add more lease up and we get more amendments and we bring on new towers into the inventory. This is exactly what institutional investors want in this market in this environment. They want safety. They want to know they've got a long term lease with an investment grade customer and they want to know they have a great management team there.
Can go execute the asset we're really excited about that deal. We think we bought it at the right price.
And certainly a year or two ago would've traded probably at a higher price and they are probably would've been more strategic around that could have had capital to do it. So timing worked out I think pretty well for us on the GE deal and once again, Ken Thank Tim <unk> and towards the Manheim enough they were great partners.
In getting this deal done and Theyre going to be great partners going forward as we grow that platform and consolidate the European tower space.
Just while we're on towers in Latam in that latest tranche.
Group of tourists or any sort of comments given the valuation was little lower than the ranges that you pointed out and you obviously know that market extremely well going back.
Some of your prior spin, but thoughts on Brazil, and why that may or may not have made sense for your strategy.
Yes.
Look we looked at it.
That tower portfolio got looked at about three or four times.
And each time it didn't work for us.
And it certainly probably reward for Jeff Jeff has a different set of underwriting requirements.
Just a friend and I think I think a lot of SBA and think they run a world class organization.
I think for what we're doing at high line.
We've made different decisions and it's not to suggest that our decisions are more correct in his decisions I think they just felt like that particular portfolio was right for them and we've done some other things in the market that we're candidly in the same price range, if not even lower so we're finding value in Brazil right now I think there is the obvious.
A pretty material disconnect with what's happening in Brazil today and so.
We still think that that wireless market is tremendous I mean youre looking at the the most important social media market on the planet in terms of adaptations and social media applications and how much time that economy depends on their phone Brazilian spend more time on their phone than almost any other country.
So that.
That mobile economy, and that migration of <unk> is going to happen, while theres certainly is a.
A lot of inflation happening in Brazil. There is a disconnect with the <unk>. There is a very important political election campaign coming that's currently priced into the currency that dislocation creates a window of opportunity we see it as opportunity.
Thank Jeff and the management team at SBA also feel the same way they think that.
<unk> represents a very strong opportunity today, and we would we would agree with SBA on that.
Yeah.
Got it and then maybe just on the venture.
The venture funded relatively newer vehicle that the types of things that <unk> been looking at.
Sure.
Maybe just double clicking on that a little bit.
As to where you may be headed there.
Yeah, Thanks, well look Alex lower on the team are doing a great job.
We made a really important play into private enterprise by <unk> networks by taking a leadership stake in Salon and networks.
He then took a stake in leading edge, which we think will be the <unk>.
Pre eminent edge data center platform in tier two and tier three markets in Australia, and we've looked at a few other things and we've kind of liked.
The resetting of pricing in Silicon Valley has been good for US we haven't pulled the trigger on anything but there is definitely a mark to market and what I would call later stage growth venture capital take money. So we look at it is.
Mid to late stage growth capital, it's pretty exciting.
Our pipeline is pretty full we're obviously outperforming capital around that strategy right now much like we did with credit and core and those strategies are now realizing.
A lot of success.
And I think I'll just put a pin in this by saying look we understand the physical layer of digital infrastructure I think better than any other management team on the planet.
Where we're really focused on adventures Jonathan is what I'd call. The metaphysical level of infrastructure, which is that software defined layer between ultimately the user and the hard infrastructure.
That's a massive massive amount of white space.
So we're out looking at different ideas different business models in that space, we recognize the importance of software defined networks and how the cloud interfaces with actually hard infrastructure into that virtualized ability to dial up capacity quickly and efficiently theres a lot of different business models around that.
That is where the investment team is focused right now is in the software defined layer of infrastructure and so almost think of it as like SaaS digital SaaS is infrastructure, we're looking at that heavily and we think theres a lot of opportunity.
Sitting there and look at the end of the day any any investment we make in ventures.
Have to tie back to our physical infrastructure the.
The company asked either touch or infrastructure for them to use our infrastructure that is one of the core guiding principles and investment Committee and when we set investment committee when we look at new deals as they look are they using our infrastructure. It's got to be pretty simple, it's got to work within our ecosystem and the good news is <unk>.
Startups are using our infrastructure, whether it's fiber from deyoe its datacenter services from data bank.
Where they're somehow touching and exited at a boingo indoor system, our infrastructure goes a lot of places.
Lot of people use it in a lot of startups user and certainly a lot of software defined companies are using our infrastructure. So it's so far it's working really well and it makes a lot of sense our ecosystem.
Thanks very much.
Thanks, Jonathan.
Thank you. Our next question comes from the line of Ric Prentiss with Raymond James. Please proceed with your question.
Thanks, Good morning, everyone.
Good morning, Rick.
Yes, thanks for the deck of the upgraded roadmap.
Slide 23, I think it's an important slide I agree I don't think the market is giving you credit yet for the performance fees.
But probably a large part of that when we consider that comp group of the alternative asset managers as they obviously have a lot longer history of the exits showing folks the performance fees.
You've got your first exit event coming up you said you can't provide anything yet when do you expect and what do you expect you could provide us with the wild stone transactions to start putting the dots on the scatter diagram demonstrating performance.
Yes, well, Greg what I would just targeting two is the face of our financials.
Since we've announced the transaction on milestone we.
We did fair value that also our bulk so youll see that markup.
<unk> carried interest.
In the face of our financials, which obviously deposit itself.
I think that that will be helpful.
Can you envision is providing jackie.
To give you. The go ahead the bread crumbs, Rick on the trail. So youre youll figure that out sometime today, and then Youll emails letters, though I found it.
Look this is simple Rick.
We are investing other people's capital for 28 years.
We have an enormous track record and great returns over those three decades.
Generating a lot of profits interest for other Lps.
And other GPS and of course for ourselves along that road.
As I mentioned before both of our funds are performing incredibly well.
We do Mark our funds quarter to quarter, both funded one fund one in fund two in our flagship series both had outstanding quarters.
And net net the portfolio continued to move up it didn't move down so when you're managing close to pro forma for Gd towers and switch over $70 billion of assets.
There's a lot of carry embedded in there.
So I'll have to extrapolate what they think is reasonable in terms of the multiple that we can achieve but we know we're sitting on eventually an arsenal of Cary and public investors are going to get the benefit of that over the next five years to seven years.
<unk> not baked into our guidance not in our numbers.
Maybe after three years or four carry events will start maybe perhaps forecasting carrying more frequently but if people can't walk away from this quarter and understand that this business is performing well our portfolio companies are performing well, we have demonstrated our ability to actually return capital to investors in milestone and trigger a carry event for public investors.
We feel like we did everything that was asked of us in the quarter and then some and I think that will continue throughout the rest of this year and even though whilst the first like you said the monitors the first monetization out of one of our funds today.
Mark and Ben have had a long history of monetization to make money for investors. So that's the foundation of this company.
People matter.
Okay.
Follow up on a previous question as well on the debt level I appreciate that color, where do you think that should go.
Does seem like there's a lot of kind of wacky numbers are different numbers out there.
Yes sure.
Look at those three parts of that leverage one part is the preferred equity.
Both don't include that but some folks do.
One element of it is the second element is the non recourse debt thats sitting at Databank advantage.
And you back those two elements out, which we've already highlighted that our emphasis going forward is a bit more towards the investment management of asset light does not require incremental debt.
Or capex.
To achieve that plan.
As well as the fact that we've said, we want to optimize our capital structure and pay off and over higher or trade down or preferred equity.
And then you'll see that our alternative asset management business itself, along with corporate implies a sub four times leverage.
And that would be right in line with other alternative asset managers.
Alright appreciate it everyone stay well, we'll see you in a couple of weeks.
No problem.
Thanks, Rick.
Thank you ladies and gentlemen, our next question comes from the line of Eric <unk> with Wells Fargo. Please proceed with your question.
Thanks I appreciate it.
So just curious you mentioned the $60 million of digital M&A just wanted to confirm that that was specific to the balance sheet are there opportunities maybe to add some additional platforms either to expand into new geographies or maybe new product sets you mentioned I think growth equity.
Our traditional private equity in the past.
Yes, Thanks, Eric Yes, so look we look at that $900 million of firepower.
Without any leverage rate, assuming you could put.
50, 50 debt to equity leverage against that 900 <unk>.
Actually kind of amplify that to almost $1 billion EDA purchasing power now.
Now we do have two areas that we are refining our M&A plan.
First and foremost.
We do believe there are other investment managers out there that fit very nicely with what we're doing whether theyre doing middle market.
Digital infrastructure, whether theyre doing growth private equity.
Where they touch telecom and infrastructure or media.
There is a bunch of those targets out there.
I would tell you that those discussions continue to to happen and we've got a lot of really good targets.
They have really great people and they have really great ideas and are candidly not swimming in our swim lanes. So thats important finding other organizations that have great talent and that share kind of our view of how to invest but don't invest in the places we invest that's really interesting to us and Thats, where Jackie and I have been spending our <unk>.
<unk>.
Over the summer is looking at those opportunities and we think there is a nice pipeline of ideas around that and we're moving down the path of executing on some of those things at the same time, we've continued on digital operating.
To think about ways that we can obviously grow our advantaged portfolio.
Got a number of campuses that are maturing we can certainly add more campuses. This year and next year to the vantage STC portfolio. So we're looking at that very carefully they've had a tremendous tremendous year vantage STC and its performed I think.
Above our expectations. So we're looking at that to the extent that we can increase our exposure to hyperscale data centers in the U S and Canada, and perhaps even look at some of our European assets.
Very interesting to us so there's a lot happening there at the same time it doesn't preclude us from looking at other things in the ground lease buyout space. The tower space wholesale fiber space. Other data center businesses. There's a lot that we can do off the balance sheet. So we're happy with our firepower the return of capital from data Bank.
The return of capital from warehousing transactions in credit and our core strategy all of that money is now coming back in the third quarter.
So we're really happy about that Jackie has now got strong liquidity, which allows us in this in this economic uncertain environment to play offense and both he and I have a rich history of playing offense in previous downturn. So we're we're excited we're working hard been a really long summer.
We've got more work ahead of us.
I would say strong expectation for us to announce something inside of this year, where we will put that $900 million of cash to work in strategic M&A.
Okay. Thanks for that update and then just one last one if I could.
Just wondering what youre seeing in datacenter development around power procurement and availability. It seems like it's been an increasing challenge in Europe , and even in Northern Virginia, where.
There appears to be a pretty significant transmission issue that Dominion energy is trying to work through so I'm just wondering if youre seeing any material delays in bringing new capacity online from delay.
Delays in power availability and whether that's having any impact on your ability to kind of deliver on your pipeline. Thanks.
Sure so.
The northern Virginia issue on the on the head.
We don't see any delays in delivery of space This year.
We have gone all the way out into 2023 to see what.
Workloads there'll be compromised or delayed we don't see any compromise in our bookings in terms of who will get deployed we do see delays I think thats one of the key things that is coming out of it 23 should have some delays 'twenty portions have steps and delays, but we do see things normalizing at 25 and 26 someone had.
2028, that's just falls they haven't done their homework.
Look dominion's on it.
The state of Virginia is on at Loudoun County is on as the sectors on it yes. It was a bit of a wakeup call for for the region, but what I can tell you is I do believe this sector has come together I think the state is very focused on it.
Certainly that utility commission is focused on it we're focused on it and we don't see any compromise in deliveries this year and perhaps theres. Some compromise in deliveries next year in 'twenty four but net net it's still a great market and it's a place I think all of our peers want to be.
Other areas that concern US look we've told you for the better part of two years.
The power grid in California is somewhat compromised.
Pacific gas and electric really can't supply any material.
The amount of new megawatts in the Santa Clara area, or San Jose Silicon Valley power.
Currently is constrained in terms of what they can deliver the next upgrade to that grid is 2025, so Santa Clara is becoming very capacity type market.
Our renewal rates are holding in very strong there all of our new capacity is pre leased.
We brought online last year and so I just mentioned this is kind of actually where we saw a lot of value Erik and switch switch.
Switch has over one five gigawatts of power capacity that they draw from three different sources of Green energy and particularly in a market like Reno, where they have land they have renewable power and they control their destiny.
Or they can light up almost 800 megawatts of capacity that's less than two tenths of a millisecond from Santa Clara. So we're really excited about the prospects for switch they've got a lot of land they have the power and the capability to grow in Reno has become one of the great what I would call tethered markets to Santa Clara same thing in <unk>.
Vegas same thing in Austin.
Same in Grand Rapids in Atlanta.
Which has a significant amount of excess power that they have reserved through renewable sources and look our customers like that narrative to they want to be in data centers were in sourced by Green energy and it's not won't speak right. This is like hardcore reality. This is a company that plan for this great management team, great CEO and being able.
To control your destiny in terms of controlling the land controlling your will serve letters and controlling your power capacity that is good for customers.
And that's what we see in switch much the way we saw when we acquire advantage we saw long roadmap of opportunity to develop new campuses and Robin the team at switch have done a great job developing the world's most highly protected private cloud campuses at a tier four and tier five level once again controlling the energy narrative and I think thats.
Going to be the differentiator going into the future due to the strong datacenter companies know how to source Green energy can they do it in a way where they can control that capacity and they can plan over the next decade not over the next two quarters and so this is what we saw in the switch and this is actually what <unk> are doing at Databank and Theyre doing advantage, they're planning for the future.
Sure and trying not to be entirely reliant on the existing grid and I think most data center operators are thinking through that conundrum as well. So we are well positioned our management teams are ready and we're really excited about closing on switch because they've actually got more ready lift capacity than anybody else in the market.
Alright, thanks, Thanks for the color Mark.
Thanks, Eric see soon.
Thank you ladies and gentlemen, this concludes our Q&A session and thus concludes our call today. We thank you for your interest and participation you may now disconnect your lines.
Yes.