Bridge Investment Group Holdings Inc. Q1 2023 Earnings Call
Greetings and welcome to the breach investments group first quarter, 'twenty 'twenty free earnings call and webcast.
This time, all participants are in listen only mode.
A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press Star then zero on your telephone keypad.
As a reminder, this conference is being recorded.
He's out there it's now my pleasure to introduce your host, but Bonnie Rosen head of shareholder relations. Thank you Madam you may begin.
Good morning, everyone. Welcome to the bridge investment Group Conference call to review first quarter 'twenty twenty-three financial results are prepared remarks include comments from our executive Chairman, Robert Morris, Chief Executive Officer, Jonathan Flanker, and Chief Financial Officer, Katie else Nab, we will hold a Q&A session followed.
In the prepared remarks.
I'd like to remind you that today's call may include forward looking statements, which are uncertain and outside the firm's control and may differ materially from actual results. We do not undertake any duty to update these statements.
For a discussion of some of the risks that could affect results. Please see the risk factors section of our Form 10-K.
During the call. We will also discuss certain non-GAAP financial metrics. The reconciliation of the non-GAAP metrics are provided in the appendix of our supplemental slides the supplemental materials are accessible on our IR website at IR Dot Bridge I G dotcom.
These slides can be found under the presentation portion of the site along with the first quarter earnings call of that link. They are also available live during the webcast.
I will present, our GAAP metrics, and Katie will review and analyze our non-GAAP data.
We reported a GAAP net loss to the operating company for the first quarter of 'twenty twenty-three up $67 million than.
The net loss was driven by an unrealized loss of $107 million related to our accrued performance allocation due to valuation reductions to selected real estate assets.
Basic GAAP income per share for the first quarter of 'twenty twenty-three was three cents with a loss of 13 cents on a diluted basis.
It is now my pleasure to turn the call over to Bob.
Thank you Bonnie and good morning, all in the three months since our last earnings update bucket volatility has continued across a number of fronts. Three bank failures continued interest rate increases by the fed coupled with substantial quantitative tightening ongoing concerns about GDP growth the state of the.
Labor markets in the context of numerous layoff announcements and possibility of a hard landing.
That's a long list of domestic issues and added to the list Youre accelerating global pensions centered around the U S, China, Taiwan, and Russia, Ukraine situations and the implications for global peace.
And prosperity.
These macro themes at both chilled short term investment appetite in a risk off environment and prompted a reset in asset values across many of the markets in which bridge operates we believe this has set the stage for a rebound in activity and attractive investment opportunities in the current environment.
Through these volatile times rich remains focused on the central theme of conviction.
Highlighted earlier this year in our 2023 bucket outlook, we believe that investing with conviction requires the acknowledgment of the facts in today's turbulent markets, while focusing on both long term secular trends and tactical opportunities created by ongoing market dislocation to create value for bridges investors.
Our perspective is informed by extensive research.
It's about public and proprietary data sources and ongoing dialogue with investors banks and other constituencies with whom we act on a regular basis importantly, we believe that in a volatile economic environment specialization is more important than ever as it relates to strong deal flow and careful selection of opportunities.
And in the case of more operationally intensive real estate strategies forward integration into property management to drive alpha at the asset level.
In addition, the benefits from the use of leverage in the current environment is neutral at best negative in many cases, a different paradigm is required to invest successfully going forward. One that focuses on the investment merits of selected asset classes and creating alpha at the asset level to drive return premiums for equity investing.
Our conviction is premised on the resilience of the U S economy across many metrics growth strength in the labor markets Onshoring Slash re shoring and.
The manufacturing where they songs.
Unemployment rate has been below 4% for over a year now and wage growth by many measures has been strong accelerating throughout 2022, and holding near 5% year over year.
These wage increases have disproportionately benefited those in the lower half of the income band with low and middle skilled occupations actually outpacing higher skilled occupations. Each U S. Residents are the cohort, which serves that much of our leading residential rental investments.
We've seen such resilience play out in past cycles as.
That's one point of reference we compared Unlevered may creep investment returns for the multifamily sector against U S equities and fixed income indices over the last several decades, which can be found in our investor presentation on slide 15.
Key findings from our analysis include first the intrinsic value of commercial real estate investments withstand even the deepest recessionary periods, including the 2008 recession.
Other than these major indices for multifamily specifically, we believe this speaks to the persistent need for housing and consistent rental income as well as the enduring value of commercial real estate assets.
Second although this multifamily index isn't a perfect representation for the entire real estate industry. It is one of the largest real estate asset classes and serves as a robust benchmark for the industry and in our view our own portfolio given the high concentration of residential rental assets, we believe the.
Same principles of durable value applied to our logistics investments in all of our residential rental strategies.
Our fixed income strategies had been a bright spot in an otherwise difficult investment landscape, we have and continue to raise and deploy meaningful capital across our fixed income strategies at targeted returns that often mirror and sometimes exceed projected equity returns.
Each of our debt strategies fun for a M. B S and net lease industrial income vehicles has deployed meaningful capital as banks and other balance sheet lenders reduce CRE exposure. We believe these opportunities will continue to multiply in the short to intermediate term at least.
We expect to report strong performance for each of these vehicles to our investors and continue to see solid demand for performing credit products credit represents about 23% of our fee, earning AUM and should continue to grow in importance.
Bridges highly experienced management team has navigated prior cycles, and we are well positioned with cycle tested specialized leaders in each strategy to make the most of opportunities and navigate the challenges of the current market. During the first quarter, we continued to build momentum in our business with fee, earning AUM increasing 51.
Sent year over year recurring management fee revenue, increasing 15% and we completed a record close for multifamily by at $2.3 billion. We also completed the acquisition of Newbury partners at March 31, 2023, a leader in the secondary market.
Including the record close of multifamily fund five during the quarter, we raised a total of $674 million across our investment vehicles with most of that capital oriented towards our credit strategies.
Importantly, we did not have any outflows in the first quarter. We continued to enjoy the benefits of long term stable capital, which we manage on behalf of our limited partners. Our capital base has an average duration of 7.4 years and is comprised almost entirely of closed end vehicles with no redemption features.
During the quarter, we continued to execute on our strategic vision for the combined organic growth with carefully curated acquisitions.
The acquisition of Newbury partners closed on March 31st and integration efforts have been seamless by all accounts, we acquired Newberry at a price that projects to immediate substantial accretion in earnings and at a value that compares well to precedent transactions, we created a transaction structure that aligns encourage it.
<unk> and incentivize management performance and embraces the one bridge philosophy by which we got our efforts we've assigned some of our best and brightest at bridge to manage the integration along with our partners at Newbury.
The acquisition of Newbury further diversifies, our investment platform builds on our highly specialized focus and provide some modest counter cyclicality in our revenue base Newberry is a leader in the secondary market with a focus on acquiring limited partnership interests in established buyout growth equity and venture cap.
Little funds consistent with the way bridge operates in its real estate investment funds Newberry focus has been on small and middle market transactions, where there is less competition and more attractive pricing.
We're excited about the growth potential for Newbury over both the near and long term as we scale the platform existing product offering while developing plans for expanding into adjacent strategies.
The outlook for the secondaries sector has never been brighter with limited partners seeking liquidity solutions to achieve their goals and specific to our business. We're already seeing great dialogue from newbury's and bridges L. P basis, which have less than 3% overlap at the time of transaction the opportunity for cross.
So is enormous.
We expect to report more on these revenue synergies and other initiatives as we make further progress with that I will turn the call over to Jonathan.
Thank you Bob and good morning.
I'll walk through what we're seeing in the broader commercial real estate transaction markets richest deployment efforts and performance and our investment outlook and opportunities in 2023.
2022 was a year in which U S real estate transaction volumes started very strong but finish slow down.
Down just 13% overall for the year, but Q4 was down more than 60% from Q4 'twenty one.
Interest rates rose and debt markets tightened.
Thus far in 2023, we've seen a continuation of depressed transaction volumes for.
Or the latest real capital analytics data Q1 industry transaction volume is down 56% year over year and in the multifamily sector, which is typically the highest volume sector transactions were off 64% representing one of the largest drops since Q1 O nine following the great financial crisis.
Low transaction activity has led to a wide dispersion of cap rates and values with huge swings in reported cap rates among data providers and between various private market participants and public Reits.
We believe this reflects the dislocation in capital markets at this moment in time, rather than a fundamental shift in the long term value of assets.
The lack of trades makes valuation of much more challenging exercise.
With that backdrop bridge deployed $866 million in Q1 2023 as mentioned most of this deployment has been in our credit strategies.
We have been patient and continue to be disciplined in our underwriting, but we are cautious about trying to be market timers.
Opportunistically, we bought $368 million of floating rate investment grade real estate, CLO and see MBS bonds at a weighted average of sofa, plus 506 basis points.
In addition, we bought a small amount of fixed rate investment grade C. M. B S bonds at a weighted average yield of nine 3%.
He's highly risk mitigated investment grade bonds have significant equity cushions and subordinate debt below that but have exhibited outsize yields due to continuing illiquidity in the securitization markets.
We've also started to see a slight pickup in the transactions on the equity side.
These are coming from investors, who are harvesting older vintage funds that had performed well in a handful of assets with broken capital structures.
With $4 $4 billion of dry powder of which the majority is related to multifamily workforce and affordable and debt strategies.
We are well positioned and expect deployments done in 2023 to generate positive outcomes for these strategies.
On the operating side the underlying fundamentals of our portfolio investments remained healthy for example.
Our multifamily and workforce assets, which represents 39% of our real estate fee, earning AUM are 93% occupied same.
Same store effective rent growth for Q1 increased seven 4%.
While the sector is experiencing supply issues in some markets.
Slowing rent growth across the board demand remains strong and collections of recovering towards pre pandemic levels, resulting in NOI growth across the portfolio of six 5%.
Fundamentals in our single family rental portfolio are similarly, strong with 10.25% year over year rent growth and then Q1 occupancy at 95%.
Logistics, which is a growing component of our AUM continues to experience historically low vacancy rates.
The infill coastal gateway markets in which we primarily invest have less than 2% vacancy and much of that availability is functionally obsolete product.
With these pressures on availability our leasing performance over the last 12 months has exceeded original acquisition underwriting by 24% on a net effective rent basis.
Now turning to investment performance, despite strong operating performance in NOI growth across our equity real estate funds, our values depreciated slightly by one 6% in the quarter as higher card income was offset by slightly more conservative terminal values and cap rates.
We have the ability to hold assets through market volatility and believe our funds are conservatively and appropriately capitalized.
Rich mostly employs a single layer of leverage at the property level for our real estate equity funds and does not employ additional leverage at the fund level other than short term operating and subscription lines.
Over 83% at the asset level debt is either fixed or hedged with more in process of being hedged.
<unk> return on costs and benefits given where the property is in its life cycle.
This helps insulate the funds from higher interest rates further.
Further these hedges have appreciated over $24 $3 million in the last 12 months, providing additional portfolio value even when factoring in a decrease of $4 7 million during Q1 as benchmark interest rates declined during the quarter.
We also seek to ensure each fund operates with plenty of liquidity, which we constantly monitor.
The strength of our lender relationships combined with generally cautious leverage levels puts us in a solid position to hold and continue to operate our assets, while the debt and transaction markets recover.
Longer term we.
We have strong conviction in the select thematic areas, which serve as the backbone for the majority of our AUM.
Housing is critically under supplied and propelled by demographic tailwind.
Near term supply pipelines are likely to wane due to higher rates limited availability of construction debt and equity as well as continued inflationary cost pressures.
Logistics and manufacturing demand remains robust, particularly in the infill locations S. Onshoring e-commerce and supply chain resiliency are durable demand drivers with staying power.
Private credit strategies are positioned to take market share as conventional lenders are sidelined due to deposit funding issues and regulatory constraints.
Secondary strategies are poised to grow rapidly as private markets become increasingly dynamic and complex.
L P demand for sophisticated liquidity solutions.
We believe any deployment, we executed in 2023 will be highly attractive as we navigate illiquid markets head of the recovery.
As we work through a slow and choppy transaction market rich has historically originated some of its best investments during the most challenging times and we remain well positioned to do so again.
I will now hand, the call over to Katie to discuss our financial results and the stability of our business.
Thank you Jonathan we continue to advance our efforts are steadily building durable recurring fund that's not even in the face of a more dynamic macro environment.
In the first quarter of 2023 recurring fund management fees totaled $51 $1 million.
2.4% from last quarter, and 15% year over year.
The Newberry acquisition will further add to that beginning in the second quarter.
On a pro forma basis for Q1, including Newberry Fund management fee revenue.
What is occurring what push the total to $61 6 million up 28% year over year.
The earning AUM, which represents most closely the true underlying growth and stability of our business.
51% year over year to 22.2 billion, including the acquisition of Newberry.
This represents tremendous growth at 115% in a short period of time since our IPO when our fee, earning AUM stood at 10 3 billion.
Over 98% of our fee, earning AUM.
As a long term closed end funds that have no redemption features and a weighted average duration of seven four years.
<unk> to the foundational ability of heartburn.
This purposeful math of long duration capital with our long term investment strategy significantly insulate spreads from the redemption right. We're still seeing an open end and recap vehicles in the market today.
Approximately 90% of our real estate related to fee, earning AUM is invested in HEICO Nixon thing.
Which included residential ran all in the U S across multifamily workforce and affordable housing.
No family rental senior housing and in our private credit strategies, where the majority of the collateral is multifamily related.
19% of our fee, earning AUM is in our newest secondary protocol.
This represents a small portion of that 4%.
Our central theme of the ear conviction and we have thoughtfully position, our invest their capital to benefit from our to be resilient to a downturn in the economy.
The related earnings the operating company were $39 million in the quarter slightly down from Q4 most.
Mostly driven by a $2 8 million dollar decrease in catch up fee revenue.
Along with lower transaction and development fees, resulting from the broader market slowdown.
These are partially offset by higher recurring management fee.
And positive attributions from fee related earnings attributable to Noncontrolling interests.
The noncontrolling interest in F. R E relates to investment team profits interest in vertical which tends to be seasonal and that they are more likely to keep profitability hurdle as time passes over the course of the year.
Additionally, our more nascent strategies are not driving positive FRE. They have tremendous built in growth drivers that will be well positioned as they grow in scale.
The year over year comparison was impacted by the $20 million decrease in transaction fees.
Operating expenses were relatively stable compared to Q4 and down year over year as we've maintained cockpit when unemployment compensation and other expenses.
This also helps protect margin would have been impacted by lower catch up fees and transaction related revenue.
Real estate transaction volume will likely remain depressed in the short term and this will continue to impact the FRE margin.
I have friends at some market rebound a record dry powder will be put to work and that revenue will push that margin.
This is simply a timing element.
We've always cautioned investors on a quarterly news instead, we recommend focusing on the margins long term, which tend to average 50% plus or minus for.
For example, the margin in Q1 was 43%, but 49% on a trailing 12 months.
Distributable earnings to the operating company for the quarter were $33 4 million with after tax de per share up 19%.
Net realization declined to $1 million in the quarter, reflecting the general market, Paul and our current management and the protection of nonperformance.
We expect to remain selective on monetization in the near term.
Unrealized carry decreased to $447 $7 million, which represents a 19% decline after adjusting for realization.
As a reminder, our crude carry on the balance sheet is recorded one quarter in arrears.
The decrease was driven by more conservative asset value assumptions that were disclosed in the previous quarter.
Kerry is up 82% since our IPO in 2021, and we are well positioned when the market ultimately stabilize.
Our board of directors declared a dividend of 15 cents per share, which will be paid to shareholders of record as of June 2nd.
This amount is based on distributable earnings adjusted for transaction and nonrecurring costs incurred during the quarter, mostly related to the acquisition of New Bank partners, which represents four 1 million.
Well Jonathan discussed the conservative nature of how we employed leverage within our funds.
We also maintained that same mentality with our corporate balance sheet.
For example, as a prudent risk management process and our banking relationships are highly diversified.
We are an asset light manager with low leverage and an investment grade rating.
As discussed last quarter, we funded the Newberry acquisition using existing balance sheet resources, including 150 million of proceeds from our recent private placement of debt.
The private placement was priced in January and included the issuance of $120 million of seven year notes.
$30 million of 10 year notes with a weighted average interest rate of approximately 6%.
No not funded with the closing of Newbury Our March 31.
Q2 will be the first quarter, reflecting the resulting interest expense.
We also extended our revolving credit facility to $225 million with.
The $80 million John .
The duration of our outstanding private placement is in excess of seven years and is well staggered with no maturities until 2025.
We are well positioned to navigate the current environment and are confident in bridges long term vision and strategy for success with that I would now like to open the call for questions.
Yeah.
Well now 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 open ended question to you.
You May press Star two if you would like to remove your question from the Q4 participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
The first question from Michael <unk> from Morgan Stanley . Please go ahead.
Hey, good morning, Thanks for taking the question just given the what we're hearing around banks pulling back given some of the challenges that they're facing banks pulling back from from financing of the real estate market can you talk about what youre seeing on that front, how do you expect that to play out over the next couple of years and what does this mean for bridge as you access leverage across your business how do you.
Is that what are some of the levers maybe you can remind us how much in financing your access from the gse's versus different other.
Funding sources, including the banks and then what's the opportunity set and catalysts that could help with on your credit business.
Thanks, Michael for the question and it's a very topical question of course, I think everybody knows that the banking sector has become much more conservative than and commercial real estate has been an area of focus for bank exposures.
We think it's a double edged sword in some respects. There are there are a number of sectors of investment where banks are still.
They're willing to lend and in some cases enthusiastic to land, we think that residential rental.
And and logistics are two of those sectors, where where there's a willingness to lend.
Some some sectors are out of favor office is the poster child of of a sector of that.
Currently is is out of favor we we do some borrowing from banks, we do a lot of borrowing from the federal agencies, particularly as it relates to our multifamily and workforce.
Strategies.
We are we.
I characterize we characterize the tightness in the bank market says the double edged sword.
Because it of course opens up significant opportunities for for private credit and and and we have a significant business in the in the private credit sector I can I can give you and.
An example of how the market has changed.
In our favor in private credit.
Year or so ago, if we were to look at a loan against a transitional multifamily asset it probably would be at a at a spread of 325 basis points plus minus over sofa at a leverage point of 70% to 75% today those are those same.
Ah metrics would would be changed the spread would be higher at probably 375 basis points over sofa and the leverage would be lower so more conservative less risk higher spread that translates to really.
Positive opportunities as it as it relates to private credit and I think I think that Ah I think that that's indicative of some of the opportunity. That's that's out there banks banks at the end of the day.
We'll we'll review their their portfolio of loans, they'll and their balance sheet and at some point, presumably start lending again, but.
But right now it's a bit more difficult to navigate through credit of courses is is an important part of the overall capital stack and with some very modest exceptions, mostly focused on the on the office sector, we've been able to adequately access about that whether it would be for <unk>.
Thanks agencies or elsewhere in order to fund our activities.
Great and just a follow up question on the deployment backdrop, you mentioned seeing a potential slight pick up here and transactional activity on the equity side, maybe you could elaborate a bit on that and as you think about the constraints I'm putting capital to work how does that differ across the different strategies that you operate and how much of that would.
You say is just from the lack of financing versus the actual higher absolute cost of financing versus the lack of sellers.
Jonathan do you want to address that.
Okay.
Yes, I mean.
We are starting to see a little bit more I guess, we call it green shoots of activity in our broader equity.
Business.
And.
And there is still it's still a very spotty market right. Because there are sellers, who are going out sellers, who have owned the assets for a while and have had.
By definition made money on those assets because even at the reduced VAT.
<unk> are still.
Going to have great returns.
And and and they're evaluating whether or not they want to sell so they'll put stuff out sometimes they sell sometimes they don't.
And and and so it's kind of a little choppy in that sense and then we're beginning to see what we've been expecting to see for a long time, which is some of the stress that's been put on to call.
Call. It regional sponsors who can be very sizable regional sponsors who have co invest from equity allocators.
And they they simply don't have the capital to take.
Support that service level that has gone on in Io basis up three times and then in addition, they had to put a.
Reserves for rate caps that have now exceeded the price of the underlying loans. So that the cash flow demands of those assets, even though the underlying assets are good are really challenging. So we're starting to see a little bit of that start to break our way in and one of the great things about bridges that we have such deep relationships with.
Such an active buyer in the markets that we're in that we sort of get this.
Very very clear look into what it's going to take to do the transaction. So again broadly speaking, yes, we are starting to see a little bit of.
Opportunity coming.
From a moment when things had been super closed, but before the market really starts to fully recover where expect we need to see the fed stop raising rates, we need to see a little bit more stability in the underlying debt markets, we need to start to see the securitization markets open back up.
And our view is that that the fundamentals around around the sectors that we're in which we enumerated in our in our talking points are so strong and continued to be.
Unchanged and there's so much kind of demand and call it dry powder beyond just our own dry powder.
In the sectors that we will see values recover.
Both because of just the underlying growth in net operating incomes in operations, but also because of the supply demand in favor of demand for the product. So so again between now and then.
Going to be looking anything we said if anything we think we can find that we deploy we're going to be very excited about and we will have we think good values. The underlying unleveraged returns. We're starting to see are incredibly attractive. So we just stay active we stay busy we do what we do and we think things will start to start to populate.
Yeah.
Great. Thank you.
My next question.
Yes, sorry.
Please operator go ahead.
The next question is from kind of what went on from J P. Morgan. Please go ahead.
Hybrid steam valves for Austin on for Ken.
My question, Great to speak with you again wanted to double click on deployment in <unk> 'twenty three we saw $866 million, which was a modest step down from the 90. We saw in Q4. It was actually both Q3 and Q1 levels of last year. You noted several times now that deployment was mostly driven by credit strategies.
Can you elaborate around where parts of credit youre seeing the most opportunities in going forward.
Do you expect to change in equity or credit shifts going forward, just going through the broader alternative asset management earnings it sounds like that's been.
Theme happening more broadly in the market. So wanted to check if that was the case here as well how do you look at deployment going forward. Thank you.
Thanks, Thanks for the question and I think your your observations are spot on and a lot of respects credit credit products have been have been very attractive both from the perspective of investors committed capital as well as as deployed.
Opportunities are deployment in credit has been.
Reasonably broad based we are at.
We in our in our our flagship debt strategies.
Suite of vehicles, we are we were able to complete the deployment of our of that vehicle pretty.
Ahead of schedule in lot of respects, we we've also been able to find opportunities for deployment in a M. B S as well as net lease.
The the deployment that you referenced in the first quarter was in part done in the public markets.
With with pulp in public securities that were trading at levels that we thought offered a very good value and in part represented more.
More of our core direct lending business and buying a K series B pieces as as well the I think the I think going forward of course, we would expect that in addition to the continued opportunities to deploy.
In credit as Jonathan said, we'll see opportunities on the on the equity side as well, we frankly tried to and have been quite patient over the course of the fourth quarter and the first quarter in terms of looking at equity opportunities we always.
Try to employ a great deal of price discipline I believe on average we buy one out of every 20 deals that we are that we carefully due diligence and examined so we have.
Something around a 5% hit rate, we continued that seal activity, we think that we've been paid our investors have been paid for that patients as as asset values on the equity side have reset a bit continuing to reset a bit in the in the first quarter and we think we're well Paul.
<unk> two <unk>.
Two to assess and and hopefully execute on opportunities as the second and third quarters unfurl.
Thank you Bob is very helpful and if I could hit on one more topic quickly you're just talking about one of the reason we know it.
At 72% of the capital you raised this past quarter came from international investors.
At your total AUR, it's only comprised of 41% of national versus 58% for the U S. Just looks like another trend that's happening in the market more broadly it looks like one that you're experiencing as well where it sounds like there's more available capital from an LP perspective to deploy them in areas that says Mena in APAC.
Rather than North America and EMEA.
As part of a broader trend or are there sort of one off type instances that drove that shift.
Last quarter. Thanks again.
I think I think in in general having a global.
Presence in terms of fund raising.
Is it's very valuable because because capital is more or less available in different areas, depending on who's investing in who's taking a pause in and we've worked hard over the last several years to meaningfully diversify our fundraising efforts. We've we've we've opened and staffed.
Offices in Europe , we've we've now for several years had an office in Korea I'm actually taking this call from Korea. Today. We are we continue to have a we continue to have a broad coverage effort across both the U S as well.
As other parts of the world across both institutions as well as the wealth management channels. Its interesting we have.
I would characterize our our dialog today with our both existing L. P investors.
And perspective L. P investors as stronger than it's than it's ever been investors are looking for for guidance, they're looking for clarity, they're looking for interpretations of the market. We've we've hosted a number of events.
Including recently, our L. P annual meeting, which was held for the first time in a couple of years as a physical meeting with record attendance.
And the and the dialogue has been has been really strong really powerful and we hope and expect that it will continue to produce very strong results.
From a from a from a capital raising perspective, the the the the percentages that you quote you know or are a bit a function of of what happened in this past three months versus versus what happens long term, we do think.
Whether.
A U S investor North American Investor offshore investors a lot of a lot of folks believe that the U S is a preeminent investment destination.
And and many investors think that the thematic and specialized approach that we take will pay dividends in the short term and long term. So we're seeing we're seeing some really positive traction in that regard.
The other thing I can't help but mention and we mentioned this in our talking points, there's very little overlap between the Newberry Investor base and the bridge Investor base, and we think the cross sell.
Of providing solutions to to those investors you know whether it would be real estate equity real estate debt secondaries exposure that cross sell opportunity will continue to be really substantial going forward. We're already seeing some evidence of that and we think that that are that will snowball over.
The coming months.
Thanks, so much I personally called.
Thanks for the question.
The next question is from Bill Katz from Credit Suisse. Please go ahead.
Okay. Thank you very much for taking the question questions.
First maybe just to kind of move around a little bit just focusing on Newbury. So congrats again on that transaction could you give us a sense of where you stand in terms of deployment on fund five and when the timing might take place for fund six and I think about successor sizing relative to fund five thank you.
Yeah.
We can't really comment on specific funds in the market, but we can certainly talk about some of the themes that we're seeing.
Jonathan do you want to do you want to handle that do you want me to handle that.
Yes.
Sure.
Yeah, I mean, I think I think today, where we're.
Still well under 50% deployed.
On that fund. So there is there are still there's still some run rate but.
And that's a positive but you know candidly.
And I think I've mentioned that just a little bit earlier, but we're really starting to see some attractively priced.
Assets from the standpoint of the underlying Unlevered returns as it is a kind of a call. It a consistent benchmark over time in terms of valuation.
And.
And I think that we do continue to believe in the sector as I think we've talked about we see a tremendous amount of.
Growth continued growth in our and our underlying net operating incomes are rents continue to grow although again at a sort of more mean reverting level. Then then the craziness during the pandemic and and you know our belief is that.
Significantly under supplied in the sector. So.
And of course last but not least we kind of look at it as being.
An area, where where you know.
The ability to operate at the property level is a huge differentiator and a huge value creator so for all those reasons, we remain optimistic there but.
The volumes when I when I read that statistics. It said you know we're kind of down this quarter, we were down more than any quarter since the corner right. After the global financial crisis.
Again.
To the point that Bob made earlier about continuing to be selective in investing in not trying to be market timers.
The volume being down means our volumes are down for a little while and I think that we expect.
Two things one we expect to see a little bit more capital distressed not necessarily asset level of distress because the fundamentals as I said are kind of solid in across the sector.
And then.
We hope we will start to be able to take advantage of some of those opportunities and we're starting to see some now for you know it takes a little while there is a delay in that actually coming to market and again the belief is that hopefully the fed is nearing the end of their their.
They're raising period end and we'll start to see some stability in interest rates, which will open up the opportunity for the broader debt markets two to create more liquidity into the space.
And candidly I think Bob you mentioned it as well.
We're starting to look at every single deal on an Unlevered and Levered based on an unlevered basis.
In theory, we can go out when that market to get better and place that on and recycle that capital then but for now.
We're seeing the opportunity perhaps to just take some of that dry powder and just deploy it into assets.
Without applying leverage.
And our returns are equal at this moment in time within a reasonable assumption about putting financing on the assets at a later time and recycling that capital for some really interesting opportunities in terms of how long. It will take I don't think that's something that we're able to kind of give you a hard number on right now.
But you know we have initially set up a four year deployment period for poor fund five and you know hopefully.
Hopefully we make it in an order ahead of what's been put forward.
Well I would I would I would add you know as it relates specifically to Newbury that we we spent the better part of two years looking carefully at the secondary space we met.
If not every player in the secondary space, we met an awful lot of them.
And from that time that we spent analyzing the sector. We came away with the view that the new Berry team the professionals the culture the sense of partnership.
The middle market approach to investing.
It really hand in glove with how we've found success at bridge in deploying investor capital as well. So we're really excited about that that partnership. We are we think that Newberry will make us better that we will make newberry better we we.
We've had a really intensive and and.
Hence of our integration program.
We closed the transaction you know just a little bit more than that a month or so ago. We have certainly seen as we traveled the world talking to investors that demand for secondaries.
It's very strong in the markets today.
And as the private markets become increasingly dynamic and complex.
There is expected to be more not less L. P demand for sophisticated liquidity solutions of the kind that newberry and others, but we think Newberry provides in a in a really in a really comprehensive way so as part of our over over.
Arsenal of of <unk>.
Products in our solution set we are we think that Newberry will create meaningful additional capability at bridge.
We think that we think that our infrastructure will allow newbury to service the investors to invest in newburgh vehicles better than ever and and so we think that there's a there's a bright future there as well.
Okay. Thank you for that and then maybe one quick one for Katie.
I'm, sorry, Bill sorry, Bill I, just wanted to apologize I.
Somehow I misunderstood the question was about <unk> five.
On our multifamily side and so that's why you got the confusing answer so I do want to apologize for that so thanks for thanks for jumping in there.
All good with the extra extra commentary so I appreciate that maybe one for Katie just very quickly and I apologize if I should know this rate could you sort of review the seasonal dynamics under the NCI I was just a little puzzled by what you say it wasn't tracking exactly it looks like you had a loss. So we're version are about a year or so ago I just want make sure I understand the cadence of how that rolls through.
The P&L. Thank you.
Sure Theres two things that you need to think about when you're looking at our NCI first is our profits interests program, which as we've previously announced the lost profits insurance program will collapse.
This year on July one 2000, 2023, so we won't see that seasonality that you've historically seen.
But the way that works is there's an earnings threshold and so I you know normally we don't have an NCI allocated to those profits insurance programs until Q3 Q4.
You won't see that trends during 2023 because of the final clap.
Well as you know some of our newer.
Yeah, and managers have not yet reached profitability, yet and so instead of seeing and net income attributable to non controlling interest and net loss and that's what causes that.
No.
Okay. That's helpful. Thank you.
Okay.
We have a follow up question from Michael <unk> from Morgan Stanley . Please go ahead.
Great. Thanks for taking the follow up just a question on fund raising I was hoping you might be able to update us on which funds you have in the market raising capital today and he sort of expectations. There how youre seeing what many are seem to be a tougher backdrop for raising capital impacting the timing and magnitude of your capital raising.
And then what sort of strategies could we see start to come into the marketplace for raising capital in the coming quarters. I think you mentioned your debt strategy flagship you've finished deploying that so can we expect that to come back in and then any thoughts on sizing of that expectation given a tougher backdrop for raising capital or is it because its debt a little bit more.
In favor thank you.
Thanks, Michael for the further question, it's it's it's hard given.
Some of the limitations, we have two to talk about specific fund vehicles, but but I would I think I think we can say that you know we have the the themes that we that we're emphasizing at this point include residential rental and.
All its different manifestations as as I think we've announced before we had a record close for our workforce and affordable housing fund two we had a record close four four multifamily fund five and Ed we're busy deploying capital in those in those areas are weak.
Where we expect to deploy capital in those areas.
Better said.
Credit products remain remained strong in and now that we're finished with the deployment of the previous vehicle. We are we hope and expect that there will be continued demand for.
For a new vehicle, new new new version of that strategy.
The the markets that that remain really attractive to investors include logistics, where we've where we built up very strong teams in logistics, both on the equity side as well as on the on the net lease side.
And and as as I think folks know we've tried to certainly communicate we are we have a.
Along and abiding commitment to all things ESG.
It's really it's really an integral part of our DNA and so finding opportunities to reduce hours and others carbon footprint.
Through through renewable energy is a is a strong initiative of ours as well.
And and and you know bridges are.
Unlike many alternative asset investment managers. We are we think it is it's it's important it's important from a from a performance perspective, it's important from a from an execution perspective to deploy specialized teams of investment professionals against all of these are all the.
These these areas of focus so we may we may if if one were to array everything that we're doing have a broader menu of opportunities available, but we think that the.
The challenges of raising capital for that broader menu is is is more than offset by the oh by the advantages that specialization and high touch screen.
In terms of deploying that capital and and and so that's a that's a an approach to the markets that we're that route that is deeply embedded within bridge and where and we're wedded to that going forward.
Great. Thank you.
There are no further question at this time I would like to turn the floor back to over Robert Morris to executive Chairman for closing comments.
Thank you, operator, and Ed and I would I would only add on behalf of all of US at bridge. Thank you for everybody who participated today and has taken an interest in our in our quarterly update we we strive to we strive to have.
Parent and comprehensive dialogue and communications with all of our constituencies, particularly our our our shareholder constituencies. We appreciate your interest.
We are we as a management team are always available for.
For additional dialogue as questions arise and we look forward to our continued our continued work together. Thanks so much.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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