Q1 2025 DigitalBridge Group Inc Earnings Call
Greetings and welcome to the digital Bridge group first quarter 2025 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.
As a reminder, this conference is being recorded it is now my pleasure to just your home.
Separately. Please go ahead.
Good morning, everyone and welcome to the digital bridge's first quarter 2025 earnings conference call speaking on the call today from the company as Marc Ganzi, our CEO and Tom Mair offer our CFO I'll quickly cover the safe Harbor some of the statements that we make today regarding our business operations and financial performance may be considered forward looking and such.
<unk> involve a number of risks and uncertainties that could cause actual results to differ materially all information discussed on this call is as of today May <unk> 2025, 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.
Speaker Change: Filed with the S E C for the year ending December 31, 2024, and our Form 10-Q to be filed with the SEC For the quarter ended March 31, 2025 with that let's get started I'll turn the call over to Marc Ganzi our CEO.
Mark.
Marc Ganzi: Thanks Devin.
Let's start with our business update and cover the first quarter highlights.
Marc Ganzi: The two key takeaways for me in Q1 really center around two things.
Marc Ganzi: Number one we.
Marc Ganzi: We delivered financial performance and fund raising in line with our objectives.
On track to deliver on our 2025 goals.
Second which became increasingly relevant in April is the resilience of the digital infrastructure asset class and the value of owning and operating a diversified portfolio across the ecosystem.
Marc Ganzi: Let's start with scale.
Here, we delivered strong financial performance with solid revenue and earnings growth in the first quarter fee revenues of $90 million and FRE of $35 million up almost 80% year over year.
Marc Ganzi: Fundamentally that's really strong growth double digit revenue growth with expanding margins. This is what we talked about last quarter is.
Marc Ganzi: Is the key to our business model and to the D. BRG investment case.
Speaker Change: Next Jeff fundraising.
Speaker Change: Look here, we raised 1.1 point 2 billion in the quarter led principally by commitments to our flagship Digi rich partner strategy, which represented over 70% of our fundraising.
Speaker Change: Last quarter, we highlighted that the ratio of fund capital to co invest would revert towards the longer trend 65, 35 in 2020 five.
Speaker Change: On raising in Q1 was consistent with that we're.
Speaker Change: We're at $6 3 billion and our third flagship funds as of March 31, and we continue to taken commitments and we continue to fund raise and that flagship product to the end of July.
Speaker Change: And look what I can tell you is despite some of the headwinds out there and some of the noise around many things in our economy.
Speaker Change: Allocators are still putting capital to work in digital infrastructure and our pipeline continues to expand with investor interest.
Speaker Change: The third component on our roadmap invest.
Speaker Change: This centers around our support for Zale is 4.5 billion dollar acquisition of Crown castle's fiber business.
Speaker Change: We announced in March.
Speaker Change: We'll talk a bit more about that later, but the key from a digital image Investor's standpoint is it's an accretive transaction that lowers our effective entry multiple allows us to delever the business and positions us for improved returns down the road.
Speaker Change: It was a critical investment in our first fund and we've got that investment now in the right place.
Speaker Change: Next page please.
Speaker Change: So we put up a pretty solid first quarter I think we can all agree on that that makes two quarters back to back where we've essentially gone out and done exactly what we said we would do we took care of business.
Speaker Change: But I want to take a minute to cover what I think is really top of mind on investors today, which is how.
Speaker Change: The recent financial market volatility and trade tariff policy is impacting your business, specifically our business the digital infrastructure business.
Speaker Change: The way I always evaluate these macro factors is by looking at the short and long term implications both at the corporate level and down at the portfolio company level, where.
Speaker Change: Where we're looking at how to support our portfolio companies through these interesting periods.
Speaker Change: In the short term, it's not surprising some final fund raising decisions are being delayed a little bit by Lps that are monitoring uncertain market conditions.
Speaker Change: That's natural investor behavior.
Speaker Change: Taken stock of all the L. P conversations we're having we've looked at the pipeline we've looked at the timetable and investor intentions, and we continue to be confident that we are 100% on track to deliver our goals for 2025.
Speaker Change: Even if a few closings occur later than expected, we built that into our model. This year I'm not interested in repeating what happened last year.
Speaker Change: When you look at the longer term fundraising implications the environment today for our business. There is actually some real silver linings here.
Speaker Change: Notably and most importantly in this quarter, it's an opportune to highlight the resilience of our portfolio and the defensive characteristics of digital infrastructure.
Speaker Change: By the way, it's not just digital infrastructure, that's resilient at the corporate level, we have an incredibly durable business model at digital bridge, that's positioned to grow this year and.
Speaker Change: As we think about a fully derisk scenario, we can accelerate growth into the back end of the year and into next year.
Speaker Change: Down at the portfolio company level, the near term implications of our existing businesses are pretty de Minimis.
Speaker Change: With almost all of our company revenues tied to steady long term contracts and there are inflation protected given their real asset profile.
Speaker Change: When we head into periods of uncertainty like this our businesses are well positioned again at the asset level.
Speaker Change: And most importantly at the public level, which is our alternative asset manager.
Speaker Change: So when you're just still this when you think about new business and incorporate incremental capex at the portfolio company level. This is where you naturally see customers pausing today to assess the impact of markets and trade policy.
Speaker Change: Specifically around tariffs and trade policy the best breakdown, we've seen around potential data center construction impacts.
Is in the range of 3% to 7% of total build cost.
Speaker Change: Assuming a range of 10% to 20% cumulative tariffs.
Speaker Change: Honestly, that's pretty manageable when you look at how tight datacenter markets continue to be the challenges around power, we expect to be able to recover most of that in our new contracts and for there to be minimal impacts to our development yields.
Speaker Change: Again this is of course, given the fact that we own.
Speaker Change: 11 different datacenter businesses around the world.
Speaker Change: We have over 100 data centers in construction and we've committed over $20 $28 billion of Capex to new site development over the next 24 months. These.
Speaker Change: These are commitments that we made many many quarters ago with signed contracts.
Speaker Change: When you look at the long term the contract durations that I referenced earlier really protect the businesses.
Speaker Change: This is why investors love digital infrastructure.
Speaker Change: It's also important to note that we are responding to secular demand not cyclical demand. So it's persistent and it's growing steadily.
Speaker Change: Secondly, while we build hard assets, where ultimately supporting digital services. So we're not caught up in the crosshairs of trade policy the way many other goods based businesses are today.
Speaker Change: When it comes to new business and Capex spending this is another area, where the long term implications are pretty interesting.
Speaker Change: You see look periods of uncertainty present opportunity for our portfolio companies and they're really able to differentiate themselves because they operate at scale.
Speaker Change: Their ability to step in as a reliable partner.
Speaker Change: And a trusted set of hands and leverage their scale to deliver on time is what separates leaders from the new kids on the block.
Speaker Change: Frankly, we've done this before.
Speaker Change: We saw it in the OE mortgage crisis, we saw at the beginning of Covid, which created immense amount of pressure both in financial markets and in global supply chains. This is when digital ridge and digital infrastructure as an asset class really shine.
Speaker Change: Look I don't want to downplay the impacts of uncertainty we're seeing in markets today, but.
Speaker Change: But it's important to put in perspective, the resilience of our asset class and our track record performing through these periods.
Speaker Change: I've been doing this for over 30 years I've seen the up cycles I've seen the down cycles and one thing I can tell you is the assets that we build own and operate perform.
Speaker Change: And moments of uncertainty and volatility I'm really excited actually about what's ahead for us.
Speaker Change: Next page please.
Speaker Change: Over the next two slides I want to highlight empirically what I just talked about around the resilience and durability of infrastructure as an asset class. It's one thing to have a talk track. It's another thing to really give you the math behind it.
Speaker Change: Infrastructure has performed through market cycles, including during periods of macro uncertainty.
Speaker Change: It's a combination of lower volatility and.
Speaker Change: And lack of correlation making the asset class highly attractive to L. PS the uncorrelated natures of our cashless tethered to investment grade customers is why investors are allocating with us in this moment of uncertainty.
Speaker Change: The chart on the left hand highlights how private infrastructure has delivered solid high single digit returns.
Speaker Change: With much better risk adjusted returns relative to real estate global equities and bonds.
Speaker Change: The Middle block explains the why.
Speaker Change: Demonstrating infrastructures built in protection against periods of low growth.
Speaker Change: These two charts compare the earnings growth of listed infrastructure stocks to the broader equity market.
Speaker Change: Over the past four years during COVID-19 and the recovery period.
Speaker Change: This is truly the tale of two cities with the contracted long term cash flows and infrastructure sector protecting it against periods of volatility.
Speaker Change: And look it at the end of the day it's.
Speaker Change: It's quite obvious if you take a look at the three listed public tower stocks today here in the U S. They're all up effectively 15%, 17% and 20% Crown S. P a and American tower.
Speaker Change: Investors nowhere to go and moments of volatility and uncertainty.
Speaker Change: Finally, the chart on the far right highlights another attractive characteristic of infrastructure tell piece.
Speaker Change: Its lack of correlation to other asset classes.
Speaker Change: If you look at the performance of infrastructure.
Speaker Change: From just before the financial crisis in 2006 through 'twenty 'twenty four the correlation.
Stocks is low 0.3 and.
Speaker Change: And close to zero relative to bonds.
Speaker Change: That's really attractive to investors integrating infrastructure into a diversified portfolio not only generates good returns, but volatility goes down and you generate better risk adjusted returns and that's really what Lps are looking at today risk adjusted returns.
Speaker Change: Let's cover a bit more about diversification on the next slide please.
Speaker Change: On the last side, we covered how private infrastructure has proven to be resilient of recycles.
Speaker Change: But how is infrastructure and more importantly, digital infrastructure performing today in these conditions.
Speaker Change: Here, even public markets are highlighting the defensive low volatility performance of diversified digital infrastructure portfolio with.
Speaker Change: With a large cap portfolio comprised of big five digital rights up 6% for the year.
Speaker Change: Widely outperforming the broader market and AI centric indices.
A lot of investors are just focused on AI and data centers and missed the strong year to date performance of the tower sector.
Speaker Change: It turns out boring is pretty cool during periods of market volatility.
Speaker Change: Again, the truth is limited partners want diversified exposure for exactly these reasons yes.
Speaker Change: Yes, they want growth that we're seeing across AI and cloud.
Speaker Change: That will continue to be a strong driver for our business in the near and long term.
Speaker Change: But they also loved the persistence and the stability of the tower sector.
Speaker Change: That's how and why we built a balanced and diversified portfolio for investors, yes, we build hyperscale datacenters, yes, we build private cloud data centers, yes, we're building edge infrastructure, but you can't sleep on fiber small cells and mobile infrastructure, which is towers.
Speaker Change: It's no accident that we're not only the top three data center provider globally, but we operate a top four independent global tower portfolio with 10 tower companies around the world today and all of our tower companies are performing quite well right now.
Speaker Change: Today public markets are only reinforcing what we know.
Speaker Change: And our Lp's believe.
Speaker Change: Patients matters.
Speaker Change: Next slide please.
Speaker Change: Let's finish our business update covering a really interesting transaction, we led and supported across our portfolio.
Speaker Change: As many of you know last month Zale, a portfolio company. Our first flagship fund announced the acquisition of Crown castle's fiber business for $4 5 billion.
Speaker Change: It's an acquisition that increases they owe scale by over 50%, adding 90000 route miles today those existing 147000 route miles.
Speaker Change: This really creates a market leading fiber footprint that cris crosses the entire United States.
Speaker Change: Even more importantly that footprint is highly complementary boosting sales capacity and a number of key metrics, including Silicon Valley, Los Angeles, Chicago, Atlanta, and the mid Atlantic.
Speaker Change: Many of these markets are critical to serving growing AI and cloud workloads, both for training and positioning the zone network to serve growing inference workloads with high speed low latency, which is absolutely critical to our customers.
Speaker Change: It's a compelling transaction that we've been working on for many years.
Speaker Change: Supporting there was analysis and financing strategy, leveraging our experience and relationships throughout the industry.
Speaker Change: <unk> closed a highly complex transaction.
Speaker Change: What's most interesting to me and to Digirad shareholders is this is an accretive transaction with this acquisition, which effectively lowers our entry multiple on the transaction without requiring any additional new equity.
Speaker Change: In fact as I told you earlier, it's a deleveraging event for Zale.
Speaker Change: A lot of conversation around the zero capital structure of the bonds. The long term viability of the capital structure, we not only put that to bed with our securitization structure. We're now actually effectively deleveraging the balance sheet derisking, the asset and allowing it to continue to grow and perform well.
Speaker Change: We believe this will drive better returns and more carry for our investors as this asset matures.
Speaker Change: So with that I'd like to wrap up the business that update hand, the call over to Tom to cover our financial performance in Q1. Thank you Tom.
Tom Mair: Thanks, Mark and good morning, everyone.
Tom Mair: As a reminder, this earnings presentation is available within the shareholders section of our website.
Tom Mair: As usual I'll start with our financial highlights, which Marc touched on briefly.
Tom Mair: In the first quarter, we recorded $90 million of fee revenue, an increase of 24% over the first quarter of 'twenty 'twenty four.
Tom Mair: Our fee revenue in the quarter benefited from strong organic platform expansion and $12 million of catch up fees.
Tom Mair: This growth in fee revenue helped us generate $35 million of FRE in the quarter, an increase of almost 80% over Q1 of last year.
Tom Mair: We also delivered $55 million of distributable earnings this quarter, which includes a $34 million gain from the partial realization of our investment in data bank and benefited from growth in recurring management fees.
Tom Mair: As of quarter end, our available corporate cash $201 million, providing material liquidity and flexibility for us as we continue to evaluate with our capital structure and opportunities to invest in and grow our business.
Tom Mair: Moving to the next page.
Tom Mair: Fee, earning equity under management increased to $37 $3 billion as of March 31st% to 15% increase from last year and consistent with our guidance for 2025.
Tom Mair: This growth was anchored by a strong start to the year from a fundraising perspective with $1 2 billion of new fab paying commitments raised during the first quarter along with the activation of fees on certain previously raised capital from calling Vas and our credit strategy, which typically begin earning fees once capital has been invested.
Tom Mair: This more than offset the step down in fees that resulted from the transition of our second infer bench fine from charging fees on committed capital to invest in capital which occurred in late December of last year, and we discussed on our fourth quarter earnings call.
Tom Mair: Turning to the next page, which summarizes our non-GAAP financial results.
Tom Mair: Fee revenues for the quarter exceeded $90 million.
Tom Mair: Annual growth of 24%.
Tom Mair: Our FRE margin was 39% in the first quarter benefiting from 100% flow through on catch up fees.
Tom Mair: We expect FRE margin to remain higher in the first part of this year through the expected final close of our flagship fund in early Q3 due to the contribution of catch up fees.
Tom Mair: As mentioned earlier, the partial realization of our data bank and fasten contributed to strong distributable earnings. In addition to the continued growth in fee related earnings.
Tom Mair: Stepping back.
Tom Mair: We're really pleased with our start to the year and the realization of principal investment income and carried interest, which we expect to become more consistent overtime alongside the growth in management fees.
Tom Mair: Moving to the next page, which summarizes our carried interest and principal investment income, we reported a $5 million reversal of carry to income during the quarter.
Tom Mair: As a reminder, the company accrued carried interest based on quarterly changes in the fair value of our fund investments.
Tom Mair: The reversal in our first quarter stems mainly from net increases in the fair value of our portfolio of assets, which came in slightly below the preferred return hurdle on certain funds.
Tom Mair: Belting and a mark to market reduction in accrued carried interest.
Tom Mair: As we've discussed in prior quarters carried interest compensation expense tracks. These changes and therefore, there was a commensurate reversal of a small amount of unrealized carried interest compensation this quarter.
Tom Mair: Principal investment income, which is accrued income and realized income earned on the company's GP investments in our various funds was $5 million.
Tom Mair: Yeah.
Tom Mair: Turning to the next page. This chart continues to highlight the stability and consistency in growth both in revenues and margin and we've experienced over the last few years.
T M. F. R margin has grown to 35% as of the first quarter, which is consistent with our target of increasing our FRE margin by 200 basis points. This year.
Tom Mair: This quarter, we saw 2 billion of fee M inflows, primarily from fundraising and our D V P funds and the activation of fees on co investments.
Tom Mair: And in our credit business upon the deployment of capital that I discussed earlier.
Tom Mair: These inflows were partially offset by 300 million of outflows largely associated with the data bank transaction in which we and certain of our limited partners sold down a portion of our investment.
Tom Mair: Finally, the company continues to maintain a strong balance sheet with approximately $1 $5 billion corporate assets, largely reflecting our material investments alongside our limited partners and available corporate cash. Additionally, we have a fully undrawn corporate revolver and no debt maturities within the next 12 months.
Tom Mair: With positive free cash flow generation and strong liquidity, we're well positioned to deploy capital strategically to support growth in our business.
Tom Mair: And we continue to evaluate the appropriate capital structure for the company, including our preferred stock obligations.
Tom Mair: We're off to a strong start for the year or very excited about the opportunity set that we see ahead of us with.
Mark: With that I'll turn the call back over to Mark.
Tom Mair: Thanks, Tom.
Speaker Change: And one of fitness today touching on the progress we continue to make building our private credit platform.
Speaker Change: One of the key strategies that is going to help drive 20 twenty-five performance, particularly in the first half of the year and be an engine for growth over the coming years.
Speaker Change: Let's cover some of our goals, what our pipeline looks like highlighting an interesting transaction. We just led and profile of our team that has executed this great opportunity that we see in front of us.
Speaker Change: Let me start with fundraising here, we've got a tremendous pipeline we have over 100 accounts working right now evaluating our private credit strategies.
Speaker Change: We're looking to build on the 650 million we've already raised in our second credit strategy.
Speaker Change: As I referenced earlier in periods of market volatility private credits appeal naturally elevates.
Speaker Change: This year in addition to capital formation, we're originating and closing new loans and four have already closed year to date.
Speaker Change: And we're targeting to deploy up to $2 billion over the course of 'twenty 25.
Speaker Change: Which in turn lights revenue, which is really important for our business plan this year.
Speaker Change: Another way, we're scaling and leveraging our presence in the sector is through Sma's.
Speaker Change: You've heard this of course with many of our competitors, who have long had the SMA strategy to grow and leverage their credit platform.
Speaker Change: T O P is want to invest additional capital alongside of our loan book.
Speaker Change: This allows us to syndicate down large loans very easily and we generate incremental fee them. All at the same time, strengthening our LP relationships and bringing them back around to our core products. It's a really virtuous cycle in terms of how L. P. As think about deploying capital and private credit, but also how they think about deploying capital in our other <unk>.
Speaker Change: Strategies.
Speaker Change: Finally, we're focused on top of funnel bill.
Speaker Change: Building, a pipeline of new loans, where today, we have over 90 discrete opportunities representing $13 billion in new loan origination and I'm not going to tell you we're going to close every loan and that we're going to ultimately activate 13 billion of new loan activity, but what I can tell you is we have a deep pipeline, we have a great team and we're now.
Speaker Change: We're really executing at scale in private credit. This is a really exciting development at digital bridge.
Speaker Change: So that's a high level of our plan for 2000 and twenty-five let's go to the next slide please.
Speaker Change: Let's talk about the state of play in digital private credit today, and the opportunity that we're addressing.
Speaker Change: Here our strategy is focused on the skill capital segment of the roughly 200 billion annual digital private credit opportunity.
Speaker Change: That's a tam of over 65 billion for digital focused credit that fits our mandate.
Speaker Change: As the scaled specialist in our ecosystem today, we've got a robust pipeline of $13 billion that we believe is actionable over the next 12 to 18 months.
Speaker Change: These are largely proprietary deals where we are engaged one on one with the company and the senior leadership team again as the leader in digital infrastructure Ceos count on us they call us They trust us we've been doing it for 30 years.
Speaker Change: That operational capability that knowhow and being able to sit in that chair and look another C O across the table and say I've sat in your chair I understand your capital structure issues I understand your customer issues and understand how to support your business is a conversation that no other private lender in the world can have again, it's about 30 years of operation.
Speaker Change: Experience and having experienced with those Ceos are going through today.
Speaker Change: Turning to the right about two weeks ago, we let a really interesting transaction $500 million debt facility of allo fiber.
Speaker Change: One of the largest pure play fiber providers, serving 45 communities across the mid and southwest United States.
Speaker Change: It's a fantastic business, it's a business with a very strong reoccurring revenue base low churn favorable competitive dynamics and we're backing a sponsor that we've known for a long time that has a distinguished track record in execution.
Speaker Change: What's really impressed us the most is the management team.
Speaker Change: Their CEO, Brad Malines has built an impressive high quality business with high market penetration and excellent execution.
Speaker Change: It's the perfect example of how we deploy skill capital in the credit space to support top management teams as they execute.
Speaker Change: And by the way that's pattern recognition. It's the same thing we do in our flagship equity product, we look for the best Ceos, when we find them, we get to know them and then we backup the truck and we support them, we're really excited to support Brad and his business.
Speaker Change: We're refinancing some of the existing debt here and providing gross capex towards new success based fiber builds.
Speaker Change: With strong asset coverage and a unique insight into the trajectory of the business at the same time.
Speaker Change: Our ability to lead significant transactions like the allo transaction activates newfield.
Speaker Change: Which in turn drives the growth of our credit platform and our corporate performance.
Speaker Change: Next slide please.
Speaker Change: And again I'm going to come right back to people. It all starts with the team.
Speaker Change: Our people are the alpha is always like to say and we're building the leading team and digital credit.
Speaker Change: Starting with veterans Dean Careerists in Mike's Dupont, who are recruited a few a few years ago, along with my partner Ben Jenkins to lead the credit platform.
Speaker Change: It's a team with deep experience with over 20 years of originating digital infrastructure loans and the strategic execution capabilities to continue to scale, our business and our private clinic for credit platform.
Speaker Change: As with other successful investment programs, we're supporting a dedicated team with deep deep expertise across our sector and across our organization.
Speaker Change: The ability to tap into the insights of our firm.
Speaker Change: And the digitally infrastructure ecosystem is second to none.
Speaker Change: And our team as well as their existing portfolio companies benefit from this combined expertise and experiences.
Speaker Change: So we've got an experienced team that's executing raising originating and closing loans in an attractive market generating attractive returns for Lps with a lot of growth ahead bottomed.
Speaker Change: Bottom line I'm really excited about the momentum that our private credit businesses seeing I believe it can scale into a three to four times. Its current size over the next few years.
Speaker Change: We'll continue to monitor this this opportunity and we'll continue to talk about private credit as 'twenty twenty-five evolves next.
Speaker Change: Next slide please.
Speaker Change: So, let's wrap up the call today summarizing our progress across the CEO checklist I laid out at the beginning of the year.
Speaker Change: First it starts a fundraising.
Speaker Change: With respect to our 40 billion fee them target I'm confident we're on track to deliver here.
Speaker Change: As you saw this quarter, we had a solid fundraise on our flagship strategy and the allo deal I just highlighted activated newfie M to support continued growth in the second quarter.
Speaker Change: We also feel really good about the progress, we're making on our new strategies around digital energy stabilized data centers and the launch of a very distinct private wealth offering that centers on ecosystem investing in AI, which we believe is very unique and very differentiated for private wealth clients.
Speaker Change: More to follow here in the second half of the year and that was the teaser.
Speaker Change: From an investment standpoint, we're continuing to support the growth of our portfolio companies across the entire ecosystem.
Speaker Change: And ideally, we'll be able to capitalize on some of this market disruption to acquire assets and businesses at better prices. This.
Speaker Change: This was on display in the quarter as we announced the Zale Crown castle transaction by being patient and not overpaying and ultimately working hard for over two to three year period. We eventually were able to land that asset and the right price that was accretive and most importantly, really builds our investment case and most importantly gross carried interest for you our investors.
Speaker Change: <unk>.
Speaker Change: Finally.
Speaker Change: I'm focused on continuing to scale digital bridge driving double digit revenue growth and expanding margins. This.
Speaker Change: This quarter was a great example of that revenue was up over 20% and earnings almost a up 80% year over year. This is phenomenal performance.
Speaker Change: These are the benefits of being exposed to a rapidly scaling business with lots of growth potential in our sector benefiting.
Speaker Change: From secular tailwind.
Speaker Change: And at the same time, we remain committed to improving our margins something that both Tom and I laid out for you in the last quarterly call that we're going to make our business more profitable and we're going to make it more efficient and we're going to outperform the markers that we put out on the road for you our investors.
Speaker Change: We'll look forward to connecting with you again next quarter and updating you on our progress towards our 2025 objectives.
Speaker Change: I really think this is another solid quarter will be delivered strong performance and most importantly continue to grow our asset base and continue to deliver on what we think is the most interesting value proposition in digital infrastructure today on the globe.
Speaker Change: I deeply appreciate your ongoing interest in <unk> and with that I'm happy to open up the call to Q&A operator.
Speaker Change: Thank you.
Speaker Change: A question and answer session.
Speaker Change: I would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: The confirmation tone will indicate your line is another question queue. You May press star two if you borrow three will get questions.
Speaker Change: Perfect.
Speaker Change: Okay, great equipment.
Speaker Change: You can pick up your.
Speaker Change: Core pricing.
Speaker Change: Okay.
Speaker Change: First question Rick.
Speaker Change: Great.
Speaker Change: Hi, everybody.
Speaker Change: Good morning Godfather, how are you.
Speaker Change: Great Hey, a couple of questions.
Speaker Change: One I know you said you're on track, but just wanted to get at so were saying basically reiterating the guidance that total coffee FRE grow 10 to 20, or so 40 billion for U M 34, 5% FRE margins is that.
Speaker Change: Fair to say that those three key guidance items are maintained and reaffirmed today.
Speaker Change: Yes.
Speaker Change: I think I said in that fourth quarter that we expected you know kind of performance to be a little bit.
Speaker Change: You know a frontloaded, but we're now.
Speaker Change: Very comfortable with the guidance for the year.
Speaker Change: Yes, that's 100% of the catch up is yeah, Okay, just always like to get that out because if we don't see it explicitly think always get nervous.
Speaker Change: One question I've got for you. Obviously appreciate that chart mark on the market volatility tariffs and trade policy short term long term impacts what does it do.
So potential carried interest he does I know you guys have talked about wanting to make that more consistent hoping you might have a couple of this year, but how is the market volatility impacting your thoughts on the timing and likelihood of carried interest events. This year.
Speaker Change: Well I think you know, we see dealmaking has slowed down a little bit in the U S. But interesting enough in the rest of the world as you saw yesterday from David Solomons at Goldman Sachs Dealmaking is up globally over 50%. So it's very interesting that dealmaking is down in the U S. Rick by 30% and that global M&A is up 50.
Speaker Change: Percent rest of the World. So you know this has happened in times before you go back a couple of years and you saw dealmaking in the U S slump, a little bit in rest of the world came up and I think the key to US Rick is that we're a global firm today, we are not a U S. Only firm and so when you look at our assets and you look at our portfolio and.
Speaker Change: And we look at places, where we think we can get liquidity.
Speaker Change: We don't have to look just here to the U S. We've got great businesses in Latin America, Europe, and Asia, we get inbound inquiries everyday for the 50 plus portfolio companies that we own.
Speaker Change: And you know when we do search for carried interest and liquidity. This year. You know we are still looking in the U S. There's some interesting things that we see in our portfolio that others value.
Speaker Change: So we have a series of ongoing strategic reviews across a number of companies that could produce some really good results.
Speaker Change: As we've always said Rick carried interest right now is episodic, but the goal is you know moving into this year and into next year is to move it from episodic into consistent. So we do expect you know some carried interest to be delivered this year I cant give you with any precision given N D. As in processes that are ongoing.
Speaker Change: Which portfolio companies are going to monetize but we do have confidence and conviction that we can create those outcomes now the guidance that Tom has given you does not include.
Speaker Change: Any significant carried interest this year, we were very clear about that when we set the guidance last year.
Speaker Change: Net.
Speaker Change: That range of FRE was not going to have any material carried interest distributions for 2025, we do have some things that are happening.
Speaker Change: One of our portfolio companies in Europe that will trigger some some carried interest but by.
Speaker Change: By and large I would say, Tom where we're not expecting with the guidance. We've given the street. There's nothing here that it would be a beat to the guidance essentially yeah, and you know I.
Speaker Change: I wouldn't necessarily.
Speaker Change: <unk> principal investment returns in carry but you know from our perspective, there are some similarities and we did have the databank exiting Q1.
Speaker Change: That.
Speaker Change: It doesn't flow through FRE, but but it's distributed earnings and sort out we were really pleased with that.
Speaker Change: Makes sense last one from me.
Speaker Change: You guys still trade at a pretty significant discount to your peer group.
Speaker Change: Obviously skill important to get scale, you touched on that a little bit but help us understand what steps you can do to try and close that disconnect I think theres a disconnect but may be dispersed do you see the disconnect in how can you close that disconnect.
Speaker Change: Well I think the disconnect last year was you know we set a guidance target that.
Didn't carefully plan for impact of timing around fundraising and I think this year, we've done the opposite of that we've put out a guidance that carefully does think through the timing and ultimately the delivery of the FRE as it plays out in Q1 Q2, and you know we we've delivered a strong Q1.
Speaker Change: We anticipate delivering a strong Q2 and you know I think from our perspective, it's about execution, Rick investors want to know that Digi bridge can be trusted to execute against its fund raising targets. It's F. Our eagles and ultimately we want to be a consistent distributor of earnings at some point, that's a real key for US I think Tom's done.
Speaker Change: Great job, creating strong liquidity you see the distributable earnings are up significantly.
Speaker Change: Year over year this quarter against last year first quarter, and so that consistency and that execution is going to be what are really carry the day certainly if we can scale, we talked about private credit in our presentation today, Rick we're really bullish on private credit. We've got a massive you know big loan pipeline of over 90 loans 13 billion in the backlog.
Speaker Change: You know, we've got an easy target to hit of 2 billion of loan origination this year, which we think we can exceed <unk>.
Speaker Change: And we've got a great team.
Speaker Change: And most importantly management teams trusted Woodbridge, when we're sitting across the table from a CEO and they're borrowing money from us they're not just getting money. They're also getting our mind space are 30 years of experience and we think that's a swim lane as you've heard from other asset managers, whether it's you know ares or Apollo private credit.
Speaker Change: It is here to stay Rick <unk>.
Speaker Change: And having a team that is the expert in private credit similar to what we've done in equities for last decade, we think that's a big place for us to scale. That's a huge area of white space. We've obviously talked about power we've talked about Steve.
Speaker Change: Stabilized real estate and data centers. These are big areas of growth and as we scale this year and prove out that those funds and knows that funds, but strategies.
Speaker Change: Can work for us that's going to really be a proof point for investors scaling the business into power that's adjacent to data centers and being a clearinghouse for stabilized data centers. These are big ideas that we're currently executing and I.
Speaker Change: I think as we execute those ideas and we execute against you know the earnings and FRE growth <unk>.
Speaker Change: Investors are going to come back to us in la.
Speaker Change: Look investors are voting with their wallets today, Rick you've seen that in and cell towers here in the last 30 days.
Speaker Change: And in the moments of the storm and the moments of volatility.
Speaker Change: What we find is that it's you know digital infrastructure is the place investors want to be it's uncorrelated long term contracts escalators.
Speaker Change: And in US running a global firm, you know, where where we have somewhat immunity to tariffs as we build out in different parts of the world and more regional it really gives didn't reach a huge advantage to scale in this year. So we're we're we're very excited about what we're doing and I think investors will come back to us this year and will close that gap pretty quickly because.
Speaker Change: The stuff that we're doing is differentiated vis vis our peers and so this is a great opportunity for us to close that gap.
Speaker Change: Makes sense appreciate the focus on communication, we like them to focus on what industry. You're focused on is really go to I. Appreciate it thanks guys.
Speaker Change: Yeah. Thanks, Rick.
Richard Choe: Richard Choe with Jpmorgan. Please proceed.
Speaker Change: Great two quick questions one.
Speaker Change: You talked about the delays in LP decision, making but kind of what are you hearing more recently I know, it's only been a month of real volatility, but any more insight you can give on.
Speaker Change: What are you hearing more recently from potential investors and then two are you seeing some shift.
Speaker Change: To investor interest in towers.
Speaker Change:
Speaker Change: And a little bit away from data centers overall.
Speaker Change: Yes. Good morning, Richard how are you. Thank you for for your questions. Let me start with the first one which is just around fund raising so you know we've been on the road for the last 30 days the top partners in the firm sort of in Asia Middle East Europe here in North America I was in Canada last week seeing seeing all of our Lps and <unk>.
Speaker Change: Canada and look investors are still allocating I mean, that's the key we quote we closed fund commitments you know in the last couple of weeks during this moment of volatility.
Speaker Change: And talking to investors directly you know they really haven't changed their allocation strategy for 2025, I would say theres been in the 280 plus investors that are currently in diligence across our various fund products. We've only had two investors come to us in the last 30 days and say they're on pause.
Speaker Change: That feels pretty good actually I was expecting more to be honest with you and it just hasn't manifested itself I think at the end of the day the people that we deal with Richard or large institutions. These are sovereign wealth funds. These are pension funds you know they they set their commitment schedules you know well in advance you probably saw our press release from the state of New York last week around there al.
Speaker Change: Location policy for this year their board met last week.
Speaker Change: And they are proceeding with private markets and digital bridge as one of their choices. So we're really excited to have you know New York State teachers retirement system and our flagship fund and this is what's happening people are still committing why are they committing what is the intention. The intention is people want to be exposed to digital infrastructure.
Speaker Change: And particularly our current strategy. Our third fund strategy is about ecosystem investing which is of course, you said it right. Richard towers people are coming back to towers, we're investing in fiber you've seen some of the activity that we've done in fiber in this quarter, where theres the al alone the zero transaction or one of the investments we made in fund three and fiber and so it just doesn't.
Speaker Change: Have to be a datacenter narrative AI is more about than just building datacenters now at the same token we've.
Speaker Change: We've actually not seen a material retreat from data centers and our business. In fact, we took commitments into co investment vehicles in this quarter.
Speaker Change: In our data center and some of our data center platforms. So our data center businesses are growing we had a fantastic quarter in terms of performance, we can get into that a little bit at some point, if you wish but what I like the most is what I heard from my customers in the last 48 hours, particularly I loved the print for Microsoft I loved with Zack had to say about there.
Speaker Change: Doing in terms of their intention for capex moving their capex guidance up our customers are not retreating.
Speaker Change: Whatever narrative that the press wants to put out there. The data centers are in retreat. The arithmetic completely does not support that view you saw it in full bloom with digital Realty and Equinix Youre seeing adhere today with digital bridge in our results.
Speaker Change: People are allocating investors are putting money to work and our customers are putting money to work. So the datacenter thesis is 100% intact I know it was really easy to take a punch at it last quarter in terms of what was happening between Microsoft and open AI and some of the commentary around what Alibaba had to say, but the math just doesn't lie and investors.
Speaker Change: Our continuing to deploy capital and digital infrastructure, most importantly, Richard Theyre, putting capital to work with us.
Speaker Change: And that was on display in this quarter.
Speaker Change: No. It makes sense that maybe there is some move away from U S equities, but could easily go to.
Speaker Change: Global private equity platforms and digital infrastructure so.
Speaker Change: Okay.
Speaker Change: Next question, Randy Binner with B Riley Securities. Please go ahead.
Speaker Change: Okay. Thank you.
Randy Binner: I was wondering Tom if you could review on carried interest.
Speaker Change: The mark to market impact I missed that in the.
Speaker Change: In the opening commentary I think that'll be a question, we'll get from some investors that just a little bit more color and detail on how that Mark impacted were carried interest came through the income statement.
Speaker Change: Sure.
Speaker Change: Our marks for sort of broadly flat a little bit up in the quarter.
Speaker Change: But kind of right around a little bit less than what the preferred return hurdle was for the quarter. So the value of the assets are up a little bit, but a little bit below the preferred return. So we gave back a little bit of accrued carried interest.
Speaker Change: If that makes sense, yeah, and then and then how do you how do you expect kind of pulling everything together from the call here and a good outlook.
And.
Speaker Change: Got it.
Speaker Change: Stabilization after this pause in kind of.
Speaker Change: Your markets, how would you expect that line item for grasses as it as we go through the year and as you all perform on these goals you've laid out.
Speaker Change: Yeah look I don't really expect any meaningful disruption from the sort of short term volatility that we've seen now our assets are long term assets. They have a long term business plans long term cash flows. So I you know I.
Speaker Change: I would not expect any unusual trends in terms of the asset values over the course of the year.
Speaker Change: Yeah, I guess I'm getting to is when would we be able to expect that to turn more positive.
Speaker Change: Yes, I can we never got here that we go through the process you know sort of on a quarterly basis. We felt good about our assets. We believe they'll continue to appreciate.
Speaker Change: But when I am like a project you know starting to future values of assets are you kind of carry.
Speaker Change: But you know, we we sit down every quarter and do you have a rigorous process and well do that again towards the end of this quarter and you know we felt good about the assets that we have.
Speaker Change: I think also it's a it's a philosophy around here in particular, which is you know we tend to be very conservative on how we mark our assets our framework really relies on three methodologies that were not going to change.
Speaker Change: Since I started the firm 11 years ago, I've never changed our asset management framework I've never changed our valuation framework. We have an independent committee that does that work I'm not on that committee, we don't put our investment management team on that committee, specifically and we allow at the end of the year, we allow Ian why to audit our results we take our marks very seriously.
Speaker Change: And I think you know the the Genesis of that is having numbers that are credible and so when we do go to sell assets like if you look in the past it whether it is vantage towers or weather was wild stone, we sold those assets anywhere from 27% to 40% premium to NAV and everything we've ever sold since the inception of the firm.
Speaker Change: We've had an average of 25% to 40% premium to NAV and I think that's important it's important to mark your assets realistically we're.
Speaker Change: Were not paid on paper marks its really important I know some funds actually get paid they pay themselves quarterly on their paper marks we don't do that and I think having that transparency and having that independents and how we mark the assets really gives our L. P is a lot of confidence that when we do publish our NAV it sticks and it's defensible and.
Speaker Change: So that's been our track record I think obviously like what Tom said, we have a lot of confidence in what we're doing some of our portfolio companies really are performing well right now and we'll revisit that in the second quarter, but we also don't want to get too exuberant at the same time I think you know there's a lot of really positive things happening in Seo there're some incredible things happening at switch.
Speaker Change: There's amazing things going on a vertical bridge right now in U S towers, but again, it's about consistency its about being conservative and it's about creating a framework that when we do go to monetize those assets, we have that premium to NAV and we liked that architecture better and we think it's a bit more.
Speaker Change: Up then tick I guess is the word I would use nelligan and what we say they're worth today matters, but what's more partners, what we actually sell in bar Yep.
Speaker Change: Got it okay. That's great color I appreciate it thank you.
Randy Binner: Thanks Randy.
Speaker Change: Next question, Jonathan Atkin with RBC capital markets. Please go ahead.
Speaker Change: Hey, Jonathan.
Speaker Change: Jonathan Your line is what.
Speaker Change: Okay, we will move on to.
Jade Rahmani: Jade Rahmani with <unk>. Please go ahead.
Jade Rahmani: Hi, Good morning. This is actually Jason <unk> on for G homes, or just one question on the fundraising outlook, perhaps have you seen any interest in and any shift in L. P interest more towards credit strategies versus the.
Jade Rahmani: The flagship funds in the current macro environment. Thanks.
Jade Rahmani: That's a really thoughtful question Jason. Thank you for asking I was hoping somebody who can ask that today.
Jade Rahmani: We've actually seen an uptick in terms of the pipeline in credit we have over 100 Lps now working on the credit fund, which is fantastic. That's that's up over 50% from where we were you know same same time create 90 days ago. So.
Jade Rahmani: I think the performance of our first credit fund was really spectacular and.
Speaker Change: The performance of the second fund is working really well and investors see that but I think also Jason the magnet is the opportunity to co invest as I said on the call today, the the chance to work with new investors on in SMA structure is something that's super undervalued I think in our business today and yellow transaction is only one of.
Speaker Change: Many transactions that we've closed this year and we're closing other transactions. So I think what gets lost a little bit in the print is obviously you know we're excited about the deep pipeline of interest in the credit fund, we highlighted that that there's over 100 accounts working in the data room, we've closed 650 million of commitments.
Speaker Change: We feel like we've got really strong line of sight to hitting the fund target and exceeding the fund target, but what's not in that print is the estimate and what I really liked about the allo transaction is at the end of the day, we put 70 million from the fund we did $430 million in Sma's.
Speaker Change: And those are new investors that are not in the funds. Some are in the fund, but there were a lot of new logos, there and now Theyre looking at the fund and so interest has gained.
Speaker Change: In private credit, Jason, but remember private credit investors are not the same investors always that look at flagship.
Speaker Change: So for example, you have insurance companies really looking at private credit and a lot of those insurance companies don't go and where our flagship product where you see pension funds sovereign wealth funds fund of funds.
Speaker Change: And family offices.
Speaker Change: So both strategies are working quite well.
Speaker Change: And as we wrap up the flagship fund will put all of our energy to the end of the year in credit and then at the same time as we launch digital energy and we launched the.
Speaker Change: Datacenter income fund.
Speaker Change: Strategy datacenter income strategy.
Speaker Change: You know we're there we're fishing in different pockets as well I think this is the key to our fundraising program today, Jason is the diversity at which we're fundraising.
Speaker Change: Much bigger team today 38 people were still adding people to that team.
Speaker Change: And the importance is in flagship Theres, a certain set of investors that are infrastructure investors and digital power. We're looking at people that are allocating to new forms of energy and energy transition, which is actually a different sleep and infrastructure at most major pensions and sovereign wealth funds than in the.
Speaker Change: Datacenter income strategy, we're solely focused on real estate investors, which again is another pool of capital and then we get to private credit.
Speaker Change: Every major L P and the world has a different team that works on private credit. So this very surgical approach to fundraising is working we took in allocations in this quarter in credit and in flagship and in co investments in Sma's and that's really important the fact that we're hitting on all four of those cylinders at the same time. It gives us a lot of optimism as we work into the <unk>.
Speaker Change: Half of this year finish out our flagship fund finish out credit to launch the new strategies.
Speaker Change: We've never been more organized from a fundraising perspective.
Speaker Change: Our team meters know, where they're going they know how to approach accounts and that's what's giving us all this conviction around our performance for 2025.
Speaker Change: Okay.
Speaker Change: Great. Thank you.
Speaker Change: Thanks, Jason.
Speaker Change: Once again, if he would like to ask a question. Please press star one on your telephone Keypad next question comes from Anthony Hau, What's your with security.
Anthony Hau: Good morning, Thanks for taking my question.
Speaker Change: Mark can you bridge that gap between total capital, that's tied and committed and the portion that is currently.
Speaker Change: Peak earnings so in other words, how is the how much of the committed capital has not yet commenced and therefore sits outside field and what timing should we expect where those dollars to start generating management fees.
Speaker Change: So today that numbers at 4 billion.
Speaker Change: And as we deploy that capital.
Speaker Change: Into specific co investments, which our portfolio companies that are lighting capex every quarter, we build into fees and then of course credit credits. The big one and you saw that on display this quarter, we had a great quarter almost lighting, a $1 billion of new loans we've.
Speaker Change: We've got a we've got a strategy to do 2 billion. We think we're going to exceed that obviously, but credit is really the big driver.
Speaker Change: Of lighting up new fee them in Q2, and Q3 and so as we originate loans at the same time. We're also lighting in parallel path sma's like I talked about the allo alone and so youre going to see more of that I think what we're telegraphing to you is that you know.
Speaker Change: One of the areas, where we could be a slight beat or surprise would be in lighting.
Speaker Change: New loans and lighting fee them in credit and then of course as you look at Big co investments like switch Yonder Vantage data Bank. You know, we have a significant amount of commitments lined up there and as we like those commitments and we light up new construction, we're going to let up fees and that's important because in datacenters as you know it requires a lot of capex.
Speaker Change: And you know today, we've got you know we're in the process of building out over 2.3 Gigawatts of data centers and so that's a lot of capex, that's going to be let in the next 12 to 18 months.
Speaker Change: And you know that that 2.3 gigawatts for the leases that are currently signed but not yet commenced and so that requires a lot of capex and we're gonna light AUM and we're going to see them at the same time. So this backlog of leases that sit in data centers is huge.
Speaker Change: The backlog of loans is significant and so theres a lot of you know film that's going to be activated here between now and the end of the year. That's already capital Thats committed we don't have to raise I know Tom you want to give any color.
Tom Mair: No. It is you know just proportionally co investment and credit.
Tom Mair: You know in terms of the kind of fee rates, but nothing else to add.
Tom Mair: Thank you.
Tom Mair: Thank you.
Tom Mair: Florida.
Tom Mair: Mark.
Speaker Change: Well look I want to thank everyone for their interest today in digital Ridge and your continued interest in digital infrastructure I think it was a really solid quarter.
Speaker Change: We came out we executed we delivered exactly against what we told you we would deliver it probably a little bit of a beat to what the expectation was I'm really proud of our team. The team is working harder than ever across fundraising asset management, new deal execution, and most importantly, delivering for our shareholders at the end of the day.
Speaker Change: <unk> seen the performance year over year up versus last Q1 fundraising was up distributable earnings was up FRE was up <unk> was up every metric that matters to you as a shareholder is up year over year.
Speaker Change: It's important to note that we still have strong conviction around the things that are happening today, particularly in the data center landscape, where you've seen our peers due to royalty and Equinix put up strong numbers well. We did the same thing. We also put up strong numbers our pipeline in terms of the amount of activity across our data center portfolio today sits at 9.9 gigawatt.
Speaker Change: This is up 38% year over year.
38% interest is up across our data center portfolio around the globe today that is not a contraction that is an acceleration you've heard it from Microsoft you've heard it from meta you're going to hear it from the other hyperscale or the AI economy is not slowing down in fact, it is accelerating and it will require mission critical infrastructure.
Speaker Change: The way, we think you need to play mission critical infrastructure is with digital bridge.
Speaker Change: We are we believe the most diversified global builder owner and manager of digital infrastructure and you're proving today as you've seen in tower Socs and you're seeing in datacenter stocks. The last few days that these assets hold up in times of volatility and market uncertainty.
Speaker Change: We're going to continue to work hard for you we're going to continue to keep fundraising and our expectation is to continue to deliver outperformance against our guidance. Thank.
Speaker Change: Thank you for your time today, we look forward to engaging with all of our investors over the next few days and again, we appreciate your interest in <unk>. Thank you.
Speaker Change: This concludes today's teleconference. You may disconnect your lines and have a one day.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: [music].