Greetings, and welcome to the DigitalBridge Group First Quarter 202 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Severin Watch. Please go ahead.

Good morning, everyone, and welcome to DigitalBridge's First Quarter 2022 Earnings Conference Call. Speaking on the call today from the company is Marc Ganzi, our CEO; and Jacky Wu, our CFO. I'll quickly cover the safe harbor, and then we can get started. Some of the statements that we make today regarding our business operations and financial performance, including the effect of the COVID-19 pandemic on those areas may be considered forward-looking, and such statements involve a number of risks and uncertainties that could cause actual results to differ materially. All the information discussed on this call is as of today, May 5, 2022, and DigitalBridge does not intend and undertakes no duty to update it for future events or circumstances. For more information, please refer to the risk factors discussed in our most recent Form 10-K filed with the SEC and in our Form 10-Q for the quarter ended March 31, 2022. Great. So we're going to cover our standard quarterly agenda. Marc will start with highlights from the quarter. Jacky will cover our financial results, and then Marc will wrap up with how we're executing the digital playbook in 2022, followed by Q&A. We've made some great progress to our '22 goals already with some very compelling transactions. So let's get started. With that, I'll turn the call over to Marc Ganzi, our CEO. Marc?

Thanks, Severin. That's exactly right. It's been a busy start to the year, and we're already delivering on many of the key 2022 objectives. In the first 4 months, we've announced a series of exciting transactions that position us to deliver on and most importantly, exceed our financial guidance, while at the same time advancing important strategic goals, which we'll talk about today. The deals that we recently announced are centered around our ability to pair capital, with our best ideas and the opportunities that we see across the digital infrastructure landscape. At the same time, we're increasing our shareholders and your exposure to the attractive economics of building and owning these highly sought-after assets. We'll talk about the progress today that we're making on first, building a full-stack digital infrastructure investor; second, investing in high-quality digital businesses; and lastly, scaling our high-performance operating platform. So let's get started. Next slide, please. So the first important deal I want to cover today is the agreement we reached in April with our partners at Wafra to progress their investment to the corporate level. When Wafra first took a stake in our investment management business 2 years ago, we are managing through both the early stages of the COVID pandemic, and a massive, diversified to digital transformation of the company. Their investment accelerated that process. And now that we've gone completely digital, it's time to consolidate 100% ownership back under DigitalBridge and unify our relationship with them so that we have 1 set of investors focused on 1 business plan. This is a deal many of our investors have asked us about. How and when can you buy back the Wafra stake. It's a question rooted in the understanding that our digital investment platform is such a great business. And why not?…

Thank you, Marc, and good morning, everyone. As a reminder, in addition to the release of our first quarter earnings, we filed a supplemental financial report this morning, which is available within the Shareholders section of our website. Starting with our first quarter results on Page 13, the company continues to see strong year-over-year growth, driven by successful IM fundraising. For the first quarter, reported total consolidated revenues were $257 million, which represents a 17% increase from the same period last year. Year-over-year growth was driven by our continued expansion in both AUM and FEEUM. Net income was a loss of $262 million, primarily as a result of $219 million of onetime noncash losses, including $133 million from the early extinguishment of the 2025 exchangeable notes and $91 million associated with the sale of the legacy Healthcare portfolio. Total company adjusted EBITDA was $20 million, which grew from $13 million in the same period last year primarily driven by our successful fundraising in our high-margin Digital IM business. AFFO and distributable earnings of approximately $2 million improved from a loss of $5 million last quarter and a loss of $10 million in the first quarter last year, also driven by growth in our IM business. Digital AUM was $47 billion in the first quarter, which grew by 45% from $32 billion in the same period last year. Beginning next quarter, we plan to only focus on year-over-year results as this is a better measure of our long-term growth trends, while deemphasizing these quarter-over-quarter fluctuations associated with IM catch-up fees and incentive fees. Also, as Marc discussed earlier, we signed 2 important transactions after the end of the quarter. The first was the purchase of Wafra share of our IM business, and the second was the acquisition of AMP Capital's global…

Thanks, Jacky. As I said earlier today about the attractive financial implications of the 2 transactions that we consummated in the last 3 weeks, I wanted to really cover for you the strategic rationale and give you some more perspective on why the growth in our investment management platform is so seminal to our strategy. First and foremost, it is about accelerating and scaling our businesses that is fundamentally focused on a customer-centric approach. This is our ability to serve global technology and telco customers in ways that other digital infrastructure REITs and managers cannot. They're operating at scale. So we need to operating at scale. And by having an asset-light model, it enables us to go anywhere and deliver for customers and raise capital and execute. As the flywheel on the right highlights, investment management capital formation enables us to capitalize on new digital infrastructure opportunities, which creates a virtuous cycle that reinforces our ability, first and foremost, to serve customers. They want to work with partners that can deliver. And here is the magic of what we're doing today at DigitalBridge, we deliver. That is a hard fact. We talked about it in our last quarterly call, over $70 billion of new construction happening in 5 different continents today. So at a corporate level, we're investing that time, that energy, we're forming the capital to make sure that we have what we believe is the most capable global organization, built to meet those expectations, the expectations of our customers. We believe our asset-light framework is by far the most efficient way to form capital to achieve these objectives. Next slide, please. So how have we done this? We've done it by being able to scale and to meet the size of the opportunity that sits in front of…

[Operator Instructions]. Our first question is from Michael Elias of Cowen.

Two, if I may. First question is, I mean, you did some great transactions in terms of Wafra and AMP. And really on the call, we emphasized the capital-light approach going forward. And my question for you is, as we look forward and think about the balance of further M&A between the investment management platform and the operating business, how should we think of that balance? And also as part of that, how should we think of your outstanding operating guidance? And then I have a follow-up.

Yes. Thanks, Mike, and appreciate your attention and thoughtful questions. So first, on the allocation of capital, I think that's kind of where we need to go with this question is how do we prioritize where we put the money to work. We did a lot of hard work last year getting ourselves into a strong liquidity position by the work that Jacky and the team did. And so the reward for that is we get to be opportunistic, and we got to put that capital to work, we think we can generate the best earnings and generate the fastest amount of AFFO. So on that basis, in this quarter, we found that there were 2 opportunistic trades in Wafra and in AMP that really could help us accelerate our objectives on 1 half of the side of the ledger, which is Digital IM. Secondly, as we think about where we're putting capital to work in our digital operating business in this quarter, we didn't find anything in the hyperscale front that fit Vantage YieldCo's objectives in our returns. Things are still price to perfection and hyperscale. We did deploy capital at Databank. Databank had a really strong quarter, beating its budget by a little over 1.4% in terms of EBITDA growth, very strong bookings. And further to that, the biggest pipeline we've ever had in the company's history with over $28 million of leasing in the backlog and roughly about a dozen new construction projects where we're expanding capacity in -- across our core markets. So both Vantage and Databank have continued to perform at our expectations. I would say, exactly where we've told you it would be. And we see a lot of green shoots in Databank, and we see more hyperscale opportunities at Vantage YieldCo in the…

Yes. Well, on the -- what I was asking is you have outstanding operating -- digital operating revenue, EBITDA guidance, which assumes some M&A. Just wondering how to think about that. That was the second part of the question. But then I do have a separate question, and maybe I can sneak it in here. Like look, we've seen interest rates move higher over the last years. And over the last year, and we've seen shifts in the macro environment. What I'm wondering is, from your perspective, when we think about data center deals, how has your view of what you could do on an LTV basis or a net debt-to-EBITDA basis changed over the last year? And then how have the rates that you could get for deals on both zColo and hyperscale also change. I know there's a lot in there, but I would really appreciate the color.

Yes. Let me try to unpack the corporate story and then we can go down to the asset level story. I think on a corporate basis, we were very clear last year why we wanted to securitize our cash flows from our investment management business. First and foremost, we saw a window where interest rates were low. Second, we found a structure where we could fix our cost of debt, which I've always been very clear with you and our investors that, that is a key tenant and how I've built great companies over the last 27 years is using the securitization marketplace to have 30-year backed notes and securities that really codify the capital corporate structure, which we've done very thoughtfully. And we'll continue to do that. Right now, we're in a window where interest rates and risk are moving up. And in turn, you're finding that credit is tightening as it should. And stories that are good and stories that are understood by the rating agencies are going to get financed where they have strong cash flows and investment-grade counterparties and marginal stories are not going to get financed. And we're already seeing that play out in this quarter. I think as you move down into the portfolio company realm and you talk about the financeability of zColo and edge and hyperscale, what we've seen, at least from our side and our portfolio companies is we've been able to get financing done in the quarter. So if you look across all of our businesses, once again, using that long-term 30-year CMBS and ABS structures, we've been able to lock down our debt, and we did that all last year. We were busy last year at the portfolio company level of locking down our capital structures. Once again, I…

And just to answer your guidance question, I'll break up into 2 areas. So obviously, both AMP and the Wafra transaction, we've guided and said to The Street in our releases that those are additive to our guidance. So we expect in 2022 that on the Digital IM side, we will meet or exceed our guidance in addition to the overlabor both AMP and Wafra. Digital operating we did not guide to M&A for 2022 just because as we discussed, it's never prudent to do so until it's signed up and qualified. But in terms of our longer-term guidance of M&A. What we have said and what I've guided is that we still have $1.4 billion of liquidity in the near-term as we form new products and strategies and the return of capital back to the balance sheet for warehouse opportunities as well as remaining legacy assets that we continue to monetize. So there'll be plenty of firepower for us to continue to deploy. We still love digital infrastructure businesses in general, and we will go and acquire businesses to the degree the price and the return makes sense for our shareholders.

Our next question is from Jade Rahmani of KBW.

Considering the evolving macroeconomic environment, firstly, how do you manage to that in terms of business priorities? Secondly, did any cyclical factors play into the REIT decision?

Let's take the second question first. I think on the REIT question, I don't see it as a cyclical situation. What we saw with REIT, Jade, was that we had 1 business unit that was growing a lot faster than the other business unit. And we've been very clear with everyone about that. Digital Operating, Digital IM. And ultimately, it's a tax declaration at the end of the day. And for us, we're business builders. And the ability to be constrained by a tax declaration versus not was a pretty easy decision actually. We're seeing more opportunity to form capital in the private market side versus the digital operating business, which takes capital from the public balance sheet. And further to that, when you look at the returns, again, returns on invested capital, if you look at what we did with Wafra, we look at what we do with AMP, those were vastly superior, Jade, to the returns that we are seeing and opportunities that we could have put on the balance sheet. When you look around the world and you see assets trading at 29, 30, we've seen some tower deals trade at 40 times here in the U.S., that makes no sense to me at all, Jade. When I can buy long-term earnings that are, by nature, cash flows that have a duration of 5 to 10 years, and I can buy that on a blended multiple at 16x and grow it and bring that multiple all the way down to 11 to 12x within a 3-year time period, that's exactly what I believe investors pay me to do, which is go out and create the best long-term sustainable earnings with the best returns. So when we deployed that capital for the Wafra transaction, we deployed the capital…

Okay. And with respect to cyclicality and how you manage the business or how the business would be impacted in a downturn, clearly, the investment management baseline fees would be positive. Also the sector has lots of countercyclical attributes as demand for digital infrastructure is a secular trend. But what would be the various things that you're focused on?

Yes. So that's a great question. So getting into the micro, we've got 26 companies around the world. We are communicating with those companies 2, 3 times a week. We have a very good sense of our dashboards and our KPIs. And here are the things that matter today, Jade. One, construction costs. Are we on budget? Are we above budget? And I will tell you that, by and large, given inflation and given the cost of goods sold, we're actually finding that construction costs are not deviating that materially from our business plan. So a material deviation would be something for me greater than 3% to 4%, and we're just not seeing that across all of our businesses. Now Jade, there are certainly outliers. When you manage a $50-plus billion portfolio, you're going to find that certain regions and certain management teams are better at controlling costs than others. But by and large, we feel like on the $7-plus billion of greenfield CapEx we're going to put out this year, we think within a 300 to 400 basis point standard deviation, we will stay within those parameters. So I'm not that sort of concerned about construction costs. I'll tell you where I am concerned. I am concerned about labor. And 2 things are happening in the labor market that I just came back from a conference in Los Angeles with -- sat on a panel with about another 30 CEOs and a common theme and not just digital infrastructure [indiscernible] Jade, but global CEOs, everyone is saying the same thing, right? The cost of labor has skyrocketed. The competition for labor is intense and how you retain and incent employees to stay is harder than ever, but here's the real challenge Jade, getting people to come to work. It's…

Our next question is from Dan Day of B. Riley.

Congrats on a very, very busy quarter. Just first 1 for me. I wanted to dig in a little on potential synergies with the AMP acquisition. If I just do the math, sort of the FEEUM funds, the management fee funds, FRE margin, it seems like the margin there is pretty low. So I guess any ability to sort of get that more in line with where you guys are at on a 60% margin and upside to FRE and the multiple that you acquired those assets at?

Yes. Thanks, Dan. Appreciate it. So first and foremost, we -- the numbers that we published to you, The Street, today were pre-synergies. So we didn't want to serve up a synergy number and say, we're going to deliver a deal at 7x or 6x. We just don't do that. That's not Jacky and [indiscernible] DNA. We tend to give you kind of what is the base case, and then we like to go out and exceed your expectations. That's generally our prevailing attitude about these things. I'll let Jacky talk about the deal level economics as he drove the deal with Ben Jenkins. But generally speaking, we feel there is improvement. And you want to talk about the improvement there, Jacky, cost and new revenue.

Yes, sure. And we're obviously very excited about the transaction, Ben and I and Marc. But AMP's equity platform was a little under scale. Obviously, with just a couple of funds underneath their belt albeit good funds. Now we can plug and play into our back office and our scalable and extensible platform in the IM side to be able to service both back office as well as other support functions like investment management, et cetera, to be able to scale that platform. So you'll see the guidance in terms of the overlay for AMP is showing FRE margin sub-40% you should expect that over time and relatively short time for us to accrete it up towards our margin levels of closer to 60%.

Great. And then another one for me. You guys have sort of been willing to be patient with the BrightSpire shares, I guess there's a lot of moving parts on the cash with the capital tied up in the warehouse vehicles and capital needed to support these acquisitions. Is there anything to think that it's sort of going to force your hand a little bit that you need to sell those shares just to meet the acquisitions? Or do you feel like you're still comfortable even if you were to put those to the side for the next couple of quarters that there's no worries there about sort of meeting the acquisition, cash needed?

No. I think our liquidity is in great shape, actually. We've warehoused a couple of transactions, which we actually haven't -- we haven't even closed on those and put the cash out. So our actual cash position as of today, May 5, is actually quite strong. We've got a closing coming up with Wafra in a couple of weeks. The AMP transaction has some regulatory review that will take on magnitude of short side of 3 months, maybe as long as 6 months because of [indiscernible] the regulators. So that will take a little bit of time. We've warehoused the Telenet transaction which doesn't close for a couple more months. So our liquidity position, once again, is from a position of strength. Commentary on BrightSpire, which I'll let Jacky give his views. We continue to have strong conviction and confidence around what Mike Mazzei and the team are doing. The shares have traded a little bit below where we think ultimately the value inherent in the business is. But I think we continue to be very constative on that business. I don't know your thoughts, Jacky.

No. That's right. Mike and his team are just doing fantastic. The turnaround that he has implemented that business, both their dividend yield is 9% and rising. And in our opinion, he's doing great work, and we're not going to be forced -- nothing is going to force our hand to be able to say we have to sell these things to fund something else. So our perspective is we'll do it constructively with Mike and the team and what makes sense for him and other shareholders of BrightSpire. And we will be a responsible sellers. But we have all the funding and liquidity we need to do the plan that we want to do with digital infrastructure.

Awesome. And then last one for me. Just you've acquired a bunch of FRE here over the last couple of weeks. I mean can you maybe quantify how much increased capacity you have to raise capital in the securitized markets. And then obviously, that would add to the firepower you've laid out on Slide 16. So I guess how top of mind is taking those because a good chunk of them are callable now and then the rest of them should be callable over the course of this year.

Yes. Sure. First and foremost, we've always said digital infrastructure acquisitions and seeding new funds and products to accelerate growth, both in IM and operating is the best and highest use of cash. So we have done that. We'll continue to do that. When that capital comes back and the new strategies are realized and that capital comes back to the balance sheet, certainly, that's a fair game for us to go and redeem the preferred so long as we don't see another higher and better use of capital for digital infrastructure for our shareholders. So the way we kind of look at it is prefer to have that coupon in that 7% range. BrightSpire, we just talked about has a yield of 9%. If there's -- if we've got excess cash on hand, and there's no digital infrastructure businesses immediately for us to go and see the new products or go and acquire to our balance sheet, we will go and quickly redeem those things where appropriate.

Our next question is from Jonathan Atkin of RBC.

So I think you talked to portions of this, but maybe just to put a finer point. Given higher debt financing costs, how does that kind of affect your -- when thinks about putting leverage on acquisitions or in the securitization market, how does that affect unlevered return expectations? And then on AMP Infra, can you talk a little bit about the horizon for, I guess GIF I that you've referenced? And are there any kind of potential tie-ins with companies like Databank and Zayo given what you've just bought.

Sure. Jonathan, thank you for participating. Let's start with the latter and then maybe go to the first question. I think as it relates to AMP, GIF I and GIF II have 2 sizable portfolios, GIF I was already in the process of being wind down. So the orderly disposition of that portfolio will continue. We don't see any change in the personnel. We don't see any change in the strategy. And so those assets for an orderly wind down would be over the next 2 to 4 years. On GIF II, which is a relatively new fund, where we have incremental firepower, we've got businesses that are growing. There may be some monetizations over the next 2 to 3 years. But candidly, our focus is to grow that portfolio, overlay our investment framework, sort of the digital ridge way of how we create alpha through back office IT, opportunistic financings, greenfield, brownfield, leveraging our customer logos, in bringing our human capital to bear. I think this is a model, Jonathan, you've gotten to know pretty well over the last 2 decades. So injecting some of our DNA and our strategy into that portfolio is really important. And there's a lot of synergies. You hit the nail right on the head. I mean, whether, for example, in the airports, just bringing CBRS technology to those airports and creating an opportunity to create new lines of income by using our digital expertise. Focusing on the renewables team at AMP, where they've got a great advantage there and there's an opportunity to continue to invest in decarbonization, which is so important to me. I've highlighted that for the last 2 years, that's a big part of why we did this AMP transaction. And then the digital logos that they have are incredibly…

Our next question is from Richard Choe of JPMorgan.

Great. I wanted to follow up. With the deals in Digital IM, does it make sense to keep the digital operating as part of the overall company? Or does it make more sense to maybe spin it off? Or is that just right now a part of the opportunities in the operating side that could change over the next 12, 18 months or longer?

Well, look, I don't think the operating environment changes the opportunity set. We haven't changed our business plan, we haven't changed our strategy. Good businesses are built to respond to any cyclical nature of what happens in an economy. As I said earlier to Jonathan, we're built for investing in an environment like this. We really don't have a problem investing in a market like this because we've been through it. And when you've been through it, you understand the consequences of interest rates and inflation, higher construction costs, higher wages, higher growth, maybe higher lease rates, maybe more churn. We understand how to navigate these waters. I think what you saw in the first quarter was us being opportunistic. By buying out the Wafra stake and by buying AMP, it means that we believe we can continue to form a lot of capital. And we believe if we form that capital, there'll be enormous opportunity. And so on that basis, we are built to scale. Everything that we've talked about today is building to scale. In this asset-light model, where we've invested in IM and we're scaling that part of the business, it enables us to grow and grow faster. That's the key. If that wasn't clear in the presentation today, I'm going to be banging on that drum for the next 2 to 3 quarters, and you're going to see it in the numbers. You're going to see it in our asset scaling, you're going to see it in our total capital raise, you're going to see it in our FEEUM growth, and we're going to continue to build and grow. At the highest levels of this company, there's 1 tenant and there's 1 tenant only, which is we're built to serve customers. And so the best way in an environment like this to go out and respond to opportunities and customer needs, is to continue to form capital and the ability to go anywhere where a customer wants you to take them, provided you get the right risk-adjusted returns. We talked about that with the previous analyst, Jonathan, which is there's just a bit of a recalibration. You recalibrate your models, right? You accept new realities. You accept higher interest rates, you accept higher construction costs. You accept higher wages, you accept lower exit multiples. But nothing changes. We wake up every day, we go to work. We know what we're doing. We've got a big pipeline to execute on, and we have the capital to do it. So it's just a slight nuance, right? It's not a pivot. It's not a change in our operations. It's not a change in our strategy. It's just accepting new realities and then underwriting to those new realities. And that's what you hear this team is prepared to do, and we're very well prepared to do that. I hope that comes through today in our commentary in our presentation.

It does. And then on the Digital IM side, I guess there are start-up costs for new strategies that you've pointed or broken out in the supplemental. Are you kind of at scale now and these costs will fall off? Or should we expect these costs to kind of continue and if so, at what level, for how long?

Sure. We expect them to already be at scale. So we've been -- we're excited about them. And once they're finalized and form these strategies and then we come to fruition, the capital that we've gone and invested in warehouse in the balance sheet will come back to the balance sheet. And these investment professionals will now run and we'll be able to grow on top of that. We're excited.

Our next question is from Rick Prentiss of Raymond James.

Busy quarter for you guys in post quarter, busy earnings day for us. I want to ask 2 questions. First, obviously, simplify the story even further with the Wafra transaction. I appreciate that and the flexibility it gives you a question we get a lot of times from investors is now that you're simplifying the story more and more. Bottom line for us, what do you think the most important number are, the metrics are for investors to look at to monitor your progress and how to value the company, what you do to manage the company is the first question.

Yes. Jacky and I are looking at each other, we're smiling. I think the simplest metric is always EBITDA and FRE, right? And then ultimately, will be distributable earnings. And so I think when we think about that, the top of the pyramid will be EBITDA, the next level will be FRE because FRE drives EBITDA. And then ultimately, Ric, it's back to the basics, right? Earnings per share. right? What are we delivering for you? We're turning the dividend back on in the third quarter. We think we're building a very high-growth, high-performing organization that is going to deliver the fastest revenue growth, EBITDA growth that's fueled by FRE and that ultimately will be strong distributable earnings for our shareholders. And Jacky has been awesome at this. He's done a great job getting us to -- back to cash flow positive. You saw the AFFO number for this quarter, and we're going to continue to drive that and continue to be more free cash flow positive. I don't know, Jacky, if you want to comment on that, but you and I share that passion for profitability and returning earnings back to our shareholders.

That's correct. And as we fundraise more and realize the rest of the year's guidance and beyond for certainly FEEUM and fundraising, add that to the $23 million that we're acquiring from AMP and the $38 million that we get back from Wafra, the earnings per share, you could see is going to accelerate pretty substantially in the very near-term.

Obviously, per share is an important comment there. You guys have touched on a couple of times, including Slide 16, potential, not just for dividends, but share repurchase. Help us understand how you think about leverage, share repurchases and do you need an authorized program? Would you have to do a 10b type plan? Because let's face that you guys are always active and busy, not sure what kind of blackout dates you would have if you didn't put something like that in place. But talk to us a little bit about what the share buyback plan might be as we see opportunity in the stock price, I assume you guys do, too.

Sure. So we've highlighted to you guys that the dividend will be turned on in the third quarter. You should expect that as we get closer to that date that we will form a program with our Board and more to come there. Don't want to highlight exactly which one, but there will be 1 that would be just a broad-based and recurring one that works for our business and adequately optimizes the allocation of capital between value back to shareholders, but investing back into digital infrastructure businesses. So first and foremost is we love our sector. We'll continue to invest in digital infrastructure. But to the degree it makes sense, then we will balance that with value back to shareholders and optimizing our capital structure.

Ladies and gentlemen, that concludes the question-and-answer session. I would like to turn the call back to Marc Ganzi for any closing remarks.

Well, thank you, everyone. We appreciate your interest, your time, your attention and to our shareholders. We appreciate your support. These are, in some respects, challenging times. But as I said earlier, this is a team that is built for those -- these types of moments. Jacky and myself and the entire team here remain incredibly focused and excited about the opportunities that sit in front of us. We encourage you to spend more time with us over the coming weeks by all means, reach out to your sales team to get access to us, Severin and myself and Jacky, always remain open to engaging with our shareholders in a robust dialogue about where we're going and the exciting growth of the company. So with that, I'll conclude the quarterly call today. Thank you again for your time and your interest in DigitalBridge. Take care.

Ladies and gentlemen, this concludes today's call. Thank you for joining us. You may now disconnect your lines.