DigitalBridge Group, Inc. Q2 FY2022 Earnings Call

Greetings, and welcome to the DigitalBridge Group, Inc. Second Quarter 2022 Earnings Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Severin White, Managing Director, Head of Public Investor Relations for DigitalBridge Group. Thank you. You may begin.

Good morning, everyone, and welcome to DigitalBridge's Second 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 the financial performance may be considered forward-looking and such statements may involve a number of risks and uncertainties that could cause actual results to differ materially. All information discussed on this call is as of today, August 4, 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 June 30, 2022. Great. So we're going to start by covering our quarterly agenda. Marc will outline some of the key drivers of our upgraded roadmap in the first section and then get into our 2Q business update in section 2. Jacky will cover our financial results in section 3, and then Marc will wrap up with some interesting case studies on how DBRG is executing the digital playbook, followed by Q&A. We made some great progress towards our 2022 goals from generating initial commitments to our new strategies to leading some of the most important digital infrastructure transactions this year. So let's get started. With that, I'll turn the call over to Marc Ganzi, our CEO. Marc?

Thanks, Severin. Before we get into the Q2 business update and financials, I wanted to take investors through our upgraded strategic roadmap and explain how it's going to create and drive strong value creation for them over the next few years and beyond. It's a roadmap, but as you can see in the middle of this slide, it was unlocked earlier this year with the repurchase of a minority stake in our Investment Management platform and our related transition to a traditional C-Corp. Those were seminal decisions that allowed us to leverage our comparative advantage, which is centered around our long history of operating and successfully investing institutional capital across the digital infrastructure ecosystem. These are decisions that will enable us to achieve accelerated growth in our highly scalable Investment Management platform. As you can see on the right, this is our growth engine: doubling our AUM over the next few years by extending new and existing investment offerings. When you complement that with the steady growth that we're seeing in our digital operating assets, it's a unique profile that's built on giving you, our investors, access to what we think are the most compelling investment platform and opportunities at scale in the digital infrastructure sector today. Let's explore our growth profile in greater detail on the next slide, please. When investors ask me where are you going to create the most shareholder value over the next few years, with total conviction I can say, this is it. Doubling FEEUM in our IM platform and deploying that capital intelligently and prudently into the kind of high-quality, signature investments you've seen us make already this year. That is what generates returns for our investors. We invest, own, and operate in platforms that are growing and that have long-dated revenue and earnings streams. DigitalBridge participates in the business building economics as a seasoned investor/operator in the digital infrastructure sector. The combination of growing secular demand for digital and the full-stack capability that we have built to capitalize on positions us to take FEEUM from just under $25 billion to over $50 billion in the next 3 years. As the partner of choice in a resilient, growing asset class, we have high confidence in our ability to execute on this strategy through the good times and the challenging ones. Through the first 2 quarters of 2022, we have demonstrated our ability to execute on this plan against the backdrop of a challenging macro. That's it. We believe this is not hard to understand. It's not complex. We double our FEEUM in 3 years. This drives long-term predictable earnings and cash flows that we believe shareholders will increasingly appreciate. Next page, please. Great. So we're going to double FEEUM. What does that mean for you, our investors? It's really simple. We've got an easy algorithm that translates into incremental fee-paying AUM into higher revenue. At an average fee rate of 90 basis points across our portfolio, with very attractive incremental margins, this drives strong earnings accretion. The earnings margin should remind you of other great digital infrastructure businesses many of you own today. The growth rate at DigitalBridge on the other hand, is unlike anyone else in our peer set as we will continue to deliver double-digit organic growth through 2025. This is incredibly unique in our sector. I'll let you apply your own multiples to the incremental FRE to understand the value creation opportunity over the next few years just on management fee streams alone. Next slide, please. So doubling FEEUM over the next 3 years is the business plan our team is focused on delivering for you today. Many of you ask me, is this possible? And how does that compare to our track record? Well, what I can share with you is it compares very well. In fact, we're on track to more than triple FEEUM since 2019 by the end of this year to greater than $25 billion. The key here is, since Jacky and I took over the firm, we have delivered on our fundraising commitments to you, our shareholders. We believe we have earned your trust in this regard with actual outperformance results. And when you factor in our expanded new full stack capabilities with the fact that we're likely to be in a position to refresh our flagship strategy sooner than later, given that Fund II is now fully deployed, we think this roadmap makes a ton of sense and is very easy for investors to understand. Next slide, please. So as a part of our upgraded roadmap, I want to refresh our sources and uses with respect to the balance sheet capital we've crystallized as part of our digital transformation. Today, following the Wafra and AMP transactions, which will boost future revenue and cash flows to DigitalBridge, at the same time setting aside $300 million for future GP commitments in our own funds. We're looking at about $900 million of total digital firepower set to redeploy over the next year or so. And look, it's really easy. We've got 3 different buckets that we can deploy that capital. First, strategic digital M&A. With our flexibility our corporate transition has afforded us that means we can buy, a, complementary strategic investment platforms like AMP, which increase earnings and extend our investment management capabilities. Or alternatively, we can buy more digital operating assets that meet our quality and return parameters. Both of these are incredibly good uses of the capital. Second, capital structure optimization, which is really a fancy way of saying we intend to buy back our preferred stock over time. We've telegraphed this to all of you. This shouldn't be something new. Expect this to be a use of capital as current liquidity increases with the DataBank recap and warehouse investments returning to the balance sheet later this year. Lastly, share purchases and dividends. As you know, our Board recently approved a $200 million stock repurchase authorization that allows us to be opportunistic and take advantage of our stock trading below what we believe is the intrinsic value. Additionally, we've committed to reinitiating the dividend in the third quarter, which we'll detail further in the coming months. I remain steadfast to this commitment and unwavering. We've described that as a low but growing dividend since we expect the vast majority of our free cash flow to be reinvested back in our business given the accretive opportunities we see to compound value for you, our shareholders. Next slide, please. So let's take a step back before we wrap up this section and put the roadmap into proper context, understand how realigning our business to an asset-light model manifests itself in the numbers and, most importantly, our earnings growth. Today, when we look forward to 2023, we see a business that's going from roughly one-third investment management, two-thirds operating to really flipping that around with most of our earnings coming from our IM platform. That starts with the incremental cash flow from Wafra and AMP transactions and it's boosted by increasing guidance around capital formation that I've referenced and Jacky will share with you in greater detail later. This roadmap has important structural implications too. It's the past our balance sheet was perceived as a potential competitor to our IM business. That is no longer the case. Now it's our partner, helping to accelerate the Investment Management platform's growth with GP commitments, warehousing capabilities and positioned to co-invest alongside our LPs in great digital infrastructure opportunities, not competing with them. Importantly, we're still targeting over $300 million in segment-level EBITDA next year. With $900 million in dry powder, we believe we are in a very good position to fill the remaining $60 million in digital earnings. We will get this done organically and inorganically. Finally, this roadmap positions us not only to reach our near-term financial goals but our Investment Management platform fundamentally grows faster. It's less capital intensive, and it's highly scalable against our other publicly traded digital infrastructure peer set. These are incredibly attractive attributes in our view. We could not be more excited about executing on this next stage of our growth strategy. Next slide, please. So let's get a bit more granular on the second quarter and cover some of the highlights. I want to start by revisiting some of the macro factors we outlined earlier this year on our Q4 earnings call. As you can see on the right, many of these have continued to present challenges, with interest rates and inflation, in particular, continuing to climb. But look, let's not dwell on the headwinds. I want to talk about the opportunities that adversity presents because that's the perspective that DigitalBridge brings to changing conditions. First, this is an amazing opportunity for us to really step up and deliver for customers and our clients, whether it's showing LPs how we can continue to deliver strong returns through the tough times or whether it's helping our portfolio companies cut through the supply chain issues before anyone else. We've been doing this for 3 decades and 2 other downturns. And one thing we've learned in that deleveraging and delivering for customers and clients in challenging periods is this is the basis for deep relationships, and through that, you gain more trust and that trust in turn builds over time. Second point, when capital becomes more scarce, the logic of outsourcing improves and the neutral host model that we operate in digital infrastructure actually makes more sense as our customers' balance sheets are constrained. By the way, we're already seeing this across our data center platforms with strong bookings growth, which I'm going to share with you later. Number three, lower M&A prices are a good thing. If like us, you're net a buyer. In the shorter term, it's allowed us to buy some top-tier assets when pure financial buyers are less competitive, lacking the operational expertise we are able to create an incremental value. Ideally, we'll see more rational pricing in the future, which will only improve returns on long-dated investments that we're making today. Finally, this is crucial to the roadmap I laid out earlier around our capital formation targets. As the partner of choice to institutional capital and digital infrastructure, we expect to benefit as investors are going to focus their capital on scaled, go-to names in specific asset classes. I'm already hearing this as we talk to our LP base around the world who've been very impressed by our portfolio resilience, which I'll cover on the next slide. Look, the bottom line is simple. We've been doing this for 3 decades through many market cycles and economic conditions. Periods like this are actually when our experience and expertise are even more relevant than when the sun is shining. So we are prepared. We are vigilant, and we're positioned to reinforce our standing as the leader in the digital infrastructure ecosystem. Next slide, please. Another question we've got in the summer is, how are your portfolio companies performing through this period? Well, the short answer is quite well. I've told investors we'd give them some insights into our 4 key verticals of digital infrastructure in this earnings season. So let's get into the details. Here on this page, you have some forward-looking stats across the 25-plus digital infrastructure portfolio companies that we own and operate today around the world. All of our core verticals are showing positive growth and, in some cases, really impressive increases relative to last year. So this is driven by factors that I described on the last slide, like our ability to deliver and our increased focus on outsourcing by our customers. Bookings across our global tower portfolios are up 5% year-over-year and they're up over 28% in our fiber businesses. These stats are even more impressive when you take a look at the data center space with a 6x growth factor in bookings and a 2.7 factor increase in our small cell vertical. On the right-hand side, you can see some of the stats from our digital operating businesses where EBITDA is up 23% year-over-year and bookings are almost up 2.5x over the prior year. This is the kind of performance that investors are looking for in periods of distress. Who is growing? Who is resilient? DigitalBridge is. The credit honestly goes to all of the management teams across the globe that are executing day to day for customers at our portfolio companies. The takeaway here is simple. DigitalBridge's operating businesses continue to perform well despite the macro environment. Next slide, please. Next, Capital Formation. Here, I'm very pleased to report that we're 2/3 of the way to our 2022 target at the halfway point. This, of course, was led by the $1.2 billion recap at DataBank that we announced in June. That transaction created a permanent capital vehicle, giving new investors access to DataBank as it enters the next phase of growth as the leading edge-focused data center platform in the U.S. In fact, we're very optimistic about our ability to bring in new additional investors into that transaction during the third quarter. We expect to raise more capital for DataBank. Even more importantly, we've closed on initial commitments from early anchor investors in our new credit and core strategies. This is just the first proof-of-concept that we are set to form significant capital around both of these strategies as we enter the second half of this year. In both cases, we've catalyzed investor interest by seeding investments on our balance sheet to give LPs a very clear picture of the assets and the strategies that we're focused on. This is the power of utilizing the balance sheet. Uncertain macro conditions have elevated the investment rationale behind credit and core strategies, which sit lower on the risk-return premium spectrum. So we're optimistic about our ability to meet and exceed our initial fundraising targets in these strategies. When I look forward to the second half of '22, the other area we expect to have further success is in co-investments, where some of the new signature transactions we've announced create opportunities for existing and prospective investors to partner alongside us in some of the highest quality global infrastructure businesses. Expect to hear more from us on co-investment as the year progresses. In fact, the Switch and GD Towers transaction will take our flagship DigitalBridge Partner II fund up to around 90% of committed capital. This creates conditions for us to begin evaluating future flagship strategies. This is one of the key catalysts for the updated guidance that Jacky will share with you shortly. In summary, we've built incredible momentum into a busy second half of the year as we get early validation on our new strategies. We experienced strong investor interest in co-invest, which positions us well to exceed our 2022 targets. Next page. Establishing new platforms was the headline story at DigitalBridge in Q2 of 2022. Capital deployment is an essential part of our investment process and success this quarter was very successful on this measure. Our investors look to us to identify, acquire, and grow the highest-quality digital infrastructure businesses globally. And I think this quarter typifies our ability to serve not only as the partner of choice to institutional investors, but to act in the same capacity to some of the leading corporates and management teams in our industry. I was incredibly impressed by the entire DigitalBridge team and their ability to execute these 2 signature transactions during turbulent market conditions. This is where our deep domain expertise combines with our determination to create the desired outcome, form the right capital, and execute when others could not. Look, there's a lot more work to do on Switch and GD Towers, but we believe these are incredibly compelling new platforms with a lot of room for continued investment and growth. Next slide, please. Before I wrap up the second quarter update and hand it over to Jacky, I would like to touch on just 2 examples where DigitalBridge is continuing to create value for our shareholders. First, DataBank. Not only does this recap and permanent capital vehicle create a long-term fund that brings in new investors with fee and carried interest, it's really an opportunity to harvest and highlight the DigitalBridge playbook at work. In just 2.5 years, we've turned a $500 million investment off our balance sheet into almost $1 billion of value for our shareholders. In the first part of the transaction, we'll be harvesting $230 million and that may rise over to over $400 million through subsequent closings, allowing us to both recycle capital into new digital M&A as well as maintain a significant participation in the continued growth of DataBank. During the second quarter, we also closed on a EUR 745 million Telenet TowerCo transaction, which we've now renamed Belgium Tower Partners. This was the deal we did to seed our new core strategy. Deploying $290 million in equity from our balance sheet and what's really interesting is that during that, we expect to be about a six-month hold, not only do we generate the underlying earnings for the business, but we also earn a warehousing and a ticking fee. This is a great way for us to generate returns for our shareholders with your capital as we evaluate long-term capital allocation opportunities in a disciplined manner. So those are just 2 great examples of how we've executed the DigitalBridge playbook to build value for you, our shareholders. With that, I'm going to wrap up our Q2 update. In summary, our businesses are performing really well despite the challenging macroeconomic conditions. We're seeing strong momentum in our capital formation activities with early validation of our new core and credit strategies, and we're executing on exciting new investments that we believe will be the foundation of future returns. So I'll hand it over to Jacky to walk you through the financials.

Thank you, Marc, and good morning, everyone. As a reminder, in addition to the release of our second quarter earnings, we filed a supplemental financial report this morning, which is available within the Shareholders section of our website. Starting with our second quarter results on Page 18, the company continues to see strong year-over-year growth, driven by successful IM fundraising. For the second quarter, reported total consolidated revenues were $289 million, which represents a 22% increase from the same period last year, driven by continued expansion in AUM and FEEUM. GAAP net income attributable to common stockholders was a $37 million loss or $0.06 per share, representing a $104 million increase compared to the same quarter of last year. Total company adjusted EBITDA was $31 million, which grew from $15 million in the same period last year as we continue to see growth in our high-margin digital IM business. Distributable earnings were $8 million as recurring cash flows continue to be positive in the second quarter, accelerated by the Wafra transaction, which closed in May and significantly reduced corporate debt servicing as we rotate out of our legacy capital structure. We expect this measure to grow as we fundraise and close on our recently announced AMP Capital transaction. Digital AUM was $48 billion in the second quarter, which grew by 37% from $35 billion in the same period last year. As Marc mentioned, we have continued our strong growth trajectory and will be over $65 billion of AUM on a pro forma basis, including the recently announced pending transactions. Moving to Page 19. The company continued to grow IM revenue and earnings, driven by higher levels of fee-earning equity under management. The year-over-year comparison was impacted by one-time catch-up fees received during DBP II fundraising last year, which, when excluded, consolidated revenues increased by approximately 18% and FRE by 28% year-over-year. On a pro rata basis, we saw improved flow-through following the closing of the Wafra transaction with fee revenues increasing by 35% and FRE by 47%. Moving to Page 20. Our Digital Operating segment has continued its growth in the second quarter. Consolidated adjusted EBITDA was $101 million during the second quarter, which is a 24% increase from the same period last year, driven by lease-up at Vantage SDC and the acquisition of Houston area data centers at DataBank. Turning to Page 21. We have seen continued growth in our digital reporting segments, particularly in our high-margin Investment Management business. We should note that the pro forma amounts shown on this page include the pending AMP transaction. We now own 100% of the IM revenues and FRE following the acquisition of Wafra's share in the business. Both transactions are highly accretive and generate strong recurring cash flows. Since last year, our annualized fee revenues increased from $94 million to $240 million and FRE increased from $53 million to $125 million. We are excited to have increased exposure to this high-growth IM business, which has materially improved the company's cash flow profile since it is an asset-light and anchored by long-dated fee streams. Looking at the right side of the page, our Digital Operating segment has continued its growth with annualized revenues increasing from $131 million last year to $160 million and annualized EBITDA increasing from $55 million last year to $68 million, driven primarily by successful acquisitions at Vantage SDC and DataBank. Moving to Slide 22, I will now outline our updated corporate guidance forecast. Starting with the Digital Investment Management, our recent fundraising success has demonstrated that DigitalBridge is the partner of choice to investors, deploying capital in the high-growth digital infrastructure sector. We have a unique investor/operator model with a talented and experienced team that has been the key to our growth, and this model has enabled us to expand into key digital infrastructure adjacent verticals, including core, credit, and ventures, which we expect will further accelerate our growth. As a result of recent successes in our near-term fundraising pipeline, we are increasing our 2023 and 2025 Investment Management framework. Our 2023 digital and management fee revenues guidance target range has been updated to $300 million to $360 million and our digital fee-related earnings target range is now $175 million to $195 million. Moving to 2025. Our Digital Investment Management fee revenue guidance target range has been updated to $460 million to $520 million and our digital fee-related earnings target range is now $270 million to $310 million. Next, our Digital Operating targets have been adjusted to separate out organic growth on our existing investments from anticipated future digital M&A, driven by utilizing dry powder that we will receive following monetization of the remaining legacy investments and the return of warehouse investments that Marc outlined earlier. We used a portion of our dry powder for the Wafra and AMP transactions, and our remaining capital will be allocated based on a strong pipeline of both organic and inorganic opportunities. Turning to Page 23, we've laid out a framework primarily based on an earnings-driven model, including fee-related earnings and adjusted EBITDA. At the core of our business is the recurring earnings from our digital IM business, which is based on a simple formula: we project how much capital we will raise in the future, which become fee-earning equity under management, or FEEUM. The FEEUM is multiplied by an applicable fee rate to give us our fee revenues. We then analyze how we can use our operational leverage to improve margins or invest in developing new strategies to derive the projected FRE. Turning next to our Digital Operating segment, which constitutes the value of our pro rata ownership in DataBank and Vantage SDC. These businesses are very much in line with some of the most common names with digital REITs, which are anchored by long-term tenant leases, high-quality counterparty customers, fixed annual escalation rates, and high AFFO flow-through. A third but often overlooked value driver is our performance fees on our Investment Management business. If our funds perform well and we deliver outsized investment returns to our limited partners, we will generate performance fees, a portion of which will be returned to our common shareholders. And lastly, we look at the net asset value of our current balance sheet to arrive at the company's total enterprise value, which we will walk through on the next page. Page 24 summarizes the remaining net value of our balance sheet. First is our digital principal investments, which include our GP interests in our Digital IM funds. Second is our remaining legacy investments, which consist primarily of our remaining shares in BrightSpire. We expect to monetize these remaining investments in the near- to medium-term. Third is our corporate capital structure, which includes our preferred equity, fund fee securitization, and remaining convertible notes that we expect to repay at maturity next year. The sum of all 3, together with corporate cash, equates to our total corporate and other net asset value. In summary, and as I've continued to reiterate, our company is strong and healthy, driven by our sector-leading asset-light Investment Management business that generates high-quality, predictable, and long-dated fee earnings. We continue to be excited for the rest of 2022 as our fundraising and our growth prospects remain robust. And with that, I'd like to turn it back to Marc.

Thanks, Jacky. One question we've gotten this quarter, particularly in light of the new signature transactions we've signed, is how do you create value and generate differentiated returns? The simple answer is, we are specialists. We are business builders in digital infrastructure. And while our business model is investment management focused, we are not your traditional financial buyer, splitting an unlevered return into debt and equity components. What we do have is a platform strategy, proven playbooks that we've developed and refined over the past 3 decades, and I want to walk you through a few recent examples so you have context for how we approach value creation. I'll cover our framework briefly, starting with establishing the right platform. This is critical. In my experience, if you get the assets and the team right from the start, the degree of difficulty goes way down. We spend a lot of time upfront making sure we have the right setup from the start. That means buying high-quality assets that can handle our second stage, transform and scale. This is where we buy and build. You've heard me say it before. You have to pair capital with the right business plan, almost always investing in both greenfield projects and bolt-on M&A. Finally, stage 3. You've heard me say it before, follow the logos. We follow logos to support the continued growth with our customers. As they build networks to meet increasing demand, we follow them and we build facilities for them. So let's cover a few case studies where you can see the strategy in action. Next slide, please. First, Vantage Data Centers. Most of you know Vantage, which today is one of the leading global hyperscale data center companies, operating state-of-the-art facilities on behalf of the world's largest technology and cloud companies. And it starts with one key tenet, find the right leader, find the right CEO, and we have that. When we partnered with Sureel Choksi and his team at Vantage 5 years ago, they were in 2 markets with 3 campuses on the West Coast of the United States. They literally had 66 megawatts of installed capacity. Our view at that time was Vantage was the right platform. It was capable of scaling to meet the demand for public cloud compute that we had anticipated would continue to grow exponentially. Look, it's also worth noting a few people felt that the original acquisition looked a bit sporty at the time. I took a little bit of heat for the acquisition price in that multiple. Fast forward to 5 years, nobody is talking about the multiple. Vantage is now on 5 continents with 25 campuses online or under development. EBITDA across the platform is now 7x what it was 5 years ago. That's an incredible growth trajectory. That qualifies as a successful completion of stage 2 as it moves out of transform and scale phase of the plan, now today, Vantage is in the third phase of the DigitalBridge platform strategy of following the logos. As Sureel's key customers extend their global footprint into new markets, Vantage is going there with them in Asia, Africa, and Europe. We're thrilled to support Sureel and his team as they deliver for customers on a global basis. Next slide, please. Next up, DataBank. Look, this is another great example. Six years ago, we partnered with Raul Martynek, who I've known and worked with for 25 years, to build a nationwide edge data center platform, starting with a regional Midwest operator serving 3 markets. Again, it's really critical to understand. We partnered with the right management team. We acquired the right core assets and then we built from there. Today, we're in 26 markets around the United States, more markets than any of our competitors that purport to be in the edge compute space with a network of data centers optimized to serve not just enterprise customers, but increasing demand from cloud providers as they look to grow their footprints in Tier 2 and Tier 3 markets. Data gravity and latency are becoming increasingly relevant, and DataBank's robust interconnection profile makes them the ideal partner to meet that demand. So 6 facilities to 64, 8x EBITDA growth, another successful transform and scale case study, buying and building selectively. The ability to do both is critical. DataBank now is also in the third phase of our platform strategy, growing their business in partnership with key customers who value their low-latency, multi-market nationwide footprint. There's plenty of room for continued growth here in phase 3, which is one of the reasons we're so pleased to welcome Swiss Life, EDF Invest, and other new investment investors to the platform alongside of our significant commitment from our balance sheet to continue to grow DataBank. Next slide, please. Last case study, Edgepoint. This was launched 1.5 years ago to build and scale a Southeast Asian tower platform. This is our eighth tower platform in the portfolio on a global basis. By the way, did we mention we love towers? Here, we partnered with a team led by Suresh Sidhu to execute a buy-and-build strategy that capitalizes on strong regional demand and healthy carrier dynamics in the markets we serve: Malaysia, Indonesia, and we've just recently added the Philippines. This investment is now in phase 2, transform and scale. We're making incredible progress here in year 2. We've already hit our 5-year underwriting model in terms of scale. We've almost tripled the number of sites since we started. It's truly incredible what Suresh and the team have done here. On top of that, we've built a robust regional build-to-suit program with key regional carriers and have already delivered 800 BTS sites since inception and recently have built our first group of 5G small cells and RAN hubs to support the next phase of network growth in Southeast Asia for our customers. This has been a terrific example of our ability to leverage successful playbooks and experience in other geographies and partnering with strong, proven local teams to build and create value for our investors. I look forward to keeping you updated on the progress we make here. We're very excited about Edgepoint, Southeast Asia and its future prospects. So this brings us to our conclusion today, which is the results and the key outputs of the execution piece of the DigitalBridge story. It's been exactly 2 years since Jacky and I took the helm here with the faith in support of our Board, our employees, and you, our shareholders. We laid out a plan over this time period that was brave as it was bold, and we've executed against that plan at every road marker that we have placed for you. In fact, we've exceeded those markers and guidance. This quarter is no exception. Let me again summarize a series of key and successful outcomes for DigitalBridge and you. We transitioned our DataBank investment into a continuation fund to help the company get permanent capital, proof that we can use the balance sheet intelligently and tactically to create a fantastic IRR of 37% for you, our public shareholders. We sold our European-based digital infrastructure media business, Wildstone, booking our first full exit from DBP I, proof that carry will accrue to you, our shareholders. We had formal first closes in our credit and SaaS strategies, proof again that we could enter new verticals in our digital infrastructure investment management ecosystem. Next, we acquired Switch and GD Towers, 2 very valuable and highly sought-after platforms growing at scale. We have deployed and committed over 90% of DigitalBridge Partners Fund II. Lastly, we've already achieved 2/3 of our fundraising goals and we're only halfway through 2022. This is critical proof that even in a challenging macro, DigitalBridge continues to successfully form capital around what we believe are best-in-class ideas in digital infrastructure investing. The key in this quarter is simple, execution matters. And let's be honest with each other, winning matters. I love to win. Our team loves to win, and you win with us in the digital infrastructure business model that DigitalBridge is executing today. We have aligned our ideas, people, and capital to create long-term value for you, our shareholders. I want to end in thanking my team for their tireless dedication to our business plan, and I want to thank you, our shareholders, for your trust and continued interest in DigitalBridge. Thank you.

Our first question comes from Michael Elias with Cowen and Company.

I have two just to start. You talked about the challenging macro environment, but you had really strong bookings within the data center business. I'd love to get a sense for what you're seeing in your pipeline across the verticals of digital infrastructure that you operate and just given what's happening with the macro. And then I have a follow-up.

Thank you, Michael. It was a great second quarter for new bookings. Interestingly, the backlogs in our data center businesses have continued to grow year-over-year. In the second quarter, our backlogs related to pipeline growth, which includes leases that are in due diligence or discussions, increased by over 128% compared to last year. This indicates substantial movement in bookings as well as in the pipelines. We're experiencing similar growth in our fiber and towers segments too, with BTS backlogs rising nearly 30% globally. We operate eight tower companies worldwide, and performance varies by region. However, there is very strong demand for BTS in the U.S. and Southeast Asia, which are our leading markets for build-to-suit projects. On the fiber side, hyperscalers are once again seeking more data center connectivity. This sector has become one of the fastest-growing areas for new bookings and pipeline development, with enterprise customers also returning in 2022. Overall, we have positive net bookings and forecasts in the fiber business, especially at Beanfield and Idea. It’s been an exceptional quarter. It is challenging due to the complex macro environment, with some businesses facing declines and others discussing job cuts. Meanwhile, we are focused on hiring, keeping our workforce active in construction and data center operations. It’s fascinating that our sector, digital infrastructure, remains resilient. We’ve observed similar trends during past economic downturns; the need for digital infrastructure persists regardless of the broader economic circumstances.

Awesome. And then just my second question would be, it looks like in your guidance, you're still expecting a contribution to the Operating business on the EBITDA side from to-be-determined M&A. Could you just give us an update on what you're looking to add on that side of the business? And as part of that, earlier this year, you had mentioned that you were seeing hairline cracks form in valuations, which was presenting a window of opportunity. Just love to get an update on what you've seen on the private market valuation front since you made those comments.

Yes, we're starting to observe a decline in valuations, which shouldn't be surprising. Deals that were previously expected to be valued at 30 times are now in the mid-20s range, and those anticipated to trade at 22 to 24 have moved down to the low to middle-teens. This is a market correction in private mergers and acquisitions due to reduced liquidity and fewer active buyers. I mentioned that our success in acquiring Switch and GD Towers was due to the support of our lenders; we have the necessary capital, conviction, and the ability to act swiftly. These results demonstrate our leadership in this sector. Conversely, public companies were largely sidelined; they couldn't finalize the Switch deal or secure the GD Towers portfolio, while we succeeded. Moreover, American Tower's recent need to source private capital for CoreSite illustrates our advantage; we have access to capital, allowing us to respond quickly. The balance sheet-light model is something that people will need to adapt to over time, as it's a different approach to owning digital infrastructure, which we believe is more effective. My CFO pointed out that our numbers don't include maintenance capital expenditures, and with our average fund duration being 11 to 12 years, we're actually looking at a longer timeframe than typical data center or fiber leases, which last 5 to 10 years. This asset-light model offers strong cash flow durability. Our business resilience was evident this quarter, and we're currently in a position to raise capital and capitalize on opportunities, with our portfolio companies performing well. This setup is encouraging, and we are optimistic about executing effectively amidst the current macro conditions. This is where we believe investors should focus their attention.

I just wanted to follow up and see, given the inflationary environment and a lot of talk on pricing, what segments or digital infrastructure assets do you think have the most pricing power going forward?

Currently, the data center sector has seen the highest increases in price per megawatt and price per rack. This trend is evident globally across Vantage, DataBank, AtlasEdge, and Scala, all of which have reported positive net bookings along with rising prices. The price increases have ranged from 10% to 20%, primarily due to limited supply for hyperscalers. The trend toward outsourcing has intensified over the last two quarters and is expected to continue for the next year. Scarcity in will serve letters, permits, and land is more noticeable in Europe than in North America and Asia, but we have a strong presence and a significant pipeline of opportunities in Europe thanks to groundwork laid several years ago. We're well-equipped with power, will serve letters, and permits. This is true in the U.S., Canada, and Asia, and we are also expanding in Latin America, recently activating 100 megawatts for hyperscale tenants in Johannesburg. We feel confident about our pricing power in the data center industry. In the tower segment, we recently came out of a conference discussing pricing strategies. There is a clear opportunity to raise prices significantly, potentially by 10% or 15%. However, at Vertical Bridge, we chose not to aggressively increase our prices, despite having longstanding partnerships with Verizon, AT&T, and T-Mobile. My approach is to maintain these important relationships without overcharging, as inflation will stabilize in time, and these clients will continue to need our services. While tower pricing has increased, it hasn’t risen as sharply as in data centers. Regarding fiber pricing, it has also gone up due to new capacity and routes we’re developing. Construction costs have not been the primary issue; sourcing materials and skilled crews has been the challenge. It’s crucial to retain and hire competent professionals in the fiber space right now. Small cell pricing has risen slightly as well, thanks to the expansion of 5G networks, but we remain cautious since carriers can also self-perform in small cells, which has limited rental price increases compared to the data center sector.

Thanks for the update on the longer-term guidance. It's very helpful. So clearly, a focus here on scaling the IM platform. And I think there's an ongoing debate right now among the public asset managers out there around the best way to divvy up the carried interest between shareholders and employees. A lot of them have started to give more carry to employees to use FRE margins that way. A lot of times, the stocks just don't get the credit from the carrier. So just if you could remind us what the corporate share carry interest right now is in your funds and then whether you think that might change over time.

Yes. Look, I think we've demonstrated that we feel very comfortable about the split between where the carried interest goes to our investment team and where it goes to you, our public shareholders. I mean historically, we've kind of been in this either 60-40, 65-35, 70-30 split depending on the product and the team. We feel very comfortable with our splits. We think it's in range with where the market is. And obviously, the Street has not given us credit for carried interest yet. We do have a lot of capital at work. As I mentioned earlier, our funds are performing and they're performing exceptionally well. So we do believe that at one point in time, the analyst community will give us credit for carry. Heretofore, they have not. We did reference an exit inside the quarter, that will trigger carried interest for Fund I. We're not at liberty to give specific details on that today, but I would say it was a very, very positive result for the company. And most importantly, it demonstrates our ability to return carried back to public shareholders which is sort of us portending what's coming in the future. We have other assets where we've got a lot of interest in. We're going to continue to raise capital. We're going to continue to sell assets. This is part of the business model that we're in. And we're really pleased with what happened in this quarter, proving out the concept that we could return carry back to public shareholders.

Yes. And Dan, and no matter what split, and obviously, Marc gave the range of it, but we love the alignment between the balance sheet, the GP, and our employees, right? So as we do well, as we build up our track record, as we make money for our limited partners, the GP with its share of the carried interest, obviously, wins out and you, as a common shareholder, will win out. So we love that alignment, and we're sticking to it.

Awesome. Just one more for me. You've mentioned the removal of preferred shares. Should we consider this as utilizing balance sheet capital? Or is this more akin to adding debt, similar to the securitizations you've executed to effectively replace that in the capital structure? Additionally, how do you view the total corporate level debt that this business can sustain? Is it a multiple of debt, like 2 to 3 times digital operating EBITDA plus FRE? Or do you have another method for evaluating the debt level?

We analyze it in several ways. When focusing on an asset-light Investment Management model and excluding preferred equity and non-recourse debt associated with DataBank and Vantage, our net debt-to-EBITDA leverage stands below 3x. This level is comparable to other alternative asset managers. We consider a leverage range of 3x to 4x as optimal for us, as we are positioned as a high-growth alternative asset manager. We plan to reduce our balance sheet leverage primarily by retiring preferred equity stakes. Ultimately, our main goal is to achieve the best returns for our shareholders. We believe that digital acquisitions and M&A are the most effective use of our capital, as they will provide us with long-term fee streams and align with the industry’s positive trends. We will pursue those opportunities as they arise, but if they don't materialize, we will focus on optimizing our capital structure.

I believe we've provided strong guidance regarding our direction over the next three years. The increase in our ability to raise capital is a significant milestone for the company, and we have a lot of confidence in this. We've consistently communicated our fundraising targets and given clear indications of the Investment Management platform's trajectory. Last year, Jacky and I established the first securitization for an investment management business, which was notably successful. This securitization includes an option to expand the existing trust. As we consider the development of the capital we are forming and the overall growth in FEEUM over the next three years, it's reasonable to think that we can manage more securitized debt. As we retire preferred shares, we will have a strong opportunity to take on additional securitized debt, which is cheaper and comes with minimal covenants. The simplicity of our capital structure will improve. I believe, as Jacky does, that we can lower our debt while also expanding our existing trust. As we enhance long-term revenue streams in the Investment Management platform, we'll have the capability to take on more leverage within that trust. Meanwhile, we are reducing our preferred shares, which usually cost us about 7% to 8%, but if we factor in market conditions, the total yield is closer to 9% to 10%. This presents a great opportunity for increased cash flow, which is something Jacky and I are focused on—growing free cash flow and enhancing the earnings potential of this business.

You talked about data center pricing. Just interested in any commentary you have around targeted development yields and has that kind of moved in line with pricing or held steady? And then secondly, on towers, given Germany and then earlier, Telenet and then Edgepoint, it's kind of shifted the geographic mix that you have. How does that affect your thinking on geographic focus for tower transactions going forward?

The single-tenant development yields for data centers haven't changed significantly. While we've managed to achieve higher pricing, construction costs have increased. Our strategy has been to align these costs and adjust rental rates to maintain similar yields overall. Depending on the geography, single-tenant yields can range from 7% to as high as 9% to 11%, notably in Latin America. The yields vary based on geographic factors, customer types, and whether the facility is an edge or hyperscale one. I'm pleased with the yields and the current position in the data center sector. Our construction pipeline has grown by over 136% year-over-year, meaning we're increasing our capacity this year compared to last year without major deviations in yields. Additionally, on the tower side, we're satisfied with our partnership with Deutsche Telekom. When looking at the adjusted Q4 or Q1 run rate TCF multiple for upcoming closings, we see it as a 22 to 23x TCF deal considering the number of towers and ongoing lease amendments. This reflects a great valuation, particularly for what is arguably the highest-quality tower portfolio in Europe. It's a standout asset for us. While private U.S. multiples for smaller deals, like SBA's mid-30s to nearly 40x TCF for developer portfolios, indicate a strong market, I feel confident about our acquisition in Germany. The GD Towers deal is notable because we had the right long-term capital ready to pursue this opportunity, which allowed us to act effectively. Collaborating with Brookfield was a strategic move, along with our new core fund, which is ideal for assets like this. We are looking at long-term leases—specifically a 30-year lease with Deutsche Telekom—yielding around 3.5% to 4% that will increase over time with enhanced lease-ups and new tower additions. This aligns perfectly with what institutional investors seek in today's market: safety, long-term leases with creditworthy customers, and an effective management team. We believe we purchased this asset at the right price, and timing was advantageous compared to a year or two ago when it would have likely sold for more, attracting more strategic buyers. I'm grateful for the partnership with Tim Hogs and Thorsten Langheim in finalizing this deal, and I look forward to collaborating further as we expand and consolidate in the European tower market.

Just while we're on towers, LatAm and that latest tranche, do you have any comments regarding the valuation being a bit lower than the ranges you previously mentioned? You are well-versed in that market, considering your past experiences. What are your thoughts on Brazil and how it fits into your strategy?

Yes. Look, we looked at it. That tower portfolio got looked at about 3 or 4 times. And each time, it didn't work for us. And it certainly probably won't work for Jeff. Jeff has a different set of underwriting requirements. And Jeff is a friend, and I think a lot of SBA, and I think they run a world-class organization. I think for what we're doing at Highline, we've made different decisions. And it's not to suggest that our decisions are more correct than his decision. I think they just felt like that particular portfolio was right for them. And we've done some other things in the market that were candidly in the same price range, if not even lower. So we're finding value in Brazil right now. I think there's obviously a pretty material disconnect with what's happening in Brazil today. And so we still think that wireless market is tremendous. I mean you're looking at the most important social media market on the planet in terms of adaptation to social media applications and how much time that economy spends on their phone. Brazilians spend more time on their phone than almost any other country. So that mobile economy and that migration of 5G is going to happen. While there certainly is a lot of inflation happening in Brazil, there's a disconnect with the reais. There's a very important political election campaign coming that's currently priced into the currency. That dislocation creates a window of opportunity. We see it as opportunity. I think Jeff and the management team at SBA also feel the same way. They think that Brazil represents a very strong opportunity today, and we would agree with SBA on that. Thank you. Alex and the team are doing an excellent job. We made a significant move into private enterprise 5G networks by investing in Salona networks. We also invested in Leading Edge, which we believe will become the leading edge data center platform in Tier 2 and Tier 3 markets in Australia. We've explored a few other opportunities, and we find the adjustment of pricing in Silicon Valley beneficial for us. While we haven't finalized any investments yet, there is certainly a shift in later-stage growth venture capital funding that we are observing. We view this as mid- to late-stage growth capital, and it is quite promising. Our pipeline is robust, and we are currently raising capital around this strategy, similar to our previous efforts in credit and core, which are now yielding significant success. It’s important to note that we understand the physical layer of digital infrastructure better than most management teams. Our focus in ventures is on the software-defined layer that connects the user to the physical infrastructure, which presents a vast amount of opportunity. We are actively looking at various ideas and business models in this area. We see the significance of software-defined networks and how cloud technology interacts with physical infrastructure to enable quick and efficient capacity scaling. There are numerous business models related to this, and our investment team is concentrating on the software-defined layer of infrastructure, considering it akin to SaaS as it relates to infrastructure. We believe there is substantial potential there. Ultimately, any investment we pursue in ventures must relate back to our physical infrastructure. The company must either interact with our infrastructure or utilize it. This principle guides our investment committee. When evaluating new deals, we assess whether they leverage our infrastructure, ensuring it fits within our ecosystem. Fortunately, many start-ups are using our infrastructure, whether it’s fiber from Zayo, data center services from DataBank, or connecting through an ExteNet or Boingo indoor system. Our infrastructure is widespread, is utilized by many, and particularly, many software-defined companies are benefiting from it. So far, this approach is proving effective and aligns well with our ecosystem.

Thanks for the deck and the upgraded roadmap. Looking at Slide 23, I think it's an important slide. I agree, I don't think the market's giving you credit yet for the performance fees. But probably a large part of that when we consider that comp group of the alternative asset managers is they obviously have a lot longer history of the exits showing folks the performance fees. You've got your first exit event coming up. You said you can't provide anything yet. When do you expect and what do you expect you could provide us with the Wildstone transaction to start putting the dots on the scatter diagram of demonstrating performance?

Yes. Well, Rick, what I would just turn you to is the base of our financials. Since we've announced the transaction on Wildstone we did fair value that onto our books. So you'll see that mark up in carried interest in the base of our financials, which obviously was positive. So I think that, that will be helpful.

Jacky, what he is trying to do is provide you with some hints, Rick, so you can piece things together today and then email us later to say you figured it out. This is straightforward, Rick. I have been managing other people's investments for 28 years. We have a strong track record and excellent returns over these three decades, generating significant profit interest for other limited partners and general partners, as well as for ourselves along the way. As I noted earlier, both of our funds are performing exceptionally well. We do evaluate our funds on a quarterly basis, and both Fund I and Fund II in our flagship series had outstanding quarters. Overall, the portfolio continued to appreciate in value rather than decline. With over $70 billion of assets under management, including GD Towers and Switch, there is substantial potential embedded in our strategy. Investors will need to assess what they consider to be a reasonable multiple for us to achieve. However, we know we have a significant amount of potential income that public investors will benefit from over the next five to seven years. This is not currently reflected in our guidance or our numbers. Perhaps after three or four carry events, we will begin to forecast carry more regularly. But if people leave this quarter without understanding that our business is performing well and our portfolio companies are doing well, it’s concerning. We have shown our ability to return capital to investors through Wildstone and create a carry event for public investors. We are being transparent about everything. This should be clear for investors, and if it isn’t, please contact us and schedule some time with us, and we will clarify it for you. We believe we are on the right path and this quarter has been incredibly successful from our perspective, affirming key concepts that are critical, such as the performance of our capital, our funds, our capacity for large transactions, and most importantly, our ability to lead fundraising in an environment where not everyone will achieve similar results. We feel we have met all expectations during this quarter and more, and I believe that success will continue throughout the remainder of the year.

Yes. Additionally, Wildstone represents the first monetization from one of our funds. Marc and Ben have a strong history of successful monetizations and generating returns for investors. This track record is fundamental to our company, and our team is crucial to that success.

Follow-up on a previous question as well. On the debt level. I appreciate that color on where you think debt should go. It does seem like there's a lot of kind of wacky numbers or different numbers out there in other data collection sets that suggest a much higher level of leverage for you guys compared to the alternative asset managers. Any thoughts about helping people clean that up or understand exactly the asset-light model and how it is being deployed and what the levels truly are?

Yes, certainly, Rick. The reality is there are three components to that leverage. One component is the preferred equity, which some people include while others do not, as it's somewhat similar to debt. The second component is the non-recourse debt associated with DataBank and Vantage. If we concentrate solely on the investment management business and exclude those two elements, which we have already pointed out, our focus moving forward is more on investment management, which is asset-light and does not require additional debt or capital expenditures to implement. Additionally, we have mentioned that we aim to optimize our capital structure by paying off or reducing our preferred equity. Consequently, you will find that our alternative asset management business, along with the corporate side, reflects a leverage of less than 4 times, which aligns with the levels typical of other alternative asset managers.

So just curious, you mentioned the $60 million of digital M&A. Just wanted to confirm that was specific to the balance sheet. Are there opportunities maybe to add some additional IM platforms, either to expand into new geographies or maybe new product sets? You mentioned, I think, growth equity or traditional private equity in the past.

Yes. Thanks, Eric. Yes. So look, we look at that $900 million of firepower without any leverage, right? Assuming you could put 50-50 debt-to-equity leverage against that $900 million, you actually kind of amplify that to almost $1.8 billion of purchasing power. Now we do have 2 areas that we are refining our M&A plan. First and foremost, we do believe there are other investment managers out there that fit very nicely with what we're doing, whether they're doing middle market digital infrastructure, whether they're doing growth, private equity, where they touch telecom and infrastructure or media. There's a bunch of those targets out there, and I would tell you that those discussions continue to happen. And we've got a lot of really good targets that have really great people and they have very great ideas and are candidly not swimming in our swim lanes. So that's important. Finding other organizations that have great talent and that share kind of our view of how to invest, but don't invest in the places we invest, that's really interesting to us, and that's where Jacky and I have been spending our time over the summer is looking at those opportunities. And we think there is a nice pipeline of ideas around that, and we're moving down the path of executing on some of those things. At the same time, we've continued on Digital Operating to think about ways that we can obviously grow our Vantage portfolio. We've got a number of campuses that are maturing. We can certainly add more campuses this year and next year to the Vantage SDC portfolio. So we're looking at that very carefully. They've had a tremendous, tremendous year, Vantage SDC, and it's performed, I think, above our expectations. So we're looking at that to the extent that we can increase our exposure to hyperscale data centers in the U.S. and Canada and perhaps even look at some of our European assets, that's very interesting to us. So there's a lot happening there. At the same time, it doesn't preclude us from looking at other things in the ground lease buyout space, the tower space, wholesale fiber space, other data center businesses. There's a lot that we can do off the balance sheet. And so we're happy with our firepower. The return of capital from DataBank, the return of capital from warehousing transactions and credit in our core strategy, all that money is now coming back in the third quarter. So we're really happy about that. Jacky has now got strong liquidity, which allows us in this economic uncertain environment to play offense, and both he and I have a rich history of playing offense in previous downturns. So we're excited. We're working hard. It's been a really long summer. We got more work ahead of us. And I would say, strong expectation for us to announce something inside of this year, where we will put that $900 million of cash to work in strategic M&A.

Okay. And then just one last one, if I could. Just wondering what you're seeing in data center development around power procurement and availability. It seems like it's been an increasing challenge in Europe and even in Northern Virginia, where there appears to be a pretty significant transmission issue that Dominion Energy is trying to work through. So just wondering if you're seeing any material delays in bringing new capacity online from delays in power availability and whether that's having any impact on your ability to kind of deliver on your pipeline.

Sure. So let's hit the Northern Virginia issue on the head. We don't see any delays in delivery of space this year. We have gone all the way out into 2023 to see what workloads will be compromised or delayed. We don't see any compromise in our bookings in terms of who will get deployed. We do see delays. I think that's one of the key things that is coming out of it. '23 should have some delays, '24 should have some delays, but we do see things normalizing in '25 and '26. Someone had reported 2028. That's just false. They haven't done their homework. So look, Dominion is on it, the State of Virginia is on it, Loudon County is on it, the sector is on it. Yes, it was a bit of a wake-up call for the region. But what I can tell you is I do believe the sector has come together. I think the state is very focused on it. Certainly, the utility commission is focused on it. We're focused on it, and we don't see any compromise in deliveries this year. And perhaps there's some compromise in deliveries next year in '24, but net-net, it's still a great market, and it's a place I think all of our peers want to be. Other areas that concern us, look, we've told you for the better part of 2 years that the power grid in California is somewhat compromised. Pacific Gas and Electric really can't supply any material amount of new megawatts in the Santa Clara area or San Jose. Silicon Valley Power currently is constrained in terms of what they can deliver. The next upgrade to that grid is 2025. So Santa Clara has become a very capacity-tight market. Our renewal rates are holding in very strong there. All of our new capacity is pre-leased that we brought online last year. And so I just mentioned this is kind of actually where we saw a lot of value, Eric, in Switch. Switch has over 1.5 gigawatts of power capacity that they draw from 3 different sources of green energy. And particularly in a market like Reno where they have land, they have renewable power and they control their destiny, where they can light up almost 800 megawatts of capacity, that's less than 0.2 of a millisecond from Santa Clara. So we're really excited about the prospects for Switch. They've got a lot of land. They have the power and the capability to grow. And Reno has become one of the great what I would call tethered markets to Santa Clara. Same thing in Las Vegas, same thing in Austin, same in Grand Rapids and Atlanta. Switch has a significant amount of excess power that they reserved through renewable sources. And look, our customers like that narrative, too. They want to be in data centers where it's sourced by green energy. And it's not woke speak, right? This is like hardcore reality. This is a company that planned for this great management team, great CEO. And being able to control your destiny in terms of controlling the land, controlling your will-serve letters and controlling your power capacity, that's good for customers. And that's what we see in Switch, much the way we saw when we acquired Vantage. We saw a long roadmap of opportunity to develop new campuses. And Rob and the team at Switch have done a great job of developing the world's most highly protected private cloud campuses at a Tier 4 and Tier 5 level, once again, controlling the energy narrative. And I think that's going to be the differentiator going into the future. Do the strong data center companies know how to source green energy? Can they do it in a way where they can control that capacity and they can plan over the next decade, not over the next 2 quarters? And so this is what we saw in Switch. And this is actually what Raul and Sureel are doing at DataBank and are doing advantage. They're planning for the future and trying not to be entirely reliant on the existing grid, and I think most data center operators are thinking through that conundrum as well. So we're well-positioned. Our management teams are ready, and we're really excited about closing on Switch because they've actually got more ready-lift capacity than anybody else in the market.

Thank you. Ladies and gentlemen, this concludes our Q&A session and thus concludes our call today. We thank you for your interest and participation. You may now disconnect your lines.