Earnings Call
DigitalBridge Group, Inc. (DBRG)
Earnings Call Transcript - DBRG Q1 2022
Operator, Operator
Greetings, and welcome to the DigitalBridge Group First Quarter 202 Earnings Call. 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 towards 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?
Marc Ganzi, CEO
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' 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 building a full-stack digital infrastructure investor, investing in high-quality digital businesses, and lastly, scaling our high-performance operating platform. 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 were managing through both the early stages of the COVID pandemic and a massive, diversified 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 one set of investors focused on one 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? It's growing quickly, it's capital-light and it's got great margins. It was clear to us as we look to deploy the balance sheet capital that this was our highest and best use. It's a transaction that hits the mark on three critical fronts for you, our investors. First, it's immediately accretive to earnings, over $38 million in incremental run rate FRE in 2022 to you, our DigitalBridge shareholders, on its way to $60 million in a few years. That's a 46% increase relative to our prior '22 guidance as 100% of the earnings now flow to DigitalBridge shareholders. Second, 100% ownership in DigitalBridge's IM platform is entirely essential to the future of the business. We're deploying our balance sheet capital into high-growth, high-return on invested capital, high-margin businesses that are growing organically at over 20%. And keep in mind, the fees that we generate from our investment management balance sheet are on average, 10-year, 11-year, 12-year funds. These are long-duration funds, very similar to the leases that we sign on cell towers and data centers. So the duration and the quality of these cash flows and the investment-grade counterparties that we work with are very much akin to what we do in our digital operating business. And we're executing at a great price for such a high-growth business around 20x. This is in line with our capital deployment targets. It's a multiple that goes down to mid-teens in a few years as we rapidly scale our digital investment management platform, which I'll further discuss today. It's important to note these multiples don't capture the value of the 31.5% share of the corporate performance fees that we now retain on future funds. You would also know this as carry or carried interest. We believe this will represent significant value to DigitalBridge shareholders over time. Finally, simplification. This is the latest step that we've taken to make our business easier to analyze. We are now a 100% owner of our Digital IM franchise. That's an easy metric for everyone to understand. Bottom line, we emerge from this deal with higher earnings, a simpler structure and greater exposure to our fastest-growing digital investment management platform. Before we move on to the next slide, I want to take the opportunity to thank the entire team at Wafra. They've been exceptional partners and will continue to be excellent partners as we enter the next phase of growth at DigitalBridge. So our next decision was to revert to a conventional C-Corp, which we announced in connection with the Wafra transaction. Our REIT status was a question we felt needed resolution as we move forward, and the compelling nature of the Wafra transaction catalyzed our decision, highlighting the value of the additional strategic flexibility afforded by operating as a traditional C-corp. Ultimately, what I'm focused on is doing what's right, not what's readable. As Jacky has noted, we've always been pragmatic about our legacy REIT status and whether it serves our strategy. Most importantly, does it serve our customers and our ability to execute on our businesses? After careful analysis, we determined that the additional strategic flexibility of operating outside of our regulatory constraints is ultimately the best way for us to deliver long-term shareholder value. With estimated de minimis tax implications ranging between $10 million to $60 million on an NPV basis over the next 5 years, the decision was quite clear. The change also highlights the significant NOLs and capital loss carryforwards from legacy operations that will provide shelter for taxable income in our digital operating segment and our performance fees, carried interest into the future. As you know, Digital IM already operates as a taxable REIT subsidiary, so there was no change there. We believe this change at the end of the day makes a lot of sense. First, it removes uncertainty and it frees us up to execute transactions like Wafra and the AMP Capital deal, which I'll discuss in the coming pages. While the Wafra deal has always been a strategic transaction that we wanted to execute, our acquisition of AMP Capital's global infrastructure equity business was actually quite opportunistic. A quick background here is the combination of our strong mutual LP relationships that we had and connectivity with the AMP team that allowed us to execute what would be a highly accretive transaction that gives us day one scale in a complementary middle-market segment with a terrific management team. In addition to that, we picked up a great portfolio of existing investments with strong long-term earnings and future fee-related earnings growth potential. As with Wafra, I want to highlight the three key tenets to this transaction. First, we advanced our full stack IM strategy, adding a value-add franchise in the middle market, where we write checks between $100 million to $500 million which are candidly too small for our flagship digital infrastructure equity strategies, where we are typically deploying between $500 million and $1 billion per equity check. It's a space ripe for high return potential and with a refined Digital Plus strategy with lots of room for growth. Their second $3.4 billion GIF II fund is around 60% digital already, and that ratio will grow over time. We have some great overlap LP relationships and also had the privilege of adding new LPs to the mix, who we believe will be interested in our other offerings over time. This was a great chance to continue to build new strong LP relationships on a global basis. Second, the transaction will be highly accretive. We're adding $5.5 billion in fee-related earnings growth and increasing our run rate FRE on our IM platform by $23 million on an annualized basis this year, lifting pro forma earnings 20% above the midpoint of our prior guidance. We’ve executed this at an incredibly compelling valuation of about 8.4x FRE before any potential earnouts and cost synergies. This is a great deal, as I mentioned before, driven by strong LP relationships and connectivity with the AMP team, which is actually my third point. This is a high-caliber plug-and-play team. We're adding over 25 infrastructure professionals to our 100-plus strong global team that will be based out of the UK, with a shared focus on generating long-term returns for investors. As most of you know, we recently announced the addition of Matt Evans as our Head of Europe. Matt, as some of you know, was formerly at AMP Capital and knows all of the members of the team and understands the assets. This really helped us in assessing the opportunity and realizing this was not only a great portfolio but a great team. So great team, great economics and a great portfolio that fits right into our full-stack digital IM platform. Before we move on to cover some of the investment level deals we announced in Digital this quarter, I want to take a step back and put the Wafra and AMP transactions into proper perspective. When we consolidate these deals, we have increased DigitalBridge shareholder earnings from our Digital IM platform by 74% since we laid out our guidance back in February, which was already a beat and raise, going from $82 million in share fee-related earnings to $143 million once these deals close. That’s frankly near the midpoint of our 2023 targets, which is about a year away. Now all of this 100% flows to you, our DigitalBridge shareholders. That’s pretty stunning. And when you factor in the attractive entry valuation of both deals at 16 times, we believe we transacted at a highly accretive entry price for our shareholders. While we are busy on the corporate level executing these larger transactions, we've also announced some key investment level deals with a particular focus on advancing what we call our full-stack strategy. We have executed important investments across three of our new verticals: core, credit and ventures. We have warehousing deals on the balance sheet to seed and highlight the kind of high-quality companies and assets we plan to invest in as we scale. First, Telenet. Here, we took advantage of the opportunity to create the first independent tower company in Belgium with an expansive nationwide footprint of over 3,000 sites and lots of room for continued tenancy growth as they build their 5G network. It’s a business that will have very predictable cash flows, with high-quality counterparties and long-term contracts, perfect for that initiative. Second is Everstream. We're in partnership with a Canadian pension plan. We invested $220 million in a term loan to support the growth of Everstream's business-only, enterprise-grade domestic fiber network. This is exactly the kind of scale capital many growing digital infrastructure companies need, and we were well-positioned to provide a value-add credit solution. Finally, Celona, where we led a $60 million Series C round with participation from other Tier 1 venture capital firms. This is DigitalBridge Ventures' inaugural investment, and we're excited to extend our platform into high-growth companies across emerging digital infrastructure technologies. Celona, which produces gear that specifically serves the 5G and CBRS ecosystem, is exactly one of these companies. We couldn't be more excited about partnering with the management team there and other Tier 1 VCs as Celona builds out the next generation of indoor wireless networks. It’s important to note all three of these investments have been warehoused on our balance sheet, highlighting another benefit of our new, more flexible corporate structure. We've been seeding the next generation of scalable investment offerings as a great way to leverage our permanent capital. To wrap up our Q1 highlights, we've dropped the new core credit and venture investments into our full stack framework and even added the AMP deal to our equity sleeve, where it adds a middle-market capability with slightly higher-targeted returns in Digital Plus. The goal, as we've outlined before, is to establish DigitalBridge as a full stack digital infrastructure investor, owner and operator with the ability to go anywhere to invest, operate and capitalize on the $400 billion annual global CapEx spend across our industry. I believe this positions us uniquely at the intersection of supply and demand with the capability to raise and pair capital with the right opportunity to generate strong risk-adjusted returns for you, our investors. In fact, our ability to go anywhere globally to show up for customers and corporates is truly unique in our sector something I'll talk more about in Section 3. But for now, I want to hand the call over to my partner, Jacky Wu, to take you through the financial results for the quarter. Thank you, Jacky.
Jacky Wu, CFO
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 one-time non-cash 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 two important transactions after the end of the quarter. The first was the purchase of Wafra's share of our IM business, and the second was the acquisition of AMP Capital's global infrastructure equity business, which will significantly increase fee-related earnings and add four new digital infrastructure portfolio companies to our IM platform. We are excited to initiate a regular quarterly common dividend in the third quarter. Recurring cash flows have turned positive in the first quarter and will accelerate following the pending Wafra and AMP transactions. And as we meet or exceed our guidance growth targets, we expect our common dividend per share to materially increase over time, while we continue to invest in high-growth digital businesses. The company is strong and healthy, driven by our sector-leading asset-light investment management business that generates high-quality long-term fee earnings, and we plan to further optimize our capital structure in the near-term using available liquidity. Moving to Page 14. Consolidated core digital revenues were $247 million, a 12% increase from the same period last year driven by new DBP II fees. As anticipated, investment management revenues declined compared to the fourth quarter as the fourth quarter included $8 million of one-time catch-up fees alongside the final DBP II close and $6 million of incentive fees from our liquid products. Looking at the right side of the page, consolidated adjusted EBITDA was $111 million during the first quarter, which is a 10% increase from the same period last year, also driven by new DBP II fees. Turning to Page 15. We have seen continued growth in our digital business, particularly in our high-margin investment management business. The first quarter amounts shown on this page are pro forma for the pending acquisition of AMP Capital's global infrastructure equity platform. We additionally will own 100% of the IM revenues and FRE following the acquisition of Wafra's share in the business. Both transactions are highly accretive and in line with our promise to be disciplined, deploying our capital into high-growth digital businesses with a strong recurring yield profile. Since last year, our annualized fee revenues increased from $124 million to $235 million, and FRE has increased from $70 million to $124 million. Turning to Page 16. The company has strong current liquidity of approximately $1 billion. We will deploy $718 million combined for our two pending IM acquisitions. This capital deployment will be more than offset by over $1.1 billion of net proceeds expected to be returned from previously warehoused investments to seed new investment management products, new lease pursuit strategies, and $500 million from the last remaining legacy investments. As a result, we anticipate accumulating $1.4 billion of liquidity to fuel acquisitions and to further optimize our capital structure. We are very excited for the rest of 2022. And as our fundraising and M&A pipeline continues to be robust, this liquidity will help us execute on this pipeline and accelerate our digital growth. And with that, I'd like to turn it back to Marc. Thanks.
Marc Ganzi, CEO
Thanks, Jacky. As I said earlier today about the attractive financial implications of the two transactions that we consummated in the last three weeks, I wanted to cover 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 are 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 operate 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, creating a virtuous cycle that reinforces our ability first and foremost to serve customers. They want to work with partners that can deliver. 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 across five different continents today. So at a corporate level, we're investing that time and energy; we're forming the capital to ensure 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. So how have we done this? We've done it by being able to scale and meet the size of the opportunity that sits in front of us in digital infrastructure and to get out on the battlefield and compete effectively against our digital REIT peers. It’s really about leveraging our comparative advantages, and I think you see it here very clearly. First, on the left-hand side of the slide, we've had 64% CAGR growth over the last three years in our rapidly growing AUM business model. This is what drives scale. When we first did the merger back in 2019, we were roughly at about $13 billion of digital assets under management. By the end of this year, we'll be north of $60 billion in digital AUM. That's the power of an asset-light model. It’s leveraging our expertise and investing across this evolving ecosystem and doing it in a nimble way and executing. These are the key differentiators that allow us to compete and win consistently, growing much more quickly than our established digital infrastructure peers. You can see this on the right-hand side: look at the digital AUM rankings today. We're fastly climbing the ladder, and we've done it in a very short period of time. That’s tremendous growth, and it's enabled by our ability, once again, to form capital consistently through this unique investment management platform. This growth that we discussed in AUM has really enabled us to perform as a category leader. And we've done so in just a short five years, competing head-to-head with what we believe are some of the best established players in the world that have had a 2- to 3-decade head start. Just looking at the slide here on the graph to your left, 74% EBITDA growth over the last three years in terms of our CAGR growth. When you compare that against the leading digital REITs in the world, which have averaged 7% to 16%, you can see that this business model allows us to scale faster and quicker and grow quicker. This is key. The key in having an asset-light digital infrastructure operating model is that we can grow quicker. And it's enabled us to catch up and operate at scale and compete on an effective level playing field against our digital infrastructure peers. The scalability of our platform not only drives strong earnings for DigitalBridge shareholders, but our diversified portfolio of category leaders is also outperforming at the portfolio company level. So when you look across two key business units that I know all institutional investors follow, towers and data centers, you can see we're delivering results. Just look at the lower right-hand corner of this page. We leased more megawatts last year across the DigitalBridge portfolio companies than many of our largest peers, astonishingly, 290 megawatts across Vantage, Scala, and DataBank compared to what we perceive as three best-in-class publicly traded data center REITs. In the tower sector, looking at the upper right-hand corner, 30,000 towers is where we ended at the end of last year. That compares to 5 years ago when we had fewer than 3,000 towers. So we're scaling, and we're able to go out and effectively compete in the build-to-suit market and in the tower M&A market. This is the success factor in the business model that we're delivering today for you, our shareholders. It's rooted in the capability that we have: a highly scalable asset-light IM platform that gives us the firepower to operate globally and execute locally. This is the differentiation in where we're going with DigitalBridge today. I'm going to finish where I started, highlighting our key objectives. I think all of you know I'd like to clearly communicate with all of you about where we're going this year. First, we're building a full stack digital infrastructure investor. We've made great progress during the quarter with new investments in credit, core, and ventures, and all of it is on track. Second, I want to meet and exceed our fundraising and operational targets. The Wafra and AMP transactions put us firmly on a path to exceed our financial guidance, and we continue to see a robust fundraising environment. This sets us up to deliver on our organic growth objectives as we form capital around these new strategies that we’ve launched this year. I'm looking forward to updating you in the next quarter and our progress here as we continue to exceed your expectations. Third, we're going to continue to accelerate and scale our high-performance asset-light platform, as I've just highlighted. This is central to our ability to continue to grow rapidly, compete, and win by leveraging our position as the partner of choice to institutional capital focused on the digital infrastructure investment opportunity. This is a massive opportunity. So there you have our progress against our key objectives for the year as we remain focused on building a high-growth digital infrastructure platform that serves customers and generates, most importantly, strong returns for you, our investors and our shareholders. With that, I want to thank you for listening to our earnings presentation this morning. I'd like to turn the call back over to the operator to initiate the Q&A session. Thank you.
Operator, Operator
Our first question is from Michael Elias of Cowen.
Michael Elias, Analyst
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.
Marc Ganzi, CEO
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: 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. The reward for that is we get to be opportunistic, and we’ve 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 two opportunistic trades in Wafra and in AMP that really could help us accelerate our objectives on one 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 and our returns. Things are still priced to perfection in 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 a dozen new construction projects where we're expanding capacity 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 for the rest of the year. Just in this quarter, there was nothing that manifested itself that made any sense from our perspective. But remember, at the end of the day, we're the stewards of the balance sheet. My objective is to achieve the highest returns on invested capital for you and every shareholder. And on that basis, AMP and Wafra delivered that outcome. So look, I think that in addition to that, you're going to see us be incredibly hawkish with how we use the balance sheet.
Michael Elias, Analyst
Yes. I was inquiring about your digital operating revenue and EBITDA guidance, which seems to factor in some mergers and acquisitions. I’m curious about how to interpret that. Additionally, with interest rates rising in recent years and changes in the macro environment, I would like to know how your perspective on data center deals has evolved over the past year, specifically in terms of loan-to-value ratios and net debt-to-EBITDA ratios. Also, how have the rates for deals concerning both zColo and hyperscale changed? I realize there's a lot to unpack, but I would greatly appreciate your insights.
Marc Ganzi, CEO
Yes. Let me explain the overall corporate situation before we dive into the specifics of our assets. Last year, we clearly stated our reasons for securitizing cash flows from our investment management business. Firstly, we identified a period of low interest rates. Secondly, we established a structure that allows us to fix our debt costs, which is a critical principle in the way I have built successful companies over the past 27 years. By using the securitization market, we are able to secure long-term, 30-year backed notes and securities that solidify our corporate capital structure, and we have done this carefully. We will continue this approach. Currently, interest rates and risk are on the rise, leading to tighter credit conditions as expected. Strong and well-understood stories by the rating agencies will find financing, particularly those with solid cash flows and investment-grade partners, while weaker stories will struggle to secure financing. We’re seeing this play out this quarter. As we analyze our portfolio companies, particularly zColo, edge, and hyperscale, we have successfully secured financing this quarter. Across all of our businesses, we have locked in our debt with long-term 30-year CMBS and ABS structures, a strategy we consistently employed last year. While I wouldn’t say we predicted everything, our extensive experience in capital markets helps us navigate trends effectively. Our team has been working together for 28 years, so we approach situations like these with clear preparation. We anticipated increases in interest rates and recognized the challenges in the market stemming from the influx of easy money, as we noted inflation a year ago. The current situation, which has surprised some, is something we expected. Having gone through the dot-com crash and the '08 mortgage crisis, we possess valuable experience. Our management team offers deeper operational insight than our digital REIT peers, reflecting our longer history. Understanding these cycles and being well-prepared is vital for our portfolio companies and investment management business. We believe we are well-positioned at the corporate level with cash reserves and flexibility, enabling us to be patient. All our businesses are well capitalized, and the majority of our debt maturities align with the 30-year structures we mentioned, primarily from loans originated in 2020, 2021, and some small financing in early 2022. Our tested readiness and strong leadership help us navigate challenging markets. It’s essential to protect capital and strategize for growth. While I don't want to come across as overly optimistic, Jacky, Severin, and I are genuinely excited about the opportunities ahead. We are equipped for these moments, and we hope our shareholders, who recognize our proven track record of building successful companies through tough times, will benefit from joining us on this journey.
Jacky Wu, CFO
And just to answer your guidance question, I'll break it up into two 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. We expect in 2022 that on the Digital IM side, we will meet or exceed our guidance in addition to the overlay from 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 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 will 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.
Operator, Operator
Our next question is from Jade Rahmani of KBW.
Jade Rahmani, Analyst
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?
Marc Ganzi, CEO
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 one 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. Ultimately, it's a tax declaration at the end of the day. For us, we’re business builders. 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. Furthermore, when you look at 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 the 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—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 for AMP, we're getting returns north of 20%. That's easy arithmetic for Jacky and I to explain to you. And so that was the decision we made in this quarter. That was the capital allocation decision that was in front of us and we took it. There were other capital allocation decisions, Jade, that came to the investment committee. We chose to not do them in terms of putting on balance sheet. This is really key here. I think the other thing is, at the end of the day, the REIT versus non-REIT situation. As we mentioned in the earnings release, there's about a $10 million to $50 million tax leakage over the next 5 years. That’s de minimis, right? When you compare it to how fast we're growing in an unconstrained business model. We look at that 74% EBITDA growth; that's where investors want to be. We believe that’s where investors want to be. I mean they’re going to with their wallets today and over the next couple of quarters, invest in digital infrastructure. Our appeal to them is in this environment, as you pointed out, Jade, where the cyclicals are tough. You've got rising interest rates, you've got rising inflation, you've got stock market selling off, you've public competitors being somewhat liquidity constrained—we like our model where we're a bit more asset-light, we're more nimble, we're not constrained. The key to this is really simple. I’ve been doing this for 28 years; the ability to serve customers is the core tenet of this company. We are built to serve our customers, and the ability to have capital and to go anywhere for them—it’s a concept I got to keep driving home to you and all our shareholders. That is the advantage. That’s our competitive advantage. If we can keep showing up for customers on a global basis, we win. We get more at bats, we get more bookings, we get more lease ups and we grow faster. The numbers are simply clear that we grow faster right now than our public peers. It’s the model and the decisions this management team has made. Certainly, in this quarter, moving to a C-Corp does give us more flexibility to execute. We think over time, remember, investing in digital infrastructure is not a quarter-to-quarter investment. We believe over the next 2, 3, and 5 years that by investing with us, this is the way you invest in digital infrastructure today. This is the future of where investors should and want to be.
Jade Rahmani, Analyst
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 counter-cyclical attributes as demand for digital infrastructure is a secular trend. But what would be the various things that you're focused on?
Marc Ganzi, CEO
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 two to three times a week. We have a very good sense of our dashboards and our KPIs. Here are the things that matter today, Jade. One, construction costs. Are we on budget? Are we above budget? 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. A material deviation would be something for me greater than 3% to 4%, and we're just not seeing that across all 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 particularly concerned about construction costs. I'll tell you where I am concerned. I am concerned about labor. Two things are happening in the labor market: I just came back from a conference in Los Angeles where I sat on a panel with about another 30 CEOs—and a common theme, and not just digital infrastructure, Jade, but global CEOs, everyone is saying the same thing: the cost of labor has skyrocketed. The competition for labor is intense, and how you retain and incentivize employees to stay is harder than ever. The real challenge, Jade, is getting people to come to work. It’s an absolute phenomenon happening across all sectors. Good news for us is our employees are showing up to work, and they're doing the work. Where do you feel that pinch, Jade? You feel it on the front lines of construction. So people that climb towers, folks that do micro trenching for fiber, data center engineers—these are the most coveted jobs in digital infrastructure today. Our wages have gone up, as you would expect, depending on the portfolio company anywhere from 3% to 10%, it's a competitive market. We’re retaining our employees, we’re losing very few people, and morale is strong at our portfolio companies, but they're working hard and they're overworked. There’s a lot of infrastructure to be built. Our #1 mission is to keep our employees happy, keep them mentally satisfied and make sure they're paid and not overworked. These are the key things that our CEOs are focused on today. So labor is definitely one of the consequences of what’s happening in terms of the cyclicality you mentioned. We talked about interest rates earlier. Interest rates are rising. Liquidity is disappearing out of the system very fast. Our portfolio companies have access to capital. So we are not capital constrained. All the financing that we wanted to get done in this quarter got done. We had a couple of really material financings completed down at the portfolio company level. So access to capital for DigitalBridge companies is not constrained. That’s good news. Our cost of borrowing is going up as you would imagine. So new financing certainly, Jade, are impacted. Previous financings, where we’ve securitized and have long-term bonds or indentures, have not been impacted because I made a conscious decision over the last 2 to 3 years to fix our cost of debt down at our portfolio company levels. That was a conscious decision we made based on the facts. The good news is bookings are up. We had a very strong quarter in terms of new bookings. I think we highlighted that in our presentation today, feeling like we're winning in terms of new bookings. We're winning new BTS orders. I will tell you rents anecdotally around the globe are going up. We've heard that across all of our portfolio companies. Whether it’s zColo, whether it's a build-to-suit, we’re being able to reprice the rental space for our properties on a global basis. We’re seeing rental rates increase anywhere from the low side of 3% to 4% to the high side of 10% to 15%, depending on the asset class. As inflation has crept up, we’ve been able to reset new rental rates for customers that are entering our facilities and for customers that we're building for. In addition, as our leases have fixed escalators, a large majority of our revenues on an international basis are all CPI indexed, mostly all CPI indexed. As a global business that operates in Asia, Europe, Latin America and, of course, here in North America, we are inflation protected. Most of our leases have expense reimbursement pass-throughs, so we’re not bearing the burden of high utility costs at the property level or other types of costs that are pass-throughs from a CAM basis. We feel like this business, the DigitalBridge business and the DigitalBridge portfolio companies, are really well situated to take advantage of the market conditions that are coming. We're, once again, I’m not giving you a jubilant picture, but I think Jacky and I feel really good about how we’re situated. As long as we continue to see bookings growth, which we’re seeing across all our portfolio companies, we remain generally constructive and very positive heading into this turbulent environment.
Operator, Operator
Our next question is from Dan Day of B. Riley.
Daniel Day, Analyst
Congrats on a very, very busy quarter. Just first one 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 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?
Marc Ganzi, CEO
Yes. Thanks, Dan. Appreciate it. So first and foremost, the numbers that we published today were pre-synergies. 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 my DNA. We tend to give you 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 deal-level economics as he drove the deal with Ben Jenkins. But generally speaking, we feel there is improvement. Jacky, you want to talk about the improvement there: cost and new revenue?
Jacky Wu, CFO
Yes, sure. We’re obviously very excited about the transaction, Ben and I and Marc. AMP's equity platform was a little underscaled. They had just a couple of funds under their belt—albeit good funds. Now we can plug and play into our back office and our scalable and extensible platform on the IM side to provide support functions like investment management, etc. to be able to scale that platform. The guidance, in terms of the overlay for AMP is showing FRE margin sub-40%, you should expect that over time and in a relatively short time for us to accrete it up towards our margin levels of closer to 60%.
Daniel Day, Analyst
Great. And then another one for me. You guys have 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 the 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 are no worries there about meeting the acquisition cash needed?
Marc Ganzi, CEO
No, I think our liquidity is in great shape, actually. We've warehoused a couple of transactions, which we actually haven’t even closed on those and put the cash out. 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 the magnitude of a short side of 3 months, maybe as long as 6 months due to 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 we continue to be very constructive on that business.
Jacky Wu, CFO
No, that's right. Mike and his team are just doing fantastic work. The turnaround that he has implemented at that business; both their dividend yield is 9% and rising. In our opinion, he's doing great work and we're not going to be forced—nothing is going to force our hand to say we have to sell these things to fund something else. Our perspective is we'll do it constructively with Mike and the team in what makes sense for him and other shareholders of BrightSpire. We will be responsible sellers. We have all the funding and liquidity we need to do the plan that we want to do with digital infrastructure.
Daniel Day, Analyst
Awesome. And then last one for me. Just you've acquired a bunch of FRE here over the last couple of weeks. Can you maybe quantify how much increased capacity you have to raise capital in the securitized markets? That would add to the firepower you 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 the rest of them should be callable over the course of this year?
Jacky Wu, CFO
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 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 we prefer to have that coupon in that 7% range. BrightSpire, we just talked about, has a yield of 9%. If we've got excess cash on hand, and there are no digital infrastructure businesses immediately for us to go and seed the new products or go and acquire to our balance sheet, we will go and quickly redeem those things where appropriate.
Operator, Operator
Our next question is from Jonathan Atkin of RBC.
Jonathan Atkin, Analyst
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 thinking 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?
Marc Ganzi, CEO
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 two sizable portfolios. GIF I was already in the process of being wound down, so the orderly disposition will continue. We don't see any change in the personnel. We don’t see any change in the strategy. 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 two to three years. Our focus is to grow that portfolio while overlaying our investment framework, sort of the DigitalBridge way of how we create alpha through back office IT, opportunistic financings, greenfield, brownfield, leveraging customer logos, etc. I think this is a model, Jonathan, you’ve gotten to know pretty well over the last two decades. So injecting our DNA and strategy into that portfolio is really important. And there are a lot of synergies. You hit the nail right on the head. 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. The digital logos they have are incredibly strong logos that are exceeding expectations in terms of growth. They’re right on their business plans. There’s an opportunity to grow further. Remember, in AMP, the average check size in GIF I and GIF II is between $220 million and $280 million. The average check size at DigitalBridge Partners 1 and DigitalBridge Partners 2 is between $800 million and $900 million. These are different business models. They're playing in different categories. They’re in middle-market infrastructure, and we're doing big bulge infrastructure. This is great for us because, in the past, we weren't penetrating that middle-market digital infrastructure part of the asset class. A lot of opportunities came through our funnel, we’d have to say no because the check size was too small. That was a constraint. Now we’re unconstrained. We’re playing in that middle market space, and we’re finding there’s a lot of opportunity and a lot of synergies there. So, we’re really excited about the opportunity to unlock value as Jacky said earlier, in the AMP platform. Create the synergies, unlock the value, inject our DNA, and then most importantly, bring all of our customer relationships and banking relationships and balance sheet relationships to bear on the GIF I and GIF II portfolio and then stabilize that platform and grow it. We think there’s a lot of opportunity for growth there in what we call our Digital Plus strategy. Now your first question, which is very important: how do we think about capital markets, how do we think about debt financing in new deals we are doing—not prospective deals. So in terms of new deals that are coming through investment committee today, there are three things we talk about and have discussed now for the better part of nine months. One, we’re taking lower levels of leverage on assets. So, we’re underwriting to lower levered returns. Why? We think this is an environment where you don’t stretch. This is not an environment where you take incremental risk. It’s a risk-off environment. What you’re seeing is a lot of prudence and care around the capital structure and new investments in new platforms. Second, we've recalibrated our models. Similar to discussions you and I used to have in the early 2000s and the same conversations we had in 2008 and 2009, we have spreads moving up and base rates moving, and you must take a 5- and 10-year view on that curve. That's what we've done. Once again, we were moving spreads up and base rates up. On that basis, you get to different outcomes, which is you get to lower returns. It’s really important to be prepared to accept a lower return, underwriting higher spreads, underwriting higher base rates, lower leverage, and, in turn, lowering asset multiples and models. I’ve never been a big proponent of putting a 25x exit multiple model to make the returns work. We think other people do that. We don’t do that. We generally haven’t changed our exit multiples here for over 20 years. For you, Jonathan Atkin, who’s a frequent listener, I am a broken record because you’ve been around me for a long time. We haven’t moved exit multiples significantly, and we won’t because they were already pretty conservative. This is about having a framework and investment framework that's been in place for multiple decades. We literally have not changed the way that we underwrite deals in 20 years. We have an asset test; we have a business plan test. Those of you that know me well have heard that speech for a long time. You underwrite the assets and then you layer in the business plan, which is around growth, churn, interest rates, total leverage levels, leasing growth, PTS growth, M&A growth, and ultimately the exit multiples. This is a team that is incredibly surgical about how we look at digital infrastructure. Because we’ve been doing it for so long, this was not a surprise to us. This environment does not surprise us. This is an environment where we thrive, we don’t survive. We will go out and thrive in this environment, much the way we did in the dot-com crash and much as we did in '08 and '09. We feel very good about where we are, and we know exactly where to go and what to do. There’s no mystery about the environment we’re selling into.
Operator, Operator
Our next question is from Richard Choe of JPMorgan.
Richard Choe, Analyst
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 perhaps 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?
Marc Ganzi, CEO
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 don’t have a problem investing in a market like this because we’ve been through it. When you’ve been through it, you understand the consequences of interest rates and inflation, higher construction costs, higher wages, higher growth, potentially higher lease rates, and possibly 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. We believe that if we form that capital, there’ll be enormous opportunity. On that basis, we are built to scale. Everything that we’ve talked about today is building to scale. In this asset-light model, 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; and 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 one tenant, and there's one tenant only, and that is: we are built to serve customers. 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 obtain 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; 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 and 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. It’s just a slight nuance; 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. This is what you hear this team is prepared to do, and we are very well prepared to do that. I hope that comes through in our commentary and presentation today.
Richard Choe, Analyst
It does. And then on the Digital IM side, I guess there are start-up costs for new strategies that you've pointed out in the supplemental. Are you at scale now and these costs will fall off? Or should we expect these costs to continue and if so, at what level and for how long?
Jacky Wu, CFO
Sure. We expect them to already be at scale. So we've been — we're excited about them. Once they're finalized and formed, these strategies will come to fruition, the capital that we’ve gone and invested in warehousing on the balance sheet will come back to the balance sheet. These investment professionals will now run, and we’ll be able to grow on top of that. We’re excited.
Operator, Operator
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.
Marc Ganzi, CEO
Well, thank you, everyone. We appreciate your interest, your time, and your attention. 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 moments. Jacky, myself, and the entire team here remain incredibly focused and excited about the opportunities 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 interest in DigitalBridge. Take care.
Operator, Operator
Ladies and gentlemen, this concludes today's call. Thank you for joining us. You may now disconnect your lines.