Earnings Call Transcript - DBRG Q3 2022

Severin White, Managing Director, Head of Public Investor Relations

Good morning, everyone, and welcome to DigitalBridge's Third 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 may be considered forward-looking, and such statements 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, November 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 our Form 10-Q for the quarter ended September 30, 2022. Great. So we're going to start by covering our quarterly agenda. Marc will give our 3Q business update. Jacky will outline our financial results and turn it back over to Marc to wrap up Section 3, Executing The Digital Playbook. We made some great progress towards our 2022 goals from capital formation to continuing to strengthen our capital structure. So let's get started. With that, I'll turn it over to Marc Ganzi, our CEO. Marc?

Marc Ganzi, CEO

Thanks, Sev, and I want to thank our investors upfront for your interest and your continuing trust in the DigitalBridge team. As we navigate, we believe, very successfully a challenging macro environment. Today, I want to cover the three things that really matter. Something I've learned successfully navigating other market cycles over the last 27 years is when conditions get difficult, you sharpen your focus on a few key objectives. In our case, it's the three outlined on this page. First, forming capital. Forming capital around great digital infrastructure companies and investment strategies. I'll walk you through the success that we're having in raising capital in what are otherwise tough market conditions. Number two, delivering great outcomes for our investors. This is the heart of the DigitalBridge value proposition. And when we're successful, it has a compounding effect that stimulates further growth in our platform and generates performance fees for our investors and you, our public investors. We did that this quarter. Closing the DataBank and Wildstone transactions, and I'm going to talk about that in great detail in Section 3 today. The third objective, simplify our business. Build liquidity to weather the storm and maintain the firepower to redeploy to accretive uses, while at the same time, deleveraging our balance sheet and deleveraging our portfolio companies. This is how you weather the storm. So those are the three simple components of what it takes to win in this environment. Next page, please. Before we get into capital formation, I want to cover something we did last quarter and give you very specific insight into how our portfolio companies are performing, how are they handling inflation, interest rates, geopolitics and supply chain headwinds. And once again, as you can see here, we continue to deliver growth across each of the core verticals: Tower, monthly revenue, recurring revenue up 26%; Data Centers up 34%; Fiber Bookings up 5%; and Small Cells, monthly recurring revenue, up 28% year-over-year. This is critical digital infrastructure. These are the assets that enable our economy, whether it's a recession or whether it's a great economic backdrop. Everyone needs digital infrastructure to perform their daily life activities. That's testament not only to the incredible management teams we are running these businesses but to the fundamental truth that the key driver of our businesses and our returns is the powerful secular demand for more, better, faster connectivity, not interest rates. Don't forget that. We've made money over the past 25 years because we are business builders in digital infrastructure. We're not financial engineers. In fact, it's that experience managing through the tough cycles that informs the conservative approach to portfolio debt that you see on the right side of the page. Last year, I delivered an edict to cross our portfolio to securitize many of our companies. That hard work has paid off as our portfolio is protected. This is not an accident. Our loan to value across the portfolio is 41% today. That's actually down from 43% last quarter. 75% of the portfolio has fixed rate debt, and the average maturity profile of our debt is 8 years. These are astounding statistics and once again proving that we've built a resilient portfolio that is built to play offense while we defend our balance sheets of our most valuable assets. This is a portfolio that continues to grow driven by increasing customer demand, that's conservatively capitalized to perform through this cycle. This is a playbook that has worked before, it will work today. Next is capital formation. We've highlighted it as the number one KPI to drive growth and earnings in our investment management platform. I'm incredibly pleased to report that on a year-to-date basis, we've raised over $6.8 billion with $3.4 billion in FEEUM, complemented by $3.4 billion as part of our very successful co-investment program, which I'm going to highlight on the following page. As you can see here, we raised over $1 billion in new FEEUM last quarter. The upsizing of the DataBank recap and additional commitments to our new core and credit strategies are working. As we formalize first closes on these strategies over the next quarter, you'll start to see the financial impact flow through. This sets us up for continued growth, not only through this year, but into 2023. The progress puts us on track to exceed the targets we laid out earlier this year despite the volatility in financial markets that you're seeing today. In fact, this is the number one question we get on the road today. Can you still raise capital in this environment? Look, the answer is a resounding yes. Institutional investors continue to value the unique combination of resiliency and growth that digital infrastructure delivers. And they want a partner, especially now with the leading specialist in the sector. Next page, please. Last quarter, I told you to expect to hear more from us on co-investment as the year progressed, particularly around the new signature platform investments we made in the U.S. data center space and European tower sectors. If you look at the middle two columns here, you'll see that we've raised co-investment commitments of over $2 billion to support these new deals last quarter. That's just in the last quarter alone. That's not including IFM or Brookfield. Those are new commitments, principally from our existing LP base. It's a powerful demonstration of the strong desire of our limited partners to continue to allocate capital alongside us into the highest quality digital infrastructure assets, alleviating an anxiety point for public investors today. We've raised the money. Even better, we've used up a lot of the fee-free co-invest allocation we make to our anchor investors moving us closer to generating additional FEEUM on future co-invest and catalyzing important capital formation as we move more than 90% committed in our flagship DigitalBridge Partners II fund. Our co-investment program is an important commitment to our LPs. It helps drive fundraising by deepening the relationships with key strategic LPs as we evaluate and underwrite opportunities together. To wrap up on capital information, the bottom line is simple. We raised $6.8 billion year-to-date across the platform with over $3 billion of that in the last quarter alone. We remain confident and convinced of our ability to raise capital into the back half of this year. Next page, please. Before I turn it over to Jacky to cover the financial results, I want to highlight some of the great progress we made last quarter, continuing to simplify our business and our capital structure. First, we rolled out a new corporate overview that highlights the elevation of our asset management platform as the strategic growth driver in our business. We are the leading specialist asset manager investing across the sector with strong secular tailwinds. Simple. It's a very scalable, asset-light and high return on invested capital business with one simple KPI, doubling our assets under management over the next three years. Next, we strengthened liquidity, which I described earlier as a key success factor in periods of dislocation like this. Last quarter, the DataBank recap, sale of legacy assets and a partial return of warehouse investments brought over $500 million back to our balance sheet. We decluttered our corporate liabilities with the transfer of $225 million of CLOs. And next quarter, we'll free up even more capital to fund the AMP acquisition while maintaining strong liquidity. Finally, during the third quarter, we took advantage of dislocated markets. We told you we would. We bought back $53 million of our preferred shares at a discount. Even better, we were able to execute stock buybacks of over $50 million, retiring 2.4% of our shares outstanding. We believe buying more of our own business at these levels will prove to be a very compelling investment over time and increase EPS. All three of these initiatives advanced our track record and continued progress towards greater simplification. This was a simple tenet that I promised to all of you. I know during turbulent markets, the pace of change can flip from executing ahead of expectations to, are they doing too much? But rest assured, we're not doing too much. We remain focused on further simplification and maintaining strong liquidity through this period. With that, I'd like to turn it over to Jacky Wu to cover the financial results. Jacky?

Jacky Wu, CFO

Thank you, Marc, and good morning, everyone. As a reminder, in addition to the release of our third quarter earnings, we filed a supplemental financial report this morning, which is available within the Shareholders section of our website. Starting with our third-quarter results on Page 11, the company continues to see strong year-over-year growth driven by fundraising in our Investment Management business and realized performance fees. For the third quarter, reported total consolidated revenues were $297 million, which represents an 18% increase from the same period last year. GAAP net income attributable to common stockholders was a $63 million loss or $0.39 per share. The third quarter includes a $60 million loss related to a mark-to-market adjustment from our remaining legacy BrightSpire shares. Total company adjusted EBITDA was $29 million, which grew from $18 million in the same period last year. Distributable earnings were $39 million, which included $20 million of net carried interest received from both the DataBank recapitalization and Wildstone realization, plus $9 million of realized capital gain on DBRG's investment in Wildstone. Note that distributable earnings does not include realized gains on DataBank as this is a consolidated asset within our Operating segment. And a reminder, its realization was at a 2x multiple on invested capital. We are focused on growing our recurring cash flow profile, which continued to be positive in the third quarter accelerated by significantly reduced corporate debt service and continued growth from fundraising. Digital AUM was $50 billion in the third quarter, which grew by 33% from $38 billion in the same period last year. We expect to continue our strong growth trajectory and including the recently announced pending transactions of AMP Capital, Switch and GD Towers, we will have reached over $65 billion AUM on a pro forma basis. Moving to Page 12, the company continued to grow recurring investment management revenue and earnings driven by increased fee-earning equity under management. Excluding one-time fees, consolidated fee-related earnings increased by 14% year-over-year, while the company share grew by 68% benefiting from 100% ownership following the buyout of BofA's 31.5% interest during the second quarter. Moving to Page 13. Our Digital Operating segment has continued its growth in the third quarter. Consolidated adjusted EBITDA was $91 million during the third quarter, which is a 13% increase from the same period last year driven by continued data center acquisitions, including Houston area data centers at DataBank and CA22 Vantage SDC. During the third quarter, the company sold 35% of its ownership interest in DataBank. Turning to Page 14. 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. Since third quarter 2021, our annualized fee revenues increased from $106 million to $235 million and FRE increased from $60 million to $123 million on a pro forma basis. 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 asset-light and anchored by long-dated fee streams. Looking at the right side of the page, in line with our forecast, our annualized revenues decreased from $132 million last year to $114 million and annualized EBITDA decreased from $56 million last year to $47 million as a result of the successful recapitalization of DataBank, which lowered our ownership percentage from 22% to 13%. Subsequent to the end of the quarter, we sold down to approximately 12% ownership of DataBank. Turning to Page 15. The company has built significant liquidity for the DigitalBridge balance sheet. Our liquidity has increased by $435 million since last quarter, driven by proceeds from both the DataBank and Wildstone transactions, partial return of warehouse funding and continued legacy asset sales. We are on track to reach our forecast of $623 million of balance sheet liquidity in the first quarter of 2023 and are strongly positioned to cover our near-term obligations such as the closing of AMP Capital acquisition. Additionally, we have further potential sources of capital, including BRSP shares and remaining legacy assets, which can be utilized to offset medium-term obligations such as the upcoming 2023 convertible note repayment and future fund commitments. We expect to remain well positioned to deploy capital for accretive uses. Moving to Page 16. We have continued to make significant progress improving our debt metrics. Our corporate debt to IM FRE ratio is 6.4x, down from 8.9x last quarter. Our overall debt has decreased by approximately 23%. This reduction is primarily driven by lower pro-rata debt as a result of the DataBank recapitalization of $152 million reduction in total debt and the deconsolidation of warehouse investments. We are on track to meet our goals for the first quarter of 2023. We will pay down the convertible notes due in April, continue to syndicate our share of DataBank and transfer our warehouse debt to the funds. DigitalBridge continues to make significant progress simplifying the balance sheet, reducing debt and improving corporate leverage metrics. We target corporate leverage over time in the 3x to 5x range. 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 expect to have a strong finish to 2022 as our near-term fundraising and our growth prospects remain robust. And with that, I will turn it back to Marc.

Marc Ganzi, CEO

Thanks, Jacky. In our last section, I want to cover the second success factor I outlined at the beginning of the call. Our ability to deliver great outcomes for LPs and our shareholders despite a backdrop of market volatility. During the third quarter, we closed two realizations at very attractive valuations, generating strong proof points that we expect will catalyze: one, future capital formation as we go and raise new capital next year; and that generated over $20 million in net carry to our shareholders. This is so critical for the future of this firm. We need to continue to form capital, and we need to continue to deliver great results for you, which in turn delivers carry back to our public shareholders. This was a key proof point in this quarter. The first stage of the DataBank recap was upsized from $1.2 billion to $1.5 billion, and we reached a subsequent agreement to take the total recap up to $2 billion, creating a new long-term continuation vehicle that brings in new investors with fee and carry. We also closed on the full sale of Wildstone, our first realization in DigitalBridge Partners I generating a great IRR and a solid 1.7 MOIC for LPs in less than 3 years. Another important data point here is the sale price is over 40% above our carrying value. This is a great indicator of our conservative approach to marking our portfolio. As a part of our strategy to build the fastest-growing outdoor media infrastructure business in Western Europe, we executed over a dozen tuck-in acquisitions. I want to personally give a shout-out to my partner, Damian Cox, Wildstone CEO, who executed a value-add, build it up right out of the box playbook that DigitalBridge executed time and time again. Kudos to Damian and the entire team. Next page, please. Before we move on, it's worth giving some more context to the DataBank case study because it's such a great example of our ability to deliver results on multiple fronts all at the same time. To start, in just 2.5 years, we've turned a $500 million investment off the balance sheet into almost $1 billion of value. That's a 2x MOIC and an internal rate of return of 32%. Next, we're harvesting over $400 million in profits as part of the recap at 30x trailing EBITDA while maintaining participation in the continued growth at DataBank. As importantly, investors continue to demonstrate growing interest in the opportunity despite unsettled financial markets, highlighting enduring value that we're creating in this platform. Finally, in addition to doubling our money and taking half the value off the table at a great valuation, we're also boosting the management fees we earn. In this case, up 27% from prior levels. This incremental management fees don't have any associated costs. So this is literally 100% flow through to earnings. Next slide, please. Before I wrap up with the quarterly CEO checklist, I want to take a minute to acknowledge a milestone in the journey Ben Jenkins and I set out in 2013 when we formed DigitalBridge 1.0. My vision was pure, passionate and simple. We wanted to back great management teams with best-in-class platforms anchored by long-term leases and strong secular tailwinds supporting the digital infrastructure ecosystem. Nine years into this journey, the mission remains the same, as does the passion. This year, not only did we break into the top 10 infrastructure managers ranked by capital formation, but we're the first specialist infrastructure fund manager to reach the top 10. Look, none of this could have happened without the entire team of over 250 professionals at DigitalBridge, making it happen every day around the globe. I'm deeply grateful for their hard work and support, and here's the best part. We think the journey has just begun. Next page. Finally, as I always do, I'd like to close the call with the CEO checklist. This is where I take stock of what we've accomplished and what I'm looking forward to getting done in the periods ahead. First, capital formation, our key KPI. We've raised over $6.8 billion year-to-date and over $3 billion in the last quarter alone around the DataBank recap, new investment strategies, new platform companies through our successful co-investment program. Next, we have delivered great outcomes for you, our investors, and our LPs with the DataBank recap that got upsized twice last quarter and Wildstone our first full realization from DBP I. We generated over $20 million in carry for DigitalBridge shareholders as part of these deals. This is the key proof point. Our program is working, and our carry is very valuable for you, our public shareholders. Finally, we further simplified our business with a clear business model centered around our asset management platform. We boosted liquidity by over $500 million, and we executed an accretive preferred and common stock repurchases. We got a lot done during the third quarter, and I've got another compelling list of to-dos in the quarter ahead, raising capital around core and credit, closing our very accretive AMP transaction at a corporate level, getting the Switch transaction closed into our IM platform and continuing to delever and strengthen our liquidity position. I'm confident we can accomplish these goals because notwithstanding market volatility, our business is incredibly resilient. Managing long-term capital on behalf of the leading global LPs and shareholders in a sector with strong secular tailwinds led by a team with a 25-plus year track record of execution. Once again, I appreciate your continued interest in DigitalBridge, and I look forward to sharing our progress next quarter as we execute on our strategic roadmap to double AUM over the next three years. With that, I'll turn it back over to the operator to initiate the Q&A section. Thank you.

Operator, Operator

We have a first question from Michael Elias with Cowen. Please go ahead.

Michael Elias, Analyst

Great. Thanks for taking the questions, guys. Two, if I may. We'll start with the first one, and I'll circle back on the second. So you've been clear about repositioning the DigitalBridge story to one focused on the Investment Management business given its higher growth, its asset-light, among other factors. Just as you think about simplifying the DigitalBridge story further, do you think it makes sense to fold in the Operating business into the Investment Management business so that you can refocus investors solely on the merits of IM?

Marc Ganzi, CEO

Michael, we have already begun that process. The key takeaway for this quarter is that DataBank has successfully transitioned into a continuation fund. This shift is significant because it marks the movement from an operating business to a long-term permanent capital vehicle. Now, that asset has officially become part of our investment management platform. We executed this transition smoothly, returning capital to the balance sheet and achieving a positive outcome and return, while also increasing our management fees without losing operational control of the assets. So, we’ve completed one transition and are working on another. Vantage SDC is still on our balance sheet; it’s currently within a permanent capital vehicle as part of a long-term partnership with several institutional investors. We also maintain operational control of that asset and are exploring several options for moving it into our investment management platform. What you have observed this quarter reflects our commitment to simplifying our strategy and our belief in the asset-light approach to owning and operating digital infrastructure. Thank you for your question.

Michael Elias, Analyst

Great. And my second question would be, you've laid out clearly your target to double your FEEUM. Just as we think of the path forward from here, how would you describe the opportunity to raise that another flagship fund just as we think about LP appetite? And then as part of that, relative pockets of opportunity that you see as you look to deploy incremental capital that you raised?

Marc Ganzi, CEO

Yes. Thank you. Again, the right question to be asking at the moment. So first and foremost, around capital formation. We had a really strong third quarter in a market that I think we all understand has some crosswinds and some challenges. The fact that we raised $3 billion in the quarter when a lot of folks are not raising any capital, I think is proof that this particular management team is capable of raising capital in the storm. I actually think people appreciate then in the storm is when you can find, to your point, Michael, the best opportunities. So we're pretty excited around capital formation. We're very busy. Our entire senior leadership team is out fundraising right now. We clearly think our flagship product is working. Over 90% of the second fund is now committed and spoken for. So naturally, we are working on new strategies here at the firm. And those strategies align very carefully with our guidance for next year and our guidance out until, of course, 2026. Products that are working particularly well at the moment, our credit product is working really well. We're very excited about that. Our returns are clearly wide of what we had expected, and we're seeing a doubling in the pipeline of opportunity in credit. So very excited about what Dean is doing. And Josh Parrish and Chris Moon, those guys are really knocking it out of the park. And so we continue to see good opportunity. I think also investors, as we highlighted in the quarter, when we create co-investment opportunities, let me give our LPs a chance to go side-by-side with us in opportunities that they like. Once again, they're choosing the opportunities. We're finding that investors really like that approach. They want to be able to create and bespoke portfolio and digital infrastructure. And given the depth of our portfolio and the global reach of it, we can really tailor those solutions for clients. And that's really an advantage for DigitalBridge and an advantage for DigitalBridge shareholders because we can sit with a sophisticated insurance company, a sovereign wealth fund, a U.S. pension system, a Canadian pension and we can tailor what they're looking for. And given that we have exposure to liquid securities, ventures, credits, core and our flagship product and co-investments, we really have an arsenal of ideas that we can bring to clients to make sure that they're putting capital to work, Michael, intelligently in digital infrastructure and that we have the right teams that are executing those strategies very surgically. This is an entirely transformed company today, where we've come in the last two years and our ability to work with investors on a global basis and tailor their needs to take advantage of what we think is a great secular opportunity is second to none. And I think that speaks to the difference between being a generalist and being an industry specialist like we are. That industry specialist investment management asset-led approach is now bearing fruit. You see it in this quarter, you're going to see it in the subsequent quarters, and we're really happy with the simplification. And most importantly, I'm really happy with the focus of where we're going. This team is incredibly focused and we're going in the right direction of travel now.

Michael Elias, Analyst

Thanks for the color, Marc. Much appreciated.

Marc Ganzi, CEO

Thanks, Michael. We will talk later. Appreciate it.

Operator, Operator

We have the next question from the line of Dan Day with B. Riley Securities. Please go ahead.

Dan Day, Analyst

Yes. Good morning, guys. Appreciate you taking the questions. So yes, if we go back in time, like a year or so ago, it seems like a no-brainer that you could raise these secured notes to take out the preferred shares, capture the spread between the two. Things have changed a lot over the last year. The cost of capital has come up. We're suddenly in an environment where that 7% dividend on the preferreds really doesn't seem all that expensive. So maybe can you just talk about your view on the preferreds and the stack of priorities for the dry powder you've got on the balance sheet and how that may have changed over the last quarter or two?

Marc Ganzi, CEO

Certainly. I appreciate the question. Our priorities are evolving every quarter, and it's crucial to remain agile in this environment. Our team and Board are continuously reassessing how we allocate capital. This quarter, we showed our commitment to buying back our stock through a successful $55 million share buyback program executed by Jacky and me. We feel confident about our repurchase price and believe it will ultimately benefit shareholders by enhancing earnings per share. We've been opportunistic in evaluating when to buy back preferred shares, especially when it contributes positively to our overall strategy. However, as you noted, the overall cost of capital has increased. This means that the expectations for returns have also shifted. While, in the past year, we might have been satisfied with an 11% to 12% internal rate of return on buying back preferreds, that’s no longer viable. Currently, we see opportunities yielding returns in the low to mid-20s with our balance sheet. Thus, we are being very selective in our capital deployment. Jacky has effectively restored strong liquidity, achieving over $400 million in cash, $300 million undrawn on the VFN, and the market valuation of Brightstar between $200 million and $240 million, giving us over $900 million of liquidity. We also have over $4.8 billion in available capital at the fund level, ensuring a strong position to capitalize on favorable opportunities in what is a volatile market. Our management team has experience navigating through past economic downturns, which strengthens our understanding of the critical importance of liquidity. We cannot stress enough how valuable it is to have nearly $5.8 billion available for investments that can generate superior returns for our shareholders. Concurrently, we've successfully reduced our leverage from nearly 9 times to about 6 times this quarter, aiming for a net leverage of 3 to 4 turns by March of next year. Few companies can claim to have the ability to increase liquidity and reduce leverage while achieving 20% to 30% organic growth like we have. This is a unique situation, and we view our liquidity as a significant advantage that we intend to deploy wisely. Jacky, would you like to add anything?

Jacky Wu, CFO

No, no problem. Dan, you're exactly right. It is cheap cost capital now. And keep in mind, our balance sheet is super strong because of it, too. It's perpetual. It's not a do anytime soon. And we've got more than enough liquidity to cover any and all of our financing needs, especially given an asset-light investment management model. So Marc is absolutely correct.

Dan Day, Analyst

Awesome. Just one follow-up for me. When we did the AMP Global acquisition earlier this year, you guys talked a lot about opportunities for other complementary M&A within Investment Management. I guess it would seem with AMP, it made a lot of sense. It was a middle market, a little different space than the flagship DBP funds. I mean going forward, it feels like you have to look a lot harder to find an asset manager that's both complementary in nature and also playing specifically within digital infrastructure. So maybe you can just talk a little bit about what investment management fund types or products you currently don't have exposure to that maybe you'd like to, which ones make more sense to go out and acquire versus kind of starting your own product organically.

Marc Ganzi, CEO

Yes, that's a great question. This year, we've effectively shown that we can pursue multiple strategies. We acquired the AMP platform, which provides us access to the middle market digital infrastructure, specifically in the range of $100 million to $250 million, a sector we haven't ventured into before. This acquisition has been quite valuable for us. Their logistics and renewable energy platforms are also of significant interest. I believe that renewable energy will become crucial for us, particularly as it relates to digital infrastructure, and it will play a key role in our success over the next decade. Additionally, we've launched new platforms such as our DigitalBridge Alpha Fund, which has been established with Alan Bezos and his team. This fund is a long liquid strategy that has been performing well, and we've successfully built a team that has now a year’s worth of track record with positive results in fundraising and performance. We also established two new strategies in credit and core, supported by Dean Criares, Mike Zupon, Josh Parrish, Chris Moon, and in our core fund, Matt Evans and Peter Hopper, who are experienced professionals in core strategies and data infrastructure. Furthermore, our ventures fund, which has been slower to develop coming from Qualcomm Capital, is receiving great support from Matty Yohannan and others on our team, and we've already completed our fifth deal in that strategy. Looking ahead, we're considering how extensively we will invest in infrastructure as we integrate the AMP platform. As we properly staff this initiative and begin to invest in new assets, we will continue to assess our Digital Plus strategy and communicate our investment plans in these sectors. I should also note that we currently do not have a presence in private equity. This is a sector that is distinctly missing from our portfolio. We have the option to either build a team from scratch or partner with established investment managers who have robust track records in digital private equity spanning 20 to 30 years. This gap encompasses everything from technology investments to SaaS platforms and various forms of digital media and infrastructure. There are several firms that excel in this area, and we have collaborated with them in the past. We are exploring various platforms that might fill this gap. We are open to both building our own capabilities and pursuing acquisitions. With strong liquidity, if we decide to make acquisitions, we are in a position to do so. Jacky and the team have been actively evaluating new opportunities.

Dan Day, Analyst

Great. Appreciate it as always, guys.

Marc Ganzi, CEO

Thank you.

Jacky Wu, CFO

Thanks.

Marc Ganzi, CEO

Thanks, Dan.

Operator, Operator

Thank you. We have the next question from the line of Jade Rahmani with KBW. Please go ahead.

Jade Rahmani, Analyst

Thank you very much. We are seeing a big change in the cap rate environment across the real estate space. So I was wondering if you could share your insights on the digital sector. In multifamily, we've seen about 10% to 15% change in valuation, much more severe than that in office. Are you seeing the landscape spillover into digital infrastructure valuations notwithstanding the very strongly accretive transactions that were consummated recently?

Marc Ganzi, CEO

Yes, thank you, Jade. In general, we've noticed some decline in value across the five major groups, while in certain sectors, we haven't observed any decline. Let me explain where we see value. Firstly, in the digital media infrastructure area, our transaction with Antin for Wildstone was a significant indicator. The multiple at 26x shows that this market is still stable. We will need to monitor other digital media infrastructure assets to determine if the market is tightening or loosening, but we feel optimistic about it. As for tower pricing, it seems to have decreased by about 2 to 3 turns on a private market basis. Assets that previously traded at 31x to 32x are now trading at 26x to 27x. When we finalize the Deutsche Telekom deal, we expect it to be around 23x to 24x, which is a premium asset. There is much speculation regarding the Vodafone portfolio, and many will be watching that if any developments occur. We've also seen several private market transactions in the U.S. and Latin America, trading in the mid to high 20s, indicating no significant drop in tower valuations in these markets. Regarding fiber, the latest relevant transaction involves Lumen in Europe. For instance, Lumen's sale of its Latin America assets to Stonepeak occurred at a low-teens multiple, while similar assets in Europe went for 11x. This shows a notable gap compared to Mubadala's investment alongside EQT, which was rumored to be in the low 20s. Fiber valuations are quite varied at the moment. Investors are distinguishing between consumer-facing assets with month-to-month cash flows and long-term agreements with 5-, 10-, or 20-year IRUs, leading to considerable discrepancies in fiber valuations. As for small cells, the market remains surprisingly resilient. For example, BAI's acquisition of ZenFi is hard to value, but we estimate it was in the low 30s range. There are not many small cell businesses available for sale, and another private market transaction in the U.S. is rumored to be trading in the low to mid-30s. Thus, small cell platforms are quite rare, and we haven't seen any decline in cap rates for mobile small cell infrastructure. In fact, those multiples may have even increased due to their scarcity and the rising demand for small cell infrastructure over the next decade, which we expect to grow faster than Tower infrastructure.

Jade Rahmani, Analyst

I appreciate that information. The stock is down today despite a lot of positive commentary. One of the challenges with DigitalBridge and its valuation is understanding earnings. You've provided guidance on Digital IM and Operating, but translating that into earnings remains difficult for investors, and there is still some confusion. This is due to consolidation, one-time items, and equity income accounting-related issues. Is there any commentary you could share regarding earnings per share? Or do you anticipate being able to provide an outlook in the upcoming quarter that would help investors understand what earnings per share might look like over the next one to two years?

Jacky Wu, CFO

Jade, that's a great question. We expect to provide EPS guidance and a clear outlook for next year. Our plan is in place, and you're correct that the situation has improved significantly compared to a couple of years ago when we dealt with a lot of fair value or equity method earnings accounting. The noise we see this quarter comes largely from the one-time items and adjustments related to prior years, as well as the fair value accounting for the BrightSpire shares on our books. This essentially boils down to the mathematics involved. If we exclude the BrightSpire share fair value adjustments from this quarter, we will find that almost all losses are tied to that. These two elements primarily influenced our EPS for this quarter.

Marc Ganzi, CEO

I'd just say, Jade, with respect to the noise, I think my experience in this arena is that public investors hate complicated stories. And what we've told you and what we've told the Street very clearly is we've been very focused on cleaning up the story. We're past the cleanup phase. We're now in the simplification phase. We've moved DataBank over into the Investment Management business. We will eventually move Vantage SDC over in that direction. And ultimately, when you do that, it really cleans up the business, Jade, into one clean business unit that's very easy for investors to understand. The integration of AMP, the Wafra transaction, future fundraising that we have told you is coming in the subsequent quarters in terms of our guidance. None of that remains unchanged. We cannot be more clear about where we're going. And if folks can't do the math, they can certainly pick up a phone, and we're always happy to have a call with them and explain to them exactly where we're going. The ultimate success or failure of this firm is based on our ability to simplify the business, unify it into one business unit and then, of course, go out and continue to deliver the organic growth that we've been delivering in our Investment Management business for the last, what, eight quarters? We've been putting up double-digit organic growth in our Investment Management platform. And we see nothing that will take us off of that top track over the next four to eight quarters. We're very confident about where we are. And every quarter, Jade, this story gets easier for investors to understand. Less leverage, more liquidity, more fundraising, less complication. In fact, now you can actually put a value on carry for the first time. We've actually proven that we can distribute carry and we can exit certain assets. So that's something that historically no one has given us credit for. And here we are managing over $20 billion of fee-bearing, carry-bearing dollars at work and now you get to see some of that success or a taste of it in this quarter with DataBank and Wildstone. We're in the right place. We're doing the right thing. And this simplification of the business is going to make it very easy for investors to understand EPS next year.

Jade Rahmani, Analyst

Thank you very much. Appreciate the comments.

Marc Ganzi, CEO

Thank you, Jade.

Jacky Wu, CFO

No problem.

Operator, Operator

Thank you. We have the next question from the line of Ric Prentiss with Raymond James. Please go ahead.

Brent Penter, Analyst

Hey. Thanks, everyone. This is Brent on for Ric this morning. First question, on the DataBank recap, thinking about further stages of that. Is there any additional color you can give in terms of not only your timing, but the ability to get similar terms as you continue through that recap? And also, I just want to confirm whether you do still intend to hold a piece of that on the balance sheet once we get past the recap?

Marc Ganzi, CEO

Yes. Thank you. It's a great question. So DataBank is already now in a continuation fund. The fundraising remains open until August of next year. We can take subscriptions all the way up to August next year. There is $600 million remaining open that has not been committed to yet. We have high conviction that we will fill that $600 million between now and August. And ultimately, that leaves us with a 7.9% stake in the company once the fundraising is fully complete. That will deconsolidate DataBank off of our balance sheet, and it will sit very comfortably in a continuation fund inside of our Investment Management platform, and that is where you'll see the earnings ultimately attribute to.

Brent Penter, Analyst

Got it. That's helpful. And then on the Investment Management side, is there any sort of breakdown you can give us on your LP base in terms of the kinds of investors, whether it be sovereign funds, insurance companies, pension funds as well as maybe geographically and whether that's changed at all as you've grown and sort of built your brand?

Marc Ganzi, CEO

Thank you. While we don't disclose the exact identities of our limited partners, some U.S. state pension funds are required to make disclosures when investing in our funds, which can occasionally appear in trade journals. Our investors maintain confidentiality, but I can provide insight into the geographic distribution and types of asset allocators we engage with. North America continues to be our primary fundraising environment, comprising a significant portion of our capital formation. Historically, Europe has ranked second, followed by the Middle East, Asia, and Latin America. We currently see substantial opportunities in Asia; recent trips to the region have involved extensive engagement with our LPs. We believe we have been underrepresented there, and feedback about Fund II has generated strong interest. Our three investments in Asia are performing exceptionally well. Asian investors have not previously had access to a digital specialist like us, making us appealing in the market. We expect fundraising from Asia to increase as we introduce new strategies next year. We are also highly active in the Middle East, where economies are thriving. Recently, I met with LPs there, and they are very enthusiastic about our initiatives. Their sovereign wealth funds are experiencing rapid inflows due to their natural resources, unlike some pension systems facing outflows. Effective fundraising requires careful market monitoring and focusing on systems with inflows. The current fundraising environment is challenging, and success hinges on precise targeting. Our recent $3 billion raise did not happen by chance; it resulted from diligent effort and focus, which continues into this quarter. We have a clear fundraising strategy for next year, recently affirmed in strategic planning sessions with senior leadership. Our team is prepared to engage with LPs, customize solutions, and create investment opportunities in digital infrastructure. We have a strong fundraising platform in the Investment Management sector, led by Kevin Smithen and Leslie Golden, who excel at connecting with LPs. A robust co-investment program significantly strengthens our relationships with them. We are attentive to their needs, and our diverse digital Investment Management platforms allow us to customize investment programs for specific relationships. Regarding our allocation sources, pension systems form our largest category, followed by sovereign wealth funds, insurance companies, fund of funds managers, and private family offices. We typically accept capital from credit investors exclusively, with minimum check sizes starting at around $25 million for our fund products.

Brent Penter, Analyst

Got it. That's helpful. And then kind of the other side of the coin. Is there any color you can give on your public investor base and really just how that's changed as you've de-rated and focusing more on the IM side and now introducing the dividend as we kind of think about the appetite for the dividend and dividend growth and just long-term capital in your public stock, how should we think about that and how that's evolved?

Marc Ganzi, CEO

Thank you for your question. Our shareholder base began to shift around two years ago when Jacky and I took on our roles. We concentrated on establishing strong, long-term relationships with investors we have known for over a decade. These investors appreciate supporting exceptional management teams that are committed to long-term growth and are well-versed in digital infrastructure. Our top 10 shareholders are primarily long-term holders, and during this downturn, they have been increasing their positions. This information is available publicly, so I am not sharing anything confidential. Regarding REIT investors, we still have some within our capital structure who recognize that we are fundamentally dealing with real estate, even if we are now operating on a more asset-light platform. Essentially, our core business remains the same; we are still builders, owners, and operators of premier digital real estate globally. Our portfolio consists of some of the highest quality assets, and owning shares in DigitalBridge means you indirectly own a part of those assets and benefit from both management fees and success associated with them. The asset-light business model is relatively new, and it often takes time for people to understand it fully. We need to continue communicating our message, and it is beginning to resonate. Savvy institutional investors recognize the caliber of our team and our experience in navigating through challenging times like those in 2001, 2008, and 2022. Our management team is seasoned and knows how to handle turbulent periods. While I can't control the current share price, I can focus on engaging with our public investors, clearly articulating our direction with honesty and transparency. Jacky and I are dedicated to this effort, working tirelessly alongside our teams, which are equally committed to achieving favorable outcomes for our shareholders. The public equity narrative will take shape over time. As I have mentioned before, we are typically ahead by about six months in our strategic initiatives. The accomplishments of this quarter will become apparent in the future. We approach this with confidence and determination because we are executing our plans effectively, building liquidity, and reducing our debt, all of which are critical components of a long-term growth strategy and earnings per share improvement.

Brent Penter, Analyst

Helpful. Thanks, guys.

Marc Ganzi, CEO

Thank you.

Jacky Wu, CFO

Thanks.

Marc Ganzi, CEO

Thank you, Ric.

Operator, Operator

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. And I'd like to turn the call back over to Marc Ganzi, CEO for closing remarks. Over to you, sir.

Marc Ganzi, CEO

Thank you for your time and attention today. What matters in this environment is having strong liquidity, a solid balance sheet, and our commitment to reducing leverage. We aim to decrease leverage from where it was when we took over the company by 3 to 4 turns, possibly even more in the next 120 days, which is crucial for our success. Having the capacity to pursue attractive deals this quarter and next is vital, and we are fortunate to have that capability. Simplification is important, and I want to acknowledge the team for positioning the business well, particularly with the Investment Management platform and our asset-light digital infrastructure approach. It requires patience, and while we understand that investors can be frustrated by fluctuations in our results, we are making progress. Each quarter will become easier, and we are committed to improving for our investors. Additionally, returning profits to our shareholders is essential. The outcomes of DataBank and Wildstone are significant. We have an exceptionally valuable portfolio, and the sale of Wildstone was well above our NAV. Jacky and I approach our portfolio conservatively, and as we build the platform and exit investments, it will benefit you as shareholders. The importance of carried interest in our valuation methodology cannot be overstated. These are key points to remember, and I want to thank all our investors for their support. If you would like to continue the conversation, Severin White, Jacky, and I are available. This is a partnership with our shareholders, and we welcome the dialogue. Thank you again for being part of the DigitalBridge journey. Have a great weekend.

Operator, Operator

Thank you. Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.