DigitalBridge Group, Inc.

Greetings and welcome to the Digital Bridge Group first quarter 2022 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star then zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Severin White. 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 Mark Ganze, our CEO, and Jackie 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. Mark will start with highlights from the quarter. Jackie will cover our financial results. And then Mark will wrap up with how we're executing the digital playbook in 2022, followed by Q&A. We've made some great progress to our 22 goals already with some very compelling transactions. So let's get started. With that, I'll turn the call over to Mark Gansey, our CEO. Mark.

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 four 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've recently announced are centered around our ability to pair capital with our best ideas and the opportunities that we see across the digital infrastructure landscape. At the same time, we're increasing our shareholders and your exposure to the attractive economics of building and owning these highly sought-after assets. We'll talk about the progress today that we're making on, first, building a full-stack digital infrastructure investor. Second, investing in high-quality digital businesses. And lastly, scaling our high performance operating platform. So let's get started. Next slide, please. So the first important deal I want to cover today is the agreement we reached in April with our partners at Wafra to progress their investment to the corporate level. When Wafra first took a stake in our investment management business two years ago, we were managing through both the early stages of the COVID pandemic and a massive diversified to digital transformation of the company. Their investment accelerated that process. And now that we've gone completely digital, it's time to consolidate 100% ownership back under DigitalBridge and unify our relationship with them so that we have 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 Wofford 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 looked to deploy the balance sheet capital, 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 20 plus percent. 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 20 times. 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 talk about 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 DigiRID 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 great partners as we enter the next phase of growth at DigitalBridge. Next slide, please. So, our next decision was to revert to a conventional C-Corp, which we announced in connection with the Wofford transaction. Our REIT status was a question we felt like it needed resolution as we move forward, and the compelling nature of the Wofford 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 Jackie has noted, we've always been pragmatic about our legacy REIT status, and does it serve 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 a regulatory REIT constraint is ultimately the best way for us to deliver long-term shareholder value. And with the minimum tax implications estimated to range between 10 to 60 million on an NPV basis over the next five years, the decision was quite clear. The change also highlights the significant NOLs and capital loss carry forwards 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, DigitalIM already operates as a taxable REIT subsidiary, so there was no change there. We think 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 talk about in the coming pages. Next slide, please. 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. The quick background here is a 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 VM growth potential. As with Wafra, I want to highlight the three key tenants to this transaction. First, we advance our full-stack IM strategy, adding a value-add franchise in the middle market where you write checks between $100 to $500 million, which are candidly too small for our flagship digital infrastructure equity strategies, where we are typically deploying between $500 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 GIF2 fund is around 60% digital already, and that ratio will grow over time. When we have some great overlap LP relationships, We also had the privilege of getting to add 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 FIEM and increasing our run rate FRE to our IAM platform by $23 million on an annualized basis this year. lifting pro forma earnings 20% above the midpoint of our prior guidance. We've done this at an incredibly compelling valuation of about 8.4 times 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 NP team, which is actually my third point. This is a very high caliber plug and play team. we're adding another 25 plus 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, 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 knows 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. Next slide, please. 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 WAFR and AMP transactions into proper perspective. When you consolidate these deals, we will have increased digital bridge shareholder earnings from our digital platform by 74%. Since we laid out our guidance back in February, which was already a beaten raise going from 82 million in ad 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. And now all of this 100% flows to you, our DigiBridge 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.