Q1 2024 DigitalBridge Group Inc Earnings Call

Participants

Severin White; Managing Director, Head of Investor Relations; DigitalBridge Group Inc

Marc Ganzi; Chief Executive Officer; DigitalBridge Group Inc

Thomas Mayrhofer; Chief Financial Officer, Treasurer; DigitalBridge Group Inc

Michael Elias; Analyst; Cowen Group, Inc.

Jade Rahmani; Analyst; Keefe, Bruyette & Woods, Inc.

Rick Prentiss; Analyst; Raymond James Financial, Inc.

Richard Choe; Analyst; JPMorgan Chase & Co.

Eric Luebchow; Analyst; Wells Fargo & Company

Jon Atkin; Analyst; RBC Capital Markets, LLC.

Presentation

Operator

Good day and welcome to DigitalBridge Group Inc's first quarter 2024 earnings call. At this time, all participants are in listen only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) Please note this conference is being recorded. I would now like to turn the conference over to Severin White. You may begin, sir.

Severin White

Good morning, everyone, and welcome to Digital bridges First Quarter 2024 earnings conference call. Speaking on the call today from the Company is Marc Ganzi, our CEO, and Tom Mayrhofer, our CFO.
I'll quickly cover the safe harbor. 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, April 30th, 2024, and DigitalBridge does not intend and undertakes no duty to update 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 for the year ending December 31st, 2023, and our Form 10 Q to be filed with the SEC for the quarter ending March 31st, 2024.
Great. So it's the new year in connection with the completion of our business transformation. We've advanced and further simplified the format of our earnings presentation going forward. We'll start with Mark providing a business update, highlighting key takeaways from the quarter and covering thematics that would have historically been incorporated in our third section executing the digital playbook. Tom will cover the financial highlights in the second section followed by Q&A and other advance that you'll notice as we've condensed our earnings presentation and supplemental financial report into one document. The goal here is to make it easier for investors to access a single doc that captures the highlights as well as some of the important detail behind the numbers. We look forward to your feedback on this new format.
I also want to highlight our second Investor Day coming in a couple of weeks on Monday, May 13th at the New York Stock Exchange, some of you will be joining us in person or others on the webcast either way. We're looking forward to outlining our simplified business profile, discussing the state of private markets, digital infrastructure and AI and how we continue scaling our highly differentiated platform in addition to our senior management will be joined by some of our operating partners as we give you color on what's happening on the ground in digital infrastructure.
With that, let's get started, and I'll turn the call over to Marc Ganzi, our CEO. mark.

Marc Ganzi

Page 7. Let's start this call with our progress on FEEUM, which, as you all know, is our key revenue and earnings driver and the solid growth that we continue to see here.
As you can see on the left, FEEUM grew 17% year over year to $32.5 billion at the end of the first quarter in 2024. Importantly, volume growth was driven not only by our flagship strategy, Digital Partners three and the corresponding co-invest. But also we are expanding multi strat offerings, which include contributions from credit and liquid this quarter. In fact, if we had met a step-down in separately capitalized Corcos advantaged Edco, moved from our latest flagship fund FEEUM actually would have been up over 20% year over year. That transaction which we announced in January is similar to the Vertical Bridge deal we did and did Ridge Partners too, which created some short term pressure, but over the long term allows us to maintain exposure to the best growth platforms.
In this case, Vantage is one of the best global hyperscale data center platforms, building large campuses at scale with what we think is the best management team in the world, led by our CTO, serial chassis and partnership with Silver Lake. We're planning on building over three gigawatts of capacity to meet the growing demand for cloud and AI infrastructure. And at the same time, delivered shareholders will now earn carry as we create incremental value of that platform versus just a straight historic management fee, which is what investors were getting in the original investment vehicle that we built that Vantage bottom line, fee growth year over year remained solid. And next quarter, you'll continue to see this metric much higher as we close incremental capital across all of our strategies.
Next slide, please. Next up is new capital formation. This quarter, we closed on $1.1 billion in new capital commitments. That's up 47% over the prior year. So taking a step back, in summation, Q1 was good and frankly, it could have even been better. We held back some commitments from some of our clients that are working on a multi-strategy play with us that will play out over the next few months. We're really starting to have these more holistic conversations with our partners and LPs as our fund strategies expand. We'll talk a bit a little bit more about that on Investor Day, but it's great. I would say it's a great strategic development for the firm.
We have multiple products in the digital infrastructure space that are meeting our clients' objectives, whether it's credit core liquid securities, late-stage venture growth, our flagship funds, co-investment vehicles and continuation funds. We're really building out that multi-strategy platform where we take advantage of that digital infrastructure flywheel that we maintain your Digital Bridge in Q1, we received continuing commitments of over $600 million to de-leverage Partners three subsequent to our 4Q 23 report in February. We also brought in commitments to our second credit strategy and it also contributions from liquid and co-investments as well.
The key here again is multi strategy, which will increasingly even out fundraising over time. As you know, we hold periodic closings for our strategies over the course of the year. And I'd say today with Q1 closed and good line of sight on capital formation over the course of the year we feel very good about our ability to meet or exceed our fundraising targets we laid out for 2024 last quarter.
Next slide, please. As Kevin mentioned earlier, we've made some changes to the format of the presentation, bringing what used to be the third section upfront to address some of the top of mind issues and strategic initiatives that we're executing on to build our business going forward. Today, data centers and AI are front and center, not just in digital infrastructure, but across an increasingly digital global economy. And in this sector, the number one topic today is power. This is why you're seeing tech CEOs like Sam Altman, Mark Zuckerberg, Satya Nadella all out there publicly talking about how to access power in order to meet the demand coming down from generative AI workloads.
I'd like to bring some perspective from our end as an owner operator and manager of some of the largest data center platforms globally to understand this challenge and some of the ways that we're trying to address it as a firm, I'll start by highlighting that it's actually power generation. That's not the issue. It's power transmission and distribution that are constrained transmission grids or capacity challenge. And imagine, if you like, it's hard to get a new cell tower permitted, think about building new transmission towers or substations. There's a lot of friction in the system around this right now. In fact, growing contribution from renewables, which is an important development, introduces additional complexities to the grid, especially as it relates to data centers.
Next slide, please. For those of you that know us well, we don't spend much time complaining about problems. We pivot pretty quickly and our goal as a management team is to figure out solutions. So to solve the bottlenecks the grid is presenting. We're helping our partners get creative and find ways to execute on a different kind of co-lo, bringing power generation and data centers closer together on one side, it's building data centers closer to new or existing power generation. We're doing that at a number of our platforms, whether it's hydro, solar, natural gas or wind. This actually fits AI training models quite well. Since these workloads are less latency sensitive data, they can be located further away from enterprises or consumers during the AI model training phase.
On the flip side, we're also figuring out how to bring power closer to where you need data centers you can see we're doing that at our DataBank and switch platforms today. This will be increasingly important as we move to the AI inference phase where trained AI models are deployed at scale by enterprises and an apps used by consumers. Here you need compute closer to the end user, not only in hyperscale but also in edge. Frankly, both of these approaches are going to be necessary to meet the demand that we're seeing across the portfolio for new power capacity. We believe it's not going to one technology or one strategy that's going to be the silver bullet to solve the problem. So we're increasingly focused on this today, and you'll hear us talk more about this as the year progresses.
Next slide, please. A big piece of the power puzzle centers around renewables. This is an area of intense interest from our portfolio company customers. Again, it's a customer driven opportunity and solution proved all have aggressive net-zero targets for their compute and connectivity footprints. And from our institutional LPs as well, they want to see green electrons increasingly power their data center investments, not just through directly through PPAs, but actually bringing that power directly behind the meter into the data center.
As you can see here, we're making a lot of progress with two of our six data center portfolios already 100% renewable with Switch power here in the US, principally by wind and solar and scholar, which is powered by hydro in Brazil, DataBank and are making very good progress as well as increasingly building or procuring renewable energy, as you saw on the prior slide. And the last thing here, another component of solving the power challenge is building and operating data centers that operate more efficiently, which is measured by PV or power usage effectiveness, which means the ratio of power into facility relative to the amount of used to run the servers directly here, lower PV values are desirable because they significantly use less energy. They're more energy efficient. Also here, AI. is actually part of the solution, a number of our platforms are experimenting with new technology powered by AI that operates data centers more efficiently. We don't just build in for AI. We're also investing in AI for our infrastructure and for our customers.
Next page, please. So let's step back and understand why we're so focused on power and see how that aligns with one of the foundations of the Digital Bridge Road Map invest. Last quarter I highlighted our portfolio companies are budgeted to invest over $11 billion in data center CapEx globally in 2024, based on the bookings that came in last year. And also in this year just yesterday, one of our portfolio companies signed 100-plus megawatt lease, and that will be roughly another $1 billion in incremental CapEx. Today with over two gigawatts under construction at $10 million a megawatt that's over $20 billion over the next few years in new CapEx commitment.
Those are big blocks, and we've already got the power lined up for that 2.2 gigawatts of under-construction capacity. But here's the issue. Looking ahead, looking around corners, our pipeline is over five gigawatts today and growing, and I would say, growing quite fast to turn that pipeline into bookings. You've got to be able to deliver the power power density at scale this is a key differentiator into the foreseeable future. And while you hear us, you'll hear from us continuing to cover this topic, including more insights at our Investor Day around data centers and renewable power and the convergence of those two topics together.
So with that, I'll wrap up our business and strategic update and turn it over to Tom to cover the financials.

Thomas Mayrhofer

Thank you, Mark, and good afternoon, everyone. As a reminder, this earnings presentation is available within the Shareholders section of our website and this quarter, we've combined the previously separate sub and to report with the earnings presentation for your convenience.
Starting on Page 15, our key operating and financial metrics has seen significant year-over-year growth fee revenues, fee-related earnings and distributable earnings have continued to demonstrate positive trends year over year, and we expect this growth trajectory to continue as we progress through 2024.
In the first quarter, we also generated year-over-year growth in new capital formation. As Mark discussed, as the year progresses, we expect momentum to build and full year results to align with our guidance targets. Our fee earning equity under management is $32.5 billion as of March 31, a 17% increase from the same period last year, driven by organic capital formation in the DBP. series co-investments and credit strategies. This increase was partially offset by an anticipated fee base reduction as Vantage data centers transitioned from our prior separately capitalized vehicle structure into our latest flagship fund Digital Bridge Partners three for DVP. three, which extends our exposure advantages through its next phase of growth.
Moving to page 16, the Company continues to simplify its financial reporting to align with our alternative asset management peers, specifically our presentation of fee-related earnings and Mr. over earnings, beginning in the first quarter, the Company introduced fee-related earnings on a company-wide basis, which now incorporates corporate expenses and is not equivalent to the metric reported prior to 2024 investment management fee-related earnings. FRE metrics discussed in this earnings presentation for prior periods have been updated to reflect company-wide fee-related earnings and are suitable for period-over-period comparison.
Starting with fee revenues, the company reported $72.8 million in the first quarter, marking a 21% increase from the same period last year. As we progress through 2024, we continue to anticipate additional fee revenue growth, including catch-up fees driven by fundraising for DVP3, which had its initial close on November 1st of last year.
Fee-related earnings were $19.6 million in the first quarter, up 28% year over year. While cash compensation was up due to the inclusion of a full quarter of the info Ridge acquisition and continued investments in the platform, general and administrative costs were flat year over year, allowing us to improve operating leverage and expand FRE margins.
We expect this trend to continue over the course of the year with growth in revenue exceeding the growth in compensation and G&A expenses. Distributable earnings were $2.2 million in the first quarter with the progress we're making at the corporate level delevering on display with continued reduction of interest expense, the LTM figures on the right, I think give you a good sense of the operating leverage that is starting to materialize in our FRE margin, which has expanded from under 20% to just over 30% on an LTM basis.
Turning to page 17, we reported a reversal of $2.7 million in carried interest income for the first quarter, the Company accrued carried interest based on quarterly changes in the fair value of our fund investments. The reversal in the first quarter stems mainly from net increases in fair value during the quarter, which came in below the preferred return hurdle on certain funds, resulting in a reduction on a mark-to-market basis at a small amount of accrued carry interest, notably carried interest compensation expense tracks these changes and there was a commensurate reversal of a small amount of unrealized carried interest compensation, principal investment income, which is accrued and or realized income primarily earned on the Company's GP investments in our various funds was $2.8 million in the quarter with $2.3 million in realized distributions from our funds.
Turning to page 18, you'll see that the Company continues to maintain ample liquidity and has continued to delever its balance sheet, including the completion of the full exchange and redemption of $78 million of 2025 exchangeable notes in April, reducing corporate level debt that will result in approximately $4.5 million of annual interest savings.
With that, I'll wrap up the financial results section of our presentation. It's shorter, and I hope easier to follow given our simplified business profile.
Before handing it over to Mark, I want to express my gratitude to everyone in the finance team and across the firm, especially Jacky Wu for wealth and welcoming me to DigitalBridge and helping my transition over the last few months. I'm really excited to be here and look forward to connecting with our shareholders at investor day and over the course of the rest of the year.
With that, I'll turn it back to Mark for his final remarks.

Marc Ganzi

Thank you, Tom. And again, thank you to Jacky Wu and our entire finance team for making your transition so seamless.
Well, look, we're going to wrap it up. I want to thank everyone for their time and attention today. I think we've continued to lay out the foundations for how we're building. We believe one of the most powerful alternative asset managers tied to some of the most exciting secular themes on the planet today. We're looking forward to welcoming all of you to our Investor Day.
And with that I'm going to turn it over to the operator for Q&A. Thank you.

Question and Answer Session

Operator

Thank you, sir. Ladies and gentlemen, we will now be conducting the question-and-answer session. (Operator Instructions) Michael Elias, Cowen & Company. Please go ahead.

Michael Elias

Great. Thanks for taking the questions. Mark, I just want to double click on your comments related to power, which I appreciate the framework you laid out, you know, one of the things that you talked about is that data centers important to move to where the power is.
To that point. I'm seeing a lot of activity in the Midwest of the United States. Curious how you're thinking about or how your view of markets has evolved particularly now. Are you looking at places where historically there haven't been data center opportunities? That's my first question.
And then second question, as part of that is, as I think of the locations where there is power, but they aren't data centers currently, one of the things that I think is missing is network. You've talked about convergence in the past. What I'm curious about is how you think about the interplay between data center platform like Vantage and switch, and they'll fiber company in terms of delivering a holistic solution to the hyperscaler as we look to bring data centers to new markets where there is power. I know that's a lot, but I hope that makes sense.

Marc Ganzi

I know you always make sense, and I think you're skating to where the puck is going not to where the puck is. And I want to sort of break your question down into two pieces. Michael one is just to talk about the direction of travel on power and then the second, I do want to talk about connectivity because you've nailed it right. Connectivity is really critical. The capillaries that connect obviously interconnection to data centers and then how this correlates to a eye and where those big language based models being built and all through when removed from your from training into inference, those locations become more latency-sensitive.
So we can we can explore that for a second now to be mindful. It's a there's other people in the queue that have questions. This is a topic you and I could talk a lot about remember, data centers have sort of there's kind of two screens to this. The first is do our customers trust us to build their data centers on to continue to lease capacity from us and what kind of workloads are they leasing from us coming out of this quarter.
We had contributions from all six of our major data center platforms globally. So we spent a lot of time this last week aggregating that data and understanding what our customers are doing. And so what's really interesting to me is that there's such segmentation now between cloud and AI and those workloads and ultimately workloads that are latency sensitive and workloads that actually are very location sensitive from an ADC perspective.
And so private cloud, public cloud, edge workloads, enterprise workloads, all of those workloads, Michael, are evolving in real time and data centers are evolving to. And so I think that some of these locations that are less latency-sensitive Are some of these locations that can be 200, 400, 800 megawatts. And those are those training models in AI and provided you have good fiber connectivity. Those locations can be a little less, shall we say latency-sensitive, then there are as you move into generative, I and you get into active workloads and active applications and starts to follow the same model that the cloud followed, which is you and I both know we're in the 11 to 12 here of the cloud.
And so we're seeing a lot of those locations. And those A., these are now really important in places like Goodyear, Arizona and Atlanta, Georgia and Columbus, Ohio on and certainly like Reno, Nevada as an alternative to Santa Clara. And so there's this whole next generation of cloud workloads that are showing up big in scale, but they're not traditionally in Virginia, they're not traditionally in Santa Clara and you see that the customers are navigating to different places and then obviously you see what's happening at DataBank on the edge side, DataBank has had a fantastic quarter.
One of the best quarters in history. And that company continues to deliver what we call hybrid workloads that half megawatt 10 megawatt workloads where the cloud is obviously moving to secondary and tertiary markets we see a I following a similar footprint, but the challenge against how you build AI is very much correlated to worrying about. And then, of course, there's the self-perform our customers are going to perform their own work and ultimately the work that we're going to perform. And this is a very complex matrix because it's a decision tree at the end of the day, Michael, the way I think about it from the first decision is our customer is going to trust us to build the workload. Are they going to self-perform check second screen is, is this really for their for their for their cloud products versus for their AI product?
And then, of course, the engineering standards and ultimately the GPU standards in the design centers and the cooling standards change and deviate a little bit and then ultimately do people really value sort of having a Tier five experience for that, those workloads need to be highly secure and perhaps even in private cloud, a K with switches doing switch has had a phenomenal first quarter and the second quarters even lining up to be better. The good news is in our world. We don't have to choose when we own powerful platforms like Vantage, Atlas edge DataBank, Skol in Brazil, which had a great quarter. And we're seeing all of these workloads manifest itself all across the globe.
As you saw in our slide, you see photographs of data centers small around the world. I don't see that the customer is the constraining factor, Michael, I see that power is really the constraining factor, and that's going to become more evident to you and to the rest of the investor community over the next two years?
It's not obviously from my perspective, Michael, it's not new news. We started talking about this over two years ago at the Berlin Infrastructure Conference. When I told the investor world were running out of power in five years?
Well, I was wrong about that. We're kind of running out of power in the next 18 to 24 months. So we started two years ago working on this Powercom, so it's not new information to us. And as I said on our call today, the two point plus gigawatts that we're building today, shovels in the ground. All of those commitments with our customers have power power in place will serve letters. Those aren't HOPE data centers. Those are actually data centers that are committed being constructed and customers are moving into it. I do look around the corner and I look at that next five plus gigawatts of opportunity, and we're going to have to get more creative in the way we get more creative as one, we tried to locate certain of those big data centers and locations that maybe are less latency sensitive. We tried to co-locate those opportunities closer to renewable energy. And we tried to create energy independents or grid and defense, and those are the things that we're thinking about.
So the next generation of data centers are perhaps going to be in different locations. Now, how do we create that customer experience? We create those customer experiences with low latency, big, big, big pipes in terms of the dark fiber that we're bringing to those data centers. And I'm not talking about 4 pairs, 12 pairs. We're talking about hundreds of pairs of fiber with redundant routes. And this is where, as you've highlighted, Zayo comes into the mix and what gives us a lot of confidence to sit with some of our key customers and say, look we'll deliver you the data center, we can deliver the fiber. And then the next sort of key is can we deliver the power now if I can wrap that all up in one go.
We actually have been for Bridge, which, as you know, is an infrastructure provider. We actually engage in renewable energy already as a firm. And so our opportunity set is fusing the hard work that we did at Enbridge, some of the hard work that we've done to do the hard work we've done across all of our hyperscale and private cloud data center operators to bring a holistic solution to customers. And now that's finally manifesting itself.
Now the real key is that the asset manager level we got to make that manifests itself in the capital. We form the fees that we generate and the carried interest that comes commiserate with creating these great ideas and bringing it all together. I am very happy with what's going on at Zayo. We've seen a significant uptick in the bookings there, particularly with the hyperscalers and some of the web-scale routes. There's great opportunity there, and they're going to need us and it's not just presented the whole fiber industry in general is going to need more new routes, low latency routes and of course, heavy strand counts and that's the way you bridge the gap in terms of creating low latency environments for AI workloads. So it's a combination of a lot of things. This is the situation, Michael, and I'm sorry, this is a long and winded answer, but you asked a complicated question, then we're going to dig into this in our Investor Day. It's more complicated to build a data center today than it was two, three years ago, and it's going to get increasingly more complicated. And I've been saying that for the last couple of years.
But now finally, everyone's paying attention on and it won't get easier. I can I can I can share with you that it will get harder, but I like it when things get harder when it was harder to build towers. 20 years ago. We were up for that challenge when it was harder to build small cells. You know, 15 years ago we were up to that challenge. So we got a management team that understands how to work through challenges. And the key was identifying those challenges over two years ago, which we did.
So stay tuned and I think we've got a great a great story on how we how we solve problems for our customers.

Operator

Jade Rahmani, KBW.

Jade Rahmani

Thank you very much. I appreciate the comment around the carried interest reversal. Do you have any estimate of what distributable earnings would have been excluding that item?

Thomas Mayrhofer

We see reversals and mark to mark-to-market so that doesn't impact adjusted learnings.

Jade Rahmani

Okay. And how do you feel about the outlook to achieve full year PUM. In your prior outlook, it's $36 billion to $38 billion from $33 billion at year end '23.

Marc Ganzi

Yes, I think Tom and I remain completely convicted in the numbers. We have no changes to our guidance at all. And we're seeing exactly we feel like we are where we want to be through the first quarter. And again, want to reiterate no change to our guidance that, Tom and I reiterated in the previous quarterly call.

Operator

Rick Prentiss, Raymond James.

Rick Prentiss

Thanks again, everybody. Couple of questions on follow on Jay's question there, too. So obviously, the outlook confirmed on the capital formation $36 billion to $38 billion for year end. Help us understand the pacing. Obviously, it's still pretty tough out there. And what's kind of like the gross funding versus net funding from the pacing for for those returns as well? First, then I have a follow-up question.

Marc Ganzi

Let me take the first one on capital formation. Hi, Rick, how are you? So look, it certainly one could extrapolate. It's tough out there. But honestly, Q1 in our line of work is always tough. Rick, Tom LPs are defining their allocation strategy for the year. Not a lot of allocations are historically made in the first quarter. This is not germane to Digital Bridge. You look across the alternative, the alt space, and you'll see that fundraising historically is pretty tepid in the first quarter, but we outperformed last year. We outperformed 2022. And then our outlook actually remains optimistic. We are in the middle of closing multiple clients across multiple strategies. I think that was something I was trying to infer in our call this quarter is that the multi-strat approach to what we're doing is working rig, which is that people understand our proposition, not just in our flagship funds, not only in co-investments, but they understand what we're doing in core and credit and liquid and continuation vehicles.
And so we're seeing more repeat activity with LPs than we've ever seen from I think as it relates to our flagship fund, we're certainly where we want to be. We remain unchanged in our guidance around the third flagship fund. I think it's exciting that we've got credit to launch earlier than we thought. So that strategy is now in flight a little earlier than expected. And then certainly some of the co-investment vehicles are having a very strong quarter as well as reform capital around great companies like switch my advantage and some of our other companies that were out forming capital for right now as we continue to build into the AI. strategy.
So we're lagging in our LPs are lagging in certainly on some of the commitments related to flagship, as I inferred on the call, are tied to some other investment vehicles. So we slowed them down a little bit and our we're getting them over the goal line. But again, I want to reiterate no change to our guide, and we feel really good about our ability to raise the capital and the clients are happy with what we're doing. And then we anticipate a strong year.
Your second question, Rick, I don't I don't think that's fully appreciated it. Can you reframe it for me?

Rick Prentiss

Was just some return of capital involved to, right? You have the advantage.

Marc Ganzi

Yeah. Absolutely, you are correct. So in the first quarter, we did return some capital. We had some some exits and we created some DPI. good outcomes for investors and same time we formed capital. So part of the magic is we do return capital from time to time. And I mean, the great news about Vantage is we return capital but we then put capital to work with our friends at Silver Lake. And as I intimated, we have a big co-investment vehicle that's getting ready to close there, which is exciting and dumb. We love the fact that we retain that management team. We retain that asset and we're deploying new capital that bears economics. So on a on a net basis, we actually think much like Vertical Bridge.
Our exposure in terms of fees will rise over time, but here's the best part and we're getting US public investors get carry now advantage it now sits in our fund product. And so investors now get to participate in the success of what's happening advantage with the real and the team. And that should be a really good, a really good day for public investors. I know, Rick, you like cereal. I know every analyst on the Street likes really likes what advantage does. So now our public shareholders get to ride sidecar with us and get to enjoy the profits of that hard work. It's real is absolutely doing a great job for us.

Rick Prentiss

For a final question for me is obviously reaffirming the capital formation targets. Tom, you made some changes in the way you present the financials and report you mentioned a company-wide fee. How should we think about where you're headed on helping the Street understand financial guidance and what are you looking specifically to benchmark against the peer group? Because obviously this change, I think it sounds like you're trying to light it up. So it's much more comparable to the peer group?

Thomas Mayrhofer

Yes, I think we've tried to make it quite simple to follow. I think our financials are it's fairly it's almost self-explanatory. They drive, you know, as Mark talked about the fee raising that converts directly into fee revenue. And the expense side of the equation is relatively simple and straightforward as well. So we hope we'll be able to deliver really clear, clean and kind of results that you can follow and model and predict.

Rick Prentiss

And I think you called out the margin improvement was aside -- is there a target of where you want to get the FRE margins? And there is our important size of scale that you are trying to achieve also last one from asthma?

Thomas Mayrhofer

Yeah. I think look, I think the scale is not a kind of binary. I think it is kind of gradual. And as we continue to grow, we'll continue to achieve scale. I don't think there's a step function change in I think as we continue to grow, which particularly when you have multiple products in a family. So you get CVT three d. two d. be the one that gives you a lot of scale. And so we I don't think we're at ready to set a target on FRE margins. But for every new dollar of revenue that we bring in, we feel like improves the margin.

Marc Ganzi

Yes. And I'll just come behind you on that, Tom. I think we are seeing from that incremental capital dollar comes in on flagship three and incremental dollars coming on credit to we do see the opportunity for margin expansion. I think in the first quarter, we had some new iPhones that came on. We did some hiring as we are expanding into some other strategies, which will we'll talk certainly talked at Investor Day, but we've been really good at it, sort of being able to home, grow our own our own best ideas around products.
And as those products scale, we ultimately they turn the corner and they create efficiencies and we get we get margin expansion, not margin compression. So I think as the year goes on, Rick, in the second, third and fourth quarter, as we close capital. And again, it's kind of like a wedding cake that capital comes on with very little to no incremental G&A. And so I think what you'll see is not only the revenue contribution expands on a run-rate basis throughout the year. That's the way our business works.
But also you'll see a revenue contribution expansion as well because there's not a lot of incremental heads, Tom, associated with our second credit strategy, nor our Fund three and the co-investment vehicles that we're raising right now. And certainly some of the other products we'll be unveiling this year. So I think in large, we remain very convicted about the guide. And more importantly, we remain convicted about the ability for us to improve revenues and margin as the year goes on rec much, but similar to what happened last year.

Operator

Richard Choe, JP Morgan. Please go ahead.

Richard Choe

Hi, thank you. I just wanted to follow up on Rick's questions a little bit on with the theme guidance being reiterated, is the fee revenue on guidance also being reiterated and how much of that is coming from catch-up fees? And then following on with that, as the FRE guidance, I guess, now that is a consolidated number, not digital, I am related -- is that [$150 million to $165 million], again, number for the.

Marc Ganzi

Hey, Richard, how are you? One. I think I would just go. Yeah, yeah. Yeah, if we just want to be quick to take your questions, let me give you a little more color behind it on. I think on the fundraising piece, there will be inevitably be catch-up fees, right? That always happens will be catch-up fees in Q2, Q3 and Q4. And the timing of that always is a little bit tricky. So some quarters may have a little more catch-up fees than others. I don't think we're exactly going to handicap how much catch-up fees we're going to have over the three quarters at this point in time.
But suffice to say your assumption is correct and the assumption remains accurate as we bring on that $7 billion to $8 billion of incremental capital this year, you can anticipate that all three quarters coming, we'll have we'll have catch-up fees in flagship and certainly, to a lesser extent, credit obviously, continuation funds and co-investments, we get the fees immediately. So we do anticipate there being some velocity in that in our pickup as we go throughout the year. I think the other two answers to your questions were Yes. And yes, we're not changing the guidance and obviously now that everything's all rolled up into one consolidated number. Hopefully, it's easy for you guys all digest. And if it isn't, we're always available to talk about it and then give you any more granular information you need. The guidance was created on a company-wide basis. So that's not a change. It's not. And I am versus operating. It's all just one company now.

Richard Choe

I just wanted to clarify that. And then going back to the strategy presentation earlier, do you expect to just benefit from kind of data center growth or can there be, I guess, incremental returns being generated from, I guess, the transition and power solutions that you've come up with? And how big could that be? And would that require I think you've talked about in the past kind of different maybe teams or funds or can this all be captured in the existing infrastructure?

Marc Ganzi

Yes, it's a great question. I'm going to break the answer down into three components. One, applied learnings over the last 36 months have been really happening at our portfolio companies since. So the good news about having a global footprint and having six powerful platforms is we do business literally with every power provider on the planet, some so we have great insights into what's happening, continuous intense bore from what's happening in Kuala Lumpur, what's happening in Tokyo, what happens in places like certainly like for land or Cardiff for London and then, of course, here in the US and Canada.
So it's been great to have these great management teams that have been out executing some of these renewable solutions like switch and scholar, which are 100% renewable already. That's really exciting what we've done at Scholar. That's all hydro release, transmission infrastructure. We have around substation. We've created our own grid and convenience. We sell power, obviously to ourselves. We certainly could sell power to other data center operators, we don't, but that was a great learning experience for us.
Richard, over the last three years, some really exciting. What we've been able to do is switch, certainly the Reno campus as a model for the future, given the amount of exposure to solar there and hydro, our partnership with embedded power and light and a few other utility companies has taught us a few things in the best way to really drive this stuff. Richard is to drive it at the portfolio company level and drive those experiences with customers. And that's what we've been doing. And so having exposure to great management teams, great customers, creating great solutions has been what it does and that stuff percolates back up to us here at the asset manager level.
Now no accident that we bought AMP Capital, no accident that we renamed it Enbridge and that we decided to put a team focused on renewable energy. We've done that. We have a dedicated group of folks that are working on that, and we believe there is a really big, big opportunity, not only to deliver power at scale for our data centers, but even to some of our friends that are in the business. And so we're working on a bunch of ideas and solutions. Those ideas and solutions will manifest themselves quite soon. From what I can tell you is we've never shied away from developing new strategies to derisk. We've gone out and hired. We think the best team to go prosecute these ideas we've been working on it for two years has been a lot of hard work.
And I think what you're seeing is, again, at the portfolio company level, we're creating these ideas and creating these solutions because there's something to do that's bigger. Of course, there is right. If you think about how much power remains on the US grid and on the European grid were down to less than seven gigawatts on the US grid for probably down less than 2.8 to 3 gigawatts in Europe. And as I said earlier in the call today, we think we run out of transmission infrastructure for power dedicated to data centers in 24 months. And so to go to the next places, we've got to be proactive.
We've got to work hard down to portfolio company. We've got to work with other utility providers that are friends that we've worked with in the past, and we have to create those good outcomes. So it's a little bit of foreshadowing, but that's what we're doing and we do think it's a huge opportunity given our backlog for executing on two gigawatts.
And our backlog is over five gigawatts. If we were to execute five gigawatts of leasing, that's $50 billion in AUM in terms of data center spend, talk about $0.50 on the $1 and creating new renewable power, that's another $25 billion of AUM that we could produce in renewable energy if we chose to go that path. So we have a lot of alternatives. We have a big backlog. We've got great customers great CEOs from. We've got great partners in the power industry. So I would just tell you there's there's a lot to be done there and we absolutely anticipate being a part of the narrative.

Richard Choe

Great. Look forward to the Investor Day where we can go over stuff in more detail. Thank you.

Marc Ganzi

Looking forward as well. Thanks, Richard. See you up in New York.

Operator

Eric Luebchow, Wells Fargo.

Eric Luebchow

Great. Thanks for taking the questions. So Mark, maybe I just wanted to get the latest pulse on the M&A market where you're finding maybe some relative value today? It seems like data centers and kind of developed market towers are still priced pretty aggressively. So are you finding any better value and fiber weathers, you know, residential or enterprise?

Marc Ganzi

So yes, I would say, look, the value proposition on fiber is you are correct as initially starting in residential, I'm ready. Fiber has got some really interesting platforms that we think some sponsors perhaps paid too much put too much leverage on them. And so there's an opportunity to play either through our credit fund or play through our third flagship fund from I think we have got a significant amount of new pipeline of ideas. We're prosecuting over 20 new ideas and our third flagship fund.
A couple of those ideas are in the fiber space where we are seeing significant value. I think you know, the deals that were once priced in the 18 times to 25 times EBITDA range are now pricing in the, call it, 10 times to 14 times range. And we're even seeing some some interesting opportunities. And in other verticals of residential fiber where we think those could price down into the single digits. So I think there's value to be found, but you have to be careful, right? There's pitfalls with that. The entry price is just one part of the proposition. When you're an investment committee, there's follow-on CapEx. You've got to continue to invest in these in these networks and some of these businesses in the residential fiber space are underinvested because they're competing as well-capitalized. Cable companies are R-box.
So we've looked at a lot of stuff. We've said no to a lot of stuff. We greenlit one deal already in the fiber space. We're looking at another one in our third flagship fund. But again, it's there's a lot to do out there. It's not just in the fiber space, nonresi fiber space. But we also see opportunities certainly in the enterprise fiber space. And then most importantly, we really like the data center connectivity space. So that's really long-haul metro rings and data center connectivity or AI. connectivity, where we're integrating that with a data center solution than a power solution to a customer. There's a lot happening and connectivity right now.
But one thing is for certain, as we said on the call today, fiber is critical. Fiber is critical to a high fiber is critical to ultimately connecting the edge and fiber is critical to bringing ultimately low-latency high-speed solutions, IoT network, small cells, everything we're doing and everything we're touching, it does involve that connectivity in the fiber so we don't see the vertical going away. We do see value, but I actually think some of that value will be more pronounced next year. There's close to $80 billion of LBO debt that's rolling in the next 36 months. Some of that is in the fiber space. And so we're looking forward to taking a look at some of those opportunities and being a helpful partner to companies that need capital.

Eric Luebchow

Appreciate that, Marc. And I just have just a follow-up. I know we've touched on data centers a lot, but maybe you could just give us an update on what you're seeing in terms of where kind of market rents have gone in data centers. We talked a lot about the supply demand imbalance and how they continue to move higher this year and kind of where does that take unlevered returns today, just given where cost of construction and lead times are? And I guess you know, is there a breaking point at which we're going to see pricing growth start to slow down or a point at which the hyperscalers might tried to bring bring more in-house if the industry keeps raising pricing?

Marc Ganzi

That's a dangerous question, right. Certainly, I don't love to talk about pricing on our calls, but what what I would tell you is broadly speaking, we continue to believe that there is a really good opportunity to continue to work with our partners and get paid for the risks that we take on. And what I mean by that is that obviously there is a big opportunity and look at our customers could self-perform that work. And we never tell a customer that they can't sell perform. I'd be the last person in the world to tell any of the hyperscalers that they cannot build their own data centers and can't outperform.
I think the challenge today, if you're looking and taking a step back, is there is that constrained power and there is that constrained resources of land and building permits and just it's a question of focus at the end of the day, what is the best use of Microsoft's time or Amazon time or metals time or Google's time, we think they will self-perform some of their workloads 30% to 40%. And we continue to believe 70% to 60% of the time they're going to work with folks like us that have the inventory that had the land that have the permits and have the will serve letters said before, we're lighting up two gigawatts right now. So we're pretty busy on that's on top of the 1.8 to 1.9 gigawatts we already have online today.
So we think on an aggregate basis across all of our platforms, we're one of the largest we think the largest data center operator in the world in terms of certainly power online square footage, number of data centers and certainly have the ability to service private cloud public cloud and edge, which is something quite unique to the digital platform. I would say that, you know, without being specific or announced on pricing, we've had two really good years, right? The uptick from '21 to '22 is strong. Rents were up over 21%, the uptick from 2022 to '23, depending on which market you're in sort of 13% to 16%. And so far through the first quarter, we are seeing that pricing power remains with the with the landlord. I never believe we have pricing power.
And by the way, our CEO's that run our data center companies, they subscribe to my my view and my logic, which is we need to work with customers. We don't want to be the price setter, we want to have partnerships. And that comes from my 31 years of doing this and building towers and building fiber and small cells and datacenters is if you take every bit of flesh out of a customer, they don't come back. And so I think we've been very careful about how we price. We're very focused on the return nature and the repeat nature of our customer relationships. And so we're very sensitive to making sure that we create the right value for our customers.
What I can tell you is our leasing backlog has never been bigger across all of our data center companies. It's the largest pipeline of opportunity we've ever seen. And so we got to balance that with pricing it correctly and also making sure, as you said, we get the right returns on construction is expensive. We got to make sure we get the right anchor build return on invested capital on a cash-on-cash basis. And remember, most of the things that we are building our campuses.
So we are looking to bring that second third or fourth customer into a campus setting from when we build a new facility. There is a lot going on. I think I think seven said it earlier. We look forward to welcoming our new Investor Day. I think we'll do a little bit of a deeper dive on this and certainly dive deeper into edge and private cloud and public cloud and what's happening across as those three customer sets and where we see workloads going and where we see yields going and ultimately how we see our TAM and AUM growing over the next 5 to 10 years.

Operator

Jon Atkin, RBC Capital Markets.

Jon Atkin

Thanks. I was interested in maybe drilling down on towers on thinking about US and maybe Lat-Am and opportunities that you might see for consolidation to increase your presence in that in that sector? And then I've got a follow-up.

Marc Ganzi

So your first question is just around tower M&A. I think look, we continue to be very acquisitive on the tower front, Jonathan, the four theaters that we operate in Asia, Europe, North America and Latin America are all certainly active from an M&A perspective. And we've been looking at tower transactions of all four theaters inside this quarter. Interestingly enough, the one theater that I think did resonate the most in this quarter was the U.S. We continue to be really bullish about the U.S. tower market. Maybe perhaps you can tell from the way the stock's traded today, maybe public investors weren't, but I wouldn't bet against the tower industry. So we did an acquisition at Vertical Bridge. We did a tuck-in Chantelle.
We like that tower put footprint. We like where the central assets are really difficult to zone towers and carrier owned portfolio that now we've turned and we're going to migrate onto our platform, which creates a lot of good opportunity and a lot of good lease-up. And we've continued to look at tuck-ins in Europe across our three different European platforms. We have fresh wave of Belgian Tower Partners, and we have GD Towers in our partnership with Deutsche Telekom. Again, there we've been very acquisitive. We've been looking at everything. But ultimately in this quarter, the stuff that we saw trade in the quarter was too expensive for us from Ireland being a great comp. We just couldn't get to a mid [20s] multiple for towers that were fairly mature in Ireland.
And also whenever a sophisticated seller like Cellnex sells, we we obviously and our antennas up, we have we really respect Marco is a good friend of mine and Cellnex is a great company. So when they're selling assets, we tend to be pretty careful about where those assets are selling and at what price at that price point, we were not a buyer, but that doesn't prohibit us from keep looking. We own a lot of different tower platforms around the world. We remain excited about what we're doing in Southeast Asia edge point has a lot of really good opportunity. We're looking at other opportunities in the Asia theater. Some things are coming through investment committee right now. So towers remain top of mind. Why we think towers ultimately are the delivery mechanism for generative edge and AI.
And so ultimately, as those applications, Jonathan move to mobile edge and they move to the device, you're going to see absolutely more data consumed at the cell site level, you're going to see more pressure on the handset and you're going to see these applications migrate from the enterprise from the office to the edge to IoT networks to mobility to cars and all things related to logistics and transport. The only way that you can make generative AI work in a mobile framework is through towers.
And so whilst that's maybe two, three years down the road, we're very optimistic about the long-term implications for what that means for not only towers here in the US, but inevitably, Lat-Am, Europe and Asia are the theaters that we're focused on. So I'm maybe this is the part of the call around the tour later for the tower industry, but 31 years of doing this, there's a whole nother investment cycle that's going to have to happen, Jonathan, in towers. And you just literally cannot avoid data gravity data ends up on the handset and ultimately, those applications reside on the handset and the ability to pull the enterprise to the edge into consumer relies on the handsets we've seen this play out from 2G to 3G 3G to 4G, 4G to 5G.
Jonathan, you not known each other for 20 years at every technology migration path. You know, this happens. We know this happens. So I would not be shorting the tower sector. And again, we're very bullish in this third fund around towers, and you'll see us invest in towers. And that's part of our strategy.

Jon Atkin

Well, I appreciate those comments. And then maybe just turning to fiber and small cells. I know you talked about it earlier on the call, but any ways in which you could see maybe augmenting the extra net activities in and day out domestically. Any kind of your capital opportunities, whether it's M&A or just increasing your development capital, how do you view those opportunities?

Marc Ganzi

Well, look, we have three small cell operators. Fresh wave in the UK continues to deliver workloads for our customers. Indoors and outdoors appointed does a great job on the WiFi side and indoor networks, ExteNet, largest private provider of outdoor small cell infrastructure. And And look, we're busy right, we're building we're taking on bookings and we are seeing momentum as obviously, the overlay in 5G starts to move to densification. And we think that densification for 5G really exist kind of in '25, '26, '27 and '28. That follows a similar migration path to ultimately to 3G. And what we did in LTE and LTE plus our customers are telling us they still need small cell infrastructure they still need an outsourced solution.
And so we again, we remain long-term bullish about the fact that ultimately a lot of this infrastructure needs to support generative AI, it needs to support those workloads. Macros get a lot of it done, but ultimately, the proliferation to true generative Edge AI fits down at the handset. And so we really talk about data gravity a lot, Jonathan, and how those workloads starting those in those in those learning models, they're moving into training, they're moving into inference, then they move into into really resident in the public cloud, then they move to edge, then we move to mobile edge and then we move to near Edge, which is the handset. This is the direction of travel of data this is how the cloud was built. Ultimately, AI will follow a similar architecture and over the next, let's call it the next 3 to 10 years. So we're excited about it and investors have to be a little patient. But we do believe in the long-term nature of small cell infrastructure, WiFi, six private 5G networks and the opportunity to offload those networks.

Operator

Thank you. Ladies and gentlemen, we have reached the end of our question-and-answer session. I will now hand back over to Marc Ganzi for closing remarks.

Marc Ganzi

Well, look, thank you, everyone, for tuning into our on our Q1 call. We've laid out for simple tenants for you to think about as an owner of debate or prospective owner of distribution. There are four things that we're focused on this year. One, we're forming capital behind our best ideas. I think we've laid that case out today what our best ideas are and that we remain convicted in our ability to form that capital and then to deploy that capital.
Second, we're investing we're investing in the best secular ideas today that exist on the planet generative, AI, mobile infrastructure and ultimately ecosystem. And the power that supports that are all the key tenants and the foundation of our economy today.
So investing in needs tailwinds and investing in these secular thematics, our critical and necessary number three, we're focused on scaling our platform scaling means either acquiring existing platforms like we did with AMP Capital or building out new products like we did with core, our late-stage venture growth fund, our liquid strategies and other alternative asset management strategies that we've been very good and skilled in terms of building those capabilities in-house.
And then ultimately, we've got to asset manage. We've got to continue to perform at the portfolio company level. We've laid out some anecdotal cases for that how some of our portfolio companies are delivering for customers and they're delivering the future of networks for those customers.
We appreciate your support. We're looking forward to hosting all of you May 13th in New York at our Investor Day. We're going to talk about these strategies in greater detail and how we plan to change the digital economy through some of the strategies and certainly through some of the investments that we're making to forge a new digital path and new digital infrastructure the future, it's an important moment for us. We hope you'll join us. Again, thank you for your support and interest in DigitalBridge. We look forward to seeing you soon. Have a great day.

Operator

Thank you, sir. Ladies and gentlemen, that concludes today's event. Thank you for attending, and you may now disconnect your lines.