DigitalBridge Group, Inc. (DBRG) Earnings Call Transcript & Summary

All right. Welcome back. It is my great pleasure to welcome back to Communacopia. Marc Ganzi, the President and CEO of DigitalBridge. Marc, thanks so much for being with us.

Thanks, Brett. Good to be here.

All right. So under your leadership as CEO, you spent the last year repositioning DigitalBridge as a digital infrastructure provider. And 2 weeks ago, you announced that you had entered into an agreement to sell your legacy wellness infrastructure businesses for just over $3 billion, I think it was $3.2 billion, which will mark the final stage of the company's digital rotation.

So the opening question here is now that you've got this all locked down, what are your key strategic and operating priorities after you complete the closing of these deals next year?

Yes, well, thanks, Brett. It's been a heck of a year. And we're delighted to get this last chapter behind us and finally, be able to play off our front foot, which is where we've always wanted to be when we set down this road to be in a public vehicle. So I think there's really 2 things that we can look forward to doing. I think the first thing we're looking forward to doing is deploying more capital in our digital operating business. We've got 2 terrific platforms there that are growing by leads and downs. The DataBank assets, we can't say enough great things about that platform and what's happening in edge computing and spending a lot of time with our hyperscale customers, we'll talk a little bit about this today, but just how fundamental workloads are shifting and where those workloads are going and those availability zones and talking to the big web scalers about where they need to be next is where databank is and where Databank is going. So that's really exciting because we took that bet 3, 4 years ago around the edge, and people really didn't understand it and everything that we've now said is coming to fruition. So I'm really excited about deploying more capital into Databank into their strategy around greenfield, tuck-in M&A, and acquiring land under their existing facilities, which is a big push for us now there. Vantage, I can't say a lot -- you can't say enough great things about Sureel Choksi. He needs to speak at this conference. He's a great voice in the hyperscale data center space, largest private, pure play, hyperscale data center operator in the world today. They've got facilities going in 3 different continents, and we'll close at the end of this month on [ California 22 ], which is a great example of putting more high-quality assets spread on our balance sheet. That's really the key is putting the best digital assets that are -- have the highest exposure to investment-grade counterparties, long-term leases and those predictability, the predictability of those cash flows is what the balance sheet is about and what our digital operating platform is about. And I think also looking at new ideas. We continue to look at other alternative ways to put the balance sheet to work. Once again, with the caveat being, we want to have exposure to principally businesses in this hemisphere, our great logos, investment-grade logos and long-term predictable cash flows, whether it's in dark fiber or towers, but we have a dearth of opportunities, which is great. We keep getting the [indiscernible]. And at the same time, the growth is there. As you saw in the second quarter, digital operating grew in the first quarter, it grew in the second quarter, and we continue to see sustained growth that's predictable and candidly, is a bit above our guidance. I'd say the last thing that we get to do for an offensive side of football is continue to originate new ideas in our investment management platform. That's worked really well for us. DCP I, DCP II, both really successful funds, thinking out of the box and how we can take advantage of our knowledge in the space and how we can deploy capital, not only in our flagship products, but how do we make sure that we canvas the entire ecosystem, and we have the ability to put capital to work in new and differentiated ways. So raising that capital, continue to put good people behind those fund products and continue to grow our fee on, which we've consistently been outperforming on as well. So we're in a great spot. It really feels like a sense of accomplishment and huge kudos to my team, particularly Jacky Wu, who's done an amazing job as my partner.

Yes. I'm sure that there are investors watching this who are still getting ramped on DigitalBridge, particularly now that you're -- in your sites to be fully converted to your digital model. And I would say, simplistically, and apologies if this is oversimplification. There's effectively 2 ways that you have differentiated DigitalBridge from the other public telecom infrastructure businesses that I think investors are a bit more familiar with. One, you have a much more diversified portfolio approach. And the second, as you're alluding to, you're not just an operating company, you have an investment platform as well. I was hoping you could spend a few minutes just elaborating on why you think those points of differentiation are actually very value-enhancing to shareholders, particularly relative to other assets they might consider investing in?

Well, I think there's 2 really unique features about what we do. First and foremost, we've -- historically, over the last 20-plus years in being in the sector and alongside of you and coming to these conferences, we've been trained to think that you play digital infrastructure in a very specific swim lane and that you're investing in data centers, you're investing in towers or you're investing in fiber. And what we're trying to make the appeal to investors is, look, that's a great way to invest. You'll certainly make money, it's worked well for you. But there is this alternative way to invest, which is to think more broadly about the ecosystem where you're investing in a converged environment versus investing in a single swim lane. Now what are the benefits in investing in a converged ecosystem? Well, one, we just get more at bets, I don't know how to say it. I don't know how to manifest it, but we get the opportunity to take more swings because we're not limited just to macro sites. We're not limited just to hyperscale data centers or colocation or small cells. We have the full arsenal of products, and we have the capability to deliver for customers on a global scale. That's really, really unique. And we believe because of that uniqueness, we're going to grow faster because we're getting those at bets. And I think you saw our EBITDA growth just in our digital business last year alone was enormous. And just looking at the sequential -- once again, sequential quarter growth in our EBITDA was 7%, we're looking to deliver 20-plus percent EBITDA growth in our digital businesses now. You can't find that in the other digital stocks. You just can't. So we're at a really interesting inflection point. We're growing very fast. We have unlimited, I don't want to say unlimited, but we have a significant ability to raise capital, form capital. We've demonstrated that now for 6 straight quarters where we continue to raise capital. And we've demonstrated our ability to put the capital to work and do it in a way that's thoughtful and differentiated, which creates returns for shareholders. So I think my job is to continue to keep putting up the best EBITDA growth in the sector, which we're doing. My job is also to stay in front of customers and help our management teams, our 23 different companies around the world continue to deliver for customers. And then my last obligation to not only our companies, but to our shareholders, is to continue to raise capital and put that capital to work behind our best ideas. We're doing that. We're executing now. We're doing it quarter-over-quarter, and investors are beginning to appreciate that. If you want to play a converged ecosystem then you want to be behind what we believe is the deepest and best management team in the space. Investors will follow us and their put capital to work with us.

So speaking of raising capital, I'll start with your digital investment management business. I believe you just closed on DCP II. So your second fund, and I think you exceeded your fundraising target there, bringing in $6.6 billion of commitments, I think your target was $6 billion. So it's sort of a 2-part question. The one is, why did that go better than expected? And then the second is sort of like the opposite side of it is, most of the largest investment managers are starting to offer vehicles for investing in digital infrastructure, who are you competing with financing? And why do you feel like you offer an advantage versus those alternative platforms?

Sure. Well, first of all, I think the fundraising environment is strong for us because we've got the best track record in returns. We've been doing it for 27 years. We have a distinguished track record, long story, easy to document and one that investors have known us for a long time. So there's a lot of comfort with myself and my partner, Ben Jenkins, Kevin Smithen, Jon Mauck, Steven Sonnenstein. We've got the deepest team in the industry, and I think people appreciate that at the end of the day. So the reason we outperformed on fund II is because -- largely because of performance. And if we continue to perform and do well, we're going to continue to be able to form capital. And the good news is we have a hard cap there of $7.8 billion. We continue to fundraise, and we continue to fundraise around new ideas and co-investment ideas as well. So looking forward to sharing some of that guidance in the third quarter and how we're performing. And as I telegraphed in our Q2 call, Brett, we're outperforming. So that's the good news. And we're continuing to raise capital between now and the end of the year. So it's a really good window for us, and we continue to bring new capital in, even in this quarter, and we'll bring in new capital in the fourth quarter. So I find the fundraising environment is really strong right now and particularly strong for DigitalBridge. I'd say vis-a-vis our peer group certainly, there's going to be a lot of folks that are following us into the sector and so that certainly puts pressure on us to invest and invest in a more intelligent way. I think throughout the year, we've shown our ability to differentiate ourselves and do deals that I think others couldn't understand or didn't have the relationship currency to ultimately execute [Technical Difficulty] I mean look at what we did with the guys at Liberty Global and Atlas Edge, that was a really unique transaction, where we had unique expertise and capabilities that Liberty really appreciated, and we were the logical and best dance partner for them, and there wasn't a private equity fund in the world they were going to do business with because they didn't have the operational experience. And so for us, that's how we differentiate ourselves. We have to continue to differentiate ourselves because of our operational capabilities. And we've done that time and time again, Boingo was another great example, a really difficult transaction, people really had a hard time getting their minds around what Boingo was and how do you grow it. For us, it was perfect. It fit perfectly in our ecosystem, being able to take Boingo's capabilities in WiFi and in CBRS into our networks and bring that across our ecosystem where we have other businesses that are complementary to that really speaks to that notion of converged networks and being able to deploy in a way that perhaps other investors couldn't. When you have other strategic capabilities and operations, it does give you an advantage for investing. So look, we're going to see people continue to form capital. And whether it's the likes of Blackstone or KKR, Macquarie, or Apollo, we'll go out in the field, we'll compete for capital. But honestly, we don't really compete for deal flow. So if you look at DCP I and DCP II, 83% of our transactions were proprietary, there were deals that the other guys just don't even get to look at. So we've got to keep doing that. We've got to keep performing. We've got to create unique deal flow, and we believe we can keep doing that. Now the good news is, Brett, there's room for everybody. There will be $400 billion of CapEx deployed this year in digital infrastructure. There was $386 billion deployed last year, and there'll be over $410 billion deployed next year. You're talking about $1.2 trillion of CapEx deployed in a short a 36-month window. $1.2 trillion of CapEx, there's certainly a lot of room for other investment managers, and we welcome their participation, and we'll just continue to execute on our plan. We think what we're doing is differentiated.

Within that overwhelming amount of CapEx that's being deployed, are you noticing that it's being accelerated in a particular direction, for example, hyperscale data centers or fiber or something that just seems to be taking the lion's share of investment because it has the lion's share of need?

Yes. Well, look, I think the good news is there are sort of 2 big thematic that have stood out the last few years, Brett. One is fiber. There's been an exceptional amount of demand for fiber on the enterprise side, on the resi side, and then on the mobile solutions side, and the data center side. So you really have sort of a perfect storm setting up for fiber in terms of new builds. You have our customers self-performing. You have some of our portfolio companies performing. You've got folks looking to partner up with large ILX to do copper overbuilds. I mean there's a lot happening in the fiber space today. So it's no accident that there was over $100 billion of CapEx last year deployed in fiber. So that's a big chunk of the pie. I think the web scalers continue to perform and perform at a great level. We've seen close to $35 billion of CapEx deployed in the hyperscale space. So that shows no sign of abating. We think hyperscale is a good place to be. We've got 4 different businesses that deploy hyperscale facilities in Europe and the U.S. and Latin America and Asia. So we're out building large hyperscale campuses in 4 different continents right now. And every time we build a massive campus, it gets leased and stabilized within 18 to 24 months. So I don't know if that leasing trajectory holds up. I certainly hope it does. It almost feels like the tower business in the late '90s when we build a tower like 2, 3 tenants would go on in the first year. There's an insatiable amount of demand for hyperscale CapEx leasing. And then the last thematic I would say is we believe that 5G spending will be about a $1.2 trillion CapEx spend over the next 7 years. And so the entire ecosystem associated with 5G and 5G mobility is a 7-year ramp. It's not a 2 or 3-year build, it's a sustained build. It starts with macros. It moves to densification, and it moves to edge computing. And so we think there's a ton of legs in terms of the CapEx spend, Brett, that's going to happen in 5G.

We've been talking a bit about mobile edge compute at this conference with Verizon, AT&T, T-Mobile brought it up, a couple of the tower companies brought it up, Lumen brought it up, how are you positioning your business for edge? And by the way, edge can be an abused term in terms of what is included in that, so it would be great to hear sort of your take on like what is the edge? Where do you want to be positioned and maybe what's -- further out in the future?

Yes. Well, look, the edge is evolving, and I've been saying that pretty consistently for about 3 years now. We define the edge where our customer wants it to be. I think there's this strong desire to want to sort of categorize things and put it in a perfect box and say, "Oh, this is edge, here you go, take it. It's not that easy. Edge workloads are shifting. They move around and where customers need capacity and where they need low latency solutions is changing really fast. And oh, by the way, COVID really changed that quickly too, just based on primary workloads, primary work zones and secondary workouts. So when you're talking to the web scalers, let's start with them first. They've got availability zones in a lot of different places. And so they look at their high-powered nodes as their primary workloads, and then they look at these availability zones where they see that they need more compute and they need more capacity. And so a lot of that stuff is happening, for example, as I mentioned, the DataBank. I mean you're going into markets where, historically, high-power node compute wasn't available. So when we look at edge workloads in places like Atlanta or Overland Park or Bluffdale, Utah or Eden Prairie Minneapolis or the suburbs of Pittsburgh, these are truly edge-out markets, where we're getting those interesting, what I would call midrange hyperscale load spread, which are kind of between 0.5 and 4 megawatts. So it's not a full hyperscale campus where you're getting a 10, 12, 14, 20-megawatt lease. But it is a significant amount of capacity and its availability zones that need to be fulfilled for the web scalers. And so that can be everything from Amazon to Microsoft to Google to Facebook to Oracle edge-out workloads are happening in a lot of different ways. And hyperscalers are really focused on it. So we've been at it now for 2 years at DataBank. They seem to be in the best position. They're having a lot of great conversations. They've now integrated the zColo acquisition ahead of schedule, and the leasing activity on these midrange hyperscale workloads are going incredibly well. We had enormous leasing in Q1, good leasing in Q2. It's picked back up again in Q3, but we're looking to achieve somewhere between 6% and 9% organic growth net of churn at DataBank in terms of edge leasing. And so I look at edge workloads as being sort of micro edge, edge, and then midrange edge workloads. And so microedge can literally be like 3 to 4 servers at a bottom of the tower. A sort of typical edge workload would be 20 to 40 servers underneath 0.5 megawatt. And then those midrange workloads are kind of 0.5 megawatt to 4 megawatts. And then once you're about 4 megawatts hour you are in hyperscale end and you're sort of 4.0 megawatts to 25.0 megawatts, 50 megawatts, we've seen one of our customers ask for a 100-megawatt facility. So these -- the ability to try to pigeon hole and put it in a box is really hard because it's changing. It's nascent, it's moving, and so is the flex in those networks. Now if you move to the mobile carriers, they have a different explanation bridge and where they see their edge workloads happening. And historically, when we think about the origins of edge computing, particularly in a mobile set solution, you got to go back 3, 4 years ago when we started building CRAN which is really a distributed network, which is what edge really is. So when you think about distributed networks, and you think about this ability to take a series of base stations and radios and centralize them and use your fiber infrastructure and macro and small cell infrastructure to distribute network capacity in a software-defined environment, that's exactly what edge computing is. And so you begin to aggregate radios, you begin to aggregate hyperscalers together and you begin to aggregate content in IOT, and you can begin to see what 5G looks like, which is a distributed network service where you bring mobile applications, we bring applications and mobility together, Brett, and use a common distribution area or a hub or a CRAN hub or an edge data center to distribute that information in doing it in a software-defined environment, where most of that network infrastructure sits in the cloud, which is a total departure from everything that you have known for the last 20 years. So this is all changing, and it's really exciting. It's happening literally right now, with our customers, with the carriers. And the web scalers are working on it, the mobile carriers are working on it. They've all formed different partnerships. You've seen some of these partnerships that Verizon and AT&T and T-Mobile have. The reason they're talking about it is because it's the next frontier in their network. The topology and the architecture for networks, where you begin to virtualize the core and you move the radio access network to the cloud is a massive step function in how networks are going to perform. So now we've got to change the infrastructure, Brett to match that. And so as we think about what edge really is, it is very customer-driven, but it's really that marriage of mobility and applications where they come together and where you create that low latency environment. I can spend hours with you on this topic, but I know we don't have hours today, but it's something that we're going to be talking about for the next couple of quarters. And the key is, at DigitalBridge, we're doing something about it. DataBank is one of the leaders in edge workloads. They're working -- they've got workloads with mobile carriers, they've got workloads with the web scalers, with the web developers, which is a really important part of the ecosystem. So this is something that we've been doing for a while, and ExteNet has built over 900 CRAN. So when we hear about edge and people talking about it, we've been at it for a long time. I think we're -- we've established ourselves as one of the leaders in the infrastructure piece and is being a primary landlord to the cloud. This is where we want to be. This is where DigitalBridge is going.

You touched on your exposure to hyperscale a bit in the answer to that question. I was hoping you could elaborate a bit more about how you positioned DigitalBridge for the hyperscale opportunity? And maybe just for the sake of people are getting ramps, where those investments are within either your operating companies or your funds?

Yes. So look, hyperscale is a big part of what we do. I think we deploy more CapEx in hyperscale than in any other silo actually last year. And probably that will continue in 2021 as well. So the good news is we have the ability to play across the hyperscale space in a variety of different ways. This year, we principally have been involved, Brett in greenfield development. We think that's the best way to play the sector. And when we have that expertise in house, and we have the leading management team in the sector, and we've got great customer relationships that trust us. We've been able to really differentiate ourselves. I telegraphed that in the second quarter just based on the Vantage leasing number in our vantage pipeline. So the total amount of leasing that we've done through the first half of this year in hyperscale exceeded the amount of hyperscale leasing that Digital Realty had done. So just to give you a sense, our business is a lot smaller than Digital Realty, but we're punching above our weight class. It's nothing against [indiscernible] great guys, but our management team is winning a lot of those jump balls because we are shovel ready, and we're in the right markets. And having that close relationship with customers where we can take more greenfield risk than perhaps a DLR and Equinix can, it allows us to really get out there and punch above our weight. So we've managed to do that. It's been a great year. We're on a pace to do about 200 megawatts of leasing, which is incredible. We exceeded over 80 megawatts of leasing through the first half of the year, and it's just accelerating. It's not slowing down. So where we see that leasing activity is we're incredibly busy in Europe today. Europe has been our standout market in hyperscale leasing. We've got 8 different campuses that we've developed in the last 2 years, and there's leasing activity happening in every one of those campuses. In North America, similar to what you've heard from our peer group. Ashburn has been good, Santa Clara has been very good to us. And then also, we've been incredibly active in Quebec and Montreal, those have been 2 really good markets for us, and we were active last year in the Pacific Northwest in Quincy. So all of our hyperscale markets in Europe and North America are going incredibly well. And kudos to the team at Vantage for their ability to sort of outkick the coverage. I'd say that last week, of course, we announced an exciting formation of Vantage Asia, which was the combination of our existing platform, Agile and our acquisition of PCCW, along with the Vantage management team. And so there -- once again, similar to what we did in Europe 2 years ago, we arrived in Europe 2 years ago. We made it very clear on the markets we're going into, customers that we're going to serve and our capabilities. We're doing the same now in Asia. We think Asia is an incredibly exciting market for hyperscale, and we intend to be the leader in hyperscale data center campuses in Asia within the next 24 months. So hyperscale has been great. And our ability to deploy capital, we've been able to do it out of our private funds group. We've been able to deploy capital off our balance sheet, Vantage Yieldco sits on our balance sheet. As I mentioned earlier, we're adding CA 22, which will be another data center that we're adding to the balance sheet into our digital operating business. And it's a great model, right? [Technical Difficulty] continues to build amazing campuses, and we get above 90% occupancy in a campus. We have the mechanism to bring those data centers across to our balance sheet and really build a long ramp for how we deploy CapEx and how we grow digital operating EBITDA through Vantage and also through DataBank, as I mentioned earlier. It's a great high-class problem to have.

So when we were talking earlier about edge, the whole idea is that networks are getting denser, another manifestation of that in the wireless world is small cells, which you have exposure to through ExteNet. One of the biggest publicly traded companies in the sector with a small cell business actually recently reduced their outlook for small cell deployments this year, basically saying that on the heels of the C-band auction, it looks like the big guys are going to be a little more focused on macros to meet their build-out requirements to try to keep pace with T-Mobile, a little less on the small cell side. What are you seeing in small cells? And has your view on the growth potential for that infrastructure changed at all?

No. It hasn't changed. We'll build more small cells in 2021 than we built in 2020. So ExteNet continues to perform well. We're now over 6,000 nodes in our U.K. business, FreshWave, which is a great business, a lot like ExteNet serving the 4 major mobile carriers in the U.K. We're actually the only small cell provider of scale in that market. So there, we don't have to confront someone like Crown, who's really experienced and very good at what they do. But I would say, in the United States, we're experiencing a little bit of drop-off in leasing in terms of new lease executions, which is what I think you're hearing from Jay and the team at Crown. But in terms of installs, we've actually seen an uptick in installs because we had such a massive leasing backlog in 2019 and 2020 that have now come to fruition where we're building out that infrastructure. I think as the leasing pipeline goes forward, we see an increase in backlog in terms of new contours and new markets that we're looking at. We definitely agree with Crown's commentary that the initial phase of 5G tends to be pretty macro intensive, and you're seeing that manifested in the leasing numbers in American Crown and SBA. But we think small cells will be one of the big winners in 5G. The numbers that are being thrown around by our customers in terms of their desire for densification and what they want to do on the indoor side and private CBRS networks. Small cells will be a very, very important part of the 5G ecosystem. So I think it's not a 2022 event. And perhaps it starts to pick up in 2023, but really, the back half of the 7-year build of 5G will be very intense on densification. And so we're getting ready for that. And we believe ultimately that there'll be somewhere between 400,000 to 800,000 small cells built in 5G. So it's going to be a pretty heavy growth. So maybe today, small cells aren't as good as they were maybe 2 or 3 years ago, but we definitely believe in the story, and we believe there's a huge opportunity coming around the corner.

So if it is indeed your vision or what you're seeing is what others are seeing is that small cells are not as front and center because of the demand for the macro sites, you are exposed to U.S. towers through your portfolio. What's your take on what the outlook is for the tower business right now?

Well, look, it's been a great year in towers. We've got 6 different tower companies around the world from Edgepoint in Asia to Digita in the Nordics, down to ATP, all the way down to Chile, and of course, vertical bids in the U.S. and a few other tower businesses. But by and large, we've been on pace with new lease executions across Europe and across LAtAm and Asia and the U.S. So kind of the perfect storm. We've got a great year in terms of organic growth so far through 3 quarters. Vertical Bridge, in particular, which is our largest tower company. Alex has had a great year. They've had enormous leasing. It's actually been the best year of leasing in the company's quick 7-year history. So they've seen a massive surge in not only amendments, but also in brand-new colos. And certainly, Dish and active Dish has been really helpful. They've got a great relationship with Dave Mayo, and they're executing for Dave. So I think Dave is going to continue to give Alex more at bets and he'll probably take a little more market share than his peer group. And then we're also seeing opportunities with Verizon and a AT&T Mobile as well. All 3 of those guys are back in spending. And this equipment, as you know, Brett, it's large. The MIMO antennas are big. And in terms of the technology to deploy for C-band is a bit more of a bigger array of antennas and certainly has more wind load. So the tower companies are going to be busy for the next 3 years. I don't see any signs of abatement in terms of the initial 5G spend and the overlay and also brand-new macros as well where our customers want us to go build new towers for them as well. So our BTS pipeline is way up vis-a-vis last year. We've got over 1,400 towers in development in the U.S., which is great. Leasing activity is great and it's up. And so everything looks pretty strong for vertical bridge for this year. And by the way, it will be good for our friends down the street in [ BOCA ], and our friends in Houston, and our friends in Boston.

I was going to ask you about the build-to-suit environment, because we really haven't seen the big public tower operators build any significant number of towers for a number of years for a range of reasons. Who are you competing with for those opportunities?

Yes. Look, I think we believe that all 3 public guys are capable of reengaging and build-to-suit, I think, for them. It has to make sense. I think in the last couple of years, there's been a lot of private capital solutions that have flooded in the marketplace that have done deals that perhaps they can't justify or underwrite. And the emergence of private capital and infrastructure has led to some perhaps business models that might not make sense from Jeff and Tom's perspective and certainly from Jay's. So you know -- and also, you've got to keep that machine together, and you've got to keep those people together. Once you dismantle that machine, it takes years and years and years to build it back up. And so we've been building our build-to-suit capabilities for 7 years, and we've got one of the deepest benches in the industry. I mean some of the guys that work for us are multi-decade operators. You look at guys like Mike Belsky and Johnny Crawford and the guys that we brought over from Ecocide, that were my partners at SpectraSite, I mean, we've got a deep, deep bench of developers, guys like Steve Gosnell have been doing it for 25 years. These are the best in the business. So first, you got to do is you got accumulate a lot of talent. And then you've got to accumulate the right supply chain and the right vendors. And so one of the things that Alex Gellman has done a great job of is create a great ecosystem of developers. And create a great ecosystem of vendors and most importantly, great customer relationships. So consistently having built for the big 3 for the last 20 years, gives us an advantage. When you turn that capability off, it's really hard to turn it back on. And I think -- and also another thing that I think hurt some of the public guys a little bit is just some of their legacy leases. If you look back at some of the leases they signed in the '90s, through the course of 4 amendments and 4% escalators and rents getting really high, it certainly gets to the customers a little bit cranky about those rents. So they're not so eager to hand over those build-to-suit rates. So we have a young portfolio of the big 4 tower companies. We possess the youngest tower portfolio. Our leases haven't been around for 25 years. So that gives us an advantage. Our rents are lower. And so we have a lot more to talk about with them in terms of engaging on new activity. But look, we don't discount the capabilities of our 3 public friends, they can certainly get after it and compete, and I expect them to compete. We want them to compete. I think as folks that we see as competitors, ecocide was a competitor. We got together with them, we merged. Insight was a competitor, American Tower bought that. So there are less tower developers today, Brett, than there were 2 years ago. There's been a lot of consolidation in the industry, and there's a lot of private capital. So we don't think we've got a privileged position in vertical bridge, but we are very focused on staying competitive. And just this morning, we were -- Alex and I were meeting with customers today. So it never stops. You got to stay in front of customers.

I want to go back and talk a little bit more about DigitalBridge holistically. And so as we sort of framed at the outset, you have assets that you own and operate on the balance sheet and you also manage funds that are invested in infrastructure. As you approach new opportunities, what's the process you go through to make a decision about the right place for those assets to go, whether they're fully owned by the business? Or there's something you make available to investors in your funds?

Well, so the key to this is having one team, right? We have one team that canvas' all the investment opportunities. And having one unified team that can quickly assess and triage an opportunity is really critical. So based on the -- first of all, the geography based on the asset class and based on the return profile, it allows us to very quickly compartmentalize it and prioritize it into the right bucket. So we talked about, for example, where DataBank should sit. When we built that position in DataBank and we put it onto our balance sheet, it was largely because we felt like that business was going to offer our public shareholders the best opportunity to play edge computing. And so given the uniqueness of that platform and ultimately, the return profile on the governance, it made sense for our balance sheet. And so that's where we had put it. And it was one of those legacy companies that we had built a digital ridge back in 2015, so it was in a fund. So that gave us the ability to move it over to the balance sheet. I think when we do look at opportunities, we try to think about from a fund perspective, we're targeting a 16%, 18% gross return. And some of those businesses aren't always cash flow positive day 1 and certainly may not have the right credit attributes of what we're looking for on the balance sheet. So initially, it goes through the funds group, we look at it there. And ultimately, based on a certain return profile and also certainly based on geography and credit quality and things of that nature, it can end up on the balance sheet. What do we want to have on the balance sheet? We want to have assets that we want to own in perpetuity. So I almost look at the balance sheet, for lack of better word, Brett, as almost like a continuation vehicle or a core fund, something that can have great current cash yield, which our shareholders want as a REIT. We've got to have good REIT eligible qualifying assets on the balance sheet. We want to have a current cash yield, and we want to have growth. And so what we've done with Vantage and DataBank is both those things provide that, and ultimately, we're willing to underwrite to a low double digit return. So think of that as sort of 10% to 12% IRR capital against the private funds group, which is targeting 16% to 18%. Hopefully, that makes some sense.

It does. And we only have a few minutes left, so I want to get to something that I know is ultimately very important to investors. As we look at the digital infrastructure space, we're generally looking at AFFO or FFO per share growth as sort of the key barometer of how you're performing and driving returns for shareholders. You've definitely made some progress here on FFO per share, but I know that the trajectory is not where you ultimately aspire to be, and you've been going through a transition. So I think we all understand the reasons why. So as you start to come out of this and you've completely repositioned the company as a digital infrastructure asset, what is the right way for investors to think about the growth trajectory of your FFO per share? And what are going to be the principal factors we should be monitoring to see whether you're on pace to achieve that?

Well, look, it's really easy, right? I think we've now got the business simplified into 2 business units that are easy for people to digest, which is digital operating and digital IN. On the digital operating side, we've guided folks to $175 million of EBITDA by the end of 2023. We're well on our way to achieving that objective, looking at the performance over the last 6 quarters. Digital operating has been growing well north of double-digit organic growth, and of course, M&A growth, non-inorganic growth. So I like where we are in digital operating. We've got a great pipeline of new ideas and opportunities that we're putting to work. And the guidance that we've given investors to that 2023 goal is well on its way. I'd actually argue that we're probably ahead of schedule a little bit. I think on digital IN, that's a really interesting business. And they are the metrics we've got in investors [indiscernible] right? So we ended last year at about $13 billion of fee bearing capital. And this year, we've guided to $3 billion to $17 billion of FEM and we're well on our way to achieving that objective. And I would offer you, like I often in our public commentary in Q2 that we have an intention to beat and outperform that number. And at the same time, there's 2 other critical levers, Brett, that drive AFFO per share; 1, is our G&A and 2, is our total cost of debt. And so this year, we made enormous strides to getting investors to the right place there. We took G&A when Jacky and I inhered this business, we had a $300 million G&A structure. That just didn't make any sense. We've now driven that well below $150 million. We intend to get it to a run rate of about $133 million this year. So we've pulled almost $170 million of cost out of the business in 18 months. That's absolutely incredible and good for shareholders because we're being responsible, we've closed offices, we've streamlined G&A, sold the corporate plane, we've done all the right things that you would expect a responsible management team to do. So one of the great ways to get to faster AFFO share growth is maintaining cost. And Jacky held the line there and done a great job there. The last thing I'd say is our cost of debt. Our total weighted average cost of capital when you include our preferreds was very expensive. And when Jacky and I hearted the company, we inherited a business that was levered at about 12x to 14x, we've taken that leverage now well below 7x. And most importantly, now we're recycling our balance sheet, and we're getting to digital infrastructure type debt. The securitization that we did on a corporate basis last quarter was groundbreaking. In fact, there's not another investment manager in the world, not Blackstone, not EQT, KKR, Apollo, that figured out that structure. We did. We're pioneers in the space, and we believe we have great access to low-cost institutional capital. So replacing 8% capital with 3% capital is a no-brainer. That's a trade that you're going to see us continue to execute over the next 12 to 24 months. So if we can bring our total borrowing costs down by 300 to 400 basis points, we've already fixed our cost structure. You've got our investment management business, growing at 25% to 30% EBITDA growth, you got our digital operating businesses growing organically at 6% to 8%. And so we're in the right place. And what you're going to see is this amazing inflection point next year as we cross over back into positive AFFO territory, and we'll be able to track with great accuracy, our AFFO per share growth quarter-over-quarter, not just year-over-year. That's how fast we're growing this business. So this is the fastest-growing digital REIT out there. I telegraphed that in my opening remarks, we got the fastest EBITDA growth in our digital businesses and will continue to outperform over the next year, 1.5 years. So I think we're on our way to where investors want us to be. We've turned from some of the parts analysis where you had to work on NAV. So now we're on an earnings based model that makes investors really comfortable because those earnings are long-term and predictable, right? Think about what we have in our investment management business. We've got -- our funds are typically 11 to 13 years in duration. So you can really track the accuracy and the predictability of those cash flows, which is why we get that securitization done. And then you layer on top of that data bank can manage, which we're signing long-term leases, that are easy for folks to understand with fixed escalators and a lot of growth and 2 of the best places you want to be, hyperscale leasing and edge computing. So we're in a great spot, Brett. This has been an incredible year. It's been a lot of hard work, but a lot of transformation, and now we get to play offense. I'm actually having fun again.

All right, Marc. Well, that is an outstanding place to end. Thank you so much for being here with us, and we certainly hope to have you do this with us in person next year.

Good to see you, my friend. We'll do it next year in person, for sure. Take care.