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

Well, depending on where you're dialing in from or videoing in from, good morning and good afternoon. Welcome back to Citi's AppsEconomy Conference. For those of you I haven't met, I'm Mike Rollins, and I cover the communications services and infrastructure stocks at Citi. Before we begin, just to note that we do have disclosures, they're available to the right of your video player, also under the Citi Disclosures tab, if you're dialing in or viewing this from Velocity. For those also that are joining us here today on the video stream, there's a questions box and if you like to ask questions during our time together, just enter them into the box, they'll come to me, and we'll work to get them integrated into the discussions. So with all those details out of the way, it's a real pleasure to welcome back Marc Ganzi to the conference, President and CEO of DigitalBridge. Marc, how are you doing today?

Great, Mike. Good to see you. Happy New Year.

Happy New Year. Well, as it's become tradition at our conference, we'd like to start the first question, thinking about the New Year. And as typical for DigitalBridge, you've had a very busy year just that you're coming off of. So give us a sense of the developments for DigitalBridge and your operating and strategic priorities for 2022.

Well, first and foremost, it's a vastly different company than it was when you and I sat down a year ago and 2 years ago when you and I were in Vegas together, it's been an incredible journey to where this team has taken this business. And we finally get to sit here today with a clean story and allow us to move into the second phase of our plan, which we looked at as sort of a decade plan, which was first spending the first 2 years, transforming the company. Now we want to spend the next, call it, 2 to 5 years accelerating the company and creating what we believe is the most powerful digital REIT story out there that focuses on converged network solutions for our customers. So this is really the first year that I get to take a step back and play offense, which is something I really enjoy doing. We could talk a little bit about that, how I define playing offense this year. But I always like to start every year with a set of simple priorities. When I sat in the chair and arrived as the CEO of the company, Jacky and I sat down and we said, look, here are the 4 or 5 things that we need to do and do right to earn your trust then we spent last year saying, okay, here's finish the mission. Here are the 4 or 5 things we need to do to rotate this asset base, which was $72 billion of assets we rotated in 18 months, which was hard to believe. But ultimately, that finished the mission was about getting clarity and most importantly, delivering a really clean story to our shareholders. And in turn, the stock responded favorably, people got in early, they trusted us, we build credibility. And then the last thing was just outperforming. Consistently outperforming the benchmarks that we put in front of investors is a great way to not only earn trust but earn long-term respect and investors continuing to buy and to appreciate our story. I think investors will really appreciate what we're going to do in 2022 which is, as I told you earlier today, I don't have to spend time worrying about hotel occupancy or whether or not we've got to renovate a senior care facility where we've got to exit a series of old private equity, real estate private equity funds. That has all been cleaned up. We've rotated to a very strong cash position. We just got done raising what is the largest digital infrastructure fund in the world, an incredible fundraising that now is 54% invested. So we're really excited about that. And we have a great year in front of us. And now the priorities are about growth. It's about really feeding our digital operating model and continuing to expand on our digital investment management framework, which we think is really unique and proprietary and something that others aren't really pursuing. So I really look at it as sort of 5 key priorities for me as the CEO of the company this year. First and foremost, I want to continue to add high-quality assets to our balance sheet so that we can continue to deliver on the growth in digital operating and most importantly, what comes part and parcel with that is continuing to maintain our REIT status, which is something that we've told investors is important to us. The second is I want to continue on the success of last year's fundraising. We guided The Street to $4 billion of FEEUM. You'll see the fourth quarter print. We beat that by a very healthy margin. And we'd like to do that again next year, put out another $4 billion of fundraising, hopefully push through and exceed that. But really fundraising is important. We've got to fuel both sides of the business, Digital Operating, and our Digital Investment Management platform. I think the third thing that is on my to-do list is to continue to invest capital wisely. You heard my tone and tenor last year, which was cautious, I would say, almost borderline conservative compared to our peers. But we were very conservative around M&A. We didn't chase a lot of assets. We didn't pay high prices. And I'm just having been to that dance, not only once but twice, you really don't want to overpay for assets in this market. So a lot of big assets traded. We looked at them very closely, just made strategic decisions and we had clean shots on goal to pass on those situations, recognizing that there's going to be more opportunity in the future. We don't think digital infrastructure is going away. We continue to believe that the total addressable market is growing. So we've invested 54% out of Fund II. We're going to continue to invest out of that fund. And we're going to continue to deploy capital, not only in the funds but also on the balance sheet. So going back to our core business of investing, and really without having to go out and raise a big fund or without having to sell assets, it really -- my plate is now clean. And I can go back to doing what I really like doing, which is deal making and coming up with new ideas. I would say a fourth thing that we're doing right now is really launching 2 new products as a part of our Investment Management business. We shadowed this last year. We're now in the execution phase of our credit business. We're originating loans. It's going quite well. We're in the midst of fundraising. We've built out a fantastic team. And I do see that middle market digital infrastructure credit is a big opportunity. And let's sort of parse that out. I see kind of 2 different swim lanes there. One is originating new loans to middle market companies that are somewhat capital constrained, whether it's they can't raise more equity or they can't access institutional debt markets in CMBS or ABS, we can provide that skill capital that allows those companies to keep growing. And we want to be that lender of choice because we know these businesses. We know the CEOs. We understand their problems, we understand their opportunities and we can help companies grow and accelerate because I've been there, and I've done that for 27 years, and I can sit credibly with a fellow CEO and say, look, here's how you can really grow your business. We can put 2 turns of extra leverage here and really support your fiber-to-the-tower build, we can support your BTS program, we can support your hyperscale leasing. Whatever it is, we speak your language, and we can move quickly. The second thing is we'll continue to monitor secondary positions to the extent that inflation runs, and interest rates runs. There's going to be opportunity. There always is to businesses that are perhaps over geared or misunderstood. Just like we've done in the equity side of the business, we're applying that skill set to our credit business. And then our core fund just creating a pool of capital to earn some of our best assets in a long-term continuation vehicle and having that capital to be competitive in certain new situations that are priced to perfection. So we want to be able to play in certain situations, having a core fund and having a team that's dedicated to that is a big strategic initiative for us. The last thing I would say is number five is customers. That probably should have been number one, but customers are really important. I had a pretty full plate last year. I didn't get a lot of time to spend with customers. But started in the fourth quarter as we cleaned up the story, getting back on the road, sitting with customers, understanding network architecture, understanding where they're going, really understanding how we can deploy capital behind great logos or how we can partner with them like we did with Liberty and Mike Fries. So I'm spending a lot more time with customers, really trying to understand how we can put capital to work side-by-side with them, not necessarily show up and say, we want to do a sale leaseback with you. Anyone can do that but really get deeper with customers and understanding network evolution and how we can work with them side by side to build those networks and bring all of our infrastructure to bear. I think the best opportunities for us is not going to be an M&A. It's really going to be staying close to our customers. So that's kind of what's on the plate for '22. My plate is run full as I say so.

It is, and it gives us a lot to dig into today. While we're talking holistically about DigitalBridge, we are getting questions coming in from our audience, and please do keep them coming. But I thought that this might be a good question to ask and follow up on the priorities. And the question is, how should investors judge the success of DigitalBridge, and which metrics do you consider most important?

Well, look, I don't think we're success yet. People that know me know me that I'm always a little bit restless. I'm not one to suggest that we've been successful. I think I'm really proud of the fact that we've been able to deliver on the promises we've made. That's kind of this management team's attitude. We haven't achieved anything yet. I told you when we met 2 years ago, when our stock was $1 or something, I said, it reminded me when SBA and American Tower were below $2. That's really where we were 2 years ago. We were sort of at this fundamental launch point. And success for me is going to be defined over the next decade if we could build the next great digital REIT. And I give my predecessors before me a lot of credit, whether it's Jim and Tom at AMT or Jeff at SBA or Jay and John Kelly at Crown. They built great businesses. It took them 20 years to get there, but they built phenomenal businesses. I think what I'm challenging investors to think about is what does the next generation digital REIT look like? And for me, it's about a series of converged solutions. It's about understanding how to work with customers, Mike, on a holistic basis where you're not just delivering a tower site, you're not just delivering a fiber lateral, you're delivering network. We're really in the network fulfillment business. That's what we do. And so for me, it's taking that story and really demystifying it for investors this year. We're going to spend a lot of time with talking about customer case studies this year and how we deliver for them, not just in 1 vertical, but how we're bringing a set of solutions to them that ultimately crews to not only our benefit where we're getting faster growth, which is revenue growth, AFFO growth, but also how are we helping customers. How are we lowering their total cost of infrastructure? That's a big point of contention for carriers today and for web scalers. They really feel like that they're paying a lot for infrastructure. So we've got to provide value. Value has to be inherent in what we do in terms of customers. So success for me is going to be continuing to put out reasonable marketing sticks out there and going out and exceeding those measurements. We believe that our runway is endless because we are playing the game a little bit differently. Our structure is a little bit different than an American Tower or Digital Realty. It doesn't mean one's better than the other. I tell investors you should own both. You should own DigitalBridge, and you should own the traditional guys as well. And so my job is to continue to keep growing this business. And it's something that I've been doing for 3 decades in my career. I'm a growth-oriented CEO. And I've got 2 incredibly supercharged businesses. I've got my Digital Operating business, which is focused on edge and hyperscale, which I think are the 2 best thematics to invest in digital infrastructure today. And then 1 of the fastest-growing investment management businesses in the world in terms of our ability to continue to deliver FEEUM growth, revenue growth and EBITDA growth off of our Investment Management platform. So both engines are really well situated. And then behind that, we have a balance sheet, an incredibly now clean balance sheet. So we've got a lot of cash. We got about $1.5 billion in cash and cash equivalents. We've got a very easy debt stack to understand. So investors aren't confused anymore about what our indebtedness is. And our goal, obviously, to meet those obligations and to retire some of that older debt that's expensive and then to continue to do a long-term 30-year tenured CMBS, ABS debt. We're pledging our cash flows into the institutional debt market, which we think is the right place for us to have our debt. So we've transformed the balance sheet. We've transformed the business units. We've transformed the people, the culture. And now we have the opportunity in front of us to really accelerate and grow, and that's going to be the measure of success for us will be continuing to grow that top line, continue to grow EBITDA, continue to track AFFO positive and to be in a position to start returning capital to shareholders vis-a-vis a de minimis dividend.

When you define the addressable market for investments and you think of the term digital real estate, has that expanded the horizon of investment options for DigitalBridge over the last couple of years? Or should investors still think about it as the more traditional, the towers, the data centers, the fiber. How are you looking at that?

Well, I think you said it correctly. The investable universe has grown. So if we think about digital real estate, what it was a decade ago and what it is today and what it will be a decade from now, I think let's talk about where we sit today. Where we sit today is obviously tower infrastructure is really clear. It's a mature marketplace, very well known to investors, not complicated to get your mind wrapped around. There's adjacencies to towers that you have to be aware of, right? And so that adjacencies are small cells and then, of course, indoor small cell infrastructure, whether it's CBRS, indoor networks, private enterprise 5G network. So the entire ecosystem around towers, Mike, is growing. And so that is really my attitude around that is formed by customers who are telling me, look, macros are important, but our networks are changing. And so therefore, you've got to have many macros. You've got to have small cells. You've got to have indoor hand off. You've got to have Wi-Fi offload. You've got to have enterprise 5G solutions. And so we have followed that narrative. ExteNet, Boingo, FreshWave Group, I mean, these are all businesses that are oriented extending the network. So moving off the macro sites and extending the network into small cells, many macros and indoor infrastructure. So that definition has changed. The traditional macro-overlay in that type of infrastructure continues to evolve, very exciting, I think, particularly around indoor. And we can talk a little bit about indoor enterprise 5G networks and some of the stuff that we've done with big manufacturing companies. We've done with ports; we've done with airports. So a lot of exciting things happening with the weaponization of 5G infrastructure for the enterprise. And that's a huge white space area for us and it's an area where we're spending a lot of time. Data centers, boy, that industry has changed. Look at what's happened, Mike, in a decade, right? And the way that we think about Jacky and Severin and I is we say, look, data centers are about data gravity, right? And data gravity is about workloads. And the definition of where a customer ultimately drops their equipment is based on their needs. And no one customer has the same needs, whether you're an IoT provider, a mobile carrier, whether you're a content player, an application writer, a webscaler, hyperscaler, cloud provider, private cloud, everyone's workloads are different. And so therefore, you have to have a series of data center products that match and made with your customers. And so I think of really the data center space as being sort of in 5 concentric circles. The largest outer circle is hyperscale, which is really defined as sort of 5 megawatts and up. That used to be 1 megawatt now, but I think that's changed. I think true hyperscale is a little bit bigger. Now we've created a sort of mid-range category, which we call mid-range hyperscale which is sort of that 1 megawatt to 5 megawatts, and we're seeing a lot of those workloads in those availability zones, Mike, pop up in secondary and tertiary markets. So we're seeing a lot of those workloads sort of straddle between DataBank and Vantage. And those 2 companies work together to define who gets what opportunity, which is great. So that's the second ring. The third ring is traditional colo. And traditional colo has been changing. It's been migrating, right? You've got a lot of churn as people have moved to public cloud and private cloud, but also you have a lot of new entrants at the same time. We're seeing those sort of 500 kW to 1 megawatt workloads, they're there and they're growing and we're seeing that growth. So that's kind of the third circle. The second circle is what I would call edge. And edge is kind of 500 kW down to 250 kW, sort of 4 racks to 20 racks. And this is really everything from -- it could be Google; it could be Meta. It could be VMware, it could be Amazon, it could be Microsoft, it could be a mobile carrier. But it's really the proliferation of data, data pushing further out from the core of the network into smaller facilities where people need availability zones that are dialed up and more focused on the suburbs or corridor traffic as we like to call it. And then the last piece of the puzzle is the middle of the bull's eye. This is literally like down to like 1 rack to 4 racks. This is Mike, our edge. We've deployed about a dozen of these facilities through our investment in EdgePresence, working with Vertical Bridge, doing some of that with American Tower, with SBA, other people, where we're deploying shelter infrastructure. And look, and that's early. If you and I were playing a 9-inning baseball game, we'd be at the top of the first inning on that. So there's some green shoots there. We've done some leasing. It's been good. It's been everything from IoT to applications to cloud guys to mobile folks, state agencies for public safety. So it's a little bit of everything. It's not exactly what we thought it would be, but it's early and it's adapting. But those are the circles, right? Data starts here and it kind of moves out and you get these workloads that are based on power density and that are based on geography. So data centers are no longer a single swim lane, right? It's a very complicated business. There's a lot of different ways to play it. There's a lot of different business models, and that's what we're telling investors. Fiber also has changed. I think the definition of fiber infrastructures changed. You can make the argument today, Michael, that there are literally 4 different business units back inside of fiber, right? You've got a wholesale fiber, you've got suboceanic cables, you've got enterprise fiber and then you've got consumer fiber. And investors can play in each of those verticals. Very few companies are fully integrated. You can almost say that Lumen is like the last of the fully integrated, but they peeled the residential piece out. So now that's a different business. But I look at fiber is certainly on an attractive index. If you look at long haul and wholesale and suboceanic, I do like the characteristics of those cash flows. They're very REIT-like If you look at a story like Uniti, by example, where you have a long-term lease, you have a counterparty that you can look through. That is real estate in the sense of the word that you and I know real estate. I think enterprise fiber, which is typically a 1-year contract or a 2-year contract and consumer fiber where your month-to-month 30-day notice, those to me are less infrastructure like. A little more difficult to call that real estate because the counterparty credit risk is not investment grade most of the time and the tenor of those cash flows is quite short. So we're seeing infrastructure funds pay 16x to 30x for residential fiber. And we sort of -- we kind of scratch our heads and say, well, how do you underwrite that when you do have a long-term lease. So there's a little bit of a disconnect there, but it is an opportunity. And so literally, I just walked you through a dozen to 15 opportunities where we used to sit 5 years ago and say there were just 3 opportunities: towers, fiber, and data centers. The market has evolved and now we've got satellites coming in terms of Starlink and OneWeb. A lot of ground-based infrastructure is going to happen to make those networks work. IoT is still emerging. And we talked about an enterprise indoor 5G. Our TAM is growing, right? The total addressable market is growing by about $0.5 trillion per year. So this isn't slowing down. This is a marketplace from a real estate or from an asset management perspective. You look at that TAM growing, you say, "Look, I've got to be a part of that." If I'm an asset allocator, I need to participate in digital infrastructure or digital real estate.

One area I know you've been excited about in the past has been C-RAN and O-RAN hubs, which was not initially on that list. What are you seeing both domestically and internationally for those opportunities and specifically for DigitalBridge?

Well, it depends on the customer, whether we're building an O-RAN hub or C-RAN hub. I mean I would tell you right now, most of what we're doing is O-RAN right now. If you look at what we're doing in Europe and looking at in the U.S. There are 2 -- there's 1 customer in Europe that C-RAN, and there's 1 here in the U.S. that has gone C-RAN. But by and large, whether they go O or C, it really doesn't matter, what you're building is a hub. You're building in essence an edge data center. You're building something that's very customer-focused and very specific with a lot of room for expansion. You have to have that room to expand because what everyone fails to account for, Michael, in building RAN hubs is ecosystem. So let me explain that for a second. So if I go build for carrier D in a certain market, and I go build a RAN hub and their configuration is 20 racks. What you have to account for is you've got the systems integration piece which could be somebody like a Mavenir and then you've got to have room for your cloud partner, at least to have at least a couple of racks for integration purposes and for handoff. And so right there, you may have leased 2 to 4 racks to Mavenir, you may have leased 2 or 3 racks to Google or AWS or Microsoft. And then once that's up and running, then you get the ecosystem of application writers that feed off of that system. So it's -- and I'm not suggesting it's 20 or 40 racks, but there's another set of racks that go for adjacencies related to applications that are going to run on that network. And that's not in every location, but that is happening. And then, of course, you get competitors, right? If it's a good location and you're building for a carrier D, let's to say that carrier A doesn't want to put 10 radios right there adjacent once again to that ecosystem. So everything that we're talking about in the virtualization of the core of the network is an ecosystem and providing that infrastructure that is sufficient enough to grow with it because if you get a lot like a good tower site from 15 years ago. If you have a good tower site, guess what happens? The anchor comes on and you get the second, third and fourth tenant. If you build the right hub and it's in the right location, let's say you build a hub in downtown San Francisco and Market Street, and it's a good hub. And it's got a lot of connectivity. It's got a lot of fiber; it's got easy access. You're not just going to get 1 carrier. Michael, you're going to get 2 or 3 carriers. That happened with us. We built a big RAN hub in San Francisco, and we now have all 4 -- we have 3 out of the 4 carriers on that hub. So I like the business. It's hard. It's not easy and it requires a lot of trust from the customer. The customers just don't hand over their RAN hubs to anybody. So we're going to continue to keep investing in that business. I like that business a lot.

Maybe taking a step back, we talked about a lot of different business models and permutations that are in the digital real estate category. Where is the growth? Where is the performance right now? And where is the underperformance in some of these product areas?

So let's talk about us for a second. So on the balance sheet side, on our digital operating model, the growth for us will be in DataBank in 2022 and Vantage as well. We've very clearly articulated that there's really a couple of different ways we can grow Databank. One, we can continue to acquire more stock in DataBank and increase our ownership position. That's something we'd certainly like to do. Second, we'd like to deploy growth CapEx into M&A into newbuilds. We're doing that as part of the budget for 2022. We've got about 14 new construction projects that are commencing right now or have already commenced. So we're adding new physical capacity, new edge data centers that are tethering off our existing core interconnection facilities. So our tether strategy is working, and so we'll continue to put capital to work in greenfield. And then I would say, the last piece on DataBank is strategic M&A, just finding unique opportunities to continue to grow the asset base, and we see a lot of opportunities. So Databank will not be static in '22. We've now gotten the zColo integration fully behind us now. We're expecting positive EBITDA and revenue and NOI contribution from zColo in '22. And the core business, of course, will do somewhere between 4% and 6% organic growth, net of churn. So DataBank should have a very dynamic year, and we're very excited about that. On the Vantage side, we continue to develop campuses on our IM business. So Vantage Europe, Vantage USA, Vantage Asia continues to build a big, stabilized campuses. To the extent that we can find the right transfer pricing and can get to full value that makes sense. And we have a really long runway to add more assets to manage. We love that business. We love hyperscale. We love the growth profile. We love the stability of the customers. We love the surety of the cash flows. Those are all things that resonate with our REIT shareholders. So stay tuned. We added some assets in '21. We're going to add more assets to Vantage YieldCo in '22. And we're forecasting between that business unit, Digital Operating 4% to 6% organic. And I think there's a lot of room for optimism that there's going to be a beat to that. So stay tuned and we'll deploy more capital on balance sheet. I think the area that really surprised people last year were our IM platform. We had a very successful year in fundraising. We had a very successful year in deploying capital. Nothing seems to be slowing us down in '22. Investors really have taken to us in terms of what we're doing. We did exceed our hard cap and went above that. And in terms of the new product acceptance around credit and core, both those products are off to great launches, and we're anticipating raising a lot of third-party capital in '22. So that same growth trajectory that we saw in '21, we're anticipating a similar velocity in '22 and hopefully beat to that guidance. So we're very optimistic around our growth. I think what could hold us back, hard to say. I mean, if the fundraising environment changed radically, Mike, for digital infrastructure, that could certainly impair our capability to raise more capital. Can we continue to deploy money successfully? We've got a deep pipeline of stuff that we're working through. We did 1 deal over the holidays. We'll do probably 1 or 2 more deals here in the first quarter. So our velocity of putting capital to work hasn't slowed down. And now that we've added credit, that's only accelerating. So a lot of opportunity to deploy capital, and we're answering that charge. So I'm excited about that. On the balance sheet side, what could go wrong? I mean, certainly, we are expecting better performance at zColo this year. We are expecting to buy more assets onto the YieldCo, but both of those factors certainly have risk like everything has risk. We just got to go out and execute. And this management team has a rich history of getting out there and executing. So we're confident in our capability to execute. And as I said at the onset, we're anticipating a very, very strong 2022.

You mentioned earlier the interesting development of indoor 5G and indoor systems and enterprise participation. So what are you seeing in that evolution of private networks and indoor networks and what that means in terms of business opportunity?

So I think it's really about extending the network, Mike, and it's about mobility pushing into the enterprise, which really historically in the last decade hasn't done a very good job of doing that. But if you talk to Jeff McElfresh, you talked to Ed Chan, you talk to Hans or you talk to Neville or Mike Sievert, they'll all tell you that enterprise is a big part of the monetization of 5G. Now let's sort of unpack that. How do you get there? You get there by having great relationships with your customers and explaining to them how these devices can go deeper into the organization. Because right now, you carry this around the only thing you probably have is your Citi e-mail, pretty much it. And maybe you have some other applications. But the way for the carriers to truly monetize 5G is you got to start running apps on these phones which is everything from SharePoint, which is like workflows, right? I don't know if you guys have a SharePoint, we do. You could be running an accounting software off of your phone. You could be running your expense reports off your phone. You could be running compliance issues off your phone. We do that now. We run all our compliance stuff off our phones. So its ability and we've done that. We've now built our own enterprise indoor 5G network at our headquarters in Boca. So the next same kind of Bocca, I'll show you what it is. We chose a partner called Sobey Networks. And we've built our own 5G enterprise network, and we're able to integrate our applications into that network, and it provides more efficiency for the workforce. So it's really the battle for the enterprise, and it's a battle for pushing deeper into the enterprise through applications and using mobility and using 5G as the pipe or the conduit under which you do that. Now that's a corporate setting. What I would tell you is there's 3 other case studies that I find interesting. One is factories, the other is shipping ports and the other is airports. And we've got case studies running in all 3. Now in that case, the network is much more complicated. So in an airport setting, you're dealing with telemetry, you're dealing with baggage, you're dealing with SKU codes on bags, you're dealing with routing to runways. There's a whole bunch of things you can do to weaponize 5G to make the airport experience more efficient. So your experience from curb to getting in your seat gets a lot easier because the airline is using your movements and your information to speed you along. That's a true real-world application that we're running now in an airport, at Boingo, by example. We've looked at the applications that we're running for the Dallas Cowboys, by example, something we're doing at ExteNet. So helping weaponize the Cowboys network to look at merchandising, to look at food sales, where do they peak? Where do they go off peak? How do you track the fan when he comes into the stadium? How do you get them to move in a certain direction to get them to buy? That's not an accident, right? So if you get a dialogue box that pops up and says, "Oh, by the way, did you know if you go at half time, the Dak Prescott's jersey is 30% off if you show this barcode. That's not science fiction. That's actually tracking using the Cowboys network to track their fans to get them to move in a certain direction, and that's workflows. So you're integrating workflows with consumer behavior at the same time. This is not science fiction. Ports, same thing. You can use enterprise 5G ports to start tracking ships before they even come into port. Now do not talk about Long Beach because that's a disaster, but there's other ports that are a lot smaller where you can have software tracking that tracks the containers. And so before the ship comes into port, every container is tracked, and it knows where it's going, whether it's going to get stuck in customs, whether it's ending up on a tractor trailer, whether it's ending up on a train. Where crane is going to be used, where is that boat going to go? And how do you create a much shorter cycle time for turning a ship. Because right now, what's the problem is at ports is there's less people working. There's a congestion in shipping containers. There's not enough movement in the rail systems and none of these systems might talk to each other. The only way you can get them to talk together is if you integrate IoT and mobility at the same time and then on the back end, they're running the same applications. Right now, they're all running different applications, which is a disaster, which is why we have 80 ships sitting out in front of L.A. waiting to get into the port. So that's 1 area. Another 1 is we've got a case study in Michigan with a car manufacturer were getting shorter cycle times. They're building cars faster. Why? Because mobility is driving the production line, which is driving their workflows, which is driving their ERP, which is driving their purchasing. So all of this stuff is highly interrelated. 9-inning baseball game, we're in the first inning, super early. But this is, I think, what the mobile carriers get excited about is if they can go deeper into the enterprise, it gives them a chance to finally grow ARPU, which they haven't grown in what a decade. That's kind of it.

And -- And so -- and the interesting debate with all of this because these are great examples. The interesting debate is who gets that business. The mobile carriers will say with network slicing, that's the benefit of 5G, you take the same network that's available to everyone, you carve out a piece, it's got security, reliability, differentiated performance. Here you go. And then you've got these other models where there outside companies come in, build the private side of 5G, and then integrate it with the public side. Based on the early examples you're seeing. Is it just everyone wins? Or is there going to be kind of a one-sided solution that's more popular than the other?

I think it's more integrated, to be honest. I think you're -- If you're a head of IT or you're a CIO and an organization today, you're not putting all your eggs in AT&T's basket. You're not putting all your eggs in AWS' basket either. And by the way, we're not putting all our eggs in Sobey Networks, which is a brand-new start-up that's doing enterprise 5G networks. We actually use a suite of solutions. So most sophisticated CIOs are using a toolkit. Now if weaponized correctly and they build the network correctly, the network is just the enabler, right? It's not there to hold someone captive per se. It's there to unlock and create more value where you can run multiple platforms. So you can have SAP on your accounting platform. You could be running AWS public cloud. You could be running Microsoft SharePoint to do your workflows. And then you could have overall, you could be using AT&T's enterprise, indoor 5G solution from a network perspective, the network infrastructure, the radios, the antennas, the devices that come with it. And then AT&T enables all those applications off of that platform. I imagine that's where Stankey wants to go. He wants to have the platform where he's hosting all the applications. Now AWS has shown their hand, and we're doing a lot of work with AWS on this right now in terms of their edge compute. But AWS is like, okay, here it is. Here's your CBRS in a box, drop it off, open it up and plug it in. Really nice for small businesses, totally impractical right now for medium and large businesses. But I think AWS is using this as a way to learn about how organizations behave, what do they do in terms of applications. So I don't discount in this arms race AWS for a second. I think they're a very important player in this space because they've clearly come out last quarter and said, "Look, we believe we can do private indoor networks. We believe we can provide our own private 5G enterprise network with CBRS in a box, right?" One, cut a hole in the box; two, open the box, there it is. You got your CBRS in a box. We have a lot of jokes around that in our shop. But I think it's interesting. It is an arms race, right? But at the end of the day, Michael, the most important thing about any arms race is you got to have access. You have to have access to real estate, and this is where DigitalBridge comes in. We have access to real estate. We've created and built these network relationships for decades. So having relationships with a certain car manufacturer or the Dallas Cowboys or in Boingo situation, controlling the New York City airports. Having that control and having that relationship as a trusted fiduciary with an enterprise, where we're the ones putting in the infrastructure and creating that neutral host environment that enables somebody like AT&T to come in. We enable AWS to come in. We don't care, right? My job is to build neutral host digital real estate infrastructure that everybody can lease on. So at the end of the day, that's what we're going to continue to do. We're going to continue to control those venues, control the MTA, control the port authority, and not control them but work with them. My philosopher, you've known me a long time, is we partner with property owners. We don't dictate to them. We're there to enable and unlock the value of their real estate and to enable and unlock the value of the enterprise. That's really a key area of focus for DigitalBridge over the next decade.

We've got some additional questions coming in from our chat box here. So 1 question is how do you think about capital allocation and capital returns? And what is your outlook for the dividend?

The first 1 is really easy. I've said we would turn back on the dividend this year, and I would turn it down to a de minimis level. So I think in 1-year increments around the dividend, that's the policy I've set for '22. I've been not opaque about it. I've been really clear about it. We're going to start small, just like American Tower did, just like SBA did, just like Crown did. I've been really clear with investors about that. The previous administration that ran this company had a big dividend and it was a road to basically ruin in my view. So we're going to be very prudent with the dividend. We're going to turn it back on, and we're going to continue to recycle capital in more growth areas. We're a growth REIT. We're not a clip to coupon REIT, and I've been pretty clear with the investors about that. Capital allocation. So we've got a lot of different ways that we can put capital to work in '22. First and foremost, we're going to put capital to work in the balance sheet. We'll have a series of announcements in the first quarter of ways to grow our balance sheet assets, and that's going to be my first priority is deploying our capital into the Digital Operating business so that we can grow our REIT-eligible assets and continue to grow our REIT-eligible cash flows. So that's priority 1. Priority 2 will be to, of course, support our new investment management products. So credit fund, core fund areas where we are going to continue to grow our asset management business. The balance sheet will support that. And we've done that. We've shown that time and time again that we want to be a big investor in any new product we put in the street, including management writing personal checks in every deal, which we do. I'm going to continue to put my money to work in all of our new ideas because that's the best way to show investors that we're aligned. So I'll continue to be in the check writing business in 2022. I'd say the third priority of where we allocate capital, the cash that's sitting on the balance sheet is, we'll continue to think about whether we retire debt. That's always something that Jacky and I are looking at. We're looking at our total leverage levels. We're looking to refinance our debt. Interest rates are rising, but we do think that digital infrastructure is somewhat immune because what we're seeing is what base rates are rising good digital REIT stories, Mike, spreads are tightening. So effectively, rates on a nominal basis, really haven't moved that much for us. So my job is to get our balance sheet matched up with 30-year sort of long-term debt, and that's going to be 1 of the key things that Jacky and I will work on in '22. Now on an investment side, if you go over to the $43 billion of assets, we manage on the IM side, we are deploying more capital and investors ask me all the time. What are your best ideas? Where are you putting money to work? How do you think about that? So I mean the investable asset classes that we're pretty focused on is obviously edge, hyperscale. We've done a lot in towers this year. We continue to deploy capital in Wi-Fi and indoor networks. And we'll continue to deploy capital into fiber as well. There are situations that we think are interesting. I think geographically. Our second fund is pretty heavy on domestic U.S. assets. So now we're deploying more capital in Europe and Asia to balance what we've done in the U.S. and probably do this year, probably do 1 deal in Latin America, maybe if we can find value, we're sort of hunting for value down south. And returns for us haven't really changed. Inflation certainly is a headwind. Interest rates are a headwind, but we have seen lease rates pick up with customers. We are getting -- we're rewarded for the risks that we're taking, and our returns have not moved actually. So we're underwriting on an unlevered basis to generally between a 5% to 8% yield. And then once we're able to securitize that, we're getting returns somewhere between 14% and 22% in our private investment management business. So returns have hung in really nicely. Both Fund I and Fund II were marked up in the third quarter. and we anticipate those marks moving up in the fourth quarter as well. The entire portfolio moved up quarter-over-quarter, which is great. So performance in the private investment management side is up year-over-year, and it's up quarter-over-quarter and you'll see that reflected in our fourth quarter earnings.

Marc, are you ready for the rapid-fire round?

I'm ready. Let's do it. Here we go.

All right. Three questions in 3 minutes. First question, why should investors buy your equity?

Because we're the fastest-growing digital REIT in the world, and we have the best management team. And I think investors should back management and back teams that have a proven track record. But I also think in this environment, where you've got some inflationary headwinds and you've got interest rate headwinds, you want to be with the company that knows how to grow. And we will put up the fastest revenue growth and EBITDA growth of our digital peers. So stay with us.

You just touched on this briefly. But holistically, how do you view inflation, net opportunity, net neutral or net risk for your business model and financial performance?

Net neutral. Let me unpack that for a second. I do see COGS are sort of holding in. We do see cost of goods may be moving up slightly in 2022. And I am a little bearish about labor. Michael, I am worried about that, just getting people back to work and when we do, they want more money. And when we're looking at subcontractors and we're bidding projects up, those project prices are moving up in between 10% and 20% and 30%. So subcontractor prices have moved up because resources are more constrained. The great resignation, a lot of people that were in great technical jobs have decided they want to go spend 6 months in the Keys and learn how to tarp and fish. I can't stop that. So I do have some concerns, inflation will hit us from a subcontractor and specialty labor perspective. So now at the same time, we are seeing lease rates have responded in turn. We've seen in particularly like in hyperscale; we've seen our lease rates move up a little bit. Our price per rack on the edge has moved up a little bit. We've seen really good leasing momentum in towers where we've seen faster organic growth because of 5G, but we've also seen the slight nominal movement up in lease rates as well. Fiber is super competitive. We haven't seen any real pricing movement, but we haven't been crushed either by COGS or by labor. So end of the day, rapid fire, net neutral.

And final question since this is the AppsEconomy conference. And we actually talked about several different types of applications that you're seeing in your business. Is there an application that you think will fundamentally change demand for either connectivity or data consumption over the next few years?

It's hard to sort of singularly focus on 1 app that's kind of a game changer per se. And I probably have 50 apps on my phone because I like playing around with other people's applications to see if they work. I'd really keep my eye on mobile workflows. So mobile workflow apps can really be a game changer for enterprise. And we've already seen it work in a manufacturing setting but starting to think about how you as a professional in the investment world and me as a professional, how it can change our lives and how we can better more manage our relationships. Relationship management enterprise software integrated into a 5G handset is a game changer because it will help Mike Rollins to find, okay, who are my top relationships, who are my top accounts, who I should be talking to? What CEOs didn't I talk to this week? And having that predictive software, not on your laptop, which this doesn't always go with us, but this is with us all the time. And so getting a ticker on the weekend that says, Oh, by the way, Mike next week, you really should be reaching out to investor X because you haven't touched them in x amount of days. And oh, by the way, that CEO that you cover, you haven't talked to him in 32 days, it's time for a follow-up. That will dictate a lot of your behavior. So behavior modification or predictive behavior modification software for the enterprise is the game changer. So that's what I think. That's what I'm seeing. Standby for more.

Great. Well, Marc. Thank you. It's great to see you. Thank you for the time today.

No, thank you. I wish everyone a great 2022. I'm super fired up and looking forward to a clean year at DBRG and spending more time with you.

Thank you.

Take care.