Pantheon Infrastructure PLC (PINT) Earnings Call Transcript & Summary

So ladies and gentlemen, welcome to this first Capital Markets Day for PINT [Audio Gap] Actually more than 50 persons in this room -- between 50 and 60 and we have almost the same amount online listening in to this Capital Markets Day. So really a great turnout and a good reflection of the excitement that we see around PINT. My name is Vagn Sorensen, I'm Chairman of the Board at PINT. I'd start with introducing my 2 Board colleagues in the room, Patrick O'Donnell Bourke, who's our Audit Committee Chair; and Andrea Finegan. And we have online, Anne Baldock from Florida also joining us. It's been almost exactly 2 years since the IPO, I checked it, 11th of November and it's been a very exciting time. When I originally was contacted and asked about, chairing the Board of PINT, I was really excited because what I saw was a combination of a compelling value creation model, a very well-reputed high-quality investment manager and the opportunity to, from scratch, compose a top-class very qualified board with members who have all infrastructure experience of different kinds and really complementary skill sets. Great. So this is the [indiscernible] program, and we obviously [indiscernible] from many of our colleagues from Pantheon. If I do start out talking a little bit about our operating model, obviously. this is about adding value through growth, buying assets, growing them, creating value around them and then exiting in 5 to 7 years, and we have a capital is recycled back into the funds and new opportunities. Its co-investments into operating assets. It is assets owned by quality sponsors with whom Pantheon has a relationship. Diversification into a small number of proven and very resilient infrac, subsectors such factors such as digital, renewables, utilities and transportation and logistics, leveraging megatrends such as digitalization and path to net-zero diversification not only among subsectors, but also between sponsors and geographies. Some of our key achievements since launch, 2 years ago, obviously started out with an oversubscribed IPO, hitting its hard cap at GBP 400 million. Subsequently, the sub shares were executed and proceeds in summer '22 of the full GBP 80 million. As this is also at the IPO, there's been a very determined buildup and there was portfolio deployment over the last 18 months with good diversification on all parameters such as subsectors as well as geographies and sponsors. And you'll see our existing portfolio of 13 assets and recognize this healthy diversification. We have recently executed a controlled buyback to stabilize the stock or we're in the process of doing it, the stock in a difficult market on a difficult market backdrop. And we spent roughly 55% of that amount that we set aside for the buyback which is a good segue into my last topic, namely governance. We are a very active Board, and we have a very robust governance setup. We execute a discretionary mandate where the Board approves the investment strategy that is reviewed annually and controls the adherence to that strategy. Obviously, we become familiar with and discuss the individual assets as they mature through the pipeline. And we also do a field trip every year to 1 of our assets. We spend a lot of time on diversification controls along the different dimensions that I already mentioned. We focus on discount management, hence the share buyback as a good example of that. And obviously, we execute risk management in general, not least in relation to capital deployment. There's obviously a lot of material on our entire set of governance processes in the annual report. And I obviously won't go through that today. But let me just finish by reiterating how seriously this Board takes its responsibilities to shareholders. We're always available for shareholder meetings, which several of you have already utilized this year and the preceding year but do reach out if you want to meet the Board and discuss our governance processes. So once again, welcome, everybody. Thanks a lot for joining us today. We really appreciate that. And I would hand over to Andrea Echberg who will take you through the market perspective.

Thank you, Vagn, and good afternoon, everybody. As Vagn said, I'm Andrea Echberg. I'm a Pantheon partner based in London, and I am the head of our Global Infrastructure and Real Assets platform. So today, I was going to spend some time talking about some of the key market factors that we're seeing that are impacting the infrastructure sector more generally, how that impacts our investment strategy and also the portfolio company performance. I'd really like to say that I'm very excited to see the success that we've had with PINT with the IPO and the subsequent deployment into a really diversified portfolio of high-quality, growth-oriented assets. And that's working alongside multiple top-tier sponsors. And PINT really is an integral part of our $21.5 billion AUM private infrastructure investment business. And we've got 32 global investment professionals dedicated to this strategy, originating and managing investments for PINT alongside our private vehicles. So please come and talk to me today during the breaks or the drinks at the end of the day. I can answer any questions you have around the Pantheon Infrastructure platform more generally or on PINT. So just focusing in really on the infrastructure market. What we're seeing today is a continuation, a reflection of the impact of the volatility that we've seen over the last 18 months or so. It's really been the rise in OECD inflation that's triggered falls in public market valuations as central banks have quite aggressively raised interest rates in response to the inflation. And these changing market conditions have, in turn, impacted fundraising for private infrastructure funds. Last year really looked like the most difficult fundraising market for infrastructure funds since the global financial crisis. But despite this, most top sponsors are still raising money and we do expect that 2023 will be pretty much as strong a market for fundraising as 2021, even if not quite as strong as the record year that we had in 2022. And private market valuations for infrastructure are remaining very robust. We're seeing that the infra M&A market is continuing to be very functional, debt markets are open for good quality assets and good quality sponsors and the M&A activity generally is supported not just by the continuation of fundraising this year but also the 2 to 3 years' worth of dry powder that we saw raised back in 2021 and 2022. We did see a drop-off in deal activity in 2023, but that has really been balanced with the drop-off of raising in capital. So we continue with a good balance of the supply and demand over that year -- over this year. You'll see that public market valuations are down, but headline EBITDA growth is very strong. And so this is implying opportunities for attractive entry points into new assets, but also mirroring growth in existing cash flows in our underlying portfolio of companies. And I think to summarize, in times like this, it's really important to have a very well diversified portfolio. Growth-oriented assets perform well where they have multiple levers to create value. Just turning to inflation. We're starting to see some signs now that inflation has subsided, particularly in the EU and the U.S. in response to the Central Bank actions. It does, however, remain elevated, particularly so here in the U.K. And it does look likely that higher than target levels will persist. There is potential for further increases to inflation, I think, notably around risk of any escalation in the Middle East and the impact on oil prices. But for infrastructure assets, inflation is a positive. Most infrastructure assets have a positive correlation to inflation. And PINT's portfolio certainly is positively correlated to inflation. So high inflation has been a net positive to the asset class. On the chart that we have on screen here, this is some data from our company data -- proprietary company data from our private infrastructure platform. Within the $21.5 billion assets under management, we have over 1,500 underlying private infrastructure companies that we have valuation data on. So we've taken data from here. What you can see on this graph that the very faint dotted line is actually OECD inflation really picking up in July '21. And then the dark blue line dropping down is the MSCI WORLD that's dropped substantially in response to that. The pale blue line, however, these are our infrastructure assets in our portfolio, and they've continued to grow steadily in terms of valuation. And over that same time period, we've actually seen a 25% uplift on valuation. And the real reason for this is, if you think about the factors making up the infrastructure valuations and the discounted cash flows that value them, the headline revenues are positively correlated to inflation. And these increases have more than offset the negative pressures on valuation, being increasing costs in the company, increasing debt costs, although in many of our assets, we have very long-term financings locked in, so that's been less of an issue but also increasing discount rates, but that's all being more than offset by the rise in the revenues themselves. So just a little bit more of some data from our underlying private markets platform for infrastructure. The data here really is looking across all investments that have been made over the last 5 years within our portfolio. And this includes all of our primary funds that we've invested in as well as the co-investments and secondaries that we've invested. So it's a really good proxy to kind of market activity in the infrastructure space. And you can see in the different bars here, the changes of allocations that GPs have made to different strategies over the last 5 years. Some notable things to really highlight here, the increased investment into digital infrastructure. This has been driven by macro tailwinds, use of data, but really accelerated post COVID and what we saw in 2020 was actually 51% of all allocations made by infrastructure GPs, we're going into the digital infrastructure space. Unsurprisingly, that also corresponded with the period of peak valuations for infrastructure assets. Since that point in time, we have seen digital pricing fall off, and we are now starting to see some more attractive deal opportunities in this space. We can also see from this data a decline in traditional infrastructure energy investment post 2017, in turn, replaced by consistent deployment into renewables. I think also notable here is the recovery in transportation assets post 2020, and this has largely been driven by investments into logistics. So from Pantheon's perspective, what we're looking to do is really to find attractive investment opportunities across all of these sectors. We're not wedded or tied to a single sector. And indeed, we think that having diversification across all the sectors is really key to a robust portfolio. Just want to say a few words on realizations. And again, the data we take here is from our broader infrastructure platform. But what we have taken is all of the underlying portfolio company full realizations since 2021 through to Q2 of this year. So you can see that there have been 13 full realizations, which backs up my earlier comments that although the infrastructure exit market may have slowed, it certainly is still very functional. What this also illustrates is how valuations have held up during this time. And what we have shown here is that the valuations for companies, 1 year, the holding valuation, 1 year before that exit, they've seen a 35% uplift in valuation at the time of exit on average. So there's a 35% pop on average from a year before the holding value. And for me, this demonstrates the conservatism with which infrastructure sponsors value assets until such time as they've prepared them to maximize value at exit. Infrastructure sponsors don't get paid fees on NAV, and they do want to outperform on exit. And this gives us real confidence in the underlying valuations. And not only does this imply conservatism in the valuations, but I think it also really validates PINT's strategy to hold assets for 5 to 7 years, alongside the sponsors, maximize the value on this exit and then recycle that capital into new investments. Just a little bit on our platform. I really believe that our scaled platform is a real competitive advantage for sourcing co-investments for PINT. We've been active investors into primary infrastructure funds since 2008. We've invested over $10 billion across 95 funds supporting 55 different infrastructure sponsors and you can see on the slide the selection of some of these sponsors that we partner with on a regular basis. We have advisory board seats on more than 100 infrastructure funds, and this gives us great information access as well as really fostering these partnership relationships that we have. And I think the scale of our platform and the relationships, long-standing relationships we have with these top quality infrastructure sponsors and the fact that we've got a view of activity across the whole market really provides an opportunity for us to source the best co-investments that we think we can find in the market at any time. And just to focus a little bit more on the sourcing of infrastructure deals. We're really focused on the infrastructure characteristics of the assets that we are originating, looking for high-quality infrastructure assets with downside protection. And this means that assets are typically essential services with long-term contracts or very strong market positions and low churn. We focus on investing into operational assets in OECD geographies and ensure that all the assets we invested have conservative and suitable capital structures. ESG screening is a really key part of our investment process and due diligence. Our recent flagship infrastructure fund, Pantheon Global Infrastructure Fund IV, our private fund and also PINT, as you will know, are both designated Article 8 light green. And you will have seen in September, we issued our inaugural sustainability report for PINT. I think finally and very importantly, given my earlier comments on the stickiness of our OECD inflation, we ensure that the assets we invest in have strong inflation protection. Just to illustrate all of this on the right-hand side of the chart, you can see our deal funnel. So with this scale platform, we've been able to source nearly $78 billion of deals since 2015. And from this, we were able to be highly selective and focus in on advanced due diligence on just 76 of these deals, totaling around $6.6 billion in value and ultimately closing 52 of those with $4.4 billion of value. So you can see we've been highly selective in only needing to invest 6% of the deal flow that we see but when we like a deal, we've had a 2/3 success rate in getting it closed. So I'll now hand over to Ben who's going to cover some of these portfolio characteristics in more detail for our PINT assets?

Thanks, Andrea. So good afternoon, everyone. Just to introduce myself, if we've not met before, I'm Ben Perkins. I'm the principal in the infrastructure and real assets team at Pantheon. I work exclusively on delivering PINT, so there's probably some sort of a gag about a [ barman ] in there somewhere. Anyway, I'm just going to do a quick intro on the positioning of the portfolio. So I'm not going to dwell too long on this slide. I think a lot of you who have been to the roadshows or been to the meetings, others are quite familiar with it. But just to set the scene, at 30th of June, we had GBP 458 million invested across 13 assets. So PINT is now effectively fully deployed. The majority of IPO and sub share capital has now been invested. We do have some firepower with the RCF. It's safe to say, however, that the bar is now a lot higher given the current macro backdrop, and there's no rush to deploy that capital. In any event, what is covered over the following slides relates solely to the existing 13 assets in the portfolio. In that respect, we're very pleased with the diversification we've achieved but from a geographic sector and response perspective. And you can see we've had a slight emphasis on digital to date. This is a function of the high-quality deal flow that we continue to see. It's also further diversified by the fact that we've invested in 3 very unique subsectors: so data centers, towers and fibers, all of which have very distinct characteristics. Moving to the right, we can see that 85% of revenues arise from regulatory or contracted sources. We think that this points to the continued focus on downside protection. And a word on sponsors, as Andrea touched upon, it's 55 at the last count. I think we've been really happy to see how those relationships have flowed through to the deal flow that PINT has been able to execute on. And we'll hear more from Jesse and [ Matt ], a bit later about how those relationships work. And now just to take a look at portfolio characteristics. So we've tried to capture here what this underlying diversification means in terms of the actual investment characteristics and the risks inherent in the portfolio. So these are the relative credentials as we see them. And so we put them across a number of the key touch points. And these can be read across the things that we focus on when we're looking at doing a deal and the due diligence phase. I think probably the key thing to note here is that we are -- being a diversified player means that there's no single discrete risk throughout the portfolio. So that's much like you might see in a single-play strategy such as U.K. renewables or U.K. PFI. We've also made a key point about PINT being -- that it's differentiator, that it's got -- it's a growth play. So there's some element of growth as well as some element of yield. This has been most apparent in the digitalization and decarbonization. But it's safe to say there is some form of growth opportunity across all the investments that we've made. We're very excited about this growth potential, but it does sometimes come at the cost of yield and specifically in the cases where sponsors have a very deliberate focus on recycling operating cash flows into new CapEx opportunities. That said, we're also very mindful of the importance of yield, particularly in terms of portfolio construction and how we make sure that we are medium and long-term covered from a dividend perspective. So what you can see here is that there are some assets that are expected to generate yield, perhaps just to give you a sense of the key, the dark green spots are the ones that either imminently are already yielding. The light green ones, the ones that we expect to yield at some point during the whole period. And then the yellow color coding is for assets that we'd expect to be more of a pure growth play. Looking now at inflation. So it's obviously a bit of a hot topic for everyone right now. Because PINT is sector and region diversified, it means there's no uniform linkage to inflation. So this, again, it's unlike a U.K. renewables or PFI fund. Inflation flows through assets differently. Some will directly capture inflation, so that could be contracted or it could be through regulated streams. And in some cases, it will be implied through pricing power. So we see that in some of our fiber deals, for example. In some cases, there may not be a direct link to inflation and companies might -- may benefit instead from fixed escalators or there might be the presence of caps. Just to look now at the risks. So again, to be clear, the dark green should be read as lower risk and vice versa. And absent any strong mitigating factors were generally averse to GDP or volume risk. So this isn't to say there isn't any GDP or volume risk across the portfolio, but the majority of deals do have robust offtake arrangements in place. The same pretty much applies to interest rate risk. So there's a few elements of financing risk. Interest rate risk is typically mitigated through hedging strategies. This is not always possible where there's a heavy utilization of CapEx facilities. And in terms of refinancing risk, this is mitigated by having long-term or amortizing debt structures. And typically, we like the companies to have a debt maturity profile that aligns with the targeted hold period. We also make a strong point around capital adequacy. So what we mean by this is that no business plan should be unfunded when we go in. And we know that this again is quite a hot topic right now. I think we're also always very keen at the underwriting stage to make sure that there's enough means of capital to fund the growth, and we'll actually touch upon that in a few slides. I think the final point here is on commodity risk. So we don't want bucket loads of commodity risk upfront in the portfolio. We don't think it's very infrastructure-like. So what are the things we do with all our deals where there's some element of merchant exposure is to sensitize what returns look like if we strip them out entirely and to make sure that the crash case or the extreme downside case still stacks up. And we also have a focus on making sure we can pass on as much commodity input cost as possible through to customers. And again, this would normally be outside as the typical escalator mechanisms that we've got. So we talk a lot about growth, but what does that look like? So we put together this slide, which seeks to take a look at what the portfolio could look like in 2030. So just to stress, this is projections on the current portfolio of assets. It's the 13 deals we've done. We're not assuming that we go on a spending spree and do more deals. It's actually driven by a relatively forensic approach. These numbers are taken from the sponsor's base case forecast. So it's what each sponsor is saying they think they're going to deliver in their underlying base case. And in themselves, these kind of forecasts are driven by an assessment of addressable markets, and these will typically be produced by external consultants, and it's something that during the due diligence phase, we will get the benefit of looking at. Overlaid on top of those kind of addressable markets, we take a long-term view of the market share that can be captured by the company's PINT invested in. And this is ultimately going to be one of the key determinants of success of these companies. So again, we set this out by the key tailwinds that we see in digitalization and decarbonization. Just to address them each in turn, in data centers, we're seeing a material expansion here, which is driven by Cloud Computing, the Internet of Things and also Artificial Intelligence, which is a relatively fresh development in terms of those companies. And that affects CyrusOne, Vantage Data Centers to a lesser extent, also GlobalConnect. In the tower space, we're expecting a doubling of the current footprint. This is principally driven by build-to-suit in support of regulatory 5G requirements. There's also some element is driven by expected M&A activity as we would expect some pockets of consolidation in some markets. In terms of fiber, it's a more measured approach to growth there, and there's very target specific intervention areas in the companies that we're back. So to take an example of NBI, that's a PPP and in collaboration with the Irish government, they've got a very specific [ intervetionary ] of 560,000 homes. So there isn't really a market to go beyond that. And similar principles also apply to Delta Fiber and GlobalConnect, which is also in the fiber space. In renewables, we're expecting growth here to be mainly driven by Calpine. So they are looking to diversify away from their mainly gas-fired fleet into conventional renewables and also augmenting our geothermal footprint. In terms of electric buses and lorries, the current footprint is around 1,000. This is expected to increase massively. Zenobe is leading the charge in the electrification bus fleets in the U.K., in Benelux and also Pockets of North America. And then Primafrio also decarbonizing their operations through the rollout of electric and hydrogen fueled vehicles. We actually had the privilege of being taken for a spin in one of their EVs recently, and they've got very luxurious cabins. On the battery storage space, there's again a huge opportunity here. This is being driven by the massive increase in intermittent renewables on the grid. I'm sure you'll all be familiar about these touch points. This is going to require enormous expansion of flexible generation that quite simply the grid isn't currently capable of providing even with some assumptions around declining market share, this is expected to translate to around 5 gigawatts of additional storage capacity, and that's across Zenobe, Calpine and also Fudura, which you'll hear from Jesse on later. This is also to say nothing of the prospects of being part of the hydrogen backbone network through National Gas Transmission. And we're actually very encouraged by the recent National Infrastructure Commission, which gave us back into this and I think yesterday, Rishi Sunak was actually visiting one of the sites. So the flip side of this, very ambitious rollout of CapEx and is the cash required to fund this. So sponsors are estimating an aggregate across the 13 companies, around GBP 45 billion of CapEx to 2030. PINT share of this is around GBP 600 million. The progression of it we've shown here up to 2030. I think it's very important to take away that this is intended to illustrate CapEx that's being incurred to PINT's benefit. It's not an expectation of additional funding. So as I've noted previously, we're very, very focused on making sure CapEx programs are typically fully funded upfront. So this would be through a mixture of headroom in our existing debt capacity, through cash flow recycling or actually headroom on the equity tickets that we write. So we might announce a deal worth GBP 50 million. It may only be GBP 45 million that goes out on day 1. We're keeping that GBP 5 million back through existing liquidity. There's always a chance that businesses could outperform this. This could, in theory, present additional funding opportunities, particularly M&A, I guess, by its nature, it's less obvious. By being a co-investor, this would give us optionality to participate, but in no way would it create an obligation to fund. So I think that's another critical point and to the extent PINT has capital available to participate, and it wants to, then it will be able to, but it will not be an obligation and PINT's participation or otherwise will not be a drag on companies achieving their growth. So how does this all translate to earnings? We've set out here what we think is going to be fairly material earnings progression and -- up to 2030. You can see that we've got a compound annual growth rate of around 11% during that period. So this is forecasting from around GBP 45 million today to just north of GBP 105 million in 2030. In tandem, we'd expect companies to deleverage. We've illustrated how this could look. So we've created a look through net debt-to-EBITDA reading, which is intended to be a proxy for the look-through gearing of the company's. In absolute terms, debt may still grow, but it will grow at a lower pace than earnings. So we're forecasting a drop from around 7x EBITDA today to just shy of around 5x in 2030. I think the final note for this is for the [indiscernible] amounted to the current figure of GBP 45 million is slightly less than what you saw in the interims of GBP 49.9 million. That's because we adjusted for some short-term subsidies. And finally, just to contextualize what the deliverability of this looks like in terms of a risk and I guess, portfolio return perspective. So we've run a couple of sensitivities stressing what a range of outcomes could look like in terms of portfolio returns. The starting point here is the 14.5% base case portfolio IRR. So this is different to the discount rate, which we disclosed at the interims of 14%. And it's actually based on a weighted average of the base case IRRs of all the deals that we've done. Also worth noting that the 14.5%, that's a gross figure. So it doesn't include the impact of any fees or running costs. Starting from the top. So exit timing, you can see points relatively insensitive to this. This is because we also assume with any delay or any bring forward of the exit that EBITDA would also be toggled. So a quick exit therefore, forgoes growth and vice versa. So the increase or decrease of the actual exit proceeds arising from that timing would largely offset any IRR gains. In terms of exit proceeds, that's a bit more material. To give some background around what we're sensitizing here. So this is intended to be a singular way to capture the sensitivity to the terminal exit value that we assume across these deals. So this could vary for a number of reasons. It could be that secondary IRRs, the IRRs that would be purchases require are higher, it could be that their debt cost in support of those transactions are higher or it could simply be through underperformance. It might be a case that a sponsor doesn't deliver the top line growth that they're expecting or their margins are lower due to a combination of increased CapEx or OpEx. Similarly, distributions, this speaks the same. It's pretty much a proxy for ongoing business performance. We know that, as we touched upon before, some of the portfolio expects to yield. Underperformance would impact the ability to pay those distributions. Returns are, however, a lot less sensitive to a sensitivity to distributions than they are to exit proceeds and this is a function of the relative proportion of value, which is driven by impaired distributions. And finally, at the bottom, you can see we prepared an underperformer crash case as well as the reciprocal upside. What this does is it layers a 20% reduction in the terminal value that we touched upon earlier, over a 50% distribution sector and also a 1-year exit delay. So you can still see here that we're delivering a fairly robust 9% return. So we think this feels -- we feel that this demonstrates the relative robustness and general diversification of the portfolio when considered from an aggregate perspective. I hope that's been useful. I will be around at the coffee break and also the drinks reception to take any questions. But for now, I'm going to hand over to Welwin.

So good afternoon, everyone. I'm Welwin Lobo. I'm a principal in the infrastructure and real assets team here in London. And I'm very excited to introduce DIF today, but also to welcome Jesse and William, who are here from the Amsterdam office. So I know Jesse will be talking about the DIF platform in more detail. But what I really wanted to emphasize is our partnership with DIF. DIF really fits that top tier mid-market slot within our platform. We have been investing in DIF since 2008. So as Andrea mentioned, from the start of our infrastructure platform. We have invested in over 9 of their funds since then. And we have also over $500 million in capital across funds and co-investments. So this capital alongside our long-standing partnership means we are an advisory board member on all of their funds. What this gives us is privileged access to information. And hopefully, this provides a very brief overview before I hand over to Jesse to give a more thorough run-through of our investment in Fudura. Jesse?

Thank you, Welwin, and good afternoon, everyone. As mentioned by Welwin, it's a great partnership that we have, Pantheon and ourselves, going back quite a while, even almost to the beginning of DIF. To start with, my name is Jesse van Schouwenburg. I'm a Senior Investment Director within DIF's Benelux investment team. I also co-head that team. I joined DIF back in 2017 from a Power & Utilities investment banking firm. So I've been focused on our utility, so while at DIF -- although I've done a few other investments as well. But predominantly, my focus is on power utilities, moving to energy transition as we progress. I'll put my slides here as well. So over the past 3 years in the Benelux investment team within DIF, we've invested significantly in energy and energy transition. I led the investment in Fudura, which I'm going to talk to you about today. We've also done investments in other energy and electrification [ themes ], predominantly Greener Power Solutions, the mobile battery company as well as in a developer of green hydrogen projects, all done by the DIF Benelux investment team. To give you a brief introduction on DIF. So this DIF is a -- for now independently owned and founder owned private investment firm. We started in 2005, raising a small fund of a EUR 100 million to do PPP investments. A bit later, we started to do renewable investment, renewable power investments, and we've grown over the years into what we are today. And today, we are a globally active, what we call top 5 mid-market infrastructure investment manager. We work on a local for local, but globally active approach. We have 2 fund families and 2 investment strategies, if you will. We have an investment strategy, which is also our flagship investment strategy and also the strategy out of which we invested in Fudura, that's called our DIF core infrastructure investment strategy. We're currently fundraising our 7 fund in that strategy and Fudura sits within the 6th fund. Next to that, we also have a family of funds and investment strategy focused on mid-market core-plus infrastructure. So that's basically the 2 strategies. In total, we have EUR 17 billion assets under management. And over the years, we have invested in over 200 infrastructure companies and projects. As you may have seen, CVC announced it will acquire DIF as a manager. We're currently in the process of that transaction. It hasn't closed so far. Going through that introduction, let me give you an overview of our investment in Fudura and setting the scene for that. So Fudura is a market-leading B2B energy infrastructure and services provider. It's based in the Netherlands. We invested in Fudura, DIF as a manager together with PGGM investments in March '22, and we closed in August 2022. So we're well over a year into that investment. We invested on a joint venture basis with PGGM. Some of you may know, PGGM is the infrastructure direct investment arm of PGGM which is a Dutch pension funds in health care. Total investments around EUR 1.3 billion. So what is Fudura. So Fudura was founded in 2012 as part of the Dutch DSO or distribution system operator, and the DSO delivers energy or electricity to end users. And it's really the most granular part of the electricity network. And the DSO is regulated at least in the Netherlands, it is in some other countries, it is as well because it's core infrastructure. And this DSO has one business which is Fudura, which is not delivering to end customers or retail customers and also not to the largest users of electricity but to businesses, small businesses. And for some reason, in the Netherlands, that part of the business is not regulated. So that means it's also noncore for this DSO [ annexes ]. As distribution system operators are looking for ways to invest more in the grid as they need to navigate the energy transition and a higher demand for electricity, they are starting to look at divesting noncore businesses Fudura is one of them. So Fudura sits in what we call medium voltage infrastructure, is the medium voltage part of the grid, and it delivers infrastructure to SME businesses in order to connect them to the grid. And that makes this business essential for small business customers in the Netherlands. And what they actually do, they provide transformers, substations and cabinets on a lease basis to these customers as well as provide meters. So that's just to meet our devices to those customers as well. Talking about what we call medium voltage infrastructure. So that's transformer substations and cabinets. That's really what we call a high value but low interest product for the customers. It's essential for those customers to get to be connected to the grid. But it's -- in a way, it's a very simple piece of equipment. And once it's there, there's no rationale for customers to either find another partner for that part of the infrastructure or otherwise. So as long as those customers are in business and the real estate is there, they have this connection piece to the grid, which Fudura leases to them on around 10 to 15-year contracts. So this is the basis of our investment thesis. This is a very strong core infrastructure investment case, really having a long-term lock-in with small business customers. They have around 22,000 customers divided over mid-voltage infrastructure as well as meters. They're headquartered in place called Utrecht in the Netherlands, around 400 people working for Fudura. So more recently, and as this is not part of the regulated part of the DSO, Fudura has been able to -- look into how can we add more value to customers that we have connected to the grid and our long term supplying their power. All those customers need to navigate the energy transition and are looking towards more electrification. That actually means that those customers are looking to add on solar panels on their roofs. We'll be looking at adding EV charging infrastructure on their premises, maybe looking at putting a battery in between in order to manage peak power demand or supply. So as part of the regulated utility, Fudura wasn't able to develop those kind of commercial offerings to their customers. But as part of the stand-alone investment case, now that we've -- we have become the owner Fudura, this is an important part of the growth trajectory. So why have we invested in Fudura. So as I mentioned before, so it's really a core infrastructure business with very attractive growth characteristics. They have a 30% market share and that market share arises from their original position as being part of the DSO. So they're really established in the region where the DSO is active. And given that there's almost no churn in the medium voltage infrastructure business, that's really a long-term -- around 30% market share position that we believe in. That makes them the leading company in the Netherlands. The 2 other big ones as well. One is called Kenter, owned by another or previously owned by another regulated utility and Jules previously owned by other 3i Infrastructure. Fudura is the largest of the 3 in a market of basically 3 companies. Well, as I mentioned before, this is really a very stable core business. The contracts, as I mentioned, medium voltage infrastructure, 10 to 15 years with automatic inflation linked as well as barriers to exit on the contracts. Same for metering, those contracts are a bit shorter but there also, we see very limited churn. So all in, it's a very stable core business. What I said before, so the customers that Fudura has are looking to navigate the energy transition. And therefore, we see a lot of potential adding additional products to Fudura's offering as they already have this very strong and locked-in customer base. They have a great technical operationally focused employee base. And as we're adding commercial capacity and adding products to serve those customers with, there's a clear growth trajectory ahead for Fudura based on market tailwinds. Therefore -- and that's the key of our thesis, we are building what we call Fudura 2.0. So taking that company that has resided within the DSO, making that more market-facing, adding products to Fudura's product suite and into our business, which is able to -- based on the data they read out of the meters, they supply to their customers based on that data, offer an integrated solution to their customers. So this is the endpoint which we have in mind for our investment in Fin Fudura. Where does that leads to -- well, that leads to expected EBITDA CAGR of around 10% per year over our investment period. So detailing a little bit more around our strategic objectives for Fudura. So really what we bought into day 0 is this [ MV Inframetering ] business, a bit of data services as well as an EV charging capability. And while we're currently positioning the company for, is being able to add solar and then specifically rooftop solar, adding or adding on to the EV charging capabilities. As well as starting to offering batteries. So that's all what Fudura has been developing over the first year of our ownership, and it looks very promising. That really makes Fudura one-stop shop. So moving from a company which is very much able to deliver the highest quality technical installations to customers, within its infrastructure business. Fudura is now transitioning to a company that can deliver integrated solution and be more at the forefront of their customers. So where are we today with Fudura, as I said, we're 1 year in or slightly over year in. In terms of current trading, so revenues are in line with our acquisition case. And we see that we have significant outperformance on our underlying EBITDA, which is a few percent above the case. For us, that's a very strong first year for Fudura. And what's more important, we've been working with the management of the company, as well with our own firm on the then specifically strategic rooftop solar. Most importantly, we are strengthening a management team or adding on to the. So we added the CFO and a new CCO to the business, as well as the Strategy Director. That's the key to how we do business. We really start with the management team and assessing to what extent the management team can deliver, the growth case that we have in mind. So these are really the first changes that we made, while invested in Fudura. On top of that, the business started to develop what we call the new propositions. So really solar PV and battery storage. And when we look at pipelines of both products, I think it's fair to say that solar PV has been a bit slower than we had expected. However, battery storage is significantly ahead of what we expected, when it comes to building our portfolio and building our pipeline within customers. So that is looking very promising and it's also underscoring our main investment idea that Fudura is delivering integrated solutions. So from our perspective, one product may be a bit less in demand than the other. But in the end, Fudura, will be at the fore front delivering integrated solutions and is well on track with that. We also added given that this is a company that has been cited within a regulated utility. We have put a lot of emphasis on delivering a commercial organization, being capable in a few years' time to deliver integrated commercial solutions. So how have we done that? And this is more a underscoring how DIF generally approaches investments. And I think we've done that here as well. So we've prepared with our investments team for over a year before this company was actually brought to market. And we are building on with our local teams in our local offices across the globe, same as we are doing in the Benelux. We are building on a very strong local network, which we have been building over the past 15-plus years. So therefore, we knew all the insiders, all the stakeholders. We knew our investment thesis even before this company was being considered for sale. So that's what we started out with. And secondly, we've built outside in, we've built a business plan, obviously, helped with senior -- senior industry executives and senior advisers to our team, crafting our investment thesis, developing our approach to invest in Fudura. We've done that outside in really delving on our own experience as well as our advisers' experience and doing that outside in. What was also important in getting this over the line is that we could provide to the seller a local approach, with a local consortium with a local team and presence. Which also made sure that we could cater well to some nonfinancial covenants that the seller deemed very important. So that's what we've done outside in before we entered into this acquisition process. Then obviously, we've done the investments. After that, we are very much involved in the day-to-day management of our investment. And the different approach is we really sit next to management, helping them what we call the value creation plan. So we have our value creation plan ready for our investment period for the company. We really made sure that we are all aligned with management on that and helping them day to day executing that. With that, I'd like to thank you very much, and I'll give the floor to -- the break. Thank you.

Thanks, everybody, coffee break time. We're a little early slightly by design. We thought it was better. We've got a big bunch of our team here today. So please do ask them any questions about the assets, about the platform. Anything you've heard here today. We've also got all the board members as well. So it's a great opportunity just to hear a bit more about product. Coffee is that way. [Break]

As you know, we've got a pretty -- we've got a pretty heavy skew to digital assets. So we thought what better way than to get one of our most prolific digital players up on stage here. Matt and the team go back a long way, we've been working with him in his prior life and probably for the last 10 years, I think we've probably put them in business some time ago, Andrea, and Matt joined Digital Bridge. I'm going to say, what, 2.5 -- 2 years ago now. We executed our first deal with Digital Bridge back in 2014, not in PINT, still on a platform. Towers business in the U.S., one of the biggest independent tower companies out there. We've also had the pleasure of doing a follow-on funding round where we took PINT to that asset. We've also invested with PINT across Vantage data centers and also GD Towers more recently. So 3 deals, great exposure across kind of the different subsectors. And just pleased to have Matt on stage and he'd help us sort of dig into some of the digital themes. We've also got just over $1 billion of capital with Digital Bridge. So a very big exposure for us and a team that we respect. We stay on that one.

So Matt, I guess, why don't we start maybe just telling us a little bit about the Digital Bridge, the sort of the sector and why you think being a specialist in the sector matters?

Sure. Thank you, Richard. And first, let me say thank you to Pantheon for their partnership, you acknowledge you have been a very big and important client and partner of ours over the years. So thank you for that. So I guess, where I'll start is just to talk about sort of why Digital, why do we think investors should have an allocation to Digital in today's world? And you all have seen sort of various charts about the tailwinds that surround the Digital sector. And I guess I always try to bring it back to one very, very simple thing, right? We all use in our day-to-day lives, whether it's at work or at home or in our interactions with government or in their interactions with Health Care and exponentially increasing amount of compute cycles per day, right? That's -- we're all boils down to, right, is that in whatever form we're using them, at our desk, in our car, on our phones, it's just that exponential growth in compute cycles today that is driving everything that we see in terms of the need for incremental Digital investment. So it's most obvious and most of you will see a lot of headlines right now in the Data Center space, right? And I'll talk about AI a little bit later in some of those big trends that are driving it. But everything that we see in the mobility space, right? And because I guess the other sort of big trend to talk about is something that we were probably promised over 20 years ago now, with the advent 3G, which is basically location neutrality, right, that it shouldn't really matter where we are, but we should have the same connectivity and ultimately the same access to compute that we have in every other place that we're located. And we're probably still, frankly, a good decade away from that actually occur. So those are the 2 big trends, and I'll dig in a little later to set of the themes behind that. What does that mean in terms of how you invest and why we think you need a specialist Digital Manager? These assets are typically operationally complex and typically operate in what is now quite a diverse ecosystem, right? So, there are plenty of diversified managers out there, some with very good digital teams. Don't get me wrong. But there's other diversified managers out there who might only have one data center investment or one investment in a set of towers. If you don't have the breadth of expertise in a market that you're investing in to understand mobile, fiber, and data center architecture. You're taking a very big risk because all 3 sectors are really inherently connected today. I mean we've been talking about convergence for 15 years. And when it started, it was really only, I'd say, a consumer trend. Today, it's an infrastructure necessity, right? You need to have converged infrastructure in order to deliver the services that comprise a sort of a modern digital offering. So we think that convergence side and being able to understand all 3 big sectors and there's a couple of smaller sectors that we refer to and being sort of small cells and edge infrastructure. But basically, we talk about towers and wireless data centers and fiber as being the 3 core sectors of Digital infrastructure. And understanding that as an ecosystem is incredibly important.

That was really helpful. It might be good maybe just to try and like double-click down into, say, one of those sectors. So maybe what are some of the tailwinds, 5G deployment and sort of more about sort of the global spend on the model?

Sure. So -- if we look at sort of where we are in 5G and frankly, I don't like the term generations that the industry has started using. I think it's -- at least these days are misrepresentation and actually doesn't do the industry any favors. But where we are with the development of what I'll call sort of a modern mobile standard. And look, people start talking about 6G soon, it will just be an evolution. Is -- we are barely 25% of the way in. So if you look globally, only about 50% of the world has 5G implemented and in the vast majority of those countries, and look, here we are in London, that's a classic example. 5G implementation is actually very, very poor, right? It's very possible to walk around any of these streets and find yourself on a 3G signal, which basically, in today's world with the apps that we all use, means you don't have connectivity. It's not real. So why is that occurring? It's occurring because the first phase of almost every transition in mobile technology is about coverage. It's about getting people to see that there's a little 5G in the corner of their phone and that they might want to pay a little bit extra. They have access to that. And then it becomes commoditized. And then we all start to say, well, hang on, my network experience is actually pretty poor. I'm going to have a look at the other networks. And that puts pressure on all of the operators to increase network quality. And that's when they start to spend on what's called densification. So densification is an attribute, where if you think about a cell site, right, that cell site might support 1,000 connections at high speed. But at the moment, you go to 1015, the speed drops for everybody, not just that last 15. And so what you need to do is you need to add in another cell site, where half the customers can go to or you start adding stuff at street level, so on bus stops or on the side of buildings or on rooftops, right? I mean rooftops has been around for a very long time. Today, we actually talk more about the incremental infill being at the street furniture level and what we call small cells. All of that requires massive spending, right? So I'll just use some numbers for Europe. So about 18 months ago, the GSM Association did a study, and they concluded that to finish the 5G project for the EU, I think, in the U.K. at that time, was EUR 250 billion, right? So if there's one thing you can be guaranteed that is not coming from telecom operator balance sheets, right? They simply do not have the capital, many of them are operating with busted balance sheets from as far back as 1999, right? So obviously, a big chunk of that will be debt. So you need very functional debt capital markets. but you also need the involvement of private capital. And that's why we've seen sort of the increasing rise of the independent tower company or at least the separated tower company in Europe, right? First, with sort of the growth of Cellnex and then more recently, Vantage Towers and the GD Towers transaction that Richard just alluded to, which I was heavily involved in last year. And we'll continue to see that play out. I think it's probably a slowing rate at this point, but there's still a very large number of -owned towers across Europe. I mean if you just look at our partner in GD Towers, Deutsche Telekom, still has another 28,000 tales across Europe that it owns in various geographies, despite having sold us and our partners and keeping a stake about 43,000 towers in that transaction. So that will be a trend that continues as they need to continue that spend on network improvement fundamental.

That's probably a good segue actually talking about GD Towers. Obviously, one of our more recent investments would be good to kind of hear. I guess, where kind of the build-to-suit opportunity was there and just sort of the wider investment rationale for that.

Sure. If I think about sort of the wider investment rationale for the deal, I mean, this was an asset that -- well, my boss, my CEO, Mark Genzi had been trying to buy for about 8 years. So it was a very long time in the cooking, so to speak. We felt that GD Towers was the best positioned sort of single country asset, and we have set towers in Austria as well, and that's a good dynamic. But Germany and being the leading operator in Germany is we felt the best positioned tower asset that you can have for a couple of reasons. Perhaps first and foremost, the strength of DT as an operator and partner, they are the mobile brand in that market, and they will kept to continue to be so. It's sort of the entire reason for the existence, if you like. So they will continue to spend what it takes on their network to continue to have network market leadership in that market. And it's effectively demanded of them by the German government, who remains a shareholder in DT. On top of that, and this comes to the sort of the build-to-suit opportunity and why that build-to-suit opportunity exists, is that Germany, if you look at data usage per person is at only about 50% of the European average. And if any of you have been to Germany recently and tried to chicken into a hotel and been given 300 handwritten forms to fill in. And if you've had a canceled plan, an airport hotel and watch a queue stacking up behind you, you'll see that there is a massive impetus in Germany. And obviously, I had a conversation with the German Deputy Minister of Finance, where he went out of his way to sort of be telling me about everything that the government is doing to try to improve digitization in that economy. It's probably the only place in Europe where people would still give you a fax number, genuinely. So the look, the uplift in data usage and, therefore, the continued spend that the operators will need to make on densification. So that has 2 implications for a tower company, right? The first is -- and frankly, we're already seeing this today. We've had demand in excess of what we expected from other operators to co-locate on our towers, right? The second is to build more towers, right? So, and actually, even since we acquired the business, the German government has announced some new rules requiring greater coverage requirements on major transport routes, for example. So we've seen some additional upside, even since we bought the business in our expectations of how coverage is going to be demanded in Germany. So if we look at the DT asset, I mean, out of -- where we have about 33,000 towers in Germany, we'll be building well over 18% off that. I mean, we have an order book that's about 1,000 to 1,200 towers per year. It varies a little bit up and down. but it's a very significant order book. We have a very big focus on that production organization. And again, this is why I talk about digital specialists, right? We've done this 10 or a dozen times around the world in taking tower companies, sometimes that existed, sometimes that were just divisions of telcos. GD Towers, I would say, was somewhere in the middle. It sort of was set up as a business, but it wasn't really profit-oriented. And so we've brought in new members of the management team, not the CEO. We've lived through over years, but we've built -- brought a new Chief Production Officer, to manage what we call the factory lines for the production of new tower, as he comes from the construction industry. So bringing these sort of additional disciplines into play as part of the reason why we as a specialist digital infrastructure investor, I guess, sort of earnout, so to speak.

Great. Let's let's pivot to towers, need to try and get through the subsectors here. So we've talked about towers, hyperscale data centers. Everyone is talking about the hyperscale opportunity. But there's also the multi-tenant facilities as well. You mentioned at the beginning, edge data centers. Could you sort of lift a little a little bit for the audience in terms of couple of the opportunity set?

Sure. So look, I mean, if you think about what a data center is fundamentally, it's a large and boring building that supplies power to servers, right, and calls those servers down, right? Those are the 2 things that you need to do compute. You need large amounts of power coming into the building, paid for by the customer in terms of energy usage, but the actual availability of power is the core function of a data center and then pulling hot air off servers and calling it down and putting it back into the data center is the other necessity, right? If we look into sort of who uses data centers, right, historically, where the data center industry came from was actually corporates thinking, well, I shouldn't have this in my head office, it's too expensive. I'll put it somewhere else. And then they thought, well, now that somewhere else, I probably don't need to have it just in a building by myself. Now I'll put -- I'll let other people come in from my building or solar building and someone else can bring other computers into that building. And then we had this thing called cloud. And what cloud was the provision of fundamentally service owned by other people in saying to predominantly corporates, right? We can run your compute more cheaply for you than you owning these servers, right? Now that's not the case in every case, but that's been the fundamental reason behind the cost of -- the growth of cloud, right? We all think about this as being very technological. It comes down to one very basic thing, cost of production, right? It's just like every other industry in the world, cost of production roles. So, the reason that cloud has become so predominant is that it massively cuts the IT costs for enterprises, except for very specific applications, where enterprises are either continuing to use mainframes, and that's a sector that will exist for another 20 years. or have security concerns. And so it sits in what we call hybrid cloud, which is more private. We haven't done that transition yet in which case they'll be in a multi-tenant facility. And then as we think about just cloud and hyperscale, and I appreciate there's a lot of things flying around here, but it's a very complex industry, is even in hyperscale, we have single tenant and multi-tenant facilities, right? So we have facilities that are Microsoft only or Google only or Amazon only. And then we have facilities that are almost the same size, but generally in a much smaller location where Amazon says, well, I only want 5 megawatts, not the 20 megawatts, that I've got somewhere else. And Microsoft says, well, I'm basically the same. And Google says, well, I want 2 megawatts in a path to 5 megawatts. So it's actually the same sort of facility. It's the same customers. It's just that they're taking 10% to 30% of the facility instead of 100%. And that's where the bulk of data center demand is sitting today is really in those hyperscalers in varying sorts of facilities.

Okay. And so we are invested in Vantage at North America, so the development company out there. I think clearly, data sovereignty is an issue, as you touched upon. And so that's obviously driving, latency issues as well, and that's obviously driving to Edge. Tell us a little bit about the business plan for Vantage, where it's getting to. And maybe just touch upon contract lens because I know that's something that the audience is probably quite keen to hear about.

So Vantage itself really focuses on predominantly single-tenant facilities. We have a small handful of multi-tenant, but it's predominantly single-tenant facilities with the very largest customers. So Microsoft, Google, Amazon, Web Services are the largest. And then we touch into what we call the baby scatter, so the likes of Oracle and Salesforce and some of those other emerging platforms. What we are seeing with Vantage is 2 things. So there is talking Vantage North America, Europe, frankly, is not all that different with some added complexity is the continued growth of demand for the cloud product, the continued complexity of that cloud product. And so what, for example, Microsoft offers its customers is more complex in terms of pricing levels and those pricing levels are essentially based around availability and resiliency. And that pricing has to be matched by an architecture that is capable of achieving that resiliency. And fundamentally, the way you do that is more data centers, right? So what's the barrier? The barrier is power, right? So many markets that we're seeing in the U.S. that have historically been very important data center markets, and Virginia is probably the key one, are simply running out of power availability. And it's actually not generally generation. It's worse because it takes longer. It's the transmission group. And so good in transmission availability is becoming a very real constraint. So what's the solution to that? It's the rise of new geographies, right, within -- and frankly, we see this in the U.S. and Europe, the rise of new geographies like Arizona that can cater with relatively low land prices with low power prices and with lots of power availability. So, we're starting to have active dialogues with our customers about when you request the facility, does it really need to be there because we're not sure anybody can actually provide it to you in the time frame that you're asking it for. The other dynamic that I'd point out around Vantage, I think this is very important to understand because it relates to the contract linked question, when we build a facility within Vantage, if you think about a 30-megawatt facility it's probably $300 million to buy, right. We would generally acquire the land, and we make sure that we have an option and what's called a will serve letter over the power, and that might be of the order of $10 million to $15 million of spend. We will not start construction until we have a contract, right? So, in many ways, this is actually a very low-risk business because that contract will be a 15-year lease, right? That's how we operate in the data center space. I'm always shocked and I met someone we had a data center conference in France recently, who cheerily told me about the Madrid campus. -- where they've built a shell and don't have a single customer. And the people who are investing behind that, I think, are people who just fundamentally don't understand.

That was a real estate investment.

It was a real estate. That is absolutely correct. A real estate family office. So yes, look, we take -- it's a very infrastructure approach, right? It's almost like a project finance approach where we want to completely de-risk. And what we've done more recently in Vantage Europe, we've done it previously with funders North America is we actually develop the data centers. So we have that very small amount of what I call development capital. The rest is effectively construction risk, and then we're selling some of them to stabilize buyers at the point, where the revenue starts flowing. And that's sort of your ultimate form, if you like, of capital recycling or cost of capital efficiency.

So basically by taking very limited risk because you've got those contracts in place, you've got the power in place. You're not really incurring CapEx until you've got all of that in place in that 15-year guaranteed cash flow?

Yes.

And then you build it?

And then you build it. And we're typically making mid-teens to high double-digit development yields.

And compared to what would have stabilized yield might be right?

Stabilized yield for a data center. So stabilized cap rates are sitting at about 6%. So when you think about escalators, et cetera, you're seeing IRRs of circa 9% to 10%.

Yes. Okay. So it's a big yield compression?

Big yield compression.

Big capital gain?

Correct.

Okay. Thank you. we haven't got much time left. I'm going to say we've got about 5 minutes left. Why don't we touch on AI because, obviously, everyone loves a good AI story whether it's AI is going to take over the world, or make all jobs redundant. I think somebody famously said the other day. Look, I think a lot of AI feels a bit like PE. It feels quite high risk in terms of kind of what people are hoping to do, what they think the revenue streams might be. How does it apply to the kind of your part of the digital value chain, where are you ...

it's a good question. I don't actually like the term AI, because I think it encompasses a set of tools that in many cases, have nothing to do with each other. But in any case, we have this new and really advanced set of effectively machine learning tools that we're all starting to use more and more. And when we start to see CoPilot come in to Microsoft, I think that when AI is going to start to come into itself. To your point, where we are is we're at the bottom of the value chain, again, providing that asset infrastructure. So we don't really care whether it's Microsoft platform or Google Bard or sort of whoever comes next that sort of dominates. We don't care if it's NVIDIA chips or if IBM means up or something like else and we certainly don't care what software platform ends up running on those. What we do think is that AI is probably an almost cloud scale opportunity. So we are already seeing -- and look, demand in AI comes in 2 pieces. So we have this thing called training. So that's effectively what we all see the outputs of today. And that really won't require very many data centers, but they'll be very, very large, right? So in the U.S., there's probably going to be 5 of those in Europe, probably 3 or 4. If any, it's not latency sensitive to point, which means it can be put broadly speaking, anywhere. And again, it's all going to be about cost of production, very, very low-cost energy markets. But then we move into what's called inference. And for that, if you think about a 5-day test match, for example, we're in the third over right, which is the rollout of AI infrastructure effectively into cloud data centers to support the co-location of AI with the general cloud product, right? Because when we start to use AI, we are going to be latency sensitive, right. So, what does that mean? It means we probably need to do some fairly significant CapEx in some cases, on our data centers. And the reason for that is that AI racks are about 4 to 5x as energy dense, and therefore, 4 to 5x is heat dense as a normal rate, which means you need probably liquid calling or at least force the accordance of passive to pull their heat away and you to continue to supply those very large amounts of power. But our view is that if we look out over a 10-year time frame, we're very optimistic about what I'd say, the power demands, the challenge, of course, and we're all talking about it, is where does that power come from. There's only 2 solutions, right? We can either drive forward into renewables. We can take power from other pieces of industry or we can stop using compute. I don't see the third happening. That's my take on it.

And that's 5x density. I mean, that's massive. So when these data centers were -- there are some of the older data centers, some of that older capacity that's there, they won't be able to fit those racks.

They will with modification with -- even frankly, a modern hyperscale data center is not made for the density of an NVIDIA act. So a typical cloud data center today, our rack space would support anywhere from 12 to 18 kilowatts, a full AI rec will take 45 to 15 kilowatts, right? So you do need to be talking about installing liquid colon. So there's a couple of technologies you can drop what's basically like a fridge down the back of the rack or you can have plates that go in and sit on top of every server and the liquid flows and then goes up into the sealant and then flows back to the cooling system. So these are not, again, like enormously technologically complicated systems, but they do require some quite significant expenditure. The nice thing about the data center space, is it's enormously rational. You spend CapEx, you get paid for it, right? But the clients just -- they'll say to you, "I need this done, and you'll say, well, that requires this much uplift in your lease rate and they say, fine, done, build it.

They're captive. They can't move elsewhere.

They can't move elsewhere. But more importantly, there is so much demand and growth in demand that they're thinking about how do I get my next data center, not or we could I move that one that I moved into 3 years ago. They just don't have the mine space for it and they have no need to because data center rates, lease rates are going up, not down. So even if you try to move today, you're going to be giving up a cheaper rent for a more expensive land.

So great tailwinds across the passive infrastructure of towers, passive infrastructure data centers, none of the active technology risk taking there. and valuation environment, maybe just last minute.

So today's valuation environment, I think, is certainly more attractive than where it was 2 years ago. I think in the tower space, it's only compressed a little bit more or less the same. We've definitely seen a couple of things in data centers. We've seen a rise in cap rates are stabilized, basically in line with...

What we're seeing at the core in front?

Yes, exactly what you're seeing in core infra. And we haven't seen any yield compression for development, which is not, right? So even though we're seeing a bit of a pickup in the cost of construction, we're essentially passing all of that through to customers and new contracts. So from a sort of pricing environment on what we're building, but also a cost of capital approach, we're not really seeing compression. We're probably seeing a little bit less competition in the space. I think everybody wants a piece of it. But actually, it's very hard to convince Microsoft or Amazon or Google to trust you. So you can have all the capital you want if you don't have the relationship, you're not going to be able to deploy it. And so there's a sort of natural barrier to deployment of capital in this space as well.

So being a scale specialist investor.

Is an enormous benefit, enormous benefit. And so today, I think there's probably 4 to 6 platforms in the world, that have access into all 4 or 5 hyperscalers and baby scalers. There's others that might specialize in a couple, but there's no more than, say, a dozen that are capable of making sort of multi-jurisdictional, multitransactional deals with those hyperscalers.

Thank you, Matt. Super interesting. I hope you all agree. Grab Matt in the break, he won't be hanging around long, but nice to have him. So much experience alongside us.

Thank you.

Thanks, Matt. We're now going to watch, we're going to stop off stage, short video about PrimaFhria, and then I'll finish with some closing remarks. [Presentation]

So I hope you're taking good note of the risk disclaimers that we've got on the video. Look, thank you all for coming today. I know it was difficult to make the time for these things. There was -- I guess, I wanted to give just a few closing remarks. Firstly, extremely proud after 2 years to have assembled what we think is a great portfolio, 13 assets, GBP 458 million committed to those 13 assets. I think we're benefiting from megatrends that you've heard about today. So digitization, decarbonization and obviously, the transition more generally to net zero. We assemble portfolios it's got good inflation protection, good downside protection, Ben took you through that slide. Very happy to delve into that in more detail, and we'll provide more color at the full year. We're also trying to balance income and yield with growth. And as you all appreciate, some of the things Matt was talking about in terms of the growth in some of the digital assets we've got in particular. We're undrawn on the -- we've got a robust financial structure. And in light of the -- I guess, some of the constraints we're seeing in the sector right now, we've got a great portfolio. We'll continue to manage that portfolio. We will realize exits in that 5- to 7-year period, and we will look to recycle that capital. So we've got a business plan that works. We'd love to be able to grow further, we're passing an awful lot of opportunities away that we should be trying to execute on, which are going to other clients. So we hope the markets are going to be more constructive going forward. I'd also like to just say thanks for turning up. It was a difficult act to follow after the King speech this morning. But I think, hopefully, you all agree, the speakers did a great job. So thank you, Vagn. Thank you, Andrea, [indiscernible], Jesse and Matt for your time today. Hopefully, this was useful. Do you give us some feedback, let us know what you want to hear about next time and drinks that way. Thank you.