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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Greetings and welcome to today's DigitalBridge Group, Incorporated Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.
It is now my pleasure to introduce Severin White, Managing Director and Head of Public Investor Relations. Thank you. You may begin.
Good morning, everyone, and welcome to DigitalBridge's third quarter 2021 earnings conference call. Speaking on the call today from the company is Marc Ganzi, our President and CEO; and Jacky Wu, our CFO.
I will quickly cover the Safe Harbor and then we can get started. Some of the statements that we make today regarding our business operations and financial performance, including the effect of the COVID-19 pandemic on those areas may be considered forward-looking and such statements involve a number of risks and uncertainties that could cause actual results to differ materially. All information discussed on this call is as of today, November 4, 2021 and DigitalBridge does not intend and undertakes no duty to update it for future events or circumstances. For more information, please refer to the Risk Factors discussed in our most recent Form 10-K filed with the SEC and in our Form 10-Q for the quarter ended September 30, 2021.
Great. So we are going to cover our standard agenda today; Marc will start with our 3Q highlights, Jacky will provide an overview of our quarterly financial results and then Marc will do a quick deep dive on one of our innovative businesses and executing the digital play section and will end with some key takeaways followed by Q&A.
We’ve had a great quarter and we have been busy. So let’s get started. With that, I will turn the call over to Marc Ganzi, our President and CEO. Marc?
Thanks, Severin.
I'd like to start by thanking everyone for their interest and attention today, especially new investors that are just learning about DigitalBridge for the first time. So where are we? On our finish the mission mantra for 2021. As many of you know, we announced the sale of our Wellness Business earlier this quarter, taking us effectively to 100% rotated on digital infrastructure on a pro forma basis. I want to put that into some perspective because the team will have really achieved something special this year when that deal closes in Q1 of 2022.
As you can see on the Slide, that's the successful rotation of over 73 billion in assets under management. We've harvested 33 billion of legacy assets and building over 40 billion of AUM in digital infrastructure a sector, an asset class, where the DigitalBridge team has a long history of investing successfully over the last 25 years. Not only investing but building, managing and owning and operating digital infrastructure assets.
We're now 100% aligned with the powerful secular tailwinds driving investment and connectivity on a global basis. The transition as we call it is not just about asset rotation. I'm here to tell you it's been a complete transformation of the company. Our corporate capitalization has gone from being over levered with over 7 billion in debt to just over 1 billion in the last year alone. And just as important to this, our corporate governance has also been completely overhauled. With new senior leadership in place, and a more digital, more focused and more diverse board, helping us navigate the DigitalBridge roadmap and ecosystem.
I want to take this opportunity to thank the entire team for really amazing execution, especially when you consider it's happened in less than three years. We're a new DigitalBridge and we're completely aligned with the future where real estate is going.
Next slide please. Speaking of our strategic roadmap, the next slide gives you some context for where we are along that progression. As we contemplate the transition stage one ahead of schedule by over a year and with nearly 2 billion of digital purchasing power, we're in the position we promised investors we wanted to be.
Finally being able to play offense and off of our front foot and invest in the best asset classes that we see globally. This is really an exciting inflection point for us. We're set to enter the second stage of our business transformation, the acceleration, where our two high growth business lines really achieved scale. Just there's a number of exciting thematics begin to play out in our sector, 5G, IoT, AI, Edge Computing. These are the emerging demand drivers we are aligned with in our investment thesis. The place we believe investors want to be today.
First, our Digital IM business is raising record amounts of capital. And we're set to broaden and deepen our investment offerings next year and beyond. That'll drive new opportunity, and of course in turn FEEUM, which in turn drives our revenues and earnings.
Next, our digital operating division is set to lift off fueled by the deployment of our balance sheet capital into high-quality stabilized digital infrastructure assets. That means supporting our existing platforms, DataBank advantage, or building exposure to new mature developed market assets. This is going to be a significant growth driver for us, as you can see here, and it underpins earnings growth for the next two years. The bottom line in the acceleration stage that we're entering is where this opportunity becomes very compelling. I couldn't be more excited.
Next Slide, please. Next, I want to talk about our capital formation efforts at DigitalBridge and specifically fundraising a DCP II, our second flagship fund. This is the most powerful part of our results this quarter. We didn't slow down in Q3. We maintained and built on our strong pace of capital formation, and we hit our 8.1 billion hard cap in early October.
In fact, we continue to see strong investor interest, and our LPs are agreed to increase the hard cap in this fund to 8.6 billion, which we'll wrap up at the end of this year. We exceeded our original 6 billion target by over 35%. The second fund is almost to exercise of DCP I, and we've raised it in a speedy time period of less than 18 months. This is really truly exceptional. And it's testament to the power of having the largest dedicated digital infrastructure platform. And most importantly, a best-in-class fundraising team, led by my partner Kevin Smithen.
DigitalBridge has established itself as the partner of choice to institutional capital, looking to build exposure to this resilient and growing digital infrastructure asset class. I want to thank my entire team for their tireless work this past year, and for this fantastic achievement that serves our shareholders.
Next page, please. So what have we told you in the past about the impact of capital formation? First, not only does it give us the firepower to invest and build new digital infrastructure businesses, it drives our revenue and earnings with long-term predictable management fees. This is our simple algorithm. And it's on display here. Our success in capital formation driving our revenue and earnings guidance for the year, a true beat and raise. We're increasing our Digital IM earnings guidance by 5% to 95 million to 100 million on a consolidated basis.
It wasn't just our flagship DCP II fundraise, as I have signaled to you before, our co-invest program is not only strategic, but it really deepens our relationship with our most important partners and LPs. It also gives us that incremental firepower, allowing us to evaluate almost any transaction in our sector, while simultaneously generating incremental fee and carry to the benefit of our shareholders. We recently closed in the quarter 750 million of co-invest across three distinct programs.
First Vertical Bridge, the largest private tower company in U.S. where we took a control stake in fund II and [bought] [ph] a key LP relationships alongside of our investment. Second, and third Scala and Highline. Our two Brazilian portfolio companies in, first the hyperscale data center business and in the tower business respectively. Both of these businesses have enjoyed incredible growth and investors acknowledge the strength of these two platforms. This fundraising takes us past 17 billion in FEEUM, exceeding our year end 2021 target ahead of schedule by a full quarter. And we've got another 60 days to close out the year. I'm looking forward to a strong finish. And once again, I cannot thank enough my global capital formation team.
Next slide, please. So we've talked about our excellent fundraising momentum this year. But what does that future look like? How do we continue to extend our sector leadership? What's interesting in digital infrastructure to me is that it's really emerged out of the pandemic has its own asset class, no longer stuck inside the broader infrastructure asset group. And at the same time, as that asset class has emerged as its own asset class, we see the investable universe of digital infrastructure growing. As the sector pioneer and a dedicated digital infrastructure specialist, I believe we're uniquely positioned to continue to lead and develop new offerings to meet investor interest, and our customers persistent need for new infrastructure.
As I look forward to 2022, our next step here is to continue scaling our IM platform with a focus on new and emerging strategies, broadening and deepening the base, as you can see here to the right. First and foremost, that means forming capital around a private credit strategy, which we believe is a significant opportunity. We've already deployed some balance sheet capital to seed investments in the space that will be contributed to credit products in the future. This is a big focus for us in 2022. Our liquid strategies already have over 600 million in AUM and there's significant additional capacity at both the hedged and long only strategies.
Finally, we're looking at some logical extensions on either side of our existing flagship, whether that's core, or continuation oriented vehicles that appear to be a good fit for asset class or growth, capital oriented investments that leverage our unique insights, and access across the digital ecosystem. Next quarter, we'll lay out some of these new goals for the Digital IM platform in 2022 and beyond. The key here is there are endless opportunities in this ecosystem and once again, we believe we have the best team to take advantage of the secular opportunity.
Next page. Next is our portfolio activity update. This is where we've thoughtfully deployed that capital, and we're building value. Last quarter, we talked about how we're already investing in some exciting new geographies, Asia in particular, and emerging sub verticals like edge infrastructure. What we'd like to highlight here is how effective we've been quickly transforming and scaling these new portfolio companies. This is a compelling Digital Bridge differentiator.
First, I want to start in Asia where we've taken the previously announced PCCW datacenter acquisition and agile data center platform and combine them to launch Vantage APAC. Leveraging the strong relationships of our CEO, Sureel Choksi and his team that have global hyperscale customers into these new exciting markets, including Tokyo, Osaka, Melbourne, Hong Kong, Kuala Lumpur, and executing a playbook that has worked incredibly well for us in the U.S. and Europe.
Our edge point platform is also growing in the region. With now over 10,000 sites across Indonesia and Malaysia, we're the premier tower consolidator in these key growth markets.
Finally, in Asia, we partnered inside this quarter with our friends at Columbia Capital to acquire Superloop, our first fiber acquisition in the region. We'll talk more about Atlas Edge later. But suffice to say it's a great example of our ability to add value and build scale in short order for our investments.
Finally, closer to home here in this hemisphere, DCP II took a controlling stake in Vertical Bridge. Consolidating the ownership base and extending our partnership with the largest private tower company in the United States. On the digital operating side to the far right highlighted in green Vantage SDC acquired another high-quality hyperscale data center in one of the most protected markets in the world, Santa Clara, California, closing on CA22.
Next slide, please. So let's start right there with Vantage SDCs acquisition of CA22. This is a 24-megawatt hyperscale data center that's adjacent to SDCs already owned California 21 data center. You can see the campus plan to the lower right, which shows our ability to keep growing on this campus and deliver more high-quality, long-term earnings growth. As you know, Vantage SDC is a core element of our digital operating segment and continues to grow our portfolio of world-class stabilized hyperscale data centers is a key focus for us. We're excited about this first acquisition which increased our capacity by 14% to over 177 megawatts.
I'd like to wrap up this section on the left-hand side with an update on our wellness infrastructure sale. This transaction remains on time and is slated to reach a final financial close in early Q1 2022. Not only does this complete our asset rotation, but as you can see, it delevers our balance sheet by 2.2 billion and generates over $300 million of cash in new value that will contribute to our digital purchasing firepower.
Before I hand it over to Jacky, I just want to acknowledge what a breathtaking quarter this has been. We've hit the hard cap in DCP II over $8 billion, raising hundreds of millions of dollars in new co-invest capital alongside at some of our best ideas, rapidly scaling and transforming our portfolio companies and wrapping up our diversified to digital transformation with the sale of our wellness business. It's truly been an amazing quarter.
So with that, I'm going to turn it over to my partner and our CFO Jacky Wu. Thanks, Jacky.
Thank you, Marc, and good morning, everyone. Beginning this quarter, we have expanded our supplemental financial package to include two years of trailing quarterly details on the company to provide increased disclosures and transparency on our operations. We filed the new report this morning, which is available within the shareholder section of our website. Starting with our third quarter results on Page 13, the company has seen rapid growth in its core digital segments driven by strong capital formation momentum in digital investment management, and by new acquisitions and organic growth and digital operating.
For the third quarter reported total consolidated revenues were $252 million, which is more than double the same period last year. Total company adjusted EBITDA was $18 million on a pro rata basis. Core FFO was $2 million and GAAP net income attributable to common stockholders was $41 million, or $0.08 per share. Each of these total company earnings metrics have shown continued improvement from prior periods driven by accelerated growth within the segment --digital segments and lower legacy corporate expenses as we have sold off legacy non-digital assets. Know that nearly all of our remaining legacy non-digital assets are now classified as discontinued operations and no longer contributing to adjusted EBITDA and core FFO. Existing liquidity and anticipated legacy monetization represents over $1.5 billion of untapped near term earnings power that will contribute to adjusted EBITDA and core FFO as the capital is redeployed in the near future.
Beginning in the third quarter, the company introduced adjusted funds from operations, core AFFO as a key metric, which the detox necessary recurring capital expenditures to maintain the performance of its operating properties in line with other digital peers.
Third quarter AFFO was $1 million net of 1 million of recurring CapEx were just temporarily elevated from our longer term stabilized expectations of 3% of recurring revenues, driven by DataBank's emphasis on integrating [indiscernible] assets into its footprint. We will continue to report AFFO as a key metric in future quarters.
Moving to Page 14, consolidated digital revenues increased to $249 million, a 5% increase from last quarter, driven by new DCP II phase and higher installation revenues, and a $254 million pro forma for Vantages, CA22 acquisition that closed at the end of September. Looking at the right side of the page, consolidated digital fee related earnings and adjusted EBITDA increased to $212 million during the third quarter, which is a 4% increase sequentially. Proforma for Vantages CA22 acquisition, FRE and adjusted EBITDA would have been $115 million.
Turning to Page 15, we've seen continued growth in investment management and operating segments during this year. Since the beginning of the year, our annualized digital fee revenues increased from $100 million to $155 million, and digital FRE ra has increased from $41 million to $79 million.
Investment management capital formation has been truly phenomenal over the last year led by DCP II which has reached $8.1 billion in total commitments, exceeding the $6 billion fund target by 35%. As of today, we have already exceeded our year end $17 billion fee earning equity under management targets that we outlined earlier in the year. And we expect additional fundraising before year end.
Due to the success and outperformance of key performance based compensation measures, we have increased our third quarter bonus accrual by $4 million, compared to the second quarter, partially offset by some of the revenue increases. Additionally, we have continued to grow our digital platform, including new headcount to support future planned investment management products that Marc has described.
The growth in digital operating segment revenues and earnings are the result of our continued rotation of the company's balance sheet with Vantage stabilized data centers in July 2020, zColo in December 2020, and CA22 Vantage add-on investment at the end of September 2021. Digital offering continued to have strong bookings and low churn in the third quarter offset by unfavorable power margin, due to unusually short-term weather conditions caused by the California wildfires and increased G&A due to integration of the zColo portfolio by DataBank, which resulted in flat adjusted EBITDA for the digital operating segment. We will continue to grow digital revenues and earnings through our rotation of the company's balance sheet and to high quality digital assets and manage investment vehicles.
Turning to Page 16, following the recent outperformance of DCP II fundraising, we are increasing our digital management fee revenues target range of $165 million to $170 million in 2021. And increasing our digital fee related earnings target range to $95 million to $100 million. For digital offering segments, we are maintaining our target range of $130 million to $140 million of revenues, and $55 million to $60 million of EBITDA in 2021. In addition to our 2021 guidance, we are reiterating our 2023 Digital targets and 2025 framework for our key driver metrics.
Turning to Slide 17, the company recently lowered our effective cost of capital through several corporate and investment level transactions. First, in July, the company issued $500 million in notes securitized primarily by investment management fee earnings, including $300 million term notes at a 3.9% interest rate, with a BBB investment grade rating, and $200 million of variable funding notes at a three-month LIBOR plus 3% that replaced our revolver and extended maturities from early 2022 to late 2026 on a fully extended basis.
Following the securitization, and early use of proceeds was redeeming $150 million of 7.3% preferred equity effectively lowering our incremental cost of capital by over 340 basis points and generating annual net cash saving of over $5 million. The company also recently conducted an early exchange of $44 million of its 2025 maturity, 5.75% interest rate convertible notes. The exchange saved $2.5 million of cash interest annually and represents savings to future cash payments relative to original terms.
At the digital offering investment level, DataBank and Vantage stabilized datacenters recently closed some exceptional financing execution in the last month. DataBank completed their second securitization this year, issuing $332 million of five-year notes, and all in rate of 2.43%. And Vantage issued $530 million of five-year securitization notes, and all in rate of 2.17%. We look forward to continuing to drive corporate cash flows by reducing our effective cost of capital as we leverage the strong growth in our investment management and operating platforms. And with that, I'd like to turn it back to Marc, where he will lay out further details of our Digital Playbook. Thank you.
Thanks, Jacky. Great job by you and the entire finance team. I really, really appreciate the efforts.
So I talked about it in our portfolio activity update earlier in the presentation about how effective we've been in transforming and scaling our portfolio companies. One such example is AtlasEdge. This is a case study I've been looking forward to highlighting since we announced the investment back in May for just that reason. It starts with a little bit of perspective, and most of all, a lot of conviction around the European edge opportunity. This is a market where mobile data traffic is projected to grow by 4x over the next five years, and at the same time connected devices reach over 4.3 billion by 2025. This is strong growth and it's scaling, increasing the market by 1.7x in a short five-year period. But here's the other side of that coin. It's a highly fragmented market, where cloud hyperscale and enterprise customers have a hard time accessing low latency solutions with broad coverage and this is where AtlasEdge will thrive.
AtlasEdge is our joint venture with Liberty Global, we announced earlier this year. It's that single one stop shop providing customers with a single integrated edge infrastructure platform with a Pan European footprint.
Let's move forward to the next slide. So as I said, earlier, this year, we partnered with Liberty Global to launch the platform, a new European edge infrastructure business designed to capitalize on the opportunity that I just described. In less than six months, we've helped rapidly transform and scale AtlasEdge into a leading European data center provider, built to serve the growing demand from cloud providers, streamers and enterprises for high performance, scalable, and secure edge infrastructure.
The business plan is rooted in key tenants that drive all of our businesses globally. Customers, management, and the ability to scale through M&A and new construction. AtlasEdge is highly interconnected data center infrastructure can distribute low latency applications and services such as 5G, gaming, IoT and edge compute. It's already a leading European edge data center provider with over 100 plus facilities. And it's poised for future growth with M&A and new facility construction.
As you can see, on the right, we've got an extensive footprint across 11 markets in nine countries, broadly covering Europe with a low latency network. All of this stems from our ability to craft key partnerships, build great management teams and catalyze strategic M&A. These are the key elements of the DigitalBridge Playbook.
Let's take a closer look and how we're applying them to AtlasEdge. Next page. First, it starts with partnerships. You hear us talk about the relevance of our deep industry relationships and this notion of collaboration with customers. This is proof positive. Our global network of customer relationships allows us to source develop and execute proprietary strategies that our peers cannot match. Six months ago, we announced this innovative joint venture with Liberty global, leveraging a longstanding relationship with senior leadership there. For liberty, this deal allowed them to unlock both the existing value and the growth potential of their digital real estate holdings.
In addition to that several of their key operating companies also became tenants of AtlasEdge and the JV is benefiting from Liberty's deep operational expertise. Next, connectivity partnerships. In October, we announced key strategic partnerships at Digital Realty, the world's largest data center REIT and they are one of the world's largest owners and operators of dark and lit fiber services, also a digital rich portfolio company. These are leading global digital infrastructure companies that have selected AtlasEdge as their preferred European edge partner. And in the case of digital realty, they made an equity investment in the business.
What's interesting to me here is the goal is to offer seamless, integrated connectivity solutions. This is exactly the converged future we've been talking about. Customers want solutions, not components. Finally, we intend to continue to extend the AtlasEdge network and partnership with other European carriers that are interested in turning cost centers into reoccurring revenue streams, while growing equity value for their enterprise. Partnerships are at the core of the AtlasEdge strategy and DigitalBridge network of industry relationships are seminal in this progression.
Next page, please. Next, and look probably most important is management. You've heard me say it time and time again. This has always been one of our hallmarks here at DigitalBridge. The ability to track top management teams. In this case, Josh Joshi, one of our DigitalBridge operating partners, serves as the Executive Chairman of AtlasEdge. Many of you here in the investment community know Josh from his very successful leadership and interaction, where he helped grow for over 10 years prior to its sale to digital Realty for $8 billion. Josh has been working with us to find the right opportunity that gets him excited about building the next great European data center platform. He's found that in AtlasEdge.
Josh has been instrumental in building out the team, including Giuliano Di Vitantonio, who recently agreed to lead the venture as CEO. We've known Giuliano for a long time, and he's played a critical role in some of the most successful data center growth strategies in the industry. But it's not just Josh and Giuliano leading, we've got an incredible team of advisors from the strong management team at Liberty global to key DigitalBridge executives like Jon Mauck, who's been instrumental alongside our operating CEOs like Sureel Chaski, Raul Martynek, and senior advisors. I'll chuckle a little bit here, like the godfather of data centers Mike Foust, my partner. This is a heavyweight team supporting AtlasEdge's growth strategy. One of the senior leaders in isolation would be impressive in building any new digital infrastructure platform. But this group as a collective is truly second to none in the data center sector.
Next slide, please. The third element of the DigitalBridge playbook on show is our ability to source and execute proprietary strategic M&A. Earlier this week, AtlasEdge announced the acquisition of European data center portfolio, 12 data centers across 11 European markets. Not only did we spearhead this acquisition, but it's noteworthy that our operational expertise, which we believe sets us apart from average financial buyers, was critical to advancing the transaction.
For Cole, who will serve as an anchor customer across many of these facilities, our operating DNA was the gating factor. This is a really exciting acquisition that not only extends AtlasEdge’s footprint, but enhances its profile with access to over 50 on-net carriers driving diversified customer demand in highly interconnected environments. We're looking forward to continue to support the growth of AtlasEdge's M&A program, as we do for all of our portfolio companies, building strategic value, and scaling businesses.
Next slide, please. So, in conclusion, I'll finish where I started, highlighting why AtlasEdge is a textbook example of how we invested DigitalBridge today. First, it's aligned with secular tailwinds. In this case, the edge, which 10 years from now, people understand the need, demand and relevance for migrating compute and low latency solutions to the perimeter of the network. Second, we're building those next generation networks for the prospective around the corner to where networks are evolving, low latency, scalable, and agile and built to serve new emerging use cases. This is critical.
Third, this platform leverages our deep industry relationships at AtlasEdge, those of our strategic partners. Fourth, it's about following the logos and anticipating what our customers need, finding ways to serve emerging customer needs, and also following the data as it gravitates closer to the consumer, and enterprises at the periphery of the network.
Finally, we love strategies that tap into the entire DigitalBridge playbook, because we know that's when we're maximizing value for our portfolio companies and our customers and your investors. With that, I'll wrap up the AtlasEdge case study, I'm really excited to watch Josh and Giuliano continue to execute and support their growth. It'll be interesting to see what they're up to a year from now.
So with that, let's now move on to the final section. Next page.
So, here's the key takeaways from Q3. A quick look at my checklist for the quarter. Number one, finish the mission. We reached an agreement to sell our last legacy business units getting to 100% digital on a pro forma basis way ahead of our original schedule. This is critical to [U.S.] [ph] stakeholders under promise, over deliver.
Now as we turn the page, we have a unique opportunity to play offense all the time. As we enter the second stage of our strategic roadmap. I want to be clear with all of you our shareholders, this is no longer a transitional story. We are through that phase and into the execution phase of my broader vision, which is to build the next generation digital REIT focused on converged network solutions for the world's most trusted logos globally. In a format that remains unconstrained in our ability to form and deploy capital and deployed across the capital structure where it makes the most sense and achieves the best returns for you, our shareholders.
DigitalBridge has established itself as the partner of choice to institutional capital, interested in allocating to the digital infrastructure ecosystem. Our second fund just hit 8.1 billion in commitments almost double our first one and over 35% higher than the original target.
Next year, we're going to build on that platform extending our presence into adjacent areas and products that align with our digital infrastructure, IM business unit growth. Number three, we're going to continue to lead the industry in sourcing proprietary investments. We've closed eight platforms in DCB II that benefit from our deep industry relationships, and business building skills. In the face of increased competition, our pipeline continues to grow. And we only see more opportunity on a global basis. Never before have we been better equipped to address what we believe is the best secular market opportunity digital infrastructure.
Next page. So, before we move on to the Q&A section, I wanted to highlight the upcoming release of our first corporate overview. It's designed to highlight a new, simpler DigitalBridge that we believe is the dominant player in a secular growth sector managed by the leading management team in the space today. It's meant to outline our differentiated strategy, and how our unique architecture gives investors exposure to the entire digital investment cycle via two high growth business units with simple algorithms for us to continue to execute against.
I encourage you to take a look at this informative presentation. So please check it out. And so with that, I will ask the operator to initiate our Q&A session. Once again, thank you for your time and attention. We look forward to connecting with investors next week at NAREIT. And increasingly, I look forward to connecting with all of you in person as conditions allow. Thank you very much. Have a great day.
Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question has come from the line of Colby Synesael with Cowen.
One quick one, just more off housekeeping but just wanted to confirm. Are you intending to give AFFO guidance for 2022 next year? And then I think you guys just previously said that you think that this business is capable of sustaining plus 10% type AFFO growth curious if that's something you're still endorsing? And then, also as it relates to the digital operating business, obviously you have DataBank and Vantage SDC assets, would you consider adding incremental stabilized assets that come from non-Vantage effectively from other potential opportunities that might be out there? And if so, would those be effectively integrated? Is that how you would initially think about something like that? Or do you think that there's enough out there to potentially have those stay on their own? Thank you.
Colby, this is Jacky. On the two housekeeping items and now flip it over to Marc on the strategic question. But yes and yes are the answers on your questions. So yes, we will give AFFO guidance in the -- with the fourth quarter earnings release in February, March timeframe. And then with AFFO growth, we continue to expect that our businesses are primed to have those types of growth increases.
Yes, that's right, Jacky. And, hey, Colby, good morning. On the stabilize side, yes, we are evaluating other stabilized data centers as we speak, not just inside the Vantage family and the DataBank family, but we do see other opportunities. And we are unconstrained in our ability to look at those opportunities, price them effectively. And then when we bring them onto the balance sheet, we have two fantastic management companies DataBank on the edge side, and then on the hyperscale side, we've got obviously Vantage. So two platforms that can handle third-party management and scale. And we're seeing a lot of opportunity in this quarter. Thanks.
Thank you. Our next question comes from the line of Jade Rahmani with KBW.
I'm wondering if you could share your thoughts on how supply chain issues, labor constraints and other factors such as inflation might impact the digital business?
Yes, good morning, Jade. We'll start with supply chain. Depending on the vertical it's had an impact. I would say, remember Jade, we invested in sort of four critical swim lanes. I would say in the fiber space, we have not been constrained. We had purchased quite a bit of capacity pre-pandemic. And so our supply chain related to our fiber businesses has not been materially impacted.
On the tower space, we've had some components related to new tower construction get delayed, particularly in places like Latin America, but in the U.S. and in Asia, we haven't seen any choke points related to our new builds, in fact, our budgets for new builds in the U.S. and Asia, we will we will hit those goals. And probably it's hard to say how the fourth quarter will fall in Brazil, Mexico, Colombia, Peru, and Chile, each of those countries has different issues. But we do see a little more supply chain choking in that part of the world, Small Cells, which were a dominant player in the U.K. and the US.
No material delays, I think permitting has been more of the delays. What we've heard in the third quarter, particularly in cities like London, places like Boston, New York City, San Francisco, we're building permit offices are just inundated. Canada with all kinds of construction, home construction, commercial construction. So we've had to work through some of those permitting issues, which are to your point are really labor intensive. But as it relates to the delivery of the poles and the nodes, we haven't been, we haven't seen any material constraints.
In the data center side, we have seen anecdotal evidence of supply chain issues, Vantage, Europe had some supply chain issues over the summer, a lot of that stuff has been worked out and we're delivering. I think here in the U.S. in DataBank and Vantage North America, similar issues, it's always Jade, just small components that you don't see coming, that literally can slow down the actual delivery of a data haul. So from a construction perspective, we're not seeing any choke points in the physical construction. But when you get into the actual data center and people are lining up servers and connecting, that's where we're seeing some of the supply chain issues, materializing today.
Labor, look, I think, all of our businesses have been busy through the pandemic. We continue to keep a rolls, fully paid. We didn't lay anybody off. In fact, we actually hired during the pandemic. We've been great to our vendors for 27 years, having good relationships with vendors, where you pay them on time and early, allows you to get to the front of line. So for example, in the case of Vertical Bridge, Alex and his team have an outstanding group of vendors that have been building towers for us, some of them Jade over 20 years. And having those relationships and making sure that you've always been a habitual early payer, puts you to the frontline. So we've actually had no issues related to labor, into delivery of our infrastructure here in this hemisphere.
I think in parts of Latin America and Asia and Europe, there are anecdotal evidences of trying to get people back to work, which in some instances has been hard from an administrative perspective. But during the pandemic, our field operations never shut down in all parts of the world, because everybody understood their job, and really understood the importance of what we were doing. So happy to say, payrolls have remained in the right place and we continue to add people to those payrolls. So we feel like we've done a good job through the pandemic.
Thank you. On the capital structure side, can you share your thoughts on continued evolution? Is there a target leverage ratio, you're thinking about, is that relative to EBITDA, or debt to capital? And do you anticipate further redemption of the preferreds or refinancing in order to optimize cost of capital?
Sure, Jade. So definitely, we can trade out our preferred equity over time, into much lower cost of capital, specifically around our whole business securitization structure that we closed on in July of this year. And that will meaningfully bring down our cost of capital. So that's our expectation. And our view is that by 2023, upon realization of the numbers and targets that we expect to hit for both our digital investment management and our digital operating segments, we would get to more of a run rate leverage ratio of 7x or lower.
Any update on how you're thinking about corporate G&A?
No changes. We actually have effectively nearly hit our targets of what we've guided the street previously of $100 million to $120 million even allotted for digital investment management growth, which you saw and heard from Marc that it was prolific this quarter and continues to be. So we're very pleased with it and no changes in our guidance and our views.
And I think last quarter, you commented that you would expect positive AFFO per share in 2022. Is that still the case?
That is the case this quarter alone, we hit positive AFFO of $1 million. So pleased to say that. And certainly as discussed with Colby at the beginning of the Q&A section, we will provide further guidance with the fourth quarter earnings call.
Thank you. Our next question is coming from the line of Dan Day with B. Riley.
So, personally, for me just timing on putting the dividend back in place, just both timing and then sort of what you're looking at, to have in place before you go ahead and do that?
Well, I think look consistent with what Jacky said about our AFFO guidance for 2022. We'll give that guidance in our fourth quarter earnings, which will be early in Q1 of next year. I'll restate what I've consistently said all year, which is we are turning the dividend back on next year. And the level at which we will do that gates on a couple of different things that happened in the fourth quarter. But we plan to turn on a de minimis dividend. We've always been very clear with everyone that we see enormous opportunity to redeploy that capital and things that we believe are accretive and speak to long-term shareholder growth. And ultimately delivering the kind of earnings, EBITDA and revenue growth that we're delivering right now requires, as much capital as we can keep on the balance sheet. So there's a balance here, as you'd expect.
We believe that we have the potential to be one of the fastest growing digital REITs in the world, in terms of revenue growth, EBITDA growth and AFFO growth. And to do that we want to maintain maximum flexibility. But we are committed to turning the dividend back on.
Awesome, appreciate the color Marc. Just another question on the REIT status. You even answered this question a number of times on the call. So ask it a little different way, you've done an incredible job fundraising and growing IM side of the business. A question I get often, unsure of how to answer. So I think it might be helpful for the investors on the call, is there a risk that the MI side of the business, grows so successfully, that it jeopardizes the REIT status? And just how should investors be -- I guess, what are the asset or investors should be monitoring over the next one to three years to meet those qualifications? Thanks.
Yes, thanks. And, Jacky and I have been laughing about it all week, a little bit. I know, it's not a laughing matter. But it is a problem of riches, right. The IM platform has grown much faster than I think we all would have expected. And I think that's a function of really a couple of things that are happening. One, our ability to deploy capital and good ideas has certainly exceeded even our expectations. Two, the rotation has happened faster than we all expected, which means we've done a good job executing. Third, the fundraising environment right now for what we do, is really, very wide open. And folks are incredibly receptive to not only our flagship ideas, but the other ideas that we intimated on the board call, I mean on the earnings call. I'd say a fourth thing that's kind of interesting is, when you have that kind of growth, and you have that kind of opportunity, you certainly don't want to slow that down either. And I think we, we believe we have comparative advantage in our IM platform, and we're going to continue to keep growing that business unit and continue to ultimately deploy capital across some of these new strategies.
Now, at the same time, the digital operating business is also performing incredibly well, maybe perhaps not to the velocity that the IM business is growing. But nonetheless, we have a lot of really good opportunities that we're working on in this quarter that we think will bear fruit in the first and second quarter. And clearly, if we are in a place where the IM business grows so fast, and earnings are growing so fast, the potential for DEREIT-ing could certainly happen. We don't want to sit here and tell you today that you know holding the REIT, while disadvantaging the IM platform, that that for us would be silly, particularly if revenue growth and EBITDA growth continues that the velocity that it's continuing at, which is what shareholders want.
My experience in talking to shareholders today is they want revenue growth, they want AFFO growth, they want EBITDA growth, they want to be with a management team that understands how to organically grow the business and organically grow the share price. And that's what we've been doing very effectively now for the better part of six quarters since Jackie and I came on to, to run this company. So look, it's -- your question is incredibly insightful, it's something that we spend a lot of time on here at the company, doing those calculations every quarter to make sure that we're in compliance at the REIT, we're in compliance this quarter, we have every intention of staying in compliance with the REIT guidelines. But to your point, if IM gets to a place, where it moves to, well beyond where the REIT is, where the REIT eligible assets are, we'll have a separate conversation that at a time, we can control what we can control. And right now, the control variable for us is that there's a tremendous amount of opportunity to grow this company and our revenues, and EBITDA through the IM business.
And at the same time, we're going to continue to harvest and grow our balance sheet assets in a prudent way, where we're deploying capital in a manner that you'd expect from us, which means we're not going to go out and do something reckless. We're not going to go out and pay, 30 plus times for assets to put on the balance sheet. That just doesn't make sense to us. But as I think you saw, the ability to building incredibly strong and scalable and investment grade assets like CA22, we can bring that across to the balance sheet. That's a good use of our capital. Thanks.
Yes. Thanks, Marc and totally agree that it's definitely a champagne problem to have. So appreciate your comments there. I'll turn it over.
Thank you. Our next question is coming from the line of Eric Luebchow with Wells Fargo.
Marc maybe you could provide a little more color on the credit strategy you talked about you expect to expand next year, perhaps, parts of the credit capital structure, you'd look at anything on kind of targeted returns? And then over time, how ballpark and where do you think that could realistically scale?
Yes. Thanks, Eric. Well, look, digital infrastructure today, Eric, as you know, is about a $13 trillion TAM. And if you take a modest 50% loan to value ratio, that's a setup that indicates that there's about 6.5 trillion of digital credit, digital infrastructure credit sitting out there, that's a big, big market. Now, not all of that, obviously, is our places we would play. Banks have historically occupied that space really well, in the first lien category, where stuffs being priced between base rates, plus -- 200, base rates plus 300, 400. And that's really not where our product, which is more of an opportunistic credit product sits.
Where we really see opportunity, Eric, is in a couple of different places today, one, second lien. We've originated, as Jacky indicated, a bunch of loans already on the balance sheet, where we've done great second lien structures where we see yields in that sort of 7% to 8% range. Second, we've been able to, we've seen windows, where there's been secondary opportunities where we can come in and buy a credit that we think is mispriced, where sort of taking into impact the entry price, and the coupon and the total yield to worst, we think there's a really good opportunity to ultimately drive returns in that sort of 9% to 12% range. And we're finding good opportunities in the secondary markets. And we've already done a couple of secondary trades as well.
And then I would say, look, a third place where we see opportunity is just providing what we call flexible capital, where we can do convertible preferred and other types of instruments, that when folks can't go out and raise equity, we're a great source and a reliable source of capital. That certainly understands the business. And we're incredibly, lender friendly that way, because we know the sector, we don't have to spend time underwriting Fiber, Small Cells or Towers. We know most of the CEOs who have spent a lot of time underwriting those CEOs. So we can move quick, Eric, and speed is important right now.
And then, I would just say it’s an overarching view, we do see credit tightening. This is really important. Credit was very available at the beginning of this year, very available during the pandemic, it’s a great digital stories, but the market is becoming more discerning. And we see middle market digital infrastructure companies, not having the ability to access the securitization marketplace, not being able to access investment grade level debt. And this is really where we have a deep understanding of the marketplace and the opportunity, and we can underwrite those opportunities and move quickly in support, middle market companies that want to get to scale.
I think this is a huge opportunity. And I think in this environment, as we've seen inflation taking place, base rates are stabilized but base rates are moving up. spreads are really haven't tightened much. We're seeing overall interest rates move upwards for certain private digital infrastructure credits. So this creates opportunity in our view. And we think this will be one of the great opportunities over the next couple of years. As we see markets are uncertain, we do believe credit will continue to tighten. And we do think we've got a best-in-class team that's already out executing on the strategy. So now we're forming capital around it. And I think you understand when we put a team together, then we have good opportunities. Capital seems to have a way of forming for us here at digital read. So this is something that I'm personally now involved in and I'm really excited about it.
Great, thanks for that color, Marc. Just one more, wanted to get your temperature on the on the balance sheet side. Obviously, you were able to take advantage of -- a fairly favorable, pre-contracted cap rate for advantage STC around 5%. But it seems like cap rates for high quality assets today are probably lower than where you were able to contract with Vantage. So, in the near term, as you see it, are you more likely to put some of that equity to work back into either Vantage or DataBank for new development, as opposed to bring into assets on the balance sheet? Or how are you thinking about that, as you look out the next '12 months?
Thanks. Yes, look, Eric. We see more opportunities for the balance sheet, not less, actually, particularly as we've grown liquidity. And folks know, the balance sheet is open for business. We're seeing more stabilized and high-quality assets that were underwriting, I think this delta between looking at cap rates between 4% and 6%, as you can imagine, has a wild impact in terms of what we pay, how we lever it, and ultimately, what the yield is and the impact to the balance sheet.
I think one of the analysts had asked us earlier, would we take on assets outside of DataBank and Vantage onto the balance sheet? And the answer is unequivocally yes. And we're seeing those opportunities and they're becoming more prevalent. So now look, that for contract advantage, SEC was great. It's been a fantastic relationship. Sureel team keep building stabilized assets, incredibly fast. We'll continue to evaluate those opportunities. And if the Vantage Board wants to continue to realize value in those assets, we do think we're the most logical, buyer for those assets, given the structure that we put in place in the management agreement and ultimately aligning ourselves with the management team there. So I'm not trying to portend too much to you. But suffice to say, we do see good opportunities. We do you think we can get stuff priced pretty close to that that contracted rate of five cap. And as you'll see in the next quarter, we'll have more to offer you with better details.
Thank you. Our next questions come to the line of Ric Prentiss with Raymond James.
I didn't see the CEO checklist moving from transform to accelerate on a feed back on prior questions there, like six of the deck talks about obviously, we are on balance sheet deploy the capital also has a third in the developed market wholesale dark fibers and that means develop. But helping investors understand how you view the opportunities in fiber. That’s a broad word. Walk us through a little bit about enterprise fiber versus dark fiber point-to-point, Home Sell, Small Cell, fiber to the home. There's a whole plethora of fiber out there, but what's attracted to you, looks like wholesale dark byproduct. What will you say there and then I will get back to the buy build question, maybe on fiber also?
So, fiber, Rick really has to make it easy for investors, we always say the fiber business has two different distinct product lines, retail and wholesale. Retail faces consumers and enterprises. And wholesale specifically faces other telecommunications and web scale providers. And so on a wholesale basis. We like that business a lot, because we're entering into long term agreements with investment grade counterparties that need help building that fiber infrastructure in a specific geography or it’s a specific metro or could even be a series of laterals that we're building for a customer.
What's interesting, from my perspective is, our customers are in the middle of a very complex build strategy, which is predominantly our mobile carriers in our web scale providers. They need dark fiber and they need it in different ways. And some of them don't want to do that with a Zayo or a Beanfield, or some of the other different fiber providers out there, they'd rather build it themselves. But they'd rather finance it and have somebody pay for the cost of that dark fiber. And then in turn lease it back. I think, my friend Kenny Gunderman, at Uniti has done that with wind stream, we see that there's more opportunities to leverage our balance sheet and help our customers as they either build out residential fiber plant, or they build out metro plant, or they build out long haul plant, or they build out fiber to the power plant that they want to keep. And they want to maintain control of their network. But they might be somewhat capital constrained, in doing so. So we can provide that balance sheet capital. And we can enter into an agreement that's priced efficiently where we get a nice deal, we get a good return.
But most importantly, we get an escalator and we get stabilized cash flows from an investment grade counterparty. And we think those opportunities can reside on our balance sheet. Now I want to emphasize can reside. And in those situations, those are not competitive with a beam filter AO. It's simply a financing structure that really helps our customers leverage our balance sheet to ultimately leverage their physical plant in their network. So that's really the difference, Ric between wholesale and what I would call retail fiber today. And I think from a buy and build perspective, the unit level economics really haven't changed that dramatically in fiber. And we continue to see good unit level returns at both Beanfield and Zayo. Having just approved a bunch of CapEx projects at the board levels of those businesses in the third quarter. And now in the fourth quarter, we are seeing good healthy returns on new builds. And most of those new builds, as you know, are anchored by at least one or two customers, but ultimately plug into specifically, into a metro area where we're tapping into not only just one or two enterprises, or one or two web scalars, but multiple tenancies that can leverage that network at the same time.
Okay. And so, if you could also talk about developed market cell tower assets, how should we think about the pricing availability in those assets? They seem some high prices out there, but how are your proprietary deals come into play? Maybe on that second bullet on the play capital on the balance sheet?
Well, look, I think we continue to get the [indiscernible]. Jacky, and I actually looked in under growth something last night in our spare time, getting ready for earnings. It's almost like sport for us, we got to look at a tower deal last night. And we had two or three folks on the team working on it in tandem with what we're doing today with you. But towers are in our D&A, we understand it, we can underwrite it quickly, somebody came to us and said they needed to sell some towers between now and the end of the year. We took a look at it, it's probably going to get priced into a zone where it's not competitive for our balance sheet. But we are looking at those opportunities.
And as you know, Ric pricing changes in towers, it's not static forever. There's ebbs and flows in terms of multiples and, and where M&A is priced and will continue to keep shopping. Jacky's acumen in the tower space is incredibly strong. He and I've been doing this for multiple decades in the tower sector. And we do think, with the right stabilized opportunity came along, that we could put on our balance sheet, we would do it. But right now, to be honest, in the in the hierarchy of things that we're seeing towers isn't certainly falling to the top of our list at the moment. We're seeing better yields and better returns in other verticals like hyperscale data centers by example, where we're getting that current cash yield, and we're getting the security of a long-term lease. And we're getting to the right returns that I think our public shareholders want.
Last one for me. Switching to the investment management side, as we think about the potential future or performance, the performance coming into what you guys might get compensated for
Thank you for asking that you're the first person that's asked that I actually feel really good about our performance fees. We just got done with our quarterly reviews in terms of fund I and fund II, both the funds are performing in positive territory. We absolutely anticipate strong performance fees in fund 1. And we believe that fun two is also tracking in that same trajectory. If you look at the marks of our investments, and you dig into our numbers, you'll see that both of those funds are performing well and should track well into their performance fees which you our public shareholders get the benefit of. It's not something we implicitly underwrite into our guidance. It's kind of, in the business as they say, it's something that is part of the futures. And part of the magic of what we can believe Ric, what I've been able to do for 27 years, which is return capital back to shareholders, well above modeled returns, but most importantly when there is incentive fees with my team, sharing that incentive fees with my management teams. As you know, Ric, you've gotten to know a lot of my, top 20 to 30 officers that have worked with me over the last 30 years. They've all made incredible amount of money because of those performance fees. Now, here's the good news, public shareholders get to be a part of my team. If you're an owner of a DigitalBridge share of stock, you get to participate in our carry. You get to participate in Matt Serwinowski teams’ management fees and our performance.
And look, if you're a student of cycles, and you're a student of past performance, that's probably a pretty good place for you to be as a shareholder. And I love that alignment too. I love being aligned with our common shareholders when we win in our private LPs win, our public LPs also win, because we have a significant portion of our carry goes back to public shareholders.
Ric, you can see the equity method earnings on our income statement. And you'll see how we're tracking to certainly our underwriting but also how we're marking our businesses as well.
Make sense. Size matter, speed matter, but performance matters the most.
Thank you. Our next questions come from the line Sami Badri with Credit Suisse.
Hi, thank you for fitting me in. So I want to address something very speculative in the market. And I just wanted to do and make some DigitalBridge indulgent references, and maybe I could get a little bit more of a constructive response from you guys on this. So you have clearly demonstrated that you can deploy multiple forms of capital funding for transactions, you have financing and equity and JV partners all lined up. And there is a fairly large publicly traded asset. That sounds like it's up for sale.
Now, the big question is, the market right now has single asset facility cap rates compressing, and then you have demonstrated you are very effective underwriting [EPS] [ph] as against stabilized facilities, which means that if a big transaction with several moving pieces and a lot of financial engineering would be executed, it fall under the DigitalBridge umbrella. The big question I have for you guys is why not go for a big deal like that, where you could really show the market, your financial engineering prowess and just major capabilities that you've been able to build over the last couple of years.
Sami, thank you, you should travel with us. I need a varsity cheerleading squad. But seriously, we've done a lot of really big transactions. I mean, Zayo was a fantastic case study in our ability to move quickly, discreetly, and most importantly, to get it financed and get it closed on time. And that deal was done in 32 days, we did the Vertical Bridge transaction, multiples of billions of dollars there, that transaction was done quickly and discreetly, largest, private tower transaction in U.S. history, in terms of its valuation. So we're no stranger to big deals.
Now, when you reference, doing big deals where there's a potential opportunity to take a public story and bring it back to the private market side. Certainly, that's something we're adept at doing. And it's certainly something we've contemplated doing across a variety of different logos, not just limited to perhaps one different logo, I think just seven in the last two weeks, we've been referenced in two public stories where our name has been around it.
And so the headline here, Sami is, we look at everything, and we remain unconstrained in our ability to look at everything from easy to complicated. And some transactions, you're right, are really complicated. And we know there's one such transaction that we've been rumored to be around that's complicated. And look, I don't shy away from complicated. And if it makes sense, to our shareholders, and it makes sense, ultimately to what we're trying to achieve in our IM platform, then we'll go for it. And I don't think there's an opportunity out there that we would shy away from today. And I think our history is demonstrated when there are big complex opportunities like this, it's candidly where we shine.
So we'll keep looking at big things. There are some really interesting ideas out there. Some things are priced correctly, some things are not priced correctly and sometimes we can't get to an agreement with people on price, but we'll keep taking the swings and certainly we're capable of getting stuff done.
Got it. Thank you. Maybe just a follow up question and almost like completely decoupled from the prior question. But would you say that this public equity company that is speculated to be taken out? Would that be considered a complex transaction? Or would this be considered something a bit more straightforward where a major private equity firm comes out and takes up the public more like a Blackstone QTS type situation?
Look, I don't comment on ongoing discussions in situations where we're around a public logo, it's just inappropriate. And what I can tell you is, once again, irrespective of the complication, the underwriting has to make sense Sami. So when you're involved in situations like this, one thing that I've learned in 27 years of investing is, we'll do our own internal underwriting, will underwrite the assets, will underwrite the quality of the contracts, the quality of the physical plan. And then, we'll underwrite the business case, will underwrite the secular demand, and we'll arrive at a price, and we generally stay on that price, we don't move. And ultimately, the target either moves to us or we move away from the target. It's just a simple way of investing. It's worked for me for a long time. I don't intend on breaking those rules. And once again, if you're a DigitalBridge shareholder, you should take a lot of solace in that. That the way I've been underwriting assets since the 90s and the early 2000s, it hasn't changed. And I will continue to be a disciplined allocator of our capital. And people can have a different view of value. And people can have a different view of complexity. And by the way, there's not just one opportunity for us to take a complex situation private. There's multiple situations out there today, globally, that we see that require perhaps our capital and our wisdom and our partnership. That's the most important thing. We like partnering, Sami with management teams. We like working with people and helping them solve problems. And when we find that there's a counterparty on this side of the table that's reasonable and wants our help. Those are situations where we excel. You also can't forget the human aspects of these transactions, very important.
Thank you. There are no further questions at this time. I'd like to turn the call back over to management for any closing remarks.
Thank you. Thank you all for your attention. Thanks for your time. Thanks for your support. This has really been a tremendous quarter. And I really want to thank my partners Jacky and Severin, who've worked tirelessly to get us to this place. We've had a lot of chance to reflect this week, on our partnership with you, our shareholders.
And I want to end by saying, when I took the job with Jacky, when we entered this last year, the first thing we said we would do is be transparent with you. And we would re-earn your trust. And we know that some of the trust had been fractured with the previous story and the previous leadership team. And I'd like to say that I believe we've earned that trust now, everything that we've told you we would do, we've done. And that's really important in this day and age being really impeccable with your word is something that Jacky and Severin and I really believe in a lot. And as we chart the path going forward and move into this acceleration phase, you can expect the same thing with us. Walking down the road with you hand in hand as partners will continue to transform the business. We're going to continue to deliver our performance. And we're going to work incredibly hard for you.
It's been a tremendous, tremendous year. And we still actually have, as Jacky reminds me, there's still almost another 60 days left in the year for us to continue to do great things. And that's what we're doing every day here. So thank you for your trust. We really appreciate the dialogue with all of our shareholders. And we look forward to getting together with you in the coming months and continue to share our accelerated version of what the future of digital infrastructure looks like. Thanks, everybody. Have a great weekend. And we'll see you soon.
Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time. Have a great day.