DigitalBridge Group
has been a hard company to categorize. That starts to change next week.
On Feb. 20, the Boca Raton, Fla.-based firm will present results to investors for the first time since it ceded control of some two dozen data centers to concentrate on its fast-growing private-equity business. Valued as an alternative-asset manager—instead of a data-center real estate investment trust—DigitalBridge hopes to reach the lofty stock prices enjoyed by other alt managers like
Blackstone
and
TPG.
Investors are high on alternative-asset managers these days; a firm such as Blackstone trades at more than 25 times its annual fees. Valued as an alt manager, DigitalBridge stock might trade for 20% more than its recent price of $20.
DigitalBridge CEO Marc Ganzi and investment chief Ben Jenkins have yearned to be appreciated for their investment acumen. But the company’s history as a REIT has muddied its appeal. Its collection of data centers, fiber lines, and cell towers beckoned those investors wanting to own the infrastructure of our ever more digitized lives. But they had a tough time evaluating Ganzi’s private-equity and credit-fund management business. Meanwhile, other investors keen on DigitalBridge’s private-equity business didn’t quite know what to make of its real estate holdings.
“Their numbers looked really odd,” says Raymond James analyst Ric Prentiss. “Going forward, it’s going to screen better and be more a function of how much funds have they raised and what are the fees on their assets under management.”
On Jan. 10, DigitalBridge gave up its control of its last data-center operation. The move clears its balance sheet of billions of dollars in real estate and associated debt, and its income statement of $1 billion in operating expenses. The changes may not all show in the December results that DigitalBridge reports next week, but the company can start to highlight its money-management earnings, which grew 36% year over year in the September quarter.
With digital infrastructure in demand among private-fund investors, DigitalBridge thinks it can keep growing its funds at a steep rate. Those ambitions make it a bit of a “show me” stock, says Prentiss, who rates it a Strong Buy.
The 52-year-old Ganzi is well known in the digital infrastructure business but less familiar to financial industry investors. It has been a winding road to his emergence as an alternative-asset manager.
Twenty years ago, Ganzi began building Global Tower Partners into the country’s largest privately held cell-tower operator before selling it to
American Tower
in 2013 for $4.8 billion. With Blackstone veteran Jenkins, he began accumulating a variety of data properties in the private-equity venture Digital Bridge Holdings. They sold the firm in 2019 to Colony Capital, a REIT. The next year, Ganzi took over as Colony‘s CEO.
Under Ganzi, the REIT changed its name to DigitalBridge and sold off $80 billion worth of hotels, medical offices, and warehouses, replacing them with interests in fiber networks, cell towers, and data centers. Shares of DigitalBridge soared from about $7 when Ganzi took charge in 2020 to more than $33 by year-end 2021.
DigitalBridge also began expanding its asset-management business. From about $7 billion in fee-earning equity under management when Ganzi took the helm, the company’s funds neared $30 billion in its last-reported quarter ended in September 2023. While DigitalBridge is far smaller than the likes of Blackstone and
KKR,
it boasts a specialization in the hot category of digital infrastructure investing.
And DigitalBridge could grow faster than those larger firms. Fee-earning assets at September’s end were up 46% year over year. The company’s private-equity funds own pieces of more than 30 businesses around the world that provide underpinnings for artificial intelligence, cloud computing, and 5G wireless. There are data centers, fiber, cell towers, and small wireless cells. A new fund will also make loans to digital infrastructure companies.
Yet DigitalBridge’s investment-management growth has been hard for stockholders to see—and judge. For instance, the company owned stakes worth a little more than 10% of data-center operators DataBank and Vantage SDC. But because the terms of its investments gave DigitalBridge effective control of the data-center operators, accounting rules obliged it to include all of their debt and expenses in its financial reports.
The result was that DigitalBridge appeared to have more debt and less cash flow than “asset light” private-equity firms. So in 2022, the company stopped being a REIT and began the process of getting the data-center operations off its financial statements.
When DigitalBridge announces December results on Feb. 20, the data-center debt and expenses may still appear, under “discontinued operations.” But the March quarter should finally show off DigitalBridge as the growing, high-margin alt manager that has been masked by accounting rules.
Increasingly, investors favor firms with recurring fees from funds they manage, and the likes of Blackstone have seen multiples rise as high as 28 times the year’s expected fees. But private-equity firms also get performance fees when portfolio companies are sold at a gain. Performance fees are hard to predict, but they contribute to the handsome levels at which these stocks trade.
Raymond James analysts have taken a stab at valuing DigitalBridge as an alt manager. Assuming it reaches its ambitious goal of $205 million in fee-related earnings in 2025, a 16-times multiple would value those at $3.3 billion. Performance fees could be worth another $560 million. And the company’s continuing stakes in portfolio companies such as Vantage would add another $2 billion. Subtract corporate overhead, debt, and preferred shares, and Raymond James sees the stock worth $4.4 billion, or $24 a share.
It will be worth watching to see whether Ganzi and his team can achieve their fund-raising ambitions.
Write to Bill Alpert at [email protected]
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