DigitalBridge Group, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Dollar amounts are in millions unless stated otherwise. The company changed its name from Colony Capital, Inc. to DigitalBridge Group, Inc. on June 22, 2021, reflecting its shift toward digital infrastructure.
Business context
DigitalBridge invests in and manages digital infrastructure, including data centers, cell towers, fiber networks and small cells. Its continuing segments are Digital Investment Management, Digital Operating, Digital Other and Other. Management continued to monetize non-digital businesses and assets, presenting the hotel, Wellness Infrastructure, and substantial portions of its Other equity and debt investments and Other investment management business as discontinued operations.
At June 30, 2021, the company reported $48.4 billion of assets under management (AUM) and $19.6 billion of fee-earning equity under management (FEEUM); $35.0 billion of AUM and $14.5 billion of FEEUM related to digital businesses.
Key financial results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $237.2 | $67.9 | $457.8 | $138.0 |
| Income (loss) from continuing operations | $3.8 | $(393.2) | $(142.5) | $(479.7) |
| Net loss | $(95.1) | $(2,719.0) | $(722.7) | $(3,123.1) |
| Net loss attributable to common stockholders | $(141.3) | $(2,042.8) | $(406.1) | $(2,404.4) |
| Operating cash flow | Not separately presented here | $104.9 | $42.3 | |
| Investing cash flow | Not separately presented here | $408.6 | $114.6 | |
| Financing cash flow | Not separately presented here | $(308.7) | $(329.5) |
Q2 2021 continuing-operations income includes a $66.8 million deferred tax benefit at DataBank following its restructuring to qualify as a REIT. The large year-over-year improvement in reported losses also reflects the exceptionally large 2020 impairment charges; it should not be read as a like-for-like measure of underlying earnings. Discontinued operations recorded losses of $98.9 million in Q2 and $580.2 million in the first half of 2021.
Digital Operating generated Q2 revenue of $189.1 million and non-GAAP EBITDAre of $77.9 million; first-half EBITDAre was $154.7 million. Revenue growth largely reflects the Vantage SDC and zColo data center acquisitions. Depreciation and amortization and financing costs contributed to Digital Operating’s reported losses.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $1,006.2 million; cash, cash equivalents and restricted cash, including amounts in assets held for disposition, totaled $1,174.1 million.
- Total assets were $15,921.3 million, including $6,691.4 million classified as held for disposition. Total liabilities were $9,515.8 million; liabilities related to assets held for disposition were $4,728.6 million.
- Debt outside assets held for disposition was $3,919.3 million in principal, or $3,877.7 million net carrying value. A further $4,285.6 million of debt was classified with held-for-disposition assets and was expected to be assumed or extinguished in connection with dispositions.
- Digital Operating investment-level debt was $3,374.3 million, with a 3.05% weighted-average interest rate; $2,787.8 million was fixed-rate and $586.5 million variable-rate.
- Management estimated liquidity of approximately $780 million after the July 2021 financing, repayment of the corporate credit facility and planned Series G preferred-stock redemption. The estimate includes net proceeds from the new notes and full availability under the revolving notes.
- Preferred stock had a $1,033.8 million liquidation preference and a weighted-average dividend rate of 7.165%. Common dividends remained suspended; none were declared in the first half of 2021, compared with $0.11 per share in the first half of 2020.
First-half cash flows include continuing and discontinued businesses. Operating cash flow included a $102.3 million one-time BRSP management-termination payment, while investing cash flow included asset sales and loan repayments; these amounts may not indicate recurring cash generation from the continuing digital platform.
Material changes and unusual items
- Digital revenue increased substantially year over year, principally due to acquisitions and growth in digital investment-management fees. Digital management fees rose with DCP II fundraising; Q2 also included incentive fees.
- In March 2021, the company sold five hotel portfolios and its interest in the THL Hotel Portfolio. The transaction had a stated value of approximately $2.8 billion, including the buyer’s assumption of approximately $2.7 billion of investment-level debt. One hotel portfolio remained in receivership and under contract for sale by the lender.
- The company agreed to sell a substantial majority of its non-digital OED investments and Other IM business for approximately $535 million, subject to customary adjustments, regulatory approvals and third-party consents. During the first half, it recorded aggregate write-downs of approximately $537.8 million on OED, Other IM and Wellness Infrastructure assets classified as held for disposition.
- BRSP’s management agreement ended on April 30, 2021 for a $102.3 million cash termination payment. The company wrote off $81.6 million of related goodwill and recorded a net gain of $20.7 million in discontinued operations.
- The company recorded a $26.0 million investment in a newly formed entity associated with former Executive Chairman Thomas Barrack and wrote it off by June 30, 2021 after concluding it was likely unrecoverable.
- In April, proceeds from sales of two assets securing the Irish loan portfolio repaid $305 million of loans and extinguished $155 million of related financing; the company’s share of excess net proceeds was $103.5 million.
Outlook, risks and subsequent events
No quantified full-year earnings or revenue guidance is provided. Management said it expected to continue monetizing non-digital assets and to focus on digital infrastructure, while noting that timing and proceeds from dispositions, investment performance, fundraising and capital deployment remain uncertain. Common-dividend policy will be reconsidered in light of financial performance and liquidity.
- In July 2021, subsidiaries issued $300 million of 3.933% Class A-2 secured fund-fee revenue notes and made up to $200 million of revolving variable-funding notes available. The facility is secured by specified management fees and digital-related interests; the issuers are special-purpose subsidiaries, not the parent or Operating Company. The company also terminated its corporate credit facility.
- In July, the company gave notice to redeem all Series G preferred stock, with an $86.25 million liquidation value, in August 2021.
- As of August 5, DCP II commitments totaled $6.6 billion, including $135 million committed by the company. On August 9, the company agreed to provide up to $650 million of preferred equity to support an acquisition by its investment-management platform.
- Key stated risks include completing planned dispositions at expected values and on schedule; valuation uncertainty, including Level 3 estimates; COVID-19 and broader economic conditions; leverage, interest-rate and refinancing exposure; REIT qualification; and the ability to raise and deploy capital successfully.
Most important facts for investors to verify
- Whether the approximately $535 million OED/Other IM sale closes, its final proceeds and adjustments, and the status and net proceeds of Wellness Infrastructure monetization.
- Whether held-for-disposition debt is assumed, repaid or otherwise resolved as assets are sold, and how much cash remains available after the Series G redemption and other obligations.
- How much recurring cash flow the continuing digital businesses generate, excluding the BRSP termination payment, asset-sale proceeds and other one-time items.
- DataBank’s actual REIT election and the sustainability of the associated tax benefit; the Q2 benefit was a one-time deferred-tax accounting effect.
- DCP II fundraising, FEEUM growth and fee conversion, including the effect of the 31.5% Wafra participation in the digital investment-management business.
- The terms, funding and risk exposure of the subsequent commitment of up to $650 million in preferred equity, and any future change to the suspended common dividend.