DigitalBridge Group, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. DigitalBridge is a digital infrastructure investor and investment manager, with Digital Investment Management and Digital Operating as its reportable segments. The company completed its transition to a digital-focused business in February 2022 after selling its Wellness Infrastructure business; prior-period results have been recast to present disposed businesses as discontinued operations.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 / prior date |
|---|---|---|
| Revenue from continuing operations | $257.5 million | $220.6 million; up 17% |
| Loss from continuing operations | $236.3 million | $146.3 million |
| Net loss attributable to DigitalBridge | $246.6 million | $246.3 million |
| Net loss attributable to common stockholders; basic and diluted EPS | $262.3 million; $(0.46) per share | $264.8 million; $(0.56) per share |
| Cash provided by operating activities | $1.3 million | Cash used of $23.9 million |
| Cash used in investing activities | $1.102 billion | $7.9 million |
| Cash provided by financing activities | $559.3 million | $99.2 million |
| Cash and cash equivalents | $1.118 billion | $1.602 billion at Dec. 31, 2021 |
| Debt, net on balance sheet | $5.123 billion | $4.860 billion at Dec. 31, 2021 |
| Total assets | $11.232 billion | $14.198 billion at Dec. 31, 2021 |
| Assets under management | $46.6 billion | $45.3 billion at Dec. 31, 2021 |
| Fee-earning equity under management | $18.8 billion | $18.3 billion at Dec. 31, 2021 |
The filing does not present a single consolidated operating margin as a key measure. Digital Operating EBITDAre, a non-GAAP segment measure, was $84.6 million, versus $76.8 million. It should not be treated as a substitute for GAAP earnings or cash flow.
Material changes and drivers
- Continuing-operations revenue rose 17%, including higher management fees following fundraising for DigitalBridge Partners II and higher property income from acquisitions and lease-up. Fee income increased to $42.8 million from $29.4 million.
- Continuing-operations losses widened by $89.9 million. Other loss included a $133.2 million non-cash loss on the March exchange of $60.3 million principal amount of 5.75% exchangeable notes. Digital IM results also reflected a reversal of accrued carried interest; this reduced both carried-interest earnings and related compensation expense.
- Discontinued-operations loss narrowed to $107.4 million from $481.3 million, largely reflecting prior-period impairments and the winding down or sale of legacy businesses. This made total net loss substantially lower than in Q1 2021, while loss attributable to DigitalBridge was nearly unchanged.
- Real estate, net, increased to $5.628 billion from $4.972 billion, including DataBank acquisitions. The company acquired four Houston data centers for $670 million, funded with debt and equity, and increased its DataBank ownership to 21.8%.
- Investment spending drove the sharp increase in investing cash outflows. Financing inflows included DataBank acquisition funding and noncontrolling-investor contributions. Cash, cash equivalents and restricted cash together ended the quarter at $1.224 billion.
Debt, liquidity and capital allocation
Debt principal totaled $5.188 billion, compared with $4.923 billion at year-end. Most debt is non-recourse investment-level secured debt; $4.609 billion was investment-level principal, including $833.8 million of variable-rate Digital Operating debt. The company reported compliance with applicable debt covenants. Management estimated expected liquidity at $1.0 billion, including the full $300 million available under its variable funding note facility following an April increase in availability. This estimate is not the same as quarter-end cash.
Preferred stock had an $883.5 million liquidation preference and a weighted average dividend rate of 7.135%, with quarterly payments of about $15.8 million. Common dividends had been suspended since Q2 2020; management expected to reinstate quarterly dividends in Q3 2022, subject to board approval.
Outlook, transactions and risks
- C-corporation transition: The company ended actions to maintain REIT status for 2022. Management cited greater flexibility to retain and reinvest earnings and pursue non-REIT-qualified investments. A preliminary deferred tax asset of about $400 million was fully valuation-allowanced; management said no material net tax effect on Q1 results arose from the transition. The company warned that future corporate taxes may reduce earnings and cash available for investment or distribution, and use of tax attributes may be limited.
- Wafra redemption: Under an April agreement, DigitalBridge would acquire Wafra’s 31.5% Digital IM interest for $390 million cash and 57.7 million Class A shares, plus contingent consideration of $90 million to $125 million tied to fundraising. Closing was expected in May 2022, subject to conditions; completion and terms were not assured.
- Planned acquisitions: The company agreed to acquire Telenet’s Belgian tower business for approximately €745 million, including a €458 million equity commitment, with closing expected in Q2 2022. It also agreed to acquire AMP Capital’s infrastructure investment management business for A$458 million upfront and up to A$180 million contingent consideration, with closing expected in the second half of 2022. Both remained subject to customary conditions.
- Management commentary: Management stated it believed liquidity was sufficient for short- and long-term needs, while continuing to evaluate capital-structure alternatives. It expected the AMP acquisition to add $5.5 billion of fee-earning assets under management and be immediately accretive to fee-related earnings; this is an expectation, not a guarantee.
- Risks and contingencies: The company cited interest-rate, foreign-exchange, equity-market, financing, fundraising, acquisition-integration and investment-valuation risks. A March 2022 SEC examination-closure letter concerning legacy adviser CCIA disagreed with the company’s position on alleged compliance and disclosure deficiencies and did not preclude further SEC action. The company said it believed it had acted appropriately. It reported no material legal proceedings expected to materially affect results, financial position or liquidity.
- Other notable item: The company recorded $23.8 million of impairment related to the final carrying value of the Wellness Infrastructure disposition. Management reported effective disclosure controls as of March 31, 2022.
The filing provides no formal consolidated earnings guidance.
Investor verification checklist
- Confirm completion, final cash and share consideration, and any contingent payments for the Wafra redemption.
- Track closing, financing, equity requirements and subsequent results for the Telenet tower and AMP Capital transactions.
- Reconcile management’s $1.0 billion liquidity estimate with cash, facility availability, transaction commitments and planned investment spending.
- Monitor operating cash generation against acquisition and capital-expenditure needs, given Q1 operating cash flow of only $1.3 million.
- Assess variable-rate debt exposure, debt maturities and the sensitivity of investment and carried-interest income to market valuations.
- Verify the timing and amount of any common dividend reinstatement, and the realization and usability of tax loss carryforwards.
- Follow any further SEC action relating to the legacy adviser examination and evaluate its possible financial or reputational effects.