DigitalBridge Group, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. DigitalBridge is a global digital-infrastructure investment manager; its business comprises Investment Management and direct co-investments in digital infrastructure assets. Reported consolidated operating results include portfolio-company activity and substantial noncontrolling interests, so consolidated figures do not represent DBRG’s full economic share.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Total revenue | $250.2 million | $232.8 million; up 7% |
| Fee income | $59.1 million | $42.8 million; up 38% |
| Operating income from property | $230.9 million | $202.5 million |
| Interest expense | $67.2 million | $44.0 million |
| Net loss from continuing operations | $278.1 million | $249.0 million |
| Net loss attributable to common stockholders | $212.5 million; $(1.34) per share | $262.3 million; $(1.84) per share |
| Operating cash flow | $20.2 million | $1.3 million |
| Cash, cash equivalents and restricted cash | $824.2 million at quarter-end | Down from $1,036.7 million at year-end 2022 |
Operating cash flow was positive, while investing activities used $258.9 million and financing activities provided $26.8 million. Total assets were $10.7 billion. At March 31, debt comprised $569.8 million of corporate debt and $4.75 billion of non-recourse investment-level debt. Management disclosed approximately $749 million of liquidity, including $300 million available under its variable funding notes. In April, the company repaid $200 million of convertible notes at maturity; management then reported corporate debt of approximately $378 million.
Management reported $69.3 billion of assets under management (AUM) and $27.7 billion of fee-earning equity under management (FEEUM) at quarter-end. FEEUM rose 25% from year-end 2022, including $5.1 billion added through the InfraBridge acquisition. The company declared a $0.01-per-share common dividend.
Material changes and unusual items
- Revenue growth reflected higher fee income and property operating income. Fee income benefited from InfraBridge and capital raised in 2022; property income increased with data-center acquisitions and lease-up.
- Investment Management revenue was affected by a $54.8 million carried-interest reversal, larger than the $31.1 million reversal a year earlier. These unrealized allocations can fluctuate with fund valuations and accrued preferred returns.
- Other loss included a non-cash write-down of approximately $133 million on a note received in the 2022 sale of the Wellness Infrastructure business, following an impending foreclosure of portfolio assets by a mezzanine lender.
- Interest expense increased by $23.2 million, principally due to investment-level debt, higher rates and refinancing-related costs.
- InfraBridge was acquired in February for $313.2 million net of cash acquired, plus contingent consideration tied to future fundraising. The acquisition added $5.1 billion of FEEUM.
- DBRG sold its BrightSpire Capital shares in March for approximately $201.6 million net proceeds; the investment was reported in discontinued operations. The quarter’s discontinued-operations loss was $14.2 million, versus $94.6 million in Q1 2022.
- Operating-segment property results reflect assets that DBRG owned only 11% of DataBank and 13% of Vantage SDC at quarter-end; related investment-level debt is non-recourse to DBRG.
Outlook, risks and contingencies
No specific earnings or financial guidance was provided. Management said it believed cash on hand, anticipated operating cash flows and external financing sources would meet short- and long-term capital requirements, while continuing to assess capital-structure and liquidity alternatives. The $200 million note repayment reduced liquidity after quarter-end.
Key sensitivities include fundraising and growth in AUM/FEEUM; volatile, potentially reversible incentive fees and carried interest; investment valuations and realization timing; interest rates and access to financing; data-center customer retention, power and construction costs; and integration of acquisitions. The filing identifies up to $129 million of potential InfraBridge fundraising-related consideration and up to $35 million of remaining Wafra consideration, depending on fundraising thresholds. Sponsored-fund commitments totaled $126.5 million and may be callable on demand. The company reported no carried-interest clawback liability and no material litigation expected to adversely affect results, financial position or liquidity.
Investor verification checklist
- Track FEEUM growth, fundraising progress and recurring fee income separately from volatile carried interest and investment gains or losses.
- Review the Wellness Infrastructure note’s recovery prospects and the effect of the write-down on future results.
- Confirm post-quarter debt repayment, remaining corporate maturities, borrowing availability and covenant compliance.
- Assess leverage and refinancing risk at DataBank and Vantage SDC, while distinguishing their non-recourse debt from DBRG corporate obligations.
- Monitor InfraBridge integration, contingent consideration, unfunded commitments and any remaining Wafra payment.
- Consider the effects of noncontrolling interests when assessing DBRG’s attributable share of consolidated property revenue, losses and debt.