DigitalBridge Group, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; comparisons are with the corresponding 2022 periods. DigitalBridge is a global digital infrastructure investment manager, with Investment Management and Operating segments. The company reported $72.2 billion of AUM and $29.1 billion of fee-earning equity under management (FEEUM) at quarter-end. Its direct interests in DataBank and Vantage SDC were 11% and 13%, respectively; most consolidated Operating-segment assets and liabilities belong to those portfolio companies and are attributable to outside investors.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $424.9m | $416.6m | $675.1m | $649.5m |
| Fee income | $65.7m | $44.3m | $124.9m | $87.2m |
| Net loss | $52.5m | $68.1m | $344.9m | $411.8m |
| Net loss attributable to common stockholders | $22.4m | $37.3m | $234.9m | $299.6m |
| Basic and diluted loss per share | $0.14 | $0.24 | $1.48 | $2.02 |
| Operating cash flow | Not stated for Q2 alone | $92.2m | $74.1m | |
| Investing cash flow | Not stated for Q2 alone | $(571.6)m | $(2,152.4)m | |
| Financing cash flow | Not stated for Q2 alone | $24.1m | $760.3m |
Q2 revenue rose 2% and first-half revenue rose 4%. Fee income increased 48% in Q2 and 43% year to date, chiefly from InfraBridge and newly raised capital. Carried interest allocation fell to $79.3m in Q2 from $110.8m, and to $24.5m for the first half from $79.7m; the first-quarter 2023 reversal, including at DBP II, weighed on year-to-date results. First-half common-stockholder loss improved year over year, but continuing-operations loss attributable to DigitalBridge increased to $189.1m from $182.9m.
For Q2, Investment Management reported $35.2m of continuing-operations income, while Operating reported a $93.1m loss, largely reflecting depreciation and amortization and financing costs. Corporate and Other reported $9.3m of income, including fair-value gains on fund investments. No consolidated profit margin is highlighted in the filing; consolidated results include substantial noncontrolling interests.
At June 30, cash and cash equivalents were $426.9m and restricted cash was $154.7m, versus $918.3m and $118.5m at year-end 2022. Management reported approximately $505m of liquidity, including the full $300m available under the variable funding notes (VFN); this is not cash on hand. Corporate debt principal was $378.4m, down from $578.4m at year-end, and non-recourse investment-level debt principal was $5.149bn, up from $4.634bn. Approximately $0.5bn of investment-level debt was variable rate. Preferred stock liquidation preference was $821.9m, with a weighted-average dividend rate of 7.135%.
Material changes and notable items
- DigitalBridge acquired InfraBridge in February for $314.3m net of cash assumed, adding $5.1bn of FEEUM. The acquisition added $161.7m of provisional goodwill; purchase accounting remained subject to the measurement period.
- FEEUM increased 31% to $29.1bn, including InfraBridge and additional fee-generating capital. The company said it had raised approximately $3.4bn in 2023 to date, primarily for a new digital infrastructure fund not yet earning fees and co-investment vehicles.
- The company sold its BrightSpire Capital investment in March for $201.6m net proceeds. It repaid $200m of 5.00% convertible notes at maturity in April, reducing corporate debt and management-estimated annual financing costs by $10m.
- A $133.3m noncash write-down of the Wellness Infrastructure seller note was recorded in the first half after foreclosure of portfolio assets by a mezzanine lender. The 2023 first-half discontinued-operations loss was $18.2m, versus $98.4m in 2022, which included costs and impairment associated with the Wellness Infrastructure disposal.
- Operating-segment property income increased year to date, supported by acquisitions and lease-up. Portfolio utilization was 80%, versus 78% at year-end 2022. Five French DataBank data centers were classified as held for disposition in April.
Outlook, risks and contingencies
The filing provides no quantified earnings or revenue guidance. Management said it believed liquidity and anticipated operating cash flow and financing sources were sufficient for short- and long-term capital requirements, while continuing to assess capital-structure options. Capital raising, fee growth, investment realizations, and carried interest remain dependent on fundraising, market conditions, asset values, and investment performance. Carried interest is unrealized and subject to reversal; the company reported no recorded clawback liability at quarter-end, although $75.6m previously distributed could be subject to clawback in the remote scenario that relevant investments have no value.
Unfunded commitments to sponsored funds totaled $132m, generally callable on demand; consolidated funds also had a $39.3m commitment. Remaining contingent consideration may include up to $35m to Wafra, depending on capital-raising thresholds, and up to $129m for InfraBridge fundraising targets; estimated InfraBridge contingent consideration fair value was $11.1m. Investment-level variable-rate debt, refinancing needs, rate changes, fundraising execution, data-center customer and supplier dependence, construction costs, and electricity prices are among the disclosed risks. A hypothetical 100-basis-point rate increase was estimated to add $5.2m of annualized consolidated interest expense, or $0.6m after noncontrolling interests. The company reported compliance with applicable debt covenants, no material legal proceedings, no material risk-factor changes from its latest 10-K, and effective disclosure controls.
Important facts for investors to verify
- Whether reported AUM and FEEUM growth converts into recurring fee revenue, particularly as the new digital infrastructure fund is not yet fee-earning.
- How much carried interest is ultimately realized versus reversed, especially for DBP II, and the potential for fund clawbacks.
- Liquidity quality and availability: distinguish unrestricted corporate cash from restricted cash and the undrawn VFN; assess upcoming debt maturities and refinancing costs.
- Operating-company debt, interest-rate exposure, lease-up and customer concentration, while accounting for DigitalBridge’s minority ownership and noncontrolling interests.
- Recoverability of the Wellness Infrastructure note and remaining sale-related exposures; also monitor the French portfolio disposition and InfraBridge purchase-price adjustments.
- Funding needs for the $132m of sponsored-fund commitments and potential Wafra and InfraBridge contingent payments.