DigitalBridge Group, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021; filed November 9, 2021. Amounts below are in U.S. dollars. DigitalBridge, formerly Colony Capital, is shifting from legacy real estate and investment-management businesses to digital infrastructure. It reported $49.4 billion of AUM, including $37.8 billion in digital assets.
Key financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $252.2 million | $123.0 million | $709.9 million | $261.0 million |
| Continuing-operations loss | $40.9 million | $52.6 million | $183.5 million | $524.1 million |
| Net loss, including discontinued operations | $51.4 million | $361.2 million | $774.0 million | $3.48 billion |
| Net income (loss) attributable to common stockholders | $41.0 million | $(205.8) million | $(365.0) million | $(2.61) billion |
| Basic EPS attributable to common stockholders | $0.08 | $(0.44) | $(0.76) | $(5.51) |
| Operating cash flow | Not separately provided for the quarter | $181.4 million | $89.9 million | |
| Investing cash flow | Not separately provided for the quarter | $85.7 million | $(981.9) million | |
| Financing cash flow | Not separately provided for the quarter | $198.2 million | $363.2 million |
At September 30, cash and cash equivalents were $1.28 billion, restricted cash was $87.6 million, and total assets were $15.44 billion. Management reported liquidity of $774 million, comprising corporate cash and the full $200 million available under its variable funding notes.
Debt, net of financing costs and excluding debt held for disposition, was $4.57 billion; outstanding principal was $4.62 billion. The company also reported $3.83 billion of liabilities related to assets held for disposition, including $3.44 billion of debt on the balance sheet. Most digital operating debt was non-recourse investment-level financing. Stockholders’ equity was $2.06 billion and total equity was $5.69 billion.
Digital Operating generated $573.3 million of revenue and $235.1 million of EBITDAre for the nine months, compared with $185.7 million and $74.8 million, respectively, in 2020. Q3 EBITDAre was $80.4 million versus $46.7 million. These are non-GAAP supplemental measures, not substitutes for GAAP earnings or cash flow.
Material changes and drivers
- Revenue more than doubled year over year in both the quarter and nine-month period, primarily reflecting the Vantage SDC and zColo acquisitions and expansion, as well as growth in digital investment-management fees. Digital IM fee income rose to $50.2 million in Q3 from $19.9 million.
- The company’s digital property operating income for the nine months was $572.8 million, versus $185.7 million in 2020. Growth largely reflects acquired data centers; property operating expenses and depreciation also increased.
- Q3 common-stockholder income was positive despite a continuing-operations loss, principally because of discontinued-operations results and attribution to noncontrolling interests. For the nine months, the company remained loss-making.
- Discontinued-operations loss narrowed substantially from 2020, when large impairments were recorded. In 2021, planned sales of Wellness Infrastructure and OED/Other IM assets led to aggregate write-downs of approximately $645.6 million, including $294.2 million attributable to the Operating Company.
- Cash increased from $703.5 million at year-end 2020 to $1.28 billion. Nine-month operating cash flow rose to $181.4 million; management cited the $102.3 million BRSP management-contract termination payment and contributions from acquired digital operations.
- Total AUM fell from $52.0 billion at year-end to $49.4 billion, as non-digital assets were sold or marked down. Digital AUM rose to $37.8 billion, 77% of total AUM, from $30.0 billion, or 58%, at year-end. Digital FEEUM reached $16.5 billion, supported by DCP II fundraising.
Strategy, outlook, risks, and unusual items
- Portfolio transition: DigitalBridge said it was in the final stages of monetizing non-digital businesses. The sale of NRF Holdco, which holds Wellness Infrastructure and other assets, was agreed at $281 million: $190.7 million cash and a $90.3 million seller note, with the buyer also assuming specified debt. Management expected closing in the first half of 2022, subject to conditions; completion was not assured.
- OED and Other IM sale: A substantial majority was under contract for approximately $535 million, subject to adjustments and conditions. An Irish joint-venture partner obtained a temporary injunction in October 2021 pending a hearing, which could delay or affect the sale. No assurance of closing was given.
- Financing: In July, the company replaced its corporate credit facility with $300 million of 3.933% term notes and up to $200 million of revolving variable funding notes, secured by management-fee revenue and specified digital-related interests. The company said it was compliant with the facility’s financial covenants. DataBank and Vantage completed additional securitizations after quarter-end, and the company exchanged about $44 million of 5.75% notes for approximately 20 million common shares in October.
- Distributions: Common dividends remained suspended; management said it would reassess the policy as financial performance and liquidity improved. Series G preferred stock was redeemed in August, and redemption of approximately 2.6 million Series H shares was scheduled for November 2021.
- Other unusual items: DataBank recorded a $66.8 million deferred tax benefit after restructuring to qualify as a REIT and expected to elect REIT status for 2021. Q3 included significant unrealized carried-interest earnings and associated compensation; those amounts may reverse with investment valuations. The company also recognized a $26 million write-off of an investment in a former executive’s venture.
- Principal risks: Completion, timing, and proceeds of planned asset sales; valuations and further impairments; execution of the digital transformation and acquisitions; fundraising and investment performance; leverage, refinancing and interest-rate exposure; foreign exchange and power-cost risks; COVID-19 effects; and maintaining REIT and Investment Company Act status. Management stated that no material legal proceeding was expected to adversely affect results, financial position, or liquidity, and that disclosure controls were effective.
- Guidance: The filing does not provide a numerical earnings or revenue forecast. Management’s stated expectations included completing the digital rotation by mid-2022, subject to the planned dispositions and their closing conditions.
Important facts for investors to verify
- Whether the Wellness Infrastructure and OED/Other IM sales close, when they close, and the final cash proceeds, seller-note value, adjustments, and debt assumed.
- The effect and status of the Irish injunction and any resulting delay or change to the OED/Other IM transaction.
- Cash available for corporate use versus restricted, subsidiary, or held-for-disposition cash, and the continuing availability and covenant headroom of the $200 million revolving facility.
- Debt repayment and deleveraging actually achieved through asset sales, including which liabilities remain with DigitalBridge after closing.
- Underlying recurring earnings and cash generation apart from noncontrolling interests, discontinued operations, tax benefits, asset sales, impairment charges, and unrealized carried interest.
- The durability of digital fee growth and data-center operating performance, including customer concentration, investment commitments, and capital spending needs.
- Future common and preferred dividend requirements, preferred redemptions, and dilution from note exchanges, warrants, equity awards, and OP Units.