DigitalBridge Group, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. DigitalBridge is a global digital infrastructure investment manager with Investment Management and Operating segments. At quarter-end, AUM was $74.6 billion and fee-earning equity under management (FEEUM) was $29.9 billion.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $477.1 million | $429.9 million | $1,152.2 million | $1,079.3 million |
| Income (loss) from continuing operations | $281.4 million | $(30.7) million | $(45.3) million | $(344.0) million |
| Net income (loss) attributable to common stockholders | $261.8 million | $(63.3) million | $26.9 million | $(362.9) million |
| Basic earnings (loss) per share | $1.60 | $(0.39) | $0.17 | $(2.37) |
| Cash provided by operating activities | Not stated for quarter | Not stated for quarter | $192.1 million | $194.8 million |
- Q3 revenue increased 11% year over year, principally from higher management fees and carried-interest allocation. Nine-month revenue rose 7%.
- Q3 results included a $278.7 million gain from the DataBank recapitalization and deconsolidation, including a $275.0 million unrealized remeasurement gain. Excluding this and other identified one-off items, management reported a Q3 other loss of $23.9 million.
- Fee income was $65.2 million for Q3 and $190.1 million for the nine months, versus $41.3 million and $128.4 million, respectively, in 2022. The increase reflected InfraBridge and fee activation on newer capital.
- Carried-interest allocation was $168.9 million in Q3 and $193.4 million year to date. Q3 included $141.0 million unrealized and $27.9 million distributed; these amounts are variable and can reverse before realization.
- FEEUM increased 35% from year-end 2022 to $29.9 billion, including $5.1 billion added through the InfraBridge acquisition. A further $2.2 billion DBP III first close occurred on November 1, 2023, after the reporting period.
Balance sheet, debt and liquidity
- At September 30, cash and cash equivalents were $434.0 million and restricted cash was $104.6 million. The company reported approximately $530 million of liquidity, including the full $300 million available under its variable funding notes facility.
- Corporate debt was $371.1 million carrying value ($378.4 million principal); non-recourse investment-level debt was $2.786 billion. The latter is serviced by the relevant subsidiaries and is not recourse to DigitalBridge.
- Corporate debt principal included $300 million of fixed-rate securitized notes at 3.93% and $78.4 million of 5.75% exchangeable notes due July 2025. The securitized notes have an anticipated repayment date in September 2026. The company reported covenant compliance and availability of the full VFN commitment.
- Consolidated assets fell to $6.872 billion from $11.029 billion at year-end, largely because DataBank was deconsolidated. This also reduced reported non-recourse debt and noncontrolling interests; the decline should not be interpreted solely as operating deleveraging.
- Preferred stock had an $821.9 million liquidation preference and weighted-average dividend rate of 7.135%. The common dividend declared was $0.01 per share.
Cash flow and material changes
- Nine-month investing cash outflow was $768.1 million, mainly reflecting the $314.3 million net InfraBridge acquisition and $613.1 million of real estate acquisitions and additions, partly offset by investment-sale proceeds, including $201.6 million from the BRSP disposition.
- Nine-month financing cash inflow was $78.6 million. Uses included repaying $200 million of 5.00% notes at maturity and paying Wafra $90 million of contingent consideration. Operating cash flow was broadly flat year over year.
- DigitalBridge acquired InfraBridge in February for $314.3 million net of cash assumed, plus contingent consideration tied to future fundraising. The provisional purchase accounting included $167.8 million of goodwill.
- In September, the company completed the DataBank recapitalization, reducing its ownership to 9.87% and ending consolidation. It recognized a $3.7 million realized gain on the final sale and remeasured its retained interest at $434.5 million.
- The BRSP investment was sold in March for approximately $201.6 million net proceeds and reported as discontinued operations. A Wellness Infrastructure seller note was written down by $133 million in March 2023.
Outlook, risks and contingencies
No specific earnings or revenue guidance was provided. Management said it believed available liquidity, anticipated operating cash generation and financing sources would meet short- and long-term requirements, while continuing to assess ways to strengthen liquidity and financial flexibility. Capital raising, fee activation, investment realizations and carried-interest receipts remain important but can vary significantly.
- Unfunded commitments to sponsored funds totaled $245 million as of the filing date; the company also reported $50 million of warehoused investments at cost and $41.9 million of unfunded commitments to a consolidated fund.
- Up to $35 million of remaining Wafra contingent consideration may be payable in March 2024, depending on fundraising. InfraBridge contingent consideration could reach $129 million if fundraising targets are achieved; its estimated fair value was $11.2 million at quarter-end.
- Distributed carried interest can be subject to clawback. No clawback liability was recorded at September 30, 2023; up to $180.9 million of distributed carried interest could be subject to clawback in the remote scenario that relevant investments have no value.
- Key risks cited include fundraising and investment performance, market and interest-rate changes, financing access and leverage, customer and service-provider dependence in portfolio companies, data/security incidents, commodity costs, foreign-market exposure, and tax and regulatory matters. The company reported no material legal proceedings, no material change in previously disclosed risk factors, and effective disclosure controls.
Investor facts to verify
- How much of Q3 earnings reflects the noncash DataBank remeasurement gain, and how the retained 9.87% interest is valued going forward.
- Whether DBP III and other fundraising translate into fee-earning capital and recurring fee growth, including the timing of fee activation.
- Liquidity after the $300 million VFN availability, upcoming corporate maturities, preferred dividends and fund commitments.
- Debt, refinancing needs and covenant headroom at the investment level, particularly for the remaining Operating portfolio.
- The realizability of carried interest and the potential for valuation reversals or clawbacks, alongside the effect of the Wellness Infrastructure note write-down.