DigitalBridge Group, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. The filing reports full-year results, not standalone fourth-quarter results. DigitalBridge is a global digital-infrastructure investment manager, with Investment Management and Operating segments. It completed its transition from a REIT and diversified real-estate manager to a taxable C corporation focused primarily on digital infrastructure. Year-end AUM was $53 billion; the filing’s detailed AUM table reports $51.3 billion, so investors should note the differing figures.
Financial results and liquidity
| Metric | 2022 | 2021 |
|---|---|---|
| Total revenue | $1.145 billion | $965.8 million |
| Loss from continuing operations | $421.3 million | $216.8 million |
| Net loss attributable to DigitalBridge | $321.8 million | $310.1 million |
| Net loss attributable to common stockholders | $382.3 million | $385.7 million |
| Cash from operating activities | $262.6 million | $248.2 million |
| Cash used in investing activities | $1.913 billion | Cash provided: $146.6 million |
| Cash from financing activities | $923.8 million | $411.3 million |
- Revenue increased 18.5%, led by higher Operating-segment property income and Corporate and Other income; Investment Management revenue declined 5% to $182.0 million. Fee income fell to $172.7 million from $180.8 million, including no incentive fees in 2022 versus $7.2 million in 2021.
- DigitalBridge’s attributable continuing-operations net loss widened to $211.7 million from $72.6 million. A $133.2 million non-cash loss on the March 2022 exchange of senior notes was a major unusual item. The 2021 comparison included a $100.5 million tax benefit, while 2022 had a $13.5 million tax expense, principally reflecting a valuation allowance on deferred tax assets.
- Operating-segment revenue benefited from acquisitions, lease-up and a $6.0 million lease-termination fee. Operating-segment loss attributable to DigitalBridge was $53.2 million versus $36.7 million.
- Company-defined, non-GAAP measures attributable to the Operating Company were $37.1 million of Distributable Earnings, $108.3 million of Adjusted EBITDA and $83.5 million of Investment Management Fee Related Earnings. These measures are not substitutes for GAAP results or operating cash flow.
- Year-end cash and cash equivalents were $918.3 million, down from $1.602 billion; restricted cash was $118.5 million. Management reported approximately $1 billion of liquidity at year-end, including the full $300 million available under its variable funding notes. Liquidity decreased by $323.5 million for the February 2023 InfraBridge acquisition.
- Total debt principal was $5.213 billion: $578.4 million of corporate-level debt and $4.634 billion of non-recourse investment-level secured debt. Investment-level debt is serviced by the relevant subsidiaries; $994 million was variable-rate debt. Preferred stock liquidation preference was $827.8 million, with a weighted-average dividend rate of 7.135%.
Material changes and developments
- DigitalBridge redeemed Wafra’s 31.5% interest in the investment-management business for $388.5 million cash, 14.4 million common shares and contingent consideration. Following the transaction, DigitalBridge receives 100% of net cash flows from its fee business. $90 million was payable to Wafra in March 2023 based on 2022 fundraising.
- DataBank’s 2022 recapitalization reduced DigitalBridge’s ownership from 21.8% to 11%. DigitalBridge received $425.5 million, including its share of carried interest; the transaction generated a $230.2 million increase to equity.
- Fee-earning equity under management rose 21% to $22.2 billion. In February 2023, the InfraBridge acquisition added $5.6 billion of FEEUM and $9 billion of AUM, according to the filing’s business discussion. The acquisition consideration was $323.5 million including working capital, net of cash assumed, with up to approximately $129 million of additional contingent consideration.
- Common dividends resumed at $0.01 per share quarterly in the third quarter of 2022 after being suspended from the second quarter of 2020 through the second quarter of 2022. The board has not established a minimum dividend.
Outlook, risks and contingencies
- No formal earnings or revenue guidance is provided. Management said it expected sufficient liquidity and cash generation to meet short- and long-term capital requirements, while continuing to assess capital-structure and liquidity alternatives. It expected to use cash on hand to pay the $90 million Wafra amount and $200 million of 5.00% convertible notes due April 2023.
- Key risks include fundraising and investment performance, volatile or subjective valuations and carried-interest reversals, rising interest rates and refinancing access, leverage, portfolio-company and customer concentration, power and connectivity reliability, cybersecurity, regulation and conflicts of interest. A single customer accounted for approximately 18% of consolidated continuing-operations revenue, or about 8% net of noncontrolling interests.
- The company recorded a $60.4 million other-than-temporary impairment on its BrightSpire Capital investment. It had no carried-interest clawback liability at year-end, though distributed carried interest may be subject to clawback. Unfunded commitments to sponsored funds were $112.2 million.
- In September 2022, the SEC’s Division of Enforcement requested information from the legacy investment adviser CCIA concerning alleged examination deficiencies involving fiduciary duties, care and affiliate-transaction disclosures. The company said it would cooperate; the outcome could not be predicted.
- The company was no longer a REIT for 2022 and is subject to corporate income tax, though it expected no significant near-term incremental current tax burden due to tax attributes. It recorded a substantial valuation allowance against deferred tax assets. The company reported effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls.
Investor verification priorities
- Reconcile the $53 billion year-end AUM statement with the $51.3 billion AUM figure in the detailed table, and distinguish AUM from fee-earning equity under management.
- Review the composition, terms, and maturity schedule of the $5.213 billion debt balance, especially variable-rate exposure, non-recourse debt and the refinancing needs of investment-level borrowings.
- Track post-acquisition liquidity and the cash impact of the 2023 note maturity, Wafra payment, InfraBridge purchase and contingent consideration.
- Assess recurring fee growth and fundraising against volatile carried interest and incentive income; compare GAAP losses with the company-defined non-GAAP measures.
- Monitor the SEC inquiry, deferred-tax-asset valuation allowance, BRSP investment value, customer concentration and any future carried-interest clawback exposure.