DigitalBridge Group, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion should be read in conjunction with our unaudited consolidated financial statements and accompanying notes thereto, which are included in Item 1 of this Quarterly Report, as well as information contained in our Annual Report on Form 10-K for the year ended December 31, 2020, which is accessible on the SEC's website at www.sec.gov . Our Organization We are a leading global investment firm with a focus on identifying and capitalizing on key secular trends in digital infrastructure. We are headquartered in Boca Raton, Florida, with key offices in New York, Los Angeles, London and Singapore, and have approximately 300 employees. Effective June 22, 2021, we changed our name to DigitalBridge Group, Inc. (formerly Colony Capital, Inc.) and trade under the ticker symbol, DBRG, signifying our transformation to digital infrastructure. We have elected to be taxed as a real estate investment trust (" REIT") for U.S. federal income tax purposes . We conduct our operations as a REIT, and generally are not subject to U.S. federal income taxes on our taxable income to the extent that we annually distribute all of our taxable income to stockholders and maintain qualification as a REIT, although we are subject to U.S. federal income tax on income earned through our taxable subsidiaries. In light of our digital transformation, we will continue to evaluate whether we will maintain REIT status for 2021 or future years. We also operate our business in a manner that will permit us to maintain our exemption from registration as an investment company under the 1940 Act. We conduct substantially all of our activities and hold substantially all of our assets and liabilities through our operating subsidiary, DigitalBridge Operating Company, LLC (the "Operating Company" or the "OP"). At June 30, 2021, we owned 90% of the Operating Company, as its sole managing member. Having completed the transformational plan for the Company set in motion two years ago, Thomas J. Barrack Jr. has stepped down as Executive Chairman of the Company effective April 1, 2021. In July 2021, Mr. Barrack resigned from his position as a member of the Company's Board of Directors. Mr. Barrack's decision was not the result of any disagreement with the Company on any matter relating to its operations, polices or practices. Ms. Nancy Curtin, a long-time member of the Board and most recently the Lead Independent Director, transitioned to independent, non-executive Chairperson of the Board effective April 1, 2021. Our Business Our vision is to establish the Company as a leading owner, operator and investment manager of digital infrastructure. We are currently the only global REIT that owns, manages, and/or operates across all major infrastructure components of the digital ecosystem including data centers, cell towers, fiber networks and small cells . At June 30, 2021, the Company has $48 billion of assets under management ("AUM"), including both third party capital and the Company's balance sheet, of which $35 billion is dedicated to digital real estate and infrastructure. The Company currently conducts its business through four reportable segments, as follows: • Digital Investment Management ("Digital IM")— This business encompasses the investment and stewardship of third party capital in digital infrastructure and real estate. The Company's flagship opportunistic strategy is conducted through Digital Colony Partners ("DCP") and separately capitalized vehicles, while other strategies, including digital credit and public equities, are conducted through other investment vehicles. The Company earns management fees, generally based on the amount of assets or capital managed in investment vehicles, and has the potential to earn carried interest based upon the performance of such investment vehicles subject to achievement of minimum return hurdles. • Digital Operating— This business is composed of balance sheet equity interests in digital infrastructure and real estate operating companies, which generally earn rental income from providing use of digital asset space and/or capacity through leases, services and other agreements. The Company currently owns interests in two companies: DataBank, including zColo, an edge colocation data center business; and Vantage SDC, a stabilized hyperscale data center business. Both DataBank and Vantage are also portfolio companies managed under Digital IM for the equity interests owned by third party capital. • Digital Other— This segment is composed of equity interests in digital investment vehicles, the largest of which is the Company’s investment and commitment to the DCP flagship funds. This segment also includes the 54 Table of Contents Company’s investment and commitment to the digital liquid strategies and seed investments for future digital investment vehicles. • Other— This segment is composed of the remaining non-digital equity investments, primarily our interest in BrightSpire Capital, Inc. (NYSE: BRSP), that are not substantially available for immediate sale and are expected to be monetized over an extended period beyond the near term. Digital Transformation In 2021, having successfully exited its hotel business, the Company is continuing the process of monetizing the remainder of its non-digital businesses to complete its digital transformation. This includes the Company's Wellness Infrastructure segment, and a substantial majority of the Company's other equity and debt ("OED") investments and its non-digital investment management ("Other IM") business, both of which reside in the Other segment. The completed and pending dispositions of the Company’s hotel business, OED investments and Other IM business, and Wellness Infrastructure segment represent strategic shifts in the Company's business that are expected to have a significant effect on the Company’s operations and financial results, and accordingly, have met the criteria as discontinued operations. For all current and prior periods presented, the related assets and liabilities, to the extent they have not been disposed at the respective balance sheet dates, are presented as assets and liabilities held for disposition on the consolidated balance sheets and the related operating results are presented as loss from discontinued operations on the consolidated statements of operations (refer to Item 1. "Financial Statements" of this Quarterly Report). Accelerating the Monetization of Wellness Infrastructure, OED and Other IM In the second quarter of 2021, the Company started the process to dispose of its Wellness Infrastructure business along with other non-core assets, all of which are held by its subsidiary, NRF Holdco, LLC ("NRF Holdco"). The Wellness Infrastructure business is composed of senior housing, skilled nursing facilities, medical office buildings, and hospitals. Other assets and obligations held by NRF Holdco include primarily: (i) the Company's equity interest in and management of its sponsored non-traded REIT, NorthStar Healthcare Income, Inc. (NorthStar Healthcare"), debt securities collateralized largely by certain debt and preferred equity within the capital structure of the Wellness Infrastructure portfolio, limited partner interests in private equity real estate funds; and (ii) the 5.375% exchangeable senior notes, trust preferred securities and corresponding junior subordinated debt, all of which were issued by NRF Holdco who acts as guarantor. In June 2021, the Company entered into a definitive agreement with a third party to sell a substantial majority of its OED investments and Other IM business, composed of the Company's interests in various non-digital real estate, real estate-related equity and debt investments, and the Company's general partner interests and management rights with respect to these assets. The aggregate sales price is approximately $535 million, subject to customary adjustments, including adjustments if consents with respect to certain assets cannot be obtained. Consummation of the sale is subject to customary closing conditions, including regulatory approvals and third party consents, but no financing conditions. During the six months ended June 30, 2021, taking into consideration the agreed upon sales price and/or estimated recoverable values for the OED, Other IM and Wellness Infrastructure assets that are classified as held for disposition, the Company wrote down the carrying value of these assets by $538 million in aggregate, of which $277 million was attributable to the OP, recorded within impairment loss, equity method loss and other loss in discontinued operations (Note 11 to the consolidated financial statements). Internalization of BRSP In early April 2021, the Company and BRSP (formerly Colony Credit Real Estate, Inc. or CLNC) agreed to terminate the BRSP management agreement for a one-time termination payment of $102.3 million in cash. The transaction closed on April 30, 2021, resulting in the internalization of BRSP's management and operating functions (the "BRSP Internalization"), with certain of the Company's employees previously dedicated wholly or substantially to BRSP becoming employees of BRSP. In connection with the BRSP Internalization, BRSP's board of directors ceased to include Company-affiliated directors upon the expiration of such directors' terms in May 2021. The Company also entered into a stockholders agreement with BRSP, pursuant to which the Company agreed, for so long as the Company owns at least 10% of BRSP's outstanding common shares, to vote in BRSP director elections as recommended by BRSP’s board of directors at any stockholders' meeting that occurs prior to BRSP's 2023 annual stockholders' meeting. In addition, the Company is subject to customary standstill restrictions, including an obligation not to initiate or make stockholder proposals, nominate directors or participate in proxy solicitations, until the beginning of the advance notice window for BRSP's 2023 annual meeting. Except as aforementioned, the Company may vote its shares in its sole discretion in any votes of BRSP’s stockholders. The Company currently holds a 36.1% equity ownership and is prohibited from acquiring additional BRSP shares. 55 Table of Contents Exit of the Hotel Business In March 2021, the Company completed the sale of its hotel business. Pursuant to an agreement entered into with a third party in September 2020 (as amended in October 2020, February 2021 and March 2021), the Company sold five of the six hotel portfolios in its Hospitality segment and its 55.6% interest in a portfolio of limited service hotels that was acquired through a consensual foreclosure in July 2017 (the "THL Hotel Portfolio") in its Other segment, composed of 197 hotel properties in aggregate. The remaining portfolio in the Hospitality segment is in receivership and currently under contract for sale by the lender, while the remaining interests in the THL Hotel Portfolio continue to be held by investment vehicles managed by the Company. Two of the hotel portfolios that were sold in the Hospitality segment were held through joint ventures in which the Company held a 90% and a 97.5% interest, respectively. The aggregate selling price of $67.5 million represented a transaction value of approximately $2.8 billion, with the acquirer's assumption of $2.7 billion of investment-level debt. Significant Developments Through the date of this filing, significant developments in 2021 affecting our business and results of operations included the following. Financing • In July 2021, our corporate credit facility was terminated and replaced with $500 million aggregate principal amount of Series 2021-1 Secured Fund Fee Revenue Notes issued by subsidiaries of the OP (the "Co-Issuers"), composed of: (i) $300 million aggregate principal amount of 3.933% Secured Fund Fee Revenue Notes, Series 2021-1, Class A-2 (the “Class A-2 Notes”); and (ii) up to $200 million Secured Fund Fee Revenue Variable Funding Notes, Series 2021-1, Class A-1 (the “VFN Notes” and, together with the Class A-2 Notes, the “Series 2021-1 Notes”). The VFN Notes allow the Co-Issuers to borrow on a revolving basis. Net proceeds from the securitized financing facility will be used for acquisition of digital infrastructure investments, funding of commitments to sponsored funds, redemption or repayment of other higher cost corporate securities, and/or general corporate purposes. The issuance of the Series 2021-1 Notes represents a key milestone for the Company on a number of fronts: ▪ Longer-duration financing — We effectively refinanced our corporate credit facility and extended the maturity of our revolving credit from 2022 to 2026. ▪ First-of-its-kind securitization backed by investment management fees. ▪ Lower cost of capital — Successful rotation from “diversified to digital” has positioned us to issue securitized notes with a high-quality digital collateral base, which lowers our effective cost of capital. ▪ Greater flexibility — This new financing structure, which we intend to continue to utilize as it grows, creates greater flexibility around capital allocation and corporate liability management, including our ability to retire higher cost debt or securities and eventually pay regular dividends on our common stock. • In July 2021, we issued notices of redemption for all of our outstanding 7.5% Series G preferred stock with total liquidation value of $86.25 million, to be settled in August 2021 using proceeds from our securitized financing facility, which will lower our cost of corporate debt by approximately 350 basis points. Digital Business • We held a first closing of DCP II, our second digital opportunistic fund in February 2021. As of August 5, 2021, total commitments was $6.6 billion, inclusive of $135 million of our commitments as limited partner and general partner. • Our DataBank subsidiary completed its restructuring in the second quarter of 2021 and expects to elect REIT status for the 2021 taxable year, resulting in a write-off of $66.8 million of net deferred tax liabilities. • In February 2021, we completed the add-on acquisition of zColo's remaining five data centers in France for $33 million. • We acquired additional build-out of expansion capacity within the Vantage SDC portfolio, including lease-up of the expanded capacity and existing inventory, for aggregate payments of $73.6 million. Non-Digital Assets • In the first half of 2021, we determined we would accelerate the monetization of our remaining non-digital assets in Wellness Infrastructure, OED and Other IM. 56 Table of Contents • In June 2021, we entered into a definitive agreement to sell a substantial majority of our OED investments and Other IM business, including our general partner interests and management rights with respect to these OED assets. The aggregate sales price is approximately $535 million, subject to customary adjustments. • During the six months ended June 30, 2021, based upon the sales price for the OED assets and Other IM business, and potential recoverable values of the Wellness Infrastructure assets, the carrying value of these assets were written down in the aggregate of $538 million, of which $277 million was attributable to the OP. • On April 30, 2021, we terminated the BRSP management contract, which resided in the Other IM business, for a one-time termination payment of $102.3 million at closing. Consequently, the Other IM goodwill balance of $81.6 million was fully written off as the remaining value of the Other IM reporting unit represented principally the BRSP management contract. This resulted in a net gain of $20.7 million, recognized within other gain (loss) in discontinued operations. • In March 2021, we sold five of the six hotel portfolios in our Hospitality segment and our 55.6% interest in the THL Hotel Portfolio in the Other segment, generating net proceeds of $45.6 million. The transaction was valued at $2.8 billion, including aggregate selling price of $67.5 million and the buyer's assumption of $2.7 billion of investment-level debt. The remaining one hotel portfolio is in receivership and currently under contract for sale by the lender. • In April 2021, we received proceeds from a sale of the two largest assets securing our Irish loan portfolio, which were applied to repay $305 million of our outstanding loan receivable and extinguish the full $155 million of debt financing the portfolio. This removed all encumbrances on the remaining assets in the portfolio. Our share of excess net proceeds was $103.5 million. The Irish loan portfolio is composed of distressed loans that were previously acquired at a discount. • For all current and prior periods presented, all non-digital assets that have been disposed or subject to planned dispositions and their corresponding liabilities are presented as held for disposition, and the related operating results are presented as discontinued operations (Notes 11 and 12 to the consolidated financial statements). 57 Table of Contents Results of Operations The following table summarizes our consolidated results of operations by segments. Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2021 2020 Change 2021 2020 Change Continuing Operations Total revenues Digital Investment Management $ 46,873 $ 20,849 $ 26,024 $ 77,993 $ 40,148 $ 37,845 Digital Operating 189,093 42,021 147,072 378,295 87,188 291,107 Digital Other 1,720 663 1,057 2,860 823 2,037 Other — — — — 814 (814) Amounts not allocated to segments (1) (499) 4,340 (4,839) (1,380) 9,050 (10,430) $ 237,187 $ 67,873 169,314 $ 457,768 $ 138,023 319,745 Income (loss) from continuing operations Digital Investment Management $ 15,786 $ 2,424 $ 13,362 $ 23,449 $ 4,654 $ 18,795 Digital Operating (10,850) (21,262) 10,412 (75,110) (39,677) (35,433) Digital Other 13,280 12,292 988 20,943 9,257 11,686 Other 45,983 (324,456) 370,439 16,393 (334,361) 350,754 Amounts not allocated to segments (60,376) (62,195) 1,819 (128,191) (119,591) (8,600) $ 3,823 $ (393,197) 397,020 $ (142,516) $ (479,718) 337,202 Net income (loss) from continuing operations attributable to DigitalBridge Group, Inc. Digital Investment Management $ 12,100 $ 2,073 $ 10,027 $ 18,979 $ 4,083 $ 14,896 Digital Operating (376) (4,277) 3,901 (10,450) (7,803) (2,647) Digital Other 5,424 10,723 (5,299) 9,187 8,481 706 Other 41,606 (292,254) 333,860 14,842 (301,176) 316,018 Amounts not allocated to segments (52,828) (54,192) 1,364 (112,421) (104,009) (8,412) $ 5,926 $ (337,927) 343,853 $ (79,863) $ (400,424) 320,561 __________ (1) Includes elimination of fee income earned by Digital Investment Management from managed investment vehicles consolidated within Digital Operating and Digital Other. Revenues Revenues increased $169.3 million quarter-to-date and $319.7 million year-to-date, or over 200%. The increase reflects growth in our digital businesses: • Digital Operating— acquisition of Vantage SDC's 12 hyperscale data centers (13% DBRG ownership) and zColo's 44 colocation data centers (through our subsidiary, DataBank, 20% DBRG ownership); and • Digital Investment Management— fundraising for our second flagship digital infrastructure fund, DCP II, and co-invest capital raised alongside our balance sheet investment for new acquisitions in Digital Operating . Income (loss) from continuing operations Continuing operations generated net income in the second quarter of 2021 and net losses in all other periods. The second quarter of 2021 benefited from a $66.8 million net deferred tax benefit at our DataBank subsidiary, driven by the write-off of deferred tax liabilities as DataBank completed its restructuring to qualify as a REIT in the second quarter and expects to elect REIT status for the 2021 taxable year. Our Digital Operating segment generally records net losses, reflecting the effects of depreciation and amortization. In 2020, the large net loss arose from $254.5 million of impairment charge on our equity investment in BRSP. Key components of revenue and income (loss) from continuing operations are addressed in more detail in our discussion of consolidated results of operations below. 58 Table of Contents Consolidated Results of Operations Comparison of Three and Six Months Ended June 30, 2021 to Three and Six Months Ended June 30, 2020 Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2021 2020 Change 2021 2020 Change Revenues Property operating income $ 188,985 $ 42,017 $ 146,968 $ 377,987 $ 87,166 $ 290,821 Interest income 1,319 2,102 (783) 2,173 3,906 (1,733) Fee income 45,157 20,173 24,984 74,600 39,251 35,349 Other income 1,726 3,581 (1,855) 3,008 7,700 (4,692) Total revenues 237,187 67,873 169,314 457,768 138,023 319,745 Expenses Property operating expense 77,140 18,055 59,085 157,002 34,961 122,041 Interest expense 37,938 20,852 17,086 77,718 39,936 37,782 Investment expense 5,871 2,010 3,861 12,764 4,739 8,025 Transaction-related costs 64 89 (25) 1,682 681 1,001 Depreciation and amortization 138,229 36,680 101,549 277,654 74,823 202,831 Impairment loss — 12,297 (12,297) — 12,297 (12,297) Compensation expense 56,465 44,628 11,837 135,218 82,684 52,534 Administrative expenses 28,505 12,847 15,658 46,301 40,578 5,723 Settlement loss — — — — 5,090 (5,090) Total expenses 344,212 147,458 196,754 708,339 295,789 412,550 Other income (loss) Other gain (loss), net (27,041) 1,254 (28,295) (36,391) (1,971) (34,420) Equity method earnings (losses) 62,650 (316,516) 379,166 46,011 (326,864) 372,875 Loss before income taxes (71,416) (394,847) 323,431 (240,951) (486,601) 245,650 Income tax benefit 75,239 1,650 73,589 98,435 6,883 91,552 Gain (Loss) from continuing operations 3,823 (393,197) 397,020 (142,516) (479,718) 337,202 Loss from discontinued operations (98,906) (2,325,796) 2,226,890 (580,166) (2,643,332) 2,063,166 Net loss (95,083) (2,718,993) 2,623,910 (722,682) (3,123,050) 2,400,368 Net income (loss) attributable to noncontrolling interests: Redeemable noncontrolling interests 6,025 390 5,635 8,474 (158) 8,632 Investment entities 36,616 (470,052) 506,668 (319,246) (491,801) 172,555 Operating Company (14,980) (225,057) 210,077 (42,876) (264,658) 221,782 Net loss attributable to DigitalBridge Group, Inc. (122,744) (2,024,274) 1,901,530 (369,034) (2,366,433) 1,997,399 Preferred stock dividends 18,516 18,516 — 37,032 37,990 (958) Net loss attributable to common stockholders $ (141,260) $ (2,042,790) 1,901,530 $ (406,066) $ (2,404,423) 1,998,357 59 Table of Contents Property Operating Income and Property Operating Expenses Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2021 2020 Change 2021 2020 Change Digital Operating Property operating income Lease income $ 173,859 $ 30,823 $ 143,036 $ 347,474 $ 63,999 $ 283,475 Data center service revenue 15,126 11,194 3,932 30,513 23,167 7,346 188,985 42,017 146,968 377,987 87,166 290,821 Property operating expenses 77,140 18,055 59,085 157,002 34,961 122,041 Amounts are higher in 2021 as it includes the operating results from 12 hyperscale data centers in the Vantage SDC portfolio, acquired in July 2020 and 44 co-location data centers held by zColo, acquired in December 2020 and February 2021. On a same store basis, there was an increase in property operating income and expense quarter-to-date and year-to-date, reflecting an increase in rentable square footage and a higher utilization rate. Additionally, higher power costs were incurred in connection with inclement weather conditions, with the incremental cost billed to our tenants. Interest Income Interest income was $0.8 million lower quarter-to-date and $1.7 million lower year-to-date. There was additional interest income in 2021 from new loans originated or acquired in the digital segment, primarily warehousing for a future digital credit investment vehicle. However, this increase was largely offset by lower interest income on available cash as proceeds from the sale of our light industrial business in December 2019 have since been redeployed. Fee Income Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2021 2020 Change 2021 2020 Change Digital Investment Management Management fees $ 39,727 $ 18,599 $ 21,128 $ 67,466 $ 36,545 $ 30,921 Incentive fees 4,489 — 4,489 5,083 — 5,083 Other fee income 941 1,574 (633) 2,051 2,706 (655) $ 45,157 $ 20,173 24,984 $ 74,600 $ 39,251 35,349 Fee income was higher by $25.0 million quarter-to-date and $35.3 million year-to-date. The increase was driven by: (i) fundraising for DCP II beginning November 2020, partially offset by lower fees from DCP I in 2021 as the fee base changed from committed capital to net contributed capital following the closing of DCP II; and (ii) incentive fees earned based upon the performance of third party accounts managed by our digital liquid securities team. Other Income The decrease in other income can be attributed primarily to lower cost reimbursements from our investment holding entities. Interest Expense Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2021 2020 Change 2021 2020 Change Investment-level financing — Digital Operating $ 29,272 $ 8,170 $ 21,102 $ 60,404 $ 17,572 $ 42,832 Corporate-level debt 8,666 12,682 (4,016) 17,314 22,364 (5,050) $ 37,938 $ 20,852 17,086 $ 77,718 $ 39,936 37,782 Digital Operating— The increase of $21.1 million quarter-to-date and $42.8 million year-to-date is attributed to additional interest expense incurred on debt financing the Vantage SDC and zColo portfolios, acquired in July 2020 and December 2020, respectively. This was partially offset by lower interest expense on the DataBank portfolio as its March 2021 securitization transaction meaningfully reduced its cost of debt. DataBank's weighted average interest rate was 6.1% per annum as of December 31, 2020 and 2.4% per annum as of March 2021 post-securitization. 60 Table of Contents Corporate-level Debt— Interest expense decreased $4.0 million quarter-to-date and $5.1 million year-to-date as there was no outstanding balance on our corporate credit facility in 2021 until the last week of June 2021. This was partially offset by a net increase in interest expense on our senior notes, with a higher rate on the new exchangeable notes issued in July 2020 (5.75% per annum) relative to the convertible notes that were substantially repurchased in the third quarter of 2020 and fully repaid in January 2021 (3.875% per annum) . Investment Expense Investment expense was $3.9 million higher quarter-to-date and $8.0 million higher year-to-date. The increase was related primarily to management fees paid to Vantage for the day-to-day operations of Vantage SDC beginning the second half of 2020, and fees paid in 2021 for transitional services in connection with the zColo portfolio. Transaction-Related Costs Transaction-related costs were generally in connection with unconsummated investments and ongoing corporate restructuring transactions. Depreciation and Amortization Increase in depreciation and amortization expense is primarily related to real estate and intangible assets from acquisition of Vantage SDC and zColo. Impairment Loss Impairment was recorded on the corporate aircraft in 2020 to reflect its recoverable value prior to its sale to a third party in January 2021. Compensation Expense Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2021 2020 Change 2021 2020 Change Cash compensation and benefits $ 40,426 $ 37,603 $ 2,823 $ 103,306 $ 71,242 $ 32,064 Equity-based compensation 7,773 7,025 748 23,679 11,442 12,237 Incentive and carried interest compensation 8,266 — 8,266 8,233 — 8,233 $ 56,465 $ 44,628 11,837 $ 135,218 $ 82,684 52,534 Total compensation expense was $11.8 million higher quarter-to-date and $52.5 million higher year-to-date, driven by significant severance payments, including acceleration of equity-based compensation in the first quarter of 2021, and compensation costs associated with data center employees of the new zColo portfolio in 2021. Additionally, there was $8.2 million of compensation accrued in 2021, representing approximately 60% of incentive fees earned and unrealized carried interest from our managed accounts and sponsored investment vehicles that are shared with certain employees. Unlike incentive fee and related compensation which have been earned, unrealized carried interest and corresponding compensation amounts are subject to adjustments each period, including reversals, until such time they are realized, based upon the cumulative performance of the underlying investments of the respective vehicles that are carried at fair value. Administrative Expenses Administrative expense increased $15.7 million quarter-to-date and $5.7 million year-to-date, attributable largely to placement fees incurred in fundraising for DCP II in the second quarter of 2021, administrative costs associated with our new zColo portfolio and growth in our Digital Operating business, and costs incurred in connection with our investor conference in June 2021. Settlement Loss Settlement loss recognized in 2020 represents the initial fair value of the settlement arrangement with Blackwells and the reimbursement of legal costs incurred by Blackwells. Refer to additional discussion in Note 13 to the consolidated financial statements. 61 Table of Contents Equity Method Earnings (Losses) Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2021 2020 Change 2021 2020 Change Digital Investment Management $ 11,202 $ 158 $ 11,044 $ 11,007 $ 161 $ 10,846 Digital Other 6,396 7,782 (1,386) 9,172 8,247 925 Other 45,052 (324,456) 369,508 25,832 (335,272) 361,104 $ 62,650 $ (316,516) 379,166 $ 46,011 $ (326,864) 372,875 Digital Investment Management— Unrealized carried interest was recognized in the second quarter of 2021 in relation to our general partner interests in the DCP funds and a Vantage SDC co-invest vehicle. Such carried interest is subject to adjustments each period, including reversals, based upon the cumulative performance of the underlying investments of these vehicles that are measured at fair value, until such time the carried interest is realized. Digital Other— Equity method earnings represent our share of earnings, principally from our limited partner interests in DCP I and beginning 2021, DCP II. The earnings of the DCP funds include unrealized fair value changes on their respective underlying investments. Other— The large equity method loss in the Other segment in 2020 was driven by $254.5 million of impairment charge on our equity investment in BRSP (excluding amounts associated with BRSP shares and units held by NRF Holdco that is presented as discontinued operations). Additionally, our share of BRSP's net losses was higher in 2020 as a result of the economic effects of COVID-19. We also recorded net losses from BRSP in 2021, attributable largely to BRSP's restructuring costs, including the termination fee that was paid to us. These net losses from BRSP were reduced by $54.8 million and $17.8 million of basis difference year-to-date 2021 and 2020, respectively, allocated to investments that were resolved or written-down by BRSP during these periods (Note 5 to consolidated financial statements). Separately, the Other segment also realized a gain from partial sale of an equity investment in the second quarter of 2021, having recorded unrealized gains in the first quarter to reflect an increase in the value of the investment. Other Gain (Loss) The large other loss in 2021 can be attributed to a write-off of an equity investment that was determined to be unrecoverable. We also recorded a loss from increases in value of the Blackwells settlement liability in all periods based upon an increase in the DBRG stock price, which was more pronounced in 2021. The Blackwells liability was settled in June 2021 (refer to Note 13 to the consolidated financial statements). These losses were partially offset by fair value increases in our marketable equity securities, held primarily by our consolidated digital liquid securities funds, in all periods except for the first quarter of 2020. Income Tax Benefit The large income tax benefit in 2021 arose primarily from a $66.8 million net deferred tax benefit at our DataBank subsidiary, driven by the write-off of deferred tax liabilities as DataBank completed its restructuring to qualify as a REIT in the second quarter and expects to elect REIT status for the 2021 taxable year. Additional deferred tax benefit was also recorded in relation to significant severance costs incurred in the first quarter of 2021. 62 Table of Contents Loss from Discontinued Operations Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2021 2020 Change 2021 2020 Change Revenues $ 209,953 $ 309,472 $ (99,519) $ 476,730 $ 752,230 $ (275,500) Expenses (460,568) (2,388,190) 1,927,622 (963,144) (3,250,254) 2,287,110 Other income (loss) 175,614 (237,708) 413,322 (73,565) (122,381) 48,816 Income tax expense (23,905) (9,370) (14,535) (20,187) (22,927) 2,740 Loss from discontinued operations (98,906) (2,325,796) 2,226,890 (580,166) (2,643,332) 2,063,166 Loss from discontinued operations attributable to noncontrolling interests: Investment entities 43,387 (453,660) 497,047 (260,464) (460,905) 200,441 Operating Company (13,623) (185,789) 172,166 (30,531) (216,418) 185,887 Loss from discontinued operations attributable to DigitalBridge Group, Inc. $ (128,670) $ (1,686,347) 1,557,677 $ (289,171) $ (1,966,009) 1,676,838 Discontinued operations represent primarily the operations of the following businesses: (1) Wellness Infrastructure; (2) opportunistic investments in our OED portfolio; (3) credit investment management business in Other IM; and (4) our hotel business that was disposed in March 2021, except for one hotel portfolio that is in receivership and under contract for sale by the lender. Results from discontinued operations reflect the sale of our hotel business in March 2021 and monetization of various properties in our Wellness Infrastructure segment in the first six months of 2021. Losses in all periods are driven by significant impairment expense and decreases in asset fair values, particularly in the second quarter of 2020. In 2021, the write-down in asset values was based upon either pending sales price or estimated recoverable values in a monetization of our OED, Other IM and Wellness Infrastructure portfolios. In the second quarter of 2020, our determination to accelerate our digital transformation necessitated an assumption of accelerated monetization of all of our non-digital businesses in estimating recoverable values and in combination with the negative economic effects of COVID-19, resulted in significant write-down in asset values. Further discussion on the monetization of our discontinued businesses is included above under " —Business. " Assets Under Management and Fee Earning Equity Under Management ("FEEUM") Below is a summary of our AUM and FEEUM. AUM (1) (In billions) FEEUM (2) (In billions) Type Products Description June 30, 2021 December 31, 2020 June 30, 2021 December 31, 2020 Digital Third Party Managed Capital Institutional Funds Digital Colony Partners opportunistic strategy Earns management fees and potential for carried interest or incentive fees $ 12.4 $ 9.3 $ 8.6 $ 7.0 Liquid securities strategy 0.6 0.5 0.5 0.4 Other Investment Vehicles Digital co-invest vehicles Earns management fees, business service fees from portfolio companies, and potential for carried interest 10.3 9.9 2.8 2.6 Digital real estate and infrastructure held by portfolio companies 10.3 8.9 2.6 2.8 Subtotal — Third Party Managed Capital 33.6 28.6 14.5 12.8 Balance Sheet Capital (3) Digital Operating 1.1 0.3 NA NA Digital Other 0.2 1.1 NA NA Total Digital 34.9 30.0 14.5 12.8 Other (4) Third Party Managed Capital 9.8 13.4 5.1 7.2 Balance Sheet Capital (3) Wellness Infrastructure 2.4 2.7 NA NA Hospitality — 2.5 NA NA Other—OED 1.3 3.3 NA NA Total Other 13.5 21.9 5.1 7.2 Total Company $ 48.4 $ 51.9 $ 19.6 $ 20.0 __________ 63 Table of Contents (1) AUM is composed of (a) third party managed capital, which are assets for which the Company and its affiliates provide investment management services, including assets for which the Company may or may not charge management fees and/or performance allocations; and (b) assets invested using the Company's own balance sheet capital and managed on behalf of the Company's shareholders. Third party AUM is based upon the cost basis of managed investments as reported by each underlying vehicle as of the reporting date and may include uncalled capital commitments. Balance sheet AUM is based upon the undepreciated carrying value of the Company's balance sheet investments as of the reporting date. The Company's calculation of AUM may differ from other asset managers, and as a result, may not be comparable to similar measures presented by other asset managers. (2) FEEUM is equity for which the Company and its affiliates provide investment management services and derive management fees and/or incentives. FEEUM generally represents the basis used to derive fees, which may be based upon invested equity, stockholders’ equity, or fair value, pursuant to the terms of each underlying investment management agreement. The Company's calculation of FEEUM may differ from other asset managers, and as a result, may not be comparable to similar measures presented by other asset managers. (3) Represents the Company's investment interests on its balance sheet, excluding the portion held by noncontrolling interests in investment entities, that is managed by the Company on behalf of its stockholders, therefore is not fee-bearing. Balance sheet AUM reflects generally the OP's share of net book value of the respective segments, determined based upon undepreciated carrying value of assets, and where applicable, after impairment charges that create a new basis for the affected assets, in all instances, net of liabilities. (4) All of the remaining non-digital AUM represents assets held for disposition and discontinued operations. Total FEEUM decreased $0.4 billion from December 31, 2020 to $19.6 billion at June 30, 2021. • Digital FEEUM increased $1.7 billion, attributable to fundraising for DCP II, partially offset by a decrease in DCP I FEEUM as the fee base of DCP I changed from committed capital to net capital contributions following the closing of DCP II. • However, the overall decrease in FEEUM was driven by the termination of our management agreement with BRSP in April 2021, for which we received a one-time termination fee of $102.3 million. Segments The following discussion summarizes key information on our Digital reportable segments. Digital Investment Management ("Digital IM") This business encompasses the investment and stewardship of third party capital in digital infrastructure and real estate. The Company's flagship opportunistic strategy is conducted through DCP and separately capitalized vehicles, while other strategies, including digital credit and public equities, are conducted through other investment vehicles. The Company earns management fees, generally based on the amount of assets or capital managed in investment vehicles, and has the potential to earn carried interest based upon the performance of such investment vehicles subject to achievement of minimum return hurdles. DCP II We held a first closing of DCP II, our second digital opportunistic fund in February 2021. As of August 5, 2021, total commitments was $6.6 billion, inclusive of $135 million of our commitments as limited partner and general partner. Fee Earning Equity Under Management Digital IM FEEUM was $14.5 billion at June 30, 2021. Refer to further details in " —Assets Under Management and Fee Earning Equity Under Management. " Operating Performance Results of operations of our Digital IM segment is summarized below: Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2021 2020 Change 2021 2020 Change Total revenues $ 46,873 $ 20,849 $ 26,024 $ 77,993 $ 40,148 $ 37,845 Net income 15,786 2,424 13,362 23,449 4,654 18,795 Net income attributable to DigitalBridge Group, Inc. 12,100 2,073 10,027 18,979 4,083 14,896 • Fee income from our Digital IM business is trending positively in 2021 following fundraising for DCP II and other vehicles which co-invest with our balance sheet, and reflects the significant growth in our Digital IM FEEUM from $7.8 billion at June 30, 2020 to $14.5 billion at June 30, 2021. Refer to further discussion of fee income in " —Results of Operations." • Net income from our Digital IM segment is generally attributed 31.5% to Wafra, a significant investor in our Digital IM business effective July 2020. 64 Table of Contents Digital Operating This business is composed of balance sheet equity interests in digital infrastructure and real estate operating companies, which generally earn rental income from providing use of digital asset space and/or capacity through leases, services and other agreements. The Company currently owns interests in two companies: DataBank, including zColo, an edge colocation data center business; and Vantage SDC, a stabilized hyperscale data center business. Both DataBank and Vantage are also portfolio companies managed under Digital IM for the equity interests owned by third party capital. Our ownership interest is at 20% for DataBank, including zColo, and 13% for Vantage SDC. Significant Developments • DataBank Strategic Investment— Following DataBank's acquisition of zColo's 39 U.S and U.K. colocation assets in December 2020 for approximately $1.2 billion, an add-on acquisition of zColo's remaining five data centers in France for $33 million closed in February 2021. • DataBank REIT Conversion— In the second quarter of 2021, our DataBank subsidiary completed the restructuring of its operations to qualify as a REIT and anticipates electing REIT status for U.S. federal income tax purposes for the 2021 taxable year. As a REIT, DataBank would generally not be subject to U.S. federal income taxes on its taxable income to the extent that it annually distributes such taxable income to its stockholders and maintains certain asset and income requirements. However, DataBank would continue to be subject to U.S. federal income taxes on income earned by any of its taxable subsidiaries. In the second quarter of 2021, DataBank recorded a net deferred tax benefit of $66.8 million, reflecting primarily the write-off of its deferred tax liabilities. • Vantage SDC— We acquired additional build-out of expansion capacity within the Vantage SDC portfolio in 2021, including lease-up of the expanded capacity and existing inventory, for aggregate payments of $73.6 million Portfolio Overview Our data center portfolio currently spans across 21 states in the U.S, three in Canada, one in the U.K. and five in France. June 30, 2021 December 31, 2020 Number of data centers Owned 25 25 Leasehold 51 46 76 71 (In thousands, except %) Max Critical I.T. Square Feet or Total Rentable Square Feet 1,810 1,720 Leased Square Feet 1,439 1,386 % Utilization Rate (% Leased) 79.5% 80.6% Balance Sheet Information The following table presents key balance sheet data of our Digital Operating segment: (In thousands) June 30, 2021 December 31, 2020 Real estate $ 4,491,287 $ 4,451,864 Loan receivable 5,250 5,070 Debt 3,342,453 3,213,240 • Real estate balance increased, driven by the acquisition of zColo France and additional build-out in the Vantage SDC portfolio. • Loan receivable represents a loan originated by DataBank to an owner/operator of edge modular data centers • Higher debt balance reflects additional debt obtained through DataBank's securitization transaction, as described below. Financing At June 30, 2021, our data center business was financed by an aggregate $3.4 billion of outstanding debt principal, of which $2.8 billion is fixed rate debt and $0.6 billion is variable rate debt, bearing a combined weighted average interest rate of 3.05% per annum. 65 Table of Contents In March 2021, DataBank raised $658 million of securitized notes at a blended fixed rate of 2.3%, with 5 years maturity. The proceeds were applied principally to refinance $514 million of outstanding debt, which meaningfully reduced the overall cost of debt from 6.1% per annum as of December 31, 2020 to 2.4% per annum as of March 31, 2021 and extended debt maturities at DataBank. Operating Performance Results of operations of our Digital Operating segment is summarized below: Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2021 2020 Change 2021 2020 Change Total revenues $ 189,093 $ 42,021 $ 147,072 $ 378,295 $ 87,188 $ 291,107 Net loss (10,850) (21,262) 10,412 (75,110) (39,677) (35,433) Net loss attributable to DigitalBridge Group, Inc. (376) (4,277) 3,901 (10,450) (7,803) (2,647) • 2021 includes the operating results from 12 hyperscale data centers in the Vantage SDC portfolio, acquired in July 2020 and 44 co-location data centers held by zColo, acquired in December 2020 and February 2021. • Net loss is driven by the effects of depreciation and amortization, income tax and also interest expense. Operating results excluding these items are presented below as earnings before interest, tax, depreciation and amortization for real estate ("EBITDA re "). • The second quarter of 2021 recorded a lower net loss, benefiting from a $66.8 million net deferred tax benefit as discussed above. EBITDA re EBITDA re generated by our Digital Operating segment is as follows. A reconciliation of the most directly comparable GAAP measure to EBITDA re is presented in " —Non-GAAP Supplemental Financial Measures. " Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2021 2020 Change 2021 2020 Change Total revenues $ 189,093 $ 42,021 $ 147,072 $ 378,295 $ 87,188 $ 291,107 Property operating expenses (77,140) (18,055) (59,085) (157,002) (34,961) (122,041) Transaction-related costs and investment expense (5,255) (696) (4,559) (11,820) (1,013) (10,807) Compensation and administrative expense (28,488) (10,464) (18,024) (54,435) (23,120) (31,315) Other loss, net (349) — (349) (352) — (352) EBITDA re —Digital Operating $ 77,861 $ 12,806 65,055 $ 154,686 $ 28,094 126,592 The higher EBITDA re in the first quarter of 2021 reflects the addition of Vantage SDC and zColo. On a same store basis, EBITDA re was largely consistent quarter-to-date and year-to-date. While there was an increase in revenues from a higher utilization rate, this was mostly offset by higher compensation and administrative costs as we ramped up resources to support the growth in our business, and additional costs were incurred in the restructuring of DataBank's operations for REIT qualification which was completed in the second quarter of 2021. Digital Other This segment is composed of equity interests in digital investment vehicles, the largest of which is the Company’s investment and commitment to the DCP flagship funds. This segment also includes the Company’s investment and commitment to the digital liquid strategies and seed investments for future digital investment vehicles. 66 Table of Contents Balance Sheet Information The following table presents key balance sheet data of our Digital Other segment: (In thousands) June 30, 2021 December 31, 2020 Loans receivable $ 47,540 $ 31,727 Equity investments DCP funds 227,957 153,872 Digital liquid securities strategy 149,613 223,176 • We have been acquiring loans receivable that are warehoused on our balance sheet for a future digital credit investment vehicle. • Equity investments represent primarily: ▪ our equity interest in the DCP funds; and ▪ equity investments in our digital liquid securities strategy, of which $103 million in a third party mutual fund was liquidated in January 2021. Remaining balance is composed principally of marketable equity securities held by private open-end funds that are sponsored and consolidated by us (our interests in the funds range between 23% and 55%). • At June 30, 2021, we have remaining unfunded commitments to the DCP funds totaling $128.4 million. Operating Performance Results of operations of our Digital Other segment are summarized as follows: Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2021 2020 Change 2021 2020 Change Interest income 988 $ 2 $ 986 $ 1,678 $ 9 $ 9 Equity method earnings 6,396 7,782 (1,386) 9,172 8,247 925 Other gain, net 6,746 5,481 1,265 9,934 1,909 8,025 Net income 13,280 12,292 988 20,943 9,257 11,686 Net income attributable to DigitalBridge, Inc. 5,424 10,723 (5,299) 9,187 8,481 706 • Operating results include unrealized fair value changes related to i) our share of investments held by the DCP funds (reflected in equity method earnings); and ii) marketable equity securities held by consolidated funds in the digital liquid securities strategy (reflected in other gain). Non-GAAP Supplemental Financial Measures The Company reports funds from operations ("FFO") as an overall non-GAAP supplemental financial measure. The Company also reports EBITDA re for the Digital Operating segment and NOI for the Wellness Infrastructure segment, which are supplemental non-GAAP financial measures widely used in the equity REIT industry. These non-GAAP measures should not be considered alternatives to GAAP net income as indications of operating performance, or to cash flows from operating activities as measures of liquidity, nor as indications of the availability of funds for our cash needs, including funds available to make distributions. Our calculation of FFO, EBITDA re and NOI may differ from methodologies utilized by other REITs for similar performance measurements, and, accordingly, may not be comparable to those of other REITs. Funds from Operations We calculate FFO in accordance with standards established by the National Association of Real Estate Investment Trusts ("NAREIT"), which defines FFO as net income or loss calculated in accordance with GAAP, excluding (i) extraordinary items, as defined by GAAP; (ii) gains and losses from sales of depreciable real estate; (iii) impairment write-downs associated with depreciable real estate; and (iv) gains and losses from a change in control in connection with interests in depreciable real estate or in-substance real estate; plus (v) real estate-related depreciation and amortization; and (vi) including similar adjustments for equity method investments. Included in FFO are gains and losses from sales of assets which are not depreciable real estate such as loans receivable, equity method investments, and equity and debt securities, as applicable. We believe that FFO is a meaningful supplemental measure of the operating performance of our business because historical cost accounting for real estate assets in accordance with GAAP assumes that the value of real estate assets 67 Table of Contents diminishes predictably over time, as reflected through depreciation. Because real estate values fluctuate with market conditions, management considers FFO an appropriate supplemental performance measure by excluding historical cost depreciation, gains related to sales of previously depreciated real estate, and impairment of previously depreciated real estate which is an early recognition of loss on sale. The following table presents a reconciliation of net income attributable to common stockholders to FFO attributable to common interests in OP and common stockholders. Amounts in the table include our share of activity in unconsolidated ventures. Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2021 2020 2021 2020 Net loss attributable to common stockholders $ (141,260) $ (2,042,790) $ (406,066) $ (2,404,423) Adjustments for FFO attributable to common interests in OP and common stockholders: Net loss attributable to noncontrolling common interests in Operating Company (14,980) (225,057) (42,876) (264,658) Real estate depreciation and amortization 150,458 131,722 335,220 262,245 Impairment of real estate 242,903 1,474,262 348,980 1,782,530 Gain on sales of real estate (2,969) 4,919 (41,071) (3,014) Less: Adjustments attributable to noncontrolling interests in investment entities (1) (162,021) (329,601) (350,517) (411,930) FFO attributable to common interests in OP and common stockholders $ 72,131 $ (986,545) $ (156,330) $ (1,039,250) __________ (1) The components of adjustments attributable to noncontrolling interests in investment entities for FFO are as follows: Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2021 2020 2021 2020 FFO adjustments attributable to noncontrolling interests in investment entities: Real estate depreciation and amortization $ 104,361 $ 46,499 $ 221,642 $ 94,214 Impairment of real estate 58,438 279,840 129,589 319,974 Gain on sales of real estate (778) 3,262 (714) (2,258) $ 162,021 $ 329,601 $ 350,517 $ 411,930 EBITDAre We calculate EBITDA re for our Digital Operating segment in accordance with standards established by NAREIT, which defines EBITDA re as net income or loss calculated in accordance with GAAP, excluding (i) interest expense; (ii) income tax benefit (expense); (iii) depreciation and amortization; (iv) gains on disposition of depreciated real estate, including gains or losses on change of control; (v) impairment of depreciated real estate and of investments in unconsolidated affiliates, if any, caused by a decrease in value of depreciated real estate in the affiliate; and (vi) including similar adjustments for equity method investments, if any, to reflect the Company's share of EBITDAre of unconsolidated affiliates EBITDA re represents a widely known supplemental measure of performance, EBITDA, but for real estate entities, which we believe is particularly helpful for generalist investors in REITs. EBITDA re depicts the operating performance of a real estate business independent of its capital structure, leverage and noncash items, which allows for comparability across real estate entities with different capital structure, tax rates and depreciation or amortization policies. Additionally, exclusion of gains on disposition and impairment of depreciated real estate, similar to FFO, also provides a reflection of ongoing operating performance and allows for period-over-period comparability. As with other non-GAAP measures, the usefulness of EBITDA re may be limited. For example, EBITDA re focuses on profitability from operations, and does not take into account financing costs, and capital expenditures needed to maintain operating real estate. 68 Table of Contents Reconciliation of Non-GAAP Financial Measures The following table presents a reconciliation of net loss to EBITDA re for the Digital Operating segment. Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2021 2020 2021 2020 Digital Operating Net loss $ (10,850) $ (21,262) $ (75,110) $ (39,677) Adjustments: Interest expense 29,272 8,170 60,404 17,572 Depreciation and amortization 126,227 28,571 248,448 58,602 Income tax (benefit) expense (66,788) (2,673) (79,056) (8,403) EBITDA re $ 77,861 $ 12,806 $ 154,686 $ 28,094 Liquidity and Capital Resources Overview We believe that our capital resources are sufficient to meet our short-term and long-term capital requirements. In addition to our cash balance at June 30, 2021, our expected liquidity position is $780 million, including net proceeds from issuance of our Class A-2 Notes in July 2021 and full availability under our VFN Notes, after the repayment of our corporate credit facility in July 2021 and the upcoming redemption of our Series G preferred equity in August 2021. We regularly evaluate our liquidity position, debt obligations, and anticipated cash needs to fund our operating and investing activities, based upon our projected financial and operating performance, and investment opportunities as we divest non-digital assets and complete our digital transformation. Our evaluation of future liquidity requirements is regularly reviewed and updated for changes in internal projections, economic conditions, competitive landscape and other factors. At this time, while we are in compliance with all of our corporate debt covenants and have sufficient liquidity to meet our operational needs, we continue to evaluate alternatives to manage our capital structure and market opportunities to strengthen our liquidity and provide further operational and strategic flexibility. Stabilizing our capital structure and liquidity in 2020 has put us in a stronger position to execute our digital transformation. Recent Developments Securitized Financing Facility In July 2021, we replaced our corporate credit facility with the issuance of $500 million aggregate principal amount of Series 2021-1 Notes, composed of: (i) $300 million 3.933% Class A-2 Notes; and (ii) up to $200 million VFN Notes which allow for borrowings on a revolving basis. • These Series 2021-1 Notes provide a lower cost of capital, extend our revolving credit maturity to 2026 from 2022, and removes certain restrictions under our previous corporate credit facility around dividend payments and stock repurchases. • We expect to use net proceeds from the securitized financing facility for acquisition of digital infrastructure investments, funding of commitments to sponsored funds, redemption or repayment of other higher cost corporate securities, and/or general corporate purposes. Liquidity Needs and Sources of Liquidity Our current primary liquidity needs are to fund: • our general partner and co-investment commitments to our investment vehicles; • acquisitions of target digital assets for our balance sheet and related ongoing commitments; • principal and interest payments on our debt; • our operations, including compensation, administrative and overhead costs; • obligation for lease payments, principally leasehold data centers and corporate offices; • capital expenditures for our real estate investments; • distributions to our common and preferred stockholders (to the extent distributions have not been suspended); and • income tax liabilities of taxable REIT subsidiaries and of the Company subject to limitations as a REIT. 69 Table of Contents Our current primary sources of liquidity are: • cash on hand; • our corporate securitization financing facility; • cash flow generated from our investments, both from operations and return of capital; • fees received from our investment management business, including incentive or carried interest payments, if any; • proceeds from full or partial realization of investments and/or businesses, particularly from investments in the Other segment; • investment-level financing; • proceeds from public or private equity and debt offerings; and • third party co-investors in our consolidated investments and/or businesses. Liquidity Needs Investment Commitments As of June 30, 2021, we have $128 million of unfunded commitments to the DCP funds, of which Wafra has acquired a participation interest and is responsible for $13 million of our unfunded commitments to DCP I. This excludes $60 million of our DCP I commitments that has been separately assumed by Wafra. We expect to fund our remaining fund commitments through cash on hand and/or proceeds from future asset monetization. Lease Obligations At June 30, 2021, we have $145.2 million and $323.3 million of finance and operating lease obligations, respectively, that were assumed through acquisitions, primarily leasehold data centers, and $39.9 million of operating lease obligations on corporate offices. These amounts represent fixed lease payments on an undiscounted basis, excluding any contingent or other variable lease payments, and factor in lease renewal or termination options only if it is reasonably certain that such options would be exercised. Certain lease payments under ground leases are recoverable from our tenants. These lease obligations will be funded through operating cash generated by the investment properties and corporate operating cash, respectively. Dividends U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its net taxable income. These distribution requirements may constrain our ability to accumulate operating cash flows. We intend to pay regular quarterly dividends to our stockholders in an amount equal to our net taxable income, if and to the extent authorized by our board of directors. Before we pay any dividend, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and debt service, including complying with any restrictions imposed by our lenders. If our cash available for distribution is less than our net taxable income, we may be required to sell assets or borrow funds to make cash distributions or we may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities. Common Stock —The Company suspended dividends on its class A common stock beginning with the second quarter of 2020. Payment of common dividends was previously subject to certain restrictions under the terms of the corporate credit facility, which was terminated in July 2021. The Company continues to monitor its financial performance and liquidity position, and as economic conditions improve, the Company will reevaluate its dividend policy. Preferred Stock— At June 30, 2021, the Company's outstanding preferred stock, totaling $1.03 billion in liquidation preference, bears a weighted average dividend rate of 7.165% per annum, with aggregate cash distributions of $18.5 million per quarter. In July 2021, we issued notices of redemption for all of our outstanding 7.5% Series G preferred stock with total liquidation value of $86.25 million, to be settled in August 2021 using proceeds from our securitized financing facility, which will lower our cost of corporate debt by 350 basis points. Sources of Liquidity Cash From Operations Our investments generate cash, either from operations or as a return of our invested capital. We primarily generate revenue from net operating income of our real estate properties, and expect such earnings to be increasingly sourced 70 Table of Contents from our Digital Operating segment as we complete our digital transformation. We also generate interest income from commercial real estate related loans and securities as well as receive periodic distributions from our equity investments, including our GP co-investments. Such income is offset by interest expense associated with non-recourse borrowings on our investments. Additionally, we generate fee revenue from our investment management business, with increasing contribution of fees from our digital investment management business following the significant growth in digital FEEUM in 2020. Of our fee revenue from digital investment management business, 31.5% is attributable to Wafra. Management fee income is generally a predictable and stable revenue stream, while carried interest and contractual incentive fees are by nature less predictable in amount and timing. Our ability to establish new investment vehicles and raise investor capital depends on general market conditions and availability of attractive investment opportunities as well as availability of debt capital. Asset Monetization We periodically monetize our investments through opportunistic asset sales or to recycle capital from non-core assets. In 2021, we anticipate monetizing a substantial majority of the assets in our Other segment as we complete our digital transformation. Debt Description of our debt is included in Note 8 to the consolidated financial statements (and Note 11 for debt related to assets held for disposition). Summary of Indebtedness Our indebtedness at June 30, 2021 is summarized as follows: ($ in thousands) Outstanding Principal Weighted Average Interest Rate (Per Annum) Weighted Average Years Remaining to Maturity (1) Corporate credit facility $ 45,000 4.75 % — Convertible and exchangeable senior notes 500,000 5.45 % 3.1 Non-recourse investment level financing Fixed rate 2,787,781 2.49 % Variable rate 586,474 5.69 % 3,374,255 3.05 % 4.4 Total debt (excluding amounts related to assets held for disposition) $ 3,919,255 Debt related to assets held for disposition (to be assumed by counterparty) $ 4,285,636 __________ (1) Calculated based upon initial maturity dates, or extended maturity dates if extension criteria are met and extension is available at the Company's option. Securitized Financing Facility As discussed above and further in Note 8 to the consolidated financial statements, we replaced our corporate credit facility with a securitized financing facility in July 2021. Non-Recourse Investment-Level Financing Investment level financing is non-recourse to us, and secured by the respective underlying commercial real estate or mortgage loans receivable. Developments in 2021 • Digital Operating— In March 2021, DataBank raised $658 million of securitized notes at a blended fixed rate of 2.3%, with 5 years maturity. The proceeds were applied principally to refinance $514 million of outstanding debt, which meaningfully reduced the overall cost of debt from 6.1% per annum as of December 31, 2020 to 2.4% per annum as of March 31, 2021 and extended debt maturities at DataBank. • Hotels— Upon closing of the sale of our hotel assets in March 2021, $2.7 billion of the underlying debt (previously classified as held for disposition) was assumed by the acquirer, which resulted in a significant deleveraging of our balance sheet. 71 Table of Contents Public Offerings We may offer and sell various types of securities under our shelf registration statement. These securities may be issued from time to time at our discretion based on our needs and depending upon market conditions and available pricing. Cash Flows The following table summarizes the activities from our statements of cash flows. Six Months Ended June 30, (In thousands) 2021 2020 Net cash provided by (used in): Operating activities $ 104,896 $ 42,312 Investing activities 408,596 114,565 Financing activities (308,682) (329,490) Operating Activities Cash inflows from operating activities are generated primarily through property operating income from our real estate investments, interest received from our loans and securities portfolio, distributions of earnings received from equity investments, and fee income from our investment management business. This is partially offset by payment of operating expenses, including property management and operations, loan servicing and workout of loans in default, investment transaction costs, as well as compensation and general administrative costs. Our operating activities generated net cash inflows of $104.9 million in 2021 and $42.3 million in 2020. Notable items affecting operating cash flows included the following: • In 2021, the higher operating cash flows were driven by receipt of a $102.3 million one-time payment in connection with termination of the BRSP management agreement. Additionally, net operating cash flows were also contributed by our Digital Operating segment, specifically Vantage SDC acquired in July 2020 and zColo acquired in December 2020 and February 2021. These cash inflows were partially offset by severance payments in the first quarter of 2021. • In 2020, operating cash inflows were lower and included $39.9 million paid in the first quarter of 2020 as carried interest compensation in connection with carried interest realized from the sale of our light industrial portfolio in December 2019 . Additionally, operating cash flows were negatively affected by the fallout from COVID-19 in the second quarter of 2020, particularly in our hospitality and healthcare business. Investing Activities Investing activities include primarily cash outlays for acquisition of real estate, disbursements on new and/or existing loans, and contributions to unconsolidated ventures, which are partially offset by repayments and sales of loans receivable, distributions of capital received from unconsolidated ventures, and proceeds from sale of real estate and equity investments. Our investing activities resulted in net cash inflows of $408.6 million in 2021 and $114.6 million in 2020. • Debt investments —Investing cash inflows in 2021 included $320.9 million from our debt investments, attributed to loan repayments, in particular a $305.0 million repayment on two loans in our Irish loan portfolio, partially offset by a loan acquired and warehoused for a future digital credit vehicle, other loan disbursements and acquisition of additional N-Star CDOs at a discount by our Wellness Infrastructure segment. In comparison, in 2020, loan disbursements exceeded repayments, resulting in net cash outflows of $116.8 million, which partially offset net cash inflows from equity investments. • Real estate investments —2021 also saw net cash inflows of $176.8 million from sales of various properties in Europe, in our Wellness Infrastructure segment and our hotel business, which more than offset capital expenditures in our digital real estate portfolio. In 2020, real estate activities generated much lower net cash inflows of $38.1 million from sales, net of acquisitions, coupled with lower capital expenditures on a smaller digital real estate portfolio. 72 Table of Contents • Equity investments —In 2021, net cash inflows from our debt and real estate investments were partially offset by net cash outflows of $120.7 million in connection with our equity investments. This can be attributed largely to funding our digital fund commitments and draws on acquisition, development and construction ("ADC") loans that are accounted for as equity method investments, as well as the acquisition and sale of marketable equity securities by consolidated funds in our digital liquid securities strategy. In contrast, investing cash inflows in 2020 was driven by $203.7 million generated from equity investments, attributed primarily to $179.1 million of net proceeds received from sale of our investment in RXR Realty and $87.4 million from recapitalization of our joint venture investment in Albertsons, both of which were partially offset by additional draws on ADC loans. Financing Activities We finance our investing activities largely through investment-level secured debt along with capital from third party or affiliated co-investors. We also draw upon our corporate credit facility to finance our investing and operating activities, as well as have the ability to raise capital in the public markets through issuances of preferred stock, common stock and senior notes. Accordingly, we incur cash outlays for payments on our investment-level and corporate debt, dividends to our preferred stockholders and common stockholders (common dividends temporarily suspended), as well as distributions to noncontrolling interests in our investments. Financing activities generated net cash outflows of $308.7 million in 2021 and $329.5 million in 2020. • In 2021, financing net cash outflows were driven by $360.9 million of debt repayments exceeding borrowings, primarily repayment of debt financing real estate and loans that were sold or resolved during the year. The net cash outflow from debt financing was partially offset by $106.2 million of net contributions from noncontrolling interests. This was composed largely of a syndication of our interest to a new third party investor in our zColo investment vehicle, assumption of a portion of our commitments to DCP I by Wafra, and additional consideration paid by Wafra for its investment in our digital investment management business. We also had lower dividend payments of $37.0 million to preferred stockholders, as common dividends were suspended beginning with the second quarter of 2020. • The financing net cash outflow in 2020 was driven by a $402.9 million settlement in January 2020 of the redemption of our Series B and E preferred stock using proceeds from the sale of our light industrial portfolio in December 2019. This was partially offset by $224.8 million of net cash inflow from debt financing as borrowings exceeded repayments, attributed largely to a net draw of $400 million on our corporate credit facility. Additionally, dividend payments were higher at $148.8 million as it included common stock for the first quarter of 2020 in addition to preferred stock. Guarantees and Off-Balance Sheet Arrangements In connection with financing arrangements for certain unconsolidated ventures, we provided customary non-recourse carve-out guarantees. We believe that the likelihood of making any payments under the guarantees is remote. Risk Management Risk management is a significant component of our strategy to deliver consistent risk-adjusted returns to our stockholders. The audit committee of our board of directors, in consultation with our chief risk officer, internal auditor and management, maintains oversight of risk management matters, and periodically reviews our policies with respect to risk assessment and risk management, including key risks to which we are subject, including credit risk, liquidity risk, financing risk, foreign currency risk and market risk, and the steps that management has taken to monitor and control such risks. Underwriting and Investment Process In connection with executing any new investment in digital assets for our balance sheet or a managed investment vehicle, our underwriting team undertakes a comprehensive due diligence process to ensure that we understand all of the material risks involved with making such investment, in addition to related accounting, legal, financial and business issues. If the risks can be sufficiently mitigated in relation to the potential return, we will pursue the investment on behalf of our balance sheet and/or investment vehicles, subject to approval from the applicable investment committee, composed of senior executives of the Company. Specifically, as part of our underwriting process, we evaluate and review the following data, including, but not limited to: financial data including historical and budgeted financial statements, tenant or customer quality, lease terms and structure, renewal probability, capital expenditure plans, sales pipeline , technical/energy requirements and supply, local and macroeconomic market conditions, ESG, leverage and comparable transactions, as applicable. For debt investments, 73 Table of Contents we also analyze metrics such as loan-to-collateral value ratios, debt service coverage ratios, debt yields, sponsor credit ratings and performance history. In addition to evaluating the merits of any particular proposed investment, we evaluate the diversification of our or a particular managed investment vehicle’s portfolio of assets, as the case may be. Prior to making a final investment decision, we determine whether a target asset will cause the portfolio of assets to be too heavily concentrated with, or cause too much risk exposure to, any one digital real estate sector, geographic region, source of cash flow such as tenants or borrowers, or other geopolitical issues. If we determine that a proposed investment presents excessive concentration risk, we may decide not to pursue an otherwise attractive investment. Allocation Procedures We currently manage, and may in the future manage, private funds, REITs and other entities that have investment and/or rate of return objectives similar to our own or to other investment vehicles that we manage. In order to address the risk of potential conflicts of interest among us and our managed investment vehicles, we have implemented an investment allocation policy consistent with our duty as a registered investment adviser to treat our managed investment vehicles fairly and equitably over time. Pursuant to this policy, and subject to certain priority rights in our DCP funds, investment allocation decisions are based on a suitability assessment involving a review of numerous factors, including the particular source of capital’s investment objectives, available cash, diversification/concentration, leverage policy, the size of the investment, tax, anticipated pipeline of suitable investments and fund life. Portfolio Management The comprehensive portfolio management process generally includes day-to-day oversight by the Company's portfolio management team, regular management meetings and quarterly asset review process. These processes are designed to enable management to evaluate and proactively identify investment-specific issues and trends on a portfolio-wide basis for both assets on our balance sheet and assets of the companies within our investment management business. Nevertheless, we cannot be certain that such review will identify all issues within our portfolio due to, among other things, adverse economic conditions or events adversely affecting specific assets; therefore, potential future losses may also stem from investments that are not identified during these reviews. We use many methods to actively manage our risk to preserve our income and capital, including, but not limited to, maintaining dialogue with tenants, operators, partners and/or borrowers and performing regular inspections of our collateral and owned properties. With respect to our wellness infrastructure properties, we consider the impact of regulatory changes on operator performance and property values. During a quarterly review, or more frequently as necessary, investments are monitored and identified for possible asset impairment or loan loss reserves, as applicable, based upon several factors, including missed or late contractual payments, significant declines in property operating performance and other data which may indicate a potential issue in our ability to recover our invested capital from an investment. In addition, we may utilize services of certain strategic partnerships and joint ventures with third parties with relevant expertise to assist our portfolio management. In order to maintain our qualification as a REIT for U.S. federal income tax purposes and our exemption from registration under the 1940 Act, and maximize returns and manage portfolio risk, we may dispose of an asset earlier than anticipated or hold an asset longer than anticipated if we determine it to be appropriate depending upon prevailing market conditions or factors regarding a particular asset. We can provide no assurances, however, that we will be successful in identifying or managing all of the risks associated with acquiring, holding or disposing of a particular asset or that we will not realize losses on certain assets. Interest Rate and Foreign Currency Hedging Subject to maintaining our qualification as a REIT for U.S. federal income tax purposes and our exemption from registration under the 1940 Act, we may mitigate the risk of interest rate volatility through the use of hedging instruments, such as interest rate swap agreements and interest rate cap agreements. The goal of our interest rate management strategy is to minimize or eliminate the effects of interest rate changes on the value of our assets, to improve risk-adjusted returns and, where possible, to lock in, on a long-term basis, a favorable spread between the yield on our assets and the cost of financing such assets. In addition, because we are exposed to foreign currency exchange rate fluctuations, we employ foreign currency risk management strategies, including the use of, among others, currency hedges, and matched currency financing. We can provide no assurances, however, that our efforts to manage interest rate and foreign currency exchange rate volatility will successfully mitigate the risks of such volatility on our portfolio. 74 Table of Contents Critical Accounting Policies and Estimates Our financial statements are prepared in accordance with GAAP, which requires the use of estimates and assumptions that involve the exercise of judgment and that affect the reported amounts of assets, liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our critical accounting policies and estimates are integral to understanding and evaluating our reported financial results as they require subjective or complex management judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain and unpredictable. There have been no changes to our critical accounting policies or those of our unconsolidated joint ventures since the filing of our Annual Report on Form 10-K for the year ended December 31, 2020. With respect to critical estimates, we have established policies and control procedures which seek to ensure that estimates and assumptions are appropriately governed and applied consistently from period to period. We believe that all of the decisions and assessments applied were reasonable at the time made, based upon information available to us at that time. Due to the inherently judgmental nature of the various projections and assumptions used, unpredictability of economic and market conditions, uncertainty as to the timing and the manner by which the assets in our Wellness Infrastructure and Other segments would be monetized and the recoverable values upon monetization, and uncertainties over the duration and severity of the resulting economic effects of COVID-19, actual results may differ from estimates, and changes in estimates and assumptions could have a material effect on our financial statements in the future. Recent Accounting Updates The effects of accounting standards adopted in 2021 and the potential effects of accounting standards to be adopted in the future are described in Note 2 to our consolidated financial statements in Item 1 of this Quarterly Report.