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, 2022, which is accessible on the SEC's website at www.sec.gov . In this Quarterly Report, unless specifically stated otherwise or the context indicates otherwise, the terms " the "Company," "DBRG," "we," "our" and "us" refer to DigitalBridge Group, Inc. and its consolidated subsidiaries. References to the “Operating Partnership,” our “Operating Company” and the “OP” refer to DigitalBridge Operating Company, LLC, a Delaware limited liability company and the operating company of the Company, and its consolidated subsidiaries. Our Organization We are a leading global digital infrastructure investment manager, deploying and managing capital across the digital ecosystem, including data centers, cell towers, fiber networks, small cells, and edge infrastructure. Our diverse global investor base includes public and private pensions, sovereign wealth funds, asset managers, insurance companies, and endowments. At March 31, 2023, we had $69 billion of AUM, composed of assets managed on behalf of our limited partners and our shareholders. We are headquartered in Boca Raton, Florida, with key offices in New York, Los Angeles, London, Luxembourg and Singapore, and have approximately 300 employees. 50 Table of Contents We operate as a taxable C Corporation, except for certain subsidiaries in the Operating segment that have elected to be taxed as real estate investment trusts. We conduct substantially all of our activities and hold substantially all of our assets and liabilities through our Operating Company. At March 31, 2023, we owned 93% of the Operating Company as its sole managing member. Our Business The Company conducts its business through two reportable segments: (i) Investment Management; and (ii) Operating, the Company's direct co-investment in digital infrastructure assets held by its portfolio companies. • Investment Management— This segment represents the Company's global investment management platform, deploying and managing capital on behalf of a diverse base of global institutional investors. The Company's investment management platform is composed of a growing number of long-duration, private investment funds designed to provide institutional investors access to investments across different segments of the digital infrastructure ecosystem. In addition to its flagship value-add digital infrastructure equity offerings, the Company's investment offerings have expanded to include core equity, credit and liquid securities. The Company earns management fees based upon the assets or capital managed in investment vehicles, and may earn incentive fees and carried interest based upon the performance of such investment vehicles, subject to achievement of minimum return hurdles. • Operating— This segment is composed of balance sheet equity interests in digital infrastructure and real estate co-investment 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, an edge colocation data center business (DBRG ownership of 11% at March 31, 2023 and December 31, 2022); and Vantage SDC, a stabilized hyperscale data center business (DBRG ownership of 13% at March 31, 2023 and December 31, 2022). DataBank and Vantage SDC are portfolio companies managed by the Company under its Investment Management segment with respect to equity interests owned by third party capital. Our Investment Management Platform Our investment management platform is anchored by our value-add funds within the DigitalBridge Partners ("DBP") infrastructure equity offerings. In providing institutional investors access to investments across different segments of the digital infrastructure ecosystem, our investment offerings have expanded to include core equity, credit and liquid securities. • Our DBP series of funds focus on value-add digital infrastructure, investing in and building businesses across the digital infrastructure sector. • Core Equity invests in digital infrastructure businesses and assets with long-duration cash flow profiles, primarily in more developed geographies. • DigitalBridge Credit is our private credit strategy that delivers credit solutions to corporate borrowers in the digital infrastructure sector globally through credit financing products such as first and second lien term loans, mezzanine debt, preferred equity and construction/delay-draw loans, among other products. • Our Liquid Strategies are fundamental long-only and long-short public equities strategies with well-defined mandates, leveraging the network and intellectual capital of our platform to build liquid portfolios of high quality, undervalued businesses across digital infrastructure, real estate, and technology, media, and telecom. • InfraBridge is focused on mid-market investments in the digital infrastructure and related sectors of transportation and logistics, and energy transition. Significant Developments The following summarizes significant developments that affected our business and results of operations in the first quarter of 2023 and through the date of this filing. Financing • $200 million of convertible senior notes was repaid upon maturity in April 2023 with cash on hand, which reduces our leverage and outstanding corporate debt to $378 million. 51 Table of Contents Investment Management Segment • In February 2023, we completed our previously announced acquisition of InfraBridge for $313.2 million upfront cash consideration (net of cash assumed), subject to customary post-closing working capital adjustments, plus potential contingent payments based upon future fundraising for InfraBridge's third and fourth flagship funds under the Global Infrastructure Fund ("GIF") series. The acquisition comprises InfraBridge's investment management platform and fund sponsor investments. The acquisition further scales our investment management business. InfraBridge’s global infrastructure equity platform will be a strategic fit alongside our value-add equity franchise, enhancing our capabilities in the mid-market segment. The acquisition added $5.1 billion in fee earning equity under management ("FEEUM"), comprising primarily GIF II and GIF I investment funds. Other • Our investment in BrightSpire Capital, Inc. (NYSE: BRSP), which was our largest remaining non-digital investment, was fully disposed in the first quarter of 2023 for approximately $202 million in net proceeds. • A non-cash charge of $133 million in fair value write-down was recorded in 2023 on an unsecured promissory note from the 2022 sale of our Wellness Infrastructure business. This resulted from an impending foreclosure of certain assets within the Wellness Infrastructure portfolio by its mezzanine lender. Assets Under Management and Fee Earning Equity Under Management Below is a summary of our AUM and FEEUM. Type Products Description March 31, 2023 December 31, 2022 Assets under Management (1) $ 69.3 $ 52.8 Fee Earning Equity under Management (2) Institutional Funds DBP infrastructure equity Earns management fees and potential for carried interest or incentive fees $ 11.2 $ 11.2 InfraBridge Global Infrastructure Funds 4.4 — Core Equity, DigitalBridge Credit and Liquid Strategies 2.2 2.0 Other Investment Vehicles DigitalBridge co-invest vehicles Earns management fees, business service fees from portfolio companies, and potential for carried interest 7.0 6.5 InfraBridge co-invest vehicles 0.7 — Digital infrastructure held by portfolio companies 2.2 2.5 $ 27.7 $ 22.2 __________ (1) AUM is composed of (a) third party managed capital 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 investment managers, and as a result, may not be comparable to similar measures presented by other investment 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 investment managers, and as a result, may not be comparable to similar measures presented by other investment managers. • FEEUM increased by $5.5 billion or 25% to $27.7 billion at March 31, 2023, reflecting the addition of $5.1 billion of InfraBridge FEEUM and new capital raised in co-investment structures. 52 Table of Contents Results of Operations The following table summarizes our consolidated results from continuing operations by reportable segment. Three Months Ended March 31, (In thousands) 2023 2022 Change Total revenues Investment Management $ 6,829 $ 13,831 $ (7,002) Operating 231,664 202,522 29,142 Corporate and Other 11,667 16,481 (4,814) $ 250,160 $ 232,834 17,326 Income (Loss) from continuing operations Investment Management $ (2,804) $ (9,143) $ 6,339 Operating (97,942) (74,141) (23,801) Corporate and Other (177,380) (165,755) (11,625) $ (278,126) $ (249,039) (29,087) Income (Loss) from continuing operations attributable to DigitalBridge Group, Inc. Investment Management $ (2,198) $ (7,602) $ 5,404 Operating (10,789) (12,824) 2,035 Corporate and Other (171,149) (144,771) (26,378) $ (184,136) $ (165,197) (18,939) Revenues Total revenues increased 7% to $250.2 million. • Investment Management— Revenues were 51% lower at $6.8 million due to significant variability from unrealized carried interest. 2023 had a larger net reversal of unrealized carried interest (2023: $55.2 million and 2022: $31.1 million before management allocation), driven by DBP II. As DBP II is still in the early stage of its lifecycle, the carried interest reversal is a function of continuing accrual of preferred returns over time at a higher rate than fair value increases on its underlying investments in the first quarters of 2023 and 2022. Excluding gross unrealized carried interest, revenues would have been $62.1 million in 2023 and $44.9 million in 2022 or a 38% increase. Fee income was $16.3 million or 38% higher, attributable largely to two months of management fees from InfraBridge funds, and additional capital raises during 2022. Supplemental performance measures of the Investment Management segment are presented under " —Non-GAAP Measures ." • Operating— Revenues were higher in 2023, resulting from data center acquisitions and additional lease-up of expanded capacity in Vantage SDC during 2022. • Corporate and Other— Revenues represent largely our share of earnings from our general partner affiliate investments in the DBP and InfraBridge funds and income from warehoused investments, if any. Revenues were lower in 2023 as our warehoused credit investments were transferred to our new credit fund during the second half of 2022. Income (Loss) from continuing operations attributable to DigitalBridge Group, Inc. Income (Loss) from continuing operations attributable to DBRG was $184.1 million, a 11% increase in net loss. • Investment Management— Net loss attributable to DBRG was $2.2 million, a 71% decrease in net loss. The net loss in both periods resulted from a reversal of unrealized carried interest as noted above. Excluding DBRG's share of unrealized carried interest net of allocation to management and Wafra, there would have been positive net income attributable to DBRG of $14.4 million in 2023 and $2.1 million in 2022, a $12.3 million increase. This increase is contributed largely by two months of net income from InfraBridge and full attribution of net income to DBRG following the redemption of Wafra's 31.5% interest in Investment Management in May 2022. • Operating— The Operating segment generally records a net loss, taking into account the effects of real estate depreciation and intangible asset amortization. Our share of net loss reflects a 13% ownership in Vantage SDC and our interest in DataBank, which decreased from 22% as of March 2022 to 11% as of March 2023. • Corporate and Other— Net loss generally reflects corporate level costs that have not been allocated to our reportable segments, primarily interest expense on senior notes and compensation and administrative expenses. Also included are the effects of fair value changes on investments carried at fair value, including our share of 53 Table of Contents earnings from our fund investments. The significant net loss in both periods, however, reflect large non-cash charges: (i) a $133 million fair value write-down in 2023 on an unsecured promissory note from the 2022 sale of our Wellness Infrastructure business; and (ii) a $133 million debt extinguishment loss in connection with an early exchange of our 5.75% exchangeable notes in 2022 (refer to Note 8 to the consolidated financial statements). A more detailed discussion of key components of revenue and income (loss) from continuing operations follows. Three Months Ended March 31, (In thousands) 2023 2022 Change Revenues Fee income $ 59,126 $ 42,837 $ 16,289 Carried interest allocation (reversal) (54,756) (31,079) (23,677) Principal investment income (loss) 3,562 6,454 (2,892) Property operating income 230,927 202,511 28,416 Other income 11,301 12,111 (810) Total revenues 250,160 232,834 17,326 Expenses Property operating expense 97,126 84,003 13,123 Interest expense 67,196 44,030 23,166 Investment expense 5,751 9,565 (3,814) Transaction-related costs 8,527 165 8,362 Depreciation and amortization 141,574 128,567 13,007 Compensation expense—cash and equity-based 74,650 65,542 9,108 Compensation expense (reversal)—incentive fee and carried interest (36,831) (20,352) (16,479) Administrative expenses 26,506 27,885 (1,379) Total expenses 384,499 339,405 45,094 Other gain (loss), net (142,745) (149,881) 7,136 Income (Loss) before income taxes (277,084) (256,452) (20,632) Income tax benefit (expense) (1,042) 7,413 (8,455) Income (Loss) from continuing operations (278,126) (249,039) (29,087) Income (Loss) from discontinued operations (14,218) (94,645) 80,427 Net income (loss) (292,344) (343,684) 51,340 Net income (loss) attributable to noncontrolling interests: Redeemable noncontrolling interests 6,943 (11,220) 18,163 Investment entities (84,828) (63,045) (21,783) Operating Company (16,662) (22,862) 6,200 Net income (loss) attributable to DigitalBridge Group, Inc. (197,797) (246,557) 48,760 Preferred stock dividends 14,676 15,759 (1,083) Net income (loss) attributable to common stockholders $ (212,473) $ (262,316) 49,843 54 Table of Contents Fee Income Three Months Ended March 31, (In thousands) 2023 2022 Change Management fees $ 57,158 $ 42,191 $ 14,967 Incentive fees 869 — 869 Other fee income 1,099 646 453 $ 59,126 $ 42,837 16,289 Fee income was $16.3 million or 38% higher in 2023, primarily driven by two months of management fees from InfraBridge and management fees from capital raised during 2022, including the DataBank recapitalization and our new core equity fund. Additionally, there were incentive fees earned in 2023 from a sub-advisory account in Liquid Strategies. Carried Interest Allocation (Reversal) Three Months Ended March 31, (In thousands) 2023 2022 Change Carried interest allocation (reversal) Realized $ 476 $ — $ 476 Unrealized (55,232) (31,079) (24,153) $ (54,756) $ (31,079) (23,677) Carried interest allocation (reversal) represents gross carried interest from our general partner interests in sponsored investment vehicles prior to allocations to management and Wafra. There was a higher net reversal of unrealized carried interest in 2023 compared to 2022, driven by DBP II. As DBP II is still in the early stage of its lifecycle, the carried interest reversal is a function of continuing accrual of preferred returns over time at a higher rate than fair value increases on its underlying investments in the first quarter of 2023 and 2022. Unrealized 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 as the carried interest is realized. Our share of net carried interest reversal after allocations to management and Wafra was $16.6 million in 2023 and $9.7 million in 2022. Principal Investment Income (Loss) Principal investment income decreased $2.9 million to $3.6 million in 2023. This was driven by lower earnings from our equity interests in DBP I and DBP II, with the earnings representing unrealized fair value increases on the investments of these funds. Property Operating Income and Expense Three Months Ended March 31, (In thousands) 2023 2022 Change Property operating income Operating segment Lease income $ 210,402 $ 184,171 $ 26,231 Data center service revenue 20,525 18,340 2,185 230,927 202,511 28,416 Property operating expense Operating segment $ 97,126 $ 84,003 $ 13,123 Operating Segment Property operating income and expense are higher in 2023, reflecting operating results from additional acquisitions throughout 2022. These include DataBank's acquisition of four data centers in March 2022, and within the Vantage SDC portfolio, additional lease-up of expanded capacity and existing inventory throughout 2022. 55 Table of Contents At March 31, 2023, the Operating segment portfolio includes 74 data centers in the U.S., three in Canada, one in the U.K., and five in France. March 31, 2023 December 31, 2022 Operating segment Number of data centers Owned 35 35 Leasehold (1) 48 49 83 84 (In thousands, except %) Max Critical I.T. Square Feet or Total Rentable Square Feet 2,405 2,405 Leased Square Feet 1,913 1,888 % Utilization Rate (% Leased) 80% 78% __________ (1) Lease expired and not renewed in the first quarter of 2023. On a same store basis, property operating income and expense also increased in 2023, driven by the Vantage SDC portfolio, attributable to increase in leased square footage from lease-up of expanded capacity and existing inventory. Other Income Other income was $0.8 million lower at $11.3 million in 2023. 2022 had included interest income from warehoused credit investments that were transferred to our new credit fund during the second half of 2022, while there was higher dividend income and interest income from money market deposits in 2023. Interest Expense Three Months Ended March 31, (In thousands) 2023 2022 Change Interest expense Corporate debt $ 7,790 $ 8,306 (516) Non-recourse investment-level debt 59,406 35,724 23,682 $ 67,196 $ 44,030 23,166 Corporate Debt— Interest expense decreased $0.5 million in 2023, driven by the early exchange of our 5.75% exchangeable notes in March 2022 which resulted in the extinguishment of higher cost corporate debt. Non-Recourse Investment-Level Debt— The increase of $23.7 million was driven primarily by: (i) write-off of unamortized deferred financing costs on DataBank's refinanced debt; (ii) higher outstanding debt balance attributed to financing for new acquisitions in 2022; (iii) higher rates in 2023 on Vantage SDC's new securitization and on DataBank's variable rate debt. Investment Expense Investment expense decreased $3.8 million to $5.8 million in 2023. The decrease is attributable largely to higher compensatory expense recognized in the first quarter of 2022 in connection with the management team of Vantage Data Centers Holdings, LLC ("Vantage") who performs the day-to-day operations of Vantage SDC and higher costs in 2022 in connection with transition services for DataBank's acquisition of zColo. Transaction-Related Costs Transaction-related costs was $8.5 million in 2023 and $0.2 million in 2022, with the increase driven by the acquisition of InfraBridge. Depreciation and Amortization Increase in depreciation and amortization can be attributed to intangible assets acquired through the InfraBridge acquisition in February 2023 and DataBank's four new data centers acquired in March 2022. 56 Table of Contents Compensation Expense Three Months Ended March 31, (In thousands) 2023 2022 Change Cash and equity-based compensation Cash compensation and benefits $ 36,701 $ 36,607 $ 94 Equity-based compensation 10,770 8,979 1,791 47,471 45,586 1,885 Operating segment Cash and equity-based compensation 27,179 19,956 7,223 $ 74,650 $ 65,542 9,108 Incentive and carried interest compensation (reversal) $ (36,831) $ (20,352) $ (16,479) Cash and equity-based compensation— Compensation expense, excluding the Operating segment, increased $1.9 million to $47.5 million in 2023. Equity-based compensation expense was higher in 2023, attributed to shortened vesting periods for previously modified awards and a performance-based award that met its target in 2023. These increases were partially offset by profits interests that fully vested in 2022. In terms of cash compensation, the additional expense attributed to InfraBridge was mostly offset by lower severance costs and bonus accrual in 2023. Higher compensation expense in the Operating segment is attributed to new stock awards and higher headcount at DataBank. Incentive and carried interest compensation (reversal)— Consistent with the reversal in carried interest (as discussed in " —Carried Interest Allocation (Reversal) " above), there was also a larger reversal in the associated compensation expense, driven by DBP II. Administrative Expenses Three Months Ended March 31, (In thousands) 2023 2022 Change Administrative expenses $ 19,266 $ 20,986 $ (1,720) Administrative expenses — Operating segment 7,240 6,899 341 $ 26,506 $ 27,885 (1,379) Excluding the Operating segment, administrative expenses decreased $1.7 million to $19.3 million in 2023, driven by lower legal costs. Administrative expenses in the Operating segment were largely consistent year-over-year. Other Gain (Loss), Net Other loss was $142.7 million in 2023 compared to $149.9 million in 2022. Other loss in 2023 was driven by decreases in investment values, primarily $133.3 million on an unsecured promissory note from the 2022 sale of our Wellness Infrastructure business, taking into consideration an impending foreclosure of certain assets within the Wellness Infrastructure portfolio by its mezzanine lender. In 2022, the losses were driven by a non-cash debt extinguishment loss of $133.2 million in connection with an early exchange of our 5.75% exchangeable notes (refer to Note 8 to the consolidated financial statements), and fair value decrease in previously warehoused loans and in marketable equity securities held by our consolidated liquid funds, net of offsetting fair value changes on short positions. Income Tax Benefit (Expense) There was an income tax expense of $1.0 million in 2023 and an income tax benefit of $7.4 million in 2022. Income tax expense in 2023 generally reflects the income tax effect of foreign subsidiaries. The Company has established a full valuation allowance on deferred tax assets of its taxable U.S. entities, resulting in no U.S. income tax provision in 2023. Income tax benefit in 2022 can be attributed primarily to deferred tax benefit on net operating losses of a subsidiary. A valuation allowance was subsequently established against this deferred tax asset in the fourth quarter of 2022. 57 Table of Contents Income (Loss) from Discontinued Operations Three Months Ended March 31, (In thousands) 2023 2022 Change Income (Loss) from discontinued operations $ (14,218) $ (94,645) $ 80,427 Income (Loss) from discontinued operations attributable to noncontrolling interests: Investment entities 517 (6,175) 6,692 Operating Company (1,074) (7,110) 6,036 Income (Loss) from discontinued operations attributable to DigitalBridge Group, Inc. $ (13,661) $ (81,360) 67,699 Loss from discontinued operations in 2023 reflect largely the $9.7 million impairment of BRSP shares prior to disposition in March 2023. Loss from discontinued operations in 2022 was driven by the disposition of the Wellness Infrastructure business in February 2022, specifically, a $92.1 million write-off of unamortized deferred financing costs on the Wellness Infrastructure debt assumed by the buyer, impairment loss based upon final carrying value of the Wellness Infrastructure net assets upon disposition. Non-GAAP Supplemental Financial Measures We report Distributable Earnings, Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) and, specific to our Investment Management segment, Fee Related Earnings (“FRE”) as non-GAAP financial measures attributable to the Operating Company. We use these non-GAAP financial measures in evaluating the Company’s business performance and in making operating decisions. As we evaluate profitability based upon continuing operations, these non-GAAP measures exclude results from discontinued operations. These non-GAAP financial measures should not be considered alternatives to GAAP net income or loss as indicators of operating performance, or to cash flows from operating activities as measures of liquidity, nor as indicators of the availability of funds for our cash needs, including funds available to make distributions. Our calculation of these non-GAAP measures may differ from methodologies utilized by other companies for similarly titled performance measures and, as a result, may not be directly comparable to those calculated by other companies in similar lines of business. Results of our non-GAAP measures attributable to the Operating Company were as follows: Three Months Ended March 31, (In thousands) 2023 2022 Attributable to Operating Company: Distributable Earnings $ (3,365) $ (5,064) Adjusted EBITDA 25,626 20,494 Investment Management FRE 34,512 16,989 Distributable Earnings Distributable Earnings is an after-tax measure that differs from GAAP net income or loss from continuing operations as a result of the following adjustments, including adjustment for our share of similar items recognized by our equity method investments, where applicable: transaction-related costs; restructuring charges (primarily severance and retention costs); realized and unrealized gains or losses, except realized gains or losses related to digital assets, including fund investments, in Corporate and Other; depreciation, amortization and impairment charges; interest expense on finance leases; debt prepayment penalties and amortization of deferred financing costs, debt premiums and discounts; our share of unrealized carried interest allocation, net of associated compensation expense; equity-based compensation costs; effect of straight-line lease income and expense; impairment of equity investments directly attributable to decrease in value of depreciable real estate held by the investee; non-revenue enhancing capital expenditures necessary to maintain operating real estate; and income tax effect on certain of the foregoing adjustments. Income taxes included in DE reflect the benefit of deductions arising from certain expenses that are excluded from the calculation of DE, such as equity-based compensation, as these deductions do decrease actual income tax paid or payable by the Company in any one period. We believe that DE is a meaningful supplemental measure as it reflects the ongoing operating performance of our core business by generally excluding items that are non-core in nature, and allows for our operating results to be more comparable period-over-period and relative to other companies in similar lines of business. 58 Table of Contents Adjusted EBITDA Adjusted EBITDA represents DE adjusted to exclude the following items attributable to the Operating Company: interest expense as included in DE, income tax benefit or expense as included in DE, preferred stock dividends, principal investment income or loss as included in DE, placement fee expense, our share of incentive fees and realized carried interest allocation or reversal net of associated compensation expense or reversal, certain investment costs for capital raising that are not reimbursable by our sponsored funds, and capital expenditures as deducted in DE. We believe that Adjusted EBITDA is a meaningful supplemental measure of performance because it presents the Company’s operating performance independent of its capital structure, leverage and non-cash items, which allows for better comparability against entities with different capital structures and income tax rates. However, because Adjusted EBITDA is calculated without the effects of certain recurring cash charges, including interest expense, taxes, capital expenditures or other recurring cash requirements, its usefulness as a performance measure may be limited. Distributable Earnings and Adjusted EBITDA Reconciliation Three Months Ended March 31, (In thousands) 2023 2022 Net income (loss) attributable to common stockholders $ (212,473) $ (262,316) Net income (loss) attributable to noncontrolling interests in Operating Company (16,662) (22,862) Net income (loss) attributable to Operating Company (229,135) (285,178) Transaction-related and restructuring charges 18,391 24,668 Other (gain) loss, net (excluding realized gain or loss related to digital assets and fund investments in Corporate and Other) 141,229 130,224 Unrealized carried interest (allocation) reversal, net of associated compensation (expense) reversal 18,240 13,078 Equity-based compensation expense 16,339 18,720 Depreciation and amortization 141,220 130,597 Straight-line rent (revenue) and expense, net (1,727) (2,548) Amortization of acquired above-market and (below-market) leases, net 26 (248) Impairment loss — 23,802 Non-revenue enhancing capital expenditures (8,564) (1,372) Finance lease interest expense, debt prepayment penalties and amortization of deferred financing costs, debt premiums and discounts 15,523 98,465 Income tax effect on certain of the foregoing adjustments — (589) Adjustments attributable to noncontrolling interests in investment entities (1) (118,563) (132,237) DE of discontinued operations (2) 3,656 (22,446) Distributable Earnings, after tax—attributable to Operating Company (3,365) (5,064) Adjustments attributable to Operating Company : Interest expense included in DE 12,549 13,280 Income tax (benefit) expense included in DE 1,092 (6,849) Preferred stock dividends 14,676 15,759 Principal investment (income) loss included in DE (277) (58) Realized carried interest (allocation) reversal, net of associated compensation (expense) reversal (243) 1,172 Non-revenue enhancing capital expenditures deducted from DE 1,194 2,023 Non pro-rata allocation of (income) loss to noncontrolling interests — 231 Adjusted EBITDA—attributable to Operating Company $ 25,626 $ 20,494 __________ (1) Noncontrolling interests' share of adjustments pertain largely to depreciation and amortization; interest expense on finance leases, debt prepayment penalties and amortization of deferred financing costs, debt premiums and discounts; unrealized carried interest (allocation) reversal, net of associated compensation (expense) reversal; and non-revenue enhancing capital expenditures. (2) Equity method earnings (loss) from BRSP, which qualified as discontinued operations in March 2023, is included in DE of discontinued operations for all periods presented. Investment Management FRE Investment Management FRE is calculated as recurring fee income and other income inclusive of cost reimbursements associated with administrative expenses, and net of compensation expense (excluding equity-based compensation, and incentive and carried interest compensation expense or reversal) and administrative expense (excluding placement fees and straight-line rent expense). Investment Management FRE is used to assess the extent to 59 Table of Contents which direct base compensation and operating expenses are covered by recurring fee revenues in the investment management business. We believe that Investment Management FRE is a useful supplemental performance measure because it may provide additional insight into the profitability of the overall investment management business. Investment Management FRE is measured as Adjusted EBITDA for the Investment Management segment, adjusted to reflect the Company’s Investment Management segment as a stabilized business by excluding FRE associated with new investment strategies that have 1) not yet held a first close raising FEEUM; or 2) not yet achieved break-even Adjusted EBITDA only for investment products that may be terminated solely at the Company’s discretion, collectively referred to as “Start-up FRE.” The Company evaluates new investment strategies on a regular basis and excludes Start-Up FRE from Investment Management FRE until such time a new strategy is determined to form part of the Company’s core investment management business. Investment Management FRE Reconciliation Three Months Ended March 31, (In thousands) 2023 2022 Net income (loss)—Investment Management $ (2,804) $ (9,143) Interest expense, net of interest income 2,411 2,500 Investment expense, net of reimbursement 51 138 Depreciation and amortization 6,409 5,276 Equity-based compensation 3,898 3,191 Incentive fee and carried interest (allocation) reversal, net of associated compensation (expense) reversal 17,056 10,767 Straight-line rent expense 77 159 Transaction-related and restructuring charges 9,682 3,942 Principal investment (income) loss (318) (17) Other (gain) loss, net (3,082) 3,055 Income tax (benefit) expense 217 2,374 Investment Management Adjusted EBITDA 33,597 22,242 Start-up FRE 915 2,362 Investment Management FRE 34,512 24,604 Attributable to redeemable noncontrolling interests (1) — (7,615) Investment Management FRE—attributable to Operating Company $ 34,512 $ 16,989 __________ (1) Wafra's interest in the investment management business was redeemed in May 2022. Liquidity and Capital Resources We regularly evaluate our liquidity position, debt obligations, and anticipated cash needs to fund our business and operations based upon our projected financial performance. Our evaluation of future liquidity requirements is regularly reviewed and updated for changes in internal projections, economic conditions, competitive landscape and other factors as applicable. Liquidity Needs and Sources of Liquidity Our primary liquidity needs are to fund: • acquisitions of target investment management businesses; • our general partner and co-investment commitments to our investment vehicles; • warehouse investments pending the raising of third party capital for future investment vehicles; • 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; • our liability for corporate and other taxes; • development, construction and capital expenditures on our operating real estate; and • dividends to our preferred and common stockholders. Our primary sources of liquidity are: • cash on hand; 60 Table of Contents • fees received from our investment management business, including the Company's share of realized net incentive fees or carried interest; • cash flow generated from our investments, both from operations and return of capital; • availability under our Variable Funding Notes ("VFN"); • issuance of additional term notes under our corporate securitization; • third party co-investors in our consolidated investments and/or businesses; • proceeds from full or partial realization of investments; • investment-level financing; and • proceeds from public or private equity and debt offerings. Overview At March 31, 2023, our liquidity position was approximately $749 million, composed of corporate unrestricted cash and including the full $300 million availability under our VFN. In April 2023, our liquidity position decreased by $200 million following the repayment of our convertible notes upon maturity, which further deleveraged our balance sheet. We believe we have sufficient cash on hand, and anticipated cash generated from operating activities and external financing sources, to meet our short term and long term capital requirements. While we 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 to provide further operational and strategic flexibility. Significant Liquidity and Capital Activities in 2023 Sources of Funds • $202 million in net proceeds from full disposition of our BRSP shares in the first quarter of 2023. Uses of Funds • Acquisition of InfraBridge in February 2023 for $313 million, net of cash assumed • $200 million repayment of our convertible senior notes upon maturity in April 2023 • $90 million contingent earnout payment to Wafra in March 2023. Liquidity Needs and Capital Activities Stock Repurchases In July 2022, our Board of Directors authorized a $200 million stock repurchase program which expires in June 2023, but may be extended, modified, or discontinued at any time by our Board of Directors. In 2023 through April, $4.7 million of preferred stock was repurchased. $87.7 million repurchase capacity remains available under the program. Dividends Common Stock —The payment of common stock dividends and determination of the amount thereof is at the discretion of our Board of Directors. The Company reinstated quarterly common stock dividends at $0.01 per share beginning the third quarter of 2022, having previously suspended common stock dividends from the second quarter of 2020 through the second quarter of 2022. A dividend of $0.01 per share of common stock was declared in February 2023 and paid in April 2023. Preferred Stock— Following additional preferred stock repurchases in April 2023, we have outstanding preferred stock totaling $822 million, bearing a weighted average dividend rate of 7.135% per annum, with aggregate dividend payments of $14.7 million per quarter. 61 Table of Contents Contractual Obligations, Commitments and Contingencies Debt Obligation As of the date of this filing, our corporate debt is composed of a securitized financing facility and exchangeable senior notes issued by the OP, all of which are recourse to the Company, as described in Note 8 to the consolidated financial statements. $200 million of convertible senior notes were fully repaid upon maturity in April 2023. ($ in thousands) Outstanding Principal Interest Rate (Per Annum) Maturity or Anticipated Repayment Date Corporate debt: Securitized financing facility—fixed rate $ 300,000 3.93 % September 2026 Exchangeable senior notes—fixed rate 78,422 5.75 % July 2025 $ 378,422 Investment-level secured debt is non-recourse to DBRG and serviced through operating and/or investing cash generated by the respective borrower subsidiaries in the Operating segment and by our consolidated fund. Corporate-level cash is not applied to service investment-level debt. Investment Commitments Fund Commitments —As general partner, we typically have minimum capital commitments to our sponsored funds. With respect to our flagship value-add funds, DBP I and DBP II, and InfraBridge GIF I and GIF II funds, we have made additional capital commitments as a general partner affiliate alongside our limited partner investors. Our fund capital investments further align our interests to our investors. As of March 31, 2023, we have unfunded commitments totaling $126 million to our sponsored funds. Generally, the timing for funding of these commitments is not known and the commitments are callable on demand at any time prior to their respective expirations. Contingent Consideration Wafra Redemption —In connection with the May 2022 redemption of Wafra's interest in our investment management business, additional contingent consideration is payable based upon future capital raise thresholds, with up to 50% payable in shares of our class A common stock at our election. Depending upon cumulative capital raised through 2023, up to $35 million of the remaining contingent consideration may become payable in March 2024. InfraBridge Acquisition —In connection with the InfraBridge acquisition in February 2023, additional contingent consideration of up to $129 million may become payable based upon achievement of future fundraising targets for InfraBridge's third and fourth flagship funds. Warehoused Investments We temporarily warehouse investments on behalf of prospective sponsored investment vehicles that are actively fundraising. The warehoused investments are transferred to the investment vehicle when sufficient third party capital, including debt, is raised. Generally, the timing of future warehousing activities is not known. Nevertheless, investment warehousing is undertaken only if we determine that there will be sufficient liquidity through the anticipated warehousing period. At March 31, 2023, we had $38 million of warehoused equity investments. Carried Interest Clawback Depending on the final realized value of all investments at the end of the life of a fund (and, with respect to certain funds, periodically during the life of the fund), if it is determined that cumulative carried interest distributions have exceeded the final carried interest amount earned (or amount earned as of the calculation date), we are obligated to return the excess carried interest received. Therefore, carried interest distributions may be subject to clawback if decline in investment values results in cumulative performance of the fund falling below minimum return hurdles in the interim period. If it is determined that the Company has a clawback obligation, a liability would be established based upon a hypothetical liquidation of the net assets of the fund at reporting date. The actual determination and required payment of any clawback obligation would generally occur after final disposition of the investments of the fund or otherwise as set forth in the governing documents of the fund. If the related carried interest distributions received by the Company are subject to clawback, the previously distributed carried interest would be similarly subject to clawback from employees. The Company generally withholds a portion of the distribution of carried interest to employees to satisfy their potential clawback obligation. 62 Table of Contents At March 31, 2023, the Company has no liability for clawback obligations on distributed carried interest. Lease Obligations At March 31, 2023, we had $39.5 million of operating lease obligations on our corporate offices, which are funded through corporate operating cash. The lease obligation amount represents fixed lease payments, 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. Separately, finance and operating lease obligations on leasehold data centers in the Operating segment are satisfied through operating cash generated by the respective investment properties. Sources of Liquidity Debt Funding As of the date of this filing, we have $378 million of outstanding principal on our corporate debt, as discussed under " —Debt Obligation. " Our securitized financing facility is subject to various covenants, including financial covenants that require the maintenance of minimum thresholds for debt service coverage ratio and maximum loan-to-value ratio, as defined. As of the date of this filing, we are in compliance with all of the financial covenants, and the full $300 million is available to be drawn on our VFN. Our securitized financing facility allows for the issuance of additional term notes in the future to supplement our liquidity. The decision to enter into a particular financing arrangement is made after consideration of various factors including future cash needs, current sources of liquidity, demand for the Company’s debt or equity, and prevailing interest rates. Cash From Operations Fee-Related Earnings— We generate FRE from our Investment Management segment, generally encompassing recurring fee income net of associated compensation and administrative expenses. Following the redemption of Wafra's 31.5% interest in our investment management business in May 2022, 100% of Investment Management FRE is attributable to us. Management fee income is generally a predictable and stable revenue stream. Our ability to generate new management fee streams through establishing new investment vehicles and raising investor capital depends on general market conditions and availability of attractive investment opportunities as well as availability of debt capital. Incentive Fees— Incentive fees, net of employee allocations, are earned based upon the financial performance of a vehicle above a specified return threshold, which is largely driven by appreciation in value of underlying investments. Incentive fees are recognized as fee income when they are no longer probable of significant reversal. As investment fair values and changes thereof could be affected by various factors, including market and economic conditions, incentive fees are by nature less predictable in amount and timing. Carried Interest Distributions— Carried interest is distributed generally upon profitable disposition of an investment if at the time of distribution, cumulative returns of the fund exceed minimum return hurdles. Carried interest distributions are recognized in earnings net of clawback obligations, if any. The amount and timing of carried interest distributions received may vary substantially from period to period depending upon the occurrence and size of investments realized by our sponsored funds. Investments— Our investments generate cash through income distributions and return of our invested capital. Asset Monetization We periodically monetize our investments through opportunistic asset sales or to recycle capital from non-core assets. In the first quarter of 2023, our BRSP shares were fully disposed for net proceeds of $202 million. We have other marketable equity securities that are available for future monetization, valued at approximately $17 million at March 31, 2023. Public Offerings We may offer and sell various types of securities from time to time at our discretion based upon our needs and depending upon market conditions and available pricing. 63 Table of Contents Consolidated Cash Flows The following table summarizes the activities from our consolidated statements of cash flows, including discontinued operations. Three Months Ended March 31, (In thousands) 2023 2022 Cash, cash equivalents and restricted cash—beginning of period $ 1,036,739 $ 1,766,245 Net cash provided by (used in): Operating activities 20,185 1,257 Investing activities (258,870) (1,102,149) Financing activities 26,786 559,318 Effect of exchange rates on cash, cash equivalents and restricted cash (626) (651) Cash, cash equivalents and restricted cash—end of period $ 824,214 $ 1,224,020 Operating Activities Cash inflows from operating activities are generated primarily through fee income, including incentive fees, and distributions of our share of net carried interest from our investment management business, property operating income from our real estate investments, interest received from loans receivable during the warehousing period, and distributions of earnings received from equity investments. This is partially offset by payment of operating expenses, including property management and operations, investment transaction-related costs, as well as compensation and general administrative costs. Our operating activities generated net cash inflows of $20.2 million in 2023 and $1.3 million in 2022. Investing Activities Investing activities include primarily cash outlays for business combination, acquisition of real estate, origination or acquisition of warehoused loans and disbursement on subsequent drawdowns, and new equity investments and subsequent contributions. These are partially offset by repayments, sales and transfers of warehoused loans receivable, distributions of capital received from equity investments, and proceeds from sale of real estate and equity investments. Our investing activities generated net cash outflows of $258.9 million in 2023, attributed primarily to a business combination, partially offset by the sale of equity investments, and $1.1 billion in 2022, driven by real estate acquisitions in the Operating segment. • Business combination —In 2023, we paid $313.2 million (net of cash assumed) for the acquisition of InfraBridge. • Equity investments —Our equity investments generated net cash inflows in both years. In 2023, our equity investments recorded net cash inflows of $219.5 million, attributed primarily to $201.6 million from the sale of our BRSP shares. Other activities pertain to the acquisitions and dispositions of marketable equity securities by our consolidated liquid funds, and return of capital from a non-digital equity investment following a final sale of its underlying assets. 2022 saw net cash inflows of $8.7 million, largely representing the trading activities in marketable equity securities by our consolidated liquid funds. • Real estate investments —Real estate investing activities generated net cash outflows in both years. Net cash outflows in 2023 was $162.9 million, attributed to capital expenditures in our data center portfolio, including payments for build-out of expansion capacity and lease-up within the Vantage SDC portfolio. 2022 saw net cash outflows of $739.4 million, attributed to the acquisition of DataBank's acquisition of five data centers, data center capital expenditures, and payments for build-out of expansion capacity and lease-up within the Vantage SDC portfolio. All of these outflows were partially offset by proceeds received from our Wellness Infrastructure sale. • Debt investments —Our debt investments generated net cash outflows in 2022, while there were no cash activities in 2023. 64 Table of Contents In 2022, net cash outflows of $164.1 million were driven by origination and acquisition of loans that were warehoused for future investment vehicles, partially offset by a loan syndication. These warehoused loans were subsequently transferred to our sponsored credit fund and to a third party sponsored collateralized loan obligation ("CLO") in the second half of 2022. Financing Activities We may draw upon our securitized financing facility to finance our operating activities, as well as have the ability to raise capital in the public markets through issuances of preferred stock, common stock and private placement notes. Accordingly, we incur cash outlays primarily for payments on our corporate debt, and dividends to our preferred stockholders and common stockholders (common dividends were reinstated beginning the third quarter of 2022). Separately, subsidiaries in the Operating segment finance their investing activities largely through investment-level secured debt and incur cash outlays for debt servicing and distributions to their third party investors who represent noncontrolling interests. Financing activities generated net cash inflows in both years. • In 2023, the net cash inflows of $26.8 million represent largely additional investment-level debt raised by subsidiaries in the Operating segment through their refinancing activities, partially offset by a $90.0 million contingent consideration payment to Wafra. • The financing net cash inflows of $559.3 million in 2022 were driven by financing for the acquisition of the DataBank data center acquisition through a term loan and capital contributions from noncontrolling interests. Other investment-level financing included amounts drawn on warehouse facilities to finance acquisition of loans that were intended to be securitized. In the third quarter of 2022, these loans were transferred into a third party CLO and the corresponding warehouse facilities were repaid. Guarantees and Off-Balance Sheet Arrangements We have no guarantees or off-balance sheet arrangements that we believe are reasonable likely to have a material effect on our financial condition. 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, 2022. With respect to all 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, and unpredictability of economic and market conditions, 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 2023 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.