What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-04 compared with 2023-05-05 · 170 added, 153 removed, 379 unchanged (46% of the section changed)

7 unchanged sentences

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.

At June 30, 2023, we had $72 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.

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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.

At June 30, 2023, we owned 93% of the Operating Company as its sole managing member.

The Company conducts its business through two reportable segments:

7 unchanged sentences

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, an edge colocation data center business (DBRG ownership of 11% at June 30, 2023 and December 31, 2022);

and Vantage SDC, a stabilized hyperscale data center business (DBRG ownership of 13% at June 30, 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.

8 unchanged sentences

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.

• $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.

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 following summarizes significant developments that affected our business and results of operations in 2023 through the date of this filing.

• We repaid $200 million of 5.00% senior notes upon maturity in April 2023 using cash on hand, reducing our leverage and outstanding corporate debt to $378 million, with savings of $10 million in annual financing costs.

Investment Management

• We have raised approximately $3.4 billion of capital to-date in 2023, primarily for a new digital infrastructure fund (which is not yet fee-earning) and syndications through various co-investment vehicles.

• In February 2023, we completed our previously announced acquisition of InfraBridge for $314 million 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.

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• Our investment in BrightSpire Capital, Inc.

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.

BRSP), which was our largest remaining non-digital investment, was fully disposed in March 2023 for approximately $202 million in net proceeds.

• A non-cash charge of $133 million in fair value write-down was recorded in March 2023 on an unsecured promissory note from the 2022 sale of our Wellness Infrastructure business.

This resulted from 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

Type Products Description June 30, 2023 December 31, 2022

Assets Under Management (1)

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Institutional Funds DBP infrastructure equity Earns management fees and potential for carried interest or incentive fees $ 11.3 $ 11.2

InfraBridge Global Infrastructure Funds 4.4 —

InfraBridge Global Infrastructure 5.1 —

Core Equity, DigitalBridge Credit and Liquid Strategies 2.4 2.0

Other Investment Vehicles DigitalBridge co-invest vehicles Earns management fees, business service fees from portfolio companies, and potential for carried interest 8.0 6.5

InfraBridge co-invest vehicles 0.7 —

Digital infrastructure held by portfolio companies 2.3 2.5

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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.

• FEEUM increased by $6.9 billion or 31% to $29.1 billion at June 30, 2023, driven by the addition of $5.1 billion of InfraBridge FEEUM, new capital raised, primarily for core equity and syndications through co-investment vehicles, that have begun to accrue fee income.

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

Three Months Ended June 30, Six Months Ended June 30,

(In thousands) 2023 2022 Change 2023 2022 Change

Total revenues

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$ (4,996) $ (17,702) 12,706 $ (189,132) $ (182,899) (6,233)

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 ."

Total revenues increased $8.3 million or 2% in the quarter-to-date comparison and $25.6 million or 4% in the year-to-date comparison.

• Investment Management— Revenues were 5.6% lower at $149.1 million in the quarter-to-date comparison and 9% lower at $155.9 million in the year-to-date comparison.

The decrease in both periods was due to significant variability in unrealized carried interest.

In 2023, gross unrealized carried interest (before management allocation) was $31.5 million lower at $79.3 million in the quarter-to-date comparison and $55.2 million lower at $24.5 million in the year-to-date comparison, with a larger reversal of unrealized carried interest in the first quarter, attributed to DBP II.

Excluding carried interest, revenues would have increased $22.7 million or 48% in the quarter-to-date comparison and $39.4 million or 43% in the year-to-date comparison.

Fee income was $21.5 million higher at $66.6 million in the quarter-to-date comparison and $38.0 million higher at $126.7 million in the year-to-date comparison, attributable largely to the InfraBridge funds acquired in February 2023 and additional capital raised since July 2022 that have started accruing income.

• 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.

Revenues were higher in 2023 due to fair value increases in fund investments, partially offset by warehoused credit investments that were transferred to our new credit fund in 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.

Loss from continuing operations attributable to DBRG was $12.7 million or 72% lower in the quarter-to-date comparison but increased $6.2 million or 3.4% in the year-to-date comparison.

• Investment Management— In 2023, net income was close to breakeven in the quarter-to-date period, a $21.0 million decrease, while the year-to-date period was a net loss of $1.9 million compared to a net income of $13.7 million in 2022.

The lower 2023 results can be attributed to lower carried interest, including a reversal of net carried interest in the first quarter, placement fees incurred for a future fund that is not yet fee earning, and higher compensation and administrative expenses attributed to the investment management business.

Supplemental performance measures of the Investment Management segment are presented under " —Non-GAAP Measures ."

• 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

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).

Our share of net loss reflects a 13% ownership in Vantage SDC and our interest in DataBank, which decreased from 22% as of June 2022 to 11% as of June 2023.

• Corporate and Other— Net loss generally reflects corporate level costs that have not been attributed 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 earnings from our fund investments.

Net income in the 2023 quarter-to-date period can be attributed to fair value increases in fund investments.

In the year-to-date periods, the significant net loss reflect large non-cash charges:

(i) in 2023, a $133 million fair value write-down on an unsecured promissory note from the 2022 sale of our Wellness Infrastructure business;

and (ii) in 2022, a $133 million debt extinguishment loss in connection with an early exchange of our 5.75% exchangeable notes (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

Three Months Ended June 30, Six Months Ended June 30,

(In thousands) 2023 2022 Change 2023 2022 Change

Fee income $ 65,742 $ 44,318 $ 21,424 $ 124,868 $ 87,155 $ 37,713

Carried interest allocation (reversal) (54,756) (31,079) (23,677)

Carried interest allocation 79,254 110,779 (31,525) 24,498 79,700 (55,202)

Principal investment income (loss) 30,409 16,444 13,965 33,971 22,898 11,073

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Transaction-related costs 1,113 2,756 (1,643) 9,640 2,921 6,719

Placement fees 3,653 — 3,653 3,653 — 3,653

Depreciation and amortization 149,562 155,352 (5,790) 291,136 283,919 7,217

Compensation expense—cash and equity-based 82,992 52,792 30,200 157,642 118,334 39,308

Compensation expense (reversal)—incentive fee and carried interest (36,831) (20,352) (16,479)

Compensation expense—incentive fee and carried interest allocation 36,076 49,069 (12,993) (755) 28,717 (29,472)

Administrative expenses 25,763 26,353 (590) 52,269 54,238 (1,969)

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(8,663) (21,562) 12,899 (206,460) (268,119) 61,659

Preferred stock repurchases/redemptions (927) — (927) (927) — (927)

Preferred stock dividends 14,675 15,759 (1,084) 29,351 31,518 (2,167)

Net income (loss) attributable to common stockholders $ (22,411) $ (37,321) 14,910 $ (234,884) $ (299,637) 64,753

Three Months Ended March 31,

(In thousands) 2023 2022 Change

Three Months Ended June 30, Six Months Ended June 30,

(In thousands) 2023 2022 Change 2023 2022 Change

Management fees

1 unchanged sentence

Incentive fees

171 — 171 1,040 — 1,040

Other fee income

1 unchanged sentence

$ 65,742 $ 44,318 21,424 $ 124,868 $ 87,155 37,713

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)

Fee income increased $21.4 million or 48% in the quarter-to-date comparison and $37.7 million or 43% in the year-to-date comparison.

The increase was driven by management fees from InfraBridge beginning February 2023 and from capital raised since July 2022, including the DataBank recapitalization, our new core equity fund and co-investment vehicles.

Additionally, incentive fees in 2023 are attributed to our liquid securities strategy.

Carried Interest Allocation

Three Months Ended June 30, Six Months Ended June 30,

(In thousands) 2023 2022 Change 2023 2022 Change

Carried interest allocation

Realized $ — $ — $ — $ 476 $ — $ 476

1 unchanged sentence

$ 79,254 $ 110,779 (31,525) $ 24,498 $ 79,700 (55,202)

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.

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.

Carried interest allocation represents gross carried interest from our general partner interests in sponsored investment vehicles prior to allocations to management and Wafra.

Gross unrealized carried interest accrual was lower in 2023 in both periods under comparison.

This is because the second quarter of 2022 had included a significant fair value increase on an investment in DBP I that was realized shortly thereafter, while in the first quarter of 2023, there was a higher reversal of carried interest for DBP II.

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.

Principal investment income increased $14.0 million in the quarter-to-date comparison and $11.1 million in the year-to-date comparison.

The increase represents higher earnings from equity interests in our sponsored funds, driven by unrealized fair value increases on the underlying fund investments, primarily the InfraBridge funds.

Property Operating Income and Expense

Three Months Ended March 31,

(In thousands) 2023 2022 Change

Three Months Ended June 30, Six Months Ended June 30,

(In thousands) 2023 2022 Change 2023 2022 Change

Property operating income

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Data center service revenue 20,193 19,642 551 39,998 37,978 2,020

Other property operating income 1,316 53 1,263 2,036 57 1,979

234,753 227,646 7,107 465,680 430,157 35,523

Lease income — 6,605 (6,605) — 6,605 (6,605)

$ 234,753 $ 234,251 502 $ 465,680 $ 436,762 28,918

Property operating expense

Operating segment $ 98,231 $ 94,744 $ 3,487 $ 195,357 $ 178,747 $ 16,610

Other — 2,546 (2,546) — 2,546 (2,546)

$ 98,231 $ 97,290 941 $ 195,357 $ 181,293 14,064

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.

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

Property operating income and expenses were higher in 2023, reflecting operating results from additional acquisitions, including 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.

This was partially offset by higher lease termination fees in the second quarter of 2022 from the Vantage SDC portfolio.

At June 30, 2023, the Operating segment portfolio is composed of 74 data centers in the U.S., three in Canada, and one in the U.K., with five data centers in France held for disposition effective April 2023.

June 30, 2023 December 31, 2022

Operating segment

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% Utilization Rate (% Leased)

(1) Lease expired and not renewed in the first quarter of 2023.

(1) One lease expired and was not renewed in the first quarter of 2023.

A leasehold data center was acquired in May 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 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.

This represents property operating income and expense from a tower portfolio, acquired in June 2022 as a warehoused investment and transferred to our core equity fund in December 2022.

Other income increased $3.9 million in the quarter-to-date comparison and $3.1 million in the year-to-date comparison.

This can be attributed to higher interest income from our subordinated notes in a collateralized loan obligation ("CLO") and money market deposits, and dividend income from our consolidated credit fund.

However, these amounts were partially offset by interest income from credit investments in 2022, in particular warehoused investments that were transferred to our new credit fund during the second half of 2022.

Interest Expense

Three Months Ended March 31,

(In thousands) 2023 2022 Change

Three Months Ended June 30, Six Months Ended June 30,

(In thousands) 2023 2022 Change 2023 2022 Change

Interest expense

2 unchanged sentences

$ 56,022 $ 46,388 9,634 $ 123,218 $ 90,418 32,800

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:

Corporate Debt— Interest expense decreased $2.5 million in the quarter-to-date comparison and $3.0 million in the year-to-date comparison as we continue to extinguish higher cost corporate debt.

The decrease is attributed to repayment of our 5.00% convertible notes in April 2023 and additionally, in the year-to-date period, early exchange of our 5.75% exchangeable notes for common stock in March 2022.

Non-Recourse Investment-Level Debt— The increase of $12.1 million in the quarter-to-date comparison and $35.8 million in the year-to-date comparison was driven 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.

(ii) higher outstanding debt balance in the Operating segment;

and (iii) higher interest rates on Vantage SDC's new securitization and on DataBank's variable rate debt.

These were partially offset by outstanding debt balance in 2022 in connection with the financing of warehoused tower assets and credit investments, all of which were repaid in the second half of 2022.

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.

Investment expense decreased $1.9 million in the quarter-to-date comparison and $5.7 million in the year-to-date comparison.

In 2022, there was higher third party costs associated with the day-to-day management of the Vantage SDC portfolio and transition services for DataBank's acquisition of zColo which ended in the second quarter of 2022.

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.

Transaction costs in all periods were driven by the InfraBridge acquisition, accrued beginning the second quarter of 2022, with a majority of the costs incurred at closing in February 2023.

Placement Fees

Placement fees was $3.7 million in the second quarter of 2023, incurred in connection with fundraising for our new digital infrastructure fund and co-investment vehicles.

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.

Depreciation and amortization expense decreased in the quarter-to-date comparison but increased in the year-to-date comparison.

2023 included additional expense related primarily to InfraBridge and DataBank acquisitions and data center improvements at DataBank.

In contrast, 2022 had included higher accelerated amortization of lease intangibles from lease terminations, and additional expense in connection with short-term leases in the colocation data center business prior to their expiration and warehoused tower assets acquired in June 2022 that were transferred to our core equity fund in December 2022.

The incremental expense in 2023 was lower in the quarter-to-date comparison, but higher in the year-to-date comparison.

This is because the year-to-date period in 2022 included only a partial period of expense related to the DataBank portfolio acquired in March 2022.

Compensation Expense

Three Months Ended March 31,

(In thousands) 2023 2022 Change

Three Months Ended June 30, Six Months Ended June 30,

(In thousands) 2023 2022 Change 2023 2022 Change

Cash and equity-based compensation

6 unchanged sentences

$ 82,992 $ 52,792 30,200 $ 157,642 $ 118,334 39,308

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.

Incentive and carried interest compensation allocation $ 36,076 $ 49,069 $ (12,993) $ (755) $ 28,717 $ (29,472)

Cash and equity-based compensation— Excluding the Operating segment, compensation expense increased $24.0 million in the quarter-to-date comparison and $25.9 million in the year-to-date comparison.

Equity-based compensation expense was higher in 2023, driven by a performance-based award that met its target in 2023 and shortened vesting periods for previously modified awards.

There was also an increase in cash compensation in 2023, attributed largely to InfraBridge and higher severance and retention costs, partially offset by discontinuance of an incentive program in 2023.

In the Operating segment, compensation expense also increased in both periods, attributed to new stock awards and higher headcount at DataBank.

Incentive and carried interest compensation allocation— Consistent with lower carried interest in 2023, the associated compensation expense was similarly lower in the quarter-to-date comparison.

The 2023 year-to-date period, however, reflected a reversal of compensation expense.

This is because management allocation of carried interest is reflected entirely as compensation expense for DBP II, which recorded a reversal of carried interest in the first quarter, but such allocation is split between compensation expense and net income attributable to noncontrolling interests for DBP I and its associated co-investment vehicles (Note 16 to the consolidated financial statements), which had positive carried interest.

Administrative Expenses

Three Months Ended March 31,

(In thousands) 2023 2022 Change

Three Months Ended June 30, Six Months Ended June 30,

(In thousands) 2023 2022 Change 2023 2022 Change

Administrative expenses $ 16,922 $ 17,443 $ (521) $ 36,188 $ 38,429 $ (2,241)

2 unchanged sentences

$ 25,763 $ 26,353 (590) $ 52,269 $ 54,238 (1,969)

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.

Total administrative expenses were largely consistent in the quarter-to-date comparison and decreased $2.0 million in the year-to-date comparison, driven by lower legal costs.

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.

Other loss was lower in both periods, decreasing $34.7 million to $11.5 million in the quarter-to-date comparison and $41.9 million to $154.3 million in the year-to-date comparison.

The higher net loss in 2022 was driven by decreases in fair value of credit investments and marketable equity securities, net of offsetting fair value changes on short positions.

These were largely credit investments previously warehoused and no longer held on the balance sheet in 2023 and equity securities held by our consolidated liquid funds.

Additionally, the year-to-date period included a non-cash debt extinguishment loss of $133.2 million in March 2022 in connection with an early exchange of our 5.75% exchangeable notes (Note 8 to the consolidated financial statements).

The losses in 2022 were partially offset by a decrease in the liability fair value of warrants issued to Wafra (Note 13 to the consolidated financial statements).

In comparison, the net loss in 2023 can be attributed mainly to fair value decrease on a warehoused equity investment and increase in the warrant liability fair value, with the year-to-date period including a $133.3 million write-down in value in March 2023 on an unsecured promissory note from the 2022 sale of our Wellness Infrastructure business

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.

Income tax expense was recorded in 2023 of $3.3 million quarter-to-date and $4.3 million year-to-date, while income tax benefit was recorded in 2022 of $2.5 million quarter-to-date and $9.9 million year to-date.

Income tax expense in 2023 primarily reflects the income tax effect of foreign subsidiaries, largely the InfraBridge investment management business.

The Company has otherwise established a full valuation allowance on the deferred tax assets of its taxable U.S.

entities, resulting in no U.S.

income tax provision in 2023.

income tax provision for these subsidiaries in 2023, outside of the Operating segment.

Income tax benefit in 2022 can be attributed primarily to deferred tax benefit on net operating losses of a subsidiary.

1 unchanged sentence

Income (Loss) from Discontinued Operations

Three Months Ended March 31,

(In thousands) 2023 2022 Change

Three Months Ended June 30, Six Months Ended June 30,

(In thousands) 2023 2022 Change 2023 2022 Change

Income (Loss) from discontinued operations $ (3,978) $ (3,788) $ (190) $ (18,196) $ (98,433) $ 80,237

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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.

Loss from discontinued operations in 2022 was driven by 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, and impairment loss based upon final carrying value of the Wellness Infrastructure net assets upon disposition.

Non-GAAP Supplemental Financial Measures

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Results of our non-GAAP measures attributable to the Operating Company were as follows:

Three Months Ended March 31,

Three Months Ended June 30,

(In thousands) 2023 2022

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Distributable Earnings and Adjusted EBITDA Reconciliation

Three Months Ended March 31,

Three Months Ended June 30,

(In thousands) 2023 2022

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Other (gain) loss, net (excluding realized gain or loss related to digital assets and fund investments in Corporate and Other) (15,990) 15,134

Unrealized carried interest (allocation) reversal, net of associated compensation (expense) reversal 18,240 13,078

Unrealized carried interest allocation, net of associated expense allocation (43,791) (58,775)

Equity-based compensation expense 25,937 9,344

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Finance lease interest expense, debt prepayment penalties and amortization of deferred financing costs, debt premiums and discounts 7,578 5,238

Income tax effect on certain of the foregoing adjustments — (589)

Preferred stock redemption (gain) loss (927) —

Adjustments attributable to noncontrolling interests in investment entities (1)

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Distributable Earnings, after tax—attributable to Operating Company

(3,365) (5,064)

Adjustments attributable to Operating Company :

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Preferred stock dividends 14,675 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

Placement fees 3,653 —

Realized incentive fee and carried interest allocation, net of associated expense allocation 883 —

Non-revenue enhancing capital expenditures deducted from DE 706 3,086

Non pro-rata allocation of (income) loss to noncontrolling interests — 231

Adjusted EBITDA—attributable to Operating Company

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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;

unrealized carried interest allocation, net of associated compensation expense allocation;

and non-revenue enhancing capital expenditures.

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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

which direct base compensation and operating expenses are covered by recurring fee revenues in the investment management business.

Investment Management FRE is used to assess the extent to 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.

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Investment Management FRE Reconciliation

Three Months Ended March 31,

Three Months Ended June 30,

(In thousands) 2023 2022

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Equity-based compensation 17,099 3,361

Incentive fee and carried interest (allocation) reversal, net of associated compensation (expense) reversal 17,056 10,767

Incentive fee and carried interest allocation, net of associated expense allocation (43,349) (61,710)

Straight-line rent expense (39) 76

Placement fees 3,653 —

Transaction-related and restructuring charges 3,025 4,042

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Our primary liquidity needs are to fund:

• acquisitions of target investment management businesses;

• our general partner and co-investment commitments to our investment vehicles;

• acquisitions of target investment management businesses;

• warehouse investments pending the raising of third party capital for future investment vehicles;

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• our operations, including compensation, administrative and overhead costs;

• obligation for lease payments, principally leasehold data centers and corporate offices;

• dividends to our preferred and common stockholders;

• our liability for corporate and other taxes;

• obligation for lease payments, principally corporate offices and leasehold data centers;

• development, construction and capital expenditures on our operating real estate;

• dividends to our preferred and common stockholders.

Our primary sources of liquidity are:

• cash on hand;

• fees received from our investment management business, including the Company's share of realized net incentive fees or carried interest;

• fees received from our investment management business, including our share of realized net incentive fees and carried interest;

• cash flow generated from our investments, both from operations and return of capital;

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• proceeds from public or private equity and debt offerings.

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.

At June 30, 2023, our liquidity position was approximately $505 million, composed of corporate unrestricted cash and including the full $300 million availability under our VFN.

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.

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Sources of Funds

• $202 million in net proceeds from full disposition of our BRSP shares in the first quarter of 2023.

• $202 million in net proceeds from full disposition of our BRSP shares in March 2023.

Uses of Funds

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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.

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.

Preferred Stock— 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.

Contractual Obligations, Commitments and Contingencies

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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

(Per Annum) Maturity or Anticipated Repayment Date Years Remaining to Maturity

Corporate debt:

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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.

As of June 30, 2023, we have unfunded commitments totaling $132 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.

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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.

InfraBridge Acquisition —In connection with the InfraBridge acquisition in February 2023, contingent consideration of up to $129 million may become payable based upon achievement of future fundraising targets for the third and fourth flagship InfraBridge funds.

The current estimated fair value of the contingent consideration is $11 million.

Warehoused Investments

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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.

Nevertheless, investment warehousing is undertaken only if it is determined that we will have sufficient liquidity through the anticipated warehousing period.

At June 30, 2023, warehoused investments aggregate to $51 million at cost.

Carried Interest Clawback

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The Company generally withholds a portion of the distribution of carried interest to employees to satisfy their potential clawback obligation.

At March 31, 2023, the Company has no liability for clawback obligations on distributed carried interest.

At June 30, 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.

At June 30, 2023, we had $52.2 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.

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Sources of Liquidity

As of the date of this filing, we have $378 million of outstanding principal on our corporate debt, as discussed under " —Debt Obligation.

As of the date of this filing, we have $378 million of outstanding principal on our corporate debt, as discussed above 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.

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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.

In March 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 $19.5 million at June 30, 2023.

Public Offerings

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The following table summarizes the activities from our consolidated statements of cash flows, including discontinued operations.

Three Months Ended March 31,

Six Months Ended June 30,

(In thousands) 2023 2022

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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.

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 warehoused loans, 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.

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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.

These are partially offset by repayments, sales and transfers of warehoused investments, 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 $571.6 million in 2023 and $2.2 billion in 2022.

Cash outlays in 2023 can be attributed primarily to a business combination, data center acquisition and capital expenditures in the Operating segment and investing activities of our consolidated funds, partially offset by the sale of BRSP shares.

2022 cash outlays were driven by the acquisitions of TowerCo and data centers in the Operating segment.

• Business combination —In 2023, we paid $314.3 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.

• Equity investments —Equity investments generated net cash inflows in both years.

In 2023, equity investments recorded net cash inflows of $245.1 million, attributed primarily to $201.6 million from the sale of BRSP shares, return of capital from a non-digital equity investment following a final sale of its underlying assets, and investing activities of our consolidated liquid funds which hold marketable equity securities.

These cash inflows were partially offset by funding of our fund commitments.

2022 saw net cash outflows of $33.3 million, largely representing the trading activities in marketable equity securities by our consolidated liquid funds, in addition to funding of our fund commitments.

• 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.

Net cash outflows in 2023 was $511.0 million, attributed to Databank's data center acquisition in Dallas and 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 $1.9 billion, attributed primarily to the acquisition of TowerCo and, to a lesser extent, to DataBank's Houston portfolio acquisition, data center capital expenditures, and payments for build-out of expansion capacity and lease-up within the Vantage SDC portfolio.

Also contributing to the cash outflows was cash assumed by the buyer in the sale of real estate investment holding entities in our Wellness Infrastructure business.

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.

• Debt investments —Our debt investments generated minimal net cash inflows in 2023 and substantial net cash outflows in 2022.

Having relinquished all of our warehoused debt investments in 2022, the only cash activity with respect to debt investments in 2023 was the full repayment of a loan held by DataBank of $6.8 million.

In 2022, net cash outflows of $226.5 million were driven by origination and acquisition of loans that were warehoused for future investment vehicles, partially offset by a loan syndication.

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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).

Accordingly, we incur cash outlays primarily for payments on our corporate debt, and dividends to our preferred stockholders and common stockholders.

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 2023, the net cash inflows of $24.1 million represents primarily $421.1 million of additional investment-level debt in the Operating segment, largely offset by repayment of our $200 million 5.00% convertible senior notes, $90 million contingent consideration payment to Wafra, $73.5 million distributed for capital redeemed by a noncontrolling interest in a consolidated liquid fund, and income distribution to noncontrolling interests in Vantage SDC.

• The financing net cash inflows of $760.3 million in 2022 was driven by financing for the acquisition of TowerCo and the DataBank data center acquisition through term loans and capital contributions from noncontrolling interests totaling $1.1 billion.

Financing cash inflows also included draws on our corporate VFN revolver and on credit facilities to finance bank-syndicated warehoused 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.

The cash inflows were partially offset by $388.5 million of cash paid to redeem Wafra's interest in our investment management business.

Other notable cash outflows included acquisition of noncontrolling interest in DataBank and distributions to various noncontrolling interests.

Guarantees and Off-Balance Sheet Arrangements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis