Item 2. Management’s Discussion and Analysis
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 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 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 June 30, 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 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.
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 2023 through the date of this filing.
Financing
• 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.
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• 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.
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 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 June 30, 2023 December 31, 2022
Assets Under Management (1)
$ 72.2 $ 52.8
Fee Earning Equity Under Management (2)
Institutional Funds DBP infrastructure equity Earns management fees and potential for carried interest or incentive fees $ 11.3 $ 11.2
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
Digital infrastructure held by portfolio companies 2.3 2.5
$ 29.1 $ 22.2
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(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 $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.
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Results of Operations
The following table summarizes our consolidated results from continuing operations by reportable segment.
Three Months Ended June 30, Six Months Ended June 30,
(In thousands) 2023 2022 Change 2023 2022 Change
Total revenues
Investment Management $ 149,093 $ 157,910 $ (8,817) $ 155,922 $ 171,741 $ (15.8)
Operating 235,059 227,687 7,372 466,723 430,209 36,514
Corporate and Other 40,781 31,035 9,746 52,448 47,516 4,932
$ 424,933 $ 416,632 8,301 $ 675,093 $ 649,466 25,627
Income (Loss) from continuing operations
Investment Management $ 35,177 $ 67,995 $ (32,818) $ 32,373 $ 58,852 $ (26,479)
Operating (93,055) (85,428) (7,627) (190,997) (159,569) (31,428)
Corporate and Other 9,340 (46,860) 56,200 (168,040) (212,615) 44,575
$ (48,538) $ (64,293) 15,755 $ (326,664) $ (313,332) (13,332)
Income (Loss) from continuing operations attributable to DigitalBridge Group, Inc.
Investment Management $ 309 $ 21,269 $ (20,960) $ (1,889) $ 13,667 $ (15,556)
Operating (10,509) (14,807) 4,298 (21,298) (27,631) 6,333
Corporate and Other 5,204 (24,164) 29,368 (165,945) (168,935) 2,990
$ (4,996) $ (17,702) 12,706 $ (189,132) $ (182,899) (6,233)
Revenues
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 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.
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 ."
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• 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 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 June 30, Six Months Ended June 30,
(In thousands) 2023 2022 Change 2023 2022 Change
Revenues
Fee income $ 65,742 $ 44,318 $ 21,424 $ 124,868 $ 87,155 $ 37,713
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
Property operating income 234,753 234,251 502 465,680 436,762 28,918
Other income 14,775 10,840 3,935 26,076 22,951 3,125
Total revenues 424,933 416,632 8,301 675,093 649,466 25,627
Expenses
Property operating expense 98,231 97,290 941 195,357 181,293 14,064
Interest expense 56,022 46,388 9,634 123,218 90,418 32,800
Investment expense 5,253 7,187 (1,934) 11,004 16,752 (5,748)
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—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)
Total expenses 458,665 437,187 21,478 843,164 776,592 66,572
Other gain (loss), net (11,537) (46,256) 34,719 (154,282) (196,137) 41,855
Income (Loss) before income taxes (45,269) (66,811) 21,542 (322,353) (323,263) 910
Income tax benefit (expense) (3,269) 2,518 (5,787) (4,311) 9,931 (14,242)
Income (Loss) from continuing operations (48,538) (64,293) 15,755 (326,664) (313,332) (13,332)
Income (Loss) from discontinued operations (3,978) (3,788) (190) (18,196) (98,433) 80,237
Net income (loss) (52,516) (68,081) 15,565 (344,860) (411,765) 66,905
Net income (loss) attributable to noncontrolling interests:
Redeemable noncontrolling interests (2,441) (14,327) 11,886 4,502 (25,547) 30,049
Investment entities (39,667) (29,102) (10,565) (124,495) (92,147) (32,348)
Operating Company (1,745) (3,090) 1,345 (18,407) (25,952) 7,545
Net income (loss) attributable to DigitalBridge Group, Inc. (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
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Fee Income
Three Months Ended June 30, Six Months Ended June 30,
(In thousands) 2023 2022 Change 2023 2022 Change
Management fees
$ 64,744 $ 43,559 $ 21,185 $ 121,902 $ 85,750 $ 36,152
Incentive fees
171 — 171 1,040 — 1,040
Other fee income
827 759 68 1,926 1,405 521
$ 65,742 $ 44,318 21,424 $ 124,868 $ 87,155 37,713
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
Unrealized 79,254 110,779 (31,525) 24,022 79,700 (55,678)
$ 79,254 $ 110,779 (31,525) $ 24,498 $ 79,700 (55,202)
Carried interest allocation represents gross carried interest from our general partner interests in sponsored investment vehicles prior to allocations to management and Wafra. 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 the carried interest is realized.
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. 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.
Principal Investment Income (Loss)
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 June 30, Six Months Ended June 30,
(In thousands) 2023 2022 Change 2023 2022 Change
Property operating income
Operating segment
Lease income $ 213,244 207,951 $ 5,293 $ 423,646 $ 392,122 $ 31,524
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
Other
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
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Operating Segment
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
Number of data centers (1)
Owned 36 35
Leasehold 47 49
83 84
(In thousands, except %)
Max Critical I.T. Square Feet or Total Rentable Square Feet
2,430 2,405
Leased Square Feet
1,945 1,888
% Utilization Rate (% Leased)
80% 78%
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(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
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
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 June 30, Six Months Ended June 30,
(In thousands) 2023 2022 Change 2023 2022 Change
Interest expense
Corporate debt $ 5,547 $ 8,044 $ (2,497) $ 13,338 $ 16,350 $ (3,012)
Non-recourse investment-level debt 50,475 38,344 12,131 109,880 74,068 35,812
$ 56,022 $ 46,388 9,634 $ 123,218 $ 90,418 32,800
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 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.
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Investment Expense
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 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
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 June 30, Six Months Ended June 30,
(In thousands) 2023 2022 Change 2023 2022 Change
Cash and equity-based compensation
Cash compensation and benefits $ 35,866 $ 24,395 $ 11,471 $ 72,567 $ 61,002 $ 11,565
Equity-based compensation 20,691 8,168 12,523 31,461 17,147 14,314
56,557 32,563 23,994 104,028 78,149 25,879
Operating segment
Cash and equity-based compensation
26,435 20,229 6,206 53,614 40,185 13,429
$ 82,992 $ 52,792 30,200 $ 157,642 $ 118,334 39,308
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.
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Administrative Expenses
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)
Administrative expenses — Operating segment
8,841 8,910 (69) 16,081 15,809 272
$ 25,763 $ 26,353 (590) $ 52,269 $ 54,238 (1,969)
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 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)
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 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. A valuation allowance was subsequently established against this deferred tax asset in the fourth quarter of 2022.
Income (Loss) from Discontinued Operations
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
Income (Loss) from discontinued operations attributable to noncontrolling interests:
Investment entities (25) 386 (411) 492 (5,789) 6,281
Operating Company (286) (314) 28 (1,360) (7,424) 6,064
Income (Loss) from discontinued operations attributable to DigitalBridge Group, Inc. $ (3,667) $ (3,860) 193 $ (17,328) $ (85,220) 67,892
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 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.
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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 June 30,
(In thousands) 2023 2022
Attributable to Operating Company:
Distributable Earnings $ 10,012 $ 603
Adjusted EBITDA 42,884 30,928
Investment Management FRE 34,398 20,759
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.
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.
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Distributable Earnings and Adjusted EBITDA Reconciliation
Three Months Ended June 30,
(In thousands) 2023 2022
Net income (loss) attributable to common stockholders $ (22,411) $ (37,321)
Net income (loss) attributable to noncontrolling interests in Operating Company (1,745) (3,090)
Net income (loss) attributable to Operating Company (24,156) (40,411)
Transaction-related and restructuring charges 7,823 29,300
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, net of associated expense allocation (43,791) (58,775)
Equity-based compensation expense 25,937 9,344
Depreciation and amortization 149,263 153,548
Straight-line rent (revenue) and expense, net (1,860) (2,956)
Amortization of acquired above-market and (below-market) leases, net 370 (10)
Impairment loss — 12,184
Non-revenue enhancing capital expenditures (8,284) (13,377)
Finance lease interest expense, debt prepayment penalties and amortization of deferred financing costs, debt premiums and discounts 7,578 5,238
Preferred stock redemption (gain) loss (927) —
Adjustments attributable to noncontrolling interests in investment entities (1)
(88,604) (91,676)
DE of discontinued operations (2)
2,653 (16,940)
Distributable Earnings, after tax—attributable to Operating Company
10,012 603
Adjustments attributable to Operating Company :
Interest expense included in DE 10,130 14,142
Income tax (benefit) expense included in DE 2,825 (2,662)
Preferred stock dividends 14,675 15,759
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
Adjusted EBITDA—attributable to Operating Company
$ 42,884 $ 30,928
__________
(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, net of associated compensation expense allocation; 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 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.
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Investment Management FRE Reconciliation
Three Months Ended June 30,
(In thousands) 2023 2022
Net income (loss)—Investment Management
$ 35,177 $ 67,995
Interest expense, net of interest income 2,268 2,771
Investment expense, net of reimbursement — (200)
Depreciation and amortization 11,039 5,375
Equity-based compensation 17,099 3,361
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
Principal investment (income) loss (1,604) (1,016)
Other (gain) loss, net 3,608 424
Income tax (benefit) expense 2,356 2,006
Investment Management Adjusted EBITDA
33,233 23,124
Start-up FRE 1,165 2,335
Investment Management FRE
34,398 25,459
Attributable to redeemable noncontrolling interests (1)
— (4,700)
Investment Management FRE—attributable to Operating Company
$ 34,398 $ 20,759
__________
(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:
• 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;
• principal and interest payments on our debt;
• our operations, including compensation, administrative and overhead costs;
• 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; and
Our primary sources of liquidity are:
• cash on hand;
• 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;
• 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.
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Overview
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.
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 March 2023.
Uses of Funds
• Acquisition of InfraBridge in February 2023 for $314 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
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.
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 $14.7 million per quarter.
Contractual Obligations, Commitments and Contingencies
Debt Obligation
As of the date of this filing, our corporate debt is composed of a securitized financing facility and exchangeable senior notes issued by the OP, all of which are recourse to the Company, as described in Note 8 to the consolidated financial statements.
($ in thousands) Outstanding Principal Interest Rate
(Per Annum) Maturity or Anticipated Repayment Date Years Remaining to Maturity
Corporate debt:
Securitized financing facility—fixed rate
$ 300,000 3.93 % September 2026 3.2
Exchangeable senior notes—fixed rate
78,422 5.75 % July 2025 2.0
$ 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 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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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, 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
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 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
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.
At June 30, 2023, the Company has no liability for clawback obligations on distributed carried interest.
Lease Obligations
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.
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 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. 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.
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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 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
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.
Consolidated Cash Flows
The following table summarizes the activities from our consolidated statements of cash flows, including discontinued operations.
Six Months Ended June 30,
(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 92,205 74,067
Investing activities (571,554) (2,152,406)
Financing activities 24,106 760,345
Effect of exchange rates on cash, cash equivalents and restricted cash 74 (2,415)
Cash, cash equivalents and restricted cash—end of period
$ 581,570 $ 445,836
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 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.
Our operating activities generated net cash inflows of $92.2 million in 2023 and $74.1 million in 2022.
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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 capital contributions. 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 —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 $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 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. 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. 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 $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.
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• 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
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.