DigitalBridge Group, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion should be read in conjunction with our unaudited consolidated financial statements and accompanying notes thereto, which are included in Item 1 of this Quarterly Report, as well as information contained in our Annual Report on Form 10-K for the year ended December 31, 2022, which is accessible on the SEC's website at www.sec.gov . In this Quarterly Report, unless specifically stated otherwise or the context indicates otherwise, the terms " the "Company," "DBRG," "we," "our" and "us" refer to DigitalBridge Group, Inc. and its consolidated subsidiaries. References to the “Operating Partnership,” our “Operating Company” and the “OP” refer to DigitalBridge Operating Company, LLC, a Delaware limited liability company and the operating company of the Company, and its consolidated subsidiaries. Our Organization We are a leading global digital infrastructure investment manager, deploying and managing capital across the digital ecosystem, including data centers, cell towers, fiber networks, small cells, and edge infrastructure. Our diverse global investor base includes public and private pensions, sovereign wealth funds, asset managers, insurance companies, and endowments. At September 30, 2023, we had $75 billion of assets under management ("AUM"), composed of assets managed on behalf of limited partners/investors of investment vehicles we manage, and separately, 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. 56 Table of Contents We operate as a taxable C Corporation, except for certain subsidiaries in the Operating segment that have elected to be taxed as real estate investment trusts. We conduct substantially all of our activities and hold substantially all of our assets and liabilities through our Operating Company. At September 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. The amount of incentive fees and carried interest recognized, a portion of which is allocated to employees and former employees, may be highly variable from period to period. Through the end of May 2022, earnings from the Investment Management segment were attributed 31.5% to Wafra, a private investment firm, prior to the Company's redemption of Wafra's interest in the investment management business. • Operating— This segment is composed of balance sheet equity interests in digital infrastructure portfolio companies, which generally earn rental income from providing use of digital asset space and/or capacity through leases, services and other agreements. The Company owned interests in two portfolio companies: Vantage SDC, a stabilized hyperscale data center business (DBRG ownership of 13% at September 30, 2023 and December 31, 2022), and DataBank, an edge colocation data center business (DBRG ownership of 11% at December 31, 2022 and through the final close of the recapitalization and deconsolidation in mid-September 2023; thereafter, the Company's remaining 9.87% interest in DataBank is presented within Corporate and Other) (Note 10 to the consolidated financial statements). DataBank and Vantage SDC are portfolio companies managed by the Company under its Investment Management segment with respect to equity interests funded through 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. 57 Table of Contents 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 $5.4 billion of capital to-date in 2023, primarily $2.2 billion for DigitalBridge Partners III, LP ("DBP III"), the third series in our flagship value-add strategy, and syndications through various co-investment vehicles. DBP III will begin accruing fee income following its first closing on November 1, 2023. • 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. Operating • The recapitalization of DataBank, which commenced in August 2022 and completed in September 2023, resulted in the sale of a portion of DataBank's equity interest to new investors totaling $2.2 billion. The Company's ownership interest in DataBank decreased from 21.8% to 11.0% as of November 2022 and decreased further to 9.87% in September 2023. The Company received its share of net proceeds from the sale totaling $475 million ($425 million in 2022 and $49 million in 2023), including its share of carried interest, net of allocation to employees and former employees, totaling $48 million ($20 million in 2022 and $28 million in 2023). The recapitalization implied a pre-transaction net equity value of our ownership in DataBank of $905 million, reflecting a 2.0x multiple of invested capital since our initial investment in DataBank in December 2019. The incremental third party capital raised through the recapitalization also translated into additional fee income in our Investment Management segment. The completion of the recapitalization on September 14, 2023 resulted in a deconsolidation of DataBank. The deconsolidation deleveraged the Company's balance sheet by removing $4.6 billion of assets, $3.0 billion of liabilities and $1.4 billion of noncontrolling interests, representing DataBank's balance sheet as of mid-September 2023. In connection with the deconsolidation, the Company realized a $3.7 million gain from the sale of its equity interest in the final closing of the recapitalization, and remeasured its remaining 9.87% equity interest in DataBank at a fair value of $434 million which resulted in an unrealized gain of $275 million. The total gain of $279 million, along with the Company's remaining equity interest in DataBank, are presented within Corporate and Other. In 2023, DataBank's operating results were included in the Company's Operating segment through the date of completion of the recapitalization on September 14, 2023. Following deconsolidation on that date, the Company's consolidated financial statements no longer include the operating results and assets and liabilities of DataBank in their entirety and instead reflect only the Company’s interest in DataBank. The Company's share of future changes in the fair value of DataBank will be reflected in principal investment income within Corporate and Other, consistent with the accounting treatment of the Company's general partner interests in other sponsored 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. 58 Table of Contents Operating Metrics Assets Under Management and Fee Earning Equity Under Management We present below our AUM and FEEUM, which are key operating metrics in the alternative investment management industry. Our calculation of AUM and FEEUM may differ from other investment managers, and as a result, may not be directly comparable to similar measures presented by other investment managers. Assets Under Management AUM represents the total capital for which we provide investment management services. AUM is generally composed of (a) third party capital managed by the Company and its affiliates, including capital that is not yet fee earning, or not subject to fees and/or carried interest; and (b) assets invested using the Company's own balance sheet capital and managed on behalf of the Company's shareholders (composed of the Company's fund investments as GP affiliate, warehoused investments, and the Company's interest in portfolio companies consolidated in the Operating segment). Third party AUM is based upon invested capital as of the reporting date, including capital funded through third party financing, and committed capital for funds in their commitment stage. Balance sheet AUM is based upon the carrying value of the Company's balance sheet investments as of the reporting date (on an undepreciated basis as it relates to the Company's interest in portfolio companies consolidated in the Operating segment). Fee Earning Equity Under Management FEEUM represents the total capital managed by the Company and its affiliates which earns management fees and/or incentive fees or carried interest. FEEUM is generally based upon committed capital, invested capital, net asset value ("NAV") or gross asset value ("GAV"), pursuant to the terms of each underlying investment management agreement. Presented below are total AUM and FEEUM by product: (In billions) September 30, 2023 December 31, 2022 Assets Under Management $ 74.6 $ 52.8 Fee Earning Equity Under Management DBP infrastructure equity $ 11.3 $ 11.2 InfraBridge Global Infrastructure 5.1 — Core Equity, Credit and Liquid Strategies 2.6 2.0 Co-invest vehicles 8.5 6.5 Separately capitalized portfolio companies 2.4 2.5 $ 29.9 $ 22.2 The following table summarizes changes in FEEUM: Nine Months Ended September 30, 2023 (In billions) Fee Earning Equity Under Management Balance at January 1 $ 22.2 Inflows (1) 8.5 Outflows (2) (0.9) Market activity and other (3) 0.1 Balance at September 30 $ 29.9 ________ (1) Inflows include closing on new capital raised where fees are earned on committed capital, deployment of capital where fees are earned on invested capital, new subscriptions where fees are based on NAV, other changes in invested capital such as the effect of recapitalization and syndication, and FEEUM from acquired investment vehicles ($5.1 billion from InfraBridge in 2023). Excludes capital raised in 2023 for which fees have not been activated totaling $1.5 billion. (2) Outflows include redemptions and withdrawals in Liquid Strategies, realizations where fees are based on invested capital, other changes in invested capital such as the effect of recapitalization and syndication, change in fee basis from committed to invested capital and expiration of fee paying capital. (3) Market activity and other include changes in investment value based on NAV or GAV, and the effect of foreign exchange rates. FEEUM increased by $7.7 billion or 35% to $29.9 billion at September 30, 2023, driven by the addition of $5.1 billion of InfraBridge FEEUM, and new capital raised, primarily through co-investment vehicles. The subsequent first closing of DBP III in November 2023 further contributed an additional $2.2 billion increase to FEEUM. 59 Table of Contents Fund Performance Metrics Certain performance metrics for our key investment funds from inception through September 30, 2023 are presented in the table below. Excluded are funds with less than one year of performance history as of September 30, 2023, funds and separately managed accounts in the liquid strategy, co-investment vehicles and separately capitalized portfolio companies. The historical performance of these funds is not indicative of their future performance nor indicative of the performance of our other existing investment vehicles or of any of our future funds. An investment in DigitalBridge Group, Inc. is not an investment in any of our funds and these fund performance metrics are not indicative of the performance of DigitalBridge Group, Inc. ($ in millions) Inception date (2) Commitments Invested Capital (3) Available Capital (4) Investment Value MOIC Fund (1) Total Unfunded Unrealized Realized (5) Total (6) Gross (7) Net (8) Value-Add DigitalBridge Partners, LP Mar-2018 $4,059 $494 $4,584 $494 $5,991 $1,139 $7,130 1.6x 1.4x DigitalBridge Partners II, LP Nov-2020 $8,286 $974 $7,681 $979 $8,340 $662 $9,002 1.2x 1.1x InfraBridge Global Infrastructure Fund I, LP Mar-2015 $1,411 $406 $1,479 $406 $1,125 $1,055 $2,180 1.5x 1.3x Global Infrastructure Fund II, LP Jan-2018 $3,382 $106 $2,993 $106 $2,773 $64 $2,837 0.9x 0.9x __________ (1) Listed herein are main fund vehicles. Performance metrics are presented in aggregate for main fund vehicle, its parallel vehicles and alternative investment vehicles. (2) First close date of the fund. InfraBridge funds were acquired in Feb-2023. (3) Invested capital represents the original cost and subsequent fundings to investments. Invested capital includes financing costs and investment related expenses which are capitalized. With respect to Infrabridge funds, such costs are expensed during the period and excluded from their determination of invested capital. (4) Available capital includes recallable capital. (5) Realized value represents proceeds from dispositions that have closed and all earnings from both realized and unrealized investments, including interest, dividend and ticking fees. (6) Total value is the sum of unrealized fair value and realized value of investments. (7) Total investment gross multiple of invested capital (MOIC) is calculated as unrealized fair value and realized value of investments divided by invested capital, without giving effect to allocation of expenses and general partner carried interest. Excludes capital attributable to the general partner, general partner affiliate and any other capital that is not subject to fees and/or carried interest. Gross MOIC is calculated at the fund level and does not reflect gross MOIC at the individual investor level. (8) Total investment net MOIC is calculated as unrealized fair value and realized value of investments divided by invested capital, after giving effect to allocation of management fee expense, other fund expenses and general partner carried interest (both distributed and unrealized carried interest). Excludes capital attributable to the general partner, general partner affiliate and any other capital that is not subject to fees and/or carried interest. Net MOIC is calculated at the fund level and does not reflect net MOIC at the individual investor level. 60 Table of Contents Results of Operations The following table summarizes our consolidated results from continuing operations by reportable segment. Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2023 2022 Change 2023 2022 Change Total revenues Investment Management $ 237,655 $ 166,667 $ 70,988 $ 393,577 $ 338,408 $ 55,169 Operating 214,377 225,387 (11,010) 681,100 655,596 25,504 Corporate and Other 25,048 37,798 (12,750) 77,496 85,314 (7,818) $ 477,080 $ 429,852 47,228 $ 1,152,173 $ 1,079,318 72,855 Income (Loss) from continuing operations Investment Management $ 100,014 $ 46,065 $ 53,949 $ 132,387 $ 104,917 $ 27,470 Operating (79,707) (93,772) 14,065 (270,704) (253,341) (17,363) Corporate and Other 261,073 17,022 244,051 93,033 (195,593) 288,626 $ 281,380 $ (30,685) 312,065 $ (45,284) $ (344,017) 298,733 Income (Loss) from continuing operations attributable to DigitalBridge Group, Inc. Investment Management $ 52,391 $ 24,233 $ 28,158 $ 50,502 $ 37,900 $ 12,602 Operating (10,191) (15,881) 5,690 (31,489) (43,512) 12,023 Corporate and Other 236,642 16,909 219,733 70,697 (152,026) 222,723 $ 278,842 $ 25,261 253,581 $ 89,710 $ (157,638) 247,348 Revenues Total revenues increased $47.2 million or 11% in the quarter-to-date comparison and $72.9 million or 7% in the year-to-date comparison. • Investment Management— Revenues were $71.0 million or 42.6% higher at $237.7 million in the quarter-to-date comparison, and $55.2 million or 16% higher at $393.6 million in the year-to-date comparison, attributed to fee income and gross carried interest (before management allocation). (a) Fee income contributed: • $24.0 million of the increase at $66.1 million in the quarter-to-date comparison; and • $62.0 million of the increase at $192.8 million in the year-to-date comparison. The increase in fee income is attributed to additional capital raised since October 2022 that has started accruing income for both periods under comparison, and InfraBridge funds acquired in February 2023. (b) Gross carried interest (before management allocation) was: • $47.2 million higher in the quarter-to-date comparison at $168.9 million in 2023 from $121.7 million in 2022 (of which distributions were $27.9 million in 2023 and $123.5 million in 2022); but • $8.0 million lower in the year-to-date comparison at $193.4 million in 2023 from $201.4 million in 2022 (of which distributions were $28.4 million in 2023 and $123.5 million in 2022). Distributed carried interest arose from the first liquidation of investment by DBP I in 2022 and the DataBank recapitalization in 2022 and 2023. In terms of unrealized carried interest, the higher amounts in 2023 was driven by DBP funds and a DataBank investment that was not subject to recapitalization. In comparison, 2022 included a reversal of unrealized carried interest for some of these funds. • Operating— Revenues in the quarter-to-date comparison decreased due to the deconsolidation of DataBank in mid-September 2023. However, in the year-to-date comparison, the effect of deconsolidation was more than offset by higher revenues contributed by data center acquisitions in the DataBank portfolio 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 additionally, income from warehoused investments in 2022. Revenues were lower in 2023 due to the sale of warehoused investments to our sponsored funds and to a third party sponsored CLO in the second half of 2022, partially offset by fair value increases in fund investments. 61 Table of Contents Income (Loss) from continuing operations attributable to DigitalBridge Group, Inc. Income from continuing operations attributable to DBRG was $278.8 million in 2023 and $25.3 million in 2022 in the quarter-to-date period, and $89.7 million in 2023 with a loss of $157.6 million in 2022 in the year-to-date period. • Investment Management— In 2023, net income increased $28.2 million to $52.4 million in the quarter-to-date comparison and $12.6 million to $50.5 million in the year-to-date comparison. The higher 2023 results were driven by an increase in carried interest of $31.6 million in the quarter-to-date period and $21.4 million in the year-to-date period, representing the OP's share, partially offset by higher operating costs attributed to the Investment Management segment in 2023 in line with the growth in business. Additionally, the higher net income in the year-to-date comparison was partially offset by $3.7 million of placement fees and $3.5 million of higher transaction costs, primarily for the InfraBridge acquisition in 2023. The amounts quoted herein are prior to allocating 7% of income (loss) to OP noncontrolling interest to arrive at amounts attributable to DBRG. 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 in 2022, decreased from 22% to 13% as of September 2022, and was at 11% in 2023 prior to deconsolidation in September 2023. • Corporate and Other— Both periods in 2023 reflected a $278.7 million gain recognized in connection with the recapitalization and deconsolidation of DataBank in September 2023, of which $3.7 million was realized and $275 million unrealized as of September 30, 2023 (Note 10 to the consolidated financial statements). Additionally, included within the 2023 year-to-date period was a $133 million write-down of an unsecured promissory note related to the sale of our Wellness Infrastructure business in February 2022 (Note 11 to the consolidated financial statements). In comparison, the 2022 year-to-date period included 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). The amounts quoted herein are prior to allocating 7% of income (loss) to OP noncontrolling interest to arrive at amounts attributable to DBRG. 62 Table of Contents A more detailed discussion of key components of revenue and income (loss) from continuing operations follows. Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2023 2022 Change 2023 2022 Change Revenues Fee income $ 65,240 $ 41,263 $ 23,977 $ 190,108 $ 128,418 $ 61,690 Carried interest allocation 168,891 121,698 47,193 193,389 201,398 (8,009) Principal investment income 17,943 11,531 6,412 51,914 34,429 17,485 Property operating income 214,058 244,336 (30,278) 679,738 681,098 (1,360) Other income 10,948 11,024 (76) 37,024 33,975 3,049 Total revenues 477,080 429,852 47,228 1,152,173 1,079,318 72,855 Expenses Property operating expense 94,481 105,987 (11,506) 289,838 287,280 2,558 Interest expense 49,894 53,032 (3,138) 173,112 143,450 29,662 Investment expense 5,728 9,510 (3,782) 16,732 26,262 (9,530) Transaction-related costs 896 3,879 (2,983) 10,536 6,800 3,736 Placement fees 15 — 15 3,668 — 3,668 Depreciation and amortization 128,000 145,594 (17,594) 419,136 429,513 (10,377) Compensation expense—cash and equity-based 74,714 65,544 9,170 232,356 183,878 48,478 Compensation expense—incentive fee and carried interest allocation 72,865 80,831 (7,966) 72,110 109,548 (37,438) Administrative expenses 24,077 29,909 (5,832) 76,346 84,147 (7,801) Total expenses 450,670 494,286 (43,616) 1,293,834 1,270,878 22,956 Other gain (loss), net 254,827 25,908 228,919 100,545 (170,229) 270,774 Income (Loss) before income taxes 281,237 (38,526) 319,763 (41,116) (361,789) 320,673 Income tax benefit (expense) 143 7,841 (7,698) (4,168) 17,772 (21,940) Income (Loss) from continuing operations 281,380 (30,685) 312,065 (45,284) (344,017) 298,733 Income (Loss) from discontinued operations (2,603) (90,302) 87,699 (20,799) (188,735) 167,936 Net income (loss) 278,777 (120,987) 399,764 (66,083) (532,752) 466,669 Net income (loss) attributable to noncontrolling interests: Redeemable noncontrolling interests 132 (6,442) 6,574 4,634 (31,989) 36,623 Investment entities (17,746) (60,623) 42,877 (142,241) (152,770) 10,529 Operating Company 19,918 (4,834) 24,752 1,511 (30,786) 32,297 Net income (loss) attributable to DigitalBridge Group, Inc. 276,473 (49,088) 325,561 70,013 (317,207) 387,220 Preferred stock repurchases — (1,098) 1,098 (927) (1,098) 171 Preferred stock dividends 14,645 15,283 (638) 43,996 46,801 (2,805) Net income (loss) attributable to common stockholders $ 261,828 $ (63,273) 325,101 $ 26,944 $ (362,910) 389,854 63 Table of Contents Fee Income Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2023 2022 Change 2023 2022 Change Management fees $ 65,236 $ 40,697 $ 24,539 $ 187,138 $ 126,447 $ 60,691 Incentive fees — — — 1,040 — 1,040 Other fee income 4 566 (562) 1,930 1,971 (41) $ 65,240 $ 41,263 23,977 $ 190,108 $ 128,418 61,690 Fee income increased $24.0 million or 58% in the quarter-to-date comparison and $61.7 million or 48% in the year-to-date comparison. The increase was driven by management fees from InfraBridge beginning February 2023, adding $14.2 million in the quarter-to-date period and $40.8 million in the year-to-date period, as well as from capital raised since October 2022 where fees have been activated, primarily from co-investment vehicles, our new core equity fund, and the DataBank recapitalization. Additionally, incentive fees in 2023 were attributed to our liquid securities strategy. Carried Interest Allocation Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2023 2022 Change 2023 2022 Change Carried interest allocation Distributed $ 27,927 $ 123,498 $ (95,571) $ 28,403 $ 123,498 $ (95,095) Unrealized 140,964 (1,800) 142,764 164,986 77,900 87,086 $ 168,891 $ 121,698 47,193 $ 193,389 $ 201,398 (8,009) 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 distributed. Distributed carried interest arose from the DataBank recapitalization in the third quarter of 2023 ($27.9 million) and 2022 ($72.3 million), and additionally, the first liquidation of investment by DBP I in the third quarter of 2022 ($51.2 million). In terms of unrealized carried interest, the higher amounts in 2023 was driven by DBP funds and a DataBank investment that was not subject to recapitalization. In comparison, 2022 included a reversal of unrealized carried interest for some of these funds. Principal Investment Income Principal investment income represents the Company's proportionate share of net income (loss) from investments in its sponsored investment vehicles, which includes unrealized gain (loss) from changes in fair value of the underlying fund investments. Principal investment income increased $6.4 million in the quarter-to-date comparison to $17.9 million and $17.5 million in the year-to-date comparison to $51.9 million. The increase was driven by unrealized fair value appreciation on the underlying fund investments, primarily the DBP funds, and additionally, in the year-to-date comparison, the InfraBridge funds. 64 Table of Contents Property Operating Income and Expense Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2023 2022 Change 2023 2022 Change Property operating income Operating segment Lease income $ 196,339 $ 206,141 $ (9,802) $ 619,985 $ 598,263 $ 21,722 Data center service revenue 16,995 18,925 (1,930) 56,993 56,903 90 Other property operating income 724 257 467 2,760 314 2,446 214,058 225,323 (11,265) 679,738 655,480 24,258 Other Lease income — 19,013 (19,013) — 25,618 (25,618) $ 214,058 $ 244,336 (30,278) $ 679,738 $ 681,098 (1,360) Property operating expense Operating segment $ 94,481 $ 100,051 $ (5,570) $ 289,838 $ 278,798 $ 11,040 Other — 5,936 (5,936) — 8,482 (8,482) $ 94,481 $ 105,987 (11,506) $ 289,838 $ 287,280 2,558 Operating Segment Property operating income and expenses were lower in the quarter-to-date comparison, reflecting the effects of deconsolidating DataBank in mid-September 2023. Absent the deconsolidation and assuming a full month of activity in September 2023 for DataBank, total property operating income and expenses in the Operating segment would have increased approximately 8% and 7%, respectively, in the quarter-to-date comparison. In the year-to-date comparison, property operating income and expenses were higher as a result of additional acquisitions throughout 2022, 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. This increase was partially offset by higher lease termination fees of $5.8 million quarter-to-date and $5.0 million year-to-date recognized in property operating income, primarily from the Vantage SDC portfolio, and the effects of deconsolidating DataBank in mid-September 2023. At September 30, 2023, the Operating segment portfolio was composed of 10 data centers in the U.S. and three in Canada, following the deconsolidation of DataBank. September 30, 2023 December 31, 2022 Operating segment (1) Number of data centers Owned 13 35 Leasehold — 49 13 84 (In thousands, except %) Max Critical I.T. Square Feet or Total Rentable Square Feet 777 2,405 Leased Square Feet 752 1,888 % Utilization Rate (% Leased) 97% 78% __________ (1) Amounts at September 30, 2023 reflect remaining operations in the Operating segment after deconsolidation of DataBank. 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 decreased $0.1 million in the quarter-to-date comparison to $10.9 million, but increased $3.0 million in the year-to-date comparison to $37.0 million. Key drivers are higher interest income from money market deposits and beginning in 2023, from our subordinated notes in a collateralized loan obligation (increase totaling $3.5 million quarter-to-date and $16.6 million year-to-date) and dividend income from our consolidated credit fund (increased $2.0 million quarter-to-date and $5.5 million year-to-date). However, these amounts were partially offset by interest income in 2022 from warehoused investments that were 65 Table of Contents transferred to our new credit fund during the second half of 2022 and amounts previously accrued on our Wellness Infrastructure promissory note that was written off in the first quarter of 2023 (totaling $8.3 million quarter-to-date and $20.2 million year-to-date in 2022). Interest Expense Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2023 2022 Change 2023 2022 Change Interest expense Corporate debt $ 5,133 $ 8,295 $ (3,162) $ 18,471 $ 24,645 $ (6,174) Non-recourse investment-level debt 44,761 44,737 24 154,641 118,805 35,836 $ 49,894 $ 53,032 (3,138) $ 173,112 $ 143,450 29,662 Corporate Debt— Interest expense decreased $3.2 million in the quarter-to-date comparison and $6.2 million in the year-to-date comparison driven by repayment of our 5.00% convertible notes in April 2023 (decreased $2.7 million quarter-to-date and $5.0 million year-to-date) and to a lesser extent, lower interest expense on our securitized debt with a lower outstanding balance on the VFN in 2023 (decreased $0.5 million for both quarter-to-date and year-to-date). Additionally, in the year-to-date period, the early exchange of our 5.75% exchangeable notes for common stock in March 2022 contributed a $0.7 million decrease in interest expense. Non-Recourse Investment-Level Debt— Interest expense was consistent in the quarter-to-date comparison but increased $35.8 million in the year-to-date comparison. Interest expense on investment-level debt in the Operating segment increased $4.6 million quarter-to-date and $42.5 million year-to-date, reflecting higher outstanding debt balance and higher interest rates on new debt in 2023, partially offset by the deconsolidation of DataBank in mid-September 2023. Included in the year-to-date increase is also the net effect of writing off unamortized deferred financing costs and debt premium on refinanced debt in the first half of 2023 totaling $13.8 million. The increase in interest expense in the Operating segment was partially offset by interest expense on outstanding debt balance in 2022 in connection with the financing of warehoused tower assets and credit investments (totaling $4.3 million quarter-to-date and $6.7 million year-to-date), all of which were repaid in the second half of 2022, and additionally in the quarter-to-date period, a decrease in interest expense ($0.3 million) on lower outstanding debt balance of our consolidated credit fund. Investment Expense Investment expense decreased $3.8 million in the quarter-to-date comparison to $5.7 million and $9.5 million in the year-to-date comparison to $16.7 million. 2022 had included additional expenses, primarily: (i) third party costs attributed to our warehoused tower assets that were transferred to our core equity fund in December 2022 ($1.2 million quarter-to-date and $1.7 million year-to-date in 2022); (ii) transition services that ended in the second quarter of 2022 related to DataBank's acquisition of zColo ($1.0 million year-to-date in 2022); (iii) higher compensatory expense in 2022 in connection with equity awards granted to the management team of Vantage who perform the day-to-day operations of Vantage SDC ($1.9 million higher year-to-date 2022); and (iv) higher costs incurred in 2022 that are reimbursable by our managed investment vehicles. Transaction-Related Costs In the quarter-to-date comparison, transaction-related costs were $3.0 million lower at $0.9 million, largely due to costs incurred in connection with unconsummated investments in 2022. In the year-to-date comparison, transaction-related costs were $3.7 million higher at $10.5 million, driven by the InfraBridge acquisition. Placement Fees Placement fees of $3.7 million in 2023 were incurred in connection with fundraising for DBP III and co-investment vehicles. Depreciation and Amortization Depreciation and amortization expense decreased $17.6 million in the quarter-to-date comparison and $10.4 million in the year-to-date comparison. Depreciation and amortization expense in the Operating segment decreased $11.9 million quarter-to-date and $7.8 million year-to-date, driven by the combined effects of deconsolidating DataBank in mid-September 2023, and higher amortization of lease intangibles from lease terminations in 2022 and expiration of short term leases at DataBank, partially offset by additional expenses related to data center acquisitions and improvements placed in service. Additionally, the sale of warehoused tower assets acquired in June 2022 to our core equity fund in December 2022 also contributed to a decrease in depreciation and amortization expenses ($8.4 million quarter-to-date and 66 Table of Contents $11.3 million year-to-date). These decreases were partially offset by amortization expense on InfraBridge intangible assets acquired in February 2023 ($4.1 million quarter-to-date and $11.1 million year-to-date). Compensation Expense Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2023 2022 Change 2023 2022 Change Cash and equity-based compensation Cash compensation and benefits $ 38,776 $ 27,146 $ 11,630 $ 111,343 $ 88,148 $ 23,195 Equity-based compensation 14,340 7,824 6,516 45,801 24,971 20,830 53,116 34,970 18,146 157,144 113,119 44,025 Operating segment Cash and equity-based compensation 21,598 30,574 (8,976) 75,212 70,759 4,453 $ 74,714 $ 65,544 9,170 $ 232,356 $ 183,878 48,478 Incentive and carried interest compensation allocation $ 72,865 $ 80,831 $ (7,966) $ 72,110 $ 109,548 $ (37,438) Cash and equity-based compensation— Excluding the Operating segment, compensation expense increased $18.1 million in the quarter-to-date comparison and $44.0 million in the year-to-date comparison. Equity-based compensation expense was higher in 2023, driven by performance-based awards that met their target in 2023 (increased $1.9 million quarter-to-date and $14.7 million year-to-date), awards granted in 2023 with shortened vesting periods (increased $3.1 million in both quarter-to-date and year-to-date), and the effect of award modifications in the fourth quarter of 2022 (increased $3.6 million year-to-date), partially offset by full vesting in 2022 of an LTIP grant and awards in connection with sale of the Wellness Infrastructure business in February 2022 (decrease totaling $3.4 million year-to-date). There was also an increase in cash compensation in 2023, attributed largely to InfraBridge ($7.2 million quarter-to-date and $19.3 million year-to-date, of which $1.8 million and $4.8 million, respectively, represent deferred bonus amounts funded by the seller in the InfraBridge acquisition) and higher severance and retention costs. In the Operating segment, the third quarter of 2022 had included $10.1 million of equity-based compensation due to an accelerated vesting of profits interest units issued by DataBank that was triggered by the first closing of the DataBank recapitalization. Excluding the acceleration, compensation expense increased $1.1 million in the quarter-to-date comparison and $14.6 million in the year-to-date comparison. The higher compensation expense in 2023 can be attributed to new stock awards and higher headcount at DataBank. In the quarter-to-date comparison, the increase was partially offset by the effect of deconsolidating DataBank in mid-September 2023. Incentive and carried interest compensation allocation— The third quarter of 2022 had included $57.3 million of carried interest compensation expense that was fully recognized in connection with the first closing of the DataBank recapitalization. No further compensation expense was recognized in subsequent closings of the DataBank recapitalization. Excluding the expense associated with the recapitalization, incentive and carried interest compensation increased $49.5 million in the quarter-to-date comparison and $16.9 million in the year-to-date comparison, driven by carried interest from the DBP funds quarter-to-date and in both periods under comparison, carried interest from the DataBank investment that was not subject to recapitalization. Administrative Expenses Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2023 2022 Change 2023 2022 Change Administrative expenses $ 16,552 $ 22,509 $ (5,957) $ 52,740 $ 60,938 $ (8,198) Administrative expenses — Operating segment 7,525 7,400 125 23,606 23,209 397 $ 24,077 $ 29,909 (5,832) $ 76,346 $ 84,147 (7,801) Total administrative expenses decreased $5.8 million in the quarter-to-date comparison and $7.8 million in the year-to-date comparison, driven by lower legal costs. Additionally, in the year-to-date period, the decrease in legal costs ($17.3 million) were partially offset by increases in other administrative costs such as other third-party professional services and travel-related expenses (totaling $5.9 million). 67 Table of Contents Other Gain (Loss), Net In the quarter-to-date comparison, other gain was $254.8 million in 2023 and $25.9 million in 2022. The year-to-date comparison had other gain of $100.5 million in 2023 and other loss of $170.2 million in 2022. Both periods under comparison had the following significant items: • In September 2023, $278.7 million of gain recognized in connection with the deconsolidation of DataBank, of which $3.7 million was realized and $275.0 million unrealized (Note 10 to the consolidated financial statements); • In March 2023, $133 million fair value write-down on an unsecured promissory note from the 2022 sale of our Wellness Infrastructure business; and • In March 2022, $133 million debt extinguishment loss in connection with an early exchange of our 5.75% exchangeable notes. Excluding these significant one-off events, quarter-to-date period would have recorded a loss of $23.9 million in 2023 compared to a gain of $26.8 million in 2022, and year-to-date period would have recorded losses of $44.9 million in 2023 and $36.2 million in 2022. Other loss of $23.9 million in the third quarter of 2023 reflected primarily an increase in the liability fair value of warrants issued to Wafra of $12.4 million and net loss on marketable equity securities of $9.7 million, including those held by our consolidated liquid funds. In contrast, other gain of $26.8 million in the third quarter of 2022 was driven by a decrease in the warrant liability fair value of $32.4 million and net gain on non-designated derivatives of $9.9 million in connection with our warehoused investments, partially offset by net loss of $8.9 million on marketable equity securities held largely by our consolidated liquid funds, and additionally, unrealized foreign exchange losses. In the year-to-date period, other loss increased $8.7 million to $44.9 million in 2023, driven by an increase in the warrant liability fair value of $81.1 million and net write-down in value of warehoused investments of $13.2 million, largely offset by net gain of $63.4 million on marketable equity securities, including those held by our consolidated liquid funds, net gains on non-designated derivatives in 2022 of $16.0 million in connection with our warehoused investments, and additionally, decrease in unrealized foreign exchange losses. Income Tax Benefit (Expense) In 2023, income tax benefit of $0.1 million was recorded quarter-to-date and income tax expense of $4.2 million year-to-date. In 2022, income tax benefit was recorded in both periods of $7.8 million quarter-to-date and $17.8 million year-to-date. 2023 primarily reflects the income tax effect of foreign subsidiaries, largely the InfraBridge investment management business. The net income tax benefit in the third quarter of 2023 resulted from deferred tax benefit associated with an InfraBridge subsidiary. 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 September 30, Nine Months Ended September 30, (In thousands) 2023 2022 Change 2023 2022 Change Income (Loss) from discontinued operations $ (2,603) $ (90,302) $ 87,699 $ (20,799) $ (188,735) $ 167,936 Income (Loss) from discontinued operations attributable to noncontrolling interests: Investment entities (55) (10,227) 10,172 437 (16,016) 16,453 Operating Company (179) (5,726) 5,547 (1,539) (13,150) 11,611 Income (Loss) from discontinued operations attributable to DigitalBridge Group, Inc. $ (2,369) $ (74,349) 71,980 $ (19,697) $ (159,569) 139,872 Loss from discontinued operations in 2023 was immaterial quarter-to-date, and in the year-to-date period, included $9.7 million impairment of BRSP shares prior to disposition in March 2023, as well as unrealized losses on various remaining investments and legal costs associated with discontinued businesses and investments. 68 Table of Contents Loss from discontinued operations in 2022 included $59.6 million of impairment on BRSP shares and losses incurred in connection with dispositions as well as fair value decreases on various remaining investments in the quarter-to-date period. Additionally, the year-to-date loss also included the Wellness Infrastructure business that was disposed in February 2022, in particular, a $92.1 million write-off of unamortized deferred financing costs on the Wellness Infrastructure debt assumed by the buyer and $35 million impairment loss based upon final carrying value of the Wellness Infrastructure net assets upon disposition, partially offset by our share of BRSP earnings prior to disposition of $19.4 million. Non-GAAP Supplemental Financial Measures We currently conduct our business through two reportable segments: (i) Investment Management; and (ii) Operating, our direct co-investment in digital infrastructure assets held by our portfolio companies. In order to enhance a full understanding of our business, we present certain non-GAAP measures that allow for comparability with companies that operate in each of these two reportable segments. We report the following non-GAAP financial measures attributable to the Operating Company: Distributable Earnings (“DE”) and Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) on a Company-wide basis, and specific to our Investment Management segment, Fee Related Earnings (“FRE”) and FRE before the effects of new investment strategies, as represented by Investment Management Adjusted EBITDA. DE and FRE are the most common metrics utilized in the investment management sector, which represents our core business, while presenting Adjusted EBITDA allows for some measure of comparability against companies that hold digital infrastructure assets similar to assets in our Operating segment. We believe these non-GAAP financial measures supplement and enhance the overall understanding of our underlying financial performance and trends, and facilitate comparison among current, past and future periods and to other companies in similar lines of business. We use these non-GAAP financial measures in evaluating the Company’s ongoing business performance and in making operating decisions. For the same reasons, we believe these non-GAAP measures are useful to the Company’s investors and analysts. As we evaluate profitability based upon continuing operations, these non-GAAP measures exclude results from discontinued operations. These non-GAAP financial measures should be considered as a supplement to and not an alternative or in lieu of GAAP net income (loss) as measures of operating performance, or to cash flows from operating activities as indicators of liquidity. 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 fully comparable to those calculated by our peers. Results of our non-GAAP measures attributable to the Operating Company were as follows: Three Months Ended September 30, (In thousands) 2023 2022 Attributable to Operating Company: Distributable Earnings $ 35,048 $ 32,335 Adjusted EBITDA 33,591 29,097 Investment Management FRE 29,202 21,498 Distributable Earnings DE generally represents the net realized earnings of the Company and is an indicative measure used by the Company to assess ongoing operating performance and in making decisions related to distributions and reinvestments. Accordingly, we believe DE provides investors and analysts transparency into the measure of performance used by the Company in its decision making. DE reflects the ongoing operating performance of the Company’s core business by generally excluding non-cash expenses, income (loss) items that are unrealized and items that may not be indicative of core operating results. This allows the Company, and its investors and analysts to assess its operating results on a more comparable basis period-over-period. DE is calculated as an after-tax measure that differs from GAAP net income (loss) from continuing operations as a result of the following adjustments to net income (loss): transaction-related costs; restructuring charges; other gain (loss); unrealized principal investment income (loss); non-cash depreciation, amortization and impairment charges; 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; non-cash equity-based compensation costs; preferred stock redemption gain (loss); straight-line adjustment to lease income and expense; interest expense on finance 69 Table of Contents leases in the Operating segment, amortization of above and below market leases in the Operating segment; straight-line adjustment to lease income and expense in the Operating segment, non-revenue enhancing capital expenditures necessary to maintain operating real estate in the Operating segment; and income tax effect on certain of the foregoing adjustments. Transaction-related costs are incurred in connection with acquisitions and include costs of unconsummated transactions, while restructuring charges are related primarily to severance and retention costs. These costs, along with other gain (loss) amounts, are excluded from DE as they are related to discrete items, are not considered part of our ongoing operating cost structure, and are not reflective of our core operating performance. Other items excluded from DE are generally non-cash in nature, including income (loss) items that are unrealized, or otherwise do not represent current or future cash obligations such as amortization of deferred financing costs and straight-line lease adjustment. These items are excluded from DE as they do not contribute to the measurement of DE as a net realized earnings measure that is used in decision making related to distributions and reinvestments. Generally, the income tax effect associated with income and expense items excluded from the calculation of DE are similarly excluded from DE. However, where the resulting income tax liability or benefit arising from these excluded items increase or decrease actual income tax paid or payable by the Company in any one period, the income tax effect of these items are included in DE (for example, equity-based compensation). In connection with our Operating segment, non-revenue enhancing capital expenditures are excluded as these are not recurring capital expenditures and are not incurred to maintain and extend the useful life of operating digital assets that support the generation of revenues. The items we have excluded from DE are generally consistent with the exclusions made by our peers, which we believe allows for better comparability to the DE presented by our peers. Adjusted EBITDA Adjusted EBITDA is a supplemental measure derived from DE and generally presents the Company’s core operating performance on a pre-tax basis, based upon recurring revenues and independent of our capital structure and leverage. We view Adjusted EBITDA as particularly helpful in evaluating the relative contribution of our Operating segment, absent the effects of leverage, as the consolidated portfolio companies in the Operating segment have higher leverage relative to the Company’s own capital structure. We believe Adjusted EBITDA is useful to investors as an indicative measure of the Company’s profitability that is recurring and sustainable and allows for better comparability of the Company’s performance relative to its peers independent of capital structure and leverage. However, because Adjusted EBITDA is calculated without the effects of certain recurring cash charges, including interest expense, preferred stock dividends, income taxes, capital expenditures or other recurring cash requirements, its usefulness as a performance measure may be limited. Adjusted EBITDA is calculated as DE adjusted to generally exclude the following items attributable to the Operating Company that are included in DE: interest expense as included in DE and income tax benefit (expense) as included in DE consistent with an EBITDA measure, preferred stock dividends, placement fee expense, our share of incentive fees and distributed carried interest net of associated compensation expense, and capital expenditures in the Operating segment as deducted in DE. Items excluded from Adjusted EBITDA include preferred stock dividends as Adjusted EBITDA removes the effects to earnings associated with the Company's capital structure, and placement fees as they are inconsistent in amount and frequency depending upon timing of fundraising for our funds. Additionally, Adjusted EBITDA excludes incentive fees and distributed carried interest net of associated compensation expense to be consistent with the FRE measure for our Investment Management segment, as discussed further below. 70 Table of Contents Distributable Earnings and Adjusted EBITDA Reconciliation Three Months Ended September 30, (In thousands) 2023 2022 Net income (loss) attributable to common stockholders $ 261,828 $ (63,273) Net income (loss) attributable to noncontrolling interests in Operating Company 19,918 (4,834) Net income (loss) attributable to Operating Company 281,746 (68,107) Transaction-related and restructuring charges 7,522 23,249 Other (gain) loss, net (254,737) (9,880) Unrealized principal investment income (17,943) 2,669 Unrealized carried interest allocation, net of associated expense allocation (68,099) (1,228) Equity-based compensation cost 18,621 18,619 Depreciation and amortization expense 128,156 146,810 Straight-line adjustment to lease (income) and expense, net (2,169) (8,895) Amortization of acquired above-market and (below-market) leases, net (141) 80 Non-revenue enhancing capital expenditures (11,396) (10,992) Finance lease interest expense, debt prepayment penalties and amortization of deferred financing costs, debt premiums and discounts 3,745 5,627 Adjustments attributable to noncontrolling interests in investment entities (1) (52,496) (136,338) DE of discontinued operations (2) 2,239 70,721 Distributable Earnings, after tax—attributable to Operating Company 35,048 32,335 Adjustments attributable to Operating Company : Interest expense included in DE 9,524 16,348 Income tax (benefit) expense included in DE 37 (7,839) Preferred stock dividends 14,645 15,283 Principal investment income included in DE — (9,303) Placement fees 15 — Distributed incentive fee and carried interest, net of associated expense allocation (27,927) (20,258) Non-revenue enhancing capital expenditures deducted from DE 2,249 2,531 Adjusted EBITDA—attributable to Operating Company $ 33,591 $ 29,097 __________ (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 and Investment Management Adjusted EBITDA Investment Management FRE is presented as Investment Management Adjusted EBITDA, further adjusted to exclude FRE associated with new investment strategies, as discussed below. Investment Management FRE is used to assess the extent to which direct base compensation and core operating expenses are covered by recurring fee revenues in a stabilized investment management business. Investment Management FRE is measured as recurring fee income that is not subject to future realization events and other income (inclusive of cost reimbursements associated with administrative expenses), net of the following: compensation expense (excluding non-cash equity-based compensation, and incentive and carried interest compensation expense), administrative expense (excluding placement fee expense and straight-line adjustment to lease expense) and FRE associated with new investment strategies. In reconciling Investment Management FRE to GAAP net income (loss), adjustments are made to first arrive at Investment Management Adjusted EBITDA, which generally excludes the following: our share of incentive fees and carried interest net of associated compensation expense; unrealized principal investment income (loss); other gain (loss); transaction-related and restructuring charges; non-cash equity-based compensation costs; straight-line adjustment to lease expense; placement fee expense; investment expense; and in line with an EBITDA measure, non-cash depreciation and amortization expense, interest expense, and income tax benefit (expense). Consistent with an FRE measure, Investment Management Adjusted EBITDA excludes incentive fees and carried interest net of associated compensation expense, as these are not recurring fee income and are subject to variability given that they are performance-based and/or dependent upon future realization events. 71 Table of Contents In calculating Investment Management FRE which reflects the Company’s Investment Management segment as a stabilized business, Investment Management Adjusted EBITDA is further adjusted to exclude Start-Up FRE. Start-Up FRE is 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. The Company evaluates new investment strategies on a regular basis and excludes Start- Up FRE from Investment Management FRE until such time as a new strategy is determined to form part of the Company’s core investment management business. We believe that Investment Management FRE and Investment Management Adjusted EBITDA are useful measures to investors as they reflect the Company’s profitability based upon recurring fee streams that are not subject to future realization events, and without the effects of income taxes, leverage, non-cash expenses, income (loss) items that are unrealized and other items that may not be indicative of core operating results. This allows for better comparability of the profitability of the Company’s investment management business on a recurring and sustainable basis. Investment Management FRE Reconciliation Three Months Ended September 30, (In thousands) 2023 2022 Net income (loss)—Investment Management $ 100,014 $ 46,065 Interest expense, net of interest income 2,128 2,906 Investment expense, net of reimbursement 97 230 Depreciation and amortization expense 9,003 5,369 Equity-based compensation cost 7,218 2,654 Incentive fee and carried interest allocation, net of associated expense allocation (96,026) (40,867) Straight-line rent expense 511 68 Placement fees 15 — Transaction-related and restructuring charges 3,891 2,317 Unrealized principal investment income (1,451) (1,016) Other (gain) loss, net 2,662 110 Income tax (benefit) expense (15) 1,263 Investment Management Adjusted EBITDA 28,047 19,099 Start-up FRE 1,155 2,399 Investment Management FRE—attributable to Operating Company $ 29,202 $ 21,498 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 general partner affiliate 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 distributed net incentive fees and carried interest; 72 Table of Contents • cash flow generated from our investments, both from operations and return of capital; • availability under our Variable Funding Notes ("VFN"); • issuance of additional term notes under our corporate securitization; • third party co-investors in our consolidated investments and/or businesses; • proceeds from full or partial realization of investments; • investment-level financing; and • proceeds from public or private equity and debt offerings. Overview At September 30, 2023, our liquidity position was approximately $530 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 • $49 million net proceeds from the September 2023 recapitalization of DataBank • $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 $14.7 million per quarter. Contractual Obligations, Commitments and Contingencies Debt Obligations As of the date of this filing, our corporate debt is composed of a securitized financing facility and exchangeable senior notes issued by the OP, all of which are recourse to the Company, as described in Note 8 to the consolidated financial statements. ($ 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 3.0 Exchangeable senior notes—fixed rate 78,422 5.75 % July 2025 1.8 $ 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. 73 Table of Contents Investment Commitments Fund Commitments —As general partner, we typically have minimum capital commitments to our sponsored funds. With respect to our flagship value-add DBP fund series, and InfraBridge 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 the date of filing, we have unfunded commitments totaling $245 million to our sponsored funds, including DBP III which had its first closing on November 1, 2023. Generally, the timing for funding of these commitments is not known and the commitments are callable on demand at any time prior to their respective expirations. Contingent Consideration Wafra Redemption —In connection with the May 2022 redemption of Wafra's interest in our investment management business, additional contingent consideration is payable based upon future capital raise thresholds, with up to 50% payable in shares of our class A common stock at our election. Depending upon cumulative capital raised through 2023, up to $35 million of the remaining contingent consideration may become payable in March 2024. InfraBridge Acquisition —In connection with the InfraBridge acquisition in February 2023, 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 if and 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 September 30, 2023, warehoused investments aggregate to $50 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 September 30, 2023, the Company has no liability for clawback obligations on distributed carried interest. Lease Obligations At September 30, 2023, we had $50.0 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. 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. " 74 Table of Contents Our securitized financing facility is subject to various covenants, including financial covenants that require the maintenance of minimum thresholds for debt service coverage ratio and maximum loan-to-value ratio, as defined. As of the date of this filing, we are in compliance with all of the financial covenants, and the full $300 million is available to be drawn on our VFN. Our securitized financing facility allows for the issuance of additional term notes in the future to supplement our liquidity. The decision to enter into a particular financing arrangement is made after consideration of various factors including future cash needs, current sources of liquidity, demand for the Company’s debt or equity, and prevailing interest rates. Cash From Operations Fee-Related Earnings— We generate FRE from our Investment Management segment, generally encompassing recurring fee income net of associated compensation and administrative expenses. Following the redemption of Wafra's 31.5% interest in our investment management business in May 2022, 100% of Investment Management FRE is attributable to us. Management fee income is generally a predictable and stable revenue stream. Our ability to generate new management fee streams through establishing new investment vehicles and raising investor capital depends on general market conditions and availability of attractive investment opportunities as well as availability of debt capital. Incentive Fees— Incentive fees, net of employee allocations, are earned based upon the financial performance of a vehicle above a specified return threshold, which is largely driven by appreciation in value of underlying investments. Incentive fees are recognized as fee income when they are no longer probable of significant reversal. As investment fair values and changes thereof could be affected by various factors, including market and economic conditions, incentive fees are by nature less predictable in amount and timing. Carried Interest Distributions— Carried interest is distributed generally upon profitable disposition of an investment if at the time of distribution, cumulative returns of the fund exceed minimum return hurdles. Carried interest distributions are recognized in earnings net of clawback obligations, if any. The amount and timing of carried interest distributions received may vary substantially from period to period depending upon the occurrence and size of investments realized by our sponsored funds. Investments— Our investments generate cash through income distributions and return of our invested capital. Asset Monetization We periodically monetize our investments through opportunistic asset sales or to recycle capital from non-core assets. In 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, with our share valued at $12.8 million at September 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. Nine Months Ended September 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 192,080 194,773 Investing activities (768,072) (1,929,361) Financing activities 78,596 741,772 Effect of exchange rates on cash, cash equivalents and restricted cash (673) (3,039) Cash, cash equivalents and restricted cash—end of period $ 538,670 $ 770,390 75 Table of Contents 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, 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 $192.1 million in 2023 and $194.8 million in 2022. Investing Activities Investing activities include primarily cash outlays for business combination, acquisition of real estate, origination or acquisition of warehoused loans and disbursement on subsequent drawdowns, and new equity investments and subsequent 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 $768.1 million in 2023 and $1.9 billion in 2022. Cash outlays in 2023 can be attributed primarily to the acquisition of InfraBridge and deconsolidation of DataBank, 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. • DataBank recapitalization and deconsolidation —In 2023, we received proceeds of $21.5 million, net of carried interest distribution, from the recapitalization of DataBank. Following the recapitalization, DataBank was deconsolidated, effective September 14, 2023, resulting in the derecognition of $102.4 million of cash and restricted cash (Note 10). • 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 $232.3 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 inflows of $97.4 million, largely representing the trading activities in marketable equity securities by our consolidated liquid funds, and a return of capital from the first sale of investment by DBP I, partially offset by additional contributions to our digital funds. • Real estate investments —Real estate investing activities generated net cash outflows in both years. Net cash outflows in 2023 was $613.1 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 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 inflows was relatively immaterial at $4.6 million as we had largely transferred our acquired or originated warehoused loans to our sponsored credit fund and to a third party sponsored collateralized loan obligation ("CLO"). 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 76 Table of Contents stockholders and common stockholders. Separately, subsidiaries in the Operating segment, including DataBank prior to its deconsolidation in September 2023, 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 $78.6 million represent primarily $489.9 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, $78.3 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 $741.8 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. Additionally, cash inflows included our share of proceeds recorded in equity of $302.8 million from sale a portion of our interest in our DataBank subsidiary in connection with the partial recapitalization in August 2022 that was treated as an equity transaction (Note 10). The cash inflows were partially offset by $388.5 million of cash paid to redeem Wafra's interest in our investment management business. Financing cash outflows also included repayment of our warehouse credit facility of $172.5 million with proceeds from a transfer of the warehoused loans to a third party CLO, and paydowns on amortizing debt in our Operating segment. Other notable cash outflows included preferred and common stock repurchases totaling $60.8 million and distributions to various controlling 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.