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, 2023, 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 Business We are a leading global digital infrastructure investment manager, deploying and managing capital across the digital ecosystem, including data centers, cell towers, fiber networks, small cells, and edge infrastructure. Our diverse global investor base includes public and private pensions, sovereign wealth funds, asset managers, insurance companies, and endowments. At March 31, 2024, we had $33 billion of fee earning equity under management ("FEEUM"). We are headquartered in Boca Raton, Florida, with key offices in New York, Los Angeles, London, Luxembourg and Singapore, and have approximately 300 employees. We operate as a taxable C Corporation and conduct substantially all of our activities and hold substantially all of our assets and liabilities through our Operating Company. At March 31, 2024, we owned 93% of the Operating Company as its sole managing member. 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 (the Strategic Assets Fund, or "SAF"). • 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. 39 Table of Contents • InfraBridge is focused on mid-market investments in the digital infrastructure and related sectors of transportation and logistics, and energy transition (the Global Infrastructure Fund ("GIF") series of funds). Significant Developments The following summarizes significant developments that affected our business and results of operations in 2024 through the date of this filing. Capital Raise • In 2024 through April 2024, we have raised $1.14 billion of capital, primarily $0.5 billion for DigitalBridge Partners III ("DBP III"), the third series in our flagship value-add strategy, and $0.3 billion for the second series of our credit strategy. To date, total third party capital raised for DBP III stands at $3.2 billion. Financing • As of the end of April 2024, we have further reduced our leverage with full exchange/redemption of our remaining $78.4 million of 5.75% senior notes, which will result in annual interest savings of approximately $4.5 million. $73.4 million of note principal was exchanged for 8.2 million shares of the Company's class A common stock and $5.0 million of note principal was redeemed for cash. 40 Table of Contents Fund Performance Metrics Certain performance metrics for our key investment funds from inception through March 31, 2024 are presented in the table below. Excluded are funds with less than one year of performance history as of March 31, 2024, funds and separately managed accounts in the liquid strategy, co-investment vehicles and separately capitalized portfolio companies. The historical performance of our funds is not indicative of their future performance nor indicative of the performance of our other existing funds or of any of our future funds. An investment in DBRG is not an investment in any of our funds and these fund performance metrics are not indicative of the performance of DBRG. ($ in millions) Inception Date (2) Total Commitments Invested Capital (3) Available Capital (4) Investment Value MOIC (7) (9) IRR (8) (9) Fund (1) Unrealized Realized (5) Total (6) Gross Net Gross Net Value-Add DBP I Mar-2018 $4,059 $4,836 $98 $6,274 $1,214 $7,488 1.5x 1.4x 15.9% 11.3% DBP II Nov-2020 8,286 6,964 1,103 7,850 817 8,667 1.2x 1.2x 11.0% 7.7% Core SAF Nov-2022 1,110 884 220 936 13 949 1.1x 1.1x 8.5% 5.6% InfraBridge GIF I Mar-2015 1,411 1,507 406 1,240 1,091 2,331 1.5x 1.4x 9.4% 6.9% GIF II Jan-2018 3,382 3,169 26 2,608 105 2,713 0.9x 0.8x <0% <0% Credit Credit I Dec-2022 697 394 377 352 86 438 1.1x 1.1x 17.2% 10.8% __________ (1) Performance metrics are presented in aggregate for main fund vehicle, its parallel vehicles and alternative investment vehicles. (2) Inception date represents first close date of the fund, except for Credit I which is the first capital call date. The manager/general partner of the 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 represents unfunded commitments, including 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 total value of investments, that is realized proceeds and unrealized fair value, divided by invested capital, without giving effect to allocation of management fee expense, other fund expenses and general partner carried interest (both distributed and unrealized). Total investment net MOIC is calculated as total value of investments, that is realized proceeds and unrealized fair value, 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). MOIC calculations exclude capital not subject to fees and/or carried interest, including general partner and general partner affiliate capital. MOICs are calculated at the fund level and do not reflect MOICs at the individual investor level. (8) Gross internal rate of return (IRR) represents annualized time-weighted return on invested capital based upon total value of investments, that is realized proceeds and unrealized fair value, without giving effect to allocation of management fee expense, other fund expenses and general partner carried interest (both distributed and unrealized). Gross IRR is calculated from the date of investment fundings (taking into account the benefit of any credit facility at the fund level) to the date of investment distributions. For unrealized investments, assumes a liquidating distribution equal to the investment fair value, net of amounts funded through the fund's credit facility, if any. Gross IRR is calculated at the fund level and does not reflect gross IRR of any individual investor due to timing of investor level inflows and outflows, among other factors. Net IRR is gross IRR after giving effect to allocation of management fee expense, other fund expenses and general partner carried interest (both distributed and unrealized). Net IRR is calculated at the individual investor level based upon timing and amount of fee-paying third party investor level inflows and outflows, and excludes capital not subject to fees and/or carried interest, including general partner and general partner affiliate capital. If an investment is later syndicated to one or more third-party investors, the IRRs set forth herein will include cash flows associated with such syndication. This treatment of syndication transactions was implemented in fiscal year 2024 and applied on a life-to-date basis for all funds presented. (9) Our funds generally permit us to recycle certain capital distributed to limited partners during certain time periods. The exclusion of recycled capital generally causes invested and realized amounts to be lower and MOICs to be higher than had recycled capital been included. In addition, for funds that utilize a subscription line credit facility in advance of receiving capital contributions from investors, reported IRRs may be higher or lower than if such facility had not been utilized. 41 Table of Contents Results of Operations Three Months Ended March 31, (In thousands) 2024 2023 Change Revenues Fee revenue $ 72,955 $ 59,126 $ 13,829 Carried interest allocation (reversal) (8,478) (54,756) 46,278 Principal investment income 2,845 3,562 (717) Other income 7,071 10,564 (3,493) Total revenues 74,393 18,496 55,897 Expenses Interest expense 5,192 8,131 (2,939) Transaction-related costs 760 8,527 (7,767) Depreciation and amortization 9,167 6,875 2,292 Compensation expense—cash and equity-based 51,184 47,471 3,713 Compensation expense—incentive fee and carried interest allocation (reversal) (6,714) (36,831) 30,117 Administrative and other expenses 24,310 20,447 3,863 Total expenses 83,899 54,620 29,279 Other income (loss) Other gain (loss), net (5,894) (144,514) 138,620 Income (Loss) before income taxes (15,400) (180,638) 165,238 Income tax benefit (expense) (1,246) (1,098) (148) Income (Loss) from continuing operations (16,646) (181,736) 165,090 Income (Loss) from discontinued operations (14,120) (110,608) 96,488 Net income (loss) (30,766) (292,344) 261,578 Net income (loss) attributable to noncontrolling interests: Redeemable noncontrolling interests 733 6,943 (6,210) Investment entities 1,467 (84,828) 86,295 Operating Company (3,338) (16,662) 13,324 Net income (loss) attributable to DigitalBridge Group, Inc. (29,628) (197,797) 168,169 Preferred stock dividends 14,660 14,676 (16) Net income (loss) attributable to common stockholders $ (44,288) $ (212,473) 168,185 42 Table of Contents Revenues Total revenues were $74.4 million in 2024 compared to $18.5 million in 2023, driven by significant variability in unrealized carried interest and an increase in fee revenue, primarily benefiting from continued fundraising. The key components of revenue are discussed in more detail below. Fee Revenue Three Months Ended March 31, (In thousands) 2024 2023 Change Management fees $ 71,844 $ 57,158 $ 14,686 Incentive fees 881 869 12 Other fee revenue 230 1,099 (869) $ 72,955 $ 59,126 13,829 Fee revenue increased $13.8 million or 23% as FEEUM increased $4.8 billion or 17% from $27.7 billion at March 31, 2023 to $32.5 billion at March 31, 2024. The higher fee revenue was driven by our third flagship fund, DBP III, which held its first close in November 2023 ($9.3 million) and InfraBridge funds, acquired in February 2023, that contributed a full quarter of fees in 2024 ($3.4 million). Incentive fees in both periods were attributed to our liquid securities strategy. Other fees were higher in 2023, attributed largely to loan origination fees in connection with syndication of our credit investments. Carried Interest Allocation Three Months Ended March 31, (In thousands) 2024 2023 Change Carried interest allocation Distributed $ — $ 476 $ (476) Unrealized (8,478) (55,232) 46,754 $ (8,478) $ (54,756) 46,278 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 as the carried interest is distributed. There was a higher net reversal of unrealized carried interest in 2023 compared to 2024, with reversals in both periods driven by DBP II. As DBP II is still in the early stage of its lifecycle, the carried interest reversal is a function of continuing accrual of preferred returns over time at a higher rate than fair value increases on its underlying investments. In 2024, this reversal was partially offset by co-investment vehicles and our credit fund that recently began accruing carried interest. Principal Investment Income Principal investment income represents the Company's proportionate share of net income (loss) from investments in its sponsored investment vehicles, which is predominantly unrealized gain (loss) from changes in fair value of underlying fund investments. Principal investment income of $2.8 million was a net decrease of $0.7 million from 2023. The change was driven by fair value decrease in InfraBridge funds and the Company's co-investment in an InfraBridge portfolio company ($11.9 million), largely offset by fair value increase in the DataBank funds ($9.8 million) and distribution of interest income from our credit fund ($1.2 million). Other Income Other income was $3.5 million lower at $7.1 million in 2024. 2023 had higher interest income from money market deposits and dividend income from our credit fund ($4.6 million), which was partially offset by incremental costs reimbursable by InfraBridge funds in 2024 that are grossed up as other income and expense ($1.0 million). 43 Table of Contents Expenses Total expenses was $83.9 million in 2024 compared to $54.6 million in 2023, primarily attributed to the change in unrealized carried interest compensation. Changes in the various expense items are discussed below. Interest Expense Interest expense decreased $2.9 million to $5.2 million in 2024 due to full repayment of the $200 million 5.00% convertible notes upon maturity in April 2023. Transaction-Related Costs Transaction-related costs were $7.8 million lower in 2024 at $0.8 million, as 2023 included costs associated with InfraBridge acquisition ($7.0 million) and unconsummated deals. Depreciation and Amortization Depreciation and amortization expense increased $2.3 million in 2024 due to a full quarter of amortization on InfraBridge intangible assets acquired in February 2023. Compensation Expense Three Months Ended March 31, (In thousands) 2024 2023 Change Cash and equity-based compensation Cash compensation and benefits $ 41,970 $ 36,701 $ 5,269 Equity-based compensation 9,214 10,770 (1,556) $ 51,184 $ 47,471 3,713 Incentive fee and carried interest compensation allocation (reversal) $ (6,714) $ (36,831) $ 30,117 Cash and equity-based compensation— The increase can be attributed to a full quarter of cash compensation in 2024 for InfraBridge which was acquired in February 2023 and additional headcount to support our growing investment management business. Incentive and carried interest compensation allocation— The net reversal in compensation expense is consistent with the movement in carried interest, as discussed above. Administrative and Other Expenses Administrative and other expenses increased $3.9 million to $24.3 million, which can be attributed largely to placement fees in 2024 for DBP III fundraising. Other Gain (Loss), Net Other loss was $5.9 million in 2024 compared to $144.5 million in 2023. Other loss in 2024 was driven by $5.1 million loss due to an increase in the liability fair value of previously issued warrants and $3.3 million write-down in other equity investment fair value, partially offset by $2.0 million net gain on marketable equity securities of our consolidated liquid funds Other loss in 2023 was driven by (i) a $133.3 million fair value write-down in March 2023 on an unsecured promissory note from the 2022 sale of our Wellness Infrastructure business, (ii) $13.7 million write-down in other equity investment fair value, and (iii) $4.5 million loss due to an increase in the liability fair value of previously issued warrants. This was partially offset by $8.6 million net gain on marketable equity securities of our consolidated liquid funds. Income Tax Benefit (Expense) Income tax expense was $1.2 million in 2024 and $1.1 million in 2023. 2024 reflects primarily the income tax effect of foreign subsidiaries, in particular, the InfraBridge investment management business in Europe that was acquired in February 2023. In 2024, current tax expense from the operating activities of the foreign InfraBridge entities was largely offset by deferred tax benefit driven by intangible asset amortization, resulting in an immaterial income tax expense. The Company otherwise has operating losses and capital loss carryforwards that can be applied against current income tax 44 Table of Contents expense for its domestic entities, and have established a full valuation allowance on the deferred tax assets of these entities, resulting in no net income tax effect for its domestic entities. Income (Loss) from Discontinued Operations Three Months Ended March 31, (In thousands) 2024 2023 Change Revenues $ 1,832 $ 233,634 $ (231,802) Expenses (3,068) (335,649) 332,581 Other gain (loss) (12,961) (8,647) (4,314) Income (Loss) from discontinued operations before income taxes (14,197) (110,662) 96,465 Income tax benefit (expense) 77 54 23 Income (Loss) from discontinued operations $ (14,120) $ (110,608) 96,488 Income (Loss) from discontinued operations attributable to noncontrolling interests: Investment entities — (85,737) 85,737 Operating Company (990) (1,813) 823 Income (Loss) from discontinued operations attributable to DigitalBridge Group, Inc. $ (13,130) $ (23,058) 9,928 Loss from discontinued operations in 2024 primarily included a loss associated with a guarantee in connection with a previous bulk sale of the Company's real estate investments. The loss in 2023 represent primarily the operations of the former Operating segment and $9.7 million impairment of BRSP shares prior to disposition in March 2023, as discussed in Note 2 to the consolidated financial statements. Operating Metrics Assets Under Management ("AUM") and Fee Earning Equity Under Management ("FEEUM") 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 and our general partner capital. AUM is generally composed of 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 our general partner and general partner affiliate capital committed to our funds. AUM is largely determined based upon invested capital as of the reporting date, including capital funded through third party financing at the underlying portfolio companies; and committed capital for funds in their commitment stage. Our AUM is not based upon any definitions that may be set forth in the governing documents of our managed funds or other investment vehicles, and not calculated pursuant to any regulatory definitions. 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, NAV or GAV, pursuant to the terms of each underlying investment management agreement. 45 Table of Contents Presented below are total AUM and FEEUM by product: (In billions) March 31, 2024 December 31, 2023 Assets Under Management $ 80.1 $ 80.1 Fee Earning Equity Under Management DBP infrastructure equity $ 13.1 $ 13.0 InfraBridge Global Infrastructure 5.1 5.1 Core Equity, Credit and Liquid Strategies 2.9 2.8 Co-invest vehicles 9.9 9.5 Separately capitalized portfolio companies 1.5 2.4 $ 32.5 $ 32.8 The following table summarizes changes in FEEUM: Three Months Ended March 31, 2024 (In billions) Fee Earning Equity Under Management Balance at January 1 $ 32.8 Inflows (1) 1.3 Outflows (2) (1.6) Market activity and other (3) — Balance at March 31 $ 32.5 ________ (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. (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. Amount was less than $100 million in the first quarter of 2024. There was a marginal 1% decrease in FEEUM to $32.5 billion at March 31, 2024 compared to December 31, 2023. In the first quarter of 2024, FEEUM contributed by DBP III capital raise and additional invested capital from other DBP funds were offset by the effects of various recapitalization and syndication of fund investments, resulting in a marginal net decrease in our fee base. Non-GAAP Supplemental Financial Measures We report the following non-GAAP financial measures attributable to the Operating Company: Fee Related Earnings (“FRE”) and Distributable Earnings (“DE”). FRE and DE are common metrics utilized in the investment management sector. We present FRE and DE at the Operating Company level, which is net of amounts attributed to noncontrolling interests, composed largely of the limited partners's share of our consolidated funds and Wafra's share of earnings attributed to our general partner interest in certain funds. Beginning in 2024, FRE is reported on a Company-wide basis, consistent with the entirety of the Company's business representing a single reportable segment (as discussed in Note 16 to the consolidated financial statements). In prior periods, the Company had reported Investment Management FRE, which was an FRE measure specific to its previously reported Investment Management segment. The Investment Management segment previously bore only operating costs that were directly attributable or otherwise can be subjected to a reasonable and systematic attribution to the investment management business. Company-wide FRE includes all operating costs of the Company as a whole that fall within the definition of FRE. Additionally, Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) is no longer reported as a non-GAAP financial measure in 2024 following the discontinuance of the Operating segment effective December 31, 2023. Adjusted EBITDA was previously reported to facilitate an evaluation of the relative contribution of the Company's former Operating segment absent the effect of leverage as the Operating segment had higher leverage relative to the Company's own capital structure. 46 Table of Contents We believe the non-GAAP financial measures of FRE and DE 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 FRE and DE in evaluating the Company’s ongoing business performance and in making operating decisions. For the same reasons, we believe FRE and DE are useful financial measures to the Company’s investors and analysts. As we evaluate profitability based upon continuing operations, these non-GAAP measures exclude results from discontinued operations. DE presented for 2023 comparative period has been recast to exclude the Operating segment which qualified as discontinued operations on December 31, 2023. 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. Fee-Related Earnings 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. FRE represents recurring fee revenue, including incentive fees, that are not subject to realization events related to underlying fund investments, net of compensation and administrative expenses. Such expenses generally exclude non-cash equity-based compensation, carried interest compensation, and placement fee expense. Also, consistent with DE, FRE excludes costs associated with strategic corporate actions, which are considered non-core items, and presents costs reimbursable by our managed funds on a net basis (as opposed to a gross-up of other income and administrative costs). Where applicable, FRE is adjusted for Start-Up FRE as defined below. Fee revenues earned from consolidated funds and other investment vehicles are eliminated in consolidation. However, because the fees are funded by and earned from third party investors in these consolidated vehicles who represent noncontrolling interests, our allocated share of net income from the consolidated funds and other vehicles is increased by the amount of fees that are eliminated. The elimination of these fees, therefore, does not affect net income (loss) attributable to DBRG. Accordingly, FRE is presented without giving effect to the elimination of fee revenue to the extent such fees meet the definition of FRE. FRE does not include distributed carried interest as these are not recurring revenues and are subject to variability given that they are dependent upon realization events related to underlying fund investments. Placement fees are also excluded from FRE as they are inconsistent in amount and frequency depending upon timing of fundraising for our funds. Other items excluded from FRE include realized principal investment income (loss); and interest, dividend and other income, all of which are not core to the investment management service business. Unlike DE which is a post-tax measure, FRE does not incorporate the effect of income taxes as it is a pre-tax measure. To reflect a stabilized investment management business, FRE is further adjusted to exclude Start-Up FRE, where applicable. 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 FRE 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 until such time as a new strategy is determined to form part of the Company’s core investment management business. We believe that FRE is a useful measure to investors as it reflects the Company’s profitability based upon recurring fee streams that are not subject to realization events related to underlying fund investments, 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 in an investment management service business. This allows for better comparability of the Company's profitability on a recurring and sustainable basis and relative to its peers. 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 is an after-tax measure that reflects the ongoing operating performance of the Company’s core business by including earnings that are realized and generally excluding non-cash expenses, other 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. 47 Table of Contents Realized earnings included in DE are generally comprised of fee revenue, including all incentive fees, realized principal investment income (loss), distributed carried interest, interest and dividend income. Income (loss) on principal investments is realized when the Company redeems all or a portion of its investment or when the Company receives or is due income such as dividends, interest or distributions of income. The following items are excluded from DE: transaction-related costs; costs associated with strategic corporate actions which are considered to be non-core; other gain (loss); unrealized principal investment income (loss); non-cash depreciation and amortization expense, non-cash impairment charges (if any); 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; and preferred stock redemption gain (loss). Transaction-related costs are incurred in connection with acquisitions and include legal costs post-acquisition and costs of unconsummated transactions. Costs associated with strategic corporate actions represent non-core items, primarily severance and litigation-related 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. Income taxes applied in the determination of DE generally represents GAAP income tax related to continued operations, and includes the benefit of deductions available to the Company on certain expense items excluded from DE (for example, equity-based compensation). As the income tax benefit arising from these excluded expense items do affect actual income tax paid or payable by the Company in any one period, the Company believes their inclusion in DE is appropriate to more accurately reflect amounts available for distribution. 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. Non-GAAP Results Results of our non-GAAP measures attributable to the Operating Company were determined as follows: Three Months Ended March 31, (In thousands) 2024 2023 Change Fee revenue $ 72,791 $ 60,098 $ 12,693 Cash compensation (36,893) (28,579) (8,314) Administrative and other expenses (16,335) (17,096) 761 Start-Up FRE — 915 (915) Fee-Related Earnings—attributable to Operating Company 19,563 15,338 4,225 Realized principal investment income (1) 2,301 2,332 (31) Distributed carried interest and incentive fees subject to realization events, net of expense allocation 99 — 99 Interest, dividend and other income 4,375 (94) 4,469 Interest expense and preferred dividends (19,162) (21,948) 2,786 Placement fee and other expenses (3,698) (1,045) (2,653) Income tax benefit (expense) (1,246) (1,098) (148) Start-up FRE — (915) 915 Distributable Earnings, after tax—attributable to Operating Company $ 2,232 $ (7,430) 9,662 ________ (1) For purposes of DE, 2023 included distributions from a portfolio company in the former Operating segment. 48 Table of Contents Fee-Related Earnings . FRE increased $4.2 million to $19.6 million, resulting from continued growth in our investment management business as FEEUM increased 17% from $27.7 billion at March 31, 2023 to $32.5 billion at March 31, 2024. This reflects primarily fee revenue from new capital raised for DBP III and various co-investment vehicles, and the acquisition of InfraBridge in February 2023. The increase in fee revenue was partially offset by higher compensation cost, which can be attributed to a full quarter of InfraBridge cash compensation in 2024 and additional headcount to support our growing investment management business. Distributable Earnings . DE was $2.2 million in the first quarter of 2024. In comparison, DE was a negative $7.4 million in the first quarter of 2023, driven by a $7.1 million reversal of accrued interest income upon write-off of an unsecured promissory note from the 2022 sale of our Wellness Infrastructure business. Distributable Earnings and Fee-Related Earnings Reconciliation Three Months Ended March 31, (In thousands) 2024 2023 Net income (loss) attributable to common stockholders $ (44,288) $ (212,473) Net income (loss) attributable to noncontrolling interests in Operating Company (3,338) (16,662) Net income (loss) attributable to Operating Company (47,626) (229,135) Transaction-related and strategic corporate charges 7,556 18,277 Other (gain) loss, net 5,894 150,921 Unrealized principal investment income (468) (3,562) Unrealized carried interest, net of expense (allocation) reversal 1,044 18,240 Equity-based compensation 9,214 10,770 Depreciation and amortization expense 9,167 6,875 Amortization of deferred financing costs, debt premiums and discounts 664 794 Adjustments attributable to noncontrolling interests in investment entities (1) 2,667 (7,536) OP share of (income) loss from discontinued operations (2) (3) 14,120 26,926 Distributable Earnings, after tax—attributable to Operating Company 2,232 (7,430) Realized principal investment income (3) (2,301) (2,332) Distributed carried interest and incentive fees subject to realization events, net of associated expense allocation (99) — Interest, dividend and other income (4,375) 94 Interest expense and preferred dividends 19,162 21,948 Placement fee and other expenses 3,698 1,045 Income tax (benefit) expense 1,246 1,098 Start-up FRE — 915 Fee-Related Earnings—attributable to Operating Company $ 19,563 $ 15,338 __________ (1) Adjustments attributable to noncontrolling interests in investment entities pertain to other gain/loss attributed to limited partners of consolidated funds, management allocation of unrealized carried interest, and Wafra's share of unrealized carried interest and principal investment income attributed to our general partner interest in certain funds. (2) OP share of discontinued operations represent primarily operating results of portfolio companies previously consolidated in the former Operating segment in 2023, net of associated noncontrolling interests in investment entities. (3) For purposes of DE, 2023 included distributions from a portfolio company in the former Operating segment. 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; 49 Table of Contents • 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; and • obligation for lease payments on our corporate offices. 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; • 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; • proceeds from full or partial realization of investments; and • proceeds from public or private equity and debt offerings. Overview At March 31, 2024, our liquidity position was approximately $413 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 2024 • We continue to reduce higher cost corporate indebtedness through full exchange or redemption of the remaining $72.4 million of 5.75% senior notes as of the end of April 2024, which will result in annual interest savings of approximately $4.5 million. • We settled the remaining $35 million contingent consideration payable to Wafra i n connection with the 2022 redemption of their investment in the Company's investment management business, 50% each in shares of the Company's Class A common stock and in cash. 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. 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 $14.7 million per quarter. Contractual Obligations, Commitments and Contingencies Debt Obligations As of the date of this filing, our corporate debt is composed of our securitized financing facility, as summarized below. ($ in thousands) Outstanding Principal Interest Rate (Per Annum) Anticipated Repayment Date Years Remaining to Maturity Class A-2 Notes $ 300,000 3.93 % September 2026 2.5 50 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 March 31, 2024, we have unfunded commitments totaling $259.8 million to our sponsored funds. Generally, the timing for funding of these commitments is not known and the commitments are callable on demand at any time prior to their respective expirations. Contingent Consideration 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 $11.3 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 March 31, 2024, 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. The Company withholds a portion of the distribution of carried interest to employees to satisfy their potential clawback obligation. Generally, the Company, through the OP, has guaranteed the clawback obligation of its subsidiaries that act as general partner or special limited partner of its respective sponsored funds, for the benefit of these funds and their limited partners. At March 31, 2024, the Company has no liability for clawback obligations on distributed carried interest. Lease Obligations At March 31, 2024, we had $46 million of operating lease obligations on our corporate offices, which will be 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 $300 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. 51 Table of Contents 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 business, generally encompassing recurring fee revenue net of associated compensation and administrative expenses. Management fee revenue 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 revenue 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, primarily in our sponsored funds as general partner affiliate, generate cash largely through capital appreciation upon liquidation, and interest income from our credit fund. Asset Monetization We intend to monetize and recycle capital from our non-core investments through opportunistic asset sales. At March 31, 2024, we have $32 million of marketable equity securities that are available for future monetization. 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. Three Months Ended March 31, (In thousands) 2024 2023 Cash, cash equivalents and restricted cash—beginning of period $ 350,250 $ 1,036,739 Net cash provided by (used in): Operating activities (27,009) 19,734 Investing activities (21,968) (259,109) Financing activities (48,471) 26,786 Effect of exchange rates on cash, cash equivalents and restricted cash (661) 64 Cash, cash equivalents and restricted cash—end of period $ 252,141 $ 824,214 Operating Activities Cash inflows from operating activities are generated primarily through fee-related earnings, including incentive fees, distributions of our share of net carried interest, distribution of earnings from our general partner affiliate interests in our sponsored funds, and prior to deconsolidation of the portfolio companies in the former Operating segment during 2023, net operating income from investment properties. Our operating activities generated net cash outflows of $27.0 million in 2024 and inflows of $19.7 million in 2023. 2023 cash inflows were driven largely by the operating activities of portfolio companies in the former Operating segment. 52 Table of Contents Investing Activities Investing activities relate to general partner and general partner affiliate investments in sponsored funds, including subsequent drawdown of commitments and return of investments, primarily from realized fund investments; origination or acquisition of warehoused investments and subsequent repayments, sales and transfers of warehoused investments; business combinations; and prior to deconsolidation of portfolio companies in the Operating segment in 2023, acquisition of real estate. Our investing activities generated net cash outflows of $22.0 million in 2024 and $259.1 million in 2023. • Equity investments —Equity investments generated net cash outflow in 2024 and inflows in 2023. In 2024, equity investments recorded net cash outflows of $19.7 million, attributed primarily to net fundings of our general partner and general partner affiliate commitments in our sponsored funds, partially offset by proceeds from investing activities of our consolidated liquid funds which hold marketable equity securities. 2023 saw net cash inflows of $219.5 million, largely representing the $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, partially offset by funding of our general partner and general partner affiliate commitments, net of return of capital. • Business combination —In 2023, we paid $313.2 million (net of cash assumed) for the acquisition of InfraBridge. • Real estate investments —Real estate investing activities generated net cash outflows of $163.2 million in 2023, attributable to capital expenditures in the data center portfolio of our former Operating segment. There were no real estate investing activities in 2024. 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, prior to deconsolidation in 2023, portfolio companies in the former Operating segment financed their investing activities largely through investment-level secured debt and incurred cash outlays for debt servicing and distributions to their third party investors who represent noncontrolling interests. Financing activities generated net cash outflows in 2024 and inflows in 2023. • In 2024, net cash outflows of $48.5 million represent cash settlement of the Wafra contingent consideration of $17.5 million, $14.0 million of investor capital redeemed by our consolidated liquid funds, net of contribution, and $16.3 million payment of our preferred and common stock dividends. This was partially offset by a $6.1 million syndication of our interest in a consolidated fund and Wafra's share of our general partner funding of commitments in DBP I. • Net cash inflows of $26.8 million in 2023 were driven by additional investment-level debt in the former Operating segment, largely offset by $90 million settlement of Wafra contingent consideration. 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, 2023. 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 53 Table of Contents 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 2024 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.