DigitalBridge (US:DBRG)2022-05-08 16:00PART I. FINANCIAL INFORMATION Item 1. Financial Statements The unaudited Q1 2022 consolidated financial statements reflect a digital transformation, with total assets decreasing to $11.2 billion and a net loss of $343.7 million Consolidated Financial Statements Consolidated financial statements show assets held for disposition decreased to $151.3 million, with total revenues growing to $257.5 million despite a $262.3 million net loss Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2022 ($ thousands) | December 31, 2021 ($ thousands) | | :--- | :--- | :--- | | Total Assets | $11,232,157 | $14,197,816 | | Cash and cash equivalents | $1,117,688 | $1,602,102 | | Real estate, net | $5,628,072 | $4,972,284 | | Assets held for disposition | $151,307 | $3,676,615 | | Total Liabilities | $6,070,475 | $8,926,203 | | Debt, net | $5,123,246 | $4,860,402 | | Liabilities related to assets held for disposition | $758 | $3,088,699 | | Total Stockholders' Equity | $1,390,832 | $2,146,934 | Consolidated Statement of Operations Highlights (Unaudited) | Account | Three Months Ended March 31, 2022 ($ thousands) | Three Months Ended March 31, 2021 ($ thousands) | | :--- | :--- | :--- | | Total Revenues | $257,459 | $220,581 | | Loss from continuing operations | $(236,286) | $(146,339) | | Loss from discontinued operations | $(107,398) | $(481,260) | | Net Loss | $(343,684) | $(627,599) | | Net loss attributable to common stockholders | $(262,316) | $(264,806) | | Net loss per share—basic | $(0.46) | $(0.56) | Notes to Consolidated Financial Statements Notes detail the company's C-Corp transition, digital transformation, and key acquisitions including DataBank, AMP Capital, Telenet, and Wafra's interest redemption - The company discontinued its REIT status and will be taxed as a C-Corporation starting in 2022 to gain flexibility for strategic initiatives. This transition is not expected to cause significant near-term tax expense due to available NOL carryforwards30 - The company completed its digital transformation in February 2022 with the disposition of its Wellness Infrastructure business. This, along with prior sales of its hotel and OED businesses, are treated as discontinued operations31 - In March 2022, the company's subsidiary, DataBank, acquired four colocation data centers in Houston for $670 million, funded by a mix of debt and equity49 - The company entered into definitive agreements to acquire AMP Capital's global infrastructure equity investment management business and Telenet Group's mobile telecommunications tower business, with both transactions expected to close in 20225455 - In April 2022, the company agreed to acquire Wafra's 31.5% interest in its Digital Investment Management business for $390 million in cash, 57.7 million shares of Class A common stock, and contingent consideration. As redemption was deemed probable, the carrying value of Wafra's interest was adjusted to its fair value of approximately $1.04 billion105108 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's digital transformation, C-Corp transition, and segment performance, with revenues up 17% to $257.5 million but a wider loss from a $133.2 million non-cash debt exchange Results of Operations Total revenues increased 17% to $257.5 million, driven by 44% growth in Digital Investment Management, but loss from continuing operations widened to $236.3 million due to a $133.2 million non-cash debt loss Segment Revenue and Income (Loss) from Continuing Operations | (In thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Total Revenues | | | | Digital Investment Management | $44,893 | $31,120 | | Digital Operating | $202,522 | $189,202 | | Total | $257,459 | $220,581 | | Income (loss) from continuing operations | | | | Digital Investment Management | $(9,143) | $7,663 | | Digital Operating | $(74,141) | $(64,260) | | Corporate and Other | $(153,002) | $(89,742) | | Total | $(236,286) | $(146,339) | - The significant increase in 'Corporate and Other' loss was primarily driven by a $133.2 million non-cash loss recognized from the early exchange of $60.3 million of 5.75% exchangeable notes214216 - Digital Investment Management revenue grew 44% due to a significant increase in Fee Earning Equity Under Management (FEEUM) to $18.8 billion, following successful fundraising for DigitalBridge Partners II213 Liquidity and Capital Resources The company maintains sufficient liquidity for upcoming capital commitments, including $390 million for Wafra, $504 million for Telenet, and $327 million for AMP Capital, and expects to reinstate dividends in Q3 2022 - The company has significant upcoming capital commitments, including the redemption of Wafra's interest, and the acquisitions of Telenet's tower assets and AMP Capital's infrastructure platform247 - The company monetized its Wellness Infrastructure business in February 2022, receiving $161 million in cash and a $155 million promissory note244250 - The company expects to reinstate its quarterly common stock dividend beginning in the third quarter of 2022, subject to Board approval249 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate, foreign currency, and equity price risks, with a 100 basis point interest rate increase impacting annualized expense by $8.3 million before noncontrolling interests - A hypothetical 100 basis point increase in interest rates would increase annualized interest expense by $8.3 million on a consolidated basis, but only $1.7 million after attribution to noncontrolling interests in the Digital Operating segment276 - Foreign currency risk is actively managed. The company has entered into foreign exchange forward contracts to mitigate exposure on a £35 million GBP investment and a €458 million EUR purchase commitment279 Item 4. Controls and Procedures As of March 31, 2022, disclosure controls and procedures were effective, with no material changes in internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2022285 - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls286 PART II. OTHER INFORMATION Item 1. Legal Proceedings As of March 31, 2022, the company was not involved in any material legal proceedings - The Company was not involved in any material legal proceedings as of March 31, 2022289 Item 1A. Risk Factors Key risk factors include increased tax obligations and potential NOL limitations from the C-Corp transition, alongside SEC oversight regarding affiliate transactions - A primary new risk is the company's transition to a taxable C-Corporation, which will subject it to U.S. federal and state income tax on its taxable income, potentially reducing net earnings available for investment or distribution291 - The ability to use existing capital loss and NOL carryforwards to offset future taxes may be limited by Section 382 of the Code if an "ownership change" (a greater than 50 percentage point change in equity ownership over three years) occurs292 - The SEC's Division of Examinations closed an examination of a legacy adviser, CCIA, but noted disagreement with the company's positions on certain alleged deficiencies and did not preclude the Division of Enforcement from taking further action299 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2022, the company issued over 25.5 million shares of Class A common stock and $13.9 million cash in a private exchange for $60.3 million of exchangeable notes - In March 2022, the company issued over 25.5 million shares of Class A common stock as part of a privately negotiated exchange for $60.3 million of its 5.75% exchangeable notes305 Item 5. Other Information The 2022 Annual Meeting results include the election of all director nominees, approval of executive compensation, and ratification of Ernst & Young LLP as auditor - At the 2022 Annual Meeting, stockholders elected all nine director nominees, approved executive compensation on an advisory basis, and ratified the appointment of Ernst & Young LLP as the independent auditor for fiscal year 2022309313314