Business Overview and History
DigitalBridge Group, Inc. (NYSE:DBRG) is a leading global alternative asset manager dedicated to investing in digital infrastructure. The company’s investment management platform spans the digital infrastructure ecosystem, including data centers, cell towers, fiber networks, small cells, and edge infrastructure. With a diverse global investor base and a strong track record of delivering value, DigitalBridge is well-positioned to capitalize on the growing demand for digital infrastructure.
DigitalBridge was founded in 2009 as a real estate investment trust (REIT) focused on acquiring and managing a diversified portfolio of digital real estate assets. In 2015, the company underwent a significant transformation when it acquired the investment management business and operations of its former manager, which was previously controlled by the company’s former Executive Chairman. This acquisition marked a pivotal shift in the company’s strategy, transitioning it from a REIT to a global alternative asset manager with a focus on digital infrastructure.
In the early years, DigitalBridge faced several challenges as it sought to establish itself in the digital infrastructure space. The company successfully navigated the aftermath of the 2008 financial crisis and a complex regulatory environment as it expanded internationally. Despite these obstacles, DigitalBridge remained committed to its core mission of deploying and managing capital across the digital ecosystem.
A key milestone in the company’s growth came in 2018 with the launch of its flagship DigitalBridge Partners (DBP) series of funds, focusing on value-add digital infrastructure investments. The success of these funds has been instrumental in driving the company’s expansion and attracting a diverse global investor base.
In 2023, DigitalBridge further diversified its investment platform by acquiring the global infrastructure equity investment management business of AMP Capital Investors International Holdings Limited, which was rebranded as InfraBridge. This strategic move has allowed the company to offer a broader range of investment solutions, including core equity, credit, and liquid securities strategies, complementing its existing value-add and co-investment offerings.
Over the years, DigitalBridge has strategically expanded its investment platform to cover a broad range of digital infrastructure assets, including data centers, cell towers, fiber networks, and edge computing facilities. The company’s flagship DigitalBridge Partners (DBP) series of funds has been a key driver of its growth, with the latest DBP III fund raising over $8 billion in commitments from institutional investors.
In addition to its flagship fund offerings, DigitalBridge has also diversified its product suite to include core equity, credit, and liquid securities strategies, as well as the recently launched InfraBridge platform focused on mid-market digital infrastructure investments. This multi-strategy approach has allowed the company to cater to the evolving needs of its global investor base, while also enhancing its ability to generate consistent fee-related earnings (FRE) and carried interest.
Financial Performance and Metrics
As of September 30, 2024, DigitalBridge had $34.1 billion in fee-earning equity under management (FEEUM), representing a 14% increase from the same period in the prior year. This growth in FEEUM has been driven by the company’s successful capital raising efforts, with $6.1 billion in new commitments raised year-to-date.
In terms of financial performance, DigitalBridge reported $77 million in fee revenue and $26 million in fee-related earnings (FRE) for the third quarter of 2024. This represents a 16% and 42% increase, respectively, compared to the same period in the prior year. The company’s FRE margin also expanded by 500 basis points to 34%, highlighting the scalability and profitability of its investment management platform.
Despite the strong top-line growth, DigitalBridge’s third-quarter results were impacted by the timing and composition of its capital raising activities, which resulted in a delay in the recognition of certain catch-up fees. However, the company remains confident in its ability to deliver on its long-term financial targets, including its goal of doubling FEEUM over the next five years while expanding FRE margins to the mid-40% range.
For the most recent fiscal year (2023), DigitalBridge reported revenue of $821.38 million and net income of $185.28 million. Operating cash flow and free cash flow for the year were both $233.64 million.
In the most recent quarter (Q3 2024), the company’s revenue increased by 16.2% year-over-year to $76.12 million, while net income grew by 73.4% to $48.33 million. Operating cash flow and free cash flow for the quarter were both $35.90 million.
The increase in revenue was primarily driven by higher management fees, particularly from the company’s third flagship fund. The significant growth in net income was attributed to higher carried interest allocation reversals compared to the prior year period.
Liquidity
DigitalBridge maintains a strong liquidity position to support its operations and investment activities. As of the most recent reporting period, the company had a debt-to-equity ratio of 0.15, indicating a conservative capital structure. The company’s cash balance stood at $294.42 thousand, with an additional $300 million available under its Variable Funding Note (VFN) facility.
The company’s current ratio and quick ratio were both 7.13, suggesting a strong ability to meet short-term obligations. These liquidity metrics demonstrate DigitalBridge’s financial flexibility and capacity to pursue new investment opportunities as they arise.
Navigating the Digital Infrastructure Landscape
The global demand for digital infrastructure has been accelerating, driven by the rapid growth of technologies such as cloud computing, 5G, and artificial intelligence (AI). DigitalBridge is well-positioned to capitalize on these trends, leveraging its deep industry expertise, extensive customer relationships, and diverse investment capabilities.
The company’s recent transactions, including the $3.3 billion acquisition of Verizon’s tower portfolio by its Vertical Bridge platform and the $2 billion equity raise for its DataBank data center business, underscore its ability to identify and execute on compelling investment opportunities across the digital infrastructure ecosystem.
Moreover, DigitalBridge’s strategic investments in emerging markets, such as the acquisition of JTOWER in Japan and the expansion of its Scala data center platform in Latin America, demonstrate its commitment to capturing growth in high-potential geographies.
Risks and Challenges
While DigitalBridge’s growth prospects remain promising, the company is not without its risks and challenges. The highly competitive nature of the digital infrastructure industry, the potential for regulatory changes, and the cyclical nature of certain asset classes could all impact the company’s financial performance.
Additionally, the successful integration and operation of its acquired businesses, as well as the execution of its strategic initiatives, will be critical to DigitalBridge’s long-term success. The company’s ability to navigate these challenges and maintain its competitive edge will be closely monitored by investors.
Guidance and Future Outlook
DigitalBridge has recently revised its guidance for the 2024 fiscal year. The company now expects fee revenue to be in the range of $305 million to $320 million, which is below its previous guidance of $335 million to $360 million. This adjustment is primarily due to the composition and timing of capital raised in 2024, with more capital coming from co-investments and funds that charge fees on invested capital rather than committed capital, resulting in fewer catch-up fees recognized in 2024 than initially anticipated.
Despite the lower fee revenue guidance, DigitalBridge maintains its outlook for fee-related earnings (FRE) in the range of $100 million to $110 million for 2024, representing over 20% growth compared to 2023. This demonstrates the company’s ability to manage costs effectively and maintain profitability even in the face of revenue fluctuations.
DigitalBridge remains confident in achieving its $7 billion annual fundraising target for 2024, having already raised $6.1 billion year-to-date. The company expects the fourth quarter to be its strongest in terms of fundraising, with over $3 billion in new capital formation anticipated.
The company has also slightly revised its fee-earning equity under management (FEEUM) target for 2024 to $35 billion to $37 billion, down from the previous range of $36 billion to $38 billion. This adjustment accounts for realizations and other offsets to new capital raised.
Despite these near-term adjustments, DigitalBridge remains committed to its long-term growth targets, including doubling FEEUM over the next five years and expanding FRE margins from the current 30s to the mid-40s range.
Conclusion
DigitalBridge’s transformation from a REIT to a diversified global alternative asset manager has positioned the company as a leading player in the rapidly evolving digital infrastructure space. With its broad investment capabilities, strong capital raising momentum, and proven track record of value creation, DigitalBridge is well-poised to capitalize on the growing demand for mission-critical digital infrastructure assets around the world.
As the company continues to execute on its strategic priorities and diversify its product offerings, investors will be closely watching DigitalBridge’s ability to deliver consistent fee-related earnings growth and generate attractive returns for its global investor base. While the company faces near-term challenges in meeting its original fee revenue targets, its maintained FRE guidance and long-term growth objectives highlight management’s confidence in the underlying strength of its business model and market positioning.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.