Business Overview and History DigitalBridge Group, Inc. (DBRG) is a leading global digital infrastructure investment manager founded in 2009 and headquartered in Boca Raton, Florida. The company, formerly known as Colony Capital, underwent a strategic transformation to become a pure-play digital infrastructure investment management platform. In 2015, DigitalBridge 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 towards its current focus on the digital infrastructure ecosystem and provided the company with a foothold in the digital infrastructure investment space.
Over the following years, DigitalBridge continued to build out its investment management platform, anchored by its flagship value-add digital infrastructure equity offerings. A significant milestone occurred in 2018 when the company launched its first DigitalBridge Partners (DBP) fund, focusing on value-add digital infrastructure investments. This was followed by the launch of additional digital infrastructure funds and strategies, including core equity, credit, and liquid securities.
In 2023, DigitalBridge faced challenges as it transitioned from being a single-product firm focused on its flagship DBP funds to a multi-strategy global alternative asset manager. This transition involved developing new product offerings, building out its international presence, and integrating several strategic acquisitions. One notable acquisition during this period was the purchase of the global infrastructure equity investment management business of AMP Capital Investors International Holdings Limited, which was subsequently rebranded as InfraBridge.
Despite these operational challenges, DigitalBridge remained committed to deploying and managing capital across the digital infrastructure ecosystem. The company’s diversified platform allows it to cater to a global institutional investor base, including public and private pensions, sovereign wealth funds, asset managers, insurance companies, and endowments.
As of September 30, 2024, DigitalBridge had $88.0 billion in Assets Under Management (AUM) and $34.1 billion in Fee-Earning Equity Under Management (FEEUM), representing a 14% increase from the same period in 2023. The company’s investment management platform is anchored by its flagship DigitalBridge Partners series, which focuses on value-add digital infrastructure investments.
Financial Performance and Ratios DigitalBridge’s financial performance has been robust, with the company reporting consistent growth in key metrics. In the latest quarter, the company recorded $77 million in fee revenue, a 16% increase from the same period in the prior year. Fee-Related Earnings (FRE) also saw a substantial 42% year-over-year increase to $26 million, with FRE margins expanding from 28% to 34%.
For the most recent fiscal year (2023), DigitalBridge reported revenue of $821.38 million and net income of $185.28 million. The company’s operating cash flow (OCF) and free cash flow (FCF) for 2023 both stood at $233.64 million.
In the third quarter of 2024, DigitalBridge reported revenue of $76.12 million, net income of $48.33 million, and both OCF and FCF of $35.90 million. The decrease in revenue compared to the prior year quarter was largely driven by significant variability in carried interest. Excluding carried interest, revenues were higher in both periods under comparison, driven by an increase in fee income.
The company’s balance sheet remains strong, with $1.4 billion of capital invested alongside its limited partners and ample liquidity. As of September 30, 2024, DigitalBridge had $427 million in total current liquidity, including $127 million in available corporate cash. The company also had $294.42 million in cash and a $300 million available credit line under the Variable Funding Notes (VFN) facility.
DigitalBridge’s financial ratios further demonstrate its financial health and stability. The company’s current ratio stands at 7.13, indicating a strong ability to meet short-term obligations. The quick ratio, which excludes inventory, is also a healthy 7.13, highlighting DigitalBridge’s liquid asset position. The debt-to-equity ratio of 0.15 suggests a conservative capital structure, providing the company with financial flexibility to pursue growth opportunities.
Diversified Investment Strategies and Operational Highlights DigitalBridge’s diversified investment strategies have been a key driver of its success. The company’s flagship DigitalBridge Partners series focuses on value-add digital infrastructure investments, while its core equity funds target more stabilized assets with long-duration cash flows. The company’s credit strategies and liquid securities offerings further diversify its platform and cater to a broader investor base.
As of September 30, 2024, the DBP funds had total commitments of $12.35 billion, invested capital of $12.25 billion, and available capital of $138 million. The DBP funds have generated a gross multiple of invested capital (MOIC) of 1.0x to 1.1x and gross internal rates of return (IRR) of 10.2% to 14.4%.
The Core Equity strategy invests in digital infrastructure businesses and assets with long-duration cash flow profiles, primarily in more developed geographies. As of September 30, 2024, the Core Equity fund had total commitments of $1.11 billion, invested capital of $951 million, and available capital of $174 million. The Core Equity fund has achieved a gross MOIC of 1.0x and a gross IRR of 4.6%.
The DigitalBridge Credit strategy delivers credit solutions to corporate borrowers in the digital infrastructure sector globally. As of September 30, 2024, the Credit fund had total commitments of $697 million, invested capital of $428 million, and available capital of $391 million. The Credit fund has generated a gross MOIC of 1.0x and a gross IRR of 9.1%.
Additionally, the company’s InfraBridge platform is focused on mid-market investments in the digital infrastructure and related sectors. As of September 30, 2024, the InfraBridge funds had total commitments of $4.79 billion, invested capital of $4.62 billion, and available capital of $414 million. The InfraBridge funds have generated a gross MOIC of 1.0x to 1.1x and gross IRRs of 7.3% to 9.8%.
In the third quarter of 2024, DigitalBridge continued to execute on its strategic priorities, including the $3.3 billion acquisition of Verizon’s remaining tower portfolio by its Vertical Bridge platform, strengthening its position as the largest private cell tower operator in the United States. The company also announced a $2 billion equity raise for its DataBank edge computing platform, led by Australian superannuation fund AustralianSuper, to fuel the company’s growth and expansion.
Capital Formation and Fundraising Momentum DigitalBridge has demonstrated strong capital formation capabilities, a critical driver of its long-term growth. In the third quarter of 2024, the company raised $1.8 billion in new capital, primarily for its flagship DigitalBridge Partners strategy and co-investment vehicles. This brings the year-to-date total capital raised to $6.1 billion, putting the company well on track to exceed its $7 billion annual target.
The company’s fundraising success is underpinned by its global reach and diversified product offerings, which have resonated with a growing investor base. DigitalBridge has expanded its capital formation efforts beyond its traditional flagship funds, with strong momentum in its private wealth, credit, and core equity strategies.
Looking ahead, the company expects its fourth quarter capital formation to be its strongest of the year, with a pipeline of over $3 billion in potential commitments. This robust fundraising performance positions DigitalBridge to continue expanding its investment platform and capitalizing on the growing demand for digital infrastructure globally.
Guidance and Future Outlook DigitalBridge has recently updated its guidance for 2024. The company now expects to end 2024 with $305 million to $320 million in fee revenue, which is below their previous guidance range of $335 million to $360 million. However, they still expect to end 2024 with $100 million to $110 million in fee-related earnings (FRE), which is within their previous guidance range.
The shortfall in fee revenue is attributed to the composition and timing of capital raised in 2024, with more capital coming from co-invest and fund products that charge fees on invested capital rather than committed capital which generates catch-up fees. Despite this, DigitalBridge remains confident in their ability to execute their business plan and achieve their long-term targets of doubling fee-earning equity under management (FEEUM) in the next 5 years and expanding FRE margins from the 30s to the mid-40s.
Risks and Challenges While DigitalBridge’s growth trajectory appears promising, the company faces several risks and challenges that investors should consider. The highly competitive nature of the digital infrastructure sector, with well-capitalized players vying for attractive investment opportunities, could put pressure on asset valuations and investment returns. Additionally, the company’s reliance on fundraising and deployment of capital raises execution risks, which could impact its financial performance.
Furthermore, DigitalBridge’s international operations expose the company to foreign currency, regulatory, and geopolitical risks, which could affect its overall performance. The company also faces the ongoing challenge of managing its portfolio of investments and navigating the complex digital infrastructure ecosystem.
Conclusion DigitalBridge Group, Inc. (DBRG) has established itself as a leading global alternative asset manager in the rapidly growing digital infrastructure sector. With its diversified investment platform, strong capital formation capabilities, and operational expertise, the company is well-positioned to capitalize on the long-term secular trends driving demand for digital infrastructure. As DigitalBridge continues to execute on its strategic priorities and leverage its differentiated investment strategies, investors may find the company’s growth prospects compelling, despite the recent adjustment in fee revenue guidance. The company’s ability to maintain its FRE guidance while expanding its investment offerings and global footprint demonstrates its resilience and adaptability in a dynamic market environment.
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.