DIGITALBRIDGE GROUP, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

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, 2020, which is
accessible on the SEC's website at www.sec.gov.
Our Organization
We are a leading global investment firm with a focus on identifying and
capitalizing on key secular trends in digital infrastructure. We are
headquartered in Boca Raton, Florida, with key offices in New York, Los Angeles,
London and Singapore, and have approximately 300 employees.
Effective June 22, 2021, we changed our name to DigitalBridge Group, Inc.
(formerly Colony Capital, Inc.) and trade under the ticker symbol, DBRG,
signifying our transformation to digital infrastructure.
We have elected to be taxed as a real estate investment trust ("REIT") for U.S.
federal income tax purposes. We conduct our operations as a REIT, and generally
are not subject to U.S. federal income taxes on our taxable income to the extent
that we annually distribute all of our taxable income to stockholders and
maintain qualification as a REIT, although we are subject to U.S. federal income
tax on income earned through our taxable subsidiaries. In light of our digital
transformation, we will continue to evaluate whether we will maintain REIT
status for 2021 or future years. We also operate our business in a manner that
will permit us to maintain our exemption from registration as an investment
company under the 1940 Act.
We conduct substantially all of our activities and hold substantially all of our
assets and liabilities through our operating subsidiary, DigitalBridge Operating
Company, LLC (the "Operating Company" or the "OP"). At September 30, 2021, we
owned 90% of the Operating Company, as its sole managing member.
Our Business
Our vision is to establish the Company as a leading owner, operator and
investment manager of digital infrastructure. We are currently the only global
REIT that owns, manages, and/or operates across all major infrastructure
components of the digital ecosystem including data centers, cell towers, fiber
networks and small cells.
At September 30, 2021, the Company has $49 billion of assets under management
("AUM"), including both third party capital and the Company's balance sheet, of
which $38 billion is dedicated to digital real estate and infrastructure.
The Company conducts its business through two reportable segments, as follows:
•Digital Investment Management ("Digital IM")-This business encompasses the
investment and stewardship of third party capital in digital infrastructure and
real estate. The Company's flagship opportunistic strategy is conducted through
Digital Colony Partners ("DCP") and separately capitalized vehicles, while other
strategies, including digital credit and public equities, are conducted through
other investment vehicles. The Company earns management fees, generally based on
the amount of assets or capital managed in investment vehicles, and has the
potential to earn carried interest based upon the performance of such investment
vehicles, subject to achievement of minimum return hurdles. Earnings from our
Digital IM segment are generally attributed 31.5% to Wafra, a significant
investor in our Digital IM business effective July 2020.
•Digital Operating-This business is composed of balance sheet equity interests
in digital infrastructure and real estate operating companies, which generally
earn rental income from providing use of digital asset space and/or capacity
through leases, services and other agreements. The Company currently owns
interests in two companies: DataBank, including zColo, an edge colocation data
center business (20% DBRG ownership); and Vantage SDC, a stabilized hyperscale
data center business (13% DBRG ownership). Both DataBank and Vantage are also
portfolio companies managed under Digital IM for the equity interests owned by
third party capital.
Digital Transformation
Following the successful exit of its hotel business in March 2021, the Company
is now in the final stages of monetizing the remainder of its non-digital
business to complete its digital transformation. This encompasses the Company's
Wellness Infrastructure segment, and a substantial majority of the Company's
other equity and debt ("OED") investments and its non-digital investment
management ("Other IM") business, both of which previously resided in the Other
segment.
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The Company's completed disposition of its hotel business, and pending
disposition of its OED investments, Other IM business and Wellness
Infrastructure segment each represents a strategic shift in the Company's
business that has or is expected to have a significant effect on the Company's
operations and financial results, and accordingly, each has met the criteria as
discontinued operations. For all current and prior periods presented, the
related assets and liabilities, to the extent they have not been disposed at the
respective balance sheet dates, are presented as assets and liabilities held for
disposition on the consolidated balance sheets and the related operating results
are presented as discontinued operations on the consolidated statements of
operations (refer to Item 1. "Financial Statements" of this Quarterly Report).
Accelerating the Monetization of Wellness Infrastructure, OED and Other IM
In September 2021 and June 2021, the Company entered into separate definitive
agreements with third parties to sell (a) its Wellness Infrastructure business,
that, along with other non-core assets, are held by the Company's subsidiary,
NRF Holdco, LLC ("NRF Holdco"); and (b) a substantial majority of its OED
investments and Other IM business.
In assessing the recovery of assets classified as held for disposition and
discontinued operations, in particular considering the sales price for the
Wellness Infrastructure assets, and for the OED investments and Other IM
business, the Company wrote down the carrying value of these assets by
$646 million in aggregate, of which $294 million was attributable to the OP,
recorded within impairment loss, equity method loss and other loss in
discontinued operations (Note 11 to the consolidated financial statements).
Wellness Infrastructure
The Wellness Infrastructure business is composed of senior housing, skilled
nursing facilities, medical office buildings, and hospitals. Other assets and
obligations held by NRF Holdco include primarily: (i) the Company's equity
interest in and management of its sponsored non-traded REIT, NorthStar
Healthcare Income, Inc. ("NorthStar Healthcare"), debt securities collateralized
largely by certain debt and preferred equity within the capital structure of the
Wellness Infrastructure portfolio, limited partner interests in private equity
real estate funds; and (ii) the 5.375% exchangeable senior notes, trust
preferred securities and corresponding junior subordinated debt, all of which
were issued by NRF Holdco and its subsidiaries.
The sales price for 100% of the equity of NRF Holdco is $281.0 million, composed
of $190.7 million in cash and $90.3 million unsecured promissory note (the
"Seller Note"). The sale includes the acquirer's assumption of $2.6 billion of
consolidated investment level debt, for which we own between 69.6% and 81.3% of
the various healthcare portfolios, and $293.7 million of debt at NRF Holdco. The
sales price will be adjusted for certain amounts contributed to, or distributed
from, NRF Holdco prior to closing of the sale, with any adjustment to be applied
pro rata to the cash portion and the Seller Note. The Seller Note matures five
years from closing of the sale, accruing interest at a per annum rate of 6.5% in
the period prior to two years from the closing date and 8.5% thereafter.
Consummation of the sale is subject to customary closing conditions, with no
financing conditions, and is expected to close in the first half of 2022. There
can be no assurance that the sale will close in the timeframe contemplated or on
the terms anticipated, if at all.
OED and Other IM
The OED investments and Other IM business that are under contract for sale are
composed of the Company's interests in various non-digital real estate, real
estate-related equity and debt investments, and the Company's general partner
interests and management rights with respect to these assets. The aggregate
sales price is approximately $535 million, subject to customary adjustments,
including adjustments if consents with respect to certain assets cannot be
obtained.
Consummation of the sale is subject to customary closing conditions, including
third party consents and regulatory approvals, with no financing conditions. In
October 2021, a joint venture partner applied in Ireland for an injunction to
delay the closing and a temporary injunction was granted pending a hearing in
November 2021. The outcome of the hearing may delay the closing and/or impact
the Company's ability to close the sale. There can be no assurance that the sale
will close in the timeframe contemplated or on the terms anticipated, if at all.
Internalization of BrightSpire Capital, Inc. (NYSE: BRSP)
In early April 2021, the Company and BRSP (formerly Colony Credit Real Estate,
Inc. or CLNC) agreed to terminate the BRSP management agreement for a one-time
termination payment of $102.3 million in cash. The transaction closed on April
30, 2021, resulting in the internalization of BRSP's management and operating
functions (the "BRSP Internalization"), with certain of the Company's employees
previously dedicated wholly or substantially to BRSP becoming employees of BRSP.
In connection with the BRSP Internalization, BRSP's board of directors ceased to
include Company-affiliated directors upon the expiration of such directors'
terms in May 2021. The Company also entered into a stockholders agreement with
BRSP, pursuant to which the Company agreed, for so long as the Company owns at
least
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10% of BRSP's outstanding common shares, to vote in BRSP director elections as
recommended by BRSP's board of directors at any stockholders' meeting that
occurs prior to BRSP's 2023 annual stockholders' meeting. In addition, the
Company is subject to customary standstill restrictions, including an obligation
not to initiate or make stockholder proposals, nominate directors or participate
in proxy solicitations, until the beginning of the advance notice window for
BRSP's 2023 annual meeting. Except as aforementioned, the Company may vote its
shares in its sole discretion in any votes of BRSP's stockholders. The Company
is prohibited from acquiring additional BRSP shares and currently holds a 29%
equity ownership in BRSP following the sale of a portion of its BRSP shares in
August 2021.
Exit of the Hotel Business
In March 2021, the Company completed the sale of its hotel business. Pursuant to
an agreement entered into with a third party in September 2020 (as amended in
October 2020, February 2021 and March 2021), the Company sold 100% of the equity
in its hotel subsidiaries which held five of the six hotel portfolios in the
Hospitality segment and its 55.6% equity interest in a portfolio of limited
service hotels in the Other segment that was previously acquired through a
consensual foreclosure (the "THL Hotel Portfolio"), composed of 197 hotel
properties in aggregate. Two of the hotel portfolios that were sold in the
Hospitality segment were held through joint ventures in which the Company held a
90% and a 97.5% interest, respectively. The aggregate selling price of $67.5
million represented a transaction value of approximately $2.8 billion, with the
acquirer's assumption of $2.7 billion of consolidated investment-level debt. In
September 2021, the remaining interests in the THL Hotel Portfolio held by
investment vehicles managed by the Company were sold to the same buyer. Also in
September 2021, the remaining portfolio in the Hospitality segment that was in
receivership was sold by the lender for no proceeds to the Company.
Significant Developments
Through the date of this filing, significant developments in 2021 affecting our
business and results of operations included the following.
Financing
•Securitized Financing Facility-In July 2021, our corporate credit facility was
terminated and replaced with $500 million aggregate principal amount of Series
2021-1 Secured Fund Fee Revenue Notes issued by subsidiaries of the OP (the
"Co-Issuers"), composed of: (i) $300 million aggregate principal amount of
3.933% Secured Fund Fee Revenue Notes, Series 2021-1, Class A-2 (the "Class A-2
Notes"); and (ii) up to $200 million Secured Fund Fee Revenue Variable Funding
Notes, Series 2021-1, Class A-1 (the "VFN Notes" and, together with the Class
A-2 Notes, the "Series 2021-1 Notes"). The VFN Notes allow the Co-Issuers to
borrow on a revolving basis. Proceeds from issuance of the Class A-2 Notes of
$285 million, net of offering costs and $5.4 million of interest reserve
deposit, will be used for acquisition of digital infrastructure investments,
funding of commitments to sponsored funds, redemption or repayment of other
higher cost corporate securities, and/or general corporate purposes.
The issuance of the Series 2021-1 Notes represents a key milestone for the
Company on a number of fronts:
?Longer-duration financing-We effectively refinanced our corporate credit
facility and extended the maturity of our revolving credit from 2022 to 2026.
?First-of-its-kind securitization backed by investment management fees.
?Lower cost of capital-Successful rotation from "diversified to digital" has
positioned us to issue securitized notes with a high-quality digital collateral
base, which lowers our effective cost of capital.
?Greater flexibility-This new financing structure, which we intend to continue
to utilize as it grows, creates greater flexibility around capital allocation
and corporate liability management, including our ability to retire higher cost
debt or securities and eventually pay regular dividends on our common stock.
•Preferred Stock-We redeemed all of our outstanding 7.5% Series G preferred
stock in August 2021 for $86.8 million using proceeds from our securitized
financing facility, which lowered our cost of corporate debt by approximately
350 basis points. Additionally, we issued notices of redemption in October 2021
for 2.6 million shares or 22% of our 7.125% Series H preferred stock with
redemption to be settled in November 2021 for $64.4 million. Redemption amounts
include accrued and unpaid dividends through the redemption date.
•Senior Notes-In October 2021, we exchanged approximately $44 million of the
outstanding principal of the 5.75% exchangeable notes into approximately 20
million shares of class A common stock, which will result in future interest
savings.
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Digital Business
Digital IM
•In February 2021, we announced the first closing of DCP II, our second flagship
digital infrastructure fund. As of November 4, 2021, DCP II has total
commitments of $8.1 billion (inclusive of $120 million of our commitments as
limited partner and general partner).
Digital Operating
•Our DataBank subsidiary completed its restructuring in the second quarter of
2021 and expects to elect REIT status for the 2021 taxable year, resulting in a
write-off of $67 million of net deferred tax liabilities.
•In February 2021, we completed the add-on acquisition of zColo's remaining five
data centers in France for $33 million.
•We acquired an additional data center and build-out of expansion capacity
within the Vantage SDC portfolio, including lease-up of the expanded capacity
and existing inventory, for aggregate payments of $478 million, funded primarily
through borrowings by Vantage SDC.
•In March 2021 and October 2021, DataBank raised $658 million and $332 million
of 5-year securitized notes at blended fixed rates of 2.32% and 2.43% per annum,
respectively. Proceeds from the March securitization were applied principally to
refinance $514 million of outstanding debt, which meaningfully reduced
DataBank's overall cost of debt and extended its debt maturities, while the
October proceeds will be used to repay borrowings on its credit facility and
finance future acquisitions.
•In November 2021, Vantage SDC issued $530 million of 5-year securitized notes
at a blended per annum fixed rate of 2.17%. Proceeds will be applied to replace
its current bridge financing and fund capital expenditures on the September 2021
add-on acquisition as well as to fund payments for future build-out and lease-up
of expansion capacity.
Other
•DCP II, together with other third party co-invest capital, acquired a digital
communications infrastructure business in October 2021. No capital was drawn
from DBRG's balance sheet to bridge the financing for this acquisition and
DBRG's previous commitment to a preferred equity investment has been cancelled.
Non-Digital Assets
•In the first half of 2021, we determined we would accelerate the monetization
of our remaining non-digital assets in Wellness Infrastructure, OED and Other
IM.
•In September 2021 and June 2021, we entered into separate definitive agreements
to sell (i) NRF Holdco, which holds our Wellness Infrastructure business, for
$281 million; and (ii) a substantial majority of our OED investments and Other
IM business for approximately $535 million.
•Based upon recoverable values, in particular, the sales price for the Wellness
Infrastructure assets, OED investments and Other IM business, the carrying
values of these assets were written down in for an aggregate $646 million, of
which $294 million was attributable to the OP, included in discontinued
operations.
•On April 30, 2021, we terminated the BRSP management contract, which resided in
the Other IM business, for a one-time termination payment of $102.3 million at
closing. Consequently, the Other IM goodwill balance of $81.6 million was fully
written off as the remaining value of the Other IM reporting unit represented
principally the BRSP management contract. This resulted in a net gain of $20.7
million, recognized within other gain (loss) in discontinued operations.
•In March 2021, we sold five of the six hotel portfolios in our Hospitality
segment and our 55.6% interest in the THL Hotel Portfolio in the Other segment,
generating net proceeds of $45.6 million. The transaction was valued at $2.8
billion, including aggregate selling price of $67.5 million and the buyer's
assumption of $2.7 billion of consolidated investment-level debt. The remaining
one hotel portfolio that was in receivership was sold by the lender in September
2021 for no proceeds to us.
•In August 2021, we sold 9.5 million BRSP shares for net proceeds of
approximately $82 million.
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•In April 2021, we received proceeds from the sale of the two largest assets
securing our Irish loan portfolio, which were applied to repay $305 million of
our outstanding loan receivable and extinguish the full $155 million of debt
financing the portfolio. This removed all encumbrances on the remaining assets
in the portfolio. Our share of excess net proceeds was $103.5 million. The Irish
loan portfolio is composed of distressed loans that were previously acquired at
a discount.
•For all current and prior periods presented, all non-digital assets that have
been disposed or subject to planned disposition and associated liabilities
(excluding our interest in BRSP other than BRSP shares and units held by NRF
Holdco) are presented as held for disposition, and the related operating results
are presented as discontinued operations (Notes 11 and 12 to the consolidated
financial statements).
Assets Under Management and Fee Earning Equity Under Management ("FEEUM")
Below is a summary of our AUM and FEEUM.
                                                                                                      AUM (1) (In billions)                        

FEEUM (2) (In billions)

                                                                                              September 30,                                 September 30,
      Type                       Products                         Description                     2021             December 31, 2020            2021             December 31, 2020
Digital
Third Party Managed Capital
Institutional           Digital Colony Partners          Earns management fees and           $          14.2       $             9.3       $          10.2       $             7.0
Funds                   opportunistic strategy           potential for carried
                                                         interest or incentive fees
                        Liquid securities strategy                                                       0.6                     0.5                   0.5                     0.4
Other Investment        Digital co-invest vehicles       Earns management fees,                         11.4                     9.9                   3.2                     2.6
Vehicles                                                 business service fees from
                                                         portfolio companies, and
                        Digital real estate and          potential for carried                          10.1                     8.9                   2.6                     2.8
                        infrastructure held by           interest
                        portfolio companies
                                                                                                        36.3                    28.6                  16.5                    12.8
Balance Sheet Capital (3)
Digital Operating                                                                                        1.2                     1.1                    NA                      NA
Other                                                                                                    0.3                     0.3                    NA                      NA

                                                                         Total Digital                  37.8                    30.0                  16.5                    12.8
Non-Digital (4)

Third Party Managed Capital                                                                              8.2                    13.4                   4.4                     7.2

Balance Sheet Capital (3)                                                                                3.4                     8.6                    NA                      NA
                                                                         Total Company       $          49.4       $            52.0       $          20.9       $            20.0


__________
(1)  AUM is composed of (a) third party managed capital, which are assets for
which the Company and its affiliates provide investment management services,
including assets for which the Company may or may not charge management fees
and/or performance allocations; and (b) assets invested using the Company's own
balance sheet capital and managed on behalf of the Company's shareholders. Third
party AUM is based upon the cost basis of managed investments as reported by
each underlying vehicle as of the reporting date and may include uncalled
capital commitments. Balance sheet AUM is based upon the undepreciated carrying
value of the Company's balance sheet investments as of the reporting date. The
Company's calculation of AUM may differ from other asset managers, and as a
result, may not be comparable to similar measures presented by other asset
managers.
(2)  FEEUM is equity for which the Company and its affiliates provide investment
management services and derive management fees and/or incentives. FEEUM
generally represents the basis used to derive fees, which may be based upon
invested equity, stockholders' equity, or fair value, pursuant to the terms of
each underlying investment management agreement. The Company's calculation of
FEEUM may differ from other asset managers, and as a result, may not be
comparable to similar measures presented by other asset managers.
(3)  Represents the Company's investment interests on its balance sheet,
excluding the portion held by noncontrolling interests in investment entities,
that is managed by the Company on behalf of its stockholders, therefore is not
fee-bearing. Balance sheet AUM reflects generally the OP's share of net book
value of the respective segments, determined based upon undepreciated carrying
value of assets, and where applicable, after impairment charges that create a
new basis for the affected assets, in all instances, net of liabilities.
(4)  Represents predominantly assets held for disposition and discontinued
operations.
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Total FEEUM increased $0.9 billion from December 31, 2020 to $20.9 billion at
September 30, 2021.
•Digital FEEUM increased $3.7 billion to $16.5 billion, attributable primarily
to the successful fundraising for DCP II and to a lesser extent, additional
capital from co-investment vehicles, both of which were partially offset by a
lower DCP I FEEUM as the fee base of DCP I changed from committed capital to net
capital contributions following the closing of DCP II. In the nine months ended
September 30, 2021, DCP II has raised $2.7 billion of capital, with an
additional $1.3 billion through November 4, 2021.
•Non-digital FEEUM decreased $2.8 billion, driven by the termination of our
management agreement with BRSP in April 2021, for which we received a one-time
termination fee of $102.3 million. Sales and fair value decreases in investments
held by our distressed credit funds further contributed to a lower non-digital
FEEUM. Our management contract with these funds and with NorthStar Healthcare
will be sold in conjunction with the disposition of our Other IM business and of
NRF Holdco, respectively.
Total AUM decreased $2.6 billion from December 31, 2020 to $49.4 billion at
September 30, 2021.
•This was driven by a significant decrease in our non-digital balance sheet
capital in 2021, attributed to the sale of our hospitality business, along with
sales and fair value decreases in OED investments. Upon completing the pending
disposition of a substantial majority of our OED investments and of NRF Holdco,
we expect our balance sheet capital to be fully rotated to digital by mid-2022.
•In 2021, we have made significant progress in the digital rotation of our
investment management business. As of September 30, 2021, Digital AUM at $36.3
billion, following a $7.8 billion increase in 2021, represents 77% of our total
AUM, up from 58% at December 31, 2020.
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Results of Operations The following table summarizes our consolidated results from continuing operations by reportable segments.

                                    Three Months Ended September 30,                             Nine Months Ended September 30,
(In thousands)                          2021                2020             Change                 2021                   2020              Change
Continuing Operations

Total revenues
Digital Investment Management       $   53,796          $  20,397          $ 33,399          $        131,789          $   60,545          $ 71,244
Digital Operating                      194,966             98,549            96,417                   573,261             185,737           387,524
Corporate and Other(1)                   3,412              4,071              (659)                    4,892              14,758            (9,866)
                                    $  252,174          $ 123,017           129,157          $        709,942          $  261,040           448,902

Income (loss) from continuing
operations
Digital Investment Management       $   39,272          $   3,799          $ 35,473          $         62,721          $    8,453          $ 54,268
Digital Operating                      (71,822)           (38,795)          (33,027)                 (146,932)            (78,472)          (68,460)
Corporate and Other                     (8,385)           (17,653)            9,268                   (99,240)           (454,097)          354,857
                                    $  (40,935)         $ (52,649)           11,714          $       (183,451)         $ (524,116)          340,665

Net income (loss) from
continuing operations
attributable to DigitalBridge
Group, Inc.
Digital Investment Management       $   16,870          $   1,964          $ 14,906          $         35,849          $    6,047          $ 29,802
Digital Operating                      (12,142)            (5,082)           (7,060)                  (22,592)            (12,885)           (9,707)
Corporate and Other                    (11,506)           (14,547)            3,041                   (99,898)           (403,820)          303,922
                                    $   (6,778)         $ (17,665)           10,887          $        (86,641)         $ (410,658)          324,017


__________
(1)  Includes elimination of fee income earned by Digital Investment Management
from managed investment vehicles consolidated within Digital Operating and
Corporate and Other.
Revenues
Total revenues increased $129.2 million quarter-to-date and $448.9 million
year-to-date, or over 100%.
•Digital Investment Management-Revenues from our investment management business
grew 164% to $53.8 million quarter-to-date and 118% to $131.8 million
year-to-date as a result of significant growth in our Digital IM FEEUM from $8.5
billion at September 30, 2020 to $16.5 billion at September 30, 2021 following
successful fundraising for DCP II and co-invest vehicles, including capital
raised alongside our balance sheet for new acquisitions in Digital Operating.
The third quarter of 2021 also included a catch-up of DCP II inception-to-date
fee income for significant commitments that closed during the period.
•Digital Operating-2021 includes revenues from acquisition of Vantage SDC's 12
hyperscale data centers (13% DBRG ownership) in July 2020 and zColo's 44
colocation data centers (through our subsidiary, DataBank, 20% DBRG ownership)
in December 2020 and February 2021.
Income (loss) from continuing operations
•Digital Investment Management-In addition to higher fee income in 2021, the
third quarter of 2021 also recorded significant unrealized carried interest
income, of which generally 65% is allocated to management, investment
professionals and certain other employees.
•Digital Operating-Our Digital Operating segment generally records a net loss,
reflecting the effects of real estate depreciation. In year-to-date 2021, net
loss in Digital Operating was reduced by a $66.8 million net deferred tax
benefit at our DataBank subsidiary, driven by the write-off of deferred tax
liabilities as DataBank completed its restructuring to qualify as a REIT in the
second quarter and expects to elect REIT status for the 2021 taxable year. We
present our supplemental operating results measure of earnings before interest,
tax, depreciation and amortization for real estate ("EBITDAre") for Digital
Operating under "-Non-GAAP Measures".
•Corporate and Other-Net losses generally reflect corporate level costs that
have not been allocated to our reportable segments. In the year-to-date period,
however, the large net losses were driven by impairment of our various other
equity investments, primarily BRSP in which we recorded a $254.5 million charge
in June 2020.
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Key components of revenue and income (loss) from continuing operations are
discussed in more detail below.
Comparison of Three and Nine Months September 30, 2021 to Three and Nine Months
September 30, 2020
                                               Three Months Ended September 30,                              Nine Months Ended September 30,
(In thousands)                                     2021                2020              Change                 2021                   2020                Change
Revenues
Property operating income                      $  194,854          $   98,522          $ 96,332          $       572,841          $    185,688          $  387,153
Interest income                                     3,086               1,258             1,828                    5,259                 5,164                  95
Fee income                                         50,226              19,914            30,312                  124,826                59,165              65,661
Other income                                        4,008               3,323               685                    7,016                11,023              (4,007)
Total revenues                                    252,174             123,017           129,157                  709,942               261,040             448,902
Expenses
Property operating expense                         80,226              37,544            42,682                  237,228                72,505             164,723
Interest expense                                   39,895              29,999             9,896                  117,613                69,935              47,678
Investment expense                                  7,263               4,489             2,774                   20,027                 9,228              10,799
Transaction-related costs                             936               3,311            (2,375)                   2,618                 3,992              (1,374)
Depreciation and amortization                     129,186              80,564            48,622                  406,840               155,387             251,453
Impairment loss                                         -               3,832            (3,832)                       -                16,129             (16,129)
Compensation expense, including carried
interest                                           87,669              37,312            50,357                  222,887               119,996             102,891
Administrative expenses                            28,933              16,551            12,382                   75,234                57,129              18,105
Settlement loss                                         -                   -                 -                        -                 5,090              (5,090)
Total expenses                                    374,108             213,602           160,506                1,082,447               509,391             573,056
Other income (loss)

  Other gain (loss), net                            4,657               1,339             3,318                  (31,734)                 (632)            (31,102)
Equity method earnings (losses),
including carried interest                         65,369              23,371            41,998                  111,380              (303,493)            414,873
Loss before income taxes                          (51,908)            (65,875)           13,967                 (292,859)             (552,476)            259,617
   Income tax benefit                              10,973              13,226            (2,253)                 109,408                28,360              81,048
Loss from continuing operations                   (40,935)            (52,649)           11,714                 (183,451)             (524,116)   

340,665

Loss from discontinued operations                 (10,429)           (308,581)          298,152                 (590,595)           (2,960,164)          2,369,569
Net loss                                          (51,364)           (361,230)          309,866                 (774,046)           (3,484,280)          2,710,234
Net income (loss) attributable to
noncontrolling interests:
Redeemable noncontrolling interests                 7,269              (2,158)            9,427                   15,743                (2,316)             18,059
 Investment entities                             (124,301)           (149,154)           24,853                 (443,547)             (640,955)            197,408
 Operating Company                                  4,311             (22,651)           26,962                  (38,565)             (287,308)            248,743
Net income (loss) attributable to
DigitalBridge Group, Inc.                          61,357            (187,267)          248,624                 (307,677)           (2,553,701)          2,246,024
Preferred stock redemption                          2,865                   -             2,865                    2,865                     -               2,865
Preferred stock dividends                          17,456              18,517            (1,061)                  54,488                56,507              (2,019)
Net income (loss) attributable to common
stockholders                                   $   41,036          $ (205,784)          246,820          $      (365,030)         $ (2,610,208)          2,245,178




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Property Operating Income and Expense

                                              Three Months Ended September
                                                           30,                                       Nine Months Ended September 30,
(In thousands)                                   2021               2020             Change              2021                2020              Change
Digital Operating
Property operating income
Lease income                                 $  175,238          $ 86,960

$ 88,278 $ 522,712 $ 150,959 $ 371,753 Data center service revenue

                      19,616            11,562             8,054              50,129             34,729             15,400
                                             $  194,854          $ 98,522            96,332          $  572,841          $ 185,688            387,153

Property operating expense                   $   80,226          $ 37,544            42,682          $  237,228          $  72,505            164,723


Property operating income and expense amounts are higher in 2021, which includes
the operating results of zColo's 44 colocation data centers, acquired in
December 2020 and February 2021, Vantage SDC's 12 hyperscale data centers,
acquired in July 2020, and additional lease-up of expanded capacity and existing
inventory in Vantage in 2021.
Total real estate carrying value in our Digital Operating segment stood at $4.91
billion at September 30, 2021 compared to $4.45 billion at December 31, 2020.
Our portfolio includes 68 data centers in the U.S., three in Canada, one in the
U.K., and five in France.
                                                                      September 30, 2021             December 31, 2020
Number of data centers
Owned                                                                                    26                            25
Leasehold                                                                                51                            46
                                                                                         77                            71

(In thousands, except %) Max Critical I.T. Square Feet or Total Rentable Square Feet (1)

                                                                                   1,820                         1,720
Leased Square Feet (1)                                                                1,467                         1,386
% Utilization Rate (% Leased) (1)                                                     80.6%                         80.6%

__________

(1)  Excludes data centers that are not held for the entire period during the
most recent quarter; in this case, one data center that was acquired during the
quarter ended September 30, 2021.
On a same store basis, property operating income and expense also increased
quarter-to-date and year-to-date, reflecting an increase in rentable square
footage. Additionally, in the year-to-date period, higher power costs were
incurred in connection with inclement weather conditions, with the incremental
cost billed to our colocation tenants.
Interest Income
Interest income was $1.8 million higher quarter-to-date and largely consistent
in the year-to-date period. In 2021, there was additional interest income from
new loans originated or acquired that are being warehoused for future investment
vehicles in our digital credit strategy. However, for the year-to-date period,
this increase was largely offset by lower interest income on available cash in
2021 as proceeds from the sale of our light industrial business in December 2019
have since been redeployed.
Fee Income
                                    Three Months Ended September
                                                30,                                       Nine Months Ended September 30,
(In thousands)                         2021              2020             Change              2021               2020             Change
Digital Investment
Management
Management fees                    $  47,719          $ 18,826          $ 28,893          $  115,185          $ 55,371          $ 59,814
Incentive fees                         1,313                 -             1,313               6,396                 -             6,396
Other fee income                       1,194             1,088               106               3,245             3,794              (549)
                                   $  50,226          $ 19,914            30,312          $  124,826          $ 59,165            65,661


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Fee income was higher by $30.3 million quarter-to-date and $65.7 million
year-to-date. The increase was driven by: (i) fundraising for DCP II beginning
November 2020, partially offset by lower fees from DCP I in 2021 with a change
in its fee base from committed capital to net contributed capital following the
closing of DCP II; and (ii) incentive fees earned based upon the performance of
managed third party accounts in our digital liquid strategy. In particular,
there was a larger contribution of fee income from DCP II in the third quarter
of 2021 following the closing of $1.0 billion of commitments during this period
and a catch-up of inception-to-date fee income for the new investors.
Other Income
There was a marginal increase in other income quarter-to-date. In the
year-to-date period, other income decreased $4.0 million, which can be
attributed primarily to lower cost reimbursements from our investment holding
entities.
Interest Expense
                                                Three Months Ended September
                                                            30,                                      Nine Months Ended September 30,
(In thousands)                                     2021              2020             Change             2021               2020             Change
Digital Investment Management                  $   2,250          $      -  

$ 2,250 $ 2,250 $ - $ 2,250 Digital Operating

                                 29,839            18,589           11,250              90,243            36,161           54,082
Other investment-level debt                          268                 -              268                 268                 -              268
Corporate-level debt                               7,538            11,410           (3,872)             24,852            33,774           (8,922)
                                               $  39,895          $ 29,999            9,896          $  117,613          $ 69,935           47,678


Digital Investment Management-This represents interest expense from our
securitized financing facility beginning in July 2021 as the $300 million term
loan is attributed largely to the Digital IM segment.
Digital Operating-The increase of $11.3 million quarter-to-date and $54.1
million year-to-date is attributed to interest expense incurred on debt
financing the zColo portfolio, acquired in December 2020, and an additional
acquisition by DataBank in the third quarter of 2021, interest expense from our
securitized financing facility which is partially allocated to the Digital
Operating segment, and for the year-to-date period, debt financing the Vantage
SDC portfolio, acquired in July 2020. This increase was partially offset by
lower interest expense on the DataBank portfolio following its March 2021
securitization transaction which meaningfully reduced its cost of debt.
DataBank's weighted average interest rate was 6.1% per annum as of December 31,
2020 and 2.4% per annum as of March 2021 post-securitization.
Overall, at September 30, 2021, our data center portfolio was financed by an
aggregate $3.82 billion of outstanding debt principal ($3.23 billion at
December 31, 2020), bearing a combined weighted average interest rate of 2.91%
per annum (3.69% per annum at December 31, 2020).
Other Investment-level Debt-This represents primarily interest expense from our
securitized financing facility that is partially allocated to our digital credit
and digital liquid investments on the balance sheet.
Corporate-level Debt-Interest expense was $3.9 million lower quarter-to-date and
$8.9 million lower year-to-date. This can be attributed to a higher average
outstanding balance in 2020 on our corporate credit facility which was
terminated in July 2021, and additionally, for the year-to-date period, a
proportional write-off of deferred financing costs in June 2020 to reflect a
previous reduction in the corporate credit facility amount. This decrease was
partially offset by a net increase in interest expense on our senior notes, with
a higher interest rate on the new exchangeable notes issued in July 2020 (5.75%
per annum) relative to the convertible notes that were substantially repurchased
in the third quarter of 2020 and fully repaid in January 2021 (3.875% per
annum).
Investment Expense
Investment expense was $2.8 million higher quarter-to-date and $10.8 million
higher year-to-date. The increase was related primarily to management fees paid
to Vantage for the day-to-day operations of Vantage SDC beginning the end of
July 2020, fees paid in 2021 for transitional services in connection with the
zColo portfolio, and reimbursable due diligence costs incurred in our investment
management business.
Transaction-Related Costs
Transaction-related costs were generally in connection with unconsummated
investments and corporate restructuring transactions.
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Depreciation and Amortization
Increase in depreciation and amortization expense is primarily related to real
estate and intangible assets from acquisition of Vantage SDC in July 2020,
including additional lease-up of expanded capacity and existing inventory in
2021, and zColo in December 2020.
Impairment Loss
Impairment loss in 2020 reflects: (i) reduced cash flows from the original
Vantage management contract, which was replaced by a new fee stream from third
party capital that was raised in our acquisition of Vantage SDC from its
existing owners; and (ii) write down to recoverable value on the corporate
aircraft prior to its sale in January 2021.
Compensation Expense
                              Three Months Ended September
                                          30,                                       Nine Months Ended September 30,
(In thousands)                   2021              2020             Change              2021                2020             Change
Cash compensation and
benefits                     $  49,019          $ 31,403          $ 17,616

$ 152,325 $ 102,645 $ 49,680 Equity-based compensation 6,914

             4,997             1,917              30,593             16,439            14,154
Incentive and carried
interest compensation           31,736               912            30,824              39,969                912            39,057
                             $  87,669          $ 37,312            50,357          $  222,887          $ 119,996           102,891


Total compensation expense was $50.4 million higher quarter-to-date and $102.9
million higher year-to-date, driven primarily by:
•significant severance payments, including acceleration of equity-based
compensation in the first quarter of 2021; and
•incentive and carried interest compensation accrued in 2021, representing a
portion of incentive fees earned and unrealized carried interest from our
managed accounts and sponsored investment vehicles that are shared with
management and certain employees.
Unlike incentive fees and related compensation which have been earned,
unrealized carried interest and corresponding compensation amounts are subject
to adjustments each period, including reversals, until such time they are
realized, based upon the cumulative performance of the underlying investments of
the respective vehicles that are carried at fair value.
Administrative Expenses
Administrative expense increased $12.4 million quarter-to-date and $18.1 million
year-to-date, attributable largely to administrative costs associated with our
new zColo portfolio, growth in our Digital Operating business, placement fees
incurred in fundraising for DCP II, higher professional fees, and costs incurred
in connection with our 2021 investor conference.
Settlement Loss
Settlement loss recognized in 2020 represents the initial fair value of the
settlement arrangement with Blackwells and the reimbursement of legal costs
incurred by Blackwells. Refer to additional discussion in Note 13 to the
consolidated financial statements.
Other Gain (Loss)
The large year-to-date loss in 2021 can be attributed to a write-off of an
equity investment in the second quarter of 2021 that was determined to be
unrecoverable. Additionally, we recorded losses from increase in value of the
Blackwells settlement liability in all periods prior to its settlement in June
2021 based upon an increase in the DBRG stock price, which was more pronounced
in 2021 (refer to Note 13 to the consolidated financial statements).
During 2021, however, there were also fair value increases in our marketable
equity securities, held primarily by our consolidated digital liquid securities
funds. Unlike the year-to-date period, these gains were not offset by various
other losses in the third quarter of 2021.
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Equity Method Earnings (Losses)

                              Three Months Ended September
                                          30,                                        Nine Months Ended September 30,
(In thousands)                   2021              2020             Change              2021                2020              Change
Digital Investment
Management                   $  59,196          $  6,134          $ 53,062          $   70,203          $    6,295          $ 63,908
Other                            6,173            17,237           (11,064)             41,177            (309,788)          350,965
                             $  65,369          $ 23,371            41,998          $  111,380          $ (303,493)          414,873


Digital Investment Management-These amounts represent earnings, predominantly
unrealized carried interest income, from our general partner interests in
sponsored investment vehicles. Carried interest income 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 realized.
Other-These amounts are driven primarily by our investment in BRSP. The large
equity method loss year-to-date 2020 can be attributed to $254.5 million of
impairment charge on our equity investment in BRSP in June 2020 (excluding
amounts associated with BRSP shares and units held by NRF Holdco that is
presented as discontinued operations). Additionally, our share of BRSP's net
losses was higher overall in 2020 as a result of the economic effects of
COVID-19. We also recorded net losses from BRSP in 2021, attributable largely to
investment write-downs and BRSP's restructuring costs, including the BRSP
management contract termination fee that was paid to us. These net losses from
BRSP, however, were reduced by a higher basis difference in 2021 year-to-date of
$95.5 million compared to $38.1 million in 2020 year-to-date. The basis
difference were allocated to investments that were resolved or written-down by
BRSP during these periods and also, in proportion to the Company's ownership in
BRSP that was disposed in August 2021 (Note 5 to consolidated financial
statements).
Additionally, 2021 included a gain from partial realization of another equity
investment that had unrealized losses in 2020; and higher contribution of
earnings, primarily from our limited partner interests in DCP I and DCP II
funds, which include unrealized fair value changes on their underlying
investments.
Income Tax Benefit
Income tax benefit decreased $2.3 million quarter-to-date as 2020 included a
deferred tax benefit at our DataBank subsidiary compared to a tax expense in the
third quarter of 2021, and additionally, a higher tax expense in 2021 from an
increase in fee income. These income tax expense items in 2021, however, were
partially offset by additional deferred tax benefit in relation to higher
compensation expense in 2021.
The large income tax benefit year-to-date in 2021 arose primarily from a $66.8
million net deferred tax benefit at our DataBank subsidiary, driven by the
write-off of deferred tax liabilities as DataBank completed its restructuring to
qualify as a REIT in the second quarter and expects to elect REIT status for the
2021 taxable year. Additionally, higher deferred tax benefit was also recorded
in relation to an increase in compensation expense, primarily significant
severance costs incurred in the first quarter of 2021.
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Income (loss) from Discontinued Operations

                                     Three Months Ended September 30,                                Nine Months Ended September 30,
(In thousands)                           2021                2020               Change                  2021                   2020                Change

Revenues                             $  218,456          $  343,701          $ (125,245)         $       695,186          $  1,095,931          $ (400,745)
Expenses                               (199,369)           (566,732)            367,363               (1,162,513)           (3,816,986)          2,654,473

Other loss                              (26,765)            (82,469)             55,704                 (100,330)             (204,850)            104,520

Income tax expense                       (2,751)             (3,081)                330                  (22,938)              (34,259)             11,321
Loss from discontinued
operations                              (10,429)           (308,581)            298,152                 (590,595)           (2,960,164)          2,369,569
Income (loss) from
discontinued operations
attributable to noncontrolling
interests:
Investment entities                     (85,741)           (120,299)             34,558                 (346,205)             (581,204)            234,999
Operating Company                         7,177             (18,680)             25,857                  (23,354)             (235,917)            212,563
Income (loss) from
discontinued operations
attributable to DigitalBridge
Group, Inc.                          $   68,135          $ (169,602)            237,737          $      (221,036)         $ (2,143,043)          1,922,007


Discontinued operations represent primarily the operations of the following
businesses: (1) Wellness Infrastructure; (2) opportunistic investments in our
OED portfolio; (3) credit investment management business in Other IM; and (4)
prior to its disposition in March 2021, the Company's hotel business, with the
remaining hotel portfolio that was in receivership sold by the lender in
September 2021.
Results from discontinued operations reflect the sale of our hotel business in
March 2021 and monetization of various properties in our Wellness Infrastructure
segment in the first six months of 2021.
Losses in the year-to-date period are driven by significant impairment expense
and decreases in asset fair values, particularly in the second quarter of 2020.
Our determination to accelerate our digital transformation in the second quarter
of 2020 necessitated an assumption of accelerated monetization of all of our
non-digital businesses in estimating recoverable values and in combination with
the negative economic effects of COVID-19, resulted in significant write-down in
asset values. In the year-to-date period in 2021, asset values were further
written-down, but to a much lesser extent than in 2020, based upon recoverable
values, in particular, the respective sales price for our Wellness
Infrastructure, and OED and Other IM business.
The third quarter of 2021, however, benefited from significantly less
depreciation and amortization expense. Additionally, impairment of our
investment assets were largely offset by various gains recognized during the
period, including a gain on extinguishment of debt on our hotel portfolio that
was sold in September 2021. Such gains were attributed predominantly to DBRG
while impairment loss was largely attributable to noncontrolling interests in
investment entities, resulting in a net income attributed to DBRG in the third
quarter of 2021.
Further discussion on the monetization of our discontinued businesses is
included above under "-Business."
Preferred Stock Redemption
In connection with the redemption of Series G preferred stock in August 2021,
net income attributable to common stockholders was reduced by $2.9 million,
representing the excess of the $25.00 per share redemption price over the
carrying value of the preferred stock which is net of issuance cost.
Non-GAAP Supplemental Financial Measures
We report Company-wide funds from operations ("FFO") and for the Digital
Operating segment, earnings before interest, tax, depreciation and amortization
for real estate ("EBITDAre"), both of which are supplemental non-GAAP financial
measures widely used in the equity REIT industry. These non-GAAP measures should
not be considered alternatives to GAAP net income (loss) as indications of
operating performance, or to cash flows from operating activities as measures of
liquidity, nor as indications of the availability of funds for our cash needs,
including funds available to make distributions. Our calculation of FFO and
EBITDAre may differ from methodologies utilized by other REITs for similar
performance measurements, and, accordingly, may not be comparable to those of
other REITs.
Funds from Operations
We calculate FFO in accordance with standards established by the National
Association of Real Estate Investment Trusts ("NAREIT"), which defines FFO as
net income or loss calculated in accordance with GAAP, excluding (i) real
estate-related depreciation and amortization; (ii) impairment of depreciable
real estate and impairment of investments in unconsolidated ventures directly
attributable to decrease in value of depreciable real estate held by the
venture; (iii) gain
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from sale of depreciable real estate; (iv) gain or loss from a change in control
in connection with interests in depreciable real estate or in-substance real
estate; and (v) adjustments to reflect the Company's share of FFO from
investments in unconsolidated ventures. Included in FFO are gains and losses
from sales of assets which are not depreciable real estate such as loans
receivable, equity investments, and debt securities, as applicable.
We believe that FFO is a meaningful supplemental measure of the operating
performance of our business because historical cost accounting for real estate
assets in accordance with GAAP assumes that the value of real estate assets
diminishes predictably over time, as reflected through depreciation. Because
real estate values fluctuate with market conditions, management considers FFO an
appropriate supplemental performance measure by excluding historical cost
depreciation, gains related to sales of previously depreciated real estate, and
impairment of previously depreciated real estate which is an early recognition
of loss on sale.
The following table presents a reconciliation of net income (loss) attributable
to common stockholders to FFO attributable to common interests in OP and common
stockholders, both of which include results from discontinued operations.
Amounts in the table include our share of the relevant activities from equity
method investments, where applicable.
                                                       Three Months Ended September 30,           Nine Months Ended September 30,
(In thousands)                                             2021               2020                   2021                   2020
Net income (loss) attributable to common
stockholders                                           $  41,036          $ (205,784)         $      (365,030)         $ (2,610,208)
Adjustments for FFO attributable to common
interests in OP and common stockholders:
Net income (loss) attributable to noncontrolling
common interests in Operating Company                      4,311             (22,651)                 (38,565)             (287,308)
Real estate depreciation and amortization
($6,825, $87,263, $99,794 and $284,472 related
to discontinued operations)                              126,494             162,705                  461,714               424,950
(Reversal of) Impairment of real
estate-discontinued operations                            (8,210)            142,767                  340,770             1,925,297
Gain on sale of real estate-discontinued
operations                                                  (514)            (12,332)                 (41,585)              (15,346)
Adjustments attributable to noncontrolling
interests in investment entities(1)                      (95,512)           (146,905)                (446,029)             (558,835)
FFO attributable to common interests in OP and
common stockholders ($75,275, ($52,435), $2,336
and ($635,777) related to discontinued
operations)                                            $  67,605          $  (82,200)         $       (88,725)         $ (1,121,450)


__________

(1) The components of adjustments attributable to noncontrolling interests in investment entities for FFO are as follows:

                                                     Three Months Ended 

September 30, Nine Months Ended September 30, (In thousands)

                                           2021                2020               2021                2020
FFO adjustments attributable to noncontrolling
interests in investment entities:
Real estate depreciation and amortization
($4,161, $19,198, $29,401 and $70,872 related
to discontinued operations)                          $  101,535          $  84,252          $  323,177          $ 178,466
(Reversal of) Impairment of real
estate-discontinued operations                           (5,999)            70,734             123,590            390,708
Gain on sale of real estate-discontinued
operations                                                  (24)            (8,081)               (738)           (10,339)
                                                     $   95,512          $ 146,905          $  446,029          $ 558,835


EBITDAre
We calculate EBITDAre for our Digital Operating segment in accordance with
standards established by NAREIT, which defines EBITDAre as net income or loss
calculated in accordance with GAAP, excluding (i) interest expense; (ii) income
tax benefit or expense; (iii) depreciation and amortization; (iv) impairment of
depreciable real estate and impairment of investments in unconsolidated ventures
directly attributable to decrease in value of depreciable real estate held by
the venture; (v) gain on disposition of depreciated real estate; (vi) gain or
loss from a change in control in connection with interests in depreciable real
estate or in-substance real estate; and (vii) adjustments to reflect the
Company's share of EBITDAre from investments in unconsolidated ventures.
EBITDAre represents a widely known supplemental measure of performance, EBITDA,
but for real estate entities, which we believe is particularly helpful for
generalist investors in REITs. EBITDAre depicts the operating performance of a
real estate business independent of its capital structure, leverage and noncash
items, which allows for comparability across real estate entities with different
capital structure, tax rates and depreciation or amortization policies.
Additionally, exclusion of gains on disposition and impairment of depreciated
real estate, similar to FFO, also provides a reflection of ongoing operating
performance and allows for period-over-period comparability.
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As with other non-GAAP measures, the usefulness of EBITDAre may be limited. For
example, EBITDAre focuses on profitability from operations, and does not take
into account financing costs, and capital expenditures needed to maintain
operating real estate.
EBITDAre generated by our Digital Operating segment is as follows.
                                           Three Months Ended September
                                                        30,                                       Nine Months Ended September 30,
(In thousands)                                2021               2020             Change              2021                2020              Change
Digital Operating
Total revenues                            $  194,966          $ 98,549

$ 96,417 $ 573,261 $ 185,737 $ 387,524 Property operating expenses

                  (80,226)          (37,544)          (42,682)           (237,228)           (72,505)          (164,723)
Transaction-related costs and
investment expense                            (4,862)           (2,362)           (2,500)            (16,682)            (3,375)           (13,307)
Compensation and administrative
expense                                      (29,766)          (11,863)          (17,903)            (84,201)           (34,983)           (49,218)
Other gain (loss), net                           285               (45)              330                 (67)               (45)               (22)
EBITDAre                                  $   80,397          $ 46,735            33,662          $  235,083          $  74,829            160,254

The following table presents a reconciliation of net loss to EBITDAre for the Digital Operating segment.

                                                       Three Months Ended 

September 30, Nine Months Ended September 30, (In thousands)

                                             2021                2020                2021                2020
Digital Operating
Net loss                                               $  (71,822)

$ (38,795) $ (146,932) $ (78,472) Adjustments: Interest expense

                                           29,839             18,589               90,243             36,161
Depreciation and amortization                             120,458             73,032              368,906            131,634

Income tax expense (benefit)                                1,922             (6,091)             (77,134)           (14,494)
EBITDAre                                               $   80,397          $  46,735          $   235,083          $  74,829


The higher 2021 year-to-date EBITDAre reflects the acquisition Vantage SDC in
July 2020 and zColo in December 2020 and February 2021.
On a same store basis, EBITDAre was largely consistent quarter-to-date and
year-to-date. While there was an increase in revenues attributed to an increase
in rentable square footage, this was mostly offset by higher compensation and
administrative costs as we ramped up resources to support the growth in our
business, and additional costs were incurred in the restructuring of DataBank's
operations for REIT qualification.
Liquidity and Capital Resources
Overview
We believe that our capital resources are sufficient to meet our short-term and
long-term capital requirements.
Our liquidity position was $774 million at September 30, 2021, composed of
corporate cash on hand and the full $200 million availability under our VFN
Notes.
We regularly evaluate our liquidity position, debt obligations, and anticipated
cash needs to fund our operating and investing activities, based upon our
projected financial and operating performance, and investment opportunities as
we divest non-digital assets and complete our digital transformation. Our
evaluation of future liquidity requirements is regularly reviewed and updated
for changes in internal projections, economic conditions, competitive landscape
and other factors. At this time, while we are in compliance with all of our
corporate debt covenants and 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 provide further operational
and strategic flexibility. Stabilizing our capital structure and liquidity in
2020 has put us in a stronger position to execute our digital transformation.
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Recent Developments
Securitized Financing Facility
In July 2021, we replaced our corporate credit facility with the issuance of
$500 million aggregate principal amount of Series 2021-1 Notes, composed of: (i)
$300 million 3.933% Class A-2 Notes; and (ii) up to $200 million VFN Notes which
allow for borrowings on a revolving basis.
•These Series 2021-1 Notes provide a lower cost of capital, extend our revolving
credit maturity to 2026 from 2022, and removes certain restrictions under our
previous corporate credit facility around dividend payments and stock
repurchases.
•Issuance of the Class A-2 Notes generated proceeds of $285.1 million, net of
offering expenses and $5.4 million of interest reserve deposit.
•The Series 2021-1 Notes will provide funding for acquisition of digital
infrastructure investments, satisfying commitments to sponsored funds,
redemption or repayment of other higher cost corporate securities, and/or for
general corporate utilization.
Preferred Stock Redemption
We redeemed all of our outstanding 7.5% Series G preferred stock in August 2021
for $86.8 million using proceeds from our securitized financing facility, which
lowered our cost of corporate debt by approximately 350 basis points.
Additionally, we issued notices of redemption in October 2021 for 2.6 million
shares or 22% of our 7.125% Series H preferred stock with redemption to be
settled with cash on hand in November 2021 for $64.4 million. Redemption amounts
include accrued and unpaid dividends through the redemption date.
Liquidity Needs and Sources of Liquidity
Our current primary liquidity needs are to fund:
•our general partner and co-investment commitments to our investment vehicles;
•acquisitions of target digital assets for our balance sheet and related ongoing
commitments;
•principal and interest payments on our debt;
•our operations, including compensation, administrative and overhead costs;
•obligation for lease payments, principally leasehold data centers and corporate
offices;
•capital expenditures for our real estate investments;
•distributions to our common and preferred stockholders (to the extent
distributions have not been suspended); and
•income tax liabilities of taxable REIT subsidiaries and of the Company subject
to limitations as a REIT.
Our current primary sources of liquidity are:
•cash on hand;
•our corporate securitization financing facility;
•cash flow generated from our investments, both from operations and return of
capital;
•fees received from our investment management business, including incentive or
carried interest payments, if any;
•proceeds from full or partial realization of investments and/or businesses,
particularly from investments in the Other segment;
•investment-level financing;
•proceeds from public or private equity and debt offerings; and
•third party co-investors in our consolidated investments and/or businesses.
Liquidity Needs
Investment Commitments
As of September 30, 2021, we have unfunded commitments of $117 million to the
DCP funds. We expect to fund our commitments using proceeds from issuance of our
Class A-2 Notes, sales of our BRSP shares and/or other future asset
monetization, cash on hand or a combination thereof.
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Lease Obligations
At September 30, 2021, we have $143.6 million and $310.4 million of finance and
operating lease obligations, respectively, that were assumed through
acquisitions, primarily leasehold data centers, and $43.0 million of operating
lease obligations on corporate offices. These amounts represent fixed lease
payments on an undiscounted basis, 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. Certain lease payments
under ground leases are recoverable from our tenants. These lease obligations
will be funded through operating cash generated by the investment properties and
corporate operating cash, respectively.
Dividends
U.S. federal income tax law generally requires that a REIT distribute annually
at least 90% of its REIT taxable income, without regard to the deduction for
dividends paid and excluding net capital gains, and that it pay tax at regular
corporate rates to the extent that it annually distributes less than 100% of its
net taxable income. These distribution requirements may constrain our ability to
accumulate operating cash flows. We intend to pay regular quarterly dividends to
our stockholders in an amount equal to our net taxable income, if and to the
extent authorized by our board of directors. Before we pay any dividend, whether
for U.S. federal income tax purposes or otherwise, we must first meet both our
operating requirements and debt service, including complying with any
restrictions imposed by our lenders. If our cash available for distribution is
less than our net taxable income, we may be required to sell assets or borrow
funds to make cash distributions or we may make a portion of the required
distribution in the form of a taxable stock distribution or distribution of debt
securities.
Common Stock-The Company suspended dividends on its class A common stock
beginning with the second quarter of 2020. Payment of common dividends was
previously subject to certain restrictions under the terms of the corporate
credit facility, which was terminated in July 2021. The Company continues to
monitor its financial performance and liquidity position, and will reevaluate
its dividend policy as conditions improve.
Preferred Stock-After redeeming Series G preferred stock in August 2021 and
incorporating a partial redemption of Series H preferred stock that will settle
in November 2021, our outstanding preferred stock is expected to total $883.5
million in liquidation preference, bearing a weighted average dividend rate of
7.135% per annum, with aggregate dividend payments of $15.8 million per quarter.
Sources of Liquidity
Cash From Operations
Our investments generate cash, either from operations or as a return of our
invested capital. We primarily generate revenue from net operating income of our
digital infrastructure business, which is partially offset by interest expense
associated with non-recourse borrowings on our digital portfolio. We also
receive periodic distributions from our equity investments, including our GP
co-investments.
Additionally, we generate fee related earnings from our digital investment
management business, of which 31.5% is attributable to our noncontrolling
investor, Wafra. Management fee income is generally a predictable and stable
revenue stream, while carried interest and contractual incentive fees are by
nature less predictable in amount and timing. Our ability to establish new
investment vehicles and raise investor capital depends on general market
conditions and availability of attractive investment opportunities as well as
availability of debt capital.
Asset Monetization
We periodically monetize our investments through opportunistic asset sales or to
recycle capital from non-core assets. In August 2021, we sold 9.5 million BRSP
shares through a secondary offering by BRSP for net proceeds of approximately
$81.8 million. As we complete our digital transformation, we anticipate
monetizing a substantial majority of our OED assets and our Wellness
Infrastructure assets.
Debt
Description of our debt is included in Note 8 to the consolidated financial
statements (and Note 11 for debt related to assets held for disposition).
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Summary of Indebtedness
Our indebtedness at September 30, 2021 is summarized as follows:
                                                                                Weighted Average         Weighted Average
                                                           Outstanding            Interest Rate           Years Remaining
($ in thousands)                                            Principal              (Per Annum)            to Maturity (1)
Secured Fund Fee Revenue Notes                           $    300,000                      3.93  %                     5.0
Convertible and exchangeable senior notes                     500,000                      5.45  %                     2.9
Non-recourse investment level financing
Fixed rate                                                  2,786,223                      2.49  %
Variable rate                                               1,035,017                      4.04  %
                                                            3,821,240                      2.91  %                     3.7
Total debt (excluding amounts related to assets
held for disposition)                                    $  4,621,240

Debt related to assets held for disposition (to be assumed by counterparty)

$  3,554,000

__________

(1)  Calculated based upon anticipated repayment dates for notes issued under
securitization financing; otherwise based upon initial maturity dates, or
extended maturity dates if extension criteria are met and extension is available
at the Company's option.
Securitized Financing Facility
As discussed above and further in Note 8 to the consolidated financial
statements, we replaced our corporate credit facility with a securitized
financing facility in July 2021 through the issuance of $300 million 3.933%
Class A-2 Notes, and $200 million of VFN Notes which is available to be drawn in
full as of the date of this filing.
Non-Recourse Investment-Level Financing
Investment level financing is non-recourse to us, and secured by the respective
underlying commercial real estate or loans receivable.
Developments in 2021
•Digital Operating-In March 2021 and October 2021, DataBank raised $658 million
and $332 million of 5-year securitized notes at blended fixed rates of 2.32% and
2.43% per annum, respectively. Proceeds from the March securitization were
applied principally to refinance $514 million of outstanding debt, which
meaningfully reduced DataBank's overall cost of debt and extended its debt
maturities, while the October proceeds will be used to repay borrowings on its
credit facility and finance future acquisitions.
In November 2021, Vantage SDC issued $530 million of 5-year securitized notes at
a blended fixed rate of 2.17% per annum. Proceeds will be applied to replace its
current bridge financing and fund capital expenditures on the September 2021
add-on acquisition as well as to fund payments for future build-out and lease-up
of expansion capacity.
•Other-In the third quarter of 2021, the Company entered into a $50.0 million
credit facility to fund the acquisition of loans that are warehoused for a
future securitization vehicle.
•Hotels-$3.5 billion of underlying hotel debt (previously classified as held for
disposition) have been assumed by the acquirers upon sale of our hotel assets,
resulting in a significant deleveraging of our balance sheet.
We expect to materially deleverage our balance sheet further when we consummate
the sales of our remaining non-digital assets, which will include the assumption
of all underlying debt, through a sale of our OED investments in the fourth
quarter of 2021 and our NRF Holdco subsidiary that conducts our Wellness
Infrastructure business in 2022, which have outstanding debt of $687.7 million
and $2.87 billion, respectively, at September 30, 2021.
Public Offerings
We may offer and sell various types of securities under our shelf registration
statement. These securities may be issued from time to time at our discretion
based on our needs and depending upon market conditions and available pricing.
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Cash Flows
The following table summarizes the activities from our statements of cash flows.
                                               Nine Months Ended September 30,
(In thousands)                                       2021                      2020
Net cash provided by (used in):
Operating activities                   $         181,412                    $  89,886
Investing activities                              85,698                     (981,923)
Financing activities                             198,221                      363,225


Operating Activities
Cash inflows from operating activities are generated primarily through property
operating income from our real estate investments, interest received from our
loans and securities portfolio, distributions of earnings received from equity
investments, and fee income from our investment management business. This is
partially offset by payment of operating expenses, including property management
and operations, loan servicing and workout of loans in default, investment
transaction costs, as well as compensation and general administrative costs.
Our operating activities generated net cash inflows of $181.4 million in 2021
and $89.9 million in 2020.
Notable items affecting operating cash flows included the following:
•In 2021, the higher operating cash flows were driven by receipt of a $102.3
million one-time payment in connection with termination of the BRSP management
agreement. Additionally, net operating cash flows were also contributed by our
Digital Operating segment, specifically Vantage SDC acquired in July 2020 and
zColo acquired in December 2020 and February 2021. These cash inflows were
partially offset by severance payments in the first quarter of 2021.
•In 2020, operating cash inflows were lower and included $39.9 million paid in
the first quarter of 2020 as carried interest compensation in connection with
carried interest realized from the sale of our light industrial portfolio in
December 2019. Additionally, operating cash flows were negatively affected by
the fallout from COVID-19 in the second quarter of 2020, particularly in our
hospitality and healthcare business.
Investing Activities
Investing activities include primarily cash outlays for acquisition of real
estate, disbursements on new and/or existing loans, and contributions to
unconsolidated ventures, which are partially offset by repayments and sales of
loans receivable, distributions of capital received from unconsolidated
ventures, and proceeds from sale of real estate and equity investments.
Our investing activities resulted in net cash inflows of $85.7 million in 2021
compared to net cash outflows of $981.9 million in 2020.
•Debt investments-Investing cash inflows in 2021 included $390.8 million from
our debt investments, attributed to loan repayments, in particular a $305.0
million repayment received on two loans in our Irish loan portfolio, partially
offset by loans acquired and warehoused for future digital credit vehicles,
including a potential CLO, other loan disbursements and acquisition of
additional N-Star CDOs at a discount by our Wellness Infrastructure segment. In
comparison, in 2020, loan disbursements exceeded repayments, resulting in net
cash outflows of $44.9 million, which partially offset net cash inflows from
equity investments.
•Real estate investments-Real estate investing activities generated net cash
outflows in both years, with significantly higher outflows in 2020 of $1.0
billion, driven by the acquisition of Vantage SDC in July 2020. In 2021, net
cash outflows were $244.7 million as add-on acquisitions in the Vantage SDC
portfolio and capital expenditures were partially offset by sales of various
properties in Europe, in our Wellness Infrastructure segment and our hotel
business.
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•Equity investments-In 2021, net cash inflows from our debt and real estate
investments were partially offset by net cash outflows of $56.2 million in
connection with our equity investments. This can be attributed largely to
funding of our digital fund commitments and draws on acquisition, development
and construction ("ADC") loans that are accounted for as equity method
investments, partially offset by net proceeds of approximately $81.8 million
from sales of 9.5 million BRSP shares, as well as trading activities in
marketable equity securities by our consolidated funds in the digital liquid
strategy. In contrast, 2020 had $89.8 million of net cash inflows from equity
investments, attributed primarily to $179.1 million of net proceeds received
from sale of our investment in RXR Realty and $87.4 million from
recapitalization of our joint venture investment in Albertsons, both of which
were partially offset by funding of our commitments to DCP I and additional
draws on ADC loans.
Financing Activities
We finance our investing activities largely through investment-level secured
debt along with capital from third party or affiliated co-investors. We also
draw upon our corporate credit facility to finance our investing and operating
activities, as well as have the ability to raise capital in the public markets
through issuances of preferred stock, common stock and senior notes.
Accordingly, we incur cash outlays for payments on our investment-level and
corporate debt, dividends to our preferred stockholders and common stockholders
(common dividends temporarily suspended), as well as distributions to
noncontrolling interests in our various investments.
Financing activities generated net cash inflows of $198.2 million in 2021 and
$363.2 million in 2020.
•In 2021, financing net cash inflows were driven by $285.9 million of borrowings
exceeding debt repayments. Investment-level financing activities include
primarily borrowings by Vantage SDC to finance an add-on acquisition and
expansion capacity, issuance of securitized notes by DataBank that was largely
used to refinance its existing debt, and repayment of debt financing real estate
in Europe that were sold during the year. We replaced our corporate credit
facility with a securitized financing facility, from which we received
$285.1 million of net proceeds in July through issuance of Class A-2 Notes, some
of which were applied to redeem our Series G preferred stock in August for
$86.8 million. Additionally, there was $73.3 million of net contributions from
noncontrolling interests. Such contributions were composed largely of a
syndication of our interest to a new third party investor in our zColo
investment vehicle, assumption of a portion of our commitments to DCP I by
Wafra, and additional consideration paid by Wafra for its investment in our
digital investment management business. Cash outflows include dividend payments
of $56.1 million, which is lower in 2021 following the redemption of Series G
preferred stock and suspension of common dividends beginning with the second
quarter of 2020.
•The financing net cash inflows in 2020 were driven by $1.3 billion of net
contributions from noncontrolling interests, of which $1.0 billion represented
third party investors in Vantage SDC, primarily fee bearing capital that we
raised, and a $253.6 million investment by Wafra in our digital investment
management business. However, these financing cash inflows were largely offset
by: (i) $402.9 million settlement in January 2020 of the December 2019
redemption of our Series B and E preferred stock using proceeds from our
industrial sale in December 2019; (ii) repayments on our investment level debt
exceeding borrowings by $298.3 million; (iii) higher dividend payments of $167.3
million which included common stock dividends in the first quarter of 2020 in
addition to preferred stock; and (iv) partial repurchase of our 3.875%
convertible senior notes for $81.3 million through a tender offer in September
2020. An additional repurchase of our 3.875% convertible senior notes for $289.7
million was made through a concurrent application of all of the net proceeds
from our issuance of $300.0 million of new 5.75% exchangeable senior notes in
July 2020.
Guarantees and Off-Balance Sheet Arrangements
In connection with financing arrangements for certain unconsolidated ventures,
we provided customary non-recourse carve-out guarantees. We believe that the
likelihood of making any payments under the guarantees is remote.
Risk Management
Risk management is a significant component of our strategy to deliver consistent
risk-adjusted returns to our stockholders. The audit committee of our board of
directors, in consultation with our chief risk officer, internal auditor and
management, maintains oversight of risk management matters, and periodically
reviews our policies with respect to risk assessment and risk management,
including key risks to which we are subject, including credit risk, liquidity
risk, financing risk, foreign currency risk and market risk, and the steps that
management has taken to monitor and control such risks.
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Underwriting and Investment Process
In connection with executing any new investment in digital assets for our
balance sheet or a managed investment vehicle, our underwriting team undertakes
a comprehensive due diligence process to ensure that we understand all of the
material risks involved with making such investment, in addition to related
accounting, legal, financial and business issues. If the risks can be
sufficiently mitigated in relation to the potential return, we will pursue the
investment on behalf of our balance sheet and/or investment vehicles, subject to
approval from the applicable investment committee, composed of senior executives
of the Company.
Specifically, as part of our underwriting process, we evaluate and review the
following data, including, but not limited to: financial data including
historical and budgeted financial statements, tenant or customer quality, lease
terms and structure, renewal probability, capital expenditure plans, sales
pipeline, technical/energy requirements and supply, local and macroeconomic
market conditions, ESG, leverage and comparable transactions, as applicable. For
debt investments, we also analyze metrics such as loan-to-collateral value
ratios, debt service coverage ratios, debt yields, sponsor credit ratings and
performance history.
In addition to evaluating the merits of any particular proposed investment, we
evaluate the diversification of our or a particular managed investment vehicle's
portfolio of assets, as the case may be. Prior to making a final investment
decision, we determine whether a target asset will cause the portfolio of assets
to be too heavily concentrated with, or cause too much risk exposure to, any one
digital real estate sector, geographic region, source of cash flow such as
tenants or borrowers, or other geopolitical issues. If we determine that a
proposed investment presents excessive concentration risk, we may decide not to
pursue an otherwise attractive investment.
Allocation Procedures
We currently manage, and may in the future manage, private funds, REITs and
other entities that have investment and/or rate of return objectives similar to
our own or to other investment vehicles that we manage. In order to address the
risk of potential conflicts of interest among us and our managed investment
vehicles, we have implemented an investment allocation policy consistent with
our duty as a registered investment adviser to treat our managed investment
vehicles fairly and equitably over time. Pursuant to this policy, and subject to
certain priority rights in our DCP funds, investment allocation decisions are
based on a suitability assessment involving a review of numerous factors,
including the particular source of capital's investment objectives, available
cash, diversification/concentration, leverage policy, the size of the
investment, tax, anticipated pipeline of suitable investments and fund life.
Portfolio Management
The comprehensive portfolio management process generally includes day-to-day
oversight by the Company's portfolio management team, regular management
meetings and quarterly asset review process. These processes are designed to
enable management to evaluate and proactively identify investment-specific
issues and trends on a portfolio-wide basis for both assets on our balance sheet
and assets of the companies within our investment management business.
Nevertheless, we cannot be certain that such review will identify all issues
within our portfolio due to, among other things, adverse economic conditions or
events adversely affecting specific assets; therefore, potential future losses
may also stem from investments that are not identified during these reviews.
We use many methods to actively manage our risk to preserve our income and
capital, including, but not limited to, maintaining dialogue with tenants,
operators, partners and/or borrowers and performing regular inspections of our
collateral and owned properties. With respect to our wellness infrastructure
properties, we consider the impact of regulatory changes on operator performance
and property values. During a quarterly review, or more frequently as necessary,
investments are monitored and identified for possible asset impairment or loan
loss reserves, as applicable, based upon several factors, including missed or
late contractual payments, significant declines in property operating
performance and other data which may indicate a potential issue in our ability
to recover our invested capital from an investment. In addition, we may utilize
services of certain strategic partnerships and joint ventures with third parties
with relevant expertise to assist our portfolio management.
In order to maintain our qualification as a REIT for U.S. federal income tax
purposes and our exemption from registration under the 1940 Act, and maximize
returns and manage portfolio risk, we may dispose of an asset earlier than
anticipated or hold an asset longer than anticipated if we determine it to be
appropriate depending upon prevailing market conditions or factors regarding a
particular asset. We can provide no assurances, however, that we will be
successful in identifying or managing all of the risks associated with
acquiring, holding or disposing of a particular asset or that we will not
realize losses on certain assets.
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Interest Rate and Foreign Currency Hedging
Subject to maintaining our qualification as a REIT for U.S. federal income tax
purposes and our exemption from registration under the 1940 Act, we may mitigate
the risk of interest rate volatility through the use of hedging instruments,
such as interest rate swap agreements and interest rate cap agreements. The goal
of our interest rate management strategy is to minimize or eliminate the effects
of interest rate changes on the value of our assets, to improve risk-adjusted
returns and, where possible, to lock in, on a long-term basis, a favorable
spread between the yield on our assets and the cost of financing such assets. In
addition, because we are exposed to foreign currency exchange rate fluctuations,
we employ foreign currency risk management strategies, including the use of,
among others, currency hedges, and matched currency financing. We can provide no
assurances, however, that our efforts to manage interest rate and foreign
currency exchange rate volatility will successfully mitigate the risks of such
volatility on our portfolio.
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, 2020.
With respect to 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, unpredictability of
economic and market conditions, uncertainty as to the timing and the manner by
which the assets in our Wellness Infrastructure and Other segments would be
monetized and the recoverable values upon monetization, and uncertainties over
the duration and severity of the resulting economic effects of COVID-19, 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 2021 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Market risk includes the exposure to loss resulting from changes in interest
rates, credit curve spreads, foreign currency exchange rates, commodity prices,
equity prices and credit risk in our underlying investments.
Credit Risk
We are subject to the credit risk of the tenant/operators of our properties. We
seek to undertake a rigorous credit evaluation of each tenant and operator prior
to acquiring properties. This analysis includes an extensive due diligence
investigation of the tenant/operator's business as well as an assessment of the
strategic importance of the underlying real estate to the tenant/operator's core
business operations. Where appropriate, we may seek to augment the
tenant/operator's commitment to the facility by structuring various credit
enhancement mechanisms into their management assessments, where applicable, and
underlying leases. These mechanisms could include security deposit requirements
or guarantees from entities we deem creditworthy.
In addition, our investment in loans receivable is subject to a high degree of
credit risk through exposure to loss from loan defaults. Default rates are
subject to a wide variety of factors, including, but not limited to, borrower
financial condition, property performance, property management, supply/demand
factors, construction trends, consumer behavior, regional economics, interest
rates, the strength of the U.S. economy and other factors beyond our control.
All loans are subject to a certain probability of default. We manage credit risk
through the underwriting process, acquiring our investments at the appropriate
discount to face value, if any, and establishing loss assumptions. We also
carefully monitor the performance of the loans, including those held through our
joint venture investments, as well as external factors that may affect their
value.
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Interest Rate and Credit Curve Spread Risk
Interest rate risk relates to the risk that the future cash flow of a financial
instrument will fluctuate because of changes in market interest rates. Interest
rate risk is highly sensitive to many factors, including governmental, monetary
and tax policies, domestic and international economic and political
considerations and other factors beyond our control. Credit curve spread risk is
highly sensitive to the dynamics of the markets for loans and securities we
hold. Excessive supply of these assets combined with reduced demand will cause
the market to require a higher yield. This demand for higher yield will cause
the market to use a higher spread over the U.S. Treasury securities yield curve,
or other benchmark interest rates, to value these assets.
As U.S. Treasury securities are priced to a higher yield and/or the spread to
U.S. Treasuries used to price the assets increases, the price at which we could
sell some of our fixed rate financial assets may decline. Conversely, as U.S.
Treasury securities are priced to a lower yield and/or the spread to U.S.
Treasuries used to price the assets decreases, the value of our fixed rate
financial assets may increase. Fluctuations in LIBOR and/or any alternative
reference rate may affect the amount of interest income we earn on our floating
rate borrowings and interest expense we incur on borrowings indexed to such
reference rate, including under credit facilities and investment-level
financing.
We utilize a variety of financial instruments on some of our investments,
including interest rate swaps, caps, floors and other interest rate exchange
contracts, in order to limit the effects of fluctuations in interest rates on
our operations. The use of these types of derivatives to hedge interest-earning
assets and/or interest-bearing liabilities carries certain risks, including the
risk that losses on a hedge position will reduce the funds available for
distribution and that such losses may exceed the amount invested in such
instruments. A hedge may not perform its intended purpose of offsetting losses
of rising interest rates. Moreover, with respect to certain of the instruments
used as hedges, we are exposed to the risk that the counterparties with which we
trade may cease making markets and quoting prices in such instruments, which may
render us unable to enter into an offsetting transaction with respect to an open
position. If we anticipate that the income from any such hedging transaction
will not be qualifying income for REIT income purposes, we may conduct all or
part of our hedging activities through a to-be-formed corporate subsidiary that
is fully subject to federal corporate income taxation. Our profitability may be
adversely affected during any period as a result of changing interest rates.
We have financing arrangements with various financial institutions bearing
variable rate interest indexed primarily to 1 and 3-month LIBOR and 1 and
3-month Euribor. We limit our exposure to interest rate increases for our debt
primarily through the use of interest rate caps. The interest rate sensitivity
table below illustrates the hypothetical impact of changes in the index rates in
1% increments on our interest expense in a one year period, assuming no changes
in our debt principal as it stood at September 30, 2021, and taking into account
the effects of interest rate caps and contractual floors on indices. The maximum
decrease in the interest rates is assumed to be the actual applicable indices at
September 30, 2021, all of which were under 1% at September 30, 2021.
                                                                                                          Maximum Decrease
                                                                                                            in Applicable
($ in thousands)                                                  +2.00%            +1.00%                      Index
Increase (decrease) in interest expense                         $ 75,703          $ 38,754                $       (2,550)

Amount attributable to noncontrolling interests in investment entities

                                               33,581            17,403                          (965)
Amount attributable to Operating Company                        $ 42,122          $ 21,351                $       (1,585)


Foreign Currency Risk
We have foreign currency rate exposures related to our foreign
currency-denominated investments, in EUR and in GBP, held predominantly by our
foreign subsidiaries and to a lesser extent, by U.S. subsidiaries. Changes in
foreign currency rates can adversely affect the fair values and earnings of our
non-U.S. holdings. We generally mitigate this foreign currency risk by utilizing
currency instruments to hedge our net investments in our foreign subsidiaries,
using primarily foreign currency put options, forward contracts and costless
collars. The maturity dates of these instruments approximate the projected dates
of related cash flows for specific investments.
We expect our foreign currency exposure to be reduced significantly in the near
future as we are currently pursuing a monetization of the remaining investments
in our OED portfolio in the Other segment, which holds a substantial portion of
our foreign currency denominated investments.
Commodity Price Risk
Certain operating costs in our data center portfolio are subject to price
fluctuations caused by volatility of underlying commodity prices, primarily
electricity used in our data center operations. We closely monitor the cost of
electricity at all of our locations and may enter into power utility contracts
to purchase electricity at fixed prices in certain locations in the U.S., with
such contracts generally representing less than our forecasted usage. Our
building of new data centers and
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expansion of existing data centers will also subject us to commodity price risk
with respect to building materials such as steel and copper. Additionally, the
lead time to procure data center equipment is substantial and procurement delays
could increase construction cost and delay revenue generation.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) and
15d-15(e) of the Exchange Act) that are designed to ensure that information
required to be disclosed in our reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time
period specified in the SEC's rules and forms, and that such information is
accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow for timely
decisions regarding disclosure. In designing and evaluating the disclosure
controls and procedures, management recognizes that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives, and management is required to apply
its judgment in evaluating the cost-benefit relationship of possible controls
and procedures. Accordingly, even effective disclosure controls and procedures
can only provide reasonable assurance of achieving their control objectives.
As required by Rule 13a-15(b) of the Exchange Act, we have evaluated, under the
supervision and with the participation of management, including our Chief
Executive Officer and Chief Financial Officer, the effectiveness of our
disclosure controls and procedures. Based upon our evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective at September 30, 2021.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as
defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter
ended September 30, 2021 that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting, other than
our continuing evaluation of the policies, processes, systems and operations of
Vantage SDC that was acquired in July 2020 and zColo that was acquired by
DataBank in December 2020.

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