# DigitalBridge Group, Inc. (DBRG) FY 2022 MD&A Verbatim Item 7 Management's Discussion and Analysis from DigitalBridge Group, Inc.'s 10-K for fiscal year 2022. SEC filing source: https://www.sec.gov/Archives/edgar/data/1679688/000167968823000017/dbrg-20221231.htm Accession: 0001679688-23-000017 Filing date: 2023-02-27 Report date: 2022-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/DBRG/ All MD&A years: /company/DBRG/mda/ Previous year: /company/DBRG/mda/fy2021/ (FY 2021) Next year: /company/DBRG/mda/fy2023/ (FY 2023) Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion should be read in conjunction with our consolidated financial statements and accompanying notes thereto, which are included in Item 15. "Exhibits and Financial Statement Schedules" of this Annual Report. 41 Table of Contents Significant Developments The following summarizes significant developments that affected our business and results of operations in 2022 and through February 2023. Transition To Taxable C Corporation •We have discontinued actions necessary to maintain qualification as a REIT for 2022, and will be taxed as a C-Corporation. Without the constraints of maintaining REIT status, we have more flexibility to execute various strategic initiatives, including the redemption of Wafra, as discussed below. Incremental tax burden is not expected to be significant in the near term given the availability of significant capital loss and NOL carryforwards and that our investment management business, prior to the transition, was already taxable under a TRS. Capitalization and Financing •Effective April 2022, the availability under our Series 2021-1 Secured Fund Fee Revenue Variable Funding Notes ("VFN") was increased by $100 million to $300 million. •We continue to reduce higher cost corporate indebtedness through (i) early exchange of an additional $60 million of senior notes in March 2022 for shares of our class A common stock and cash, resulting in 74% of the original issuance exchanged to-date; and (ii) repurchase of $52.6 million of preferred stock at a discount to par or a weighted average price of $23.62 per share, generating future savings in interest and preferred dividends. •$55 million of class A common stock in aggregate was repurchased in September and October 2022 at a weighted average price of $13.09 per share. •A one-for-four reverse stock split of our common stock was effectuated in August 2022. •We reinstated quarterly common stock dividends at $0.01 per share beginning the third quarter of 2022. Digital Business Investment Management segment •In February 2023, we completed our previously announced acquisition of InfraBridge (formerly AMP Capital's global infrastructure equity business) for $316 million (excluding net working capital), subject to customary post-closing adjustments, plus potential contingent payments based upon future fundraising for InfraBridge's third and fourth flagship funds under the Global Infrastructure Fund ("GIF") series. The acquisition comprises InfraBridge's investment management platform, fund sponsor investments, and retained performance fees. The acquisition further scales our investment management business. InfraBridge’s global infrastructure equity platform will be a strategic fit alongside our value-add equity franchise, enhancing our capabilities in the mid-market segment. The acquisition added $5.6 billion in fee earning equity under management ("FEEUM"), comprising GIF II and GIF I investment funds, as well as co-investment vehicles, and is expected to be immediately accretive to our fee related earnings. •In 2022, we received our share of carried interest distributions of $32.6 million (net of allocation to employees and to Wafra) in connection with the DataBank recapitalization and sales of investments by DBP I and DBP II. •In May 2022, we redeemed Wafra's 31.5% interest in our investment management business and Wafra sold or gave up its carried interest entitlement from future (not existing) investment management products. Consideration for the redemption was valued at $862 million at closing, consisting of: (i) net cash paid of $388.5 million; (ii) issuance of 14.4 million shares of our class A common stock valued at $349 million at closing; and (iii) contingent amount up to $125 million based upon future capital raise thresholds, payable to Wafra in March 2023 for portion earned in 2022 and March 2024 for any remaining portion earned in 2023, with up to 50% payable in common stock at our election. Based upon capital raised in 2022, $90 million of the contingent amount is payable in March 2023. Following the redemption, 100% of net cash flows from our fee business accrue to us, and we are entitled to 100% of carried interest net of management allocations from future investment products. The transaction is described further in Note 10 to the consolidated financial statements in Item 15 of this Annual Report. 42 Table of Contents Operating segment •The partial recapitalization of DataBank in the second half of 2022 resulted in the sale of a portion of DataBank's equity interest to new investors totaling $2.0 billion. Our ownership interest in DataBank decreased from 20% as of December 2021 to 11.0% as of December 2022. Our share of proceeds from the sale totaled $425 million including our share of carried interest, net of allocation to employees. The recapitalization implies a pre-transaction net equity value of our ownership in DataBank of $905 million, reflecting a 2.0x multiple of invested capital since our initial investment in DataBank in December 2019. The incremental third party capital raised through the recapitalization also translates into additional fee income in our Investment Management segment. As the transaction involved a change in ownership of a consolidated subsidiary, it was accounted for as an equity transaction. The difference between the book value of our interest and our ownership based upon the current value of DataBank resulted in an increase to equity of $230 million. Other •DBP I and DBP II each had its first sale of investment in 2022 which generated $24 million of distributions to us (excluding carried interest described above). At December 31, 2022, we had investments of $97 million in DBP I and $102 million in DBP II as general partner and limited partner. •In June 2022, we acquired the mobile telecommunications tower business (“TowerCo”) of Telenet Group Holding NV (Euronext Brussels: TNET, "Telenet") for €740 million or $791 million (including transaction costs). The acquisition was funded through $326 million of debt, $278 million of equity from the Company, and $214 million of third party equity (at acquisition date exchange rate), including funding for transaction costs, debt issuance costs and working capital. In December 2022, our interest in the temporarily warehoused TowerCo investment was transferred to our new sponsored fund and TowerCo was deconsolidated. We received a return of our capital plus a holding fee of an aggregate $282 million (at transfer date exchange rate). Non-Digital Business •We recorded an other-than-temporary impairment of $60 million on our investment in BRSP in 2022. Given the continuing market volatility, our anticipated hold period may not be sufficient to allow for a recovery of BRSP's stock price relative to the carrying value of our investment in BRSP. Assets Under Management and Fee Earning Equity Under Management Below is a summary of our AUM and FEEUM. [[GREPCENT_TABLE]] [["Type","","Products","","Description","","","","","","December 31, 2022","","December 31, 2021"],["Assets under Management (1)","","","","","","","","$","51.3","","$","43.6"],["Fee Earning Equity under Management (2)"],["Institutional Funds","","DBP infrastructure equity","","Earns management fees and potential for carried interest or incentive fees","","","","","","$","11.2","","$","11.2"],["","Core Equity, DigitalBridge Credit and Liquid Strategies","","","","","","","2.0","","0.8"],["Other Investment Vehicles","","Digital co-invest vehicles","","Earns management fees, business service fees from portfolio companies, and potential for carried interest","","","","","","6.5","","4.2"],["","Digital infrastructure held by portfolio companies","","","","","","","2.5","","2.1"],["","","","","","","$","22.2","","$","18.3"]] [[/GREPCENT_TABLE]] __________ (1)    AUM is composed of (a) third party managed capital 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 investment managers, and as a result, may not be comparable to similar measures presented by other investment 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 investment managers, and as a result, may not be comparable to similar measures presented by other investment managers. •FEEUM increased by $3.9 billion or 21% to $22.2 billion at December 31, 2022, reflecting primarily capital raised in the recapitalization of DataBank and the closing of our new Core Equity fund. 43 Table of Contents •The acquisition of InfraBridge's global infrastructure equity platform in February 2023 added $5.6 billion of FEEUM. Results of Operations Refer to Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2021 Annual Report on Form 10-K, which is incorporated by reference herein, for comparative discussion of our consolidated results of operations for the prior year periods of 2021 and 2020. The Company's current business and operations reflect the completion in February 2022 of its transformation from a REIT and investment manager of a diversified real estate portfolio into an investment manager focused primarily on digital infrastructure. The disposition of its hotel portfolio (March 2021), Other Equity and Debt ("OED") investments and non-digital investment management ("Other IM") business (December 2021), and Wellness Infrastructure portfolio (February 2022) each represented a strategic shift in the Company's business that had a significant effect on the Company’s operations and financial results, and accordingly, had met the criteria as discontinued operations. For all current and prior periods presented, the related assets and liabilities, to the extent they have not been disposed at the respective balance sheet dates, are presented as assets and liabilities held for disposition on the consolidated balance sheets, and the related operating results are presented as discontinued operations on the consolidated statements of operations. A comparative discussion of our consolidated results of operations for 2022 and 2021 is presented below. The following table summarizes our consolidated results from continuing operations by reportable segment. [[GREPCENT_TABLE]] [["","","","","","","Year Ended December 31,"],["(In thousands)","","","","","","","","2022","","2021","","Change"],["Continuing operations"],["Total revenues"],["Investment Management","","","","","","","","$","182,045","","","$","191,682","","","$","(9,637)"],["Operating","","","","","","","","884,874","","","763,199","","","121,675"],["Corporate and Other","","","","","","","","77,653","","","10,918","","","66,735"],["","","","","","","","","$","1,144,572","","","$","965,799","","","178,773"],["Income (loss) from continuing operations"],["Investment Management","","","","","","","","$","186,084","","","$","90,915","","","$","95,169"],["Operating","","","","","","","","(330,331)","","","(230,841)","","","(99,490)"],["Corporate and Other","","","","","","","","(277,046)","","","(76,897)","","","(200,149)"],["","","","","","","","","$","(421,293)","","","$","(216,823)","","","(204,470)"],["Net income (loss) from continuing operations attributable to DigitalBridge Group, Inc."],["Investment Management","","","","","","","","$","69,884","","","$","51,531","","","$","18,353"],["Operating","","","","","","","","(53,178)","","","(36,664)","","","(16,514)"],["Corporate and Other","","","","","","","","(228,410)","","","(87,506)","","","(140,904)"],["","","","","","","","","$","(211,704)","","","$","(72,639)","","","(139,065)"]] [[/GREPCENT_TABLE]] Revenues Total revenues increased 18.5% to $1.1 billion. •Investment Management—Revenues were 5% lower at $182.0 million. 2021 had included incentive fees from our Liquid Strategies. Management fees increased marginally in 2022 with the effect of additional capital raises largely offset by a catch-up of DBP II fees in 2021 and one-time fee adjustments in 2022. Supplemental performance measures of the Investment Management segment are presented under "—Non-GAAP Measures." •Operating—Revenues were higher in 2022, resulting from data center acquisitions, additional lease-up of expanded capacity in Vantage SDC, and a one-time lease termination fee at Vantage SDC. •Corporate and Other—Higher revenues in 2022 reflect primarily lease income from the warehoused tower business acquired in June 2022, and interest income from credit investments originated in 2020 through early 2022. These warehoused investments were transferred to our new sponsored funds in the second half of 2022. 44 Table of Contents Net income (loss) from continuing operations attributable to DigitalBridge Group, Inc. Net loss from continuing operations attributable to DBRG increased 191% to $211.7 million, driven by a one-time non-cash loss in Corporate and Other. •Investment Management—Net income attributable to DBRG increased 35.6% to $69.9 million. Subsequent to the redemption of Wafra's 31.5% interest in Investment Management in May 2022, 100% of net income in Investment Management is attributed to DBRG. 2022 net income included our share of carried interest, net of allocation to employees, of $63.7 million (of which $32.6 million has been distributed to us). Tempering this effect is an increase in operating costs as we continue to ramp up resources and invest in our growing Investment Management segment. •Operating—Our Operating segment generally records a net loss, taking into account the effects of real estate depreciation and intangible asset amortization. Our share of net loss reflects a 13% ownership in Vantage SDC and our interest in DataBank, which decreased from 20% as of December 2021 to 11% as of December 2022. Net loss was lower in 2021 due to a large deferred tax benefit from write-off of deferred tax liabilities at DataBank, resulting from DataBank's election of REIT status beginning with the 2021 taxable year. •Corporate and Other—Net loss generally reflects corporate level costs that have not been allocated to our reportable segments, primarily interest expense on senior notes and compensation and administrative expenses. Also included are the effects of fair value changes on investments carried at fair value, including our share of earnings from our fund investments. The larger net loss in 2022 was driven by a $133.2 million non-cash loss recognized in connection with an early exchange of our 5.75% exchangeable notes in March 2022 (refer to Note 8 to the consolidated financial statements in Item 15 of this Annual Report). 45 Table of Contents A more detailed discussion of key components of revenue and income (loss) from continuing operations follows. [[GREPCENT_TABLE]] [["","","","","","","Year Ended December 31,"],["(In thousands)","","","","","","","","2022","","2021","","Change"],["Revenues"],["Property operating income","","","","","","","","$","927,506","","","$","762,750","","","$","164,756"],["Fee income","","","","","","","","172,673","","","180,826","","","(8,153)"],["Interest income","","","","","","","","30,107","","","8,791","","","21,316"],["Other income","","","","","","","","14,286","","","13,432","","","854"],["Total revenues","","","","","","","","1,144,572","","","965,799","","","178,773"],["Expenses"],["Property operating expense","","","","","","","","389,445","","","316,178","","","73,267"],["Interest expense","","","","","","","","198,498","","","186,949","","","11,549"],["Investment expense","","","","","","","","33,887","","","28,257","","","5,630"],["Transaction-related costs","","","","","","","","10,129","","","5,781","","","4,348"],["Depreciation and amortization","","","","","","","","576,911","","","539,695","","","37,216"],["Compensation expense, including incentive fee and carried interest allocation","","","","","","","","447,543","","","301,875","","","145,668"],["Administrative expenses","","","","","","","","123,184","","","109,490","","","13,694"],["Total expenses","","","","","","","","1,779,597","","","1,488,225","","","291,372"],["Other income (loss)"],["Other loss, net","","","","","","","","(170,555)","","","(21,412)","","","(149,143)"],["Equity method earnings, including carried interest","","","","","","","","397,754","","","226,477","","","171,277"],["Loss before income taxes","","","","","","","","(407,826)","","","(317,361)","","","(90,465)"],["Income tax benefit (expense)","","","","","","","","(13,467)","","","100,538","","","(114,005)"],["Loss from continuing operations","","","","","","","","(421,293)","","","(216,823)","","","(204,470)"],["Loss from discontinued operations","","","","","","","","(148,704)","","","(600,088)","","","451,384"],["Net loss","","","","","","","","(569,997)","","","(816,911)","","","246,914"],["Net income (loss) attributable to noncontrolling interests:"],["Redeemable noncontrolling interests","","","","","","","","(26,778)","","","34,677","","","(61,455)"],["Investment entities","","","","","","","","(189,053)","","","(500,980)","","","311,927"],["Operating Company","","","","","","","","(32,369)","","","(40,511)","","","8,142"],["Net loss attributable to DigitalBridge Group, Inc.","","","","","","","","(321,797)","","","(310,097)","","","(11,700)"],["Preferred stock repurchases/redemptions","","","","","","","","(1,098)","","","4,992","","","(6,090)"],["Preferred stock dividends","","","","","","","","61,567","","","70,627","","","(9,060)"],["Net loss attributable to common stockholders","","","","","","","","$","(382,266)","","","$","(385,716)","","","3,450"]] [[/GREPCENT_TABLE]] 46 Table of Contents Property Operating Income and Expense [[GREPCENT_TABLE]] [["","","","","","","Year Ended December 31,"],["(In thousands)","","","","","","","","2022","","2021","","Change"],["Property operating income"],["Operating segment"],["Lease income","","","","","","","","$","806,965","","","$","701,706","","","$","105,259"],["Data center service revenue","","","","","","","","77,561","","","61,044","","","16,517"],["","","","","","","","","884,526","","","762,750","","","121,776"],["Other"],["Lease income","","","","","","","","42,980","","","\u2014","","","42,980"],["","","","","","","","","$","927,506","","","$","762,750","","","164,756"],["Property operating expense"],["Operating segment","","","","","","","","$","376,255","","","$","316,178","","","$","60,077"],["Other","","","","","","","","13,190","","","\u2014","","","13,190"],["","","","","","","","","$","389,445","","","$","316,178","","","73,267"]] [[/GREPCENT_TABLE]] Operating Segment Property operating income and expense are higher in 2022, reflecting operating results from additional acquisitions. These include DataBank's acquisition of four data centers in March 2022, and within the Vantage SDC portfolio, an add-on acquisition in October 2021 and additional lease-up of expanded capacity and existing inventory throughout 2021 and 2022. Additionally, 2022 included $6.0 million of fees received from lease terminations in the Vantage SDC portfolio. Total real estate carrying value in our Operating segment increased to $5.92 billion at December 31, 2022 compared to $4.97 billion at December 31, 2021 following the DataBank March 2022 acquisition. At December 31, 2022, our Operating segment portfolio includes 75 data centers in the U.S., three in Canada, one in the U.K., and five in France. [[GREPCENT_TABLE]] [["","","December 31, 2022","","December 31, 2021"],["Operating segment"],["Number of data centers (1)"],["Owned","","35","","28"],["Leasehold","","49","","50"],["","","84","","78"],["(In thousands, except %)"],["Max Critical I.T. Square Feet or Total Rentable Square Feet","","2,405","","1,949"],["Leased Square Feet","","1,888","","1,553"],["% Utilization Rate (% Leased)","","78%","","80%"]] [[/GREPCENT_TABLE]] __________ (1) In 2022, DataBank acquired a previously leased data center. On a same store basis, property operating income and expense also increased in 2022, driven by the Vantage SDC portfolio, attributable to lease termination fees and increase in leased square footage from lease-up of expanded capacity and existing inventory. Other This represents property operating income and expense from the tower business acquired in June 2022. Our interest in the temporarily warehoused investment was transferred to our new sponsored fund and the investment was deconsolidated in December 2022. 47 Table of Contents Fee Income [[GREPCENT_TABLE]] [["","","","","","","Year Ended December 31,"],["(In thousands)","","","","","","","","2022","","2021","","Change"],["Investment Management"],["Management fees","","","","","","","","$","169,922","","","$","168,618","","","$","1,304"],["Incentive fees","","","","","","","","\u2014","","","7,174","","","(7,174)"],["Other fee income","","","","","","","","2,751","","","5,034","","","(2,283)"],["","","","","","","","","$","172,673","","","$","180,826","","","(8,153)"]] [[/GREPCENT_TABLE]] Fee income was $8.2 million lower in 2022. The decrease was driven by an absence of incentive fees from our Liquid Strategies ($7.2 million in 2021) given the unfavorable performance of equity markets in 2022, lower service fees from portfolio companies following the expiration of a service agreement in the fourth quarter of 2021, and a one-time advisory fee in 2021. Management fees increased $1.3 million in 2022, There were higher management fees in 2022 attributed to capital raised through the recapitalization of DataBank, new co-investment vehicles, sub-advisory accounts and additional capital calls by directly managed portfolio companies. However, this was largely offset by a catch-up of DBP II fees in 2021 for the 2020 period and one-time fee adjustments in 2022, including for excess organizational costs of DBP II which were credited to investors as a fee reduction. Interest Income Interest income was $21.3 million higher at $30.1 million in 2022. The increase can be attributed to warehoused credit investments originated or acquired during 2022, paid-in-kind interest on an unsecured promissory note in connection with the sale of our Wellness Infrastructure business in February 2022, and interest earned on money market deposits. Other Income Other income increased $0.9 million to $14.3 million in 2022. The increase was primarily due to dividend income from our equity interest in a third party non-traded REIT and loan origination fees earned in connection with a loan syndication, partially offset by lower professional service fees incurred on behalf of and reimbursable by our managed investment vehicles. Interest Expense [[GREPCENT_TABLE]] [["","","","","","","Year Ended December 31,"],["(In thousands)","","","","","","","","2022","","2021","","Change"],["Investment Management segment","","","","","","","","$","10,872","","","$","4,766","","","$","6,106"],["Operating segment","","","","","","","","159,409","","","125,387","","","34,022"],["Other investment-level debt","","","","","","","","11,734","","","660","","","11,074"],["Corporate-level debt","","","","","","","","16,483","","","56,136","","","(39,653)"],["","","","","","","","","$","198,498","","","$","186,949","","","11,549"]] [[/GREPCENT_TABLE]] Investment Management Segment—This represents interest on the portion of our securitized financing facility allocated to the Investment Management segment. Interest expense for 2022 reflects a full year of expense compared to a partial year for 2021, as the securitization closed in July 2021, as well as additional expense from drawdowns on the VFN during 2022. Operating Segment—The increase of $34.0 million is attributable to the following: (i) additional debt raised through securitization transactions by DataBank and Vantage SDC during 2021; (ii) new financing for DataBank's acquisition of four data centers in March 2022; (iii) our securitized financing facility beginning July 2021 which is partially allocated to the Operating segment; and (iv) higher variable interest rates. At December 31, 2022, our data center portfolio was financed by an aggregate $4.63 billion of outstanding debt principal ($4.22 billion at December 31, 2021), primarily fixed rate securitized debt, bearing a combined weighted average interest rate of 3.71% per annum (2.88% per annum at December 31, 2021). Other Investment-level Debt—This represents interest expense on: (i) debt partially funding the acquisition of tower assets in June 2022 prior to the transfer to our new sponsored fund in December 2022; (ii) our securitized financing facility beginning in July 2021 that is partially allocated to our DigitalBridge Credit and Liquid Strategies investments on the balance sheet; and (iii) credit facilities previously financing warehoused loans which were repaid following the transfer of loans to a third party sponsored collateralized loan obligation ("CLO") in the third quarter of 2022. 48 Table of Contents Corporate-level Debt—Interest expense decreased $39.7 million in 2022. The decrease was driven by higher interest expense in 2021 due to: (i) $25.1 million of debt conversion expense in connection with an early exchange of $161 million of our 5.75% exchangeable notes into class A common stock in the fourth quarter; and (ii) interest expense on our corporate credit facility that was terminated in July 2021. The early exchange of our 5.75% exchangeable notes in 2021 along with an additional $60 million in March 2022 resulted in the extinguishment of higher cost corporate debt, which contributed to lower interest expense in 2022. Investment Expense Investment expense increased $5.6 million to $33.9 million in 2022. The increase is attributable largely to compensatory expense recognized in connection with equity awards granted to the management team of Vantage Data Centers Holdings, LLC ("Vantage") who performs the day-to-day operations of Vantage SDC, higher management fees paid to Vantage as a result of the add-on acquisition in October 2021, and professional service fees incurred in the tower investment in 2022. These increases were partially offset by lower costs in 2022 in connection with transition services for DataBank's acquisition of zColo. Transaction-Related Costs Transaction-related costs increased by $4.3 million to $10.1 million in 2022, attributed to the acquisition of InfraBridge, partially offset by lower costs related to unconsummated investments. Depreciation and Amortization Increase in depreciation and amortization can be attributed to real estate and intangible assets acquired through the Vantage SDC add-on acquisition in October 2021, DataBank's four new data centers in March 2022, and tower assets in June 2022. 2022 also included accelerated amortization of lease intangibles in connection with an early lease termination in the Vantage SDC portfolio. The increase was partially offset by (i) accelerated amortization recognized in the first quarter of 2021 on a trade name intangible in anticipation of the Company's name change in June 2021; and (ii) a decrease in amortization expense on lease intangibles following the expiration of short term leases in our colocation data center business. Compensation Expense [[GREPCENT_TABLE]] [["","","","","","","Year Ended December 31,"],["(In thousands)","","","","","","","","2022","","2021","","Change"],["Cash compensation and benefits","","","","","","","","$","201,716","","","$","197,717","","","$","3,999"],["Equity-based compensation","","","","","","","","33,441","","","38,268","","","(4,827)"],["Incentive and carried interest compensation","","","","","","","","202,286","","","65,890","","","136,396"],["","","","","","","","","437,443","","","301,875","","","135,568"],["Equity-based compensation\u2014Databank Recapitalization","","","","","","","","10,100","","","\u2014","","","10,100"],["","","","","","","","","$","447,543","","","$","301,875","","","145,668"]] [[/GREPCENT_TABLE]] Compensation expense increased $135.6 million, excluding accelerated equity awards resulting from the DataBank recapitalization as discussed below. The increase is driven by carried interest compensation in 2022, representing a portion of realized and unrealized carried interest from our sponsored investment vehicles that are shared with certain employees. 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. Additionally, there was an increase in cash compensation in 2022, driven by (i) higher headcount supporting our growing investment management business and at DataBank following the expiration of a transitional services arrangement in connection with its zColo acquisition and expansion of its data center portfolio; and (ii) higher allocation of the contingent consideration received from Wafra as additional management compensation in 2022 (refer to Note 10 to the consolidated financial statements in Item 15 of this Annual Report). These increases were partially offset by significant severance payments in 2021. Equity-based compensation, however, decreased in 2022, attributed largely to stock award acceleration in 2021 and reversal of expense in 2022 related to dividend equivalent rights which are subject to fair value adjustments. 49 Table of Contents The DataBank recapitalization transaction in October 2022 triggered an accelerated vesting of certain profits interest units that had been issued by DataBank to its employees. As a result, $10 million of additional equity based compensation was recorded for the Operating segment, of which $7.8 million was attributable to noncontrolling interests in investment entities. Administrative Expenses Administrative expenses increased $13.7 million to $123.2 million in 2022. The increase is due to higher legal costs in 2022, which more than offset placement fees incurred in fundraising for DBP II in 2021. Other Loss Other loss increased by $149.1 million from $21.4 million in 2021 to $170.6 million in 2022. Losses in the 2022 were driven by: (i) a non-cash debt extinguishment loss of $133.2 million in connection with an early exchange of our 5.75% exchangeable notes (refer to Note 8 to the consolidated financial statements); (ii) fair value decrease in marketable equity securities held by our consolidated liquid funds, net of offsetting fair value changes on short positions; (iii) fair value decrease in credit investments given the rising interest rate environment (prior to transfer of warehoused investments to a third party sponsored CLO and to our sponsored fund in August and December 2022); and (iv) decrease in the net asset value ("NAV") of our equity investment in a non-traded healthcare REIT. These losses were partially offset by a $63.7 million gain to recognize a decrease in fair value of the warrants issued to Wafra from its initial measurement in May 2022 (refer to Note 11 to the consolidated financial statements). In the 2021, the losses were driven by a write-off of an equity investment that was determined to be unrecoverable and an increase in value of the settlement liability with Blackwells Capital, LLC ("Blackwells") prior to its settlement in June 2021 (refer to Note 11 to the consolidated financial statements in Item 15 of this Annual Report). These losses were partially offset by fair value increases on marketable equity securities. Equity Method Earnings [[GREPCENT_TABLE]] [["","","","","","","Year Ended December 31,"],["(In thousands)","","","","","","","","2022","","2021","","Change"],["Investment Management","","","","","","","","$","382,463","","","$","101,811","","","$","280,652"],["Other","","","","","","","","15,291","","","124,666","","","(109,375)"],["","","","","","","","","$","397,754","","","$","226,477","","","171,277"]] [[/GREPCENT_TABLE]] Investment Management—These amounts represent predominantly gross carried interest from our general partner interests in sponsored investment vehicles prior to allocations to management. 2022 included $152.5 million of gross carried interest distributed in connection with the recapitalization of DataBank and sales of investments by DBP I and DBP II. There was also higher unrealized gross carried interest recognized for DBP I and DBP II in 2022. Our share of net carried interest after management allocations was $63.7 million (of which $32.6 million has been distributed to us) in 2022 and $20.3 million unrealized in 2021. Unrealized carried interest is subject to adjustments each period, including reversals, based upon the cumulative performance of the underlying investments of these vehicles that are measured at fair value, until such time as the carried interest is realized. In the interim period, carried interest may be reversed as a function of continuing accrual of preferred returns over time while fair value of underlying investments remain largely consistent. Other—The equity method gain in 2022 can be attributed to our share of net income from BRSP and earnings from our investment in DBP I and DBP II, representing distributions from realized investments and unrealized fair value increases on the investments of these funds. These gains were largely offset by $60.4 million of impairment charge recorded in the third and fourth quarter of 2022 on our equity investment in BRSP. The equity method gain in 2021 was driven by: •$44.3 million gain from our equity investment in a healthcare real estate investor/manager following an acquisition of the investee in conjunction with a merger of the investee's co-sponsored non-traded REITs. In connection with this transaction, we received distributions of $7.8 million cash and units in the operating company of the newly combined non-traded healthcare REIT, valued at its net asset value. •our share of earnings from our investment in DBP I and DBP II, driven by unrealized fair value changes on their underlying investments. 50 Table of Contents •fair value increases on an equity method investment that had been accounted for under the fair value option. Beginning May 2021, the equity investment is accounted for as a marketable equity security following a merger of the investee into a special purpose acquisition company. •our share of net income from BRSP and gain from partial sale of our BRSP shares. Income Tax Benefit (Expense) There was an income tax expense of $13.5 million in 2022 and an income tax benefit of $100.5 million in 2021. Income tax expense in 2022 reflects primarily the establishment of valuation allowance against the Company's deferred tax asset balance. With respect to deferred tax assets recognized during the year, as these were largely associated with full valuation allowance, there was no resulting net effect to the income tax provision in 2022. Realizability of deferred tax assets is discussed further in Note 17 to the consolidated financial statements, included in Item 15 of this Annual Report. The deferred tax benefit in 2021 was driven primarily by a write-off of significant deferred tax liabilities at DataBank, attributed to DataBank's election of REIT status beginning with the 2021 taxable year, and also NOL generated by the Company's previously designated TRS. Loss from Discontinued Operations [[GREPCENT_TABLE]] [["","","","","","","Year Ended December 31,"],["(In thousands)","","","","","","","","2022","","2021","","Change"],["Revenues"],["Revenues","","","","","","","","$","90,412","","","$","843,659","","","$","(753,247)"],["Expenses","","","","","","","","(248,184)","","","(1,282,168)","","","1,033,984"],["Other gain (loss)","","","","","","","","6,320","","","(111,679)","","","117,999"],["Income tax benefit (expense)","","","","","","","","2,748","","","(49,900)","","","52,648"],["Loss from discontinued operations","","","","","","","","(148,704)","","","(600,088)","","","451,384"],["Loss from discontinued operations attributable to noncontrolling interests:"],["Investment entities","","","","","","","","(29,145)","","","(337,685)","","","308,540"],["Operating Company","","","","","","","","(9,466)","","","(24,945)","","","15,479"],["Loss from discontinued operations attributable to DigitalBridge Group, Inc.","","","","","","","","$","(110,093)","","","$","(237,458)","","","127,365"]] [[/GREPCENT_TABLE]] Discontinued operations represent primarily the operations of the following businesses: (1) Wellness Infrastructure prior to its disposition in February 2022; (2) opportunistic investments in our OED portfolio and credit investment management business in Other IM prior to disposition of our equity interest and deconsolidation in December 2021; and (3) the Company's hotel business prior to its disposition in March 2021, with the remaining hotel portfolio that was in receivership sold by the lender in September 2021. The net loss in 2022 is attributed to the disposition of NRF Holdco, LLC ("NRF Holdco") in February 2022, specifically, a write-off of unamortized deferred financing costs on the Wellness Infrastructure debt assumed by the buyer, impairment loss based upon final carrying value of the Wellness Infrastructure net assets upon disposition, and a write-down in value of an equity investment upon disposition of its remaining assets. The net loss in 2021 was driven by significant impairment expense and decreases in asset fair values based upon the selling price of our Wellness Infrastructure and OED portfolios. Impairment of our investment assets in 2021 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. A detailed income statement on discontinued operations is included in Note 22 to the consolidated financial statements. Preferred Stock Repurchases/Redemptions In the third quarter of 2022, net loss attributable to common stockholders was reduced by $1.1 million, reflecting the discount on the repurchases of preferred stock. In connection with the redemption of Series G in August 2021 and Series H in November 2021, net loss attributable to common stockholders was increased by $5.0 million, representing the excess of the $25.00 per share redemption price over the carrying value of the preferred stock which was net of issuance cost. 51 Table of Contents Non-GAAP Supplemental Financial Measures Following our decision not to maintain qualification as a REIT for 2022, we no longer present Funds From Operations, a supplemental non-GAAP measure commonly used by equity REITs. Resulting from the significant growth in our investment management business, effective the second quarter of 2022, we report Distributable Earnings, Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) and, specific to our Investment Management segment, Fee Related Earnings (“FRE”) as non-GAAP financial measures attributable to the Operating Company, which more closely align the key performance metrics of our core business to the alternative investment management industry. We use these non-GAAP financial measures in evaluating the Company’s business performance and in making operating decisions. As we evaluate profitability based upon continuing operations, these non-GAAP measures exclude results from discontinued operations. These non-GAAP financial measures should not be considered alternatives to GAAP net income or loss as indicators of operating performance, or to cash flows from operating activities as measures of liquidity, nor as indicators of the availability of funds for our cash needs, including funds available to make distributions. Our calculation of these non-GAAP measures may differ from methodologies utilized by other companies for similarly titled performance measures and, as a result, may not be directly comparable to those calculated by other companies in similar lines of business. Results of our non-GAAP measures attributable to the Operating Company were as follows: [[GREPCENT_TABLE]] [["(In thousands)","","Year Ended December 31, 2022"],["Attributable to Operating Company:"],["Distributable Earnings","","$","37,060"],["Adjusted EBITDA","","108,278"],["Investment Management FRE","","83,474"]] [[/GREPCENT_TABLE]] Distributable Earnings Distributable Earnings is an after-tax measure that differs from GAAP net income or loss from continuing operations as a result of the following adjustments, including adjustment for our share of similar items recognized by our equity method investments: transaction-related costs; restructuring charges (primarily severance and retention costs); realized and unrealized gains and losses, except realized gains and losses related to digital assets, including fund investments, in Corporate and Other; depreciation, amortization and impairment charges; debt prepayment penalties and amortization of deferred financing costs, debt premiums and debt discounts; our share of unrealized carried interest, net of associated compensation expense; equity-based compensation expense; equity method earnings, except fund investments, to reflect only cash dividends declared by BRSP; effect of straight-line lease income and expense; impairment of equity investments directly attributable to decrease in value of depreciable real estate held by the investee; non-revenue enhancing capital expenditures necessary to maintain operating real estate; and income tax effect on certain of the foregoing adjustments. Income taxes included in DE reflect the benefit of deductions arising from certain expenses that are excluded from the calculation of DE, such as equity-based compensation, as these deductions do decrease actual income tax paid or payable by the Company in any one period. We believe that DE is a meaningful supplemental measure as it reflects the ongoing operating performance of our core business by generally excluding items that are non-core in nature, and allows for better comparability of operating results period-over-period and to other companies in similar lines of business. Adjusted EBITDA Adjusted EBITDA represents DE adjusted to exclude: interest expense as included in DE, income tax expense or benefit as included in DE, preferred stock dividends, equity method earnings as included in DE, placement fee expense, our share of realized carried interest and incentive fees net of associated compensation expense, certain investment costs for capital raising that are not reimbursable by our sponsored funds, and capital expenditures as deducted in DE. We believe that Adjusted EBITDA is a meaningful supplemental measure of performance because it presents the Company’s operating performance independent of its capital structure, leverage and non-cash items, which allows for better comparability against entities with different capital structures and income tax rates. However, because Adjusted EBITDA is calculated before recurring cash charges including interest expense and taxes and does not deduct capital expenditures or other recurring cash requirements, its usefulness as a performance measure may be limited. 52 Table of Contents Distributable Earnings and Adjusted EBITDA reconciliation [[GREPCENT_TABLE]] [["(In thousands)","","","","","","Year Ended December 31, 2022"],["Net loss attributable to common stockholders","","","","","","$","(382,266)"],["Net loss attributable to noncontrolling interests in Operating Company","","","","","","(32,369)"],["Net loss attributable to Operating Company","","","","","","(414,635)"],["Transaction-related and restructuring charges","","","","","","100,989"],["Other (gains) losses, net (excluding realized gains or losses related to digital assets and fund investments in Corporate and Other)","","","","","","178,769"],["Unrealized carried interest, net of associated compensation expense","","","","","","(117,466)"],["Equity-based compensation expense","","","","","","54,232"],["Depreciation and amortization","","","","","","589,582"],["Straight-line rent (revenue) and expense, net","","","","","","(21,462)"],["Amortization of acquired above- and below-market lease values, net","","","","","","(78)"],["Impairment loss","","","","","","35,985"],["Non-revenue enhancing capital expenditures","","","","","","(40,515)"],["Debt prepayment penalties and amortization of deferred financing costs, debt premiums and debt discounts","","","","","","114,902"],["Adjustment to equity method earnings, excluding fund investments, to reflect BRSP cash dividend declared","","","","","","574"],["Income tax effect on certain of the foregoing adjustments","","","","","","(534)"],["Adjustments attributable to noncontrolling interests in investment entities (1)","","","","","","(430,061)"],["DE of discontinued operations","","","","","","(13,222)"],["Distributable Earnings, after tax\u2014attributable to Operating Company","","","","","","37,060"],["Adjustments attributable to Operating Company:"],["Interest expense included in DE","","","","","","57,525"],["Income tax expense included in DE","","","","","","13,266"],["Preferred stock dividends","","","","","","61,567"],["Equity method earnings included in DE","","","","","","(38,800)"],["Realized carried interest, net of associated compensation expense","","","","","","(31,463)"],["Non-revenue enhancing capital expenditures deducted from DE","","","","","","8,892"],["Non pro-rata allocation of income (loss) to noncontrolling interests","","","","","","231"],["Adjusted EBITDA\u2014attributable to Operating Company","","","","","","$","108,278"]] [[/GREPCENT_TABLE]] __________ (1)    Noncontrolling interests' share of adjustments pertain largely to depreciation and amortization and unrealized carried interest, net of associated compensation expense. Investment Management FRE Investment Management FRE is calculated as recurring fee income and other income inclusive of cost reimbursements associated with administrative expenses, and net of compensation expense (excluding equity-based compensation, carried interest and incentive compensation) and administrative expense (excluding placement fees and straight-line rent expense). Investment Management FRE is used to assess the extent to which direct base compensation and operating expenses are covered by recurring fee revenues in the investment management business. We believe that Investment Management FRE is a useful supplemental performance measure because it may provide additional insight into the profitability of the overall investment management business. Investment Management FRE is measured as Adjusted EBITDA for the Investment Management segment, adjusted to reflect the Company’s Investment Management segment as a stabilized business by excluding FRE associated with new investment strategies that have 1) not yet held a first close raising FEEUM; or 2) not yet achieved break-even Adjusted EBITDA only for investment products that may be terminated solely at the Company’s discretion, collectively referred to as “Start-up FRE.” The Company evaluates new investment strategies on a regular basis and excludes Start-Up FRE from Investment Management FRE until such time a new strategy is determined to form part of the Company’s core investment management business. 53 Table of Contents Investment Management FRE reconciliation [[GREPCENT_TABLE]] [["(In thousands)","","Year Ended December 31, 2022"],["Investment Management"],["Net income","","$","186,084"],["Interest expense, net of interest income","","10,377"],["Investment expense, net of reimbursement","","324"],["Depreciation and amortization","","22,155"],["Equity-based compensation","","15,845"],["Incentive fee and carried interest, net of associated compensation expense","","(207,095)"],["Straight-line rent expense","","1,844"],["Transaction-related and restructuring charges","","18,402"],["Equity method earnings, excluding carried interest","","26,958"],["Other loss, net","","3,341"],["Income tax expense","","7,815"],["Investment Management Adjusted EBITDA","","86,050"],["Start-up FRE","","9,739"],["Investment Management FRE","","95,789"],["Attributable to redeemable noncontrolling interests","","(12,315)"],["Investment Management FRE\u2014attributable to Operating Company","","$","83,474"]] [[/GREPCENT_TABLE]] Liquidity and Capital Resources Overview We regularly evaluate our liquidity position, debt obligations, and anticipated cash needs to fund our business and operations based upon our projected financial performance. Our evaluation of future liquidity requirements is regularly reviewed and updated for changes in internal projections, economic conditions, competitive landscape and other factors as applicable. At December 31, 2022, our liquidity position was approximately $1 billion, including corporate unrestricted cash and the full $300 million availability under our VFN. In February 2023, our liquidity position decreased by $323.5 million in connection with the InfraBridge acquisition. With an all-cash acquisition, there is no resulting future debt burden. Outside of our normal course operating activities, our significant liquidity needs in the immediate term include a $90 million contingent earnout payable to Wafra in March 2023 and repayment of $200 million of convertible notes maturing in April 2023. The latter will result in a deleveraging of our corporate balance sheet. We expect to satisfy these obligations with cash on hand. We believe we have sufficient cash on hand, and anticipated cash generated from operating activities and external financing sources, to meet our short term and long term capital requirements. While we have sufficient liquidity to meet our operational needs, we continue to evaluate alternatives to manage our capital structure and market opportunities to strengthen our liquidity and to provide further operational and strategic flexibility. Significant Liquidity and Capital Activities in 2022 and through February 2023 Sources of Funds •$425 million in total proceeds received in the second half of 2022, including our share of net carried interest, from partially monetizing our interest in DataBank •$428 million in return of capital from transfer of warehoused investments to newly formed sponsored funds and transfer of loans to a third party sponsored CLO in August and December 2022 •$100 million increase in our VFN availability to $300 million effective April 2022 •Monetization of our Wellness Infrastructure business in February 2022 for $161 million in cash 54 Table of Contents Uses of Funds •Redemption of Wafra's minority interest in our investment management business in May 2022 through a combination of common stock issuance and $388.5 million in cash, following which, all net cash flows from our fee business accrue to us at 100% •Repurchase of (i) $52.6 million of preferred stock at a discount to par, which generates future savings in preferred dividends, and (ii) $55 million of common stock •Acquisition of InfraBridge in February 2023 for $323.5 million (including working capital, net of cash assumed) Liquidity Needs and Sources of Liquidity Our primary liquidity needs are to fund: •acquisitions of target investment management businesses; •our general partner and co-investment commitments to our investment vehicles; •warehouse investments pending the raising of third party capital for future investment vehicles; •principal and interest payments on our debt; •our operations, including compensation, administrative and overhead costs; •obligation for lease payments, principally leasehold data centers and corporate offices; •our liability for corporate and other taxes; •development, construction and capital expenditures on our operating real estate; and •dividends to our preferred and common stockholders. Our primary sources of liquidity are: •cash on hand; •fees received from our investment management business, including the Company's share of realized net incentive fees or carried interest; •cash flow generated from our investments, both from operations and return of capital; •availability under our VFN; •issuance of additional term notes under our corporate securitization; •third party co-investors in our consolidated investments and/or businesses; •proceeds from full or partial realization of investments; •investment-level financing; and •proceeds from public or private equity and debt offerings. Liquidity Needs and Capital Activities Stock Repurchases In July 2022, our Board of Directors authorized a $200 million stock repurchase program which expires in June 2023, but may be extended, modified, or discontinued at any time by our Board of Directors. During 2022, we repurchased approximately $108 million in aggregate of preferred and common stock. As of December 31, 2022, $92 million of repurchase capacity remains available under the program. Dividends Common Stock—The payment of common stock dividends and determination of the amount thereof is at the discretion of our Board of Directors. The Company reinstated quarterly common stock dividends at $0.01 per share beginning the third quarter of 2022, having previously suspended common stock dividends from the second quarter of 2020 through the second quarter of 2022. Preferred Stock—At December 31, 2022, we have outstanding preferred stock totaling $828 million, bearing a weighted average dividend rate of 7.135% per annum, with aggregate dividend payments of $14.8 million per quarter. Contractual Obligations, Commitments and Contingencies Debt Obligation Description of our debt is provided in Note 8 to the consolidated financial statements in Item 15 of this Annual Report. 55 Table of Contents Our contractual obligation for principal repayments on our debt at December 31, 2022 is as shown below. Investment level secured debt is non-recourse to us and serviced through operating and/or investing cash generated by the respective borrower subsidiaries in our Operating segment and by our consolidated fund. Debt maturities and future debt principal payments are presented based upon anticipated repayment dates for notes issued under securitization financing, or based upon initial maturity dates or extended maturity dates if extension criteria are met at December 31, 2022 for extensions that are at our option. [[GREPCENT_TABLE]] [["(In thousands)","","2023","","2024","","2025","","2026","","2027","","","","Total"],["Corporate-level Debt:"],["Secured fund fee revenue notes","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","300,000","","","$","\u2014","","","","","$","300,000"],["Convertible and exchangeable senior notes","","200,000","","","\u2014","","","78,422","","","\u2014","","","\u2014","","","","","278,422"],["Non-recourse investment-level secured debt","","228,792","","","879,503","","","1,175,250","","","1,750,690","","","600,000","","","","","4,634,235"],["Total","","$","428,792","","","$","879,503","","","$","1,253,672","","","$","2,050,690","","","$","600,000","","","","","$","5,212,657"]] [[/GREPCENT_TABLE]] We expect to repay the outstanding $200 million 5.00% convertible senior notes upon maturity in April 2023 with current cash on hand, which will result in a deleveraging of our corporate balance sheet. In connection with an amortizing investment-level securitized debt with an anticipated repayment date in November 2023 (at December 31, 2022, $216 million expected principal repayment in 2023), our subsidiary in the Operating segment is looking to refinance the debt prior to its anticipated repayment date or otherwise, continue servicing the debt until such time a refinancing is executed. Investment Commitments Fund Commitments—As of December 31, 2022, we have unfunded commitments of $112 million to our sponsored funds. Generally, the timing for funding of these commitments is not known and the commitments are callable on demand at any time prior to their respective expirations. Contingent Consideration Wafra Redemption—In connection with the May 2022 redemption of Wafra's interest in our investment management business, additional contingent consideration is payable based upon future capital raise thresholds, with up to 50% payable in shares of our class A common stock at our election. $90 million is payable in March 2023 based upon capital raised in 2022, and up to $35 million in March 2024 dependent upon cumulative capital raised through 2023. InfraBridge Acquisition—In connection with the InfraBridge acquisition in February 2023, additional contingent consideration of up to $129 million may become payable based upon achievement of future fundraising targets for InfraBridge's third and fourth flagship funds. Warehoused Investments We temporarily warehouse investments on behalf of prospective sponsored investment vehicles that are actively fundraising. The warehoused investments are transferred to the investment vehicle when sufficient third party capital, including debt, is raised. Generally, the timing of future warehousing activities is not known. Nevertheless, investment warehousing is undertaken only if we determine that there will be sufficient liquidity through the anticipated warehousing period. In August and December 2022, we received a return of $428 million in total capital, inclusive of holding fees, from the transfer of investments to our new sponsored funds and to a third party sponsored CLO, along with repayment of corresponding debt. This included $282 million in connection with TowerCo that was acquired in June 2022. At December 31, 2022, we had $52 million of remaining warehoused equity investments. Carried Interest Clawback Depending on the final realized value of all investments at the end of the life of a fund (and, with respect to certain funds, periodically during the life of the fund), if it is determined that cumulative carried interest distributions have exceeded the final carried interest amount earned (or amount earned as of the calculation date), we are obligated to return the excess carried interest received. Therefore, carried interest distributions may be subject to clawback if decline in investment values results in cumulative performance of the fund falling below minimum return hurdles in the interim period. If it is determined that the Company has a clawback obligation, a liability would be established based upon a hypothetical liquidation of the net assets of the fund at reporting date. The actual determination and required payment of any clawback obligation would generally occur after final disposition of the investments of the fund or otherwise as set forth in the governing documents of the fund. 56 Table of Contents If the related carried interest distributions received by the Company are subject to clawback, the previously distributed carried interest would be similarly subject to clawback from employees. The Company generally withholds a portion of the distribution of carried interest to employees to satisfy their potential clawback obligation. At December 31, 2022, the Company has no liability for clawback obligations on distributed carried interest. Lease Obligations At December 31, 2022, we had $40.5 million of operating lease obligations on our corporate offices, which are funded through corporate operating cash. Additionally, there were $135.6 million and $285.9 million of finance and operating lease obligations, respectively, principally on leasehold data centers assumed through acquisitions, with such obligations satisfied through operating cash generated by the respective investment properties. These lease obligation amounts represent fixed lease payments, excluding any contingent or other variable lease payments, and factor in lease renewal or termination options only if it is reasonably certain that such options would be exercised. Scheduled future lease commitment amounts over the next five years and thereafter is presented in Note 19 to the consolidated financial statements in Item 15 of this Annual Report. Sources of Liquidity Debt Funding At December 31, 2022, we had $578 million of corporate-level debt, along with non-recourse investment level secured debt, as summarized below. [[GREPCENT_TABLE]] [["($ in thousands)","","Outstanding Principal","","Weighted Average Interest Rate (1)(Per Annum)","","Weighted Average Years Remaining to Maturity (2)"],["Corporate-level debt:"],["Secured fund fee revenue notes","","$","300,000","","","3.93","%","","3.7"],["Convertible and exchangeable senior notes","","278,422","","","5.21","%","","0.9"],["","","578,422"],["Non-recourse investment-level secured debt:"],["Fixed rate","","3,640,235","","","2.72","%"],["Variable rate","","994,000","","","8.40","%"],["","","4,634,235","","","3.71","%","","3.0"],["Total debt","","$","5,212,657"]] [[/GREPCENT_TABLE]] __________ (1)    Calculated based upon outstanding debt principal at balance sheet date. For variable rate debt, weighted average interest rate is calculated based upon the applicable index plus spread at balance sheet date. (2)    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 for extensions that are at the Company's option. Corporate-level Debt Securitized Financing Facility—Our securitized financing facility is subject to various covenants, including financial covenants that require the maintenance of minimum thresholds for debt service coverage ratio and maximum loan-to-value ratio, as defined. As of the date of this filing, we are in compliance with all of the financial covenants, and the full amount is available to be drawn on our $300 million VFN. Our securitized financing facility allows for the issuance of additional term notes in the future to supplement our liquidity. The decision to enter into a particular financing arrangement is made after consideration of various factors including future cash needs, current sources of liquidity, demand for the Company’s debt or equity, and prevailing interest rates. Senior Notes—We continue to reduce higher cost corporate indebtedness through early exchange of an additional $60 million of senior notes into common stock in March 2022, which generated net savings in interest payments. Non-Recourse Investment-Level Secured Debt Investment level financing is non-recourse to us and secured primarily by the respective underlying real estate in the Operating segment. In 2022, disposition of investments resulted in further deleveraging of our balance sheet as follows: •Investment-level debt of $2.86 billion held by NRF Holdco (previously classified as held for disposition) was assumed by the acquirer upon sale of NRF Holdco in February 2022. 57 Table of Contents •In August 2022, $173 million of debt previously financing warehoused loans was repaid following a transfer of the loans into a third party sponsored CLO. •$313 million of debt obtained in June 2022 to partially fund the acquisition of TowerCo was assumed by our sponsored fund in December 2022 in conjunction with the transfer of TowerCo assets to the fund. Cash From Operations Fee-Related Earnings—We generate FRE from our Investment Management segment, generally encompassing recurring fee income net of associated compensation and administrative expenses. Following the redemption of Wafra's 31.5% interest in our investment management business in May 2022, 100% of Investment Management FRE is attributable to us. Management fee income is generally a predictable and stable revenue stream. Our ability to generate new management fee streams through establishing new investment vehicles and raising investor capital depends on general market conditions and availability of attractive investment opportunities as well as availability of debt capital. Incentive Fees—Incentive fees, net of employee allocations, are earned based upon the financial performance of a vehicle above a specified return threshold, which is largely driven by appreciation in value of underlying investments. Incentive fees are recognized as fee income when they are no longer probable of significant reversal. As investment fair values and changes thereof could be affected by various factors, including market and economic conditions, incentive fees are by nature less predictable in amount and timing. There were no incentive fees received in 2022. Carried Interest Distributions—Carried interest is distributed generally upon profitable disposition of an investment if at the time of distribution, cumulative returns of the fund exceed minimum return hurdles. Carried interest distributions are recognized in earnings net of clawback obligations, if any. The amount and timing of carried interest distributions received may vary substantially from period to period depending upon the occurrence and size of investments realized by our sponsored funds. In 2022, we received our share of realized carried interest of $32.6 million, net of allocation to employees and Wafra, in connection with the recapitalization of DataBank and sale of investments by DBP I and DBP II. Investments—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. Asset Monetization We periodically monetize our investments through opportunistic asset sales or to recycle capital from non-core assets. DataBank—In the second half of 2022, we partially monetized our interest in DataBank and received total proceeds of $405 million from our investment, excluding carried interest. The incremental third party capital raised in the recapitalization also results in additional fee income in our Investment Management segment. Wellness Infrastructure—In completing our digital transformation, we monetized our Wellness Infrastructure assets in February 2022 for $161 million in cash, including cash distributions received from NRF Holdco prior to closing of the sale, and $155 million in note receivable. Other Non-Digital Investments—We also have marketable equity securities, including our shares in BRSP, that are available for future monetization. At December 31, 2022, the aggregate fair value of these investments was $235 million. Public Offerings We may offer and sell various types of securities from time to time at our discretion based upon our needs and depending upon market conditions and available pricing. 58 Table of Contents Consolidated Cash Flows The following table summarizes the activities from our consolidated statements of cash flows, including discontinued operations. [[GREPCENT_TABLE]] [["","","Year Ended December 31,"],["(In thousands)","","2022","","2021"],["Cash, cash equivalents and restricted cash\u2014beginning of period","","$","1,766,245","","","$","963,008"],["Net cash provided by (used in):"],["Operating activities","","262,582","","","248,237"],["Investing activities","","(1,913,408)","","","146,565"],["Financing activities","","923,785","","","411,260"],["Effect of exchange rates on cash, cash equivalents and restricted cash","","(2,465)","","","(2,825)"],["Cash, cash equivalents and restricted cash\u2014end of period","","$","1,036,739","","","$","1,766,245"]] [[/GREPCENT_TABLE]] Operating Activities Cash inflows from operating activities are generated primarily through fee income, including incentive fees, and distributions of our share of net carried interest from our investment management business, property operating income from our real estate investments, interest received from loans receivable during the warehousing period, and distributions of earnings received from equity investments. This is partially offset by payment of operating expenses, including property management and operations, investment transaction-related costs, as well as compensation and general administrative costs. Our operating activities generated net cash inflows of $262.6 million in 2022 and $248.2 million in 2021. Investing Activities Investing activities include primarily cash outlays for acquisition of real estate, origination or acquisition of warehoused loans and disbursement on subsequent drawdowns, and new equity investments and subsequent contributions. These are partially offset by repayments, sales and transfers of warehoused loans receivable, distributions of capital received from equity investments, and proceeds from sale of real estate and equity investments. Our investing activities generated net cash outflows of $1.9 billion in 2022 and net cash inflows of $146.6 million in 2021. •Real estate investments—Real estate investing activities generated net cash outflows in both years. Net outflows were higher in 2022 totaling approximately $2.0 billion, attributed to the acquisition of TowerCo, DataBank's acquisition of five data centers, capital expenditures in our data center portfolio and payments for build-out of expansion capacity and lease-up within the Vantage SDC portfolio. All of these outflows were partially offset by proceeds received from our Wellness Infrastructure sale and the transfer of our interest in TowerCo to our new sponsored fund in December 2022, all of which were net of property-level cash transferred to the buyer or fund. 2021 saw net cash outflows of $420.0 million, driven by add-on acquisitions in the Vantage SDC portfolio and capital expenditures in our Operating segment. These outflows were partially offset by proceeds from sales in our Wellness Infrastructure segment, our hotel business and our OED portfolio, net of cash deconsolidated. •Debt investments—Our debt investments generated net cash inflows in both years. There was a net cash inflow of $44.8 million in 2022. Disbursements for additional fundings and acquisition of warehoused loans during the year were more than offset by proceeds received from the subsequent transfer of the entire portfolio of warehoused loans to our new sponsored fund or to a third party sponsored CLO. In 2021, net cash inflows of $452.1 million can be attributed to loan repayments, in particular a $305.0 million repayment received on two loans in our Irish loan portfolio, and $146.0 million in proceeds from sale of our loan investment holding entities in the OED portfolio, net of cash deconsolidated. This was partially offset by acquisition or origination of warehoused loans, other loans disbursements, and acquisition of additional N-Star collateralized debt obligations ("CDOs") at a discount by our Wellness Infrastructure segment, which has since been disposed. 59 Table of Contents •Equity investments—Our equity investments generated net cash inflows in both years. In 2022, our equity investments recorded net cash inflows of $11.6 million, largely representing the trading activities in marketable equity securities by our consolidated liquid funds, partially offset by additional contributions to our digital funds, net of return of capital. 2021 saw net cash inflows of $104.6 million in connection with our equity investments. Significant sales of equity investments included 9.5 million BRSP shares for $81.8 million of cash, and sale of investment holding entities in the OED portfolio, which generated proceeds of $177.8 million, net of cash deconsolidated. Net cash inflows were also generated from trading activities in marketable equity securities by our consolidated funds in the Liquid Strategies. These inflows were partially offset by outflows attributed largely to funding of our digital fund commitments and draws on acquisition, development and construction or ADC loans that were accounted for as equity method investments prior to their sale in December 2021. Financing Activities We finance our investing activities largely through investment-level secured debt and capital from co-investors. We also draw upon our securitized financing 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 private placement 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 were reinstated beginning the third quarter of 2022), as well as distributions to noncontrolling interests, largely in our Operating segment. Financing activities generated net cash inflows of $923.8 million in 2022 and $411.3 million in 2021. •In 2022, the net cash inflow of $923.8 million was driven by financing for the acquisition of TowerCo and the DataBank data center acquisition through term loans and capital contributions from noncontrolling interests totaling $1.1 billion. The TowerCo debt was subsequently assumed by our new sponsored fund upon transfer of our equity interest in TowerCo to the fund. Additionally, cash inflows included our share of proceeds recorded in equity of $405.4 million from sale of a portion of our interest in our DataBank subsidiary in connection with the recapitalization of DataBank that was treated as an equity transaction. These inflows were partially offset by $388.5 million of cash paid to redeem Wafra's interest in our investment management business in May 2022. Financing cash outflows also included repayment of our warehouse credit facility of $172.5 million with proceeds from a transfer of the warehoused loans to a third party CLO, and paydowns on amortizing debt in our Operating segment. Other notable cash outflows included preferred and common stock repurchases totaling $107.8 million and distributions to various noncontrolling interests. Dividend payments were $64.0 million in 2022, which is lower than 2021 following preferred stock redemptions during 2021 and repurchases during 2022. •The financing net cash inflows of $411.3 million in 2021 were driven by $671.2 million of borrowings exceeding debt repayments. Investment-level financing activities included primarily issuances of securitized notes and draws on variable funding notes by Vantage SDC to finance an add-on acquisition, future expansion capacity and capital expenditures, as well as by DataBank to refinance existing debt and fund future acquisition. There was also repayment of debt financing real estate in Europe that were sold during the year. At the corporate level, we replaced our 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 preferred stock for $86.8 million. Additionally, distributions outpaced contributions from noncontrolling interests, resulting in a net cash outflow of $16.9 million. Contributions from noncontrolling interests were composed largely of a syndication of our interest to a new third party investor in our zColo investment vehicle, assumption by Wafra of a portion of our commitments to DBP, and additional consideration paid by Wafra for its investment in our investment management business. These contributions were more than offset by distributions to third party co-investors, primarily in the OED portfolio prior to deconsolidation upon sale of our interests in December 2021. Dividend payments were $73.4 million in 2021. Guarantees and Off-Balance Sheet Arrangements We have no guarantees or off-balance sheet arrangements that we believe are reasonable likely to have a material effect on our financial condition. Critical Accounting Policies and Estimates Our consolidated 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 60 Table of Contents 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. Highlighted below are accounting policies and estimates that we believe to be critical based on the nature of our business and/or require significant management judgment and assumptions. With respect to all critical estimates discussed below, 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 and the unpredictability of economic and market conditions, actual results may differ from estimates, and changes in estimates and assumptions could have a material effect on our consolidated financial statements in the future. Equity Method Earnings—Carried Interest The Company recognizes carried interests from its equity method investments as general partner in investment vehicles that it sponsors. Carried interest represents a disproportionate allocation of returns from the Company's sponsored investment vehicles based upon the extent to which cumulative performance of the vehicles exceeds minimum return hurdles pursuant to terms of their respective governing agreements. Carried interest is subject to reversal until such time it is realized, which generally occurs upon disposition of all underlying investments of an investment vehicle, or in part with each disposition. A portion of carried interest is allocated to certain employees, and is similarly subject to reversal if there is a decline in the cumulative carried interest amounts previously recognized. The amount of carried interest recognized is based upon the cumulative performance of each investment vehicle if it were liquidated as of the reporting date, which in turn is largely driven by appreciation in value of the underlying investments held by these vehicles. The investments held by sponsored vehicles are revalued each quarter, with the results subject to the Company's valuation review and approval process. Fair value of the underlying investments is typically estimated using unobservable inputs and assumptions that involves significant judgement including, but not limited to, the financial performance of the portfolio company, economic conditions, foreign exchange rates, comparable transactions in the market, and equity prices for publicly traded securities, and is therefore subject to inherent uncertainties. Income Taxes Deferred tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise from temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from NOL, capital loss and tax credit carryforwards. Realization of deferred tax assets is dependent upon the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted taxable earnings and prudent and feasible tax planning strategies. A valuation allowance for deferred tax assets is established if the Company believes it is more likely than not that all or some portion of the deferred tax assets will not be realized based upon the weight of all available positive and negative evidence. The weight given to the evidence is commensurate with the extent to which it can be objectively verified. The more negative evidence that exists, the more positive evidence is necessary and the more difficult it is to support a conclusion that a valuation allowance is not required. In evaluating realizability of deferred tax assets, the Company considers various factors, including: (1) nature of the deferred tax assets and liabilities, whether they are ordinary or capital; (2) in which tax jurisdictions they were generated and timing of their reversal; (3) taxable income in prior carryback years and projected taxable earnings exclusive of reversing temporary differences and carryforwards; (4) length of time that carryovers can be utilized in the various tax jurisdictions; (5) any unique tax rules that would impact the utilization of the deferred tax assets; and (6) any tax planning strategies that could be employed to reasonably assure utilization of the tax benefit prior to expiration. The projection of future taxable earnings to be generated by subsidiaries to which the deferred tax assets apply represent a critical estimate. Key assumptions in this evaluation include the Company's forecast of future capital raises, and actual and planned business and operational changes, which are affected by future macroeconomic and Company-specific conditions and events. These assumptions rely heavily on estimates and changes in estimates could result in an establishment or an increase in valuation allowance. An established valuation allowance may be reversed in a future period if the Company subsequently determines it is more likely than not that all or some portion of the deferred tax assets will become realizable. 61 Table of Contents A discussion of valuation allowances established in 2022 is included in Note 17 to the consolidated financial statements in Item 15 of this Annual Report. Impairment In connection with our review and preparation of the consolidated financial statements, prior to and subsequent to each quarter end, we evaluate if prevailing events or changes in circumstances indicate that carrying values of the following assets may not be recoverable, in which case, an impairment analysis is performed. Real Estate Held for Investment Triggering events that may indicate potential impairment of our real estate held for investment include, but are not limited to, deterioration in current and/or projected earnings; significant near-term lease expirations; decline in occupancy; or other customer or market conditions that would negatively affect property operating cash flows. The carrying amount of real estate held for investment is not recoverable if it exceeds the undiscounted future net cash flows expected to be generated by the property, including any estimated proceeds from eventual disposition of the property. If multiple outcomes are under consideration, the Company may apply either a probability-weighted cash flows approach or the single-most-likely estimate of cash flows approach, whichever is more appropriate under the circumstances. Impairment is recognized to reduce the carrying value of the property to its estimated fair value, generally based upon a discounted net cash flow analysis which applies a terminal capitalization rate at the end of the projection period to derive an exit value, or a direct capitalization approach which applies an overall capitalization rate to expected net operating income to estimate current property value. Estimation of future net cash flows involves significant judgment and assumptions, including, but not limited to: probability-weighting to different cash flow scenarios or the determination of the single-most-likely cash flow scenario, where applicable; available market information such as competition levels, leasing trends, occupancy trends, lease rates, and market prices of similar properties recently sold or currently being offered for sale; and capitalization rates. There was no impairment recorded on real estate held for investment in 2022. Equity Method Investments Significant equity method investments that are subject to periodic impairment assessment include the Company's investment in BRSP. Indicators of impairment on equity method investments generally include the Company's shortened hold period assumptions; significant deterioration in earnings performance, asset quality, or business prospects of the investee; or significant adverse change in the industry, economic, or market environment of the investee. If indicators of impairment exist, the Company estimates the fair value of its equity method investment, which considers factors such as the estimated enterprise value of the investee, fair value of the investee's underlying net assets, or net cash flows to be generated by the investee, and for equity method investees with publicly-traded equity, the traded price of the equity securities in an active market. Further consideration is made if a decrease in the fair value of equity method investments is other-than-temporary to determine if impairment loss should be recognized. Assessment of other-than-temporary impairment may involve significant management judgment, including, but not limited to: consideration of the investee’s current and projected financial condition and earnings, business prospects and creditworthiness; significant and prolonged decline in traded price of the investee’s equity security; or the Company's ability and intent to hold the investment until recovery of its carrying value. If management is unable to reasonably assert that an impairment is temporary or believes that the Company may not fully recover the carrying value of its investment, then the impairment is considered to be other-than-temporary. Our investment in BRSP was determined to be other-than-temporarily impaired in 2022, as discussed further in Note 5 to the consolidated financial statements in Item 15 of this Annual Report. Goodwill At December 31, 2022, the Company's goodwill is associated with its Investment Management and Operating segments. Goodwill is tested for impairment at the reporting unit to which it is assigned, which can be an operating segment or one level below an operating segment. The assessment of goodwill for impairment may initially be performed based on qualitative factors to determine if it is more likely than not that the fair value of the reporting unit is less than its carrying value, including goodwill. If so, a quantitative assessment is performed, and to the extent the carrying value of the 62 Table of Contents reporting unit exceeds its fair value, impairment is recognized for the excess up to the amount of goodwill assigned to the reporting unit. Alternatively, the Company may bypass a qualitative assessment and proceed directly to a quantitative assessment. A qualitative assessment considers various factors such as macroeconomic, industry and market conditions to the extent they affect the earnings performance of the reporting unit, changes in business strategy and/or management of the reporting unit, changes in composition or mix of revenues and/or cost structure of the reporting unit, financial performance and business prospects of the reporting unit, among other factors. In a quantitative assessment, significant judgment, assumptions and estimates are applied in determining the fair value of reporting units. The Company has generally used the income approach to estimate fair value by discounting the projected net cash flows of the reporting unit, and may corroborate with market-based data where available and appropriate. Projection of future cash flows is based upon various factors, including, but not limited to, our strategic plans in regard to our business and operations, internal forecasts, terminal year residual revenue multiples, operating profit margins, pricing of similar businesses and comparable transactions where applicable, and risk-adjusted discount rates to present value future cash flows. Given the level of sensitivity in the inputs, a change in the value of any one input, in isolation or in combination, could significantly affect the overall estimation of fair value of the reporting unit. The Company determined that there were no indicators of impairment to goodwill in 2022. Allowance for Credit Losses Debt Securities A debt security is impaired if its fair value is below its amortized cost. If the Company intends to sell the impaired debt security or is more likely than not will be required to sell the debt security before recovery of its amortized cost, the entire impairment amount is recognized in earnings as a write-off of the amortized cost basis of the debt security. If the Company does not intend to sell or is not more likely than not required to sell the debt security before recovery of its amortized cost, the credit component of the loss is recognized in earnings as an allowance for credit loss, which may be subject to reversal for subsequent recoveries in fair value. The non-credit loss component is recognized in other comprehensive income or loss. The allowance is charged off against the amortized cost basis of the security if in a subsequent period, the Company intends to or more likely than not will be required to sell the security, or if the Company deems the security to be uncollectible. The Company holds the subordinated notes of a third party sponsored CLO, classified under Level 3 of the fair value hierarchy. Subordinated notes are the residual interest or equity tranche of a CLO, representing the most leveraged and illiquid tranche within the structure, and are subject to first loss exposure in the collateral pool. Accordingly, the value of subordinated notes is highly sensitive to the performance of the underlying collateral of a CLO. The use of unobservable inputs in estimating fair value necessitates the application of management judgement. Factors considered in the valuation of CLO subordinated notes generally include: expected loan default rates which are a function of the composition of the collateral pool (for example, credit rating and industry sector of the underlying loans), historical corporate loan defaults and market expectations for corporate debt performance under current economic conditions; loss given default or severity rate; loan prepayment rates; reinvestment price during the reinvestment period; redemption or call date following expiration of the reinvestment period; and redemption or call price. At December 31, 2022, fair value of the CLO subordinated notes was determined using a benchmarking approach, as described in Note 11 to the consolidated financial statements in Item 15 of this Annual Report. Fair Value The Company carries certain assets at fair value on a recurring or nonrecurring basis. The Company has elected the fair value option for all loans receivable. Loans Receivable Certain loans receivable are classified under Level 3 of the fair value hierarchy, with the measurement of fair value using at least one unobservable input that is significant and requiring management judgment. Level 3 fair value for loans receivable are generally estimated based upon the income approach, applying a discounted cash flow model. This involves a projection of principal and interest that are expected to be collected, and includes consideration of factors such as the financial standing and credit risk of the borrower or sponsor, operating results and/or value of the underlying 63 Table of Contents collateral, and market yields for loans with similar credit risk and other characteristics. In times of adverse economic conditions, the judgment applied in estimating unobservable inputs is subject to a greater degree of uncertainty. Refer to Note 11 to the consolidated financial statements in Item 15 of this Annual Report for additional information on the inputs applied in estimating fair value of loans receivable. Acquisition In a business combination or asset acquisition, all assets acquired and liabilities assumed are measured at fair value as of the acquisition date. Allocation of Purchase Consideration In a business combination, the Company measures the assets acquired, liabilities assumed and any noncontrolling interests of the acquiree at their acquisition date fair values, with the excess of purchase consideration over the fair value of net assets acquired and the fair value of any previously held interest in the acquiree, recognized as goodwill. In an asset acquisition, the Company allocates the purchase consideration to the assets acquired and liabilities assumed based upon their relative fair values, which does not give rise to goodwill. The estimation of fair value of the assets acquired and liabilities assumed involves significant judgment and assumptions. Acquired assets are generally composed of real estate, lease right-of-use ("ROU") asset, lease-related intangibles, investment management related intangibles such as investment management contracts and investor relationships, and other identifiable intangibles such as customer contracts, customer relationships and trade names. The Company generally values real estate based upon their replacement cost for buildings (in an as-vacant state), improvements and data center infrastructure, and based upon comparable sales or current listings for land. Lease ROU assets are measured based upon future lease payments over the lease term, adjusted for any lease incentives and capitalized direct leasing costs, and discounted at the incremental borrowing rate. Identifiable intangible assets, such as lease and management contracts, are typically valued using the income approach based upon net cash flows expected to be generated by the assets, discounted to present value. Estimates applied include, but are not limited to: (i) construction costs for buildings and improvements; (ii) cost per kilowatt and costs of design, engineering, construction and installation for data center infrastructure; and (iii) for intangible assets, expected future cash flows, reinvestment rates by existing investors in our investment management business, lease renewal rates, customer attrition rates, discount rates, and useful lives. These estimates are based upon assumptions that management believes a market participant would apply in valuing the assets. These estimates and assumptions are forward-looking and are subject to uncertainties in future economic, market and industry conditions. Refer to Note 3 to the consolidated financial statements in Item 15 of this Annual Report for additional discussion of the methodology and inputs applied in estimating fair value of assets acquired and liabilities assumed. Consolidation The determination of whether the Company has a controlling financial interest and therefore consolidates an entity can significantly affect presentation in the consolidated financial statements. A consolidation assessment at the onset of the Company's initial investment in or other involvement with an entity as well as reassessments on an ongoing basis, may involve significant judgement, more so if an entity is determined to be a variable interest entity ("VIE"). A VIE is consolidated by its primary beneficiary, which is defined as the party who has a controlling financial interest in the VIE through (a) power to direct the activities of the VIE that most significantly affect the VIE’s economic performance, and (b) obligation to absorb losses or right to receive benefits of the VIE that could be significant to the VIE. This assessment may involve subjectivity in the determination of which activities most significantly affect the VIE’s performance, and estimates about current and future fair value of the assets held by the VIE and financial performance of the VIE. In assessing its interests in the VIE, the Company also considers interests held by its related parties, including de facto agents. Additionally, the Company assesses whether it is a member of a related party group that collectively meets the power and benefits criteria and, if so, whether the Company is most closely associated with the VIE. In performing the related party analysis, the Company considers both qualitative and quantitative factors, including, but not limited to: the characteristics and size of its investment relative to the related party; the Company’s and the related party's ability to control or significantly influence key decisions of the VIE including consideration of involvement by de facto agents; the obligation or likelihood for the Company or the related party to fund operating losses of the VIE; and the similarity and significance of the VIE’s business activities to those of the Company and the related party. The determination of whether an entity is a VIE, and whether the Company is the primary beneficiary, depends upon facts and circumstances specific to an entity at the time of the assessment, and could change over time. 64 Table of Contents Note 12 to the consolidated financial statements in Item 15 of this Annual Report discusses the Company's involvement in various types of entities that are considered to be VIEs and whether the Company is determined to be the primary beneficiary. Recent Accounting Updates The effects of accounting standards adopted in 2022 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 15. "Exhibits, Financial Statement Schedules" of this Annual Report.