Digitalbridge Group (NYSE: DBRG) isn't exactly a household name, nor is it even well-known by most real estate investment trust (REIT) investors. But that's mainly because it's only had its name for a short time -- the company was previously known as Colony Capital. And it's a rather unique REIT. Digitalbridge owns, operates, and invests in real estate, not just on its own behalf but for investment-management clients who trust the company with tens of billions of dollars.
In this article, we'll take a closer look at Digitalbridge, diving into its current business, its interesting history, recent developments, stock performance, and more.
Digitalbridge Group company profile
Digitalbridge Group is a REIT that invests in digital infrastructure. The company was known as Colony Capital until it was rebranded to better reflect its business focus. The company invests in cell towers, data centers, fiber infrastructure, and more.
The company also operates an investment management platform that manages more than $32 billion on behalf of investors and is one of the more unique aspects of the company. As of October 2021, Digitalbridge has a market cap of about $3.2 billion, giving the relatively small company access to capital to build a larger-scale digital infrastructure portfolio.
Digitalbridge has chosen to focus on digital infrastructure -- as opposed to the more diverse approach it has taken in the past -- simply because of the massive opportunity it sees worldwide. The gradual rollout of 5G technology will require major infrastructure upgrades to help facilitate the speed and performance of these next-generation networks.
Digitalbridge makes most of its money in two ways. First, it owns some of its assets on its own balance sheet, including a data center business. This is known as the Digital Operating segment. Second, the company makes fee revenue for managing the $32 billion worth of third-party capital mentioned earlier, reported as its Digital Investment Management, or Digital IM, segment.
In 2021, just over half of the company's revenue is expected to come from Digital IM, with the rest in operating revenue.
The company has some pretty impressive growth ambitions, especially on the operating assets side of the business. While Digitalbridge's goal is to roughly double its investment management revenue by 2025, the company aims to quadruple its operating revenue from 2021 levels.
It expects to accomplish this through a combination of organic growth and acquisitions. Digitalbridge plans to deploy $1.5 to $1.7 billion worth of capital that came from recycling its legacy (Colony Capital) assets, which is why such a sharp increase is expected.
Digitalbridge Group news
Perhaps the most important news item to mention is that Digitalbridge has only had its name for a brief time. Prior to June 22, 2021, the company was known as Colony Capital, as mentioned earlier. Management decided to change the name as part of its massive shift in its business focus over the past couple of years.
While Colony Capital had historically been a very diversified real estate investment firm, it decided to pivot a few years ago into digital infrastructure, selling off some of its noncore assets. Specifically, the company has historically focused on real estate debt investments, distressed assets, and relatively high-risk development opportunities, which is the main reason for the rather poor long-term stock performance I'll discuss in the next section.
It's also worth noting that the COVID-19 pandemic hit Digitalbridge rather hard, especially when it comes to some of its debt investments and nondigital real estate assets. The stock plunged at the pandemic's start but has since rebounded, and then some, as the market seems to cheer the pivot to digital infrastructure. This certainly makes sense, as the effects of the pandemic accelerated the general digital transformation.
Aside from the name change and COVID-19, here's a timeline of other key events Digitalbridge investors should be aware of from the past few years (much of which were done with the strategic pivot to digital infrastructure in mind).
July 2019: Colony Capital acquired digital infrastructure company Digital Bridge, where the current business name comes from. The company simultaneously announced initiatives to transform the company into a digital infrastructure-focused business.
December 2019: Colony sold its light industrial assets portfolio, which consisted of 465 properties, to Blackstone (NYSE: BX) for $5.7 billion as part of its repositioning plan, although only about $1.2 billion of that amount went to the company itself.
March 2020: Colony finalized a major leadership shift, including the promotion of co-founder Marc Ganzi to CEO (effective in July 2020) to help accelerate the transition to a digital infrastructure REIT.
Also in March 2020, as a result of COVID-19 uncertainty, Colony took several steps, including suspending its dividend, which has yet to be reinstated. At the time the pandemic hit, digital assets made up roughly 40% of the company's assets under management (AUM) -- this part of the portfolio performed quite well throughout 2020.
July 2020: Colony Capital formed a partnership with data center operator Vantage, with the company's investor group investing $1.2 billion in Vantage's portfolio.
September 2020: Colony agreed to sell 197 hotel properties for $2.8 billion. Colony didn't get much of this, as $2.7 billion was in the form of debt assumption, but it helped the company's transition to digital assets and strengthened Colony's balance sheet by getting rid of debt.
December 2020: Colony sold its ownership stake in the Colony Bulk Industrial Portfolio for $400 million, representing its complete exit from industrial real estate. Also in December 2020, Colony sold other legacy assets for a total of $181 million. At the end of 2020, digital assets had increased to 58% of Colony's total assets under management.
January 2021: Colony moved its corporate headquarters from Los Angeles to Boca Raton, Florida, resulting in significantly lower operating costs and more streamlined operations.
April 2021: Colony announced the sale of its interest in two office properties in Ireland for $351 million.
June 2021: Just before changing its name to Digitalbridge, Colony Capital announced the $535 million sale of virtually all remaining assets in its legacy asset portfolio. This essentially focuses all of the company's assets on digital infrastructure, increases the company's liquidity, and improves the balance sheet.
After the June 2021 asset sales, 80% of Digitalbridge's AUM consisted of digital assets. The remaining 20% are made up entirely of its Wellness Infrastructure assets.
September 2021: Digitalbridge announced the pending $3.2 billion sale of the Wellness Infrastructure portfolio, which is the last step in the company's digital transformation. Of the sale price, Digitalbridge will receive $316 million in net value after the buyers assume the debt. To be clear, once this sale is finalized, Digitalbridge will be a pure play on digital infrastructure.
Digitalbridge Group stock price
As mentioned, Digitalbridge was known as Colony Capital until very recently. And Colony Capital went public in April 2015 by combining with an existing REIT, Colony Financial, operated by the same parent company.
To put it mildly, returns haven't been stellar since going public. The company's stock price has declined by about 60% since April 2015, and even if we include dividends, Colony Capital/Digitalbridge has produced a total return of -26% over its six-and-a-half-year history.
Now, investors should take these returns with a big grain of salt, as they were largely a result of Colony Capital's legacy business model of diversified real estate investing, as opposed to the focused digital infrastructure investment strategy the company has adopted in recent years. As you can see, the total returns over the past three years have been a different story.