blackdovfx
~ by Snehasish Chaudhuri, MBA
DigitalBridge Group, Inc. (NYSE:NYSE:DBRG) is a global digital infrastructure real estate investment trust (REIT) that owns, operates, and invests across the digital ecosystem and real estate. DBRG’s market price has dropped by more than 62 percent this year, and it has not paid steady dividends for the past 10 quarters. However, that also provides an opportunity to accumulate this stock at a low price. DBRG has a scope of generating exceptional growth due to its focus on cell towers, fiber networks, data centers, small cells and edge infrastructure. The Covid-19 pandemic has given a boost to digital infrastructure, and DBRG made some strategic acquisitions in those key verticals of digital ecospace.
DigitalBridge Group, Inc.
Formed as Colony Capital in 2009, the firm merged with its subsidiary Digital Colony in 2020 to rebrand as DigitalBridge Group, Inc. Due to this merger, the company’s ownership shifted from hospitality real estate to digital infrastructure. DigitalBridge Group owns approximately 25 companies across the digital ecospace, which can be clubbed into three segments: Digital Investment Management, Digital Operating, and Corporate. Digital Operating segment, owns, operates and leases digital assets, and generates majority of DBRG’s revenue. DBRG’s markets are located primarily in the United States.
Before the covid-19 pandemic, DigitalBridge Group was paying steady quarterly dividends with a year-end yield in excess of 9 percent. Except for the four quarters of 2017, the pay-out has been steady around $0.1. However, the company has not paid regular dividends since then, and thus investors have to only rely on growth of this stock. The stock has failed to generate price growth, and has fallen by 57.17 percent during the past 6 months. In order to raise the value of its equity shares, DBRG has authorized $200 million in share repurchases, and has completed a reverse stock split.
DigitalBridge Group has put its weights on the entire digital ecosystem and offers investors a scope to benefit from the enormous growth potential of all the key verticals such as cell towers, fiber networks, data centers, small cells and edge infrastructure. Since the covid-19 pandemic, DBRG has been aggressively acquiring strategic assets in all the key verticals in order to enhance scale. DBRG is currently undervalued after its substantial decline, and value investor Seth Klarman has built up a stake in this stock, which has provided further interest in this digital infrastructure REIT.
Prospects of Digital Infrastructure sector
The fifth-generation wireless technology can provide higher speed, lower latency and greater capacity than 4G LTE networks. That will result in quicker downloads, much lower lag time and it will significantly change our way of doing business. 5G speed and connectivity benefits are expected to make businesses more efficient and give consumers access to more information faster than ever before. 5G networks will be key determining factors and involve important aspects of our life – be it connected cars, or smart cities, or advanced gaming. The 5G services market was valued at $64 billion in 2021 and is forecasted to grow at an unbelievably high compound annual growth rate (OTC:CAGR) of 45 percent thus reaching a market value of $1.87 trillion by 2030.
A data center is a physical facility that organizations use to house their data and critical applications. Through the data center, a network of computing and storage resources enable the delivery of shared applications and data. Components of a data center design includes firewalls, servers, routers, storage systems, switches, application-delivery controllers, etc. The Data Center industry is forecasted to grow at around 5 percent CAGR from $215 billion in 2021 to $288 billion by 2027.
Edge computing processes client data at the periphery of the network, as close as possible to the originating source. It moves some portion of storage and compute resources out of the central data center and closer to the source of the data itself, thus bringing the power of the data centers closer to the applications. Edge computing seeks to reduce latency and can power unique applications from 3D live video streaming to the Metaverse. Edge Computing market was worth $36.5 billion in 2021 and is forecasted to grow at a rapid 19 percent CAGR to reach $87 billion by 2026.
DigitalBridge Group is on a Path to Recovery
The outbreak of the Covid-19 pandemic brought a dynamic shift in how businesses work, and resulted in surging demand for various kinds of services or components of the digital ecosystem. This has helped DigitalBridge Group bring itself back to the path of growth. The REIT achieved an exceptionally high sales growth. Revenue grew from $41 million in 2019 to $1182 million in 2021. The trends so far in 2022 indicates that the company will continue to generate high revenue growth. As a result, the funds from operation (FFO) have been reduced from negative $1150 million in 2019 to negative $108 million in 2021. For a REIT, this change is phenomenal. The company is expecting to achieve positive FFO very soon. DBRG is clearly in a recovery mode and set to achieve higher earnings in the coming years.
Covid-19 pandemic has given a boost to digital infrastructure, and DBRG made some strategic acquisitions in order to exploit such growth markets. In October 2021, DigitalBridge Group also acquired a controlling stake in the largest American private owner and operator of wireless communication infrastructure named Vertical Bridge. The acquired entity owns more than 308,000 master-leased sites and more than 8,000 cell towers throughout the US. DigitalBridge Group also entered into a strategic partnership with its management unit, DigitalBridge IM through acquiring a controlling stake. DigitalBridge IM was projected to have an organic growth rate of 20 percent.
In August, 2021, DigitalBridge Group acquired Landmark Infrastructure Partners, which owns several data center facilities throughout the US, including 1.2 million square feet of data center space in the Quantum Park in northern Virginia. Landmark Infrastructure Partners also owns standard cell towers, rooftop wireless sites, wind turbines, billboards, etc. DigitalBridge Group is also looking to expand abroad with its acquisition of ownership rights to Singapore assets and Hong Kong operations from Superloop. This helps in DBRG’s expansion and global diversification.
During the last quarter (Q2 2022), DigitalBridge Group acquired Vantage SDC and Houston area data centers at DataBank. DataBank is a nationwide edge data center platform, whereas Vantage SDC owns stabilized hyperscale data centers located in strategic markets across North America. Primarily driven by these two acquisitions, by the end of 2nd quarter, DBRG was able to increase its annualized revenues from $131 million last year to $160 million this year. Similarly annualized EBITDA was increased from $55 million last year to $68 million this year. Annualized revenue is an estimated revenue of the entire financial year based on the data available for a part of the year – in this case, data of the first two quarters.
Investment Thesis
This stock is fundamentally much better than what the market has made it look like. DigitalBridge Group’s strategic acquisitions in enhancing its portfolio of assets have positioned it as a key player across the digital ecospace. It has the financial results that indicate these moves are translating to value addition for the company, in the form of rapidly improving earnings and strategically sound initiatives targeting growth and market capture. Investors cannot ignore DBRG’s growth potential due to its exposure into the future of the digital ecosystem i.e., 5G, Data Centers and Edge Computing.
Moreover, since DigitalBridge Group is a REIT, investors can expect the company to begin paying out a dividend in the not-too-distant future, although the dividend will likely be small as DBRG preserves cash for growth. With all those strategic acquisitions to enhance its digital infrastructure, DBRG is well positioned to achieve substantial growth in the long run. For an investor bullish about the future of digital technology, this is probably the right time to accumulate DigitalBridge Group, Inc.
Be the first to comment