Colony Capital Announces First Quarter 2020 Financial Results

Colony Capital Announces First Quarter 2020 Financial Results

LOS ANGELES–(BUSINESS WIRE)–Colony Capital, Inc. (NYSE:CLNY) and subsidiaries (collectively, “Colony Capital,” or the “Company”) today announced financial results for the first quarter ended March 31, 2020.

Total revenues of $508 million

GAAP net loss attributable to common stockholders of $(361.6) million, or $(0.76) per share, which included $313 million of non-cash impairments

Core FFO of $(20.0) million, or $(0.04) per share

Core FFO of $2.3 million excluding net losses of $22.3 million primarily attributable to net investment losses in Other Equity & Debt

Colony achieved further milestones in its digital evolution, most notably by closing the $14 billion Zayo transaction, bringing digital assets under management (“AUM”) to 41% of total AUM, and adding approximately $840 million of new fee-bearing third-party capital

The Company announced a series of proactive steps to mitigate the economic impact of COVID-19 on its legacy businesses in order to enhance the Company’s liquidity position and financial flexibility

“COVID-19 is causing an unprecedented impact on the global economy; consequently, we are taking decisive action to preserve the financial flexibility and liquidity necessary to maintain the long-term resilience of our company, which in turn, benefits our customers, our communities, and our shareholders.” said Thomas. J. Barrack, Jr., Executive Chairman and Chief Executive Officer. “The continued growth in the demand for digital infrastructure underscores the importance of our strategic pivot; and, by maintaining financial strength, we will continue to invest growth capital and position ourselves as the leading real asset solutions provider of occupancy, connectivity, and capital to the world’s leading mobile communications and technology logos.”

“As we navigate a shifting macro environment, we remain laser-focused on delivering for our customers and executing our strategy to simplify the business. We made some great progress in the quarter, most notably closing the Zayo acquisition,” said Marc Ganzi, CEO of Digital Colony and CEO-elect of Colony Capital. “Between Digital Colony Partners, our flagship digital infrastructure fund and access to capital at our digital portfolio companies we have access to over $3 billion to play ‘digital offense.’”

For more information and a reconciliation of net income/(loss) to common stockholders to Core FFO and/or NOI, please refer to the non-GAAP financial measure definitions and tables at the end of this press release.

First Quarter 2020 Financial Results and Highlights

Financial Summary

1Q 2020

 

1Q 2019

 

Change

Change %

($ in thousands, represents consolidated amounts except for Core FFO)

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

Property operating income

$

425,416

 

 

$

458,898

 

 

$

(33,482

)

(7.3

)%

Interest income

32,868

 

 

46,070

 

 

(13,202

)

(28.7

)%

Fee income

43,505

 

 

31,028

 

 

12,477

 

40.2

%

Other income

5,724

 

 

12,063

 

 

(6,339

)

(52.5

)%

Total revenues (consolidated)

$

507,513

 

 

$

548,059

 

 

$

(40,546

)

(7.4

)%

Net loss attributable to common stockholders

$

(361,633

)

 

$

(102,113

)

 

$

(259,520

)

 

Net loss attributable to common stockholders per share

$

(0.76

)

 

$

(0.21

)

 

$

(0.55

)

 

Core FFO

$

(19,983

)

 

$

58,272

 

(1)

$

(78,255

)

 

Core FFO per share

$

(0.04

)

 

$

0.11

 

(1)

$

(0.15

)

 

Core FFO excluding net losses

$

2,303

 

 

$

72,293

 

(1)

$

(69,990

)

 

Core FFO excluding net losses per share

$

 

 

$

0.14

 

(1)

$

(0.14

)

 

___________________________________________________

(1)

First quarter 2019 Core FFO and Core FFO excluding net losses amounts include an adjustment to previously disclosed first quarter 2019 Core and Core FFO excluding net losses to reflect CLNC’s amendment of its definition of Core Earnings during the third quarter 2019, which was to include provision for loan losses, but exclude realized and unrealized real estate gains and losses (consistent with NAREIT FFO) and earnings related to legacy, non-strategic assets and businesses to focus CLNC’s results on the earnings of its Core Portfolio.

During the first quarter 2020, the Company:

Digital Evolution

Completed the acquisition of Zayo Group Holdings, Inc. (“Zayo”) for $14.3 billion, adding a global leader in fiber connectivity with over 13 million fiber miles and 40 data centers to the Digital Colony Partners (“DCP”) portfolio

Raised approximately $840 million of new fee-earnings equity under management (“FEEUM”) for co-investment into two investments including $708 million for Zayo

As part of a $2 billion European expansion, Vantage Data Centers, Digital Colony’s hyperscale data center platform, acquired Etix Everywhere, expanding its presence into Europe with data center campuses under construction or development in Frankfurt, Berlin, Warsaw, Milan, and Zurich

Digital Colony Partners, the Company’s inaugural $4.1 billion digital infrastructure fund is now 73% invested and committed following these digital real estate and infrastructure investments

Increased digital AUM to $20.6 billion as of March 31, 2020, which represents approximately 41% of the Company’s overall AUM

Finalized timing of the Company’s leadership succession, establishing July 1, 2020 as the date Marc Ganzi will become Chief Executive Officer and Jacky Wu will become Chief Financial Officer

Established a Digital reporting segment designed to improve transparency and enhance the investment community’s ability to evaluate and monitor Colony’s pivot to digital infrastructure

Dispositions

$339 million in asset monetizations since the beginning of 2020

Completed the sale of the Company’s interest in two non-wholly owned real estate investment management platforms for a combined $219 million, most notably, its 27% ownership interest in RXR Realty

Completed the planned sales of certain other assets, with net equity proceeds of $120 million within the Other Equity and Debt segment, including $73 million that was achieved subsequent to quarter end

Corporate

The Company’s Board of Directors (“Board”) declared and paid a first quarter 2020 dividend of $0.11 per share to holders of Class A and B common stock

Entered into a cooperation agreement with Blackwells Capital LLC (“Blackwells”), a stockholder of the Company, which included an agreement as to the Company’s Board composition and establishment of a joint venture which acquired the Company’s common stock in the open market, among other terms

Jeannie Diefenderfer was elected to the Company’s Board at the 2020 Annual Meeting of Stockholders held on May 5, 2020, increasing the number of independent directors to 11 of 12. Ms. Diefenderfer brings an extensive background in digital investing and digital real estate, which the Board of Directors believes will further enhance the Board’s oversight and implementation of the Company’s digital-focused strategy

Proactive Steps to Mitigate the Impact of COVID-19 Pandemic

The COVID-19 pandemic and related government-imposed stay-at-home restrictions have had and will continue to have a severe impact on global economic conditions and on the business environment within which the Company operates. In response to this unprecedented disruption, management and the Board of Directors have undertaken a series of proactive steps to mitigate the impacts of COVID-19 on its assets and business operations, with a principal focus on enhancing the Company’s liquidity and financial flexibility.

Suspension of Common Dividend – The Company is suspending its common dividend for the second quarter of 2020 as the Board and management believe it is prudent to conserve cash during this period of uncertainty. If maintained for the balance of the year, the dividend will result in savings of approximately $175 million relative to the prior $0.11 per share quarterly dividend. As the Company continues its pivot to digital infrastructure, the Board of Directors will evaluate go-forward dividend policy in alignment with an increased emphasis on a ‘total return’ approach, which focuses more on capital appreciation relative to current yield as components of total shareholder return.

Deferred Consideration of Preferred Dividend – The Board has elected to defer the declaration of a dividend on its preferred stock until June 30, 2020 in accordance with regulatory timetables and subject to its assessment of the impact and trajectory of COVID-19.

Revolver Draw – The Company drew $600 million from its revolving credit facility as a precaution to ensure funds are available to meet its commercial and debt service obligations for an extended period. As of May 5, 2020, the Company remained in compliance with all terms of the credit facility.

Corporate G&A Savings – Management identified and began executing a new cost reduction program with over $40 million in annual run-rate cost savings, mostly from headcount and compensation-related cost reductions, which are expected to be implemented during the course of 2020.

Hospitality Operations and Capital Structure – The Company is working with an external advisor to evaluate strategic and financial alternatives to maximize the value of its hospitality assets.

New Leadership at Colony Credit Real Estate, Inc. (“CLNC”) – In March, the Company appointed Michael J. Mazzei as Chief Executive Officer and President of CLNC. Mr. Mazzei brings 35 years of experience, knowledge of navigating through cycles, and strong executive leadership in the commercial real estate finance and mortgage REIT business. CLNC reported its first quarter earnings yesterday, outlining a series of actions it has taken over the past 45 days to further enhance liquidity and position CLNC for a recovery.

Other Equity & Debt (“OED”) Monetization – Despite withdrawing guidance with respect to the magnitude of OED monetizations due to the impact of COVID-19, the Company is increasingly intent on accelerating the sale of these non-core assets, where reasonable values can be attained. Most recently, in April 2020, the Company recapped an OED investment generating approximately $73 million of net proceeds, well in excess of carrying costs.

Financial Status & Outlook

As of May 5, 2020, the Company had approximately $1.0 billion of corporate cash-on-hand and an outstanding balance of $600 million under its revolving credit facility.

The Company’s results of operations in the first quarter of 2020 were primarily impacted by COVID-19 in the month of March, particularly within the non-digital businesses, including our hospitality portfolio. The Company expects the effects of COVID-19 to be more significant in future periods beginning with the second quarter of 2020. Further, while the Company is currently in compliance with all of its covenants under its revolving credit facility, and anticipates having the ability to meet its liquidity needs, the length and severity of the crisis remains uncertain. The Company’s business and operations will also be affected by the health of the capital markets and future government actions, among other factors. Consequently, the Company continues to evaluate opportunities to address near-term maturities and enhance its long-term capital structure and liquidity profile including, but not limited to, asset sales and re-financings, the issuance of new securities, modifications and/or extensions to existing credit agreements.

Until economic and financial conditions stabilize and become more predictable, the Company will refrain from providing forward looking guidance with respect to Core FFO or other operating metrics.

Assets Under Management (“AUM”)

As of March 31, 2020, the Company had $50 billion of AUM, a net increase of 15% from the same period a year ago:

 

March 31, 2020

 

March 31, 2019

($ in billions)

Amount

 

% of
Grand Total

 

Amount

 

% of
Grand Total

 

 

 

 

 

 

 

 

Balance Sheet (CLNY OP Share):

 

 

 

 

 

 

 

Digital(1)

$

0.5

 

 

1.0

%

 

$

 

 

%

Healthcare

3.5

 

 

7.0

%

 

3.9

 

 

9.0

%

Industrial(2)

 

 

%

 

1.5

 

 

3.5

%

Hospitality

3.6

 

 

7.2

%

 

3.9

 

 

9.0

%

Other Equity and Debt(1)(2)

2.8

 

 

5.6

%

 

3.3

 

 

7.6

%

CLNC(3)

2.0

 

 

4.0

%

 

2.0

 

 

4.6

%

Balance Sheet Subtotal

12.4

 

 

24.8

%

 

14.6

 

 

33.7

%

 

 

 

 

 

 

 

 

Investment Management:

 

 

 

 

 

 

 

Digital

20.1

 

 

40.3

%

 

1.9

 

 

4.4

%

Other Institutional Funds

8.8

 

 

17.7

%

 

9.9

 

 

22.7

%

Colony Credit Real Estate (NYSE:CLNC)(4)

3.4

 

 

6.8

%

 

3.5

 

 

8.1

%

NorthStar Realty Europe (NYSE:NRE)

 

 

%

 

1.6

 

 

3.7

%

Retail Companies

3.4

 

 

6.8

%

 

3.5

 

 

8.1

%

Non-Wholly Owned REIM Platforms(5)

1.8

 

 

3.6

%

 

8.4

 

 

19.3

%

Investment Management Subtotal

37.5

 

 

75.2

%

 

28.8

 

 

66.3

%

 

 

 

 

 

 

 

 

Grand Total

$

49.9

 

 

100.0

%

 

$

43.4

 

 

100.0

%

___________________________________________________

(1)

For purposes of comparison period over period, March 31, 2019 Digital balance sheet AUM includes $43 million of digital assets which were previously classified under Other Equity and Debt.

(2)

For purposes of comparison period over period, March 31, 2019 Other Equity and Debt includes $190 million of bulk industrial assets which were previously classified under Industrial.

(3)

Represents the Company’s 36% ownership share of CLNC’s total pro-rata share of assets of $5.4 billion as of March 31, 2020 and $5.5 billion as of March 31, 2019.

(4)

Represents third-party 64% ownership share of CLNC’s total pro-rata share of assets of $5.4 billion as of March 31, 2020 and $5.5 billion as of March 31, 2019.

(5)

REIM: Real Estate Investment Management (Alpine Energy LLC and American Healthcare Investors). First quarter 2019 included RXR Realty AUM of $5.1 billion.

First Quarter 2020 Operating Results and Investment Activity by Segment

The Company is providing operating results and investment activity for the following segments: Digital; Other Investment Management; Healthcare Real Estate; Hospitality Real Estate; CLNC; and Other Equity and Debt.

Digital Real Estate and Investment Management (“Digital”)

The Company’s Digital Segment is comprised of (i) the digital infrastructure and real estate investment management business, which currently manages the $4.1 billion DCP fund, six separately capitalized digital real estate portfolio companies and other digital real estate investment funds and (ii) balance sheet equity interests in digital infrastructure and real estate, including the 20% interest in DataBank, and GP co-investments in management funds, primarily comprised of the $250 million commitment to DCP.

During the first quarter 2020, this segment’s net loss attributable to common stockholders was $(3.8) million and Core FFO was $8.3 million.

Digital Investment Management

The digital infrastructure and real estate investment management business currently manages the $4.1 billion DCP fund, six separately capitalized digital real estate portfolio companies and other digital real estate investment funds. Following the acquisition of Zayo, DCP is now composed of ten portfolio companies across cell towers, data centers, small cells and fiber networks, which are geographically diversified across North America, South America, and Europe. As of March 31, 2020, the Company had $20.1 billion of third-party digital AUM compared to $1.9 billion as of March 31, 2019. As of March 31, 2020, digital FEEUM was $7.7 billion compared to $1.9 billion as of March 31, 2019. The weighted average management fee across the digital FEEUM was approximately 1.0% as of March 31, 2020. The increase in digital FEEUM was primarily attributable to the acquisition of the Digital Bridge investment management business in July 2019 and net capital inflows since the acquisition.

During the first quarter 2020, digital investment management generated $18.9 million of revenues and Digital Fee Related Earnings (“FRE”) of $10.1 million after deducting operating expenses. Net income attributable to common stockholders was $2.5 million and Core FFO was $9.4 million.

During the first quarter 2020, DCP completed the acquisition of Zayo, a global leader in fiber connectivity with over 13 million fiber miles and over 40 data centers. The transaction, with a total capitalization of $14.3 billion, represents the largest syndicated private equity investment, the fifth largest Media & Communications LBO and the second largest LBO overall since 2008. With the consummation of Zayo and two other digital infrastructure investments, DCP has now invested or committed 73% of its total capital commitments. Further, the Company raised approximately $840 million of new fee-earnings equity under management (“FEEUM”) for co-investment into two investments including $708 million for Zayo.

Digital Balance Sheet Investment

As of March 31, 2020, the Company had $230 million of GP co-investments primarily comprised of the $115 million it has funded of its $250 million GP commitment to DCP. The GP co-investments are subject to the fair value accounting of the underlying funds.

The Company also owns a 20.0% interest in DataBank, a leading edge/colocation data center company, which is consolidated on the Company’s financial statements.

During the first quarter 2020, net loss attributable to common stockholders was $(6.3) million and Core FFO was $(1.1) million for the digital balance sheet investments, of which $(3.8) million of net loss and $1.4 million of Core FFO was from DataBank. The following table provides other key operating metrics and statistics related to DataBank on a consolidated basis.

($ in millions, unless otherwise noted)

Q1 2020

 

Q1 2019

 

 

 

 

Adjusted EBITDA

$

16.1

 

 

$

14.0

 

Number of Data Centers

19

 

 

17

 

Total Capacity (RSF – raised sq. ft.)

516,489

 

 

444,640

 

Sellable RSF

410,974

 

 

348,968

 

Occupied RSF

301,791

 

 

259,142

 

% Utilization Rate

73.4

%

 

74.3

%

MRR (Annualized)

$

171.2

 

 

$

133.0

 

Bookings (Annualized)

$

7.4

 

 

$

6.9

 

Quarterly Churn (% of Prior Quarter MRR)

2.7

%

 

4.5

%

Other Investment Management

The Company’s Other Investment Management segment includes the management of traditional commercial real estate investments through private real estate credit funds and related co-investment vehicles, CLNC, a public non-traded healthcare REIT and interests in other investment management platforms, among other smaller investment funds. The Company earns management fees, generally based on the amount of assets or capital managed, and contractual incentive fees or potential carried interest based on the performance of the investment vehicles managed subject to the achievement of minimum return hurdles.

As of March 31, 2020, the Company had $17.4 billion of non-digital third-party AUM compared to $26.9 billion as of March 31, 2019. As of March 31, 2020, FEEUM was $10.8 billion compared to $15.9 billion as of March 31, 2019. The decrease in FEEUM was primarily attributable to sales of the light industrial platform, NorthStar Realty Europe, REIM interests, including RXR Realty, other assets underlying managed funds and the reduction of CLNC’s fee base and NorthStar Healthcare Income’s NAV.

During the first quarter 2020, this segment generated fee-related revenues of $24.6 million, while net income attributable to common stockholders was $16.4 million and Core FFO was $5.5 million. Net income included the Company’s share of impairments of $71 million related to write-down of goodwill resulting from a reduction in value of the non-digital investment management businesses. Impairments are added back to the Company’s net income (loss) to calculate FFO and Core FFO. In addition, this segment’s net income and Core FFO included the reversal of $9.2 million of net unrealized carried interest income as a result of fair value decreases in certain of the Company’s managed investments.

During the first quarter 2020, the Company completed the sale of its 27.2% ownership interest in RXR Realty, a non-wholly owned real estate investment management platform, for approximately $200 million. The carrying value of the investment was $93 million as of December 31, 2019 resulting in a gain before income taxes of $106 million, which is deducted from the Company’s net loss to calculate Core FFO.

Healthcare Real Estate

As of March 31, 2020, the consolidated healthcare portfolio consisted of 357 properties: 154 senior housing properties, 106 medical office properties, 88 skilled nursing facilities and 9 hospitals. The Company’s equity interest in the consolidated Healthcare Real Estate segment was approximately 71% as of March 31, 2020. The healthcare portfolio earns rental income from our senior housing, skilled nursing facilities and hospital assets that are under net leases to single tenants/operators and from medical office buildings which are both single tenant and multi-tenant. In addition, the Company also earns resident fee income from senior housing properties that are managed by operators under a REIT Investment Diversification and Empowerment Act of 2007 (“RIDEA”) structure.

During the first quarter 2020, this segment generated revenues of $139.2 million, net loss attributable to common stockholders of $(48.0) million, Core FFO of $15.7 million and consolidated NOI of $68.6 million. Net loss included the Company’s share of impairments of $35 million related primarily to assets which have fair market values below their respective carrying values due principally to anticipated weaker future operating performance. Impairments are added back to the Company’s net income (loss) to calculate FFO and Core FFO. Compared to the same period last year, first quarter 2020 same store NOI decreased (2.4)%, primarily due to increased wages and other non-labor expenses in the Senior Housing Operating portfolio and lower rent collections from certain tenants in the Triple-Net Lease Skilled Nursing Facilities and Hospitals portfolios. The healthcare same store portfolio is defined as properties in operation throughout the full periods presented under the comparison and included 357 properties in the comparisons. Properties acquired or disposed during these periods are excluded for the same store portfolio.

The following table presents NOI and certain operating metrics by property types in the Company’s Healthcare Real Estate segment:

 

Consolidated

 

CLNY OP

 

Same Store

 

NOI

 

Share NOI(1)

 

Consolidated NOI

 

Occupancy %(2)

 

TTM Lease Coverage(3)

($ in millions)

Q1 2020

 

Q1 2020

 

Q1 2020

Q1 2019

 

Q1 2020

Q1 2019

 

12/31/19

12/31/18

Senior Housing – Operating

$

16.9

 

 

$

12.0

 

 

$

16.9

 

$

17.3

 

 

85.3

%

86.7

%

 

N/A

N/A

Medical Office Buildings (MOB)

12.9

 

 

9.2

 

 

12.9

 

12.4

 

 

82.2

%

82.4

%

 

N/A

N/A

Triple-Net Lease:

 

 

 

 

 

 

 

 

 

 

 

 

Senior Housing

14.3

 

 

10.1

 

 

14.3

 

14.6

 

 

79.9

%

81.4

%

 

1.3x

1.3x

Skilled Nursing Facilities

22.5

 

 

16.0

 

 

22.3

 

22.8

 

 

79.9

%

82.6

%

 

1.2x

1.2x

Hospitals

2.0

 

 

1.4

 

 

2.0

 

3.0

 

 

64.8

%

59.5

%

 

1.6x

1.4x

Healthcare Total

$

68.6

 

 

$

48.7

 

 

$

68.4

 

$

70.1

 

 

 

 

 

 

 

___________________________________________________

(1)

CLNY OP Share NOI represents first quarter 2020 Consolidated NOI multiplied by CLNY OP’s ownership interest as of March 31, 2020.

(2)

Occupancy % for Senior Housing – Operating represents average during the presented quarter, for MOB’s represents as of last day in the quarter and for other types represents average during the prior quarter.

(3)

Represents the ratio of the tenant’s/operator’s EBITDAR to cash rent payable to the Company’s Healthcare Real Estate segment on a trailing twelve month basis and due to timing of availability of data tenants/operators provide information from prior quarter.

Asset Dispositions

During the first quarter 2020, the Company sold a skilled nursing facility for gross consideration of $7 million, or $5 million CLNY OP share, net proceeds were utilized to pay down the asset’s respective financing.

Hospitality Real Estate

As of March 31, 2020, the consolidated hospitality portfolio consisted of 157 properties: 87 select service properties, 66 extended stay properties and 4 full service properties.Contacts
Investor Contacts:Colony Capital, Inc.
Severin White
Managing Director, Head of Public Investor Relations
212-547-2777
swhite@clny.com
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