Colony Capital Announces Third 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 third quarter ended September 30, 2020. The Company reported (i) total revenues of $317 million, (ii) GAAP net income attributable to common stockholders of $(206) million, or $(0.44) per share and (iii) Core FFO excluding gains/losses of $4.8 million, or $0.01 per share.
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“We made terrific progress on our digital transformation this quarter,” said Marc Ganzi, President and Chief Executive Officer. “Bringing high-quality digital assets onto the balance sheet, growing our digital investment management franchise, and harvesting value from our legacy assets are our key priorities. We accomplished all three this quarter, supporting DataBank’s acquisition of zColo, closing the Vantage hyperscale data center acquisition, raising over $1 billion of new third-party capital, and reaching an agreement to sell our hospitality business. When you combine those milestones along with a strong recovery in our underlying businesses, we returned to positive Core FFO ex-gains. Going to 2021, we’re incredibly well-positioned and excited about the prospects for Colony 2.0.” |
HIGHLIGHTS
Return to Positive Core FFO
- During the third quarter, the Company continued to rebound from the impacts of COVID-19, generating positive Core FFO ex-gains/losses of approximately $5 million.
- The improvement was driven by a combination of the growing contribution of the Company’s digital operating businesses and recovery in performance at its legacy businesses, most notably the hospitality segment.
Growing Digital Transformation Momentum
- Digital AUM of $23.3 billion now represents over 50% of total AUM, boosted by key digital balance sheet investments and success forming new third-party capital of $1.15 billion subsequent to June 30.
- In September, DataBank, a Colony Capital portfolio company, announced the acquisition of zColo for $1.4 billion, in a transaction that will transform DataBank into a leading U.S. edge data center operator serving blue-chip customers across 29 markets.
As part of the Colony-led transaction, the Company committed $145 million to maintain its 20% ownership stake and is raising over $500 million of third-party co-invest capital.
- In July, a Colony-led consortium closed on a majority interest in Vantage Data Centers’ portfolio of stabilized North American hyperscale data centers (Vantage SDC) and now owns 90% for $1.35 billion.
Representing its second significant digital balance sheet investment, the Company invested $200 million for an approximate 13% ownership stake alongside $1.15 billion of third-party co-invest capital.
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Financial Summary |
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|
|
|
($ in thousands, except per share data and where noted) |
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|
Revenues |
3Q 2020 |
|
3Q 2019 |
|
Property operating income |
$246,122 |
|
$168,858 |
|
Interest income |
14,816 |
|
40,237 |
|
Fee income |
43,919 |
|
111,854 |
|
Other income |
11,820 |
|
38,051 |
|
Total revenues |
$316,677 |
|
$359,000 |
|
Net income to common stockholders |
$(205,784) |
|
$(554,953) |
|
Core FFO |
$(76,697) |
|
$101,601 |
|
Core FFO per share |
$(0.14) |
|
$0.19 |
|
Core FFO excluding gains/losses |
$4,782 |
|
$106,030 |
|
Core FFO excluding gains/losses per share |
$0.01 |
|
$0.20 |
|
|
|
|
|
|
Balance Sheet & Other |
|
|
|
|
Liquidity (cash & undrawn RCF) (1) |
$795,890 |
|
$620,209 |
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Digital AUM (in billions) |
$23.3 |
|
$13.8 |
|
% of Total AUM |
50% |
|
30% |
|
Note: |
Revenues are consolidated while Core FFO and Liquidity are CLNY OP share |
|
(1) |
Liquidity as of November 2, 2020 and November 5, 2019, respectively. |
- The Company is expanding digital disclosures as it continues to streamline its non-Digital businesses and provide more transparent reporting. The prior Digital segment expands into three segments, Digital Investment Management, Digital Operating and Digital Other. Concurrent with this change, the Company’s legacy business units will be condensed into two segments: Wellness Infrastructure and Other (which will continue to include subsegment disclosures).
Success Harvesting Legacy Value
- Hospitality Sale – In September, the Company reached an agreement to sell six of its hospitality portfolios to Highgate, in a transaction valued at $2.8 billion, including $67.5 million of gross proceeds on a consolidated basis and the assumption of $2.7 billion in consolidated investment-level debt. The six portfolios consist of over 22,000 rooms across 197 hotel properties. The hospitality sale represents a key milestone in Colony Capital’s digital transformation and generates significant strategic and financial benefits to the Company as it exits the hospitality business. As a result of the pending sale, the Company’s hospitality segment has been reclassified into discontinued operations.
- Other Monetizations – Since the end of the second quarter, the Company successfully divested an additional $90 million of Other assets, bringing year-to-date Other monetizations to $430 million. Based on the Company’s most recent monetization efforts, it expects $600-700 million of full-year 2020 monetizations, which is at the high end of its original 2020 projections issued prior to COVID-19.
Finalized Key Corporate Initiatives
- In July, the Company closed a significant strategic investment from Wafra to invest over $400 million in the Digital Colony platform. In addition to providing permanent capital for the Company to invest in high-quality digital infrastructure assets, Wafra also committed to support Digital Colony’s current and future investment products.
- In July, the Company successfully issued $300 million of exchangeable notes using all net proceeds to repurchase a majority of its 3.875% convertible notes due in January 2021 at 99.75% of par. In September, the Company repurchased another $81.3 million of the 2021 notes, at par, through a tender leaving $31.5 million outstanding and effectively addressing all near-term corporate debt maturities.
FINANCIAL STATUS & OUTLOOK
As of November 2, 2020, the Company had $796 million of liquidity, including $296 million of corporate cash-on-hand and the full $500 million of availability on the Company’s corporate revolver. The Company currently remains in full compliance with all of its corporate revolver covenants and terms.
The Company expects the effects of COVID-19, the length and severity of which remains uncertain, to continue to be significant in future periods. 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 will continue to refrain from providing forward looking guidance with respect to Core FFO or other operating metrics.
The Company does intend, subject to the uncertainties created by COVID-19 as referenced above, to re-initiate annual forward guidance in connection with its fourth quarter 2020 earnings announcement in the first quarter of 2021.
Digital Investment Management (IM)
During the third quarter 2020, the Digital IM segment generated revenues of $20.1 million, net income attributable to common stockholders of $1.7 million, Fee Related Earnings (FRE) of $8.9 million and Core FFO of $5.6 million.
Comparability of year-over-year (YoY) revenue and earnings are impacted by the partial period of ownership of Digital Bridge Holdings, which was acquired on July 26, 2019, and the strategic investment by Wafra for 31.5% of the Digital IM business on July 17, 2020.
- Revenues: Digital IM revenues were up 39% YoY, principally due to partial period results from the prior year.
- FRE Margins: FRE margin of 44% in 3Q was lower than the prior year period as the Company continues to invest in additional resources to support future investment product offerings, notably its flagship Digital Equity franchise and its new Digital Credit initiative.
- FEEUM: FEEUM grew 20% to $8.6 billion YoY, principally due to significant co-invest capital raised alongside Zayo, which is a Digital Colony Partners I (DCP I) portfolio company, Vantage North America and Europe, and the Company’s investment in Vantage Stabilized Data Centers (Vantage SDC). The average management fee percentage decreased because co-invest capital bears lower average fees than commingled flagship investment products. In July, the Company raised approximately $1.15 billion of new capital commitments to close on Vantage SDC.
Subsequent to quarter end, the Company expects to increase AUM by an additional $500 million including pending transactions. Pro forma for these pending transactions, FEEUM is expected to be $9.1 billion representing YTD growth of 33%.
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Digital IM Summary |
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($ in millions, except where noted) |
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|
3Q 2020(1) |
|
3Q 2019(2) |
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Revenue |
$ |
20.1 |
|
|
$ |
14.5 |
|
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FRE / EBITDA |
8.9 |
|
|
10.1 |
|
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Core FFO |
5.6 |
|
|
7.1 |
|
||
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AUM (in billions) |
22.2 |
|
|
13.8 |
|
||
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FEEUM (in billions) |
8.6 |
|
|
7.1 |
|
||
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W.A. Management Fee % |
0.9 |
% |
|
1.0 |
% |
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Note: |
All figures are consolidated except Core FFO |
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(1) |
Wafra’s strategic investment for 31.5% of Digital IM closed on July 17, 2020. |
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(2) |
The Company acquired Digital Bridge Holdings on July 25, 2019. |
Digital Operating
The Digital Operating segment details the financial performance of the digital infrastructure operating companies in which the Company maintains balance sheet investments. The Company currently owns a 20% stake in DataBank and a 13% in Vantage SDC; however, the financial results of these interests are presented on a consolidated basis (e.g. Revenues and Adjusted EBITDA) while Core FFO represents CLNY OP’s share. Further detail on CLNY OP’s share of the financial results are presented in the quarterly financial supplement.
In July 2020, the Company invested approximately $200 million as part of a $1.35 billion Colony-led acquisition of 90% of Vantage’s portfolio of North American stabilized hyperscale data centers. The Company owns approximately 13% of the stabilized portfolio.
In September 2020, Databank announced the proposed acquisition of zColo for total consideration of $1.4 billion, which is anticipated to close in December 2020. The Company committed $145 million to maintain its 20% ownership stake and is raising over $500 million of third-party co-invest capital.
During the third quarter 2020, the Digital Operating segment generated revenues of $98.6 million, net income attributable to common stockholders of $(4.8) million, Adjusted EBITDA of $45.6 million and Core FFO of $4.4 million noting that Vantage SDC was acquired on July 22, 2020. The Company did not have an interest in DataBank or Vantage SDC in the prior year period and acquired its first operating company interest in December 2019 with the acquisition of a 20% stake in DataBank.
- Solid Operating Company Growth: On a consolidated basis, and as if DataBank and Vantage were owned in the prior period, the growth in data centers and max critical I.T. square feet YOY was entirely attributable to DataBank as it executed on its growth plans.
- Leased critical I.T. square feet (SF) increased by 127 thousand with both DataBank and Vantage SDC contributing equally with Vantage stabilizing its utilization rate over the last twelve months and DataBank continuing to lease up and grow its footprint. Coupled with decreasing churn as a % of MRR YoY, annualized MRR increased by $78 million, or 26%.
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Digital Operating Summary |
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($ in millions, except where noted) |
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|
3Q 2020 |
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3Q 2019(1) |
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Revenue |
$98.6 |
|
$— |
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Adjusted EBITDA |
45.6 |
|
— |
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Core FFO |
4.4 |
|
— |
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|
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Metrics |
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Number of Data Centers |
32 |
|
29 |
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Max Critical I.T. SF |
1,137,866 |
|
1,047,304 |
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Leased SF |
945,640 |
|
818,341 |
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% Utilization Rate |
83.1% |
|
78.1% |
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MRR (Annualized) |
$374.0 |
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$296.2 |
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Bookings (Annualized) |
$9.4 |
|
$13.0 |
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Quarterly Churn (% of Prior Quarter MRR)(3) |
1.0% |
|
1.2% |
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Note: |
All figures are consolidated except for Core FFO |
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(1) |
The Company did not own an interest in DataBank or Vantage SDC in the third quarter 2019. |
Digital Other
This segment is composed of equity interests in digital investment vehicles managed by the Company, the largest of which is the Company’s investment and commitment to DCP I, its flagship digital infrastructure private equity vehicle. This segment also includes the Company’s investment and commitment to the digital liquid strategies and seed investments for future digital investment vehicles.
During the third quarter 2020, the Digital Other segment generated net income attributable to common stockholders of $5.6 million and Core FFO of $6.3 million, which was composed of an increase in the fair value of the Company’s interest in DCP I and an increase in mark-to-market gains in digital liquid investments. For the third quarter 2019, the Digital Other segment included only the Company’s investment in DCP I.
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Digital Other Summary |
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($ in millions, except where noted) |
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|
3Q 2020 |
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3Q 2019 |
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Equity Method Earnings |
$ |
4.4 |
|
|
$ |
(0.3) |
|
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Other Gain/Loss |
2.9 |
|
|
— |
|
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Core FFO |
6.3 |
|
|
(0.2) |
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Note: |
All figures are consolidated except for Core FFO |
Wellness Infrastructure
During the third quarter, the Wellness Infrastructure segment generated revenues of $124.2 million, net income attributable to common stockholders of $(11.3) million and Core FFO of $11.5 million, or $14.9 million excluding the effect of a one-time non-cash income tax expense related to the UK portfolio.
Despite the ongoing impacts of the COVID-19 pandemic, the Company’s properties continued to perform well, with same-store NOI only down 1.7%.
Portfolio Performance & Outlook
- The decrease in revenues YoY was primarily due to portfolio sales and transfers.
- Strong contractual rent collections continued across the NNN and medical office building (MOB) portfolios, which represents 81% of segment NOI, with approximately 95% received in the third quarter.
- Same-store NOI decreased $1.0 million, or 1.7%, YoY to $61.4 million primarily due to the effects of COVID-19 including lower occupancy levels and higher operating expenses.
- Core FFO excluding gains/losses increased slightly YOY to $14.9 million due to lower interest expense from lower LIBOR offset by a decrease in NOI from sales/transfers and the impact of COVID-19.
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Wellness Infrastructure Summary |
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($ in millions) |
3Q 2020 |
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3Q 2019 |
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Revenue |
$ |
124.2 |
|
|
$ |
136.1 |
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NOI |
61.7 |
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|
71.3 |
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Interest Expense |
32.3 |
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|
46.0 |
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Core FFO(1) |
14.9 |
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|
14.8 |
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|
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Same Store NOI |
61.4 |
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|
62.5 |
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Note: |
All figures are consolidated except for Core FFO |
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(1) |
3Q 2020 excludes the effect of a one-time non-cash income tax expense resulting from the remeasurement of deferred tax liabilities due to an increase in tax rate in the UK. |
Capital Structure & Activity
- The wellness infrastructure portfolio has total consolidated debt of $2.8 billion ($2.0 billion CLNY OP share) with a weighted average interest rate of 4.1%.
- Conveyed the equity of 36 SHOP assets, which had a carrying value of $156 million as of June 30, 2020 and $157 million of consolidated debt ($125 million CLNY OP Share), to an affiliate of the lender.
Other
This segment is composed of other equity and debt investments (OED) and non-digital investment management business (Other IM). OED encompasses a diversified group of non-digital real estate and real estate-related equity and debt investments, including shares in Colony Credit Real Estate, Inc (NYSE: CLNC), other real estate equity and debt investments and other real estate related securities, among other holdings. Over time, the Company expects to monetize the bulk of its OED portfolio as it completes its digital transformation.
Other IM, which is separate from Digital IM, encompasses the Company’s management of private real estate credit funds and related co-investment vehicles, CLNC, and NorthStar Healthcare, a public non-traded healthcare REIT. Many of the investments underlying these vehicles are co-owned by the Company’s balance sheet and categorized under OED. 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 achievement of minimum return hurdles.
During the third quarter, the Other segment generated revenues of $69.3 million, net income attributable to common stockholders of $(32.5) million and Core FFO ex-gains/losses of $34.3 million. Core FFO ex-gains/losses decreased YoY primarily due to the divestment of investment management businesses of NorthStar Realty Europe (NRE) and the Light Industrial portfolio. In particular, third quarter 2019 results included a $65 million incentive and termination fee payment from NRE.
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Legacy Other Summary |
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($ in millions) |
3Q 2020 |
|
3Q 2019 |
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Revenue |
$ |
69.3 |
|
|
$ |
205.7 |
|
|
Equity method earnings |
(67.5) |
|
|
45.7 |
|
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Core FFO |
(43.1) |
|
|
99.0 |
|
||
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Core FFO excluding gains/losses |
34.3 |
|
|
103.4 |
|
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Note: |
All figures are consolidated except for Core FFO |
Other Equity and Debt (“OED”)
- Continued monetizations: $90 million of monetizations since June 30, 2020 across nine investments bringing YTD Other monetizations to $430 million (including the RXR divestiture in the first quarter). The largest monetization was a $30 million discounted payoff subsequent to quarter-end on a mortgage secured by two enclosed malls, two strip centers, and various pad sites located in GA, FL and TN. Based on the Company’s most recent monetization efforts, it expects $600-700 million for the full year 2020, which is at the high end of its original 2020 projections issued prior to COVID-19.
- THL Hotel Portfolio: This portfolio is included in the overall sale of hospitality portfolios to Highgate and is classified in discontinued operations for the third quarter, but the related book value is included in the table below.
- Impairments and Other Gains/Losses: Excluding the THL hotel portfolio, the Company recorded impairments of $26 million consolidated, or $7 million CLNY OP share, which are added back in FFO and Core FFO. The Company also recorded other losses and equity method losses totaling $77 million, which was added back to Core FFO to calculate Core FFO excluding gains/losses. These impairments and losses resulted primarily from revaluations of European investments impacted by a second wave of COVID-19 related lockdowns.
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CLNY OP Share |
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Depreciated Carrying Value |
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($ in millions) |
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|
9/30/2020 |
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Investment |
Investment Type |
Property Type |
Geography |
CLNY |
Assets |
Equity |
% of |
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Colony Credit Real Estate, Inc. (“CLNC”) |
Public Company Common Shares |
Various |
Various |
36% |
$ |
365.9 |
|
$ |
365.9 |
|
24 |
% |
|
Tolka Irish NPL Portfolio |
Non-Performing First Mortgage Loans |
Primarily Office |
Ireland |
100% |
375.1 |
|
150.6 |
|
10 |
% |
||
|
Cortland Multifamily Preferred Equity |
Preferred Equity |
Multifamily |
Primarily SouthEast US |
100% |
116.6 |
|
116.6 |
|
8 |
% |
||
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Bulk Industrial Portfolio |
Real Estate Equity |
Industrial |
Nationwide |
51% |
189.0 |
|
69.1 |
|
5 |
% |
||
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Ronan CRE Portfolio Loan |
Mezzanine Loan |
Office, Residential, Mixed-Use |
Ireland / France |
50% |
65.2 |
|
65.2 |
|
4 |
% |
||
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Origination DrillCo Joint Venture |
Oil & Gas Well Development Financing |
Oil & Gas |
East Texas |
100% |
62.0 |
|
62.0 |
|
4 |
% |
||
|
Spencer Dock Loan |
Mezzanine Loan with Profit Participation |
Office, Hospitality & Residential |
Ireland |
20% |
52.2 |
|
52.2 |
|
3 |
% |
||
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McKillin Portfolio Loan |
Debt Financing |
Office and Personal Guarantee |
Primarily US and UK |
96% |
47.3 |
|
47.3 |
|
3 |
% |
||
|
Dublin Docklands |
Senior Loan with Profit Participation |
Office & Residential |
Ireland |
15% |
46.1 |
|
46.1 |
|
3 |
% |
||
|
AccorInvest |
Real Estate Equity |
Hospitality |
Primarily Europe |
1% |
45.8 |
|
45.8 |
|
3 |
% |
||
|
France & Spain CRE Portfolio |
Real Estate Equity |
Primarily Office & Hospitality |
France & Spain |
33% |
116.3 |
|
43.8 |
|
3 |
% |
||
|
CRC DrillCo Joint Venture |
Oil & Gas Well Development Financing |
Oil & Gas |
California |
25% |
36.3 |
|
36.3 |
|
2 |
% |
||
|
Maranatha French Hotel Portfolio |
Real Estate Equity |
Hospitality |
France |
44% |
39.4 |
|
32.3 |
|
2 |
% |
||
|
Hendon Retail Portfolio(2) |
A-Note Loan |
Retail |
US |
100% |
30.0 |
|
30.0 |
|
2 |
% |
||
|
Remaining OED (>45 Investments) |
Various |
Various |
Various |
Various |
1,044.0 |
|
370.5 |
|
24 |
% |
||
|
Total Other Equity and Debt |
|
|
|
|
$ |
2,631.2 |
|
$ |
1,533.7 |
|
100 |
% |
|
________________________________________________ |
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(1) |
|
Ownership % represents CLNY OP’s share of the entire investment accounting for all non-controlling interests including interests managed by the Company and other third parties. |
|
(2) |
|
Subsequent to quarter-end, the Company was paid $30 million through a discounted payoff of on a mortgage secured by two enclosed malls, two strip centers and various pad sites located in GA, FL and TN. |
Other Investment Management
The Company’s non-digital investment management business had FEEUM of $8.8 billion as of September 30, 2020, a decline of 23% from the prior year due principally to the sale of the light industrial platform and a decrease in annual CLNC base management fees primarily resulting from CLNC’s third quarter 2019 portfolio bifurcation.
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Other IM Summary |
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|
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($ in billions) |
|||||
|
|
3Q 2020 |
|
|
3Q 2019 |
|
|
AUM (in billions) |
14.7 |
|
|
17.6 |
|
|
FEEUM (in billions) |
8.8 |
|
|
11.4 |
|
|
W.A. Management Fee % |
1.1 |
% |
|
1.1 |
% |
Discontinued Operations
In September, the Company entered into a definitive agreement to sell five of the six hotel portfolios in its former Hospitality segment and its 55% interest in the THL Hotel Portfolio totaling 197 hotel properties. The sixth hotel portfolio is under receivership and the other 45% interest in the THL Hotel Portfolio continues to be held by investment vehicles managed by the Company. The transaction is valued at approximately $2.8 billion and acquirer’s assumption of $2.7 billion of consolidated investment-level debt. Consummation of the sale is subject to customary closing conditions, including but not limited to, acquirer’s assumption of the outstanding mortgage notes encumbering the hotel properties and third-party approvals. There can be no assurance that the sale will close in the timeframe contemplated or on the terms anticipated, if at all.
The Company’s exit from the hospitality business represents a key milestone in its digital transformation. The sale of these hotel portfolios is a strategic shift that will have a significant effect on the Company’s operations and financial results, and has met the criteria as held for sale and discontinued operations. For all current and prior periods presented, the related assets and liabilities are presented as assets and liabilities held for sale on the consolidated balance sheets and the related operating results are presented as loss from discontinued operations on the consolidated statement of operations. In the third quarter, additional write-downs were recorded to align the hotel values to the agreed upon selling price.
Below are selected operating statistics for the former Hospitality segment during the third quarter 2020.
|
|
2020 |
|||||
|
($ in millions) |
July |
|
August |
|
September |
|
|
Occupancy |
45% |
|
52% |
|
49% |
|
|
RevPAR (in dollars) |
$46 |
|
$53 |
|
$50 |
|
|
NOI before FF&E |
$4.8 |
|
$5.7 |
|
$3.2 |
|
In December 2019, the Company completed the sale of the light industrial portfolio and its related management platform, which represented the vast majority of the former industrial segment. The Company continues to own the bulk industrial assets which remain held for sale and are presented as discontinued operations on the consolidated statements of operations.
Other Corporate Matters
Exchangeable/Convertible Senior Notes
In July 2020, the Company issued $300 million aggregate principal amount of 5.75% exchangeable senior notes due 2025. The Company used the net proceeds to repurchase $289 million of the Company’s 3.875% convertible senior notes due 2021 (3.875% Convertible Notes). This exchange enables the Company to eliminate near-term debt maturities while preserving an additional $300 million in liquidity to be used towards additional high-growth digital investments.
Contacts
Investor Contacts:
Severin White
Managing Director, Head of Public Investor Relations
212-547-2777
swhite@clny.com