Business context and reporting period
The supplied filing is Colony Capital, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2019—not a filing under the name Digitalbridge Group, Inc. Colony Capital was a global investment manager with approximately $43 billion of assets under management, spanning healthcare, industrial, hospitality, real estate credit and investment management.
Key financial results
Amounts are in millions of dollars except per-share data. Comparisons are with Q1 2018 unless otherwise noted.
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Total revenue | $632.9 | $666.7; down 5.1% |
| Net loss | $30.2 | $27.2 |
| Net loss attributable to Colony Capital | $75.0 | $41.3 |
| Net loss attributable to common stockholders | $102.1; $0.21 per share | $72.7; $0.14 per share |
| Operating cash flow | $66.6 | $100.0 |
| Investing cash flow | $(925.0) | $(140.2) |
| Financing cash flow | $676.7 | $(418.7) |
| Cash and restricted cash on balance sheet | $647.8 | $828.7 at December 31, 2018 |
| Total assets | $23,221.0 | $22,215.2 at December 31, 2018 |
| Debt, net | $10,712.8 | $10,040.0 at December 31, 2018 |
| Common dividend declared | $0.11 per share | $0.11 per share |
Property operating income less property operating expense was $247.1 million, compared with $249.0 million. The filing does not present a consolidated operating margin as a headline measure. Fee income was $33.5 million, down from $36.8 million.
Material changes versus the prior period
- Revenue fell $33.8 million, chiefly reflecting lower interest income after loan contributions, securitization deconsolidations and loan repayments, along with lower property and fee income.
- Common-stockholder loss widened by $29.4 million. Other gain (loss) moved from a $75.3 million gain to a $49.1 million loss, including a $59.2 million loss on a non-designated interest-rate swap. Q1 2018 also included nonrecurring gains and a substantial tax benefit.
- Total impairment expense declined to $25.6 million from $153.4 million, largely because Q1 2018 included $140.4 million of investment-management contract impairments. Q1 2019 impairments included hotel and other property write-downs.
- Cash used in investing rose substantially, principally due to the February acquisition of 50 industrial buildings for approximately $1.1 billion. Debt increased by about $672.8 million on a carrying-value basis from year-end.
- Industrial revenue and NOI grew with portfolio expansion. Hospitality NOI before furniture, fixtures and equipment reserves rose 2.3% to $60.6 million, while healthcare NOI declined 6.2% to $76.2 million.
Outlook, risks and unusual items
- Cost restructuring: Management reported achieving approximately 60% of its targeted $50–$55 million of annual compensation and administrative savings on a run-rate basis; the target was expected over the 12 months following the November 2018 announcement. Q1 2019 restructuring costs were $0.6 million.
- Healthcare refinancing: $1.725 billion of fixed-rate U.S. healthcare debt was scheduled to mature in December 2019. Management was evaluating options; refinancing could require additional equity or capital spending. The company later reported extending $210 million of healthcare debt maturities to 2022.
- Interest-rate swap: A $2 billion notional swap was out of the money and due for mandatory cash settlement in December 2019. Its termination-value liability was approximately $179.8 million at May 7, 2019, and it could trigger margin calls.
- Credit facility: An April 2019 amendment reduced revolving commitments from $1.0 billion to $750 million, with potential capacity up to $1.125 billion subject to conditions. The company reported covenant compliance at March 31, 2019.
- Valuation exposure: The Colony Credit investment had a $1.03 billion carrying value versus an estimated market value of $750.7 million at quarter-end. Management judged it recoverable in the near term but warned prolonged market-price weakness could lead to impairment.
- Commitments and contingencies: Remaining industrial property purchase commitments were $363.5 million; the company’s share of unfunded lending commitments was $99.8 million. Hotel franchise guarantees could entail liquidated damages of up to $75 million. Management reported no material legal proceedings expected to adversely affect results, financial position or liquidity.
- Other developments: The company completed the acquisition of The Abraaj Group’s Latin American private-equity platform in April 2019. It also announced governance changes, including new independent directors and a strategic asset review committee.
- Management stated that capital resources were sufficient for short- and long-term requirements. The filing provides no formal earnings guidance.
Most important facts for investors to verify
- Confirm the issuer and ticker: this 2019 filing identifies Colony Capital, Inc. (NYSE: CLNY), not Digitalbridge Group, Inc.
- Track the refinancing, repayment or other resolution of the $1.725 billion healthcare debt maturity and any related collateral impairment.
- Review the swap’s settlement exposure and the company’s sensitivity to interest-rate movements and margin calls.
- Assess the valuation and impairment assumptions for the Colony Credit investment, held-for-sale properties and other Level 3 assets.
- Evaluate the funding and returns from the industrial acquisition, including the $363.5 million remaining purchase commitments and changes in occupancy.
- Monitor operating cash generation, debt growth, liquidity availability, covenant compliance and progress toward the stated cost savings.