Filing summary
Entity mismatch: The request identifies Digitalbridge Group, Inc., but the supplied filing is Colony NorthStar, Inc.’s Form 10-K for the fiscal year ended December 31, 2017. This summary covers the filing provided, not a Digitalbridge filing. It reports full-year results; fourth-quarter figures are identified separately where available.
Business context and reporting period
Colony NorthStar was formed on January 10, 2017 through the all-stock merger of Colony Capital, NorthStar Asset Management Group (NSAM) and NorthStar Realty Finance (NRF). The merger is accounted for as a reverse acquisition, with Colony as the accounting acquirer. Accordingly, 2017 includes NSAM and NRF results from January 11 onward, while 2016 reflects Colony alone; the company cautions that period comparisons may not be meaningful.
The company reported five segments: healthcare, industrial, hospitality, other equity and debt, and investment management. It reported approximately $43 billion of assets under management, including balance-sheet and third-party managed assets.
Financial and operating metrics
| Metric | 2017 | 2016 |
|---|---|---|
| Total revenue | $2.797 billion | $838.9 million |
| Net income (loss) | $(64.6) million | $290.7 million |
| Net income (loss) attributable to common stockholders | $(333.1) million; $(0.64) per diluted share | $67.2 million; $0.39 per diluted share |
| Cash from operating activities | $549.6 million | $408.4 million |
| Cash from investing activities | $1.332 billion | $251.8 million |
| Cash used in financing activities | $(1.347) billion | $(466.0) million |
| Total assets at year-end | $24.786 billion | $9.761 billion |
| Total debt at year-end | $10.828 billion | $3.716 billion |
| Cash and cash equivalents at year-end | $921.8 million | $376.0 million |
| Restricted cash at year-end | $471.1 million | $112.0 million |
2017 operating cash flow was positive, but reported earnings were reduced by large noncash and transaction-related charges. Total expenses were $3.370 billion, including $617.8 million of depreciation and amortization, $420.4 million of impairment losses, and $95.9 million of transaction costs. The investment management segment recorded a $316 million goodwill impairment and $59.1 million of management-contract intangible impairments. A $98.4 million income tax benefit included a provisional $24.9 million benefit from the 2017 tax-law changes.
Fourth-quarter revenue was $720.3 million; loss from continuing operations was $294.1 million, net loss was $294.6 million, and net loss attributable to common stockholders was $368.1 million, or $0.69 per diluted share. The filing does not provide a clear fourth-quarter cash-flow figure in the supplied text.
Full-year FFO attributable to common interests and common stockholders, a non-GAAP measure, was a loss of $25.8 million, versus FFO of $158.5 million in 2016. The company cautions that FFO is not a substitute for GAAP earnings or operating cash flow.
At year-end, real estate, net was $14.464 billion; loans receivable, net were $3.224 billion; and investments in unconsolidated ventures were $1.655 billion. The $10.828 billion debt balance included $6.877 billion of variable-rate and $4.252 billion of fixed-rate principal at amortized cost. The company targeted overall leverage of approximately 50% or less; a comparable realized leverage ratio is not stated here.
Changes versus prior comparable period
- Revenue and balance-sheet totals increased substantially, largely because 2017 included the acquired NRF real estate portfolios and NSAM investment-management business. These are not like-for-like comparisons.
- The common-stockholder loss in 2017 contrasts with 2016 income. Major reported items included merger/integration costs, higher depreciation and amortization, investment-management impairments, and gains from asset sales and unconsolidated investments.
- Operating cash flow rose to $549.6 million. Investing activities generated $1.332 billion, reflecting significant monetizations, while financing used $1.347 billion.
- Debt increased alongside the merger-related expansion. The company refinanced hotel debt and repaid its industrial variable-rate acquisition debt; it also issued Series I and J preferred stock and redeemed other preferred series.
- Industrial same-store operating income increased 3.1%; average occupancy for the wider industrial portfolio was 94.1% in 2017 versus 93.3% in 2016.
Outlook, risks, contingencies and unusual items
- Outlook: No quantified earnings or revenue guidance is provided in the supplied filing text. Management stated that capital resources were sufficient for short- and long-term requirements and that its leverage target was approximately 50% or less. It intends to distribute at least 90% of REIT taxable income, subject to board authorization and other requirements.
- Capital and liquidity: The $1 billion revolving credit facility matures in January 2021, with two six-month extension options. At February 26, 2018, $932 million was available to draw under the facility; the company reported compliance with its financial covenants at December 31, 2017. Contractual obligations and commitments totaled $13.771 billion, including $13.386 billion of scheduled debt, lease and related payments before contingent and investment commitments.
- Credit and asset risks: The filing reports $341.9 million of nonrecourse borrowings in default due to healthcare tenant/operator performance thresholds or other covenants. Separately, $384.5 million of mortgage debt in healthcare and other real estate equity was in payment default or out of covenant at year-end, with restructuring discussions ongoing. The company also cited operator, tenant, refinancing, interest-rate, liquidity and property-valuation risks.
- Derivatives: An assumed $2 billion notional forward-starting interest-rate swap was recorded as a $160.4 million liability at year-end and was not designated for hedge accounting. Its termination value was approximately $80 million on February 26, 2018; the filing notes possible margin calls and earnings volatility.
- Merger and integration: 2017 included $247.8 million of merger-related transaction, compensation and administrative costs. Management reported disclosure controls effective, but its internal-control assessment excluded the THL Hotel Portfolio; that portfolio represented $1.4 billion of assets at year-end. The auditor’s unqualified internal-control opinion also excluded THL.
- Other unusual items: The company sold its Townsend investment-management business for $475 million, receiving approximately $379 million net for its 84% interest. It completed the manufactured-housing sale for approximately $664 million net of debt assumed by the buyer, and sold its SFR interest for approximately $501 million net proceeds and a $191.2 million gain.
- Subsequent events: The company’s contribution to the newly listed Colony NorthStar Credit REIT closed January 31, 2018; the company and affiliates retained approximately 37% fully diluted ownership. A new $300 million stock-repurchase authorization was approved in February 2018, and a digital infrastructure fund closed with $1.4 billion of callable commitments, including approximately $117 million from company subsidiaries.
- Contingencies: A tax protection agreement could restrict certain transactions and, under the filing’s stated assumptions, generate estimated indemnification obligations of approximately $410 million if all covered assets were sold in taxable transactions. Hotel franchise guarantees could result in liquidated damages of up to $100 million. The company reported no material legal proceedings at December 31, 2017.
- Distributions: The company paid $1.08 per common share for 2017. In February 2018, the board declared a first-quarter 2018 dividend of $0.11 per share, compared with the 2017 quarterly rate of $0.27.
Most important facts for investors to verify
- Confirm the issuer: the supplied 10-K is for Colony NorthStar, not Digitalbridge Group.
- Review the merger pro forma information and segment disclosures to separate underlying performance from the partial-year inclusion of NSAM and NRF.
- Assess the status, collateral and potential losses or restructuring outcomes for defaulted or covenant-noncompliant borrowings, including the distinct reported amounts of $341.9 million and $384.5 million.
- Reconcile debt maturities, variable-rate exposure, available revolver capacity, restricted cash and the company’s leverage target.
- Evaluate recurring operating earnings and cash generation excluding merger costs, impairments, asset-sale gains and other unusual items; assess the sustainability of dividends against taxable income and cash flow.
- Review the swap’s valuation, collateral requirements and sensitivity, along with the tax-protection agreement and hotel franchise guarantees.
- Track integration and internal controls for THL, the impact of the Colony NorthStar Credit contribution, and the terms and execution of subsequent strategic transactions.