Colony Capital, Inc. (now associated with DigitalBridge) — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. The filing’s registrant is Colony Capital, Inc.; the supplied company label, DigitalBridge Group, Inc., does not match the issuer name shown in this filing.
Business context and reporting period
Colony described a strategic shift toward digital real estate and infrastructure, including data centers, cell towers and fiber. At June 30, the company reported approximately $46 billion of assets under management, including $16.3 billion of fee-earning equity under management. Marc Ganzi became CEO and President on July 1, 2020. The filing attributes substantial effects to COVID-19 and the accelerated digital transition.
Key financial metrics
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $372.4 million | $573.4 million | $879.9 million | $1.121 billion |
| Net loss attributable to common stockholders | $2.043 billion | $468.9 million | $2.404 billion | $571.0 million |
| Basic/diluted loss per share | $(4.33) | $(0.98) | $(5.06) basic; $(5.06) diluted | $(1.19) basic/diluted |
| Operating cash flow | Not separately presented for the quarter | $42.3 million | $139.2 million | |
| Cash and cash equivalents | — | $1.099 billion at June 30 | $1.205 billion at December 31, 2019 | |
| Debt, net | — | $9.211 billion at June 30 | $8.984 billion at December 31, 2019 |
Q2 impairment loss was $2.002 billion; first-half impairment loss was $2.389 billion. The company also recorded material fair-value and equity-method losses. These charges drove the reported loss; the filing does not provide a single consolidated operating-margin measure. Property operating income declined to $293.8 million from $488.8 million in Q2.
Hotel performance weakened sharply: Q2 occupancy was 30.2%, versus 78.6% a year earlier; revenue per available room fell 72% year over year. Healthcare net operating income was $59.8 million, down 22.5%. Digital real estate EBITDAre was $12.9 million for Q2 and $28.3 million for the first half.
At June 30, total assets were $16.184 billion, down from $19.832 billion at year-end 2019; total equity was $5.705 billion, down from $8.926 billion. The company generated $114.6 million of investing cash inflows in the first half, compared with $858.2 million of outflows in 2019, and used $329.5 million in financing activities. Cash, cash equivalents and restricted cash together were $1.250 billion at June 30.
Material changes versus prior comparable periods
- Q2 revenue fell $201.1 million year over year, primarily due to lower hotel and other property income, partly offset by higher fee income following the DBH acquisition.
- Q2 net loss attributable to common stockholders widened by approximately $1.574 billion, principally reflecting real estate and goodwill impairments and other investment valuation losses.
- Hospitality property income fell amid COVID-related demand disruption; Q2 hotel occupancy and RevPAR declined substantially. Management said hotel operations improved from the April trough through July, but demand remained uncertain.
- Digital fee-earning equity under management rose to $7.8 billion from $6.8 billion at year-end 2019; total company fee-earning equity under management reached $16.3 billion.
- Common dividends were suspended beginning in Q2 2020. The company paid $402.9 million to redeem its remaining Series B and all Series E preferred stock in January 2020.
Outlook, risks and unusual items
- Digital strategy: Management intends to monetize non-digital assets and redirect capital to digital investments. It cautioned that execution, timing, asset-sale values and additional impairments remain uncertain; no quantified earnings guidance was provided.
- COVID-19, impairments and credit: Management shortened expected holding periods for non-digital assets, contributing to impairments in healthcare, hospitality and other investments. It said recoverability had been materially addressed at June 30 based on current assumptions, but further material write-downs remained possible.
- Investment-level defaults: $3.28 billion of non-recourse investment-level debt was in default as of the filing date, including substantial hospitality and THL Hotel Portfolio debt. Lenders had issued acceleration notices on $780.0 million of hospitality debt and $842.7 million related to THL. Receivers had been or were expected to be appointed for a 48-hotel portfolio. The company warned that negotiations for forbearance or restructuring might fail.
- Healthcare debt subsequent event: In August, the company conveyed 36 senior-housing assets and $157.9 million of associated defaulted debt to a lender affiliate, which released it from rights and obligations related to those assets and debt. $45.1 million of healthcare debt remained in default at filing.
- Corporate liquidity and maturities: The revolver was amended in June, reducing commitments from $750 million to $500 million and increasing the LIBOR margin to 2.50%; it matures in January 2021, with two six-month extension options. The company reported covenant compliance, but disclosed possible future covenant-breach risk. It repaid the drawn revolver in July; as of August 5, management reported approximately $0.9 billion of liquidity, including cash and the full $500 million revolver availability.
- Subsequent financing and investments: In July, the company issued $300 million of 5.75% exchangeable notes due 2025 and used proceeds to repurchase approximately $289.7 million principal of notes due January 2021; $112.8 million remained outstanding afterward. Also in July, Wafra invested $253.6 million in the digital investment management business, subject to contingent consideration and redemption provisions. The company also invested $185.1 million for a 12.3% interest in a Vantage hyperscale data-center portfolio.
- Other risks: Common-dividend restrictions, dependence on asset monetizations, possible REIT qualification implications, non-recourse carve-out guarantees, and potential litigation or further impairment are highlighted. The company reported no material legal proceedings and effective disclosure controls at June 30.
Most important facts for investors to verify
- Confirm the issuer identity and corporate-name relationship between Colony Capital and the supplied DigitalBridge label.
- Track defaulted investment-level debt, acceleration and receivership outcomes, lender negotiations, and any additional asset transfers or foreclosures.
- Reconcile reported liquidity and revolver availability with upcoming maturities, covenant requirements, asset-sale proceeds and the remaining January 2021 notes.
- Assess whether hotel and healthcare operations, tenant collections and property values recover, and whether further impairments or loan fair-value losses arise.
- Review the terms, contingent payments, redemption rights and dilution implications of the Wafra transaction and the exchangeable notes and warrants.
- Monitor the suspended common dividend, continuing preferred-dividend obligations, cost-reduction execution and progress in shifting the portfolio toward digital assets.