Business context and reporting period
This is Colony Capital, Inc.’s Form 10-K for the fiscal year ended December 31, 2020, filed March 1, 2021. The filing identifies the registrant as Colony Capital (NYSE: CLNY), not Digitalbridge Group, Inc.; it describes the company’s shift toward a digital infrastructure strategy. The company reported five segments: Digital Investment Management, Digital Operating, Digital Other, Wellness Infrastructure, and Other. It reported $42 billion of total AUM, including $29 billion in digital assets, at year-end.
Key financial metrics
| Metric | 2020 | 2019 |
|---|---|---|
| Total revenue | $1.237 billion | $1.207 billion |
| Loss from continuing operations | $2.464 billion | $1.518 billion |
| Net loss | $3.790 billion | $148.9 million |
| Net loss attributable to common stockholders | $2.751 billion; $5.81 per share | $1.152 billion; $2.41 per share |
| Net cash from operating activities | $89.9 million | $170.9 million |
| Net cash from investing activities | $(1.932) billion | $4.199 billion |
| Net cash from financing activities | $1.373 billion | $(3.780) billion |
| Cash and cash equivalents at year-end | $703.5 million | $1.205 billion |
| Total assets / total equity | $20.201 billion / $6.985 billion | $19.832 billion / $8.926 billion |
Total debt at year-end was $7.931 billion excluding debt associated with assets held for disposition; an additional $3.529 billion of hotel debt was classified with those assets. Debt included $7.073 billion of non-recourse investment-level financing. The company reported $450 million available under its corporate credit facility as of the filing date and stated liquidity of $700 million as of February 22, 2021, comprising cash and facility availability.
Digital Operating reported $313.3 million revenue and $136.2 million of EBITDAre. Wellness Infrastructure reported $255.7 million NOI, down 15.1% from $301.2 million. FFO attributable to common interests was a loss of $1.216 billion, versus a loss of $1.150 billion in 2019. The filing cautions that FFO, EBITDAre and NOI are non-GAAP measures, not substitutes for GAAP results or cash flow.
Material changes versus the prior comparable period
- Revenue increased 2.5%, but net loss widened substantially, reflecting impairments, valuation losses, discontinued hotel operations and other items.
- Cash from operations fell by $81.0 million. The company attributed the decrease in part to COVID-19 effects, especially on hotels, and the absence of certain 2019 contributions and fees.
- 2020 included approximately $3.5 billion of impairments and realized or unrealized fair-value losses on non-digital assets. Disclosed components included about $2.0 billion of real estate impairment, $594 million of Other Investment Management goodwill impairment, a $274.7 million CLNC investment impairment and losses on loans and other equity-method investments.
- Digital AUM rose to $28.6 billion from $13.5 billion, while digital FEEUM increased to $12.8 billion from $6.8 billion. The company said it raised $7.4 billion of third-party digital capital during 2020.
- The company invested in Vantage SDC and acquired zColo through DataBank, increasing digital real estate and related debt. Year-end real estate, net, rose to $8.728 billion from $6.218 billion, while debt, net, rose to $7.790 billion from $5.518 billion.
- Hotel results were reclassified as discontinued operations. Hotel discontinued operations produced a $1.346 billion loss in 2020; 2019 had $1.369 billion of discontinued-operations income, including substantial industrial-sale gains.
Outlook, commentary, risks and unusual items
- Management said it accelerated its digital transformation, intends to monetize remaining non-digital assets, and expects digital investment management and digital operating activities to become increasingly important. DCP II had $4.2 billion of callable commitments at its February 2021 closing.
- A sale covering 197 hotels had an indicated transaction value of approximately $2.8 billion, including $67.5 million of gross proceeds and the buyer’s expected assumption of $2.7 billion of investment-level debt. Closing was expected in the first half of 2021, subject to conditions and approvals; completion and net proceeds were not assured. A separate hotel portfolio was in receivership.
- The company reported that common dividends were suspended beginning in the second quarter of 2020 and that its amended credit facility generally restricted common dividends, subject to stated exceptions. Preferred stock had a $1.034 billion liquidation preference and weighted-average dividend rate of 7.165%.
- The credit facility was scheduled to mature in July 2021, with one six-month extension option remaining. Commitments were to decline to $400 million on March 31, 2021. Management expected to extend or replace the facility. Management disclosed possible covenant pressure under adverse hotel and wellness recovery scenarios, while reporting compliance through the filing date.
- COVID-19 reduced hotel demand and wellness occupancy and increased operating costs, tenant requests for concessions, debt-service stress and valuation uncertainty. As of the filing date, $3.5 billion of hospitality debt was subject to cash-flow sweeps and approximately $213 million of non-recourse debt in Other and Wellness Infrastructure was in default, with assets expected to be conveyed to lenders through foreclosure or otherwise.
- The company said it would continue evaluating whether to maintain REIT status for 2021 and later years. Loss of REIT status could increase taxes and affect distributions. It also identified risks from leverage, refinancing, impairment estimates, digital-sector competition, investment-management fundraising, conflicts of interest, and maintaining exemptions from investment-company registration.
- Cost reductions were estimated at $55 million annualized, with approximately $30 million of related charges through year-end. The company reported no material legal proceedings expected to adversely affect results, financial position or liquidity. The auditor issued an unqualified opinion on the financial statements; Vantage SDC and zColo were excluded from management’s internal-control assessment while integration work continued.
- No specific financial guidance was provided in the supplied filing text.
Important facts for investors to verify
- Confirm the issuer and security: this filing is for Colony Capital, Inc. (CLNY), despite the request’s Digitalbridge Group, Inc. label.
- Track the status and final economics of the hotel sale, including debt assumption, required lender or portfolio payments, purchase-price credits, closing conditions and the receivership portfolio.
- Review corporate credit-facility extension or replacement, covenant headroom, available borrowing capacity, and the resolution of defaulted or cash-swept investment-level debt.
- Assess whether operating cash generation, asset monetizations and investment-management fees can support debt service, preferred dividends and digital investment commitments; common dividends were suspended.
- Monitor digital AUM/FEEUM growth and its conversion into recurring fee income and cash flow, alongside leverage and operating performance at DataBank and Vantage.
- Scrutinize assumptions behind the large impairments and fair-value measurements, potential further write-downs, and whether REIT qualification will be maintained.
- Consider potential dilution from exchangeable notes and warrants, as well as the disclosed related-party and investment-allocation conflicts.