Filing identity and reporting period
Important: The supplied filing is Colony Capital, Inc.’s Form 10-Q for the quarter ended September 30, 2019, filed November 8, 2019. It is not filed under the name Digitalbridge Group, Inc. Colony reported $53 billion of assets under management and was shifting its strategy toward digital real estate and infrastructure, including through its July 2019 acquisition of Digital Bridge Holdings (DBH).
Financial results and position
- Revenue: Third-quarter revenue was $652.5 million, up from $598.7 million in 2018. Revenue for the first nine months was $1.774 billion, down from $1.811 billion. Fee income rose to $111.9 million for the quarter, including a $64.6 million NRE termination payment; property operating income and interest income declined.
- Profit: Third-quarter net loss attributable to common stockholders was $555.0 million, or $1.16 per share, versus a $70.0 million loss, or $0.15 per share, a year earlier. The nine-month common-stockholder loss was $1.126 billion, or $2.35 per share, versus $235.5 million, or $0.47 per share.
- Unusual charges and gains: Third-quarter impairment expense was $564.9 million, including $387.0 million of investment-management goodwill impairment. The nine-month total impairment expense was $675.2 million. Other significant items included a $227.9 million second-quarter write-down of the Colony Credit investment and a $51.4 million gain from remeasuring the existing Digital Colony Manager interest upon acquiring DBH.
- Cash flow: Nine-month operating cash flow was $234.6 million, down from $393.3 million. Investing activities used $937.7 million, while financing activities provided $605.9 million. Cash, cash equivalents and restricted cash totaled $729.1 million at September 30; unrestricted cash was $455.3 million.
- Debt and liquidity: Balance-sheet debt, net, was $8.666 billion, excluding $2.131 billion of debt reported with assets held for sale. The $750 million corporate revolver had $566 million available to draw as of November 5, 2019; the company reported covenant compliance at September 30. A further $141.2 million settlement on terminated interest-rate swap positions was expected in December 2019.
- Dividends: The declared common dividend was $0.11 per share per quarter. Preferred dividends were also payable; the filing reports $27.1 million of preferred dividends for the third quarter.
Changes versus the prior comparable period
- Third-quarter revenue increased, but the net loss widened substantially, principally reflecting much higher impairments, increased depreciation and amortization, and losses on interest-rate derivatives.
- Nine-month revenue and operating cash flow declined, while the common-stockholder loss increased sharply. The nine-month comparison also reflects the $237.6 million loss on a non-designated interest-rate swap in 2019, versus a $108.8 million gain in 2018.
- The industrial business was classified as held for sale and discontinued operations, so its results are presented separately and prior periods were reclassified. Industrial discontinued-operations income was $60.4 million for the first nine months, versus $28.1 million.
- Fee income benefited from the NRE termination payment and newly acquired management platforms, but Colony’s amended Colony Credit management agreement was expected to reduce future fees.
Outlook, risks and contingencies
- Strategy and asset sales: Management expected to present a strategic plan to the board in the fourth quarter of 2019, with a proposed shift from traditional real estate toward digital infrastructure. The company expected the light-industrial portfolio and related management platform sale, at approximately $5.7 billion gross, to close in the fourth quarter and estimated net proceeds of approximately $1.2 billion. Completion, timing and proceeds were not assured. A separate $190 million bulk-industrial sale agreement was terminated in November; the company was negotiating a replacement transaction.
- Potential impairments: Management’s September assessment found healthcare and hospitality carrying values recoverable using a long-term-hold assumption. The filing cautions that a shorter holding period under the eventual strategic plan could trigger significant additional impairments.
- Credit and operating risks: The filing reports $315.0 million of healthcare and other-real-estate mortgage principal in payment default or not in compliance with certain debt or lease covenants, with restructuring or refinancing discussions underway. Loan-loss provisions were $35.8 million for the first nine months, and non-PCI loans past due 90 days or more and on nonaccrual totaled $301.4 million.
- Other exposures: Hotel franchise guarantees could require up to $75 million in liquidated damages under specified circumstances. Management reported no material legal proceedings and no material changes to previously disclosed risk factors. No formal earnings guidance is provided in the supplied filing text.
- Controls: Management concluded disclosure controls were effective at September 30, 2019; no material change in internal control over financial reporting was reported for the quarter.
Most important facts for investors to verify
- Confirm the issuer and security: this source is Colony Capital’s 2019 10-Q, despite the Digitalbridge Group metadata.
- Check closing status, final proceeds, debt treatment and realized gain from the industrial sales, including the replacement bulk-portfolio transaction.
- Track the strategic plan and whether shorter asset-holding assumptions lead to further healthcare, hospitality or goodwill impairments.
- Review liquidity after the expected $141.2 million swap settlement, and the availability and terms of corporate and property-level financing.
- Monitor covenant/default situations, loan performance, and future management fees following the Colony Credit agreement amendment and any proposed internalization.