Business context and reporting period
Filing identity: The supplied filing is Colony NorthStar, Inc.’s Form 10-Q for the quarter ended March 31, 2017, not a filing under the requested company name, DigitalBridge Group, Inc. Verify the issuer and filing before relying on this summary.
Colony NorthStar was formed on January 10, 2017 through the merger of Colony, NorthStar Asset Management Group (NSAM) and NorthStar Realty Finance (NRF). Colony is the accounting acquirer; NSAM and NRF results are included only from January 11. Consequently, comparisons with Q1 2016 largely compare Colony alone with a combined company and are not directly comparable. The company operates across healthcare, industrial, hospitality, other equity and debt, and investment management; reported third-party assets under management were approximately $40.7 billion.
Financial results and position
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Total revenue | $607.2 million | $200.8 million |
| Net income | $52.2 million | $91.0 million |
| Net income attributable to Colony NorthStar | $25.6 million | $30.0 million |
| Net income (loss) attributable to common stockholders | $(5.2) million; $(0.01) per share | $18.1 million; $0.11 per share |
| FFO attributable to common interests and common stockholders | $91.1 million | $36.3 million |
| Cash from operating activities | $22.9 million | $80.5 million |
Revenue growth mainly reflects the merger, not a like-for-like increase. Merger-related transaction costs were $83.6 million; reported total expenses were $712.2 million. Earnings included an $89.1 million gain associated with the partial sale and additional share issuance of Colony Starwood Homes (SFR), as well as $12.6 million of discontinued-operations income. Hospitality EBITDA was $57.2 million; healthcare NOI was $71.1 million and industrial NOI was $38.2 million. These segment measures are non-GAAP.
At March 31, total assets were $24.9 billion, including $13.5 billion of net real estate and $4.0 billion of net loans. Debt, net, was $10.25 billion (principal outstanding $10.58 billion), up from $3.72 billion at year-end, primarily because of the merger. Cash and cash equivalents were $633.2 million, with a further $316.3 million in restricted cash. Investing activities provided $493.9 million, including $903.8 million of real estate sale proceeds and $239.1 million from the SFR share sale; financing activities used $246.7 million.
Material changes, outlook and risks
- The merger added substantial real estate, loans, securities, investment-management operations and debt. Preliminary merger accounting recorded $1.29 billion of goodwill; purchase-price allocations remain subject to adjustment.
- Q1 actions included selling the manufactured-housing portfolio for approximately $2.0 billion, with $664.4 million net proceeds after assumed financing; selling an 18.7% healthcare-portfolio interest for $350 million, including prefunded capital items; acquiring control of CPI through restructuring; and selling approximately half the company’s SFR interest for $239.1 million net proceeds.
- The company reported $318.7 million of healthcare and hospitality debt out of compliance with certain covenants and $218.4 million of other-equity debt in payment default, including maturity default, primarily related to CPI. It was negotiating restructurings and refinancing CPI debt. By May 5, it had signed commitment letters to refinance approximately $1.66 billion of hospitality debt maturing in 2017; verify closing and final terms.
- The company had no borrowings on its $1.0 billion secured revolving facility at March 31 and reported covenant compliance under that facility. As of May 5, $924 million was available to draw. Management said it believed resources were sufficient for short- and long-term needs. No earnings or revenue guidance was provided; management stated a target overall leverage rate of approximately 50% or less.
- A $2.0 billion notional forward-starting interest-rate swap was out of the money, with a $124.9 million liability at quarter-end. Its May 5 termination value was approximately $152 million; the filing estimates a 100-basis-point move in the 10-year Treasury forward curve could produce an approximately $172 million unrealized gain or $200 million unrealized loss. Interest-rate, credit, refinancing, foreign-currency, integration and real-estate operating risks are emphasized.
- The board authorized up to $300 million of common-stock repurchases; $66.2 million was spent in Q1 and a further $101.8 million was repurchased in April. The company intends to elect REIT status for 2017 and must meet applicable distribution and qualification requirements.
- Management concluded disclosure controls were effective at March 31, while integration of the three companies’ systems, processes and internal controls remained underway. No material legal proceedings or material risk-factor changes were reported.
Investor verification priorities
- Confirm that Colony NorthStar’s 2017 filing—not a DigitalBridge filing—is the intended source.
- Review the debt covenant violations, payment defaults, refinancing commitments, maturity schedule and status of CPI-related debt restructuring.
- Assess recurring earnings and cash generation apart from merger costs, sale gains, discontinued operations and other fair-value items; reconcile GAAP results to FFO and segment measures.
- Evaluate liquidity available for operations, dividends, commitments and repurchases, distinguishing unrestricted cash from restricted cash and confirming revolver availability after the reporting date.
- Review swap exposure and valuation sensitivity, merger integration progress, preliminary acquisition accounting, and the company’s ability to maintain REIT qualification and meet distributions.