Business context and reporting period
This is Colony Capital, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2020—not a filing under the DigitalBridge Group name. The company was accelerating its shift toward digital infrastructure, including data centers, while seeking to sell or otherwise monetize non-digital assets. CEO Marc Ganzi and CFO Jacky Wu took office July 1, 2020.
At quarter-end, the company reported $46.8 billion of assets under management, including $23.3 billion dedicated to digital real estate and infrastructure. Its segments included digital investment management, digital operating, digital other, wellness infrastructure, and other.
Financial results and position
Amounts below are in U.S. dollars; financial statement figures are in millions unless stated otherwise.
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $316.7 | $359.0 | $897.8 | $907.7 |
| Loss from continuing operations | $(184.2) | $(591.5) | $(2,177.1) | $(1,091.7) |
| Net loss attributable to common stockholders | $(205.8) | $(555.0) | $(2,610.2) | $(1,126.0) |
| Loss per common share | $(0.44) | $(1.16) | $(5.51) | $(2.35) |
| Operating cash flow | Not separately stated | Not separately stated | $89.9 | $234.6 |
Q3 property operating income was $246.1 million and property operating expense was $108.4 million. Segment measures included Digital Operating EBITDAre of $47.2 million and Wellness Infrastructure NOI of $61.7 million in Q3; wellness NOI fell 13.5% year over year.
At September 30, cash and cash equivalents were $658.4 million, restricted cash $167.1 million, total assets $19.0 billion, and total equity $6.8 billion. Balance-sheet debt, net, was $7.1 billion, excluding $3.7 billion of debt presented within liabilities related to assets held for disposition. Management reported approximately $0.8 billion of liquidity as of November 2, comprising cash and the full $500 million corporate revolver availability. The company said it remained in compliance with the revolver’s financial covenants.
Common dividends were suspended beginning in Q2; preferred dividends continued. The company declared $0.11 per common share for Q1 2020 and none for Q3.
Material changes versus the prior comparable period
- Q3 revenue declined 11.8% year over year, mainly reflecting lower investment-management fees, interest income, and other income; property operating income rose with the addition of digital assets.
- Q3 net loss attributable to common stockholders narrowed from $555.0 million to $205.8 million, primarily because impairment expense was much lower than in Q3 2019. For the first nine months, however, common-stockholder loss increased to $2.61 billion from $1.13 billion.
- The company recorded $1.44 billion of impairment expense in continuing operations for the first nine months and reported approximately $3.2 billion of impairment and fair-value charges across the business, including discontinued operations. These reflected its accelerated digital strategy, COVID-19 effects, asset sales and revised holding-period assumptions.
- Operating cash flow fell to $89.9 million from $234.6 million for the nine-month period. Investing activities used $981.9 million; financing activities provided $363.2 million.
- Digital assets expanded materially: July’s Vantage transaction added 12 stabilized hyperscale data centers, and the company reported $3.6 billion of digital operating real estate at quarter-end versus $846.4 million at year-end 2019. The Wafra partnership brought in $253.6 million of cash consideration.
Outlook, risks and unusual items
- Strategic shift and hotel sale: In September, the company agreed to sell five hotel portfolios and its 55.6% interest in the THL Hotel Portfolio, covering 197 hotels. The stated transaction value was approximately $2.8 billion, including $67.5 million of gross proceeds and the buyer’s proposed assumption of $2.7 billion of property-level debt. Closing was expected no earlier than January 15, 2021, subject to approvals and other conditions; the company cautioned that completion and terms were not assured.
- Debt stress: At filing, $1.3 billion of hotel debt was in default; $0.8 billion had been accelerated and the associated 48-hotel portfolio was in receivership. The company also disclosed other non-recourse debt defaults and negotiations. Non-recourse status limits direct recourse to the parent, but foreclosure, guarantees, and transaction disruption remain risks.
- Corporate financing: The revolver was reduced from $750 million to $500 million and was scheduled to mature in January 2021, with two six-month extension options. The company issued $300 million of 5.75% exchangeable notes due 2025 and repurchased $371 million of 3.875% notes; $31.5 million of the latter remained due January 2021. The company said it had no other corporate debt maturities until 2023.
- COVID-19 and valuation uncertainty: Management cited pressure on hotel and senior-housing occupancy and cash flows, tenant payment concessions, higher operating costs, loan collectability, asset values, and financing conditions. It believed recoverability had been materially addressed at September 30 but warned that further impairments could be material if conditions worsened.
- Other execution and structural risks: The planned $1.4 billion zColo acquisition by DataBank was expected to close by year-end 2020. Wafra held redemption rights under specified circumstances and may receive up to $29.9 million of contingent consideration if defined earnings criteria are met. The company said it would evaluate whether to maintain REIT status beyond 2020.
- Management’s view: The company said its digital transition was intended to support growth, reported approximately $46 million of annualized cost savings identified to date, and noted that digital investment-management margins were declining as it added resources. No formal earnings or revenue guidance was provided.
Most important facts for investors to verify
- Whether the hotel sale closed, the buyer assumed the stated debt, and the company received the expected net proceeds after adjustments, lender payments, and transaction costs.
- Current status of hotel and other property-level defaults, receiverships, lender negotiations, and any potential recourse or guarantee claims.
- How the reported $0.8 billion liquidity position changed after November 2, and whether revolver availability, covenant compliance, and the remaining January 2021 note repayment were maintained.
- Subsequent fair values and recoverability of loans, CLNC, wellness infrastructure and other legacy assets, including any additional impairments.
- Progress and financing of the zColo acquisition and the company’s digital growth, including performance and funding commitments under the Wafra arrangement.
- Whether the company maintained REIT status after 2020 and when, if ever, it resumed common dividends.