Colony Capital Announces Third Quarter 2019 Financial Results and Strategic Asset Review Update

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LOS ANGELES–(BUSINESS WIRE)–Colony Capital, Inc. (NYSE: CLNY) and subsidiaries (collectively, “Colony Capital,” or the “Company”) today announced its financial results for the third quarter ended September 30, 2019 and the Company’s Board of Directors declared a fourth quarter 2019 cash dividend of $0.11 per share to holders of Class A and Class B common stock.

“During the third quarter, we made great progress expanding our digital platform while further simplifying and focusing on harvesting or realigning valuable legacy businesses,” said Thomas. J. Barrack, Jr., Executive Chairman and Chief Executive Officer. “Following our recently completed combination with Digital Bridge Holdings, we are accelerating our transition and sharpening our focus on digital real estate and infrastructure, which will enable Colony Capital to capitalize on compelling, high-return opportunities in a sector positioned for continued strong secular growth. Next month we will provide more detail on our strategic plan and vision as we continue to reap liquidity from monetizations, re-focus legacy businesses into simpler silos and pivot into a hard asset solution provider to valued digital counterparties as we bridge the digital divide.”

Third Quarter 2019 Financial Results and Highlights

  • Third quarter 2019 U.S. GAAP net loss attributable to common stockholders was $(555.0) million, or $(1.16) per share, and Core FFO was $101.6 million, or $0.19 per share; and for the nine months ended September 30, 2019, U.S. GAAP net loss attributable to common stockholders was $(1,126.0) million, or $(2.35) per share, and Core FFO was $218.7 million, or $0.42 per share

    • Third quarter 2019 U.S. GAAP net loss notably included reductions of goodwill, impairments of real estate and provision for loan losses totaling $540.3 million for the Company’s share, of which $387.0 million was attributable to the reduction of goodwill primarily as a result of the pending sale of the Company’s industrial investment management business and related real estate portfolio, and the decrease in management fees from Colony Credit Real Estate, Inc. (NYSE: CLNC) resulting from impairments related to its portfolio bifurcation, both of which are ongoing components of the Company’s strategic repositioning to simplify and establish the leading platform for digital real estate and infrastructure
  • Excluding net losses of $4.4 million primarily related to net investment losses in Other Equity and Debt offset by the termination fee received from NorthStar Realty Europe Corp. (“NRE”), Core FFO was $106.0 million, or $0.20 per share; and for the nine months ended September 30, 2019, excluding net losses of $30.6 million, Core FFO was $249.3 million, or $0.48 per share
  • The Company’s Board of Directors declared and paid a third quarter 2019 dividend of $0.11 per share to holders of Class A and B common stock
  • During the third quarter 2019, the Company:

    • Successfully combined with Digital Bridge Holdings, LLC (“DBH”), the premier investment manager dedicated to digital real estate and infrastructure for $329 million of cash and OP unit consideration. Marc C. Ganzi, who co-founded DBH and is its Chief Executive Officer, will become the Chief Executive Officer of the Company no sooner than the end of 2020 following a transition period and will lead the Company’s strategic repositioning in becoming the leading platform for digital real estate and infrastructure with Thomas J. Barrack, Jr., who will resume the sole position of Executive Chairman
    • Completed the sale of NRE for $17.01 per share through which the Company received $96 million for its 11% ownership stake in NRE representing a net cash gain of approximately $22 million, or 30% above the Company’s cost basis, in addition to the remaining $65 million of the $70 million lump sum incentive and termination fee payment
    • Entered into definitive agreements for the sale of the Company’s light industrial portfolio, including the related operating platform, for an aggregate $5.7 billion, which is anticipated to result in net cash sale proceeds of approximately $1.2 billion representing a net cash gain of approximately $450 million
    • Completed the planned sales and/or monetization of $272 million of assets and net equity proceeds within the Other Equity and Debt segment, inclusive of the Company’s 11% equity interest in NRE; and for the nine months ended September 30, 2019, $651 million of assets within the Other Equity and Debt segment were sold or monetized resulting in net equity proceeds of $531 million
    • Held the first closing of its fifth global real estate credit fund (the “Global Credit Fund”) with total capital commitments of $428 million, inclusive of capital commitments of $121 million from certain subsidiaries of the Company, which may decrease to no less than 5% of total commitments from total third party commitments to the Global Credit Fund
    • Entered into a series of transactions effectively terminating and settling the Company’s $2 billion notional interest rate swap in the aggregate amount of $365 million
  • Subsequent to the third quarter 2019:

    • The Company refinanced a £212 million loan on a U.K. portfolio of senior housing assets with an interest rate of LIBOR plus 4.25% with a new £223 million fully extended five-year loan with an interest rate of LIBOR plus 3.75%; this refinancing, along with previously completed refinancing transactions this year, addresses all material near-term healthcare real estate loan maturities
    • The Company achieved approximately 80% of the expected total $50 to $55 million ($45 to $50 million on a cash basis) of the previously announced annual compensation and administrative cost savings on a run rate basis through various initiatives with the balance expected to be achieved before year-end 2019
    • CLNC announced the bifurcation of its assets into a portfolio of core investments (“Core Portfolio”) and a portfolio of legacy, non-strategic investments that will advance its strategic plan to focus on key real estate credit investments and asset management competencies

      • In conjunction with its focus on its Core Portfolio, CLNC meaningfully reduced the undepreciated book value of its non-strategic assets to better reflect its market value and reset its annualized dividend from $1.74 per share to $1.20 per share, which is now fully covered by in-place Core Earnings from its Core Portfolio alone
      • Further, the Company amended its management agreement with CLNC to make effective in the beginning of the fourth quarter 2019 the alignment of the fee base with the newly reduced book value, which results in a decrease in annual base management fees from $45 million to $33 million
      • The liquidation of legacy, non-strategic investments and capital redeployment into the Core Portfolio, combined with the reduced management fee, are expected to increase CLNC’s Core Earnings and narrow the discount between CLNC’s share price and book value, of which the Company’s 36% interest represents approximately $850 million of undepreciated book value
    • The Company delivered a non-binding letter to the independent directors of CLNC seeking to explore with CLNC the possible internalization of its management agreement and a transfer of the Company’s private credit investment management business to CLNC to (i) further the Company’s strategic repositioning to simplify and establish the leading platform for digital real estate and infrastructure and (ii) position CLNC to become a leading independent real estate credit REIT with a clearly defined strategy positioned for greater growth
    • As of November 5, 2019, the Company had approximately $620 million of liquidity through availability under its revolving credit facility and cash-on-hand

For more information and a reconciliation of net income/(loss) to common stockholders to Core FFO and/or NOI, please refer to the non-GAAP financial measure definitions and tables at the end of this press release.

Strategic Asset Review Update

In September 2019, the Company introduced “Colony Capital 2.0,” which is available on the Company’s website along with the corresponding replay of the webcast presentation. As follow up, we target providing more information about our strategic plan by mid-December 2019. The next set of disclosures regarding our strategic plan is expected to broadly outline topics such as the Company’s asset rotation plan, capital allocation policy, target investment profile and capital structure, and the vision for establishing the leading platform for digital real estate and infrastructure. The strategic plan continues to undergo review by management with the Strategic Asset Review Committee, the Board of Directors and an independent advisor. Critical precursors to our digital transformation have already been executed or are well underway as highlighted above including the sale of the industrial business and NRE, the portfolio bifurcation and repositioning at CLNC and its potential internalization, the stabilization of the healthcare real estate portfolio’s capital structure and significant progress on costs savings related to the corporate restructuring and reorganization plan. While many alternatives have been reviewed and discussed, if the final strategic plan adopted by the Company contemplates a decision to shorten our hold period for the Company’s legacy assets including certain of its real estate holdings and investment management businesses, the Company expects that such a decision, if and when made, may result in a significant impairment in the carrying value of its investments, specifically certain of its healthcare and hospitality assets, in addition to goodwill. As of September 30, 2019, the healthcare and hospitality segments had consolidated net equity carrying values of $1.6 billion and $0.9 billion, respectively, while the consolidated net carrying value of goodwill and intangible assets was $1.6 billion. As of September 30, 2019, the Company owned 71% of its healthcare segment and 94% of its hospitality segment.

Third Quarter 2019 Operating Results and Investment Activity by Segment

Colony Capital holds investment interests in six reportable segments: Healthcare Real Estate; Industrial Real Estate; Hospitality Real Estate; CLNC; Other Equity and Debt; and Investment Management.

Healthcare Real Estate

As of September 30, 2019, the consolidated healthcare portfolio consisted of 371 properties (404 buildings): 164 senior housing properties, 106 medical office properties, 89 skilled nursing facilities and 12 hospitals. The Company’s equity interest in the consolidated Healthcare Real Estate segment was approximately 71% as of September 30, 2019. The healthcare portfolio earns rental income from our senior housing, skilled nursing facilities and hospital assets that are under net leases to single tenants/operators and from medical office buildings which are both single tenant and multi-tenant. In addition, we also earn resident fee income from senior housing properties that are managed by operators under a REIT Investment Diversification and Empowerment Act of 2007 (“RIDEA”) structure.

During the third quarter 2019, this segment’s net loss attributable to common stockholders was $(82.8) million, Core FFO was $16.1 million and consolidated NOI was $71.3 million. Net loss included the Company’s share of impairments of $73.0 million related primarily to assets, which have been or will be marketed for sale in the near term and have fair market values below their prior respective carrying values. Impairments are added back to the Company’s net income (loss) to calculate FFO and Core FFO. In the third quarter 2019, healthcare same store portfolio sequential quarter to quarter comparable NOI decreased (7.0)% and compared to the same period last year, third quarter 2019 same store NOI decreased (6.3)%. Third quarter 2019 same store NOI included a $1.6 million consolidated, or $1.2 million CLNY OP share, one-time write-off of a certain tenant rent receivable in the Hospitals portfolio and second quarter 2019 same store NOI included a $0.9 million consolidated, or $0.7 million CLNY OP share, one-time recovery of a certain tenant rent receivable in the Skilled Nursing Facilities portfolio. Excluding these one-time items from same store NOI, the healthcare same store portfolio sequential quarter to quarter comparable NOI would have decreased (3.7)%. This decrease was primarily due to increased wages without offsetting revenue absorption from increased competition in the Senior Housing Operating portfolio and lower rent collections from certain tenants in the Triple-Net Lease Senior Housing and Medical Office Buildings portfolios. The healthcare same store portfolio is defined as properties in operation throughout the full periods presented under the comparison and included 371 properties in the comparisons. Properties acquired or disposed during these periods are excluded for the same store portfolio.

The following table presents NOI and certain operating metrics by property types in the Company’s Healthcare Real Estate segment:

 

Consolidated

 

CLNY OP

 

Same Store

 

NOI

 

Share NOI(1)

 

Consolidated NOI

 

Occupancy %(2)

 

TTM Lease Coverage(3)

($ in millions)

Q3 2019

 

Q3 2019

 

Q3 2019

Q2 2019

 

Q3 2019

Q2 2019

 

6/30/19

3/31/19

Senior Housing – Operating

$

15.6

 

 

$

11.1

 

 

$

15.6

 

$

16.4

 

 

85.3

%

84.8

%

 

N/A

N/A

Medical Office Buildings (MOB)

12.9

 

 

9.1

 

 

12.9

 

13.5

 

 

82.2

%

82.1

%

 

N/A

N/A

Triple-Net Lease:

 

 

 

 

 

 

 

 

 

 

 

 

Senior Housing

14.1

 

 

10.0

 

 

14.1

 

15.3

 

 

80.5

%

80.9

%

 

1.2x

1.3x

Skilled Nursing Facilities

25.5

 

 

18.1

 

 

23.4

 

24.2

 

 

82.5

%

83.3

%

 

1.2x

1.2x

Hospitals

3.2

 

 

2.3

 

 

3.2

 

5.0

 

 

58.3

%

63.4

%

 

2.7x

2.4x

Healthcare Total

$

71.3

 

 

$

50.6

 

 

$

69.2

 

$

74.4

 

 

 

 

 

 

 

(1)

CLNY OP Share NOI represents third quarter 2019 Consolidated NOI multiplied by CLNY OP’s ownership interest as of September 30, 2019.

(2)

Occupancy % for Senior Housing – Operating represents average during the presented quarter, for MOB’s represents as of last day in the quarter and for other types represents average during the prior quarter.

(3)

Represents the ratio of the tenant’s/operator’s EBITDAR to cash rent payable to the Company’s Healthcare Real Estate segment on a trailing twelve month basis.

Asset Dispositions and Financing

During the third quarter 2019, the Healthcare Real Estate segment disposed of nine skilled nursing facilities for $102 million, or $73 million CLNY OP share resulting in net equity proceeds of $36 million, or $26 million CLNY OP share.

Subsequent to the third quarter 2019, the Healthcare Real Estate segment refinanced a £212 million loan on a portfolio of senior housing assets in the United Kingdom with an interest rate of LIBOR plus 4.25% with a new £223 million fully extended five-year loan with an interest rate of LIBOR plus 3.75%. This refinancing, along with previously completed refinancing transactions this year, addresses all material near term healthcare loan maturities.

Industrial Real Estate

The Company’s light industrial portfolio and related operating platform are under contract for approximately $5.7 billion. The sale is anticipated to close in the fourth quarter of 2019, subject to customary closing conditions. Accordingly, for all current and prior periods presented, the related assets and liabilities of the industrial segment are presented as assets and liabilities held for sale on the consolidated balance sheet and the related operating results are presented as income from discontinued operations on the consolidated statement of operations. The portfolio of bulk industrial assets is now excluded from the light industrial sale agreement, but is still held for sale. The Company is in the process of negotiating an agreement to sell the bulk industrial assets with another third party on substantially the same economic terms as the prior agreement; however, there can be no assurances that a sale of the bulk industrial assets will be completed on the terms contemplated or at all.

As of September 30, 2019, the consolidated light industrial portfolio consisted of 450 light industrial buildings totaling 57.4 million rentable square feet across 26 major U.S. markets and was 91% leased. The Company’s equity interest in the consolidated light industrial portfolio was approximately 34% as of September 30, 2019 and June 30, 2019. Total third-party capital commitments in the light industrial portfolio were approximately $1.7 billion compared to cumulative balance sheet contributions of $749 million as of September 30, 2019. The light industrial portfolio is composed of and primarily invests in light industrial properties in infill locations in major U.S. metropolitan markets generally targeting multi-tenanted warehouses less than 250,000 square feet.

As of September 30, 2019, the consolidated bulk industrial portfolio consisted of six bulk industrial buildings totaling 4.2 million rentable square feet across five major U.S. markets and was 67% leased. The Company’s equity interest in the consolidated bulk industrial portfolio was approximately 51%, or $72 million, with the other 49% owned by third-party capital, which is managed by the Company’s industrial operating platform.

As of September 30, 2019, the Company owned a 100% interest in the related industrial operating platform, which manages both the light and bulk industrial assets.

During the third quarter 2019, this segment’s net income attributable to common stockholders was $10.3 million, Core FFO was $14.3 million and consolidated NOI was $66.8 million. In the third quarter 2019, light industrial same store portfolio sequential quarter to quarter comparable rental revenue increased 0.9% and NOI increased 2.1%. Compared to the same period last year, third quarter 2019 light industrial same store rental revenue increased 3.3% and NOI increased 4.7%. The sequential quarter to quarter and year over year increase in NOI was primarily due to higher contractual rental revenue from new leases and lease renewals at favorable rates. The Company’s light industrial same store portfolio consisted of 311 buildings. The same store light industrial portfolio is defined once a year at the beginning of the current calendar year and includes buildings that were owned and stabilized throughout the entirety of both the current and prior calendar years. Properties acquired or disposed of after the same store portfolio is determined are excluded. Stabilized properties are defined as properties owned for more than one year or are greater than 90% leased. Light industrial same store NOI excludes lease termination fee revenue.

The following table presents NOI and certain operating metrics in the Company’s Industrial Real Estate segment:

Consolidated

 

CLNY OP

 

Same Store

 

NOI

 

Share NOI (1)

 

Consolidated NOI

 

Leased %(2)

($ in millions)

Q3 2019

 

Q3 2019

 

Q3 2019

Q2 2019

 

9/30/19

6/30/19

Light Industrial

$

63.3

 

 

$

21.2

 

 

$

43.1

 

$

42.2

 

 

95.0

%

94.5

%

Bulk Industrial

3.5

 

 

1.8

 

 

3.5

 

3.0

 

 

67.4

%

67.4

%

Total Industrial

$

66.8

 

 

$

23.0

 

 

 

 

 

 

 

(1)

CLNY OP Share NOI represents third quarter 2019 Consolidated NOI multiplied by CLNY OP’s ownership interest as of September 30, 2019.

(2)

Leased % as of the reported date represents square feet under executed leases, some of which may not have taken occupancy.

Hospitality Real Estate

As of September 30, 2019, the consolidated hospitality portfolio consisted of 158 properties: 88 select service properties, 66 extended stay properties and 4 full service properties. The Company’s equity interest in the consolidated Hospitality Real Estate segment was approximately 94% as of September 30, 2019. The hospitality portfolio consists primarily of premium branded select service hotels and extended stay hotels located mostly in major metropolitan markets, of which a majority are affiliated with top hotel brands. The select service hospitality portfolio referred to as the THL Hotel Portfolio, which the Company acquired through consensual transfer during the third quarter 2017, is not included in the Hospitality Real Estate segment and is included in the Other Equity and Debt segment.

During the third quarter 2019, this segment’s net loss attributable to common stockholders was $(28.4) million, Core FFO was $35.3 million and consolidated NOI before FF&E Reserve was $77.4 million. Net loss included the Company’s share of impairments of $28.1 million related primarily to assets, which have been or will be put up for sale in the near term and have fair market values below their prior respective carrying values. Impairments are added back to the Company’s net income (loss) to calculate FFO and Core FFO. Compared to the same period last year, third quarter 2019 hospitality same store portfolio revenue increased 0.4% and NOI before FF&E Reserve increased 2.4%, primarily due to a one-time $1.6 million benefit from the reversal of property taxes that were accrued prior to 2018. Excluding the one-time reversal, third quarter 2019 NOI before FFE Reserve was flat compared to the same period last year. The Company’s hotels typically experience seasonal variations in occupancy which may cause quarterly fluctuations in revenues and therefore sequential quarter to quarter revenue and NOI before FF&E Reserve result comparisons are not meaningful. The hospitality same store portfolio is defined as hotels in operation throughout the full periods presented under the comparison and included 158 hotels.

The following table presents NOI before FF&E Reserve and certain operating metrics by brands in the Company’s Hospitality Real Estate segment:

 

 

 

 

Same Store

 

Consolidated

 

CLNY OP Share

 

Consolidated

 

 

 

Avg. Daily Rate

 

RevPAR(3)

 

NOI before

FF&E Reserve(1)

 

NOI before

FF&E Reserve(2)

 

NOI before FF&E

Reserve

 

Occupancy %(4)

 

(In dollars)(4)

 

(In dollars)(4)

($ in millions)

Q3 2019

 

Q3 2019

 

Q3 2019

Q3 2018

 

Q3 2019

Q3 2018

 

Q3 2019

Q3 2018

 

Q3 2019

Q3 2018

Marriott

$

40.1

 

 

$

37.7

 

 

$

57.0

 

$

57.2

 

 

77.4

%

77.8

%

 

$

130

 

$

130

 

 

$

101

 

$

101

 

Hilton

34.2

 

 

32.1

 

 

15.4

 

13.6

 

 

83.7

%

84.8

%

 

133

 

132

 

 

111

 

112

 

Other

3.1

 

 

2.9

 

 

4.8

 

4.6

 

 

86.6

%

85.4

%

 

139

 

139

 

 

120

 

118

 

Total/W.A.

$

77.4

 

 

$

72.7

 

 

$

77.2

 

$

75.4

 

 

79.0

%

79.4

%

 

$

131

 

$

131

 

 

$

104

 

$

104

 

(1)

Third quarter 2019 consolidated FF&E reserve was $9.4 million.

(2)

CLNY OP Share NOI before FF&E Reserve represents third quarter 2019 Consolidated NOI before FF&E Reserve multiplied by CLNY OP’s ownership interest as of September 30, 2019.

(3)

RevPAR, or revenue per available room, represents a hotel’s total guestroom revenue divided by the room count and the number of days in the period being measured.

(4)

For each metric, data represents average during the presented quarter.

Asset Dispositions

During the third quarter 2019, the Hospitality Real Estate segment disposed of six unencumbered hotels resulting in net proceeds of $47 million.

Colony Credit Real Estate, Inc. (“CLNC”)

Colony Credit Real Estate, Inc. is a commercial real estate credit REIT, externally managed by the Company, with $5.6 billion in assets and $2.2 billion in GAAP book equity value as of September 30, 2019. The Company owns 48.0 million shares and share equivalents, or 36%, of CLNC and earns an annual base management fee of 1.5% on stockholders’ equity (as defined in the CLNC management agreement, which was recently amended) and an incentive fee of 20% of CLNC’s Core Earnings over a 7% hurdle rate.

CLNC announced the bifurcation of its assets into (i) a Core Portfolio consisting of senior loans, mezzanine loans, preferred equity, CRE debt securities and net lease real estate and (ii) a portfolio of legacy, non-strategic investments consisting of operating real estate, real estate private equity interests and certain retail and other legacy loans originated prior to the formation of CLNC.

Contacts

Investor Contacts:
Addo Investor Relations

Lasse Glassen

310-829-5400

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