Colony Capital Announces First Quarter 2019 Financial Results

LOS ANGELES–(BUSINESS WIRE)–Colony Capital, Inc. (NYSE:CLNY) and subsidiaries (collectively, “Colony
Capital,” or the “Company”) today announced its financial results for
the first quarter ended March 31, 2019 and the Company’s Board of
Directors declared a second quarter 2019 cash dividend of $0.11 per
share to holders of Class A and Class B common stock.

First Quarter 2019 Financial Results and Highlights

  • First quarter 2019 net loss attributable to common stockholders of
    $(102.1) million, or $(0.21) per share, and Core FFO of $47.7 million,
    or $0.09 per share
  • Core FFO of $75.4 million, or $0.15 per share, excluding net
    investment losses of $27.7 million, which were composed of $14.1
    million of losses on sale of and provision for loan losses on certain
    Other Equity & Debt investments and $13.6 million for our share of
    certain investment losses realized by Colony Credit Real Estate, Inc.
    (NYSE: CLNC)
  • The Company’s Board of Directors declared and paid a first quarter
    2019 dividend of $0.11 per share to holders of Class A and B common
    stock
  • The Company closed on commitments of $310 million in third-party
    capital (including amounts related to affiliates)
  • The Company completed the planned sale and/or monetization of $190
    million of assets within the Other Equity and Debt segment resulting
    in net equity proceeds of $93 million
  • The Company refinanced three near-term maturing loans with an
    aggregate consolidated balance of $266 million, or CLNY OP share of
    $222 million, in its Healthcare and Hospitality Real Estate segments
    extending term to 2024 at slightly more favorable interest rates on
    average
  • The Company, through its Industrial platform, closed on the
    acquisition of a $1.2 billion value-add portfolio of 54 light and bulk
    industrial buildings located across 10 U.S. markets totaling
    approximately 11.9 million square feet
  • Subsequent to the first quarter 2019:
  • The Company completed its acquisition of Abraaj Group’s private equity
    platform in Latin America, which has been renamed Colony Latam Partners
  • Digital Colony entered into a definitive agreement to acquire Zayo
    Group Holdings, Inc., which provides mission critical bandwidth to the
    world’s most impactful companies, for $14.3 billion with a co-sponsor;
    separately Digital Colony completed the acquisition of Cogeco Peer 1,
    a leading Canadian provider of colocation, network connectivity and
    managed services through its substantial fiber and data center assets,
    for C$720 million
  • The Company completed the planned sale and/or monetization of $101
    million of assets and net equity proceeds within the Other Equity and
    Debt segment
  • The Company achieved approximately 60% 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
  • The Company amended certain terms of its revolving credit facility
    agreement including a reduction of aggregate revolving commitments
    from $1 billion to $750 million and a modification of a financial
    covenant and the borrowing base formula
  • As of May 7, 2019, the Company had over $850 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.

First 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 March 31, 2019, the consolidated healthcare portfolio consisted of
413 properties: 192 senior housing properties, 108 medical office
properties, 99 skilled nursing facilities and 14 hospitals. The
Company’s equity interest in the consolidated Healthcare Real Estate
segment was approximately 71% as of March 31, 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 first quarter 2019, this segment’s net loss attributable to
common stockholders was $(7.5) million, Core FFO was $21.4 million and
consolidated NOI was $76.2 million. In the first quarter 2019,
healthcare same store portfolio sequential quarter to quarter comparable
net operating income increased 2.7%, primarily due to higher one-time
expenses in the fourth quarter 2018 as well as increased rental rates in
the first quarter in the senior housing operating portfolio. Compared to
the same period last year, first quarter 2019 same store net operating
income decreased (2.4)%, primarily due to reduced rents in the skilled
nursing portfolio and higher uncollectible rents in the medical office
building portfolio. The healthcare same store portfolio is defined as
properties in operation throughout the full periods presented under the
comparison and included 413 properties in the comparisons. Properties
acquired or disposed during these periods are excluded for the same
store portfolio and same store results exclude certain non-recurring
uncollectible rent.

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) Q1 2019 Q1 2019 Q1 2019     Q4 2018 Q1 2019     Q4 2018 12/31/18     9/30/18
Senior Housing – Operating $ 17.3 $ 12.3 $ 17.3     $ 15.7 86.7 %     86.8 % N/A     N/A
Medical Office Buildings (MOB) 12.4 8.8 12.4 12.6 82.4 % 82.3 % N/A N/A
Triple-Net Lease:
Senior Housing 15.4 10.9 15.4 15.3 82.1 % 82.1 % 1.3x 1.4x
Skilled Nursing Facilities 25.7 18.3 25.7 25.8 82.4 % 82.4 % 1.2x 1.2x
Hospitals 5.4   3.8   5.4       4.8   58.5 % 58.1 % 2.3x

3.4x

 

(4)

Healthcare Total $ 76.2   $ 54.1   $ 76.2       $ 74.2  

_____________________________________

(1)   CLNY OP Share NOI represents first quarter 2019 Consolidated NOI
multiplied by CLNY OP’s ownership interest as of March 31, 2019.
(2)

Occupancy % for Senior Housing – Operating represents average
during the presented quarter, for MOBs 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.
(4) September 30, 2018 TTM Lease Coverage included an extraordinary
Hospital Quality Assurance Fee received by one of our hospital
operators during the fourth quarter of 2017.

Asset Financing

During the first quarter 2019, the Company refinanced two loans with an
aggregate consolidated balance of $151 million, or CLNY OP share of $107
million, in the Healthcare Real Estate segment, extending the fully
extended maturity dates to 2024 at slightly higher interest rates on
average.

Subsequent to the first quarter 2019, the Company refinanced a loan with
a consolidated balance of $59 million, or CLNY OP share of $42 million,
in the Healthcare Real Estate segment, extending the fully extended
maturity date to 2024 at a slightly lower interest rate.

The Company continues to evaluate options in connection with the $1.725
billion of consolidated fixed rate mortgage debt on a certain U.S.
healthcare portfolio maturing in December 2019.

Industrial Real Estate

As of March 31, 2019, the consolidated light industrial portfolio
consisted of 413 light industrial buildings totaling 53.9 million
rentable square feet across 26 major U.S. markets and was 92% leased.
During the first quarter 2019, the Company raised $141 million of new
third-party capital in the light industrial platform. As a result, the
Company’s equity interest in the consolidated light industrial portfolio
decreased to approximately 34% as of March 31, 2019 from 35% as of
December 31, 2018. 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 March 31,
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 March 31, 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. The immediate strategy is to stabilize the existing
bulk industrial portfolio as well as seek to invest in bulk industrial
properties in major U.S. metropolitan markets generally targeting
warehouses greater than 500,000 square feet.

The Company owns a 100% interest in the related industrial operating
platform, which manages both the light and bulk industrial assets.

During the first quarter 2019, this segment’s net income attributable to
common stockholders was $6.4 million, Core FFO was $12.9 million and
consolidated NOI was $55.8 million. During the first quarter 2019, this
segment’s net income, Core FFO and NOI included a partial quarter of
financial results related to the newly acquired $1.2 billion portfolio
of light and bulk industrial buildings for the period of February 27,
2019 to March 31, 2019. In the first quarter 2019, light industrial same
store portfolio sequential quarter to quarter comparable rental revenue
increased 1.3% and net operating income increased 0.6%, primarily due to
contractual rent escalations on in-place leases, offset by budgeted
vacancy and increased real estate tax and insurance expenses. Compared
to the same period last year, first quarter 2019 light industrial same
store rental revenue increased 0.6% and net operating income increased
1.6%, primarily due to lower uncollectible rent and other property
operating expenses. The Company’s light industrial same store portfolio
consisted of 314 buildings. The same store portfolio is defined once a
year at the beginning of the current calendar year and includes
buildings that were owned, stabilized and held-for-use throughout the
entirety of both the current and prior calendar years. Properties
acquired, disposed or held-for-sale 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. 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) Q1 2019 Q1 2019 Q1 2019     Q4 2018 3/31/19     12/31/18
Light Industrial(3) $ 54.6 $ 18.3 $ 41.8     $ 41.6 94.9 %     95.6 %
Bulk Industrial(3) 1.2   0.6   N/A N/A N/A N/A
Total Industrial(3) $ 55.8

(3)

 

$ 18.9

(3)

 

N/A N/A N/A N/A

_____________________________________

(1)   CLNY OP Share NOI represents first quarter 2019 Consolidated NOI
multiplied by CLNY OP’s ownership interest as of March 31, 2019.
(2) Leased % as of the reported date represents square feet under
executed leases, some of which may not have taken occupancy.
(3)

During the first quarter 2019, this segment’s NOI included partial
quarter financial results related to the newly acquired portfolio
of light and bulk industrial buildings for the period of February
27, 2019 to March 31, 2019.

Asset Acquisitions, Dispositions and Financing

During the first quarter 2019, the light industrial platform acquired
three light industrial buildings totaling 0.7 million square feet and
one land parcel for development for $106 million. Separately, the
Company closed on the acquisition of a value-add portfolio of 54 light
and bulk industrial buildings for $1.16 billion (of which four light
industrial buildings are expected to close throughout the remainder of
2019). Forty-eight buildings are light industrial, which were acquired
by the Company’s existing light industrial platform. To finance the
acquisition, the light industrial platform closed on a new $500 million
five year term loan and a $600 million revolver with a four year initial
term. As of March 31, 2019, the revolver was $114 million drawn. The
remaining six bulk industrial buildings were financed with a $235
million first mortgage loan and acquired through a joint venture
partnership in which the Company has a 51% interest and a third-party
institutional investor has a 49% interest.

During the first quarter 2019, the light industrial platform disposed of
34 non-core light industrial buildings for $136 million.

Subsequent to the first quarter 2019, the light industrial platform
acquired two land parcels for development for $15 million.

Hospitality Real Estate

As of March 31, 2019, the consolidated hospitality portfolio consisted
of 167 properties: 97 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 March 31, 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 first quarter 2019, this segment’s net loss attributable to
common stockholders was $(23.0) million, Core FFO was $17.8 million and
consolidated NOI before FF&E Reserve was $60.6 million. Compared to the
same period last year, first quarter 2019 hospitality same store
portfolio revenue increased 0.7% and NOI before FF&E Reserve increased
2.4%, primarily due to an increase in ancillary revenue. 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 167 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) Q1 2019 Q1 2019 Q1 2019     Q1 2018 Q1 2019     Q1 2018 Q1 2019     Q1 2018 Q1 2019     Q1 2018
Marriott $ 47.2 $ 44.5 $ 47.2     $ 46.9 68.2 %     69.2 % $ 130     $ 129 $ 89     $ 89
Hilton 9.9 9.3 9.9 8.7 73.3 % 73.8 % 126 124 93 91
Other 3.5   3.3   3.5       3.6   80.4 %     78.2 % 127       127   102       99
Total/W.A. $ 60.6   $ 57.1   $ 60.6       $ 59.2   69.7 %     70.4 % $ 129       $ 128   $ 90       $ 90

_____________________________________

(1)   First quarter 2019 consolidated FF&E reserve was $8.7 million.
(2) CLNY OP Share NOI before FF&E Reserve represents first quarter 2019
Consolidated NOI before FF&E Reserve multiplied by CLNY OP’s
ownership interest as of March 31, 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 Financing

During the first quarter 2019, the Company refinanced $116 million of
consolidated and CLNY OP share of debt in the Hospitality Real Estate
segment, extending the fully extended maturity date from 2020 to 2024 at
a lower interest rate.

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

Colony Credit Real Estate, Inc. is a commercial real estate credit REIT,
externally managed by the Company, with $5.5 billion in assets and $2.7
billion in GAAP book equity value as of March 31, 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) and an incentive fee of 20% of CLNC’s
Core Earnings over a 7% hurdle rate. During the first quarter 2019, this
segment’s net income attributable to common stockholders was $5.2
million and Core FFO was $4.3 million. Core FFO included $13.6 million
CLNY OP’s share of losses from CLNC primarily resulting from the
foreclosure of a mezzanine loan collateralized by a diversified
portfolio of U.S. properties. This loss was anticipated in the fourth
quarter of 2018, when CLNC recorded a related loan loss provision, which
was added back from CLNC’s net income to calculate Core Earnings. Please
refer to the CLNC’s earnings release and financial supplemental
furnished on Form 8-K and its Quarterly Report on Form 10-Q filed with
the SEC for additional detail.

Other Equity and Debt

The Company owns a diversified group of strategic and non-strategic real
estate and real estate-related debt and equity investments. Strategic
investments include our 11% interest in NorthStar Realty Europe Corp.
(NYSE: NRE) and other investments for which the Company acts as a
general partner and/or manager (“GP Co-Investments”) and receives
various forms of investment management economics on the related
third-party capital. Non-strategic investments are composed of those
investments the Company does not intend to own for the long term
including other real estate equity including the THL Hotel Portfolio and
the Company’s interest in Albertsons; real estate debt; net leased
assets; and multiple classes of commercial real estate (“CRE”)
securities. During the first quarter 2019, this segment’s aggregate net
income attributable to common stockholders was $23.9 million and Core
FFO was $25.2 million. Core FFO included $14.1 million of net investment
losses primarily from losses on sale of and provision for loan losses on
certain Other Equity & Debt investments.

As of March 31, 2019, the undepreciated carrying value of assets and
equity within the Other Equity and Debt segment were $3.2 billion and
$2.0 billion, respectively.

 
CLNY OP Share
Undepreciated Carrying Value
March 31, 2019     December 31, 2018
($ in millions) Assets     Equity Assets     Equity

Strategic:

GP co-investments $

1,197

$ 724 $ 1,075 $ 684
Interest in NRE 88   88   88   88
Strategic Subtotal

1,285

812 1,163 772
 

Non-Strategic:

Other Real Estate Equity & Albertsons 1,372 704 1,481 752
Real Estate Debt 290 290 297 297
Net Lease Real Estate Equity 182 74 219 92
CRE Securities and Real Estate Private Equity Funds 70   70   70   70
Non-Strategic Subtotal 1,914   1,138   2,067   1,211
Total Other Equity and Debt $

3,199

  $ 1,950   $ 3,230   $ 1,983
 

Other Equity and Debt Segment Asset Dispositions

During the first quarter 2019, the Company sold or received payoffs in
aggregate of $190 million with net equity proceeds of $93 million from
various investments, including $46 million from the GP co-investments
category, $26 million from the Other Real Estate Equity category, $19
million from the Net Lease Real Estate Equity category, and an aggregate
$2 million in the Real Estate Debt and Real Estate Private Equity Funds
categories.

Investment Management

The Company’s Investment Management segment includes the business and
operations of managing capital on behalf of third-party investors
through closed and open-end private funds, and traded and non-traded
real estate investment trusts. As of March 31, 2019, the Company had
$28.8 billion of third-party AUM compared to $28.4 billion as of
December 31, 2018. As of March 31, 2019, Fee-Earning Equity Under
Management (“FEEUM”) was $17.8 billion compared to $17.6 billion as of
December 31, 2018. The increase in FEEUM was primarily attributable to
capital raised in the light and bulk industrial platforms and REIM
platforms, partially offset by asset sales. During the first quarter
2019, this segment’s aggregate net income attributable to common
stockholders was $20.5 million and Core FFO was $36.3 million. Net
income and Core FFO included an aggregate $6 million of unrealized
carried interest from the Company’s managed funds and investments.

Colony Latam Partners

Subsequent to the first quarter 2019, the Company acquired the Abraaj
Group’s private equity platform in Latin America, which has been renamed
Colony Latam Partners and will continue to be headed by its senior
management team, led by Miguel Olea, Hector Martinez, Gerardo Mendoza
and Eduardo Cortina. Colony Latam Partners manages approximately $530
million of FEEUM and has made 22 investments across Latin America since
its establishment in 2006.

Assets Under Management (“AUM”)

As of March 31, 2019, the Company had $43 billion of AUM:

     
March 31, 2019 December 31, 2018
($ in billions) Amount    

% of
Grand Total

Amount    

% of
Grand Total

 
Balance Sheet (CLNY OP Share):
Healthcare $ 3.9 9.0 % $ 3.9 9.1 %
Industrial 1.6 3.7 % 1.2 2.8 %
Hospitality 3.9 9.0 % 4.0 9.4 %
Other Equity and Debt 3.2 7.4 % 3.2 7.5 %
CLNC(1) 2.0   4.6 % 2.0   4.7 %
Balance Sheet Subtotal 14.6 33.7 % 14.3 33.5 %
 
Investment Management:
Institutional Funds 9.9 22.7 % 9.5 22.2 %
Retail Companies 3.5 8.1 % 3.5 8.2 %
Colony Credit Real Estate (NYSE:CLNC)(2) 3.5 8.1 % 3.5 8.2 %

NorthStar Realty Europe (NYSE:NRE) (3)

1.6 3.7 % 1.7 4.0 %

Non-Wholly Owned REIM Platforms(4)

10.3   23.7 % 10.2   23.9 %
Investment Management Subtotal 28.8 66.3 % 28.4 66.5 %
       
Grand Total $ 43.4   100.0 % $ 42.7   100.0 %

_____________________________________

(1)   Represents the Company’s 36% and 37% ownership share of CLNC’s total
pro-rata share of assets of $5.5 billion as of March 31, 2019 and
December 31, 2018, respectively.
(2) Represents third-party 64% and 63% ownership share of CLNC’s total
pro-rata share of assets of $5.5 billion as of March 31, 2019 and
December 31, 2018, respectively.

(3)

The Company entered into an agreement with NRE to terminate the
management agreement. Upon termination, NRE will make a
termination payment to the Company of $70 million, less any
incentive fee paid by NRE to the Company through termination.

(4)

REIM: Real Estate Investment Management

Liquidity and Financing

Subsequent to the first quarter 2019, the Company amended certain terms
of its corporate credit facility agreement including a reduction of
aggregate revolving commitments from $1 billion to $750 million and a
reduction in the minimum permitted EBITDA plus lease expenses to fixed
charges covenant (“FCCR”) from 1.50 to 1.00 to 1.30 to 1.00 effective
for the fiscal quarter ended March 31, 2019 and going forward. In the
event FCCR is between 1.50 and 1.30 to 1.00, the borrowing base formula
will be discounted by 10%.

Contacts

Investor Contacts:
Addo Investor Relations
Lasse Glassen
310-829-5400

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