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

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

Second Quarter 2019 Financial Results and Highlights

• Second quarter 2019 U.S. GAAP net loss attributable to common stockholders was $(468.9) million, or $(0.98) per share and Core FFO was $57.1 million, or $0.11 per share; and for the six months ended June 30, 2019, U.S. GAAP net loss attributable to common stockholders was $(571.0) million, or $(1.19) per share and Core FFO was $104.8 million, or $0.20 per share
  • U.S. GAAP net loss included impairments and provision for loan losses totaling $353.1 million for the Company’s share, including: (i) a $227.9 million noncash write-down of the carrying value of the Company’s 48 million shares of Colony Credit Real Estate, Inc. (NYSE:CLNC) to a value based on CLNC’s closing stock price of $15.50 on June 28, 2019, the last trading day of the second quarter, required under generally accepted accounting principles as a result of the prolonged period of time in which the carrying value of the Company’s CLNC shares has exceeded CLNC share trading prices; (ii) $47.0 million for the Company’s share of impairments and provision for loan losses incurred by CLNC; and (iii) $78.2 million of impairments and provision for loan losses in other segments

• Excluding net investment losses of $17.2 million primarily related to investments in Other Equity and Debt and CLNC, Core FFO was $74.3 million, or $0.14 per share; and for the six months ended June 30, 2019, excluding net investment losses of $44.9 million, Core FFO was $149.7 million, or $0.29 per share

• The Company’s Board of Directors declared and paid a second quarter 2019 dividend of $0.11 per share to holders of Class A and B common stock

• Completed the planned sales and/or monetization of $189 million of assets within the Other Equity and Debt segment resulting in net equity proceeds of $166 million; and for the six months ended June 30, 2019, $379 million of assets within the Other Equity and Debt segment were sold or monetized resulting in net equity proceeds of $259 million

• Refinanced $1.725 billion in healthcare debt, which was scheduled to mature in December 2019, through an equity contribution by the Company of $175 million for its share; upon receipt of proceeds from certain assets that were previously encumbered by this loan and are under contract to be sold, the Company’s equity contribution is expected to decrease to approximately $90 million
  • This refinancing, along with previously completed refinancing transactions earlier this year, addresses four of the six healthcare loans maturing in 2019, or 87% of consolidated outstanding principal balances; the remaining two healthcare loans are expected to be refinanced or otherwise resolved by year-end

• Completed the acquisition of Abraaj Group’s private equity platform in Latin America, which has been renamed Colony Latam Partners and manages approximately $574 million of AUM

• Digital Colony entered into a definitive agreement to acquire Zayo Group Holdings, Inc., a leading provider of communications infrastructure services, for $14.3 billion with a co-sponsor and the transaction has received shareholder approval; 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

• As part of our ongoing strategic review, described in more detail herein, the Company engaged advisors to market its light industrial portfolio consisting of approximately 450 properties and approximately 60 million square feet of space; the Company expects to generate a significant gain given the current strength in the industrial investment sales market; assets and liabilities of the Industrial segment are presented as held for sale on the balance sheet, and all revenues, costs and expenses are combined on the income statement under the category of discontinued operations

• Opened a Singapore office as another base for future capital raising in Asia

• Subsequent to the second quarter 2019:
  • Acquired Digital Bridge Holdings, LLC (“DBH”), the premier investment manager dedicated to the next generation of mobile and internet connectivity, for $325 million as part of the Company’s strategic initiative to become the leading platform for digital infrastructure and real estate, while also paving the way for leadership succession plans in which Marc C. Ganzi, a founder and Chief Executive Officer of Digital Bridge, and a Managing Partner and an Investment Committee Member of Digital Colony, will become the CEO of the Company, following a transition period ending no sooner than December 31, 2020, succeeding Thomas J. Barrack, Jr., who will then return to the sole position of Executive Chairman
  • NorthStar Realty Europe Corp. (NYSE:NRE) entered into a definitive agreement to be acquired for an estimated $17.03 per share, which will result in the sale of the Company’s 11% equity interest in NRE, together with the termination of the Company’s management agreement with NRE for consideration of $70 million, inclusive of incentive fees paid and due to the Company
  • 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
  • Formed a strategic joint venture with California Resources Corporation (NYSE: CRC) through the Company’s energy investment management arm Colony HB2 Energy, which committed to fund $320 million for the development of CRC’s flagship Elk Hills field; a substantial portion of this investment is expected to be syndicated to third-party investors
  • Achieved approximately two-thirds 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 including the reduction of more than 10% of the Company’s headcount since the date the restructuring was announced
  • As of August 6, 2019, the Company had approximately $390 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

As part of a comprehensive review undertaken by management together with our Strategic Asset Review Committee and an independent advisor, which was unanimously supported by the Company’s Board of Directors, the Company has undertaken certain strategic initiatives intended to build on core investment management competencies while focusing on high-growth businesses. A key component of this strategic evolution was the Company’s recent acquisition of DBH, a leading investment manager of digital infrastructure investments dedicated to the next generation of mobile and internet connectivity, which also addresses CEO succession plans. These previously announced and/or completed initiatives also include the anticipated termination of the Company’s management agreement with NRE in connection with the pending sale of the company, a corporate restructuring and reorganization plan that is on track with its cost savings objectives, the stabilization of the healthcare portfolio’s capital structure, the acquisition of a high growth Latin American private equity platform, and the formation of investment management platforms addressing innovative energy investments and a data-driven REIT public securities platform.

Additionally, the Company has engaged advisors to market the Company’s multi-billion dollar industrial portfolio for sale, which may include the related management platform. There has been significant appreciation in the value of our industrial portfolio driven by favorable operating fundamentals and strong investor demand for light industrial assets. As a result, a sale of the industrial portfolio may yield a price higher than the value that may be ascribed by the market to the industrial portfolio as part of the Company’s overall valuation. The Company is seeking to complete a sale by the end of 2019, however, no assurances can be made that a sale can be completed within the timeframe contemplated, or at all. In addition, the Company continues to monetize non-strategic Other Equity and Debt investments and other non-core assets to generate liquidity and simplify the business. With these anticipated proceeds, the Company may redeploy a portion of the proceeds into higher total return strategies (e.g. digital infrastructure, emerging markets and energy) and may further consider the reduction of corporate leverage.

Second 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 June 30, 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 June 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 second quarter 2019, this segment’s net loss attributable to common stockholders was $(58.6) million, Core FFO was $11.8 million and consolidated NOI was $77.1 million. Net loss included $36.9 million of impairments related to assets under contract to be sold, including certain assets that were previously encumbered by the $1.725 billion consolidated healthcare loan. Impairments are added back to the Company’s net income (loss) to calculate FFO and Core FFO. Net loss and Core FFO included $5 million, $3 million CLNY OP share, of refinancing related expenses not capitalized in connection with the $1.725 billion consolidated fixed rate mortgage loan refinancing. In the second quarter 2019, healthcare same store portfolio sequential quarter to quarter comparable net operating income increased 1.2% and compared to the same period last year, second quarter 2019 same store net operating income was flat. The sequential quarter to quarter increase in net operating income was partially due to a certain one-time benefit within Skilled Nursing Facilities and a true up within Medical Office Buildings offset by continued occupancy and rate challenges within Senior Housing – Operating. On a year over year basis, net operating income was flat overall with one-time benefits within Skilled Nursing Facilities offset by higher operating expenses within Senior Housing – Operating. 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:

Asset Dispositions and Financing

During the second quarter 2019, the Company refinanced an aggregate $1.784 billion of consolidated, or $1.265 billion CLNY OP share, of debt in the Healthcare Real Estate segment, including a $1.725 billion consolidated fixed rate mortgage loan, which was scheduled to mature in December 2019. The $1.725 billion loan was refinanced with an interest-only loan with a consolidated outstanding balance of $1.515 billion, a five year term (inclusive of three one-year extension options) and a blended interest rate of one-month LIBOR plus 3.33%. The Company and its joint venture partners contributed new equity of $250 million, which is expected to decrease to approximately $131 million, or $90 million CLNY OP share, upon receipt of proceeds from certain assets that were previously encumbered by the $1.725 billion loan and are under contract to be sold.

Industrial Real Estate

As of June 30, 2019, the consolidated light industrial portfolio consisted of 446 light industrial buildings totaling 55.7 million rentable square feet across 26 major U.S. markets and was 92% leased. The Company’s equity interest in the consolidated light industrial portfolio was approximately 34% as of June 30, 2019 and March 31, 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 June 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 June 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.

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

During the second quarter 2019, this segment’s net loss attributable to common stockholders was $(3.1) million, Core FFO was $11.9 million and consolidated NOI was $62.2 million. In the second quarter 2019, light industrial same store portfolio sequential quarter to quarter comparable rental revenue increased 0.5% and net operating income increased 0.9%. Compared to the same period last year, second quarter 2019 light industrial same store rental revenue increased 1.5% and net operating income increased 0.9%, primarily due to an increase in contractual rental revenue offset by higher repairs and maintenance expenses. The Company’s light industrial same store portfolio consisted of 312 buildings. The same store 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. 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:

Held for Sale

As of June 30, 2019, the industrial segment met the criteria as held for sale and discontinued operations. Accordingly, for all prior periods presented, the related assets and liabilities were reclassified as assets and liabilities held for sale on the consolidated balance sheets and the related operating results were reclassified as income from discontinued operations on the consolidated statement of operations. Additional fundraising is currently on hold given the ongoing sale process.

Hospitality Real Estate

As of June 30, 2019, the consolidated hospitality portfolio consisted of 164 properties: 94 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 June 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 second quarter 2019, this segment’s net loss attributable to common stockholders was $(3.3) million, Core FFO was $35.8 million and consolidated NOI before FF&E Reserve was $82.7 million. Compared to the same period last year, second quarter 2019 hospitality same store portfolio revenue decreased (0.6)% and NOI before FF&E Reserve decreased (3.1)%, primarily due to a combination of (i) weaker corporate travel demand, (ii) the presence of new supply in certain markets and (iii) increased labor and property tax expenses. 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 164 hotels.

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

Asset Dispositions

During the second quarter 2019, the Hospitality Real Estate segment disposed of three non-core hotels for $22 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 $5.8 billion in assets and $2.6 billion in GAAP book equity value as of June 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) and an incentive fee of 20% of CLNC’s Core Earnings over a 7% hurdle rate. During the second quarter 2019, this segment’s net loss attributable to common stockholders was $(251.8) million and Core FFO was $13.2 million. Net loss included a $227.9 million noncash write-down of the carrying value of the Company’s 48 million shares of CLNC to a value based on CLNC’s closing stock price of $15.50 on June 28, 2019, the last trading day of the second quarter. This write-down was required under generally accepted accounting principles as a result of the prolonged period of time in which the carrying value of the Company’s CLNC shares has exceeded CLNC share trading prices. In addition, net loss included $47.0 million for CLNY OP’s share of impairments and provision for loan losses incurred by CLNC. The $227.9 million noncash write-down by the Company is independent of CLNC’s financial reporting and is added back in the calculation of CLNY’s Core FFO. CLNY’s Core FFO pickup from CLNC represents a 36% share of CLNC’s Core Earnings, which included our share of CLNC’s loss of $5.3 million resulting primarily from the foreclosure of a loan collateralized by a U.

Contacts

Investor Contacts:

Addo Investor Relations

Lasse Glassen

310-829-5400

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