Colony Capital Announces Fourth Quarter and Full Year 2018 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 fourth quarter and full year ended December 31, 2018 and the
Company’s Board of Directors declared a first quarter 2019 cash dividend
of $0.11 per share of Class A and Class B common stock.

Fourth Quarter and Full Year 2018 Financial Results and Highlights

  • Fourth quarter 2018 net loss attributable to common stockholders of
    $(397.2) million, or $(0.82) per share, which included noncash
    impairments attributable to common stockholders of $258 million; Full
    year 2018 net loss attributable to common stockholders of $(632.7)
    million, or $(1.28) per share, which included noncash impairments
    attributable to common stockholders of $563 million
  • Fourth quarter 2018 Core FFO of $22.5 million, or $0.04 per share, and
    full year 2018 Core FFO of $333.3 million, or $0.62 per share
  • Fourth quarter 2018 Core FFO included net investment losses of $29
    million primarily related to CLNY OP’s share of private equity
    secondaries mark-to-market adjustments and associated tax effect from
    Colony Credit Real Estate, Inc. (NYSE: CLNC)
  • The Company’s Board of Directors declared and paid a fourth quarter
    2018 dividend of $0.11 per share of Class A and B common stock
  • During the fourth quarter 2018, the Company raised $219 million of
    third-party capital (including amounts related to affiliates),
    resulting in full year 2018 third-party capital raised of $5.5 billion
  • During the fourth quarter 2018, the Company completed over $320
    million of Other Equity and Debt asset monetizations, with net equity
    proceeds of $254 million, resulting in full year 2018 asset
    monetizations of $1.4 billion with net equity proceeds of $914 million
  • During the fourth quarter 2018, the Company invested, or committed to
    invest $144 million in three Strategic Other Equity and Debt GP
    co-investments, resulting in full year 2018 deployment of $530 million
    primarily in Strategic Other Equity and Debt
  • During the fourth quarter 2018, the Company repurchased 6.6 million
    shares of its Class A common stock at an average price of $4.80 per
    share, or $32 million, resulting in full year 2018 repurchases of 61.4
    million shares at an average price of $5.71 per share, or $351
    million; the Company also redeemed all of the shares of its 8.5%
    Series D cumulative redeemable perpetual preferred stock during 2018
    for $200 million
  • The Company announced a corporate restructuring and reorganization
    plan which is expected to generate $50 to $55 million ($45 to $50
    million on a cash basis) of annual compensation and administrative
    cost savings over the next 12 months of which approximately 50% of
    run-rate cost savings are currently in place
  • The Company and NorthStar Realty Europe Corp. (NYSE: NRE) reached an
    agreement to terminate the management agreement between the companies
    upon the sale of NRE or the internalization of the management of NRE
    and in connection with such termination, NRE will make a termination
    payment to the Company of $70 million, minus any incentive fee paid to
    the Company through termination
  • Listed CLNC on the New York Stock Exchange, one of the largest
    commercial real estate credit REITs, creating a permanent capital
    vehicle externally managed by the Company
  • Subsequent to the fourth quarter 2018:
  • The Company acquired a $1.2 billion industrial portfolio, part of
    which includes the initiation of a new bulk industrial strategy that
    is expected to be complementary to, and synergistic with, our existing
    $4 billion light industrial platform
  • Digital Colony entered into a definitive agreement to acquire Cogeco
    Peer 1, a leading Canadian provider of colocation, network
    connectivity and managed services through its substantial fiber and
    data center assets, for a price of C$720 million
  • The Company entered into a definitive agreement to acquire the Abraaj
    Group’s private equity platform in Latin America
  • The Company announced a series of changes to enhance its corporate
    governance and entered into a Cooperation Agreement with Blackwells
    Capital LLC under which two new independent directors were appointed,
    another director will be jointly appointed by the Company and
    Blackwells, and a Strategic Asset Review Committee was formed by the
    Board of Directors
  • The Company funded $122 million for prior commitments in Strategic
    Other Equity and Debt investments and its share of the recently
    acquired bulk industrial portfolio
  • As of February 25, 2019, the Company had approximately $1.0 billion of
    liquidity through availability under its revolving credit facility

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

Fourth Quarter 2018 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
December 31, 2018, 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 December 31, 2018. 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 fourth quarter 2018, this segment’s net loss attributable to
common stockholders was $(162.4) million, Core FFO was $12.6 million and
consolidated NOI was $74.4 million. Net loss included noncash
impairments attributable to common stockholders of $143 million related
to certain medical office buildings, skilled nursing facilities and
senior housing properties, which were added back in the calculation of
FFO and, as a result, Core FFO. In the fourth quarter 2018, healthcare
same store portfolio sequential quarter to quarter comparable revenue
decreased (0.8)% and net operating income decreased (4.1)%. Compared to
the same period last year, fourth quarter 2018 same store revenue
decreased (1.6)% and net operating income decreased (2.8)%. Sequential
quarter to quarter and same period prior year comparable revenue and NOI
decreased primarily due to weaker operating results in our RIDEA senior
housing properties and bad debt expense in our medical office buildings.
Healthcare same store portfolio full year 2018 net operating income
decreased (0.1)% compared to 2017. The healthcare same store portfolio
is defined as properties in operation throughout the full periods
presented under the comparison and included 412 properties in the
quarterly and full year comparisons. Properties acquired, disposed or
held for sale during these periods are excluded for the same store
portfolio and same store results exclude certain non-recurring bad debt
expense.

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(2)   Occupancy %(3)   TTM Lease Coverage(4)
($ in millions) Q4 2018 Q4 2018 Q4 2018   Q3 2018 Q4 2018   Q3 2018 9/30/18   6/30/18
Senior Housing – Operating $ 15.7 $ 11.1 $ 15.7 $ 17.4 86.8 % 87.1 % N/A N/A
Medical Office Buildings 12.6 9.0 12.6 13.4 82.3 % 83.0 % N/A N/A
Triple-Net Lease:
Senior Housing 15.3 10.9 15.3 15.3 82.1 % 82.0 % 1.4x 1.4x
Skilled Nursing Facilities 26.0 18.4 25.8 26.2 82.4 % 81.9 % 1.2x 1.2x
Hospitals   4.8   3.4   4.8   5.1 58.1 % 57.1 % 3.4x 3.2x
Healthcare Total $ 74.4 $ 52.8 $ 74.2 $ 77.4
 
___________________________________________________
(1)   CLNY OP Share NOI represents fourth quarter 2018 Consolidated NOI
multiplied by CLNY OP’s ownership interest as of December 31, 2018.
(2) Same Store Consolidated NOI excludes $0.9 million of non-recurring
bad debt expense during the third quarter 2018.
(3) Occupancy % for Senior Housing – Operating represents average during
the presented quarter, MOB’s is as of last day in the quarter and
for other types represents average during the prior quarter.
(4) 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 Financing
During the fourth
quarter 2018, the Company closed on a new $140 million consolidated, or
$99 million CLNY OP share, floating rate loan collateralized by a select
portfolio of medical office buildings, which was primarily used to repay
the floating rate debt component of a consolidated $1.85 billion
non-recourse loan. The remaining $1.725 billion fixed rate component of
this loan has a maturity date of December 2019 and the Company is
currently evaluating options in connection with the scheduled maturity.

Industrial Real Estate
As of
December 31, 2018, the consolidated industrial portfolio consisted of
400 primarily light industrial buildings totaling 48.5 million rentable
square feet across 20 major U.S. markets and was 95% leased. During the
fourth quarter 2018, the Company raised $56 million of new third-party
capital. As a result, the Company’s equity interest in the consolidated
Industrial Real Estate segment decreased to approximately 35% as of
December 31, 2018 from 36% as of September 30, 2018. Total third-party
capital commitments were approximately $1.5 billion compared to
cumulative balance sheet contributions of $749 million as of December
31, 2018. The Company continues to own a 100% interest in the related
operating platform. The Industrial Real Estate segment 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.

During the fourth quarter 2018, this segment’s net income attributable
to common stockholders was $1.2 million, Core FFO was $11.8 million and
consolidated NOI was $51.3 million. In the fourth quarter 2018,
industrial same store portfolio sequential quarter to quarter comparable
rental revenue increased 0.7% and net operating income increased 0.4%.
Compared to the same period last year, fourth quarter 2018 same store
rental revenue increased 2.6% and net operating income decreased (0.6)%
primarily due to higher expenses in the fourth quarter 2018 related to
one time repairs & maintenance and insurance reimbursement income
recognized in the fourth quarter 2017. Industrial same store portfolio
full year 2018 net operating income increased 2.4% compared to 2017. The
Company’s industrial same store portfolio consisted of 257 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) Q4 2018 Q4 2018 Q4 2018   Q3 2018 12/31/18   9/30/18
Industrial $ 51.3 $ 18.1 $ 32.2 $ 32.1 95.0 % 95.0 %
 
___________________________________________________
(1)   CLNY OP Share NOI represents fourth quarter 2018 Consolidated NOI
multiplied by CLNY OP’s ownership interest as of December 31, 2018.
(2) Leased % as of the reported date represents square feet under
executed leases, some of which may not have taken occupancy.
 

Asset Acquisitions, Dispositions and Financing
During
the fourth quarter 2018, the consolidated industrial portfolio disposed
of six non-core buildings for $25 million.

Subsequent to the fourth quarter 2018, the consolidated industrial
portfolio acquired three industrial buildings totaling 0.7 million
square feet for $100 million. In addition, 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 buildings are expected to
close over the next six months). The portfolio is located across ten
U.S. markets, totaling 11.9 million square feet and is 71% leased.
Forty-eight buildings are light industrial, which were acquired by the
Company’s existing light industrial platform. The remaining six bulk
industrial buildings were acquired through a newly formed joint venture
partnership in which the Company has a 51% interest and a third-party
institutional investor has a 49% interest.

In conjunction with the $1.16 billion acquisition, the Industrial Real
Estate platform closed on a new $500 million floating rate, five year
term loan and a $600 million revolver with a four year initial term,
which replaces the prior $400 million revolver. The revolver is
currently $142 million drawn and the combined financing is secured by
the light industrial portfolio, but is non-recourse to the Company.
Separately, the Industrial Real Estate platform obtained a $235 million
first mortgage loan secured by the bulk industrial portfolio.

Hospitality Real Estate
As of
December 31, 2018, 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 December 31, 2018. 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 fourth quarter 2018, this segment’s net loss attributable to
common stockholders was $(15.6) million, Core FFO was $31.0 million and
consolidated EBITDA was $62.4 million. Compared to the same period last
year, fourth quarter 2018 hospitality same store portfolio revenue
increased 1.7% and EBITDA increased 3.9%, due to higher occupancy and
average daily rates. In addition, fourth quarter 2017 EBITDA included
one-time hurricane related expenses. Hospitality same store portfolio
full year 2018 EBITDA increased 1.3% compared to 2017. 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 EBITDA 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 EBITDA and certain operating metrics by
brands in the Company’s Hospitality Real Estate segment:

     
Same Store
Consolidated CLNY OP Share         Avg. Daily Rate   RevPAR(3)
EBITDA (1) EBITDA(2)

Consolidated
EBITDA

Occupancy %(4) (In dollars)(4) (In dollars)(4)
($ in millions) Q4 2018 Q4 2018 Q4 2018   Q4 2017 Q4 2018   Q4 2017 Q4 2018   Q4 2017 Q4 2018   Q4 2017
Marriott $ 48.5 $ 45.7 $ 48.5 $ 47.6 70.0 % 69.7 % $ 125 $ 125 $ 87 $ 87
Hilton 10.1 9.5 10.1 9.0 75.5 % 74.0 % 126 123 95 91
Other   3.8   3.6   3.8   3.4 77.9 % 75.5 %   134   129   105   97
Total/W.A. $ 62.4 $ 58.8 $ 62.4 $ 60.0 71.3 % 70.7 % $ 126 $ 125 $ 90 $ 88
 
___________________________________________________
(1)   Fourth quarter 2018 Consolidated EBITDA excludes a FF&E reserve
contribution amount of $8.8 million.
(2) CLNY OP Share EBITDA represents fourth quarter 2018 Consolidated
EBITDA multiplied by CLNY OP’s ownership interest as of December 31,
2018.
(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
Subsequent to the
fourth quarter 2018, the Company refinanced $116 million of existing
consolidated and CLNY OP share of debt in the Hospitality Real Estate
segment, extending the fully extended maturity date from 2020 to 2024.

Colony Credit Real Estate, Inc. (“CLNC”)
On
February 1, 2018, Colony Credit Real Estate, Inc., a leading commercial
real estate credit REIT, announced the completion of the combination of
a select portfolio of the Company’s assets and liabilities from the
Other Equity and Debt segment with NorthStar Real Estate Income Trust,
Inc. (“NorthStar I”) and NorthStar Real Estate Income II, Inc.
(“NorthStar II”) in an all-stock transaction. In connection with the
closing, CLNC completed the listing of its Class A common stock on the
New York Stock Exchange under the ticker symbol “CLNC.” The combination
created a permanent capital vehicle, externally managed by the Company,
with $5.5 billion in assets, at CLNC share, and $2.8 billion in book
equity value as of December 31, 2018. The Company owns 48.0 million
shares, or 37%, 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 fourth quarter 2018, this segment’s net loss
attributable to common stockholders was $(44.8) million and Core FFO was
$(13.7) million. Net loss included noncash impairments and provision for
loan losses attributable to CLNY common stockholders of $27 million,
which were added back in the calculation of CLNC’s Core Earnings and, as
a result, the Company’s Core FFO. In addition, Core FFO included $29
million CLNY OP’s share of net losses primarily related to private
equity secondaries mark-to-market adjustments and associated tax effect
from CLNC. Please refer to the CLNC’s earnings release and financial
supplemental furnished on Form 8-K filed with the SEC and its Annual
Report on Form 10-K to be 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 fourth quarter 2018, this segment’s aggregate net
income attributable to common stockholders was $4.9 million and Core FFO
was $31.6 million. Net income included noncash impairments attributable
to common stockholders of $36 million within Non-Strategic Other Equity
and Debt primarily related to owned suburban office properties.

Other Equity and Debt Segment Asset Acquisitions
and Dispositions

During the fourth quarter 2018, the Company
invested, or committed to invest $144 million in three Strategic Other
Equity and Debt GP co-investments. During the fourth quarter 2018, the
Company sold or received payoffs in aggregate of over $320 million with
net equity proceeds of $254 million from various other real estate debt
and equity investments, including $180 million from the Other Real
Estate Equity category; $60 million from the Real Estate Debt category;
and $14 million from the Net Lease Real Estate Equity category.

As of December 31, 2018, the undepreciated carrying value of assets and
equity within the Other Equity and Debt segment were $3.2 billion and
$2.0 billion, respectively, down from $3.4 billion and $2.1 billion,
respectively, as of September 30, 2018.

 
CLNY OP Share
Undepreciated Carrying Value
December 31, 2018   September 30, 2018
($ in millions) Assets   Equity Assets   Equity

Strategic:

GP co-investments $ 1,075 $ 684 $ 855 $ 528
Interest in NRE   88   88   74   74
Strategic Subtotal 1,163 772 929 602
 

Non-Strategic:

Other Real Estate Equity & Albertsons 1,481 752 1,742 956
Real Estate Debt 297 297 399 376
Net Lease Real Estate Equity 219 92 245 108
CRE Securities and Real Estate Private Equity Funds   70   70   71   71
Non-Strategic Subtotal   2,067   1,211   2,457   1,511
Total Other Equity and Debt $ 3,230 $ 1,983 $ 3,386 $ 2,113
 

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, traded and non-traded real
estate investment trusts and registered investment companies. As of
December 31, 2018, the Company had $28.4 billion of third-party AUM
compared to $28.9 billion as of September 30, 2018. As of December 31,
2018, Fee-Earning Equity Under Management (“FEEUM”) was $17.6 billion
compared to $17.7 billion as of September 30, 2018. The decrease in
FEEUM was primarily attributable to a decrease in the published Net
Asset Value of NorthStar Healthcare Income partially offset by capital
raised in Digital Colony and the industrial platform and new
investments. During the fourth quarter 2018, this segment’s aggregate
net loss attributable to common stockholders was $(11.8) million and
Core FFO was $31.5 million. Net loss included an aggregate $43 million
of noncash impairments related to the write-down of a non-wholly owned
Real Estate Investment Management platform and intangibles on an
investment management contract. These noncash impairments were added
back in the calculation of Core FFO. In addition, net loss and Core FFO
included a $5 million realized incentive fee from NRE and an aggregate
$6 million of unrealized carried interest from the Company’s managed
funds, and were negatively impacted by $1 million of placement fees
related to third-party capital raised, which must be expensed upfront
although payments are made over a multi-year time period.

Colony Capital Fundamental US Real Estate Index
(“the Index”)

During the fourth quarter 2018, the Company
launched the Index, which is a rules-based (smart-beta) strategy that
invests in the common stocks of real estate investment trusts (REITs).
The Index implements fundamental real estate investing principles drawn
from the Company’s 27 years of managing real estate investments for
institutional investors, with a focus on risk mitigation. The Company
has partnered with Barclays Bank PLC to structure the Index and Barclays
Index Administration performs the role of index sponsor and administers
the Index.

Contacts

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

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