Q4 2019 Earnings Call
Greetings and welcome to colony capital fourth quarter full year 2019 earnings conference call.
At this time all participants are in listen only mode. They question and answer session will follow the formal presentation. If any once you require operator assistance during the conference. Please press star there on your touched on pad.
Please note this conference call is being recorded.
It's now my pleasure to turn the conference over to your host Lasik, often with Addo Investor Relations. Thank you you may begin.
[music].
Good morning, everyone and welcome to call the capital Inc.'s fourth quarter and full year 2019 earnings conference call.
Speaking on the call they from a company as Tom Burke, Chairman and CEO, Mark Ganzi incoming CEO and current CEO Digital Bridge holdings, LLC and markets from college COO and CFO.
A question answer session will follow our prepared remarks.
Beforehand, the corporate management. Please note that on this call certain information presented contains forward looking statements. These statements are based on management's current expectations and are subject to risks uncertainties assumptions.
Potential risks and uncertainties that could cause the company's business and financial results to differ materially but materially from these forward looking statements are described in the company's periodic reports filed with yes, you see from time to time, including but not limited to the company's annual report on form 10-K for the year ended December 31st 2018.
And quarterly report on form 10-Q.
Quarter ended June Thirtyth, 20 night team as well as they exhibit to the current report on form 8-K filed earlier today.
All information discussed on this call is as of today February 28, 2020, and Callie capital does not intend and undertakes no duty to update future events or circumstances.
In addition, certain of the financial information presented on this call represents non-GAAP financial measures.
Report on both a consolidated and segment basis, the company's earnings release, which was issued this morning and is available on the company's website.
Presents reconciliations to the appropriate GAAP measure and an explanation as to why the company believes such non-GAAP financial measures are useful to investors.
In addition, the company's prepared a table that reconciles certain non-GAAP financial measures to the appropriate GAAP measure by reportable segment and this reconciliation is also available on the company's website.
With that I'd now like to turn the call over to Tom Burke, Chairman and CEO of colony capital Tom.
Good morning, Thank you watch.
Ceos primary responsibility is to find a vision and persistently communicate that vision to all its constituency.
When embraced and executed by all the team members that vision becomes a reality.
In order to produce consistent extraordinary returns over the long term at a fast moving world it accelerating disruption friction and change.
We must see things that others don't.
Adapting quickly and efficiently in order to define our relevance in its hypercompetitive than ever changing environment.
Well I don't liquidity in the global markets. It's caused an insatiable thirst for yield as a result pricing and most real estate food groups has begun surgical.
And amazingly competitive at a time when many assets.
Quickly becoming physically functionally.
It's a nationally obsolescence.
Capex today, four letter word and real estate and a line between we turned out and return on capital is often times opaque.
Consequently, we hear a treat a valuable bricks and mortar that we own across the globe taxes paid that needs a transformation of the users of our assets.
Technological advancements in the Internet of things Big data biotech communication networks instantaneous and prolific information.
E Commerce and last mile logistics manufacturing hospitality health care, and media and entertainment or increasing at warp speed to new destinations and require new highways upon which to travel.
The infrastructure necessary for that your journey as new good friend and a great demand.
Consequently, where availing ourselves of historic prices and many of our legacy assets and converting that monetization too.
Number one fortify our balance sheet.
And secondly, invest in the digital ecosystem, where we haven't defined and competitive edge.
As we increasingly expand our digital program that that's ahead of an alongside of change. We also must change from the top.
We've already accomplished this rotation beginning with the acquisition of digital bridge.
On the designation of Mark and he is my successor.
We will continue with the reallocation of resources and talent sets to properly manage to execute this initiative.
Well the same time fortifying the traditional strength of colonies global brand and investment management business.
Rotation that sets kids change and realignment of teams and things.
Our vision is to become the most significant solutions provider <unk> digital infrastructure across the digital ecosystem.
Yes, and largest technology intellect any companies around the world.
This vision as bolt it very achievable and we are well underway as you can see.
Many times the adaptation and redefinition of the vision assisted short term pain for long term game.
However, we are stewards evidence of like balance sheet, and we're focused on the long game as we continue to provide meaningful dividends from our legacy asset and extraordinary total return from our digital assets.
We are moving down the field as we have flat and I'll share with you the results over the past year.
What we've accomplished in 2019 starts with simplification.
Industrial.
We completed the sale of our light industrial platform for 5.7 billion, delivering a 17% higher our to our shareholders, while utilizing modest leverage.
[noise] adult net cash gain and incentive fees of approximately $470 million and net cash proceeds of approximately 1.25 billion for the company share.
[laughter].
Next other equity and debt.
We exceeded our 2019 target of $500 million above we de Monetizations.
717 million Oh, we de asset Monetizations in 2019.
We achieved more than 2.1 billion in total we de monetization since the beginning at 2018.
And Ari.
We completed the sale of that already delivering a 16% IR artist shareholders since inception, and generating gross proceeds of $160 million to calling capital.
For its 11% share.
And the management contract.
Next credit.
We closed a 1 billion dollar see our race yellow cats seal and see.
Evaluating strategic transaction regarding see on C. management contract, it's an ongoing process.
And we help.
Closing of our fifth global real estate credit fund will total capital commitments at 420 million.
<unk> reduction.
We achieved well over the expected 50 million to 55 million previously announced a cost savings on a run rate basis, well continue to exceed our target and 2020 as we continue to click away.
[noise] health care.
We refinanced the aggregate 2.2 billion up debt, including 1.7 to 5 billion.
Dollars at guard loan refinancing.
That address all of our material near term maturities and puts us in very good shape.
In addition, we've sold three hospitals generating $80 million of equity proceeds.
Hospitality.
We refinanced three portfolio portfolios totaling 1.1 billion of debt on accretive terms that extend maturities out for seven years.
Our XR.
We just completed the sale of the company.
Our 27.2% ownership and Rx, our real key non wholly owned real estate investment management platform.
For approximately $200 million, resulting in real life pre tax gain of $106 million.
[noise] next thematic World story.
Today, we manage more than 20 billion up digital real estate, Hey, you an extraordinary increase from just $0 in digital real estate you I'm only two years ago, a dramatic pivot.
Let me review with you some of the results.
Digital call any partners DCP.
Closed.
Historic $4.1 billion, a commitments for digital color I mean partners. The largest first time fun for digital real estate in history and far surpassing our 3 billion dollar target size with 73% of the fun already invested or committed to being.
Secondly.
We acquired digital Bridge holdings, the investment manager DCP added fixed digital portfolio companies [laughter].
[laughter] and unified its world class came up investment professionals with colonies.
I guess joint we've made a number that scanning additions to the digital colony game.
Next.
Yeah.
A major transaction in the United States.
We would anticipate in close of March nine.
14.3 billion dollar transaction.
Which DCP committed 800 million up capital.
We raised.
Additional 2.2 billion of equity co investment capital.
Some of the world's most sophisticated institutional investors.
Next liability management.
We completed the redemption of all the outstanding either in a quarter series B and aid in three quarters series E cumulative redeemable perpetual preferred stock.
$408 million, which was settled in January of 2020.
Eliminating $34 million of annualize preferred dividends.
2019 in 2000 2044 cents dividend.
We pay to 44 cents dividend in 2019, and we're committed to pay a 44 cents dividend in 2020.
Over the past three years, we've returned over $2.6 billion to common or preferred shareholders through dividends redemptions and repurchase.
[noise] data bank.
We acquired at 20.4% controlling interest in data bank, leading private owner and manager of edge data centers in the U.S. for approximately $185 million [noise].
Representing the company's inaugural direct balance sheet investment in digital real estate.
[noise] liquidity as of February 25th we had significant liquidity of $1.3 billion, including 520 million of cash on hand.
And through our availability under our revolving credit facilities.
[noise] CEO succession.
We designated designated Mark and he is call. It capitals next CEO to succeed me.
Board additions.
We've added three new independent directors to the board and 29 change for a total of 10 independent directors.
Now engaged genetics executive search firm to assist the company's board, including the nominating and corporate governance Committee and its ongoing process to evaluate board composition governance, and refreshing matters with a focus identifying potential director candidates with appropriate digital experience.
To join the company sport as the company continues to execute on digital evolution.
[noise] bridging that.
The digital divide.
What is our focus mission.
Several to become the leading real estate assets solutions provider of occupancy connectivity and capital to the world's leading mobile communications and technology logos.
Together with our limited partners, we will invest some digital real estate assets, and which we have a durable competitive advantage.
In which we have control.
Which we possess compelling growth characteristics.
What's our differentiated strategy.
Good thoughtfully utilize our well regarded digital colony, Brad access to permanent capital global reach best in class tenant relationships and operating experience in digital.
To our limited partners and our shareholders benefit.
Continue to focus on culture alignment and motivation of our employees and our partners.
Our balance sheet.
Efficiently management Steward legacy businesses.
The interest of our shareholders and other stakeholders and free Opportunistically call cure rate and to find value maximizing features for these legacy businesses.
Our commitment to best in class governance.
With a full support of the board of our nominations and governance Committee.
We're commencing a process to refresh the board best suit the tasks at hand, including efforts to identify independent members.
With extraordinary capabilities in tech driven sectors of the economy consistent with our happened since our digital real estate digital infrastructure.
In the back rounded characteristics.
Our new CEO.
[noise] they impacted the volatility. So we're currently undergoing on businesses in commerce globally as it relates to the pandemic and the volatility any equity and fixed income markets.
Has been and we'll continue to be severe and with no clear set guardrails to the bottom.
I'll turn it over to Mark to highlight the durability of digital infrastructure in times of volatility and why the significance of digital infrastructure operators has never been more mission critical than it is at the moment.
Mark.
Thank you Tom.
We believe more than ever being invested in and exposed to digital infrastructure and digital real estate.
Seminal to defensible long term investment plan.
Digital infrastructure has long been a safe haven for investors in times of great volatility.
We believe this cycle will be no different.
Columnists rotation to digital allows investors to participate in this global dramatic the strong upside.
Downside protection.
The 16 digital businesses, we own and operate globally, but long term contracts varying from five to 25 years and duration.
With built in annual escalators.
At high exposure to investment grade Counterparties.
As the world deals with uncertainty digital economy continues to move as our customers continued to do business.
And enable the global economy to keep moving.
[noise] telecommuting via video conferencing and applications like Jim.
Microsoft teams.
Let's go in slack, our key examples of our customers, helping the world's leading enterprises enable and conduct commerce.
Our fiber lines feed the servers and nodes in towers that enable these signals.
Our Datacenters run high power density applications.
To ensure the ecosystem continues to deliver durable goods and services to consumers and enterprises alike.
Never before its digital infrastructure been more mission critical then it is today.
As a diversified global read colony offers investors the opportunity to be exposed to this pneumatic.
And sector.
Any unique and highly converged platform without equal.
I'm looking forward to the journey ahead in 2020 and engaging with investors in our customers.
As we mapped the digital divide.
And convergence in amongst our various parts of our ecosystem.
And enabling our customers continue to build.
And deploy networks globally.
Thanks Mark.
Before I turn it over to Mark heads, Jim I wanted to thank Justin Mets who's been when our of our most valued directors.
On an amazing job for US who has recently resigned due to the demands of his oh.
Great. Thanks, guys.
We are.
Unbelievably grateful.
Respectful and we'll always have just calling family.
With that I'll turn it over to Mark et cetera.
Thank you Tom and good morning, everyone. As a reminder, in addition to the release of our fourth quarter earnings we filed a corporate overview supplemental financial report this morning, which is available within the public shareholders section of our website.
On the call today, I will provide a review of our fourth quarter and full year 2019 financial results business segment performance and other key financial and operational details.
Turning to our financial results GAAP net loss attributable to common stockholders in the fourth quarter was $26 million or six cents per share and the full year 2019 was a net loss $1.15 billion or $2.41 per share a.
That's significant and anticipated contributor to the 2019 loss was tied to calling these ongoing strategic transition that long term plan to focus on and create a leading platform for digital real estate and infrastructure.
This transformation led the company to reduce the carrying value of goodwill and other intangibles related certain components of our legacy investment management business and to record a noncash gap impairment charge of $411 million in the fourth quarter.
Core FFO was $48 million or nine cents per share for the fourth quarter and $266 million or 50 cents per share for the full year.
Excluding net losses of $21 million, primarily in the other equity and debt segment.
Fourth quarter core FFO.
Was $69 million or 13 cents per share.
For the full year 2019, excluding that investment losses of 52 million.
Core FFO was $318 million or 60 cents per share, which exceeded our annual dividend of 44 cents per share.
In 2019 colony executed on a number of initiatives to advance our stated strategic priorities, which included streamlining the business further optimizing our capital structure and the generation of significant liquidity in order to transition to a digital real estate strategy.
The company ended the year well ahead of plan on a core AFFO basis, well exceeding its 2019 asset monetization target with both contributing to strong year end liquidity position.
Turning to 2020, we expect to maintain a 44 cents per share regular common dividend for the full year 2020, I've transitional year for the company. The expectation is underpinned well covered by the company's full year 2020 outlook for core FFO of 30.
Five cents for 40 cents per share. In addition to significant anticipated net cash gains not part of core FFO, including the $106 million game or 20 cents per share that was already generated through the early February sale colonies interest in our XR Realty.
Now I will provide a breakdown of colonies operating results by segment.
Starting with our investment management business.
We ended the fourth quarter with third party, a U M $36.3 billion down, 8% compared to last quarter and fee, earning equity under management of $19.4 billion down 13% compared to last quarter.
The decrease in third party you EM and fee you M were primarily attributable to the December sale of light industrial platform and to a much lesser extent the sale of our interest in hamper Trust.
We expect non digital legacy you estimate if you and continue to decrease in 2020, as we dispose of legacy or we'd be and other assets, including the previously mentioned sale earlier this month of our interest in our XR Realty in contrast.
Calling these digitally Ram reached 13.8 billion in the fourth quarter, which represents approximately 29% at the company's entire you.
The digital calling me partners final close to new investments in the fourth quarter and committed to three additional investment so far in 2020 and is now 73% committed.
The company also made its first direct balance sheet investment in digital real estate and the fourth quarter through the acquisition 20%.
Tolling interested data bank, leading private owner and manager of edge data centers in the U.S. for approximately $185 million.
We expect to grow our digital real estate investment management platform by continuing to focus on our successful digital equity strategy as well as expanding into digital credit and digital liquidity strategies with the expectation substantial associated co investment vehicles.
We expect digital for you I'm currently $6.8 billion to grow at a rate of more than 15% in 2020, and you even faster and 2021.
Next I will provide an update on the corporate restructuring and reorganization plan announced during the fourth quarter of 2018.
Since initiation of the plan the company's achieved more than 100% of unexpected 50 to 55 million dollar cost savings on a same store run rate basis through various initiatives, including the reduction of almost 30%.
The company's workforce existing at the time in the restructuring was announced in addition to savings from business is expected to be sold during the year, we anticipate an additional $10 million to $15 million of annual run rate reduction in corporate DNA in 2020.
The targeted gene a savings related to the legacy colony businesses will partially be offset by additional investment into the digital real estate team to support the platforms very profitable operations and growth.
Moving to the healthcare real estate segment, the fourth quarter included a onetime recovery of rent receivables and termination fees, which resulted in an 11% same store portfolio and Hawaii increase from the third quarter.
Excluding these one time items same store NOI was flat.
Same store portfolio full year 2019, and why it was also flat compared to 2018.
There were two significant transactions on the health care financing fronts, we refinanced the 212 million British pound loan on a portfolio of UK senior housing assets with a new 223 million British pound fully extended five year loan at a substantially reduced interest rate at this.
Finally, we put in place a 48 million dollar loan on a skilled nursing facility lengthening the fully extended maturity date to 2024 and a similar interest rate.
These refinancings, along with previously completed refinancing transactions in 2019.
Address all near term healthcare real estate loan maturities, which was a key 2019 objective.
Turning to the hospitality real estate segment compared to the same period last year fourth quarter 2019, same store portfolio and Hawaii before at that from the reserve decreased 10%, primarily due to incremental room demand generators from one time events in the fourth quarter 2008.
Team at higher room revenue displacement from hotels under renovation and continued wage pressure in the fourth quarter 2019.
Excluding the onetime events and renovation displacement fourth quarter, 2019, and Hawaii before I felt the need reserves decreased 8% compared to the same period last year.
Same store portfolio full year 2019 kind of why before funny reserve decreased 2% compared to 2018.
During the fourth quarter, we also refinanced aggregate total of $982 million secured debt to hospitality portfolios significantly extending the outside maturity dates to 2026 at slightly lower interest rates on average.
Last quarter. So you don't see announced a strategic plan to bifurcate its assets into a core portfolio, which will grow and our legacy non strategic portfolio, which will be monetized swift proceeds reinvested into the core portfolio.
Further CRC amended its definition of corning's to only reflect the results of its core portfolio yesterday, CRC reported fourth quarter core earnings of $43 million or 33 cents per share versus $45 million or 34 cents per share in the prior quarter.
More information can be found.
So you don't see earning release.
Next is our other equity and debt or are we de segment, a 1.8 billion dollar equity carrying value portfolio separated into a strategic or we de and non strategic Cody.
Strategic go he has an equity carrying value of $870 million. An includes our investments alongside third party capital, where we earned investment management Economics. We're also actively managing liquidity non strategic every day, which has an equity carrying value of 900.
$41 million have includes legacy investments, which are not core to the current investment management business and are not intended to be on for the long term.
During the fourth quarter, we completed planned asset Monetizations, returning $35 million.
Net equity proceeds with the OE de segment and for the full year 2019, we return that equity proceeds of $566 million from asset Monetizations.
Looking ahead. The company has a 2020 asset monetization target of $300 million to $500 million with the goal to ultimately monetize the entire legacy OE deep portfolio.
I will now touch on the industrial platform sale and related corporate capital allocation.
In December the company completed the sale of its light industrial platform for an aggregate $5.7 billion, which resulted in a net cash gain an incentive fees are approximately $475 million and net cash proceeds of approximately $1.25 billion for the company share.
This exceptionally executed sale generated a high teens ire, our and a 1.8 times equity multiple on the company's investment are utilizing only modest leverage.
Those proceeds are being deployed in part to accelerate our ongoing transition into digital real estate, including our fourth quarter data Bank acquisition and also to redeem $403 million of high cost preferred equity to approve the company's leverage and capital structure and to eliminate $34 million advantage.
Preferred dividends.
And finally are worried about the company and its balance sheet in operations in light of these recently turbulent times and associated high volatility.
First as mentioned earlier, we believed that the digital real estate business model is extremely resilient and that there will be no slowdown operation of an investment in digital infrastructure.
Second while our risk assessment of the impact of the current environment on our legacy businesses is still ongoing we have addressed all near term secured debt maturities, allowing us time to operate and creates additional value and the facets.
Third we have $5.5 billion cap floating rate secured debt and if interest rates decline in this environment beyond levels already anticipated. The interest savings May Act offset lower operating expectations in the legacy asset classes.
And lastly, we are well positioned with significant levels of liquidity, which today stands at $1.3 billion, including $520 million cash on hand. In addition to an undrawn revolving line of credit.
We're pleased with the progress we have made and realigning our business to reflect our digital transformation of fortifying our balance sheet, allowing us to experience a strong start to 2020.
With that I will turn the call over to the operator to begin QNX operator.
Thank you at this time will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad confirmation tome indicate your line is in the question Q you May press star too if you like to remove your question.
For participants uses speaker equipment, and maybe necessary to pick up your handset before pressing the star keys, one moment. Please why we pull for questions.
Our first question comes from Jade Rahmani with KBW. Please proceed with your question.
Thank you very much.
Starting with C. I wanted to ask what do you expect the likely incur outcome to be and over what timeframe you think it's reasonable to anticipate resolution.
Hey, good morning, it's Tom.
We expect.
A series of strategies in proposals within the next week.
Not much well and start.
[laughter] generating along with the ceiling seaborne.
Figure out what's the best strategy ultimately.
For the share value, that's whenever we own 36% of the stock as you don't see.
Sure the external manager.
Except for.
I wasn't point.
Hi stock market for the third time this week.
We anticipate a very real cost.
You internalization another strategic options.
For the external management agreement and what will be accretive and positive to the shares kind of business and.
Alan Shearer platform is.
As valuable as interest rates continue to decline.
And those businesses can better [noise].
Oh, we're bullish on.
Looking at what our strategic options are.
Starting really in the next week, which will colony sometime in the next quarter.
Okay.
In terms of steel and see itself and as the external manager of that company have you considered or will you consider the prospect to well sell assets from the LNG core portfolio take those proceeds and even though it might be at a haircut to par value you can use those pro.
Seats to buyback stock.
60, 70% of book value you can announce a tender for the shares because I think one overhang that will likely remain oh I'm as so long as see on why owns 36% or that company is what eventually happen to that block of stock that's something that you would consider having sealants either.
Yeah, absolutely. That's my question because you you're you're exactly right, Matt management contract itself is pretty easy to evaluate.
The hang over of the 36%.
Our ownership is really always question.
Trading way below book value and any v. So of course not interested in executing shale at the values that we are today, but that racing getting share price back.
Isn't a parallel track with what the perception of our 36% is and how we distributed and ultimately where we want it goes we've looked at it started so yes.
We're looking at at all of those options, mostly as it relates to exactly what you're talking just once the ultimate.
Wow road getting that increase share value and it's all those components right yes.
And the legacy assets.
What's really the marketable value to our written down value is and more case wondering great job on those assets Youre actually migrating on.
In a more rapid methods and my thought.
The other is what's left in the current portfolio that is believable are unbelievable.
We think we're pretty close to having a current portfolio stabilize and that's yellow helped a lot.
And a third part of course is over time, how do you start trading like the other externally managed mortgage reach southern we can go back to a premium to book when trading.
As you noted deficit.
So all those options are are being brought to us at the moment, we'll evaluate them, including the good one that you suggested I will come up with rent.
That's a good solid business before.
Right towards the bottom of both legacy assets understanding what current portfolio is figure out an execution clarity on what we can share value and anybody who's going to want to do anything with us is kind of Watson shareholder agreement.
Question on what we're enjoying with that 36%.
Okay.
In the past somebody your language has included the time special dividends and I wanted to find out you could provide some insight as to what you meant by that would you consider special dividend the sealants east cares to seal in lie holders and they can decide what to deal with them.
Or did you mean, perhaps special dividend thing some gains such as the industrial side gain and the oxide game, what did that referred to.
Well I mean look we wait what we've looked at everything we did as try and [noise].
Planted area all of that so and our.
And our and our analysis and our invites this year on our dividend.
We decided that we would just establish from cash flow and from games and set a dividend from 2020 that we can live with that's fully covered.
Special dividend idea is always there right as a store a valued at bank of value on CNC.
Depending on where you think you are in book value and distribution some plans.
I'm curious.
Oh you.
Can be used for a lot of things and we've always thought could be used to special dividend, depending on where we end up on the legacy businesses.
I'd like to see businesses are our stabilized they're doing actually better than we anticipated.
[laughter] different so.
And one time when talking about a special dividend, we've got hospitality and healthcare, we turned out that we stabilize the income stream.
Other than last week with ramifications of chronic virus volatility in this market, our we're comfortable keeping that cash flow going as we transition.
And depending on what happens with see on C., we always have have that as an added liquidity device for either a special dividend.
To convert into cash to do the other things that we've always said that will analyze buying back stock.
Trends down on the balance sheet.
Extra graner digital acquisitions.
We've got plenty of liquidity, we were at about him going into it liquidity.
Looting, what our anticipation is for utilization up.
Digital machine archivist right.
Yes.
Special dividend.
Focus as a tool we could use at point in time, we'd start understanding stabilization at 36% shifts.
Okay.
I wanted also asked on do you plan additional redemptions of preferred and also what is just thinking about the convert that matures next year.
Yes, good question, Mike and we're always even today right, we're not only analyzing.
Inception front, we're looking to buy back stock.
I think I hate to keep looking I promised.
Look at our own stock price every day because.
It's attacks from running business, but one of the things were looking at it group.
[noise] buying back common.
So.
Every day in kind of our investment committees, we have a race between what we do and paying down debt.
We need GP products.
Digital balance sheet products.
Special dividends buyback in the prefer.
Back of our common.
It's.
And it's raised for the long term.
Right.
Right today and in a volatile.
<unk> whatever you think are any views.
You might be very tempting specialization.
Cash used by back common stock.
So we're just evaluating on daily basis.
Just following up markets, we try not to make those decisions quite honestly.
Okay. Lastly, I just wanted to ask about digital investment landscape.
Can you quantify what digital the earnings equity under management is currently and how you're seeing yeah, what kinds of opportunities are most interesting and also if you could address the competitive landscape the tree some very large.
Successor funds rate.
I'm not sure how you're seeing the a steep amount of competition that's there.
With that let me, let me turn it over to our digital is our mark.
Good morning, Jay how you doing.
Hi, Thanks, So James good three questions here, let me try to take them in sequence I'll I'll answer. Your your last question first around the digital do you ever that we're generating today and what we anticipate generating over.
Over the over the course of this year first and foremost competitive environment on deals.
I would say, it's been as competitive as it's ever been and Youre right. We do face a lot of competition out there and auctions.
What I would tell you is.
We don't play in a lot of auctions, it's just not a place where we find value today. If you look at the 11 investments we've made in digital County one.
Eight out of those 11 investments, where proprietary where there was not an auction or competitive process, but rather we curated the opportunity. Thank you spent time with the management team and Weve ultimately, we're able to convince them to allow us to partner with them and to educate the right place and so that for us as always.
And our calling card is having great relationships with management team and.
We think that and during that time, Ukraine value for your Lps and for your shareholders.
As it relates Judy.
Total amount of revenues or that we generate from the digital business, we generate roughly about a little over 75 million and recurring fees.
What I would tell you as we look towards 2020 Jade couple of areas that that we've guided you to one is we believe that will grow by at least 15% and we think that guide is conservative.
Unpacking that for a second Jane Theres two ways that we generate fees one is through proprietary co investment ideas and opportunities for our investors and the second as new fund products.
As Mark heads from said earlier in the call today, we are in the process of launching some new fund products. The details around those will become more apparent in Q2, but we're already in flight and raising new I am products.
The second swim Lane, you should think about is co investment.
So just for for example sale alone we raised $2.7 billion of co investment.
We have you know for other projects and the co investment category today, one of those projects was project F. One I think you saw an announcement that we expand advance engine into Europe, and we raised $800 million of equity to support vantage 400 million wasn't a strategic investor and then 400 million was from digital County part.
There's one so there's a great example of where we use the fun Jade 400 million.
We then had co investors lined up for the other 100 million that generates fee and Carrie.
And you're going to see more of that we've got besides project. Upon we've got three other projects that are in flight right now that we can't give you details on today strategic.
But what I would tell you is those three projects will generate significant outsized coinvestment opportunities for colony in 2020. So the set up for 2020 is fantastic we've got.
A bunch of new ways to generate fee you M. I, absolutely anticipate crushing that 15% metric that we've guided you to and we'll continue to look for deals where others don't that's been sort of my 25 year track record and doing these deals as we typically don't play, particularly well in auction format.
[laughter].
Okay. Thanks, so much for taking the questions.
Thanks, Chad.
Our next question comes from Randy Binner with B. Riley. Please proceed with your question.
Hey, good morning, I think I'll pick up right there on I'm, just parsing out the.
Share the business that is expected to be digital and can we just go a step.
Further out in and talk about the guide you laid out last fall of.
Hey, you am or fee, earning you you I'm. However, you want to define it have been 50% for the consolidated entity by year end 20, and then 90% by 21 is that.
That's pro forma Zayo and I think that number pro formas. They are now is.
Something in the high Thirtys. So is that right that that that that number pro formas arrows in the high Thirtys and then is it still realistic to say this is going to be a 50 in the 90% digital.
Asset base, and 20 and 21, respectively.
[laughter]. Thanks, Randy I appreciate the question minutes. It gets a good question. So let's just talk about exactly where we are today a for sale closes on March 9th as Tom Eric told you earlier, we're very excited to announce formulate and closing Dan. They went our partnership with UGI I'm today, we have about 13.5 billion of digital.
Assets across our 36.
Plus billion dollars am today.
Once they will close is.
Obviously, thats another close to more than 7 billion of anyway.
That takes us up to about 21 billion of digital assets under management and it takes a from just a little bit somewhere in the ZIP code of about 43 billion total assets under management from former how does a onquest.
I think as we think about where we've told folks where we are capable of going this year, one sale closes and a couple of the other investments that Mark had instrument told you about that we closed end the digital investment management platform.
We are well north of 40% of digital assets under management.
I feel very safe to say that somewhere between 50% to 60% of our and U.M. wont be digital by the end of it. This year have added 2020 and I still feel very good as this Tom and the rest of our management team went that 90% figure in 2021, we have a very clear roadmap on how we get there and the way we get there is by continuing to.
Invest our balance sheet wisely, where we're able to weaponize that capital and bring our LP capital side by side with us and some of our best proprietary ideas.
Secondarily as we launch new I am products.
Difficultly in liquid in credit and further equity products, we see a path to increasing our total you out on the private side in our digital I am business and then as I mentioned earlier Randy This notion of co investment is so important to us.
We've had a rich history it at digit range now digital colony in our Paolone consolidated.
Able to bring our ideas to our investors put our capital side by side with them and ER and create unique.
Opportunities that candidly Lps are not seen anywhere else in the world I mentioned advantage Europe as an example of that that's a proprietary opportunities. It was afforded our Lps and it was afforded to digital colony one [noise].
Back in what we believe is the best management team in the planet and Hyperscale Datacenters and that opportunity would not be possible without having the unique ecosystem of companies and Ceos, you know that we have here at colony capital today.
So I don't know if that gives you a little more clarity, but I feel very good about our 2021 promised.
And I feel very good about our ability to generate and outperform our for you have numbers from 2028, Randy It's Tom <unk>, Let me hand, you one other thing, which I think is really.
And then Atlanta understanding where we're going.
When we bought digital branches you remember digital branch in addition happening.
General partnership interest in the I.M. sites like moving forward also manage six distinct silos.
Yeah.
Assets under management silos in a private equity format.
Rolling up to stabilization to at some point in time Angela formats.
Got radio cell towers micro towers edge computing data centers fiber smart logistics.
And part of what the market is not [noise].
As.
What we're doing is farming those silos. So when Martin says, we don't convenient options.
Much of the opportunities are coming from those silos themselves.
And as we match in memory balance sheet I am those opportunities, which are not in the marketplace are at the forefront of the things that we're doing so people also wasn't there a related party issue actually the reason that we acquired digital besides.
The talent base, Mark see what's the opportunity to harvest.
So silos and transactions.
Sure Yes.
As Mark will tell you is the most defensive part.
Asset acquisitions, and all of these very confusing food groups in the marketplace right now.
And car will expand on as we talk.
All right. That's that is very helpful. So the the related question then as.
And I guess I'm thinking of this in the context of.
Core FFO guide.
But is there you know it's pretty rapid transition.
How much overlap is there and your professional workforce.
In for professionals, who can switch to digital from legacy for lack of a better way of putting it and you.
Hi, how should we think about that is there a next step for expense and head count I understand that you hit your your prior goal, but it is a lot of.
It's a lot of friction I think to use your term and so I'm just curious how.
How that how much overlap is there how much ability is there to pivot your existing workforce to you know.
I guess sourcing diligent CNN and ultimately investing in.
These these new these new asset types, and how does that all fit into the core AFFO guidance.
[noise] Yeah, it's a great question so.
The base business right. If you look our constituencies we we have.
Number of constituencies, but the biggest one our shareholders and you.
Side by side with that are limited partners right institutional investors and both don't exactly half the same.
Both quest.
Right on the limited partner side single valuable for term looking for.
Pass economics on fee in carrying on the shareholder side, saying maximize.
The fees and then the carry and give us more distributable income on a recurring basis use your balance sheet, when you need to originate and.
So that base at base business.
As 28 years old and that's Holland and that stays took a machine digest whatever it is quite ever animal is out there that goes through.
True through that.
Digestion change.
When there's digital whether its hollywood's industrial whether its credit underlying basis, so that should get better and better and more efficient more especially.
On on top of that changes.
So.
And as senior level marks team, which is.
Home Warriors could have been doing this for a long time.
Takes precedence.
The acquisition origination management process on those.
Silos underneath so you have six lanes.
I would different cars on them going down the same highway.
So at the top some of that will change.
Some of our senior people get recycle and wanted to get recycled because as we discontinued businesses. Some of the are the best in class in that particular business.
And they will decide that they need to move onto another frontier to pursue that and we'll help them do that [laughter] natural evolution of thanks.
So I.
I think part of the problem and introduce business, yes, it's going to change, yes, there's going to be teams and seems to change helping a lot of people that rise to the top end. This process as we move harder and harder into digital perhaps than ever.
Natural evolution.
Motion, we hold at times [laughter].
It's the nature of the being to adapt to move to realign give academy accountability and responsibility side by side.
And where we're all learning quite honestly has as everybody in the marketplace not just turning to digital.
If you look at what's happening now he is the only stable thing is.
I phone in front of.
So everything else is going polynomial what's happening is the amount of data has been communicated kind of entertainment kind of information the information that you need.
It is more and more coming through these mobile devices and as Corona virus for instance takes place.
That's happening in spades, so certainly big parts of our team Black Bean replanted reflect refreshed and replaced.
We're talking about doing that from the top out starting with me.
So you take a dinosaur like me that's been in one aspect.
The best thing that I could have done because companies go out and final word who can take into the next frontier.
We did that at the board level with Samsung we have to best.
Most focused existing board.
We do need some help.
Need a digital point of view of technological that telephony background.
None of us half.
So it's just kind of rotated change and that's the good thing that's the nature of the animal and we think we're going to be the only public company has a diverse ecosystem I'm technology into last I mean to those five.
Arch logos.
And that added to it and that's frustrating thing for you were clear we see the road now so the short term pain that we're taking the middle of going there is not bothering us I like my job is to protect this balance sheet snacks five years. After the next five days.
Oh, Okay that that is helpful and but just to be clear that is all in I mean, all that's contemplated within the AFFO guide to be the.
The upfront cost to change the workforce over.
Yes, yes, 100%.
And then Randy visit and just quickly Randy one one thing for you to consider for example, when we went out we raise that 4.1 billion dollar fund last year, we use the entire colony IR apparatus to go raise that fund and so now we're under Kevin Smith and his leadership Who's our new head of capital formation and strategy, Kevin Guy that team not only.
To go out and raise new equity products, Randy, but he's also out helping the liquid team the credit team and leading our co investment efforts, which are massive so that's a great example, where we took the existing infrastructure, we did clinical digitized and so to speak and it's one of the most effective fundraising teams.
In the World a digital infrastructure.
And then theres others other examples of that where we see.
Folks that have worked to colony for example in credit or they've worked and IR they've worked in HR and work, we're putting that playbook together, we're integrating the companies.
What we told you what we would do last year.
Is that we would make significant gionee cuts, we delivered on that call we'd be to by 10%. What we've told you for 2020 is for reduced DNA by another 10 to 15 million depending on how accelerated as Tom said as we find the right home for certain assets logically certain GE and they may go with those assets, we may end up having a little bit of UBS.
To that 10 to 15 million of incremental Gionee guidance that we've given you.
All right I'll leave it there is for close to the top of the hour I appreciate it.
Thanks Randy.
Our next question comes from Jennifer Fritzsche GE with Wells Fargo. Please proceed with your question.
Great. Thanks for taking the question Mark I appreciated the began drafting the current environment clearly at the fluid situation, but as you look at your different pilots have broadband infrastructure I guess.
What do you what do you most excited about it because.
Well clearly there are critical in the environment, we're in but if you look at like data centers wireless infrastructure and certainly fiber. If you were to look to build out any more of that which area. When it began.
But it did Jennifer Thank you and first of all thank you for participating.
We're actually excited about a lot of things right now and you know to pick one perhaps would be unfair, but as you've known me from time to time I do I do sometimes rank the children and try to prioritize which one are performing better than others, but I will tell you. The early guide we're getting from customers in 2020.
Is they need more dark fiber and they need it and more locations. So the densification of that fiber plant, Jennifer and the demand on higher strand count.
It's something that's pretty unusual and I see an insatiable amount of demand for dark fiber and what's interesting is where that dark fiber is going and so as we trace the roots of of where our customers are asking us to go obviously datacenter connectivity is huge but the biggest cemac I think you have to.
Keep our eye on Janet 2020 is really where that fiber ends up in a C ran hub or a base band hotel, we really see edge computing as being the main climatic as we push into this next topology of network architecture.
So.
Where that takes us to is an environment, where you have.
More open ran architecture and you have smaller hubs, where you've got an accumulation of radio [laughter] cable companies.
I O T providers content providers converging any C ran hubs.
That have either dual path or multiple Pat.
Fiber routes that are feeding to other places most other places can be maintained a centers they could be switch facilities. They can be small cell knows they could be macro sites.
You know, we see a massive surge in demand.
For C ran computing, which is really what we referred to today and you in the analyst community for today's edge computing. So everyone is constantly asking me, Jennifer whereas the edge to find the edge well the edge is where the customer tells us their network is the weakest.
There's a defined latency problem, so that edge can be different for Netflix it can be different for Amazon. It can be different for azure. It can be different for T. Mobile it can be different for new video and this is really the the opportunity in the challenge for US is that we have massive.
Assets today that have the best defensible characteristics.
Because as you think about were edge computing is happening it's happening and a colony C ran up it's happening at a data bank edge data center.
It's happening on an expert <unk> network is happening on as they are long haul route.
And those long term relationships with our customers or what is going to end door.
And it's what's gonna paved the road for growth.
Our customers continue to invest.
So I'm really excited I think so the short answer is dark fiber C ran hubs, but.
Places, where we see our customers growing.
And in places for our investors, where they're going to find safety and comfort in the defensible characteristics of our assets.
[laughter] if I'd just add one more question kind of tailing off that since your last call you've had to pretty major developments you'd have to sprint T. Mobile's merger approval, which puts in a place that and I think as as we speak we have the FTC talking about freeing up 280 bed megahertz TBN background I think it is it fair to assume you.
See both those.
And then being an outbreak in debts, they're being significantly positive for kind of each year silos, maybe data centers is kind of a separate one but.
Sure well, let me take the T. Mobile's friend merger first of all we were very early in supporting the merger and we believe that a stronger T mobile and a stronger sprint makes for for better outcome for consumers.
We're very close to both those customers as you know T mobile being the dominant.
Carrier and that merger has a massive program for investment and 2020, and 2021 and beyond and so we have a fantastic relationship with them and we're building a lot of infrastructure for them as we speak and that's a unique logo for us Jennifer because it needs more fiber it needs more C ran hub it needs more small cells and it needs more macro sites.
And our ability to deliver a converge solution for T. Mobile is unlike any other digital read on the planet. So when we sit with Neville Ray and we sit with his team and Mike Simpson, an engineering, we're not talking about how we deliver one tower, we're not talking about how we deliver 10 knows what we're talking about today colony is how do we.
Deliver a terrific solution for an entire market.
Let us handle that for you.
We have the capital formation [laughter], we have the necessary skills, we have the ability to entitle things, but most importantly, we have the ability to execute and execute across multiple verticals for a customer.
So as we think about where T mobile's going we see the future for that organization is very bright I've had a multi decade relationship with novel and Braxton and the entire management team there and we're looking forward to going incredibly deep with them at the same time as you look through the assets that perhaps get left behind in the sprint legacy assets, it's a huge opportunity for Charlie and Tom.
Tom Cullen, we're very excited about what dish is doing and fiveg in I O T. We've been a long long time, a provider of infrastructure to dish I think Charlie is one of the smartest guys in the industry I'm really excited too to work with him and his team and building their network they've got massive initiatives out there right now for for fiber.
And for towers, and our portfolio companies have gone to them and have responded to their needs, but once again, it's a unique invitation for us to sit with that customer and provide a holistic set of solutions and it converged network environment and this is something that can do that perhaps some of the other digital read can't provide that total end to end.
Solution and a five GE converged environment. So that for US is very exciting and we think that really designs on what this is doing is very very exciting for customers. I think you had one other question tenor front enough I answered all your question. It's just that began in fact, if if it happens when you're in 80.
I heard sit back and play so when the markets Super excited about yeah about CBRN. So one of the things that we've been doing Jennifer is we've been trial testing CBRN [noise].
With enterprise users and we've been doing that an extra net and so we haven't da's in place with some major.
Corporate manufacturers that have millions of square feet, a manufacturing space and hundreds of thousands of employees Nx and that has the ability to deploy network deploy that spectrum and create a unique wide area network on enterprise Fiveg that is unlike any other systems, we've ever seen and what's great about that.
It is we're bringing cost savings to enterprises, we're helping them deploy their applications across their own wide area network and at the same time at across that main corporate user because of the nature of that spectrum. We can also have spectrum for T. Mobile for 18 team for horizon, and really bring down their total cost of infrastructure.
So by having shared infrastructure by sharing that spectrum come by having someone like ourselves or are very good portfolio company, that's not allow Illinois.
Point, those nodes deploy that fiber and then deploy that spectrum in some real game changer for enterprises. So we've got actually three trials going on right now all of which are generating revenue Fracs. Matt. So this is a revenue opportunity, it's a new opportunity and I'm really looking forward to talking about Crs over the next couple of months and.
And some of the conferences that we're going to I see prs as being a major opportunity for us at college, because we have so much real estate. We have so many buildings that we can penetrate we had amazing large stadiums and venues in airports and tunnels and other places where we can really bring down the total cost of bandwidth for mobile.
Operators that they proliferate their fiveg networks, I'm really far enough about it can't tell.
Great. Thank you.
We had reached the end of the question and answer session. At this time I like to turn the call back over to management for closing comments [noise].
[noise], Craig well, thanks, everybody and I know today everybody's minds are on a lot of things on the Mets of all this volatility and when it comes to mind I think for US is one of the better sense of hard assets when sometimes seems like it's it's a playing because it's so slow moving.
His slow moving.
So.
We hope that.
The crown virus doesn't become a panic.
We're evaluating all of the options and alternatives, including by the way.
When opportunities might come in as a result of it kind of being offensive across all of our businesses and as mark tones or the defensive nature of digital is.
Just super.
Hospitality and healthcare, we're constantly evaluating how to reposition.
What we do defensively, what we also might do offense.
I was business are producing massive according to try to follow in cash.
Moment like this there maybe opportunities.
As we look to take those legacy assets separate silos to do lots of things.
So we're looking at buying back stock we're looking for we're looking at.
Well, we do it converts as time comes down, but remember decreasing expectation of interest rates I was ranked top and bottom line.
So the floating rate ability of most of our debt is a huge huge asset.
So thanks for being there whether this let's hope that these markets stabilize and that.
Crown and virus.
Somehow comes up with solution without too many more deaths are consequences, thanks for being with us.
This concludes todays conference you may disconnect your lines at this time and we thank you for your participation.
[noise].
The conference call has in it. Please disconnect your lines. Thank you.