Q2 2020 Colony Capital Inc Earnings Call
Greetings and welcome to the colony capital second quarter 2020, <unk> earnings Conference call at this time all participants.
Only mode.
And then after Sasha will follow the formal presentation. Please note that the company has posted a presentation to accompany todays remarks and is available on the Investor Relations section of the company website or via the webcast.
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Reminder, this conference is being recorded it is now my pleasure to introduce your host separate white, managing director and head of public Investor Relations. Thank you you may begin.
Good morning, everyone and welcome to colony capital second quarter 2020, <unk> earnings Conference call speaking on the call today from the company as Mark Ganzi, <unk>, President and Chief Executive Officer, and Jackie will our Chief Financial Officer.
Before I turn the call over them up quickly covered the safe Harbor some of the statements that we make today regarding our business operations.
To answer performance, including the effect of the Cold 19 pandemic on those areas maybe considered forward looking at such statements involve a number of risks and uncertainties that could cause actual results to differ materially.
All information discussed on this call is as of today August 7th 2020, and colony capital does not intend and undertakes no duty to update for future events or circumstances for more information. Please refer to the risk factors discussed in our most recent form 10-K filed with the FCC and in our form 10-Q for the quarter ended June 32.
20.
During this call we will present, both GAAP and non-GAAP financial measures reconciliation of non-GAAP to non-GAAP measures is included in today's earnings press release, which is distributed in available to the public through the public shareholders section of our website located at sea OLED why dot com.
Thank you.
And now I'd like to turn the call over to Mark Danzy, President and CEO colony capital Mark.
Thank you several.
Good morning.
First and foremost I want to start out by acknowledging and thanking our board of directors.
And our chairman Tom Barrick.
Placing their trust and faith in me as your CEO of colony capital.
I'm appreciative of the opportunity and I'm humbled to be or CEO, but most importantly, I'm really excited to take you on this journey as we take Connie Ford and transforming into the first global diversified digital Reid.
We've got a robust set of materials for you today and I want to sort of frame the agenda first and foremost I want to give you my perspective on what's happening in the digital infrastructure space.
Spend a lot of movement in the sector today and I want to give you some of my high level thoughts around trends it where we believe the market is going.
I'll turn it over to my partner Jackie We will walk you through the financial results of the company.
And then we'll finish up with talking a little bit about what we see as our digital playbook.
And last but not least a question that I would pose to all of our shareholders and potential shareholders why on colony capital today.
So with that let's get right into the materials.
If you could please turn to page two page five.
I'll start with an overview of what's happening today and digital infrastructure and look cobot has been an absolutely.
Profound moment in time for us in my 26 years of investing owning and operating digital infrastructure. We've never seen a time, that's more interesting and a more transformational and digital.
Our professional and personal lives were already migrating to digital this is now accelerate into the high gear as we're seeing demand lift off across networks as Oliver activities begin to move online.
Work play shopping telemedicine all of these activities have shifted to online and in many respects mobile.
Unprecedented band for more better faster connectivity is central to our thesis networks are being stressed and tested like never before.
Our customers like 18, T., and Vodafone or seeing massive surge.
And network.
Traffic today.
Moving onto the next page please page six.
And it turned this increases our demand for digital infrastructure infrastructure supply remains insufficient to keep up with all of these trends that are occurring today.
Thinking about some of these verticals in the impacts if we think about meetings and just how we conduct our day to day Commerce. Microsoft teams. During Q2 had a single day record of 5 billion. This is not a type of 5 billion single day meeting minutes.
Amazon in Q2 posted 89 billion of revenues, which was a 40% increase year over year and a 26% increased for the previous quarter.
Entertainment and fitness Netflix added 15.8 million subscribers in the first quarter.
And there was a 65% increase in downloads of applications related to health and wellness.
All of this at the same time with the backdrop of new network spending a new network topology as we begin to embrace fiveg.
Then when we layer on top of that covet and the impacts of all of these trends.
It accelerates the demean, the demand and the need for digital infrastructure.
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I would offer to today that network demand is mission critical.
These high capacity workloads require more bandwidth.
And in turn require our customers to access more digital infrastructure to enable all of these applications and various services.
It used to be when we started building networks in the early nineties in the mid to early 2000. There was this notion of peak in off peak today. There is no longer notion about peak networks must be up 24, seven and must perform to five nine standards.
Evolving demands require new architecture.
New Liberals, new levels of orchestration and agility.
I will share some of that with you today as we talk about some of these trends as we move networks towards the edge.
Colony enables our customers to deploy this digital infrastructure and most importantly, we do it across all of the four core verticals Datacenters towers small cell infrastructure and fiber.
And our customers and turn are going to continue to keep growing and are going to continue to need our value added services zoom up 169% in terms of there year over year revenue growth.
Whatsapp added 50 million new users during the pandemic.
Microsoft team has teamed up to 75 million active users.
And as Yours, you know wide area network added 110 terabyte of capacity across 12, new edge facilities.
And Cisco Webex had 25 billion meeting minutes in April more than triple their average volume.
At the end of the day, we believe this will impact the entire digital ecosystem.
Datacenter demand to towers to small cells and ultimately to fiber.
At the end of the day, what does this mean for US turning to the next page on page eight it means there's a big there's a larger total addressable market today in terms of the digital networks bed.
$241 billion of digital infrastructure equity will be deployed this year across 39 million fiber route miles.
87000 towers.
133002 small cells.
In 1400 megawatts of co location absorption and Hyperscale leasing.
$200 million alone will be spent and building and acquiring new fiber networks 18.9 billion in towers 3.2 billion in small cells and 17.5 billion in Datacenters bad.
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It really at the center of all this is mobile communications.
We believe that there's a one trillion dollar opportunity and global mobile Capex.
This is really driven from the fundamental notion that data usage is growing.
Data usage for mobility will grow Forex over the next five years.
And this is not just in North American trend. This is a global trend and that's really the key from our perspective as a global owner and operator of infrastructure.
Not ultimately translates into a 1.1 trillion dollar spent and mobile capex from 2020 to 2025.
80% of that Capex.
We'll go into a fiveg spent.
Look historically as we migrated from once you to to GE threeg to Fourg enough Fourg to Fiveg, that's historically been a seven year cycle.
This is different fiveg is a generational change and as a multi decade transformational shift and how networks are built how networks are operated and most importantly, what our customers are asking networks to do.
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I colony, our perspective is.
Networks have to up tomorrow, our converged networks and this is really our vision for Fiveg.
We believe our value added differentiation is delivering for customers next generation mobile and Internet connectivity solutions.
As we think about historically, how the sector has ultimately presented itself and most importantly, you as an institutional investor up and that's it.
As in traditional silence.
By the way very successful companies traditional macro sites with American tower in Crown data centers with digital Realty and Equinix small cells of Crown Castle fiber optic cable ing with Centurylink and previously zero as a publicly traded company.
But the key there as each of those businesses were in their silos.
Building out Threeg and Fourg coverage and Densification.
We believe that networks are changing and we believe that you can no longer be specifically silo in just one of those verticals. We believe our customers today require significant amount of capex spend across all of these verticals to deliver the customer experience that most of all you the consumer want.
We're building our business around these next generation networks, it's a differentiated vision, it's not the vision of the past.
But based on March 25 years of experience working with customers building infrastructure and being at the forefront of mobile and networking activity. We believe colony capital that's the right place to be for digital infrastructure investors.
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Well, that's my quick toward the digital landscape today, and well be having this dialogue in the coming quarters is I continue to share my views around network topology, our customers and where digital infrastructure is going.
Next I want to talk a little bit about calling me today and most importantly talk about the tangible results that you're seeing in our business transformation.
As you get to know me, you'll realize execution and delivery or to my favorite words.
We are focused on delivering for our customers and most importantly for you our shareholders.
It's been a busy quarter and I want to walk you through some of our accomplishments.
Next page please on page 12.
Simply put as I've talked to some of our investors over the last couple of quarters.
Promises made promise is kept.
Let me walk you through some of our accomplishments.
First and foremost as I told must be when I first came to the company last December in the fourth quarter My highest priority was gonna be putting our liquidity Tibet and we did that we amended our revolver repriced a brand new convert offering and we've dealt with our corporate liabilities.
Second I told you that we would deploy capital into high quality digital infrastructure.
And we've done that.
We've closed seven transactions in the first half of this year deploying $20 billion of capital.
And recently announced the ALDW offer that gives us more firepower to continue to bring digital assets onto our balance sheet.
Third.
We talked about a sharp focus on cost cuts in the fourth quarter last year.
We remain committed to that we delivered 35 million in cost cuts last year.
We signed up for another 40 million this year.
And we've achieved 38 million in cost cuts through the first half this year.
To be clear, we will beat our targets for 2020.
For building a best in class management team is mission number one.
We continue to add to the growth segments of our businesses, most notably on the digital credit side and we're very excited about the opportunities that exist in that space and other tangential digital investments basis.
Finally number five super important we're continuing to grow our digital line business rapidly.
We committed to 15% annual growth and we're already at 22% year to date and we're not stopping there my expectation is will be over 30% rose by the end of year. This is a target that I want and expect and continued to be.
Next basically.
The next slide quickly touches upon some of the progress I've referenced on the corporate side and some highlights at our business loving units as well.
A few non digital highlights for you to think about one on the hospitality side, we continue to make great progress in our conversations with our lenders.
Many of our hotel occupancy has begun to rebound and in June and a why was positive at the hospitality business.
Let me be clear, we're not out of the woods yet.
But underlying trends have improved and stabilized and we see value in the majority of the portfolios that we manage and we will continue to work hard to harvest and ensure that we preserve maximum shareholder value in these assets.
Health care from my perspective, it's been an outperformer collections remain high the team has done an amazing job in a sector. That's really been under a lot of operational pressure and we continue to believe that these assets will perform now in through the end of the year in threeq of it.
You know, we indeed, we've now harvested 380 million and year to date monetization.
And I expect us to continue to generate significant capital from this business in the second half of this year.
Finally, I want to thank Mike Madden first for his leadership and the amazing job that he and Andy wed have done stabilizing CLM see they've made a lot of progress or last 90 days.
That businesses on the right track and it's getting ready to play offense I'm very excited to see would that management team will do in the second after this year.
All in all its been very busy first half of the year and I couldn't be more proud of our team and the progress that we've made across all of our business units at colony capital.
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Our capital stack in turn has responded I know, it's hard for common shareholders to understand as our share price declined in the first half of this year, but we've made significant progress let me walk you through that.
Our decisive steps to stabilize liquidity has been recognized on the credit side of the business. Our 2021 convertible notes have come back to par or 23 convertible notes have traded up 23% to 92.
And the colony preferred stock has moved from almost eight and a half dollars today trading well over $20.
So at the end of the day, what does this about it's really about finding that base and stabilizing these various securities accounting and it's giving us the chance to build a foundation for recovery in our common stock.
Look at the end of the first quarter of this year in March our common stock at a low of $1.41 cents per share.
Today, we closed at about $2 per share the evening last evening, which represents well over a 36% increase and the performance of our stock.
We believe this is the place where we start we built the foundation and we take our business Ford and I think over time, our common stock responded in kind.
It would that I'm going to turn it over to my partner and CFO Jackie were to walk us through our financial results. Thank you Jackie.
Thank you Mark and good morning, everyone.
As a reminder, in addition to the release of our second quarter earnings We filed a supplemental financial report this morning, which I'll bet is available within the public shareholders section of our website.
Starting on page 16, the company has continued to make progress in its digital transformation as we have increased digital AG web to over 47% of total 80 lab at the end of the second quarter and has now reached 49% bone the bad to stabilize data center transaction, which closed in mid July.
And as Mark has discussed our digital platform continues to perform with strength in the current market environment collagen digital portfolio companies across investment management and operating businesses grew core organic revenues approximately 9% on average in the second quarter compared to the same period last year due to the significant.
Challenges associated with the global Cobot pandemic, our second quarter reported total revenues, however was $372 million, which represents a 35% decrease from the same period last year, primarily as a result of our hospitality segment.
Our one portfolio that has been most impacted by the global shelter place initiatives.
The hospitality segment experienced a sharp rebound from its trough occupancy up 22% during April to almost 40% during June reflecting reopening efforts across the United States. Thus far in July and into August. The company has maintained this elevated level occupancy rates.
The company's healthcare segment, however has thus far been relatively stable generating revenues in the second quarter decreased only 2% year over year, while collecting 96% of contractual triple net medical office Reits during the quarter.
Well the second quarter GAAP net loss attributable to common stockholders was $2 billion or $4, a 33 cents per share the losses, primarily the result of a 2 billion dollar non cash gap impairment charges in the legacy non digital businesses.
The company determined this quarter that it would accelerate it shift to a digitally focused strategy as a cobot crisis has negatively impacted legacy businesses and further emphasize the importance of its digital transformation in order to better position the company for growth.
As a result, the company adjusted the fair market values are those legacy non digital assets accordingly.
Moving to page 17 digital core FFO contribution has been steadily increasing digital core FFO was $21 million in the second quarter and $18 billion increased from the same period last year.
Well the combination of both increased recurring digital investment management fees as well as increased equity based earnings from outperformance at our digital portfolio companies.
Despite our digital growth, however, companywide core I thought, though with negative $19 million or four cents per share excluding net gains and losses. The decline in total core FFO is driven almost entirely by the company's hotels, which experiencing significant declines in occupancy down 62% year over year.
During the second quarter. However, as I previously noted the company has seen market improvements in occupancy at the end of the second quarter as June hospitality segment and alike.
Positive.
Turning to page 18, we ended the second quarter with a lever $46 billion and just after the ended the quarter. The company close the vantage stabilized Datacenters transaction, which increased 81 on a pro forma basis to $47 billion total a land has increased $11 billion what 32%.
Since the second quarter 29 team, including a 21 billion dollar increase in digital AG lab, partially offset by legacy asset monetization and our previously mentioned legacy asset impairments of $2 billion.
The company's be earning equity under management, which over 17 billion in the second quarter, including our vantage acquisition. This represented over $8 billion year over year increase we are we are extraordinarily proud of the progress we have made towards our digital transformation digital PLM as Mark mentioned is up over 22%.
To date outpacing our previous guidance of 15% for the year and we have plenty more to look for active as our M&A pipeline continues to be robust with tremendous opportunities and towers and data centers on the horizon.
Moving to page 19, as Mark mentioned earlier, we executed a series a stat to solidify our liquidity position and strengthen our overall balance sheet not just to continue to drive our digital growth, but to defend against the potential economic impact other second wave of cobot and shelter place closures.
First we successfully renegotiated our corporate revolver to enhance financial flexibility and two we baseline financial covenants that more adequately reflect today's reality and our digital feature.
And as of today. The company is in full compliance with all covenants with this new facility.
Second we issued $300 million a new five your exchangeable notes and simultaneously we purchased an equivalent amount of our 2021 convertible notes.
Issuance eliminates our near term debt maturities.
And despite the adverse environment created by the code pandemic. These developments will enable us to accelerate our digital transformation, while positioning us to preserve and ultimately monetized the value of our legacy assets. It is again important emphasize that our investment level that is not included on this page.
As they are non recourse and as you can see the company continues to preserve liquidity and see minimal cash outflows toward these businesses. Despite their challenges from the cobot pandemic.
Turning to the Rightside a page 19, the company maintained its liquidity of approximately $900 million throughout the quarter.
In July the company close the significant strategic investment from walk right to invest over $400 million at our digital quality platform, including over $250 million for 31.5% ownership stake in the digital quality investment management business.
$805 billion valuation, which represents over a two times return and just one year on our digital investment management business.
Since we acquired digital Rich holdings in July 29 team.
[noise] Whopper has also committed over $150 million to digital quality current and future investment products.
In addition, as Mark previously stated the company closed on that second significant digital balance sheet investment by investing $190 million and bantered stabilized Datacenters transaction.
As of today, the company has approximately $875 million of liquidity for the remainder of the year. The company expects to monetize an additional $200 million to $300 million of legacy assets and deploy approximately $350 million to $550 million a capital towards digital infrastructure M&A and other topic.
Commitments, including the remaining $112 billion from January 2021 convertible notes.
This will lead the company with an ending liquidity balance of approximately $625 million to $725 million.
With that Mark will walk you through the further details on our plans to continue to execute our digital playbook.
Thank you.
Thank you Jackie.
Turning now to page 21.
We want to share with you our digital playbook.
And our Formula for how we will continue to transform colony and taking into the future.
Our strategic plan as we've shared with you in the past has been to rotate the balance sheet as we sell historical Connie asset and recycle capital into what we think is the best investment asset class today in the world, which is digital infrastructure.
Where were.
The quality of the past was a diversified really managing multiple asset classes in historical real estate.
Verticals like healthcare industrial real estate credit hospitality, other equity and debt and our investment management platform, where the key six verticals that drove the growth of the telling you the past.
Where we today today, we've transitioned into a diversified global digital.
Our strategic rationale has been simple mono line you the investor with key secular trends, which is this pivot to digital.
You want to greatly simplify the story a college so it's easy for you to understand what we do and how we create our core fulfill.
We want to create predictable digital learnings.
Last but not least we want to create attractive returns on invested capital for you our common shareholders.
And where are we going where we're going is helping our customers enabled mobile and internet connectivity.
Investments in towers, datacenter small cell infrastructure and fiber networks across our equity platform and across our digital credit platform is where this business is headed for the future.
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The proof in that execution could not be any stronger in the first half 2020.
There hasn't been a more thoughtful and active investor in the world and digital infrastructure.
We closed seven proprietary transformative deals deploying nearly $20 billion of capital.
We closed six financings accessing almost $12 billion credit and these absolutely unprecedented times.
Starting with Highline Doe, Brazil are leading tower company in Brazil, our strategic investment into data Bank in December 2019 off the call in the balance sheet.
Bandits Datacenters closing in Europe, a 2 billion dollar expansion of one of our best logos and Hyperscale data centers.
In March the historic 14.7 billion dollar take private of Zayo.
And in April closing on Scala, the second largest hyperscale data center provider in Brazil.
In June of 2020, we completed a combination of some of a portfolio of premium outdoor media assets.
Forming the anstey wells down, where we invested $358 million of capital.
And last but not lease we led stabilizing a portfolio of 12 World class Datacenters with vantage in July of 2020.
The key here as all of these transactions where proprietary.
And proves out our investment framework.
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As a byproduct of executing all these transactions we've delivered on a key metric that we're going to continue to focus investors on going forward, which is the U.M. growth.
At the beginning of the year I pledge to you that we would deliver a 15% growth in this metric I'm pleased to say after seven months of hard work, we've delivered 22% growth in few M, which exceeds our annual budget by 50%.
And generating that those revenues and those relationships is about leveraging long standing relationships that have been built by digital county and colony capital itself.
We partner with new sources of capital looking to access fast growing digital infrastructure verticals. The Wofford partnership fits this in spades.
There was a landmark 14.3 billion dollar take private 700 million of that was new fee bearing co invest capital.
Vantage Europe raised $400 million of committed capital 200 million a fee bearing capital call to date.
And last but not we began to stabilize data centers VDC raised $600 million a fee bearing capital alongside a strategic investment our balance sheet of 190 million.
At the end of the day, where we've ended at the end of Q2 is over $8.3 billion a few at exceeding expectations.
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Want to walk you through two case studies on how we use the balance sheet.
In July 2020, we combined our balance sheet to invest in what we believe are the best Datacenters in the world combined with Blue Chip digital infrastructure assets and limited partners.
The rationale from colonies perspective was first and foremost to deliver to you the investor predictable earnings from high quality assets.
12, Hyperscale data centers generating 150 megawatts of compute power.
98 long term leases with built in rent escalators and high quality investment grade customers.
This has been a playbook that this management team as long execute.
It's amazing to this transaction was we acquired 80% of easy for 1.2 billion.
Colony deployed $190 million the balance sheet alongside of 1 billion a few m. capital.
The acquisition EBITDA multiple was 21 time.
Which is a discount to where public trading multiples are for a data center peer group.
The county advantage at the end of the day was effectively this was a 17 times EBITDA multiple entry. When you include the investment management fees that came along side of our capital.
And further we'll continue to buy down this multiple as our leases escalate and we'll continue to put new customers inside of these data centers.
So at the end of the day, we offer to investors the opportunity, which is buying best in class Datacenters that effectively sub 17 time.
We're continuing to buy equities in publicly traded datacenter reads. We believe this is an accretive transaction and one that will benefit greatly colony shareholders over the long term.
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Our second case study is an edge computing I've long talked to you the investor community about the importance of edge computing.
Data bank is well positioned for the migration of Fiveg and proliferation of low latency applications.
Which are pushing the processing of networks and applications to the edge, which for US has driven significant organic growth at data bank today.
Our rationale for making the investment in data Bank was 20 enterprise co location data centers with a national scale in tier two markets with high growth characteristics.
Through the second quarter of 2020, the company is achieved a 9.5% organic growth rate.
It's amazing to the transaction for colony shareholders was quite simple, we acquired a 20% interest for $190 million.
This represents a 22 times acquisition multiple based on the actual annualized Q2 EBITDA of 66 million.
The 19 times multiple is based on a run rate to Q.
2020, EBITDA of 76 million once again, a run rate EBITDA multiple which is a five turn discount to the 24 times EBITDA public trading multiples of data banks pure.
The core organic growth is enhanced by highly accretive Greenfield edge datacenter developments, where we built in key markets like Salt Lake City.
Atlanta.
And soon in places like Pittsburgh and in Minneapolis.
We've done bolt on acquisitions, which are expected to stabilize the effective you multiple down to less than 15 times.
Most of you have watch my career over the last three decades know that this is our playbook, we buy a platform. We continue to build we make accretive tuck in acquisitions, we continue to generate organic strong cash flow growth through leasing.
And then ultimately mind the costs.
Those are the four key verticals under which you can take your multiple down from 22 times to sub 15 times and once again. This offers to our investors almost nine turns of accretion versus buying public shares of other peer group data center operators. This at the end of the day is the colony.
Imperative advantage.
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Briefly I want to share with you some of our initiatives and yes, yes. She is something that is very important to me in our management team.
When we built global tower partners into largest private REIT in the United States at the end of 2013, we've long been incorporating many of the policies that are resident today in our SG Handbook. Our goals are simple we want to effectively manage resources.
Want to create a positive impact on the planet, we continue to invest responsibly and we want to lead with transparency.
And at the end of the day, our principles around improving the environment.
Creating a social framework, where our goals to create a positive impact for our stakeholders and communities through meaningful engagement contribution and most importantly volunteerism.
Last but not leasing governance, we manage and operate all of our businesses by taking into account all of our stakeholders need.
Values into consideration for long term growth and most importantly sustainability.
We delivered on this commitment.
Colony capital today that the forefront of digitally as few investment.
On the capital is a PR signatory as of May 2020.
The firm's responsible investment policy incorporates the six responsible investment principles promoted by the PR right.
A diverse and inclusive work environment leads to the strongest results.
Yes, one why committee coordinate calling these various the and I programs with a focus on scalable initiatives.
We incorporate you'll see into all of our diligence related to balance sheet investments and investment management new investments.
Including key company level macro is de risks and opportunities that translates into day to day asset management and most importantly key outputs such as Capesize and metrics that reflect our long term sustainability plan as it relates to our digital footprints that we'd be bye bye.
Last but not lease our end you know partnerships are very important remember the VSR, which has business for social responsibility, which is the leading angio that help analyze U.S.G. issues and potential in current investments.
And our company wide charity Telecom sounds frontiers is a charitable organization that specializes in deploying emergency response response technologies and disaster hit and disadvantage areas.
At the end of the day, we're making a difference in our portfolio companies are making a difference we were pleased to announce in June 2020 that vertical bridge, our flagship USL Terry became the world's first carbon neutral tower company at the end of the day, it's more than just pages words on a page it's about putting this into action and delivering results.
For our shareholders.
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So in closing today I want to take it to you the shareholders why should you own colony today.
And really this is from my perspective and invitation.
The key principles that are going to drive our share price and drive shareholder value.
Its first and foremost we're in the best sector with the best secular Tailwinds.
We believe that we are the best position digital reading the world to take advantage of convergence on an international in global scale.
We believe we have the best management team in the sector 25 years of investing and operating digital assets with 100 years of cumulative experience.
Really only global read to own manage and operate across the entire digital ecosystem with proven underwriting and most importantly, a hands on approach that delivers differentiated alpha.
Well that's been at least.
The valuation model transitions from a some of the parts to earnings driven framework.
The focus of our management team is just simply reduce the complexity and grow value per share in this business simplification ultimately will re rate county.
Next place fees.
But some of you've heard me long say.
The key attributes of our excess or about our people people create the alpha not the assets and we've had a complete revamping of the senior leadership team here at colony and I'm, absolutely honored in thrilled to work side by side with all of my colleagues.
Jackie we were CFO and Treasurer, Ben Jenkins, our CIO of digital Justin Chang, our CIO of digital balance sheets current think global head of HR Kevin's minute global head of strategy and capital formation done a handset cheap administration officer in global head of tax and several white, our new head of public Investor Relations.
This is an entirely new team with a singular focus on digital infrastructure and maximizing returns for common shareholders.
Next is our investment management team 77 of the most dedicated professionals around the globe with a singular focus of investing owning and operating and ultimately creating maximum returns in digital infrastructure. Many of these people on the page have been with me for over two decades, and it's a great formula we work together.
Trust each other and most importantly, we have experience together.
Last but not least we'd be nowhere without our Ceos and our key senior industry vertical experts.
This is an assembly of executives that are second to none.
We continue to own and operate on a daily basis for US 95, Datacenters hundred 35000 fiber route miles 350000 tower sites and 35000 small cells.
Once again these are the individuals that helped form our thinking create opportunities for us help us solve problems. It's incredible to have a deep bench like this that helps us think through the operational complexities and the opportunities of tomorrow.
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Our strategy is differentiated we do operate across the entire digital ecosystem Miss makes us quite unique.
Digital infrastructure they offered earlier is converging.
We think of ourselves as a customer solution provider and our customers needs are changing every day and they no longer one a purchase just cell sites. They don't want to just purchase a fiber lateral they want help in delivering a network for next generation technology and performance.
We wake up every day with an exclusive focus on digital our underwriting and asset selection is simple we believe that not all assets are alike, and you have to be very selective.
We traffic and proprietary ideas as I mentioned earlier, our first seven transactions over the course of last seven months, all proprietary $20 billion capital deployment, we have amazing operational expertise in house.
And our timing is really to seize market opportunities.
Our investment Horizon is for the long term, we have a global perspective, and as we mapped out earlier, where the best positioned to take advantage of a massive global total addressable market today.
Through converging digital ecosystem.
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So where are we in the past many investors along engaged with us Jackie myself, it's ever in around some of the parts model Historically county has been as a diverse set of businesses.
Complicated peer comparison.
And ultimately has led to a divergence sense of value and a lack of understanding.
We're going to try to make that simple for you first and foremost Jackie I made the decision to take a 2.1 billion dollar impairment charge in this quarter.
We believe this brings asset values in line with fair market value.
Next up our corporate finance activity puts colony in a positive net cash position Jackie walk you through our liquidity position earlier colonies never been in a better liquidity position than it is today.
As we continue to monetize our legacy assets and we redeploy capital into digital assets I would offer to you today that our valuation shifts to next page. Please.
And earnings driven model something that investors are more used to seeing in the digital infrastructure rell.
First and foremost how do we do that digital I am revenue enough Ari will continue to grow rapidly as we continue to expand the magnitude in scope of our investment products. We've already shown that you. This year by the full deployment of digital coming partners one.
In the various co investment strategies that we successfully executed but over delivering on few M. group.
Our projection is digital I am revenues will grow 20% to 30% per annum over the next three years.
In turn that drives our digital I am sorry, which today is that $40 million, we believe that can grow 30% to 40% over the next three years.
The second part of our growth story as we've talked about in the past is how do we use our balance sheet and how do we deliver predictable stable digital learnings that you're used to seeing from our pure.
Digital balance sheet investments drive EBITDA and drive that that though as legacy monetizations or completed we're redeploying that capital into high quality digital infrastructure assets like data bank.
Advantage.
Digital balance sheet EBITDA is currently today at about 13 million, we predict that that will grow to 175 to 225 million over the next three years as Weve telegraphed to you in the past week car constantly surveying and looking at new high quality digital assets, but on the balance sheet and we will continue to deliver that.
Digital balance sheet FFO today currently at 18 million will grow to 150 to 200 million over the next three years, we anticipate a 10 x. growth as our legacy capital is recycled into high quality assets like data bank and vantage more to come.
Next page please.
And so where does that put colony and where do we spent on the roadmap.
Well, we believed by 2023, the county profile will continue to evolve and ultimately be a pure play digital right.
The four corners of that is investing in towers, datacenters fiber and small cells and we'll have 50 billion of assets under management heading into 2023.
And our business profile will be quite simple.
35% of earnings will come from digital I am.
65% of earnings will come from digital operating.
Total number of active business sectors, formerly six now down to one which is digital revenue growth greater than 10% per annum EBITDA growth greater than 20% printer and core AFFO between 200 275 million.
When you think about that you think about the opportunities for you to invest in our peers. We believe this compares very favorably our peer group growth organically at 3% to 7% and their EBITDA growth is 5% to 10%.
Digital infrastructure peers today trade at 21, 26.1 times EBITDA.
And our peer group trade the 26.5 times after though.
And then in terms of looking at alternative asset managers like areas and Blackstone and KKR. They trade at 17.8 times as a multiple of distributable earnings. We believe colony offers an amazing opportunity to participate in the fastest growing digital reading the world at an incredible entry valuation today.
Next page please.
In closing.
What I can promise to is your CEO of colony capital is that we'll continue to deliver on our commitments.
It's been an incredible first half of the year I want to thank my entire team. This has been an epic amount of movement in terms of the transformation. This company.
Promises made promises kept we've addressed our near term corporate debt maturities, we've enhanced our liquidity.
We've committed significant capital towards our digital infrastructure growth.
We have over delivered on our DNA cuts we've established what we believe is the best team one team one mission and we've delivered on core digital growth, 22% few m. growth year to date.
The second half of the year, we've got to move the bar, we got to keep moving.
And to that end, we're going to continue to add high quality balance sheet assets.
We're going to continuously simplify the business.
It continued focus on monetizing legacy assets and a sharp focus on reducing our costs.
We're committed to attracting the industry's best talent and we're targeting continued volume growth I believe we can deliver more than 30% for you I'm growth by the end of the year.
This is a story about building long term value for common shareholders.
I appreciate your time.
But you spent with US today I appreciate you listening to our story and most importantly, I appreciate your trust.
Thank you and have a great day.
Ladies and gentlemen, we will now be conducting the question and answer session.
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Thank you My first question comes from the line Randy Binner with B. Riley FBR. Please proceed with your question.
Hey, good morning. Thank you I wanted to first start with just a kind of question of clarification on liquidity, which was on the slide number 19 and the deck.
You you lay out some monetizations and then also.
Investments in digital bear there, they're not quantified that blue and Green box respectively.
You know if I size, it and if I think about we're where we have liquidity I think each of those categories is two to 300 million. So wondering if you can kind of help us quantify that and then also the 625 to 725 at the year end 20 is for the remaining kinda hundred or so million on the convertible bond or just wanted to clarify that.
Okay.
Yes. Good morning, Randy how are you so first and foremost monetizations. We believe there is $2 million to $300 million of incremental Monetizations and legacy those projects are currently in flight when I say in flight Wi we have active dialogue and active processes to monetize a couple of legacy out.
That said, we had pretty strong conviction around our ability to execute like we had in the first half is here around a couple of situations. So I think if you're trying to put some brackets around that I'd put two to 300 million.
On the expansion of the digital balance sheet, we are seeing some really tremendous opportunities I'm sort of targeting 350 to 550 million of incremental deployment between now and the ended the year like I said, we've always telegraph to you. When we think we've got something interesting for the balance sheet and we're in the midst of those discussions and diligence.
And we feel reasonably strong about our ability to continue to deploy balance sheet capital to build long term sustainable digital learnings.
[noise] [noise] understood. So that's why it Atlanta little bit lower at 625 to seven to 25 I just wanted to confirm that that would would be before the January paydown of whatever is remaining on the convert after the recent that exchange.
Randy This Jackie.
The included Dot $112 million included in that.
So that's the that's the Broadridge, yeah, that's part of that payout.
Yep.
Yeah, I just didn't know okay, I was a time and they understood. It there now.
Okay.
That's good and then.
I guess on hospitality.
Hmm clearly its distracting from the digital story and you talked about a lot I know that there you're working on it but I mean can you.
In this form can you share with us kind of what you think you can do strategically.
What involved putting capital and.
Kind of how.
Yeah.
Are there any big moves I guess or kind of strategic moves you can make there.
<unk> to deemphasize this hospitality situation.
Yeah look at the end of the day as I think you and I've had this discussion for the last couple of quarters, we don't hold a tremendous amount of positive nab value for the lodging portfolio I think today, we hold it a little over $50 million and positive net contribution we've been very careful not to put put good money into bad situations and the ones.
Can we telegraphed that in Q1 in Q2 that being said we've made as I said on the call today, we've made a ton of progress.
You know all seven portfolios continue to be in play from an equity preservation perspective, and certainly from a cash flow preservation perspective, very encouraged by the June results little less encouraged by July results, but once again, we've seen a pick up again here in the early part of August. So, we're just going have to keep Ryan it but what I.
I would tell you is.
We have a game plan for every portfolio every one of the portfolios from my perspective feels like a salvageable situation in once those assets are salvaged and we regain our footing as it relates to core AFFO or there's a lot of value. These assets. We get calls every day about people wanted a buyer hotels, so what I can share with.
You is the following three headlines one first and foremost we've seen recovering in Hawaii too we have a game plan to work through every single one of the portfolios in that game plan has been in flight now for six months, we're coming out the back into those discussions and we believe most of those is those discussions will be fully resolved in Q3, if not in Q4.
And then last but not least I'll continue to see what I've always said, we think there's positive equity value in the portfolio. We have a lot of inquiries about the assets. There's a lot of distressed real estate funds out there trying to gather assets right now as you know Randy the world's awash with liquidity my friend.
And there's a lot of opportunistic real estate funds at sea the value in this portfolio limited service hotels are the easiest to bring back online they represent the fastest way to get cash flow in the sector and so this portfolio has value and we will remain committed to recovering the value in the portfolio.
Can't be more clear about that.
Okay great.
There's a number of I don't know if you can comment on this but I've got a number questions about this this telecom situation in Brazil away. It can you comment on that is there anything you can share with people about those reports.
Yeah look I can't actually I apologize I am were under non disclosure agreement when I would say is we're an incredibly active owner of digital infrastructure in Brazil, we own the second largest datacenter operator in Scala in the country, we own one of the fastest growing tower companies in Brazil called Highline My lineage dates back to my days at Deutsche.
Bank working in Brazil for many years investing very successfully in telecom and in digital media.
I like the country I like to set up and we're very committed to our investments in Brazil, and we're going to continue to invest in Brazil, and so you can read the subtext to that as you wish now when we do invest in Brazil, we're going to invest in good situations. When I mean by that is we're not going to break our rules of our four corners of underwriting.
We want to own infrastructure, we won't have long term contracts when a great locations and we want to have assets that can grow with us organically and done in that part of the world. We think our assets today are growing at double digit organic growth rates.
So we see a lot of opportunity we see dislocation in the currency, we see a dislocated economy, but we see a very very strong digital economy that underpins that Brazil's the perfect situation for us we're very pleased with the assets. We have today and like I said, we have a lot of growth. There we're going to continue to keep investing in the country and most importantly, we're going to continue investing.
Our customers, we are very very strong customer relationships down there I've highlighted Scala boy is one of them Telecom Italia is one claros one.
In vivo us one so we've got four really good customers down there on the mobile side and we're going to continue to invest in all four customers.
All right I'll leave it there thank you very much.
Sure.
Thank you. Our next question comes from Jade Rahmani KBW. Please proceed with your question.
Thank you very much Mike I wanted to ask your question that I haven't had the chance to ask you, but we'd be curious as to how you will respond have you given any thought to taking the company private and undertaking this immense transformation behind the scenes that this valuation that you cited instead of absorbing the cost of burdens or being public.
And all that involves.
How do you think about that.
Thanks, Jade and you've never asked me that question. So thank you I appreciate it in all seriousness look it's a my job right now is I'm working for our common shareholders and that's my highest priority I assume the CEO churn July 1st and what comes with that is a massive operate.
To me and also we comes with that is the burden of having to rectify some of the legacy issues that I was handed.
I'm really happy with where we are I think the work that's been done through the first half for this year has been tremendous and we've made a lot of progress. If you had to sort of calibrate where we are in a sort of four quarter football game and the transformation of colony I'd say, we've come out of Lockerman half time and were just about playing the third quarter. If the game. So I think we're definitely more than half.
The way to where we want to be and so from that context now that we are more than halfway done you know, whether where private or whether republic. The transformation continues and so that's my.
Sort of methodology as a CEO I'm a day to day Guy I come in we do the work we know it's hard work and we just keep knocking things down Jade one by one and whether our structure is public or whether its structures private it really doesn't matter. The work has to be done in right. Now my work is for the common shareholders.
Look it's I can't I can't stop people from making offers on our company I really can't be concerned about that what I'm. Most concerned about right. Now is just continuing to execute and I think you saw that tone and tenor in the presentation. Today. This was an execution focused management team and we believe are winning so I'm going to keep my focus their front for the time being.
And we think that work will be rewarded long term for our shareholders.
Thank you very much I'm looking at the OE deep portfolio in your mentioned that there's a ton of liquidity on the sidelines do you envision an opportunity to bulk sell the entire OE deep portfolio, along with legacy colony institutional funds to a third party asset manager in the opportunistic switch.
Capital for towns balance sheet that could be used to further bolstered the liquidity add additional firepower for deployment into digital and also allow you to accelerate simplification of the capital structure.
Yes look it's a great question and then you're you're on the right issue.
Cards up we get calls all the time for the entire portfolio.
You know now phone calls are different from fully binding offer letters that I've equity commitment letters and and and a timeline for execution I think interest is continuing to build in our assets and are already in the business.
And that's fine and we'll continue to have those conversations with alternative asset managers that understand the embedded value of what we've done and I think look we're always a good listener and Jonathan grounds why to his strong credit has done an amazing job with his team of continuing to manage those assets and most importantly extract we believe is.
Fair to maximum value for those assets and we feel really good about the second half of the year.
I'm always surprised about how much private liquidity sits out there and look this is a an amazing portfolio of assets.
The CDCF three four and five series were great funds and so whether its a.
Organizations that by GP Stakes like die older landmark or Goldman or Blackstone or whether its individual asset managers like starwood or people like that that understand opportunistic real estate.
We'll continue to feel those calls and have those conversations look $380 million been monetize this year. So far we've got a couple of great assets that are currently in flight for Monetizations.
But at the end of the day. This is about as you said at the beginning Jade its liquidity, we've done a spectacular job enhancing our liquidity as you've seen through the presentation Weve shored up our capital stack. So honestly cash is great. We could always use more cash to continue our digital pivot, but now like I said being at the second half of this football game with our liquidity in a good.
Vision and our debt maturities now taking care of we can be patient and as I've mentioned, our calendar is to get to the other side by first quarter of 2022. So we've got 18 months to continue this methodical orderly wind down of our existing positions and that really is a great place to BJ because were no.
Longer position to somebody who has to sell assets at potentially prices that may be perceived to be less than fair market value. We now have the capability to be incredibly patient and ultimately find the right home for these assets and that's what we're doing and you'll see that in the third and fourth quarter. That's a high priority for us as a management team in the second half of this years.
Continued to monetize we'd be it would be a lot easier and a lot more elegant if somebody came along and said you know here is a big checked throw in D., we look at that and say that's pretty attractive it would certainly accelerate our digital pivot, but at the same time, we're happy to go.
First half of this year, almost 400 million back half this year. Another two to 400 million, we keep going at this pace. So we indeed will have a an orderly finish here within 18 to 24 months. So.
I'm pleased with where we are and I now have the runway in the liquidity to be patient, which I like it's good place to be.
Okay.
I appreciate that and I also appreciate the the additional Discloser, where you go through the top assets and also you know the remaining soon.
Very helpful that just a question on the earnings driven model since you put it out there.
Core FFO of 200 to 275 million in 2023, 65% of which is the digital Battle fleet, 35% digital investment management any sense for what they might translate to I'm, an AFFO and AFFO basis, just factoring in Capex and also do you plan in that.
Scenario to keep the current capital structure in place.
And also further optimize DNA.
So sort of three components. Your question first and foremost the the ladder in the steps now we get to our ultimate.
Core AFFO over the next three years.
We're going to work with you and the rest of the analyst community over the next few quarters to give you those building blocks and show you how we get there I think what we've done today is we've given you some very t. Examples on how we have strong assets, where weve married the balance sheet with third party capital.
To build stabilized long term earnings we think Thats, a good architecture, and we think Thats a good playbook because look just at the end of the day you get two for one right you get a great asset on balance sheet that has long term contracts with investment grade tenants and then you get an investment vehicle. That's 10 to 15 to 20 years long term capital that's patient the pace.
Fees, along that journey that only enhances your core AFFO and gives you carry on the Bakken, which only creates more for U.M. and creates more earnings at the end of the day for our shareholders. So we think this is a good playbook. We think it's a good architecture and as I said I can't give you specific details, but I will tell you that we have other deals in flight that we plan to.
Reveal to you over the next two quarters, which I think you'll be very happy with and that really demonstrate our ability to grow that digital core balance sheet for those in the earnings that you want those are the earnings that big investors want because it's the earnings cannot be there used to see right. There used to seeing those earnings at DLR MTS <unk>.
Equinix and we're replicating that but doing it with a slightly differentiated approach more global approach the ability to cross across all four swim lanes and the ability to deliver that extra test, which is the management fees on top where we marry the balance sheet capital with third party capital. It's a great great Formula under the same time as we simplify the.
Business DNA sort of writes itself Jay so as we continue to monetize legacy assets DNA go with those assets. So it makes it pretty easy I think is Jackie and I think about the future of the company, we think theres more opportunity for DNA cuts will will be more transparent with you were in the middle of budget season, right now getting ready for our 2021 budget.
And once that's done at the end of the third quarter, we'll start unveiling what our thoughts are around head count of DNA and.
How we can continue to streamline the business you know the great thing about investments like data bank advantages. It requires no DNA a zero DNA in fact to manage those assets. We already have a 77 person global team that manages our digital investments for us. So part of the synergy of doing balance sheet investments as you don't take on incremental Gionee because you already.
We have that investment framework and you have that investment management team. So we don't have to take on.
Extra DNA as we grow our assets and grow the balance sheet like a traditional digicore you know if another digital read decides to go to Asia and go build you know 12, Datacenters they've got a DNA that thing up we don't have to do that we actually have the capability through our portfolio companies investment management to build great assets and then ultimately transition them to balance sheet. If it makes sense that's a re.
Real comparative advantage for us and we'll we'll spend more time with you in the third and fourth quarter unveiling not because once again it would be another area, where we are different from our peer group.
It's a different model than American tower digital Realty not to suggest that those aren't great companies that are incredible companies and their my friends, but what we're doing is just a little bit differentiated in today was the unveiling of that differentiation.
Thank you very much for taking the actions.
Thanks.
Thanks, Jay I appreciate your support thanks.
Thank you we have reached the end of our question and answer session. So I'd like to pass the floor back over to management for any additional closing comments.
Well listen thank you it's been a an incredible first half of the year once again I want to thank our board I want to thank our chairman Tom Barrick I want to thank our team. This is an incredible team we have here at colony capital I think we unveiled some of that to you today, but this doesn't happen without a great team.
Focused on continuing to find the right home for legacy assets and continuing to grow our business going forward I think we've made the case today why this is a great moment in time to buy colony.
I'd ask all of you had been investing in the sector for two decades, who watch my career to remember those sort of seminal moments when American tower, and Crown and SPJ were all trading sort of sub $2. Those were really interesting points in time to buy digital infrastructure.
Colony today trade slightly under $2 I'd encourage you guys to look at your history books think about this management team think about our business model and think about where we're going.
With that look forward to continue the dialogue with all of you and we're looking forward to a very successful close to the back end of 2020. Thank you very much heavier weekend. Thank you.
Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation and you may disconnect your lines at this time.