Q1 2021 Colony Capital Inc Earnings Call
Greetings, ladies and gentlemen, and welcome to colony Capital's first quarter 2021 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation and anyone.
And the operator assistance. Please press star zero on your telephone keypad and it.
It's now my pleasure to introduce your host Severin White. Thank you you may begin.
Good morning, everyone and welcome to colony Capital's first quarter, 2020 One earnings conference call speaking on the call today from the company as Marc Ganzi, our president and CEO and Jackie our CFO.
Before I turn the call over to them and I'll quickly cover the safe Harbor.
Some of the statements that we make today regarding our business operations and financial performance, including the effect of the COVID-19 pandemic on those areas may be considered forward looking and such statements involve a number of risks and uncertainties that could cause actual results to differ materially all information discussed on this call.
And as of today May six 2021, and colony capital does not intend and undertakes no duty to update it for future events or circumstances for.
For more information please refer to the risk factors discussed in our most recent form 10-K filed with the SEC and and our form 10-Q for the quarter ended March 31 2021.
With that I'll turn the call over to Marc Ganzi, our president and CEO.
Mark.
Thanks, Kevin and.
Like to start by thanking everyone for their interest and attention today.
It's a quick turnaround from <unk> and we're happy to be back. So soon with all of you.
Today, we're going to cover three primary topics that you'll see as part of our quarterly cadence first on.
Walk you through the high level Q1 highlights and some of the great progress, we're already making on our 2021 goals.
I'll, then turn it over to my partner and CFO, Jacky will who will cover our financial results.
Finally, I'll finish today by walking you through our executing the digital colony playbook section.
And this quarter will cover our digital operating businesses, where we are seeing solid growth.
So let's get started.
[noise] finish the mission, yes. This is our new rallying cry for 2020 one.
And it's centered around these three primary goals for the company first tangible progress and harvesting our legacy colony assets.
Second we will continue to put more high quality digital assets into our funds and on our balance sheet.
Lastly, we will continue to grow our high return digital investment management and franchise.
This is a cook book for 2020 one.
First lets start with progress on legacy monetization and we're off to a fast start in 2020, one and continuing our progress and velocity from 2020.
Three key strategic monetization and announced and are closed just and the.
The last few months.
That takes us all the way to 70 per cent rotated ahead of the 67% rotation, we targeted for year end 2021.
Thanks in particular to the ceiling and see internalization, which was also ahead of schedule.
Speaking of that I want to talk about the agreement, we reached with sealant and see internalizing their management contract, which closed earlier this week.
Bring them up to continue to execute on their new strategic focus.
It's a much simpler and easier to understand seal and see that's focused on originating first mortgages against multifamily real estate and growing parts of the U S.
It's cleaner and more focused just like the playbook, we've been executing for over a year now at colony capital.
The highly focused and independent version of sealant and see puts shareholders first.
Which will in turn create more shareholder value for our stake and colony shareholders.
We collected a little over $100 million from this transaction.
And we remain a significant owner and partner with our holdings worth a little over $400 million today.
As Mike magazine as team execute this year, we think that will trend higher towards book value ultimately.
Next let's talk about our hotel portfolio.
The deal closed before quarter end, and we ended up generating positive net equity for our shareholders as.
And as we had committed to and and reduced debt balances by over $2 5 billion in terms of colony share of that debt.
This was a huge lift by our entire team and want to give a special thanks, and congratulations to David Schwartz and the rest of the lodging team here at colony capital.
I also want to thank Mahmud, Kim Chi and Highgate, and Tom Wagner at Cerberus for being Great partners and getting this closed on time.
Finally, the combination of the sale of the THL portfolio as part of that hospitality portfolio and the disposition of our ownership and two Irish commercial real estate assets for $100 million and net proceeds further reduced our total legacy O N D asset base by over $800 million.
I'm really excited about the progress we're making here. This is seminal to finishing the mission and we generated around $250 million and proceeds that we can use to fuel investments and digital.
Again, we're ahead of the forecast and the roadmap that we promised to you.
Next page.
Investing in digital is our second key focus area. This year and we've been busy deploying out of DCP to our new fund the follow on flagship equity fund to DCP, one which is now fully deployed.
We've got four new investments were platforms that we've announced so far across the group.
This will be $3 billion to $4 billion of commitments to acquire and invest and the growth of these platforms.
So, let's talk a little bit about them.
Here in the United States, where and the process of acquiring Boingo and it take private transaction.
This remains subject to shareholder approval, so I won't go too much into detail there.
Other than to tell you this dovetails with our conviction around five G <unk>.
Investing in our carrier partners to deploy next generation networks here in the United States.
And Europe, we were a cornerstone investor and Vodafone spin out of its European tower co assets.
Committing 500 million euros and support of their public listing.
Vodafone has been a great partner to us and we're excited to help them unlock and highlight the value embedded in their tower assets.
I'm looking forward to working with them as they execute a value add bts program, coupled with an aggressive lease up strategy that is very consistent with projects. We've successfully executed over the last three decades.
I'm very excited about the prospects of this tower portfolio and I know vivek and his team will unlock these assets as they are now truly independent and open for co location just in time for five G across Europe and <unk>.
<unk> footprint and locations are truly unique and the kind of assets that possess the strategic moat that we look for and acquiring tower portfolios and other digital infrastructure assets.
Next up in Asia, We've launched two platforms first and I'll spell tower business centered and southeast Asia and second a hyperscale data center platform and.
Across the Asia on a region.
Both of these investments leverage our growing presence in the region.
We're capitalizing on strong demand growth for their services.
And are launched and partnership with strong local management teams, who have successfully executed on similar buildup strategies and the past.
And this is classic digital colony playbook.
We partner with the best management teams, who have successfully executed on similar buildup strategies sharing our key learnings.
And our access to capital balance sheet transformation unique customer relationships and strategic M&A capabilities.
It's a winning formula that's worked in the past and we're confident it'll work and the future.
One of the key areas here is these deals were all proprietary to digital colony.
We can see these deals we negotiated them and we executed them on behalf of our investors.
This is the hallmark of digital colony.
And we can look at our pipeline, you'll see more of the same proprietary ideas deals and execution and.
In fact, we have a pipeline of over 50, new opportunities and ideas and digital infrastructure across our four core operating regions of North America, Europe, Asia, and Latin America.
Here's what's even better we have the capital to deploy and.
And execute on these new ideas.
It's a great combination and we're all excited about these new investments as well as the prospects for future platforms and accretive bolt ons that come along with it.
Next page.
The final ingredient and are finished the mission mantra centers around our proven capability of growing our digital eye on franchise by raising additional capital from our investment partners.
And the first quarter, we continued to have success here raising over $830 million across various strategies prints.
Principally in our DCP two flagship fund.
This coupled with our very successful co investment program and our new I am product launches make our digital eye on platform very unique focused and differentiate it.
I would tell you that fund raising conditions remain very strong and our team has never been more active on a global basis cash.
And they were all looking forward to getting back out on the road. This summer as investors want to connect and person and we remain on track to meet.
Or beat our targets for the year.
Where we've guided you to 30% year over year growth a metric that we've historically been.
Next page.
Before we move on to the financial section I want to take a step back and recall, where we were a year ago and our last annual meeting and some of the amazing progress. We've made just in the last 12 months.
These changes fall into four broad categories.
Leadership.
Governance ESG.
E S G and most importantly alignment.
Leadership is a big one.
We've completely rotated the C suite of colony with Jackie and me taking over formally at the end of June last year.
It's been an incredible amount of work, but very rewarding and our promises made promises kept approach has started to resonate with the investment community and.
Along with our commitment to transparency and under promising and over delivering for you our shareholders.
Second governance.
And we look back it's been a wholesale change.
And our board composition, which I'll talk a little bit more on the next slide.
But the key here is a more focused board and more diverse board.
And a more digital board.
Next up is ESG and this is very personal for me as most of you have learned ESG is something we've been committed to for a number of years as an organization.
Particularly at digital colony.
And this is showing through as we become one organization.
I've recently committed to and industry, leading net zero 2030 goal that centered around reducing <unk>.
Resourcing and removing greenhouse gas emissions from our company and at our portfolio companies.
It is imperative, we start making a real difference here and.
And we've set up incentives across the organization to make those priority is clear.
The commitment of doing better extends beyond the environment and.
And to our community.
We're a talent driven business as most of you have heard me say before people create the off and not be assets.
So developing opportunities for all people, starting with education and creating pathways for success is how we've chosen to focus our time and our energy.
As corporate leaders, we all must do our part.
And create equal opportunity for everyone irrespective of race or gender.
The new framework I've employed with the help of my incredible DDI Committee led by Ramon Marseille does exactly this.
Today at colony, we have aligned promotions renew mauritian and career advancement on an equal basis.
So everyone at the company can have an opportunity to advance irrespective of titles or their backgrounds.
Finally alignment.
With our shareholders and limited partners. This is a critical ingredient to our success.
We've made significant personal investments across all of our new digital investment management products and funds.
So we are aligned when.
When we succeed you succeed.
As we continue to improve our compensation frameworks the metrics, we build them around our designed to match shareholder and employee outcomes.
This is really key to all of our future successes.
Next page.
I want to do a little more of a deep dive on governance and particular.
Given we've just finished proxy season I am pleased to say we've received a lot of terrific feedback on all of the changes we've been making at colony capital.
As you can see the board is now 50% digital.
Catching up to our fast rotation around our AUM.
While still retaining strong capital markets expertise that has long been the hallmark of colony capital.
At the same time, it's more concentrated we're down to 10 board members, which facilitates efficient decision, making which is to the benefit of all colony shareholders.
It's not just more concentrated it's really a refresh board 50.
50% of our members are brand new and the last 12 months capped off by our most recent changes with Nancy curtain, our lead independent director agreeing to step into the role of Board chair.
I'm really proud to be nancy's partner and I Couldnt think of a better independent Board Chair and then Nancy curtain, who has a three.
Decade track record and investment management.
Also shocker Rashid Shocker as a rising star at Microsoft.
He recently has been appointed to our board and I'm really looking forward to working with him as well as he has deep experience and cloud computing.
The final key here as a board with more diverse experiences and backgrounds.
We know that diversity leads to a more robust and thoughtful exploit exploration of different perspectives and ultimately better decisions that once again benefit all of our stakeholders.
We're really proud of all the work that has gone into making these changes.
And I'm deeply appreciative of our board's commitment to constantly improving and to help and colony elevate to a leadership position and these important matters.
With that I'd like to turn it over to my partner Jackie <unk> to review our financial results Jackie.
Thank you Mark and good morning, everyone.
As a reminder, and addition to the release of our first quarter earnings we filed a supplemental financial report this morning, which is available within the shareholder section of our website.
Starting with our first quarter results on page 12. The company has continued to make steady progress and its digital transformation.
Digital AUM increased to 69% of total AUM at the end of the first quarter and increased to 70% of total assets as of today, including the CLO and the management contract internalization transaction that occurred after the end of the quarter.
For the first quarter reported total consolidated revenues were $316 million, which represents a 45 per cent increase from the same period last year.
Adjusted EBITDA was $56 million on a pro rata basis, which represents a 56 per cent increase from the same period last year, primarily as a result of the company's scaling our core digital segment, which can be seen at the bottom of the page.
I will walk through this and more detail later in the presentation.
GAAP net loss attributable to common stockholders was $265 million or 56 cents per share with net losses, primarily due to losses and our legacy non digital businesses that we now classify as discontinued operations.
Total company <unk> was $4 million with the increases from prior periods driven by outperformance within the digital segment and lower corporate expenses.
Note that they're getting and the first quarter, we have moved OND and the feel and see investment management contract to discontinued operations, which would have contributed an additional $10 million to core <unk> without this change.
During the first quarter, we returned net equity proceeds of $96 million from legacy asset monetization and.
$302 million year to date, including transactions that closed after the end of the quarter.
And these legacy monetization included $104 million from the sale of Dublin office properties of $102 million from the internalization of Fiancee's management contract and.
And $67 million from the sale of the hospitality portfolio.
This is already more than halfway towards our 2021 full year guidance of $400 million at $600 million.
Moving to the next page consolidated digital revenues increased to $219 million or 44% increase from last quarter driven by the company increased investment and data bank for the acquisition of the Colorado and New management fees from the successful first closing of DCP too.
Looking at the right side of the page consolidated digital fee related earnings and adjusted EBITDA increased to $96 million during the first quarter, which is a 36 per cent increase sequentially.
On page 14, we provide and update on the corporate cost savings plan announced in the first quarter 2020 since initiation of the plan. The company has outperformed our original $40 million cost savings through various initiatives, including the reduction of almost 50 per cent of the companys non digital workforce and right sizing of the company's office.
Footprint, reducing from 22 offices at the end of 2019 to 11 offices today.
As part of the digital transformation. The company has completed strategic divestitures and undergone cost rationalization efforts that.
And that significantly decreased G&A to operate more efficiently.
The G&A savings related to the legacy non digital business was partially offset by additional investments into our digital platform in order to support future and sustained growth for the near and long term.
We continue to expect that total company cash G&A of 100 million $120 million. After the digital transformation is complete and.
And through the first quarter. We are ahead of the plan at approximately $150 million of cash G&A from continuing operations, which is what we had previously target by the end of 2021.
Turning to page 15, we have seen continued growth and investment management and operating segments.
Our annualized digital fee revenues increased from 76 million per $124 million and digital FRE has increased from 40 million to $62 million accounting for a full year EPS from the $4 $2 billion versus clothing of DCP two.
The strong growth and digital operating segment revenue and earnings are the result of our continued rotation of the company's balance sheet with vantage stabilized data centers and July 2020, and Z Colo and December 2020.
We continue to grow digital revenues and earnings through our rotation of the company's balance sheet into high quality digital assets.
Moving to slide 16, the companies and our strong position to meet or exceed our original 2000 and 'twenty one guidance for the key drivers of our digital transformation.
We are targeting digital management fee revenues of 140 million to $150 million and 2021 and digital fee related earnings of 80 million to $85 million. These are driven by our anticipated three and a half to $4 billion of capital raise throughout 2021, including additional fund raising and decent detail.
For our digital operating segment as of now we are continuing to target 125 million to $135 million of revenues and 53 million to $58 million of EBITDA and 2021.
Driven by organic growth and bolt on acquisitions on our existing investments.
It is important to note that this guidance excludes any new balance sheet and investments that will be partially funded by and anticipated 400 million to $600 million of monetization during 2021.
In addition to the 2021 guidance, we are reiterating our 2020 with digital operating targets that we originally laid out as part of our digital roadmap and the second quarter of 2020 with increases at the midpoint to our digital investment management ranges due to our recent successes.
We are increasing our target digital media revenues of 160 million to $200 million by 2023, and digital fee related earnings of 90 million to $110 million.
This 2023 target is anticipated to be achieved through final closing of DCP, two and expansion of other products and scope of colony's investment offerings.
In addition, we continue to expect to achieve a 175 million to $225 million on digital operating EBITDA.
As you can see the company based on existing first quarter run rate earnings is tracking well on target to meet or exceed guidance.
We have a strong pipeline of potential acquisitions to rotate proceeds received from our monetization.
We are very excited for the rest of 2021 as our fund raising and M&A pipeline continues to be robust and we look forward to seeing all of you at our upcoming Investor Day on June 22nd where we will share additional details on our digital platform and our portfolio companies and update our 2021 and 2023 guidance.
And with that I'd like to turn it back to Mark where he will lay out further details on our digital playbook.
Terrific. Thanks Jackie.
We're really excited about the progress, we're making towards those important 2023 targets, which will explore and greater detail at our Investor Day next month, which we hope you'll all join us for.
A key bedrock to our operating plan as we guide you towards 2023 is understanding what we're doing and digital operating.
This quarter and executing the digital colony playbook I wanted to spend some time talking about our digital operating segment.
And how those businesses are doing today and.
As you May know, we've got two primary businesses that comprise digital operating so far.
Both are really unique data center stories, first databank and the edge Colo space and.
And secondly, vantage stabilized data center portfolio, which serves our hyperscale customers.
They are both large multibillion dollar businesses, where we maintained day to day operational control with minority ownership Stakes that are supplemented by third party capital, where I've told you and the past we earn fee and carry.
This is a unique structure.
And we really think produces great results for colony shareholders.
This slide is just a reminder of some of the key attributes of these investments.
More importantly, how are they doing for that let's turn to the next slide.
The short answer is they're doing really well that starts with powerful secular tailwind that drives strong demand for their services.
The significant capabilities that these businesses and their management teams and possess and the solid customer relationships that they've built out over a long time, all create an environment for long term sustainable growth.
All of these factors are the key ingredients for that growth.
Strong secular tailwind scale.
Scalable extensible platforms.
And increasing cloud demand ultimately fuels lease up low customer churn and stable and robust revenue growth and they are growing.
Last quarter, we really had a strong uplift and bookings as you can see.
$23 million of MMR.
On the MRO across day to bank and vantage.
Vantage continues to have steady success leasing up their nearly fully stabilized data centers, which are now on an astounding 95% utilization.
Once they are fully leased up the cash flow yields kick up even further.
So we're really pleased with the progress that cereal and the team are making advantaged stabilized co.
Data bank was really the standout performer this quarter.
They grew ahead of their public peers on an organic basis and Theres strong booking results drove the uptick we saw there.
Another interesting outcome was that the newly acquired Zee Colo business.
Which as you know tripled the size of data banks footprint, when we closed that deal late last year.
We were able to put another $145 million from our balance sheet to work and that transformative transaction for databank.
Our business plan, they're baked in a few quarters of day growth as we integrated the business into day to bank and reversed its booking trends.
I'm pleased to say, we're seeing signs of that inflection point sooner as opposed to later.
Z Colo clients have responded well to the new customer focused approach and Raul and his team's focus on culture is already generating tangible results as we realized cost synergies sooner from accelerated integration.
We also like the trends, we've seen on churn, which continue to remain industry low.
That's pretty structural advantage stabilized datacenter co whose contracts are very long dated.
For day to bank. It is further testament to the team and their attention to the customers and their growing needs.
So, let's summarize strong lease up.
Low churn combined with continued investment we are making these businesses is a recipe for continued strong growth.
Built in escalators long weighted average contract durations and stability to that equation and underpin our steady progress and our digital operating segment.
Next page.
When you've got businesses with such strong underlying demand drivers run by such accomplished management teams that are performing well, it's easy to justify continuing to deploy additional capital into those opportunities.
Which is just what we've been up to and our digital operating segment.
First it was vantage S. D C portfolio of our Hyperscale data centers and more recently it was supporting the growth of day to bank with the Z Colo acquisition late last year.
These acquisitions and their continued organic growth had been transformative to our EBITDA.
The number of data centers, we operate and the total square footage available those fill these at those facilities has grown three ex.
Three times growth and new locations 76 total facilities now.
Three times growth and rentable square footage just in one year and incredible increase and the total amount of available square footage, we can offer to our customers.
What's also very interesting to me is maintenance capex.
And the share of EBITDA has declined to two 4% given how stabilized the vantage SDC portfolio is in particular.
What that allows us to do is received one distributions.
Generate yield on our investments and gives us the excess free cash flow to redeploy back into growth Capex and to these great assets.
Later this year, we expect to exercise our rights to acquire another of one advantages prize datacenters and the Santa Clara market.
That probably results in about an 8% project uplift in revenue and earnings to the vantage STC business aside from the escalators and the continued great lease up that we're seeing.
So building scalable extensible digital infrastructure platforms, where we can continue to deploy capital efficiently delivering 5% to 6% organic growth generating strong returns for colony shareholders is a key priority and as we've demonstrated one of our core skill sets.
Next page.
And speaking of skill sets and I'd like to talk about the impact of strategic financings.
This is one of our core capabilities at colony capital and really demonstrates how we're creating tangible value for shareholders and our digital operating segment.
I've spoken to you and the past about our pioneering work and the digital infrastructure securitization space and on the right side of the page you can see this on display.
We've closed 14, securitizations totaling over $6 billion and value <unk>.
Many of these are first of their contracts actions, which started many years ago. When I was at GTP, where I led the first private tower co ABS and <unk> transactions.
These are not easy processes to prepare for and execute.
But they can deliver significant impact on results, if you put and the work.
And putting in the work is critical understanding the details managing the details and making sure that you not only have the correct collateral, but you have the correct control of your fee and making sure you have strong command of your leases and most importantly, controlling all of the key metrics that drive and underpin these cash flow.
And these businesses.
The second part of that is having great relationships with the rating agencies.
Which we've had a two decade dialogue with Moody's <unk> Fitch and S&P.
And then the third layer to that as having great relationships with our bondholders once again and multi decade relationships with over 200 bondholders over the last 20 years has created a really unique relationship and it's built on trust.
Performance and execution.
And the case of data bank advantage and the past year, we've completed two important securitizations totaling $2 billion and total value.
Those securitizations have driven down average borrowing costs by around 250 basis points from where they were previously which creates over $300 million and incremental five year cash flows between lower borrowing costs and reduced amortization.
Ultimately that flows through to you and colony shareholders.
Just these two financings will generate $50 million and incremental five year cash flows to colony and boost our IRR is against the original underwriting, but over 130 basis points.
$2 billion, 250 bps $300 million and cash $50 million to you and 130 bps and increased Irr's. These are great metrics. This is exactly the kind of incremental value add that you build returns on and that allows us to compound value for our shareholders over time.
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Finally, I'd like to walk you through a key slide here and how we plan to continue to grow our digital operating segment, which is the key growth vector for our business and 'twenty, one 'twenty two and 2023.
It starts with the companies, we've just discussed data bank and vantage organic.
Organic growth of those companies, which we think is realistically mid single digits as I mentioned earlier, 4% to 6%.
Combined with new built like CA, 22, and a market like Santa Clara should allow us to get around one third of our 2023 targets.
With that we own today, that's the key controlling our destiny and having great platforms, where we can continue to grow those assets grow the cash flows through a proven playbook.
Now the next part of this is really critical and.
In addition to core organic growth and the new builds that Ive just discussed we expect to grow by adding new platforms and doing additional M&A funded by the $1 $5 billion of dry powder that we are and the process of harvesting from our legacy assets.
When you when you make very reasonable assumptions about our ability to deploy that capital and the high teens to low twenties borrowing at a $40 to 50% loan to value ratio that gets you right in the range of the incremental EBITDA and necessary to achieve and exceed our 2023 guidance.
Hopefully, we can do better on all fronts, we love under promising and over delivering as we said earlier.
One of the key contributors here, we'll be continuing to apply applied the digital colony playbook and existing.
And new digital operating businesses that we plan to acquire over the next couple of years.
With that I'd like to conclude our earnings presentation and transition to the Q&A section and the earnings call.
Once again as always I want to thank you for your time and I want to thank you for your trust. We appreciate your support and we're looking forward to building long term value for you our shareholders opt.
Operator, if you could please initiate the Q&A period. Thank you all.
Thank you, ladies and gentlemen, he will now be conducting a question and answer session.
And so they can't and question. Please press star one on your telephone.
Pat and calculation total indicate your lines question queue, you May press star two.
Another question from Kim.
And frankly.
And maybe just to pick up the.
Handset and I'll try and strategies.
Our first question comes from the line of Randy Binner with B Riley. Please proceed with your question.
Okay.
Okay, great and good morning, Thank you.
I would like to talk about what Mark just said that the one $5 billion and dry powder.
Just to understand that.
Yeah.
Oh.
I see.
Okay.
And investment management and it does not include CLO and then.
And that would be harvested.
Sure.
2021 2020 two is that is that the right way to think of that one five.
Yeah, I think the way you should look at it is on page 22 of the slide deck, we actually have total dry powder about $2 billion, what we're staying Randy and that would include the seal on C shares as well and certainly where they're trading.
And if what we're just saying, though is we have sensitized until only deploy one 5 billion of that.
And our math for the 125 million of EBITDA to $175 million incrementally.
So just to give you a little one layer deeper to that Randy what I think Jack and are suggesting to you is we want to have $500 million of incremental firepower to continue to commit to new fund products that are coming down the transom and our digital lie on business. So $1 5 billion dedicated to digital operating $500 million dedicated to <unk>.
Digital I am as we continue to raise capital.
Around new a new investment management ideas and products.
Okay understood.
Maybe a little bit of color on it.
And I apologize if I'm, creating feedback on the line, but hopefully you all and you hear me okay.
On.
And on the.
The market for selling the legacy assets obviously.
Job, so far and.
And now at or above the carrying value.
But as you work through what's in there and their stuff.
That's going to be harder to dispose of what youre going to market with this are you talking to multiple parties wanted to hear a little bit kind of texture on how that market is receiving here.
Moving to to move away from these legacy items.
Well I think the market has received them well what I would tell you is there is a lot of capital today chasing a lot of different opportunities.
We have seen a lot of interest from various parties around all facets of our businesses and as you know as I got here.
Over a year ago, and Jackie did as well we made a promise to shareholders that we would be thoughtful in terms of how we would ultimately realize value for the legacy assets, we would take our time and we would do them and sequential order and that's the playbook that we laid out for you.
Over a year ago, and that's the playbook that we've been able to implement so far.
I think the moves that we made and this quarter were important and the internalization of sealant and see really gives that business. The independence that it needs to continue to execute its plan and the reason we did that transaction is because we've put and independent management team in place that is doing a very good job of executing the playbook actually.
Very similar to ours, which is very.
Very focused very disciplined and about restoring trust with investors and creating a narrative that creates value for shareholders. So once we achieve that level of confidence.
It was important to get that management team independent we got great value from the management contract. The shares are going to trade up we believe closer to book and ultimately we think that carrying value of those shares is a bit undervalued. Today. So we will take our time, we want to be supportive of sealant and see we like Mike we like the management team there and.
We have the benefit of being patient on that asset I would say the other two buckets of value that you pointed out are wellness infrastructure portfolio continues to perform extremely well.
I think thats attributable Randy too.
And this current.
Government that sits in Washington D. C. Today understands the importance of health care and understands the importance of health care infrastructure and so we believe that the support that we've gotten from the federal government and the support we're going to get from the Federal government has helped turnaround this portfolio and we're going to continue to see improving metrics across every facet.
And of that business, we have a lot of optimism around health care. We're in the midst of a strategic review there we actually really like the business, we like how it performed and the first quarter and we like what we see so far and the second quarter. So once again, it's an asset that it's in the midst of our strategic review and I can tell you we get many phone calls every day about either a single.
Asset or the whole portfolio Theres, a great deal of interest and life Sciences real estate today, I think <unk> heard other investment managers and other real estate funds and other Reits talk about the importance of life Sciences infrastructure, and we have one of the biggest and most scalable portfolios and the U S. So we can afford to be patient and get good value and I.
And we will get good value for those assets and then on the OE and D assets. We've continued to hit our guidance in terms of the disposition of those assets. We had another good quarter, we returned about $250 million of cash back to the back to the balance sheet.
We continue to get a number of inbounds on those assets and we prune that portfolio by more than 50% and last year.
And the velocity is working for US, we're returning cash and we're able to repatriate that cash into higher growth digital opportunities. As you saw this quarter. The rotation is way ahead of schedule. So I think that the playbook that we've outlined is one of prudence thoughtfulness.
But most importantly, making sure that we get fair value for these assets.
Year, and a half ago people would call us and offer us.
We will give you a 50.
On the dollar we just would love them and say look we don't need to do that.
Have the financial wherewithal to be patient and we have a fiduciary responsibility to our investors to make sure that we get fair value, Yeah, and the only thing I would add Randy is that we did move OLED that segment into discontinued operations and that's a reasonable belief that we will sell a substantial majority of that segment at the values that we mark them at $3 31 and.
And as you can see and our supplemental package that we've disclosed this morning, that's over $1 $1 billion. So that's roughly where we've been at for quite some time. So that's a reasonable believe would dispose of a substantial majority within the next 12 months and and and we feel good about it.
Alright, that's helpful on that.
Just one other wildcat and just to understand slide 14.
And that talks about G&A stream.
Streamlining yes sure.
The.
Yeah.
Initially estimated to be $40 million.
And then.
Kind of progression moves from $2 32 to two 1% coupons and so kind of like double that.
Is that are those numbers comparable why did you do.
Net of 40 over the course of this progression and there are those different different.
Net income.
Yeah sure. So if you look at discontinued operations adds about $46 million and moves out for G&A. So as we dispose of those assets.
Those will go away on 'twenty, one of $21 million of that has already been realized if you look at the <unk> internalization that closed at the beginning of this month as well as the hotels transaction that closed at the end of the first quarter that has already been realized and then the rest is the OLED segment, So which we've moved to held for sale discontinued.
Operations also that's that's a big piece of it along that $40 million already.
Let's see what the day the additional 40.
Yes exactly.
I gotcha okay.
Okay.
Thanks for everything appreciate it.
And thank you Randy.
Thank you. Our next question comes from the line of Colby <unk> with Cowen. Please proceed with your question.
Great. Thank you.
Yes.
And with some of the questions that you just had.
So you moved OED.
And to discontinued operations and you mentioned that you're pursuing.
Monetization and it and then Jackie just in response, you mentioned that you think you can solve that was on the next 12 months I just wanted to confirm.
And that's the expectation that you'll be able to sell all those assets that you just moved.
To discontinued operations within the next 12 months in terms of the timeline and then as it relates to wellness and I think the expectation and then that you would file that.
Or at least announce Lasalle.
At some point this year based on the.
And the trajectory of the conversations that you've been Hackett, having I'm just curious if that's.
Still the expectation and the reason I just asked on this as you know and the stock's done pretty well it seems like the stock is now reflecting more what I described as the carrying value of your various assets, but really to take it to the next level.
And you really do need to monetize the remaining OED and.
As part of that I guess also wellness and then redeploy that capital. So I'm just trying to get a sense of on the timeline and then second lien and and separately.
And if you're planning to call your preferreds are particularly G and H are it.
It seems like there'd be some pretty meaningful and interest rate savings.
You're able to do that thank you.
So three awesome questions and free really quick sharp answers for you first on OE and D and Theres a reason why we've moved it into discontinued ops.
And we can't go into further detail you can infer what you wish but.
There is an accelerated timeline for divesting of the OE and D assets, and we have a lot of convinced and conviction and confidence.
That will be able to execute that this year. So that's one and that's a little bit ahead of where we thought we'd be we thought <unk> would be perhaps a little bit of a slower burn and that's why we built the 90 10 buffer on the AUM rotation, but we.
<unk> had really strong continued success and and.
And moving that segment.
With respect to wellness.
One the improvement and performance has been good.
The combination of government support and getting our health care facilities fully vaccinated and getting new move ins and this quarter and we've seen a significant.
Rebound and performance so we're being very thoughtful about how we enter into strategic discussions on that asset.
So right now we've not put that into discontinued ops.
We are having a strategic review of that asset and what I can tell you is the activity is very robust and we continue to have and intention.
On monetizing that asset this year that is the intention.
All the work and effort that we're putting in place right now from an operations perspective and from a strategic review perspective give us confidence that we'll be able to get that done.
And then lastly.
And what's your last question, sorry, COVID-19, our preferred day, though on the preferreds, yes, sorry, yes.
And we agree with you.
And we're in violent agreement.
I think we have a lot of levers that we can pull to get our total weighted average cost of capital down.
And the classes that you mentioned are roughly about $320 million, which are three $3 73, which we can get done this year.
We have a lot of flexibility and a lot of new free cash flow being generated from various aspects of our digital business. So in terms of the free cash flow generation and the earnings that we're driving from digital and we're ahead. So that gives us a lot of flexibility on how we can ultimately finance the business and we believe that we will be able to finance this business.
<unk>, a pure parent co level and a very very very much lower cost of capital. So we're in the process of looking through that.
We're working very hard with our entire finance team and our financial advisers, but.
And you are on the right topic and.
I think we can we'll dive into that a little bit more and our and our investor day and Youre going to see some results on this later in the year, yes. The only thing I would just add is through and our press release, we disclosed liquidity of $667 million and obviously, we had two major transactions that would add on top of that liquidity about $207 million from both the scale and see manager.
As well as the Tulsa asset sales. So we've got a lot of firepower we're.
Obviously, we would walk through and.
Transform our revolver facility towards much more of a digitally based revolver and those that along with the preferred redemptions I would expect there to be more fulsome disclosures over the course on next couple of months.
Thank you.
Yes.
Thank you. Our next question comes from the line of Jade Rahmani with <unk>.
And the other question.
Thanks, very much could you give your updated.
Thoughts on the digital landscape.
Yeah, sure I would say.
The landscape continues to be very robust as well, let me start out jade from and to ask you.
Hey, Jade I think you commented youre cutting out Buddy sorry.
Jade.
Your line is Raj.
Okay.
So Jade let me let me try to answer your question as you get your audio reconnected the.
On the digital landscape at the highest level, we continue to be encouraged by capex spending by our customers. So last year, we had projected about a $487 billion capex spend this year, we're projecting that number increases to about $495 billion to $496 billion across fiber small cells towers and data centers.
The leasing results coming out of the portfolio companies and the first quarter were very strong we.
And we gave you a granular detail around and vantage stabilized Coe and data bank, both of which exceeded their leasing forecast and fact data bank exceeded their leasing forecast and the first quarter by 157% largely driven by edge compute lease loads with some of the web scale. So we're seeing this across all of our businesses Great day.
And great organic growth.
And we believe that will continue as we build on <unk> as we migrate workloads to the edge Iot networks continued to proliferate and densify and then last but not least cloud adaptation, where we're seeing a pronounced amount of capex spending capex spending by the cloud players Jade will go up about 14% to 15%.
2020, and 2021, and our Hyperscale leasing business vantage, which obviously the balance sheet as exposure to through vantage stabilized co. We had a fantastic first quarter of leasing.
Vantage Europe, vantage, USA and vantage Yieldco and all.
<unk> had record breaking leasing results for the first quarter well above our estimates so as long as our customers continue to stay healthy.
And they continue to invest and their infrastructure. We believe the entire ecosystem will perform quite well so that that really is around organic growth and greenfield I would say and brownfield.
We continue to see pricing and sort of all time highs and private market and public market transactions.
Everybody wants to be invested and digital infrastructure, we get that so what we've tried to do is steer clear of overheated auctions and so on and that basis, what we did in the quarter as we focused on proprietary deal flow and.
I outlined some of those proprietary deals that we did in the quarter and we're really happy with the things that we're doing I think from a brownfield Greenfield mix, we see where we're devoting our energy today is probably about 35% to 40% and greenfield and 60% to 65% and brownfield and that's one of the great pivots that we have at colony capital today.
We can deploy capital into greenfield opportunities, where we secure land, we secure entitlements and we enter into long term leases with our web scale customers are mobile telephony customers.
Or some of the telcos that we provide wholesale dark fiber for so that's the uniqueness of our platform is we have the ability to respond to brownfield, but at the same time, we can pivot.
We have done for example, and data bank, and vantage and engage and really unique and proprietary and accretive greenfield opportunities as well.
Thank you. Our next question comes from the line of Ric Prentiss with Raymond James. Please proceed with your question.
Hey, good morning, everybody.
Rick.
Mark will give you a lot of questions. These days on.
Managing international risk.
When you think about achieving and the returns you guys are targeting with a global digital infrastructure company.
We tell people, it's really probably two expenses alone probably possible to hedge operations, but how do you get comfortable managing international operations and then.
Also achieved the total growth and like real cash returns instead of.
Adjusted net cruise.
Yeah. Thanks, Rick it's a difficult question, it's something we've been doing for over 25 years, and we entered Mexico and back and are in the late 19 nineties and.
I've had a three decade track record of investing in.
Foreign markets, and particularly also in emerging markets as well and.
My experience on hedging Rick is that it's expensive.
We've done limited hedging and the past and a former life and I was at Deutsche Bank, We hedged all of our investments down in Latin America, and it was about a 6% to 700 basis point punishment to returns. So you have to weigh hedging against ultimately.
Where you think the FX curve is going to go in those countries you have to look at political risk you have to look at regulatory risk and then you have to ultimately have strong investment grade customers or investment grade like customers that you can enter into long term contracts, where you get <unk>.
I like adjustments to the hedge against inflation and to hedge against steeper borrowing costs. So what youll see for example, just to give you. An example, Rick we had a very very strong quarter and our Brazilian tower business.
Our year over year growth and that business was about 22, 7% so that would be well north of what our U S tower co achieved and what our European tower codes have achieved now how did we get there well we got there because our escalators were about 95% because we have strong master lease agreements that protect us against inflation and protect us.
Against some of the currency movements that you just suggested so by you and I've had this dialogue Rick for almost 30 years, if you've got strong paper with your customers you can really debug a lot of the challenges with this business. So long term contracts. Good escalators and then of course buying the right assets certainly helps we had 13.
<unk> core organic growth and leasing and highlight and this quarter. So the combination of our strong escalator plus strong lease up buying good assets and working with strong customers really puts you on a good place and sometimes Rick you got to say no to some geographies and.
We've done that for example, we've stayed out of a place we've stayed out of India. We could've done a lot of activity in India, but we made a conscious decision that we didn't like the macro setup. There. We also didn't like the system by which you get fee and how you ultimately take title of property and India is based on a system that is not consistent with how we underwrite deals.
We've stayed out of places like Argentina. By example, that sometimes look sexy and seductive because you can buy stuff and achieved price, but when the currencies devaluing. It two to 300 per cent per year, that's not a good setup for investors. So.
Lot of this is.
Making sure that you have a great framework and so what we've put in place Rick for the last two decades, as we have and investment framework and what we do is we look very much as you know I have a high attention to detail on asset quality quality of contracts and quality of the customer quality of the fee, making sure we've got and a place like Brazil, we have all the permits these are things.
These details ultimately matter and then you've got to have the right business plan and you've got to have great management teams that are have a zero tolerance for FC for being of course congruent with our CPA training and evolve our senior executives and our employees. So this stuff takes a lot of energy we've traditionally have not hedged.
And what we have done though is put the right mechanisms in place to make sure that part of the capital structure is financed and local currency, we get paid in local currency, but we get escalators and we think thats been the right architecture for us in fact, our foreign investments and performed exceptionally well this year largely because we've been very cautious very selective.
And we picked the right management teams the right assets and the right geographies.
One other question for you and the.
<unk> also sold some minority stakes and some of your different units.
Obviously, you saw transaction announced by a peer on the international infrastructure space with <unk>.
As a depot and how do you think about when is it right to sell minority interest and and what kind of appetite is there to bring and even more capital for you to buy majority Stakes.
So we sort of created that cookbook.
And we did the first type transaction like that with Caisse depot, many years ago with vertical bridge and they're a great partner and we applaud IMT is there going to be very happy with that partner. So congratulations to my friend Tom Bartlett.
Look it's making those decisions is tough.
We just completed a transaction by example, with ex net working closely with John Hancock to sell a minority stake and that business and and ultimately for us when we do sell a minority stake Ric we're trying to achieve a couple of objectives. One we want to have the right long term partner that wants to stay and these businesses not just for three years or five years, but.
We're looking to form long term 10, 20 year capital. So we can sit across the table from our customers and say look we're going to be there for you. When we sign a 20 year lease commitment because we have long term capital that can ultimately align with your interest around building your network long term and the customers want to know that they want to know that they've got a long term partner and infrastructure and.
I think that provides a lot of comfort for our customers secondly.
And some of our capital sources mature and they need to return of capital. This is a great way to do that so it's a good way for us some of the original partners and companies like ex net vertical bridge.
And they do want to get returns and we want to get capital back to them. So they can mark those investments and get to the right returns, but more importantly, when we bring a new partner and we want to make sure that they've got deep pockets like a case to Poe like John Hancock, you saw the move that we made with vantage stabilized data centers last year, Rick where we work hand in hand with NPS the largest pension funding.
Korea, CBRE Calvert, and which is a great partner of ours out of Toronto, everyone knows CBR and CB, Richard Ellis and and some of our other pension fund clients. We had 12 amazing data centers, we used our balance sheet, we matched our balance sheet with long term pension capital that understood. The value of those 13, 14, and 15 year contracts with investment.
Grade cloud players and most importantly could achieve not only return of capital to our private Lps, but we kept that asset we kept those assets in the family. They are producing a 6% current cash yield which is great. We're getting management fees and carry on that third party capital. So when you do find the right third party source of capital would it.
How's us to do Rick is allows us to build a lot of capital form really good ideas like vantage stabilized co or ex net of vertical bridge and investors know when they work with us they're going to see a lot of opportunity for co investment.
And Thats the key buzzword today and investment management is people that come into our funds like BCP too are getting the opportunity to also co invest and go deeper into opportunities like an ex net like a vertical bridge like advantage. These are great logos, great management teams and so having that access to capital net long term.
Access to capital is part of our business model going forward and we congratulate American tower for for taking advantage of that dynamic as well. It just makes a lot of sense Rick.
Great. Thanks for the insight and stay well and we'll see you virtually at NAREIT and live and Park City. This summer.
Looking forward to that lot of pizza and thank you.
Thank you. Our next question is a follow up from Jade Rahmani with GW. Please proceed with your question.
Thank you and apologize for the audio issue earlier.
And just knowing the data bank securitization and are there other financings that you expect to execute that could be near term accretive and could you put any color around what kinds of strategies and those would be would that be securitization or there's other fin.
Financing tools available.
There are a whole host of financing tools available, but what we like to do is execute on our ABS facilities frankly, I mean, that's the great part about our digital operating REIT type of businesses. They are all long term leases with fixed escalations with good solid core organic growth rates. So all great tenants for our low coupon asset backed securities market.
And that frankly does also include if you think about it our investment management fees and that type of structure as wallboard the colony capital corporate side, So and we will have more fulsome disclosures on on non strategic financing opportunities over the course and next couple of quarters.
Next couple of months and I think what's really the subtext to this is one other point to this is we now have cash flows that are a lot more long term and a lot more predictable I think one of the things that investors caught on to quickly was that not only and our digital operating business. We have long term leases with investment grade customers, but we.
Now have long term funds with 10, 11, and 12 year fund lives.
And we're taking in income streams from investment grade pension funds and sovereign wealth funds and so the stability of those cash flows and I am are a lot like signing of tower lease Jackie if you think about it on.
Five year term 10 year term investment grade counterparty, and bringing Moody's and Fitch and S&P along for that journey, so that they understand.
This new digitally converged REIT and where we get those cash flows. That's an education process. We've started with that education process. Just like we did when we taught them about cell tower Securitizations in 2004, when we did small cell securitizations. The first cell tower securitization and Mexico. The first Hyperscale data center securitization for years ago advantage.
And now of course, and our first edge securitization with data bank. So having this dialogue and having the trust of the rating agencies and being a longtime issuer is a big strategic weapon for us.
Thanks very much.
Thank you ladies and gentlemen at this time there are no further questions I would like to turn the floor back to management for closing comments.
Well look thank you everyone. It's been a.
Great quarter.
A couple of people as we and our call today I want to thank our hospitality team.
The sort of unsung heroes of that and David Schwartz and key on Brent talks the whole team just did a great great job. They are delivering a great result for our shareholders own and thank our friends at Cerberus and and high gave they were great partners and getting that transaction done. It was not easy also want to thank the entire team and at <unk> and those employees that have gone from <unk>.
<unk> over to seal and see we'll Miss you appreciate the hard work, we're going to be your biggest fans from the sidelines and we've really enjoyed that journey and then I'll just close and saying we are absolutely, making the progress that we thought we'd make and perhaps even slightly ahead of plan and I think what you can expect from us.
For the coming years, we're going to continue to form new capital around great ideas. We're very excited about what we're doing and our digital investment management platform and we're really looking forward to hosting everybody from our first Investor day, Southern White has done an incredible job being our voice and corporate communications and our outreach within public dressers. So we're very excited to share our <unk>.
<unk> thoughts and we hope that all of you will sign up and enjoy and join US for Investor Day, we're going to have not only the senior leadership team, but we're going to many members of our of our ecosystem of companies a lot of our great Ceos presenting around the digital infrastructure World day.
Or insights into what's happening and towers and small cells fiber data centers.
Everything thats happening in that ecosystem, it'll give you the investor a chance to have a little bit of a closer look at what we're doing and then also I would close and saying unpacking, how we're building those great digital earnings. So we look forward to seeing all of you at Investor Day.
And once again, thank you for your continued support and trust.
Looking forward to a great year here at colony capital take care have a great day.
Thank you ladies and gentlemen. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.