Q2 2019 Earnings Call
Greetings and welcome to colony capital second quarter 2019 earnings Conference call.
At this time, all participants are in listen only mode.
A brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
I'd now like to turn the conference over to your host Lasik Lawson with Addo Investor Relations. Thank you you may begin.
Good morning, everyone and welcome to colony capital Inc.'s second quarter 2019 earnings Conference call.
Speaking on the call today from a company as Tom Burke, Chairman and CEO and Mark have strong COO and CFO .
Aaron Tantrum, the company's president and Neil writing Kim.
Chief Accounting Officer will also be available for the question answer session.
Before I hand, the call over to them.
Note that on this call certain information presented contains forward looking statements.
These statements are based on management's current expectations and are subject to risks uncertainties assumptions.
Potential risks and uncertainties that could cause the business.
And financial results to differ materially from these forward looking statements are described in the company's periodic reports filed with yes, you see from time to time.
All information discussed on this call is as of today August nine 2019, and calling capital does not intend and undertakes no duty to update for future events or circumstances.
In addition.
Certain of the financial information presented in this call represents non-GAAP financial measures reported on both a consolidated and segment basis.
The company's earnings release, which was issued this morning and is available on the company's website presents reconciliations to the appropriate GAAP measure and an explanation of why the company believes such non-GAAP financial measures are useful to investors.
In addition, the company's prepared a table that reconcile certain non-GAAP financial measures to the appropriate GAAP measure our reportable segment and this reconciliation is also available on the company's website.
And now I'd like to turn the call over to Tom Burke, Chairman and CEO of calling capital Tom.
Good morning, and thank you Lisa.
Turning the colony capital fourth quarter earnings call in the spring of 2018 as executive Chairman.
I outlined a series of near term objectives, which we would undertake.
These objectives were one reducing DNA and realigning the incentives of our athletes on the field.
To finalizing the defensive positioning of our balance sheet assets acquired in the merger and calling and simplifying our business lines.
Three extending debt term and reducing interest expense.
For transitioning the return profile of our balance sheet assets into an offensive total return investment management, driven model, while maintaining the dividend and REIT status.
And lastly, focusing on new balance sheet originated acquisitions vehicles and platforms.
In which calling these balance sheet acts as the GP alongside fee and promote bearing third party capital.
In investment management businesses in which we have an edge and can build to scale.
By the time I reassume, the active role of CEO at the end of 2018, we were well on our way to executing on these aforementioned initiatives. Although we still had not clearly communicated the details of our offensive playbook for the future.
We now have to find that offensive passive dramatically simplifying our businesses.
And pivoting into digital.
And investment management strategies.
In which call any possesses an edge and which we can build to scale.
First a review of the results of what we said we were going to do and how our results so far as measured against these goals and objectives.
DNA reallocation and cultural enhancement.
What we said.
We would execute on a fully identified large scale gn, a net cost reduction program and enhance the culture.
What we have done.
We reduced DNA by $80 million to $90 million on a run rate basis since the start of 2018 and in total by $210 million since the completion of the merger.
Further DNA reduction should be anticipated as we divest non strategic assets and businesses, such as industrial and NRT.
Next monetizations.
What we said.
We will generate substantial liquidity through the harvesting of non strategic assets and balance sheet heavy real estate verticals.
These asset dispositions aligned with our clear criteria for divestments.
We're trying to monetize all assets and businesses, which one command higher private market values than the public values assigned to them.
To which do not demonstrate the characteristics necessary to form meaningful third party capital.
Or which do not produce a total return of at least 12% annually.
Now, let me review, how we've applied the foregoing tar various business units.
Other equity and debt.
What we said we would accelerate the sale of nonstrategic OE D and simplify the component of our balance sheet.
What we have done.
Since our first earnings call together non strategic OE D has been reduced by approximately three quarters.
For 3.6 billion.
To $1 billion, a net equity value inclusive of $1.2 billion of asset Monetizations and $1.2 billion in asset transfers to C. L N C.
In health care.
What we said.
We seven to successfully address the significant health care loan maturities in 2019.
Including the $1.725 billion guar alone.
And coal assets to better position our portfolio for us strategically aligned.
What we have done.
We consummated an important partnership with Ventas, the leading health care REIT.
And refinance the 1.725 billion guard debt on attractive terms and significantly de risk our health care vertical.
Four of six 2019 loan maturities have now been refinanced.
And the remaining two are expected to be refinanced or otherwise are resolved by the year end.
2019 was a year of liability management for health care, which has gone extremely well.
Paul in the industrial.
What we said.
Calling strategy to buy build grow and sell operating platforms was the architecture for the acquisition of cobalt.
And the subsequent formation the call on the industry.
Blue Friedland and his team identified as class job and accomplishing our goal to build a leading infill light industrial platform.
Alongside fee bearing capital.
What we have done.
Colony industrial led by new in our Dallas based team has been a poster child case.
For using our balance sheet Tobias low investment management businesses. It serves a clear case study and building platforms and delivering compelling results to our investors.
Given the significant appreciation in demand for industrial assets, we've decided that we are at an appropriate time to harvest, our industrial real estate business.
We formally launched the sale process for our industrial business.
Should we receive offers a compelling levels, we anticipate a closing around year end.
In the meantime, we continue to build and expand the portfolio as is evidenced by our recent dermody acquisition.
Of almost 12 million square feet at an acquisition costs of $1.2 billion.
Next to NRT.
What we said.
We said, we would come to resolution on and are you given the persistent discount at which the stock, including our 11% ownership interest traded relative and Avi.
Last November and already in colony entered in to an agreement.
For a termination of the external management contract for NRT upon a sale of NRT or in connection with an internalization in exchange for a payment.
$70 million to colony.
Minus any incentive fees previously paid.
What we have done.
After a long process run by Goldman Sachs. The NRT Board of directors approved a definitive merger agreement to be acquired by Axa, resulting in consideration and Ari stockholders, including colony of approximately $17.
And three cents a share.
As a result of the transaction cost should generate gross proceeds of $160 million from the sale of our 11% ownership position.
And the monetization of the management contract.
And most importantly, shareholders and Ari Steven approximate 16% realized I are from inception.
A great accolade for the London based team.
Next hospitality.
Our portfolio consists primarily of select service hotels, which require surgical engineering and monitoring the P.I.P. cycles that are required by all major brands.
In addition to our teams hands on asset management, a capex oversight at the property level, we continue to evaluate a number of strategic transactions, including large scale portfolio sales joint ventures consolidations.
And opportunistic acquisitions.
Next the formation of a strategic asset review committee or sorry.
What we said in addition to this year's appointment three great New directors Reece Craig had comp Ray Milchovich.
We formed a special asset review committee comprised of five of our directors to evaluate strategic initiatives with Morgan Stanley .
What we've done.
Sorry could sell formal meeting six times and an extraordinary number of informal discussions with management and advisors and worked tirelessly to evaluate a myriad of financial and strategic alternatives for virtually every element of our business.
Now a review of our investment management business.
Digital content.
What we said.
We told the market that we would use our balance sheet to originate and grow investment management platforms, which we accomplished through our digital colony franchise.
We also said that we would use our public currency unlisted balance as a tool to attract and retain the other alternative investment managers.
Who view the colony branded platform is strategic and synergistic.
What we've done.
This quarter.
We closed on the unification of the digital colony franchise through our acquisition of digital bridge holdings or deviate.
And our joining with a world class team of investment professionals, who steward DB H. is extraordinary portfolio of communications infrastructure investments.
This acquisition is the natural evolution.
In our partnership with DB age, which began with the successful formation of digital call any partners, our flagship communications infrastructure, which raised more than 4 billion in equity.
Before co invest.
Making it one of the largest first time funds and the first specialized digital infrastructure fund of its kind.
Since we began our partnership through digital colony, we have consummated a series of thoughtful acquisitions, great communications assets around the world.
Including Indian Telecom partners.
Digits.
Strata open sell and pier, one and we have signed a definitive agreement to acquire Zayo and partnership with E.Q.T.
Added enterprise value totaling more than $14 billion.
The transaction was Zayo is progressing as a majority of the shareholders have now approved the deal in fact.
Zayo is the largest take private transaction and digital infrastructure for which we raised an additional $2.2 billion co investment capital in two months.
We continue to add new proprietary platform ideas to our investment pipeline, including a series of accretive tuck in acquisitions.
That served to increase our footprint and deepen our relationships with our value tenants.
The macro demand for a connected plant is growing at an astounding pace.
That is no longer being fuel just by consumers and devices.
But also by the essential.
Need for networks.
This growth as evidenced by the fact that three of the top five Reits by market Capitalisation R Tech driven businesses.
And they were not even exist 10 years ago.
2019, there will be close to $105 billion of capital expenditures spent.
By our digital customers on expanding communication networks in our target markets.
Data creation and usage is accelerating as a consequence, so too will the spend.
Today, our digital colony businesses touches every text every email and every phone call across North America, Latin America and Europe .
And overtime digital colonies going to morph into a top tier global investment platform.
With the unique focus on next generation mobile.
Internet infrastructure.
In an effort to strengthen the great management bench, we have to aid in the digitalization of our operations and to allow our senior executives to focus on their various businesses with surgical precision.
We have designated Mart Ganzi as my successor.
As CEO after 18 to 24 months of a transition period.
After the conclusion of that timeframe and transition I will return to the role of executive Chairman.
Mark has a tremendous leader to Orient colony operations for the digital future and the perfect complement to the existing calling a leadership team.
Who together will work hand in hand on the growth of our investment management businesses.
Comment the streamlining of our balance sheet.
And launching us into the digital age.
Next energy.
Well, we said.
Building on strength in energy and energy infrastructure has always been the natural progression.
A growth of our real estate asset businesses and has similar characteristics to certain of our real estate credit silos as we continue to maintain a focus on credit opportunities between.
Main Street and Wall Street.
What we have done.
In order to avail ourselves of what we believe is a compelling arbitrage opportunity, we formed a strategic $320 million joint venture.
With best in class in P., Operator, California Resources Corporation.
In which colony has committed to fund $320 million for the development of CRC.
Flagship Elk Hills field located in the San Joaquin basis in a format, which is called a drillco financing.
Our thesis is that energy finance has failed to keep pace with technological innovations in the field.
And despite empirical step changes in the risk profile of oil and gas development.
Which has driven substantial production growth.
These legacy financing channels have started production platforms of the capital necessary to develop great assets.
Next emerging markets.
We said that we will extend our private equity businesses into emerging markets. We believe that emerging markets are a compelling long term opportunity to invest in that emerging markets will drive three fourths of global GDP growth through 20 Threerd.
Yes underlying fuel.
To this end growth engine will be robust population growth.
Rapid urbanization.
Dramatic expansion of mobile and Internet infrastructure.
And an emerging middle class.
Telecommunications infrastructure power and energy and the attendant real estate and real estate services used by those industries will explode.
At the same pace as the expansion of the urban population.
What we have done.
As our first acquisition in the end field, we closed.
On.
Our acquisition of the Latin America business of Abraj.
As a part of the transaction and addition to World Class management team when next over $500 million of assets under management to our investment stable and an active pipeline of proprietary transactions.
Next.
CDCF.
What we said on a real estate credit we view the C. C. F series of credit funds as a strong on the legacy product.
In a perfect complement to our list of mortgage Reits Sealants C.
What we have done.
We just held the initial closing of our latest opportunistic credit fund with the initial capital commitments of approximately $420 million.
Which included the successful syndication of three European credit investments, which were originated over the past year.
Next seal and see.
For sale and see we will continue to work through the lower yielding an equity assets in the portfolio as we rotate.
In a more simple and final first mortgage origination machine.
With sustainable earnings and dividend coverage.
More detail on sealants. He is of course available through the seal and see press release and earnings call itself.
Listed securities.
For decades, we've compiled many terabytes of information on private treaty transactions for almost every asset class of more than 30 countries.
So recently the utilization of this information.
It has been only for private treaty transactions, and we have not had a data driven public market investment theme.
To avail ourselves of the private market information.
In the public markets.
Our listed Securities platform, and a data driven quantitative approach driven by Bill Hughes will now afford a transparent liquid public currency, which institutional investors can purchase.
Now.
To conclude I'd like to share a few of my personal perspectives on the investment of global landscape without burdening, you with too much detail.
First.
Returns are falling dramatically well counterparty risk and liquidity risk are rising dramatically.
Next the economy is in good shape as we continue to be beneficiaries of globally low interest rates and the Japanese position of most central banks.
Driven by concerns and empowered central banks with few arrows left in their quiver.
As a continuing flight of the fed may produce a historic low and the 10 year bond yield in the very near future.
At colony, we're keenly aware of the dramatic supply of liquidity very late stage of the very mature real estate market.
Risk premiums are diminishing and debt levels in the private market are increasing as greater returns always present themselves in a go forward basis.
What are the greatest threats.
See a dramatic March from globalization to protectionism, which is causing the volatility and underperformance of emerging markets from Latin America Asia.
A global and settlements and brinkmanship, an increasing schism.
Amongst the have and have nots.
The contest between socialism capitalism.
And geopolitical confusion spanning from Latin America Asia.
Next.
What I call slow realisation.
May result, in divergence and convergence and trade wars will put the dollar an increasing pressure.
To appreciate in value and cause stock market disruption such as we've seen in the past week.
The real risk is an unforeseen and unexpected global military or political intervention.
A shared utilization of everything is changing the basic framework of real estate and offices multifamily hotels homes retail restaurants and industrial.
Long term credit tenants with stable cash flows are giving way to shared utilization tenants.
Leasing at a new developing menu of spot rates in most asset classes and markets.
Our goal is to become the most trusted provider of integrated real estate digital and capital solutions to the world's leading technology companies.
We will follow the logos.
Thank you and now I'll turn it over to Mark had strip.
Thank you Tom and good morning, everyone.
As a reminder, in addition to the release of our second quarter earnings we filed a corporate overview and supplemental financial report this morning.
Both of these documents are available within the public shareholders section of our website.
On the call today, I will provide a review of second quarter results.
Business segment performance status of our cost reduction initiatives and several important transactions, which occurred during and just after the end of the quarter.
Turning to our financial results for the second quarter.
GAAP net loss attributable to common stockholders in the second quarter was 469 million or 98 cents per share largely result of impairments.
And provisions for loan losses totaling $353 million for the Companys share.
That amount included a $228 million.
Noncash GAAP accounting write down of the carrying value of the company's 48 million common share interest in sealing see to a value based on ceiling sees closing stock price.
$15.50 on June 28, the last trading day of the second quarter.
While we continue to believe strongly in the long term value of CMC shares.
We made this accounting write down due to uncertainty over the timing of recovery of CNC stock price in the near term.
Core FFO in the second quarter was $57 million or 11 cents per share.
Excluding net investment losses of $17 million.
Core FFO would have been $74 million or 14 cents per share.
Approximately one third of our net investment losses related to our share of investment losses realized by sealants see during the quarter with the remainder related primarily to losses on sales of and loan loss provisions on other equity and debt investments.
Most of which we had planned for as part of our strategic monetization program.
During the second quarter, we made significant progress towards our strategic objectives, which Tom just discussed and we also had a strong operational quarter across most of our existing six reportable business segments as well as continued positive progress against our cost reduction initiatives.
Starting with the health care real estate segment same store portfolio, and Hawaii increased 1% compared to first quarter 2019.
On the financing front weve refinanced unfair favorable terms $1.7 billion in health care debt, which was scheduled to mature in December 2019.
We contributed $175 million of equity primarily to reduced the loan balance and we expect that amount to decrease to approximately $90 million on a net basis. Following the sale of certain assets that were previously encumbered by the original debt and are presently under contract to be sold.
This refinancing along with previously completed refinancing transactions earlier this year.
Addresses four of the six healthcare loans maturing in 2019 or 87% of the consolidated outstanding principal balances.
The remaining two healthcare loans are expected to be refinanced or repaid by year end.
And with these health care maturities addressed we can dedicate our focus entirely to operations and strategy to maximize value within our portfolio.
Turning to the industrial real estate segment light industrial same store portfolio NOI increased 1% compared to first quarter 2019, primarily due to an increase in rental revenue, partially offset by higher repair and maintenance costs.
As part of our ongoing strategic review the company engaged advisors to market its industrial portfolio for sale, resulting in a change in accounting presentation, and our quarterly financial reporting.
Accordingly for the second quarter and all prior periods presented the related industrial segment assets and liabilities were reclassified as assets and liabilities held for sale.
On a consolidated balance sheet.
And then related operating results from all items of income and expense.
Our reported in a single line item as income from discontinued operations on the consolidated statement of operations.
We hope to be in a position to provide additional information on the results of the sale process next quarter.
Moving on to the hospitality real estate segment.
Compared to the same period last year.
Second quarter 2019, same store portfolio and NOI before FF any reserves decreased 3%, primarily due to a combination of weaker corporate travel demand the presence of new supply in certain markets and increased labor and property tax expenses.
We continue to call lower quality assets in this segment and we are also in the process of refinancing debt related to a couple of our portfolios to provide more term at more attractive interest rates.
Yesterday sealants see reported second quarter core earnings of $36 million or 28 cents per share compared to core earnings of $12 million or nine cents per share in the first quarter of 2019.
These core earnings included realized net losses in the second quarter of which are 36% share was $5 million.
These losses resulted from the foreclosure of a loan collateralized by us retail property.
As a reminder, this loss was anticipated in the fourth quarter of 2018.
When CMC had recorded related loan loss provision.
In their GAAP earnings.
Adjusting for this anticipated foreclosure event ceiling fees core earnings would have been 39 cents per share in the second quarter.
Next is our other equity in debt or OEE D segment.
Our 1.8 billion dollar equity value portfolios separated into strategic already and non strategic goal we do.
Strategic already includes our investments alongside third party capital, where we earn investment management, economics, and which we plan to grow over time.
During the second quarter, the undepreciated carrying value and strategic OE D decreased by 2%.
Additionally, subsequent to the end of the second quarter.
Northstar Realty, Europe , or NRT, which we manage in which we have 11% equity stake entered into a definitive agreement to be acquired for an estimated $17.03 per share.
Upon closing, which we anticipate to be around September 32019, assuming receipt of <expletive> shareholder approval. The company is expected to receive proceeds of approximately $96 million for its 11% equity interest in NRG and approximately $65 million for the termination of its management agreement.
We are also actively managing and liquidating non strategic OE D, which includes legacy investments that are at the end of their investment life and or are not in line with our strategic investment management strategy.
During the second quarter Undepreciated equity carrying value in non strategic D.
Declined by $124 million or 11% from 1.1 billion to $1 billion.
Our investment management business segment continues to increase in its significance as a strategic component of overall revenues and operations of the company.
Colony ended the second quarter with third party AUM.
$28.6 billion compared to $28.8 billion last quarter and fee, earning equity under management up slightly to $18 billion compared to $17.8 billion last quarter.
The increase in fee, earning equity under management was primarily attributable.
To the acquisition of the Latin American investment management arm of Abraj Holdings, now called Colony, Latam partners, which was partially offset by the sale of a non core real estate investment management business and other asset sales.
We opened several new international offices during the second quarter to support investment management growth, including a Singapore office, which will serve as another base for future capital raising in Asia as well as offices in Mexico City, and Lima, Peru, both of which support the operations colony Latam partners.
Tom discussed the exciting recent developments and our investment management business subsequent to the end of the second quarter, including the acquisition of digital Bridge holdings the growth of our energy platform and the first closing of Colonys fifth Global real estate credit fund.
Together with planned sales of certain assets and business units. This is anticipated to be a transformative year for colony as we continue to execute on our strategic plan to focus resources on high growth and less capital intensive investment management businesses.
Finally, I will provide an update on the corporate restructuring and reorganization plan announced during the fourth quarter of 2018.
During its first eight months since implementation. The company has achieved approximately two thirds of the expected $50 million to $55 million cost savings on a run rate basis through various initiatives, including the reduction of more than 10% of the company's workforce existing at the time the restructuring was announced.
We expect to meet or exceed the original cost savings targets over the coming six to nine months.
In addition to cost reductions, including those related to the anticipated sale of assets. We're also continuing to drive non compensation related administrative cost savings and efficiencies through expense policy changes the leveraging of technology and the utilization of offshore resources where possible.
In summary, we are very pleased with our strategic progress.
And operating results during the first half of 2019.
And we remain focused on achieving our full year goals and objectives during the second half of 2019.
With that I'd like to turn the call over to the operator to begin QNX operator, Brad.
Thank you.
At this time, we'll be conducting a question and answer session.
If you like to ask a question. Please press star one on your telephone keypad.
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For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Our first question comes from Randy Binner with B. Riley. Please proceed with your question.
Good morning, everyone. This is actually Ryan to sito on for Randy.
Turning to the industrial portfolio press releases, a little vague are you looking to sell the entire portfolio or just the light section of it.
Ryan It's Tom what we did is actually asked for the best.
Initiative and a form of a request for proposals for all.
So you could bid on the manager you could bid on the assets you can bid on both.
And.
We'll see in the next 30 days, how it rolls out.
Theres complications and opportunities in all of those.
And the interest has been as you know in the industrial market. It has been.
Believably good.
So we'll have to evaluate what comes back in but there's buyers and desire for all the components.
Understood. The bulk is not part of what we put into the.
Light format.
Got it.
And then on that portfolio are you guys able to dimension any kind of basis for it just trying to figure out any tax implications that will come down with the sale.
Mark I'll, let you answer that but we have not it's a little it's a little premature to start giving forecast and we we anticipate that if we get the bids we expect.
That will respond to we'll have a closing by year end and will become evident then.
Mark anymore.
And furnishing last year on that.
Sure. We're actually this is darin why don't I take that and.
Given what our cost basis is in that portfolio, we and given where market values have gone, we would expect to realize meaningful both accounting as well as taxable gain if we sort of sell where we're seeing other trades occur in the marketplace. So as Tom said more to come on that we're we're mid sale process. So it's a little early to give give guidance on that but we would expect that there will be a pretty meaningful gain at the end of the day.
Great Thats, a very appreciated if I could do one more the proceeds from industrial assuming that sale does go through I guess, how do you guys think about.
Share repurchase versus paying down prefers versus convertible.
Just any thoughts there would be great.
Ryan It's a great question Weve got lots of liquidity coming up so one of our big strategic initiatives is his pruning and calling and de levering the balance sheet as we look at capital allocation.
Opportunities going forward for the new businesses, especially digital.
So we're.
In the process of knowing that we need to strengthen that balance sheet, which we're going to do.
And that we have a gracious appetite for new capital to pin third party capital, especially within the digital arena.
And by year end, we'll have an arithmetic answer to that question.
Okay, great. Thank you for your time.
Thank you.
Our next question comes from Jade Rahmani with KBW. Please proceed with your question.
Thank you very much.
To start with digital bridge, how much operating income should we expect.
Digital bridge to initially add on.
On an annualized basis I think there is about 7.3 billion of equity under management should we assume a 1% fee and 40% operating margin on that.
Mark.
I think thats, a little light on the management company economics.
And that we think margins and the combination is going to be slightly better that over over time as we.
As we as we go it was a 325 million dollar acquisition. So its contribution to earnings will be meaningful but kept in context of the assets under management.
We view it as a.
Incredibly important strategic transaction and not one that's entirely.
The acquisition will be.
Yes, I mentioned, it's been of capital that raised from third parties. So wondering what count ceiling wise co investment will be.
Yes, it's Tom So if you remember most of this lies with them.
Fine.
And the 6.5 billion of equity is split between Q T and digital colony.
By the time that were done with co investment, which has been unbelievably strong and in great demand, we'll probably have about $760 million.
From the fund that stays invested so we continue to co invest down on what was a $15 billion total enterprise value acquisition, but thats, where we think we're going to end up.
And so the 750 million is that.
Sealand wise.
Co investment is sealing wise co investment is a subset of that.
Well, that's DCP that's the fun.
Okay, So what would still in wise.
Co investment in the fund be.
Okay about 8% of that.
Okay.
On the health care side.
So again.
About 70 million, Okay got it that's that's what I was thinking.
There are about.
On the healthcare side with the bulk of refinancings now behind you guys.
And the VTR relationship expanded what would you say the outlook for the businesses do you intend to shift your focus toward our strategic alternatives.
Hey, Jay it's Eric.
Is there and what I mean is high tech.
So.
Absolutely.
Health care business is complicated.
And its skilled nursing business component of that is even more complicated.
So its taken us 18 months.
To get our arms around where the opportunities are and really understand.
The flow of Capex, that's needed just to maintain where we are.
Our strategic alignment with Debbie has been terrific there.
First class organization, they've been in this business a long time.
And garwood step into looking.
At.
Asset combinations, and a future which makes lot of sense.
So healthcare eventually for US has to go someplace.
So whether it's a consolidation whether it's a spin.
Whether it's an independent.
Unification and.
Part of that asset class.
It is where we're going to go.
So our teams have done a great job and as you've seen in the marketplace. A lot of people are enthusiastic and investing in the health care place, we need to clean it up.
We need to get it understandable and then we needed to get it into its own cycle, we're not sure what that own silo is yet, but that's directionally.
Turning to the industrial potential sale.
Is it fair to say that your digital strategy going forward does not include industrial because I know ecommerce has been a significant driver of the fervency that we've seen in the industrial sector.
No. It absolutely absolutely includes industrial so our our industrial Lou Friedland and his team if you remember, we we acquired cobalt.
And we acquired cobalt kind of like we're selling CIO.
So we acquired the assets and then separately, we acquired the management team and those assets those last mile logistical assets.
The type and quality and breed are.
Replicable for for what the team has done.
But the adjunct adjunct of industrial going forward in the next wave. So we've looked at this and said okay. The portfolio that we collected.
During that period of time.
Was not really oriented entirely.
Following the logo.
It ends up amazingly that lose tenants and customers are very much marks tenants and customers.
But.
With different operating bandwidth.
So on a go forward basis of what we do with digital when you look at the various businesses.
We're certainly going to be industrial and we're certainly going to be and infrastructure.
But our goal has always been.
Identify execute by the build and sell for value and that's what we're doing the way we formed.
See I F was an open end fund.
It was an open end fund with foundational investors before the merger and right at the verge of going public.
So as we simplify our balance sheet and try and look at long term value over time part of it is certainly the asset class in the type of assets and the other part is how do we simplify our balance sheet going forward.
So weve got consistent so industrial will be a part of the digital story.
And the part of that is continue on by phone and those logos.
Right, Okay and again it.
Tech companies are or what the name of the game.
On the OE D segment or is there the possibility for bulk portfolio sales to accelerate dispositions I mean, if you want to simplify the balance sheet thats, probably the most obvious.
Place to start.
Theres already been a significant amount of killing but seems like it does have quite a long life ahead.
Yes, I mean, it's Tom again, there's no need to because it's not that kind of always we don't need to take a discount to another wholesaler, who is just going to take a 30% discount so that they can sell to the same buyers that we know.
It's a matter of distribution of that product over time in the markets are going our way.
Some of it is a little more complicated, but the private market is is understanding value where the public market doesn't we were doing a good job we were little bit off this quarter, but the third quarter were going to be even better.
So we're going to continue to do what we're doing we don't need to take a discount for bulk.
Okay. Thanks for taking the questions.
Thank you.
Our next question comes from Mitch Germain with JMP Securities. Please proceed with your question.
Thanks, Steve you talked about the CEO transition on the rationale behind the gate.
18 months or at least making a transition.
Yes, So mark Mark currently has key man language.
In our fund.
In that key man language has.
Limitations based on.
Kind of a stair step basis.
Funds committed and funds spent.
So as we looked at this in addition to figuring out how we synchronize all the other moving parts of the business.
What we envision was.
An 18 to 24 month period to transition both sides for us to transition.
Our balance sheet away from some of the businesses that we don't see the meteoric opportunities or.
Elements that we talked about before that I talked about it in the beginning of the earnings call.
Transition that into the other digital businesses.
As well as allow him the opportunity of understanding the components of those businesses and fulfill his obligations under.
The digital Connie fun.
So power assets small selling fiber assets data center hosting fibre enterprise data centers Hyperscale data centers.
As we move through it will be the focus of what we have and it's going to take US a couple of years to get there.
So she's rival signaling a shift from traditional real estate digital real estate.
Absolutely.
But the shift the shift from traditional real estate is away just a personal view the way I look at it is we're dealing in obsolescence on a constant basis. So just the cycle of traditional real estate.
Of the planning and entitlement process, the architecture and construction process.
The leasing and sale process by the time, you envision a piece of land and get it incubated within come into place.
It's already obsolescence.
And the users.
Of that real estate historically right. We're all looking for triple net incomes from credit tenants and there is very few of those left in the kind of things in every asset class that people wanted are changing.
At an unbelievable pace so to follow the money the biggest spenders of capital expenditures and bricks and mortar.
And bricks and mortar stuff.
Are the technology company.
So 165 billion into next year.
And the servicing of all things digital.
Supplying those capital solutions, those bricks and mortar solutions and just looking at the big digital reach sort of been split between.
Tower assets and fiber.
He has been.
Amazingly interesting so it's a balance of saying we're going to hold the dividend. We said we were going to hold the dividend for 2019 state we are theres no change.
But along that road the illusion between return of capital and return on capital is you have to have growth and you have to have total return.
And we see more growth and more total return in the data and digital business and our acquisition of digital bridge and Ganzi and his team. We think is best of class.
And that's what we're going to point.
All of our silos towards.
As we move out of those businesses in which we don't have an edge in which we can scale we want to be.
The top three or four in every disease area.
All right that's helpful.
Real quickly on about 400 million or so onshore I think started more than a quarter over quarter.
And it seems like subsequent to the quarter there was a lot of different commitments on energy.
Finally break I'm just trying to understand.
Ability to fund those investments and what's the plan.
[noise] Mark you want to take that.
Sure.
Yeah, our liquidity was down period over period do.
Significantly to the digital bridge acquisition and the refinancing transaction, we think though that cash flow.
During the third quarter.
And the rest of the year.
Puts us in very good stead to recover that and end the year with a very significant surplus.
We still have $750 million line of credit.
Available to us.
That that is still in place and we think our liquidity.
Is good in the interim and good in the long term, we see no issues there to fund to fund any the commitments that we currently make.
All right well I have your question.
Thanks for being on the call a bunch of old.
It's worth somewhat in line with expectations.
You know it seems like some of these impairments moving along with your expectations, but just not you know.
Doctors and on off so how much more of this.
It seems like every quarter or every couple of quarters.
Putting significant amount of apartments are realized.
How much more is out there.
[noise].
I'll take I'll take that that when I look.
As we.
Realize small assets and as we coal portfolios in our healthcare and hospitality segments that aren't.
Held for sale, there's going to be noise.
And there's going to be.
Gains and losses in those transactions as we go I don't think that in for the year, we don't think that those gains or losses.
Our that material to the operations of the business.
We've got significant a significant gain.
Coming through OE D and the sale of our entry assets and the management agreement those we'd hope to get done in the second quarter. They came they will come in the third quarter with.
Shareholder approval of that transaction and.
Would've offset all of the losses that occurred so we we hope there's a balance there, but as we coal assets and sell assets theres going to be timing issues related to gain and loss recognition and we think that you know.
We ought to also focus on the.
The recurring part of the business as well as slot gains as wild and losses that are.
Not necessarily recurring.
Okay last one for me.
I think about 14 cents in the quarter.
Got a little bit of a onetime.
You referenced some healthcare media.
In the press releases or anything else that you pointed out with regards to thinking how clean was the quarter looks little adjustments to consider.
Yes, I think I, let me, let me start and then and then Mark and Darren can jump in.
The timing of what we're doing now right we were digging out of a hole and the good news is the market.
He has really helped us in digging out as Weve gone from a gigantic defense, which.
You've all endured whether it's for the last 18 months to figure out what is the assets and we're clear on what the offenses not we're going to we're going to clean up the balance sheet were going to simplify the businesses, we can turn to digital and everything that relates to the tail, including emerging markets and credit all all of those silos are going to be digitally oriented and timing is a difficult thing as we call. These other assets. So if you look at NRT entry was a major portion of our Miss.
This quarter.
Because it was a quarter Miss.
So what what Marc explained I think we all feel confident this year we're fine.
We aren't at the level of surgical execution, where we get the exact quarter right, especially on a lot of these dispositions which are quite complicated.
But.
We've got the wind at our back we understand where we're going we've simplified a lot of the GNS and strategic process, which we're going to continue to do the great thing is now we've got an offense. So I don't think theres any surprises that IC market there.
I think thats right, Tom I, I would I would concur and.
You know again.
The timing of the NRT transaction would have been.
What a foot of and the and the one time charge for the healthcare refinancing transaction costs.
You know were several several pennies of income during the.
During the period, even ex gains.
Thanks.
Ladies and gentlemen, we have reached the end of the question and answer session. At this time I'd like to turn the call back to Tom Burke for closing comments.
Thanks, everybody, it's an exciting time for us and.
Just for my own personal point of view, it's one of those moments where.
After struggling through is for the last nine months as you all have trying to figure out not only.
What it is that we've got in a $22 billion balance sheet, and 60 billion of assets, which by the way in this market any later to have.
Scaling up on anything is difficult it impossible.
And going forward on.
Assets that have.
Obsolescence, and then and functional and financial issues is always difficult.
What we've got now is a forward program.
On all three legs, we understand the strategy, we're going to go digital integration of all the business that makes sense.
The businesses that we have that don't make sense that have economic viability, we're going to find the right capital structure in place to home them.
That'll take us a little bit we know where we're going.
And we've got a great go forward management team, adding mark to the existing management team that we've got and we're through most of the surprises so.
Thanks for your patience, we're really looking forward to the future and I think this next quarter and the arithmetic and math behind digital that we're going to get to you by the year end.
He is going to be enlightening.
So thanks everybody.
This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.
[noise].