DigitalBridge Group, Inc. (DBRG) Q4 2019 Earnings Report, Transcript and Summary

Greetings, and welcome to Colony Capital’s Fourth Quarter Full Year 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference call is being recorded. It is now my pleasure to turn the conference over to your host, Lasse Glassen, with ADDO Investor Relations. Thank you. You may begin.

Good morning, everyone, and welcome to Colony Capital, Inc.’s fourth quarter and full year 2019 earnings conference call. Speaking on the call today from the Company is Tom Barrack, Chairman and CEO; Marc Ganzi, incoming CEO and current CEO of Digital Bridge Holdings LLC; and Mark Hedstrom, Colony’s COO and CFO. A question-and-answer session will follow our prepared remarks. Before I hand the call over to management, please note that on this call, certain information presented contains forward-looking statements. These statements are based on management’s current expectations and are subject to risks, uncertainties and assumptions. Potential risks and uncertainties that could cause the Company’s business and financial results to differ materially from these forward-looking statements are described in the Company’s periodic reports filed with the SEC from time-to-time, including but not limited to the Company’s annual report on Form 10-K for the year ended December 31, 2018 and quarterly report on Form 10-Q for the quarter ended June 30, 2019, as well as the exhibits to the current report on Form 8-K filed earlier today. All information discussed on this call is as of today, February 28, 2020, and Colony Capital does not intend and undertakes no duty to update future events or circumstances. In addition, certain of the financial information presented in this call represents non-GAAP financial measures, reported on both the consolidated and segmented basis. The Company’s earnings release, which was issued this morning and is available on the Company’s website, presents reconciliations to the appropriate GAAP measure and an explanation as to why the Company believes such non-GAAP financial measures are useful to investors. In addition, the Company has prepared a table that reconciles certain non-GAAP financial measures to the appropriate GAAP measure by reportable segment, and this reconciliation is also available on the Company’s website. With that, I would now like to turn the call over to Tom Barrack, Chairman and CEO of Colony Capital. Tom?

Good morning, and thank you, Lasse. A CEO’s primary responsibility is to define the vision and persistently communicate that vision to all its constituencies. When embraced and executed by all the team members, that vision becomes a reality. In order to produce consistent, extraordinary returns over the long-term in a fast-moving world with accelerating disruption, friction and change, we must seek things that others don’t, adapting quickly and efficiently in order to define our relevance in this hypercompetitive and ever-changing environment. A flood of liquidity in the global markets has caused an insatiable thirst for yield. As a result, pricing in most real estate food groups has become surgical and amazingly competitive at a time when many assets are quickly becoming physically, functionally and financially obsolescent. CapEx today is the four-letter word in real estate. And the line between return of and return on capital is oftentimes opaque. Consequently, we tear through the valuable bricks and mortar that we own across the globe to anticipate the needs and transformation of the users of our assets. Technological advancements in the Internet of Things, big data, biotech, communication networks, instantaneous and prolific information, e-commerce and last-mile logistics, manufacturing, hospitality, healthcare, and media and entertainment are increasing at warp speed to new destination and require new highways upon which to travel. The infrastructure necessary for that journey is new, different and in great demand. Consequently, we’re availing ourselves at historic prices in many of our legacy assets and converting that monetization to number one, fortify our balance sheet; and secondly, invest in the digital ecosystem where we have defined and competitive edge. As we increasingly expand our digital program, that is just ahead of and alongside of change, we also must change from the top. We’ve already accomplished this rotation, beginning with the acquisition of Digital Bridge, and the designation of Marc Ganzi as my successor. We will continue with a reallocation of resources and talent sets to properly manage and execute this initiative, while at the same time fortifying the traditional strengths of Colony’s global brand and investment management business. Rotation necessitates change and realignment of teams and themes. Our vision is to become the most significant solutions provider of digital infrastructure across the digital ecosystem to the best and largest technology and telephonic companies around the world. This vision is both a very achievable, and we are well underway, as you can see. Many times, the adaptation and redefinition of the vision is just a short-term pain for long-term gain. However, we are stewards of an enterprise balance sheet, and we are focused on the long gain as we continue to provide meaningful dividends from our legacy assets and extraordinary total return from our digital assets. We’re moving down the field as we have planned, and I’ll now share with you the results of the past year. What was accomplished in 2019, starts with simplification. Industrial: We completed the sale of our light industrial platform for $5.7 billion, delivering a 17% IRR to our shareholders, while utilizing modest leverage that resulted in a net cash gain and incentive fees of approximately $475 million and net cash proceeds of approximately $1.25 billion for the Company’s share. Next, other equity and debt: We exceeded our 2019 target of $500 million of OED monetization with $717 million of OED asset monetizations in 2019. We achieved more than $2.1 billion in total OED monetization since the beginning of 2018. NRE: We completed the sale of NRE, delivering a 16% IRR to shareholders since inception and generating gross proceeds of $160 million to Colony Capital for its 11% share in the management contract. Next, credit: We closed $1 billion CRE CLO at CLNC. Evaluating the strategic transaction regarding the CLNC management contract is an ongoing process. And we held the closing of our fifth global real estate credit fund with total capital commitments of $428 million. G&A reduction: We achieved well over the expected $50 million to $55 million previously announced of cost savings on a run rate basis. And we’ll continue to exceed our target in 2020 as we continue to click away. Healthcare: We refinanced in aggregate $2.2 billion of debt, including $1.725 billion and a GAHR loan refinancing. That addressed all of our material near-term maturities and puts us in a very good shape. In addition, we sold three hospitals, generating $88 million of equity proceeds. Hospitality: We refinanced three portfolios, totaling $1.1 billion of debt on accretive terms that extend maturities out four to seven years. RXR: We just completed the sale of the company and our 27.2% ownership in RXR Realty, a non-wholly owned real estate investment management platform, for approximately $200 million, resulting in realized pre-tax gains of $106 million. Next, the fanatic growth story: Today, we manage more than $20 billion of digital real estate AUM, an extraordinary increase from just zero dollars in digital real estate AUM only two years ago, a dramatic pivot. Let me review with you some of the results. Digital Colony Partners, DCP closed a historic $4.1 billion of commitments for Digital Colony Partners, the largest first-time fund for digital real estate in history and far surpassing our $3 billion target size, with 73% of the fund already invested or committed to be invested. Secondly, we acquired Digital Bridge Holdings, the investment manager of DCP, added 6 digital portfolio companies, and unified its world-class team of investment professionals with Colony. Additionally, we’ve made a number of outstanding additions to the Digital Colony team. Next, Zayo: A major transaction in the United States with an anticipated close of March 9th. $14.3 billion transaction for which DCP committed $800 million of capital, and we raised an additional $2.2 billion of equity co-investment capital from some of the world’s most sophisticated institutional investors. Next, liability management: We completed the redemption of all the outstanding 8.25% Series B and 8.75% Series E cumulative redeemable perpetual preferred stock for $408 million, which was settled in January of 2020, eliminating $34 million of annualized preferred dividends. 2019 and 2020, $0.44 dividend: We paid a $0.44 dividend in 2019. And we are committed to pay a $0.44 dividend in 2020. Over the past three years, we’ve returned over $2.6 billion to common and preferred shareholders through dividends, redemptions and repurchases. DataBank: We acquired at 20.4% controlling interest in DataBank, a leading private owner and manager of edge data centers in the U.S., for approximately $185 million, representing the Company’s inaugural direct balance sheet investment in digital real estate. Liquidity: As of February 25th, we had significant liquidity of $1.3 billion, including $520 million of cash on hand and through our availability under our revolving credit facilities. CEO succession: We designated Marc Ganzi as Colony Capital’s next CEO to succeed me. Board additions: We’ve added three new independent directors to the Board in 2019 for a total of 10 independent directors. We’ve now engaged in an executive search firm to assist the Company’s Board including the nominating and corporate governance committee, and its ongoing process to evaluate Board composition, governance and refreshment matters, with a focus on identifying potential director candidates with appropriate digital experience to join the Company’s Board, as the Company continues to execute on digital evolution. Bridging the digital divide: What is our focus mission? Simple, to become the leading real estate asset solutions provider of occupancy, connectivity, and capital to the world’s leading mobile communications and technology logos. Together with our limited partners, we will invest in digital real estate assets in which we have a durable competitive advantage in which we have control, in which we possess compelling growth characteristics. What’s our differentiated strategy? To thoughtfully utilize our well-regarded digital Colony brand, access to permanent capital, global reach, best-in-class tenant relationships, and operating experience in digital to our limited partners and our shareholders’ benefit; continue to focus on culture, alignment and motivation of our employees and our partners. Our balance sheet: Efficiently manage and steward legacy businesses, in the best interest of our shareholders and other stakeholders as we opportunistically call, curate and define value, maximizing features for these legacy businesses. Our commitment to best-in-class governance: With a full support of the Board of our nominations and governance committee, we’re commencing a process to refresh the Board to best suite the tasks at hand, including efforts to identify independent members with extraordinary capabilities and tech-driven sectors of economy, consistent with our emphasis on digital real estate and digital infrastructure, and the background and characteristics of our new CEO. The impact of the volatility that we’re currently undergoing on businesses and commerce globally as it relates to the pandemic and the volatility in the equity and fixed income markets has been and will continue to be severe, and with no clear set of guardrails to the bottom. I’ll turn it over to Marc to highlight the durability of digital infrastructure in times of volatility, and why the significance of digital infrastructure operators has never been more mission-critical than it is at the moment. Marc?

Thank you, Tom. We believe more than ever, being invested in and exposed to digital infrastructure and digital real estate is seminal to defensible long-term investment plan. Digital infrastructure has long been a safe haven for investors in times of great volatility. We believe this cycle will be no different. Colony’s rotation to digital allows investors to participate in this global thematic, [ph] the strong upside and downside protection. The 16 digital businesses we own and operate globally have long-term contracts varying from 5 to 25 years in duration with built-in annual escalators, and high exposure to investment-grade counterparties. As the world deals with uncertainty, the digital economy continues to move as our customers continue to do business and enable the global economy to keep moving. Telecommuting via video conferencing on applications like Zoom, Microsoft Teams, Cisco and Slack are key examples of our customers helping the world’s leading enterprises enable and conduct commerce. Our fiber lines feed the servers and nodes and towers that enable these signals. Our data centers run high-power density applications to ensure the ecosystem continues to deliver durable goods and services to consumers and enterprises alike. Never before has digital infrastructure been more mission critical than it is today. As a diversified global REIT, Colony offers investors the opportunity to be exposed to the thematic and sector and a unique and highly converged platform without equal. I’m looking forward to the journey ahead in 2020 and engaging with investors and our customers as we map the digital divide and convergence in and amongst our various parts of our ecosystem and enabling our customers continue to build and deploy networks globally.

Thanks, Mark. Before I turn it over to Mark Hedstrom, I wanted to thank Justin Metz, who’s been one of our most valued directors, who’s done an amazing job for us, who has recently resigned due to the demands of his own great business. We are unbelievably grateful, respectful, and will always have Justin in our Colony family. With that, I’ll turn it over to Mark Hedstrom.

Thank you, Tom, and good morning, everyone. As a reminder, in addition to the release of our fourth quarter earnings, we filed a corporate overview and supplemental financial report this morning, which is available within the Public Shareholders section of our website. On the call today I will provide a review of our fourth quarter and full year 2019 financial results, business segment performance, and other key financial and operational details. Turning to our financial results. GAAP net loss attributable to common stockholders in the fourth quarter was $26 million or $0.06 per share, and the full year 2019 was a net loss of $1.15 billion or $2.41 per share. A significant and anticipated contributor to the 2019 loss was tied to Colony’s ongoing strategic transition and long-term plan to focus on and create the leading platform for digital real estate and infrastructure. This transformation led the Company to reduce the carrying value of goodwill and other intangibles related to certain components of our legacy investment management business and to record a non-cash GAAP impairment charge of $411 million in fourth quarter Core FFO was $48 million or $0.09 per share for the fourth quarter, and $266 million or $0.50 per share for the full year. Excluding net losses of $21 million, primarily in the other equity and debt segment, fourth quarter core FFO was $69 million or $0.13 per share. For the full year 2019, excluding net investment losses of $52 million, core FFO was $318 million, or $0.60 per share, which exceeded our annual dividend of $0.44 per share. In 2019 Colony executed on a number of initiatives to advance our stated strategic priorities, which included streamlining the business, further optimizing our capital structure and the generation of significant liquidity in order to transition to a digital real estate strategy. The Company ended the year well ahead of plan on a core FFO basis, while exceeding its 2019 asset monetization target, with both contributing to a strong year-end liquidity position. Turning to 2020. We expect to maintain a $0.44 per share regular common dividend for the full year 2020, a transitional year for the Company. The expectation is underpinned and well covered by the Company’s full year 2020 outlook for core FFO of $0.35 to $0.40 per share, in addition to significant anticipated net cash gains, not part of core FFO, including the $106 million gain, or $0.20 per share that was already generated through the early February sale of Colony’s interest in RXR Realty. Now, I will provide a breakdown of Colony’s operating results by segment. Starting with our investment management business. We ended the fourth quarter with third-party AUM of $36.3 billion, down 8% compared to last quarter, and fee-earning equity under management of $19.4 billion, down 13% compared to last quarter. The decrease in third-party AUM and FEEUM were primarily attributable to the December sale of the light industrial platform and to a much lesser extent, the sale of our interest in Hamburg Trust. We expect non-digital legacy AUM and FEEUM to continue to decrease in 2020 as we dispose legacy OED and other assets, including the previously mentioned sale earlier this month of our interest in RXR Realty. In contrast, Colony’s digital AUM reached $13.8 billion in the fourth quarter, which represents approximately 29% of the Company’s entire AUM. The Digital Colony Partners fund closed 2 new investments in the fourth quarter, and committed to 3 additional investments so far in 2020, and it’s now 73% committed. The Company also made its first direct balance sheet investment in digital real estate in the fourth quarter through the acquisition of a 20% controlling interest in DataBank, a leading private owner and manager of edge data centers in the U.S., for approximately $185 million. We expect to grow our digital real estate investment management platform by continuing to focus on our successful digital equity strategy, as well as expanding into digital credit and digital liquidity strategies. With the expectation of substantial associated co-investment vehicles. We expect digital FEEUM currently $6.8 billion to grow at a rate of more than 15% in 2020 and even faster in 2021. Next, I will provide an update on the corporate restructuring and reorganization plan announced during the fourth quarter of 2018. Since initiation of the plan, the Company’s achieved more than 100% of the expected $50 million to $55 million cost savings, on a same-store run rate basis through various initiatives, including the reduction of almost 30% of the Company’s workforce existing at the time of the restructuring was announced. In addition to savings from businesses expected to be sold during the year, we anticipate an additional $10 million to $15 million of annual run rate reduction in corporate G&A in 2020. The targeted G&A savings related to the legacy Colony businesses will partially be offset by additional investment into the digital real estate team to support the platform’s very profitable operations and growth. Moving to the healthcare real estate segment. The fourth quarter included a onetime recovery of rent receivables and termination fees, which resulted in an 11% same-store portfolio NOI increase from the third quarter. Excluding these onetime items, same-store NOI was flat. Same-store portfolio full year 2019 NOI was also flat compared to 2018. There were two significant transactions on the healthcare financing front. We refinanced the £212 million loan on a portfolio of UK senior housing assets with a new £223 million fully extended five-year loan at a substantially reduced interest rate. Additionally, we put in place a $48 million loan on a skilled nursing facility, lengthening the fully extended maturity date to 2024 at a similar interest rate. These refinancings along with previously completed refinancing transactions in 2019 address all near-term healthcare real estate loan maturities, which was a key 2019 objective. Turning to the hospitality real estate segment. Compared to the same period last year, fourth quarter 2019 same-store portfolio NOI, before FF&E Reserve, decreased 10%, primarily due to incremental room demand, generated from onetime events in the fourth quarter of 2018, and higher room revenue displacement from hotels under renovation and continued wage pressure in the fourth quarter 2019. Excluding the onetime events and renovation displacement, fourth quarter 2019 NOI before FF&E Reserve decreased 8% compared to the same period last year. Same-store portfolio full year 2019 NOI before FF&E Reserve decreased 2% compared to 2018. During the fourth quarter, we also refinanced aggregate total of $982 million of secured debt on two hospitality portfolios, significantly extending outside maturity date to 2026 at slightly lower interest rates on average. Last quarter, CLNC announced a strategic plan to bifurcate its assets into a core portfolio, which will grow and a legacy nonstrategic portfolio, which will be monetized with proceeds reinvested into the core portfolio. Further, CLNC amended its definition of core earnings to only reflect the results of its core portfolio. Yesterday, CLNC reported fourth quarter core earnings of $43 million, or $0.33 per share versus $45 million or $0.34 per share in the prior quarter. More information can be found in the CLNC’s earnings release. Next is our Other Equity and Debt or OED segment. A $1.8 billion equity carrying value portfolio, separated into strategic OED and non-strategic OED. Strategic OED has an equity carrying value of $870 million and includes our investments alongside third-party capital where we earned investment management economics. We’re also actively managing and liquidating nonstrategic OED, which has an equity carrying value of $941 million and includes legacy investments, which are not core to the current investment management business and are not intended to be on for the long-term. During the fourth quarter, we completed planned asset monetizations, returning $35 million of net equity proceeds with the OED segment; and for the full year 2019, we returned net equity proceeds of $566 million from asset monetizations. Looking ahead, the Company has a 2020 asset monetization target of $300 million to $500 million with the goal to ultimately monetize the entire legacy OED portfolio. I will now touch on the industrial platform sale and related corporate capital allocation. In December, the Company completed the sale of its light industrial platform for an aggregate $5.7 billion, which resulted in a net cash gain and incentive fees or approximately $475 million and net cash proceeds of approximately $1.25 billion for the Company’s share. This exceptionally executed sale generated a high teens IRR and a 1.8 times equity multiple on the Company’s investment while utilizing only modest leverage. Those proceeds are being deployed in part to accelerate our ongoing transition into digital real estate, including our fourth quarter DataBank acquisition, and also to redeem $403 million of high cost preferred equity to improve the Company’s leveraged and capital structure, and to eliminate $34 million of annual preferred dividends. And finally, a word about the Company and its balance sheet and operations in light of these recently turbulent times and associated high volatility. First, as mentioned earlier, we believe that the digital real estate business model is extremely resilient, and that there will be no slow down to operation of investment in digital infrastructure. Second, while our risk assessment of the impact of the current environment on our legacy businesses is still ongoing, we have addressed all near-term secured debt maturities, allowing us time to operate and create additional value in these assets. Third, we have $5.5 billion of capped floating rate secure debt. And if interest rates decline in this environment beyond levels already anticipated, the interest savings may act to offset lower operating expectations in the legacy asset classes. And lastly, we are well-positioned with significant levels of liquidity, which today stand at $1.3 billion, including $520 million cash on hand in addition to an undrawn revolving line of credit. We are pleased with the progress we have made in realigning our business to reflect our digital transformation while fortifying our balance sheet, allowing us to experience a strong start to 2020. With that, I will turn the call over to the operator to begin Q&A. Operator?

Thank you. [Operator Instructions] Our first question comes from Jade Rahmani with KBW. Please proceed with your question.

Thank you very much. Starting with CLNC, I wanted to ask what do you expect the likely outcome to be and over what time frame do you think it’s reasonable to anticipate a resolution?

Jade, good morning. It’s Tom. We expect a series of strategies and proposals within the next week from which we’ll then start accepting and curating along with the CLNC board to figure out what the best strategy ultimately for the share value is. Remember, we own 36% of the stock of CLNC in addition of the external manager. And except for a 1,000-point decline in the stock market for the third time this week, we anticipate a very robust review of internalization and other strategic options. Hope for the external management agreement and what will be accretive and positive to shift, the credit business and balance sheet platform is valuable, and as interest rates continue to climb, those businesses get better. So, we’re bullish on looking at what our strategic options are starting really in the next week, which will culminate sometime in the next quarter.

Okay. In terms of CLNC itself and as the external manager of that company, have you considered or will you consider the prospect to bulk sale assets from CLNC’s core portfolios, take those proceeds, and even though it might be at a haircut to par value, you could use those proceeds to buy back stock at 60%-70% of book value, you can announce a tender for the shares. Because I think one overhang that will likely remain until -- so long as CLNY owns 36% of that company is what eventually happens to that block of stock. Is that something that you would consider having CLNC too?

Yes. So, it’s great question, because you’re exactly right. The management contract itself is pretty easy to value that came over of 36% of our ownership is really always a question. We’re trading way below book value and NAV. So, of course, we’re not interested in executing a sale at the values that we are today. But, that race in getting share price back is at a parallel track with what the perception of our 36% is and how we distributed and ultimately where we want to go. So, we’ve looked at the historic value. So yes, we’re looking at all of those options, mostly as it relates to exactly what you’re talking, is what’s the ultimate road to getting that entity’s share value and it’s all those components, right? It’s the legacy assets which really the marketable value to where our written down value is, and we’re at pace, we’re doing great job on those assets, and we’re actually liquidating in a more rapid method than we thought. The other is what’s left in the core portfolio that is believable or unbelievable. And we think we’re pretty close to having that core portfolio stabilized. And that CLO helped a lot. And the third part, of course, is over time, how do you start trading like other externally managed mortgage REITs, although we can go back to a premium to book, we’re trading as you know at a deficit to book. So, all those options are being brought to us at the moment, we’ll evaluate them, including the good ones you suggested, and we’ll come up with the right conclusion. It’s a good solid business and we think we’re right towards the bottom of both legacy assets understanding what the core portfolio is, figure out an execution of liquidity or what we can do to share value. And anybody who’s going to want to do anything with us is going to want some shareholder agreement and direction on what we’re doing with that 36%.

Okay. In the past, some of your language has included the term special dividend. And I wanted to find out if you could provide some insight as to what you meant by that. Would you consider special dividending the CLNC shares to CLNY holders and they can decide what to do with them, or did you meet perhaps special dividending, some gains such as the industrials gain, and the RXR gain? And what does that refer to?

We’ve looked at everything. What we did is try and blend a myriad of all of that. So, in our analysis and our advice this year on our dividend, we decided that we would just establish from cash flow and from gains and set a dividend for 2020 that we can live with that’s fully covered. The special dividend idea is always there, right? There is historic value that bank could value in CLNC depending on where you think you are book value and distributions, some place between 750 or 800 -- can be used for a lot of things. And we’ve always thought that it could be used as special dividend, depending on where we end up on the legacy businesses. The legacy businesses are stabilized, they’re doing actually better than we anticipated in a different way. So, one time when we talk about special dividend, we’ve got hospitality and healthcare, we trimmed out debt to stabilize the income stream, other than the last week, and with ramifications of coronavirus and volatility in this market are, we’re comfortable keeping that cash flow going as we transition. And depending on what happens with CLNC, we always have that as an added liquidity to by either special dividend to convert into cash to do the other things that we’ve always said that we’ll analyze, buying back stock, trim the down the balance sheet, utilize for greater digital acquisitions. We’ve got plenty of liquidity. We’re at about $1.2 billion of liquidity, including what our anticipation is for utilization of the digital machine and market strategy. So, yes, the special dividend is in focus as a tool we could use at the point in time that we started understanding stabilization at 36% share distribution.

Okay. I wanted to also ask, do you plan additional redemptions of preferred? And also, what is your thinking about the convert that matures next year?

Yes. Good question. And we’re always -- even today, like we’re not only analyzing the redemption preferred, we’re looking at the buyback of our stock. I think -- I hate to keep looking at promises. I don’t look at our own stock price every day because it detracts from running the business. But one of the things we’re looking at as a group is buying back common. So, every day, kind of our investment committees, we have a race between what we do and paying down debt, GP products, digital balancing products, special dividends, buybacks of preferred, buybacks of our common, and it’s a race for the long-term, right solution. Today, in a volatile moment -- and whatever you think our NAV is, you might be very tempted to say that best utilization of cash is buy back common stock. So, we’re just evaluating on daily basis. In volatile markets, we try not to make those decisions quite honestly.

Okay. Lastly, I just wanted to ask about the digital investment landscape. Can you quantify what digital fee earnings, equity under management is currently, and how you’re seeing -- what kinds of opportunities are most interesting? And also, if you could address the competitive landscape, there’s been some very large infrastructure funds raised. Not sure how are you seeing the steep amount of competition that’s there.

On that, let me turn it over to our digital tower, Marc.

Good morning, Jade. How are you doing?

Great. Thanks.

So, Jade -- good. Three questions there. Let me try to take them in sequence. I’ll answer your last question first, around the digital FEEUM m that we’re generating today and what we anticipate generating over the course of this year. First and foremost, competitive environment on deals. I would say it’s been as competitive as it’s ever been. And you’re right. We do face a lot of competition out there in auctions. What I would tell you is, we don’t play in a lot of options. It’s just not a place where we find value today. If you look at the 11 investments we’ve made in Digital Colony One, 8 out of those 11 investments were proprietary, where there was not an auction, or a competitive process, but rather we curated the opportunity we spent time with the management team, and we ultimately were able to convince them to allow us to partner with them, and to get the right place. And so, that that for us has always been our calling card. It’s having great relationships with management teams. And we think that is what we’ll endure and that’s how you create value for your LPs and for your shareholders. As it relates to the total amount of revenues that we generate from the digital business. We generate roughly about a little over $75 million in reoccurring fees. What I would tell you, as we look towards 2020, Jade, couple of areas that we guide you to. One is we believe that will grow by at least 15%. And we think that guide is conservative. Unpacking that for a second Jade, there’s two ways that we generate fees. One is through proprietary coinvestment ideas and opportunities for our investors, and the second is new fund products. As Mark Hedstrom said earlier in the call today, we are in the process of launching some new fund products. The details around those will become more apparent in Q2. But, we’re already in flight and raising new IM products. The second swim lane you should think about is coinvestment. So, just for examples, Zayo loan, we raised $2.7 billion of coinvestment. We have four other projects in the coinvestment category today. One of those projects was Project F1. I think you saw an announcement that we expanded Vantage into Europe, and we raised $800 million of equity to support Vantage. $400 million was in a strategic conduct and then $400 million was from Digital Colony Partners One. So, there’s a great example of where we use the fund, Jade, $400 million. We then had coinvestors find out to the $400 million that generates FEEUM care. And you’re going to see more of that -- we’ve got besides project F1, we’ve got three other projects that are in flight right now that we can’t give you details on today, they’re strategic. But, what I would tell you is those three projects will generate significant outsized coinvestment opportunities for Colony in 2020. So, the setup for 2020 is fantastic. We’ve got a bunch of new ways to generate FEEUM. I absolutely anticipate crushing that 15% metric that we’ve guided you to. And we’ll continue to look for deals where others don’t. That’s been sort of my 25-year track record in doing these deals is we typically don’t play particularly well in auction format.

Our next question comes from Randy Binner with B. Riley.

I think, I’ll pick up right there on just parsing out the share of the business at is expected to be digital. And can we just go a step further out and talk about the guide you laid out last fall of AUM or fee earning AUM, however you want to define it -- been 50% for the consolidated entity by year-end ‘20 and then 90% by ‘21. Is that -- that’s pro forma Zayo. And I think that number pro forma Zayo now is something in the high-30s. So, is that right that that number of pro forma Zayo is in the high-30s? And then, is it still realistic to say this is going to be 50% and then 90% digital asset base in ‘20 and ‘21, respectively?

It’s a good question. So, let’s just talk about exactly where we are today before Zayo closes on March 9th, as Tom Barrack told you earlier. We’re very excited to announce formally the closing date of Zayo and our partnership with EQT. Today, we have about $13.5 billion of digital assets across our $36-billion-plus of AUM today. Once Zayo closes, obviously, that’s another close to more than $7 billion of AUM. That takes us up to about $21 billion of digital assets under management. And it takes the firm just a little bit somewhere in the zip code of about $43 billion of total assets under management pro forma for the Zayo close. I think as we think about where we told folks where we are capable of going this year. Once Zayo closes and a couple of the other investments that Mark Hedstrom told you about that we close in the digital investment management platform, we are well north of 40% of digital assets under management. I feel very safe to say that somewhere between 50% to 60% of our AUM will be digital by the end of this year -- at the end of 2020. And I still feel very good as Tom and the rest of our management team with that 90% figure in 2021. We have a very clear roadmap on how we get there. And the way we get there is by continuing to invest our balance sheet wisely, where we’re able to weponize [ph] that capital, bring our LP capital side-by-side with us and some of our best proprietary ideas. Secondarily, as we launch new IM products, specifically in liquid and in credit and further equity products, we see a path to increasing our total AUM on the private side in our digital IM business. And then as I mentioned earlier, Randy, this notion of co-investment is so important to us. We’ve had a rich history at digital REIT, now Digital Colony and our Colony consolidated. So, being able to bring our ideas to our investors, put our capital side-by-side with them and create unique opportunities that candidly LPs are not seeing anywhere else in the world. I mentioned Vantage Europe as an example of that. That’s a proprietary opportunity that was afforded our LPs and it was afforded to Digital Colony One. We’re backing what we believe is the best management team in the planet, in hyperscale data centers. And that opportunity would not be possible without having the unique ecosystem of companies and CEOs that we have here at Colony Capital today. So, I don’t know if that gives you a little more clarity but I feel very good about our 2021 promise to the Street and I feel very good about our ability to generate and outperform our FEEUM numbers for 2020.

Hey, Randy. It’s Thomas. Let me add one other thing, which I think is really pivotal in understanding where we’re going. When we bought Digital Bridge, as you remember, Digital Bridge, in addition to having general partnership interest in the IM side of life moving forward, also managed six distinct silos. And those assets under management, and those silos in a private equity format, rolling up to stabilization to -- at some point in time fit into a public format. You had radio cell towers, micro towers, edge computing, data centers, fiber, smart logistics. And part of what the market is not seeing is what we’re doing is farming those silos, so when Marc said we don’t compete in auctions, much of the opportunities are coming from those silos themselves. And as we math and marry balance sheet to IM, those opportunities, which are not in the marketplace are at the forefront of the things that we’re doing. So, the related party issue. Actually, the reason that we acquired Digital besides the talent base of Marc’s team, was the opportunity to harvest those silos and transactions, and they’re going to be fast, furious. And as Marc will tell you, it’s the most defensive part of asset acquisitions and all of these very confusing food groups in the marketplace right now. And Marc will expand on that as we talk.

That is very helpful. So, the related question then is -- and I guess I’m thinking of this in the context of core FFO guide. But, is there -- it’s pretty rapid transition. How much overlap is there in your professional workforce? In professionals, you can switch to digital from legacy for lack of a better way of putting it? And, how should we think about that? Is there a next step for expense and headcount? I understand that you hit your prior goal but it is a lot of -- it’s a lot of friction, I think to use your term. And so, I’m just curious how much overlap is there, how much ability is there to pivot your existing workforce to, I guess sourcing, diligence and ultimately investing in these new asset types? And how does that all fit into the core FFO guidance?

Yes. It’s a great question. So, the base business, right -- if you look at our constituencies, we have a number of constituencies but the biggest one, our shareholders and you, side by side with that, our limited partners, right, institutional investors. And both of them exactly have the same requests. On the partner side, you see value over term, looking for the best economics on seen, carrying on the shareholders side, saying maximize the fees and then recur it and give us more distributable [ph] come on a recurring basis. Use your balance sheet when you need to, originate and syndicate. So, that base business is 28 years old and that’s solid and that stays. So, the machine to digest whatever it is, whatever animal is out there that goes through that digestion chain is the same, whether it’s digital, whether it’s hospitality, whether it’s industrial, whether it’s credit, the underline basis of that should get better and better and more efficient and more efficient. On top of that it changes. So at a senior level, Marc’s team, which is home warriors have been doing this for a long time takes precedence on the acquisition, origination, management process of those silos underneath. So, you have six lanes, all with the different cards them, going down the same highway. So, at the top, some of that will change. And some of our senior people get recycled. And why do we recycled, because as we discontinue businesses, some of them are the best in class in that particular business. And they will decide that they need to move on to another frontier to pursue that and will help them do that. And that financial level we should think. So, I think part of the problem and it is -- yes, it’s going to change. Yes, there’s going to be teams that change. There will be a lot of people that rise to the top in this process as we move harder and harder into digital and that’s the financial evolution, emotionally difficult at times. But, it’s the nature of the game to adapt, to move, to rely, to give accountability and responsibility side by side. And, we’re all learning quite as honestly as everybody in the marketplace, not just turning to digital. But, if you look at what’s happening now, the only stable thing is the iPhone in front of you. So, everything else is going volatile. But, what’s happening is the amount of data that’s being communicated, the kind of entertainment, the kind of information, the information that you need is more and more coming through these mobile devices. And as coronavirus for instance, that’s happening in space. So certainly, big parts of our team will have replanned or refreshed and replaced. We’re talking about doing that from the top down, starting with me. So, we take a dinosaur like me that’s been one aspect of the business, the best thing that I could have done for this Company is go out and find a warrior who can take it to the next frontier. And we did that. And at the Board level is same thing. We have the best, most focused existing Board. We do need some help. We need a digital point of view of technological and telephony background that none of us have. So it’s going to rotate and change. And that’s good thing. That’s the nature of the animal. And we think we’re going to be the only public company that has a diverse ecosystem of technology and telephony to those five large logos. And that is a frustrating thing for you. But we’re clear. We see the roadmaps. The short term payment that we’re taking in the middle of going there is not bothering us. My job is to protect this balance sheet through the next five years, not through the next five days.

Okay. That is helpful. And just to be clear, that is all in -- I mean, all that’s contemplated within the FFO guide. The upfront cost to change the workforce over.

Yes, 100%. And then, Randy, one thing for you to consider, for example, when we went out we raised that $4.1 billion fund last year, we used the entire Colony IR apparatus to go raise that fund. And so, now, under Kevin Smithen’s leadership, who’s our new Head of Capital Formation and Strategy. Kevin guides that team not only to go out raise new equity products, Randy, but it’s also out helping deliver team, the credit team and reading our co investment efforts which are massive. So, that’s a great example where we took the existing infrastructure. We “did digitize it”, so to speak. And it’s one of the most effective fundraising teams in the world of digital infrastructure. And there’s other examples of that where we see folks that have worked at Colony for example in credit, or they’ve worked in IR, they’ve worked in HR work -- we’re putting that playbook together. We’re integrating the companies. What we told you what we would do last year is that we would make significant G&A cuts. We delivered on that goal, we beat it by 10%. What we told you for 2020 is we’ll reduce G&A by another $10 million to $15 million. And depending on how accelerated as Tom said, as we find the right home for certain assets, logically, certain G&A may go with those assets. We may end up having a little bit of a bit of a beat to that $10 million to $15 million of incremental G&A guidance that we’ve given you.

Our next question comes from Jennifer Fritzsche with Wells Fargo.

Marc, I appreciate at the beginning of call addressing the current environment. It clearly is a fluid situation. But, as you look at your different silos of broadband infrastructure, I guess, what are you most excited about? Because, clearly, they’re critical in the environment we’re in. But, if you look at like data centers, wireless infrastructure and certainly fiber, if you were to look to build out any more of that, which area would it be in?

Jennifer, thank you. And first of all, thank you for participating. We’re actually excited about a lot of things right now. And to pick one perhaps would be unfair. But as you know me, from time-to-time, I do sometimes rank the children and try to prioritize which one are performing better than others. But, I will tell you, the early guide we’re getting from customers in 2020 is, they need more dark fiber, and they needed in more locations. So, the densification of that fiber plant, Jennifer. And the demand on higher stream health is something that’s pretty unusual. And I see an insatiable amount of demand for dark fiber. And what’s interesting is, is where that dark fiber is going. And so, as we trace the roots of where our customers are asking us to go, obviously, data center connectivity is huge. But the biggest thematic, I think you have to keep your eye on 2020, it’s really where that fiber ends up in CRAN [ph] hub, or a baseband hotel. We really see edge computing as being the main thematic, as we push into this next topology of network architecture. And so, where that takes us to is an environment where you have more open ran architecture, and you have smaller hubs where you’ve got an accumulation of radio, cable companies, IoT providers, content providers, converging in these CRAN hubs that have either dual path or multiple hubs, dark fiber routes that are exceeding to other places. And those other places could be main data centers, they could be switch facilities, they could be small scale nodes, they could be macro sites. We see a massive surge in demand for CRAN computing, which is really what we refer to today and you, the analyst community referred to today, edge computing. So everyone is constantly asking me, Jennifer, where’s the edge, define the edge. Well, the edge is where the customer tells us their network is the weakest, and where there’s a define latency problem. So that edge can be different for Netflix; it can be different for Amazon; it can be different for Azure; it can be different for T-Mobile; it can be different for NVIDIA. And this is really the opportunity and the challenge for us, is that we have massive assets today that have the best defensible characteristics. Because as you think about where edge computing is happening, it’s happening in a Colony CRAN hub, it’s happening at a DataBank, edge data center. It’s happening on an XNet [ph] network, it’s happening on a Zayo long haul route. And those long-term relationships with our customers are what is going to endure. And it’s what’s going to pay the road for growth as our customers continue to invest. So, I’m really excited, I think. So, the short answer is dark fiber CRAN hub, but places where we see our customers growing and in places for our investors where they’re going to find safety and comfort and the defensible characteristics of our assets.

If I could just add one more question kind of tailing off that, since your last call, you’ve had two pretty major developments; you’ve had the Sprint T-Mobile merger approval, which puts into place. And I think as we speak, we have the FCC talking about freeing up 280 megahertz of C band spectrum. I think is it fair to assume you see both those events being significantly positive for kind of each your silos, maybe data centers is kind of separate one, but?

Sure. Let me take the T-Mobile Sprint merger. First of all, we were very early in supporting the merger. And we believe that a stronger T-Mobile and a stronger Sprint makes for better outcome for consumers. We’re very close to both those customers. As you know, T-Mobile being a dominant carrier in that merger has a massive program for investment in 2020 and 2021 and beyond. So, we have a fantastic relationship with them. And we’re building a lot of infrastructure for them as we speak. And that’s a unique logo for us, Jennifer, because it needs more fiber, it needs more CRAN hubs, it needs more small cells, and it needs more macro sites. And our ability to deliver converged solution for T-Mobile is unlike any other digital REIT on the planet. So, when we sit with Neville Ray, and we sit with his team and Mike Simpson in engineering, we’re not talking about how we deliver one tower. We’re not talking about how we deliver 10 nodes. What we’re talking about today at Colony is, how do we deliver a solution for an entire market? Let us handle that for you. We have the capital formation, we have the necessary skills, we have the ability to entitle things, but most importantly, we have the ability to execute, and execute across multiple verticals for our customers. And so, as we think about where T-Mobile is going, we see the future for that organization is very bright. I’ve had a multi-decade relationship with Neville and Braxton and the entire management team there. And we’re looking forward to going incredibly deep with them. At the same time, as you look through the assets that perhaps get left behind and the Sprint legacy assets. It’s a huge opportunity for Charlie and Tom Cullen. We’re very excited about what DISH is doing in 5G and IoT. We’ve been a long time provider of infrastructure to DISH. I think Charlie is one of the smartest guys in the industry. I’m really excited to work with him and his team in building their network. They’ve got massive initiatives out there right now for fiber and for towers and our portfolio of companies have gone to them and have responded to their needs. But once again, it’s a unique invitation for us to sit with that customer and provide a holistic set of solutions in a converged network environment. And this is something that we can do that perhaps some of the other digital REIT can’t provide that total end to end solution in a 5G converged environment. So, that for us is very exciting. And we think the early designs on what DISH is doing is very, very exciting for customers. I think you had one other question, Jennifer. I don’t know if I answered all your questions.

Just the C Band spectrum. If this happens, 280 megahertz of spectrum pushed into the market.

Sure excited about CBRS. So, one of the things that we’ve been doing, Jennifer, is we’ve been trial testing CBRS with enterprise users, and we’ve been doing that at XNet. And so, we have NDAs in place with some major corporate manufacturers that have millions of square feet of manufacturing space and hundreds of thousands of employees. And XNet has the ability to deploy network, deploy that spectrum and create a unique wide area network on enterprise 5G that is unlike any other systems we’ve ever seen. And what’s great about that is, we’re bringing cost savings to enterprises. We’re helping them deploy their applications across their own wide area network. And at the same time across that main corporate user, because of the nature of that spectrum, we can also host spectrum for T-Mobile, for AT&T and for Verizon, and really bring down their total cost of infrastructure. And so, by having shared infrastructure, by sharing that spectrum and by having someone like ourselves or our good portfolio company XNet at Illinois deploy those nodes, deploy that fiber, and then deploy that spectrum, it’s a real game changer for enterprises. So we’ve got actually three trials going on right now, all of which are generating revenue for XNet. So, this is a revenue opportunity, it’s a new opportunity. And I’m really looking forward to talking about CBRS over the next couple of months in some of the conferences that we’re going to. I see CBRS as being a major opportunity for us at Colony because we have so much real estate, we have so many buildings that we can penetrate, we have amazing large stadiums and venues and airports and tunnels and other places where we can really bring down the total cost of bandwidth for mobile operators as they proliferate their 5G networks. I’m really fired up about it, as you can tell.

We have reached the end of the question-and-answer session. At this time, I’d like to turn the call back over to management for closing comments.

Great. Well, thanks, everybody. And I know today everybody’s minds are on a lot of things in the midst of all this volatility. And what comes to mind, I think for us is one of the benefits of hard assets, which sometimes seems like it’s plain because it’s so slow moving. It is slow moving. So, we hope that the coronavirus doesn’t become a pandemic. We’re evaluating all of the options and alternatives, and concluding by the way, what opportunities may come as a result of it, and how to be defensive across all of our businesses. And as Marc told you, the defense nature of digital is superb. Hospitality and healthcare, we’re constantly evaluating how to reposition, what we do defensively. What we also might do offensive, those businesses are producing massive core FFO and cash flow. And in moment like this, there may be opportunities as we look to take those legacy assets in separate silos to do lots of things. So, we’re looking at buying back stock, we’re looking at preferred, we’re looking at when we do the conversion as time comes down. But remember, the decreasing expectation of interest rates goes right to our bottom line. So, the floating rate ability of most of our debt is a huge, huge asset. So, thanks for being there with us. Let’s hope that these markets stabilize and that the coronavirus somehow comes up with a solution without too many more deaths or consequences. Thanks for being with us.

This concludes today’s conference. You may disconnect your lines at this time and we thank you for your participation.