Greetings and welcome to Colony Capital’s First Quarter 2020 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Severin White, Managing Director of Investor Relations. Good morning, everyone.

Good morning, everyone, and welcome to Colony Capital’s First Quarter 2020 Earnings Conference Call. Speaking on the call today from the company is Tom Barrack, Chairman and CEO; and Marc Ganzi, our CEO-elect, current CEO of Digital Colony and Mark Hedstrom, COO and CFO. Before I hand the call over to them, I’ll quickly cover the Safe Harbor. Some of the statements that we make today regarding our business operations and financial performance, including the effect of the COVID-19 pandemic on those areas may be considered forward-looking and such statements involve a number of risks and uncertainties that could cause actual results to differ materially. All information discussed on this call is as of today, May 8, 2020 and Colony Capital does not intend and undertakes no duty to update for future events or circumstances. For more information, please refer to the risk factors discussed in our most recent form, 10-K filed with the SEC and in our Form 10-Q for the quarter ended March 31st, 2020. During this call we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in today’s earnings press release, which is distributed and available to the public through the public shareholders section of our website located at clny.com. Thanks and now I’d like to turn the call over to Tom Barrack, Chairman and CEO of Colony Capital. Tom?

Thank you, Severin and good morning everyone. Before we begin, I want to hope that your families, your friends, your colleagues are all safe and well and that you’re taking good care of yourself through these extraordinary times. I also want to express our sincere gratitude to the medical community and the first responders without whom we would be lost. At Colony, we’ve taken all possible measures to safeguard the health, safety and wellbeing of our employees, tenants, customers, counter parties, and the communities in which we operate on a global basis. We transitioned to a virtual workplace more than 45 days ago and support our teams and their families as they continue to work fervently and dedicatedly from home. Crises are not a new phenomenon, while we have the privilege to secure Colony through at least five global past tsunamis during my tenure at Colony. There are a few lessons learned that are constant and that I’d like to share with you. Number one, many investors, especially contrarian investors, seem to always hope for volatility to look forward to that unforeseen intervening event in order to have an edge or a widening investable horizon that comes from that contrarian investment philosophy. That is of course, until that unforeseen intervening event occurs and then the common theme becomes, this is a crisis like no other crisis. What do we do? Where do we go? And then panic. Well, we’ve learned that the key element to avoid panic is patients and that the panacea is focused in continued dedication to the long-term goal, which in our case it’s a pivot. Secondly, concentrate on those things that we can control. Don’t waste time on the things that we can’t control. There’s no point in spending untold resources of time and talent on…

Thank you Tom. I’d like to echo Tom’s praise of all of our employees for their dedication during this challenging time. As I think many of you have heard me say in the past, people create alpha and their hard work is truly appreciated. We’ve never been better prepared to face adversity like we’re seeing today. First, I’d like to thank Tom and the Colony team for making the CEO succession process so seamless. Jacky Wu, my new partner and our incoming CFO and I are eager to get started and chart the next course of Colony’s journey. As Tom mentioned, our strategic pivot to digital is more relevant than ever. As the pandemic is unfolded, we’re all seeing how vital a role mobility and reliable digital infrastructure plays in the world today. I would offer you to all of you without today’s technology, social distancing would have meant isolation. Instead, we’re seeing an explosion in usage and use cases from telecommuting to distance learning to virtual events, telemedicine, e-commerce, online fitness and entertainment. This unprecedented demand for remote connectivity, cloud access and mobility is also highlighting the mission critical nature of digital infrastructure. The unique combination of growth and resilience has made digital infrastructure both a safe haven and an exciting new area for attractive returns. And we’re well prepared to capitalize on the opportunities across the digital ecosystem. Not only are we built to serve the world’s leading technology and telco companies as they deploy next generation networks. Most importantly, we’ve got the capital and liquidity to execute. Even as COVID-19 has delayed the recycling of our balance sheet capital in a digital between our portfolio companies and the dry powder at digital colony partners, we still have close to $3.5 billion ready to deploy into new opportunities…

Thank you, Marc, and good morning, everyone. As a reminder, in addition to the release of our first 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 first quarter 2020 results, business segment performance and an update on liquidity and cost reductions. Turning to our financial results, for the first quarter, GAAP net loss attributable to common stockholders was $362 million or $0.76 per share. The loss included $313 million of non-cash GAAP impairment charges, including $242 million of real estate impairments, primarily in the hospitality and healthcare segments, as well as a $71 million reduction in the carrying value of goodwill related to certain components of our legacy investment management business. Core FFO was negative $20 million or $0.04 per share. Excluding net losses of $22 million primarily attributable to net investment losses in other equity and debt segment, core FFO was $2 million. Company’s results in the first quarter of 2020 were primarily impacted by the economic effects of COVID-19 during the month of March, particularly within the non-digital businesses, including most significantly our hotel exposure through our hospitality and THL portfolio, and certain other equity and debt investments. The company expects the effects of the economic impacts of COVID-19 pandemic to be more significant in future periods beginning with the second quarter of 2020. As Tom mentioned, we have taken a number of proactive steps to enhance the company’s liquidity and financial flexibility as we adapt to the impacts of COVID-19 on our businesses. First to conserve cash, the Board of Directors is determined to suspend the common dividend from the second quarter of 2020. This will preserve approximately $60 million…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Jade Rahmani with KBW. Please go ahead.

Thank you very much. Nice to hear from you and hope you’re all safe and doing well. To start off with, I wanted to ask with the suspension of the common stock dividend, which I believe is the prudent decision and with the deferred decision on the preferred stock dividend. I think the most basic question I’ve been getting from investors relates to your confidence that the Colony common equity position can be preserved and will in fact survive. Can you please speak to that and address the exposure of a recourse debt, which is approximately, I believe 20%.

Jade, it’s Tom. I’ll take a crack at the first part and Mark Hedstrom can talk to you about the debt. Hope you are safe and well and surviving through this too. First of all, the survival of the common stock of Colony is a certainty. We wake up every morning with 8,000 different edges of this Rubik’s cube as do every one of our peers and evaluate a long-term perspective on the basis of having enough liquidity to get through a scenario, which is the worst case, hoping that in front of us all on a health basis and on an economic basis is a better case. We have a variety of legacy assets that are under pressure, hospitality being the most significant as we’ve talked about. And we have created a pivot up to almost 40% of AUM rolling into digital, which has unbelievable sustainability through any of these environments. So this is a different kind of a crisis. We’re not concerned about the solvency of our business. We’re concerned about the liquidity of our business. And as we’ve said, time and time again, this crisis is about liquidity and all of the ramifications that we’re dealing with are really focused on liquidity, optionality, adaptability and we’ll navigate through this. Look, the prudent thing on the common dividend and on every decision you make every day is to retain optionality. And we don’t know just like you don’t know what’s in front of us tomorrow. So we can talk about hospitality occupancies, we can talk about what’s happening in wellness infrastructure, we can talk about what’s happening in the credit businesses, and borrowers, counterparties, tenants, occupants are all under tremendous pressure. So we go day to day on the basis of saying the key to long-term survivability and common stock profitability is day to day liquidity. And I think that’s the only answer anybody could give at this point in time. Mark, do you want to comment on the recourse aspects of debt?

Sure, Tom. And just briefly, I think we have substantial corporate debt, of course. At the investment level, all of our debt subject to customary carve-outs is non-recourse. And at the corporate level we’re in compliance with all of our debt covenants and conditions and we expect to be able to meet obligations as they arise. So we’re – there’s really no leakage out of the investment level and corporate debt is well under control today.

In terms of the liquidity, the press release notes $1 billion of corporate cash on hand, which includes $600 million of revolving credit facility capacity. What are your expectations for cash utilization for 2020? What are your expectations for cash generation for 2020? And what are the covenants on the recourse debt?

Mark?

We expect to be able to fund the operations of the business from cash flow generated from our sales of assets and operations. The covenants of the non-recourse debt are remained at the investment level. Again, subject to customary carve-outs those bad debt is non-recourse. And we have that 80% of our debt stack is non-recourse, only 20% of it is corporate level. As you correctly pointed out, Jade, we’re in compliance, but right now we expect to be able to access our revolving line of credit and stay in compliance with corporate debt, non-recourse debt at the investment level, particularly in the hospitality portfolio. We’re in discussions with lenders as we speak. I have received a number of positive reactions and forbearances from those lending parties and expect to continue to make progress there.

Lastly, on the financial covenants recourse debt, primarily in the credit agreement or are there other instruments that have covenants speaking to the recourse debt solely?

So the only covenants that are related to operating performance are in our revolving line of credit. That’s the only instrument that has covenants. And as of today, we’re in compliance with all of those covenants under our revolver.

Thanks for taking the questions.

Thank you.

Next question comes from Randy Binner with B. Riley. Please go ahead.

Hi, good morning. So just on the – just a quick one on the preferred, can you quantify how much cash that would potentially preserved on a quarterly basis? And I believe all of those are cumulative. So again, I guess how would the accounting for that work with that cash you save really be unencumbered if you did choose to defer that payment.

Yes. Randy, it’s Tom. So $76 million a year more or less on preferred. So it’s a meaningful number. On the accounting side, I defer to Mark Hedstrom. Mark, what’s the accounting treatment?

We would still accrue that preferred dividends on the balance sheet. It’s – it would still get carried and reflected in the financials. And there are covenants within the preferred that say that if we don’t make that preferred dividend to bring it back to current within six quarters, then there’s consequences related to that that are within that instrument. But it remains on a balance sheet.

And Randy, I think our key consideration…

Okay. So the liquidity is unencumbered, I guess is what I’m trying to figure out.

Correct. Correct.

Okay.

It doesn’t affect. It wouldn’t encumber liquidity.

I guess just on healthcare, I noticed you did dispose the skilled nursing facility. Can you – I mean, hospitality clearly has got a lot of pressure, but can you talk a little bit to healthcare just in really with kind of an eye towards the ability to sell assets there? How – what parts of your portfolio are transacting, which aren’t? It’d be interesting to hear how the different pieces of your portfolio are perceived in the market from an asset disposition perspective.

Hi, Randy, it’s Tom. So if you take wellness infrastructure and divide it into medical office buildings, hospitals, skilled nursing, in your housing; so many different components, but the amazing thing is the resiliency of what’s happened in our wellness infrastructure categories on all fronts, right? We’ve collected a little over 90% of revenue streams in all of those categories. Of course, hard to set medical office buildings when you think of doctors and what happens as a result of social distancing and where they’re going, hospitals, we know about skilled nursing is unbelievably difficult. And remembering that we are not operators ourselves, so we’re a couple levels removed from the patient and the payment sequence. And without going into the parade of horribles as a result of the epidemic of trying to relieve hospitals from the non-COVID patients and adapting in every community and every regulatory environment we have to those requirements, which has been remarkable. So when we talk about asset sales, I think as you look across our peers to the bigger and better each of those categories that add specific focus on senior housing, which is hard hit, right? Senior housing and our portfolio is doing well, but the senior housing industry is not getting much subsidy from the governmental programs. It’s an orphan and it’s very difficult because if you have senior housing, it’s normally rotating at 5% or 10% vacancy levels and relying on new occupants and prospective seniors, it’s not happening, right? You can’t address a preview of these facilities with even non-COVID patients because of all of the parade of horribles that we know. So when we talk about moving the assets or sale of the assets, we are engaging in sale of some of the assets. Those assets are being sold.…

Okay, great. And then my third question is on digital. And it’s very welcome to have the digital segment broken out from the financials.

Sure.

It looks like the AUM overall and then the FEEUM of $7 billion is pretty in line with what was covered at the December strategic outlook call. Maybe it’s a little bit ahead of plan. But can you all just take a second to kind of let us know where you are, and what was delivered here and where you’re trending in the second quarter in digital relative to what you laid out in December? I’m kind of thinking of our blended fees overall around 100 basis points. I think we had talked about a margin maybe to be around 40% in 2020. Can you just give an overview of kind of where you are versus that expectation in December?

Yes. Good morning, Jade. It’s Marc Ganzi, how are you?

I’m good. It’s Randy Binner from B. Riley.

So, Randy, just the guidance that we gave you back in December and where we’re trending right now is, let me sort of break it out into a couple of different sub categories for your ease of use. First and foremost on the digital IM business, we had a very strong first quarter. Co-investments came in quite strong. We had the co-investment related to Zayo. We had co-investments related to Vantage Europe. And so our total FEEUM and FEEUM bearing capital increased at a pretty good clip in the first quarter. And what we had told you back in December is we wanted to grow FEEUM by 10% to 15% this year. And so far we’re off to a very good start on that goal and obviously raised a lot of third-party capital for both of those opportunities on co-invest basis. We don’t see that slowing down. We have a continued plan to deploy new digital IM products and to continue to deploy new digital co-investments. And so that guidance that we gave you, that 10% to 15% FEEUM growth is something that we obviously intend to beat this year. And I would say the fundraising environment right now for our digital IM business remains incredibly robust. Investor demand for what we’re doing and investor appetite for our IM products is quite strong and our capital information team right now is out in active dialogue with literally a couple of hundred investors across a bunch of new products and new co-investments. So we’re obviously very excited about that. I think as it relates to the assets that are on the balance sheet, Digital Colony Partners One is over 73% deployed now with committed capital to those existing 10 investments, that 10 portfolio companies in DCP One were at 80% of…

All right. Well, thanks for that. Best of luck.

Next question comes from Jennifer Fritzsche with Wells Fargo. Please go ahead.

Thank you for taking the question. This question for Marc Ganzi, if I may, Marc, there seems to be a lot of talk about the broadband infrastructure component to a possible fourth stimulus. I’m curious as to the collection of assets you have there. How do you see that playing out? From what I understand, 5G will there be very much wrapped into this? So how do you see Colony playing in that? Thank you.

Sure. Thanks, Jennifer. Well, look, I think our companies that are based here in the U.S. will certainly benefit from that. Our largest investment, Jennifer in Digital Colony Partners 1 is a business called Zayo. Zayo obviously is a broadband communications provider and engages in business with the government and engages in businesses with other constituents inside the government like e-rate plans. We really think the stimulus bill that is being contemplated right now, we’re really focused on rural broadband connectivity. And my purview of sitting on the broadband deployment action committee on behalf of Chairman pie, I think that is a core focus of the FCC right now is bringing that connectivity to rural areas and that’ll be something that perhaps Zayo will engage in. I mean most of our networks are traditionally in the urban core where we have dense urban metro fiber and we have obviously really strong long haul capacity, long haul capacity here in the U.S. and in Europe and in the ocean that connects us. So I think in thinking through the first stage of any stimulus, it will be focused on rural connectivity and Zayo will probably have a little bit of a seat at that table. We’re not expecting a significant seat. It really Zayo doesn’t need a subsidy of any sorts, because to be candid, the knitting is quite strong in its core business today. So I wouldn’t anticipate a short-term stimulus bill would impact us. I think looking around the corner of any other potential government stimulus around 5G, the most important thing right now, Jennifer, is we need to get the CBRS spectrum out there. I think that’s a real important part. We’ve got to continue to have the FCC push, spectrum auctions along. You’ve seen some of that activity in the first quarter. And the best way to spur innovation is to put new spectrum outs. So my hope is that the government will continue to accelerate spectrum deployments, so that we can continue to innovate and invest and work with our customers to deploy that technology. So I really – from our impact, obviously these stimuluses around broadband can certainly be helpful. But to be honest, in caucusing with our 15 CEOs last week, I didn’t hear any of them say that they needed a stimulus package of any sort to enable their businesses.

And one more if I may. This obviously market has caused much dislocation in terms of assets as we’ve talked about, do you – as you look at your plan to continue to increase the digital portion of your portfolio. Do you see some bargain basements out there? Or is there – has there been some contraction of multiples for a reseller to maybe we’re holding out?

Yes, I would say listen, private market multiples really haven’t moved that much yet, Jennifer and I think that’s probably going to persist through Q2 and I think we won’t see significant movement in multiples probably to Q3 and Q4. It really comes back to a central thesis that Tom hit on earlier. It’s just about liquidity, right. And so when liquidity gets constrained and lenders stop lending that’s when we really find that there’s a significant movement in private M&A pricing. And so we’re – we’ve been patient, we picked our spots over the last 90 days. We’ve been able to get a few deals done that that diligence was complete in Q4 or in January of this year. And our lenders showed up for us based on a long standing relationship. So if you can get deals financed and you can put adequate to conservative leverage on those deals, you can get deals done in this environment. I think looking sort of around the corner and where we think M&A will ultimately be that’ll be very much driven by the capital markets. And I think we will continue to see opportunities. I mean at down at the portfolio company level for tuck-ins and for Greenfield opportunities, those are quite robust at the moment. So we’re seeing a lot of opportunities down at our 15 portfolio companies where there’s a bigger opportunity to get closer to our customers and to help them enable and deploy next generation networks. So I think for us, it’s going to be keeping a careful eye on M&A, it’s going to be supporting our portfolio companies. And then I would say just a small nuance towards credit for a second. The real dislocation right now is perhaps happening in companies that had older legacy…

Thank you.

Next question comes from Ric Prentiss with Raymond James. Please go ahead.

Yes, good morning. Hope you, your family, your friends and employees stay well. Good to hear, everything’s going okay so far. A couple questions on the digital infrastructure side. Marc, you mentioned the CBRS auction, I think that’s been pushed back from June to July, but how do you see Colony Capital playing in that? Is it the spectrum side? Is it the in building side? Is it maybe with the cable guys at macro side? What do you see as the opportunity of spectrum, which is the lifeblood of wireless?

Yes, I’m very excited about CBRS, and good morning, Ric. Good to hear your voice. Hope you’re doing well and wish you and your family well. For me, CBRS is a huge catalyst, Ric, because it’s the advent of what we call enterprise 55 and so we’ve been having CBRS trials down at ExteNet, one of Digital Colony’s portfolio companies and it’s been really encouraging. And those tests recur are really faced on the enterprise. So we’re partnering up with a corporate logo or we’re partnering with a government entity where we own the infrastructure, we build the infrastructure for the entity and we run it for them. And so in that environment, where it’s a control environment, whether it’s a corporate headquarters, it’s a factory or for example, it could be a port could be a downtown CBD area. CBRS has so many applications right now, Ric. So as we think about it, there are a bunch of different ways that you can play in it. And we are actually canvassing spectrum, we’re canvassing the management of the spectrum. We’re looking at owning the infrastructure and deploying and working on behalf of enterprises where the enterprise engages us and we enter into long-term contract with them and building and managing that infrastructure. And then of course, obviously at Colony, we have a rich heritage in real estate. And so having access to a lot of commercial real estate and a lot of the folks that we lend money to some of the businesses like hospitals where we actually have a hard infrastructure where we can partner with hospital groups to deploy that spectrum. And then just looking through other applications and outdoor applications where we have a rich heritage in partnering with governments and partnering with municipalities. There are…

Great. Second question for me is on the fiber side, like you say, not all digital assets are created equally. How is the fiber business at Zayo doing through this economic time? There’s differences obviously between enterprise fiber, dark fiber and any issue with churn, bad debt, collectibles, and how do you see the whole fiber industry basically?

Listen, I’ll give you our experience at Beanfield and Zayo, which are our two of our portfolio companies in Digital Colony 1. Starting in the U.S. with Zayo, they had a tremendous first quarter, I would say net bookings, probably the strongest quarter that Zayo has had probably in three or four years, Ric. So really tremendous net bookings largely aided by lit services was significantly up. Spot bookings were up in that ability to deploy incremental lit infrastructure for customers was delivered upon. So that was a great result. On the dark side, same thing, focused on obviously data center connectivity, supporting our cloud customers, supporting mobility, all of those verticals, Ric had been up and had been performing incredibly well. We have a data center business inside of it called zColo. It’s had a couple of bumpy quarters, but in March, we turn that and reverse that trend and that had a positive quarter, so positive month and looks like it’s continued to be positive in April. So Zayo from a net bookings and net install basis had a very, very strong first quarter. So we think that was about 11% up over last year’s first quarter, so really good first quarter. On the Beanfield side in Toronto and in Montreal, in Northeast Canada, tremendous, tremendous quarter for them. Their bookings were up over a 100%. Over last quarter, that’s not a typo. So they had a fantastic quarter. That was a combination, once again, it’s lit and dark, but most of that being lit metro, and focused on enterprise users. So really a tremendous moment for the fiber sector and owning, good durable plant with high strand count, and having that strand count open where you can activate for customers quickly is really the name of the…

Great. Thanks and best to you and your family and friends. Everybody stay well.

Thanks, Ric. Appreciate it.

Thank you. I would like to turn the floor over to Tom Barrack for closing comments.

Thanks, everybody. And we hope you have a great weekend. I wanted to end with just a notion, which is, we’re all suffering through the unknown COVID and what it does to all the businesses that we steward and manage and all businesses in which you invest. But in actuality for Colony, we started this adventure a long time ago. So we formed a joint venture with Marc and his team in 2017. Not ever forcing COVID, but starting this rotation from legacy assets, which at the time we felt were fully valued to digital, which we believe to be that the railroad is the future. And 18 months from then a historic $4 billion fund, which had never been achieved before. And in the last really 18 months, Digital Colony moving through acquisitions of companies like Zayo, a $14.3 billion transaction, of which DCP itself committed $800 million. The addition to support Marc as my successor coming on in July as we turn the corner to a new kind of company with four new highly qualified directors and Jeannie Diefenderfer, who just came on Board, adds that technological background also. And all that’s been fueled on digital by a legacy team that’s supplied the capital to do that over $12 billion of asset sales in order to get to this rotation to $20 billion of digital assets from zero start three years ago. So we’re listening to the noise. COVID has complicated everything, but we had the right vision. We created the right structure. We’ve been divesting the assets that we thought had reached their optimum of value. We have a temporary liquidity issue, which we’re to solve and we’re going to pay attention to. We have a new CEO and direction. Marc is going to do a sensational job at manning the new digital frontier and safeguarding the old legacy assets. And sorry for the interruption along the investment field and thanks for your patience, but this too will come to pass. Colony will prevail, Colony will become the foremost digital infrastructure provider and we’ll get through this crisis all together. So Godspeed, have a safe weekend, keep your family safe, and thanks so much for being with us this morning.

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