Greetings, and welcome to the Colony Capital Third Quarter 2020 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] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Severin White. Thank you. You may begin.

Good morning, everyone, and welcome to Colony Capital’s third quarter 2020 earnings conference call. Speaking on the call today, from the company is Marc Ganzi, our President and Chief Executive Officer and Jacky Wu, our Chief Financial Officer. Before I turn 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, November 6th, 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 September 30, 2020. With that, I'll turn the call over to Marc Ganzi, our President and CEO. Marc?

Thanks, Severin, and thank all of you for joining us this morning and taking time to learn more about Colony Capital, and the digital transformation we're in-flight on. In terms of the agenda today, I'd like to start with a business update. I'd like to highlight some of our key accomplishments in the quarter. And I'm going to turn it over to Jacky, who will walk you through our 3Q financial results and some of the progress we've made in our digital revenues and our digital business. I'm going to finish today with the case study from our digital playbook. I want to highlight progress we've made at DataBank, how we're creating the value for our shareholders, and where we see that business continuing to grow on the edge. Look, it's been an incredibly busy quarter, again, so why don't we get right into the materials, and I'd please ask you to turn to page 5. Before I detail the significant progress we've made in the quarter, I'd like to start by briefly reviewing our strategic plan, particularly for investors that are now new to the Colony 2.0 story. We've had a profound transformation underway transitioning from a diversified REIT, managing real estate assets across many verticals to a singular platform that's focused exclusively on digital infrastructure, which is cell towers, data centers fiber and small cell infrastructure. The key rationale for that transition are detailed right in the center of this slide. First, I want to align with powerful secular tailwinds that are driving consumer and enterprise demand for more, better, and faster digital connectivity. Second, I'm a big believer in simplification, business simplification and a simpler narrative for you our investors. Three, we've said this many times over the last couple of quarters, but the key to this…

Thank you, Marc and good morning, everyone. As a reminder, in addition to the release of our third quarter earnings, we filed a supplemental financial report this morning, which is available within the Public Shareholders section of our website. Starting with our third quarter results on Page 11. The company has continued to make progress in its digital transformation. Digital assets under management increased to 50% of total AUM at the end of the third quarter and over 55% of total AUM on a pro forma basis including pending digital transactions and the anticipated sale of the hospitality portfolio. For the third quarter, reported total revenues were $317 million, which represents a 10% increase from second quarter revenues of $287 million. While this is a marked improvement from the last quarter, it is still a 12% decrease from the same period last year, primarily as a result of the impacts of the COVID pandemic on our legacy business as well as from legacy asset sales. GAAP net loss attributable to common stockholders was $206 million or $0.44 per share. The significant sequential improvement is primarily due to our recognition of a $2 billion impairment charge on our legacy assets in the second quarter. Total company core funds from operations excluding gains and losses was $5 million in the third quarter. This turned positive from a $19 million loss last quarter, driven by continued digital growth as well as improved performance on our legacy assets. Turning to Page 12. As we continue to simplify our business and further the digital transformation, we are also streamlining our financial disclosures for the legacy business, while emphasizing our growing digital results in order to provide transparency to our investors. The prior digital segment has now been separated into three segments: digital investment management, digital…

Thanks, Jacky. In this final section, I'd like to discuss, how Colony is growing at the edge by taking you through a case study on DataBank. I believe, this demonstrates the opportunities we're focused on. The value we bring to our portfolio companies and that we ultimately create for you as a Colony shareholder. Next slide please. First, I want to give you some context. Everyone has been talking about the edge for the better part of the last 18 months. And for us, we really want to break the edge down and really explain what it means and why it's important. Let me start in the upper left of this slide on page 20. While computers continue to grow rapidly over the last 10 years, what's been underappreciated from my perspective is the exceptional growth in demand that's yet to come. In just the next five years and beyond, as artificial intelligence systems move out of the lab and Internet of Things, applications are deployed. Machine-to-machine communications, underpins use cases for AI, IoT, cloud computing, which will cause compute demand to skyrocket. Moving a little bit over to the right to the upper right here. Where exactly does this demand from compute come from? Well, our belief is it's increasingly coming from the edge and that's never been more prevalent than it's been in COVID. It's mobile where the consumer enterprise customer interacting with the network in real time. This is not a short-term trend. It's really important to focus on that. It's part of a multi-decade cycle that we'll see compute migrate back to a distributed model at the edge of networks. Shifting to the lower right that shift to decentralized computing is already focusing and is already forcing changes in network architecture as these new use cases…

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

Thank you very much. You talked about the investment pipeline. How does it split between what you might call proprietary deal flow? Deals in which Digital Bridge may have a legacy investment or some history or interest, and de novo originations? And generally speaking, where do you think the economics are better from a Colony shareholder perspective, considering what you mentioned, with respect to elevated valuations in the digital space?

Hey. Jade it's Marc. How are you?

Great. Thanks.

So, look, our pipeline has never been busier Jade. We've got about 31 deals in the pipeline today, accruing to about a total of about $20 billion in enterprise value. I would say five of those deals are currently either in the process of being finalized, or have been executed. And of those five deals that will fall into the next quarter, all of them were proprietary. In other words, there was not a banker involved there was not a broker, where we source those transactions through the Digital Colony proprietary pipeline. So from my perspective, the best way that we're going to create value for our shareholders today is, not running to overheated auctions, but really sticking to our knitting which is focusing on great relationships with CEOs that are in our sector. And really making the pitch to them that we are the best partner of choice, because of our relationships, our experience, our access to capital and that's been a narrative that's worked really well for us. And I think we can continue to do that. If you look at the progress of Fund 1 and you look at the 10 investments we made in Fund 1, eight out of those 10 transactions Jade, were proprietary. And so as we look at the next five deals, we're doing all of those being proprietary. This team has a great history. And track record of creating proprietary deal flow. Look, it's not to suggest that we don't look at auctions, we certainly do. We've looked at a lot of the big auctions that got done, in this quarter. We just believe this is a moment in time Jade, to be price disciplined. And so, that's where our focus is going to be. Big pipeline, high focus on proprietary deal flow. And to maintain a high degree of discipline right now.

When you think about capital priorities and current liquidity, how much excess capital is available for investment? How do you split that between new investments and raising third-party capital to supplement that capital base? And what are your thoughts around, potentially redeeming, preferreds or finding other ways to reduce leverage versus making new investments?

Thanks. Once again, it's almost like a bit of a broken record. So I'm not trying to be evasive with you Jade. And we can certainly get into further detail, on this later. But what I would say is, look, we always look at the way to deploy capital in all different ways, right? So first, when we first came on to the scene and we're part of this management team alongside of Tom Barrack and Mark Hedstrom, Jacky Wu and myself, we made it a priority to delever the balance sheet first. And we did that a little bit last year in the fourth quarter. And we continue to execute on that in the second quarter and third quarter. Now at the same time, we've also been clear with you that we've had great success selling assets. We've been very disciplined. We've been very careful. Nothing has been a fire sale. We've taken our time. We've found the right buyers. And we've rotated cash to the balance sheet. And so at the end of the day as Jacky pointed out in our presentation today we have the great privilege of having access to close to almost $900 million of total liquidity when you factor in our revolver. So now, the question is how do we deploy that cash and what are the best opportunities? I think what we've evidenced in the last two quarters with Vantage Stabilized Co, the DataBank investment, zColo, EdgePresence, we are prepared to deploy our balance sheet in an intelligent way. And what I mean by intelligent Jade is, if we have a great idea and we have a great opportunity, we use the strength of the balance sheet to get it under control. And once we get it under control and we're going through…

Then Jade, one thing I want to just add is that on page 18 where I do walk over -- walk the liquidity to our ending liquidity balance of the year the 650 to 750 already net out in process pipeline deals like zColo has already been announced and that's already meded in there. So we continue to guide the $200 million to $300 million of monetization in the fourth quarter of this year. So that will get you to that $1 billion to $1.1 billion range. And then obviously, that would be the gross amount of available liquidity for dry powder and deals net of any minimum cash. And then the last piece on the preferred equity redemption, a couple of things. One is, we did revolve -- amend our revolver facility earlier this year. And so there is a bit of a break in terms of redemptions of preferreds. But obviously, as we continue to do well and we will look for a new facility at some point in time, we will look to redeem those and we will be disciplined about it in terms of what the best return is versus digital opportunities.

Okay. Well I applaud the swift actions the management team has taken. Definitely refreshing and very good to see the progress. I wanted to ask you about a particular -- as Tom Beck might call it, a Rubik's Cube, which is CLNC. There's an overhang in the mortgage REIT space because people are looking at commercial real estate as a long cycle to recover. And potential impairments, loan losses on the credit front. So that's one thing that they have to address. Secondly, there's the liquidity that go into managing that. And finally, there is some access investment capacity. But when you look at stocks like CLNC and there's many others, Tier Tx, Ladder to name a couple trading at 40% to 50% of book value. It means that investors are also potentially assuming an eventual dilutive capital raise. So CLNY owns 37% of CLNC. And to me that bodes for an opportunity, you can have CLNC buyback some of those shares at premium to where it's trading, yet it still would be wildly accretive to its book value. Wildly accretive to its earnings, it would reduce the overhang of CLNY's 37% stake, because people do wonder when those shares will be liquidated and yet it would provide CLNY with fresh capital to accelerate the digital transformation. How do you think about that as a potential option for both CLNY and CLNC to explore?

Well, Jade, it's almost like you bugged our investment committee. So, look, seriously, first and foremost, I want to applaud Mike Mazzei, Andy Witt, David Palame. For those of you that had the chance to hear that earnings presentation, it's also another great story of transformation and execution. When we brought Mike Mazzei on board to run that business unit, we couldn't have been more clear about what the objectives were: first and foremost, to make sure that we shored up our loans that had any issues with them, hit repo lines on two loans, gravitating to liquidity and Mike's done an amazing job stabilizing that portfolio, returning cash to the balance sheet. And now that business is poised, as you heard yesterday, to play offense and be selective. And they'll play offense inside of their sandbox. And I don't get too involved in what Mike and his team does. I think they're doing a great job of executing and as one of their largest shareholders. We couldn't be happier with the progress that's happening at CLNC. When you look at its peer group, CLNC got ahead of its issues quickly. Mike addressed those issues. He stabilized the story. He rotated the cash. And now we have an enviable position where we can play offense and we'll continue to recover book value. You saw the shares perform well after market last night. They performed well today. We have a lot of confidence around that management team's capability. And in the meantime, we keep our options open Jade. No option is off the table for CLNC. We've made that clear two quarters ago we made it clear a quarter ago, I'll make it clear today. As we rotate to digital, if there's a good opportunity to harvest, the hard work that's been done at CLNC, we have an open ear and we'll listen to whatever proposal comes across the table. In the meantime, it's just ruthless execution for Mike and the team and that's what you're going to continue to hear from us. There's no fire sale on any of these silos anymore. We have cash, we have patients and we have good execution happening at all of our business units today.

Thank you very much. Appreciate your time.

Thanks, Jade.

Thanks, Jade.

Our next question is from Randy Binner with B. Riley. Please proceed with your question.

Hey. Good morning. Thanks. That's actually a pretty good segue into what I was curious about and that is, just a little bit more color on the legacy asset sale expectations you have for the fourth quarter that you gave in the sources and uses slide, the monetizations column?

Yes. So look I'll let Jacky give some of the granular detail. Let me give you the 50,000 foot architecture, Randy, and good to hear you this morning. Thanks for tuning in. First and foremost, as it relates to the -- what I would call the four legacy silos, obviously, lodging is in-flight and being sold to Highgate. So, obviously, they'll be operating that business and we wish them the best. It, obviously, had a good recovery in the third quarter. And lodging will eventually recover and that will be a good investment for them. Wellness infrastructure continues to exceed our expectations. It also had a very good quarter. Rich Welch and the team are doing a great job. That portfolio has proven to be fairly pandemic-proof. And so, we're very pleased with that. We, much like CLNC, Randy, we have an open ear towards different ways to harvest that portfolio. Now that we've got lodging in our rearview mirror, CLNC and healthcare, lodging, wellness infrastructure come in a sharper focus. So both of those business units are doing exactly what they said they were going to do. And I actually say both of them have exceeded our expectations for the year. And having those two businesses now stable and poised for ultimate harvesting is a really good place to be. We're pulling off our front foot. We're not playing off our back foot. The last -- core vertical of value is OE&D. Once again another business unit that has outperformed our expectations. Jonathan Grunzweig, our CIO there has done a great job harvesting and monetizing assets this year. We've got three to four more monetizations happening right now in the fourth quarter. As they come due, you'll see press releases and you'll see the information released. But we plan to be at the upper end of our guidance for OE&D monetization this year. And it's just once again, making sure Randy that we underpromise and overdeliver for investors. And I can say with a lot of conviction that wellness infrastructure CLNC and OE&D have absolutely outperformed our expectations this year.

Yes. The details Randy is $200 million to $300 million in the fourth quarter that we'll plan to guide. As Marc mentioned, we are looking at the higher end of that range. Those three to four deals already give us more than coverage for the lower end of that range. And obviously in addition to a couple singles and doubles we should get there. So we feel good about it. And part of the location that Marc has outlined.

Yes. No $200 million to $300 million would be a good number. And that's net to CLNY correct? So that would be...

Yes. That's correct, Randy.

What you get after you pay down the asset level debt.

That is correct, Randy.

So where -- where does that story go in 2021? Because for our source and uses to continue to see digital investment similar to the zColo deal, you're kind of funding that with legacy sales right on the margin, which is exactly the plan. But we kind of -- our model wants you to keep doing that. So these assets you're selling are they closer to book value? What's left? Does it get a lot harder? Because I think there's still some lodging and energy assets in there that might be a little bit harder to sell. Can you just give us a glimpse of what that ongoing OED liquidation process will look like in 2021? Considering how good this fourth quarter result seems to be?

Yes, sure Randy. The way I kind of look at -- I'll start with your last question, which is where we think we can monetize these things -- under fair market value accounting. We kind of look at it based on the last data from third-party -- potential third-party buyers so that definitely is a evidence for us to mark those marks. So in our supplementals you'll see a total net equity value of about $1.5 billion in that other equity debt line. We do believe that we can get close to that amount and that's the basis of why we mark those things at that amount. And in terms of 2021, I think that you should expect that we should be able to perform similar to what we did in 2020. And we expect by 2023 that we will hopefully rotate it. So even if you take it on a straight-line basis you get there. And we've clearly shown that we can outperform the sales.

All right. That's great. I just have one more and I'll let someone hop on. But did you all -- have you disclosed the GAAP book value for the quarter? There's a lot of great new disclosure here, but we're just looking for that number still.

No. Not yet.

All right. Very good. Thanks a lot.

Thanks, Randy.

[Operator Instructions] Our next question is from Colby Synesael with Cowen. Please proceed with your question.

Great. Thank you. First time on the Colony call. I actually have questions related to digital portfolio construction. One of the -- I guess, segments of digital infrastructure that you're not really involved in right now is on the residential broadband side. I'm just curious if that's something you're pursuing? And we could expect to be added to the portfolio at some point? And then secondly I appreciate that there is this focus on bolstering the digital side of the business and selling off the legacy portions. And you obviously want to kind of get there as soon as possible such as sell digital assets would be somewhat counterintuitive. But what are your thoughts on potentially selling off some of the digital assets effectively recycling capital putting a mark out there to kind of show that these values do in fact have the value that you perceive them to have given where I would guess demand is for these assets today and potentially what you be able to sell the map? Thank you.

Yes. Thank you Colby. And first-time here and I'm optimistic it will not be your last time here. So, appreciate you tuning into the story. Let's start out with fiber to the home. We've continued to look at every Fiber-to-the-Home opportunity for the last five years. And we've looked at opportunities in Europe. We've looked at opportunities in the U.S. LatAm and let's break this down. There are really two kinds of models Colby today in Fiber-to-the-Home. One is you can partner with a carrier a telecommunications provider or CableCo and you can own their infrastructure and enter into long-term agreements with them where you provide on a wholesale basis that network infrastructure. And so we've done that actually. We did that with Cogeco in our Beanfield acquisition and it was done at the right price and it's been a great partnership. So, we own that fiber. They're our primary customer. And we've now gone on through Beanfield to lease-up that fiber to other folks and we continue to build laterals to support them and support other customers. So that wholesale business we like quite a bit. And effectively we did that deal at just a little over CAD130,000 per route mile which was about 1.4 above replacement cost. Now, replacement costs in the U.S. is about $65000 per route mile and so I'm always looking at this Colby with a sharp angle towards what can you do? Can you buy it, or can you build it? And so generally speaking we want to be pretty darn close to replacement costs when we're buying stuff. And you heard me say it earlier we're going to be price disciplined. And then if you take that forward into other business models which is more consumer facing and certainly you could look at…

Okay. Thank you.

You’re welcome.

Thank you. We have reached the end of our question-and-answer session. So I'd like to pass the floor back over to management for any additional closing comments.

Well, look, thank you. I couldn't be happier with the quarter. And this all starts with people at the end of the day. And I think that this has been another great quarter of simple execution. And this is what you can expect from this team going forward is to continue to keep our heads down, our eye on the prize which is this rotation. Our promise to you to continue to get the cost structure correct, our promise to you to continue to raise capital and ultimately our promise to you to deliver long-term high-quality due learnings. None of these happens without the dedicated professionals around the globe at Colony Capital, and I'm very much in their debt and have enormous gratitude and appreciation for the hard work that's happening. If you think about what's transpired since we did the Digital Ridge merger last July, it's been a profound amount of rotation. We've rotated Jacky, I believe...

$45 billion.

$45 billion in assets, in less than 1.5 years. That would be probably and I don't have the data in front of you, but it's got to be one of the biggest AUM rotations in REIT history. And so this is hard work, but it doesn't get done without our people. I want to thank all of our Colony employees and partners around the globe. It's you that wake up every day and make it happen. And I want to thank you our shareholders for having your trust in us and we'll continue to deliver for you in due course. So look, we're going to get back to work. We got a busy fourth quarter. In fact, we got a bunch of calls lined up, and some new deals we're doing. So let us get back at it, which is continuing the rotation. And once again have a great weekend everyone and thank you for your time today. Take care.

Thank you.

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