Greetings, ladies and gentlemen and welcome to Colony Capital’s First Quarter 2021 Earnings Conference Call. [Operator Instructions] It is now my pleasure to introduce your host, Severin White, Investor Relations. Thank you. You may begin.

Good morning, everyone and welcome to Colony Capital’s first quarter 2021 earnings conference call. Speaking on the call today from the company is Marc Ganzi, our President and CEO and Jacky Wu, our CFO. Before I turn the call over to them, I will 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 maybe 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 6, 2021 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 in connection and in our Form 10-Q for the quarter ended March 31, 2021. With that, I will turn the call over to Marc Ganzi, our President and CEO. Marc?

Thanks, Severin. I would like to start by thanking everyone for their interest and attention today. It’s a quick turnaround from 4Q and we are happy to be back so soon with all of you. Today, we are going to cover three primary topics that you will see as part of our quarterly cadence. First, I will walk you through the high level Q1 highlights and some of the great progress we are already making on our 2021 goals. I will then turn it over to my partner and CFO, Jacky Wu, who will cover our financial results. Finally, I will finish today by walking you through our executing the Digital Colony playbook section. In this quarter, we will cover our digital operating businesses, where we are seeing solid growth. So, let’s get started. Finish the mission, yes, this is our new rallying cry for 2021 and it’s centered around these three primary goals for the company. First, tangible progress in harvesting our legacy Colony assets; second, we will continue to put more high quality digital assets into our funds and on our balance sheet; lastly, we will continue to grow our high return digital investment management franchise. This is the cookbook for 2021. First, let’s start with progress on legacy monetizations. And we are off to a fast start in 2021, continuing our progress and velocity from 2023. Three key strategic monetizations announced and/or closed just in the last few months. That takes us all the way to 70% rotated, ahead of the 67% rotation we targeted per year in 2021. Thanks in particular to the CLNC internalization, which was also ahead of schedule. Speaking of that, I want to talk about the agreement we reached with CLNC internalizing their management contract, which closed earlier this week, freeing them…

Thank you, Marc and good morning everyone. As a reminder, in addition to the release of our first quarter earnings, we filed a supplemental financial report this morning, which is available within the shareholder section of our website. Starting with our first quarter results on Page 12, the company has continued to make steady progress in this digital transformation. Digital AUM increased to 69% of total AUM at the end of the first quarter and increased to 70% of total AUM as of today, including the CLNC management contract internalization transaction that occurred after the end of the quarter. For the first quarter, reported total consolidated revenues were $316 million, which represents a 45% increase from the same period last year. Adjusted EBITDA was $56 million on a pro rata basis, which represents a 56% increase from the same period last year primarily as a result of the company scaling our core digital segments, which can be seen at the bottom of the page. I will walk through this in more detail later in the presentation. GAAP net loss attributable to common stockholders was $265 million or $0.56 per share. This net loss is primarily due to the losses in our legacy non-digital businesses that we now classify as discontinued operations. Total company core FFO was $4 million, with the increases from prior periods driven by outperformance within the digital segment and lower corporate expenses. Note that, beginning in the first quarter, we have moved OE&D and the CLNC investment management contract to discontinued operations, which would have contributed an additional $10 million to core FFO without this change. During the first quarter, we returned net equity proceeds of $96 million from legacy asset monetization and $302 million year-to-date, including transactions that closed after the end of the quarter. These…

Terrific. Thanks, Jacky. We are really excited about the progress we are making towards those important 2023 targets, which we will explore in greater detail at our Investor Day next month, which we hope you will all join us for. A key bedrock to our operating plan as we guide you towards 2023 is understanding what we are doing at digital operating. This quarter and executing the digital accounting playbook, I wanted to spend some time talking about our digital operating segment and how those businesses are doing today. As you may know, we have got two primary businesses that comprise digital operating so far. Both are really unique data center stories: first, DataBank and the Edge colo space and secondly, Vantage Stabilized Data Center portfolio, which serves our hyperscale customers. They are both large, multi-billion dollar businesses, where we maintain day-to-day operational control with minority ownership stakes that are supplemented by third-party capital, where I have told you in the past, we earned fee and carry. This is a unique structure and we really think produces great results for Colony shareholders. This slide is just a reminder of some of the key attributes of these investments. More importantly, how are they doing? For that, let’s turn to the next slide. The short answer is they are doing really well. That starts with powerful secular tailwinds that drives strong demand for their services, the significant capabilities that these businesses and their management teams possess and the solid customer relationships that they built out over a long time, all create an environment for long-term sustainable growth. All of these factors are the key ingredients for that growth, strong secular tailwinds, scalable extensible platforms, and increasing cloud demand ultimately fuels lease up, low customer churn and stable and robust revenue growth and…

Thank you. [Operator Instructions] Our first question comes from the line of Randy Binner with B. Riley. Please proceed with your question.

Okay, great. Good morning. Thank you. I would like to talk about where Marc just ended the $1.5 billion of dry powder. So, just to understand that, that’s basically all of legacy OED and investment management, but does not include CLNC? And then that would be harvested over the course of 2021 and 2022, is that the right way to think of that $1.5 billion?

Yes. I think the way you should look at it is on Page 22 of the slide deck, we actually have total dry powder of about $2 billion, what we are saying, Randy, and that would include the CLNC shares as well and certainly where they are trading. And what we are just saying though is we have sensitized it to only deploy $1.5 billion of that in our math for the $125 million of EBITDA to $175 million of EBITDA incrementally.

So, just to give you a little – one layer deeper to that, Randy, what I think Jacky and I are suggesting to you is, we want to have $500 million of incremental firepower to continue to commit to new fund products that are coming down the transom in our digital IM business. So, $1.5 billion dedicated to digital operating, $500 million dedicated to digital IM as we continue to raise capital around new investment management ideas and products.

Okay, understood. Just maybe a little bit of color on – and I apologize if I am creating feedback on the line, but hopefully you will hear me okay, on the market for selling the legacy assets, obviously, you have done a great job so far and have gotten at or above carrying value. But as you work through what’s in there, is there stuff that’s going to be harder to dispose of when you are going to market with this? Are you talking to multiple parties? I wanted to hear a little bit of kind of texture on how that market is receiving your moves to move away from these legacy items?

Well, I think the market has received them well. What I would tell you is there is a lot of capital today chasing a lot of different opportunities. We have seen a lot of interest from various parties around all facets of our businesses. And as I got here over a year ago and Jacky did as well, we made a promise to shareholders that we would be thoughtful in terms of how we would ultimately realize value for the legacy assets. We would take our time. And we would do them in sequential order. And that’s the playbook that we laid out for you over a year ago, and that’s the playbook that we’ve been able to implement so far. I think the moves that we made in this quarter were important. The internalization of CLNC really gives that business the independence that it needs to continue to execute its plan. And the reason we did that transaction is because we put an independent management team in place that is doing a very good job of executing a playbook actually very similar to ours, which is very focused, very disciplined and about restoring trust with investors and creating a narrative that creates value for shareholders. So once we achieve that level of confidence, it was important to get that management team independent. We got great value for the management contract. The shares are going to trade up, we believe, closer to book. And ultimately, we think that carrying value of those shares is a bit undervalued today. So we’ll take our time. We want to be supportive of CLNC. We like Mike. We like the management team there. And we have the benefit of being patient on that asset. I would say the other two buckets of value that…

Yes. The only thing I would add, Randy, is that we did move OED, that segment, into discontinued operations. And that’s our reasonable belief that we will sell a substantial majority of that segment at the values that we’ve marked them at through 3/31. And as you can see in our supplemental package that we’ve disclosed this morning, that’s over $1.1 billion. So that’s roughly where we’ve been at for quite some time. So that’s our reasonable belief, we’d dispose of a substantial majority within the next 12 months, and we feel good about it.

Alright. That’s helpful. And then just one other one, just to understand Slide 14 that talks about G&A streamlining, you initially estimated the $40 million of saves. And then that kind of progression moves from 232 to 151, so kind of like double that like $80 million. Is that – are those numbers comparable, like did you do 80 instead of 40 over the course of this progression or are those different – different measurements?

Yes, sure. So if you look at it discontinued operations adds about $46 million of moves out for G&A. So as we dispose of those assets, those will go away. $21 million of it has already been realized. If you look at the CLNC internalization that closed at the beginning of this month as well as the hotels transaction that closed at the end of the first quarter that’s already been realized. And then the rest is the OED segment, so which we’ve moved to held for sale discontinued operations. So, that’s a big piece of it along with the $40 million…

[Indiscernible]

Yes, exactly.

Okay. Thanks for everything. Appreciate it.

Great.

Thank you, Randy.

Thank you. Our next question comes from the line of Colby Synesael with Cowen. Please proceed with your question.

Hey, thank you. Just, I guess, a continuation of some of the questions that you just had. So you moved OED into discontinued operations, and you mentioned that you’re pursuing monetizations. And then Jack, just in response, you mentioned that you think you could sell that within the next 12 months. So I just wanted to confirm, that’s the expectation that you’ll be able to sell all those assets that you just moved to discontinued operations within the next 12 months in terms of time line? And then as it relates to wellness, I think the expectation had been that you would sell that or at least announce a sale at some point this year based on the trajectory of the conversations which you’ve been having. I’m just curious if that’s still the expectation? And the reason I just asked all this is the stock has done pretty well. It seems like the stock is now reflecting more what I described as the carrying value of your various assets. But really just take it to the next level, you really do need to monetize the remaining OED and, as part of that, I guess, also wellness. And then redeploy that capital. So I’m just trying to get a sense of the timeline? And then secondly and separately, I’m curious if you are planning to call your preferreds, particularly G&H. It seems like there would be some pretty meaningful interest rate savings if you are able to do that? Thank you.

So, three awesome questions and three really quick sharp answers for you, first, on OE&D, there is a reason why we’ve moved it into discontinued ops. We can’t go into further detail. You can infer with what you wish. But there is an accelerated time line for divesting of the OE&D assets, and we have a lot of conviction and confidence, Colby, that we’ll be able to execute that this year. So that’s one. And that’s a little bit ahead of where we thought we’d be. We thought OE&D would be perhaps a little bit of a slower burn, and that’s why we built the 90-10 buffer on the AUM rotation. But we’ve had really strong continued success in moving that segment. With respect to wellness, one, the improvement in performance has been good. The combination of government support and getting our health care facilities fully vaccinated and getting new move-ins in this quarter, we’ve seen a significant rebound in performance. So we’re being very thoughtful about how we enter into strategic discussions on that asset. So right now, we’ve not put that into discontinued ops. We are having a strategic review of that asset. And what I can tell you is, the activity is very robust. And we continue to have an intention of monetizing that asset this year. That is the intention. So, all the work and effort that we are putting in place right now from an operations perspective and from a strategic review perspective give us confidence that we’ll be able to get that done. And then lastly, what was your last question? Sorry.

On the preferred.

On the preferred, yes, sorry, we agree with you. We are in violent agreement. I think we have a lot of levers that we can pull to get our total weighted average cost of capital down. The classes that you mentioned are roughly about $320 million.

$373 million.

$373 million, which we can get done this year. We have a lot of flexibility and a lot of new free cash flow being generated from various aspects of our digital business. So in terms of the free cash flow generation and the earnings that we’re driving from digital, we’re ahead. So that gives us a lot of flexibility on how we can ultimately finance the business. And we believe that we’ll be able to finance this business up here at Parent Co level at a very, very, very much lower cost of capital. So we’re in the process of looking through that. We’re working very hard with our entire finance team and our financial advisers, but you are on the right topic. And I think we can – we’ll dive into that a little bit more in our Investor Day. And you’re going to see some results on this later in the year.

Yes. The only thing I’ll just add is through – in our press release, we disclosed liquidity of $667 million. And obviously, we had 2 major transactions that would add on top of that liquidity, about $207 million from both the CLNC managers as well as the [indiscernible] asset sale. So we have got a lot of firepower, where obviously we would work through and transform our revolver facility towards much more of a digitally based revolver. And those – that, along with the preferred redemptions, I would expect there to be more fulsome disclosures over the course of the next couple of months.

Thank you.

Our next question comes from the line of Jade Rahmani with KBW. Please proceed with your question.

Thanks very much. Can you give me your updated thoughts on the digital landscape?

Yes, sure. I would say the landscape continues to be very robust. Let me start out, Jade, from...

[Indiscernible] to ask you.

Jade, I think you are…

Jade, you’re cutting out, buddy, sorry. Jade? So, Jade let me try to answer your question as you get your audio reconnected. The digital landscape at the highest level, we continue to be encouraged by CapEx spending by our customers. So last year, we had projected about a $487 billion CapEx spend. This year, we’re projecting that number increases to about $495 billion to $496 billion across fiber, small cells, towers and data centers. The leasing results coming out of the portfolio companies in the first quarter were very strong. We gave you granular detail around Vantage Stabilized Co and DataBank, both of which exceeded their leasing forecast. In fact, DataBank exceeded their leasing forecast in the first quarter by 157%, largely driven by edge compute lease loads with some of the webscalers. So we’re seeing this across all of our businesses, great demand, great organic growth. And we believe that will continue as we build out 5G, as we migrate workloads to the edge, IoT networks continue to proliferate and densify and then, last but not least, cloud adaptation, where we’re seeing a pronounced amount of CapEx spending. CapEx spending by the cloud players, Jade, will go up about 14% to 15% between 2020 and 2021 in our hyperscale leasing business vantage, which, obviously, the balance sheet has exposure to through Vantage Stabilized Co. We had a fantastic first quarter of leasing. Vantage Europe, Vantage U.S.A. and Vantage Yieldco, all had record-breaking leasing results for the first quarter, well above our estimates. So as long as our customers continue to stay healthy and they continue to invest in their infrastructure, we believe the entire ecosystem will perform quite well. So that really is around organic growth in greenfield. I would say in brownfield, we continue to see pricing at…

Thank you. Our next question comes from the line of Ric Prentiss with Raymond James. Please proceed with your question.

Hey, good morning, everybody.

Good morning, Ric.

Marc, we are getting a lot of questions these days on managing international risk. When you think about achieving the returns you guys are targeting with a global digital infrastructure company, we tell people it’s really probably too expensive on probably possible to hedge operations. But how do you get comfortable managing international operations to then also achieve the total growth in like real cash returns instead of FX-adjusted type returns?

Yes. Thanks, Ric. It’s a difficult question. It’s something we’ve been doing for over 25 years when we entered Mexico back in the late 1990s. And I’ve had a 3-decade track record of investing in foreign markets and particularly also in emerging markets as well. And my experience on hedging, Ric, is that it’s expensive. We’ve done limited hedging in the past. In a former life when I was at Deutsche Bank, we hedged all of our investments down in Latin America and it was about a 600 to 700 basis point punishment to returns. So you have to weigh hedging against, ultimately, where you think the FX curve is going to go in those countries. You have to look at political risk. You have to look at regulatory risk. And then you have to ultimately have strong investment-grade customers or investment-grade-like customers that you can enter into long-term contracts where you get CPI-like adjustments to the hedge against inflation and to hedge against steeper borrowing costs. So what you’ll see, for example, just to give you an example, Ric. We had a very, very strong quarter in our Brazilian tower business. Our year-over-year growth in that business was about 22.7%. So that would be well north of what our U.S. towerco achieved and what our European towercos have achieved. Now how did we get there? Well, we got there because our escalators were about 9.5% because we have strong master lease agreements that protect us against inflation and protect us against some of the currency movements that you just suggested. So by – you and I have had this dialogue, Ric, for almost 30 years. If you’ve got strong paper with your customers, you can really debug a lot of the challenges with this business, so, long-term contracts, good…

Makes sense. One other question for you, in the past, you’ve also sold some minority stakes in some of your different units. You obviously saw transaction announced by a peer in the international infrastructure space with Caisse de dépôt. How do you think about when is it right to sell minority interest? And what kind of appetite is there to bring in even more capital for you to buy majority stakes?

So, we sort of created that cookbook. And we did the first type transaction like that with Caisse de dépôt many years ago with Vertical Bridge and they are a great partner and we applaud AMT. It’s – they’re going to be very happy with that partner. So congratulations to my friend Tom Bartlett. Look, it’s – making those decisions is tough. We just completed a transaction, by example, with ExteNet, working closely with John Hancock to sell a minority stake in that business. And ultimately for us, when we do sell a minority stake, Ric, we’re trying to achieve a couple of objectives. One, we want to have the right long-term partner that wants to stay in these businesses, not just for 3 years or 5 years, but we’re looking to form long-term, 10, 20-year capital, so we can sit across the table from our customers and say, look, we’re going to be there for you when we sign a 20-year lease commitment because we have long-term capital that can ultimately align with your interest around building your network long term. And the customers want to know that. They want to know that they’ve got a long-term partner in infrastructure. And I think that provides a lot of comfort for our customers. Secondly, as some of our capital sources mature and they need return of capital, this is a great way to do that. So it’s a good way for us. Some of the original partners and companies like ExteNet and Vertical Bridge, they do want to get returns and we want to get capital back to them so they can mark those investments and get to the right returns. But more importantly, when we bring a new partner in, we want to make sure that they’ve got deep…

Great. Thanks for the insights. Stay well. And we’ll see you virtually at NAREIT and live in Park city this summer.

Looking forward to that live piece, Ric. Thank you.

Our next question is a follow-up from Jade Rahmani with KBW. Please proceed with your question.

Thank you and apologize for the audio issue earlier. Just noting the DataBank securitization, are there other financings that you expect to execute that could be near-term accretive? And could you put any color around what kind of strategies those would be? Would that be securitization or there is other financing tools available?

There are a whole host of financing tools available, but what we like to do is execute on ABS facilities, frankly. I mean, that’s the great part about our digital operating REIT type of businesses. They are all long-term leases with fixed escalations, with good, solid core organic growth rates. So, all great tenants for our low-coupon asset-backed securities market. And that, frankly, does also include, if you think about it, our investment management fees and that type of structure as well for the Colony Capital corporate side. So – and we will have more fulsome disclosures on strategic financing opportunities over the course of the next couple of – next couple of months, sorry.

And I think what’s really the subtext to this is, one other point to this is, we now have cash flows that are a lot more long-term and a lot more predictable. I think one of the things that investors caught on to quickly was that not only in our digital operating business we have long-term leases with investment-grade customers, but we now have long-term funds with 10-, 11-, 12-year fund lives, where we’re taking in income streams from investment-grade pension funds and sovereign wealth funds. And so the stability of those cash flows in IM are a lot like signing a tower lease, Jacky, if you think about it, 5-year term, 10-year term, investment-grade counterparty. And bringing Moody’s and Fitch and S&P along for that journey, so that they understand this new digitally converged REIT and where we get those cash flows, that’s an education process. We’ve started with that education process just like we did when we taught them about cell tower securitizations in 2004, when we did small cell securitizations, the first cell tower securitization in Mexico, the first hyperscale data center securitization 3 years ago at Vantage and now, of course, our first edge securitization with DataBank. So having this dialogue and having the trust of the rating agencies and being a long time issuer is a big strategic weapon for us.

Thanks very much.

Ladies and gentlemen, at this time, there are no further questions. I would like to turn the floor back to management for closing comments.

Well, look, thank you everyone. It’s been a great quarter. I want to thank a couple of people as we end our call today. I want to thank our hospitality team. The sort of unsung heroes of that and David Schwarz and [indiscernible], the whole team just did a great, great job there, delivering a great result for our shareholders. I want to thank our friends at Cerberus and at Highgate, they were great partners in getting that transaction done, it was not easy. I also want to thank the entire team at CLNC. And those employees that have gone from Colony over to CLNC, we’ll miss you. Appreciate the hard work. We’re going to be your biggest fans from the sidelines and we’ve really enjoyed that journey. And then I will just close in saying, we are absolutely making the progress that we thought we’d make and perhaps even slightly ahead of plan. And I think what you can expect from us over the coming years, we’re going to continue to form new capital around great ideas. We’re very excited about what we’re doing in our digital investment management platform. And we’re really looking forward to hosting everybody for our first Investor Day. Severin White has done an incredible job being our voice and corporate communications and our outreach within public investors. So we’re very excited to share our deeper thoughts, and we hope that all of you will sign up and join us for Investor Day. We’re going to have not only the senior leadership team, but we’re going to have many members of our ecosystem of companies, a lot of our great CEOs, presenting around the digital infrastructure world, deeper insights into what’s happening in towers and small cells, fiber, data centers, everything that’s happening in that ecosystem. It will give you the investor a chance to have a little bit of a closer look at what we’re doing and then also, I’d close in saying, unpacking how we’re building those great digital earnings. So we look forward to seeing all of you at Investor Day. And once again, thank you for your continued support and trust. We’re looking forward to a great year here at Colony Capital. Take care. Have a great day.

Thank you. Ladies and gentlemen, this concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.