The following discussion should be read in conjunction with our unaudited
consolidated financial statements and accompanying notes thereto, which are
included in Item 1 of this Quarterly Report, as well as information contained in
our Annual Report on Form 10-K for the year ended December 31, 2020, which is
accessible on the SEC's website at www.sec.gov.
Our Organization
We are a leading global investment firm with a focus on identifying and
capitalizing on key secular trends in digital real estate. We are headquartered
in Boca Raton, Florida, with key offices in Los Angeles, New York, London and
Singapore, and have approximately 300 employees.
We have elected to be taxed as a real estate investment trust ("REIT") for U.S.
federal income tax purposes. We conduct our operations as a REIT, and generally
are not subject to U.S. federal income taxes on our taxable income to the extent
that we annually distribute all of our taxable income to stockholders and
maintain qualification as a REIT, although we are subject to U.S. federal income
tax on income earned through our taxable subsidiaries. In light of our ongoing
digital transformation, we will continue to evaluate whether we will maintain
REIT status for 2021 or future years. We also operate our business in a manner
that will permit us to maintain our exemption from registration as an investment
company under the 1940 Act.
We conduct substantially all of our activities and hold substantially all of our
assets and liabilities through our Operating Company. At March 31, 2021, we
owned 90% of the Operating Company, as its sole managing member.
Effective April 1, 2021, Thomas J. Barrack Jr., our former Executive Chairman,
having completed the transformational plan for the Company set in motion two
years ago, has transitioned to a Non-Executive member of the Company's Board of
Directors, and the position of Executive Chairman has been eliminated. Ms. Nancy
Curtin, a long-time member of the Board and most recently the Lead Independent
Director, transitioned to independent, non-executive Chairperson of the Board
effective April 1, 2021.
Our Business
Our vision is to establish the Company as a leading owner, operator and
investment manager of digital infrastructure and real estate. We are currently
the only global REIT that owns, manages, and/or operates across all major
infrastructure components of the digital ecosystem including data centers, cell
towers, fiber networks and small cells.
At March 31, 2021, the Company has $46 billion of assets under management
("AUM"), including both third party capital and the Company's balance sheet, of
which $32 billion is dedicated to digital real estate and infrastructure.
With the Company's ongoing digital transformation, the Company currently
conducts business through five reportable segments, as follows:
•Digital Investment Management ("Digital IM")-This business encompasses the
investment and stewardship of third party capital in digital infrastructure and
real estate. The Company's flagship opportunistic strategy is conducted through
Digital Colony Partners ("DCP") and separately capitalized vehicles, while other
strategies, including digital credit and public equities, are conducted through
other investment vehicles. The Company earns management fees, generally based on
the amount of assets or capital managed in investment vehicles, and has the
potential to earn carried interest based upon the performance of such investment
vehicles subject to achievement of minimum return hurdles.
•Digital Operating-This business is composed of balance sheet equity interests
in digital infrastructure and real estate operating companies, which generally
earn rental income from providing use of digital asset space and/or capacity
through leases, services and other agreements. The Company currently owns
interests in two companies: DataBank, including zColo, an edge colocation data
center business; and Vantage SDC, a stabilized hyperscale data center business.
Both DataBank and Vantage are also portfolio companies managed under Digital IM
for the equity interests owned by third party capital.
•Digital Other-This segment is composed of equity interests in digital
investment vehicles, the largest of which is the Company's investment and
commitment to the DCP flagship funds. This segment also includes the Company's
investment and commitment to the digital liquid strategies and seed investments
for future digital investment vehicles.
•Wellness Infrastructure-This segment is composed of a diverse portfolio of
senior housing, skilled nursing facilities, medical office buildings, and
hospitals. The Company earns rental income from senior housing, skilled
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nursing facilities and hospital assets that are under net leases to single
tenants/operators and from medical office buildings which are both single tenant
and multi-tenant. In addition, certain of the Company's senior housing
properties are managed by operators under a RIDEA (REIT Investment
Diversification and Empowerment Act) structure, which allows the Company to gain
financial exposure to underlying operations of the facility in a tax efficient
manner versus receiving contractual rent under a net lease arrangement. This
segment also holds other wellness infrastructure-related assets, principally
equity interests in and the management contract of NorthStar Healthcare, Inc.
("NorthStar Healthcare"), a non-traded REIT sponsored by the Company.
•Other-This segment is primarily composed of the Company's interest in CLNC. The
Company expects to monetize the remaining assets in its Other segment as it
completes its digital evolution.
Digital Transformation
During the first quarter of 2021, the Company successfully exited its hotel
business, and continues its process of actively monetizing a substantial
majority of its OED investments and its Other IM business, both of which reside
in its Other segment, as discussed further below. The disposition of the
Company's hotel business and the continued efforts to monetize the Company's OED
investments and Other IM business represent strategic shifts in the Company's
business that are expected to have a significant effect on the Company's
operations and financial results, and accordingly, have met the criteria as
discontinued operations. For all current and prior periods presented, the
related assets and liabilities, to the extent they have not been disposed at the
respective balance sheet dates, are presented as assets and liabilities held for
disposition on the consolidated balance sheets and the related operating results
are presented as loss from discontinued operations on the consolidated
statements of operations (refer to Item 1. "Financial Statements" of this
Quarterly Report).
Accelerating the Monetization of OED and Other IM
Having successfully exited its hotel business in the first quarter of 2021, the
Company is continuing its efforts to accelerate the monetization of a
substantial majority of its OED investments and Other IM business. These assets
consist of non-digital real estate, real estate-related equity and debt
investments, and management of the Company's private real estate credit funds
and CLNC. In consideration of a potential monetization, the Company reassessed
the carrying value of these assets based upon estimated recoverable values. As a
result, the Company recognized an aggregate write-down in asset values of
$420.3 million, of which $121.2 million was attributable to the OP, recorded
within impairment loss, equity method loss and other loss in discontinued
operations (Note 7 to the consolidated financial statements).
In April 2021, the Company and CLNC agreed to terminate the management agreement
for a one-time termination fee of $102.3 million in cash. The transaction closed
on April 30, 2021, resulting in the internalization of CLNC's management and
operating functions (the "CLNC Internalization"), with certain employees
previously dedicated wholly or substantially to CLNC becoming employees of CLNC.
In connection with the CLNC Internalization, CLNC's board of directors ceased to
include Company-affiliated directors on CLNC's board of directors upon
expiration of their terms in May 2021. The Company also entered into a new
stockholders agreement, pursuant to which the Company agreed, for so long as the
Company owns at least 10% of CLNC's outstanding common shares, to vote in CLNC
director elections as recommended by CLNC's board of directors at any
stockholders' meeting that occurs prior to CLNC's 2023 annual stockholders'
meeting. In addition, the Company is subject to customary standstill
restrictions, including an obligation not to initiate or make stockholder
proposals, nominate directors or participate in proxy solicitations, until the
beginning of the advance notice window for CLNC's 2023 annual meeting. The
Company currently holds a 36.1% equity ownership in CLNC and is prohibited from
acquiring additional CLNC shares.
Exit of the Hotel Business
In March 2021, the Company completed the previously announced exit of its hotel
business, which represents a key milestone in the Company's digital
transformation. Pursuant to an agreement entered into with a third party in
September 2020 (as amended in October 2020, February 2021 and March 2021), the
Company sold five of the six hotel portfolios in its Hospitality segment and its
55.6% interest in a portfolio of limited service hotels that was acquired
through a consensual foreclosure in July 2017 (the "THL Hotel Portfolio") in its
Other segment, composed of 197 hotel properties in aggregate. The remaining
portfolio in the Hospitality segment is in receivership and the remaining
interests in the THL Hotel Portfolio will continue to be held by investment
vehicles currently managed by the Company. Two of the hotel portfolios that were
sold in the Hospitality segment were held through joint ventures in which the
Company held a 90% and a 97.5% interest, respectively. The aggregate selling
price of $67.5 million, represented a transaction value of approximately $2.8
billion, with the acquirer's assumption of $2.7 billion of investment-level
debt.
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Significant Developments
In the first quarter of 2021 and through the date of this filing, significant
developments affecting our business and results of operations included the
following.
Digital Business
•We completed the add-on acquisition of zColo's remaining five data centers in
France for $33 million in February 2021.
•In February 2021, we held a first closing of DCP II, our second digital
opportunistic fund, with total callable commitments of $4.2 billion, inclusive
of $120 million of our commitments as general partner and limited partner.
Non-Digital Assets
•In the first quarter of 2021, we are accelerating the monetization of our OED
investments and Other IM business. This included termination of the CLNC
management contract on April 30, 2021, for which we received a one-time
termination fee of $102.3 million at closing.
•In consideration of potential monetization of the OED investments and Other IM
business, these assets were written down by $420 million in aggregate across our
loan portfolio, equity investments and real estate assets, of which $121 million
was attributable to the OP. For all current and prior periods presented, these
assets and corresponding liabilities are presented as held for disposition, and
the related operating results are presented as discontinued operations (Notes 7
and 14 to the consolidated financial statements).
•In March 2021, we sold five of the six hotel portfolios in our Hospitality
segment and our 55.6% interest in the THL Hotel Portfolio in the Other segment,
generating net proceeds of $45.6 million. The transaction was valued at $2.8
billion, including aggregate selling price of $67.5 million and the buyer's
assumption of $2.7 billion of investment-level debt.
•In April 2021, we received proceeds from a sale of the two largest assets
securing our Irish loan portfolio, which were applied to repay $265 million of
outstanding principal on our loan receivable and extinguish the full $155
million of debt financing the portfolio. This removed all encumbrances on the
remaining assets in the portfolio. Our share of excess net proceeds was $103.5
million. The Irish loan portfolio is composed of distressed loans that were
previously acquired at a discount.
Results of Operations
The following table summarizes our results from continuing operations by
reportable segment.
Excluded are discontinued operations (Note 14 to the consolidated financial
statements) which generated loss from discontinued operations attributable to
Colony Capital, Inc. of $125.2 million and $228.5 million in the three months
ended March 31, 2021 and 2020, respectively.
                                                                                                  Income (Loss)
                                                                                              Attributable to Colony
                                                                   Income (Loss) from           Capital, Inc. from
(In thousands)                        Total Revenues             Continuing Operations        Continuing Operations

Three Months Ended March 31,      2021               2020                     2021                  2020                       2021                2020
Digital Operating             $ 189,202          $  45,167                $  (62,844)         $     (18,295)               $   (8,793)         $

(3,418)


Digital Investment Management    29,498             19,179                     6,041                  2,110                     5,412               1,902
Digital Other                     1,140                160                     7,869                 (3,035)                    3,949              (2,242)
Wellness Infrastructure          93,543            144,679                   (41,210)               (66,288)                  (32,906)            (49,938)
Other                             1,580              3,198                   (32,218)               (11,295)                  (29,145)            (10,179)
Amounts not allocated to
segments                            741              4,830                   (67,815)               (57,396)                  (59,593)            (49,817)
                              $ 315,704          $ 217,213                $ (190,177)         $    (154,199)               $ (121,076)         $ (113,692)


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Selected Balance Sheet Data
The following table summarizes key balance sheet data by reportable segment,
excluding balances held for disposition (Note 7 to the consolidated financial
statements).
                                               Real Estate, net                           Loans Receivable                    Equity and Debt

Investments                           Debt, net
                                                             December 31,          March 31,         December 31,                                December 31,                                  December 31,
(In thousands)                       March 31, 2021              2020                 2021               2020             March 31, 2021             2020              March 31, 2021              2020
Digital Operating                  $     4,459,123          $  4,451,865          $   5,160          $    5,070          $            -          $        -          $     3,337,342          $  3,213,240
Digital Investment
Management                                       -                     -                  -                   -                  24,151              19,167                        -                     -
Digital Other                                    -                     -             31,663              31,727                 290,165             377,048                        -                     -
Wellness Infrastructure                  3,223,574             3,338,085             48,449              47,233                  69,359             

61,790                2,873,579             2,920,030

Other                                       20,014                20,014                  -                   -                 394,144             418,698                  176,727               185,743
Amounts not allocated to
segments                                         -                     -                  -                   -                       -                   -                  489,643               553,337
Total                              $     7,702,711          $  7,809,964          $  85,272          $   84,030          $      777,819          $  876,703          $     6,877,291          $  6,872,350


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