Greetings and welcome to the Colony Capital’s Second 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. Please note that the Company has posted a presentation to accompany today's remarks and is available on the Investor Relations section of the company website or via the webcast. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Severin White, Managing Director and Head of Public Investor Relations. Thank you. You may begin.

Good morning, everyone, and welcome to Colony Capital’s second 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 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, August 7th, 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 June 30, 2020. During this call we will present both GAAP and non-GAAP financial measures. 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. Thank you. And now, I’d like to turn the call over to Marc Ganzi, President and CEO of Colony Capital. Marc

Thank you, Severin. Good morning. First and foremost, I want to start out by acknowledging and thanking our Board of Directors and our Chairman, Tom Barrack for placing their trust and faith in me as your CEO of Colony Capital. I'm appreciative of the opportunity and I'm humbled to be your CEO, but most importantly, I'm really excited to take you on this journey as we take Colony forward and transforming into the first global diversified Digital REIT. We've got a robust set of materials for you today and want to sort of frame the agenda. First and foremost, I want to give you my perspective on what's happening in the digital infrastructure space. It's been a lot of movement in the sector today and I want to give you some of my high-level thoughts around trends that where we believe the market is going. I'll turn it over to my partner Jacky Wu, who'll walk you through the financial results of the company. And then we'll finish up with talking little bit about what we see as our digital playbook. And last but not least, a question that I’d pose to all our shareholders and potential shareholders, why own Colony Capital today? So with that, let's get right into the materials. If you could please turn the page to page five. I'll start with an overview of what's happening today in digital infrastructure. And look, COVID has been an absolutely profound moment in time for us. In my 26 years of investing, owning and operating digital infrastructure, we've never seen a time that's more interesting and more transformational in digital. Our professional and personal lives were already migrating to digital. This is now accelerated in the high gear as we're seeing demand lift off cross networks as all of…

Thank you, Marc, and good morning everyone. As a reminder in addition to the release of our second quarter earnings, we filed a supplemental financial report this morning, which is available within the public shareholder section of our website. Starting on page 16, the company has continued to make progress in its digital transformation as we have increased digital AUM to over 47% of total AUM at the end of the second quarter, and has now reached 49% following the Vantage stabilized data center transaction, which closed in mid July. And as Marc has discussed, our digital platform continues to perform with strength in the current market environment. Colony's digital portfolio companies across investment management and operating businesses grew core organic revenues approximately 9% on average in the second quarter compared to the same period last year. Due to the significant challenges associated with the global COVID pandemic, our second quarter reported total revenues, however, was $372 million, which represents a 35% decrease from the same period last year, primarily as a result of our hospitality segments. Our one portfolio that has been most impacted by the global shelter-in-place initiatives. The hospitality segments experienced the sharp rebound from its trough occupancy of 22% during April to almost 40% during June, reflecting reopening efforts across the United States. Thus far in July and into August, the company has maintained this elevated level of occupancy rates. The company's healthcare segment, however, has thus far been relatively stable, generating revenues in the second quarter that decreased only 2% year-over-year while collecting 96% of contractual triple net and medical office rents during the quarter. With the second quarter GAAP net loss attributable to common stockholders was $2 billion, or $4.33 per share. The loss is primarily the result of a $2 billion non-cash GAAP…

Thank you. Thank you, Jacky. Turning now to page 21. We want to share with you our digital playbook and our formula for how we will continue to transform Colony and take it into the future. Our strategic plan, as we've shared with you in the past has been to rotate the balance sheet as we sell historical Colony assets and recycle capital into what we think is the best investment asset class today in the world, which is digital infrastructure. Where were we? The Colony of the past was a diversified Re managing multiple asset classes in historical real estate, verticals like healthcare, industrial, real estate, credit, hospitality, other equity and debt and our investment management platform, with the key six verticals that drove the growth of the Colony of the past. Where are we today? Today, we've transitioned into a diversified global digital read. Our strategic rationale has been simple. We want to align you the investor with key secular trends, which is this pivot to digital. We want to greatly simplify the story at Colony. So it's easy for you to understand what we do and how we create our core FFO. We want to create predictable digital earnings. And last but not least, we want to create attractive returns on invested capital for you, our common shareholders. And where are we going? Where we're going is helping our customers enable mobile and internet connectivity. Investments in towers, data centers, small cell infrastructure, and fiber networks, across our equity platform and across our digital credit platform is where this business is headed for the future. Next page. The proof in that execution could not be any stronger in the first half of 2020. There hasn't been a more thoughtful and active investor in the world in digital…

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

Hey, good morning. Thank you. I wanted to first start with just a kind of question and clarification on liquidity, which was on the slide number 19 in the deck. You lay out some monetization and then also investments in digital there. They're not quantified, that blue and green box respectively. If I size it, and if I think about where we have liquidity, I think each of those categories is 200 to 300 million. So wondering if you can kind of help us quantify that? And then also the 625 to 725 at the year end 2020 is before the remaining kind of hundred or so million on the convertible bond. I just wanted to clarify that?

Yes. Good morning, Randy. How are you? So, first and foremost, on monetization, we believe there's $200 million to $300 million of incremental monetizations in legacy. Those projects are currently in flight. When I say in flight, we have active dialogue and active processes to monetize a couple legacy assets. And we have pretty strong conviction around our ability to execute like we had in the first half of this year around a couple of situations. So, I think if you're trying to put some brackets around that I put $200 million to $300 million. On the expansion of the digital balance sheet. We are seeing some really tremendous opportunities. I'm sort of targeting $350 million to $550 million of incremental deployment between now and the end of the year. Like I said, we've always telegraph to you when we think we've got something interesting for the balance sheet and we're in the midst of those discussions and diligence. And we feel reasonably strong about our ability to continue to deploy balance sheet capital to build long term sustainable digital earnings.

Understood. So that's why it lands a little bit lower at 625 to 725. I just wanted to confirm that that would be before the January paydown of whatever's remaining on the convert after the recent debt exchange?

Randy, this is Jacky. We've included that $112 million included in that 350 to 550. So that's the broad range.

Yes, that's part of that paydown, Randy.

Yes, I just didn't know. Okay. It was a timing thing. Understood it. Okay. That's good. And then, I guess on hospitality, clearly, it's distracting from the digital story. And you talked about it a lot. I know that you're working on it. But I mean, can you -- in this forum, can you share with us kind of what you think you can do strategically? Would it involve putting capital in? And kind of how -- are there any big moves, I guess or kind of strategic moves you can make there to de-emphasize this hospitality situation?

Yes. Look, at the end of the day as I think you and I've had this discussion for the last couple of quarters. We don't hold a tremendous amount of positive net value for the lodging portfolio. I think today we hold it a little over $50 million in positive net contribution. We've been very careful not to put good money into bad situations. I think, once again, we telegraphed that in Q1 and Q2. That being said, we've made as I said on the call today, we've made a ton of progress. All seven portfolios continue to be in play from an equity preservation perspective and certainly from a cash flow preservation perspective. Very encouraged by the June results. Little less encouraged by July results. But once again, we've seen a pickup again here in the early part of August. So we're just going to have to keep our eye on it. But what I would tell you is, we have a game plan for every portfolio, every one of the portfolios from my perspective, feels like a salvageable situation. And once those assets are salvaged, and we regain our footing as it relates to core FFO, there's a lot of value in these assets. We get calls every day about people wanting to buy our hotels. So what I can share with you is the following three headlines; one, first and foremost, we've seen recovery in NOI. Two, we have a game plan to work through every single one of the portfolios and that game plans been in flight now for six months, we're coming out the back end of those discussions. And we believe most of those discussions will be fully resolved in Q3, if not in Q4. And then last but not least, I'll continue to say what I've always said, we think there's positive equity value in the portfolio. We have a lot of inquiries about the assets. There's a lot of distressed real estate funds out there trying to gather assets right now, as you know, Randy, the world is awash with liquidity, my friend. And there's a lot of opportunistic real estate funds that see the value in this portfolio. Limited service hotels are the easiest to bring back online. They represent the fastest way to get cash flow in the sector. And so this portfolio has value. And we will remain committed to recovering the value in the portfolio. Can't be more clear about that.

Okay, great. There is a number, I don't know if you can comment on this, but I've got a number of questions about this, this telecom situation in Brazil, Oi. Can you comment on that? Is there anything you can share with people about those reports?

Yes. Look, I can't actually. I apologize. We're under a nondisclosure agreement. What I would say is, we're an incredibly active owner of digital infrastructure in Brazil. We own the second largest data center operator in Scala in the country. We own one of the fastest growing tower companies in Brazil called Highline. My lineage dates back to, my days at Deutsche Bank working in Brazil for many years investing very successfully in Telecom and Digital Media. I like the country. I like the setup. And we're very committed to our investments in Brazil. And we're going to continue to invest in Brazil. So you can read the subtext to that as you wish. Now, when we do invest in Brazil, we're going to invest in good situations. What I mean by that is, we're not going to break our rules of our four corners of underwriting. We want to own infrastructure. We want to have long term contracts. We want to have great locations, and we want to have assets that can grow with us organically. And down in that part of the world we think our assets today are growing at double digit organic growth rates. So we see a lot of opportunity. We see dislocation in the currency. We see a dislocated economy. But we see a very, very strong digital economy that underpins that. Brazil is the perfect situation for us. We're very pleased with the assets we have today. And like I said, we have a lot of growth there. We're going to continue to keep investing in the country. And most importantly, we're going to continue to invest in our customers. We have very, very strong customer relationships down there at Highline and Scala. Oi is one of them. Telecom Italia is one, Claro is one, and Vivo is one. So we've got four really good customers down there on the mobile side. And we're going to continue to invest in all four customers.

I'll leave it there. Thank you very much.

Sure.

Thank you. Our next question comes from Jade Rahmani with KBW. Please proceed with your question.

Thank you very much. Marc, I wanted to ask you a question that I haven't had the chance to ask you, but we'd be curious as to how you'll respond. Have you given any thought to taking the company private and undertaking this immense transformation behind the scenes at this valuation that you cited instead of absorbing the costs and burdens of being public and all that involves. How do you think about that?

Thanks, Jade, and you've never asked me that question. So thank you. I appreciate it. In all seriousness, look, my job right now is I'm working for our common shareholders. And that's my highest priority. I assume the CEO chair on July 1. And what comes with that is a massive opportunity. And also, what comes with that is the burden of having to rectify some of the legacy issues that that I was handed. I'm really happy with where we are. I think the work that's been done through the first half of this year has been tremendous. And we've made a lot of progress. If you had to sort of calibrate where we are in a sort of four quarter football game and the transformation of Colony I'd say, we've come out of the lock room at halftime and we're just about playing the third quarter of the game. So I think we're definitely more than halfway to where we want to be. And so from that context, now that we are more than halfway done, whether we're private or whether we're public, the transformation continues. And so that's my sort of methodology as a CEO. I'm a day-to-day guy. I come in. We do the work. We know it's hard work. And we just keep knocking things down Jade one by one. And whether our structure is public or whether a structure is private, it really doesn't matter. The work has to be done. And right now my work is for the common shareholders. Look, I can't I can't stop people from making offers on our company. I really can't be concerned about that. What I'm most concerned about right now is just continuing to execute. And I think you saw that tone and tenor in the presentation today. This is an execution focused management team. And we believe we're winning. So I'm going to keep my focus there for the time being, and we think that work will be rewarded long term for our shareholders.

Thank you very much. Looking at the OED portfolio, and you've mentioned that there's a ton of liquidity on the sidelines. Do you envision an opportunity to bulk sell the entire OED portfolio along with legacy [Colony] [ph] institutional funds through a third party asset manager in the opportunistic capital for Colony's balance sheet that could be used to further bolster the liquidity, add additional firepower for deployment into digital and also allow you to accelerate simplification of the capital structure?

Yes. Look, it's a great question and you're on the right issue. Cards up, we get calls all the time for the entire portfolio. Now phone calls are different from fully binding offer letters that have equity commitment letters and a timeline for execution. I think interest is continuing to build in our assets and our OED business. And that's fine. And we'll continue to have those conversations with alternative asset managers that understand the embedded value of what we've done. And I think, look, we're always a good listener. And Jonathan Grunzweig to his strong credit has done an amazing job with his team of continuing to manage those assets and most importantly, extract, what we believe is fair to maximum value for those assets. And we feel really good about the second half of the year. I'm always surprised Jade about how much private liquidity sits out there. And look, this is an amazing portfolio of assets. The CDCF three, four and five series were great funds. And so whether it's a organizations that buy GP stakes, like Dial or Landmark or Goldman or Blackstone, or whether it's individual asset managers, like Starwood or people like that, that understand opportunistic real estate, will continue to feel those calls and have those conversations. Look, $380 million been monetized this year. So far, we've got a couple of great assets that are currently in flight for monetization. But at the end of the day, this is about as you said, at the beginning, Jade, its liquidity. We've done a spectacular job enhancing our liquidity. As you've seen through the presentation, we've shored up our capital stack. So honestly, cash is great, we could always use more cash to continue our digital pivot. But now, like I said, being at the…

Okay. I appreciate that. And I also appreciate the additional disclosure where you go through the top assets and also the remaining. That's very helpful. Just a question on the earnings driven model since you put it out there. Core FFO of $200 million to $275 million in 2023, 65% of which is the Digital Balance Sheet, the 35%, digital Investment Management. Any sense for what that might translate to on an AFFO basis, just factoring in CapEx? And also, do you plan in that scenario to keep the current capital structure in place, and also further optimize G&A?

So sort of three components to your question. First and foremost the ladder and the steps we get to our ultimate core FFO over the next three years. We're going to work with you and the rest of the analyst community over the next two quarters to give you those building blocks and show you how we get there. I think what we've done today is we've given you some very key examples on how we have strong assets, where we've married the balance sheet with third party capital to build stabilized long term earnings. We think that's a good architecture and we think that's a good playbook, because look, Jade, at the end of the day, you get two for one, right? You get a great asset on balance sheet that has long term contracts with investment grade tenants. And then you get an investment vehicle that's 10 to 15 to 20 years long term capital, that's patient, that pays you fees along that journey that only enhances your core FFO and gives you carry on the back end, which only creates more FEEUM and creates more earnings at the end of the day for our shareholders. So we think this is a good playbook. We think it's a good architecture. And as I said, I can't give you specific details, but I will tell you that we have other deals in flight that we plan to reveal to you over the next two quarters, which I think you'll be very happy with. And that really demonstrate our ability to grow that digital core balance sheet FFO. Those are the earnings that you want. Those are the earnings that big investors want. Because it's the earnings candidly they're used to seeing, right. They're used to seeing those earnings at…

Thank you very much for taking the questions.

Thanks, Jay. Appreciate your support.

Thanks, Jade.

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, listen, thank you. It's been an incredible first half of the year. Once again, I want to thank our Board. I want to thank our Chairman, Tom Barrack. I want to thank our team. This is an incredible team we have here at Colony Capital. I think we unveiled some of that to you today. But this doesn't happen without a great team focused on continuing to find the right home for our legacy assets, and continue to grow our business going forward. I think we've made the case today why this is a great moment in time to buy Colony. And I'd asked all of you who've been investing in the sector for two decades, who've watched my career to remember those sort of seminal moments when American Tower, Crown and SBA were all trading sort of sub $2. Those were really interesting points in time to buy digital infrastructure. Colony today trades slightly under $2. I'd encourage you guys to look at your history books, think about this management team, think about our business model, and think about where we're going. With that, look forward to continuing the dialogue with all of you. And we're looking forward to a very successful close to the back end of 2020. Thank you very much. Have a great weekend.

Thank you.

Ladies and gentlemen, this concludes today's teleconference. We thank you for your participation and you may disconnect your lines at this time.