DigitalBridge Group Inc (DBRG) 2019 Q4 法說會逐字稿

Greetings and welcome to Colony Capital's Fourth Quarter Full Year 2019 Earnings Conference Call.

(Operator Instructions) Please note, this conference call is being recorded.

It is now my pleasure to turn the conference over to your host, Lasse Glassen, with ADDO Investor Relations.

Thank you.

You may begin.

Good morning, everyone, and welcome to Colony Capital Inc.'s Fourth Quarter and Full Year 2019 Earnings Conference Call.

Speaking on the call today from the company is Tom Barrack, Chairman and CEO; Marc Ganz, incoming CEO and current CEO of Digital Bridge Holdings LLC; and Mark Hedstrom, Colony's COO and CFO.

The question-and-answer session will follow our prepared remarks.

Before I hand the call over to management, please note that on this call, certain information presented contains forward-looking statements.

These statements are based on management's current expectations and are subject to risks, uncertainties and assumptions.

Potential risks and uncertainties that could cause the company's business and financial results to differ materially from these forward-looking statements are described in the company's periodic reports filed with the SEC from time to time, including, but not limited to, the company's annual report on Form 10-K for the year ended December 31, 2018, and quarterly report on Form 10-Q for the quarter ended June 30, 2019, as well as the exhibits to the current report on Form 8-K filed earlier today.

All information discussed on this call is as of today, February 28, 2020, and Colony Capital does not intend and undertakes no duty to update future events or circumstances.

In addition, certain financial information presented on this call represents non-GAAP financial measures, reported on both a consolidated and segmented basis.

The company's earnings release, which was issued this morning and is available on the company's website, presents reconciliations to the appropriate GAAP measure and an explanation as to why the company believes such non-GAAP financial measures are useful to investors.

In addition, the company has prepared a table that reconciles certain non-GAAP financial measures to the appropriate GAAP measure by reportable segment, and this reconciliation is also available on the company's website.

With that, I would now like to turn the call over to Tom Barrack, Chairman and CEO of Colony Capital.

Tom?

Good morning, and thank you, Las.

CEO's primary responsibility is to define the vision and persistently communicate that vision to all its constituencies.

When embraced and executed by all the team members, that vision becomes a reality.

In order to produce consistent extraordinary returns over the long-term in a fast-moving world of accelerating disruption, friction and change, we must see things that others don't, adapting quickly and efficiently in order to define our relevance in this hypercompetitive and ever-changing environment.

(inaudible) of liquidity in the global markets has caused an insatiable thirst for yield, as a result, pricing in most real estate food groups has become surgical and amazingly competitive at a time when many assets are quickly becoming physically, functionally and financially obsolescent.

CapEx today is the 4-letter word in real estate and the line between return of and return on capital is oftentimes opaque.

Consequently, we peer through the valuable bricks-and-mortar that we own across the globe to anticipate the needs and transformation of the users of our assets.

Technological advancements in the Internet of Things, big data, biotech, communication networks, instantaneous and prolific information, e-commerce and last mile logistics, manufacturing, hospitality, health care, and media and entertainment, are increasing at work-speed to new destinations and require new highways upon which to travel.

The infrastructure necessary for that journey is new, different and a great demand.

Consequently, we're availing ourselves of historic prices in many of our legacy assets and converting that monetization to, #1, fortify our balance sheet, and secondly, invest in the digital ecosystem, where we have defined and competitive edge.

As we increasingly expand our digital program that invest ahead of and alongside of change, we also must change from the top.

We've already accomplished this location, beginning with the acquisition of Digital Bridge, and the designation of Marc Ganzi as my successor.

We will continue with the reallocation of resources and talent sets properly and execute this initiative, while at the same time, fortifying the traditional strength of Colony's global brand and investment management business.

Rotation necessitates change and realignment of teams and themes.

Our vision is to become the most significant solutions provider of digital infrastructure across the digital ecosystem to the best and largest technology and telephony companies around the world.

This vision is bold and very achievable, and we are well underway, as you can see.

Many times, the adaptation and redefinition of the vision necessitate short-term pain for long-term gain.

However, we are stewards of an infant life balance sheet and we are focused on the long game as we continue to provide meaningful dividends from our legacy assets and extraordinary total return from our digital assets.

We are moving down the field as we have planned.

And I'll now share with you the results of the past year.

What we've accomplished in 2019 starts with simplification.

Industrial.

We completed the sale of our light industrial platform for $5.7 billion, delivering a 17% IRR to our shareholders, while utilizing modest leverage (inaudible) resulted in a net cash gain and incentive fees of approximately $475 million and net cash proceeds of approximately $1.25 billion for the company's share.

Next, other equity and debt.

We exceeded our 2019 target of $500 million of OED monetizations, with $717 million of OED asset monetizations in 2019.

We achieved more than $2.1 billion in total OED monetization since the beginning of 2018.

NRE.

We completed the sale of NRE, delivering a 16% IRR to shareholders since inception and generating gross proceeds of $160 million to Colony Capital, for its 11% share business in the management contract.

Next, credit.

We closed a $1 billion CRE CLO at CLNC.

Evaluating the strategic transaction regarding the CLNC management contract is an ongoing process, and we help the closing of our fifth global real estate credit fund with total capital commitments of $428 million.

G&A reduction.

We achieved well over the expected $50 million to $55 million previously announced of cost savings on a run rate basis, and we'll continue to exceed our target in 2020 as we continue to clip away.

Health care, we refinanced an aggregate $2.2 billion of debt, including $1.725 billion [in AGAR] loan refinancing.

That address all of our material near-term maturities and puts us in very good shape.

In addition, we've sold 3 hospitals, generating $88 million of equity proceeds.

Hospitality.

We refinanced 3 portfolios totaling $1.1 billion of debt on accretive terms that extend maturities out 4 to 7 years.

RXR.

We just completed the sale of the company, and our 27.2% ownership in RXR Realty and non-wholly owned real estate investment management platform for approximately $200 million, resulting in a realized pretax gain of $106 million.

Next, the thematic growth story.

Today, we manage more than $20 billion of digital real estate AUM, an extraordinary increase from just $0 in digital real estate AUM only 2 years ago, a dramatic pivot.

Let me review with you some of the results.

Digital Colony Partners, DCP, closed a historic $4.1 billion of commitments for Digital Colony Partners, the largest first-time fund for digital real estate in history, and far surpassing our $3 billion target size, with 73% of the fund already invested or committed to be invested.

Secondly, we acquired Digital Bridge Holdings, the investment manager of DCP, added 6 digital portfolio companies and unified its world-class team of investment professionals with Colony's.

Additionally, we have made a number of outstanding additions to the digital Colony team.

Next, Zayo a major transaction in the United States with an anticipated close of March 9. $14.3 billion transaction for which DCP committed $800 million of capital and we raised an additional $2.2 billion of equity co-investment capital from some of the world's most sophisticated institutional investors.

Next, liability management.

We completed the redemption of all the outstanding 8.25% Series B and 8.75% Series E cumulative redeemable perpetual preferred stock for $408 million, which was settled in January of 2020, eliminating $34 million of annualized preferred dividends.

2019 and 2020, $0.44 dividend.

We paid a $0.44 dividend in 2019, and we are committed to pay a $0.44 dividend in 2020.

Over the past 3 years, we've returned over $2.6 billion to common and preferred shareholders through dividends, redemptions and repurchases.

DataBank.

we acquired a 20.4% controlling interest in DataBank, a leading private owner and manager of edge data centers in the U.S. for approximately $185 million, representing the company's inaugural direct balance sheet investment in digital real estate.

Liquidity.

As of February 25, we had significant liquidity of $1.3 billion, including $520 million of cash on hand and through our availability under our revolving credit facilities.

CEO succession.

We've designated Marc Ganzi as Colony Capital's next CEO to succeed me.

Board additions.

We've added 3 new independent directors to the board in 2019 for a total of 10 independent directors.

We've now engaged in an executive search firm to assist the company's board, including the Nominating and Corporate Governance Committee and its ongoing process to evaluate board composition, governance and refreshment matters, with a focus on identifying potential director candidates with appropriate digital experience to join the company's board as the company continues to execute on its digital evolution.

Bridging the digital divide.

What is our focus mission?

Simple, become the leading real estate asset solutions provider of occupancy, connectivity and capital to the world's leading mobile communications and technology logos.

Together with our limited partners, we will invest in digital real estate assets in which we have a durable competitive advantage, in which we have control, in which we possess compelling growth characteristics.

What's our differentiated strategy to thoughtfully utilize our well-regarded digital colony brand, access to permanent capital, global reach, best-in-class tenant relationships and operating experience in digital to our limited partners and our shareholders benefit; continue to focus on culture, alignment and motivation of our employees and our partners.

Our balance sheet, efficiently manage and ensure legacy businesses of our shareholders and other stakeholders as we opportunistically call, curate and define value, maximizing futures for these legacy businesses.

Our commitment to best-in-class governance.

With the full support of the board of our Nominations and Governance Committee, we're commencing a process to refresh the board to best suit the tasks at hand, including efforts to identify independent members with extraordinary capabilities in tech-driven sectors of the economy, consistent with our emphasis on digital real estate and digital infrastructure and the background and characteristics of our new CEO.

The impact of the volatility that we're currently undergoing on businesses in commerce globally as it relates to the pandemic and the volatility and the equity and fixed income markets has been and will continue to be severe and with no clear set of guardrails to the bottom.

I'll turn it over to Marc to highlight the durability of digital infrastructure in times of volatility and why the significance of digital infrastructure operators has never been more mission-critical than it is at the moment.

Marc?

Thank you, Tom.

We believe more than ever, being invested in and exposed to digital infrastructure and digital real estate is seminal to defensible long-term investment plan.

Digital infrastructure has long been a safe haven for investors in times of great volatility.

We believe this cycle will be no different.

Colony's rotation to digital allows investors to participate in this global thematic with strong upside and downside protection.

The 16 digital businesses, we own and operate globally, of long-term contracts varying from 5 to 25 years in duration, with built-in annual escalators and high exposure to investment-grade counterparties.

As the world deals with uncertainty, the digital economy continues to move as our customers continue to do business and enable the global economy to keep moving.

Telecommuting via video conferencing on applications like Zoom, Microsoft Teams, Cisco and Slack, are key examples of our customers helping the world's leading enterprises, enable and conduct commerce.

Our fiber lines feed the servers and nodes and towers that enable these signals.

Our data centers run high-power density applications to ensure the ecosystem continues to deliver durable goods and services to consumers and enterprises alike.

Never before as digital infrastructure been more mission-critical than it is today.

As a diversified global REIT, Colony offers investors the opportunity to be exposed to the somatic and sector in a unique and highly converged platform without equal.

I'm looking forward to the journey ahead in 2020 and engaging with investors and our customers as we map the digital divide and convergence in and amongst our various parts of our ecosystem.

And enabling our customers continue to build and deploy networks globally thanks.

Thanks, Marc.

Before I turn it over to Mark Hedstrom, I wanted to thank Justin Metz, who has been one of our most valued directors.

He's done an amazing job for us who has recently resigned due to the demands of his own great business.

We are unbelievably grateful, respectful, and we'll always have Justin in our Colony family.

With that, I'll turn it over to Mark Hedstrom.

Thank you, Tom, and good morning, everyone.

As a reminder, in addition to the release of our fourth quarter earnings, we filed a corporate overview and supplemental financial report this morning, which is available within the Public Shareholders section of our website.

On the call today, I will provide a review of our fourth quarter and full year 2019 financial results, business segment performance and other key financial and operational details.

Turning to our financial results.

GAAP net loss attributable to common stockholders in the fourth quarter was $26 million or $0.06 per share and the full year 2019 was a net loss of $1.15 billion or $2.41 per share.

A significant and anticipated contributor to the 2019 loss was tied to Colony's ongoing strategic transition and long-term plan to focus on and create the leading platform for digital real estate and infrastructure.

This transformation led the company to reduce the carrying value of goodwill and other intangibles related to certain components of our legacy investment management business and to record a noncash GAAP impairment charge of $411 million in the fourth quarter.

Core FFO was $48 million or $0.09 per share for the fourth quarter and $266 million or $0.50 per share for the full year.

Excluding net losses of $21 million, primarily in the other equity and debt segment, fourth quarter core FFO was $69 million or $0.13 per share.

For the full year 2019, excluding net investment losses of $52 million, core FFO was $318 million or $0.60 per share, which exceeded our annual dividend of $0.44 per share.

In 2019, Colony executed on a number of initiatives to advance our stated strategic priorities.

We included streamlining the business, further optimizing our capital structure and the generation of significant liquidity in order to transition to a digital real estate strategy.

The company ended the year well ahead of plan on a core FFO basis, while exceeding its 2019 asset monetization target, with both contributing to a strong year-end liquidity position.

Turning to 2020.

We expect to maintain a $0.44 per share regular common dividend for the full year 2020, a transitional year for the company.

The expectation is underpinned and well covered by the company's full year 2020 outlook for core FFO of $0.35 to $0.40 per share in addition to significant anticipated net cash gains, not part of core FFO, including the $106 million gain or $0.20 per share that was already generated through the early February sale of Colony's interest in RXR Realty.

Now I will provide a breakdown of Colony's operating results by segment.

Starting with our investment management business.

We ended the fourth quarter with third-party AUM of $36.3 billion, down 8% compared to last quarter, and fee-earning equity under management of $19.4 billion, down 13% compared to last quarter.

The decrease in third-party AUM and FEEUM were primarily attributable to the December sale of the light industrial platform and to a much lesser extent, the sale of our interest in Hamburg Trust.

We expect non-digital legacy AUM and FEEUM to continue to decrease in 2020 as we dispose of legacy OED and other assets, including the previously mentioned sale earlier this month of our interest in RXR Realty.

In contrast, Colony's digital AUM reached $13.8 billion in the fourth quarter, which represents approximately 29% of the company's entire AUM.

The Digital Colony Partners fund closed 2 new investments in the fourth quarter and committed to 3 additional investments so far in 2020 and is now 73% committed.

The company also made its first direct balance sheet investment in digital real estate in the fourth quarter through the acquisition of a 20% controlling interest in DataBank, a leading private owner and manager of edge data centers in the U.S. for approximately $185 million.

We expect to grow our digital real estate investment management platform by continuing to focus on our successful digital equity strategy as well as expanding into digital credit and digital liquidity strategies with the expectation of substantial associated co-investment vehicles.

We expect digital FEEUM currently $6.8 billion to grow at a rate of more than 15% in 2020 and even faster in 2021.

Next, I will provide an update on the corporate restructuring and reorganization plan announced during the fourth quarter of 2018.

Since initiation of the plan, the company has achieved more than 100% of the expected $50 million to $55 million cost savings on a same-store run rate basis through various initiatives, including a reduction of almost 30% of the company's workforce existing at the time of the restructuring was announced.

In addition to savings from business is expected to be sold during the year, we anticipate an additional $10 million to $15 million of annual run rate reduction in corporate G&A in 2020.

The targeted G&A savings related to the legacy Colony businesses will partially be offset by additional investment into the digital real estate team to support the platform's very profitable operations and growth.

Moving to the health care real estate segment.

The fourth quarter included a onetime recovery of rent receivables and termination fees, which resulted in an 11% same-store portfolio NOI increase from the third quarter.

Excluding these onetime items, same-store NOI was flat.

Same-store portfolio full year 2019 NOI was also flat compared to 2018.

There were 2 significant transactions on the health care financing front.

We refinanced the GBP 212 million loan on a portfolio of U.K. senior housing assets with a new GBP 223 million, fully extended 5-year loan at a substantially reduced interest rate.

Additionally, we put in place a $48 million loan on a skilled nursing facility, lengthening the fully extended maturity date to 2024 at a similar interest rate.

These refinancings, along with previously completed refinancing transactions in 2019, address all near-term health care real estate loan maturities, which was a key 2019 objective.

Turning to the hospitality real estate segment.

Compared to the same period last year, fourth quarter 2019 same-store portfolio NOI before FF&E reserve decreased 10%, primarily due to incremental room demand generated from onetime events in the fourth quarter of 2018 and higher room revenue displacement from hotels under renovation and continued wage pressure in the fourth quarter of 2019.

Excluding the onetime events and renovation displacement, fourth quarter 2019 NOI before FF&E reserve decreased 8% compared to the same period last year.

Same-store portfolio full year 2019 NOI before FF&E reserve decreased 2% compared to 2018.

During the fourth quarter, we also refinanced aggregate total of $982 million of secured debt on 2 hospitality portfolios, significantly extending the outside maturity date to 2026 at slightly lower interest rates on average.

Last quarter, CLNC announced a strategic plan to bifurcate its assets into a core portfolio, which will grow in a legacy nonstrategic portfolio, which will be monetized with proceeds reinvested into the corporate portfolio.

Further, CLNC amended its definition of core earnings to only reflect the results of its core portfolio.

Yesterday, CLNC reported fourth quarter core earnings of $43 million or $0.33 per share versus $45 million or $0.34 per share in the prior quarter.

More information can be found in CLNC's earning release.

Next

is our other equity and debt, or OED segment, a $1.8 billion equity carrying value portfolio separated into strategic OED and nonstrategic OED.

Strategic OED has an equity carrying value of $870 million and includes our investments alongside third-party capital where we earned investment management economics.

We are also actively managing and liquidating nonstrategic OED, which has an equity carrying value of $941 million and includes legacy investments, which are not core to the current investment management business and are not intended to be on for the long term.

During the fourth quarter, we completed planned asset monetizations, returning $35 million of net equity proceeds with the OED segment, and for the full year 2019, we returned net equity proceeds of $566 million from asset monetizations.

Looking ahead, the company has a 2020 asset monetization target of $300 million to $500 million, with the goal to ultimately monetize the entire legacy OED portfolio.

I will now touch on the industrial platform sale and related corporate capital allocation.

In December, the company completed the sale of its light industrial platform for an aggregate $5.7 billion, which resulted in a net cash gain and incentive fees of approximately $475 million and net cash proceeds of approximately $1.25 billion for the company's share.

This exceptionally executed sale generated a high-teens IRR and a 1.8x equity multiple on the company's investment while utilizing only modest leverage.

Those proceeds are being deployed in part to accelerate our ongoing transition into digital real estate, including our fourth quarter DataBank acquisition and also to redeem $403 million of high-cost preferred equity to improve the company's leverage and capital structure and to eliminate $34 million of annual preferred dividends.

And finally, a word about the company and its balance sheet and operations, in light of these recently turbulent times and associated high volatility.

First, as mentioned earlier, we believe that the digital real estate business model is extremely resilient and that there will be no slowdown to operation of and investment in digital infrastructure.

Second, while our risk assessment of the impact of the current environment on our legacy businesses is still ongoing.

We have addressed all near-term secured debt maturities, allowing us time to operate and create additional value in these assets.

Third, we have $5.5 billion of capped floating rate secured debt.

And if interest rates declined in this environment beyond levels already anticipated, the interest savings may act to offset lower operating expectations in the legacy asset classes.

And lastly, we are well positioned with significant levels of liquidity, which today stands at $1.3 billion, including $520 million cash on hand in addition to an undrawn revolving line of credit.

We are pleased with the progress we have made in realigning our business to reflect our digital transformation while fortifying our balance sheet, allowing us to experience a strong start to 2020.

With that, I will turn the call over to the operator to begin Q&A.

Operator?

(Operator Instructions) Our first question comes from Jade Rahmani with KBW.

Starting with CLNC.

I wanted to ask what you expect the likely outcome to be?

And over what time frame do you think is reasonable to anticipate a resolution?

Jade, it's Tom.

We expect a series of strategies and proposals within the next week, from which we'll then start effecting and curating along with the CLNC board to figure out what the best strategy, ultimately for the share value is.

Remember, we own 36% of the stock of CLNC, in addition to the external manager.

And except for a 1,000-point decline in the stock market for the third time this week, we anticipate a very robust a review of the internalization and other strategic options, both for the external management agreement and what will be accretive and positive to the shares -- the credit business and that balance sheet and the platform is valuable.

And as interest rates continue to decline, those businesses get better.

So we're bullish on looking at what our strategic options are starting really in the next week, which will culminate sometime in the next quarter.

Okay.

In terms of CLNC itself and as the external manager of that company, have you considered or will you consider the prospect to bulk sell assets from CLNC's core portfolio, take those proceeds and even though it might be at a haircut to par value, you could use those proceeds to buy back stock at 60%, 70% of book value, you can announce a tender for the shares because I think one overhang that will likely remain as so long as CLNY owns 36% of that company is what eventually happens to that block of stock.

Is that something that you would consider having CLNC to do?

Yes, absolutely.

It's a great question because you're exactly right.

The management contract itself is pretty easy to value.

That's the hangover of the 36% of our ownership is really always a question.

And we're trading way below book value and NAV.

So of course, we're not interested in executing sale at the values that we are today, but that race in getting share price back is at a parallel track what the perception of our 36% is and how we distribute it and ultimately, where we want to go.

So we've looked at it as a store of value.

So yes.

We're looking at all of those options, mostly as it relates to exactly what you're talking about is what's the ultimate road to getting that increased share value.

And it's all those components, right?

It's in the legacy assets with what's really the marketable value to where written down value is, and we're at pace.

We're doing a great job on those assets, and we're actually liquidating in a more rapid method than we thought.

The other is what's left in the core portfolio that is believable or unbelievable.

And we think we're pretty close to having that core portfolio stabilized and that CLO helped a lot.

And the third part, of course, is over time, how do you start trading like the other externally managed mortgage REIT, so that we can go back to a premium to book?

We're trading, as you know, in a deficit.

So all those options are being brought to us at the moment.

We'll evaluate them including the good one that you suggested, and we'll come up with the right conclusion.

But it's a good, solid business, and we think we're right towards the bottom of both the legacy assets, understanding what the core portfolio is, figure out an execution of liquidity and what we can do with the share value.

And anybody who's going to want to do anything with us, is going to want some shareholder agreement and direction on what we're doing with that 36%.

Okay.

In the past, some of your language has included the term special dividend.

And I wanted to find out, you could provide some insight as to what you meant by that.

Would you consider special dividending the CLNC shares to CLNY holders and they can decide what to do with them?

Or did you mean perhaps special dividends and some gains, such as the industrials gain and the RXR gain?

What did that refer to?

Well, I mean, look, we've looked at everything.

And what we did is try and the land and myriad of all of that.

So in our analysis and our advice for this year on our dividend, we decided that we would just establish from cash flow and from gains and set a dividend for 2020 that we can live with, that's fully covered.

The special dividend idea is always there, right?

As a store of value, that bank of value in CLNC, depending on where you think you are in book value and distribution someplace between [$750 million or $800 million], can be used for a lot of things.

And we've always thought that it could be used as a special dividend.

Depending on where we end up on the legacy businesses.

The legacy businesses are stabilized.

They're doing actually better than we anticipated in a different voice.

So at 1 time, when we talk about special dividend, we've got hospitality and health care.

We termed out debt.

We stabilize the income stream other than the last week and with ramifications at coronavirus and the volatility in this market are we're comfortable keeping that cash flow going as we transition.

And depending on what happens with CLNC, we always have that as an added liquidity device for their special dividend to convert into cash to do the other things that we've always said that we'll analyze, buy back stock, trim the debt on the balance sheet, utilize for greater digital acquisitions.

But we've got plenty of liquidity.

We're at about $1.2 billion of liquidity, including what our anticipation is for utilization of the digital machine that the market is driving.

So yes, the special dividend is in focus as a tool we could use at the point in time that we'd start understanding stabilization of that 36% share (inaudible)

Okay.

I wanted to also ask do you plan additional redemptions of preferreds?

And also, what is your thinking about the convert that matures next year?

Yes, good question.

Look, and we're always -- even today, right, we're not only analyzing the redemption of preferred, we're looking at the buyback of our own stock.

I mean, I think I hate to keep looking.

I promise that I don't look at our own stock price every day because it attracts from running the business.

But one of the things we're looking at as a group is buying back common.

So every day in kind of our investment committees, we have a race between what we do and paying down debt, anchoring new GP products, digital balance sheet products, special dividends, buyback of the preferred, buyback of our common, and it's a race for the long-term right solution, right?

Today, it evolved in a moment.

And whatever you think our NAV is, you might be very tempted to say the best utilization to cash is to buy back common stock.

So we're just evaluating on a daily basis.

In volatile markets, we try not to make those decisions, quite honestly.

Okay.

Lastly, I just wanted to ask about the digital investment landscape.

Can you quantify what digital fee earnings equity under management is currently?

And how you're seeing -- what kinds of opportunities are most interesting?

And also if you could address the competitive landscape?

There's been some very large infrastructure funds raised.

I'm not sure how you're seeing the steep amount of competition that's there.

With that, let me turn it over to our digital czar, Marc.

Jade, 3 questions here.

Let me try to take them in sequence.

I'll answer your last question first around the digital FEEUM that we're generating today and what we anticipate generating over the course of this year.

First and foremost, competitive environment on deals, I would say it's been as competitive as it's ever been.

And you are right, we do face a lot of competition out there in auctions.

What I would tell you is we don't play in a lot of auctions.

It's just not a place where we find value today.

If you look at the 11 investments we've made in Digital County one, 8 out of those 11 investments were proprietary, where there was not an auction or a competitive process, but rather we curated the opportunity we spent time with the management team, and we've ultimately were able to convince them to allow us to partner with them and to get to the right place.

And so that, for us, has always been our calling card is having great relationships with management teams.

And we think that is what we'll endure and that tell you create value for your LPs and for your shareholders.

As it relates to the total amount of revenues that we generate from the digital business, we generate roughly about a little over $75 million in reoccurring fees.

What I would tell you, as we look towards 2020, Jade, a couple of areas that we've guided you to.

One is we believe that will grow by at least 15%, and we think that guide is conservative.

Unpacking that for a second, Jade, there's 2 ways that we generate fees.

One is through proprietary co-investment, ideas and opportunities for our investors, and the second is new front products.

As Mark Hedstrom said earlier in the call today, we are in the process of launching some new fund products.

The details around those will become more apparent in Q2, but we're already in-flight in raising new IM products.

The second swim line you should think about is co-investment.

So just for example, Zayo alone, we raised $2.7 billion of co-investment.

We have 4 other projects in the co-investment category today.

One of those projects was project F1.

I think you saw an announcement that we expand Vantage into Europe.

And we raised $800 million of equity to support Vantage.

$400 million was in a strategic co-invest and then $400 million was from Digital Colony Partners won.

So there's a great example of where we use the fund, Jade, $400 million.

We then had co-investors lined up for the other $400 million that generates fee and carry.

And you're going to see more of that.

We've got the size project F1.

We've got 3 other projects that are in-flight right now that we can't give you details on today because they're strategic.

But what I would tell you is those 3 projects will generate significant outsized co-investment opportunities for Colony in 2020.

So the setup for 2020 is fantastic.

We've got a bunch of new ways to generate FEEUM, absolutely anticipate crushing that 15% metric that we've guided you to.

And we'll continue to look for deals where others don't.

That's been sort of my 25-year track record in doing these deals is we typically don't play particularly well in auction formats.

Our next question comes from Randy Binner with B. Riley.

I think I'll pick up right there on just parsing out the -- share of the business that is expected to be digital.

And can we just go a step further out and talk about the guide you laid out last fall of AUM or fee earning AUM, however you want to define it, of being 50% for the consolidated entity by year-end '20 and then 90% by '21.

Is that that's pro forma Zayo?

And I think that number pro forma Zayo now is something in the high 30s.

So is that right that, that that number pro forma Zayo is in the high 30s?

And then is it still realistic to say this is going to be a 50% and then 90% digital asset base in '20 and '21, respectively?

Thanks, Randy.

I appreciate the question.

And it's a good question.

So let's just talk about exactly where we are today before Zayo closes on March 9. As Tom Barrack told you earlier, we're very excited to announce formally the closing date today and our partnership with EQT.

Today, we have about $13.5 billion of digital assets across our $36 plus billion of AUM today.

Once Zayo closes, obviously, that's another close to more than $7 billion of AUM.

That takes us up to about $21 billion of digital assets under management and it takes the firm just a little bit somewhere in the ZIP code of about $43 billion of total assets under management pro forma for the Zayo close.

I think as we think about where we've told folks where we are capable of going this year.

Once Zayo closes and a couple of the other investments that Mark Hedstrom had told you about that we closed in the digital investment management platform, we are well north of 40% of digital assets under management.

I feel very safe to say that somewhere between 50% to 60% of our AUM will be digital by the end of this year, at the end of 2020, and I still feel very good as this time and the rest of our management team with that 90% figure in 2021.

We have a very clear road map on how we get there, and the way we get there is by continuing to invest our balance sheet wisely, where we're able to weaponize that capital, bring our LP capital side-by-side with us and some of our best proprietary ideas.

Secondarily, as we launch new IM products, specifically in liquid and in credit and further equity products, we see a path to increasing our total AUM on the private side in our digital IM business.

And then as I mentioned earlier, Randy, this notion of co-investment is so important to us.

We've had a rich history at Digital Ridge and now Digital Colony and now Colony consolidated of being able to bring our ideas to our investors, put our capital side-by-side with them and create unique opportunities that candidly LPs are not seeing anywhere else in the world.

I mentioned Vantage Europe as an example of that.

That's a proprietary opportunity that was afforded our LPs, and it was afforded to Digital Colony 1 where we're backing what we believe is the best management team in the planet and hyperscale data centers, and that opportunity would not be possible without having the unique ecosystem of companies and CEOs that we have here at Colony Capital today.

So I don't know if that gives you a little more clarity, but I feel very good about our 2021 promise to the street, and I feel very good about our ability to generate and outperform our FEEUM numbers for 2020.

Randy, it's Tom.

Let me add one other thing, which I think is really pivotal and understanding where we're going.

When we bought Digital Bridge, as you remember, Digital Bridge, in addition to having general partnership interest in the IM side of life moving forward, also managed 6 distinct silos.

And those assets under management in those silos and a private equity format rolling up to stabilization to a some point in time to fit into a public format.

We have radio cell towers, micro towers, edge computing, data centers, fiber, smart logistics.

And part of what the market is not seeing is what we're doing is farming those silos.

So when Marc says we don't compete in options, much of the opportunities are coming from those silos themselves.

And as we match and marry balance sheet to IM, those opportunities, which are not in the marketplace are at the forefront of the things that we're doing.

So people say what is the related party issue here.

Actually, the reason that we acquired digital besides the talent-based market team with the opportunity to harvest those silos of transactions, and they're going to come fast and furious.

And as Marc will tell you, it's the most defensive part of asset acquisitions and all of these very confusing food groups in the marketplace right now.

And Marc will expand on that as we talk.

All right.

That is very helpful.

So the related question then is -- and I guess, I'm thinking of this in the context of the core FFO guide, but is there -- it's a pretty rapid transition.

How much overlap is there in your professional workforce in professionals who can switch to digital from legacy, for lack of a better way of putting it?

And how should we think about that?

Is there a next step for expense and headcount?

I understand that you hit your prior goal, but it is a lot of -- it's a lot of friction, I think, to use your term.

And so I'm just curious how that -- how much overlap is there -- how much ability is there to pivot your existing workforce to I guess, sourcing, diligencing and ultimately investing in these new asset types?

And how does that all fit into the core FFO guide?

Yes, it's a great question.

So the base business, right, if you look at our constituencies, we have a number of constituencies, but the biggest one, our shareholders and you, side-by-side with that, our limited partners, right, institutional investors.

And both don't exactly have the same both quest, right, on the limited partners' side, residual value over term, looking for the best economics on fee and carry.

On the shareholder side, saying, maximize the fees and then the carry and give us more distributable welcome on a reoccurring basis.

Use your balance sheet when you need to, to originate and syndicate.

So that base business is 28 years old, and that's solid in that space.

So the machine to digest whatever it is, whatever animal is out there that goes through that digestion chain is the same whether it's digital, whether it's hospitality, whether it's industrial, whether it's credit, underlying basis, and that should get better and better and more efficient and more efficient.

On top of that, it changes.

So at a senior level, Marc's team, which is home warriors that have been doing this for a long time, takes precedence on the acquisition, origination, management process of those silos underneath.

So you have 6 lines, all with different cars on them going down the same highway.

So at the top, some of that will change, and some of our senior people get recycled.

And why do we get recycle because as we discontinued businesses, some of them are the best-in-class in that particular business, and they will decide that they need to move on to another frontier to pursue that and we'll help them do that.

And that's the natural evolution of things.

So I think part of the problem and as yes, it's going to change.

Yes, there's going to be teams and themes of the change.

There'll be a lot of people that rise to the top in this process as we move harder and harder into digital.

And that's the never -- the natural evolution of things.

It's emotionally difficult at times, but it's the nature of the being to adapt, to move, to realign, to give accountability and responsibility side by side, and we're all learning, quite honestly, as everybody in the marketplace, not just turning to digital.

But if you look at what's happening now, the only stable thing is a iPhone in front of me.

So everything else is going volatile.

But what's happening is the amount of data that's being communicated to kind of entertainment kind of information and the information that you need is more and more coming through these mobile devices.

And as coronavirus, for instance, takes place, that's happening in space.

So certainly, big parts of our team will have to be replanned and refreshed and replaced.

We're talking about doing that from the top-down, starting with me.

So you take a dinosaur like me that's been in one aspect of the business.

The best thing that I could have done for this company is go out and find a warrior who can take you to the next frontier, and we did that.

And at the board level, it's same thing.

We have the best, the most focused existing board.

We do need some help.

We need a digital point of view of technological and telephony background that us have.

So it's going to rotate and change.

And that's the good thing.

That's the nature of the animal, and we think we're going to be the only public company that has a diverse ecosystem of technology and telephony to those 5 large logos.

And that is a pivot.

And that's a frustrating thing for you, but we're clear.

We see the road now.

So the short-term pain that we're taking in the middle of going there is not bothering us.

But my job is to protect this balance sheet for the next 5 years, not for the next 5 days.

Okay.

That is helpful.

And -- but just to be clear, that is all in -- I mean, all that's contemplated within the FFO guide, the upfront cost to change the workforce over?

Yes, 100%.

And then...

(inaudible) one thing for you to consider, for example, when we went out, we raised that $4.1 billion fund last year, we used the entire Colony IR apparatus to go raise that fund.

And so now with under Kevin Smith's leadership, who's our new Head of Capital Information And Strategy, Kevin guides that team not only to go out and raise new equity products, Randy, but he's also out helping the liquid team, the credit team and leading our co-investment efforts, which are massive.

So that's a great example where we took the existing infrastructure.

We did digitize it, so to speak.

And it's one of the most effective fundraising teams in the world of digital infrastructure.

And there's other examples of that, where we see folks that have worked at Colony, for example, in credit, where they've worked in IR, they've worked in HR.

We're putting that playbook together.

We're integrating the companies.

What we told you what we would do last year is that we would make significant G&A cuts.

We delivered on that goal.

We beat it by 10%.

What we've told you for 2020 is we'll reduce G&A by another $10 million to $15 million, and depending on how accelerated, as Tom said, as we find the right home for certain assets.

Logically, certain G&A may go with those assets.

We may end up having a little bit of a beat to that $10 million to $15 million of incremental G&A guidance that we've given you.

Our next question comes from Jennifer Fritzsche with Wells Fargo.

Marc, I appreciate at the beginning of the call, addressing the current environment.

It clearly is a fluid situation.

But as you look at your different silos of broadband infrastructure, I guess, what are you most excited about?

Because clearly, they're critical in the environment we're in.

But as you look at like data centers, wireless infrastructure, and certainly, fiber, if you were to look to build out any more of that, which area would it be in?

Jennifer, thank you.

And first of all, thank you for participating.

We're actually excited about a lot of things right now.

And to pick one, perhaps to be unfair, but as you've known me from time to time, I do sometimes rank the children and try to prioritize which ones are performing better than others.

But I will tell you, the early guide we're getting from customers in 2020 is they need more fiber, and they need it in more locations.

So the densification of that fiber plant, Jennifer, and the demand on higher is something that's pretty unusual.

And I see insatiable amount of demand for dark fiber.

And what's interesting is where that dark fiber is going.

And so as we trace the roots of where our customers are asking us to go, obviously, data center connectivity is huge.

But the biggest thematic, I think you have to keep your eye on, Jen, at 2020 is really where that fiber ends up at a hub or a baseband hotel.

We really see edge computing as being the main thematic as we push into this next topology of network architecture.

And so where that takes us to is an environment where you have more open RAN architecture and you have smaller hubs, where you've got an accumulation of radio, cable companies, IoT providers, content providers, converging in the hubs that have either dual path or multiple dark fiber routes that are feeding to other places.

And those other places could be main data centers, they could be switched facilities, they could be small cell nodes, they could be macro sites.

We see a massive surge in demand for C-RAN computing, which is really what we refer to today and you and the analyst community for today's edge computing.

So everyone is constantly asking me, Jennifer, where's the edge, define the edge.

Well, the edge is where the customer tells us their network is the weakest and where there's a defined latency problem.

So that edge can be different for Netflix.

It can be different for Amazon.

It can be different for Azure.

It can be different for T-Mobile, it can be different for Navidea.

And this is really the opportunity and the challenge for us is that we have massive assets today that have the best defensible characteristics because as you think about where edge computing is happening, it's happening in economy C-RAN hub, it's happening at a DataBank edge data center, it's happening on an extranet network, it's happening on Zayo long-haul route.

And those long-term relationships with our customers are what is going to endure and it's what's going to pave the road for growth as our customers continue to invest.

So I'm really excited.

I think -- so the short answer is dark fiber, C-RAN hubs, but places where we see our customers growing and in places for our investors, where they're going to find safety and comfort in the defensible characteristics of our assets.

And if I could just add one more question, kind of tailing off that.

Since your last call, you've had 2 pretty major developments.

You've had the Sprint T-Mobile merger approval, which puts into place dish.

And I think as we speak, we have the FCC talking about freeing up 280-megahertz of c-band spectrum.

I think is it fair to assume you see both those events being an outgrow and dish there being significantly positive for kind of each year silos, maybe data centers is kind of a separate one, but...

Sure.

Well, let me take the T-Mobile, Sprint merger.

First of all, we were very early in supporting the merger.

And we believe that a stronger T-Mobile and a stronger Sprint makes for a better outcome for consumers.

We're very close to both those customers, as you know, T-Mobile being the dominant carrier in that merger has a massive program for investment in 2020 and 2021 and beyond.

And so we have a fantastic relationship with them.

And we're building a lot of infrastructure for them as we speak.

And that's a unique logo for us, Jennifer, because it needs more fiber.

It needs more C-RAN hubs.

It needs more small cells, and it needs more macro sites.

And our ability to deliver a converged solution for T-Mobile is unlike any other digital REIT on the planet.

So when we sit with and we sit with his team and Mike Simpson and engineering, we're not talking about how we deliver 1 tower, we're not talking about how we deliver 10 nodes.

What we're talking about today at Colony is, how do we deliver a turfing solution for an entire market.

Let us handle that for you.

We have the capital formation, we have the necessary skills.

We have the ability to entitle things, but most importantly, we have the ability to execute and execute across multiple verticals for our customer.

And so as we think about where T-Mobile is going, we see the future for that organization is very bright.

Have had a multi-decade relationship with Nevel and Braxton and the entire management team there, and we're looking forward to going incredibly deep with them.

At the same time, as you look through the assets that perhaps get left behind in the Sprint legacy assets, it's a huge opportunity for Charlie and Tom Cullen.

We're very excited about what DISH is doing in 5G and IoT.

We've been a long time provider of infrastructure to DISH.

I think Charlie is one of the smartest guys in the industry.

I'm really excited to work with him and his team in building their network.

They've got massive initiatives out there right now for fiber and for towers, and our portfolio companies have gone to them and have responded to their needs.

But once again, it's a unique invitation for us to sit with that customer and provide a holistic set of solutions in a converged network environment.

And this is something that we can do to perhaps some of the other digital REITs can't provide that total end-to-end solution in a 5G converged environment.

So that for us is very exciting, and we think the early designs on what DISH is doing is very, very exciting for customers.

I think you had one other question, Jennifer.

I don't know if I answered all your questions?

Just the CBM spectrum, if this happens in 280-megahertz of spectrum pushed out of the market?

Super (inaudible) that CBRS.

So one of the things that we've been doing, Jennifer is, we've been trial testing CBRS with enterprise users, and we've been doing that at extranet.

And so we have NDAs in place with some major corporate manufacturers that have millions of square feet of manufacturing space and hundreds of thousands of employees.

And extranet has the ability to deploy network, deploy that spectrum and create a unique wide area network on enterprise 5G that is unlike any other systems we've ever seen.

And what's great about that is we're bringing cost savings to enterprises.

We're helping them deploy their applications across their own wide area network.

And at the same time, across that main corporate user because of the nature of that spectrum, we can also host spectrum for T-Mobile, for AT&T and for Verizon, and really bring down their total cost of infrastructure.

And so by having shared infrastructure, by sharing that spectrum and by having someone like ourselves, are very good portfolio company net at all, Illinois, deploy those nodes, deploy that fiber and then deploy that spectrum.

It's a real game changer for enterprises.

So we've got actually 3 trials going on right now, all of which are generating revenue for extranet so this is a revenue opportunity.

It's a new opportunity, and I'm really looking forward to talking about CBRS over the next couple of months in some of the conferences that we're going to.

I see CBRS as being a major opportunity for us at Colony because we have so much real estate.

We have so many buildings that we can penetrate.

We have amazing large stadiums and venues and airports and tunnels and other places where we can really bring down the total cost of bandwidth for mobile operators as they proliferate their 5G networks.

I'm really fired up about it.

You can tell.

We had reached the end of the question-and-answer session.

At this time, I'd like to turn the call back over to management for closing comments.

Great.

Well, thanks, everybody.

I know today, everybody's minds are on a lot of things in the midst of all those volatility.

And when it comes to mind, I think, for us, is one of the benefits of hard assets, which sometimes seems like it's a play because it's so slow moving.

It is slow moving.

So we hope that the coronavirus doesn't become a pandemic.

We're evaluating all of the options and alternatives, including, by the way, what opportunities may come as a result of it.

It had to be defensive across all of our businesses.

And as Marc told you, the defensive nature of digital is superb.

Hospitality and health care, we're constantly evaluating how to reposition what we do defensively, what we also might do offense.

Those businesses are producing massive core FFO and cash flow.

In a moment like this, there may be opportunities as we look to take those legacy assets in separate silos to do lots of things.

So we're looking at buying back stock, we're looking at preferred, we're looking at what we do with the converts as time comes down.

But remember, the decreasing expectation of interest rates goes right to our bottom line.

So the floating rate ability of most of our debt is a huge, huge asset.

So thanks for being here with us.

Let's hope that these markets stabilize and that the coronavirus somehow comes up with a solution without too many more advanced or consequences.

Thanks for being with us.

This concludes today's conference.

You may disconnect your lines at this time, and we thank you for your participation.