DigitalBridge Group Inc (DBRG) 2020 Q3 法說會逐字稿

Greetings, and welcome to Colony Capital's Third Quarter 2020 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Severin White. You may begin.

Good morning, everyone, and welcome to Colony Capital's third quarter 2020 earnings conference call. Speaking on the call today from the company is Marc Ganzi our President and Chief Executive Officer; and Jacky Wu, our Chief Financial Officer.

Before I turn the call over to them, I'll quickly cover the safe harbor. Some of the statements that we make today regarding our business, operations and financial performance, including the effect of the COVID-19 pandemic on those areas may be considered forward-looking, and such statements involve a number of risks and uncertainties that could cause actual results to differ materially. All information discussed on this call is as of today, November 6, 2020, and that 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 our Form 10-Q for the quarter ended September 30, 2020.

With that, I'll turn the call over to Marc Ganzi, our President and CEO. Marc?

Thanks, Severin, and thank all of you for joining us this morning and taking time to learn more about Colony Capital and the digital transformation we're in-flight on.

In terms of the agenda today, I'd like to start with a business update. I'd like to highlight some of our key accomplishments in the quarter. And then I'm going to turn it over to Jacky, who will walk you through our 3Q financial results and some of the progress we've made in our digital revenues and our digital business. I'm going to finish today with a case study from our digital playbook. I want to highlight the progress we've made at DataBank, how we're creating the value for our shareholders and where we see that business continuing to grow on the edge.

Look, it's been an incredibly busy quarter again, so why don't we get right into the materials, and I'd please ask you to turn to Page 5. Before I detail the significant progress we've made in the quarter, I'd like to start by briefly reviewing our strategic plan, particularly for investors that are now new to the Colony 2.0 story. We've had a profound transformation underway, transitioning from a diversified REIT, managing real estate assets across many verticals to a singular platform that's focused exclusively on digital infrastructure, which is cell towers, data centers, fiber and small cell infrastructure.

The key rationale for that transition are detailed right in the center of this slide. First, I want to align with powerful secular tailwinds that are driving consumer and enterprise demand for more, better and faster digital connectivity. Second, I'm a big believer in simplification, business simplification and a simpler narrative for you, our investors. Three, we've said this many times over the last couple of quarters, but the key to this entire business plan is predictable digital earnings. And this will be the engine that drives our stock forward in the coming years. Lastly, attractive returns on invested capital. I've been in the digital infrastructure space for over 26 years, and what ultimately drives value creation over time and through cycles, are attractive risk-adjusted returns that this business can reliably generate.

With that context, I'd like you to flip to the next slide, and update you on 2 key highlights from this last quarter that really exemplify our digital transformation and asset rotation.

Over the summer, we completed a lot of work to strengthen the Colony balance sheet, which put us in an amazing position to accelerate our digital transformation that you're seeing now. This past quarter, we executed on both sides of the great rotation. This slide is really the story of Q3 in a nutshell. First, we signed an agreement to sell our hospitality business. It is a significant step in harvesting our legacy assets. One, we're able to achieve positive equity value for Colony shareholders despite the pressures that are facing the lodging sector today. Second, we reduced our consolidated debt by $2.7 billion. As most of you know, delevering the business is incredibly important to me as it positions us for success down the road. Lastly, we're removing the distraction from a noncore asset. This simplification of the business is core to our narrative.

On the right side, we have the other side of this rotation, which is investing in digital, and that's why you're here. We've made some great progress the last quarter, leading DataBank's acquisition of zColo. This $1.4 billion deal that transforms DataBank into a national scale edge data center operator with 29 Tier 1 and Tier 2 markets, 64 locations, tripling our footprint across the United States. It's not just the square footage, and -- it's really about the cross-connects. 30,000 cross-connects, up from 7,000. As I'll explain later, this is a big deal when you look at how networks are evolving and how our customers' architecture is changing.

The deal was financed with $145 million of our balance sheet capital, maintaining our 20% ownership stake, along with $500 million of new co-investment capital that pays us fee and carry in addition to arranging over $600 million in debt financing to support the acquisition. Finally, this deal is highly accretive to the DataBank platform, and that is very critical. We talked about our ability to acquire high-quality digital assets at attractive and accretive levels, and this is proof positive, which we'll explore a bit more later in our presentation today.

Next slide, please. The hospitality sale is really a story and a narrative around our business simplification. The deal represents a significant milestone for 2 of my key priorities: one, simplifying the business; and two, deleveraging the balance sheet. Between the sale of these portfolios and the resolution of our hospitality business, we are shedding $3 billion of debt. That's a 44% reduction. Our debt-to-asset ratio declined from 67% to 55% and annual cash interest will decrease by over $110 million and will generate over $7 million in annual G&A savings. We also successfully achieved positive equity value for Colony shareholders from the sale of this business. And it's worth noting that the transaction value, $2.8 billion, was within 1% of our total carrying value on the balance sheet. I want to give special attention and credit to Dave Schwarz and the entire lodging team at Colony for getting this critical transaction done.

Next page, please. So let's go a little deeper into the story of combining DataBank and zColo. Our acquisition of zColo is really the story of the quarter in terms of building our exposure to high-quality digital assets. The table in the map presented here gives you some context for what a transformative deal this is. First, 3x the number of locations, which only increases the opportunity for our customers to work with us on the edge. Second, it gives us a national footprint across 29 Tier 1 and Tier 2 markets. Third, this kind of scale is increasingly relevant as hyperscale technology and content companies locate compute resources and nodes closer to their customers. DataBank is their edge colocation provider of choice.

One of the most exciting aspects of this deal will be to see what Raul Martynek and his team do with these assets, which really were not core to Zayo, given their focus on fiber. The team at DataBank has been laser-focused on customers and building the premier edge data center company to serve them. They have the experience in acquiring and integrating acquisitions, and a consistent track record of posting organic growth year-over-year as we've demonstrated to you in the past.

As some of you know, we also are the controlling shareholder of Zayo. The seller, our Digital Colony Partners fund, working in concert with EQT ran the sale process for zColo given DataBank's interest. It's worth noting this transaction is really a win-win for both parties. While DataBank achieved scale and accretive growth, Zayo divests of a noncore asset and generates $1.4 billion of additional liquidity that it can use to delever and fund future growth in their core fiber verticals of wholesale fiber and enterprise fiber. We telegraph to many investors when they ask us about Zayo, what was the core thesis of investing in Zayo. And I always tell them it was about simplification. It was about returning Zayo to its core roots, which is the leading provider of connectivity services of long-haul, metro fiber and enterprise fiber solutions for customers all across the U.S. and Europe.

There's a lot of great stuff happening at Zayo right now, including the announcement 2 weeks ago of Steve Smith agreeing to become our CEO. Steve's track record at Equinix was impressive, 17x increase in equity value from $2 billion to $34 billion, and an increase in revenues of over 10x from $400 million to $4.4 billion. We're excited to see what Steve is going to do with it as he helps it lead it into its next phase of growth. I'm honored and privileged to call Steve Smith my partner, and I also want to thank Dan Caruso as our partner as well. Dan will continue to be a vital member of our Board and as founder of the business, we look forward to his input in helping Steve transition into this great new business.

Look, at the end of the day, we couldn't be more thrilled. We've got great leaders running all of our businesses, Raul Martynek, Steve Smith, Dan Caruso, all of these folks are really the -- from my perspective, the secret sauce at Digital Colony today, having great leaders, building great businesses.

Next slide, please. So I would like to refresh every quarter, our promises made, promises kept slide. A lot of you seem to like this slide, so let's get to it and share with you some of the things that have happened inside of the quarter. First of all, progress on delevering. Many of the key corporate initiatives to strengthen our balance sheet that we announced last quarter were finalized during Q3.

One, we paid down the revolver. We now have $500 million available on that revolver today. We closed the $400 million strategic Wafra investment. We issued $300 million of 2025 convertible notes, using those proceeds to pay down the bulk of the Jan 2021 convertible notes. We successfully tendered for $81 million of the remaining Jan 2021 convertible notes. There's 300 -- $32 million -- there's $32 million remaining and this yields significant interest savings for us.

Second, we've continued to invest in high-quality digital assets. We closed the $190 million Vantage Stabilized Data Centers portfolio, Vantage SDC is what we call it. Vantage SDC completed a watershed transaction in the financing markets about a month ago, closing a $1.3 billion securitization at an all-in rate of 1.8%. This lower interest rate drives improved IRRs and increased annualized cash flows derived from this investment for the entire portfolio of $22 million a year. So yield goes up, returns go up and this is really an impressive example of our execution in high-quality digital assets.

Lastly, as I mentioned on the previous pages, we acquired zColo for $1.4 billion, and we've also invested $145 million from our balance sheet to lead this transaction, while generating $500 million of incremental coinvest.

Harvesting legacy assets and streamlining our organization. We've achieved $46 million in G&A savings year-to-date. And we expect to save $60 million, exceeding our original $40 million plan. $430 million of year-to-date OE&D monetizations against a budget of $600 million to $700 million projected for full year 2020. Our hospitality sale led that narrative, $2.8 billion of hotels sold in the quarter, shedding $2.7 billion of debt and reducing our debt load by 44%.

Last but not least, I've talked a lot about organic growth and delivering on core digital growth, $2.3 billion of net FEEUM raised year-to-date, 33% year-to-date FEEUM growth exceeding our 15% guidance and more than double our promise in terms of our performance on this metric. $1.3 billion in net FEEUM was raised after 6/30/2020. All of this was coinvest capital and enhances our balance sheet economics like we mentioned in Vantage SDC and, of course, in DataBank.

Inside the quarter, we raised an incremental $800 million from Vantage Europe and we have $500 million in pending commitments for other co-investment vehicles as well. So it was a great quarter in fundraising. So at the end of the day, it continues to be a story about execution. Execution, from my perspective, is the most important thing, and all of these are about our key people delivering in each of their silos. I'm very proud of our progress inside the quarter.

And with that, I'm going to turn it over to Jacky, who is going to walk us in to the finance section of our presentation today. Thank you. Jacky?

Thank you, Marc, and good morning, everyone. As a reminder, in addition to the release of our third quarter earnings, we filed a supplemental financial report this morning, which is available within the Public Shareholders section of our website.

Starting with our third quarter results on Page 11. The company has continued to make progress in its digital transformation. Digital assets under management increased to 50% of total AUM at the end of the third quarter and over 55% of total AUM on a pro forma basis, including pending digital transactions and the anticipated sale of the hospitality portfolio.

For the third quarter, reported total revenues were $317 million, which represents a 10% increase from second quarter revenues of $287 million. While this is a marked improvement from the last quarter, it is still a 12% decrease from the same period last year, primarily as a result of the impacts of the COVID pandemic on our legacy business as well as from legacy asset sales.

GAAP net loss attributable to common stockholders was $206 million or $0.44 per share. The significant sequential improvement is primarily due to our recognition of a $2 billion impairment charge on our legacy assets in the second quarter. Total company core funds from operations, excluding gains and losses, was $5 million in the third quarter. This turned positive from a $19 million loss last quarter, driven by continued digital growth as well as improved performance on our legacy assets.

Turning to Page 12. As we continue to simplify our business and further the digital transformation, we are also streamlining our financial disclosures for the legacy business, while emphasizing our growing digital results in order to provide transparency to our investors.

The prior digital segment has now been separated into 3 segments: Digital Investment Management, Digital Operating and Digital Other. We also introduced additional digital disclosures in the supplemental financial package this quarter. First, Digital Investment Management consists of our recurring IM and performance fees generated through the management of our third-party equity capital. Second, the Digital Operating segment consists of our balance sheet investments in DataBank and Vantage Stabilized Data Centers. We will grow this segment as we continue to deploy capital into future direct balance sheet investments. Third, Digital Other includes the equity method earnings of our inaugural Digital Colony Partners fund and our digital-listed securities investments vehicles. These investments are held at fair value.

On the legacy side of the business, we will continue to have a separate Wellness Infrastructure segment. So that segment remains unchanged. However, we are combining the other investment management, Colony Credit Real Estate, and other equity and debt segments to a new segment named Other. We will continue to provide similar subsegment disclosures, but this change reflects the digital focus of the business going forward. Hospitality is no longer a segment, and we have moved it to discontinued operation given the pending sale transaction that Marc previously discussed.

Moving to Page 13. During the third quarter, the company continued to rebound from the impacts of COVID, generating positive core FFO, excluding gains and losses of approximately $5 million. The core FFO improvement was driven by continued execution of our corporate strategy. First, we continued to grow our digital assets, which contributed $3 million of incremental earnings in the period. We had also committed to simplifying our business. We realized $2 million of incremental savings as a result of previously announced G&A reduction plan and $3 million reduced corporate interest expense due to our efforts to delever the business. Lastly, our legacy business improved quarter-over-quarter driven by expense savings and national reopening efforts from the trough of the COVID pandemic.

Turning to Page 14. Consolidated digital revenues increased to $119 million, driven by acquisitions of DataBank at the end of last year and Vantage Stabilized Data Centers in July of this year. Looking at the right side of the page, consolidated digital fee-related earnings and adjusted EBITDA increased to $54 million during the third quarter. Our digital fee-related earnings declined slightly due to investment in personnel to support fundraising efforts, and recent and future growth in digital fee-earning equity under management. Despite our increased investment in our platform, our recurring margin still improved to 46% or by 500 basis points over the prior quarter.

Turning to Page 15. We are reiterating our 2023 digital growth guidance. We continue to target digital fee revenues of $150 million to $200 million by 2023 and digital fee-related earnings of $80 million to $110 million. In addition, we continue to expect to achieve $175 million to $225 million of digital operating EBITDA and $150 million to $200 million of digital operating core FFO. Our acquisition of Vantage Stabilized Data Centers as well as our recently announced acquisition of zColo are just 2 examples of our commitment to achieving those goals.

Turning to Page 16. We have made great progress this year towards our digital transformation. Digital AUM has increased $12 billion year-to-date with digital AUM increasing from 32% to 55% of total AUM. In fact, since the inception of Digital Colony, Colony Capital has rotated over $45 billion in AUM, increasing digital to over $25 billion AUM, while transitioning $20 billion of legacy assets.

Moving to Page 17. Including our pending and announced transactions, we will have achieved 33% growth in digital fee-earning equity in 2020. Again, far exceeding our original 15% guidance set forth earlier this year. To recap, we raised over $700 million of fee-earning equity for the Zayo acquisition at the beginning of the year. We also raised over $900 million of net fee-earning equity for our Vantage Data Center platform through the third quarter. Additionally, we expect to raise an additional $500 million of net fee-earning equity in the fourth quarter for pending transactions, which include zColo and additional Vantage platform fundings. Including these fourth quarter pending transactions, our digital fee-earning equity under management will be approximately $9.1 billion, and we have plenty more to look forward to as our fundraising and M&A pipeline continues to be robust.

Turning to Page 18. As we previously discussed, our execution of a new revolver facility, elimination of our original 2021 convertible notes maturity and our partnership with Wafra has eliminated all liquidity risks and allowed us to accelerate our digital transformation and deploy dry powder towards digital acquisitions.

Our current financial position is strong. With a 29% reduction in corporate liabilities, I am proud to say that we have virtually eliminated all near-term debt maturities. In addition, we now see ending liquidity at $650 million to $750 million by year-end, which is a $25 million increase over the estimate we disclosed last quarter. This improvement is driven by our continued expectations that we will monetize $200 million to $300 million of legacy assets in the fourth quarter, with over 50% of those monetizations already under contract. And I am thrilled that our higher guidance still includes expected digital acquisitions such as zColo and our growing M&A pipeline.

With that, I'd like to turn it back over to Marc, where he will lay out further details on our digital playbook. Thanks.

Thanks, Jacky. In this final section, I'd like to discuss how Colony is growing at the edge by taking you through a case study on DataBank. I believe this demonstrates the opportunities we're focused on, the value we bring to our portfolio companies and that we ultimately create for you as a Colony shareholder.

Next slide, please. First, I want to give you some context. Everyone has been talking about the edge for the better part of the last 18 months. And for us, we really want to break the edge down and really explain what it means and why it's important. Let me start in the upper left of this slide on Page 20. While computers continue to grow rapidly over the last 10 years, what's been underappreciated, from my perspective, is the exceptional growth in demand that's yet to come. In just the next 5 years and beyond, as artificial intelligence systems move out of the lab and Internet of Things applications are deployed, machine-to-machine communications underpins use cases for AI, IoT, cloud computing, which will cause compute demand to skyrocket.

Moving a little bit over to the right, to the upper right here. Where exactly does this demand from compute come from? Well, our belief is it's increasingly coming from the edge, and that's never been more prevalent than it's been in COVID. It's mobile, with the consumer enterprise customer interacting with the network in real time. This is not a short-term trend. It's really important to focus on that. It's part of a multi-decade cycle that we'll see compute migrate back to a distributed model at the edge of networks.

Shifting to the lower right, that shift to decentralized computing is already focusing -- is already forcing changes in network architecture as these new use cases require lower latency, of course, faster speeds and greater device efficiency. These new applications don't have time to send all that data back to headquarters. The answer has come to bring that data back in real time, which means you need compute resources close to the end user. This is really the definition of the edge.

Lastly, lower left, which ultimately, as you'll see in the lower left graphic, will drive strong growth in edge server deployment. As this chart highlights, Cowen estimates over the next 8 years, edge servers will support 10% of cloud workloads globally. This is up from around a little over 1% today. That's over 1.5 million servers sitting in edge data centers around the world. That's a huge opportunity for DataBank, our edge data center portfolio company, and it's that opportunity that underpins the transformative acquisition of zColo that we helped realize alongside DataBank's phenomenal management team.

Next slide, please. I've outlined the transformative nature of this transaction earlier. But here, let's cover the benefits to you, Colony shareholders. Last quarter, we detailed our accretive DataBank acquisition strategy. Well, here it is, in action by the numbers. The zColo deal will reduce our effective multiple to 15x on a blended basis, well below our public peers and our original entry multiple, which was around 22x. What's interesting is that the 15x multiple doesn't even fully capture the true economics to Colony shareholders.

On top of the solid core investment economics associated with our $145 million equity investment, we've raised $500 million of fee and carry-bearing co-investment capital, similar to exactly the same playbook we ran on Vantage Stabilized Data Center Co. Those investment management earnings boost our returns, driving our core FFO yield from 8% to 10% day 1. And as core FFO stabilizes over the next couple of years, the yield migrates to north of 10%. This is very difficult to accomplish in today's market, where digital infrastructure assets are trading at all-time highs. From my perspective, it's a hybrid model built to benefit our shareholders first, high-quality balance sheet growth, enhanced by asset-light investment management earnings.

Next slide, please. So the case study here is all about creating value, and we've talked about it before, it's our Digital Colony value-add playbook. The acquisition of zColo is really just the latest example of how we create alpha in our strategies today. Since 2016, the Digital Colony team has helped transform DataBank from a regional Midwestern data center operator to a national scale edge data center provider by adding value across 3 key areas.

First, we augmented the management team. I called on my good friend, Mike Foust, of 25 years, who was the co-founder of Digital Realty, who's been a Digital Colony adviser since our inception, to be Chairman of DataBank. One of our key operating partners, Raul Martynek, who I've known since 1997, became our CEO in 2017. Raul is incredible. If you've ever -- if you haven't had a chance to meet Raul, you should absolutely ask to go down to Dallas and have a meeting with him because he's amazing. This is a CEO that's been there 5 times now. He's very driven. He focuses on customers, driving organic growth and has effectively integrated acquisitions as DataBank has grown rapidly. We've also helped identify and recruit most of the senior leadership there to support Raul.

Second, strategic development and financing. The Digital Colony Capital Markets team has been integral to the DataBank transformation. We raised all the equity and coinvest capital of over $1.4 billion, and we've arranged $1.5 billion of debt over the past 4 years, creating the fuel for DataBank to grow. The team's experience and network of relationships is manifesting itself right now as we finalize the zColo acquisition.

Lastly, M&A execution. Our senior team at Digital Colony has helped source and execute 5 acquisitions inside the DataBank platform. zColo will be number 6. We brought all of our expertise to bear on this transformative deal. Justin Chang, the CIO of our Digital Balance Sheet, has done an amazing job pulling all the pieces together. On top of that, we also helped seal DataBank's investment in EdgePresence, the micro data center company that we just invested in. These 2 deals, in fact, really position DataBank for the future in edge computing.

Next slide, please. So really, this is a story about executing on converged networks. The strategic investments that Colony is enabling today position DataBank to be at the forefront of the evolution of next-generation converged networks. From the zColo acquisition that gives us a scaled national footprint with on-ramps to global Internet traffic, to the far edge with EdgePresence and their modular data centers located at the base of cell towers, these are really important deals that sync DataBank's profile with the demand tsunami we see coming down the road in edge computing.

Look, from my perspective, one of the really interesting facets of the EdgePresence deal is how it highlights the benefits of being part of the Digital Colony ecosystem. Not only is DataBank making a $30 million strategic investment into this business, but EdgePresence is also partnering with Vertical Bridge, one of our other Digital Colony portfolio companies to deploy their micro data centers at the base of Vertical Bridge's towers. We're already in-flight at 12 locations, and Vertical Bridge has tower locations in over 9,000 locations across the United States today. So this is really an equation, from my perspective, of taking multiple portfolio companies, looking to ultimately deploy infrastructure for the benefit, most importantly, of our customers and providing these integrated solutions is really the future of where digital REITs are going.

My conclusion here is simple: the breadth, power and value of the Digital Colony platform is on full display here. Edge computing is a huge opportunity and we're helping DataBank capitalize on it while building value for Colony shareholders.

Next page, please. So look, I want to finish where we ended the last quarter, which is my commitment to you to continue to deliver on our commitments. That is the best thing this management team can do for you as our shareholders. This is a slide we're going to keep coming back to, as we did last quarter. Where are we? How are we following through on our commitments?

So first, let me summarize for you. Our key commitment, addressing near-term corporate debt maturities and enhancing our liquidity. We paid down 2021 converts, we issued $300 million of new 2025 converts, we amended our revolver and we've cleared the road to this digital conversion. So from my perspective, that mission has been completed.

Committing significant capital towards digital infrastructure growth. We deployed over $530 million between DataBank, zColo and Vantage SDC in the last year. This is really another significant balance sheet investment that we made this quarter with zColo. And what I can commit to you is that we will make another significant balance sheet investment over the next 6 months. Our pipeline is robust and replete with opportunities, and we're working hard to bring you more high-quality assets that produce investment-grade long-term predictable earnings for you, our shareholders.

Third, we'll continue to deliver on core digital investment management growth. We've already executed over 100% in terms of our FEEUM growth through 3 quarters. We still have another 90 days left in the year to continue to outperform this number. And let me tell you, we plan to do that.

Our focus will be to grow the flagship Digital Equity and emerging Credit franchises across our Investment Management platform. We have the best digital fundraising team in the world, and we will continue to go out and raise new capital, supporting all of our great ideas.

And lastly, simplification. Legacy asset monetizations and cost reductions have been core to my thesis in turning the story around. We've monetized $430 million of legacy assets to date, the hospitality business is now under contract and we've achieved $46 million in run rate G&A savings year-to-date. By the end of the year, we believe we'll achieve $600 million to $700 million in total legacy asset sales. We'll continue to sharpen our focus on G&A, and we pledge to you that we'll hit $60 million in run rate G&A savings by the end of the year.

Look, it's been an incredibly busy quarter. We've got another 60 days left in the year to continue to go out and execute. And at the end of the day, for us, the story remains unchanged. It's a story around execution and our pledge to you to build long-term value for our shareholders.

I want to thank you for your time today. And I want to thank you -- for those of you that have invested with us, I want to thank you for your trust. And lastly, I want to thank all of you for listening to the story that continues to evolve as we change Colony into the leading digital infrastructure company in the world. Thank you.

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

You talked about the investment pipeline. How does it split between what you might call proprietary deal flow, deals in which Digital Bridge may have a legacy investment or some history or interest and de novo originations?

And generally speaking, where do you think the economics are better from a Colony shareholder perspective, considering what you mentioned with respect to elevated valuations in the digital space?

Jade, it's Marc. So look, our pipeline has never been busier, Jade. We've got about 31 deals in the pipeline today, accruing to about a total of about $20 billion in enterprise value. I would say 5 of those deals are currently either in the process of being finalized or have been executed. And of those 5 deals that will fall into the next quarter, all of them were proprietary. In other words, there was not a banker involved, there was not a broker where we source those transactions through the Digital Colony proprietary pipeline. So from my perspective, the best way that we're going to create value for our shareholders today is not running to overheated auctions, but really sticking to our knitting, which is focusing on great relationships with CEOs that are in our sector and really making the pitch to them that we are the best partner of choice because of our relationships, our experience, our access to capital. And that's been a narrative that's worked really well for us. And I think we can continue to do that.

If you look at the progress of Fund 1 and you look at the 10 investments we made in Fund 1, 8 out of those 10 transactions, Jade, were proprietary. And so as we look at the next 5 deals we're doing, all of those being proprietary, this team has a great history and track record of creating proprietary deal flow.

Look, it's not to suggest that we don't look at auctions, we certainly do. We've looked at a lot of the big auctions that got done in this quarter. We just believe this is a moment in time, Jade, to be price disciplined. And so that's where our focus is going to be: big pipeline, high focus on proprietary deal flow and to maintain a high degree of discipline right now.

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

Thanks. Once again, it's almost like a bit of a broken record. So I'm not trying to be evasive with you, Jade, and we can certainly get into further detail on this later. But what I would say is, look, we always look at the way to deploy capital in all different ways, right? So first, when we first came on to the scene and we're part of this management team alongside of Tom Barrack and Mark Hedstrom, Jacky Wu and myself, we made it a priority to delever the balance sheet first. And we did that a little bit last year in the fourth quarter. And we continue to execute on that in the second quarter and third quarter.

Now at the same time, we've also been clear with you that we've had great success selling assets. We've been very disciplined. We've been very careful. Nothing has been a fire sale. We've taken our time. We've found the right buyers. And we've rotated cash to the balance sheet. And so at the end of the day, as Jacky pointed out in our presentation today, we have the great privilege of having access to close to almost $900 million of total liquidity when you factor in our revolver.

So now the question is, how do we deploy that cash and what are the best opportunities? I think what we've evidenced in the last 2 quarters with Vantage Stabilized Co, the DataBank investment, zColo, EdgePresence, we are prepared to deploy our balance sheet in an intelligent way. And what I mean by intelligent, Jade, is if we have a great idea and we have a great opportunity, we use the strength of the balance sheet to get it under control. And once we get it under control and we're going through the process of closing it, we optimize for the right mixture of balance sheet capital and third-party capital.

And largely, if we think the idea is really good for a certain type of investor, for example, that likes yield and Vantage Stabilized Co, we go focus on that group of investors, and we raise the capital. If you look at DataBank and zColo, which is a bit more of a growth-oriented asset, there's a certain type of investor that really likes those kind of investments, and we were very successful in raising capital for that idea.

So I like, Jade, this mixture of using the balance sheet and using third-party capital. I don't want to lock you in on a formula, like, "Oh, we're going to use 20% of balance sheet capital and raise 80% third party." That's really not how we think about it. We think about the opportunity to obviously deploy our own capital side-by-side with our partner's capital, but always with a keen eye in terms of preserving liquidity. As you've heard Tom Barrack say in previous quarters, cash is king. Right now, we have a -- we're dealing from a position of strength, which is really great for Colony shareholders. We have a lot of cash right now.

We see also a lot of opportunity, and so we're going to continue to invest in high-quality assets for the balance sheet. We're going to continue to put cash to work, Jade, in new GP commitments. I think we've telegraphed that to you that our Digital Equity business, our Digital Credit business, and our digital liquid securities platforms are all growing. They're all out raising third-party capital right now, and we do so by putting up a pledge of our Balance Sheet capital and our Investment Management business.

So I wish I could give you a strict formula, but I think it's -- there's a little more science to this than art. I'm sorry, there's a little more art than there is science. But at the end of the day, we're deploying the balance sheet prudently. And most importantly, everything we're doing, Jade, make sure you understand this, is with the eye towards growing long-term predictable digital revenues, and this was a great quarter for that. If you look at our growth in digital EBITDA, if you look at our growth in terms of total digital revenues, we're making enormous progress quarter-over-quarter in terms of our growth rates. I don't think you'll find another digital REIT out there that's grown quarter-to-quarter as much as we have in our digital revenues. And that's the key. This story right now is the fastest-growing digital REIT out there in terms of our revenue growth and our EBITDA growth quarter-to-quarter.

And Jade, one thing I want to just add is that on Page 18, where I do walk over -- walk the liquidity to our ending liquidity balance of the year, the $650 million to $750 million already net out in process pipeline deals like zColo has already been announced, and that's already embedded in there. So we continue to guide the $200 million to $300 million of monetization in the fourth quarter of this year. So that will get you to that $1 billion to $1.1 billion range. And then obviously, that would be the gross amount of available liquidity for dry powder and deals, net of any minimum cash.

And then the last piece on the preferred equity redemption, a couple of things. One is we did revolve our -- amend our revolver facility earlier this year. And so there is a bit of a break in terms of redemptions of preferreds. But obviously, as we continue to do well and we will look for a new facility at some point in time, we will look to redeem those, and we will be disciplined about it in terms of what the best return is versus digital opportunities.

Okay. Well, I applaud the swift actions the management team had taken. Definitely refreshing and very good to see the progress. I wanted to ask you about a particular -- as Tom Barrack might call it a Rubik's Cube, which is CLNC. There's an overhang in the mortgage REIT space because people are looking at commercial real estate as a long cycle to recover and potential impairments, loan losses on the credit front. So that's one thing that they have to address. Secondly, there's the liquidity that go into managing that. And finally, there is some access investment capacity. But when you look at stocks like CLNC and there's many others TRTX, LADR, to name a couple trading at 40% to 50% of book value. It means that investors are also potentially assuming an eventual dilutive capital raise.

So CLNY owns 37% of CLNC. And to me, that bodes for an opportunity, you can have CLNC buyback some of those shares at a premium to where it's trading, yet it still would be wildly accretive to its book value, wildly accretive to its earnings. It would reduce the overhang of CLNY's 37% stake because people do wonder when those shares will be liquidated, and yet it would provide CLNY with fresh capital to accelerate the digital transformation. How do you think about that as a potential option for both CLNY and CLNC to explore?

Well, Jade, it's almost like you bugged our investment committee. So look, seriously, first and foremost, I want to applaud Mike Mazzei, Andy Witt, David Palamé. For those of you that had the chance to hear that earnings presentation, it's also another great story of transformation and execution.

When we brought Mike Mazzei on board to run that business unit, we couldn't have been more clear about what the objectives were: first and foremost, to make sure that we shored up our loans that had any issues with them, hit repo lines on 2 loans, gravitating to liquidity, and Mike's done an amazing job stabilizing that portfolio, returning cash to the balance sheet. And now that business is poised, as you heard yesterday, to play offense and be selective. And they'll play offense inside of their sandbox. And I don't get too involved in what Mike and his team does. I think they're doing a great job of executing and as one of their largest shareholders, we couldn't be happier with the progress that's happening at CLNC.

When you look at its peer group, CLNC got ahead of its issues quickly. Mike addressed those issues. He stabilized the story, he rotated the cash and now we have an enviable position where we can play offense, and we'll continue to recover book value.

You saw the shares perform well after market last night. They performed well today. We have a lot of confidence around that management team's capability. And in the meantime, we keep our options open, Jade. No option is off the table for CLNC. We've made that clear 2 quarters ago. We made it clear a quarter ago. I'll make it clear today. As we rotate to digital, if there's a good opportunity to harvest, the hard work that's been done at CLNC, we have an open ear, and we'll listen to whatever proposal comes across the table.

In the meantime, it's just ruthless execution for Mike and the team, and that's what you're going to continue to hear from us. There's no fire sale on any of these silos anymore. We have cash, we have patience and we have good execution happening at all of our business units today.

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

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

Yes. So look, I'll let Jacky give some of the granular detail. Let me give you the 50,000-foot architecture, Randy, and good to hear you this morning. Thanks for tuning in.

First and foremost, as it relates to the, what I would call the 4 legacy silos, obviously, lodging is in-flight and being sold to Highgate. So obviously, they'll be operating that business, and we wish them the best. It obviously had a good recovery in the third quarter. And lodging will eventually recover, and that will be a good investment for them.

Wellness infrastructure continues to exceed our expectations. It also had a very good quarter. Rich Welch and the team are doing a great job. That portfolio has proven to be fairly pandemic-proof. And so we're very pleased with that. We -- much like CLNC, Randy, we have an open ear towards different ways to harvest that portfolio. Now that we've got lodging in our rearview mirror, CLNC and health care, lodging -- Wellness Infrastructure come in to sharper focus. So both of those business units are doing exactly what they said they were going to do. And I actually say both of them have exceeded our expectations for the year. And having those 2 businesses now stable and poised for ultimate harvesting is a really good place to be. We're playing off our front foot. We're not playing off our back foot.

The last core vertical of value is OE&D. Once again, another business unit that has outperformed our expectations. Jonathan Grunzweig, our CIO there, has done a great job harvesting and monetizing assets this year. We've got 3 to 4 more monetizations happening right now in the fourth quarter. As they come due, you'll see the press releases, and you'll see the information release. But we plan to be at the upper end of our guidance for OE&D monetization this year. And it's just, once again, making sure, Randy, that we underpromise and overdeliver for our investors. And I can say with a lot of conviction that Wellness Infrastructure, CLNC and OE&D have absolutely outperformed our expectations this year.

Yes. The details, Randy, is $200 million to $300 million in the fourth quarter that we'll plan to guide. As Marc mentioned, we are looking at the higher end of that range. Those 3 to 4 deals already give us more than coverage for the lower end of that range. And obviously, in addition to a couple of singles and doubles, we should get there. So we feel good about it. And that's part of the location that Marc has outlined.

Yes. No, $200 million to $300 million would be a good number. And that's net to CLNY, correct? So that would be what you get after you pay down the asset level debt.

Yes. That's correct, Randy.

So where does that story go in '21? Because for our source and uses to continue to see digital investment, similar to the zColo deal, you're kind of funding that with legacy sales, right, on the margin, which is exactly the plan. But we kind of -- our model wants you to keep doing that. So these assets you're selling, are they closer to book value? What's left? Does it get a lot harder? Because I think there's still some lodging and energy assets in there that might be a little bit harder to sell. Can you just give us a glimpse of what that ongoing OED liquidation process will look like in '21? Considering how good this fourth quarter result seems to be?

Yes, sure, Randy. The way I kind of look at -- I'll start with your last question, which is where we think we can monetize these things under fair market value accounting. We kind of look at it based on the last data points from third-party -- potential third-party buyers, so that definitely is an evidence for us to mark those marks. So in our supplementals, you'll see a total net equity value of about $1.5 billion in that other equity debt line. We do believe that we can get close to that amount, and that's the basis of why we mark those things at that amount.

And in terms of 2021, I think that you should expect that we should be able to perform similar to what we did in 2020. And we expect by 2023 that we will hopefully rotate it. So even if you take it on a straight-line basis, you get there. And we've clearly shown that we can outperform the sales.

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

No. Not yet.

(Operator Instructions) Our next question is from Colby Synesael with Cowen.

I actually have questions related to digital portfolio construction. One of the, I guess, segments of digital infrastructure that you're not really involved in right now is on the residential broadband side. And I'm just curious if that's something you're pursuing and we could expect to be added to the portfolio at some point.

And then secondly, I appreciate that there is this focus on bolstering the digital side of the business and selling off the legacy portions. And you obviously want to kind of get there as soon as possible, so to sell digital assets would be somewhat counterintuitive. But what are your thoughts on potentially selling off some of the digital assets, effectively recycling capital, putting a mark out there to kind of show that these values do, in fact, have the value that you perceive them to have, given where, I would guess, demand is for these assets today and potentially what you;d be able to sell them at?

Yes. Thank you, Colby. And first-time here, and I'm optimistic it will not be your last time here. So appreciate you tuning into the story.

Let's start out with fiber to the home. We've continued to look at every fiber to the home opportunity for the last 5 years. And we've looked at opportunities in Europe, we've looked at opportunities in the U.S., Lat Am, and let's break this down. There are really 2 kinds of models, Colby, today in fiber to the home. One is you can partner with a carrier, a telecommunications provider or cable co, and you can own their infrastructure and enter into long-term agreements with them where you provide, on a wholesale basis, that network infrastructure. And so we've done that actually. We did that with Cogeco, in our Beanfield acquisition, and it was done at the right price, and it's been a great partnership.

So we own that fiber. They're our primary customer. And we've now gone on through Beanfield to lease-up that fiber to other folks, and we continue to build laterals to support them and support other customers. So that wholesale business, we like quite a bit. And effectively, we did that deal at just a little over CAD 130,000 per route mile, which was about 1.4 above replacement cost. Now replacement costs in the U.S. is about $65,000 per route mile. And so I'm always looking at this, Colby, with a sharp angle towards what can you do? Can you buy it? Or can you build it?

And so generally speaking, we want to be pretty darn close to replacement costs when we're buying stuff. And you heard me say it earlier, we're going to be price disciplined. And then if you take that forward into other business models, which is more consumer facing, and certainly, you could look at, for example, a transaction that was done this week, which was Astound. And that is a consumer-facing business that does not have a long-term contract. And you face a very competitive landscape in those markets where you're looking at a brand that's an overbuilder.

And so typically, you're either the second or you're the third operator in that market, and it's very competitive. You face a lot of churn. You've got to deal with going into the household and actually connecting. And at the end of the day, we looked at that deal and said, "Hmm, you know what, at over $400,000 per route mile, that doesn't make a lot of sense." And maybe it makes sense for one type of investor, but it really didn't make sense for us. And so -- and then I look at that and I say, "Gee, we bought Zayo, and we paid net of zColo, we paid about $12.6 billion and we paid roughly about a little over $100,000 per route mile, which was about 1.3x replacement cost versus paying 5.34x replacement cost for something like Astound, we have no long-term contracts and a lot of churn."

So the devil -- Colby, you've heard me say this before in towers, data centers, fibers, small cells, the devil is in the underwriting. And you've got to be really careful about how you underwrite these asset classes. You always have to look through to the quality of the infrastructure. You have to look at the quality of the network. You have to look at the cost of the network because today, one of the great privileges we have at Colony Capital today is we're building. We're building new towers. We're building tons of data centers globally. We're building new fiber routes. We're building these small cells.

And one of the great advantages we have at Colony Capital is our heritage, which is we're operators. 26 years of earning customers' trust and having the privilege to build their networks and being entrusted with their networks, we have a toggle that other investment managers don't have and sometimes even our peer REITs don't have, which is we can build. And we're very good at building. We're very good at permitting. We're very good at design. We're very good at construction, RF engineering. All of these skills are resonant at Colony today, and that gives us a huge advantage to serve customers. And having a 3-decade resume and reputation with our customers is totally central to our business model at Colony going forward. So we look at that as massive comparative advantage for us.

So that's my answer on fiber to the home and how we look at fiber to the home business models. And also, by the way, we're doing a little bit of fiber to the home in Latin America at ATP and at Highline, where we enter into long-term 15-year, 20-year, 25-year contracts with investment-grade customers, where we're building network for them. So for me, the best place for Colony shareholders to play fiber to the home is in long-term investment grade contracts, not short-term consumer-facing businesses with high churn.

Now second part of your question, about selling legacy assets. And you're right, it's a really good time to be a seller. So we had 4 investments in the last 16 months, Colby, that had been realized. We did a partial recap of Vertical Bridge last June. It was a very successful transaction for our shareholders. We're delighted to partner with Caisse de dépôt and that was a great outcome for Vertical Bridge shareholders. And that mark was roughly at about a 1.8 MOIC and just a little under an 18% IRR for our shareholders.

We then went out and we had a partial realization of DataBank. Now that was 2 shareholders, 1 shareholder fully exiting, another shareholder partially exiting, and we had an opportunity for our balance sheet to buy a piece of DataBank, and we did that. For the shareholders that exited, it resulted in a roughly about a 22%, 23% IRR and 2.1 MOIC, so that was a great mark for investors.

And then this year, we have 2 other marks to report, obviously, the sale of the Vantage Data Centers at a 5.1 cap rate was a great outcome for the original Vantage shareholders. Vantage was an investment we made in 2017, and the shareholders that got liquidity in that resulted in a 32.2% IRR for those shareholders.

And then lastly, ExteNet. We announced a transformative financing for ExteNet a couple of weeks ago, John Hancock and [Cal Regents] leading the way. We're selling 1/3 of ExteNet and this will result in about a 1.8 MOIC for investors. ExteNet has been a great investment for us, 5 years in the making, and we're excited to welcome these 2 new shareholders.

So what we've been very cleverly doing, Colby, is we've held some assets, but we've also marked assets, and we found ways to rotate capital and to create returns for our existing shareholders. And to continue to back those platforms with longer-term capital to help grow those businesses.

I mean you look at logos like Vertical Bridge and Vantage and ExteNet, and they're all market leaders. And so whilst we're returning capital, getting the marks that investors want, we're also raising new capital and making sure that we can pilot those investments and steward them to the right outcomes. So I couldn't be more happier with our 4 marks in the last, call it, 5 quarters. And I think our LPs in kind are very happy with our performance on the private investment side. And I think our public shareholders are also quite happy with our performance in digital, particularly over the last 2 quarters.

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

Well, look, thank you. I couldn't be happier with the quarter. And this all starts with people at the end of the day. And I think that this has been another great quarter of simple execution. And this is what you can expect from this team going forward is to continue to keep our heads down, our eye on the prize, which is this rotation. Our promise to you to continue to get the cost structure correct, our promise to you to continue to raise capital, and ultimately, our promise to you to deliver long-term high-quality digital earnings. None of this happens without the dedicated professionals around the globe at Colony Capital, and I'm very much in their debt and have enormous gratitude and appreciation for the hard work that's happening.

If you think about what's transpired since we did the Digital Bridge merger last July, it's been a profound amount of rotation. We've rotated, Jacky, I believe...

$45 billion.

$45 billion in assets in less than 1.5 years. That would be probably, and I don't have the data in front of you, but it's got to be one of the biggest AUM rotations in REIT history. And so this is hard work, but it doesn't get done without our people.

I want to thank all of our Colony employees and partners around the globe. It's you that wake up every day and make it happen. And I want to thank you, our shareholders, for having your trust in us, and we'll continue to deliver for you in due course.

So look, we're going to get back to work. We got a busy fourth quarter. In fact, we got a bunch of calls lined up and some new deals we're doing. So let us get back at it, which is continuing the rotation. And once again, have a great weekend, everyone, and thank you for your time today. Take care.

Thank you.

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