What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-08-10 compared with 2020-05-11 · 643 added, 319 removed, 526 unchanged (65% of the section changed)

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We conduct substantially all of our activities and hold substantially all of our assets and liabilities through our Operating Company.

At March 31, 2020 , we owned 90% of the Operating Company, as its sole managing member.

At June 30, 2020 , we owned 90% of the Operating Company, as its sole managing member.

Our vision is to establish the Company as a leading owner, operator and investment manager of digital infrastructure and real estate.

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DBH is an investment manager dedicated to digital real estate and infrastructure, managing approximately $14 billion of assets under management (“AUM”) and approximately $7 billion of fee earning equity under management (“FEEUM”) across six separately capitalized and managed portfolio companies and the $4 billion Digital Colony Partners fund (“DCP”).

As part of the DBH transaction, Marc C.

Ganzi, who co-founded DBH, is slated to become the Chief Executive Officer ("CEO") of the Company effective July 1, 2020 and will lead the Company’s strategic repositioning in becoming the leading platform for digital infrastructure and real estate.

Barrack, Jr., the Company's Executive Chairman and CEO, will continue in his position as Executive Chairman.

As previously disclosed, Marc C.

Ganzi, who co-founded DBH, became the Chief Executive Officer ("CEO") of the Company effective July 1, 2020.

In connection with Mr.

Ganzi’s appointment as the Company’s CEO, on June 30, 2020, the Board of Directors of the Company (the "Board") appointed Mr.

Ganzi to the Board and to serve as President of the Company (in addition to his role as CEO), also effective as of July 1, 2020.

Ganzi is poised to lead the Company’s strategic repositioning in becoming the leading platform for digital infrastructure and real estate.

Further, the combination with DBH brings its world-class team of investment professionals and management of the DBH portfolio of high performing assets under the combined Digital Colony franchise.

At March 31, 2020 , the Company has approximately $50 billion of assets under management, of which $38 billion is capital managed on behalf of third-party investors and the remainder represents investment interests on the Company's own balance sheet managed on behalf of its stockholders .

Barrack, Jr., who, prior to July 1, 2020, served as the Company’s CEO and President, continues to serve in his role as Executive Chairman of the Company and the Board.

In addition, Jacky Wu was appointed as the Company’s Chief Financial Officer and Treasurer, effective July 1, 2020.

Hedstrom, who prior to July 1, 2020 served as the Company’s Chief Financial Officer and Treasurer, continues to serve in his role as Executive Vice President and Chief Operating Officer of the Company.

At June 30, 2020 , the Company has approximately $46 billion of assets under management, of which $36 billion is capital managed on behalf of third-party investors and the remainder represents investment interests on the Company's own balance sheet managed on behalf of its stockholders .

With respect to investment interests, the Company owns (a) a 20% controlling interest in Data Bridge Holdings, LLC and its wholly-owned subsidiary, DataBank Holdings, Ltd.

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and digital infrastructure and real estate investment management business.

For digital investments on our balance sheet, these assets earn rental income

from providing use of space and/or capacity in or on our digital assets through long-term leases, services and other agreements .

For digital investments on our balance sheet, these assets earn rental income from providing use of space and/or capacity in or on our digital assets through long-term leases, services and other agreements .

In the digital investment management business, we earn management fees, generally based on the amount of assets or capital managed in investment vehicles, and have the potential to earn carried interest based on the performance of such investment vehicles subject to the achievement of minimum return hurdles.

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Over time, the Company expects to monetize the bulk of its existing portfolio as it completes its digital evolution.

Other Investment Management— This segment, which is separate from the digital investment management business that resides in the digital segment, encompasses the Company’s management of private real estate credit funds and related co-investment vehicles, CLNC, a public non-traded healthcare REIT and interests in other investment management platforms, among other smaller investment funds.

Other Investment Management— This segment, which is separate from the digital investment management business that resides in the digital segment, encompasses primarily the Company’s management of private real estate credit funds and related co-investment vehicles, CLNC, and NorthStar Healthcare, a public non-traded healthcare REIT.

The Company earns management fees, generally based on the amount of assets or capital managed, and contractual incentive fees or potential carried interest based on the performance of the investment vehicles managed subject to the achievement of minimum return hurdles .

Effects of COVID-19

At the time of preparation of the first quarter 2020 financial statements, the world is facing a global pandemic, the coronavirus disease 2019, or COVID-19.

Acceleration of Digital Transformation and COVID-19 Considerations

The world continues to face significant healthcare and economic challenges arising from the coronavirus disease 2019, or COVID-19, global pandemic.

Efforts to address the pandemic, such as social distancing, closures or reduced capacity of retail and service outlets, hotels, factories and public venues, often mandated by governments, are having a significant impact on the global economy and financial markets across major industries, including many sectors of real estate.

While the Company is transitioning to a digitally-focused strategy that the Company believes is more resilient and better positioned for growth in an increasingly digital reliant economy, currently a significant portion of the Company's assets and revenues continue to be tied to its non-digital real estate business and investments.

In particular, the Company's real estate investments in the hospitality, healthcare and retail sectors either have experienced or anticipate a myriad of challenges, including, but not limited to:

significant declines in operating cash flows at the Company's hotel and healthcare properties which in turn affect their ability to meet debt service and covenant requirements on investment-level debt (non-recourse to the Company) and ability to refinance or extend upcoming maturities (see Note 10);

flexible lease payment terms sought by tenants in our healthcare and retail properties;

In particular, the Company's real estate investments in the hospitality, healthcare and retail sectors have experienced a myriad of challenges, including, but not limited to:

significant declines in operating cash flows at the Company's hotel and healthcare properties, which in turn, affect their ability to meet debt service and covenant requirements on investment-level debt (non-recourse to the Company) and ability to refinance or extend upcoming maturities (Note 10);

flexible lease payment terms sought by tenants;

incremental property operating costs such as labor and supplies in response to COVID-19;

potential payment defaults on the Company's loans receivable;

and a distressed market affecting real estate values in general.

The COVID-19 crisis may also lead to heightened risk of litigation at the investment and corporate level, with an ensuing increase in litigation and related costs.

As the timing of many of the closures and ensuing economic turmoil did not occur until late in the first quarter of 2020, the effects of COVID-19 on the Company's business, other than hotel properties, were not material and adverse in the first quarter of 2020.

However, the Company anticipates more pronounced and material effects on the Company's financial condition and results of operations in future periods, beginning with the second quarter of 2020.

The sharp decline and volatility in equity and debt markets, and the challenges faced by the Company as a result of the economic fallout from COVID-19 have affected valuation of the Company's financial assets carried at fair value, and also represent indicators of potential impairment on certain non-financial assets at the end of the first quarter of 2020.

Company's consideration and assessment of fair value and impairment are discussed further in the consolidated financial statements in Note 4 on real estate, Note 6 on equity and debt investments, and Note 7 on goodwill.

If a general economic downturn resulting from efforts to contain COVID-19 persists, it could have a prolonged material and negative impact on the Company's financial condition and results of operations.

At this time, as the extent and duration of the increasingly broad effects of COVID-19 on the global economy remain unclear, it is difficult for the Company to assess and estimate the impact on the Company's results of operations with any meaningful precision.

Accordingly, any estimates of the effects of COVID-19 as reflected and/or discussed in these financial statements are based upon the Company's best estimates using information known to the Company at this time, and such estimates may change in the near term, the effects of which could be material.

Proactive Steps to Mitigate the Effects of COVID-19

In response to the disruption from COVID-19, the Company and the board of directors have undertaken a series of proactive steps to mitigate the impact on its assets and business operations, with a principal focus on enhancing the Company’s liquidity and financial flexibility.

Corporate Revolver Draw— The Company drew $600 million from its revolving credit facility as a precaution to ensure funds are available to meet its operational needs .

Corporate General and Administrative Savings— The Company has identified and began executing a new cost reduction program with over $40 million in annual run-rate cost savings, mostly from headcount and compensation-related cost reductions, which are expected to be implemented during the course of 2020.

Suspension of Common Dividend— The Company is suspending the dividend on its class A common stock for the second quarter of 2020 as the board of directors and management believe it is prudent to conserve cash during the current period of uncertainty.

If maintained for the balance of the year, the reduction in dividend payments will result in savings of approximately $175 million relative to the prior $0.11 per share quarterly dividend.

As the Company continues its pivot to digital infrastructure, the board of directors will evaluate go-forward dividend policy in alignment with an increased emphasis on a ‘total return’ approach, which focuses more on capital appreciation relative to current yield as components of total shareholder return.

Based upon the Company’s reforecast, the reduction in dividend is not anticipated to adversely impact the 2020 REIT dividend distribution requirement.

Deferred Consideration of Preferred Dividend— The Company's board of directors has elected to defer the declaration of a dividend on its preferred stock until June 30, 2020, subject to its assessment of the effects of COVID-19 .

Hospitality Operations and Capital Structure— The Company has engaged a third party advisor to evaluate strategic and financial alternatives to maximize the value of its hospitality assets.

Efforts to mitigate the effects of COVID-19 on the Company's healthcare and hospitality business are discussed further in “— Segment Results ” below.

Such adverse impact may continue well beyond the containment of the COVID-19 pandemic.

Furthermore, the COVID-19 crisis may also lead to heightened risk of litigation at the investment and corporate level, with an ensuing increase in litigation and related costs.

The sharp decline and volatility in equity and debt markets, and the economic recession due to COVID-19 have adversely affected the valuation of certain of the Company's financial assets carried at fair value, and also resulted in impairment on certain non-financial assets.

Such effects include the determination that the Company's equity method investment in CLNC was other-than-temporarily impaired at June 30, 2020 (Note 6), decreases in fair value of debt

securities (Note 6) and loans receivable (Note 12), and impairment of real estate assets in the Company's healthcare, hospitality and other equity and debt segments (Note 4).

Additionally, the COVID-19 crisis has reinforced the critical role and the resilience of the digital real estate and infrastructure sector in a global economy that is increasingly reliant on digital infrastructure.

Accordingly, in the second quarter of 2020, the Company determined that it would accelerate its shift to a digitally-focused strategy in order to better position the Company for growth.

This digital transformation would require a rotation of the Company's non-digital assets into digital-focused investments.

As a result, the Company shortened its assumptions of holding periods on its non-digital assets, in particular its hotel and healthcare assets, which significantly reduced the undiscounted future net cash flows to be generated by these assets below their carrying values at June 30, 2020.

The shortfall in estimated future net cash flows from these assets was further exacerbated by the negative effects of COVID-19 on property operations and market values, as noted above.

As a result, significant impairment was recognized in the second quarter of 2020 on the Company's hotel and healthcare assets.

The acceleration of the Company's digital transformation and the overall reduction in value of the Company's non-digital balance sheet also caused a shortfall in the fair value of the Company's other investment management reporting unit over its carrying value, resulting in significant impairment to the other investment management goodwill in the second quarter of 2020 (Note 7).

The various impairment and fair value decreases collectively accounted for $2.6 billion of charges in the second quarter of 2020, in addition to an approximately $0.4 billion charge in the first quarter of 2020, of which $2.1 billion and $0.3 billion, respectively, were attributable to the OP.

These amounts are reflected within impairment loss, other loss and equity method losses on the statement of operations.

The Company believes that it has materially addressed overall recoverability in value across all of its non-digital assets as of June 30, 2020, applying the Company's best estimates and assumptions at this time based upon external factors known to date and the Company's expected digital transformation timeline.

If the extent and duration of the economic effects of COVID-19 negatively affect the Company's financial condition and results of operations beyond the Company's current projections, the estimates and assumptions currently applied by the Company may change, which may lead to further impairment and fair value decreases in its non-digital assets that could be material in the future.

Cooperation Agreement with Blackwells Capital

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Distributions to be made through the joint venture arrangement effectively represent a settlement of the proxy contest with Blackwells.

At the inception of the arrangement, the fair value of future distributions to Blackwells was estimated at $3.9 million, included in other liabilities on the consolidated balance sheet, and as a settlement loss on the consolidated statement of operations, along with $1.2 million reimbursement of legal costs to Blackwells in the first quarter of 2020 .

The settlement liability is subject to remeasurement at the end of each quarter.

Refer to Note 12 of the consolidated financial statements for further description of the settlement liability.

Developments in 2020

During the three months ended March 31, 2020 and through May 5, 2020 , significant developments affecting our business and results of operations included the following, in addition to the effects of COVID-19 as discussed throughout this Quarterly Report.

In February 2020, completed the sale of our equity investment in RXR Realty, LLC for proceeds, net of tax, of $179 million .

In April 2020, recapitalized an investment in the other equity and debt segment which generated $72.7 million of proceeds and resulted in a gain.

Recorded the following impairment charges:

$308 million on real estate and related asset group, primarily hotel and healthcare properties to reflect shortened holding periods on the assets and potential effects of COVID-19 on future property operating cash flows;

$79 million on goodwill in the other investment management segment, driven primarily by a decrease in estimated exit value on the CLNC management contract.

During the six months ended June 30, 2020 and through this filing, significant developments affecting our business and results of operations included the following, in addition to the effects of COVID-19 as discussed throughout this Quarterly Report.

We addressed near-term corporate maturities and enhanced our long-term capital structure and liquidity profile as follows:

Amended our Credit Agreement in June 2020, which reduced aggregate revolving commitments from $750 million to $500 million and increased the interest rate on borrowings from LIBOR plus 2.25% to LIBOR plus 2.5% per annum.

The amended terms provide for greater financial covenant flexibility and more borrowing base credit for

digital investments.

The credit facility is still scheduled to expire in January 2021, with two 6-month extension options.

During the extension term(s), the interest rate would increase by 0.25%, and effective March 31, 2021, credit availability would be reduced to $400 million .

In July 2020, the OP issued $300.0 million of exchangeable notes maturing in July 2025 and bearing interest at 5.75% per annum.

Net proceeds from this issuance of $291.0 million were applied to repurchase $289.7 million of the outstanding principal of the 3.875% convertible notes for total purchase price of $289.2 million , including accrued interest.

This substantially addresses the January 2021 maturity of the 3.875% convertible notes, with $112.8 million principal outstanding as of the date of this filing, which we expect to address through cash on hand and/or proceeds from future asset monetizations.

Path To Digital

Strategic Partnership in Our Digital Investment Management Business

In July 2020, formed a strategic partnership with affiliates of Wafra, Inc.

(collectively, "Wafra") in which Wafra made a minority investment representing an approximate 31.5% interest in our digital investment management business (the “Digital IM Business”).

Wafra paid a consideration of $254 million for its investment in the Digital IM Business and for warrants issued by the Company to Wafra (assuming the consideration excludes the warrants, this implies an approximately $805 million valuation of the Digital IM Business).

Wafra has agreed to assume certain of the Company's existing commitments made to DCP and to make commitments to the successor fund to DCP and to the Company’s initial digital credit fund, in an aggregate amount of up to $150 million.

Wafra has also agreed to make commitments to the Company's future digital funds and investment vehicles on a pro rata basis with the Company based on Wafra's percentage interest in the Digital IM Business, subject to certain caps.

Wafra's investment provides us with permanent capital to pursue strategic digital infrastructure investments and grow the Digital IM Business.

Refer to Note 24 to the consolidated financial statements for further discussion of the Wafra transaction.

Investment in Hyperscale Data Centers

In July 2020, alongside an approximate $1 billion of fee bearing third party capital that we raised, we invested $1.21 billion for an approximate 80% equity stake in Vantage Data Center Holdings, LLC's ("Vantage") portfolio of 12 stabilized hyperscale data centers in North America.

Our balance sheet investment is $185 million, which represents a 12.3% interest.

This investment is our second significant balance sheet investment in a digital operating business and achieves our transformation goals on two fronts, that is the rotation of our balance sheet to digital assets and growing our digital investment management business.

Non-Digital Assets

In February 2020, sold our equity investment in RXR Realty, LLC for proceeds of $179 million , net of tax, recording a gain of $97 million , net of tax.

In April 2020, recapitalized a co-investment venture which holds common equity in the Albertsons supermarket chain, generating $72.7 million of proceeds to us and realizing our share of gain of $29.7 million.

Recognized approximately $3.0 billion ($2.4 billion attributable to OP) of impairment charges and unrealized fair value losses on our non-digital assets in the first six months of 2020, recorded in impairment loss, other losses and equity method losses on the statement of operations, primarily:

$1.78 billion ( $1.46 billion attributable to OP) impairment on real estate and related asset group, primarily hotel and healthcare properties, to reflect shortened holding periods on the assets, attributed primarily to the Company's accelerated digital transformation and further exacerbated by a decline in property operating performance and market values as a result of the economic effects of COVID-19 ;

$594 million impairment on goodwill in the other investment management segment, driven by acceleration of the Company's digital transformation and significant reduction in the value of its non-digital balance sheet assets ;

$275 million impairment on our equity investment in CLNC as the shortfall in market value over carrying value of our CLNC investment is not expected to recover in the near term;

$281 million ($54 million attributable to OP) of net unrealized losses on loans receivable carried at fair value as recoverability is affected by increasing uncertainty and deterioration in the economic environment arising from the effects of COVID-19 .

Results of Operations

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Current and prior period results of the industrial segment and the industrial investment management business which resides in the other investment management segment are presented as discontinued operations on the consolidated statements of operations (Note 16 ).

Net income attributable to Colony Capital, Inc.

from discontinued operations totaled $0.3 million and $8.4 million for the three months ended March 31, 2020 and 2019 , respectively.

Discontinued operations generated a net loss attributable to Colony Capital, Inc.

of $1.5 million and $1.1 million for the three months ended June 30, 2020 and 2019 , respectively, and $1.3 million for the six months ended June 30, 2020 , while generating net income attributable to Colony Capital, Inc.

of $7.3 million for the six months ended June 30, 2019 .

(In thousands)

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from Continuing Operations

Three Months Ended March 31,

Three Months Ended June 30,

Other Equity and Debt

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Amounts not allocated to segments

Six Months Ended June 30,

Other Equity and Debt

Other Investment Management

Amounts not allocated to segments

Selected Balance Sheet Data

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(In thousands)

March 31, 2020

June 30, 2020

December 31, 2019

March 31, 2020 (1)

June 30, 2020

December 31, 2019

March 31, 2020

June 30, 2020

December 31, 2019

March 31, 2020

June 30, 2020

December 31, 2019

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Consolidated Results of Operations

Comparison of Three Months Ended March 31, 2020 to Three Months Ended March 31, 2019

Three Months Ended March 31,

Comparison of Three Months Ended June 30, 2020 to Three Months Ended June 30, 2019

Three Months Ended June 30,

(In thousands)

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Administrative expenses

Settlement loss

Total expenses

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Other loss, net

Equity method earnings

Equity method losses

Equity method earnings (losses)—carried interest

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Loss from continuing operations

Income from discontinued operations

Loss from discontinued operations

Net income (loss) attributable to noncontrolling interests:

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Property Operating Income and Property Operating Expenses

Three Months Ended March 31,

Three Months Ended June 30,

(In thousands)

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Digital— Amounts represent income and related operating expenses from our DataBank subsidiary that was acquired in December 2019, primarily in connection with colocation rent and data center services.

Healthcare— Property operating income decreased $6.4 million , driven by sales of net lease properties in 2019.

On a same store basis, however, property operating income was largely consistent in the periods under comparison.

There was an increase in resident fee income in our senior housing operating portfolio from higher rents beginning the third quarter of 2019 although occupancy had declined, but such increase in income did not fully absorb the corresponding increase in resident service costs, primarily labor costs, due to increased competition.

The higher resident fee income was also largely offset by lower rental income from net leased hospitals and skilled nursing facilities that were previously assessed to be uncollectible with contractual rents recognized on a cash basis beginning the second and third quarters of 2019.

Property operating expenses increased $2.3 million or $2.7 million on a same store basis, primarily due to higher resident service costs, as noted above.

Hospitality— Property operating income and expense decreased $43.1 million and $15.4 million , respectively, driven by sales of ten select service hotels in 2019.

On a same store basis, property operating income and expense decreased $34.6 million and $8.1 million, respectively.

The decrease in income reflects the impact of COVID-19 with significant declines in room demand as average occupancy fell 16% to 59% and revenue per available room or RevPAR fell 18% compared to the same period last year.

The corresponding decrease in expenses, however, was less pronounced as operating margins declined, coupled with additional benefits accrued for furloughed employees in March 2020.

Other Equity and Debt— Property operating income and expenses decreased $29.1 million and $10.9 million , respectively, driven by sales of our multi-tenant offices, limited service hotels in our THL Hotel Portfolio and other properties in our European portfolio, as well as the impact of COVID-19 in March 2020 on the operating results of our THL Hotel Portfolio and a hotel in Spain.

Healthcare— Property operating income decreased $4.9 million , driven by sales of 25 net lease properties in 2019 and one in the first quarter of 2020 , and to a lesser extent, lower resident fee income as senior housing occupancy declined due to restrictions on new admissions in an effort to contain COVID-19.

Property operating expenses increased $10.8 million , primarily due to $7.7 million of incremental costs incurred in our senior housing facilities in response to COVID-19.

The incremental costs were abated by $1.6 million of government stimulus funding under the CARES Act Provider Relief Fund , which partially offset the decrease in property operating income.

Refer to further discussion in " —Segment Results—Healthcare."

Hospitality— Property operating income and expense decreased $169.9 million and $81.0 million , respectively.

On a same store basis (excluding the effects of ten select service hotels sold in 2019), property operating income and expense decreased $159.2 million, or 74%, and $73.1 million, or 53%, respectively.

The decrease in income reflects the effects of COVID-19 with a significant decline in room demand with an average occupancy of 30.2% , a decrease of 62% compared to the same period last year.

This was further compounded by lower average daily rate ("ADR"), resulting in revenue per available room, or RevPAR, falling 72% compared to the same period last year.

Although we have taken various steps to minimize non-essential operating expenses during this time, the decrease in operating expenses, as expected, was less pronounced as we continue to incur fixed operating costs.

Notwithstanding the overall negative results for the second quarter of 2020, operations have recovered from the trough in April 2020 and have since trended positively through July 2020.

Refer to further discussion in " —Segment Results—Hospitality."

Other Equity and Debt— Property operating income and expenses decreased $62.2 million and $33.5 million , respectively, driven by sales of limited service hotels in our THL Hotel Portfolio, U.S.

multi-tenant offices and other properties in our European portfolio, as well as the effects of COVID-19 on the operating results of our THL Hotel Portfolio and a hotel in Spain.

Interest Income

Interest income decreased $13.2 million , attributed to loan payoffs and sales in 2019, partially offset by additional loan fundings in 2019.

Interest income decreased $12.7 million , attributed primarily to loans placed on nonaccrual in the second quarter of 2020 as the COVID-19 crisis has led to increased uncertainty over collectability.

Fee income is earned from the following sources:

Three Months Ended March 31,

Three Months Ended June 30,

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Non-traded REITs

Fee income increased $12.5 million resulting from:

net increase of $19.8 million in fees from institutional funds and investment vehicles, driven by $20.6 million of fees from DBH (50% of fees from DCP was recognized as equity method income prior to acquisition of DBH) and Colony Latam, which were acquired in July 2019 and April 2019, respectively, partially offset by decreases in fees from liquidating funds;

partially offset by:

$3.2 million decrease in fees from Colony Credit due to a lower stockholders' equity fee basis;

Total fee income increased $8.1 million resulting from:

net increase of $18.3 million in fees from institutional funds and investment vehicles, driven by $19.9 million of fees from DBH (50% of fees from DCP was recognized as equity method income prior to acquisition of DBH), which was acquired in July 2019, partially offset by decreases in fees from liquidating funds.

The increase in fees from institutional funds and investment vehicles was partially offset by:

$3.2 million decrease in fees from Colony Credit due to a lower stockholders' equity fee base;

$3.8 million of fees from NorthStar Realty Europe ("NRE") in 2019 prior to its sale in September 2019;

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("NorthStar Healthcare") following a decrease in its NAV fee basis effective December 2019;

Other income was $6.3 million lower, attributed primarily to reversal of other income in connection with CLNC equity awards that were remeasured at fair value based upon CLNC's stock price at period end, and other income recognized in 2019 in relation to NRE equity awards, with such amounts correspondingly recognized in equity-based compensation, as a gross-up of income and expense (refer to Note 19 to the consolidated financial statements for a description of the accounting treatment of managed company awards).

These decreases were partially offset by hotel management fee income from our acquisition of a distressed hotel manager in France in July 2019 within our other equity and debt segment.

$1.8 million decrease in other fees related to advisory fees and higher asset management fees in the second quarter of 2019.

Other income was $1.5 million lower, attributed primarily to lower cost reimbursement from affiliates.

Interest Expense

Three Months Ended March 31,

Three Months Ended June 30,

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Corporate-level debt

Net decrease in interest expense of $11.5 million is attributable to the following:

Digital— Amount represents interest expense on debt assumed from our DataBank subsidiary acquired in December 2019.

Net decrease in interest expense of $35.0 million is attributed to the following:

Digital— Amount represents interest expense on debt assumed from our DataBank subsidiary that was acquired in December 2019.

Healthcare— Interest expense was $22.4 million lower as a result of:

(i) interest expense recognized in prior year from debt discount that was subsequently written off in connection with a refinancing in June 2019;

(ii) effect of decrease in LIBOR on predominantly variable rate debt on healthcare properties;

(i) decrease in LIBOR on predominantly variable rate debt;

(ii) interest expense recognized in the second quarter of 2019 from the write-off of debt discount in connection with a June 2019 refinancing;

and (iii) debt repayment upon sale of non-core properties in 2019.

These decreases were partially offset by amortization of deferred financing costs on the June 2019 refinanced debt.

Hospitality— Interest expense decreased $2.3 million , driven by a decline in LIBOR on predominantly variable rate debt on our hotel portfolio, largely offset by higher interest expense recognized from acceleration of deferred financing costs.

Other Equity and Debt— Interest expense decreased $11.3 million due to debt payoffs, primarily from sale of properties in the THL Hotel Portfolio and multi-tenant offices, and resolution of our European loans.

These decreases were partially offset by interest expense recognized from amortization of deferred financing costs incurred in connection with the June 2019 refinancing.

Hospitality— Interest expense decreased $11.7 million , driven by a decline in LIBOR on predominantly variable rate debt on our hotel portfolio.

Other Equity and Debt— Interest expense decreased $11.5 million due to a decline in LIBOR and debt payoffs from sale of properties and resolution of loans receivable.

Corporate-level Debt— Interest expense increased $2.5 million as a result of writing off a portion of deferred financing costs on our corporate credit facility to reflect a reduction in the facility amount in June 2020, along with a higher average outstanding balance on the facility in 2020.

This increase was partially offset by the effect of a decline in LIBOR on our junior subordinated debt and lower unused fees on our credit facility.

Investment and Servicing Expense

Investment and servicing costs were $6.3 million lower as the prior year included write-off of receivables from our managed investment company, higher unconsummated deal costs and higher expenses at our THL Hotel Portfolio.

The higher costs in the prior year more than offset incremental cost of labor and supplies in our healthcare properties in response to COVID-19 and higher expenses in our European portfolio in the first quarter of 2020.

Investment and servicing costs were lower by $8.6 million , attributed primarily to costs related to refinancing of our healthcare debt in 2019 and lower hotel asset management and incentive fees in 2020, which corresponds to the decline in hotel revenues, partially offset by additional bad debt allowance on property level insurance receivable.

Depreciation and Amortization

Higher depreciation and amortization expense is attributed to real estate and intangible assets acquired from DataBank in December 2019 and DBH in July 2019, partially offset by non-core properties sold or transferred to held for sale, termination of NRE management contract in September 2019 and write-down of NorthStar Healthcare management contract in December 2019.

Higher depreciation and amortization expense is attributed to real estate and intangible assets acquired from DataBank in December 2019 and DBH in July 2019, as well as capital improvements and fixed asset additions to our hotel properties that were completed throughout 2019 and beginning of 2020.

These increases were partially offset by

sales of non-core properties, lower real estate basis after impairment charges in 2019, termination of NRE management contract in September 2019 and write-down of NorthStar Healthcare management contract in December 2019.

Impairment Loss

Three Months Ended March 31,

Three Months Ended June 30,

(In thousands)

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Impairment loss on real estate and goodwill are discussed further in Notes 4 and 7 , respectively, to the consolidated financial statements.

Healthcare— Impairment totaling $48.5 million was recorded on a portfolio of senior housing operating facilities and net leased skilled nursing facilities, based upon potential shortfalls in future operating cash flows, taking into consideration the likelihood of a lease renewal or tenant replacement and the impact of COVID-19, which would heighten the risk of default on the respective non-recourse mortgage debt.

A debt default would likely cause a shortened holding period on these properties such that their carrying values may not be recoverable, thereby resulting in a write-down in values.

Hospitality— The impairment loss of $250.2 million arose from a shortened holding period on certain hotel assets, which resulted in a shortfall in future operating cash flows such that the carrying value of these assets would not be recoverable.

Prior year impairment of $3.9 million was based upon revised exit prices on properties held for sale.

Other Equity and Debt— Impairment decreased $12.2 million , attributed primarily to higher write-downs in 2019 on properties held for sale in Italy.

Other Investment Management— Goodwill in the other investment management segment was written down by $79.0 million , driven primarily by a reduction in estimated exit value of the CLNC management contract.

Healthcare and Hospitality— In 2020, we recognized impairment of $661.3 million on healthcare assets and $660.8 million on hotel assets, resulting from shortened holding period assumptions, attributable to both the Company's accelerated digital transformation , and the risk that the Company is unable to obtain accommodation from lenders on non-recourse mortgage debt that is in default or at risk of default .

This resulted in a shortfall in projected future cash flows, which was further exacerbated by a decline in property operating performance and market values as a result of the economic effects of COVID-19 , such that the carrying value of these assets would not be recoverable.

In 2019, impairment of (i) $51.3 million on healthcare assets was based upon a negotiated purchase option exercised by a tenant on three hospitals and preliminary offers received on certain net lease properties, all of which have since been sold;

and (ii) $0.4 million on a hotel was based upon final net proceeds from sale.

Other Equity and Debt— Impairment was $120.0 million higher, primarily on the THL Hotel Portfolio, various office properties, and a hotel in Spain.

The higher impairment was driven by shortened holding period assumptions due to the Company's accelerated digital transformation or risk of default on non-recourse investment level debt;

and/or the economic effects of COVID-19 on property operating cash flows and market values .

Other Investment Management— Goodwill in the other investment management segment was written down by $515.0 million , driven by acceleration of the Company's digital transformation and significant reduction in the value of its non-digital balance sheet assets .

Unallocated— Impairment was recorded on the corporate aircraft in 2020 to reflect recoverable value based upon a shortened holding period and on an office operating lease asset in 2019.

Compensation Expense

The table below provides the components of compensation expense:

Three Months Ended March 31,

The following table provides the components of compensation expense:

Three Months Ended June 30,

(In thousands)

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Total compensation expense

Total compensation expense increased $11.1 million , which can be attributed to additional compensation cost from our acquisitions of DBH and a distressed hotel manager in July 2019, and DataBank in December 2019.

These increases were partially offset by a decrease in compensation cost following the sale of NRE in September 2019 and our industrial business in December 2019, and reversals in carried interest compensation and equity-based compensation on CLNC awards (refer to discussion in Other Income ).

Administrative Expense

Administrative expense was $10.1 million higher, largely attributable to higher professional service costs and additional expenses in connection with businesses acquired in 2019.

Total compensation expense increased $19.8 million , attributed primarily to (i) additional compensation cost following the consolidation of DBH and DataBank, acquired in July and December 2019, respectively;

and (ii) $6.6 million of severance related costs incurred in the second quarter of 2020 in connection with our new cost reduction initiative.

These increases were partially offset by a decrease in compensation cost following the cost reduction initiative, sales of NRE in September 2019 and our industrial business in December 2019, and reversal of carried interest compensation in 2020.

Administrative Expenses

There was a marginal increase in administrative expense of $0.3 million as higher professional service costs and additional expenses in connection with businesses acquired in 2019 were largely offset by savings in business travel and office costs resulting from efforts to reduce the spread of COVID-19.

Gain on Sale of Real Estate

The higher gains in 2019 were from sales of our European properties.

The pace of dispositions has slowed considerably in 2020 given the current global economic downturn resulting from efforts to contain COVID-19.

Equity Method Earnings (Losses)

Three Months Ended June 30,

(In thousands)

Other Equity and Debt

Other Investment Management (including carried interest reversal of $2,324 and income of $1,836, respectively)

Digital— Amounts represent net earnings from interests in (i) our sponsored DCP fund;

(ii) through July 2019, Digital Colony Manager, the manager of DCP, prior to its consolidation upon acquisition of DBH;

and beginning March 31, 2020, existing Colony investment vehicles that were repurposed to execute an investment strategy focused around the digital sector.

CLNC— We recorded an other-than-temporary impairment on our investment in CLNC of $274.7 million in 2020 and $227.9 million in 2019.

Our interest in CLNC also generated net loss of $75.6 million in 2020 (inclusive of $8.7 million adjustment to reduce the basis difference allocated to non-strategic assets resolved during the second quarter of 2020) and net loss of $40.0 million in 2019.

CLNC's net losses were driven by allowance for loan losses, impairment or unrealized fair value losses on investments, and realized losses from sale of investments and unwinding of hedge positions, further affected by COVID-19 in 2020 .

Refer to Note 6 to the consolidated financial statements for further discussion of the CLNC impairment and basis adjustment.

Other Equity and Debt— Equity method losses in 2020 compared to earnings in 2019, resulting in a decrease of $54.2 million , arose from impairment of an investee based upon projected exit strategy, decrease in fair value of investments under the fair value option and our share of investee net losses, all of which reflect the economic effects of COVID-19.

Other Investment Management— Equity method net loss was $14.3 million lower due to an impairment charge recorded in 2019 on an investee which has since been sold, partially offset by reversal of unrealized carried interest allocation in 2020.

Other Loss, Net

We recorded other net loss of $173.0 million in 2020 and $89.5 million in 2019, driven primarily by the following:

Three Months Ended June 30, 2020

$284.4 million ($230.3 million attributable to noncontrolling interests in investment entities) of net unrealized losses on loans receivable carried at fair value as recoverability is affected by increasing uncertainty and deterioration in the economic environment arising from the effects of COVID-19 (fair value option was elected on loans receivable beginning 2020);

$21.4 million of unrealized credit losses on commercial real estate ("CRE") debt securities;

realized gain of $60.7 million , of which the Company's share is 50% , and recognition of future profit allocation at fair value of $66.0 million ( $33.7 million attributable to noncontrolling interests in investment entities) from recapitalization of our co-investment venture which holds common stock in Albertsons Companies, Inc.

(refer to Note 6 to the consolidated financial statements).

Three Months Ended June 30, 2019

unrealized loss of $86.9 million on a non-designated interest rate swap assumed through the Merger that was intended to hedge future refinancing on certain healthcare mortgage debt.

Such debt was refinanced in June 2019 and the swap was terminated at the end of 2019.

Income Tax Expense

Income tax expense was higher by $5.1 million , attributed primarily to (i) valuation allowances established against deferred tax assets in the hospitality and healthcare segments as a result of uncertainties in future realization of tax benefit on net operating losses, taking into consideration the impairment of assets in these segments;

partially offset by (ii) deferred tax benefit recognized on taxable losses in the other investment management segment.

Income (Loss) from Discontinued Operations

In 2020, discontinued operations represent (i) results of operations of the bulk industrial portfolio;

and (ii) in the second quarter of 2020, final adjustments to proceeds from the December 2019 sale of the light industrial portfolio upon release of escrowed funds, which resulted in a net loss of $7.4 million, including a corresponding effect on carried interest and related compensation.

In 2019, discontinued operations encompassed predominantly results of the light industrial portfolio and the related management platform prior to its sale in December 2019 .

Refer to Note 16 to the consolidated financial statements.

Consolidated Results of Operations

Comparison of Six Months Ended June 30, 2020 to Six Months Ended June 30, 2019

Six Months Ended June 30,

(In thousands)

Property operating income

Interest income

Total revenues

Property operating expense

Interest expense

Investment and servicing expense

Transaction costs

Depreciation and amortization

Provision for loan loss

Impairment loss

Compensation expense—cash and equity-based

Compensation expense—carried interest and incentive fee

Administrative expenses

Settlement loss

Amount represents fair value of the settlement arrangement with Blackwells, including reimbursement of legal costs.

Total expenses

Other income (loss)

Gain on sale of real estate

Other loss, net

Equity method losses

Equity method earnings (losses)—carried interest

Loss before income taxes

Income tax expense

Loss from continuing operations

Income (loss) from discontinued operations

Net income (loss) attributable to noncontrolling interests:

Redeemable noncontrolling interests

Investment entities

Operating Company

Net loss attributable to Colony Capital, Inc.

Preferred stock dividends

Net loss attributable to common stockholders

Property Operating Income and Property Operating Expenses

Six Months Ended June 30,

(In thousands)

Property operating income:

Other Equity and Debt

Property operating expenses:

Other Equity and Debt

Healthcare— Property operating income decreased $11.3 million , driven by sales of 25 net lease properties in 2019 and one in the first quarter of 2020 , and to a lesser extent, lower rental income from lease restructurings on certain net leased senior housing and skilled nursing facilities .

Property operating expenses increased $13.1 million , primarily due to incremental costs incurred in our senior housing facilities in response to COVID-19, and to a lesser extent, higher insurance premiums.

A small portion of the incremental costs were abated by government stimulus funding under the CARES Act Provider Relief Fund , which partially offset the decrease in property operating income.

Refer to further discussion in " —Segment Results—Healthcare."

Hospitality— Property operating income and expense decreased $212.9 million and $96.3 million , respectively.

On a same store basis (excluding the effects of ten select service hotels sold in 2019), property operating income and expense decreased $193.8 million or 48% and $81.2 million or 31%, respectively.

The decrease in income reflects the effects of COVID-19 with significant declines in room demand with an average occupancy of 44.4% , a decrease of 40% compared to the same period last year.

This was further compounded by lower ADR resulting in RevPAR falling 47% compared to the same period last year.

Notwithstanding the overall negative results for the second quarter of 2020, operations have recovered from the trough in April 2020 and have since trended positively through July 2020.

Refer to further discussion in " —Segment Results—Hospitality."

Other Equity and Debt— Property operating income and expenses decreased $91.4 million and $44.5 million , respectively, driven by sales of limited service hotels in our THL Hotel Portfolio, U.S.

multi-tenant offices and other properties in our European portfolio, as well as the effects of COVID-19 on the operating results of our THL Hotel Portfolio and a hotel in Spain.

Interest Income

Interest income decreased $25.9 million , attributed to loan payoffs and sales in 2019 and loans placed on nonaccrual in the second quarter of 2020 as the COVID-19 crisis has led to increased uncertainty over collectability.

Fee income is earned from the following sources:

Six Months Ended June 30,

(In thousands)

Institutional funds and other investment vehicles

Public companies (CLNC, and NRE prior to its sale in September 2019)

Non-traded REIT

Total fee income increased $20.6 million resulting from:

net increase of $38.1 million in fees from institutional funds and investment vehicles, driven by $40.2 million of fees from DBH (50% of fees from DCP was recognized as equity method income prior to acquisition of DBH) and Colony Latam, which were acquired in July 2019 and April 2019, respectively, partially offset by decreases in fees from liquidating funds;

The increase in fees from institutional funds and investment vehicles was partially offset by:

$6.4 million decrease in fees from Colony Credit due to a lower stockholders' equity fee base;

$7.7 million of fees from NRE in 2019 prior to its sale in September 2019;

$1.1 million decrease in fees from NorthStar Healthcare following a decrease in its NAV fee basis effective December 2019;

$1.5 million decrease in other fees related primarily to advisory fees earned in the second quarter of 2019.

Other income decreased $7.9 million , attributed primarily to (i) lower other income in connection with CLNC equity awards that were remeasured at fair value based upon CLNC's stock price at period end, and other income recognized in 2019 in relation to NRE equity awards, with such amounts correspondingly recognized in equity-based compensation, as a gross-up of income and expense (refer to Note 19 to the consolidated financial statements for a description of the accounting treatment of managed company awards);

and (ii) lower cost reimbursement from affiliates.

These decreases were partially offset by hotel management fee income in the first quarter of 2020 from our acquisition of a distressed hotel manager in France in July 2019 within our other equity and debt segment.

Interest Expense

Six Months Ended June 30,

(In thousands)

Investment-level financing:

Other Equity and Debt

Corporate-level debt

Net decrease in interest expense $46.4 million is attributed to the following:

Digital— Amount represents interest expense on debt assumed from our DataBank subsidiary that was acquired in December 2019.

Healthcare— Interest expense was $30.1 million lower as a result of:

(i) decrease in LIBOR on predominantly variable rate debt;

(ii) interest expense recognized in the second quarter of 2019 from the write-off of debt discount in connection with a June 2019 refinancing;

and (iii) debt repayment upon sale of non-core properties in 2019.

These decreases were partially offset by interest expense recognized from amortization of deferred financing costs incurred in connection with the June 2019 refinancing.

Hospitality— Interest expense decreased $14.0 million , driven by a decline in LIBOR on predominantly variable rate debt on our hotel portfolio, partially offset by additional debt obtained in connection with debt refinancing in 2019 and higher deferred financing costs expensed as a result of the refinancing.

Other Equity and Debt— Interest expense decreased $22.8 million due to a decline in LIBOR and debt payoffs from sale of properties and resolution of loans receivable.

Corporate-level Debt— Interest expense increased $2.9 million as a result of writing off a portion of deferred financing costs on our corporate credit facility to reflect a reduction in the facility amount in June 2020, along with a higher average outstanding balance on the facility in 2020.

This increase was partially offset by the effect of a decline in LIBOR on our junior subordinated debt and lower unused fees on our credit facility.

Investment and Servicing Expense

Investment and servicing costs were $14.9 million lower, attributed primarily to costs related to refinancing of our healthcare debt in 2019, higher unconsummated deal costs in 2019 and lower hotel asset management and incentive fees

in 2020, which corresponds to the decline in hotel revenues, partially offset by higher investment expenses incurred by our European portfolio.

Transaction Costs

The higher transaction costs in 2019 of $2.8 million related to our acquisition of the Latin American investment management business of The Abraaj Group and acquisition of a hotel portfolio in France through a joint venture.

Depreciation and Amortization

These increases were partially offset by sales of non-core properties, lower real estate basis after impairment charges in 2019, termination of NRE management contract in September 2019 and write-down of NorthStar Healthcare management contract in December 2019.

Impairment Loss

Six Months Ended June 30,

(In thousands)

Other Equity and Debt

Other Investment Management

Impairment loss attributable to noncontrolling interests in investment entities

Impairment loss on real estate and goodwill are discussed further in Notes 4 and 7 , respectively, to the consolidated financial statements.

Healthcare and Hospitality— In 2020, we recognized impairment of $709.8 million on healthcare assets and $910.9 million on hotel assets, resulting from shortened holding period assumptions, attributable to both the Company's accelerated digital transformation , and the risk that the Company is unable to obtain accommodation from lenders on non-recourse mortgage debt that is in default or at risk of default .

and (ii) $4.3 million on hotel assets was based upon revised expected sales prices or final net proceeds from sale.

Other Equity and Debt— Impairment was $107.8 million higher, attributed to write-downs in 2020 on the THL Hotel Portfolio and office properties in the U.S, partially offset by a net decrease in impairment on our European portfolio.

The higher impairment in 2020 was driven by a shortened holding period assumption due to the Company's accelerated digital transformation or risk of default on non-recourse investment level debt;

and/or the economic effects of COVID-19 on property operating cash flows and market values .

Other Investment Management— Goodwill in the other investment management segment was written down by $594 million , driven by acceleration of the Company's digital transformation and significant reduction in the value of its non-digital balance sheet assets .

Unallocated— Impairment was recorded on the corporate aircraft in 2020 to reflect recoverable value based upon a shortened holding period and on an office operating lease asset in 2019.

Compensation Expense

The following table provides the components of compensation expense.

Six Months Ended June 30,

(In thousands)

Cash compensation and benefits

Equity-based compensation

Incentive and carried interest compensation

Compensation grossed up in income and expense

Equity-based compensation—CLNC and NRE (prior to September 2019) awards

Total compensation expense

Total compensation expense increased $30.8 million , attributed primarily to (i) additional compensation cost following the consolidation of DBH and DataBank, acquired in July and December 2019, respectively;

and (ii) $6.6 million of severance related costs incurred in the second quarter of 2020 in connection with our new cost reduction initiative.

Administrative Expenses

Administrative expense was $10.3 million higher, largely attributable to higher professional service costs and additional expenses in connection with businesses acquired in 2019, partially offset by savings in business travel and office costs resulting from efforts to reduce the spread of COVID-19.

Settlement Loss

Amount represents fair value of the settlement arrangement with Blackwells at inception in March 2020, including reimbursement of legal costs.

Refer to additional discussion in Note 12 to the consolidated financial statements.

Gain on Sale of Real Estate

There were higher gains in 2019, primarily from sales of our European properties and U.S.

There were higher gains in 2019 from sales of our European properties and U.S.

multi-tenant office buildings.

The pace of dispositions have slowed considerably in 2020 given the current global economic downturn resulting from efforts to contain COVID-19.

Gain on sale of $7.4 million and $34.7 million in the six months ended June 30, 2020 and 2019 , respectively, were attributable to noncontrolling interests in investment entities.

Equity Method Earnings (Losses)

Three Months Ended March 31,

Six Months Ended June 30,

(In thousands)

Other Equity and Debt

Other Investment Management (including carried interest reversal of $18,411 and income of $4,896)

Digital— Amounts represent net earnings from interest in our sponsored DCP fund and through July 2019, its

manager, Digital Colony Manager, prior to its consolidation upon acquisition of DBH.

CLNC— Our share of net loss from CLNC was $10.1 million , inclusive of an adjustment of $19.2 million to reduce the basis difference allocated to non-strategic assets resolved during the first quarter of 2020 (see Note 6 to the consolidated financial statements), compared to net income of $5.5 million in prior year.

The net loss resulted primarily from loan loss provision and unrealized losses on investments carried at fair value, largely due to the impact of COVID-19.

Other Equity and Debt— Equity method earnings decreased $6.9 million , resulting primarily from our share of fair value losses from underlying investments held by investees and loss of earnings from repayments of our preferred equity investments and sales of investments in 2019.

These decreases were partially offset by income from additional ADC loan disbursements and higher impairment recorded on an equity method investee in prior year.

Other Investment Management— Equity method income increased $83.6 million as we recorded a $106.1 million gain from sale of our equity investment in RXR Realty in February 2020, which was partially offset by a reversal of unrealized carried interest allocation.

Other Investment Management (including carried interest reversal $20,735 and income of $6,732, respectively)

Digital— Amounts represent net earnings from interests in (i) our sponsored DCP fund;

(ii) through July 2019, Digital Colony Manager, the manager of DCP, prior to its consolidation upon acquisition of DBH;

and beginning March 31, 2020, existing Colony investment vehicles that were repurposed to execute an investment strategy focused around the digital sector.

CLNC— We recorded other-than-temporary impairment on our investment in CLNC of $274.7 million in 2020 and $227.9 million in 2019.

Our interest in CLNC also generated net loss of $85.6 million in 2020 (inclusive of $27.9 million adjustment to reduce the basis difference allocated to non-strategic assets resolved during the six months ended June 30, 2020 ) and net loss of $34.5 million in 2019.

CLNC's net losses were driven by allowance for loan losses, impairment or unrealized fair value

losses on investments, and realized losses from sale of investments and unwinding of hedge positions, further affected by COVID-19 in 2020 .

Refer to Note 6 to the consolidated financial statements for further discussion of the CLNC impairment and basis adjustment.

Other Equity and Debt —Equity method losses in 2020 compared to earnings in 2019, resulting in a decrease of $61.0 million , arose from impairment of an investee based upon projected exit strategy, decrease in fair value of investments under the fair value option and our share of investee net losses, all of which reflect the economic effects of COVID-19.

To a lesser extent, there was also a loss of earnings from investments that were resolved or sold in 2019, partially offset by income from additional acquisition, development and construction ("ADC") loan disbursements.

Other Investment Management— Equity method net income in 2020 was driven by a $106.1 million gain from sale of our equity investment in RXR Realty in February 2020, partially offset by a reversal of unrealized carried interest allocation.

In comparison, equity method net loss was incurred in 2019, driven by impairment charge on an investee that has since been sold, partially offset by unrealized carried interest income.

Other Loss, Net

Other losses, net, was $3.5 million compared to $49.1 million in prior year.

The first quarter of 2019 included unrealized loss of $59.2 million on a non-designated interest rate swap assumed through the Merger that was intended to hedge future refinancing on certain healthcare mortgage debt.

We recognized other net loss of $176.5 million in 2020 and $138.6 million in 2019, driven primarily by the following:

Six Months Ended June 30, 2020

$281.3 million ($227.6 million attributable to noncontrolling interests in investment entities) of net unrealized losses on loans receivable carried at fair value as recoverability is affected by increasing uncertainty and deterioration in the economic environment arising from the effects of COVID-19 (fair value option was elected on loans receivable beginning 2020);

$22.2 million of unrealized credit losses on CRE debt securities;

partially offset by

realized gain of $60.7 million and recognition of future profit allocation at fair value of $66.0 million ( $33.7 million attributable to noncontrolling interests in investment entities) from recapitalization of our co-investment venture which holds common equity in the Albertsons supermarket chain (refer to Note 6 to the consolidated financial statements).

Six Months Ended June 30, 2019

unrealized loss of $146.1 million on a non-designated interest rate swap assumed through the Merger that was intended to hedge future refinancing on certain healthcare mortgage debt.

Such debt was refinanced in June 2019 and the swap was terminated at the end of 2019.

This loss was partially offset by mainly fair value gains on equity and debt securities of consolidated funds, and remeasurement gain on a GBP denominated loan receivable in our healthcare segment in 2019;

all of which recorded losses in 2020 as a result of the financial market distress in March 2020 and appreciation of the USD.

Income Tax Expense

Income tax expense was $7.1 million higher, driven primarily by tax liability on the gain from sale of our equity investment in RXR Realty in February 2020, which was partially offset by deferred tax benefit in connection with our DataBank subsidiary acquired in December 2019.

Income from Discontinued Operations

Discontinued operations represent the results of operations of the bulk industrial portfolio in 2020 and additionally, the light industrial portfolio and management platform in 2019 prior to their sale in December 2019.

Income tax expense was $12.3 million higher, attributed primarily to (i) valuation allowances established against deferred tax asset in the hospitality and healthcare segments as a result of uncertainties in future realization of net operating losses, taking into consideration the impairment of assets in these segments;

(ii) tax liability on the gain from sale of our equity investment in RXR Realty in February 2020;

partially offset by (iii) deferred tax benefit recognized in connection with our DataBank subsidiary acquired in December 2019 and taxable losses in the other investment management segment in the second quarter of 2020.

Income (Loss) from Discontinued Operations

In 2020, discontinued operations represent (i) results of operations of the bulk industrial portfolio;

In 2019, discontinued operations encompassed predominantly results of the light industrial portfolio and the related management platform prior to its sale in December 2019 .

Refer to Note 16 to the consolidated financial statements.

Assets Under Management ("AUM") and Fee Earning Equity Under Management ("FEEUM")

Below is a summary of our third party AUM and FEEUM in connection with (i) our digital investment management business residing in the digital segment;

and (ii) our other investment management segment.

Below is a summary of our third party AUM and FEEUM for our digital and other investment management business.

AUM (1) (In billions)

FEEUM (2) (In billions)

March 31, 2020

June 30, 2020

December 31, 2019 (3)

March 31, 2020

June 30, 2020

December 31, 2019 (3)

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Earns base management fees and potential for carried interest

CC Real Estate Income Fund (3)

Public Companies

2 unchanged sentences

Earns base management fees and potential for incentive fees

Non-wholly owned real estate investment management platform

Joint venture investments in co-sponsored investment vehicles and third party asset managers

Earns share of earnings from equity method investments.

Others include investments in RXR Realty (27% interest in a real estate investor, developer and asset manager, sold in February 2020), AHI (43% interest in a healthcare asset manager and sponsor of non-traded vehicles) and Alpine (49% interest in energy investment management platform)

Subtotal - Other Investment Management segment

Total Company

Assets for which the Company and its affiliates provide investment management services, including assets for which the Company may or may not charge management fees and/or incentives.

AUM is based upon reported gross undepreciated carrying value of managed investments as reported by each underlying vehicle.

AUM further includes a) uncalled capital commitments and b) the Company’s pro rata share of assets of the real estate investment management platform of its joint ventures and investees as presented and calculated by them.

The Company's calculation of AUM may differ materially from those of other asset managers, and as a result, may not be comparable to similar measures presented by other asset managers.

Assets for which the Company and its affiliates provide investment management services, including assets for which the Company may or may not charge management fees and/or performance allocations.

AUM is based on the cost basis of managed investments as reported by each underlying vehicle as of the end of the reporting period and includes uncalled capital commitments.

The Company's calculations of AUM may differ from other asset managers, and as a result, may not be comparable to similar measures presented by other asset managers.

Equity for which the Company and its affiliates provide investment management services and derive management fees and/or incentives.

FEEUM generally represents a) the basis used to derive fees, which may be based upon invested equity, stockholders’ equity, or fair value pursuant to the terms of each underlying investment management agreement and b) the Company’s pro rata share of fee bearing equity of its joint ventures and investees as presented and calculated by them.

The Company's calculation of FEEUM may differ materially from other asset managers, and as a result, may not be comparable to similar measures presented by other asset managers.

In February 2019, the board of directors of CC Real Estate Income Fund (“CCREIF”) approved a plan to dissolve, liquidate and terminate CCREIF and distribute the net proceeds of such liquidation to its shareholders.

As CCREIF’s advisor, we have begun the process of liquidating its portfolio, however, no assurances can be made as to the timing or completion of the liquidation.

FEEUM generally represents the basis used to derive fees, which may be based upon invested equity, stockholders’ equity, or fair value pursuant to the terms of each underlying investment management agreement.

The Company's calculation of FEEUM may differ from other asset managers, and as a result, may not be comparable to similar measures presented by other asset managers.

Effective June 30, 2020, we no longer include the Company's share of AUM and FEEUM managed by third party asset managers in which we have an equity interest.

AUM and FEEUM for December 31, 2019 have been revised to conform to the current definition.

Represents third party ownership share of CLNC's pro rata share of total assets, excluding consolidated securitization trusts.

Third party FEEUM decreased $0.9 billion to $18.5 billion .

In February 2020, DCP closed on its acquisition of Zayo Group Holdings, Inc.

ZAYO), a provider of bandwidth infrastructure services in the United States and Europe, which added $0.7 billion FEEUM in our digital segment.

Our other investment management segment, however, saw a decrease of $1.8 billion FEEUM driven by the sale of our interest in a third party real estate asset manager, RXR Realty, in February 2020.

Total third party FEEUM increased $0.5 billion to $16.3 billion at June 30, 2020 .

There was a $1.0 billion increase in our digital FEEUM, of which $0.7 billion arose from DCP's acquisition in February 2020 of Zayo Group Holdings, Inc., a provider of bandwidth infrastructure services in the United States and Europe.

Zayo, formerly a publicly-traded company, was taken private as part of the acquisition by DCP.

This increase was partially offset by a $0.4 billion decrease in FEEUM from CLNC as a result of a decrease in CLNC's asset values.

With the raising of third party capital alongside our balance sheet investment in Vantage's portfolio of stabilized hyperscale data centers in July 2020, our third party digital AUM and FEEUM have increased to $21.6 billion and $8.3 billion, respectively.

The following discussion summarizes key information on our reportable segments.

Digital Real Estate and Investment Management ("Digital")

Our digital segment is composed of the following as of March 31, 2020 :

Digital is a new segment for the Company effective the fourth quarter of 2019, and is where we expect substantial growth to take place, both in terms of the balance sheet and investment management through (a) further investment of capital into digital real estate and infrastructure assets and GP co-investments and (b) net inflows of third-party capital into digital-related investment strategies sponsored by the Company.

Our digital segment is composed of the following as of June 30, 2020 :

Digital real estate— A 20% controlling interest in DataBank, acquired in December 2019.

DataBank is a leading provider of enterprise-class data centers, connectivity and managed services.

DataBank owns seven data centers and have leasehold interests in 12 data centers, operating in nine U.S.

DataBank owns eight data centers, having completed the construction of a new data center in the second quarter of 2020, and have leasehold interests in 12 data centers, operating in nine U.S.

This is our inaugural direct balance sheet investment in digital real estate and represents our first step in investing in the edge/colocation data center sector, which will support future growth opportunities through potential add-on acquisitions and greenfield edge data center developments.

1 unchanged sentence

Digital investment management— DBH investment management business, acquired in July 2019, which currently manages DCP and six digital real estate portfolio companies, including DataBank.

At March 31, 2020 , our digital real estate FEEUM totaled $8 billion .

At June 30, 2020 , our digital FEEUM totaled $7.8 billion .

Investment management products may include investment vehicles for co - investment partnerships and other managed assets, and digital credit and liquid securities products in the future.

2 unchanged sentences

and interests in existing Colony investment vehicles that were repurposed to execute an investment strategy focused around the digital sector.

DCP has total commitments of $4.06 billion, including our $250 million commitment, of which we have funded $115 million through March 31, 2020 , with an additional $44 million funded through DCP's revolving credit facility.

As of May 5, 2020 , DCP has called 73% of commitments, and is invested in ten geographically diversified portfolio companies across North America, South America, and Europe, composed of the digital infrastructure ecosystem of cell towers, data centers, small cells and fiber networks.

Balance Sheet

DCP has total commitments of $4.06 billion, including our $250 million commitment, of which we have funded $115 million through June 30, 2020 .

Refer to discussion of the Wafra transaction below in connection with our capital commitments to DCP.

As of August 4, 2020 , DCP has called 77% of commitments, and is invested in ten geographically diversified portfolio companies across North America, South America, and Europe, composed of the digital infrastructure ecosystem of cell towers, data centers, small cells and fiber networks.

Acceleration of Our Digital Transformation

Strategic Partnership in Our Digital Investment Management Business

On July 17, 2020, we formed a strategic partnership with Wafra in which Wafra made a minority investment representing an approximate 31.5% interest in our Digital IM Business.

Wafra's investment provides us with permanent capital to pursue strategic digital infrastructure investments and grow the Digital IM Business.

Refer to Note 24 to the consolidated financial statements for further discussion of the Wafra transaction.

Investment in Hyperscale Data Centers

On July 22, 2020, alongside an approximate $1 billion of fee bearing third party capital that we raised, we invested $1.21 billion for an approximate 80% equity stake in Vantage's portfolio of 12 stabilized hyperscale data centers in North America.

Our balance sheet investment is $185 million, which represents a 12.3% interest.

Following the closing of this transaction, our digital FEEUM increased to $8.3 billion.

Balance Sheet Information

The following table presents key balance sheet data of our digital segment:

(In thousands)

March 31, 2020

June 30, 2020

December 31, 2019

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Equity investments

The increase in equity investments reflect additional funding in DCP, and interests in existing Colony investment vehicles that were repurposed to execute an investment strategy focused around the digital sector effective March 31, 2020 .

Operating Performance

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Net Income (Loss) Attributable to Colony Capital, Inc.

Three Months Ended March 31,

Three Months Ended June 30,

Digital real estate

1 unchanged sentence

Digital equity investments

Prior to the acquisition of DBH in July 2019, our interest in the digital segment comprised only equity method investments and earnings.

Six Months Ended June 30,

Digital real estate

Digital investment management

Digital equity investments

Digital real estate revenues in the second quarter of 2020 included the effects of purchase price allocation adjustments to the amortization of above/below-market lease intangibles (see Note 3 to the consolidated financial statements) which reduced revenues by $3.2 million.

Prior to July 2019, our digital segment generated only equity method earnings from our 50% interest in Digital Colony Manager which manages DCP, and from our interest in DCP.

Digital Colony Manager was consolidated upon acquisition of DBH.

Revenues from our digital segment in 2020 represent primarily property operating income from DataBank, acquired in December 2019, and fee income from DBH, acquired in July 2019.

The above net loss from our DataBank business includes the effect of interest expense from debt financing, and depreciation and amortization expense.

Operating results of DataBank excluding these effects is presented below as earnings before interest, tax and depreciation for real estate ("EBITDA re ").

In 2020, our results also included unrealized fair value losses on equity securities of a legacy Colony consolidated fund that was transferred to the digital segment, with such losses resulting from a decline in value across equity markets in March 2020.

On the other hand, in 2019, our digital segment generated equity method earnings from our 50% interest in Digital Colony Manager prior to its consolidation upon acquisition of DBH.

Our share of results from our investment in DCP to date has not been material as the fund continues to ramp up its investing activities.

Digital real estate— The net loss from our DataBank business in 2020 includes the effect of interest expense from debt financing, and depreciation and amortization expense.

Operating results of DataBank excluding these effects are presented below as earnings before interest, tax and depreciation for real estate ("EBITDA re ").

Digital investment management— While fee income from our digital investment management business is trending positively in 2020, operating margins have a seen a decline as we ramp up resources to support future investment product offerings.

Digital equity investments— Net income from digital equity investments in 2020 includes the results of existing Colony investment vehicles that were repurposed to execute an investment strategy focused on the digital sector, and more notable contributions from DCP as the fund ramps up its investing activities, in particular contribution from DCP's Zayo co-investment that closed in February 2020.

Earnings Before Interest, Tax and Depreciation for Real Estate

EBITDA re generated by our digital real estate business, which currently consists solely of DataBank, is as follows.

EBITDA re generated by our digital real estate business, which currently consists of DataBank, is as follows.

A reconciliation of the most directly comparable GAAP measure to EBITDA re is presented in " —Non-GAAP Supplemental Financial Measures.

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(In thousands)

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020

Six Months Ended June 30, 2020

Total revenues

3 unchanged sentences

EBITDA re —Digital real estate

Our healthcare segment is composed of a diverse portfolio of senior housing, skilled nursing facilities, medical office buildings and hospitals.

We earn rental income from our senior housing, skilled nursing facilities and hospital assets that are under net leases to single tenants/operators and from medical office buildings which are both single tenant and multi-tenant.

In addition, we also earn resident fee income from senior housing properties that are managed by operators under a RIDEA structure, which effectively allows us to gain financial exposure to the underlying operations of the facility in a tax efficient manner versus receiving contractual rent under a net lease arrangement.

Our healthcare segment is composed of a diverse portfolio of senior housing facilities, skilled nursing facilities, medical office buildings and hospitals.

We earn rental income from our senior housing facilities, skilled nursing facilities and hospitals that are under net leases to single tenants/operators and from medical office buildings which are both single tenant and multi-tenant.

In addition, we earn resident fee income from senior housing facilities that are managed by operators under a RIDEA structure, which effectively allows us to gain financial exposure to the underlying operations of the facility in a tax efficient manner versus receiving contractual rent under a net lease arrangement.

We own between 69.6% and 81.3% of the various portfolios within our healthcare segment.

Based upon our equity balance across all portfolios at March 31, 2020 , we have an overall interest of 71% in our healthcare segment.

Portfolio Overview

Our healthcare portfolio is located across 32 states domestically and in the United Kingdom (representing 15% of our portfolio based upon NOI for the first quarter of 2020).

Our healthcare portfolio is located across 32 states domestically and in the United Kingdom (representing 17% of our portfolio based upon NOI for the second quarter of 2020).

The following table presents key balance sheet data of our healthcare segment:

(In thousands)

March 31, 2020

June 30, 2020

December 31, 2019

5 unchanged sentences

Average Remaining Lease Term (Years)

March 31, 2020

June 30, 2020

Senior housing — operating (2)(3)

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Occupancy percentages are presented as follows:

(i) as of the last day of the quarter for medical office buildings;

(i) as of the last day of the quarter for

medical office buildings;

(ii) average for the quarter for senior housing — operating;

and (iii) average of the prior quarter for net lease properties as our operators report on a quarter lag.

Six senior housing properties were transitioned from net leases into operating properties in the second quarter of 2020.

In August 2020, 36 properties, along with the underlying debt, were indirectly conveyed to an affiliate of a lender, as discussed further below.

Held for Sale and Dispositions

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We received gross proceeds of $7.5 million, from which we paid off $6.5 million of associated debt.

At March 31, 2020 , real estate properties with aggregate carrying value of $51.1 million were held for sale, comprising one portfolio of net lease skilled nursing facilities totaling 766 beds that were encumbered with $45.3 million of debt.

At March 31, 2020 , our healthcare portfolio was financed by $2.93 billion of outstanding debt principal, of which $0.4 billion was fixed and $2.52 billion was variable rate debt, bearing a combined weighted average interest rate of 4.56% .

At June 30, 2020 , real estate properties with aggregate carrying value of $46.3 million were held for sale, comprising one portfolio of net lease skilled nursing facilities totaling 766 beds that was encumbered with $45.1 million of debt.

At June 30, 2020 , our healthcare portfolio was financed by $2.92 billion of outstanding debt principal, of which $0.4 billion was fixed rate debt and $2.52 billion was variable rate debt, bearing a combined weighted average interest rate of 3.88% per annum.

Of the total healthcare debt at June 30, 2020 , $203.0 million was in default.

Subsequently, in August 2020, the Company indirectly conveyed the equity of certain of its healthcare borrower subsidiaries, comprising 36 assets in its senior housing operating portfolio and $157.9 million of the aforementioned defaulted healthcare debt (based on outstanding balance at June 30, 2020 ), to an affiliate of the lender, which released the Company from all rights and obligations with respect to those healthcare assets and corresponding debt.

As of the date of this filing, $45.1 million of healthcare debt remains in default.

Operating Performance

Results of operations of our healthcare segment are as follows:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands)

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Operating results at the property level are discussed under NOI below.

Results summarized above include the effects of interest expense from mortgage financing, impairment charges and depreciation and amortization expense on our healthcare portfolio.

While there was a loss of revenue from sales of net leased properties in 2019 and operating

profits declined as discussed below, the significantly higher net loss was driven primarily by $48.5 million of real estate impairment, as discussed in " —Results of Operations.

Results summarized above include the effects of interest expense from mortgage financing, impairment charges and depreciation and amortization expense on our healthcare portfolio, which are discussed in " —Results of Operations.

While there was a loss of earnings from sales of net leased properties in 2019 and operating profits declined in 2020, as discussed below, the net losses in all periods were driven by significant impairment charges, in particular $661.3 million and $709.8 million in the three and six months ended June 30, 2020 , respectively, due to a shortened holding period assumption.

Net Operating Income

NOI generated by our healthcare segment, in total and by portfolio, are as follows.

NOI is reconciled to the most directly comparable GAAP measure in " —Non-GAAP Supplemental Financial Measures.

Three Months Ended March 31,

NOI for our healthcare segment is derived as follows and reconciled to the most directly comparable GAAP measure in " —Non-GAAP Supplemental Financial Measures.

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands)

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NOI—Healthcare

Fees paid to third parties for property management are included in property operating expenses.

Three Months Ended March 31,

NOI by healthcare portfolio is as follows:

Three Months Ended June 30,

Six Months Ended June 30,

($ in thousands)

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NOI—Healthcare

NOI decreased $7.6 million , of which $5.9 million resulted from the sales of net lease properties in 2019.

The remaining decrease in NOI can be attributed to lower rental income from net leased hospitals and skilled nursing facilities that were previously deemed to be uncollectible, with contractual rents recognized on a cash basis beginning the second and third quarters of 2019.

Additionally, NOI on our senior housing operating portfolio decreased as higher resident service costs, primarily labor costs, were not fully absorbed through higher rents as occupancy declined due to increased competition.

These decreases were partially offset by higher NOI in our medical office building portfolio which had higher rent concessions in the prior year.

NOI decreased $17.3 million and $25.0 million in the three and six months ended June 30, 2020 , respectively, of which $5.7 million and $11.5 million, respectively, are attributed to the sales of 25 net lease properties in 2019 and one in the first quarter of 2020 .

The remaining decrease in NOI resulted primarily from:

lower rental income from lease restructurings on certain net leased senior housing and skilled nursing facilities ;

in our senior housing operating portfolio, resident fee income decreased as occupancy declined while operating costs increased, both as a result of COVID-19, as discussed further below.

Effects of COVID-19 on our Healthcare Segment

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Concurrently, we are actively managing capital needs and liquidity to mitigate the financial impact of COVID-19 on our healthcare business.

At this time, we understand from our operators and managers that our communities as a whole are experiencing a moderate level of confirmed COVID-19 cases.

At this time, we understand from our operators and managers that our communities as a whole continue to experience a moderate level of confirmed COVID-19 cases.

The incidence of confirmed cases in our portfolio may continue and could accelerate depending on the duration, scope and depth of COVID-19 .

The effect of COVID-19 varies by asset class in the Company's healthcare portfolio.

Specifically, efforts to address COVID-19 have forced temporary closures of medical offices, restricted the admission of new residents to senior housing and skilled nursing facilities, and caused incurrence of unanticipated costs and other business disruptions to the Company's healthcare properties.

Specifically, efforts to address COVID-19 have in some cases forced temporary closures of medical offices, restricted the admission of new residents to senior housing facilities, especially in communities that have experienced infections, and caused incurrence of unanticipated costs and other business disruptions.

The Company will be directly impacted by these factors in its RIDEA assets, and indirectly impacted in its net leased assets as these factors influence tenants’ ability to pay rent.

Beginning in April 2020, some tenants have failed to make rent payments, and some have sought more flexible payment terms as a result of the COVID-19 crisis.

Local governments in certain jurisdictions are also implementing programs that permit or require the forbearance of rent payments by tenants affected by COVID-19.

In our medical office portfolio, beginning in April 2020, a number of tenants failed to make rent payments or make timely payments, and some sought more flexible payment terms or rent concessions as a result of the COVID-19 crisis.

Local governments in certain jurisdictions have implemented or are considering implementing programs that permit or require forbearance of rent payments by tenants affected by COVID-19.

The Company is currently engaged with affected tenants on a case-by-case basis to evaluate and respond to the current environment.

We anticipate a decline in future occupancy in our senior housing and skilled nursing facilities as a result of statutory or self-imposed restrictions on admission of new residents into our communities in an effort to contain

Additionally, there is an increased risk of resident and staff illness and resident move-outs, particularly in communities which have experienced infections.

Operating costs have begun to rise as our healthcare operators take action to protect their residents and staff, specifically higher labor costs, as well as higher usage and cost of personal protective equipment, and medical and sanitation supplies.

We expect these incremental costs to increase further in the second quarter of 2020.

The challenges faced by our healthcare operators and our tenants as a result of COVID-19 will put pressure on future revenues and operating margins in our healthcare segment.

As necessary, we will engage in discussions with our lenders on the deferral of payment obligations, forbearance, and/or waiver of non-payment defaults for any potential failure in the future to satisfy certain financial or other covenants.

Given the ongoing nature of the pandemic, the extent of the financial impact and how prolonged the impact would be to our healthcare business is uncertain at this time, and largely dependent on the duration and severity of the effects of COVID-19.

The Company has agreed to provide the affected tenants with a deferral of rent, generally for two to three months, with deferred rent to be repaid in monthly installments over periods of four to 18 months.

This resulted in an increase in lease income receivable totaling $0.3 million as of June 30, 2020 .

All lease income receivable, including straight-line rents, are subject to the Company's policy for evaluation of collectability based upon creditworthiness of the lessee.

In our senior housing operating portfolio, statutory or self-imposed restrictions began to limit admission of new residents into our communities starting in March 2020 in an effort to contain COVID-19.

Also, we continue to face challenges from existing communities that have experienced infections, heightened risk of resident and staff illness and resident move-outs, particularly in those communities that have experienced infections.

There is typically a period of time where restrictions on admissions continue to be imposed in communities that have experienced infections until such time that infections are no longer detected.

As a result, we anticipate a decline in occupancy to continue as the rate of resident move-outs continue to outpace new resident admissions.

Operating costs in our senior housing operating portfolio have risen as our healthcare operators take action to protect their residents and staff, specifically higher labor costs, as well as higher usage and cost of personal protective equipment, and medical and sanitation supplies.

We incurred $7.7 million of such incremental costs in

the second quarter of 2020, of which $1.6 million was abated through government stimulus funding under the CARES Act Provider Relief Fund .

The challenges faced by our healthcare operators and our tenants as a result of COVID-19 will continue to put pressure on future revenues and operating margins in our healthcare segment.

As necessary, we will engage in discussions with our lenders on the deferral of payment obligations, and/or waiver of defaults for any potential failure in the future to satisfy certain financial or other covenants.

Given the ongoing nature of the pandemic, the extent of the financial effects and how prolonged the effects will be to our healthcare business is uncertain at this time, and largely dependent on the duration and severity of the COVID-19 crisis.

Our hotel portfolio consists primarily of extended stay hotels and premium branded select service hotels located in both major metropolitan markets and high-demand suburban markets throughout the U.S.

The majority of our hotels are affiliated with top hotel brands such as Marriott and Hilton.

We seek to achieve value optimization through capital improvements, asset management and as appropriate, opportunistic asset sales.

We own between 89.7% and 100% of the various portfolios within our hospitality segment.

Based upon our equity balance across all portfolios at March 31, 2020 , we have an overall interest of 94% in our hospitality segment.

We are currently engaged with a third party advisor to evaluate strategic and financial alternatives to maximize the value of our hospitality portfolio, including the THL Hotel Portfolio in the other equity and debt segment, while balancing the need to preserve liquidity and prioritize the growth of our digital business.

We do not anticipate allocating material amounts of the Company's own capital to our hospitality portfolios, but may elect to contribute capital on a limited basis, including in the THL Hotel Portfolio, where we determine it would be meaningful to protect the value of these portfolios.

Portfolio Overview

Our hotel portfolio is located across 26 states in the U.S., with concentrations in California (28.4%), Texas (17.2%) and Florida (13.9%), based upon NOI before FF&E Reserve for the first quarter of 2019.

Our hotel portfolio is located across 26 states in the U.S., with concentrations in Texas (13.9%), California (12.9%), and Florida (12.6%), based upon revenues in the three months ended June 30, 2020 .

The following table presents key balance sheet data of our hospitality segment:

(In thousands)

March 31, 2020

June 30, 2020

December 31, 2019

2 unchanged sentences

A majority of our portfolio is affiliated with top hotel brands.

Composition of our hotel portfolio by brand at March 31, 2020 , based upon the number of rooms, is as follows:

Composition of our hotel portfolio by brand at June 30, 2020 , based upon the number of rooms, is as follows:

Intercontinental

The following table presents selected operating metrics of our hotel portfolio:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Number of Hotel Properties

1 unchanged sentence

Average Occupancy

Select service

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Extended stay

Average daily rate ("ADR") is calculated by dividing room revenue by total rooms sold.

ADR is calculated by dividing room revenue by total rooms sold.

RevPAR is calculated by dividing room revenue by room nights available for the period.

Held for Sale

At March 31, 2020 , one 120-room select service hotel with a carrying value of $16.2 million was held for sale, financed with $15.0 million of debt.

At March 31, 2020 , our hotel portfolio was financed by $2.67 billion of predominantly variable rate debt, bearing a weighted average interest rate of 4.11% .

At June 30, 2020 , our hotel portfolio was financed by $2.67 billion of predominantly variable rate debt, bearing a weighted average interest rate of 3.29% per annum.

Refer to further discussion below on the effects of COVID-19.

1 unchanged sentence

Results of operations of our hospitality segment are as follows:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands)

3 unchanged sentences

Results summarized above include the effects of interest expense from mortgage financing, impairment charges and depreciation and amortization expense on our hotel portfolio, which are discussed in " —Results of Operations.

The higher net loss resulted from a $250 million impairment charge due to a shortened holding period on certain hotel assets;

and to a lesser extent, also reflects the effects of COVID-19 on operating performance.

While there was a loss of earnings from sales of ten properties in 2019 and operating performance declined due to COVID-19, as discussed below, the significant net losses in 2020 resulted from impairment charges of $660.8 million and $910.9 million in the three and six months ended June 30, 2020 , respectively, driven by a shortened holding period assumption.

Net Operating Income before Reserves for Furniture, Fixtures and Equipment ("NOI before FF&E Reserve")

NOI before FF&E Reserve for our hospitality segment, in total and by type, are as follows, and is reconciled to the most directly comparable GAAP figure in " —Non-GAAP Supplemental Financial Measures.

Three Months Ended March 31,

NOI before FF&E Reserve for our hospitality segment is calculated as follows and reconciled to the most directly comparable GAAP figure in " —Non-GAAP Supplemental Financial Measures.

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands)

1 unchanged sentence

Straight-line rent and amortization of above- and below-market lease intangibles and ground lease asset

Interest income

Property operating expenses

NOI before FF&E Reserve—Hospitality

Fees paid to third parties for hotel management are included in property operating expenses.

Three Months Ended March 31,

NOI before FF&E Reserve by hotel type is as follows:

Three Months Ended June 30,

Six Months Ended June 30,

($ in thousands)

2 unchanged sentences

NOI before FF&E Reserve—Hospitality

NOI before FF&E Reserve decreased $27.7 million , of which $1.2 million is attributed to the sales of ten select service properties in 2019.

The decrease otherwise reflects the impact of COVID-19, with significant declines in room demand as average occupancy fell 16% to 59% and RevPAR fell 18% compared to the same period last year.

The decrease in NOI before FF&E Reserve was further exacerbated by a decline in operating margins, coupled with additional benefits accrued for furloughed employees in March 2020.

NOI before FF&E Reserve decreased $89.3 million and $117.0 million in the three and six months ended June 30, 2020 , respectively, of which $3.2 million and $4.3 million, respectively, are attributed to the sales of ten select service properties in 2019.

The decrease otherwise reflects the effects of COVID-19, with significant declines in room demand.

For the three and six months ended June 30, 2020 , average occupancy fell 62% and 40% , respectively, compared to the same period last year, to 30.2% and 44.4% , respectively.

This was further compounded by lower ADR, resulting in a decrease in RevPAR of 72% and 47% for the three and six months ended June 30, 2020 , respectively, compared to the same periods last year.

Notwithstanding the overall negative results for the second quarter of 2020, operations have recovered from the trough in April 2020, with NOI before FF&E Reserve turning a slight positive in June 2020, as illustrated below.

Improvements in occupancy from 21.8% in April 2020 to 39.1% in June 2020 was driven by extended stay demand and also weekend leisure demand, while demand from corporate business travel remains muted.

Second Quarter 2020

($ in thousands)

Average occupancy

NOI before FF&E Reserve

Efforts to Mitigate Effects of COVID-19 on our Hospitality Segment and THL Hotel Portfolio in Other Equity and Debt Segment

Through the date of this filing, all except for one of our hotels are operating, but at significantly reduced levels;

however, we may determine or be required to temporarily suspend operations at some or all of our hotels in the future.

Through the date of this filing, all of our hotels are operating, but at significantly reduced levels;

however, we may decide or be required to temporarily suspend operations at some or all of our hotels in the future.

Operating Performance

The fallout from COVID-19 began to negatively affect room demand and occupancy in March 2020 and we expect the impact on our revenues and operating cash flows will be even more significant in future periods beginning April 2020.

Same store occupancy for our hospitality segment and the THL Hotel Portfolio was 41.4% and 44.7%, respectively, for the month of March 2020 compared to 77.1% and 73.0%, respectively, for the month of March 2019.

The fallout from COVID-19 began to negatively affect room demand and occupancy in March 2020, with significant effects on our revenues and operating cash flows beginning April 2020, as discussed above.

In order to conserve capital and improve liquidity:

We have taken various steps to minimize operating expenses, including reduction of services, closure of amenities and floor spaces, and keeping only essential resources on the ground, with our hotel operators having furloughed a substantial number of personnel.

We will be deferring all non-essential capital expenditures in 2020 of approximately $85 million for our hospitality segment and $10 million for our THL Hotel Portfolio, which will provide notable cost savings in the near term.

We did not make the April 2020 and/or May 2020 debt service payment on a combined $3.16 billion of outstanding principal in our hospitality segment and the THL Hotel Portfolio.

In May 2020, the Company received a notice of acceleration with respect to $780.0 million of defaulted debt in the hospitality segment.

We are in active negotiations with the respective lenders to seek various relief, including executing or extending interest forbearance, temporary use of FF&E and other capital expenditure reserves ($58.0 million in our hospitality segment and $2.2 million in the THL Hotel Portfolio as of March 31, 2020 ) to fund interest payments and hotel operations, and execution of debt modifications, including extension of upcoming maturities in 2020, or seek other accommodations.

The remaining $346.7 million of debt principal in our hospitality segment was not in default.

There can be no assurance that the Company will be successful in any of the negotiations with its lenders .

We have taken various steps to minimize non-essential operating expenses, including where applicable, reduction of services, closure of amenities and floor spaces, and keeping only essential resources on the ground, with our hotel operators having furloughed a substantial number of personnel.

We are deferring all non-essential capital expenditures in 2020 of approximately $85 million for our hospitality segment and $10 million for our THL Hotel Portfolio, which will provide notable cost savings in the near term.

Following the onset of the COVID-19 crisis, we have not made certain debt service payments on our non-recourse debt.

Through the date of this filing, we have successfully executed interest forbearance on some of our debt, after which a remaining combined total of $3.03 billion is in default in our hospitality segment and the THL Hotel Portfolio.

The remaining $482.4 million of debt in our hospitality segment was not in default as of the date of this filing.

We have received notices of acceleration with respect to defaulted debt of $780.0 million in our hospitality segment and $842.7 million related to the THL Hotel Portfolio.

The $780.0 million accelerated debt in the hospitality segment is secured by a portfolio of 48 select service and extended stay hotels, and receivers have been or are expected to be appointed for all of these assets.

In connection with the remaining defaulted debt, we continue to engage in active negotiations with the respective lenders or servicers to seek various relief, including executing or extending interest forbearance, temporary use of FF&E and other capital expenditure reserves to fund interest payments and hotel operations (such reserves total $35.1 million in our hospitality segment as of June 30, 2020 ), and execution of debt modifications, including extension of upcoming maturities in 2020, or make other arrangements, as appropriate.

There can be no assurance that we will be successful in any of the negotiations with our lenders or servicers.

Due to uncertainties as to the duration and severity of the economic fallout from COVID-19, at this time, we are unable to estimate with any meaningful precision the extent of the economic and financial impact of COVID-19 to our hospitality business and operations, and how prolonged the impact would be.

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Colony Credit Real Estate, Inc.

At March 31, 2020 , we have a 36.5% interest (on a fully diluted basis) in CLNC with a carrying value of $666.1 million .

Our carrying value in CLNC decreased $59.4 million in the first quarter of 2020, resulting primarily from dividends received, as well as our share of CLNC's loan loss provisions and unrealized losses on investments carried at fair value.

Our share of net loss from CLNC was $10.1 million , inclusive of an adjustment of $19.2 million to reduce the basis difference allocated to non-strategic assets resolved during the first quarter of 2020 (see Note 6 to the consolidated financial statements).

The following table summarizes our ownership interest (on a fully diluted basis) and carrying value in CLNC.

(In thousands, except %)

June 30, 2020

December 31, 2019

Ownership in CLNC

Number of shares of common stock and units in CLNC's operating subsidiary

Carrying value of CLNC investment

Our carrying value in CLNC reflects its market value as of June 30, 2020 .

The $388.9 million decrease in carrying value in the first six months of 2020 resulted from an impairment charge recorded in the second quarter of 2020, our share of CLNC's net loss, and dividends received in the first quarter of 2020.

Our equity method loss from CLNC is as follows.

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands)

Equity method loss

Share of CLNC's net loss

Other-than-temporary impairment

Our share of CLNC's net loss was net of $8.7 million and $27.9 million to reduce the basis difference allocated to non-strategic assets resolved during the three and six months ended June 30, 2020 , respectively (Note 6 to the consolidated financial statements).

CLNC's net loss was driven by allowance for loan losses, impairment or unrealized fair value losses on investments, and realized losses from sale of investments and unwinding of hedge positions, further affected by COVID-19 in 2020 .

Other-Than-Temporary Impairment Assessment

At March 31, 2020 , the carrying value of the Company's investment in CLNC of $666.1 million was in excess of its fair value of $188.9 million based upon the closing stock price of CLNC at $3.94 per share on March 31, 2020 .

The Company determined that its investment in CLNC as of March 31, 2020 was not other-than-temporarily impaired.

There was a notable decrease in CLNC's stock price in March 2020, which was reflective of the significant volatility in equity markets and significant decline in equity prices as a whole in response to the COVID-19 crisis.

There was no large disparity, however, between the Company's carrying value in CLNC and CLNC's internal estimated NAV as of March 31, 2020.

The Company believes that, over the long term, the equity markets at large as well as CLNC's stock will not sustain the losses experienced in March 2020.

The Company considered that at this time, it has both the intent and the ability to hold its investment in CLNC for a period of time that it believes would be sufficient to allow for an anticipated recovery in market value.

Given the uncertainty over how prolonged the economic fallout from COVID-19 will affect financial markets and global economies, the Company will continue to reassess the recoverability of its investment in CLNC as circumstances evolve, which may result in the recognition of an other-than-temporary impairment in the future.

In the second quarter of 2020, the Company determined that its investment in CLNC was other-than-temporarily impaired, and recorded an impairment charge of $274.7 million , measured as the excess of carrying value over market value of its investment in CLNC based upon CLNC's closing stock price on the last trading day of the quarter of $7.02 per share on June 30, 2020 .

Refer to further discussion of the impairment on our CLNC investment in Note 6 to the consolidated financial statements.

CLNC Business Update

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Mazzei brings 35 years of experience, knowledge of navigating through cycles, and strong executive leadership in the commercial real estate finance and mortgage REIT business.

In an effort to conserve available liquidity, CLNC has suspended its monthly stock dividend beginning April 2020, a move that is in line with other mortgage REITs.

Following the onset of the COVID-19 crisis, CLNC suspended its monthly stock dividend beginning April 2020 in an effort to conserve available liquidity, a move that is in line with many other mortgage REITs.

In the second quarter of 2020, CLNC executed on a number of strategic initiatives that generated additional liquidity while reducing recourse financing to further fortify its balance sheet under the current challenging economic environment.

Other Equity and Debt

3 unchanged sentences

(In thousands)

March 31, 2020

June 30, 2020

December 31, 2019

10 unchanged sentences

Our other equity and debt segment generated the following results of operations:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands)

Total revenues

Net income (loss)

Net income (loss) attributable to Colony Capital, Inc.

Net income has decreased over time as we continued to monetize our other equity and debt portfolio in 2019, and also reflects the impact of COVID-19 in March 2020 on the operating results of our THL Hotel Portfolio, as discussed in

" —Results of Operations.

" We recorded net loss attributable to the Company in the first quarter of 2020 as a result of disproportionate allocation of net income to noncontrolling interests at the investment level.

Net income from the other equity and debt segment has decreased over time as we monetized our other equity and debt portfolio throughout 2019, and also reflects the effects of COVID-19 on the operating results of the THL Hotel Portfolio in 2020.

However, the large net loss in 2020 resulted primarily from (i) significant unrealized losses on loans receivable carried at fair value;

and (ii) real estate impairment, in particular on the THL Hotel Portfolio and a U.S.

net lease property.

Refer to further discussion in " —Results of Operations.

Generally, in 2020, we expect a slower pace of dispositions given the current global economic downturn resulting from efforts to contain COVID-19;

nevertheless, we do intend to accelerate the sale of these non-core assets where reasonable values can be attained.

Most recently, in April 2020, we recapitalized an investment in the other equity and debt segment which generated $72.7 million of proceeds and resulted in a gain.

In terms of the effects of COVID-19, the impact has been significant to the THL Hotel Portfolio in our other equity and debt segment, as discussed within the Hospitality segment above.

Most recently, in April 2020, we recapitalized a co-investment venture which holds common equity in the Albertsons supermarket chain, generating $72.7 million of proceeds to us and realizing our share of gain of $29.7 million.

In connection with the THL Hotel Portfolio, operations have recovered from the trough in April 2020 when we recorded negative NOI before FF&E with average occupancy at 25%.

Beginning in May, NOI before FF&E has turned positive with average occupancy recovering to 48% in June, and this positive trend has continued into July.

A discussion of our efforts to mitigate the effects of COVID-19 on the THL Hotel Portfolio is included within the Hospitality segment above.

Other Investment Management

This segment, which is separate from the digital investment management business that resides in the digital segment, encompasses the Company’s management of private real estate credit funds and related co-investment vehicles, CLNC, a public non-traded healthcare REIT and interests in other investment management platforms, among other smaller investment funds.

This segment, which is separate from the digital investment management business that resides in the digital segment, encompasses primarily the Company’s management of private real estate credit funds and related co-investment vehicles, CLNC, and NorthStar Healthcare, a public non-traded healthcare REIT.

As part of the Company’s ongoing transition and rotation to an investment management and operating business focused on digital real estate and infrastructure, the Company continues to pivot away from certain of its legacy investment management business.

In light of the current economic conditions, the Company has postponed any decision on a disposition of its management contract with CLNC until such time that market conditions improve.

Further, with respect to the other non-digital investment management business, the Company is exploring all potential opportunities to maximize value of the credit and opportunity fund investment management business, while minimizing balance sheet capital commitments, including, but not limited to, joint ventures with third party capital providers, sales and/or realignment of operational management.

Balance Sheet

Equity investments on the balance sheet of our other investment management segment totaling $27.8 million at March 31, 2020 and $140.0 million at December 31, 2019 generally consist of our general partner and co-general partner interests in non-digital investment vehicles we sponsor or co-sponsor, and included unrealized carried interest of $3.3 million and $21.9 million, respectively, as well as interests in other real estate asset managers.

Balance Sheet Information

Equity investments on the balance sheet of our other investment management segment totaling $23.6 million at June 30, 2020 and $140.0 million at December 31, 2019 generally consist of our general partner and co-general partner interests in non-digital investment vehicles we sponsor or co-sponsor, and interests in other real estate asset managers.

Operating Performance

Results of operations of our other investment management segment are as follows.

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands)

Total revenues (1)

Net income attributable to Colony Capital, Inc.

Includes cost reimbursement income from CLNC, NRE (prior to its sale in September 2019) and retail companies of $3.5 million and $3.4 million for the three months ended March 31, 2020 and 2019 , respectively, which are recorded gross as income and expense in the results of operations.

Net income decreased $1.7 million .

We recognized a $96.9 million gain, net of tax, from the sale of our equity investment in RXR Realty in February 2020;

however, this was largely offset by $79.0 million of goodwill impairment, and a reversal of $9.2 million carried interest allocation, net of compensation, and $6.5 million decrease in fee income, as discussed further in " —Results of Operations.

Net income (loss)

Net income (loss) attributable to Colony Capital, Inc.

Includes cost reimbursement income from CLNC, NRE (prior to its sale in September 2019) and retail companies of $2.9 million and $3.4 million for the three months ended June 30, 2020 and 2019 , respectively, $6.4 million and $6.7 million for the six months ended June 30, 2020 and 2019 , which are recorded gross as income and expense in the results of operations.

Significant net losses were incurred in 2020.

While we recognized a $96.9 million gain, net of tax, from the sale of our equity investment in RXR Realty in February 2020, this was offset by significant goodwill impairment of $79.0 million and $515.0 million in the first and second quarters of 2020, respectively, a reversal of carried interest allocation and decrease in fee income.

Refer to discussion of the various components in " —Results of Operations.

Non-GAAP Supplemental Financial Measures

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The Company also reports EBITDA re for the digital real estate segment, NOI for the healthcare segment and NOI Before FF&E Reserve for the hospitality segment, which are supplemental non-GAAP financial measures widely used in the equity REIT industry.

of the availability of funds for our cash needs, including funds available to make distributions.

These non-GAAP measures should not be considered alternatives to GAAP net income as indications of operating performance, or to cash flows from operating activities as measures of liquidity, nor as indications of the availability of funds for our cash needs, including funds available to make distributions.

Our calculation of FFO, EBITDA re and NOI may differ from methodologies utilized by other REITs for similar performance measurements, and, accordingly, may not be comparable to those of other REITs.

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Amounts in the table include our share of activity in unconsolidated ventures.

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands)

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Impairment of real estate

Gain on sales of real estate

Loss (gain) on sales of real estate

Adjustments attributable to noncontrolling interests in investment entities (1)

FFO attributable to common interests in Operating Company and common stockholders

For the three months ended March 31, 2020 and 2019 , adjustments attributable to noncontrolling interests in investment entities include $47.7 million and $51.8 million of real estate depreciation and amortization, $40.1 million and $14.2 million of impairment of real estate, offset by $5.5 million and $30.7 million of gain on sales of real estate, respectively.

The components of adjustments attributable to noncontrolling interests in investment entities for FFO are as follows:

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands)

FFO adjustments attributable to noncontrolling interests in investment entities:

Real estate depreciation and amortization

Impairment of real estate

Loss (gain) on sales of real estate

We calculate EBITDA re for our digital real estate segment in accordance with standards established by NAREIT, which defines EBITDA re as net income or loss calculated in accordance with GAAP, excluding (i) interest expense;

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and (ii) amortization of acquired above- and below-market lease adjustments to rental income, where applicable.

For our hospitality segment, NOI does not reflect the reserve contributions to fund certain capital expenditures, repair, replacement and refurbishment of furniture, fixtures, and equipment, based on a percentage of revenues, typically 4% to 5%, that is required under certain debt agreements and/or franchise and brand-managed hotel agreements.

For our hospitality segment, NOI does not reflect the reserve contributions to fund certain capital expenditures, repair, replacement and refurbishment of furniture, fixtures, and equipment, based on a percentage of hotel revenues, typically 4% to 5%, that is required under certain debt agreements and/or franchise and brand-managed hotel agreements.

We believe that NOI is a useful measure of operating performance of our healthcare and hospitality portfolios as it is more closely linked to the direct results of operations at the property level.

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However, the exclusion of these items as well as others, such as capital expenditures, FF&E reserve and leasing costs, which are necessary to maintain the operating performance of our properties, and transaction costs and administrative costs, may limit the usefulness of NOI.

Reconciliation of Non-GAAP Financial Measures

The following tables present reconciliations of net loss of the digital real estate segment to EBITDA re , and net loss of the healthcare and hospitality segments to NOI.

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Hospitality (1)

Three Months Ended March 31, 2020

Three Months Ended March 31,

Three Months Ended June 30, 2020

Three Months Ended June 30,

(In thousands)

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EBITDA re / NOI / NOI before FF&E Reserve

NOI for the hospitality segment excludes FF&E Reserve which is determined based on a percentage of revenues.

Digital Real Estate

Hospitality (1)

Six Months Ended June 30, 2020

Six Months Ended June 30,

(In thousands)

Straight-line rent and amortization of above- and below-market lease intangibles and ground lease asset

Interest income

Interest expense

Transaction, investment and servicing costs

Depreciation and amortization

Impairment loss

Compensation and administrative expense

Gain on sale of real estate

Other (gain) loss, net

Income tax (benefit) expense

EBITDAre / NOI / NOI before FF&E Reserve

NOI for the hospitality segment excludes FF&E Reserve which is determined based on a percentage of hotel revenues.

Liquidity and Capital Resources

Second Quarter 2020 Update

We have substantially addressed our near-term corporate maturity obligations and have enhanced our long-term capital structure and liquidity profile through (i) the June 2020 amendment of our corporate credit facility which right-sizes availability and provides enhanced financial flexibility;

and (ii) issuance of $300 million of exchangeable notes by the OP and concurrent repurchase of $290 million of convertible notes due in January 2021 which allowed us to reduce our near term maturity obligations while also preserving $300 million of liquidity.

As of August 5, 2020, our liquidity position was approximately $0.9 billion, composed of cash on hand and the full $500 million available under our corporate credit facility.

Cash on hand included $252 million of final net proceeds from Wafra's minority investment in our digital investment management business, which provides us with permanent capital for growing our digital business.

None of our investment level financing are recourse to the Company, and instead are secured by underlying commercial real estate or mortgage loans receivable.

Generally, we do not apply corporate level cash to service investment level debt.

Additionally, we have begun executing a new cost reduction program that has to-date addressed annual run-rate cost savings of approximately $38 million, mostly from headcount and compensation related cost reductions.

While the Company is in compliance with its corporate debt covenants and currently has sufficient liquidity to meet its operational needs, general concerns over credit and liquidity continue to permeate the financial markets in an economic downturn environment.

The Company continues to evaluate opportunities to maintain and strengthen its liquidity position through the current economic recession.

Liquidity Needs and Sources of Liquidity

Our current primary liquidity needs are to fund:

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our operations, including compensation, administrative and overhead costs;

capital expenditures for our traditional commercial real estate and digital real estate investments;

distributions to our common and preferred stockholders;

acquisitions of common stock under our common stock repurchase program and potentially other corporate securities;

capital expenditures for our non-digital and digital real estate investments;

distributions to our common and preferred stockholders (to the extent distributions have not been temporarily suspended);

income tax liabilities of taxable REIT subsidiaries and of the Company subject to limitations as a REIT.

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cash on hand;

our credit facilities;

our corporate revolving credit facility;

cash flow generated from our investments, both from operations and return of capital;

fees received from our investment management business, including incentive payments and carried interest;

proceeds from full or partial realization of investments and/or businesses;

fees received from our investment management business, including incentive or carried interest payments, if any;

proceeds from full or partial realization of investments and/or businesses, particularly from investments in the Other Equity and Debt segment;

investment-level financing;

proceeds from public or private equity and debt offerings;

third party capital commitments of sponsored investment vehicles.

third party co-investors in our consolidated investments and/or businesses.

Distribution requirements imposed on us to qualify as a REIT generally require that we distribute to our stockholders 90% of our taxable income, which constrains our ability to accumulate operating cash flows.

Through the date of this filing, our liquidity position was approximately $1.0 billion, including the $600 million drawn under our revolving credit facility.

In order to mitigate the effects of COVID-19 on the Company's legacy business, we are taking various steps with a principal focus on enhancing the Company’s liquidity and financial flexibility, as discussed in “— Business ” above.

While the Company is currently in compliance with the debt covenants under its corporate credit facility and anticipates having sufficient liquidity to meet its operational needs, general concerns over credit and liquidity continue to permeate the financial markets in an economic downturn environment.

The Company continues to evaluate opportunities to address near-term maturities and enhance its long-term capital structure and liquidity profile including, but not limited to, asset sales and re-financings, issuance of new securities, modifications and/or extensions to existing credit agreements.

General discussion of our liquidity needs and sources of liquidity are presented below.

Liquidity Needs

Our commitments in connection with our investment activities and other activities are described in "—Contractual Obligations, Commitments and Contingencies."

Investment Commitments

Our share of commitments in connection with our investment activities as of June 30, 2020 include the following:

$38 million of lending commitments to borrowers (subsequent to June 30, 2020 , we no longer have funding obligations on $6 million of previously outstanding lending commitments pursuant to an agreement with the borrower);

$50 million to joint venture investments, including ADC loan arrangements accounted for as equity method investments;

$229 million of remaining capital commitments to Company sponsored and third party sponsored funds, of which $135 million is for DCP, our inaugural fund dedicated to a digital strategy.

Generally, we expect to fund our investment commitments through cash on hand and/or proceeds from future asset monetization.

As it relates to our commitment to DCP, our original commitment totals $250 million, of which we have funded $115 million through June 30, 2020 .

In connection with our strategic partnership with Wafra, Wafra is expected to assume $80 million of our total commitment to DCP.

The Wafra transaction is described in more detail in Note 24 to the consolidated financial statements.

federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its net taxable income.

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If our cash available for distribution is less than our net taxable income, we may be required to sell assets or borrow funds to make cash distributions or we may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities.

Common Stock —Our board of directors declared the following dividends through May 2020 .

The Company is suspending the dividend on its class A common stock for the second quarter of 2020 as the board of directors and management believe it is prudent to conserve cash during the current period of uncertainty.

Our board of directors will also be re-evaluating the go-forward dividend policy to align with our ongoing pivot to digital infrastructure.

Declaration Date

Dividend Per Share

February 19, 2020

March 31, 2020

April 15, 2020

Common Stock —Our board of directors declared a dividend of $0.11 per share of common stock for the first quarter of 2020.

The Company suspended dividends on its class A common stock beginning with the second quarter of 2020.

Under the terms of the Company's amended credit facility, the Company is restricted from paying common dividends other than to maintain the Company’s status as a REIT or to reduce income tax payments.

The Company will continue to monitor its financial performance and liquidity position, and as economic conditions improve, the Company will reevaluate its dividend policy in consultation with its revolver lending group.

Preferred Stock— We are required to make quarterly cash distributions on our outstanding preferred stock, with a weighted average dividend rate of 7.16% per annum, as follows.

In January 2020, we settled the redemption of our Series B and E preferred stock for $402.9 million using proceeds from our industrial sale, which will reduce our annual dividends by approximately $34.5 million.

In May 2020, the Company's board of directors elected to defer the declaration of a dividend on its preferred stock until June 30, 2020, subject to its assessment of the effects of COVID-19 .

Shares Outstanding

March 31, 2020

June 30, 2020

(In thousands)

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(In thousands)

In June 2020, the Board declared dividends on all series of preferred stock for the second quarter of 2020, which was paid in July 2020.

In August 2020, the Board declared dividends on all series of preferred stock for the third quarter of 2020.

Sources of Liquidity

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We primarily generate revenue from net operating income of our real estate properties.

We also generate interest income from commercial real estate related loans and securities as well as receive periodic distributions from some of our equity investments, including

our GP co-investments.

Such income is partially offset by interest expense associated with borrowings on our investments.

Additionally, we generate fee revenue from our investment management segment through the management of various types of investment products, including both institutional and retail capital.

We also generate interest income from commercial real estate related loans and securities as well as receive periodic distributions from our equity investments, including our GP co-investments.

Such income is partially offset by interest expense associated with non-recourse borrowings on our investments.

Additionally, we generate fee revenue from our investment management business.

Management fee income is generally a predictable and stable revenue stream, while carried interest and contractual incentive fees are by nature less predictable in amount and timing.

Our ability to establish new investment vehicles and raise investor capital depends on general market conditions and availability of attractive investment opportunities as well as availability of debt capital.

Following the onset of COVID-19, our hotel properties in the hospitality segment incurred negative operating cash flows in April and May 2020, recovering to a slight positive operating cash flow in June 2020.

As discussed in " —Segment Results—Hospitality", we have taken various steps to minimize operating expenses, as appropriate, in order to minimize operating cash needs.

At this time, we do not anticipate allocating material amounts of the Company's own capital to our hospitality portfolios, but may elect to contribute capital on a limited basis, where we determine it would be meaningful to protect the value of these portfolios.

Asset Monetization

We periodically monetize our investments through asset sales that are opportunistic in nature or to recycle capital from non-core assets.

In December 2019, we sold our light industrial portfolio, including its associated management platform, and received net proceeds of $1.2 billion .

We have applied a portion of the proceeds into the acquisition of DataBank in December 2019, payoff of the outstanding balance on our corporate credit facility that was used to finance our acquisition of DBH, fund our remaining commitments to DCP, and redemption of preferred stock.

We continue to seek opportunities to redeploy the proceeds into new digital investments, including general partner co-investments, permanent balance sheet investments and warehouse investments for future vehicles , as well as for our capital structure enhancement and other uses.

Investment-Level Financing

We have various forms of investment-level financing, as described in Note 10 to the consolidated financial statements.

Our ability to raise and access third party capital in our sponsored investment vehicles allows us to scale our investment activities by pooling capital to access larger transactions and diversify our investment exposure.

We periodically monetize our investments through asset sales that are opportunistic in nature or to recycle capital from non-core assets, in particular, assets in our other equity and debt segment.

Generally, in 2020, we expect a slower pace of dispositions given the current global economic downturn;

nevertheless, we do intend to accelerate the sale of these non-core assets where reasonable values can be attained.

Non-Recourse Investment-Level Financing

We have various forms of investment-level financing across our digital real estate, healthcare, hospitality and other equity and debt segments, which are non-recourse to the Company, as described in more detail in Note 10 to the consolidated financial statements.

As discussed in " —Segment Results—Hospitality," in order to minimize cash needs, we did not make debt service payments on non-recourse debt financing our hotel properties, which resulted in the default of a combined $3.03 billion of debt in our hospitality segment and the THL Hotel Portfolio in the other equity and debt segment.

We continue to engage in active negotiations with the respective lenders or servicers to seek various relief.

We have not and do not intend to apply corporate level cash to service investment level debt.

As noted, the defaulted debt is non-recourse to the Company.

Corporate Credit Facility

As described in Note 10 to the consolidated financial statements, the Credit Agreement provides a secured revolving credit facility in the maximum principal amount of $750 million , which may be increased to a maximum capacity of $1.125 billion , subject to customary conditions.

The credit facility is scheduled to mature in January 2021 , with two 6 -month extension options.

While we expect to extend the term of the corporate credit facility, further deterioration in the markets and our operating performance may limit our ability to extend the facility on its current terms including, without limitation, the borrowing base capacity.

As described in Note 10 to the consolidated financial statements, the Credit Agreement was amended on June 29, 2020, which reduced aggregate revolving commitments from $750 million to $500 million and increased the interest rate on borrowings from LIBOR plus 2.25% to LIBOR plus 2.5% per annum.

The amended terms provide for greater financial covenant flexibility and more borrowing base credit for digital investments.

The credit facility is still scheduled to expire in

January 2021, with two 6-month extension options.

During the extension term(s), the interest rate would increase by 0.25%, and effective March 31, 2021, credit availability would be reduced to $400 million .

The maximum amount available at any time is limited by a borrowing base of certain investment assets.

As of the date of this filing, we have drawn $600 million of the approximately $700 million available under the credit facility.

The Credit Agreement contains various affirmative and negative covenants, including financial covenants that require the Company to maintain minimum tangible net worth, liquidity levels and financial ratios, as defined in the Credit Agreement.

Through the date of this filing, we were in compliance with the financial covenants.

Other Corporate Level Debt

We have total outstanding principal of $616 million and $280 million on our convertible and exchangeable senior notes, and junior subordinated debt, respectively, with weighted average interest rates of 4.27% and 4.31% , respectively, at March 31, 2020 , as described in Note 10 to the consolidated financial statements.

We expect to address the January 2021 maturity of our outstanding $402.5 million convertible notes through cash on hand, proceeds from future asset monetization and/or a refinancing transaction.

As of the date of this filing, the full $500 million is available to be drawn under the credit facility.

Additionally, through the date of this filing, we are in compliance with all financial covenants under the credit facility.

Convertible and Exchangeable Notes

In July 2020, the OP issued $300.0 million of exchangeable notes with maturity in July 2025 and bearing interest at 5.75% per annum.

Net proceeds from this issuance of $291.0 million was applied to repurchase $289.7 million of the outstanding principal of the 3.875% convertible notes for total purchase price of $289.2 million , including accrued interest.

As of the date of this filing, we have total outstanding principal of $626.4 million on our convertible and exchangeable senior notes, with a weighted average of 3.6 years remaining to maturity, and bearing weighted average interest of 5.16% per annum.

Junior Subordinated Debt

Our junior subordinated debt represents an obligation of a subsidiary of the OP that holds healthcare, hospitality and other non-core assets, as described in more detail in Note 10 to the consolidated financial statements.

Colony Capital, Inc.

and its operating company, Colony Capital Operating Company, LLC, are not guarantors on the junior subordinated debt.

As of June 30, 2020 , we have total outstanding principal of $280 million on our junior subordinated debt, with a weighted average of 15.9 years remaining to maturity, and bearing weighted average interest rates of 3.17% .

Public Offerings

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These securities may be issued from time to time at our discretion based on our needs and depending upon market conditions and available pricing.

There were no public offerings of securities in the three months ended March 31, 2020 .

There are no planned public offerings of securities at this time.

The following table summarizes our cash flow activity for the periods presented.

Three Months Ended March 31,

Six Months Ended June 30,

(In thousands)

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This is partially offset by payment of operating expenses supporting our various lines of business, including property management and operations, loan servicing and workout of loans in default, investment transaction costs, as well as compensation and general administrative costs.

Our operating activities generated net cash outflows of $59.7 million compared to net cash inflows of $66.6 million in the three months ended March 31, 2020 and 2019 , respectively.

The three months ended March 31, 2019 had included $41.8 million of operating cash inflows from our industrial business, which was sold in December 2019.

The digital real estate business that was acquired in December 2019 is a much smaller portfolio in comparison.

The three months ended March 31, 2020 included the payment of $39.9 million of accrued carried interest compensation in connection with carried interest realized from the sale of our light industrial portfolio in December 2019.

Our operating activities generated net cash inflows of $42.3 million compared to $139.2 million in the six months ended June 30, 2020 and 2019 , respectively.

This can be attributed in part to operating cash flows in connection with our industrial business that was sold in December 2019.

Specifically, the six months ended June 30, 2019 had included $95.1 million of operating cash inflows from our industrial business.

The digital real estate business that was acquired in December 2019 using proceeds from the industrial sale is a much smaller portfolio, thereby contributing less operating cash flows in comparison.

In contrast, the six months ended June 30, 2020 included the payment of $39.9 million of accrued carried interest compensation in connection with carried interest realized from the sale of our light industrial portfolio.

Additionally, operating cash flows were negatively affected by the fallout from COVID-19 in the second quarter of 2020, particularly in our hospitality and healthcare business, as discussed in " —Segment Results.

Investing Activities

Investing activities include cash outlays for acquisition of real estate, disbursements on new and/or existing loans, and contributions to unconsolidated ventures, which are partially offset by repayments and sales of loans receivable, distributions of capital received from unconsolidated ventures, proceeds from sale of real estate and equity investments, as well as proceeds from maturity or sale of debt securities.

Our investing activities generated net cash inflows of $166.9 million compared to net cash outflows of $925.0 million in the three months ended March 31, 2020 and 2019 , respectively.

The significant net cash outflows in the three months ended March 31, 2019 was driven by outflows of $973.1 million for acquisition, net of sales, of real estate;

Our investing activities generated net cash inflows of $114.6 million compared to net cash outflows of $858.2 million in the six months ended June 30, 2020 and 2019 , respectively.

Real estate investments —The significant net cash outflows in the six months ended June 30, 2019 was driven by outflows of $1.1 billion for acquisition, net of sales, of real estate;

in particular, acquisition of a combined $1.1 billion light and bulk industrial portfolio in February 2019.

Our entire light industrial portfolio was sold in December 2019.

By contrast, our real estate investment activities in the three months ended March 31, 2020 generated net cash inflows of $48.5 million from sales of real estate with no new acquisitions.

Another significant contributor of net cash inflows in the three months ended March 31, 2020 was $133.6 million from our equity investments, driven by $179.1 million net proceeds from sale of our investment in RXR Realty in February 2020.

In the three months ended March 31, 2019 , we had net cash outflows of $63.5 million related to equity investments, primarily in net equity contributions.

Lastly, our loan and securities portfolio generated net cash outflows of $13.1 million in the three months ended March 31, 2020 compared to net cash inflows of $92.2 million in the three months ended March 31, 2019 when loan repayments outpaced loan disbursements.

In contrast, our real estate investment activities in the six months ended June 30, 2020 generated net cash inflows of $38.1 million from sales, net of acquisitions.

Equity investments —Another significant contributor of net cash inflows in the six months ended June 30, 2020 was $203.7 million from our equity investments, driven by $179.1 million net proceeds from sale of our investment in RXR Realty in February 2020 and $87.4 million from recapitalization of our joint venture investment in Albertsons in April 2020, representing amounts recognized as return of investment.

In the six months ended June 30, 2019 , we had net cash inflows of $30.2 million from equity investments, primarily proceeds from sales.

Debt investments —Lastly, our loan and securities portfolio generated net cash outflows of $116.8 million in the six months ended June 30, 2020 compared to net cash inflows of $230.8 million in the six months ended June 30, 2019 when loan repayments outpaced loan disbursements.

Financing Activities

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Accordingly, we incur cash outlays for payments on our investment-level and corporate debt, dividends to our preferred and common stockholders, as well as distributions to our noncontrolling interests.

Financing activities generated net cash inflows of $4.9 million and $676.7 million in the three months ended March 31, 2020 and 2019 .

The significant net financing cash inflows in the three months ended March 31, 2019 were driven by borrowings exceeding debt repayments by $654.8 million , specifically $735 million of borrowings to fund a large industrial portfolio acquisition in February 2019, a majority of which was sold in December 2019.

While borrowings exceeded debt repayments in the three months ended March 31, 2020 by $496.2 million , primarily due to a $600 million draw on our corporate credit facility, we also settled the redemption of our Series B and E preferred stock for $402.9 million in January 2020 using proceeds from our industrial sale.

Common stock repurchases were also higher in the three months ended March 31, 2020 totaling 12.7 million shares for $24.7 million compared to 0.7 million shares for $10.7 million in the three months ended March 31, 2019 .

Additionally, net contributions from noncontrolling interests of $117.3 million contributed to overall net cash inflows in the three months ended March 31, 2019 , with $213.2 million of third party capital raised in the industrial platform.

In the three months ended March 31, 2020 , net contributions from noncontrolling interests was much lower at $18.8 million .

Financing activities generated net cash outflows of $329.5 million compared to net cash inflows of $579.7 million in the six months ended June 30, 2020 and 2019 , respectively.

The significant net cash inflows in the six months ended June 30, 2019 was driven by borrowings exceeding debt repayments by $660.3 million , specifically $735 million of borrowings to fund a large industrial portfolio acquisition in February 2019, a majority of which was sold in December 2019.

While borrowings exceeded debt repayments in the six months ended June 30, 2020 by $224.8 million , primarily due to a net draw of $400 million on our corporate credit facility, we also settled the December 2019 redemption of our Series B and E preferred stock for $402.9 million in January 2020 using proceeds from our industrial sale.

Cash outflows for common stock repurchases were also higher in the six months ended June 30, 2020 totaling $24.7 million compared to $10.7 million in the six months ended June 30, 2019 .

Additionally, net contributions from noncontrolling interests of $97.1 million contributed to overall net cash inflows in the six months ended June 30, 2019 , while net contributions from noncontrolling interests was much lower at $28.4 million in the six months ended June 30, 2020 .

Contractual Obligations, Commitments and Contingencies

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis