What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-09 compared with 2020-08-10 · 788 added, 680 removed, 489 unchanged (75% of the section changed)

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The following discussion should be read in conjunction with our unaudited consolidated financial statements and accompanying notes thereto, which are included in Item 1 of this Quarterly Report, as well as information contained in our Annual Report on Form 10-K for the year ended December 31, 2019, which is accessible on the SEC's website at www.sec.gov .

We are a global investment firm with a focus on becoming the leading digital real estate provider and funding source for the occupancy, infrastructure, equity and credit needs of the world’s mobile communications and data-driven companies.

We are headquartered in Los Angeles, with key offices in Boca Raton, New York, Paris and London, and have over 350 employees across 20 locations in 12 countries.

We are a leading global investment firm with a focus on identifying and capitalizing on key secular trends in digital real estate.

We are headquartered in Los Angeles, with key offices in Boca Raton, New York and London, and have over 350 employees across 20 locations in 12 countries.

We were organized on May 31, 2016 as a Maryland corporation, and were formed through a tri-party merger (the "Merger") among Colony Capital, Inc.

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

At September 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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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.

(collectively, "DataBank"), a leading provider of enterprise-class data center, cloud, and connectivity services, (b) a 70% interest in a portfolio of 357 healthcare properties, (c) a 97% interest in a portfolio of 157 hospitality properties, (d) a 36.4% interest in Colony Credit Real Estate, Inc.

CLNC), and (e) interests in various other equity and debt investments, including general partner (“GP”) interests in funds sponsored by the Company, commercial real estate equity and debt investments and other real estate related securities.

The Company also owns and operates an investment management business with $16.3 billion of FEEUM, including $7.8 billion in digital real estate investments and the remainder in traditional commercial real estate debt and equity investments.

The Company continues to operate its non-digital business units to maximize cash flows and value over time.

The Company's six reportable segments are as follows:

Digital Real Estate and Investment Management ("Digital")— The Company's digital segment is composed of balance sheet equity interests in digital infrastructure and real estate;

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 .

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.

Healthcare— The Company's healthcare segment is composed of a diverse portfolio of senior housing, skilled nursing facilities, medical office buildings, and hospitals.

At September 30, 2020, the Company has $46.8 billion of assets under management, of which $23.3 billion is dedicated to digital real estate and infrastructure, managed on behalf of third party investors, and the Company's own balance sheet on behalf of its stockholders.

The Company's five reportable segments are as follows:

• Digital Investment Management ("Digital IM")— This business encompasses the investment and stewardship of third party capital in digital infrastructure and real estate.

The Company's flagship opportunistic strategy is conducted through DCP and separately capitalized vehicles while other strategies, including digital credit and public equities, will be or are conducted through other investment vehicles.

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

• Digital Operating— This business is composed of balance sheet equity interests in digital infrastructure and real estate operating companies, which generally earns rental income from providing use of space and/or capacity in or on digital assets through leases, services and other agreements.

The Company currently owns interests in two

companies, DataBank's edge colocation data centers and Vantage stabilized hyperscale data centers, which are also portfolio companies under Digital IM for the equity interests owned by third party capital.

• Digital Other— This segment is composed of equity interests in digital investment vehicles, the largest of which is the Company’s investment and commitment to DCP.

This segment also includes the Company’s investment and commitment to the digital liquid strategies and seed investments for future digital investment vehicles.

• Wellness Infrastructure (previously referred to as Healthcare)— This segment is composed of a diverse portfolio of senior housing, skilled nursing facilities, medical office buildings, and hospitals.

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

In addition, certain of the Company's senior housing properties are managed by operators under a RIDEA (REIT Investment Diversification and Empowerment Act) structure, which allows the Company to gain financial exposure to underlying operations of the facility in a tax efficient manner versus receiving contractual rent under a net lease arrangement.

Hospitality— The Company's hospitality segment is composed of primarily extended stay and select service hotels located mainly in major metropolitan and high-demand suburban markets in the U.S., with the majority affiliated with top hotel brands such as Marriott and Hilton.

CLNC — This segment is composed of our 36% interest in CLNC, an externally managed commercial real estate credit REIT.

CLNC is focused on originating, acquiring, financing and managing a diversified commercial real estate portfolio, consisting primarily of senior mortgage loans, mezzanine loans, preferred equity, debt securities and net leased properties predominantly in the United States.

Other Equity and Debt— This segment is composed of a diversified group of non-digital real estate and real estate-related debt and equity investments, including investments for which the Company acts as a general partner and/or manager ("GP co-investments") and receives various forms of investment management economics on related third-party capital on such investments, other real estate equity and debt investments and other real estate related securities, among other holdings.

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 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 .

• Other— This segment is composed of other equity and debt investments ("OED") and non-digital investment management business ("Other IM").

OED encompasses a diversified group of non-digital real estate and real estate-related equity and debt investments, including investments for which the Company acts as a general partner and/or manager ("GP co-investments") and receives various forms of investment management economics on related third-party capital on such investments (including CLNC), other real estate equity and debt investments and other real estate related securities, among other holdings.

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

Other IM, which is separate from Digital IM, encompasses 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.

Many of the investments underlying these vehicles are co-owned by the Company’s balance sheet and categorized under OED.

Acceleration of Digital Transformation and COVID-19 Considerations

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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.

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);

In particular, the Company's real estate investments in the hospitality, wellness infrastructure 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 wellness infrastructure 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;

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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).

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 non-digital real estate assets (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.

This digital transformation requires 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 wellness infrastructure 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.

As a result, significant impairment was recognized in the second quarter of 2020 on the

Company's hotel and wellness infrastructure assets.

In the third quarter of 2020, as the Company looks to exit its hospitality business through a sale of its hotel assets (as discussed further below), additional write-downs were recorded to align the hotel carrying values to the agreed upon selling price.

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.

The various impairment and fair value decreases as a result of the acceleration of the Company's digital transformation collectively accounted for $3.2 billion of charges in the nine months ended September 30, 2020, of which $2.5 billion was attributable to the OP.

These amounts are reflected within impairment loss, other loss, equity method losses and within impairment loss in discontinued operations 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 September 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.

While the Company will remain a REIT through 2020, in light of its strategy to accelerate the digital transformation, the Company will continue to evaluate whether to maintain REIT status beyond 2020.

Exit of the Hospitality Business

In September 2020, the Company entered into a definitive agreement with a third party to sell five of the six hotel portfolios in its Hospitality segment (the remaining portfolio is in receivership) and its 55.6% interest in the THL Hotel Portfolio in the Other segment (the remaining interests will continue to be held by investment vehicles managed by the Company), composed of 197 hotel properties in aggregate.

Two of the hotel portfolios that are being sold in the Hospitality segment are held through joint ventures in which the Company holds a 90% and a 97.5% interest, respectively.

The aggregate gross proceeds of $67.5 million, subject to certain adjustments as provided in the sale agreement, as amended, represents a transaction value of approximately $2.8 billion, with the acquirer's assumption of $2.7 billion of investment-level debt.

Consummation of the sale is subject to customary closing conditions, including but not limited to, acquirer’s assumption of the outstanding mortgage notes encumbering the hotel properties and third party approvals.

In October 2020, the parties amended the sale agreement to address certain payments made by the Company to lenders in order to cure certain defaults on the debt associated with a hotel portfolio, and, subject to the satisfaction of certain conditions, to provide the Company with a purchase price credit for a portion of such funded amount.The sale agreement provides that the closing will occur no earlier than January 15, 2021, which may be extended or accelerated by mutual agreement of the Company and the acquirer, provided that, if certain third party approvals have not been obtained by February 15, 2021, each of the Company and the acquirer has the right to extend the closing date until March 15, 2021.

There can be no assurance that the sale will close in the timeframe contemplated or on the terms anticipated, if at all.

The Company’s exit from the hospitality business represents a key milestone in its digital transformation.

Accordingly, the sale of these hotel portfolios is a strategic shift that will have a significant effect on the Company’s operations and financial results, and has met the criteria as held for sale and discontinued operations.

For all current and prior periods presented, the related assets and liabilities are presented as assets and liabilities held for disposition on the consolidated balance sheets (Note 8) and the related operating results are presented as loss from discontinued operations on the consolidated statements of operations (Note 16).

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 March 2020 .

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 March 2020.

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

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Developments in 2020

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.

During the nine months ended September 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 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.

• In July 2020, OP issued $300 million of exchangeable senior notes with maturity in July 2025, bearing interest at 5.75% per annum.

We repurchased $371 million of the outstanding principal of the 3.875% convertible senior notes in the third quarter of 2020 for total purchase price of $371 million, funded with net proceeds from issuance of the 5.75% exchangeable senior notes in July 2020 and cash on hand through a tender offer of the 3.875% convertible senior notes completed in September 2020.

This substantially addresses the January 2021 maturity of the 3.875% convertible notes, with the remaining $31.5 million outstanding principal expected to be addressed through cash on hand and/or proceeds from future asset monetization.

Path To Digital

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• 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.

(collectively, "Wafra") in which Wafra made a minority investment representing an approximate 31.5% interest in substantially all of our digital investment management business (as defined for the purpose of this transaction, the “Digital IM Business”).

Wafra paid 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 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.

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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.

• In July 2020 and following an additional investment in October 2020, the Company, alongside fee bearing third party capital, invested $1.36 billion for approximately 90% equity interest in entities that hold Vantage Data Centers' ("Vantage") portfolio of 12 stabilized hyperscale data centers in North America and $2.0 billion of secured indebtedness (the “Vantage SDC”).

Our balance sheet investment is approximately $200 million, representing approximately 13% equity interest.

Vantage SDC 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.

DataBank's Strategic Investment

• In September 2020, our DataBank subsidiary entered into a definitive agreement to acquire zColo, the colocation business of Zayo Group Holdings, Inc.

("Zayo"), for $1.4 billion through a combination of debt and equity financing, including $0.5 billion of third party co-invest capital raised by us and an expected $145 million commitment from our

balance sheet.

The acquisition is expected to close by the end of 2020, and will complement DataBank's edge strategy and significantly expand its footprint.

Non-Digital Assets

• In September 2020, entered into a definitive agreement to sell five of the six hotel portfolios in our Hospitality segment and our 55.6% interest in the THL Hotel Portfolio in the Other segment, with closing expected in the first quarter of 2021.

The transaction is valued at approximately $2.8 billion, including gross aggregate selling price of $67.5 million (of which we expect to receive approximately 96% before transaction costs, net of noncontrolling interests) and acquirer's assumption of $2.7 billion of investment-level debt (of which OP share is approximately $2.3 billion).

• 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 ;

• In April 2020, recapitalized a co-investment venture which holds common equity in the Albertsons supermarket chain, generating $73 million of proceeds to us and realizing our share of gain of approximately $30 million, which allowed us to harvest approximately 70% of the expected eventual value upfront.

• In August 2020, conveyed to a lender 36 properties in our senior housing operating portfolio, which served as underlying collateral, in satisfaction of $157.5 million of outstanding wellness infrastructure debt.

• In November 2020, entered into an agreement to sell our 51% interest in the bulk industrial portfolio to our joint venture partner, with the sale expected to close by the end of 2020.

• Recognized approximately $3.3 billion ($2.6 billion attributable to OP) of impairment charges and unrealized fair value losses on our non-digital assets in the first nine months of 2020, recorded in impairment loss, other loss, equity method losses, and within impairment loss in discontinued operations on the statement of operations, primarily:

• $1.9 billion ($1.5 billion attributable to OP) impairment on real estate and related asset group, primarily hotel and wellness infrastructure properties, based upon (i) 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, and (ii) selling price of the THL Hotel Portfolio;

• $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 .

• $314 million ($71 million attributable to OP) of net unrealized and realized 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

The following table summarizes our results from continuing operations by reportable segment.

Beginning in 2020, the industrial segment no longer constitutes a reportable segment.

In December 2019, the Company completed the sale of the light industrial portfolio and its related management platform, which represented the vast majority of the industrial segment.

The Company continues to own the bulk industrial assets which remain held for sale.

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 ).

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 .

Excluded are discontinued operations (Note 16 to the consolidated financial statements) which generated net losses attributable to Colony Capital, Inc.

of $104.6 million for the three months ended September 30, 2020 and $1.0 billion and $22.7 million for the nine months ended September 30, 2020 and 2019, respectively, and net income attributable to Colony Capital, Inc.

of $1.3 million for the three months ended September 30, 2019.

(In thousands)

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from Continuing Operations

Three Months Ended June 30,

Other Equity and Debt

Other Investment Management

Three Months Ended September 30, 2020 2019 2020 2019 2020 2019

Digital Operating $ 98,549 $ — $ (38,479) $ — $ (4,797) $ —

Digital Investment Management 20,137 14,517 3,539 41,841 1,730 38,160

Digital Other 736 — 6,757 (251) 5,616 (229)

Wellness Infrastructure 124,193 136,091 (6,969) (114,154) (11,349) (84,222)

Other 69,298 205,706 (101,128) (369,511) (32,481) (348,898)

Amounts not allocated to segments

Six Months Ended June 30,

Other Equity and Debt

Other Investment Management

3,764 2,686 (47,936) (149,421) (41,347) (133,970)

$ 316,677 $ 359,000 $ (184,216) $ (591,496) $ (82,628) $ (529,159)

Nine Months Ended September 30,

Digital Operating $ 185,737 $ — $ (77,916) $ — $ (12,384) $ —

Digital Investment Management 60,045 14,517 7,953 46,655 5,597 42,683

Digital Other 1,559 — 16,014 (92) 14,097 (80)

Wellness Infrastructure 406,055 427,761 (755,254) (205,080) (497,371) (152,375)

Other 231,205 455,174 (1,192,092) (548,218) (888,049) (559,982)

Amounts not allocated to segments

13,149 10,258 (175,760) (384,951) (152,773) (352,105)

$ 897,750 $ 907,710 $ (2,177,055) $ (1,091,686) $ (1,530,883) $ (1,021,859)

Selected Balance Sheet Data

The following table summarizes key balance sheet data by reportable segment, excluding assets and related liabilities held for sale.

Real Estate, net

Loans Receivable (1)

Equity and Debt Investments

(In thousands)

June 30, 2020

December 31, 2019

June 30, 2020

December 31, 2019

June 30, 2020

December 31, 2019

June 30, 2020

December 31, 2019

Other Equity and Debt

Other Investment Management

The following table summarizes key balance sheet data by reportable segment, excluding assets and related liabilities held for disposition (Note 8 to the consolidated financial statements).

Real Estate, net Loans Receivable (1)

Equity and Debt Investments Debt, net

(In thousands) September 30, 2020 December 31, 2019 September 30, 2020 December 31, 2019 September 30, 2020 December 31, 2019 September 30, 2020 December 31, 2019

Digital Operating $ 3,557,061 $ 846,393 $ — $ — $ — $ — $ 2,595,799 $ 539,155

Digital Investment Management — — — — 11,640 1,059 — —

Digital Other 2,586 — — — 324,796 46,832 — —

Wellness Infrastructure 3,484,033 4,433,825 52,324 48,270 — — 2,739,140 2,910,032

Other 816,794 937,978 1,272,820 1,518,058 1,571,810 2,262,172 979,153 1,218,417

Amounts not allocated to segments — — — — 3,742 3,742 771,902 850,314

Total $ 7,860,474 $ 6,218,196 $ 1,325,144 $ 1,566,328 $ 1,911,988 $ 2,313,805 $ 7,085,994 $ 5,517,918

(1) Carried at fair value upon adoption of fair value option on January 1, 2020.

Consolidated Results of Operations

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

Three Months Ended June 30,

(In thousands)

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

Three Months Ended September 30,

(In thousands) 2020 2019 Change

Property operating income $ 246,122 $ 168,858 $ 77,264

Interest income 14,816 40,237 (25,421)

Fee income 43,919 111,854 (67,935)

11,820 38,051 (26,231)

Total revenues 316,677 359,000 (42,323)

Property operating expense

108,393 80,877 27,516

Interest expense

71,849 74,592 (2,743)

Investment and servicing expense

30,532 8,605 21,927

Transaction costs 3,310 100 3,210

Depreciation and amortization

125,733 116,932 8,801

Provision for loan loss

— 17,233 (17,233)

Impairment loss

36,169 533,031 (496,862)

Compensation expense—cash and equity-based

53,780 85,800 (32,020)

Compensation expense—carried interest and incentive fee

912 10,846 (9,934)

Administrative expenses 23,500 21,968 1,532

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Gain on sale of real estate 13,258 8,221 5,037

Other loss, net

Equity method losses

Other gain (loss), net (12,979) (44,940) 31,961

Equity method earnings (losses) (62,998) 46,777 (109,775)

Equity method earnings (losses)—carried interest

6,082 (474) 6,556

Loss before income taxes (194,138) (581,400) 387,262

Income tax expense

Income tax benefit (expense) 9,922 (10,096) 20,018

Loss from continuing operations (184,216) (591,496) 407,280

Loss from discontinued operations

Income (loss) from discontinued operations (177,014) 25,654 (202,668)

Net loss (361,230) (565,842) 204,612

Net income (loss) attributable to noncontrolling interests:

Redeemable noncontrolling interests

(2,158) 364 (2,522)

Investment entities (149,154) 15,170 (164,324)

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Net loss attributable to Colony Capital, Inc.

(187,267) (527,816) 340,549

Preferred stock dividends 18,517 27,137 (8,620)

Net loss attributable to common stockholders

$ (205,784) $ (554,953) 349,169

Property Operating Income and Property Operating Expenses

Three Months Ended June 30,

(In thousands)

Three Months Ended September 30,

(In thousands) 2020 2019 Change

Property operating income:

Other Equity and Debt

Digital Operating $ 98,506 $ — $ 98,506

Wellness Infrastructure 120,479 135,017 (14,538)

Other 27,121 33,841 (6,720)

$ 246,106 $ 168,858 77,248

Property operating expenses:

Other Equity and Debt

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 $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.

Digital Operating $ 37,544 $ — $ 37,544

Wellness Infrastructure 57,459 66,042 (8,583)

Other 13,390 14,835 (1,445)

$ 108,393 $ 80,877 27,516

Digital Operating— Amounts represent income from data center leases and related services, and associated operating expenses from our acquisitions of DataBank and Vantage SDC in December 2019 and July 2020, respectively.

Wellness Infrastructure— Property operating income decreased $14.5 million due to conveyance to a lender of 36 properties in a senior housing portfolio in August 2020, and sales of 25 net lease properties in 2019 and one in the first quarter of 2020.

On a same store basis, however, property operating income was slightly higher in 2020 as the third quarter of 2019 included reversals of straight-line rent receivables.

While the conversion of a senior housing net lease to a RIDEA structure in April 2020 resulted in a gross up of resident fee income and expense, this was more than offset by decreases due to a decline in occupancy as a result of restrictions on new admissions across our senior housing portfolio in an effort to contain COVID-19.

Property operating expenses decreased $8.6 million, similarly due to conveyance to a lender of 36 properties in a senior housing portfolio.

On a same store basis, however, there was a slight increase in property operating expenses due to a gross up of expenses following the conversion of a senior housing net lease to a RIDEA structure in April 2020, and $1.9 million of incremental costs incurred in our senior housing facilities in response to COVID-19.

These incremental costs were abated by $2.7 million of government stimulus funding under the CARES Act Provider Relief Fund, reflected as other income.

Refer to further discussion in " —Segment Results—Wellness Infrastructure."

Other— Property operating income and expenses decreased $6.7 million and $1.4 million, respectively, driven by sales of properties in our European portfolio and U.S.

multi-tenant offices.

Interest Income

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.

Interest income decreased $25.4 million, attributed primarily to loans placed on nonaccrual in 2020 as the COVID-19 crisis has led to increased uncertainty over collectability.

Fee income is earned from the following sources:

Three Months Ended June 30,

(In thousands)

Three Months Ended September 30,

(In thousands) 2020 2019 Change

Digital Investment Management segment

Institutional funds and other investment vehicles $ 20,048 $ 13,989 $ 6,059

Other segment

Institutional funds and other investment vehicles 11,600 12,623 (1,023)

Public companies (CLNC, NRE prior to its sale in September 2019) 7,355 79,633 (72,278)

Non-traded REITs 4,431 4,994 (563)

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;

$0.6 million decrease in fees from NorthStar Healthcare Income, Inc.

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

$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.

Other 485 615 (130)

Subtotal — Other segment

23,871 97,865 (73,994)

$ 43,919 $ 111,854 (67,935)

There was a $6.1 million increase in fees from digital institutional funds and investment vehicles as 50% of fees from DCP was recognized as equity method income prior to our acquisition of DBH in July 2019.

Additionally, there was an increase in the fee basis of DCP following its acquisition of Zayo in February 2020.

However, there was a $74.0 million decrease in fee income from the non-digital investment management business in the Other segment, driven by the following:

• 2019 had included termination fee of $64.6 million from NorthStar Realty Europe ("NRE"), inclusive of $21.5 million of incentive fees, received upon sale of NRE and concurrent termination of our management agreement, and management fees of $3.8 million for the third quarter of 2019 prior to sale;

• $4.1 million decrease in fees from CLNC due to a lower stockholders' equity fee base..

Other income was $26.2 million lower attributed primarily to (i) higher amounts grossed up in 2019 in other income and compensation expense of $26.1 million related to NRE equity awards and other cash compensation paid by NRE to employees in connection with the NRE sale;

and (ii) reversal of other income and compensation expense on CLNC equity awards in 2020 as a result of remeasurement at fair value based upon CLNC's stock price at period end (refer to Note 19 to the consolidated financial statements for a description of the accounting treatment of managed company awards).

Interest Expense

Three Months Ended June 30,

(In thousands)

Three Months Ended September 30,

(In thousands) 2020 2019 Change

Investment-level financing:

Other Equity and Debt

Digital Operating $ 18,589 $ — $ 18,589

Digital Investment Management — 1,585 (1,585)

Wellness Infrastructure 32,310 46,029 (13,719)

Other 6,479 12,627 (6,148)

Corporate-level debt 14,471 14,351 120

$ 71,849 $ 74,592 (2,743)

Net decrease in interest expense of $2.7 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) 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 $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.

Digital Operating— Amount represents interest expense on debt financing our DataBank and Vantage SDC acquired in December 2019 and July 2020, respectively.

Digital Investment Management— Interest expense in 2019 was related to borrowings on our corporate credit

facility to partially finance the DBH acquisition in July 2019, with such borrowings repaid in December 2019 using proceeds from sale of the industrial business.

Wellness Infrastructure— Interest expense was $13.7 million lower as a result of:

(i) conveyance of underlying collateral to lender in satisfaction of $157.5 million of outstanding debt principal in August 2020;

(ii) decrease in LIBOR on predominantly variable rate debt in the wellness infrastructure portfolio;

and (iii) debt repayments due to sale of net lease properties in 2019.

Other— Interest expense decreased $6.1 million due to debt payoffs from sale of investments.

Corporate-level Debt— There was a marginal increase in interest expense as additional interest from the new exchangeable notes issued in July 2020 and a higher average outstanding balance on our corporate credit facility were largely offset by partial repurchase of our convertible notes in the third quarter of 2020 and the effects of a decline in LIBOR on our junior subordinated debt.

Investment and Servicing Expense

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.

Investment and servicing costs increased $21.9 million, attributed primarily to write-off of investment deposit and third party fees related to investments in our Other segment, fees paid for management of Vantage SDC, and higher bad debt allowance.

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, 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.

Increase in depreciation and amortization expense is attributed to data centers and real estate intangibles from the acquisition of DataBank in December 2019 and Vantage SDC in July 2020.

This was partially offset by decreases due to the effect of lower real estate basis after impairment charges, sales of non-core properties, termination of NRE

management contract in September 2019 and write-down of NorthStar Healthcare management contract in December 2019.

Impairment Loss

Three 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 $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.

Three Months Ended September 30,

(In thousands) 2020 2019 Change

Digital Investment Management $ 3,832 $ — $ 3,832

Wellness Infrastructure 2,451 92,885 (90,434)

Other 29,886 440,146 (410,260)

$ 32,337 $ 533,031 (500,694)

Impairment loss attributable to OP $ 15,369 $ 491,425

Digital Investment Management— Impairment reflects reduced cash flows from the original Vantage management contract, replaced by new fee stream from third party capital raised in the Company's acquisition of the Vantage stabilized portfolio from its existing owners.

Wellness Infrastructure— In 2020, impairment was recorded on a portfolio of net lease skilled nursing facilities that is held for disposition based upon ongoing sale negotiations.

In 2019, a senior housing portfolio and a net lease property were impaired due to a shortened holding period assumption which resulted in a shortfall in estimated future recoverable cash flows, and written-down based upon offer prices received by the Company.

Other— The significant impairment loss in 2019 was driven by $387.0 million of impairment on the other investment management goodwill and write-down on U.S.

multi-tenant office properties.

In 2020, there was higher impairment on our European properties and the NorthStar Healthcare management contract was written down in consideration of the effects of COVID-19 on NorthStar Healthcare's asset values which will affect future fee income.

Compensation Expense

The following table provides the components of compensation expense:

Three Months Ended June 30,

(In thousands)

Three Months Ended September 30,

(In thousands) 2020 2019 Change

Cash compensation and benefits $ 47,109 $ 48,826 $ (1,717)

1 unchanged sentence

Incentive and carried interest compensation 912 10,846 (9,934)

55,563 68,791 (13,228)

Compensation grossed up in income and expense

NRE related cash compensation — 3,576 (3,576)

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

(871) 24,279 (25,150)

(871) 27,855 (28,726)

Total compensation expense $ 54,692 $ 96,646 (41,954)

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.

Total compensation expense was $42.0 million lower, attributed to:

(i) $48.2 million of incremental compensation in 2019 in connection with NRE equity awards, including awards accelerated upon sale of NRE, along with retention and termination payments, and incentive compensation;

(ii) lower severance costs in 2020;

(iii) reversal of compensation on CLNC equity awards in 2020 as a result of remeasurement at fair value based upon CLNC's stock price at period end;

and (iv) decrease in compensation cost following the Company's cost reduction initiative, and sales of NRE in September 2019 and the industrial business in December 2019.

These decreases were partially offset by additional compensation cost following the acquisition of DataBank in December 2019.

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.

There was a marginal increase in administrative expense of $1.5 million, attributable to higher legal and professional service costs.

Gain on Sale of Real Estate

The higher gains in 2020 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.

Three Months Ended September 30,

(In thousands) 2020 2019 Change

Digital Investment Management (including carried interest income of $6,082 and $0, respectively

$ 6,134 $ 848 $ 5,286

Digital Other 4,400 (251) 4,651

Other (including carried interest reversal of $0 and $474, respectively)

(67,450) 45,706 (113,156)

$ (56,916) $ 46,303 (103,219)

Digital Investment Management— Amount represents gross unrealized carried interest from a digital investment vehicle in 2020, of which the Company ultimately shares in 15%, net of carried interest compensation and noncontrolling interest represented by general partner equity retained by the former principals and employees of DBH.

Digital Other— Amount represents net earnings from interests in our sponsored DCP fund and certain existing Colony investment vehicles that were repurposed to execute an investment strategy focused around the digital sector beginning March 31, 2020.

Other— Equity method earnings decreased $113.2 million, arising from (i) decrease in fair value of investments under the fair value option, driven by expected recoverable value from investee's sale of real estate and also reflect the economic effects of COVID-19;

(ii) an investee's early redemption of our preferred equity investment at a discount;

(iii) impairment of an acquisition, development and construction ("ADC") loan based upon lower real estate valuation in an accelerated disposition strategy;

(iv) our share of investee net losses;

and (v) additionally, 2019 included a gain from sale of our equity investment in NRE.

These decreases were partially offset by $21.9 million of basis difference applied to reduce our share of net loss from CLNC (Note 6 to the consolidated financial statements).

Other Loss, Net

We recorded other net loss of $13.0 million in 2020 and $44.9 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.

Three Months Ended September 30, 2020

• $16.9 million ($6.4 million attributable to OP) of unrealized and realized losses on loans receivable carried at fair value (fair value option was elected on loans receivable beginning 2020);

• $8.6 million write-down in value of our equity investment in NorthStar Healthcare;

partially offset by

• $3.9 million gain on remeasurement of a foreign currency loan receivable in our Wellness Infrastructure segment.

Three Months Ended September 30, 2019

• unrealized loss of $91.5 million on a non-designated interest rate swap assumed through the Merger that was intended to hedge future refinancing on certain wellness infrastructure 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.

partially offset by

• $51.4 million gain from remeasurement of our 50% interest in Digital Colony Management, LLC ("DCM"), the investment manager of DCP, upon closing of the DBH acquisition (see Note 3 to the consolidated financial statements).

Income Tax Benefit (Expense)

We recorded income tax benefit of $9.9 million compared to income tax expense of $10.1 million in the three months ended September 30, 2020 and 2019, respectively.

In the third quarter of 2020, deferred tax benefit was recognized in relation to our DataBank subsidiary and our OED portfolio, partially offset by deferred tax expense related to our wellness infrastructure business due to revaluation of deferred tax balances necessitated by a change in income tax rates in the United Kingdom.

Conversely, the third quarter of 2019 included deferred tax expense arising from a gain recognized on remeasurement of our preexisting interest in DCM upon the acquisition of DBH.

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,

Three Months Ended September 30, 2020 Three Months Ended September 30, 2019 Change

(In thousands)

Hotel Industrial Total Hotel Industrial Total Hotel Industrial

Property operating income $ 144,130 $ 5,866 $ 149,996 $ 293,297 $ 97,188 $ 390,485 $ (149,167) $ (91,322)

Fee income — — — — 3,400 3,400 — (3,400)

Interest and other income 40 5 45 198 1,454 1,652 (158) (1,449)

Revenues from discontinued operations 144,170 5,871 150,041 293,495 102,042 395,537 (149,325) (96,171)

Property operating expense 119,868 1,712 121,580 193,474 26,051 219,525 (73,606) (24,339)

Interest expense 34,747 1,530 36,277 55,442 21,130 76,572 (20,695) (19,600)

Investment and servicing expense 6,053 20 6,073 4,491 54 4,545 1,562 (34)

Transaction costs 4,500 — 4,500 — — — 4,500 —

Depreciation and amortization 39,978 639 40,617 42,073 12,342 54,415 (2,095) (11,703)

Impairment loss 115,792 — 115,792 31,868 — 31,868 83,924 —

Compensation expense—cash and equity-based (1)

863 — 863 1,243 3,914 5,157 (380) (3,914)

Compensation expense—carried interest — — — — 17,796 17,796 — (17,796)

Administrative expenses 192 259 451 109 960 1,069 83 (701)

Expenses from discontinued operations 321,993 4,160 326,153 328,700 82,247 410,947 (6,707) (78,087)

Other income (loss)

Gain (loss) on sale of real estate (10) (1,000) (1,010) 3 4,675 4,678 (13) (5,675)

Other gain (loss), net (113) (2) (115) 378 (12) 366 (491) 10

Equity method earnings (losses), including carried interest — — — — 35,765 35,765 — (35,765)

Income (loss) from discontinued operations before income taxes (177,946) 709 (177,237) (34,824) 60,223 25,399 (143,122) (59,514)

Income tax benefit (expense) 225 (2) 223 128 127 255 97 (129)

Income (loss) from discontinued operations (177,721) 707 (177,014) (34,696) 60,350 25,654 (143,025) (59,643)

Income (loss) from discontinued operations attributable to:

Noncontrolling interests in investment entities (60,938) 82 (60,856) (3,470) 27,728 24,258 (57,468) (27,646)

Noncontrolling interests in Operating Company (11,581) 62 (11,519) (2,817) 2,870 53 (8,764) (2,808)

Income (loss) from discontinued operations attributable to Colony Capital, Inc.

$ (105,202) $ 563 $ (104,639) $ (28,409) $ 29,752 $ 1,343 (76,793) $ (29,189)

Discontinued operations of the hotel business represent our Hospitality segment and the THL Hotel Portfolio, which was previously reported in the Other segment.

Loss from discontinued operations increased $143.0 million, attributed to the following:

• Additional impairment of $115.8 million, attributed to the THL Hotel Portfolio in September 2020 based upon its pending sales price, net of selling costs.

In comparison, $31.9 million of impairment was recorded in 2019 based upon shortened hold period assumptions and unfavorable operating performance on our hotel assets.

• Operating losses in 2020 reflect the loss of net income from sale of hotel properties in 2019 and the economic effects of COVID-19.

There was a significant decline in room demand for our hotel properties with average occupancy at 51% in the third quarter of 2020 compared to 77% in the same period last year.

This was further compounded by a lower average daily rate ("ADR"), resulting in a 49% decline in average revenue per available room ("RevPAR") compared to the same period last year.

Notwithstanding, room demand has experienced some recovery from the trough levels in April 2020.

• Write-off of property level insurance receivables on our THL Hotel Portfolio in 2020.

• Fees incurred for advisory services in connection with debt refinancing and pending sale of the hotel portfolios.

• The increase in net loss was partially offset by:

• Decrease in interest expense, driven by a decline in LIBOR on predominantly variable rate debt on our hotel portfolio;

• Decrease in depreciation and amortization expense due to a lower basis on our hotel properties after significant impairment charges in the first six months of 2020, partially offset by capital improvements and fixed asset additions in our hotel properties that were completed throughout 2019 and beginning of 2020.

Results of discontinued operations represent the bulk industrial portfolio in 2020, and in 2019, included the light industrial portfolio and associated management platform.

In 2019, significant carried interest was recognized in the third quarter, included in equity method earnings, due to a substantial increase in net asset value of the industrial open-end fund in contemplation of the sale of the light industrial business, with a corresponding recognition of carried interest compensation.

Consolidated Results of Operations

Comparison of Nine Months Ended September 30, 2020 to Nine Months Ended September 30, 2019

Nine Months Ended September 30,

(In thousands) 2020 2019 Change

Property operating income $ 666,657 $ 543,978 $ 122,679

Interest income 70,060 121,356 (51,296)

Fee income 130,964 178,315 (47,351)

30,069 64,061 (33,992)

Total revenues 897,750 907,710 (9,960)

Property operating expense

309,553 248,714 60,839

Interest expense

213,947 236,756 (22,809)

Investment and servicing expense

47,897 39,215 8,682

Transaction costs 3,806 2,922 884

Depreciation and amortization

301,605 242,490 59,115

Provision for loan loss

— 35,847 (35,847)

Impairment loss

1,444,908 635,869 809,039

Compensation expense—cash and equity-based

169,192 157,283 11,909

Compensation expense—carried interest and incentive fee

(9,431) 13,264 (22,695)

Administrative expenses 75,246 63,404 11,842

5 unchanged sentences

Equity method losses

(319,831) (178,448) (141,383)

Equity method earnings (losses)—carried interest (14,653) 6,258 (20,911)

2 unchanged sentences

Loss from continuing operations

(2,177,055) (1,091,686) (1,085,369)

Income (loss) from discontinued operations

(1,307,225) 11,043 (1,318,268)

Net loss (3,484,280) (1,080,643) (2,403,637)

Net income (loss) attributable to noncontrolling interests:

Redeemable noncontrolling interests

(2,316) 2,317 (4,633)

Investment entities (640,955) 51,744 (692,699)

1 unchanged sentence

Net loss attributable to Colony Capital, Inc.

(2,553,700) (1,044,544) (1,509,156)

Preferred stock dividends 56,507 81,412 (24,905)

Net loss attributable to common stockholders

$ (2,610,207) $ (1,125,956) (1,484,251)

Property Operating Income and Property Operating Expenses

Six Months Ended June 30,

(In thousands)

Nine Months Ended September 30,

(In thousands) 2020 2019 Change

Property operating income:

Other Equity and Debt

Digital Operating $ 185,672 $ — $ 185,672

Wellness Infrastructure 398,711 424,570 (25,859)

Other 82,258 119,408 (37,150)

$ 666,641 $ 543,978 122,663

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.

Digital Operating $ 72,505 $ — $ 72,505

Wellness Infrastructure 198,778 194,268 4,510

Other 38,270 54,446 (16,176)

$ 309,553 $ 248,714 60,839

Wellness Infrastructure— Property operating income decreased $25.9 million due to conveyance to a lender of 36 properties in a senior housing portfolio in August 2020, and sales of 25 net lease properties in 2019 and one in the first quarter of 2020.

On a same store basis, however, property operating income was slightly higher as the conversion of a senior housing net lease to a RIDEA structure in April 2020 resulted in a gross up of resident fee income and expense, which was partially offset by decreases due to a decline in occupancy as a result of restrictions on new admissions across our senior housing portfolio in an effort to contain COVID-19.

Additionally, rental income in 2019 was lower due to reversals of straight-line rent receivables.

Property operating expenses increased $4.5 million, driven by incremental costs of $9.6 million incurred in our senior housing facilities in response to COVID-19, and to a lesser extent, gross up of expenses following the conversion of a senior housing net lease to a RIDEA structure in April 2020, higher property taxes and higher insurance premiums.

These increases were partially offset by lower expenses incurred resulting from the conveyance to a lender of 36 properties in a senior housing portfolio.

The incremental COVID-19 related costs were partially abated by $4.4 million of government stimulus funding under the CARES Act Provider Relief Fund, reflected in other income.

Refer to further discussion in " —Segment Results—Wellness Infrastructure."

Other— Property operating income and expenses decreased $37.2 million and $16.2 million, respectively, driven by sales of properties in our European portfolio and U.S.

multi-tenant offices.

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.

Interest income decreased $51.3 million, attributed to loans placed on nonaccrual in 2020 as the COVID-19 crisis has led to increased uncertainty over collectability, and loan payoffs and sales.

Fee income is earned from the following sources:

Six Months Ended June 30,

(In thousands)

Nine Months Ended September 30,

(In thousands) 2020 2019 Change

Digital Investment Management segment

Institutional funds and other investment vehicles $ 59,165 $ 13,989 $ 45,176

Other segment

Institutional funds and other investment vehicles 34,296 36,294 (1,998)

Public companies (CLNC, and NRE prior to its sale in September 2019) 22,636 109,777 (87,141)

Non-traded REIT 13,293 15,089 (1,796)

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.

Other 1,574 3,166 (1,592)

Subtotal — Other segment

71,799 164,326 (92,527)

$ 130,964 $ 178,315 (47,351)

Fee income from Digital Investment Management was $45.2 million higher as 50% of fees from DCP was recognized as equity method income prior to our acquisition of DBH in July 2019.

Additionally, there was an increase in the fee basis of DCP following its acquisition of Zayo in February 2020.

However, fee income from the non-digital investment management business in the Other segment decreased $92.5 million, driven primarily by the following:

• 2019 had included termination fee of $64.6 million from NRE, inclusive of $21.5 million of incentive fees, received upon sale of NRE and concurrent termination of our management agreement, and management fees of $11.5 million in 2019 prior to sale;

• $11.2 million decrease in fees from CLNC due to a lower stockholders' equity fee base.

Other income decreased $34.0 million, attributed primarily to (i) higher amounts grossed up in 2019 in other income and compensation expense of $29.2 million related to NRE equity awards and other cash compensation paid by NRE to employees in connection with the NRE sale;

and (ii) reversal of other income and compensation expense on CLNC equity awards as a result of remeasurement at fair value based upon CLNC's stock price at period end (refer to Note 19 to the consolidated financial statements for a description of the accounting treatment of managed company awards).

Interest Expense

Six Months Ended June 30,

(In thousands)

Nine Months Ended September 30,

(In thousands) 2020 2019 Change

Investment-level financing:

Other Equity and Debt

Digital Operating $ 36,161 $ — $ 36,161

Digital Investment Management — 1,585 (1,585)

Wellness Infrastructure 106,875 150,691 (43,816)

Other 26,341 42,889 (16,548)

Corporate-level debt 44,570 41,591 2,979

$ 213,947 $ 236,756 (22,809)

Net decrease in interest expense $22.8 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.

Digital Operating— Amount represents interest expense on debt financing our DataBank and Vantage SDC acquired in December 2019 and July 2020, respectively.

Digital Investment Management— Interest expense in 2019 was related to borrowings on our corporate credit

facility to partially finance the DBH acquisition in July 2019, with such borrowings repaid in December 2019 using proceeds from sale of the industrial business.

Wellness Infrastructure— Interest expense was $43.8 million lower as a result of:

(i) decrease in LIBOR on predominantly variable rate debt in the wellness infrastructure portfolio;

(ii) debt repayment upon sale of net lease properties in 2019;

(iii) conveyance of underlying collateral to lender in satisfaction of $157.5 million of outstanding debt principal in August 2020;

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

and (v) prepayment penalties incurred 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.

Other— Interest expense decreased $16.5 million due to debt payoffs from sale of investments.

Corporate-level Debt— Interest expense increased $3.0 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, and new exchangeable notes issued in July 2020.

This increase was partially offset by the effect of a decline in LIBOR on our junior subordinated debt, partial repurchase of our convertible notes in the third quarter of 2020 and lower unused fees on our credit facility in 2020.

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.

Investment and servicing costs were $8.7 million higher, attributed primarily to write-off of investment deposit and third party fees related to investments in our Other segment, and fees paid for management of Vantage SDC.

These increases were partially offset by higher costs in 2019 related to refinancing of our wellness infrastructure debt, unconsummated deal costs and bad debt expense.

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.

Transaction costs in 2020 represent primarily fees incurred for advisory services in connection with the Company's corporate debt strategy and the partial repurchase of the 3.875% convertible notes, while the costs in 2019 was related primarily to our acquisition of the Latin American investment management business of The Abraaj Group.

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.

Increase in depreciation and amortization expense is attributed to real estate and intangible assets from acquisitions of DBH in July 2019, DataBank in December 2019 and Vantage SDC in July 2020.

This was partially offset by decreases due to the effects of lower real estate basis after impairment charges, sales of non-core properties, 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

Nine Months Ended September 30,

(In thousands) 2020 2019 Change

Digital Investment Management $ 3,832 $ — $ 3,832

Wellness Infrastructure 712,238 144,209 568,029

Other 716,541 491,011 225,530

Unallocated 12,297 649 11,648

$ 1,441,076 $ 635,869 805,207

Impairment loss attributable to OP $ 1,193,825 $ 544,357

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 .

Wellness Infrastructure— In 2020, impairment was recognized on wellness infrastructure assets resulting primarily from shortened holding period assumptions, attributable to both the Company's accelerated digital transformation, and in contemplation of debt that is 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.

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.

Additional impairment was also recorded on a held for disposition portfolio based upon ongoing sale negotiations.

Impairment in 2019 arose from shortened holding period assumptions on a senior housing portfolio and a net lease property, a negotiated purchase option exercised by a tenant on three hospitals, and offers received on certain net lease properties.

Other— There was higher impairment in both our other investment management business and our other equity and debt investments.

In our other investment management business, impairment of $594.0 million in 2020 and $387.0 million in 2019 reflect the write-down of goodwill, driven by acceleration of the Company's digital transformation and significant reduction in the value of its non-digital balance sheet assets in 2020, and in 2019, the loss of future fee income from sale of the industrial business and reduction in CLNC's fee base to reflect its reduced book value.

Within our other equity and debt portfolio, impairment was $18.5 million higher, driven by impairment on U.S.

net lease properties, partially offset by lower write-down on our European properties.

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.

1 unchanged sentence

The following table provides the components of compensation expense.

Six Months Ended June 30,

Nine Months Ended September 30,

(In thousands)

2020 2019 Change

Cash compensation and benefits

$ 144,655 $ 101,101 $ 43,554

Equity-based compensation 25,794 21,957 3,837

Incentive and carried interest compensation (9,431) 13,264 (22,695)

161,018 136,322 24,696

Compensation grossed up in income and expense

NRE related cash compensation — 3,576 (3,576)

Equity-based compensation—CLNC and NRE (prior to September 2019) awards (1,257) 30,649 (31,906)

(1,257) 34,225 (35,482)

Total compensation expense $ 159,761 $ 170,547 (10,786)

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.

Total compensation expense was $10.8 million lower, attributed to (i) $51.4 million of incremental compensation in 2019 in connection with NRE equity awards, including awards accelerated upon sale of NRE, along with retention and termination payments, and incentive compensation;

(ii) lower severance costs in 2020;

(iii) reversal of compensation on CLNC equity awards in 2020 as a result of remeasurement at fair value based upon CLNC's stock price at period end;

and (iv) decrease in compensation cost following the Company's cost reduction initiative, sales of NRE in September 2019 and the industrial business in December 2019.

These decreases were partially offset by additional compensation cost following the acquisition of DBH in July 2019 and DataBank in December 2019.

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.

Administrative expense was $11.8 million higher, largely attributable to higher insurance, legal and professional service costs.

Settlement Loss

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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.

Gain on sale of $7.9 million and $18.2 million in the nine months ended September 30, 2020 and 2019, respectively, were attributable to OP.

Equity Method Earnings (Losses)

Six Months Ended June 30,

(In thousands)

Other Equity and Debt

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.

Nine Months Ended September 30,

(In thousands) 2020 2019 Change

Digital Investment Management (including carried interest income of $6,082 and $0, respectively)

$ 6,295 $ 7,112 $ (817)

Digital Other 12,647 (92) 12,739

Other (including carried interest reversal of $20,735 and income of $6,258, respectively)

(353,426) (179,210) (174,216)

$ (334,484) $ (172,190) (162,294)

Digital Investment Management— Amount represents primarily (i) gross unrealized carried interest in 2020 from a digital investment vehicle, of which the Company ultimately shares in 15%, net of carried interest compensation and noncontrolling interest represented by general partner equity retained by the former principals and employees of DBH;

and (ii) through July 25, 2019, Digital Colony Manager, the manager of DCP, prior to its consolidation upon acquisition of DBH.

Other— We recorded other-than-temporary impairment on our investment in CLNC of $274.7 million and $227.9 million in the second quarters of 2020 and 2019, respectively (refer to Note 6 to the consolidated financial statements for further discussion).

Excluding the CLNC impairment, equity method losses of $78.8 million in 2020 compared to earnings of $48.7 million in 2019, arose from (i) decrease in fair value of investments under the fair value option, driven by expected recoverable value from investee's sale of real estate and also reflect the economic effects of COVID-19;

(ii) impairment of investments based upon current exit strategies;

(iii) our share of investee net losses;

and (iv) reversal of unrealized carried interest allocation.

The losses in 2020 were partially offset primarily by $106.1 million gain from sale of our equity investment in RXR Realty in February 2020, and $49.8 million of basis difference applied to reduce our share of net loss from CLNC (Note 6 to the consolidated financial statements).

Other Loss, Net

We recognized other net loss of $199.3 million in 2020 and $182.6 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);

Nine Months Ended September 30, 2020

• $313.6 million ($71.4 million attributable to OP) of unrealized and realized 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);

• $24.0 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.

• realized gain of $60.7 million and recognition of future profit allocation at fair value of $66.0 million ($32.3 million attributable to OP) from recapitalization in April 2020 of our co-investment venture which holds common equity in the Albertsons supermarket chain (refer to Note 6 to the consolidated financial statements).

Nine Months Ended September 30, 2019

• unrealized loss of $237.6 million on a non-designated interest rate swap assumed through the Merger that was intended to hedge future refinancing on certain wellness infrastructure mortgage debt.

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

partially offset by

• $51.4 million gain from remeasurement of our 50% interest in DCM upon closing of the DBH acquisition (see Note 3 to the consolidated financial statements).

Income Tax Expense

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.

The $8.5 million decrease in income tax expense is primarily attributed to deferred tax benefit recognized in connection with our DataBank subsidiary and our OED portfolio, partially offset by the following:

(i) valuation allowance established against deferred tax asset in our wellness infrastructure business due to uncertainties in future realization of net operating losses;

(ii) income tax expense on a gain from sale of our equity investment in RXR Realty in February 2020;

(iii) deferred tax expense related to our wellness infrastructure business due to revaluation of deferred tax balances necessitated by a change in income tax rates in the United Kingdom;

and (iv) deferred tax expense related to a gain recognized on remeasurement of our preexisting interest in DCM upon the acquisition of DBH in July 2019.

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")

Nine Months Ended September 30, 2020 Nine Months Ended September 30, 2019 Change

(In thousands)

Hotel Industrial Total Hotel Industrial Total Hotel Industrial

Property operating income $ 442,827 $ 16,169 $ 458,996 $ 865,863 $ 270,161 $ 1,136,024 $ (423,036) $ (253,992)

Fee income — — — — 8,849 8,849 — (8,849)

Interest and other income 149 78 227 420 3,822 4,242 (271) (3,744)

Revenues from discontinued operations 442,976 16,247 459,223 866,283 282,832 1,149,115 (423,307) (266,585)

Property operating expense 375,984 4,577 380,561 575,619 74,058 649,677 (199,635) (69,481)

Interest expense 122,834 5,654 128,488 169,905 55,482 225,387 (47,071) (49,828)

Investment and servicing expense 12,514 20 12,534 12,347 592 12,939 167 (572)

Transaction costs 4,500 — 4,500 — — — 4,500 —

Depreciation and amortization 135,944 1,914 137,858 137,249 97,147 234,396 (1,305) (95,233)

Impairment loss 1,095,878 — 1,095,878 39,347 — 39,347 1,056,531 —

Compensation expense—cash and equity-based (1)

2,998 82 3,080 3,707 10,253 13,960 (709) (10,171)

Compensation expense—carried interest — (524) (524) — 18,136 18,136 — (18,660)

Administrative expenses 1,294 892 2,186 1,513 3,976 5,489 (219) (3,084)

Expenses from discontinued operations 1,751,946 12,615 1,764,561 939,687 259,644 1,199,331 812,259 (247,029)

Other income (loss)

Gain (loss) on sale of real estate (10) (8,787) (8,797) 913 28,070 28,983 (923) (36,857)

Other gain (loss), net 9,727 — 9,727 (577) (69) (646) 10,304 69

Equity method earnings (losses), including carried interest — (164) (164) — 35,121 35,121 — (35,285)

Income (loss) from discontinued operations before income taxes (1,299,253) (5,319) (1,304,572) (73,068) 86,310 13,242 (1,226,185) (91,629)

Income tax benefit (expense) (2,651) (2) (2,653) (2,028) (171) (2,199) (623) 169

Income (loss) from discontinued operations (1,301,904) (5,321) (1,307,225) (75,096) 86,139 11,043 (1,226,808) (91,460)

Income (loss) from discontinued operations attributable to:

Noncontrolling interests in investment entities (167,333) (4,547) (171,880) (10,455) 45,711 35,256 (156,878) (50,258)

Noncontrolling interests in Operating Company (112,451) (77) (112,528) (4,872) 3,344 (1,528) (107,579) (3,421)

Income (loss) from discontinued operations attributable to Colony Capital, Inc.

$ (1,022,120) $ (697) $ (1,022,817) $ (59,769) $ 37,084 $ (22,685) (962,351) $ (37,781)

Discontinued operations of the hotel business represent our Hospitality segment and the THL Hotel Portfolio, which was previously reported in the Other segment.

Loss from discontinued operations increased $1.23 billion, attributable to the following:

• $1.1 billion of impairment in 2020.

Impairment in the first six months of 2020 resulted 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.

This had 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 the hotel assets would not be recoverable.

Additional impairment was also recorded in the third quarter of 2020 based upon pending sales price net of selling costs.

In comparison, $39.3 million of impairment was recorded in 2019 on hotel assets based upon shortened hold period assumptions, unfavorable operating performance, or based upon final net proceeds from sales.

• Operating losses in 2020 reflect the loss of net income from sale of hotel properties in 2019 and the economic effects of COVID-19.

There was a significant decline in room demand with average occupancy at 52% in the first

nine months of 2020 compared to 75% in the same period last year.

This was further compounded by lower ADR, resulting in a decline in RevPAR of 39% compared to the same period last year.

Notwithstanding, room demand has recovered from the trough levels in April 2020.

• Fees incurred for advisory services in connection with debt refinancing and pending sale of the hotel portfolios.

• The higher income tax expense is attributed to valuation allowance established against deferred tax asset in the hospitality portfolio as a result of uncertainties in future realization of net operating losses, taking into consideration the impairment recognized on these assets.

• The increase in net loss was partially offset by:

• Decrease in interest expense, driven by a decline in LIBOR on predominantly variable rate debt on our hotel portfolio, partially offset by additional hotel debt obtained in connection with debt refinancing in 2019 and higher deferred financing costs expensed as a result of the refinancing;

• Write-off of contingent liability on the THL Hotel Portfolio as it is no longer probable that such payment would be made to a former preferred equity holder following the adverse effects of COVID-19 on the operations and performance of the THL Hotel Portfolio.

Results of discontinued operations in 2020 represent (i) 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 corresponding effect on carried interest and related compensation.

In 2019, results of discontinued operations also included the light industrial portfolio and associated management platform.

Significant carried interest was recognized in the third quarter of 2019, included in equity method earnings, due to a substantial increase in net asset value of the industrial open-end fund in contemplation of the sale of the light industrial business, with a corresponding recognition of carried interest compensation.

Assets Under Management and Fee Earning Equity Under Management

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

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FEEUM (2) (In billions)

June 30, 2020

December 31, 2019 (3)

June 30, 2020

December 31, 2019 (3)

Digital segment

Other Investment Vehicles

Digital real estate and infrastructure

Earns base management fees and service fees;

potential for carried interest from DCP

Other Investment Management segment

Institutional funds

Credit funds, opportunistic funds, value-add funds and other co-investment vehicles

Earns base and asset management fees from all managed funds;

potential for carried interest on sponsored funds

Retail Companies

NorthStar Healthcare

Earns base management fees and potential for carried interest

Public Companies

Colony Credit Real Estate, Inc.

Type Products Description September 30, 2020 December 31, 2019 (3)

September 30, 2020 December 31, 2019 (3)

Digital Investment Management segment

Institutional Funds Digital Colony Partners Earns base management fees and potential for carried interest $ 5.7 $ 4.3 $ 3.8 $ 3.8

Liquid securities strategy 0.1 — 0.2 —

Other Investment Vehicles Digital real estate and infrastructure held by portfolio companies and co-invest vehicles Earns base management fees and business service fees 16.4 9.2 4.5 3.0

Subtotal — Digital IM

22.2 13.5 8.5 6.8

Other segment

Institutional Funds Credit funds, opportunistic funds, value-add funds and other co-investment vehicles Earns base and asset management fees from all managed funds;

potential for carried interest from sponsored funds 8.6 8.5 5.7 5.6

Retail Companies NorthStar Healthcare Earns base management fees and potential for carried interest 3.4 3.4 1.2 1.2

Public Companies Colony Credit Real Estate, Inc.

NYSE-listed credit REIT 2.7 3.5 2.0 2.2

Earns base management fees and potential for incentive fees

Subtotal - Other Investment Management segment

Earns base management fees and potential for carried interest

Subtotal — Other segment

14.7 15.4 8.9 9.0

Total Company $ 36.9 $ 28.9 $ 17.4 $ 15.8

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

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.

• Total third party FEEUM increased $1.6 billion to $17.4 billion at September 30, 2020.

• There was a $1.7 billion increase in our digital FEEUM, of which $0.7 billion arose from DCP's acquisition of Zayo in February 2020, and $0.9 billion represents a net increase in third party capital in Vantage SDC in July 2020.

Zayo, a provider of bandwidth infrastructure services in the United States and Europe, was formerly a publicly-traded company that was taken private as part of the acquisition by DCP.

• This increase was partially offset by a $0.2 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 raising of third party co-invest capital for the acquisition of zColo by our DataBank subsidiary, which is anticipated to close by the end of 2020, will grow our digital FEEUM by an additional $0.5 billion.

The following discussion summarizes key information on our reportable segments.

Digital Real Estate and Investment Management ("Digital")

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 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.

We earn rental and service income from providing use of space and/or capacity in our digital assets through long-term contracts and related service orders .

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 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.

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.

Digital equity investments— DCP, our first sponsored digital real estate and infrastructure fund, which had its final closing in May 2019;

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 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

Digital Investment Management ("Digital IM")

This business encompasses the investment and stewardship of third party capital in digital infrastructure and real estate.

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.

In July 2020, we formed a strategic partnership with Wafra in which Wafra made a minority investment representing an approximate 31.5% interest in substantially all of our digital investment management business or the Digital IM Business, as defined for the purpose of this transaction.

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Refer to Note 15 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.

Fee Earning Equity Under Management

Our successful fundraising efforts in 2020 have increased our Digital IM FEEUM by $1.7 billion to $ 3.8 billion at September 30, 2020.

Refer to discussion in " —AUM & FEEUM.

Operating Performance

Results of operations of our Digital IM segment are as follows:

Three Months Ended September 30, Nine Months Ended September 30,

(In thousands) 2020 2019 Change 2020 2019 Change

Total revenues $ 20,137 $ 14,517 $ 5,620 $ 60,045 $ 14,517 $ 45,528

Net income 3,539 41,841 (38,302) 7,953 46,655 (38,702)

Net income attributable to Colony Capital, Inc.

1,730 38,160 (36,430) 5,597 42,683 (37,086)

• Prior to July 2019, our Digital IM segment generated only equity method earnings from our 50% interest in DCM, the investment manager of DCP.

DCM was consolidated upon acquisition of DBH and our existing interest in DCM was remeasured at fair value, resulting in a gain of $ 51.4 million ($39.3 million net of tax).

• Refer to " —Results of Operations " for a discussion of fee income.

While fee income from our Digital IM 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 Operating

This business is composed of balance sheet equity interests in digital infrastructure and real estate operating companies, which generally earns rental income from providing use of space and/or capacity in or on digital assets through leases, services and other agreements.

The Company currently owns interests in two companies, DataBank's edge colocation data centers and Vantage stabilized hyperscale data centers, which are also portfolio companies under Digital IM for the equity interests owned by third party capital.

Developments in 2020

• Investment in Hyperscale Data Centers— In July 2020 and following an additional investment in October 2020, the Company, alongside third party investors, including fee bearing third party capital that the Company raised, invested $1.36 billion for approximately 90% equity interest in entities that hold Vantage's portfolio of 12 stabilized hyperscale data centers in North America and $2.0 billion of secured indebtedness, or Vantage SDC.

Our balance sheet investment is approximately $200 million, representing approximately 13% equity interest.

• DataBank Strategic Investments— In September 2020, our DataBank subsidiary entered into a definitive agreement to acquire zColo, Zayo's colocation business, for $1.4 billion through a combination of debt and equity financing, including $0.5 billion of third party co-invest capital raised by us.

Our expected commitment of $145 million from the Colony balance sheet will maintain our 20% equity interest in DataBank.

The acquisition complements DataBank's edge strategy and significantly expands DataBank's footprint with the addition of zColo's 44 data centers in 23 markets across U.S.

Zayo will continue to be an anchor tenant within the zColo facilities and will become a significant customer of DataBank.

With a long term agreement in place between Zayo and DataBank, the companies expect to collaborate closely in bringing colocation solutions to Zayo’s fiber customers and private fiber network solutions to DataBank’s colocation and cloud customers.

The acquisition is anticipated to close by the end of 2020.

Portfolio Overview

The following table presents key portfolio metrics of our Digital Operating segment:

September 30, 2020

Number of data centers 32

Sellable raised square feet or RSF (in thousands) 1,138

Leased RSF (in thousands) 946

Balance Sheet Information

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

(In thousands)

June 30, 2020

December 31, 2019

Real estate held for investment

Deferred leasing costs and identifiable intangibles, net (excluding goodwill)

Lease intangibles, customer relationships and trade name

Investment management intangibles

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 on the digital sector effective March 31, 2020.

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

(In thousands) September 30, 2020 December 31, 2019

Real estate $ 3,557,061 $ 846,393

Debt 2,595,799 539,155

• The increase at September 30, 2020 reflect the acquisition of Vantage SDC in July 2020, composed of $2.7 billion of real estate and $2.06 billion of debt.

At September 30, 2020, our data center portfolio is financed by $2.55 billion of outstanding debt principal, of which $1.7 billion is fixed rate debt and $0.8 billion is variable rate debt, bearing a combined weighted average interest rate of 4.15% per annum at September 30, 2020.

In October 2020, Vantage SDC raised $1.3 billion in aggregate across two tranches of securitized notes at a blended fixed rate of 1.8%, with a 6 year weighted average maturity.

The proceeds were applied primarily to refinance outstanding debt, which will meaningfully reduce the cost of debt and extend debt maturities in Vantage SDC.

Operating Performance

Results of operations of our digital segment are as follows.

(In thousands)

Results of operations of our Digital Operating segment are as follows.

(In thousands) Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020

Total revenues $ 98,549 $ 185,737

Net Income (Loss)

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

Three Months Ended June 30,

Digital real estate

Digital investment management

Digital equity investments

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.

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 of DataBank, is as follows.

Net loss (38,479) (77,916)

Net loss attributable to Colony Capital, Inc.

(4,797) (12,384)

• Operating results includes the full year-to-date period for DataBank and 72 days of results for Vantage SDC.

• Net loss includes the effect of interest expense from debt financing, and depreciation and amortization expense.

Operating results excluding these effects are presented below as earnings before interest, tax.

depreciation and amortization for real estate ("EBITDA re ").

Earnings Before Interest, Tax, Depreciation and Amortization for Real Estate

EBITDA re generated by our Digital Operating segment is as follows.

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

Digital Real Estate

(In thousands)

Three Months Ended June 30, 2020

Six Months Ended June 30, 2020

(In thousands) Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020

Total revenues $ 98,549 $ 185,737

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Transaction, investment and servicing costs

(2,242) (3,015)

Compensation and administrative expense (11,592) (34,712)

EBITDA re —Digital real estate

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.

EBITDA re —Digital Operating

$ 47,171 $ 75,505

Digital Other

This segment is composed of equity interests in digital investment vehicles, the largest of which is the Company’s investment and commitment to DCP.

This segment also includes the Company’s investment and commitment to the digital liquid strategies and seed investments for future digital investment vehicles.

Balance Sheet Information

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

(In thousands) September 30, 2020 December 31, 2019

Real estate $ 2,586 $ —

Equity investments 324,796 46,832

• Real estate balance represents perpetual easements acquired in the third quarter of 2020, recorded as land, that is being warehoused on our balance sheet temporarily, pending the closing of our second Digital Colony Partners fund.

• Equity investments represent primarily our equity method interest in DCP, and separately, investment in a third party managed mutual fund and equity interests in previous OED investment vehicles that have been repurposed to represent our digital liquid securities strategy effective March 31, 2020.

The increase in equity investments reflect additional funding in DCP, and reclassification of existing investments into our digital liquid securities strategy, including third party capital raised in our consolidated digital liquid opportunities fund in the third quarter of 2020.

• As of September 30, 2020, we have funded $168 million of our $250 million commitment to DCP (including $1.2 million of our GP interest that is reflected as an equity method investment in the Digital IM segment).

In connection with our strategic partnership with Wafra, Wafra will assume at least $60 million of our total commitment to DCP, of which $40 million was funded by Wafra in October 2020.

Operating Performance

Results of operations of our Digital Other segment are as follows:

Three Months Ended September 30, Nine Months Ended September 30,

(In thousands) 2020 2019 Change 2020 2019 Change

Equity method earnings (losses) $ 4,400 $ ( 251 ) $ 4,651 $ 12,647 $ ( 92 ) $ 12,739

Other gain (loss), net 2,917 — 2,917 4,826 — 4,826

Net income (loss) 6,757 (251) 7,008 16,014 (92) 16,106

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

5,616 (229) 5,845 14,097 (80) 14,177

• Operating results of our Digital Other segment in 2019 represent only our interest in DCP.

• There has been more notable contributions from DCP over time as the fund ramps up its investing activities, in particular contribution from DCP's Zayo co-investment acquired in February 2020.

Operating results in 2020 also encompass our new digital liquid securities strategy which includes the mark-to-market of equity securities

Wellness Infrastructure

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

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

Portfolio Overview

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)

June 30, 2020

December 31, 2019

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

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

(In thousands) September 30, 2020 December 31, 2019

Held for investment $ 3,484,033 $ 4,433,825

Held for sale

The following table presents selected operating metrics of our healthcare segment:

Number of Properties

Average Occupancy (1)

Held for disposition 43,874 57,664

Debt 2,739,140 2,910,032

The following table presents selected operating metrics of our Wellness Infrastructure segment:

Number of Properties Capacity Average Occupancy (1)

Average Remaining Lease Term (Years)

June 30, 2020

September 30, 2020

Senior housing — operating (2)

Medical office buildings

3.8 million sq.

53 4,771 units 75.2 % N/A

Medical office buildings 106 3.8 million sq.

Net lease—senior housing (2)

Net lease—skilled nursing facilities

Net lease—hospitals

65 3,529 units 79.1 % 11.7

Net lease—skilled nursing facilities 88 10,458 beds 72.7 % 5.1

Net lease—hospitals 9 456 beds 59.5 % 9.6

December 31, 2019

Senior housing — operating

Medical office buildings

3.8 million sq.

Net lease—senior housing

Net lease—skilled nursing facilities

Net lease—hospitals

83 6,388 units 86.5 % N/A

Medical office buildings 106 3.8 million sq.

Net lease—senior housing 71 4,039 units 80.7 % 11.5

Net lease—skilled nursing facilities 89 10,601 beds 82.7 % 5.8

Net lease—hospitals 9 456 beds 58.0 % 10.3

(1) Occupancy represents the property operator's patient occupancy for all types except medical office buildings.

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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

We sold a portfolio of net lease skilled nursing facilities totaling 143 beds and a land parcel in the first quarter of 2020 in our effort to monetize non-core assets in our healthcare segment.

(2) Six senior housing properties were transitioned from net leases into operating properties in April 2020.

Conveyance to Lender

In August 2020, we indirectly conveyed the equity of certain of our wellness infrastructure borrower subsidiaries, comprising 36 properties in its senior housing operating portfolio with a carrying value of $156.3 million and $157.5 million of outstanding principal on previously defaulted wellness infrastructure debt, to an affiliate of the lender, which released the Company from all rights and obligations with respect to those wellness infrastructure assets and corresponding debt.

We sold a portfolio of net lease skilled nursing facilities totaling 143 beds and a land parcel in the first quarter of 2020 in our effort to monetize non-core assets in our Wellness Infrastructure segment.

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

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.

Real estate assets with aggregate carrying value of $45.0 million are currently held for disposition, comprising a portfolio of net lease skilled nursing facilities totaling 766 beds and is encumbered with $45.0 million of debt that is in default.

The Company expects to apply proceeds from the sale to repay the debt.

Our wellness infrastructure portfolio is financed by $2.77 billion of outstanding debt principal, of which $0.4 billion is fixed rate debt and $2.37 billion is variable rate debt, bearing a combined weighted average interest rate of 4.08% per annum at September 30, 2020.

Operating Performance

Results of operations of our healthcare segment are as follows:

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands)

Results of operations of our Wellness Infrastructure segment are as follows:

Three Months Ended September 30, Nine Months Ended September 30,

(In thousands) 2020 2019 Change 2020 2019 Change

Total revenues $ 124,193 $ 136,091 $ (11,898) $ 406,055 $ 427,761 $ (21,706)

Net loss (6,969) (114,154) 107,185 (755,254) (205,080) (550,174)

Net loss attributable to Colony Capital, Inc.

(11,349) (84,222) 72,873 (497,371) (152,375) (344,996)

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, 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.

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

There was a loss of earnings in 2020 from sales of net lease properties in 2019.

The operating results of our wellness infrastructure portfolio was also affected by significant impairment charges of $92.9 million in the three months ended September 30, 2019, and $712.2 million and $144.2 million in the nine months ended September 30, 2020 and 2019, respectively, resulting in significant net losses during these periods.

Net Operating Income

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,

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

Three Months Ended September 30, Nine Months Ended September 30,

(In thousands) 2020 2019 2020 2019

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

(5,079) 1,235 (17,116) (8,809)

Interest income (2) — (100) —

Other income — — — (36)

Property operating expenses (57,459) (66,042) (198,778) (194,268)

NOI—Healthcare

NOI by healthcare portfolio is as follows:

Three Months Ended June 30,

Six Months Ended June 30,

NOI—Wellness Infrastructure $ 61,653 $ 71,284 $ 190,061 $ 224,648

NOI by type of wellness infrastructure portfolio is as follows:

Three Months Ended September 30, Change Nine Months Ended September 30, Change

($ in thousands) 2020 2019 $

% 2020 2019 $ %

Senior housing—operating $ 12,011 $ 15,612 $ (3,601) (23.1) % $ 37,851 $ 49,415 $ (11,564) (23.4) %

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Net lease—skilled nursing facilities

22,304 25,477 (3,173) (12.5) % 67,399 78,116 (10,717) (13.7) %

Net lease—hospitals 1,588 3,169 (1,581) (49.9) % 5,553 13,517 (7,964) (58.9) %

NOI—Healthcare

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

NOI—Wellness Infrastructure $ 61,653 $ 71,284 (9,631) (13.5) % $ 190,061 $ 224,648 (34,587) (15.4) %

NOI decreased $9.6 million and $34.6 million in the three and nine months ended September 30, 2020, respectively, of which $8.5 million and $24.5 million, respectively, were attributed to conveyance to a lender of 36 properties in a senior housing portfolio in August 2020, and sales of 25 net lease properties in 2019 and one in the first quarter of 2020.

The remaining decrease in NOI is attributed primarily to our senior housing operating portfolio resulting from the effects of COVID-19 as resident fee income decreased due to a decline in occupancy while operating costs increased, partially offset by government stimulus funding, as discussed further below.

Effects of COVID-19 on our Wellness Infrastructure Segment

Our first priority has been, and continues to be, the health and safety of the residents and staff at our communities.

We remain focused on supporting our operating partners during this challenging time.

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

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

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.

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

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.

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

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.

This resulted in an increase in lease income receivable totaling $0.2 million as of September 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.

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• 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.

We incurred $1.9 million and $9.6 million of such incremental costs in the three and nine months ended September 30, 2020, respectively, of which $2.7 million and $4.4 million, respectively, were abated through income received from 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 Wellness Infrastructure 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 own between 89.7% and 100% of the various portfolios within 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 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)

June 30, 2020

December 31, 2019

Held for investment

Held for sale

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

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 June 30,

Six Months Ended June 30,

Number of Hotel Properties

Number of Rooms

Average Occupancy

Select service

Extended stay

Select service

Extended stay

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.

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.

Operating Performance

Results of operations of our hospitality segment are as follows:

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands)

Total revenues

Net loss attributable to Colony Capital, Inc.

Operating results at the property level are discussed under NOI before FF&E Reserve below.

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.

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 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)

Total revenues

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

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

Three Months Ended June 30,

Six Months Ended June 30,

($ in thousands)

Select service

Extended stay

NOI before FF&E Reserve—Hospitality

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 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, 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 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.

We cannot predict when business will return to normal levels when the effects of COVID-19 subside.

Colony Credit Real Estate, Inc.

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

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

Mazzei was appointed Chief Executive Officer and President of CLNC effective April 1, 2020.

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.

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

This segment is composed of a diversified group of non-digital real estate and real estate-related debt and equity investments, including investments for which the Company acts as a general partner and/or manager ("GP co-investments") and receives various forms of investment management economics on related third-party capital on such investments, other real estate equity and debt investments and other real estate related securities, among other holdings.

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

Investments and financing in our other equity and debt portfolio are summarized below:

(In thousands)

June 30, 2020

December 31, 2019

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

This segment is composed of our other equity and debt or OED investments and non-digital investment management or Other IM business.

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

Many of the investments underlying these vehicles are co-owned by the Company’s balance sheet and categorized under OED.

Balance Sheet Information

Investments and corresponding debt financing in our Other segment are summarized below:

(In thousands) September 30, 2020 December 31, 2019

Held for investment $ 816,794 $ 937,978

Held for sale

Held for disposition 232,612 353,724

Equity and debt investments

Limited partnership interests in our sponsored and co-sponsored funds

CLNC 365,872 725,443

Interests in our sponsored and co-sponsored funds 49,717 67,164

Other equity investments (1)

1,128,323 1,411,974

CRE debt securities 27,898 57,591

Loans receivable (2)

Held for investment 1,272,820 1,518,058

Held for disposition 42,985 —

979,153 1,218,417

(1) Significant investments include acquisition, development and construction loans ($626.0 million) and preferred equity investments ($126.7 million).

(2) Carried at fair value upon adoption of fair value option on January 1, 2020.

Includes debt carrying value of $155.3 million related to real estate held for sale.

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

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands)

(3) Includes debt carrying value related to real estate held for disposition of $130.8 million and $200.6 million as of September 30, 2020 and December 31, 2019, respectively.

Operating Performance

Our Other segment generated the following results of operations:

Three Months Ended September 30, 2020 Three Months Ended September 30, 2019 Change

(In thousands) OED Other IM Total OED Other IM Total OED Other IM

Property operating income $ 27,121 $ — $ 27,121 $ 33,841 $ — $ 33,841 $ (6,720) $ —

Interest income 12,556 10 12,566 38,734 94 38,828 (26,178) (84)

Fee income — 23,871 23,871 — 97,865 97,865 — (73,994)

Other income 3,888 1,852 5,740 3,445 31,727 35,172 443

Total revenues 43,565 25,733 69,298 76,020 129,686 205,706 (32,455) (103,953)

Equity method earnings (losses) (66,829) (621) (67,450) 43,817 1,889 45,706 (110,646) (2,510)

Net income (loss) (240,291) 7,177 (233,114) 9,270 (358,143) (348,873) (249,561) 365,320

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

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.

(105,254) 6,538 (98,716) (3,831) (325,993) (329,824) (101,423) 332,531

Nine Months Ended September 30, 2020 Nine Months Ended September 30, 2019 Change

(In thousands) OED Other IM Total OED Other IM Total OED Other IM

Property operating income $ 82,258 $ — $ 82,258 $ 119,408 $ — $ 119,408 $ (37,150) $ —

Interest income 61,934 38 61,972 115,379 1,200 116,579 (53,445) (1,162)

Fee income — 71,799 71,799 — 164,326 164,326 — (92,527)

Other income 6,783 8,393 15,176 6,894 47,967 54,861 (111) (39,574)

Total revenues 150,975 80,230 231,205 241,681 213,493 455,174 (90,706) (133,263)

Equity method earnings (losses) (437,963) 84,537 (353,426) (168,376) (10,834) (179,210) (269,587) 95,371

Net loss (940,929) (470,693) (1,411,622) (198,429) (336,171) (534,600) (742,500) (134,522)

Net loss attributable to Colony Capital, Inc.

(572,936) (423,846) (996,782) (236,773) (305,617) (542,390) (336,163) (118,229)

• Earnings from our real estate investments and loans receivable in the OED portfolio has declined over time as we continue to monetize our investments, and the decrease also reflects the effects of COVID-19 in 2020.

The large net losses, however, resulted primarily from significant write-down in asset values, namely (i) OTTI on our investment in CLNC in 2020 and 2019;

(ii) unrealized losses on loans receivable and equity method investments carried at fair value in 2020;

and (iii) real estate impairment in both years.

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.

• The OED portfolio represents a meaningful source of liquidity from our ongoing efforts to monetize these investments.

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 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 its non-digital investment management business.

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 June 30,

Six Months Ended June 30,

(In thousands)

Total revenues (1)

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.

• Similar to monetization of the OED portfolio, we sold our equity interest in RXR Realty in February 2020 for proceeds of $179 million (net of tax), recording a gain of $97 million (net of tax).

This represents one of two equity investments in third party real estate asset managers held in the Other IM segment.

• Year-to-date, the above gain was offset by significant goodwill impairment and a reversal of carried interest allocation in the first six months of 2020, while fee income from the Other IM business continues to decline each quarter, in particular as the third quarter of 2019 had included large one time fees from NRE.

Other income in the

Other IM segment represents primarily cost reimbursement income from affiliates which has a corresponding gross-up in expenses, with no effect to net loss.

Refer to further discussion in " —Results of Operations.

• The Other IM business is expected to run-off over time as limited life investment vehicles are in the liquidation phase and no new third party capital is raised in the non-digital business.

Non-GAAP Supplemental Financial Measures

The Company reports funds from operations ("FFO") as an overall non-GAAP supplemental financial measure.

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.

The Company also reports EBITDA re for the Digital Operating segment, NOI for the Wellness Infrastructure 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.

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.

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(In thousands) 2020 2019 2020 2019

Net loss attributable to common stockholders

$ (205,784) $ (554,953) $ (2,610,207) $ (1,125,956)

Adjustments for FFO attributable to common interests in Operating Company and common stockholders:

Net loss attributable to noncontrolling common interests in Operating Company

(22,651) (53,560) (287,309) (90,160)

Real estate depreciation and amortization

162,705 116,615 424,950 430,513

Impairment of real estate

Loss (gain) on sales of real estate

142,767 177,900 1,925,297 291,122

Gain on sales of real estate (12,332) (12,928) (15,346) (75,250)

Adjustments attributable to noncontrolling interests in investment entities (1)

(146,905) (67,498) (558,835) (191,477)

FFO attributable to common interests in Operating Company and common stockholders

$ (82,200) $ (394,424) $ (1,121,450) $ (761,208)

(1) 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,

Three Months Ended September 30, Nine Months Ended September 30,

(In thousands) 2020 2019 2020 2019

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Impairment of real estate 70,734 45,192 390,708 96,538

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;

Gain on sales of real estate (8,081) (8,311) (10,339) (43,134)

$ 146,905 $ 67,498 $ 558,835 $ 191,477

We calculate EBITDA re for our Digital Operating 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;

(ii) income tax benefit (expense);

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EBITDA re depicts the operating performance of a real estate business independent of its capital structure, leverage and noncash items, which allows for comparability across real estate entities with different capital structure, tax rates and depreciation or amortization policies.

Additionally, exclusion of gains on disposition and impairment of depreciated real estate, similar to FFO, also provides a reflection of on-going operating performance and allows for period-over-period comparability.

Additionally, exclusion of gains on disposition and impairment of depreciated real estate, similar to FFO, also provides a reflection of ongoing operating performance and allows for period-over-period comparability.

As with other non-GAAP measures, the usefulness of EBITDA re may be limited.

For example, EBITDA re focuses on profitability from operations, and does not take into account financing costs, and capital expenditures needed to maintain operating real estate.

NOI for our healthcare and hospitality segments represent total property and related income less property operating expenses, adjusted primarily for the effects of (i) straight-line rental income adjustments;

NOI for our Wellness Infrastructure segment represents total property and related income less property operating expenses, adjusted primarily for the effects of (i) straight-line rental income adjustments;

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 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.

We believe that NOI is a useful measure of operating performance of our wellness infrastructure portfolio as it is more closely linked to the direct results of operations at the property level.

NOI also reflects actual rents received during the period after adjusting for the effects of straight-line rents and amortization of above- and below-market leases;

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Additionally, by excluding corporate level expenses or benefits such as interest expense, any gain or loss on early extinguishment of debt and income taxes, which are incurred by the parent entity and are not directly linked to the operating performance of our properties, NOI provides a measure of operating performance independent of our capital structure and indebtedness.

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.

However, the exclusion of these items as well as others, such as capital expenditures 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.

Digital Real Estate

Hospitality (1)

Three Months Ended June 30, 2020

Three 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

EBITDA re / NOI / NOI before FF&E Reserve

Digital Real Estate

Hospitality (1)

Six Months Ended June 30, 2020

Six Months Ended June 30,

The following tables present reconciliations of net loss of the Digital Operating segment to EBITDA re , and net loss of the Wellness Infrastructure segment to NOI.

Digital Operating Wellness Infrastructure

Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020 Three Months Ended September 30, Nine Months Ended September 30,

(In thousands)

2020 2019 2020 2019

$ (38,479) $ (77,916) $ (6,969) $ (114,154) $ (755,254) $ (205,080)

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

— — (5,079) 1,235 (17,116) (8,809)

Interest income

— — (2) — (100) —

— — — — — (36)

Interest expense

18,589 36,161 32,310 46,029 106,875 150,691

Transaction, investment and servicing costs

— — 1,031 1,009 4,836 13,214

Depreciation and amortization

73,107 131,709 31,961 38,998 106,401 119,907

Impairment loss

— — 2,451 92,885 712,238 144,209

Compensation and administrative expense

— — 4,104 4,137 12,336 10,291

Gain on sale of real estate

— — (186) (833) (186) (833)

Other (gain) loss, net

45 45 (3,836) 2,544 2,157 2,938

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.

(6,091) (14,494) 5,868 (566) 17,874 (1,844)

EBITDA re / NOI

$ 47,171 $ 75,505 $ 61,653 $ 71,284 $ 190,061 $ 224,648

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.

and (ii) issuance of $300 million of exchangeable notes by the OP and repurchase of $371 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.

Other than the remaining $31.5 million outstanding principal on our 3.875% convertible senior notes which will be paid off at maturity in January 2021, we have no corporate debt maturities until 2023.

As of November 2, 2020, our liquidity position was approximately $0.8 billion, composed of cash on hand and the full $500 million available under our corporate credit facility.

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 $46 million, mostly from headcount and compensation related cost reductions.

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• 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;

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

• investment-level financing;

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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);

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

• $29 million of lending commitments to borrowers;

• $19 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.

• $148 million of remaining capital commitments to Company sponsored and third party sponsored funds, of which $82 million is for DCP.

As of September 30, 2020, we have funded $168 million of our $250 million commitment to DCP.

In connection with our strategic partnership with Wafra, Wafra will assume at least $60 million of our total commitment to DCP, of which $40 million was funded by Wafra in October 2020.

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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Shares Outstanding

June 30, 2020

(In thousands)

Quarterly Cash Distributions

Dividend Rate Per Annum

September 30, 2020

(In thousands) Quarterly Cash Distributions

Description Dividend Rate Per Annum Total

(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.

Series G 7.5% 3,450 $ 1,617 $ 0.4687500

Series H 7.125% 11,500 5,121 0.4453125

Series I 7.15% 13,800 6,167 0.4468750

Series J 7.125% 12,600 5,611 0.4453125

41,350 $ 18,516

Sources of Liquidity

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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.

Following the onset of COVID-19, our hotel properties incurred negative operating cash flows in April and May 2020, having recovered to slightly positive operating cash flows since June 2020.

We have since taken various steps to minimize operating expenses, as appropriate, in order to minimize cash needs, as we continue to operate these hotels prior to finalizing the sale of these assets.

Any cash flows generated from hotel assets that are in receivership, however, are controlled by the receivers and applied to service the underlying debt.

Asset Monetization

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.

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

In 2020, we continue to accelerate the sale of 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.

We have various forms of investment-level financing which are non-recourse to the Company (Notes 10 and 8 to the consolidated financial statements).

In order to minimize cash needs, we did not make debt service payments on certain non-recourse investment level debt, which resulted in the default of a combined $1.3 billion of debt financing our hotel assets as of the date of this filing.

Of this amount, $0.5 billion of debt is under negotiation with the lender to restructure, while the remaining $0.8 billion of debt has been accelerated by the lender and underlying assets placed in receivership.

The pending sale of our hotel assets with assumption of underlying debt by the acquirer will result in $2.7 billion of investment-level debt removed from our balance sheet upon closing of the sale, which is expected in the first quarter of 2021.

Corporate Credit Facility

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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.

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.

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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.

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

Convertible and Exchangeable Senior Notes

In July 2020, the OP issued $300 million of exchangeable senior notes with maturity in July 2025, bearing interest at 5.75% per annum.

We repurchased $371 million of the outstanding principal of the 3.875% convertible senior notes, funded with net proceeds from issuance of the 5.75% exchangeable senior notes in July 2020 and cash on hand through a tender offer of the 3.875% convertible senior notes completed in September 2020.

This substantially addresses the January 2021 maturity of the 3.875% convertible senior notes, with the remaining $31.5 million outstanding principal expected to be addressed through cash on hand and/or proceeds from future asset monetization.

As of September 30, 2020, we have total outstanding principal of $545 million on our senior notes, with a weighted average of 3.9 years remaining to maturity, and bearing weighted average interest of 5.36% 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.

Our junior subordinated debt represents an obligation of a subsidiary of the OP that holds wellness infrastructure, 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% .

As of September 30, 2020, we have total outstanding principal of $280 million on our junior subordinated debt, with a weighted average of 15.7 years remaining to maturity, and bearing weighted average interest rate of 3.10% per annum.

Public Offerings

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

Six Months Ended June 30,

Nine Months Ended September 30,

(In thousands) 2020 2019

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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 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.

Our operating activities generated net cash inflows of $89.9 million compared to $234.6 million in the nine months ended September 30, 2020 and 2019, respectively.

Specifically, the nine months ended September 30, 2019 had included the following activities:

• $142.6 million of operating cash inflows from our industrial business;

• receipt of $64.6 million of incentive and termination fees from NRE upon termination of our management agreement concurrent with the sale of NRE;

• partially offset by payment of $223.9 million for settlement of $1.2 billion of the $2.0 billion notional amount on the forward starting interest rate swap assumed through the Merger.

In contrast, operating cash flows in the nine months ended September 30, 2020 included the following:

• the DataBank business acquired in December 2019 using proceeds from sale of the industrial business that is a much smaller portfolio and Vantage SDC acquired only in July 2020, which in combination, contributed less operating cash flows in 2020 relative to the industrial business in 2019;

• operating cash flows were negatively affected by the fallout from COVID-19, particularly in our hotel and wellness infrastructure businesses .

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 $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.

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.

Investing activities include primarily 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, and proceeds from sale of real estate and equity investments.

Our investing activities generated net cash outflows of $981.9 million and $937.7 million in the nine months ended September 30, 2020 and 2019, respectively.

• Real estate investments —Our real estate investment activities in the nine months ended September 30, 2020 and 2019 generated net cash outflows of $1.0 billion and $1.1 billion, respectively, driven by the acquisitions of Vantage SDC in July 2020 and the light and bulk industrial portfolio in February 2019.

The entire light industrial portfolio was sold in December 2019.

• Equity investments —The investing cash outflows in the nine months ended September 30, 2020 were partially offset by net cash inflows from our equity investments of $89.8 million and $107.0 million in the nine months ended September 30, 2020 and 2019, respectively.

The net cash inflow in 2020 was driven by $179.1 million of net proceeds from sale of our investment in RXR Realty and $87.4 million from recapitalization of our joint venture investment in Albertsons, representing amounts recognized as a return of investment, both of which were partially offset by contributions to DCP of $115.9 million and additional draws on ADC loans that are accounted for as equity method investments.

In 2019, the sale of our interest in NRE generated proceeds of $96.0 million.

• Debt investments —Our loan and securities portfolio contributed net cash outflows of $44.9 million in the nine months ended September 30, 2020 but generated net cash inflows of $227.2 million in the nine months ended September 30, 2019 as 2019 included proceeds from sale of loans and loan repayments outpaced disbursements.

• Business acquisition —2019 also included net cash outlay of $181.2 million for acquisition of the DBH investment management business.

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 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 .

Financing activities generated net cash inflows of $363.2 million and $605.9 million in the nine months ended September 30, 2020 and 2019, respectively.

• The financing cash inflows in the nine months ended September 30, 2020 were driven by $1.3 billion of net contributions from noncontrolling interests, of which $1.0 billion represents third party investors in Vantage SDC, primarily fee bearing capital that we raised, and $253.6 million was an investment by Wafra in our digital investment management business.

• However, the cash inflows in 2020 were largely offset by:

(i) cash outflow of $402.9 million in January 2020 for settlement of the December 2019 redemption of our Series B and E preferred stock using proceeds from our industrial sale;

(ii) repayments on our investment level debt exceeding borrowings for a net cash outflow of $298.3 million;

(iii) dividends paid on our preferred and common stock of $167.3 million in 2020 which was relatively lower than 2019 as a result of the preferred stock redemption in December 2019 and suspension of common stock dividends beginning the second quarter of 2020;

and (iv) partial repurchase of our 3.875% convertible senior notes for $81.3 million through a tender offer in September 2020.

An additional repurchase of our 3.875% convertible senior notes for $289.7 million was made through a concurrent application of all of the net proceeds from our issuance of $300.0 million of new 5.75% exchangeable senior notes in July 2020.

• For the nine months ended September 30, 2019, the financing cash inflows were driven by borrowings exceeding debt repayments by $750.0 million, specifically $952.0 million of borrowings in our industrial segment, primarily to fund the industrial portfolio acquisition in February 2019, the majority of which were repaid or assumed by the buyer upon sale of the assets in December 2019.

• Additionally, net contributions from noncontrolling interests also generated cash inflows of $113.5 million in the nine months ended September 30, 2019.

• The cash inflows in 2019 were partially offset by dividends paid on our preferred and common stock totaling $241.9 million.

Contractual Obligations, Commitments and Contingencies

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We use many methods to actively manage our risk to preserve our income and capital, including, but not limited to, maintaining dialogue with tenants, operators, partners and/or borrowers and performing regular inspections of our collateral and owned properties.

With respect to our healthcare properties, we consider the impact of regulatory changes on operator performance and property values.

With respect to our wellness infrastructure properties, we consider the impact of regulatory changes on operator performance and property values.

During a quarterly review, or more frequently as necessary, investments are monitored and identified for possible asset impairment or loan loss reserves, as applicable, based upon several factors, including missed or late contractual payments, significant declines in property operating performance and other data which may indicate a potential issue in our ability to recover our invested capital from an investment.

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• Other-than-temporary impairment on equity method investments—Note 6

• Fair value measurement of equity method investments under fair value option—Note 12

• Fair value measurement of loans receivable under fair value option—Note 12

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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