DigitalBridge Group, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 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 . Overview 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. ("Colony"), NorthStar Asset Management Group Inc. ("NSAM") and NorthStar Realty Finance Corp. ("NRF"). We elected to be taxed as a real estate investment trust (" REIT") for U.S. federal income tax purposes commencing with its initial taxable year ended December 31, 2017. We conduct our operations as a REIT, and generally are not subject to U.S. federal income taxes on our taxable income to the extent that we annually distribute all of our taxable income to stockholders and maintain qualification as a REIT, although we are subject to U.S. federal income tax on income earned through our taxable subsidiaries. We also operate our business in a manner that will permit us to maintain our exemption from registration as an investment company under the 1940 Act. We conduct substantially all of our activities and hold substantially all of our assets and liabilities through our Operating Company. At September 30, 2020 , we owned 90% of the Operating Company, as its sole managing member. Our Business Our vision is to establish the Company as a leading owner, operator and investment manager of digital infrastructure and real estate. We are currently the only global REIT that owns, manages, and/or operates across all major infrastructure components of the digital ecosystem including data centers, cell towers, fiber networks and small cells . To execute this vision, the Company combined with Digital Bridge Holdings, LLC (“DBH”) in July 2019. DBH is an investment manager dedicated to digital real estate and infrastructure, managing approximately $14 billion of assets under management (“AUM”) and approximately $7 billion of fee earning equity under management (“FEEUM”) across six separately capitalized and managed portfolio companies and the $4 billion Digital Colony Partners fund (“DCP”). As previously disclosed, Marc C. Ganzi, who co-founded DBH, became the Chief Executive Officer ("CEO") of the Company effective July 1, 2020. In connection with Mr. Ganzi’s appointment as the Company’s CEO, on June 30, 2020, the Board of Directors of the Company (the "Board") appointed Mr. Ganzi to the Board and to serve as President of the Company (in addition to his role as CEO), also effective as of July 1, 2020. Mr. Ganzi is poised to lead the Company’s strategic repositioning in becoming the leading platform for digital infrastructure and real estate. Further, the combination with DBH brings its world-class team of investment professionals and management of the DBH portfolio of high performing assets under the combined Digital Colony franchise. Thomas J. Barrack, Jr., who, prior to July 1, 2020, served as the Company’s CEO and President, continues to serve in his role as Executive Chairman of the Company and the Board. In addition, Jacky Wu was appointed as the Company’s Chief Financial Officer and Treasurer, effective July 1, 2020. 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 75 Table of Contents 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. • 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. 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 achievement of minimum return hurdles. Acceleration of Digital Transformation and COVID-19 Considerations The world continues to face significant healthcare and economic challenges arising from the coronavirus disease 2019, or COVID-19, global pandemic. Efforts to address the pandemic, such as social distancing, closures or reduced capacity of retail and service outlets, hotels, factories and public venues, often mandated by governments, are having a significant impact on the global economy and financial markets across major industries, including many sectors of real estate. 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; incremental property operating costs such as labor and supplies in response to COVID-19; potential payment defaults on the Company's loans receivable; and a distressed market affecting real estate values in general. Such adverse impact may continue well beyond the containment of the COVID-19 pandemic. Furthermore, the COVID-19 crisis may also lead to heightened risk of litigation at the investment and corporate level, with an ensuing increase in litigation and related costs. The sharp decline and volatility in equity and debt markets, and the economic recession due to COVID-19 have adversely affected the valuation of certain of the Company's financial assets carried at fair value, and also resulted in impairment on certain non-financial assets. Such effects include the determination that the Company's equity method investment in CLNC was other-than-temporarily impaired at June 30, 2020 (Note 6), decreases in fair value of debt securities (Note 6) and loans receivable (Note 12), and impairment of 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 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 76 Table of Contents 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 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 In March 2020, the Company entered into a cooperation agreement with Blackwells Capital LLC ("Blackwells"), a stockholder of the Company. Pursuant to the cooperation agreement, the Company nominated Jeannie Diefenderfer for election to its board of directors (the "Board") at the 2020 Annual Meeting of Stockholders (the “Annual Meeting”) on May 5, 2020, at which Ms. Diefenderfer was elected to the Board. In addition to withdrawing its previously submitted director nominees for election at the Annual Meeting, Blackwells agreed to vote its and its affiliates shares of the Company’s stock in accordance with the Board’s voting recommendations on all proposals (including in favor of the Board’s director nominees), subject to certain limited exceptions, prior to the third anniversary of the agreement. Furthermore, Blackwells agreed to a standstill with respect to the Company until the expiration of the cooperation agreement in March 2030. Contemporaneously, the Company and Blackwells entered into a joint venture arrangement for the purpose of acquiring, holding and disposing of CLNY common stock. 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 77 Table of Contents 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. Refer to Note 12 of the consolidated financial statements for further description of the settlement liability. Developments in 2020 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. Liquidity We addressed near-term corporate maturities and enhanced our long-term capital structure and liquidity profile as follows: • Amended our Credit Agreement in June 2020, which reduced aggregate revolving commitments from $750 million to $500 million and increased the interest rate on borrowings from LIBOR plus 2.25% to LIBOR plus 2.5% per annum. The amended terms provide for greater financial covenant flexibility and more borrowing base credit for digital investments. The credit facility is still scheduled to expire in January 2021, with two 6-month extension options. During the extension term(s), the interest rate would increase by 0.25%, and effective March 31, 2021, credit availability would be reduced to $400 million. • In July 2020, 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 Strategic Partnership in Our Digital Investment Management Business • In July 2020, formed a strategic partnership with affiliates of Wafra, Inc. (collectively, "Wafra") in which Wafra made a minority investment representing an approximate 31.5% interest in 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 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 at least $130 million. Wafra has also agreed to make commitments to the Company's future digital funds and investment vehicles on a pro rata basis with the Company based on Wafra's percentage interest in the Digital IM Business, subject to certain caps. Wafra's investment provides us with permanent capital to pursue strategic digital infrastructure investments and grow the Digital IM Business. Refer to Note 15 to the consolidated financial statements for further discussion of the Wafra transaction. Investment in Hyperscale Data Centers • 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 78 Table of Contents 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 $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; and • $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. 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. 79 Table of Contents (In thousands) Total Revenues Income (Loss) from Continuing Operations Net Income (Loss) Attributable to Colony Capital, Inc. from Continuing Operations 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 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 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. 80 Table of Contents Consolidated Results of Operations 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 Revenues 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) Other income 11,820 38,051 (26,231) Total revenues 316,677 359,000 (42,323) Expenses 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 Total expenses 454,178 949,984 (495,806) Other income (loss) Gain on sale of real estate 13,258 8,221 5,037 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 benefit (expense) 9,922 (10,096) 20,018 Loss from continuing operations (184,216) (591,496) 407,280 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) Operating Company (22,651) (53,560) 30,909 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 81 Table of Contents Property Operating Income and Property Operating Expenses Three Months Ended September 30, (In thousands) 2020 2019 Change Property operating income: 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: 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 $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 Fee income is earned from the following sources: 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) Other 485 615 (130) Subtotal — Other segment 23,871 97,865 (73,994) $ 43,919 $ 111,854 (67,935) 82 Table of Contents 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; and • $4.1 million decrease in fees from CLNC due to a lower stockholders' equity fee base.. Other Income 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 September 30, (In thousands) 2020 2019 Change Investment-level financing: 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 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 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 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 83 Table of Contents management contract in September 2019 and write-down of NorthStar Healthcare management contract in December 2019. Impairment Loss 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 September 30, (In thousands) 2020 2019 Change Cash compensation and benefits $ 47,109 $ 48,826 $ (1,717) Equity-based compensation 7,542 9,119 (1,577) 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 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 $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. 84 Table of Contents Equity Method Earnings (Losses) 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 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); and • $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; 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. 85 Table of Contents Income (Loss) from Discontinued Operations Three Months Ended September 30, 2020 Three Months Ended September 30, 2019 Change (In thousands) Hotel Industrial Total Hotel Industrial Total Hotel Industrial Revenues 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) Expenses 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) Hotel 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. 86 Table of Contents • 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; and • 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. Industrial 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. 87 Table of Contents 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 Revenues 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) Other income 30,069 64,061 (33,992) Total revenues 897,750 907,710 (9,960) Expenses 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 Settlement loss 5,090 — 5,090 Total expenses 2,561,813 1,675,764 886,049 Other income (loss) Gain on sale of real estate 24,058 42,841 (18,783) Other loss, net (199,320) (182,560) (16,760) Equity method losses (319,831) (178,448) (141,383) Equity method earnings (losses)—carried interest (14,653) 6,258 (20,911) Loss before income taxes (2,173,809) (1,079,963) (1,093,846) Income tax expense (3,246) (11,723) 8,477 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) Operating Company (287,309) (90,160) (197,149) 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) 88 Table of Contents Property Operating Income and Property Operating Expenses Nine Months Ended September 30, (In thousands) 2020 2019 Change Property operating income: 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: 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 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 $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 $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 Fee income is earned from the following sources: 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) Other 1,574 3,166 (1,592) Subtotal — Other segment 71,799 164,326 (92,527) $ 130,964 $ 178,315 (47,351) 89 Table of Contents 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; and • $11.2 million decrease in fees from CLNC due to a lower stockholders' equity fee base. Other Income 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 Nine Months Ended September 30, (In thousands) 2020 2019 Change Investment-level financing: 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 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. 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 $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. 90 Table of Contents Transaction Costs 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 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 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. 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 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. 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. 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. 91 Table of Contents Compensation Expense The following table provides the components of compensation expense. 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 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 $11.8 million higher, largely attributable to higher insurance, legal and professional service costs. Settlement Loss Amount represents fair value of the settlement arrangement with Blackwells at inception in March 2020, including reimbursement of legal costs. Refer to additional discussion in Note 12 to the consolidated financial statements. Gain on Sale of Real Estate There were higher gains in 2019 from sales of our European properties and U.S. multi-tenant office buildings. 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) 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. 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. 92 Table of Contents 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: 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); and • $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 ($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 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. 93 Table of Contents Income (Loss) from Discontinued Operations Nine Months Ended September 30, 2020 Nine Months Ended September 30, 2019 Change (In thousands) Hotel Industrial Total Hotel Industrial Total Hotel Industrial Revenues 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) Expenses 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) Hotel 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 94 Table of Contents 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; • 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; and • 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. Industrial 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. AUM (1) (In billions) FEEUM (2) (In billions) 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. (4) NYSE-listed credit REIT 2.7 3.5 2.0 2.2 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 __________ (1) Assets for which the Company and its affiliates provide investment management services, including assets for which the Company may or may not charge management fees and/or performance allocations. AUM is based on the cost basis of managed investments as reported by each underlying vehicle as of the end of the reporting period and includes uncalled capital commitments. The Company's calculations of AUM may differ from other asset managers, and as a result, may not be comparable to similar measures presented by other asset managers. 95 Table of Contents (2) Equity for which the Company and its affiliates provide investment management services and derive management fees and/or incentives. FEEUM generally represents the basis used to derive fees, which may be based upon invested equity, stockholders’ equity, or fair value pursuant to the terms of each underlying investment management agreement. The Company's calculation of FEEUM may differ from other asset managers, and as a result, may not be comparable to similar measures presented by other asset managers. (3) Effective June 30, 2020, we no longer include the Company's share of AUM and FEEUM managed by third party asset managers in which we have an equity interest. AUM and FEEUM for December 31, 2019 have been revised to conform to the current definition. (4) Represents third party ownership share of CLNC's pro rata share of total assets, excluding consolidated securitization trusts. • 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. • 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. Segments The following discussion summarizes key information on our reportable segments. 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. Strategic Partnership in Our Digital Investment Management 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. 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 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 at least $130 million. Wafra has also agreed to make commitments to the Company's future digital funds and investment vehicles on a pro rata basis with the Company based on Wafra's percentage interest in the Digital IM Business, subject to certain caps. Wafra's investment provides us with permanent capital to pursue strategic digital infrastructure investments and grow the Digital IM Business. Refer to Note 15 to the consolidated financial statements for further discussion of the Wafra transaction. 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) 96 Table of Contents • 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. 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 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. and Europe. 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 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. Financing 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. 97 Table of Contents 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 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 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. " (In thousands) Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020 Total revenues $ 98,549 $ 185,737 Property operating expenses (37,544) (72,505) Transaction, investment and servicing costs (2,242) (3,015) Compensation and administrative expense (11,592) (34,712) 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. 98 Table of Contents 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. 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. We own between 69.6% and 81.3% of the various portfolios within our Wellness Infrastructure segment. Portfolio Overview 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 Real estate Held for investment $ 3,484,033 $ 4,433,825 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) September 30, 2020 Senior housing — operating (2) 53 4,771 units 75.2 % N/A Medical office buildings 106 3.8 million sq. ft. 83.0 % 4.5 Net lease—senior housing (2) 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 Total 321 December 31, 2019 Senior housing — operating 83 6,388 units 86.5 % N/A Medical office buildings 106 3.8 million sq. ft. 82.2 % 4.8 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 Total 358 99 Table of Contents __________ (1) Occupancy represents the property operator's patient occupancy for all types except medical office buildings. Average occupancy is based upon the number of units, beds or square footage by type of facility. Occupancy percentages are presented as follows: (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. (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. 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 Wellness Infrastructure segment. We received gross proceeds of $7.5 million, from which we paid off $6.5 million of associated debt. 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. Financing 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 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 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. 100 Table of Contents Net Operating Income 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 Total revenues $ 124,193 $ 136,091 $ 406,055 $ 427,761 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—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) % Medical office buildings 12,527 12,923 (396) (3.1) % 38,886 38,828 58 0.1 % Net lease—senior housing 13,223 14,103 (880) (6.2) % 40,372 44,772 (4,400) (9.8) % 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—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 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 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. The Company will be directly impacted by these factors in its RIDEA assets, and indirectly impacted in its net leased assets as these factors influence tenants’ ability to pay rent. • In our medical office portfolio, beginning in April 2020, a number of tenants failed to make rent payments or make timely payments, and some sought more flexible payment terms or rent concessions as a result of the COVID-19 crisis. Local governments in certain jurisdictions have implemented or are considering implementing programs that permit or require forbearance of rent payments by tenants affected by COVID-19. The Company is currently engaged with affected tenants on a case-by-case basis to evaluate and respond to the current environment. 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 three to 15 months. This resulted in an increase in lease income receivable totaling $0.2 million as of September 30, 2020. All lease income receivable, including 101 Table of Contents straight-line rents, are subject to the Company's policy for evaluation of collectability based upon creditworthiness of the lessee. • In our senior housing operating portfolio, statutory or self-imposed restrictions began to limit admission of new residents into our communities starting in March 2020 in an effort to contain COVID-19. Also, we continue to face challenges from existing communities that have experienced infections, heightened risk of resident and staff illness and resident move-outs, particularly in those communities that have experienced infections. There is typically a period of time where restrictions on admissions continue to be imposed in communities that have experienced infections until such time that infections are no longer detected. As a result, we anticipate a decline in occupancy to continue as the rate of resident move-outs continue to outpace new resident admissions. • Operating costs in our senior housing operating portfolio have risen as our healthcare operators take action to protect their residents and staff, specifically higher labor costs, as well as higher usage and cost of personal protective equipment, and medical and sanitation supplies. We incurred $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 wellness infrastructure business is uncertain at this time, and largely dependent on the duration and severity of the COVID-19 crisis. Other This segment is composed of our other equity and debt or OED investments and non-digital investment management or Other IM business. 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. 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 achievement of minimum return hurdles. Balance Sheet Information Investments and corresponding debt financing in our Other segment are summarized below: (In thousands) September 30, 2020 December 31, 2019 Real estate Held for investment $ 816,794 $ 937,978 Held for disposition 232,612 353,724 Equity and debt investments 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 — Debt (3) 979,153 1,218,417 102 Table of Contents _________ (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. (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. (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) OED • 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. " • 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. Other IM • 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 103 Table of Contents 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 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. Our calculation of FFO, EBITDA re and NOI may differ from methodologies utilized by other REITs for similar performance measurements, and, accordingly, may not be comparable to those of other REITs. Funds from Operations We calculate FFO in accordance with standards established by the National Association of Real Estate Investment Trusts ("NAREIT"), which defines FFO as net income or loss calculated in accordance with GAAP, excluding (i) extraordinary items, as defined by GAAP; (ii) gains and losses from sales of depreciable real estate; (iii) impairment write-downs associated with depreciable real estate; and (iv) gains and losses from a change in control in connection with interests in depreciable real estate or in-substance real estate; plus (v) real estate-related depreciation and amortization; and (vi) including similar adjustments for equity method investments. Included in FFO are gains and losses from sales of assets which are not depreciable real estate such as loans receivable, equity method investments, and equity and debt securities, as applicable. We believe that FFO is a meaningful supplemental measure of the operating performance of our business because historical cost accounting for real estate assets in accordance with GAAP assumes that the value of real estate assets diminishes predictably over time, as reflected through depreciation. Because real estate values fluctuate with market conditions, management considers FFO an appropriate supplemental performance measure by excluding historical cost depreciation, gains related to sales of previously depreciated real estate, and impairment of previously depreciated real estate which is an early recognition of loss on sale. The following table presents a reconciliation of net income attributable to common stockholders to FFO attributable to common interests in Operating Company and common stockholders. Amounts in the table include our share of activity in unconsolidated ventures. 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 142,767 177,900 1,925,297 291,122 Gain on sales of real estate (12,332) (12,928) (15,346) (75,250) Less: 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) __________ 104 Table of Contents (1) The components of adjustments attributable to noncontrolling interests in investment entities for FFO are as follows: Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2020 2019 2020 2019 FFO adjustments attributable to noncontrolling interests in investment entities: Real estate depreciation and amortization $ 84,252 $ 30,617 $ 178,466 $ 138,073 Impairment of real estate 70,734 45,192 390,708 96,538 Gain on sales of real estate (8,081) (8,311) (10,339) (43,134) $ 146,905 $ 67,498 $ 558,835 $ 191,477 EBITDAre 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); (iii) depreciation and amortization; (iv) gains on disposition of depreciated real estate, including gains or losses on change of control; (v) impairment write-downs of depreciated real estate and of investments in unconsolidated affiliates caused by a decrease in value of depreciated real estate in the affiliate; and (vi) including similar adjustments for equity method investments to reflect the Company's share of EBITDAre of unconsolidated affiliates EBITDA re represents a widely known supplemental measure of performance, EBITDA, but for real estate entities, which we believe is particularly helpful for generalist investors in REITs. 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 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 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. 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; therefore, a comparison of NOI across periods better reflects the trend in occupancy rates and rental rates at our properties. NOI excludes historical cost depreciation and amortization, which are based upon different useful life estimates depending on the age of the properties, as well as adjust for the effects of real estate impairment and gains or losses on sales of depreciated properties, which eliminate differences arising from investment and disposition decisions. This allows for comparability of operating performance of our properties period over period and also against the results of other equity REITs in the same sectors. 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 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. 105 Table of Contents Reconciliation of Non-GAAP Financial Measures 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 Net loss $ (38,479) $ (77,916) $ (6,969) $ (114,154) $ (755,254) $ (205,080) Adjustments: 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) 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 (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 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 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. 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. While the Company is in compliance with its corporate debt covenants and currently has sufficient liquidity to meet its operational needs, general concerns over credit and liquidity continue to permeate the financial markets in an economic downturn environment. The Company continues to evaluate opportunities to maintain and strengthen its liquidity position through the current economic recession. Liquidity Needs and Sources of Liquidity Our current primary liquidity needs are to fund: • our general partner commitments to our future investment vehicles and co-investment commitments to other investment vehicles; • acquisitions of our target digital assets for our balance sheet and third party capital and related ongoing commitments; • principal and interest payments on our debt; • our operations, including compensation, administrative and overhead costs; 106 Table of Contents • capital expenditures for our non-digital and digital real estate investments; • distributions to our common and preferred stockholders (to the extent distributions have not been temporarily suspended); and • income tax liabilities of taxable REIT subsidiaries and of the Company subject to limitations as a REIT. Our current primary sources of liquidity are: • cash on hand; • our corporate revolving credit facility; • cash flow generated from our investments, both from operations and return of capital; • fees received from our investment management business, including incentive or carried interest payments, if any; • proceeds from full or partial realization of investments and/or businesses, particularly from investments in the Other segment; • investment-level financing; • proceeds from public or private equity and debt offerings; and • third party co-investors in our consolidated investments and/or businesses. Distribution requirements imposed on us to qualify as a REIT generally require that we distribute to our stockholders 90% of our taxable income, which constrains our ability to accumulate operating cash flows. Liquidity Needs Investment Commitments 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; and • $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. Dividends U.S. 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. We intend to pay regular quarterly dividends to our stockholders in an amount equal to our net taxable income, if and to the extent authorized by our board of directors. Before we pay any dividend, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and debt service, if any. If our cash available for distribution is less than our net taxable income, we may be required to sell assets or borrow funds to make cash distributions or we may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities. Common Stock —Our board of directors declared a dividend of $0.11 per share of common stock for the first quarter of 2020. The Company suspended dividends on its class A common stock beginning with the second quarter of 2020. Under the terms of the Company's amended credit facility, the Company is restricted from paying common dividends other than to maintain the Company’s status as a REIT or to reduce income tax payments. The Company will continue to monitor its financial performance and liquidity position, and as economic conditions improve, the Company will reevaluate its dividend policy in consultation with its revolver lending group. 107 Table of Contents Preferred Stock— We are required to make quarterly cash distributions on our outstanding preferred stock, with a weighted average dividend rate of 7.16% per annum, as follows. Shares Outstanding September 30, 2020 (In thousands) Quarterly Cash Distributions Description Dividend Rate Per Annum Total (In thousands) Per Share 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 Cash From Operations Our investments generate cash, either from operations or as a return of our invested capital. We primarily generate revenue from net operating income of our real estate properties. We also generate interest income from commercial real estate related loans and securities as well as receive periodic distributions from our equity investments, including our GP co-investments. Such income is partially offset by interest expense associated with non-recourse borrowings on our investments. Additionally, we generate fee revenue from our investment management business. Management fee income is generally a predictable and stable revenue stream, while carried interest and contractual incentive fees are by nature less predictable in amount and timing. Our ability to establish new investment vehicles and raise investor capital depends on general market conditions and availability of attractive investment opportunities as well as availability of debt capital. Following the onset of COVID-19, our hotel properties 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 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 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 As described in Note 10 to the consolidated financial statements, the Credit Agreement was amended on June 29, 2020, which reduced aggregate revolving commitments from $750 million to $500 million and increased the interest rate on borrowings from LIBOR plus 2.25% to LIBOR plus 2.5% per annum. The amended terms provide for greater financial covenant flexibility and more borrowing base credit for digital investments. The credit facility is still scheduled to expire in January 2021, with two 6-month extension options. During the extension term(s), the interest rate would increase by 0.25%, and effective March 31, 2021, credit availability would be reduced to $400 million. The maximum amount available at any time is limited by a borrowing base of certain investment assets. As of the date of this filing, the full $500 million is available to be drawn under the credit facility. Through the date of this filing, we are in compliance with all financial covenants under the credit facility. 108 Table of Contents 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 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 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 We may offer and sell various types of securities under our shelf registration statement. These securities may be issued from time to time at our discretion based on our needs and depending upon market conditions and available pricing. There are no planned public offerings of securities at this time. Cash Flows The following table summarizes our cash flow activity for the periods presented. Nine Months Ended September 30, (In thousands) 2020 2019 Net cash provided by (used in): Operating activities $ 89,886 $ 234,590 Investing activities (981,923) (937,667) Financing activities 363,225 605,873 Operating Activities Cash inflows from operating activities are generated primarily through property operating income from our real estate investments, interest received from our loans and securities portfolio, distributions of earnings received from equity investments, and fee income from our investment management business. 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 $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; and • 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; and 109 Table of Contents • 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 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 We finance our investing activities largely through investment-level secured debt along with capital from third party or affiliated co-investors. We also draw upon our corporate credit facility to finance our investing and operating activities, as well as have the ability to raise capital in the public markets through issuances of preferred stock, common stock and debt such as our convertible notes. Accordingly, we incur cash outlays for payments on our investment-level and corporate debt, dividends to our preferred and common stockholders, as well as distributions to our noncontrolling interests. Financing activities generated net cash inflows of $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. 110 Table of Contents • 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 There were no material changes outside the ordinary course of business to the information regarding specified contractual obligations contained in our Form 10-K for the year ended December 31, 2019. Guarantees and Off-Balance Sheet Arrangements In connection with financing arrangements for certain unconsolidated ventures, we provided customary non-recourse carve-out guarantees. In addition, we have entered into guarantee or contribution agreements with certain hotel franchisors or operating partners, pursuant to which we guaranteed or agreed to contribute to the franchisees’ obligations, including payments of franchise fees and marketing fees, for the term of the agreements. We believe that the likelihood of making any payments under the guarantees is remote. We have off-balance sheet arrangements with respect to our retained interests in certain N-Star CDOs. In each case, our exposure to loss is limited to the carrying value of our investment. Risk Management Risk management is a significant component of our strategy to deliver consistent risk-adjusted returns to our stockholders. The risk committee of our board of directors, in consultation with our chief risk officer, internal auditor and management, periodically reviews our policies with respect to risk assessment and risk management, including key risks to which we are subject, including credit risk, liquidity risk, financing risk, foreign currency risk and market risk, and the steps that management has taken to monitor and control such risks. The audit committee of our board of directors maintains oversight of financial reporting risk matters. Underwriting and Investment Process In connection with executing any new investment in digital assets for our balance sheet or a managed investment vehicle, our underwriting team undertakes a comprehensive due diligence process to ensure that we understand all of the material risks involved with making such investment, in addition to related accounting, legal, financial and business issues. If the risks can be sufficiently mitigated in relation to the potential return, we will pursue the investment on behalf of our balance sheet and/or investment vehicles, subject to approval from the applicable investment committee, composed of senior executives of the Company. Specifically, as part of our underwriting process, we evaluate and review the following data, including, but not limited to: financial data including historical and budgeted financial statements, tenant or customer quality, lease terms and structure, renewal probability, capital expenditure plans, sales pipeline , technical/energy requirements and supply, local and macroeconomic market conditions, ESG, leverage and comparable transactions, as applicable. For debt investments, we also analyze metrics such as loan-to-collateral value ratios, debt service coverage ratios, debt yields, sponsor credit ratings and performance history. In addition to evaluating the merits of any particular proposed investment, we evaluate the diversification of our or a particular managed investment vehicle’s portfolio of assets, as the case may be. Prior to making a final investment decision, we determine whether a target asset will cause the portfolio of assets to be too heavily concentrated with, or cause too much risk exposure to, any one digital real estate sector, geographic region, source of cash flow such as tenants or borrowers, or other geopolitical issues. If we determine that a proposed investment presents excessive concentration risk, we may decide not to pursue an otherwise attractive investment. Allocation Procedures We currently manage, and may in the future manage, REITs and other entities that have investment and/or rate of return objectives similar to our own or to other investment vehicles that we manage. In order to address the risk of potential conflicts of interest among us and our managed investment vehicles, we have implemented an investment allocation policy consistent with our duty as a registered investment adviser to treat our managed investment vehicles fairly and equitably over time. Pursuant to this policy, investment allocation decisions are based on a suitability assessment involving a review of numerous factors, including the particular source of capital’s investment objectives, available cash, diversification/concentration, leverage policy, the size of the investment, tax, anticipated pipeline of suitable investments and fund life. 111 Table of Contents Portfolio Management The comprehensive portfolio management process generally includes day-to-day oversight by the Company's portfolio management team, regular management meetings and quarterly asset review process. These processes are designed to enable management to evaluate and proactively identify investment-specific issues and trends on a portfolio-wide basis for both assets on our balance sheet and assets of the companies within our investment management business. Nevertheless, we cannot be certain that such review will identify all issues within our portfolio due to, among other things, adverse economic conditions or events adversely affecting specific assets; therefore, potential future losses may also stem from investments that are not identified during these reviews. 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 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. In addition, we may utilize services of certain strategic partnerships and joint ventures with third parties with relevant expertise to assist our portfolio management. In order to maintain our qualification as a REIT for U.S. federal income tax purposes and our exemption from registration under the 1940 Act, and maximize returns and manage portfolio risk, we may dispose of an asset earlier than anticipated or hold an asset longer than anticipated if we determine it to be appropriate depending upon prevailing market conditions or factors regarding a particular asset. We can provide no assurances, however, that we will be successful in identifying or managing all of the risks associated with acquiring, holding or disposing of a particular asset or that we will not realize losses on certain assets. Interest Rate and Foreign Currency Hedging Subject to maintaining our qualification as a REIT for U.S. federal income tax purposes and our exemption from registration under the 1940 Act, we may mitigate the risk of interest rate volatility through the use of hedging instruments, such as interest rate swap agreements and interest rate cap agreements. The goal of our interest rate management strategy is to minimize or eliminate the effects of interest rate changes on the value of our assets, to improve risk-adjusted returns and, where possible, to lock in, on a long-term basis, a favorable spread between the yield on our assets and the cost of financing such assets. In addition, because we are exposed to foreign currency exchange rate fluctuations, we employ foreign currency risk management strategies, including the use of, among others, currency hedges, and matched currency financing. We can provide no assurances, however, that our efforts to manage interest rate and foreign currency exchange rate volatility will successfully mitigate the risks of such volatility on our portfolio. Critical Accounting Policies and Estimates Our financial statements are prepared in accordance with GAAP, which requires the use of estimates and assumptions that involve the exercise of judgment and that affect the reported amounts of assets, liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Other than adoption of new accounting standards, in particular, Topic 326 Financial Instruments — Credit Losses , which are discussed in Note 2 to our consolidated financial statements in Item 1 of this Quarterly Report, there have been no changes to our critical accounting policies or those of our unconsolidated joint ventures since the filing of our Annual Report on Form 10-K for the year ended December 31, 2019. The application of critical accounting policies that required significant management judgment, estimates and assumptions are discussed further in the following notes to the consolidated financial statements. • Impairment of real estate—Note 4 • 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 • Credit loss on available for sale debt securities—Note 6 • Impairment of goodwill and intangible assets—Note 7 112 Table of Contents We believe that all of the underlying decisions and assessments applied were reasonable at the time made, based upon information available to us at that time. Due to the inherently judgmental nature of the various projections and assumptions used, the unpredictability of economic and market conditions, and the uncertainties over the duration and severity of the resulting economic effects of COVID-19, actual results may differ from estimates, and changes in estimates and assumptions could have a material effect on our financial statements in the future. Recent Accounting Updates The impact of accounting standards adopted in 2020 and the potential impact of accounting standards to be adopted in the future are described in Note 2 to our consolidated financial statements in Item 1 of this Quarterly Report.