DigitalBridge Group Inc

NYSE:DBRG

Earnings Call Transcript 2020-Q2

[Operator]

Greetings, and welcome to the Colony Capital Second Quarter 2020 Earnings Conference Call. [Operator Instructions] Please note that the company has posted a presentation to accompany today's prepared remarks and is available on the Investor Relations section of the company website or via the webcast. [Operator Instructions] And as a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Severin White, Managing Director and Head of Public Investor Relations. Thank you. You may begin.

[Severin White, executive]

Good morning, everyone, and welcome to Colony Capital's Second Quarter 2020 Earnings Conference Call. Speaking on the call today from the company is Marc Ganzi, our President and Chief Executive Officer; and Jacky Wu, Our Chief Financial Officer.

Before I turn the call over to them, I'll quickly cover the safe harbor. Some of the statements that we make today regarding our business, operations and financial performance, including the effect of the COVID-19 pandemic on those areas may be considered forward-looking, and such statements involve a number of risks and uncertainties that could cause actual results to differ materially. All information discussed on this call is as of today, August 7, 2020, and Colony Capital does not intend and undertakes no duty to update for future events or circumstances. For more information, please refer to the risk factors discussed in our most recent Form 10-K filed with the SEC and in our Form 10-Q for the quarter ended June 30, 2020.

During this call, we will present both GAAP and non-GAAP financial measures. Reconciliation of non-GAAP to GAAP measures is included in today's earnings press release, which is distributed and available to the public through the Public Shareholders section of our website located at the clny.com. Thank you.

And now I'd like to turn the call over to Marc Ganzi, President and CEO of Colony Capital.

[Marc Ganzi, executive]

Thank you, Severin. Good morning. First and foremost, I want to start out by acknowledging and thanking our Board of Directors and our Chairman, Tom Barrack, for placing their trust and faith in me as your CEO of Colony Capital. I'm appreciative of the opportunity, and I'm humbled to be your CEO. But most importantly, I'm really excited to take you on this journey as we take Colony forward and transforming into the first global diversified digital REIT.

We've got a robust set of materials for you today, and I want to sort of frame the agenda. First and foremost, I want to give you my perspective on what's happening in the digital infrastructure space. There's been a lot of movement in the sector today, and I want to give you some of my high-level thoughts around trends and where we believe the market is going. I'll turn it over to my partner, Jacky Wu, who will walk you through the financial results of the company. And then we'll finish up with talking a little bit about what we see as our digital playbook. And last but not least, a question that I would pose to all of our shareholders and potential shareholders: why own Colony Capital today?

So with that, let's get right into the materials. If you could please turn the page to Page 5. I'll start with an overview of what's happening today in digital infrastructure. And look, COVID has been an absolutely profound moment in time for us. In my 26 years of investing, owning and operating digital infrastructure, we've never seen a time that's more interesting and more transformational in digital. Our professional and personal lives are already migrating to digital. This has now accelerated into high gear as we're seeing demand lift off across networks as all of our activities begin to move online. Work, play, shopping, telemedicine, all of these activities have shifted to online and, in many respects, mobile. Unprecedented demand for more, better, faster connectivity is central to our thesis. Networks are being stressed and tested like never before. Our customers like AT&T and Vodafone are seeing a massive surge in network traffic today.

Moving on to the next page, please, Page 6. And in turn, this increases our demand for digital infrastructure. Infrastructure supply remains insufficient to keep up with all of these trends that are occurring today. Thinking about some of these verticals and the impacts, if we think about meetings and just how we conduct our day-to-day commerce, Microsoft Teams during Q2 had a single-day record of 5 billion, this is not a typo, 5 billion single-day meeting minutes. Amazon in Q2 posted $89 billion of revenues, which was a 40% increase year-over-year and a 26% increase from the previous quarter.

Entertainment and fitness. Netflix added 15.8 million subscribers in the first quarter, and there was a 65% increase in downloads of applications related to health and wellness, all of this at the same time with the backdrop of new network spending and new network topology as we begin to embrace 5G. Then when we layer on top of that COVID and the impacts of all of these trends, it accelerates the demand and the need for digital infrastructure.

Next page. I would offer to you today that network demand is mission-critical. These high-capacity workloads require more bandwidth and, in turn, require our customers to access more digital infrastructure to enable all of these applications and various services. It used to be when we started building networks in the early '90s and the mid- to early 2000s, there was this notion of peak and off-peak. Today, there is no longer a notion of off-peak. Networks must be up 24/7 and must perform to five-nines standards. Evolving demands require new architecture, new levels of orchestration and agility. We'll share some of that with you today as we talk about some of these trends as we move networks towards the edge.

Colony enables our customers to deploy this digital infrastructure, and most importantly, we do it across all of the 4 core verticals: data centers, towers, small cell infrastructure and fiber. And our customers, in turn, are going to continue to keep growing and are going to continue to need our value-add services. Zoom, up 169% in terms of their year-over-year revenue growth. WhatsApp added 50 million new users during the pandemic. Microsoft Teams has 75 million active users. And Azure's Wide Area Network added 110 terabytes of capacity across all new edge facilities. And Cisco Webex had 25 billion meeting minutes in April, more than triple their average volume. At the end of the day, we believe this will impact the entire digital ecosystem from data center demand to towers to small cells and, ultimately, to fiber.

At the end of the day, what does this mean for us? Turning to the next page, on Page 8. It means there's a big -- there's a larger total addressable market today in terms of the digital network spend. $241 billion of digital infrastructure equity will be deployed this year across 39 million fiber route miles, 87,000 towers, 133,000 new small cells and 1,400 megawatts of colocation absorption and hyperscale leasing. $200 million alone will be spent in building and acquiring new fiber networks, $18.9 billion in towers, $3.2 billion in small cells and $17.5 billion in data center spend.

Next page, please. And really, at the center of all of this is mobile communications. We believe that there's a $1 trillion opportunity in global mobile CapEx. This is really driven from the fundamental notion that data usage is growing. Data usage for mobility will grow 4x over the next 5 years. And this is not just a North American trend, this is a global trend. And that's really the key from our perspective as a global owner and operator of infrastructure. That ultimately translates into a $1.1 trillion spend in mobile CapEx from 2020 to 2025. 80% of that CapEx will go into a 5G spend. And look, historically, as we've migrated from 1G to 2G, 3G to 4G and now 4G to 5G, that's historically been a 7-year cycle. This is different. 5G is a generational change and is a multi-decade transformational shift in how networks are built, how networks are operated and, most importantly, what our customers are asking networks to do.

Next page. At Colony, our perspective is that networks of tomorrow are converged networks, and this is really our vision for 5G. We believe our value-add and differentiation is delivering for customers next-generation mobile and Internet connectivity solutions. As we think about historically how the sector has ultimately presented itself and, most importantly, you, as an institutional investor, have invested, is in traditional silos. And by the way, very successful companies, traditional macro sites with American Tower and Crown; data centers with Digital Realty and Equinix; small cells with Crown Castle; fiber optic cabling with CenturyLink and, previously, Zayo was a publicly traded company, but the key there is each of those businesses were in their silos, building out 3G and 4G coverage and densification.

We believe that networks are changing, and we believe that you can no longer be specifically siloed in just one of those verticals. We believe our customers today require significant amount of CapEx spend across all of these verticals to deliver the customer experience that most of all, you, the consumer, want. We're building our business around these next-generation networks. It's a differentiated vision. It's not the vision of the past. But based on our 25 years of experience working with customers, building infrastructure and being at the forefront of mobile and network connectivity, we believe Colony Capital is the right place to be for digital infrastructure investors.

Next page, please. Look, that's my quick tour of the digital landscape today, and we'll be having this dialogue in the coming quarters as I continue to share my views around network topology, our customers and where digital infrastructure is going. Next, I want to talk a little bit about Colony today and, most importantly, talk about the tangible results that you're seeing in our business transformation. As you get to know me, you'll realize execution and delivery are 2 of my favorite words. We are focused on delivering for our customers and, most importantly, for you, our shareholders. It's been a busy quarter, and I want to walk you through some of our accomplishments.

Next page, please, on Page 12. Simply put, as I've talked to some of our investors over the last couple of quarters, promises made, promises kept. Let me walk you through some of our accomplishments. First and foremost, as I told most of you when I first came to the company last December, in the fourth quarter, my highest priority was going to be putting our liquidity to bed. And we did that. We amended our revolver, repriced a brand-new convert offering and we've dealt with our corporate liabilities.

Second, I told you that we would deploy capital in the high-quality digital infrastructure. And we've done that. We've closed 7 transactions in the first half of this year, deploying $20 billion of capital, and recently announced a deal with Wafra that gives us more firepower to continue to bring digital assets onto our balance sheet.

Third, we talked about a sharp focus on cost cuts in the fourth quarter last year. We remain committed to that. We delivered $35 million in cost cuts last year, we signed up for another $40 million this year and we've achieved $38 million in cost cuts through the first half of this year. To be clear, we will beat our targets for 2020.

Fourth, building a best-in-class management team is mission #1. We've continued to add to the growth segments of our businesses, most notably on the digital credit side, and we're very excited about the opportunities that exist in that space and other tangential digital investment spaces.

Finally, number five, super important, we're continuing to grow our digital line business rapidly. We committed to 15% annual growth, and we're already at 22% year-to-date. And we're not stopping there. My expectation is we'll be over 30% growth by the end of the year. This is a target that I want and expect and continue to beat.

Next page, please. The next slide quickly touches upon some of the progress I've referenced on the corporate side and some highlights at our business-level units as well. A few nondigital highlights for you to think about. One, on the Hospitality side, we continue to make great progress in our conversations with our lenders. In many of our hotels, occupancy has begun to rebound. And in June, NOI was positive at the Hospitality business. Let me be clear, we're not out of the woods yet. But underlying trends have improved and stabilized, and we see value in the majority of the portfolios that we manage. And we will continue to work hard to harvest and ensure that we preserve maximum shareholder value in these assets.

Healthcare, from my perspective, has been an outperformer. Collections remain high. The team has done an amazing job in a sector that's really been under a lot of operational pressure, and we continue to believe that these assets will perform now and through the end of the year and through COVID.

In OE&D, we've now harvested $380 million in year-to-date monetizations, and I expect us to continue to generate significant capital from this business in the second half of this year.

Finally, I want to thank Mike Mazzei, first, for his leadership and the amazing job that he and Andy Witt have done stabilizing CLNC. They've made a lot of progress over the last 90 days. That business is on the right track, and it's getting ready to play offense. I'm very excited to see what that management team will do in the second half of this year.

All in all, it's been a very busy first half of the year, and I couldn't be more proud of our team and the progress that we've made across all of our business units at Colony Capital.

Next page. Our capital stack, in turn, has responded. I know it's hard for common shareholders to understand as our share price declined in the first half of this year. But we've made significant progress. Let me walk you through that. Our decisive steps to stabilize liquidity have been recognized on the credit side of the business. Our 2021 convertible notes have come back to par. Our '23 convertible notes have traded up 23% to 92, and the Colony preferred stock has moved from almost $8.50, today trading well over $20.

So at the end of the day, what is this about? It's really about finding that base and stabilizing these various securities at Colony, and it's giving us the chance to build a foundation for recovery in our common stock. Look, at the end of the first quarter of this year in March, our common stock hit a low of $1.41 per share. Today, we closed at about $2 per share last evening, which represents well over a 36% increase in the performance of our stock. We believe this is the place where we start, we build the foundation and we take our business forward. And I think over time, our common stock will respond in kind.

And with that, I'm going to turn it over to my partner and CFO, Jacky Wu, to walk us through our financial results. Thank you, Jacky.

[Jacky Wu, executive]

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

Starting on Page 16. The company has continued to make progress in its digital transformation as we have increased digital AUM to over 47% of total AUM at the end of the second quarter and has now reached 49%, following the Vantage Stabilized Data Center transaction, which closed in mid-July. And as Marc has discussed, our digital platform continues to perform with strength in the current market environment. Colony's digital portfolio companies across investment management and operating businesses grew core organic revenues approximately 9% on average in the second quarter compared to the same period last year.

Due to the significant challenges associated with the global COVID pandemic, our second quarter reported total revenues, however, was $372 million, which represents a 35% decrease from the same period last year, primarily as a result of our Hospitality segment, our one portfolio that has been most impacted by the global shelter-in-place initiatives. The Hospitality segment experienced a sharp rebound from its trough occupancy of 22% during April to almost 40% during June, reflecting reopening efforts across the United States. Thus far, in July and into August, the company has maintained this elevated level of occupancy rates. The company's Healthcare segment, however, has thus far been relatively stable, generating revenues in the second quarter that decreased only 2% year-over-year while collecting 96% of contractual triple-net and medical office rents during the quarter.

For the second quarter, GAAP net loss attributable to common stockholders was $2 billion or $4.33 per share. The loss was primarily the result of a $2 billion noncash GAAP impairment charges in the legacy nondigital businesses. The company determined this quarter that it would accelerate its shift to a digitally focused strategy as the COVID crisis has negatively impacted the legacy businesses and further emphasize the importance of its digital transformation in order to better position the company for growth. As a result, the company adjusted the fair market values of those legacy nondigital assets accordingly.

Moving to Page 17. Digital core FFO contribution has been steadily increasing. Digital core FFO was $21 million in the second quarter, an $18 million increase from the same period last year. This was a combination of both increased recurring digital investment management fees as well as increased equity-based earnings from outperformance at our digital portfolio companies. Despite our digital growth, however, company-wide core FFO was negative $19 million or $0.04 per share, excluding net gains and losses. The decline in total core FFO is driven almost entirely by the company's hotels, which experienced significant declines in occupancy, down 62% year-over-year during the second quarter. However, as I previously noted, the company has seen marked improvements in occupancy at the end of the second quarter as June Hospitality segment NOI turned positive.

Turning to Page 18. We ended the second quarter with AUM of $46 billion. And just after the end of the quarter, the company closed the Vantage Stabilized Data Center transaction, which increased AUM on a pro forma basis to $47 billion. Total AUM has increased $11 billion or 32% since the second quarter of 2019, including a $21 billion increase in digital AUM, partially offset by legacy asset monetizations and our previously mentioned legacy asset impairments of $2 billion.

The company's fee-earning equity under management reached over $17 billion in the second quarter, including our Vantage acquisition. This represents an over $8 billion year-over-year increase. We are extraordinarily proud of the progress we have made towards our digital transformation. Digital FEEUM, as Marc mentioned, is up over 22% year-to-date, outpacing our previous guidance of 15% for the year. And we have plenty more to look forward to as our M&A pipeline continues to be robust with tremendous opportunities in towers and data centers on the horizon.

Moving to Page 19. As Marc mentioned earlier, we executed a series of steps to solidify our liquidity position and strengthen our overall balance sheet not just to continue to drive our digital growth but to defend against the potential economic impact of a second wave of COVID and shelter-in-place closures.

First, we successfully renegotiated our corporate revolver to enhance financial flexibility and re-baseline financial covenants that more adequately reflect today's reality and our digital future. And as of today, the company is in full compliance with all covenants with this new facility. Second, we issued $300 million of new 5-year exchangeable notes and simultaneously repurchased an equivalent amount of our 2021 convertible notes. This issuance eliminates our near-term debt maturities. And despite the adverse environment created by the COVID pandemic, these developments will enable us to accelerate our digital transformation while positioning us to preserve and ultimately monetize the value of our legacy assets.

It is again important to emphasize that our investment-level debt is not included on this page as they are nonrecourse. And as you can see, the company continues to preserve liquidity and see minimal cash outflows toward these businesses despite their challenges from the COVID pandemic.

Turning to the right side of Page 19. The company maintained its liquidity of approximately $900 million throughout the quarter. In July, the company closed a significant strategic investment from Wafra to invest over $400 million in our Digital Colony platform, including over $250 million for 31.5% ownership stake in the Digital Colony Investment Management business at an $805 million valuation, which represents over a 2x return in just 1 year on our digital Investment Management business since we acquired Digital Bridge Holdings in July 2019. Wafra has also committed over $150 million to Digital Colony's current and future investment products.

In addition, as Marc previously stated, the company closed on its second significant digital balance sheet investment by investing $190 million in Vantage Stabilized Data Center transaction. As of today, the company has approximately $875 million of liquidity for the remainder of the year. The company expects to monetize an additional $200 million to $300 million of legacy assets and deploy approximately $350 million to $550 million of capital towards digital infrastructure, M&A and other capital commitments, including the remaining $112 million of January 2021 convertible notes. This will leave the company with an ending liquidity balance of approximately $625 million to $725 million.

With that, Marc will walk you through the further details on our plans to continue to execute our digital playbook. Thank you.

[Marc Ganzi, executive]

Thank you, Jacky. Turning now to Page 21, we want to share with you our digital playbook and our formula for how we will continue to transform Colony and take it into the future. Our strategic plan, as we've shared with you in the past, has been to rotate the balance sheet as we sell historical Colony assets and recycle capital into what we think is the best investment asset class today in the world, which is digital infrastructure.

Where were we? The Colony of the past was a diversified REIT managing multiple asset classes in historical real estate. Verticals like healthcare, industrial real estate, credit, hospitality, other equity and debt and our investment management platform were the key 6 verticals that drove the growth of the Colony of the past.

Where are we today? Today, we've transitioned into a diversified global digital REIT. Our strategic rationale has been simple. We want to align you, the investor, with key secular trends, which is this pivot to digital. We want to greatly simplify the story at Colony, so it's easy for you to understand what we do and how we create our core FFO. We want to create predictable digital earnings. And last, but not least, we want to create attractive returns on invested capital for you, our common shareholders.

And where are we going? Where we're going is helping our customers enable mobile and internet connectivity. Investments in towers, data centers, small cell infrastructure and fiber networks across our equity platform and across our digital credit platform is where this business is headed for the future.

Next page. The proof in that execution could not be any stronger in the first half of 2020. There hasn't been a more thoughtful and active investor in the world in digital infrastructure. We closed 7 proprietary, transformative deals, deploying nearly $20 billion of capital. We closed 6 financings, accessing almost $12 billion in credit in these absolutely unprecedented times, starting with Highline do Brasil, our leading tower company in Brazil; our strategic investment into DataBank in December 2019 off the Colony balance sheet; Vantage Data Centers closing in Europe, a $2 billion expansion of one of our best logos and hyperscale data centers; in March, the historic $14.7 billion (sic) [ $14.3 billion ] take-private of Zayo; and in April, closing on Scala, the second-largest hyperscale data center provider in Brazil. In June of 2020, we completed a combination of some -- of a portfolio of premium outdoor media assets, forming the entity Wildstone where we invested $358 million of capital. And last, but not least, we led stabilizing a portfolio of 12 world-class data centers with Vantage in July 2020. The key here is all of these transactions were proprietary and proves out our investment framework.

Next page, please. As a by-product of executing all these transactions, we've delivered on a key metric that we're going to continue to focus investors on going forward, which is FEEUM growth. At the beginning of the year, I pledged to you that we would deliver a 15% growth in this metric. I'm pleased to say after 7 months of hard work, we've delivered 22% growth in FEEUM, which exceeds our annual budget by 50%. And generating those revenues and those relationships is about leveraging long-standing relationships that have been built by Digital Colony and Colony Capital itself. We partnered with new sources of capital looking to access fast-growing digital infrastructure verticals. The Wafra partnership fits this in spades. Zayo was a landmark $14.3 billion take-private, $700 million of that was new fee-bearing coinvest capital. Vantage Europe, we raised $400 million of committed capital, $200 million of fee-bearing capital called to date. And last, but not least, Vantage Stabilized Data Center, VDC, is $600 million of fee-bearing capital, alongside a strategic investment on our balance sheet of $190 million. At the end of the day, where we've ended at the end of Q2 is over $8.3 billion of FEEUM, exceeding expectations.

Next page. I want to walk you through 2 case studies on how we used the balance sheet. In July of 2020, we combined our balance sheet to invest in what we believe are the best data centers in the world, combined with blue-chip digital infrastructure assets and limited partners. The rationale from Colony's perspective was, first and foremost, to deliver to you, the investor, predictable earnings from high-quality assets: 12 hyperscale data centers generating 150 megawatts of compute power, 98 long-term leases with built-in rent escalators and high-quality investment-grade customers. This has been a playbook that this management team has long executed.

A summation of this transaction was we acquired 80% of VDC for $1.2 billion. Colony deployed $190 million to the balance sheet, alongside of $1 billion of FEEUM capital. The acquisition EBITDA multiple was 21x, which is the discount to where public trading multiples are for our data center peer group. The Colony advantage at the end of the day was, effectively, this was a 17x EBITDA multiple entry when you include the investment management fees that came alongside of our capital. And further, we'll continue to buy down this multiple as our leases escalate, and we'll continue to put new customers inside of these data centers. So at the end of the day, we offer to investors the opportunity which is buying best-in-class data centers at effectively sub-17x or continue to buy equities in publicly traded data center REITS. We believe this is an accretive transaction and one that will benefit greatly Colony shareholders over the long term.

Next page. Our second case study is in edge computing. I've long talked to you, the investor community, about the importance of edge computing. DataBank is well positioned for the migration of 5G and proliferation of low-latency applications, which are pushing the processing of networks and applications to the edge, which for us has driven significant organic growth at DataBank today. Our rationale for making the investment in DataBank was 20 enterprise colocation data centers with a national scale in Tier 2 markets with high-growth characteristics. Through the second quarter of 2020, the company has achieved a 9.5% organic growth rate.

The summation of the transaction for Colony shareholders was quite simple. We acquired a 20% interest for $190 million. This represents a 22x acquisition multiple based on the actual annualized Q2 EBITDA of $66 million. The 19x multiple was based on a run rate 2Q 2020 EBITDA of $76 million, once again, a run rate EBITDA multiple, which is a 5-turn discount to the 24x EBITDA public trading multiples of DataBank's peer group. The core organic growth is enhanced by highly accretive greenfield edge data center developments where we built in key markets like Salt Lake City, Atlanta and soon, in places like Pittsburgh and in Minneapolis. We've done bolt-on acquisitions, which are expected to stabilize the effective EBITDA multiple down to less than 15x.

Most of you who have watched my career over the last 3 decades know that this is our playbook. We buy a platform. We continue to build. We make accretive tuck-in acquisitions. We continue to generate organic strong cash flow growth through leasing and then, ultimately, mine the costs. Those are the 4 key verticals under which you can take your multiple down from 22x to sub-15x. And once again, this offers to our investors almost 9 turns of accretion versus buying public shares of other peer group data center operators. This, at the end of the day, is the Colony comparative advantage.

Next page. Briefly, I want to share with you some of our initiatives in ESG. ESG is something that is very important to me and our management team. When we built Global Tower Partners into the largest private REIT in the United States at the end of 2013, we've long been incorporating many of the policies that are resident today in our ESG handbook. Our goals are simple: we want to effectively manage resources, we want to create a positive impact on the planet, we continue to invest responsibly and we want to lead with transparency. And at the end of the day, our principles are around improving the environment, creating a social framework where our goal is to create a positive impact for our stakeholders and communities through meaningful engagement, contribution and most importantly, volunteerism.

Last, but not least, in governance. We manage and operate all of our businesses by taking into account all of our stakeholders' needs, values into consideration for long-term growth and, most importantly, sustainability. And we've delivered on this commitment. Colony Capital today is at the forefront of digital ESG investment. Colony Capital is a PRI signatory as of May 2020, and the firm's responsible investment policy incorporates the 6 responsible investment principles promoted by the PRI.

A diverse and inclusive work environment leads to the strongest results. CLNY Committee coordinates Colony's various D&I programs with a focus on scalable initiatives. We incorporate ESG into all of our diligence related to balance sheet investments and investment management new investments, including key company level macro ESG risks and opportunities that translate into day-to-day asset management and, most importantly, key outputs, such as KPIs and metrics that reflect our long-term sustainability plan as it relates to our digital footprints that we leave behind.

And last, but not least, our NGO partnerships are very important. Remember the BSR, which is Business for Social Responsibility, which is leading NGO that helps analyze ESG issues in potential and current investments. And our company-wide charity, Telecom Sans Frontiers, is a charitable organization that specializes in deploying emergency response technologies and disaster-hit and disadvantaged areas.

At the end of the day, we're making a difference, and our portfolio companies are making a difference. We are pleased to announce in June 2020 that Vertical Bridge, our flagship U.S. cell tower REIT, became the world's first carbon-neutral tower company. At the end of the day, it's more than just pages -- words on a page, it's about putting this into action and delivering results for our shareholders.

Next page, please. So in closing today, I want to take it to you, the shareholders, why should you own Colony today? And really, this is, from my perspective, an invitation. The key principles that are going to drive our share price and drive shareholder value is, first and foremost, we're in the best sector with the best secular tailwinds. We believe that we are the best-positioned digital REIT in the world to take advantage of convergence on an international and global scale. We believe we have the best management team in the sector: 25 years of investing and operating digital assets with 100 years of cumulative experience. We are the only global REIT to own, manage and operate across the entire digital ecosystem with proven underwriting and, most importantly, a hands-on approach that delivers differentiated alpha. And last, but not least, the valuation model transitions from a sum of the parts to an earnings-driven framework. The focus of our management team is to simply reduce the complexity and grow value per share, and this business simplification ultimately will rerate Colony.

Next page, please. As some of you've heard me long say, the key attributes of our success are about our people. People create the alpha, not the assets. And we've had a complete revamping of the senior leadership team here at Colony. And I'm absolutely honored and thrilled to work side-by-side with all of my colleagues: Jacky Wu, our CFO and Treasurer; Ben Jenkins, our CIO of Digital; Justin Chang, our CIO of Digital Balance Sheets; Karren Fink, Global Head of HR; Kevin Smithen, Global Head of Strategy and Capital Formation; Donna Hansen, Chief Administrative Officer and Global Head of Tax; and Severin White, our new Head of Public Investor Relations. This is an entirely new team with a singular focus on digital infrastructure and maximizing returns for Colony shareholders.

Next is our Investment Management team, 77 of the most dedicated professionals around the globe with a singular focus of investing, owning and operating and, ultimately, creating maximum returns in digital infrastructure. Many of these people on the page have been with me for over 2 decades. And it's a great formula: we work together, we trust each other and, most importantly, we have experience together.

Last, but not least, we'd be nowhere without our CEOs and our key senior industry vertical experts. This is an assembly of executives that are second to none, that continue to own and operate on a daily basis for us: 95 data centers, 135,000 fiber route miles, 350,000 tower sites and 35,000 small cells. Once again, these are the individuals that help form our thinking, create opportunities for us, help us solve problems, and it's incredible to have a deep bench like this that helps us think through the operational complexities and the opportunities of tomorrow.

Next page. Our strategy is differentiated. We do operate across the entire digital ecosystem, and this makes us quite unique. Digital infrastructure, as I offered earlier, is converging. We think of ourselves as a customer solution provider. And our customers' needs are changing every day. And they no longer want to purchase just cell sites. They don't want to just purchase a fiber lateral. They want help in delivering a network for next-generation technology and performance.

We wake up every day with an exclusive focus on digital. Our underwriting and asset selection is simple. We believe that not all assets are alike, and you have to be very selective. We traffic in proprietary ideas. As I mentioned earlier, our first 7 transactions over the course of the last 7 months, all proprietary, $20 billion of capital deployment. We have amazing operational expertise in-house, and our timing is really to seize market opportunities.

Our investment horizon is for the long term. We have a global perspective. And as we mapped out earlier, we're best positioned to take advantage of a massive, global total addressable market today through a converging digital ecosystem.

Next page. So where were we in the past? Many investors have long engaged with us, Jacky, myself and Severin, around the sum of the parts model. Historically, Colony has been this: a diverse set of businesses, complicated peer comparison and, ultimately, has led to a divergent sense of value and a lack of understanding.

We're going to try to make that simple for you. First and foremost, Jacky and I made the decision to take a $2.1 billion impairment charge in this quarter. We believe this brings asset values in line with fair market value. Next up, our corporate finance activity puts Colony in a positive net cash position. Jacky walked you through our liquidity position earlier, Colony has never been in a better liquidity position than it is today.

And as we continue to monetize our legacy assets and we redeploy capital into digital assets, I would offer to you today that our valuation shifts to, next page, please, an earnings-driven model, something that investors are more used to seeing in the digital infrastructure realm. First and foremost, how do we do that? Digital IM revenue and FRE will continue to grow rapidly as we continue to expand the magnitude and scope of our investment products. We've already shown that to you this year by the full deployment of digital accounting partners won and the various coinvestment strategies that we successfully executed by overdelivering on FEEUM growth. Our projection is digital IM revenues will grow 20% to 30% per annum for the next 3 years. In turn, that drives our digital IM FRE, which today is at $40 million. We believe that can grow 30% to 40% over the next 3 years.

The second part of our growth story, as we've talked about in the past, is how do we use our balance sheet and how do we deliver predictable, stable digital earnings that you're used to seeing from our peer group. Digital balance sheet investments drive EBITDA and drive FFO. As legacy monetizations are completed, we're redeploying that capital into high-quality digital infrastructure assets like DataBank and Vantage. Digital balance sheet EBITDA is currently today at about $13 million. We predict that, that will grow to $175 million to $225 million over the next 3 years. As we've telegraphed to you in the past, we are constantly surveying and looking at new high-quality digital assets to put on the balance sheet, and we will continue to deliver that. Digital balance sheet FFO, today currently at $18 million, will grow to $150 million to $200 million over the next 3 years. We anticipate a 10x growth as our legacy capital is recycled into high-quality assets like DataBank and Vantage. More to come.

Next page, please. And so where does that put Colony? And where do we fit on the road map? Well, we believe by 2023, the Colony profile will continue to evolve and ultimately be a pure-play digital REIT. The 4 corners of that is investing in towers, data centers, fiber and small cells, and we'll have $50 billion of assets under management by the end of 2023. And our business profile will be quite simple: 35% of our earnings will come from digital IM, 65% of our earnings will come from digital operating; total number of active business sectors, formerly 6, now down to 1, which is digital; revenue growth greater than 10% per annum; EBITDA growth greater than 20% per annum; and core FFO between $200 million and $275 million.

When you think about that and you think about the opportunities for you to invest in our peers, we believe this compares very favorably. Our peer group grows organically at 3% to 7%, and their EBITDA growth is 5% to 10%. Digital infrastructure peers today trade at 21 -- 26.1x EBITDA, and our peer group trades at 26.5x FFO. And then in terms of looking at alternative asset managers, like Ares and Blackstone and KKR, they trade at 17.8x as a multiple of distributable earnings. We believe Colony offers an amazing opportunity to participate in the fastest-growing digital REIT in the world at an incredible entry valuation today.

Next page, please. In closing, what I can promise to you as your CEO of Colony Capital is that we'll continue to deliver on our commitments. It's been an incredible first half of the year. I want to thank my entire team. This has been an epic amount of movement in terms of the transformation of this company. Promises made, promises kept. We've addressed our near-term corporate debt maturities. We've enhanced our liquidity. We've committed significant capital towards our digital infrastructure growth. We've over-delivered on our G&A cuts. We've established what we believe is the best team: one team, one mission. And we've delivered on core digital growth, 22% FEEUM growth year-to-date.

The second half of the year, we've got to move the bar. We've got to keep moving. And to that end, we're going to continue to add high-quality balance sheet assets. We're going to continuously simplify the business, a continued focus on monetizing legacy assets and a sharp focus on reducing our costs. We're committed to attracting the industry's best talent, and we're targeting continued FEEUM growth. I believe we can deliver more than 30% FEEUM growth by the end of the year.

This is a story about building long-term value for Colony shareholders. I appreciate your time that you spent with us today. I appreciate you listening to our story. And most importantly, I appreciate your trust. Thank you, and have a great day.

[Operator]

[Operator Instructions] Our first question comes from the line of Randy Binner with B. Riley FBR.

[Randolph Binner, analyst]

I wanted to first start with just a kind of question and clarification on liquidity, which was on the Slide #19 in the deck. You lay out some monetizations and then also investments in digital there. They're not quantified, that blue and green box, respectively. If I size it, and if I think about where we have liquidity, I think each of those categories is $200 million to $300 million. So wondering if you can kind of help us quantify that. And then also the $625 million to $725 million at the year-end '20 is before the remaining kind of $100-or-so million on the convertible bond. I just wanted to clarify that.

[Marc Ganzi, executive]

Yes. Randy, so first and foremost, on monetizations, we believe there's $200 million to $300 million of incremental monetizations in legacy. Those projects are currently in flight. And when I say in flight, we have active dialogue and active processes to monetize a couple of legacy assets, and we have pretty strong conviction around our ability to execute like we had in the first half of this year around a couple of situations. So I think if you're trying to put some brackets around that, I'd put $200 million to $300 million. On the expansion of the digital balance sheet, we are seeing some really tremendous opportunities. I'm sort of targeting $350 million to $550 million of incremental deployment between now and the end of the year. Like I said, we've always telegraphed to you when we think we've got something interesting for the balance sheet. And we're in the midst of those discussions and diligence, and we feel reasonably strong about our ability to continue to deploy balance sheet capital to build long-term sustainable digital earnings.

[Randolph Binner, analyst]

Understood. So that's why it lands a little bit lower, at $625 million to $725 million. I just wanted to confirm that that would be before the January paydown of whatever is remaining on the convert after the recent debt exchange?

[Jacky Wu, executive]

Randy, this is Jacky. We've included that -- the $112 million is included in that $350 million to $550 million, so that's the broad range.

[Marc Ganzi, executive]

Yes, that's part of the paydown.

[Randolph Binner, analyst]

Yes. I just didn't know. Okay, it was a timing thing. Understood. Okay. That's good. And then, I guess, on Hospitality. Clearly, it's distracting from the digital story. And you talked about it a lot. I know that you're working on it. But I mean can you -- in this forum, can you share with us kind of what you think you can do strategically? Would it involve putting capital in? And kind of how -- are there any big moves, I guess, or kind of strategic moves you can make there to deemphasize this Hospitality situation?

[Marc Ganzi, executive]

Yes. Look, at the end of the day as -- I think you and I have had this discussion over the last couple of quarters, we don't hold a tremendous amount of positive NAV value for the lodging portfolio. I think today, we hold it a little over $50 million of positive NAV contribution. We've been very careful not to put good money into bad situations. I think, once again, we telegraphed that in Q1 and Q2. That being said, we've made -- as I said on the call today, we've made a ton of progress. All 7 portfolios continue to be in play from an equity preservation perspective and, certainly, from a cash flow preservation perspective. Very encouraged by the June results, little less encouraged by July results. But once again, we've seen a pickup again here in the early part of August. So we're just going to have to keep our eye on it. But what I would tell you is we have a game plan for every portfolio. Every one of the portfolios, from my perspective, feels like a salvageable situation. And once those assets are salvaged, and we regain our footing as it relates to core FFO, there's a lot of value in these assets.

We get calls every day about people wanting to buy our hotels. So what I can share with you is the following 3 headlines. One, first and foremost, we've seen recovery in NOI. Two, we have a game plan to work through every single one of the portfolios, and that game plan has been in-flight now for 6 months. We're coming off the back end of those discussions, and we believe most of those discussions will be fully resolved in Q3, if not in Q4. And then last, but not least, I'll continue to say what I've always said, we think there's positive equity value in the portfolio. We have a lot of inquiries about the assets. There's a lot of distressed real estate funds out there trying to gather assets right now. As you know, Randy, the world is awash with liquidity, my friend. And there's a lot of opportunistic real estate funds that see the value in this portfolio. Limited service hotels are the easiest to bring back online. They represent the fastest way to get cash flow in the sector. And so this portfolio has value, and we will remain committed to recovering the value in the portfolio. I can't be more clear about that.

[Randolph Binner, analyst]

Okay. Great. There is a number -- I don't know if you can comment on this, but I've got a number of questions about this telecom situation in Brazil, Oi. Can you comment on that? Is there anything you can share with people about those reports?

[Marc Ganzi, executive]

Yes. Look, I can't actually. I apologize. We're under a nondisclosure agreement. What I would say is we're an incredibly active owner of digital infrastructure in Brazil. We own the second-largest data center operator in Scala in the country. We own one of the fastest-growing tower companies in Brazil called Highline. My lineage dates back to my days at Deutsche Bank working in Brazil for many years, investing very successfully in telecom and in digital media. I like the country. I like the setup. And we're very committed to our investments in Brazil, and we're going to continue to invest in Brazil. So you can read the subtext of that as you wish. Now when we do invest in Brazil, we're going to invest in good situations. What I mean by that is we're not going to take our rules of our 4 corners of underwriting. We want to own infrastructure. We want to have long-term contracts. We want to have great locations. And we want to have assets that can grow with us organically.

And down in that part of the world, we think our assets today are growing at double-digit organic growth rates. So we see a lot of opportunity. We see dislocation in the currency. We see a dislocated economy, but we see a very, very strong digital economy that underpins that. Brazil is the perfect situation for us. We're very pleased with the assets we have today. And like I said, we have a lot of growth there, and we're going to continue to keep investing in the country. And most importantly, we're going to continue to invest in our customers. We have very, very strong customer relationships down there at Highline and Scala. Oi is one of them. Telecom Italia is one. Claro is one. And Vivo is one. So we've got 4 really good customers down there on the mobile side, and we're going to continue to invest in all 4 customers.

[Operator]

Our next question comes from Jade Rahmani with KBW.

[Jade Rahmani, analyst]

Marc, I wanted to ask you a question that I haven't had the chance to ask you but would be curious as to how you'll respond. Have you given any thought to taking the company private and undertaking this immense transformation behind the scenes at this valuation that you cited instead of absorbing the costs and burdens of being public and all that involves? How do you think about that?

[Marc Ganzi, executive]

Thanks, Jade. And you've never asked me that question, so thank you. I appreciate it. In all seriousness, look, it's -- my job right now is I'm working for our common shareholders, and that's my highest priority. I assume the CEO chair on July 1. And what comes with that is a massive opportunity. And also what comes with that is the burden of having to rectify some of the legacy issues that I was handed. I'm really happy with where we are. I think the work that's been done through the first half of this year has been tremendous, and we've made a lot of progress. If you had to sort of calibrate where we are in a sort of 4-quarter football game in the transformation of Colony, I'd say we've come out of the locker room at half time, and we're just about playing the third quarter of the game. So I think we're definitely more than halfway to where we want to be. And so from that context, now that we are more than halfway done, whether we're private or whether we're public, the transformation continues.

And so that's my sort of methodology as a CEO. I'm a day-to-day guy. I come in. We do the work. We know it's hard work. And we just keep knocking things down, Jade, one by one. And whether our structure is public or whether our structure is private, it really doesn't matter. The work has to be done. And right now, my work is for the common shareholders. Look, I can't stop people from making offers on our company. I really can't be concerned about that. What I'm most concerned about right now is just continuing to execute. And I think you saw that tone and tenor in the presentation today. This is an execution-focused management team, and we believe we're winning. So I'm going to keep my focus there for the time being. And we think that work will be rewarded long term for our shareholders.

[Jade Rahmani, analyst]

Looking at the OED portfolio, and you mentioned that there is a ton of liquidity on the sidelines, do you envision an opportunity to bulk-sell the entire OED portfolio along with legacy Colony institutional funds to a third-party asset manager in the opportunistic -- capital for Colony's balance sheet that could be used to further bolster the liquidity, add additional firepower for deployment into digital and also allow you to accelerate simplification of the capital structure?

[Marc Ganzi, executive]

Yes. Look, it's a great question, and you're on the right issue. Cards up, we get calls all the time for the entire portfolio. Now phone calls are different from fully binding offer letters that have equity commitment letters and a time line for execution. I think interest is continuing to build in our assets, in our OE&D business, and that's fine. And we'll continue to have those conversations with alternative asset managers that understand the embedded value of what we've done. And I think, look, we're always a good listener. And Jonathan Grunzweig, to his strong credit, has done an amazing job with his team of continuing to manage those assets and, most importantly, extract what we believe is fair to maximum value for those assets, and we feel really good about the second half of the year. I'm always surprised, Jade, about how much private liquidity sits out there. And look, this is an amazing portfolio of assets. The CDCF III, IV and V series were great funds. And so whether it's organizations that buy GP stakes, like Dyal or Landmark or Goldman or Blackstone; or whether it's individual asset managers, like Starwood or people like that, that understand opportunistic real estate, we'll continue to field those calls and have those conversations.

Look, $380 million have been monetized this year so far. We've got a couple of great assets that are currently in flight for monetization. But at the end of the day, this is about, as you said at the beginning, Jade, it's liquidity. We've done a spectacular job enhancing our liquidity. As you've seen through the presentation, we've shored up our capital stack. So honestly, cash is great. We could always use more cash to continue our digital pivot. But now like I said, being at the second half of the football game with our liquidity in a good position and our debt maturities now taken care of, we can be patient. And as I've mentioned, our calendar is to get to the other side by first quarter of 2022. So we've got 18 months to continue this methodical, orderly wind-down of our existing positions. And that really is a great place to be, Jade, because we're no longer positioned as somebody who has to sell assets at potentially prices that may be perceived to be less than fair market value. We now have the capability to be incredibly patient and ultimately find the right home for these assets.

And that's what we're doing. And you'll see that in the third and fourth quarter. That's a high priority for us as a management team in the second half of this year is to continue to monetize OE&D. It would be a lot easier and a lot more elegant if somebody came along and said here's a big check for OE&D, we'd look at that and say, that's pretty attractive. It would certainly accelerate our digital pitot. But at the same time, we're happy to go first half of this year, almost $400 million; back half of this year, another $200 million to $400 million. If we keep going at this pace, OE&D will have an orderly finish here within 18 to 24 months. So I'm pleased with where we are, and I now have the runway and the liquidity to be patient, which I like. It's a good place to be.

[Jade Rahmani, analyst]

Okay. I appreciate that. And I also appreciate the additional disclosure where you go through the top assets and also the remaining assets, very helpful. Just a question on the earnings-driven model since you put it out there. Core FFO of $200 million to $275 million in 2023, 65% of which is the digital balance sheet, 35% digital investment management. Any sense for what they might translate to on an AFFO basis, just factoring in CapEx? And also, do you plan in that scenario to keep the current capital structure in place and also further optimize G&A?

[Marc Ganzi, executive]

There's sort of 3 components to your question. First and foremost, the ladder and the steps on how we get to our ultimate core FFO over the next 3 years, we're going to work with you and the rest of the analyst community over the next 2 quarters to give you those building blocks and show you how we get there. I think what we've done today is we've given you some very key examples on how we have strong assets where we've married the balance sheet with third-party capital to build stabilized long-term earnings. We think that's a good architecture. And we think that's a good playbook because, look, Jade, at the end of the day, you get 2 for 1, right? You get a great asset on balance sheet that has long-term contracts with investment-grade tenants, and then you get an investment vehicle that's 10 to 15 to 20 years long-term capital that's patient, that pays you fees along that journey, that only enhances your core FFO and gives you carry on the back end, which only creates more FEEUM and creates more earnings at the end of the day for our shareholders.

So we think this is a good playbook. We think it's a good architecture. And as I said, I can't give you specific details, but I will tell you that we have other deals in flight that we plan to reveal to you over the next 2 quarters, which I think you'll be very happy with and that really demonstrate our ability to grow that digital core balance sheet FFO. Those are the earnings that you want. Those are the earnings that big investors want because it's the earnings, candidly, they're used to seeing, right? They're used to seeing those earnings at DLR, AMT, SBA, CCI and Equinix. And we're replicating that but doing it with a slightly differentiated approach, a more global approach, the ability to cross across all 4 swim lanes and the ability to deliver that extra kiss, which is management piece on top, where we marry the balance sheet capital with third-party capital. It's a great, great formula. At the same time, as we simplify the business, G&A sort of rights itself, Jade. So as we continue to monetize legacy assets, G&A go with those assets, so it makes it pretty easy.

I think as Jacky and I think about the future of the company, we think there's more opportunity for G&A cuts. We'll be more transparent with you. We're in the middle of budget season right now, getting ready for our 2021 budget. And once that's done, at the end of the third quarter, we'll start unveiling what our thoughts are around headcount and G&A and how we can continue to streamline the business. The great thing about investments like DataBank and Vantage is it requires no G&A, 0 G&A, in fact, to manage those assets. We already have a 77-person global team that manages our digital investments for us. So part of the synergy of doing balance sheet investments is you don't take on incremental G&A because you already have that investment framework and you have that investment management team. So we don't have to take on extra G&A as we grow our assets and grow the balance sheet like a traditional digital REIT.

If another digital REIT decides to go to Asia and go build 12 data centers, they got to G&A that thing up. We don't have to do that. We actually have the capability through our portfolio companies' investment management to build great assets and then ultimately transition them to balance sheet if it makes sense. That's a real comparative advantage for us. And we'll spend more time with you in the third and fourth quarter unveiling that because, once again, it will be another area where we are different from our peer group. It's a different model than American Tower and Digital Realty. Not to suggest that those aren't great companies, they're incredible companies, and they're my friends. But what we're doing is just a little bit differentiated, and today was the unveiling of that differentiation.

[Operator]

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

[Marc Ganzi, executive]

Well, listen, thank you. It's been an incredible first half of the year. Once again, I want to thank our Board. I want to thank our Chairman, Tom Barrack. I want to thank our team. This is an incredible team we have here at Colony Capital. I think we unveiled some of that to you today. But this doesn't happen without a great team focused on continuing to find the right home for our legacy assets and continuing to grow our business going forward. I think we've made the case today why this is a great moment in time to buy Colony. And I'd ask all of you who've been investing in the sector for 2 decades, who've watched my career, to remember those sort of seminal moments when American Tower and Crown and SBA were all trading sort of sub-$2. Those were really interesting points in time to buy digital infrastructure. Colony today trades slightly under $2. I'd encourage you guys to look at your history books, think about this management team, think about our business model and think about where we're going.

With that, I look forward to continuing the dialogue with all of you, and we're looking forward to a very successful close to the back end of 2020. Thank you very much. Have a great weekend.

[Jacky Wu, executive]

Thank you.

[Operator]

Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation, and you may disconnect your lines at this time.