Colony Capital, Inc. (Form: 10-Q, Received: 11/09/2018 16:30:23)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



	FORM 10-Q



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-37980



	COLONY CAPITAL, INC. (Exact Name of Registrant as Specified in Its Charter)

	Maryland		46-4591526
	(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

515 South Flower Street, 44th Floor

Los Angeles, California 90071

(Address of Principal Executive Offices, Including Zip Code)

(310) 282-8820

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large Accelerated Filer	ý	Accelerated Filer	¨
Non-Accelerated Filer	¨	Smaller Reporting Company	¨
		Emerging Growth Company	¨

If emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. Yes ¨ No ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

As of November 5, 2018 , 490,311,439 shares of the Registrant's class A common stock and 733,931 shares of class B common stock were outstanding.

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EXPLANATORY NOTE

Colony Capital, Inc. (formerly Colony NorthStar, Inc.) (the “Company”) was formed through a tri-party merger (the "Merger") which closed on January 10, 2017 (the "Closing Date"), among:


•	NorthStar Asset Management Group Inc. ("NSAM"), a real estate focused asset management firm which commenced operations in July 2014 upon the spin-off by NorthStar Realty Finance Corp. ("NRF") of its asset management business;


•	Colony Capital, Inc. ("Colony"), an internally managed real estate investment trust ("REIT") with investment management capabilities, established in June 2009; and


•	NRF, a diversified REIT with investments in multiple classes of commercial real estate, established in October 2004, which was externally managed by NSAM subsequent to the spin-off.

The transaction was accounted for as a reverse acquisition, with NSAM as the legal acquirer for certain legal and regulatory matters, and Colony as the accounting acquirer for purposes of financial reporting.

Effective June 25, 2018, the Company changed its name from Colony NorthStar, Inc. to Colony Capital, Inc.

The financial information for the Company as set forth in this Quarterly Report on Form 10-Q (this "Quarterly Report") represents a continuation of the financial information of Colony as the accounting acquirer. Consequently, the historical financial information included herein as of any date, or for any periods on or prior to January 10, 2017, represents the pre-merger financial information of Colony. The results of operations of NSAM and NRF were incorporated into the Company effective January 11, 2017.

As used throughout this document, the terms the "Company," "we," "our" and "us" mean:


•	Colony Capital, Inc. (formerly Colony NorthStar, Inc.) for all periods on or after January 11, 2017, following the closing of the Merger; and


•	Colony for all periods on or prior to the closing of the Merger on January 10, 2017.

Accordingly, comparisons of the period to period financial information of the Company may not be meaningful.

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COLONY CAPITAL, INC.

FORM 10-Q

TABLE OF CONTENTS



	PART I. FINANCIAL INFORMATION	Page
Item 1.	Financial Statements	4
	Consolidated Balance Sheets as of September 30, 2018 (Unaudited) and December 31, 2017	4
	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2018 and 2017 (Unaudited)	6
	Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2018 and 2017 (Unaudited)	7
	Consolidated Statements of Equity for the Nine Months Ended September 30, 2018 and 2017 (Unaudited)	8
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2018 and 2017 (Unaudited)	10
	Notes to Consolidated Financial Statements:	12
	1. Business and Organization	12
	2. Summary of Significant Accounting Policies	12
	3. Business Combinations	22
	4. Colony Credit	27
	5. Real Estate	28
	6. Loans Receivable	31
	7. Investments in Unconsolidated Ventures	34
	8. Securities	37
	9. Goodwill, Deferred Leasing Costs and Other Intangibles	39
	10. Assets and Related Liabilities Held for Sale	42
	11. Restricted Cash, Other Assets and Other Liabilities	42
	12. Debt	44
	13. Derivatives	47
	14. Fair Value	50
	15. Variable Interest Entities	57
	16. Stockholders' Equity	59
	17. Noncontrolling Interests	63
	18. Discontinued Operations	64
	19. Earnings per Share	65
	20. Fee Income	66
	21. Equity-Based Compensation	67
	22. Transactions with Affiliates	70
	23. Commitments and Contingencies	73
	24. Segment Reporting	73
	25. Supplemental Disclosure of Cash Flow Information	76
	26. Subsequent Events	77
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	80
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	116
Item 4.	Controls and Procedures	117
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	119
Item 1A.	Risk Factors	119
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	119
Item 3.	Defaults Upon Senior Securities	119
Item 4.	Mine Safety Disclosures	119
Item 5.	Other Information	119
Item 6.	Exhibits	121
SIGNATURES		122

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PART I — FINANCIAL INFORMATION


ITEM 1.	Financial Statements.

COLONY CAPITAL, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)



	September 30, 2018 (Unaudited)			December 31, 2017
Assets
Cash and cash equivalents	$	416,795		$	921,822
Restricted cash	413,803			471,078
Real estate, net	13,958,524			14,464,258
Loans receivable, net ($0 and $45,423 at fair value, respectively)	1,784,491			3,223,762
Investments in unconsolidated ventures ($110,365 and $363,901 at fair value, respectively)	2,330,847			1,655,239
Securities, at fair value	139,028			383,942
Goodwill	1,534,561			1,534,561
Deferred leasing costs and intangible assets, net	563,712			852,872
Assets held for sale ($76,683 and $49,498 at fair value, respectively)	638,151			781,630
Other assets ($22,358 and $10,152 at fair value, respectively)	483,519			444,968
Due from affiliates	41,849			51,518
Total assets	$	22,305,280		$	24,785,650
Liabilities
Debt, net ($0 and $44,542 at fair value, respectively)	$	9,867,976		$	10,827,810
Accrued and other liabilities ($77,990 and $212,267 at fair value, respectively)	642,902			898,161
Intangible liabilities, net	167,270			191,109
Liabilities related to assets held for sale	50,625			273,298
Due to affiliates ($0 and $20,650 at fair value, respectively)	—			23,534
Dividends and distributions payable	84,604			188,202
Total liabilities	10,813,377			12,402,114
Commitments and contingencies (Note 23)
Redeemable noncontrolling interests	34,389			34,144
Equity
Stockholders’ equity:
Preferred stock, $0.01 par value per share; $1,436,605 and $1,636,605 liquidation preference, respectively; 250,000 shares authorized; 57,464 and 65,464 shares issued and outstanding, respectively	1,407,495			1,606,966
Common stock, $0.01 par value per share
Class A, 949,000 shares authorized; 490,319 and 542,599 shares issued and outstanding, respectively	4,904			5,426
Class B, 1,000 shares authorized; 734 and 736 shares issued and outstanding, respectively	7			7
Additional paid-in capital	7,618,518			7,913,622
Distributions in excess of earnings	(1,567,662		)	(1,165,412		)
Accumulated other comprehensive income	17,732			47,316
Total stockholders’ equity	7,480,994			8,407,925
Noncontrolling interests in investment entities	3,590,546			3,539,072
Noncontrolling interests in Operating Company	385,974			402,395
Total equity	11,457,514			12,349,392
Total liabilities, redeemable noncontrolling interests and equity	$	22,305,280		$	24,785,650

The accompanying notes are an integral part of the consolidated financial statements.

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COLONY CAPITAL, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

The following table presents the assets and liabilities of securitization vehicles (as of December 31, 2017 only) and an investment fund consolidated as a variable interest entity for which the Company is determined to be the primary beneficiary. At September 30, 2018 , there were no consolidated securitization vehicles as our interests in these securitization vehicles have either been contributed to Colony Credit in the Combination or sold to third parties, resulting in a deconsolidation, or the underlying assets of the securitization trust has been liquidated (see Note 15 ).



	September 30, 2018 (Unaudited)		December 31, 2017
Assets
Cash	$	10,331	$	10,969
Restricted cash	—		40,084
Loans receivable, net	—		546,306
Securities	40,499		250,526
Real estate, net	—		8,073
Other assets	119		13,671
Total assets	$	50,949	$	869,629
Liabilities
Debt, net	$	—	$	348,250
Other liabilities	—		31,299
Total liabilities	$	—	$	379,549

The accompanying notes are an integral part of the consolidated financial statements.

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COLONY CAPITAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Revenues
Property operating income	$	567,981		$	613,665		$	1,713,349		$	1,541,050
Interest income	59,990			106,479			168,027			333,286
Fee income ($34,732, $50,295, $110,961 and $140,983 from affiliates, respectively)	35,055			59,693			111,821			167,262
Other income ($8,776, $5,966, $25,663 and $19,642 from affiliates, respectively)	11,743			10,016			37,835			34,792
Total revenues	674,769			789,853			2,031,032			2,076,390
Expenses
Property operating expense	307,795			332,006			934,239			802,072
Interest expense	145,117			152,054			447,315			418,592
Investment and servicing expense	11,117			18,421			55,721			43,968
Transaction costs	228			4,636			3,585			94,416
Placement fees	5,184			—			6,477			2,398
Depreciation and amortization	145,310			162,694			427,911			453,225
Provision for loan loss	7,825			5,116			27,133			12,907
Impairment loss	76,497			24,073			299,729			45,353
Compensation expense	46,726			85,022			151,369			257,599
Administrative expenses	23,278			26,502			72,638			80,163
Total expenses	769,077			810,524			2,426,117			2,210,693
Other income (loss)
Gain on sale of real estate	35,120			72,541			96,266			96,701
Other gain (loss), net	29,677			(8,822		)	133,731			(7,291		)
Earnings from investments in unconsolidated ventures	13,798			17,447			47,938			253,833
Income (loss) before income taxes	(15,713		)	60,495			(117,150		)	208,940
Income tax benefit	1,767			10,613			35,159			6,990
Income (loss) from continuing operations	(13,946		)	71,108			(81,991		)	215,930
Income (loss) from discontinued operations	—			1,481			(102		)	14,041
Net income (loss)	(13,946		)	72,589			(82,093		)	229,971
Net income (loss) attributable to noncontrolling interests:
Redeemable noncontrolling interests	865			1,678			2,042			3,015
Investment entities	32,382			36,906			79,904			87,765
Operating Company	(4,403		)	97			(14,509		)	1,344
Net income (loss) attributable to Colony Capital, Inc.	(42,790		)	33,908			(149,530		)	137,847
Preferred stock redemption (Note 16)	—			(918		)	(3,995		)	4,530
Preferred stock dividends	27,185			33,176			89,960			98,328
Net income (loss) attributable to common stockholders	$	(69,975	)	$	1,650		$	(235,495	)	$	34,989
Basic earnings (loss) per share
Income (loss) from continuing operations per basic common share	$	(0.15	)	$	0.00		$	(0.47	)	$	0.03
Net income (loss) per basic common share	$	(0.15	)	$	0.00		$	(0.47	)	$	0.05
Diluted earnings (loss) per share
Income (loss) from continuing operations per diluted common share	$	(0.15	)	$	0.00		$	(0.47	)	$	0.03
Net income (loss) per diluted common share	$	(0.15	)	$	0.00		$	(0.47	)	$	0.05
Weighted average number of shares
Basic	484,754			542,855			501,202			531,251
Diluted	484,754			542,855			501,202			531,251
Dividends declared per common share (Note 16)	$	0.11		$	0.27		$	0.33		$	0.81

The accompanying notes are an integral part of the consolidated financial statements.

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COLONY CAPITAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Net income (loss)	$	(13,946	)	$	72,589		$	(82,093	)	$	229,971
Other comprehensive income (loss):
Other comprehensive income (loss) from investments in unconsolidated ventures, net	(2,373		)	3,283			(275		)	3,888
Net change in fair value of available-for-sale debt securities	441			(4,357		)	(18,645		)	(699		)
Foreign currency translation adjustments:
Foreign currency translation gain (loss)	(14,792		)	61,306			(41,441		)	196,379
Change in fair value of net investment hedges	1,244			(19,822		)	14,803			(64,916		)
Net foreign currency translation adjustments	(13,548		)	41,484			(26,638		)	131,463
Other comprehensive income (loss)	(15,480		)	40,410			(45,558		)	134,652
Comprehensive income (loss)	(29,426		)	112,999			(127,651		)	364,623
Comprehensive income (loss) attributable to noncontrolling interests:
Redeemable noncontrolling interests	865			1,678			2,042			3,015
Investment entities	23,340			57,286			65,280			165,827
Operating Company	(4,681		)	1,014			(16,225		)	4,555
Comprehensive income (loss) attributable to stockholders	$	(48,950	)	$	53,021		$	(178,748	)	$	191,226

The accompanying notes are an integral part of the consolidated financial statements.

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COLONY CAPITAL, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(In thousands, except per share data)

(Unaudited)



	Preferred Stock			Common Stock			Additional Paid-in Capital			Distributions in Excess of Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity			Noncontrolling Interests in Investment Entities			Noncontrolling Interests in Operating Company			Total Equity
	Preferred Stock			Common Stock			Additional Paid-in Capital			Distributions in Excess of Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity			Noncontrolling Interests in Investment Entities			Noncontrolling Interests in Operating Company			Total Equity
Balance at December 31, 2016	607,200			1,672			2,443,100			(246,064		)	(32,109		)	2,773,799			2,453,938			389,190			5,616,927
Net income	—			—			—			137,847			—			137,847			87,765			1,344			226,956
Other comprehensive income	—			—			—			—			53,379			53,379			78,062			3,211			134,652
Merger consideration (Note 3)	1,010,320			3,891			5,706,243			—			—			6,720,454			—			—			6,720,454
Payment of accrued dividends on preferred stock assumed in Merger	(12,869		)	—			—			—			—			(12,869		)	—			—			(12,869		)
Fair value of noncontrolling interests assumed in Merger	—			—			—			—			—			—			505,685			8,162			513,847
Issuance of Cumulative Redeemable Perpetual Preferred Stock	660,000			—			—			—			—			660,000			—			—			660,000
Offering costs	(21,870		)	—			—			—			—			(21,870		)	—			—			(21,870		)
Redemption of preferred stock	(635,785		)	—			—			—			—			(635,785		)	—			—			(635,785		)
Common stock repurchases	—			(173		)	(224,439		)	—			—			(224,612		)	—			—			(224,612		)
Equity-based compensation	—			81			74,655			—			—			74,736			—			37,045			111,781
Redemption of OP Units for cash and class A common stock	—			17			22,771			—			—			22,788			—			(27,873		)	(5,085		)
Exchange of notes for Class A common stock	—			2			2,966			—			—			2,968			—			—			2,968
Shares canceled for tax withholdings on vested stock awards	—			(4		)	(5,664		)	—			—			(5,668		)	—			—			(5,668		)
Settlement of call spread option	—			—			6,900			—			—			6,900			—			—			6,900
Costs of noncontrolling equity	—			—			(9,209		)	—			—			(9,209		)	—			—			(9,209		)
Deconsolidation of investment entity	—			—			—			—			—			—			(4,000		)	—			(4,000		)
Contributions from noncontrolling interests	—			—			—			—			—			—			1,087,717			—			1,087,717
Distributions to noncontrolling interests	—			—			—			—			—			—			(601,476		)	(26,667		)	(628,143		)
Preferred stock dividends	—			—			—			(105,375		)	—			(105,375		)	—			—			(105,375		)
Common stock dividends declared ($0.81 per share; Note 16)	—			—			—			(436,543		)	—			(436,543		)	—			—			(436,543		)
Reallocation of equity (Note 2 and 17)	—			—			(69,329		)	—			4,561			(64,768		)	19,662			45,106			—
Balance at September 30, 2017	$	1,606,996		$	5,486		$	7,947,994		$	(650,135	)	$	25,831		$	8,936,172		$	3,627,353		$	429,518		$	12,993,043

The accompanying notes are an integral part of the consolidated financial statements.

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COLONY CAPITAL, INC.

CONSOLIDATED STATEMENTS OF EQUITY (Continued)

(In thousands, except per share data)

(Unaudited)



	Preferred Stock			Common Stock			Additional Paid-in Capital			Distributions in Excess of Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity			Noncontrolling Interests in Investment Entities			Noncontrolling Interests in Operating Company			Total Equity
	Preferred Stock			Common Stock			Additional Paid-in Capital			Distributions in Excess of Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity			Noncontrolling Interests in Investment Entities			Noncontrolling Interests in Operating Company			Total Equity
Balance at December 31, 2017	$	1,606,966		$	5,433		$	7,913,622		$	(1,165,412	)	$	47,316		$	8,407,925		$	3,539,072		$	402,395		$	12,349,392
Cumulative effect of adoption of new accounting pronouncements (Note 2)	—			—			—			(1,018		)	(202		)	(1,220		)	—			—			(1,220		)
Net income (loss)	—			—			—			(149,530		)	—			(149,530		)	79,904			(14,509		)	(84,135		)
Other comprehensive loss	—			—			—			—			(29,218		)	(29,218		)	(14,624		)	(1,716		)	(45,558		)
Redemption of preferred stock (Note 16)	(199,471		)	—			(529		)	—			—			(200,000		)	—			—			(200,000		)
Common stock repurchases	—			(548		)	(318,481		)	—			—			(319,029		)	—			—			(319,029		)
Redemption of OP Units for cash and class A common stock	—			20			28,884			—			—			28,904			—			(33,734		)	(4,830		)
Equity-based compensation	—			34			27,987			—			—			28,021			312			1,414			29,747
Shares canceled for tax withholdings on vested stock awards	—			(29		)	(32,021		)	—			—			(32,050		)	—			—			(32,050		)
Reclassification of contingent consideration out of liability at end of measurement period	—			—			12,539			—			—			12,539			—			—			12,539
OP Unit and common stock issuance—contingent consideration	—			1			—			—			—			1			—			24,608			24,609
Deconsolidation of investment entities (Note 4)	—			—			—			—			—			—			(330,980		)	—			(330,980		)
Contributions from noncontrolling interests	—			—			—			—			—			—			690,830			—			690,830
Distributions to noncontrolling interests	—			—			—			—			—			—			(345,144		)	(10,346		)	(355,490		)
Preferred stock dividends	—			—			—			(87,882		)	—			(87,882		)	—			—			(87,882		)
Common stock dividends declared ($0.33 per share)	—			—			—			(163,820		)	—			(163,820		)	—			—			(163,820		)
Reallocation of equity (Notes 2 and 17)	—			—			(13,483		)	—			(164		)	(13,647		)	(28,824		)	17,862			(24,609		)
Balance at September 30, 2018	$	1,407,495		$	4,911		$	7,618,518		$	(1,567,662	)	$	17,732		$	7,480,994		$	3,590,546		$	385,974		$	11,457,514

The accompanying notes are an integral part of the consolidated financial statements.

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COLONY CAPITAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



	Nine Months Ended September 30,
	2018			2017
Cash Flows from Operating Activities
Net income (loss)	$	(82,093	)	$	229,971
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of discount and net origination fees on loans receivable and debt securities	(21,184		)	(50,542		)
Paid-in-kind interest added to loan principal, net of interest received	(25,529		)	(26,492		)
Straight-line rents	(22,123		)	(25,633		)
Amortization of above- and below-market lease values, net	(4,748		)	(6,976		)
Amortization of deferred financing costs and debt discount and premium	69,314			59,774
Earnings from investments in unconsolidated ventures	(47,938		)	(253,833		)
Distributions of income from equity method investments	57,466			50,523
Provision for loan losses	27,133			12,907
Allowance for doubtful accounts	25,201			11,826
Impairment of real estate and intangibles	299,729			45,353
Depreciation and amortization	427,911			453,225
Equity-based compensation	30,123			111,304
Change in fair value of contingent consideration—Internalization	(1,730		)	(14,340		)
Gain on sales of real estate, net	(96,266		)	(94,593		)
Deferred income tax benefit	(50,960		)	(21,511		)
Payment of cash collateral on derivative	—			(5,415		)
Other (gain) loss, net	(132,001		)	21,631
Increase in other assets and due from affiliates	(49,887		)	(45,673		)
Decrease in accrued and other liabilities and due to affiliates	(8,334		)	(50,702		)
Other adjustments, net	(785		)	5,273
Net cash provided by operating activities	393,299			406,077
Cash Flows from Investing Activities
Contributions to investments in unconsolidated ventures	(210,176		)	(364,820		)
Return of capital from investments in unconsolidated ventures	260,603			166,173
Acquisition of loans receivable and securities	(99,656		)	(559,335		)
Cash and restricted cash assumed in Merger, net of payments for merger-related liabilities (Note 3)	—			132,377
Net disbursements on originated loans	(274,999		)	(283,696		)
Repayments of loans receivable	112,469			522,321
Proceeds from sales of loans receivable and securities	158,714			141,573
Cash receipts in excess of accretion on purchased credit-impaired loans	135,457			240,179
Acquisition of and additions to real estate, related intangibles and leasing commissions	(747,874		)	(1,194,244		)
Proceeds from sales of real estate, net of debt assumed by buyers	584,569			1,340,059
Proceeds from paydown and maturity of securities	41,885			91,780
Cash and restricted cash contributed to Colony Credit (Note 4)	(141,153		)	—
Proceeds from sale of investments in unconsolidated ventures (Notes 7 and 22)	229,261			553,327
Proceeds from sale of equity interests in securitization trusts, net of cash and restricted cash deconsolidated (Note 15)	142,270			—
Proceeds from syndication of investment, net of cash and restricted cash deconsolidated	—			135,297
Cash and restricted cash assumed from consolidation of sponsored fund (Note 14)	—			6,685
Acquisition of CPI, net of cash and restricted cash acquired (Note 3)	—			(23,111		)
Acquisition of THL Hotel Portfolio, net of cash and restricted cash acquired (Note 3)	—			(8,976		)
Investment deposits	(95,573		)	(2,934		)
Net payments on settlement of derivative instruments	(14,014		)	(3,065		)
Other investing activities, net	199			(12,918		)
Net cash provided by investing activities	81,982			876,672

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COLONY CAPITAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(In thousands)

(Unaudited)



	Nine Months Ended September 30,
	2018			2017
Cash Flows from Financing Activities
Proceeds from issuance of preferred stock, net	$	—		$	638,130
Dividends paid to preferred stockholders	(93,565		)	(99,954		)
Dividends paid to common stockholders	(256,504		)	(333,896		)
Repurchase of common stock	(319,029		)	(224,612		)
Borrowings from corporate credit facility	685,000			780,000
Repayment of borrowings from corporate credit facility	(735,000		)	(1,202,600		)
Borrowings from secured debt	1,179,677			3,196,554
Repayments of secured debt	(1,569,471		)	(3,301,110		)
Settlement of call spread option	—			6,900
Payment of deferred financing costs	(19,838		)	(64,439		)
Contributions from noncontrolling interests	707,823			1,087,119
Distributions to and redemptions of noncontrolling interests	(371,290		)	(629,876		)
Redemption of preferred stock	(200,000		)	(313,667		)
Shares canceled for tax withholdings on vested stock awards	(32,050		)	(5,837		)
Redemption of OP Units for cash	(4,830		)	(5,085		)
Repurchase of exchangeable senior notes	—			(15,455		)
Other financing activities, net	(188		)	(6,765		)
Net cash used in financing activities	(1,029,265		)	(494,593		)
Effect of exchange rates on cash, cash equivalents and restricted cash	(6,892		)	10,588
Net increase (decrease) in cash, cash equivalents and restricted cash	(560,876		)	798,744
Cash, cash equivalents and restricted cash, beginning of period	1,393,920			497,886
Cash, cash equivalents and restricted cash, end of period	$	833,044		$	1,296,630



Reconciliation of cash, cash equivalents, and restricted cash to consolidated balance sheets
Beginning of the period
Cash and cash equivalents	$	921,822	$	376,005
Restricted cash	471,078		111,959
Restricted cash included in assets held for sale	1,020		9,922
Total cash, cash equivalents and restricted cash, beginning of period	$	1,393,920	$	497,886

End of the period
Cash and cash equivalents	$	416,795	$	877,928
Restricted cash	413,803		394,052
Cash and restricted cash included in assets held for sale	2,446		24,650
Total cash, cash equivalents and restricted cash, end of period	$	833,044	$	1,296,630

The accompanying notes are an integral part of the consolidated financial statements.

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COLONY CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2018

(Unaudited)

1 . Business and Organization

Colony Capital, Inc. (the "Company") is a leading global investment management firm with approximately $44 billion of assets under management. The Company manages capital on behalf of its stockholders, as well as institutional and retail investors in private funds, traded and non-traded real estate investment trusts ("REITs") and registered investment companies. The Company has significant holdings in: (a) the healthcare, industrial and hospitality property sectors; (b) Colony Credit Real Estate, Inc. (NYSE: CLNC) and NorthStar Realty Europe Corp. (NYSE: NRE) which are externally managed by subsidiaries of the Company; and (c) various other equity and debt investments.

The Company was organized in May 2016 as a Maryland corporation, and elected to be taxed as a REIT under the Internal Revenue Code, for U.S. federal income tax purposes beginning with its taxable year ended December 31, 2017 . Effective June 25, 2018, the Company changed its name from Colony NorthStar, Inc. to Colony Capital, Inc. and its ticker symbol on the NYSE from "CLNS" to "CLNY."

The Company conducts all of its activities and holds substantially all of its assets and liabilities through its operating subsidiary, Colony Capital Operating Company, LLC (the "Operating Company" or the “OP”) . At September 30, 2018 , the Company owned approximately 94.0% of the OP , as its sole managing member. The remaining 6.0% is owned primarily by certain employees of the Company as noncontrolling interests.

Merger

The Merger among Colony, NSAM and NRF was completed in an all-stock exchange on January 10, 2017.

The Merger was accounted for as a reverse acquisition, with NSAM as the legal acquirer for certain legal and regulatory matters, and Colony as the accounting acquirer for purposes of financial reporting. Consequently, the historical financial information included herein as of any date or for any periods on or prior to the Closing Date represents the pre-Merger financial information of Colony. Accordingly, the year-to-date results of operations of the Company as set forth herein may not be comparable as the first ten days of 2017 reflect only the pre-Merger activity of Colony.

Details of the Merger are described more fully in Note 3 and the accounting treatment thereof in Note 2 .

Colony Credit

On August 25, 2017, as amended and restated on November 20, 2017, certain subsidiaries of the Company entered into a combination agreement with NorthStar Real Estate Income Trust, Inc. (“NorthStar I”) and NorthStar Real Estate Income II, Inc. (“NorthStar II”), both publicly registered non-traded REITs sponsored and managed by a subsidiary of the Company, and certain other subsidiaries of the foregoing. Pursuant to the combination agreement, certain subsidiaries of the Company agreed to contribute the CLNY Contributed Portfolio (as defined in Note 4 ), represented by the Company's ownership interests ranging from 38% to 100% in certain investment entities ("CLNY Investment Entities"), to Colony Credit Real Estate, Inc. (formerly Colony NorthStar Credit Real Estate, Inc.) ("Colony Credit") and its operating company, and NorthStar I and NorthStar II agreed to merge in all-stock mergers with and into Colony Credit (collectively, the “Combination”).

On January 18, 2018, the Combination was approved by the stockholders of NorthStar I and NorthStar II. The Combination closed on January 31, 2018. On June 25, 2018, Colony Credit changed its name from Colony NorthStar Credit Real Estate, Inc. to Colony Credit Real Estate, Inc. See additional information in Note 4 .

2 . Summary of Significant Accounting Policies

The significant accounting policies of the Company are described below. The accounting policies of the Company's unconsolidated ventures are substantially similar to those of the Company.

Basis of Presentation

The accompanying unaudited interim financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. These statements reflect all normal and recurring adjustments which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows of the Company for the interim periods presented.

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However, the results of operations for the interim period presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2018 , or any other future period. These interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in, or presented as exhibits to, the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 .

Merger

The Merger was accounted for under the acquisition method for a business combination as a reverse acquisition. NSAM was the legal acquirer in the Merger for certain legal and regulatory matters, however, Colony was determined to be the accounting acquirer in the Merger for financial reporting purposes. While NSAM was the legal entity which initiated the transaction and issued its shares to consummate the Merger, the fact that the senior management of the Company primarily consists of Colony senior executives, along with other qualitative considerations, resulted in Colony being designated the accounting acquirer.

The financial statements of the Company represent a continuation of the financial information of Colony as the accounting acquirer, except that the equity structure of the Company is adjusted to reflect the equity structure of the legal acquirer, including for comparative periods, by applying the Colony share exchange ratio of 1.4663 . The historical financial information as of any date or for any periods on or prior to the Closing Date represents the pre-Merger financial information of Colony. The assets and liabilities of Colony are reflected by the Company at their pre-Merger carrying values while the assets and liabilities of NSAM and NRF are accounted for at their acquisition date fair value. The results of operations of NSAM and NRF were incorporated into the Company effective from January 11, 2017.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its controlled subsidiaries. All significant intercompany accounts and transactions have been eliminated. The portions of the equity, net income and other comprehensive income of consolidated subsidiaries that are not attributable to the parent are presented separately as amounts attributable to noncontrolling interests in the consolidated financial statements. A substantial portion of noncontrolling interests represents interests held by private investment funds or other investment vehicles managed by the Company and which invest alongside the Company and membership interests in OP primarily held by certain employees of the Company.

To the extent the Company consolidates a subsidiary that is subject to industry-specific guidance, the Company retains the industry-specific guidance applied by that subsidiary in its consolidated financial statements.

The Company consolidates entities in which it has a controlling financial interest by first considering if an entity meets the definition of a variable interest entity ("VIE") for which the Company is deemed to be the primary beneficiary, or if the Company has the power to control an entity through a majority of voting interest or through other arrangements.

Variable Interest Entities —A VIE is an entity that lacks sufficient equity to finance its activities without additional subordinated financial support from other parties, or whose equity holders lack the characteristics of a controlling financial interest. A VIE is consolidated by its primary beneficiary, which is defined as the party who has a controlling financial interest in the VIE through (a) power to direct the activities of the VIE that most significantly affect the VIE’s economic performance, and (b) obligation to absorb losses or right to receive benefits of the VIE that could be significant to the VIE. The Company also considers interests held by its related parties, including de facto agents. The Company assesses whether it is a member of a related party group that collectively meets the power and benefits criteria and, if so, whether the Company is most closely associated with the VIE. In performing this analysis, the Company considers both qualitative and quantitative factors, including, but not limited to: the amount and characteristics of its investment relative to the related party; the Company’s and the related party's ability to control or significantly influence key decisions of the VIE including consideration of involvement by de facto agents; the obligation or likelihood for the Company or the related party to fund operating losses of the VIE; and the similarity and significance of the VIE’s business activities to those of the Company and the related party. The determination of whether an entity is a VIE, and whether the Company is the primary beneficiary, may involve significant judgment, including the determination of which activities most significantly affect the entities’ performance, and estimates about the current and future fair values and performance of assets held by the VIE.

Voting Interest Entities —Unlike VIEs, voting interest entities have sufficient equity to finance their activities and equity investors exhibit the characteristics of a controlling financial interest through their voting rights. The Company consolidates such entities when it has the power to control these entities through ownership of a majority of the entities' voting interests or through other arrangements.

At each reporting period, the Company reassesses whether changes in facts and circumstances cause a change in the status of an entity as a VIE or voting interest entity, and/or a change in the Company's consolidation assessment. Changes in consolidation status are applied prospectively. An entity may be consolidated as a result of this reassessment,

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in which case, the assets, liabilities and noncontrolling interest in the entity are recorded at fair value upon initial consolidation. Any existing equity interest held by the Company in the entity prior to the Company obtaining control will be remeasured at fair value, which may result in a gain or loss recognized upon initial consolidation. However, if the consolidation represents an asset acquisition of a voting interest entity, the Company's existing interest in the acquired assets, if any, is not remeasured to fair value but continues to be carried at historical cost. The Company may also deconsolidate a subsidiary as a result of this reassessment, which may result in a gain or loss recognized upon deconsolidation depending on the carrying values of deconsolidated assets and liabilities compared to the fair value of any interests retained.

Noncontrolling Interests

Redeemable Noncontrolling Interests —This represents noncontrolling interests in (i) a consolidated open-end fund sponsored by the Company beginning in August 2017, and (ii) an investment management subsidiary acquired through the Merger, Townsend Holdings, LLC ("Townsend"), beginning January 11, 2017 through December 29, 2017, the date the Company sold its interest in Townsend.

The limited partners in the consolidated open-end fund who represent noncontrolling interests generally have the ability to withdraw all or a portion of their interests in cash with 30 days' notice.

Redeemable noncontrolling interests is presented outside of permanent equity. Allocation of net income or loss to redeemable noncontrolling interests is based upon their ownership percentage during the period. The carrying amount of redeemable noncontrolling interests is adjusted to its redemption value at the end of each reporting period, but no less than its initial carrying value, with such adjustments recognized in additional paid-in capital.

Noncontrolling Interests in Investment Entities —This represents interests in consolidated investment entities held by private investment funds or retail companies managed by the Company or held by third party joint venture partners. Allocation of net income or loss is generally based upon relative ownership interests held by equity owners in each investment entity, or based upon contractual arrangements that may provide for disproportionate allocation of economic returns among equity interests, including using a hypothetical liquidation at book value basis, where applicable and substantive.

Noncontrolling Interests in Operating Company —This represents membership interests in OP held primarily by certain employees of the Company. Noncontrolling interests in OP are allocated a share of net income or loss in OP based on their weighted average ownership interest in OP during the period. Noncontrolling interests in OP have the right to require OP to redeem part or all of such member’s membership units in OP ("OP Units") for cash based on the market value of an equivalent number of shares of class A common stock at the time of redemption, or at the Company's election as managing member of OP, through issuance of shares of class A common stock (registered or unregistered) on a one -for-one basis. At the end of each reporting period, noncontrolling interests in OP is adjusted to reflect their ownership percentage in OP at the end of the period, through a reallocation between controlling and noncontrolling interests in OP, as applicable.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates and assumptions.

Investments in Unconsolidated Ventures

A noncontrolling, unconsolidated ownership interest in an entity may be accounted for using the equity method, fair value option or net asset value ("NAV") practical expedient, if elected, or for equity investments without readily determinable fair values, the measurement alternative to measure at cost adjusted for any impairment and observable price changes, as applicable.

The Company accounts for investments under the equity method of accounting if it has the ability to exercise significant influence over the operating and financial policies of an entity, but does not have a controlling financial interest. The equity method investment is initially recorded at cost and adjusted each period for capital contributions, distributions and the Company's share of the entity’s net income or loss as well as other comprehensive income or loss. The Company's share of net income or loss may differ from the stated ownership percentage interest in an entity if the governing documents prescribe a substantive non-pro rata earnings allocation formula or a preferred return to certain investors. This includes carried interests earned by the Company, which are incentive fees that take the form of a disproportionate allocation of returns to the Company’s capital account within the equity structure of investment vehicles sponsored by the Company as general partner and investment manager; and of which a portion of the carried interest,

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generally at 40% consistent with market terms, is allocated to senior management, investment professionals and certain other employees through their participation in the Company-sponsored investment vehicles. The Company's share of both proportionate and disproportionate allocation of returns from its interests in investment vehicles, which are accounted for under the equity method, may reflect fair value changes in the underlying investments if the investment vehicles qualify for investment company accounting. For certain equity method investments, the Company records its proportionate share of income on a one to three month lag. Distributions of operating profits from equity method investments are reported as operating activities, while distributions in excess of operating profits or those related to capital transactions, such as a financing transactions or sales, are reported as investing activities in the statement of cash flows.

Fair value changes for equity method investments under the fair value option are recorded in earnings from investments in unconsolidated ventures. Fair value changes on other investments under the fair value option or NAV practical expedient, as well as adjustments for observable price changes under the measurement alternative, are recorded in other gain (loss).

Impairment —Evaluation of impairment applies to equity method investments and equity investments under the measurement alternative. If indicators of impairment exist, the Company will first estimate the fair value of its investment. In assessing fair value, the Company generally considers, among others, the estimated enterprise value of the investee or fair value of the investee's underlying net assets, including net cash flows to be generated by the investee as applicable, and for equity method investees with publicly traded equity, the traded price of the equity securities in an active market.

For investments under the measurement alternative, if carrying value of the investment exceeds its fair value, an impairment is determined to have occurred.

For equity method investments, further consideration is made if a decrease in value of the investment is other-than-temporary to determine if impairment has occurred. Assessment of other-than-temporary impairment involves management judgment, including, but not limited to, consideration of the investee’s financial condition, operating results, business prospects and creditworthiness, the Company's ability and intent to hold the investment until recovery of its carrying value, or a significant and prolonged decline in traded price of the investee’s equity security. If management is unable to reasonably assert that an impairment is temporary or believes that the Company may not fully recover the carrying value of its investment, then the impairment is considered to be other-than-temporary.

Investments that are impaired are written down to their estimated fair value, recorded in earnings from investments in unconsolidated ventures for equity method investments and in impairment loss for investments under the measurement alternative.

Property Operating Income

Property operating income includes the following.

Rental Income —Rental income is recognized on a straight-line basis over the noncancelable term of the related lease which includes the effects of minimum rent increases and rent abatements under the lease. Rents received in advance are deferred.

When it is determined that the Company is the owner of tenant improvements, the cost to construct the tenant improvements, including costs paid for or reimbursed from the tenants, is capitalized. For Company-owned tenant improvements, the amount funded by or reimbursed from the tenants are recorded as deferred revenue, which is amortized on a straight-line basis as additional rental income over the term of the related lease. Rental income recognition commences when the leased space is substantially ready for its intended use and the tenant takes possession of the leased space.

When it is determined that the tenant is the owner of tenant improvements, the Company's contribution towards those improvements is recorded as a lease incentive, included in deferred leasing costs and intangible assets on the balance sheet, and amortized as a reduction to rental income on a straight-line basis over the term of the lease. Rental income recognition commences when the tenant takes possession of the lease space.

Tenant Reimbursements —In net lease arrangements, the tenant is generally responsible for operating expenses relating to the property, including real estate taxes, property insurance, maintenance, repairs and improvements. Costs reimbursable from tenants and other recoverable costs are recognized as revenue in the period the recoverable costs are incurred. When the Company is the primary obligor with respect to purchasing goods and services for property operations and has discretion in selecting the supplier and retains credit risk, tenant reimbursement revenue and property operating expenses are presented on a gross basis in the statements of operations. For certain triple net leases where the lessee self-manages the property, hires its own service providers and retains credit risk for routine maintenance contracts, no reimbursement revenue and expense are recognized.

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Resident Fee Income —The Company earns resident fee income from senior housing operating facilities that operate through management agreements with independent third-party operators. Resident fee income related to independent living and assisted living facilities are recorded when services are rendered based on the terms of their respective lease agreements.

Hotel Operating Income —Hotel operating income includes room revenue, food and beverage sales and other ancillary services. Revenue is recognized upon occupancy of rooms, consummation of sales and provision of services.

Fee Income

Fee income consists of the following:

Base Management Fees —The Company earns base management fees for the administration of its managed private funds, and for the management of its traded and non-traded REITs and investment companies, including management of their investments, which constitute a series of distinct services satisfied over time. Base management fees are recognized over the life of the investment vehicle as services are provided.

Asset Management Fees —The Company receives a one-time asset management fee upon closing of each investment made by certain managed private funds. The underlying service of managing the investments of the private funds consist of a series of distinct services satisfied over time, in which asset management fees are recognized ratably over the life of each investment as the service is provided.

Acquisition and Disposition Fees —The Company earns fees related to acquisition and disposition of investments by certain managed non-traded REITs, which are recognized upon closing of the respective acquisition or disposition of underlying investments.

Incentive Fees —The Company may earn incentive fees from its managed private funds, traded and non-traded REITs and investment companies. Incentive fees are determined based on the performance of the investment vehicles subject to the achievement of minimum return hurdles in accordance with the terms set out in the respective governing agreements. Incentive fees that take the form of a contractual arrangement with the investment vehicle and does not represent an allocation of returns among equity holders of the investment vehicle (or “contractual incentive fees”) are recognized when fixed or determinable and related contingencies have been resolved, which is generally at the end of the incentive measurement period of the respective investment vehicles. Any contractual incentive fees received prior to that date are recorded as deferred income.

Incentive fees that take the form of a disproportionate allocation of returns to the Company’s capital account within the equity structure of the investment vehicle (or “carried interests”) are accounted for as earnings from the Company’s ownership interests in the investment vehicles under the equity method, and addressed in the Company's accounting policy for investments in unconsolidated ventures.

A portion of the incentive fees earned by the Company (generally 40% ) is allocated to senior management, investment professionals and certain other employees of the Company through their participation in the Company-sponsored investment vehicles.

Selling Commission and Dealer Manager Fees —These fees are earned by the Company for selling equity in the non-traded REITs and investment companies, and are recognized on trade date.

Accounting Standards Adopted in 2018

Revenue Recognition —In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers, which amends existing revenue recognition standards by establishing principles for a single comprehensive model for revenue measurement and recognition, along with enhanced disclosure requirements. Key provisions include, but are not limited to, determining which goods or services are capable of being distinct in a contract to be accounted for separately as a performance obligation and recognizing variable consideration only to the extent that it is probable a significant revenue reversal would not occur. The FASB has subsequently issued several amendments to the standard, including clarifying the guidance on assessing principal versus agent based on the notion of control, which affects recognition of revenue on a gross or net basis. The Company adopted the standard on January 1, 2018 using the modified retrospective approach, applied to contracts not yet completed as of January 1, 2018, with cumulative effect recognized in retained earnings.

The Company evaluated the principal versus agent considerations under the guidance and determined that certain cost reimbursement arrangements with investment vehicles managed by the Company that were previously reported net on the statement of operations would be reported on a gross basis as reimbursement income and expenses on the statement of operations. Such reimbursements include travel and entertainment costs, third party due diligence costs,

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asset management costs, and other shared costs for which the Company is deemed to the primary obligor, whether or not the payment is made directly by the investment vehicles or initially by the Company on behalf of the investment vehicles. The gross presentation has no impact on the Company's net income to the extent the expense incurred and corresponding cost reimbursement income are recognized in the same period (see Note 22 ).

The standard excludes from its scope accounting for financial instruments and leases, but is applicable to certain property operating income and fee income streams of the Company, as discussed below.

Resident Fee Income —The Company earns resident fee income from senior housing operating facilities and in 2017, from skilled nursing facilities that operate through management agreements with independent third-party operators. The Company has determined that independent living and assisted living agreements are leases subject to the leasing standard, while certain agreements within skilled nursing facilities, which entitle residents to reside in the community rather than an explicitly or implicitly identified unit, are not leases. Revenue for services provided within skilled nursing facilities, whether they are routine services such as room and bed maintenance, nursing, dietary services, and resident activities or programs, or separately covered services such as those ordered by physicians, are satisfied over the duration of care. These services are a series of distinct services satisfied over time, and revenue is recognized over time as services are provided. The Company determined that there is no change to revenue recognition for such services provided within the skilled nursing facilities in 2017. In 2018, all of the Company's skilled nursing facilities are structured under net leases to healthcare operators and the Company no longer earns resident fee income from skilled nursing facilities, only rental income.

Hotel Operating Income —Revenue is recognized upon occupancy of rooms, consummation of sales and provision of services. The Company determined that there is no change to revenue recognized under the new guidance as revenue is recognized over time based on the transaction price.

Base Management Fees —The Company earns base management fees for the day-to-day operations and administration of its managed private funds, traded and non-traded REITs and investment companies. The Company determined that there is no change to revenue recognition for base management fees as the underlying services consist of a series of distinct services satisfied over time, for which revenue is recognized over the life of the fund as services are provided.

Asset Management Fees —The Company receives a one-time asset management fee upon closing of each investment made by certain managed private funds. Prior to the adoption of the revenue standard, a portion of asset management fees was recognized upon closing of an investment, with remaining fees deferred and recognized over the estimated life of each investment. Under the new guidance, the Company determined that the underlying service of managing the investments of the funds consists of a series of distinct services satisfied over time, for which revenue should be recognized ratably over the estimated life of each investment. As a result of the change in revenue recognition under the new standard, the Company recorded a cumulative impact of approximately $1.6 million as a decrease to retained earnings and an increase to deferred income liability on January 1, 2018. The impact of the change in revenue recognition for the three and nine months ended September 30, 2018 was an increase to asset management fees of $0.2 million and $0.6 million , respectively.

Acquisition and Disposition Fees —The Company receives fees related to acquisition and disposition of investments by certain managed non-traded REITs. The Company determined that there is no change to revenue recognition as acquisition and disposition fees are earned at a point in time upon closing of the respective acquisition or disposition of underlying investments.

Incentive Fees —The Company may earn incentive fees from its managed private funds, traded and non-traded REITs. Incentive fees are determined based on the performance of the investment vehicles subject to the achievement of certain return hurdles.

Incentive fees that take the form of a contractual arrangement with the investment vehicle and do not represent an allocation of returns among equity holders of the investment vehicle (or “contractual incentive fees”) are within the scope of the new revenue standard. The Company currently recognizes contractual incentive fees when it is fixed or determinable and related contingencies have been resolved, which is generally at the end of the incentive measurement period of the respective investment vehicles. Under the new revenue guidance, contractual incentive fees are a form of variable consideration and will be recognized when it is probable that a significant reversal of the cumulative revenue recognized will not occur, which may result in earlier recognition of revenue relative to the Company’s existing policy. There was no cumulative impact as of January 1, 2018.

Incentive fees that take the form of a disproportionate allocation of returns to the Company’s capital account within the equity structure of the investment vehicle (or “carried interests”) are outside the scope of the new revenue standard. Carried interests are financial instruments and accounted for as earnings from the Company’s ownership interests in the

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investment vehicles under the equity method. As carried interest represents income from equity method investments, it is presented, along with other proportionate allocation of returns based on the Company’s ownership interests in the investment vehicles, in earnings from unconsolidated investment ventures on the statement of operations. Adoption of the new standard did not have an impact to the Company's recognition of carried interests.

Derecognition and Partial Sales of Nonfinancial Assets —In February 2017, the FASB issued ASU No. 2017-05, Clarifying the Scope of Asset Derecognition and Accounting for Partial Sales of Nonfinancial Assets , which clarifies the scope and application of Accounting Standards Codification ("ASC") 610-20, Other Income — Gains and Losses from Derecognition of Nonfinancial Assets , and defines in substance nonfinancial assets. ASC 610-20 applies to derecognition of all nonfinancial assets which are not contracts with customers or revenue transactions under ASC 606, Revenue from Contracts with Customers . Derecognition of a business is governed by ASC 810, Consolidation , while derecognition of financial assets, including equity method investments, even if the investee holds predominantly nonfinancial assets, is governed by ASC 860, Transfers and Servicing . The ASU also aligns the accounting for partial sales of nonfinancial assets to be more consistent with accounting for sale of a business. Specifically, in a partial sale to a noncustomer, when a noncontrolling interest is received or retained, the latter is considered a noncash consideration and measured at fair value in accordance with ASC 606, which would result in full gain or loss recognized upon sale. This ASU removes guidance on partial exchanges of nonfinancial assets in ASC 845, Nonmonetary Transactions , and eliminates the real estate sales guidance in ASC 360-20, Property, Plant and Equipment — Real Estate Sales .

The Company adopted this standard on January 1, 2018, concurrent with the adoption of the new revenue standard, using the modified retrospective approach. Under the new standard, if the Company sells a partial interest in its real estate assets to noncustomers or contributes real estate assets to unconsolidated ventures, and the Company retains a noncontrolling interest in the asset, such transactions could result in a larger gain on sale. The adoption of this standard did not have an impact on the Company's financial statements. There were no sales of partial interests in real estate assets in the nine months ended September 30, 2018 or for the year ended December 31, 2017 .

Financial Instruments —In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities , which affects accounting for investments in equity securities, financial liabilities under the fair value option, as well as for presentation and disclosures, but does not affect accounting for investments in debt securities and loans . Investments in equity securities, other than equity method investments, will be measured at fair value through earnings, except for equity securities without readily determinable fair values which may be measured at cost less impairment and adjusted for observable price changes, unless these equity securities qualify for the NAV practical expedient. This provision eliminates cost method accounting and recognition of unrealized holding gains or losses on equity investments in other comprehensive income. For financial liabilities under the fair value option, changes in fair value resulting from the Company's own instrument-specific credit risk will be recorded separately in other comprehensive income. Fair value disclosures of financial instruments measured at amortized cost will be based on exit price and corresponding disclosures of valuation methodology and significant inputs will no longer be required. In February 2018, the FASB issued ASU No. 2018-03, Technical Corrections and Improvements to Financial Instruments, Recognition and Measurement of Financial Assets and Financial Liabilities, which provided several clarifications and amendments to the standard. These include specifying that for equity instruments without readily determinable fair values for which the measurement alternative is applied: (i) adjustments made when an observable transaction occurs for a similar security are intended to reflect the fair value as of the observable transaction date, not as of current reporting date; (ii) the measurement alternative may be discontinued upon an irrevocable election to change to a fair value measurement approach under fair value guidance, which would apply to all identical and similar investments of the same issuer; and (iii) the prospective transition approach for equity securities without readily determinable fair values is applicable only when the measurement alternative is applied. ASU No. 2016-01 and ASU No. 2018-03 are to be applied retrospectively with cumulative effect as of the beginning of the first reporting period adopted recognized in retained earnings, except for provisions related to equity investments without readily determinable fair values and exit price fair value disclosures for financial instruments measured at amortized cost, which are to be applied prospectively.

The Company adopted ASU No. 2016-01 and ASU No. 2018-03 on January 1, 2018, and recorded a cumulative adjustment to increase retained earnings by approximately $0.6 million . This includes $0.2 million of unrealized gains on available for sale equity securities held by an equity method investee that was reclassified from accumulated other comprehensive income. In connection with the adoption, the Company elected the NAV practical expedient to measure its previous cost method investments in non-traded REITs and limited partnership interest in a third party private fund based on their respective NAV per share. The new standard does not affect equity securities held by the Company's consolidated fund for which the Company has retained investment company accounting applied by the fund, and limited partnership interests in third party private funds for which the Company has elected the fair value option, as in both instances, unrealized fair value gains and losses are currently recorded in earnings. The Company's remaining cost

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method investments do not have readily determinable fair values. To the extent the Company becomes aware of observable price changes in the future, the Company will adjust the carrying value of these investments through earnings.

Cash Flow Classifications —In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments , which is intended to reduce diversity in practice in certain classifications on the statement of cash flows. This guidance addresses eight types of cash flows, which includes clarifying how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows, as well as requiring an accounting policy election for classification of distributions received from equity method investees using either the cumulative earnings or nature of distributions approach, among others. The Company adopted this guidance on January 1, 2018 on a retrospective basis and made an accounting policy election for classification of distributions from its equity method investees using the cumulative earnings approach, which is largely consistent with its previous accounting policy. The adoption of this standard did not have a material effect on the presentation of the Company's statement of cash flows.

Restricted Cash —In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows: Restricted Cash , which requires that cash and cash equivalent balances in the statement of cash flows include restricted cash and restricted cash equivalent amounts, and therefore, changes in restricted cash and restricted cash equivalents be presented in the statement of cash flows. This will eliminate the presentation of transfers between cash and cash equivalents with restricted cash and restricted cash equivalents in the statement of cash flows. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item on the balance sheet, the ASU requires a reconciliation between the totals in the statement of cash flows and the related captions on the balance sheet. The new guidance also requires disclosure of the nature of restricted cash and restricted cash equivalents, similar to existing requirements under Regulation S-X; however, it does not define restricted cash and restricted cash equivalents. The Company adopted ASU 2016-18 on January 1, 2018. The required retrospective application of this new standard resulted in changes to the previously reported statement of cash flows as follows:



	Nine Months Ended September 30, 2017
(In thousands)	As Previously Reported			After Adoption of ASU 2016-18
Net cash provided by operating activities	$	385,493		$	406,077
Net cash provided by investing activities	607,710			876,672
Net cash used in financing activities	(478,377		)	(494,593		)

The increase in net cash provided by investing activities is primarily due to loan repayment proceeds held in restricted cash accounts and restricted cash assumed in the Merger and loans restructured into equity (Note 3 ), which were previously reported as noncash investing activities.

Share-Based Payments —In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting , which simplifies the accounting for share-based payments to nonemployees by generally aligning it with the accounting for share-based payments to employees, with certain exceptions. The new guidance applies to nonemployee awards issued in exchange for goods or services used in an entity’s own operations and to awards granted by an investor to an equity method investee, but does not apply to equity instruments issued to a lender or investor in a financing transaction or equity instruments issued when selling goods or services to customers, which is under the revenue recognition model. Key changes in the guidance include measuring nonemployee awards based on fair value of the equity instrument issued, rather than on fair value of goods or services received or equity instrument issued, whichever is more reliably measured. In terms of timing, equity-classified nonemployee awards that were previously remeasured through performance completion date will now have a fixed measurement on grant date, which will reduce volatility on the income statement. For nonemployee awards with performance conditions, compensation cost will be recognized when achievement of the performance condition is probable, rather than upon actual achievement of the performance condition. Similar to employee awards, forfeitures may be recognized as they occur or based on an estimate under an accounting policy election, but the guidance allows separate elections for employee and nonemployee awards. The accounting model for nonemployee awards, however, remains different for attribution of share-based payment costs over the vesting period, in which compensation cost for nonemployee awards continues to be recognized in the same period and in the same manner (i.e., capitalize or expense) as if the grantor had paid cash for the goods or services. No changes to disclosure requirements were prescribed. Transition is on a modified retrospective basis, with a remeasurement at fair value as of the adoption date through a cumulative effect adjustment to opening retained earnings, applied to all equity-classified nonemployee awards where a measurement date has not been established by the adoption date and unsettled liability-classified nonemployee awards. If the cost of a nonemployee award has been included in completed assets (such as finished goods inventory or fixed assets that have begun to be depreciated), the cost basis of those assets will not be remeasured. The transition provisions eliminate the need to retrospectively determine fair values

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at historical grant dates. ASU No. 2018-07 is effective for fiscal years and interim periods beginning after December 15, 2018. Early adoption is permitted in an interim period for which financial statements have not been issued, with adjustments to be reflected as of the beginning of the fiscal year of adoption. The Company early adopted this standard on July 1, 2018. The adoption did not have an impact on the Company's financial statements.

Future Application of Accounting Standards

Leases —In February 2016, the FASB issued ASU No. 2016-02, Leases , which amends existing lease accounting standards, primarily requiring lessees to recognize most leases on balance sheet as a right of use asset and a corresponding liability for future lease obligations, and to a lesser extent, making targeted changes to lessor accounting. Additionally, under the new lease standard, only incremental initial direct costs incurred in the execution of a lease can be capitalized by both lessor and lessee.

ASU No. 2016-02 is effective for fiscal years and interim periods beginning after December 15, 2018. Early adoption is permitted. The new leases standard requires adoption using a modified retrospective approach for all leases existing at, or entered into after, the date of initial application. Full retrospective application is prohibited. In applying the modified retrospective approach, the standard provides the option to elect a package of practical expedients that exempts an entity from having to reassess whether any expired or expiring contracts contain leases, revisit lease classification for any expired or expiring leases and reassess initial direct costs for any existing leases.

In July 2018, the FASB issued ASU No. 2018-11, Targeted Improvement to Topic 842, Leases, which provides the option of (i) applying the effective date of the new lease standard as the date of initial application in transition instead of the earliest comparative period presented; as well as (ii) electing as practical expedient by class of underlying asset, not to segregate lease and non-lease components in a contract but to account for it as a single component in accordance with either the new lease standard or the revenue recognition standard depending on whether the lease or non-lease component is predominant.

The Company will adopt the new lease standard on its effective date of January 1, 2019 and will adopt the package of practical expedients as well as the transition option. As a result, the Company will apply the new lease standard prospectively to leases existing or commencing on or after January 1, 2019. Comparative periods presented will not be restated upon adoption. Similarly, new disclosures under the standard will be made for periods beginning January 1, 2019, and not for comparative periods. In addition, the Company will make an accounting policy election to treat the lease and non-lease components in a contract as a single performance obligation to the extent that the timing and pattern of transfer are similar for the lease and non-lease components and the lease component qualifies as an operating lease.

The Company is in the process of aggregating and evaluating its leasing arrangements, and implementing a lease module in its accounting system to address the new accounting model for leases, including any transition adjustments. The most significant change to the Company, as lessee, will be the gross-up of a right of use asset and lease liability on its balance sheet for office leases and ground leases, for which the future contractual lease payment obligations as of December 31, 2017 were $74.2 million and $172.2 million (excluding leases related to net lease properties contributed to Colony Credit on January 31, 2018), respectively. The effect of the new standard to the Company, as lessor, is not expected to have a material effect on its financial condition or results of operations.

Credit Losses —In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses , which amends the credit impairment model for financial instruments. The existing incurred loss model will be replaced with a lifetime current expected credit loss ("CECL") model for financial instruments carried at amortized cost and off-balance sheet credit exposures, such as loans, loan commitments, held-to-maturity ("HTM") debt securities, financial guarantees, net investment in leases, reinsurance and trade receivables, which will generally result in earlier recognition of allowance for losses. For available-for-sale ("AFS") debt securities, unrealized credit losses will be recognized as allowances rather than reductions in amortized cost basis and elimination of the other than temporary impairment ("OTTI") concept will result in more frequent estimation of credit losses. The accounting model for purchased credit-impaired loans and debt securities will be simplified, including elimination of some of the asymmetrical treatment between credit losses and credit recoveries, to be consistent with the CECL model for originated and purchased non-credit-impaired assets. The existing model for beneficial interests that are not of high credit quality will be amended to conform to the new impairment models for HTM and AFS debt securities. Expanded disclosures on credit risk include credit quality indicators by vintage for financing receivables and net investment in leases. Transition will generally be on a modified retrospective basis, with prospective application for other than temporarily impaired debt securities and purchased credit-impaired assets. ASU No. 2016-13 is effective for fiscal years and interim periods beginning after December 15, 2019. Early adoption is permitted for annual and interim periods beginning after December 15, 2018. The Company expects that recognition of credit losses will generally be accelerated under the CECL model. Evaluation of the impact of this new guidance is ongoing.

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Hedge Accounting —In August 2017, the FASB issued ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities , which simplifies and expands the application of hedge accounting. This standard amends hedge accounting recognition and presentation, including eliminating the requirement to separately measure and present hedge ineffectiveness as well as presenting the entire fair value change of a hedging instrument in the same income statement line as the hedged item. The new guidance also provides alternatives for applying hedge accounting to additional hedging strategies, and easing requirements for effectiveness testing and hedging documentation, although the "highly effective" threshold for a qualifying hedging relationship has not changed. Revised disclosures include tabular disclosures that focus on the effect of hedge accounting by income statement line item. Transition will generally be on a modified retrospective basis applied to existing hedging relationships as of date of adoption, with prospective application for income statement presentation and disclosure, and specific transition elections are available to modify existing hedge documentation. ASU 2017-12 is effective for fiscal years and interim periods beginning after December 15, 2018. Early adoption is permitted, with adjustments to be reflected as of the beginning of the fiscal year of adoption if early adopted in an interim period.

The Company plans to adopt the standard on its effective date. Upon adoption, as it relates to the Company’s cash flow and net investment hedges, the Company will record the entire change in fair value of the hedging instrument (other than amounts excluded from assessment of hedge effectiveness for net investment hedges) in other comprehensive income and there will be no hedge ineffectiveness recorded in earnings. Additionally, subsequent to initial quantitative hedge assessment, the Company may elect to perform effectiveness testing qualitatively so long as the Company can reasonably support an expectation that the hedge is highly effective now and in subsequent periods. As the standard allows more flexibility in hedging interest rate risk in cash flow hedges beyond a specified benchmark rate, the Company may be able to designate in the future other contractually specified variable interest rate as the hedged risk, which if effective, could decrease fluctuations in earnings. The Company continues to evaluate the impact of this new guidance but at this time, does not expect the adoption of this standard to have a material effect on its financial condition or results of operations.

Fair Value Disclosures —In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurements . The ASU requires new disclosures of changes in unrealized gains and losses in other comprehensive income for recurring Level 3 fair value measurements of instruments held at balance sheet date, as well as the range and weighted average or other quantitative information, if more relevant, of significant unobservable inputs for recurring and nonrecurring Level 3 fair values. Certain previously required disclosures are eliminated, specifically around the valuation process required for Level 3 fair values, policy for timing of transfers between levels of the fair value hierarchy, as well as amounts and reason for transfers between Levels 1 and 2. Additionally, the new guidance clarifies or modifies certain existing disclosures, including clarifying that information about measurement uncertainty of Level 3 fair values should be as of reporting date and requiring disclosures of the timing of liquidity events for investments measured under the NAV practical expedient, but only if the investee has communicated this information or has announced it publicly. The provisions on new disclosures and modification to disclosure of Level 3 measurement uncertainty are to be applied prospectively, while all other provisions are to be applied retrospectively. ASU No. 2018-13 is effective for fiscal years and interim periods beginning after December 15, 2019. Early adoption is permitted in an interim period for which financial statements have not been issued, and may be made only to provisions that eliminate or modify existing disclosures. The adoption of this standard is not expected to have a material effect on the Company's existing disclosures.

Variable Interest Entities —In November 2018, the FASB issued ASU No. 2018-17, Targeted Improvements to Related Party Guidance for Variable Interest Entities . The ASU amends the VIE guidance to align the evaluation of a decision maker's or service provider's fee in assessing a variable interest with the guidance in the primary beneficiary test. Specifically, indirect interests held by a related party that is under common control will now be considered on a proportionate basis, rather than in their entirety, when assessing whether the fee qualifies as a variable interest. The proportionate basis approach is consistent with the treatment of indirect interests held by a related party under common control when evaluating the primary beneficiary of a VIE. This effectively means that when a decision maker or service provider has an interest in a related party, regardless of whether they are under common control, it will consider that related party's interest in a VIE on a proportionate basis throughout the VIE model, for both the assessment of a variable interest and the determination of a primary beneficiary. Transition is generally on a modified retrospective basis, with the cumulative effect adjusted to retained earnings at the beginning of the earliest period presented. ASU No. 2018-17 is effective for fiscal years and interim periods beginning after December 15, 2019, with early adoption permitted in an interim period for which financial statements have not been issued. The Company is currently evaluating the impact of this new guidance on its financial statements.

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3 . Business Combinations

Merger with NSAM and NRF

The Company was created through the Merger of NSAM, Colony and NRF in an all-stock exchange on the Closing Date.

The Merger was accomplished through a series of transactions. On the Closing Date, NSAM merged with and into the Company in order to redomesticate NSAM as a Maryland corporation, followed by a series of internal reorganization transactions with subsidiaries of NRF resulting in NRF becoming a subsidiary of the Company, and the merger of Colony into the Company, with the Company surviving as the combined entity.

Upon the closing of the Merger, NSAM outstanding common stock was converted into the Company's common stock, and the outstanding common stock and preferred stock of NRF and Colony were converted into the right to receive shares of common stock and preferred stock of the Company at pre-determined exchange ratios.

The specific exchanges of common stock and preferred stock as a result of the Merger were as follows:


•	Each share of NSAM common stock and performance common stock issued and outstanding immediately prior to the effective time of the Merger was canceled and converted into one share of the Company's class A common stock and performance common stock, respectively;


•	Each share of class A and class B common stock of Colony issued and outstanding immediately prior to the effective time of the Merger was canceled and converted into the right to receive 1.4663 shares of the Company's class A and class B common stock for each share of Colony's class A and class B common stock;


•	Each share of common stock of NRF issued and outstanding prior to the effective time of the Merger was canceled and converted into the right to receive 1.0996 shares of the Company's class A common stock for each share of NRF common stock;

•

Each share of each series of the preferred stock of Colony and of NRF issued and outstanding immediately prior to the effective time of the Merger was canceled and converted into the right to receive one share of a corresponding series of the Company's preferred stock with substantially identical preferences, conversion and other rights, voting powers, restrictions, limitations as to dividend, qualification and terms and conditions of redemption; and


•	Concurrently, the OP issued OP Units to equal the number of OP membership units outstanding on the day prior to the closing of the Merger multiplied by the exchange ratio of 1.4663 .

Upon consummation of the Merger, the former stockholders of Colony, NSAM and NRF owned, or had the right to own, approximately 33.25% , 32.85% and 33.90% , respectively, of the Company, on a fully diluted basis, excluding the effect of certain equity-based awards issued in 2017 in connection with the Merger.

The Merger was accounted for as a reverse acquisition, with NSAM as the legal acquirer for certain legal and regulatory matters and Colony as the accounting acquirer for purposes of the financial information set forth herein. See Note 2 for further discussion on the accounting treatment of the Merger.

Merger Consideration

As the Merger was accounted for as a reverse acquisition, the fair value of the consideration transferred in common stock was measured based upon the number of shares of common stock that Colony, as the accounting acquirer, would theoretically have issued to the shareholders of NSAM and NRF to achieve the same ratio of ownership in the Company upon completion of the Merger, multiplied by the closing price of Colony class A common stock of $21.52 on the Closing Date. As a result, the implied shares of Colony common stock issued in consideration was computed as the number of outstanding shares of NSAM and NRF common stock prior to the Closing Date divided by the exchange ratios of 1.4663 and 1.3335 , respectively.

Substantially all NSAM and NRF equity awards outstanding on the Closing Date vested upon consummation of the Merger. As the Company issued its common stock upon consummation of the Merger and settlement of these equity awards relate to pre-Merger services, these equity awards were included in the outstanding shares of NSAM and NRF common stock used to determine the merger consideration.

NSAM and NRF equity awards outstanding on the Closing Date that did not vest upon consummation of the Merger were assumed by the Company through the conversion of such equity awards into comparable equity awards of the Company with substantially the same vesting terms pre-Merger. The portion of the replacement awards attributable to pre-

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Merger services was deemed part of the merger consideration, while the portion attributable to post-Merger services is recognized prospectively as compensation expense of the Company in the post-Merger period.

The Company's preferred stock issued as merger consideration upon the closing of the Merger to the holders of NRF preferred stock was on a one -for-one basis.

The Company assumed certain liabilities of NSAM and NRF which arose as a result of the Merger and were settled shortly after the Closing Date. These amounts included approximately $226.1 million which was paid to former NSAM stockholders, representing a one-time special dividend, and approximately $78.9 million in payroll taxes representing shares that were canceled and remitted to taxing authorities on behalf of employees whose equity-based compensation was accelerated and fully vested on the Closing Date. Cash and restricted cash assumed of $437.4 million is presented net of these payments as an investing cash inflow in the consolidated statement of cash flows.

Fair value of the merger consideration was determined as follows:



(In thousands, except price per share)	NSAM			NRF		Total
Outstanding shares of common stock prior to closing of the Merger	190,202			183,147
Replacement equity-based awards attributable to pre-combination services ⁽ⁱ⁾	300			150
	190,502			183,297
Exchange ratio ⁽ⁱⁱ⁾	1.4663			1.3335
Implied shares of Colony common stock issued in consideration	129,920			137,456		267,376
Price per share of Colony class A common stock	$	21.52		$	21.52	$	21.52
Fair value of implied shares of Colony common stock issued in consideration	$	2,795,890		$	2,958,039	$	5,753,929
Fair value of the Company's preferred stock issued ⁽ⁱⁱⁱ⁾	—			1,010,320		1,010,320
Fair value of NRF stock owned by NSAM ^(iv)	(43,795		)	—		(43,795		)
Total merger consideration	$	2,752,095		$	3,968,359	$	6,720,454

__________


(i)	Represents the portion of non-employee restricted stock unit awards that did not vest upon consummation of the Merger and pertains to services rendered prior to the Merger.


(ii)	Represents (a) the pre-determined exchange ratio of one share of Colony common stock for 1.4663 shares of the Company's common stock; and (b) the derived exchange ratio of one share of Colony common stock for 1.3335 shares of NRF common stock based on the pre-determined exchange ratio of one NRF share of common stock for 1.0996 shares of the Company's common stock.


(iii)	Fair value of the Company's preferred stock issued was measured based on the shares of NRF preferred stock outstanding at the Closing Date and the closing traded price of the respective series of NRF preferred stock on the Closing Date, including accrued dividends, as follows:



(In thousands, except price per share)	Number of Shares Outstanding	Price Per Share		Fair Value
NRF preferred stock
Series A 8.75%	2,467	$	25.61	$	63,182
Series B 8.25%	13,999	25.15		352,004
Series C 8.875%	5,000	25.80		128,995
Series D 8.50%	8,000	25.82		206,597
Series E 8.75%	10,000	25.95		259,542
Fair value of the Company's preferred stock issued	39,466			$	1,010,320


(iv)	Represents 2.7 million shares of NRF common stock owned by NSAM prior to the Merger and canceled upon consummation of the Merger, valued at the closing price of NRF common stock of $16.13 on the Closing Date.

The following table presents the final allocation of the merger consideration to assets acquired, liabilities assumed and noncontrolling interests of NSAM and NRF based on their respective fair values as of the Closing Date. The resulting goodwill represents the value expected from the economies of scale and synergies created through combining the operations of the merged entities, and is assigned to the investment management segment.

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	Final Amounts at December 31, 2017
(In thousands)	NSAM		NRF		Total
Assets
Cash and cash equivalents	$	152,858	$	107,751	$	260,609
Restricted cash	18,052		158,762		176,814
Real estate	—		9,874,406		9,874,406
Loans receivable	28,485		331,056		359,541
Investments in unconsolidated ventures	76,671		544,111		620,782
Securities	3,065		427,560		430,625
Identifiable intangible assets	661,556		352,551		1,014,107
Management agreement between NSAM and NRF	1,514,085		—		1,514,085
Assets held for sale	—		2,096,671		2,096,671
Other assets	93,455		681,003		774,458
Total assets	2,548,227		14,573,871		17,122,098
Liabilities
Debt	—		6,723,222		6,723,222
Intangible liabilities	—		213,218		213,218
Management agreement between NSAM and NRF	—		1,514,085		1,514,085
Liabilities related to assets held for sale	—		1,281,406		1,281,406
Tax liabilities	169,387		60,446		229,833
Accrued and other liabilities	979,969		307,450		1,287,419
Total liabilities	1,149,356		10,099,827		11,249,183
Redeemable noncontrolling interests	78,843		—		78,843
Noncontrolling interests—investment entities	—		505,685		505,685
Noncontrolling interests—Operating Company	8,162		—		8,162
Fair value of net assets acquired	$	1,311,866	$	3,968,359	$	5,280,225

Merger consideration	2,752,095		3,968,359		6,720,454
Goodwill	$	1,440,229	$	—	$	1,440,229

The Merger effectively resulted in the settlement of the pre-merger management agreement between NSAM and NRF. The terms of the management agreement were determined to be off-market when compared to the terms of similar management agreements of other externally managed mortgage and equity REITs. The off-market component was valued at $1.5 billion based on a discounted cash flow analysis using a discount rate of 10% , and recorded as an intangible asset attributed to NSAM and a corresponding intangible liability attributed to NRF, in each case as of the Closing Date. Upon settlement of the management agreement, the intangible asset and the corresponding intangible liability were eliminated. No net gain or loss was recognized by the Company from the settlement.

Certain deferred tax liabilities were recognized in connection with the Merger, related primarily to NSAM's investment management contract intangible assets and basis differences in NRF's real estate assets in the United Kingdom arising from recording those assets at fair value on the Closing Date.

Fair value of other assets acquired, liabilities assumed and noncontrolling interests were measured as follows:

Real Estate and Related Intangibles —Fair value is based on the income approach which includes a direct capitalization method, applying overall capitalization rates ranging between 4.4% and 12.5% . For real estate held for sale, fair value was determined based on contracted sale price or a sales comparison approach, adjusted for estimated selling costs. Real estate fair value was allocated to tangible assets such as land, building and leaseholds, tenant and land improvements as well as identified intangible assets and liabilities such as above- and below-market leases, below-market ground lease obligations and in-place lease value. Useful lives of the intangibles acquired range from 6 to 90 years for ground lease obligations and 1 to 17 years for all other real estate related intangibles.

Loans Receivable —Fair value is determined by comparing the current yield to the estimated yield for newly originated loans with similar credit risk or the market yield at which a third party might expect to purchase such investment; or based on discounted cash flow projections of principal and interest expected to be collected, which include consideration of borrower or sponsor credit, as well as operating results of the underlying collateral. For certain loans receivable considered to be impaired, their carrying value approximated fair value.

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Investments in Unconsolidated Ventures —Fair value is based on timing and amount of expected future cash flows for income as well as realization events of the underlying assets of the investees, and for certain investments in funds, a proportionate share of its most recent net asset value.

Securities —Fair value is based on quotations from brokers or financial institutions that act as underwriters of the debt securities, third-party pricing service or discounted cash flows depending on the type of debt securities. Fair value of NorthStar Realty Europe Corp ("NRE") common stock is based on the closing stock price on the Closing Date.

Investment Management Related Intangible Assets —These consist primarily of management contracts, customer relationships, trade names and the broker-dealer license, including those related to an 84% interest acquired by NSAM in January 2016 in Townsend, which provides real estate investment management and advisory services. The fair value of management contracts represents the discounted excess earnings attributable to the future management fee income from in-place management contracts, with discount rates ranging between 8% and 10% . The management contracts have useful lives ranging from 2 years to 18 years. The fair value of customer relationships represents the potential fee income from repeat customers through future sponsored investment vehicles, with the useful lives of such vehicles ranging from 20 to 30 years. The trade names of NSAM and Townsend were valued as the discounted savings of royalty fees by applying a royalty rate of 1.5% and 2% , respectively, against expected fee income, and have useful lives of 20 years and 30 years, respectively. The fair value of NSAM's broker-dealer license represents the estimated cost of obtaining a license. On December 29, 2017, the Company sold its 84% interest in Townsend.

Debt —Fair value of exchangeable notes was determined based on unadjusted quoted prices in a non-active market. Fair value of mortgage and other notes payable was estimated by reviewing rates currently available with similar terms and remaining maturities. Fair value of securitization bonds payable was based on quotations from brokers or financial institutions that act as underwriters of the securitized bonds. Fair value of junior subordinated debt was based on unadjusted quotations from a third party valuation firm, with such quotes derived using a combination of internal valuation models, comparable trades in non-active markets and other market data.

Noncontrolling Interests —Fair value of noncontrolling interests in investment entities was estimated as their share of fair values of the net assets of the underlying investment entities, including any incentive distributions. The fair value of noncontrolling interests in Operating Company was determined based upon the closing price of Colony class A common stock multiplied by the number of OP Units assumed in the Merger, after applying the exchange ratio.

Restructuring of Real Estate Loans into Equity Ownership

In the normal course of business, the Company may foreclose on the underlying asset in settlement of its loan receivable or otherwise undertake various restructuring measures in connection with its investments.

CPI Group

On January 25, 2017, the Company and its joint venture partners, through a consolidated investment venture of the Company, acquired a controlling equity interest in a defaulted borrower, a real estate investment group in Europe ("CPI") in connection with a restructuring of the CPI group. Certain entities within the CPI group were in receivership proceedings at the time of the restructuring. The Company acquired CPI's real estate portfolio, consisting of hotels, offices and mixed-use properties, and assumed the underlying mortgage debt, some of which were in payment default, including maturity default. Certain CPI employees responsible for asset and property management became employees of the Company. As a result of the acquisition, the Company's outstanding loans receivable to CPI were deemed to be effectively settled at their carrying value and formed part of the consideration transferred.

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The following table summarizes the consideration and allocation to assets acquired and liabilities assumed.



(In thousands)	Final Amounts at December 31, 2017
Consideration
Carrying value of loans receivable outstanding at the time of restructuring	$	182,644
Cash	49,537
Total consideration	$	232,181
Identifiable assets acquired and liabilities assumed
Cash	$	303
Real estate	543,649
Real estate held for sale	21,605
Lease intangibles and other assets	40,285
Debt	(277,590		)
Tax liabilities	(32,078		)
Lease intangibles and other liabilities	(61,205		)
Liabilities related to assets held for sale	(2,788		)
Fair value of net assets acquired	$	232,181

Fair value of assets acquired and liabilities assumed were measured as follows:

Real Estate and Related Intangibles —Fair value of real estate was based upon a direct capitalization analysis or a discounted cash flow analysis with weighted average capitalization rate of 6.6% . For real estate held for sale, fair value was determined based upon a sales comparison approach, adjusted for estimated selling costs. Real estate fair value was allocated to tangible assets of land, building and tenant and site improvements and identified intangibles, such as above- and below-market leases and in-place lease values.

Debt —Fair value of debt is estimated by discounting expected future cash outlays at interest rates currently available for instruments with similar terms and remaining maturities, applying discount rates ranging between 1.25% and 3.6% , with such debt fair values not exceeding the fair value of their underlying collateral, or estimated based upon expected payoff amounts.

THL Hotel Portfolio

In May 2013, the Company and certain investment vehicles managed by the Company participated in the refinancing of a limited service hospitality portfolio, primarily located across the Southwest and Midwest U.S. (the "THL Hotel Portfolio"), through the origination of a junior and senior mezzanine loan. On July 1, 2017, the Company and certain investment vehicles managed by the Company took control of the THL Hotel Portfolio of 148 limited service hotels through a consensual foreclosure following a maturity default by the borrower on the Company's outstanding junior mezzanine loan. Through the consensual foreclosure, the Company assumed the borrower's in-place hotel management contracts with third party operators, which were determined to be at market, the borrower's in-place franchise obligations, primarily with Marriott, as well as the borrower's outstanding senior mortgage debt and senior mezzanine debt.

The consideration for the consensual foreclosure consisted of the following:


•	Carrying value of the Company’s junior mezzanine loan to the borrower which is considered to be effectively settled upon the consensual foreclosure;


•	Cash to pay down principal and accrued interest on the borrower’s senior mortgage and senior mezzanine debt to achieve a compliant debt yield, and payment of an extension fee to exercise an extension option on the senior mortgage debt; and

•

In consideration of the former preferred equity holder of the borrower providing certain releases, waivers and covenants to and in favor of the Company and certain investment vehicles managed by the Company in executing the consensual foreclosure, the former preferred equity holder is entitled to an amount up to $13.0 million based on the performance of the THL Hotel Portfolio, subject to meeting certain repayment and return thresholds to the Company (and certain investment vehicles managed by the Company).

The following table summarizes the consideration and the final allocation to assets acquired and liabilities assumed. The estimated fair values and allocation were subject to retrospective adjustments during the measurement period, not to exceed twelve months, based upon new information obtained about facts and circumstances that existed as of the date of acquisition. During the six months ended June 30, 2018, adjustments were made to the allocation of values among real

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estate held for sale, real estate held for investment, intangible assets and intangible liabilities. Included in the consolidated statement of operations for the six months ended June 30, 2018 was a $1.8 million decrease to depreciation expense and an immaterial increase to ground lease expense to reflect the effects of the measurement period adjustments as of the acquisition date on July 1, 2017.



(In thousands)	Final Amounts at June 30, 2018
Consideration
Carrying value of the Company's junior mezzanine loan receivable at the time of foreclosure	$	310,932
Cash	43,643
Contingent consideration (Note 14)	6,771
Total consideration	$	361,346
Identifiable assets acquired and liabilities assumed
Cash	$	16,188
Real estate	1,184,447
Real estate held for sale	69,676
Intangible and other assets	45,190
Debt	(907,867		)
Intangible and other liabilities	(46,288		)
Fair value of net assets acquired	$	361,346

Fair value of assets acquired and liabilities assumed were estimated as follows:

Real Estate and Related Intangibles —Fair value of real estate was based on a combination of the cost, income and market approaches which applies capitalization rates between 7.0% and 12.0% (weighted average rate of 8.9% ) as well as discount rates between 8.0% and 13.5% (weighted average rate of 10.4% ), and also considers future capital expenditure needs of the hotels. For real estate held for sale, fair value was determined based on a sales comparison approach, adjusted for estimated selling costs. Real estate fair value was allocated to tangible assets of land, building, site improvements and furniture, fixtures and equipment as well as identified intangibles for above-market and below-market ground lease obligations.

Debt —The assumed senior mortgage and senior mezzanine debt had carrying values that approximated fair values based on current market rates and recent rates on the Company's refinancing of its other hotel portfolios.

4 . Colony Credit

The contribution of the CLNY Contributed Portfolio (as described in Note 1 ) to Colony Credit and the concurrent all-stock merger of Colony Credit with NorthStar I and NorthStar II closed on January 31, 2018. Colony Credit's class A common stock began trading on the NYSE on February 1, 2018.

Upon closing of the Combination, the Company and its affiliates, NorthStar I stockholders and NorthStar II stockholders each owned approximately 37% , 32% and 31% , respectively, of Colony Credit on a fully diluted basis.

The Company, through certain of its subsidiaries, received 44,399,444 shares of Colony Credit's class B-3 common stock and 3,075,623 common membership units in Colony Credit's operating company (the “CLNC OP Units”) in exchange for its contribution of the CLNY Contributed Portfolio to Colony Credit.

The CLNY Contributed Portfolio comprised the Company's interests in certain commercial real estate loans, net lease properties and limited partnership interests in third party sponsored funds, which represented a select portfolio of U.S. investments within the Company’s other equity and debt segment that were transferable assets consistent with Colony Credit's strategy.

Each share of Colony Credit's class B-3 common stock will automatically convert into Colony Credit's class A common stock on a one -for-one basis upon close of trading on February 1, 2019. The CLNC OP Units are redeemable for cash or Colony Credit’s Class A common stock on a one -for-one basis, in the sole discretion of Colony Credit. Subject to certain limited exceptions, the Company has agreed not to make any transfers of the CLNC OP Units to non-affiliates until the one -year anniversary of the closing of the Combination, unless such transfer is approved by a majority of Colony Credit’s board of directors, including a majority of its independent directors.

In connection with the merger of NorthStar I and NorthStar II with and into Colony Credit, their respective stockholders received shares of Colony Credit's class A common stock based on pre-determined exchange ratios.

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As contemplated in the combination agreement, a certain loan receivable previously held by NorthStar I in the original principal amount of $150.2 million was not transferred to Colony Credit (the “NorthStar I Excluded Asset”). Upon closing of the Combination, the Company acquired a $65 million senior participation interest in the NorthStar I Excluded Asset at par, and the remaining junior participation interest in the NorthStar I Excluded Asset (the "NorthStar I Retained Asset") was transferred to a liquidating trust in exchange for beneficial interests in the liquidating trust, which was subsequently distributed pro rata to NorthStar I stockholders.

As a result of the Combination, the Company's management contracts with NorthStar I and NorthStar II were terminated and the related management contract intangible assets totaling $139.0 million were written off (Note 14 ). Concurrent with the closing of the Combination, a wholly-owned subsidiary of the Company entered into a management agreement with Colony Credit.

Upon closing of the Combination, the Company's contribution of the CLNY Contributed Portfolio to Colony Credit, and the merger of Colony Credit with NorthStar I and NorthStar II, resulted in a deconsolidation of the CLNY Investment Entities. The following table presents the assets, liabilities and noncontrolling interests of the CLNY Investment Entities that were deconsolidated on January 31, 2018:



(In thousands)	January 31, 2018
Assets
Cash and cash equivalents	$	99,883
Restricted cash	41,270
Real estate	219,748
Loans receivable	1,287,994
Investments in unconsolidated ventures	208,738
Deferred leasing costs and intangible assets	10,831
Other assets	25,755
	1,894,219
Liabilities
Debt	$	379,927
Accrued and other liabilities	41,318
	421,245
Noncontrolling interests
Noncontrolling interests—investment entities	330,980
Noncontrolling interests—Operating Company	64,294
	395,274
Equity attributable to Colony Capital, Inc.	$	1,077,700

The Company measured its interest in Colony Credit based upon its proportionate share of Colony Credit's fair value at the closing date of the Combination. The excess of fair value over carrying value of the Company's equity interest in the CLNY Investment Entities upon deconsolidation of $9.9 million was recognized in other gain on the consolidated statement of operations.

The Company does not control Colony Credit as the Company's role as the external manager of Colony Credit is under the supervision and direction of the board of directors of Colony Credit, the majority of whom are independent directors. However, the Company has significant influence over Colony Credit through its representation on the board of directors and through its role as the external manager. Accordingly, the Company accounts for its investment in Colony Credit under the equity method.

5 . Real Estate

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The Company's real estate, including foreclosed properties, was as follows:



(In thousands)	September 30, 2018			December 31, 2017
Land	$	2,291,003		$	2,011,794
Buildings and improvements	11,871,767			12,403,794
Tenant improvements	137,404			134,709
Furniture, fixtures and equipment	392,114			383,855
Construction in progress	136,441			108,403
	14,828,729			15,042,555
Less: Accumulated depreciation	(870,205		)	(578,297		)
Real estate assets, net	$	13,958,524		$	14,464,258

Real Estate Sales

Results from sales of real estate were as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2018		2017		2018		2017
Proceeds from sales of real estate	$	156,007	$	366,456	$	584,569	$	1,340,059
Gain on sale of real estate	35,120		72,541		96,266		96,701

Real estate sold or classified as held for sale during the three and nine months ended September 30, 2018 and 2017 did not constitute discontinued operations, other than the sale of a manufactured housing portfolio in 2017 that was acquired through the Merger and certain properties in the THL Hotel Portfolio which qualified as held for sale upon acquisition in July 2017, as discussed in Note 18 .

Real estate held for sale is presented in Note 10 .

Real Estate Acquisitions

The following table summarizes the Company's real estate acquisitions, excluding real estate acquired as part of business combinations discussed in Note 3 .



($ in thousands)						Purchase Price Allocation ⁽¹⁾
	Acquisition Date	Property Type and Location	Number of Buildings	Purchase Price ⁽¹⁾		Land and Improvements		Building and Improvements		Lease Intangible Assets		Lease Intangible Liabilities
Nine Months Ended September 30, 2018
Asset Acquisitions ⁽²⁾
	September	Healthcare—United Kingdom ⁽³⁾	1	$	24,444	$	10,506	$	12,458	$	1,480	$	—
	Various	Industrial—Various in U.S. ⁽⁴⁾	40	569,167		131,060		412,900		30,183		(4,975		)
				$	593,611	$	141,566	$	425,358	$	31,663	$	(4,975	)
Year Ended Ended December 31, 2017
Asset Acquisitions
	January	Industrial—Spain	2	$	10,374	$	3,855	$	5,564	$	955	$	—
	June	Office—Los Angeles, CA ⁽⁵⁾	1	455,699		93,577		314,590		50,518		(2,986		)
	Various	Industrial—Various in U.S.	55	636,690		137,005		472,747		31,512		(4,574		)
				$	1,102,763	$	234,437	$	792,901	$	82,985	$	(7,560	)

__________


⁽¹⁾	Dollar amounts of purchase price and allocation to assets acquired and liabilities assumed are translated using foreign exchange rates as of the respective dates of acquisition, where applicable.


⁽²⁾	Useful life of real estate acquired in 2018 is 11 to 44 years for buildings, 8 to 14 years for site improvements, 3 to 10 years for tenant improvements and 2 to 10 years for lease intangibles.


⁽³⁾	Net leased senior housing acquired pursuant to a purchase option under the Company's development facility to the healthcare operator at a purchase price equivalent to the outstanding loan balance.


⁽⁴⁾	Includes acquisition of $12.8 million of land for co-development with operating partners.


⁽⁵⁾	In September 2017, 90% of equity in the property holding entity was syndicated to third party investors. The new equity partners were granted certain participation rights in the business, resulting in a deconsolidation of the investment. The interest retained by the Company is reflected as an equity method investment.

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Depreciation and Impairment

Depreciation expense on real estate was $122.0 million and $121.7 million for the three months ended September 30, 2018 and 2017 , respectively, and $354.0 million and $328.3 million for the nine months ended September 30, 2018 and 2017 , respectively.

Refer to Note 14 for discussion of impairment on real estate.

Property Operating Income

The components of property operating income were as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2018		2017		2018		2017
Rental income	$	185,848	$	172,846	$	501,765	$	491,459
Tenant reimbursements	34,646		36,764		109,818		102,533
Resident fee income ⁽¹⁾	35,501		75,882		173,921		216,414
Hotel operating income	311,986		328,173		927,845		730,644
	$	567,981	$	613,665	$	1,713,349	$	1,541,050

__________


⁽¹⁾	Healthcare properties that operate through management agreements with independent third-party operators through structures permitted by the REIT Investment Diversification and Empowerment Act of 2007 (“RIDEA”) allow us, through a TRS, to have direct exposure to resident fee income and incur customary related operating expenses.

Commitments and Contractual Obligations

Purchase Commitments— At September 30, 2018 , the Company had funded aggregate deposits of $4.5 million with remaining unfunded purchase commitments totaling $137.8 million for the acquisition of five buildings in the industrial segment, of which two are under construction. The Company also funded a deposit of $48.9 million with remaining unfunded purchase commitment of $419.7 million for the acquisition of a commercial real estate portfolio in France alongside its sponsored credit fund.

Guarantee Agreements— In connection with the THL Hotel Portfolio, the Company entered into guarantee agreements with various hotel franchisors, pursuant to which the Company guaranteed the payment of its obligations as a franchisee, including payments of franchise fees and marketing fees for the term of the agreements, which expire between 2018 and 2037 . In the event of default or termination of the franchise agreements, the Company is liable for liquidated damages not to exceed $100 million . The Company had similar provisions related to its core hotel portfolio in the hospitality segment, but has met the required minimum payments under the respective franchise agreements and no longer has an obligation to the franchisors.

Ground Lease Obligation— In connection with real estate acquisitions, the Company assumed certain noncancelable operating ground leases as lessee or sublessee. Rents on certain ground leases are paid directly by the tenants or operators. Ground rent expense, including contingent rent, was $2.1 million and $2.3 million for the three months ended September 30, 2018 and 2017 , respectively, and $5.9 million and $4.5 million for the nine months ended September 30, 2018 and 2017 , respectively.

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6 . Loans Receivable

The following table provides a summary of the Company’s loans held for investment, including purchased credit-impaired ("PCI") loans:



	September 30, 2018								December 31, 2017
($ in thousands)	Unpaid Principal Balance		Carrying Value			Weighted Average Coupon		Weighted Average Maturity in Years	Unpaid Principal Balance		Carrying Value			Weighted Average Coupon		Weighted Average Maturity in Years
Loans at amortized cost
Non-PCI Loans
Fixed rate
Mortgage loans	$	714,375	$	731,633		10.2	%	3.1	$	1,081,030	$	1,082,513		9.1	%	2.8
Securitized loans ⁽¹⁾	—		—			—	%	N/A	35,566		36,603			5.9	%	16.8
Mezzanine loans	336,313		332,439			12.5	%	1.7	459,433		456,463			12.2	%	2.3
Corporate loans	111,425		110,925			8.8	%	7.6	46,840		46,592			9.9	%	10.0
	1,162,113		1,174,997						1,622,869		1,622,171
Variable rate
Mortgage loans	199,949		200,836			4.1	%	0.2	414,428		423,199			6.0	%	1.7
Securitized loans ⁽¹⁾	—		—			—	%	N/A	461,489		462,203			6.4	%	3.5
Mezzanine loans	12,324		12,054			13.1	%	2.9	34,391		34,279			9.8	%	1.3
	212,273		212,890						910,308		919,681
	1,374,386		1,387,887						2,533,177		2,541,852
PCI Loans
Mortgage loans	1,436,574		434,844						1,865,423		682,125
Securitized loans	—		—						23,298		3,400
Mezzanine loans	7,425		3,671						7,425		3,671
	1,443,999		438,515						1,896,146		689,196
Allowance for loan losses			(41,911		)						(52,709		)
	2,818,385		1,784,491						4,429,323		3,178,339
Loans at fair value
Securitized loans ⁽²⁾	—		—						72,511		45,423
Total loans receivable	$	2,818,385	$	1,784,491					$	4,501,834	$	3,223,762

__________

⁽¹⁾

Represents loans held in securitization trusts consolidated by the Company (Note 15 ). The Company contributed its interests in three securitization trusts to Colony Credit in January 2018 and sold its interests in a remaining securitization trust to a third party in June 2018, resulting in the deconsolidation of these securitization trusts along with their underlying mortgage loans and bonds payable.

⁽²⁾

Represents loans held by a securitization trust that was consolidated by a N-Star CDO. The N-Star CDO was in turn consolidated by the Company at December 31, 2017 . The Company had elected the fair value option and adopted the measurement alternative to value the loans receivable at the same fair value as the bonds payable issued by the consolidated securitization trust (Note 14 ). In May 2018, the Company sold its interests in the N-Star CDO and deconsolidated the N-Star CDO (Note 8 ) along with the securitization trust consolidated by the N-Star CDO.

Nonaccrual and Past Due Loans

Non-PCI loans, excluding loans carried at fair value, that are 90 days or more past due as to principal or interest, or where reasonable doubt exists as to timely collection, are generally considered nonperforming and placed on nonaccrual status.

The following table provides an aging summary of non-PCI loans held for investment at carrying values before allowance for loan losses, excluding loans carried at fair value.



(In thousands)	Current or Less Than 30 Days Past Due		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due and Nonaccrual		Total Non-PCI Loans
September 30, 2018	$	1,182,285	$	—	$	84,369	$	121,233	$	1,387,887
December 31, 2017	2,268,599		145,986		9,410		117,857		2,541,852

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Troubled Debt Restructuring

During the nine months ended September 30, 2018 and 2017, there were no loans modified as TDRs, in which the Company provided borrowers, who are experiencing financial difficulties, with various concessions in interest rates, payment terms or default waivers. At September 30, 2018 and December 31, 2017 , carrying value of existing TDR loans before allowance for loan losses was $37.8 million and $66.4 million , respectively. These TDR loans were not in default post-modification. As of September 30, 2018 , the Company has no additional commitments to lend to borrowers with TDR loans.

Non-PCI Impaired Loans

Non-PCI loans, excluding loans carried at fair value, are identified as impaired when it is no longer probable that interest or principal will be collected according to the contractual terms of the original loan agreement. Non-PCI impaired loans include predominantly loans under nonaccrual, performing and nonperforming TDRs, as well as loans in maturity default.

The following table summarizes non-PCI impaired loans:



	Unpaid Principal Balance		Gross Carrying Value						Allowance for Loan Losses
(In thousands)	Unpaid Principal Balance		With Allowance for Loan Losses		Without Allowance for Loan Losses		Total		Allowance for Loan Losses
September 30, 2018	$	297,761	$	75,944	$	223,275	$	299,219	$	3,697
December 31, 2017	383,594		138,136		248,759		386,895		7,424

The average carrying value and interest income recognized on non-PCI impaired loans were as follows.



	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2018		2017		2018		2017
Average carrying value before allowance for loan losses	$	296,178	$	201,600	$	284,794	$	156,450
Total interest income recognized during the period impaired	2,992		2,546		4,300		4,343
Cash basis interest income recognized	1,190		—		1,190		—

Purchased Credit-Impaired Loans

PCI loans are acquired loans with evidence of credit quality deterioration for which it is probable at acquisition that the Company will collect less than the contractually required payments. PCI loans are recorded at the initial investment in the loans and accreted to the estimated cash flows expected to be collected as measured at acquisition date. The excess of cash flows expected to be collected, measured as of acquisition date, over the estimated fair value represents the accretable yield and is recognized in interest income over the remaining life of the loan. The difference between contractually required payments as of the acquisition date and the cash flows expected to be collected, which represents the nonaccretable difference, is not recognized as an adjustment of yield, loss accrual or valuation allowance.

Factors that most significantly affect estimates of cash flows expected to be collected, and accordingly the accretable yield, include: (i) estimate of the remaining life of acquired loans which may change the amount of future interest income; (ii) changes to prepayment assumptions; (iii) changes to collateral value assumptions for loans expected to foreclose; and (iv) changes in interest rates on variable rate loans.

There were no PCI loans acquired in the nine months ended September 30, 2018 .

In January 2017, the Company acquired additional PCI loans through the Merger as well as part of a loan portfolio secured by commercial properties in Ireland. Information about these PCI loans at the time of their acquisition is presented below:



(In thousands)	January 2017
Contractually required payments including interest	$	1,154,596
Less: Nonaccretable difference	(878,257		)
Cash flows expected to be collected	276,339
Less: Accretable yield	(23,594		)
Fair value of loans acquired	$	252,745

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Changes in accretable yield of PCI loans were as follows:



	Nine Months Ended September 30,
(In thousands)	2018			2017
Beginning accretable yield	$	42,435		$	52,572
Additions	—			23,594
Dispositions	(5,400		)	—
Changes in accretable yield	3,407			26,008
Accretion recognized in earnings	(24,250		)	(46,426		)
Deconsolidation	(991		)	—
Effect of changes in foreign exchange rates	(223		)	2,217
Ending accretable yield	$	14,978		$	57,965

The Company applied either the cash basis or cost recovery method for recognition of interest income on PCI loans with carrying value before allowance for loan losses of $179.6 million at September 30, 2018 and $196.5 million at December 31, 2017 , as the Company did not have reasonable expectations of the timing and amount of future cash receipts on these loans.

Allowance for Loan Losses

On a periodic basis, the Company analyzes the extent and effect of any credit migration from underwriting and the initial investment review associated with the performance of a loan and/or value of its underlying collateral, financial and operating capability of the borrower or sponsor, as well as amount and status of any senior loan, where applicable. Specifically, operating results of collateral properties and any cash reserves are analyzed and used to assess whether cash from operations are sufficient to cover debt service requirements currently and into the future, ability of the borrower to refinance the loan, liquidation value of collateral properties, financial wherewithal of any loan guarantors as well as the borrower’s competency in managing and operating the collateral properties. Such analysis is performed at least quarterly, or more often as needed when impairment indicators are present.

Allowance for loan losses represents the estimated probable credit losses inherent in loans held for investment at balance sheet date and is generally measured as the difference between the carrying value of the loan and either the present value of cash flows expected to be collected or an observable market price for the loan.

For PCI loans, provision for loan losses is recorded if it is assessed that decreases in cash flows expected to be collected would result in a decrease in the estimated fair value of the loan below its amortized cost.

The allowance for loan losses and related carrying values of loans held for investment, excluding loans carried at fair value, were as follows:



	September 30, 2018				December 31, 2017
(In thousands)	Allowance for Loan Losses		Carrying Value		Allowance for Loan Losses		Carrying Value
Non-PCI loans	$	3,697	$	75,944	$	7,424	$	138,136
PCI loans	38,214		103,558		45,285		169,789
	$	41,911	$	179,502	$	52,709	$	307,925

Changes in allowance for loan losses is presented below:



	Nine Months Ended September 30,
(In thousands)	2018			2017
Allowance for loan losses at January 1	$	52,709		$	67,980
Contribution to Colony Credit (Note 4)	(518		)	—
Deconsolidation	(5,983		)	—
Provision for loan losses, net	27,133			12,907
Charge-off	(31,430		)	(31,256		)
Allowance for loan losses at September 30	$	41,911		$	49,631

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Provision for loan losses by loan type is as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2018		2017		2018		2017
Non-PCI loans	$	214	$	3,965	$	7,950	$	6,890
PCI loans ⁽¹⁾	7,611		1,151		19,183		6,017
Total provision for loan losses, net	$	7,825	$	5,116	$	27,133	$	12,907

__________


⁽¹⁾	Net of recoveries in provision for loan losses on PCI loans of $0.6 million and $2.9 million for the three months ended September 30, 2018 and 2017 , respectively, and $1.1 million and $4.4 million for the nine months ended September 30, 2018 and 2017 , respectively.

Lending Commitments

The Company has lending commitments to borrowers pursuant to certain loan agreements in which the borrower may submit a request for funding contingent on achieving certain criteria, which must be approved by the Company as lender, such as leasing, performance of capital expenditures and construction in progress with an approved budget. At September 30, 2018 , total unfunded lending commitments was $236.3 million , of which the Company's share was $87.3 million , net of amounts attributable to noncontrolling interests.

7 . Investments In Unconsolidated Ventures

As discussed in Note 4 , upon closing of the Combination on January 31, 2018, the Company contributed its interests in the CLNY Investment Entities to Colony Credit and deconsolidated these entities, which included interests in third party private funds and acquisition, development and construction ("ADC") loans with a combined carrying value of approximately $208.7 million . In consideration for its contribution, the Company received equity interest in Colony Credit, accounted for under the equity method.

The Company's investments represent noncontrolling equity interests in various entities, including investments for which fair value option was elected, as follows:



(In thousands)	September 30, 2018		December 31, 2017
Equity method investments
Investment ventures	$	2,102,606	$	1,297,180
Private funds	116,310		229,874
	2,218,916		1,527,054
Other equity investments
Investment ventures	89,129		89,261
Private funds and retail companies	22,802		38,924
	111,931		128,185
	$	2,330,847	$	1,655,239

Equity Method Investments

The Company owns significant interests in Colony Credit and NRE, both publicly-traded REITs that it manages. The Company accounts for its investments under the equity method as it exercises significant influence over operating and financial policies of these entities through a combination of its ownership interest, its role as the external manager and board representation, but does not control these entities. The Company also owns equity method investments that are structured as joint ventures with one or more private funds or other investment vehicles managed by the Company, or with third party joint venture partners. These investment ventures are generally capitalized through equity contributions from the members and/or leveraged through various financing arrangements. The Company elected fair value option to account for its interests in certain investment ventures as well as limited partnership interests in third party private funds acquired through the Merger (see Note 14 ).

The assets of the equity method investment entities may only be used to settle the liabilities of these entities and there is no recourse to the general credit of either the Company or the other investors for the obligations of these investment entities. Neither the Company nor the other investors are required to provide financial or other support in excess of their capital commitments. The Company’s exposure to the investment entities is limited to its equity method investment balance.

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The Company’s investments accounted for under the equity method, including investments for which fair value option was elected, are summarized below:



($ in thousands)			Ownership Interest at September 30, 2018 ⁽¹⁾	Carrying Value at
Investments	Description		Ownership Interest at September 30, 2018 ⁽¹⁾	September 30, 2018		December 31, 2017
Colony Credit Real Estate, Inc.	Common equity in publicly traded commercial real estate credit REIT managed by the Company and membership units in its operating subsidiary	(2)	36.6%	$	1,107,168	$	—
NorthStar Realty Europe Corp	Common equity in publicly traded equity REIT managed by the Company	(2)	11.3%	73,775		73,578
RXR Realty	Common equity in investment venture with a real estate investor, developer and investment manager		27.2%	97,044		105,082
Preferred equity	Preferred equity investments with underlying real estate	(3)	NA	354,091		440,704
ADC investments	Investments in acquisition, development and construction loans in which the Company participates in residual profits from the projects, and the risk and rewards of the arrangements are more similar to those associated with investments in joint ventures	(4)	Various	198,441		331,268
Private funds	General partner and/or limited partner interests in private funds		Various	109,651		25,101
Other investment ventures	Interests in 17 investments, each with no more than $65 million carrying value at September 30, 2018		Various	197,563		187,420
Fair value option	Interests in initial stage or real estate development ventures and limited partnership interests in private funds		Various	81,183		363,901
				$	2,218,916	$	1,527,054

__________

⁽¹⁾

The Company's ownership interest represents capital contributed to date and may not be reflective of the Company's economic interest in the entity because of provisions in operating agreements governing various matters, such as classes of partner or member interests, allocations of profits and losses, preferential returns and guaranty of debt. Each equity method investment has been determined to be either a VIE for which the Company was not deemed to be the primary beneficiary or a voting interest entity in which the Company does not have the power to control through a majority of voting interest or through other arrangements.

⁽²⁾

These entities are governed by their respective boards of directors. The Company's role as manager is under the supervision and direction of such entity's board of directors, which includes representatives from the Company but the majority of whom are independent directors. In connection with the Company's investment in NRE, the Company has an ownership waiver under NRE’s charter which allows the Company to own up to 45% of NRE’s common stock, and to the extent the Company owns more than 25% of NRE’s common stock, the Company will vote the excess shares in the same proportion that the remaining NRE shares not owned by the Company are voted.


⁽³⁾	Some preferred equity investments may not have a stated ownership interest.


⁽⁴⁾	The Company owns varying levels of stated equity interests in certain ADC investments as well as profit participation interests without a stated ownership interest in other ADC investments.

Sale of Investments —In 2017, the Company had an investment in the single family residential business through its equity method investee, Starwood Waypoint Homes (formerly, Colony Starwood Homes). The Company monetized its investment through a sale of all of its shares in Starwood Waypoint Homes in March 2017 and June 2017 for total net proceeds of $500.5 million and recognized a gain of $191.2 million in aggregate, included in earnings from investments in unconsolidated ventures.

Impairment —During the nine months ended September 30, 2018 , the Company assessed that certain equity method investments were other-than-temporarily impaired and recorded aggregate impairment of $22.1 million in earnings from investments in unconsolidated ventures. In making this assessment, the Company considered, among others, offer prices on the Company's investment, expected payoffs from sales of the underlying business of the investments and estimated enterprise value of the investment.

As discussed in Note 4 , the Company had measured its interest in Colony Credit based upon its proportionate share of Colony Credit's fair value at the closing date of the Combination. Colony Credit’s class A common stock traded between $17.66 and $23.23 per share since it began trading on the NYSE, and closed at $21.99 per share on September 28, 2018, the last trading day of the third quarter. At September 30, 2018 , the carrying value of the Company's investment in Colony Credit was $23.10 per share. As of September 30, 2018 , the Company has assessed that its investment in Colony Credit was not other-than-temporarily impaired as the Company believes that the carrying value of its investment in Colony Credit is recoverable in the near term. If Colony Credit's common stock continues to trade below the Company's carrying value for a prolonged period of time, an other-than-temporary impairment may be recognized in the future.

In 2017, a residential land development project, which is an ADC loan accounted for as an equity method investment, was assessed to be other-than-temporarily impaired. A $2.1 million impairment was recorded, estimated based on a projection of future cash flows that contemplated an as-is sale of the land to a developer.

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Other Equity Investments

Investments that do not qualify for equity method accounting consist of the following:

Investment Ventures —This represents common equity in the Albertsons/Safeway supermarket chain (with 50% ownership by a co-investment partner) which is carried at cost, adjusted for any impairment and observable price changes, where applicable.

Retail Companies —At September 30, 2018 , the Company has an immaterial interest in its sponsored non-traded REIT, NorthStar Healthcare Income, Inc. ("NorthStar Healthcare") for which the Company applies the NAV practical expedient (see Note 14 ). In August 2018, the board of directors of another sponsored non-traded REIT, NorthStar/RXR New York Metro Real Estate, Inc. ("NorthStar/RXR NY Metro"), approved a plan of liquidation of NorthStar/RXR NY Metro, which plan was subsequently approved by its stockholders. The liquidation was completed in October 2018, whereby the Company, together with its co-sponsor, RXR Realty LLC, had their shares redeemed for $0.01 per share, effectively forfeiting their investments. As a result, the Company wrote off its $1.5 million investment in NorthStar/RXR NY Metro in the third quarter of 2018.

Private Funds —This represents a limited partnership interest in a third party private fund sponsored by an equity method investee for which the Company elected the NAV practical expedient (see Note 14 ).

Investment Commitments

Investment Ventures— Pursuant to the operating agreements of certain unconsolidated ventures, the venture partners may be required to fund additional amounts for future investments, unfunded lending commitments, ordinary operating costs, guaranties or commitments of the venture entities. The Company also has lending commitments under ADC arrangements which are accounted for as equity method investments. At September 30, 2018 , the Company’s share of these commitments was $52.2 million .

Additionally, as of September 30, 2018 , the Company had funded a deposit of $21.3 million with remaining unfunded commitment of $247.4 million to a joint venture for its acquisition of a freehold land for development in Ireland, alongside the Company's sponsored credit fund and Colony Credit. The Company's share of unfunded commitment, net of amounts attributable to noncontrolling interests, was $64.8 million .

Private Funds— At September 30, 2018 , the Company had unfunded commitments of $328.3 million to funds sponsored or co-sponsored by the Company that are accounted for as equity method investments.

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8 . Securities

The following table summarizes the Company's investment in debt securities classified as available-for-sale ("AFS") as well as equity and debt securities held by consolidated funds that are accounted for at fair value through earnings.



			Gross Cumulative Unrealized
(in thousands)	Amortized Cost		Gains		Losses			Fair Value
September 30, 2018
Available-for-sale debt securities:
N-Star CDO bonds	$	67,491	$	1,673	$	(5,019	)	$	64,145
CMBS and other securities ⁽¹⁾	85		122		—			207
	67,576		1,795		(5,019		)	64,352
Securities of consolidated funds:
CMBS								31,149
Equity securities								43,527
								74,676
								$	139,028
December 31, 2017
Available-for-sale debt securities:
CRE securities of consolidated N-Star CDOs ⁽²⁾ :
CMBS	$	144,476	$	3,999	$	(530	)	$	147,945
Other securities ⁽³⁾	61,302		5,994		(313		)	66,983
N-Star CDO bonds	88,374		2,778		(219		)	90,933
CMBS and other securities ⁽¹⁾	13,829		3,739		(186		)	17,382
	307,981		16,510		(1,248		)	323,243
Securities of consolidated funds:
CMBS								25,099
Equity securities								35,600
								60,699
								$	383,942

__________


⁽¹⁾	Other securities include a trust preferred security and certain investments in other third party CDO bonds.

⁽²⁾ Carrying value of CDO bonds in consolidated N-Star CDOs was $215.5 million at December 31, 2017 .

⁽³⁾ Represents primarily agency debentures, and to a lesser extent, unsecured REIT debt and trust preferred securities.

N-Star CDOs and N-Star CDO Bonds —The Company acquired, upon the Merger, NRF's legacy CDOs. NRF had sponsored collateralized debt obligations ("CDOs"), collateralized primarily by commercial real estate ("CRE") debt and CRE securities, of which two of the sponsored CRE securities CDOs were consolidated. Additionally, NRF had acquired the equity interests of CRE debt focused CDOs sponsored by third parties. These CDOs are collectively referred to as the N-Star CDOs. At September 30, 2018 , the Company no longer has any consolidated CDOs as the remaining assets of one CDO was liquidated, and the Company sold all of its interest in another CDO which resulted in the deconsolidation of that CDO. A gain of $10.9 million was recorded upon deconsolidation, included in other gain on the consolidated statement of operations.

At the time of issuance of the sponsored CDOs, NRF retained investment-grade subordinate bonds. NRF also retained equity interests in the form of preferred shares in all of its sponsored CDOs. Additionally, NRF repurchased CDO bonds originally issued to third parties at discounts to par. These repurchased CDO bonds and retained investment-grade subordinate bonds are collectively referred to as N-Star CDO bonds.

All of the legacy NRF sponsored CDOs are past their reinvestment period and are amortizing over time as the underlying assets pay down or are sold.

CMBS and Other Securities —These securities are predominantly commercial mortgage-backed securities (“CMBS”), including investments in mezzanine positions.

At September 30, 2018 , the contractual maturities of CRE securities ranged from eight years to 42 years . The expected maturity, on a weighted average basis, is five years .

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Securities of Consolidated Funds —These are CMBS and publicly traded equity securities held by a consolidated investment company and publicly traded equity securities held by a consolidated private open-end fund. These equity securities comprise listed stock predominantly in the U.S. and to a lesser extent, in the United Kingdom, and primarily in the financial, real estate and consumer sectors.

Disposition of Securities

Realized gains (losses) from sale of securities are recorded in other gain (loss), as follows. There were no sales of debt securities in the three months ended September 30, 2018 .



	Three Months Ended September 30,					Nine Months Ended September 30,
(In thousands)	2018		2017			2018			2017
Available-for-sale debt securities:
Proceeds from sale	$	—	$	—		$	78,197		$	24,788
Gross realized gain	—		—			11,304			567
Gross realized (loss)	—		—			(592		)	—
Securities of consolidated funds:
Realized gain (loss), net
Equity securities	890		(86		)	855			(86		)

Impairment of AFS Debt Securities

The following table presents AFS debt securities in a gross unrealized loss position:



	September 30, 2018					December 31, 2017
	Less Than 12 Months					Less Than 12 Months
(In thousands)	Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss
CRE securities of consolidated N-Star CDOs:
CMBS	$	—	$	—		$	2,229	$	(530	)
Other securities	—		—			8,218		(313		)
N-Star CDO bonds	54,459		(5,019		)	13,392		(219		)
CMBS and other securities	—		—			12,956		(186		)
	$	54,459	$	(5,019	)	$	36,795	$	(1,248	)

At September 30, 2018 and December 31, 2017 , there were no AFS debt securities in an unrealized loss position for more than 12 months.

The Company performs an assessment, at least quarterly, to determine whether a decline in fair value below amortized cost of AFS debt securities is other than temporary. Other than temporary impairment ("OTTI") exists when either (i) the holder has the intent to sell the impaired security, (ii) it is more likely than not the holder will be required to sell the security, or (iii) the holder does not expect to recover the entire amortized cost of the security. In assessing OTTI and estimating future expected cash flows, factors considered include, but are not limited to, credit rating of the security, financial condition of the issuer, defaults for similar securities, performance and value of assets underlying an asset-backed security.

The Company recorded $7.2 million of OTTI loss in other gain (loss) for the nine months ended September 30, 2018 , and $7.2 million and $7.9 million of OTTI loss for the three and nine months ended September 30, 2017 , respectively. There was no OTTI loss in the three months ended September 30, 2018 . The OTTI loss in prior periods was due to an adverse change in expected cash flows on N-Star CDO bonds as well as CMBS held by consolidated N-Star CDOs (such N-Star CDOs were deconsolidated in the second quarter of 2018) as the Company believed that it was not likely that it would recover the amortized cost on those securities prior to selling them.

At September 30, 2018 , the Company believes that the remaining AFS securities with unrealized loss in accumulated other comprehensive income were not other than temporarily impaired. At December 31, 2017 , there were no AFS securities with unrealized loss in accumulated other comprehensive income that have not been other than temporarily impaired.

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Purchased Credit-Impaired Debt Securities

Certain debt securities acquired by the Company through the Merger, consisting of certain N-Star CDOs, other CDOs and CMBS securities, were considered to be credit-impaired at acquisition, with the following outstanding balance:



(In thousands)	September 30, 2018		December 31, 2017
Outstanding principal	$	213,019	$	411,174
Amortized cost	3,201		26,761
Carrying value	3,111		31,789

PCI debt securities are recorded at their initial investment and accreted to the estimated cash flows expected to be collected as measured at acquisition date. The excess of cash flows expected to be collected, measured at acquisition date, over the estimated fair value represents the accretable yield and is recognized in interest income over the remaining life of the security. The difference between contractually required payments at the acquisition date and the cash flows expected to be collected, which represents the nonaccretable difference, reflects the estimated future credit losses expected to be incurred over the life of the security and is not accreted to interest income nor recorded on the balance sheet. Subsequent decreases in undiscounted expected cash flows attributable to further credit deterioration as well as changes in expected timing of future cash flows can result in recognition of OTTI.

Information about these PCI debt securities upon acquisition, including the effect of measurement period adjustments recorded during the year ended December 31, 2017 , is presented below:



(In thousands)	January 2017
Contractually required payments including interest	$	574,088
Less: Nonaccretable difference	(449,261		)
Cash flows expected to be collected	124,827
Less: Accretable yield	(70,283		)
Fair value of PCI debt securities acquired	$	54,544

The table below presents changes in accretable yield related to these PCI debt securities. The changes for the nine months ended September 30, 2017 include the effects of measurement period adjustments subsequently recorded during the year ended December 31, 2017 .



	Nine Months Ended September 30,
(In thousands)	2018			2017
Beginning accretable yield	$	44,610		$	—
Assumed through the Merger	—			70,283
Accretion recognized in earnings	(3,489		)	(2,321		)
Reduction due to payoffs, disposals or deconsolidation	(17,081		)	(8,963		)
Net reclassifications to nonaccretable difference ⁽¹⁾	(24,040		)	(9,461		)
Ending accretable yield	$	—		$	49,538

__________


⁽¹⁾	Includes reclassifications to nonaccretable difference for PCI securities for which cash flows can no longer be reasonably estimated.

9 . Goodwill, Deferred Leasing Costs and Other Intangibles

Goodwill

The following tables present changes in the carrying value of goodwill and the goodwill balance by reportable segment, including the effects of measurement period adjustments that were made through September 30, 2017.



	Nine Months Ended September 30,
(In thousands)	2018		2017
Beginning balance	$	1,534,561	$	680,127
Business combinations	—		1,398,484
Transfer to held for sale ⁽¹⁾	—		(249,795		)
Ending balance ⁽²⁾	$	1,534,561	$	1,828,816

__________


⁽¹⁾	Represents goodwill assigned to the Townsend investment management reporting unit that was acquired as part of the Merger, subsequently transferred to held for sale and sold on December 29, 2017.

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⁽²⁾	Total goodwill amount is not deductible for income tax purposes.



(In thousands)	September 30, 2018		December 31, 2017
Balance by reportable segment:
Industrial	$	20,000	$	20,000
Investment management	1,514,561		1,514,561
	$	1,534,561	$	1,534,561

Impairment

Goodwill is assessed for impairment at the Company's operating segments or one level below. The Company performs its annual impairment test in the fourth quarter of each year. As a result of the Company's annual impairment test in 2017 , the Company recognized an impairment to the investment management goodwill of $316.0 million .

No impairment was recognized on the goodwill balance above during the nine months ended September 30, 2018 and 2017 . However, in the third quarter of 2017, there was a $9.1 million preliminary write-down of the goodwill associated with the Townsend business that was held for sale, with the impairment fully reversed upon finalization of the net asset value and sales price of the Townsend business upon closing of its sale in December 2017.

Deferred Leasing Costs, Other Intangible Assets and Intangible Liabilities

The Company's deferred leasing costs, other intangible assets and intangible liabilities are as follows.



	September 30, 2018							December 31, 2017
(In thousands)	Carrying Amount (Net of Impairment) ⁽¹⁾		Accumulated Amortization			Net Carrying Amount		Carrying Amount (Net of Impairment) ⁽¹⁾		Accumulated Amortization			Net Carrying Amount
Deferred Leasing Costs and Intangible Assets
In-place lease values	$	256,438	$	(115,291	)	$	141,147	$	243,037	$	(98,021	)	$	145,016
Above-market lease values	141,039		(40,677		)	100,362		166,571		(34,968		)	131,603
Below-market ground lease obligations	15,223		(150		)	15,073		29,625		(316		)	29,309
Deferred leasing costs	111,522		(44,985		)	66,537		121,765		(38,389		)	83,376
Lease incentives	14,576		(1,110		)	13,466		14,565		(298		)	14,267
Trade name ⁽²⁾	15,500		—			15,500		79,700		(3,131		)	76,569
Investment management contracts	194,698		(84,219		)	110,479		342,127		(70,394		)	271,733
Customer relationships	59,400		(13,875		)	45,525		59,400		(10,421		)	48,979
Other ⁽³⁾	59,209		(3,586		)	55,623		54,061		(2,041		)	52,020
Total deferred leasing costs and intangible assets	$	867,605	$	(303,893	)	$	563,712	$	1,110,851	$	(257,979	)	$	852,872
Intangible Liabilities
Below-market lease values	$	207,370	$	(54,834	)	$	152,536	$	214,833	$	(36,426	)	$	178,407
Above-market ground lease obligations	16,060		(1,326		)	14,734		13,417		(715		)	12,702
Total intangible liabilities	$	223,430	$	(56,160	)	$	167,270	$	228,250	$	(37,141	)	$	191,109

__________

⁽¹⁾

For intangible assets and intangible liabilities recognized in connection with business combinations, purchase price allocations may be subject to adjustments during the measurement period, not to exceed twelve months from date of acquisition, based upon new information obtained about facts and circumstances that existed at time of acquisition. Amounts are presented net of impairments and write-offs, including contracts written off in connection with the Combination (Notes 4 and 14 ).


⁽²⁾	The Colony trade name is determined to have an indefinite useful life and not currently subject to amortization. The NorthStar trade name, prior to its write-off in June 2018, was amortized over an estimated useful life of 20 years.


⁽³⁾	Represents primarily the value of certificates of need associated with certain healthcare portfolios which are not amortized and franchise agreements associated with certain hotel properties which are amortized over 10 to 15 years.

Impairment

Investment Management Contracts —Upon closing of the Combination on January 31, 2018, the Company's management contracts with NorthStar I and NorthStar II were terminated. Consequently, the carrying value of management contract intangible assets that were recognized for NorthStar I and NorthStar II at the time of the Merger, which aggregated to approximately $139.0 million , was written off. Also, in the first quarter of 2018, the remaining balance of the NorthStar/RXR NY Metro management contract intangible of $1.4 million was written off in consideration of the termination of its offering period effective March 31, 2018. In the third quarter of 2018, additional impairment of $7.0

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million was recorded on the NorthStar Healthcare management contract intangible assets based upon revised estimated future cash flows, discounted at 10% .

In 2017, the investment management contracts of non-traded REITs acquired through the Merger were impaired in the fourth quarter, with $55.3 million related to NorthStar Healthcare following an amendment to its advisory agreement and $3.7 million related to NorthStar/RXR NY Metro based on revised capital raising projections. Fair value of management contract intangibles were estimated based on an analysis of discounted excess earnings attributable to future fee income from each management contract, utilizing a discount rate of 9% .

Trade Name —In June 2018, the Company changed its name from Colony NorthStar, Inc. to Colony Capital, Inc. and the remaining value of the NorthStar trade name of $59.5 million was written off.

Amortization of Intangible Assets and Liabilities

The following table summarizes the amortization of deferred leasing costs and finite-lived intangible assets and intangible liabilities:



	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2018			2017			2018			2017
Above-market lease values	$	(3,681	)	$	(6,060	)	$	(24,903	)	$	(17,875	)
Below-market lease values	6,288			7,539			29,013			24,734
Lease incentives	(280		)	—			(814		)	—
Net increase (decrease) to rental income	$	2,327		$	1,479		$	3,296		$	6,859

Above-market ground lease obligations	$	(334	)	$	(209	)	$	(801	)	$	(573	)
Below-market ground lease obligations	182			300			551			894
Net increase (decrease) to ground rent expense	$	(152	)	$	91		$	(250	)	$	321

In-place lease values	$	11,154		$	19,384		$	35,241		$	62,500
Deferred leasing costs	4,623			5,076			13,118			13,899
Trade name	—			945			1,606			2,738
Investment management contracts	4,013			10,013			13,824			29,227
Customer relationships	1,152			3,192			3,455			9,323
Other	724			745			1,858			2,437
Amortization expense	$	21,666		$	39,355		$	69,102		$	120,124

The following table presents the effect of future amortization of deferred leasing costs and finite-lived intangible assets and intangible liabilities, excluding those related to assets held for sale:



	Year Ending December 31,
(In thousands)	Remaining 2018			2019			2020			2021			2022			2023 and Thereafter		Total
Net increase to rental income	$	2,548		$	9,148		$	7,856		$	9,044		$	8,709		$	1,403	$	38,708
Net increase (decrease) to rent expense	(49		)	(193		)	(193		)	(193		)	(191		)	1,158		339
Amortization expense	20,450			67,244			57,257			46,827			40,915			157,458		390,151

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10 . Assets and Related Liabilities Held for Sale

The Company's assets and related liabilities held for sale are summarized below:



(In thousands)	September 30, 2018		December 31, 2017
Assets
Restricted cash	$	2,446	$	1,020
Real estate, net	570,672		720,686
Goodwill ⁽¹⁾	—		20,000
Intangible assets, net	36,865		37,337
Other assets	28,168		2,587
Total assets held for sale	$	638,151	$	781,630

Liabilities
Secured debt, net ⁽²⁾	$	—	$	196,905
Lease intangibles and other liabilities, net	50,625		76,393
Total liabilities related to assets held for sale	$	50,625	$	273,298

__________


⁽¹⁾	Goodwill is associated with the broker-dealer business that was held for sale at December 31, 2017 . The broker-dealer business was contributed to the Colony S2K joint venture, an equity method investee, in April 2018.


⁽²⁾	Represents only debt that is expected to be assumed by the buyer upon sale of the related asset.

Assets held for sale at September 30, 2018 did not constitute discontinued operations, other than those acquired through business combinations that qualified as held for sale upon acquisition, as discussed in Note 18 .

11 . Restricted Cash, Other Assets and Other Liabilities

Restricted Cash

The following table summarizes the Company's restricted cash balance:



(In thousands)	September 30, 2018		December 31, 2017
Capital expenditures reserves ⁽¹⁾	$	238,291	$	249,612
Real estate escrow reserves ⁽²⁾	69,606		42,420
Borrower escrow deposits	12,793		41,545
Working capital and other reserves ⁽³⁾	22,698		23,043
Tenant lock boxes ⁽⁴⁾	17,176		16,486
Restricted cash of consolidated N-Star CDOs ⁽⁵⁾	—		13,656
Other	53,239		84,316
Total restricted cash	$	413,803	$	471,078

__________


⁽¹⁾	Represents primarily capital improvements, furniture, fixtures and equipment, tenant improvements, lease renewal and replacement reserves related to real estate assets.


⁽²⁾	Represents primarily insurance, real estate tax, repair and maintenance, tenant security deposits and other escrows related to real estate assets.


⁽³⁾	Represents reserves for working capital and property development expenditures, as well as in connection with letter of credit provisions, as required in joint venture arrangements with the Federal Deposit Insurance Corporation.


⁽⁴⁾	Represents tenant rents held in lock boxes controlled by the lender. The Company receives the monies after application of rent receipts to service its debt.


⁽⁵⁾	Balance at December 31, 2017 represents proceeds from repayments and/or sales of debt securities which are pending distribution in consolidated N-Star CDOs. The Company sold all of its interest in the sponsored N-Star CDOs in May 2018 and deconsolidated the N-Star CDOs.

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Other Assets

The following table summarizes the Company's other assets:



(In thousands)	September 30, 2018		December 31, 2017
Interest receivable	$	14,725	$	21,529
Straight-line rents	58,395		45,598
Hotel-related reserves ⁽¹⁾	30,803		29,208
Investment deposits and pending deal costs	81,999		1,706
Deferred financing costs, net ⁽²⁾	8,894		10,068
Contingent consideration escrow account ⁽³⁾	—		15,730
Derivative assets (Note 13)	22,358		10,152
Prepaid taxes and deferred tax assets, net	56,202		79,063
Receivables from resolution of investments ⁽⁴⁾	5,358		15,215
Contributions receivable ⁽⁵⁾	—		25,501
Accounts receivable ⁽⁶⁾	82,570		87,744
Prepaid expenses	35,540		29,526
Other assets	37,269		20,296
Fixed assets, net	49,406		53,632
Total other assets	$	483,519	$	444,968

__________


⁽¹⁾	Represents reserves held by the Company's third party managers at certain of the Company's hotel properties to fund furniture, fixtures and equipment expenditures. Funding is made periodically based on a percentage of hotel operating income.


⁽²⁾	Deferred financing costs relate to revolving credit arrangements.

⁽³⁾

Contingent consideration escrow account holds certificates of deposit and cash for dividends paid on OP Units held in escrow for the contingent consideration that may be earned by certain executives in connection with the acquisition of the investment management business of Colony's former manager (Note 14 ). Upon final measurement of the contingent consideration at the end of its earnout period on June 30, 2018, the final amount of dividends on class A common stock and OP Units payable to the executives was determined to be $6.4 million , which was settled in August 2018, and the remaining escrow balance was released back to the Company.


⁽⁴⁾	Represents primarily proceeds from loan payoffs held in escrow.


⁽⁵⁾	Represents contributions receivable from noncontrolling interests in investment entities as a result of capital calls made at period end.


⁽⁶⁾	Includes receivables for hotel operating income, resident fees, rent and other tenant receivables. Presented net of total allowance for bad debt of approximately $15.2 million and $5.6 million at September 30, 2018 and December 31, 2017 , respectively.

Accrued and Other Liabilities

The following table summarizes the Company's accrued and other liabilities:



(In thousands)	September 30, 2018		December 31, 2017
Tenant security deposits	$	29,014	$	27,560
Borrower escrow deposits	16,934		46,231
Deferred income ⁽¹⁾	42,978		42,457
Interest payable	37,361		42,462
Derivative liabilities (Note 13)	69,487		204,848
Contingent consideration—THL Hotel Portfolio (Note 3)	8,503		7,419
Current and deferred income tax liability	102,953		166,276
Accrued compensation	56,560		77,483
Accrued real estate and other taxes	94,330		77,060
Other accrued expenses	83,735		107,508
Accounts payable and other liabilities	101,047		98,857
Total accrued and other liabilities	$	642,902	$	898,161

__________

⁽¹⁾

Represents primarily prepaid rental income and interest income held in reserve accounts. Includes deferred asset management fee income of $3.3 million at September 30, 2018 and $2.7 million at December 31, 2017 , which will be recognized as fee income on a straight-line basis through 2025 . Adoption of the new revenue recognition standard had resulted in approximately $1.6 million increase to deferred management fee income on January 1, 2018. For the nine months ended September 30, 2018 , $0.6 million relating to the deferred asset management fee balance at January 1, 2018 was recognized as fee income.

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12 . Debt

The Company's debt consists of the following components:



(In thousands)	Corporate Credit Facility ⁽¹⁾		Convertible and Exchangeable Senior Notes			Secured and Unsecured Debt (2)			Securitization Bonds Payable (3)			Junior Subordinated Notes			Total Debt
September 30, 2018
Debt at amortized cost
Principal	$	—	$	616,105		$	9,187,663		$	—		$	280,117		$	10,083,885
Premium (discount), net	—		2,807			(50,512		)	—			(81,548		)	(129,253		)
Deferred financing costs	—		(7,225		)	(79,431		)	—			—			(86,656		)
	$	—	$	611,687		$	9,057,720		$	—		$	198,569		$	9,867,976
December 31, 2017
Debt at amortized cost
Principal	$	50,000	$	616,105		$	9,792,169		$	391,231		$	280,117		$	11,129,622
Premium (discount), net	—		3,131			(78,634		)	(87,319		)	(83,064		)	(245,886		)
Deferred financing costs	—		(8,905		)	(91,360		)	(203		)	—			(100,468		)
	50,000		610,331			9,622,175			303,709			197,053			10,783,268
Debt at fair value ⁽⁴⁾	—		—			—			44,542			—			44,542
	$	50,000	$	610,331		$	9,622,175		$	348,251		$	197,053		$	10,827,810

__________


⁽¹⁾	Deferred financing costs related to the corporate credit facility is recorded in other assets.


⁽²⁾	Debt with carrying value of $267.2 million at September 30, 2018 and $202.8 million at December 31, 2017 was related to financing on assets held for sale. Debt associated with assets held for sale that will be assumed by the buyer is included in liabilities related to assets held for sale (Note 10 ).

⁽³⁾

Represents bonds payable issued by securitization trusts consolidated by the Company at December 31, 2017 (Note 15 ). The Company contributed its interests in three securitization trusts to Colony Credit upon closing of the Combination in the first quarter of 2018. In the second quarter of 2018, the Company sold its equity interests in two securitization trusts to third parties, resulting in a deconsolidation of these securitization trusts, while the underlying assets of the remaining securitization trust was liquidated. At September 30, 2018 , the Company no longer has any consolidated securitization trusts.

⁽⁴⁾

Debt at fair value at December 31, 2017 represents a securitization trust that was consolidated by a N-Star CDO and the N-Star CDO was in turn consolidated by the Company. The Company had elected the fair value option to value the bonds payable issued by the consolidated securitization trust (Note 14 ). In May 2018, the Company sold its interests in the N-Star CDO and deconsolidated the N-Star CDO (Note 8 ).

The following table summarizes certain information about the different components of debt carried at amortized cost:



	Fixed Rate					Variable Rate					Total
($ in thousands)	Outstanding Principal		Weighted Average Interest Rate (Per Annum)		Weighted Average Years Remaining to Maturity	Outstanding Principal		Weighted Average Interest Rate (Per Annum)		Weighted Average Years Remaining to Maturity	Outstanding Principal		Weighted Average Interest Rate (Per Annum)		Weighted Average Years Remaining to Maturity
September 30, 2018
Recourse
Corporate credit facility	$	—	N/A		N/A	$	—	N/A		2.3	$	—	N/A		2.3
Convertible and exchangeable senior notes	616,105		4.27	%	3.3	—		N/A		N/A	616,105		4.27	%	3.3
Junior subordinated debt	—		N/A		N/A	280,117		5.26	%	17.7	280,117		5.26	%	17.7
Secured debt ⁽¹⁾	37,723		5.02	%	7.2	—		N/A		N/A	37,723		5.02	%	7.2
	653,828					280,117					933,945

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	Fixed Rate					Variable Rate					Total
($ in thousands)	Outstanding Principal		Weighted Average Interest Rate (Per Annum)		Weighted Average Years Remaining to Maturity	Outstanding Principal		Weighted Average Interest Rate (Per Annum)		Weighted Average Years Remaining to Maturity	Outstanding Principal		Weighted Average Interest Rate (Per Annum)		Weighted Average Years Remaining to Maturity
Non-recourse
Secured debt ⁽²⁾
Healthcare ⁽³⁾	2,168,859		4.65	%	2.2	1,080,478		6.37	%	1.3	3,249,337		5.22	%	1.9
Industrial	1,073,628		3.83	%	10.9	2,022		5.01	%	4.4	1,075,650		3.83	%	10.8
Hospitality	11,523		12.65	%	0.9	2,636,427		5.42	%	0.9	2,647,950		5.45	%	0.9
Other Real Estate Equity	224,185		3.97	%	3.9	1,561,958		4.55	%	1.5	1,786,143		4.48	%	1.8
Real Estate Debt	—		N/A		N/A	390,860		4.56	%	2.5	390,860		4.56	%	2.5
	3,478,195					5,671,745					9,149,940
Total debt	$	4,132,023				$	5,951,862				$	10,083,885

December 31, 2017
Recourse
Corporate credit facility	$	—	N/A		N/A	$	50,000	3.51	%	3.0	$	50,000	3.51	%	3.0
Convertible and exchangeable senior notes	616,105		4.27	%	4.0	—		N/A		N/A	616,105		4.27	%	4.0
Junior subordinated debt	—		N/A		N/A	280,117		4.56	%	18.4	280,117		4.56	%	18.4
Secured debt ⁽¹⁾	39,219		5.02	%	7.9	—		N/A		N/A	39,219		5.02	%	7.9
	655,324					330,117					985,441
Non-recourse
Securitization bonds payable	30,132		3.45	%	29.9	361,099		3.02	%	28.4	391,231		3.05	%	28.5
Secured debt ⁽²⁾
Healthcare	2,168,936		4.65	%	2.9	1,119,320		5.75	%	2.0	3,288,256		5.03	%	2.6
Industrial	1,014,229		3.50	%	11.4	—		N/A		N/A	1,014,229		3.50	%	11.4
Hospitality	9,038		11.00	%	0.6	2,599,681		4.67	%	1.1	2,608,719		4.69	%	1.1
Other Real Estate Equity	374,789		4.07	%	5.5	1,841,209		4.02	%	2.3	2,215,998		4.03	%	2.8
Real Estate Debt	—		N/A		N/A	625,748		4.05	%	2.6	625,748		4.05	%	2.6
	3,597,124					6,547,057					10,144,181
Total debt	$	4,252,448				$	6,877,174				$	11,129,622

__________


⁽¹⁾	The fixed rate recourse debt represents two promissory notes secured by the Company's aircraft.

⁽²⁾

Mortgage debt in the healthcare segment and other real estate equity segment with an aggregate outstanding principal of $527.6 million at September 30, 2018 and $384.5 million at December 31, 2017 were either in payment default or were not in compliance with certain debt and/or lease covenants. The Company is negotiating with the lenders and the tenants to restructure the debt and the lease, as applicable, or otherwise refinance the debt.

⁽³⁾

$1.85 billion of debt principal in the healthcare segment consists of a floating rate component of $100.5 million and a fixed rate component of $1.75 billion . On November 9, 2018, the Company repaid the $100.5 million floating rate component in full, primarily with proceeds received from a refinancing of a select portfolio of medical office buildings in the healthcare segment. The remaining $1.75 billion fixed rate component of the debt is scheduled to mature in December 2019. The Company is currently evaluating its options in connection with the scheduled maturity on the fixed rate component. In connection with pursuing the options available to the Company, the Company may re-evaluate certain assumptions, including with respect to the holding period of the real estate assets collateralizing the debt, which could result in impairment of these assets in a future period. At September 30, 2018 , the carrying value of such real estate assets was $2.8 billion .

Corporate Credit Facility

On January 10, 2017, the OP entered into an amended and restated credit agreement (the “JPM Credit Agreement”) with several lenders and JPMorgan Chase Bank, N.A. as administrative agent, and Bank of America, N.A. as syndication agent. The JPM Credit Agreement provides a secured revolving credit facility in the maximum principal amount of $1.0 billion , with an option to increase up to $1.5 billion , subject to agreement of existing or substitute lenders to provide the additional loan commitment and satisfaction of customary closing conditions. The credit facility is scheduled to mature in January 2021 , with two 6 -month extension options, each subject to a fee of 0.10% of the commitment amount upon exercise.

The maximum amount available at any time is limited by a borrowing base of certain investment assets, with the valuation of such investment assets generally determined according to a percentage of adjusted net book value or a

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multiple of base management fee EBITDA (as defined in the JPM Credit Agreement). At September 30, 2018 , the borrowing base was sufficient to permit borrowings up to the full $1.0 billion commitment.

Advances under the JPM Credit Agreement accrue interest at a per annum rate equal to the sum of one-month London Inter-bank Offered Rate ("LIBOR") plus 2.25% or a base rate determined according to a prime rate or federal funds rate plus a margin of 1.25% . The Company pays a commitment fee of 0.25% or 0.35% per annum of the unused amount ( 0.35% at September 30, 2018 ), depending upon the amount of facility utilization.

Some of the Company’s subsidiaries guarantee the obligations of the Company under the JPM Credit Agreement. As security for the advances under the JPM Credit Agreement, the Company and some of its affiliates pledged their equity interests in certain subsidiaries through which the Company directly or indirectly owns substantially all of its assets.

The JPM Credit Agreement contains various affirmative and negative covenants, including financial covenants that require the Company to maintain minimum tangible net worth, liquidity levels and financial ratios, as defined in the JPM Credit Agreement. At September 30, 2018 , the Company was in compliance with all of the financial covenants.

The JPM Credit Agreement also includes customary events of default, in certain cases subject to reasonable and customary periods to cure. The occurrence of an event of default may result in the termination of the credit facility, accelerate the Company’s repayment obligations, in certain cases limit the Company’s ability to make distributions, and allow the lenders to exercise all rights and remedies available to them with respect to the collateral. There have been no events of default since the inception of the credit facility.

Convertible and Exchangeable Senior Notes

Convertible senior notes and exchangeable senior notes (assumed from NRF at fair value in the Merger) are senior unsecured obligations of the Company and are guaranteed by the Company on a senior unsecured basis.

Convertible and exchangeable senior notes issued by the Company and outstanding are as follows:



Description	Issuance Date	Due Date	Interest Rate	Conversion or Exchange Price (per share of common stock)		Conversion or Exchange Ratio ⁽²⁾ (In Shares)	Conversion or Exchange Shares (in thousands)	Earliest Redemption Date	Outstanding Principal
									September 30, 2018		December 31, 2017
									September 30, 2018		December 31, 2017
5.00% Convertible Notes	April 2013	April 15, 2023	5.00	$	15.76	63.4700	12,694	April 22, 2020	$	200,000	$	200,000
3.875% Convertible Notes	January and June 2014	January 15, 2021	3.875	16.57		60.3431	24,288	January 22, 2019	402,500		402,500
5.375% Exchangeable Notes	June 2013 ⁽¹⁾	June 15, 2033	5.375	12.04		83.0837	1,130	June 15, 2023	13,605		13,605
									$	616,105	$	616,105

__________


⁽¹⁾	Represents initial date of issuance of exchangeable senior notes by NRF prior to the Merger.

⁽²⁾

The conversion or exchange rate for convertible and exchangeable senior notes is subject to periodic adjustments to reflect the carried-forward adjustments relating to common stock splits, reverse stock splits, common stock adjustments in connection with spin-offs and cumulative cash dividends paid on the Company's common stock since the issuance of the convertible and exchangeable senior notes. The conversion or exchange ratios are presented in shares of common stock per $1,000 principal of each convertible or exchangeable note.

The convertible and exchangeable senior notes mature on their respective due dates, unless redeemed, repurchased or exchanged prior to such date in accordance with the terms of their respective governing documents. The convertible and exchangeable senior notes are redeemable at a redemption price equal to 100% of their principal amount, plus accrued and unpaid interest up to, but excluding, the redemption date.

The Company may redeem the convertible notes for cash at its option at any time on or after their respective redemption dates if the last reported sale price of the Company's common stock has been at least 130% of the conversion price of the convertible notes then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption.

The exchangeable notes may be exchanged for cash, common stock or a combination thereof, at the Company's election, upon the occurrence of specified events, and at any time on or after their respective redemption dates, and on the second business day immediately preceding their maturity dates. The holders of the exchangeable notes have the right, at their option, to require the Company to repurchase the exchangeable notes for cash on certain specific dates in accordance with the terms of their respective governing documents.

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In June 2017 and July 2017, the Company repurchased all $13.0 million of the outstanding principal of the 7.25% exchangeable notes for $13.4 million in aggregate, equal to the sum of outstanding principal and accrued interest, upon exercise of the repurchase option by note holders.

In August 2017 and November 2017, the Company exchanged a combined $2.8 million of the outstanding principal of the 5.375% exchangeable notes into 232,669 shares of the Company's class A common stock. The excess of fair value of the class A common stock issued over carrying value of the corresponding notes on the exchange date resulted in an immaterial charge to earnings.

Secured and Unsecured Debt

These are primarily investment level financing, which are generally subject to customary non-recourse carve-outs, secured by underlying commercial real estate and mortgage loans receivable.

Securitization Bonds Payable

Securitization bonds payable represent debt issued by securitization vehicles consolidated by the Company (Note 15 ). This includes CMBS debt as well as collateralized loan obligation debt, which were bonds issued by the consolidated N-Star CDO I and CDO IX that were assumed by the Company at fair value upon the Merger.

Senior notes issued by these securitization trusts were generally sold to third parties and subordinated notes retained by the Company. Payments from underlying collateral loans or securities must be applied to repay the notes until fully paid off, irrespective of the contractual maturities of the notes.

Junior Subordinated Debt

The junior subordinated debt was assumed by the Company through the Merger at fair value. Prior to the Merger, subsidiaries of NRF, which were formed as statutory trusts, NRF Realty Trust Financial LLC I through VIII (the “Trusts”), issued trust preferred securities ("TruPS") in private placement offerings. The sole assets of the Trusts consist of a like amount of junior subordinated notes issued by NRF at the time of the offerings (the "Junior Notes").

The Company may redeem the Junior Notes at par, in whole or in part, for cash, after five years. To the extent the Company redeems the Junior Notes, the Trusts are required to redeem a corresponding amount of TruPS. The ability of the Trusts to pay dividends depends on the receipt of interest payments on the Junior Notes. The Company has the right, pursuant to certain qualifications and covenants, to defer payments of interest on the Junior Notes for up to six consecutive quarters. If payment of interest on the Junior Notes is deferred, the Trust will defer the quarterly distributions on the TruPS for a corresponding period. Additional interest accrues on deferred payments at the annual rate payable on the Junior Notes, compounded quarterly.

Interest Incurred

Total interest incurred on the Company's debt, including interest capitalized on real estate under development or construction, was as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2018		2017		2018		2017
Interest expensed	$	145,117	$	152,054	$	447,315	$	418,592
Interest capitalized	1,967		—		3,831		—
Total interest incurred	$	147,084	$	152,054	$	451,146	$	418,592

13 . Derivatives

The Company uses derivative instruments to manage the risk of changes in interest rates and foreign exchange rates, arising from both its business operations and economic conditions. Specifically, the Company enters into derivative instruments to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and cash payments, the values of which are driven by interest rates, principally relating to the Company’s investments and borrowings. Additionally, the Company’s foreign operations expose the Company to fluctuations in foreign interest rates and exchange rates. The Company enters into derivative instruments to protect the value or fix certain of these foreign denominated amounts in terms of its functional currency, the U.S. dollar. Derivative instruments used in the Company’s risk management activities may be designated as qualifying hedge accounting relationships (“designated hedges”) or otherwise used for economic hedging purposes (“non-designated hedges”).

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Fair value of derivative assets and derivative liabilities were as follows:



	September 30, 2018									December 31, 2017
(In thousands)	Designated Hedges			Non-Designated Hedges			Total			Designated Hedges			Non-Designated Hedges			Total
Derivative Assets
Foreign exchange contracts	$	20,945		$	674		$	21,619		$	8,009		$	975		$	8,984
Interest rate contracts				739			739			—			1,168			1,168
Included in other assets	$	20,945		$	1,413		$	22,358		$	8,009		$	2,143		$	10,152
Derivative Liabilities
Foreign exchange contracts	$	(14,297	)	$	(3,387	)	$	(17,684	)	$	(39,101	)	$	(5,307	)	$	(44,408	)
Interest rate contracts				(51,803		)	(51,803		)	—			(160,440		)	(160,440		)
Included in accrued and other liabilities	$	(14,297	)	$	(55,190	)	$	(69,487	)	$	(39,101	)	$	(165,747	)	$	(204,848	)

Certain counterparties to the derivative instruments require the Company to deposit cash or other eligible collateral. The Company had $0.8 million and $1.9 million of cash collateral on deposit at September 30, 2018 and December 31, 2017 , respectively, included in other assets.

Foreign Exchange Contracts

The following table summarizes the aggregate notional amounts of designated and non-designated foreign exchange contracts in place at September 30, 2018 , along with certain key terms:

Hedged Currency

Instrument Type

Notional Amount
(in thousands)

FX Rates
($ per unit of foreign currency)

Range of Expiration Dates

Designated

Non-Designated

EUR

FX Collar

€

117,337

€

Min $1.06/ Max $1.53

December 2018 to January 2021

GBP

FX Collar

40,737

1,453

Min $1.45 / Max $1.82

June 2019 to December 2019

EUR

FX Forward

€

349,095

€

10,013

Min $1.10 / Max $1.38

December 2018 to May 2023

GBP

FX Forward

93,422

56,408

Min $1.23 / Max $1.36

December 2018 to December 2020

Designated Net Investment Hedges

The Company’s foreign denominated net investments in subsidiaries or joint ventures were €538.7 million and £238.9 million , or a total of $936.3 million at September 30, 2018 , and €499.2 million , £250.6 million and NOK771.2 million , or a total of $1,139.0 million at December 31, 2017 .

The Company entered into foreign exchange contracts to hedge the foreign currency exposure of certain investments in foreign subsidiaries or equity method joint ventures, designated as net investment hedges, as follows:


•	forward contracts whereby the Company agrees to sell an amount of foreign currency for an agreed upon amount of U.S. dollars; and


•	foreign exchange collars (caps and floors) without upfront premium costs, which consist of a combination of currency options with single date expirations, whereby the Company gains protection against foreign currency weakening below a specified level and pays for that protection by giving up gains from foreign currency appreciation above a specified level.

These foreign exchange contracts are used to protect certain of the Company’s foreign denominated investments and receivables from adverse foreign currency fluctuations, with notional amounts and termination dates based upon the anticipated return of capital from the investments.

Release of accumulated other comprehensive income ("AOCI") related to net investment hedges occurs upon losing a controlling financial interest in an investment or obtaining control over an equity method investment. Upon sale, complete or substantially complete liquidation of an investment in a foreign subsidiary, or partial sale of an equity method investment, the gain or loss on the related net investment hedge is reclassified from AOCI to earnings, recorded in other gain (loss).



	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2018		2017		2018		2017
Designated net investment hedges:
Realized gain (loss) transferred from AOCI to earnings	$	6,198	$	5,243	$	8,535	$	3,931

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Non-Designated Hedges

At the end of each quarter, the Company reassesses the effectiveness of its net investment hedges and as appropriate, dedesignates the portion of the derivative notional that is in excess of the beginning balance of its net investments as non-designated hedges. Any unrealized gain or loss on the dedesignated portion of net investment hedges is transferred into earnings, recorded in other gain (loss).



	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2018		2017		2018		2017
Non-designated net investment hedges:
Unrealized gain (loss) transferred from AOCI to earnings	$	770	$	1,868	$	2,008	$	3,966

Interest Rate Contracts

The Company uses various interest rate contracts, some of which may be designated as cash flows hedges, to limit its exposure to changes in interest rates on various floating rate debt obligations.

At September 30, 2018 , the Company held the following interest rate contracts:



	Notional Amount (in thousands)			Strike Rate / Forward Rate
Instrument Type	Non-Designated		Index	Strike Rate / Forward Rate	Expiration
Interest rate swaps	$	2,000,000	3-Month LIBOR	3.39%	December 2019 ⁽¹⁾
Interest rate caps	$	5,318,348	1-Month LIBOR	2.46% - 5.70%	October 2018 to July 2019
Interest rate caps	$	52,155	3-Month LIBOR	2.24%	March 2019
Interest rate caps	€	532,553	3-Month EURIBOR	0.75% - 1.50%	October 2018 to September 2022
Interest rate caps	£	446,322	3-Month GBP LIBOR	2.0% - 2.5%	November 2018 to February 2020
Deliverable swap futures	$	19,000	⁽²⁾	⁽²⁾	December 2018

__________


⁽¹⁾	Represents a forward-starting interest rate swap that has a maturity date in December 2029, with mandatory settlement at fair value in December 2019.


⁽²⁾	A consolidated sponsored investment company sold a 10-year USD deliverable swap futures contract to economically hedge the interest rate exposure on its long dated fixed rate securities.

Amounts recorded in other gain (loss) were as follows:



	Three Months Ended September 30,					Nine Months Ended September 30,
(In thousands)	2018		2017			2018	2017
Unrealized gain (loss):
Non-designated interest rate contracts	$	27,508	$	(8,790	)	108,884	(15,513	)

Offsetting Assets and Liabilities

The Company enters into agreements subject to enforceable master netting arrangements with its derivative counterparties that allow the Company to offset the settlement of derivative assets and liabilities in the same currency by derivative instrument type or, in the event of default by the counterparty, to offset all derivative assets and liabilities with the same counterparty. The Company has elected not to net derivative asset and liability positions, notwithstanding the conditions for right of offset may have been met. The Company presents derivative assets and liabilities with the same counterparty on a gross basis on the consolidated balance sheets.

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The following table sets forth derivative positions where the Company has a right of offset under netting arrangements with the same counterparty.



	Gross Amounts of Assets (Liabilities) Included on Consolidated Balance Sheets			Gross Amounts Not Offset on Consolidated Balance Sheets					Net Amounts of Assets (Liabilities)
(In thousands)				(Assets) Liabilities			Cash Collateral Received (Pledged)		Net Amounts of Assets (Liabilities)
September 30, 2018
Derivative Assets
Foreign exchange contracts	$	21,619		$	(5,564	)	$	—	$	16,055
Interest rate contracts	739			—			—		739
	$	22,358		$	(5,564	)	$	—	$	16,794
Derivative Liabilities
Foreign exchange contracts	$	(17,684	)	$	5,564		$	—	$	(12,120	)
Interest rate contracts	(51,803		)	—			756		(51,047		)
	$	(69,487	)	$	5,564		$	756	$	(63,167	)

December 31, 2017
Derivative Assets
Foreign exchange contracts	$	8,984		$	(8,944	)	$	—	$	40
Interest rate contracts	1,168			(4		)	—		1,164
	$	10,152		$	(8,948	)	$	—	$	1,204
Derivative Liabilities
Foreign exchange contracts	$	(44,408	)	$	8,944		$	—	$	(35,464	)
Interest rate contracts	(160,440		)	4			1,900		(158,536		)
	$	(204,848	)	$	8,948		$	1,900	$	(194,000	)

14 . Fair Value

Recurring Fair Values

The table below presents a summary of financial assets and financial liabilities carried at fair value on a recurring basis, including financial instruments for which the fair value option was elected but excluding financial assets under the NAV practical expedient, categorized into the following three tier hierarchy:

Level 1 —Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 —Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in non-active markets, or valuation techniques utilizing inputs that are derived principally from or corroborated by observable data directly or indirectly for substantially the full term of the financial instrument.

Level 3 —At least one assumption or input is unobservable and it is significant to the fair value measurement, requiring significant management judgment or estimate.

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	Fair Value Measurements
(In thousands)	Level 1		Level 2		Level 3		Total
September 30, 2018
Assets
Investments in unconsolidated ventures	$	—	$	—	$	81,183	$	81,183
Debt securities available for sale
N-Star CDO bonds	—		—		64,145		64,145
CMBS and other securities	—				207		207
CMBS of consolidated fund	—		31,149		—		31,149
Equity securities of consolidated funds	43,527		—		—		43,527
Other assets—derivative assets	—		22,358		—		22,358
Liabilities
Other liabilities — derivative liabilities	—		69,487		—		69,487
Other liabilities—contingent consideration for THL Hotel Portfolio	—		—		8,503		8,503
December 31, 2017
Assets
Loans receivable—securitized loans	$	—	$	—	$	45,423	$	45,423
Investments in unconsolidated ventures	—		—		363,901		363,901
Debt securities available for sale
CRE securities of consolidated N-Star CDOs:
CMBS	—		—		147,945		147,945
Other securities	—		—		66,983		66,983
N-Star CDO bonds	—		—		90,933		90,933
CMBS and other securities	—		—		17,382		17,382
CMBS of consolidated fund	—		25,099		—		25,099
Equity securities of consolidated fund	35,600		—		—		35,600
Other assets—derivative assets	—		10,152		—		10,152
Liabilities
Debt—securitization bonds payable	—		—		44,542		44,542
Other liabilities — derivative liabilities	—		204,848		—		204,848
Other liabilities—contingent consideration for THL Hotel Portfolio	—		—		7,419		7,419
Due to affiliates—contingent consideration for Internalization	—		—		20,650		20,650

Investments in Unconsolidated Ventures

Equity investments carried at fair value on a recurring basis consist of investments in certain unconsolidated ventures for which fair value option was elected, including investments in private funds acquired in connection with the Merger. Fair values are determined using discounted cash flow models based on expected future cash flows for income and realization events of the underlying assets, transaction price for recently acquired investments, or pending sales price on an investment, as applicable. In valuing the Company's investment in third party private funds, the Company considers cash flows provided by the general partners of the funds and the implied yields of the funds. The Company has not elected the practical expedient to measure the fair value of its investments in these private funds using NAV of the underlying funds. Fair value of equity investments are classified as Level 3 of the fair value hierarchy, unless investments are valued based on pending sales price which are classified as Level 2 of the fair value hierarchy. Changes in fair value are recorded in earnings from investments in unconsolidated ventures.

Securities

N-Star CDO bonds—Fair value of N-Star CDO bonds are determined internally based on recent trades, if any with such securitizations, the Company's knowledge of the underlying collateral and are determined using an internal price interpolated based on third party prices of the senior N-Star CDO bonds of the respective CDOs. All N-Star CDO bonds are classified as Level 3 of the fair value hierarchy.

CMBS and other securities—Fair value is determined based on broker quotes, third party pricing services or an internal price, all of which are generally derived from unobservable inputs, and therefore classified as Level 3 of the fair value hierarchy. Management determines the prices are representative of fair value through a review of available data, including recent transactions as well as its knowledge of and experience in the market.

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Equity securities of consolidated fund—Fair value of equity securities held by a consolidated open-end fund is based on listed prices in active markets and classified as Level 1 of the fair value hierarchy.

Derivatives

Derivative instruments consist of interest rate contracts and foreign exchange contracts that are generally traded over-the-counter, and are valued using a third-party service provider, except for exchange traded futures contracts which are Level 1 fair values. Quotations on over-the-counter derivatives are not adjusted and are generally valued using observable inputs such as contractual cash flows, yield curve, foreign currency rates and credit spreads, and are classified as Level 2 of the fair value hierarchy. Although credit valuation adjustments, such as the risk of default, rely on Level 3 inputs, these inputs are not significant to the overall valuation of its derivatives. As a result, derivative valuations in their entirety are classified as Level 2 of the fair value hierarchy.

Due To Affiliates — Contingent Consideration for Internalization

In connection with the Company's acquisition of the investment management business and operations of its former

manager in April 2015 (the "Internalization"), contingent consideration is payable to certain senior management personnel of the Company. The contingent consideration is payable in a combination of up to approximately 1.29 million shares of class A common stock, 115,226 shares of class B common stock and 4.40 million OP Units, measured based on multi-year performance targets for achievement of a contractually-defined funds from operations ("Benchmark FFO") per share target, as well as real estate and non-real estate capital-raising thresholds from the funds management business, to the extent these targets are met. If the minimum performance target for either of these metrics is not met or exceeded, a portion of the contingent consideration paid in respect of the other metric would not be paid out in full.

At December 31, 2017 , the contingent consideration had been remeasured at fair value using a third party valuation service provider and classified as Level 3 of the fair value hierarchy, with the change in fair value recorded in other gain (loss) in the consolidated statement of operations. Fair value of the contingent consideration was measured using a Monte Carlo probability simulation model for the Benchmark FFO component and a discounted payout analysis based on probabilities of achieving prescribed targets for the capital-raising component, adjusted for certain targets that had not been met and that had expired. The Company's class A common stock price and related equity volatilities were applied to convert the contingent consideration payout into shares.

At June 30, 2018, the end of the measurement period for the contingent consideration, and in accordance with the terms of the contribution agreement for the Internalization, it was determined that one of the prescribed performance targets was met, specifically the real estate capital raising target. As a result, the contingent consideration was settled with certain senior management personnel of the Company in a combination of approximately 15,000 shares of class A common stock, 40,000 shares of class B common stock and 1.95 million OP Units. At June 30, 2018, as the contingency was resolved and the number of shares and units to be issued was no longer variable, the payable of $12.5 million , valued based on the closing price of the Company's class A common stock on June 29, 2018, the last trading day of the second quarter, was reclassified out of liabilities into equity, while the associated dividends payable of approximately $6.4 million remained in liabilities. The contingent consideration and associated dividends were fully settled in August 2018.

Other Liabilities — Contingent Consideration for THL Hotel Portfolio

In connection with a consensual foreclosure of the THL Hotel Portfolio, contingent consideration is payable to the former preferred equity holder of the borrower in an amount up to $13.0 million (Note 3 ). Fair value of the contingent consideration is measured using discounted cash flows based on the probability of the former preferred equity holder receiving such payment.

Securitized Loans and Securitized Bonds Payable

The Company had elected the fair value option for loans receivable and bonds payable issued by a securitization trust that was consolidated by a N-Star CDO. The N-Star CDO was in turn consolidated by the Company. In May 2018, the Company sold its interests in the N-Star CDO and deconsolidated the N-Star CDO (Note 8 ) along with the securitization trust consolidated by the N-Star CDO.

Prior to deconsolidation, the Company had adopted the measurement alternative to measure the fair value of the loans receivable held by the securitization trust using the fair value of the bonds payable issued by the securitization trust as the latter represented the more observable fair value. As such, the net gain or loss that was reflected in earnings was limited to changes in fair value of the beneficial interest held by the Company in the previously consolidated securitization trust, and not as a result of a remeasurement of the loans receivable and bonds payable held by third parties in the previously consolidated securitization trust. Fair value of the bonds payable issued by the securitization trust was determined based on broker quotes, which were generally derived from unobservable inputs, and therefore classified as

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Level 3 of the fair value hierarchy. Correspondingly, the fair value of the loans receivable held by the securitization trust was also classified as Level 3. Management determined that the quotes were representative of fair value through a review of available data, including recent transactions as well as its knowledge of and experience in the market.

Level 3 Recurring Fair Value Measurements

The Company relies on the third party pricing exception with respect to the requirement to provide quantitative disclosures about significant Level 3 inputs being used to determine fair value measurements for CRE debt securities, except for N-Star CDO bonds, and prior to May 2018, loans receivable and bonds payable issued by a consolidated securitization trust held by a previously consolidated N-Star CDO. The Company believes that the pricing service or broker quotations for these instruments may be based on market transactions of comparable securities, inputs including forecasted market rates, contractual terms, observable discount rates for similar securities and credit, such as credit support and delinquency rates.

Quantitative information about recurring level 3 fair value measurements, for which information about unobservable inputs is reasonably available to the Company, are as follows.

Valuation Technique

Key Unobservable Inputs

Input Value

Effect on Fair Value from Increase in Input Value ⁽¹⁾

Financial Instrument

Fair Value

(In thousands)

Weighted Average

(Range)

September 30, 2018

Level 3 Assets

Investment in unconsolidated ventures—third party private funds

6,658

Transaction price and NAV ⁽²⁾

Not applicable

Investment in unconsolidated ventures—other

26,725

Discounted cash flows

Discount rate

16.7%
(9.1% - 17.2%)

Decrease

Investment in unconsolidated ventures—other

25,000

Multiple

Revenue multiple

5.7%

Increase

Investment in unconsolidated ventures—other

22,800

Transaction price ⁽³⁾

Not applicable

N-Star CDO bonds

64,145

Discounted cash flows

Discount rate

21.0%
(13.0% - 80.0%)

Decrease

Level 3 Liabilities

Other liabilities—contingent consideration for THL Hotel Portfolio

8,503

Discounted cash flows

Discount rate

20.0%

Decrease

December 31, 2017

Level 3 Assets

Investments in unconsolidated ventures—private funds

204,774

Discounted cash flows

Discount rate

14.6%
(11.0% - 20.0%)

Decrease

Investments in unconsolidated ventures—other

26,408

Discounted cash flows

Discount rate

14.2%
(8.8% - 14.8%)

Decrease

Investments in unconsolidated ventures—other

132,719

Transaction price ⁽³⁾

Not applicable

N-Star CDO bonds

90,933

Discounted cash flows

Discount rate

24.0%
(10.8% - 87.4%)

Decrease

Level 3 Liabilities

Due to affiliates—contingent consideration for Internalization

20,650

Monte Carlo simulation

Benchmark FFO volatility

11.8%

Increase

Equity volatility

18.7%

Increase

Correlation ⁽⁴⁾

80.0%

Increase

Other liabilities—contingent consideration for THL Hotel Portfolio

7,419

Discounted cash flows

Discount rate

20.0%

Decrease

__________


⁽¹⁾	Represents the directional change in fair value that would result from an increase to the corresponding unobservable input. A decrease to the unobservable input would have the reverse effect. Significant increases or decreases in these inputs in isolation could result in significantly higher or lower fair value measures.


⁽²⁾	Fair value was estimated based on a combination of inputs, namely indicative prices of investments sold by the Company as well as underlying NAV of the respective funds on a quarter lag.


⁽³⁾	Valued based upon transaction price of investments recently acquired.


⁽⁴⁾	Represents assumed correlation between Benchmark FFO and the Company's class A common stock price.

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The following table presents changes in recurring Level 3 fair value measurements, including realized and unrealized gains (losses) included in earnings and accumulated other comprehensive income.



	Level 3 Assets									Level 3 Liabilities
(In thousands)	Loans Receivable			Investments in Unconsolidated Ventures			Securities			Debt			Due to Affiliates—Contingent Consideration for Internalization			Other Liabilities—Contingent Consideration for THL Hotel Portfolio
Fair value at December 31, 2016	$	—		$	—		$	—		$	—		$	(41,250	)	$	—
Acquired through the Merger	—			405,626			427,560			—			—			—
Consideration for business combination	—			—			—			—			—			6,771
Purchases, contributions or accretion	—			29,053			42,168			—			—			—
Paydowns or distributions	—			(125,680		)	(92,266		)	—			—			—
Realized losses in earnings	—			—			(12,349		)	—			—			—
Unrealized gains:
In earnings	—			5,275			—			—			14,340			—
In other comprehensive income	—			—			(1,520		)	—			—			—
Fair value at September 30, 2017	$	—		$	314,274		$	363,593		$	—		$	(26,910	)	$	6,771
Unrealized gains (losses) on ending balance:
In earnings	$	—		$	5,275		$	—		$	—		$	14,340		$	—
In other comprehensive income (loss)	$	—		$	—		$	(1,520	)	$	—		$	—		$	—

Fair value at December 31, 2017	$	45,423		$	363,901		$	323,243		$	(44,542	)	$	(20,650	)	$	(7,419	)
Purchases, contributions or accretion	—			61,099			17,907			—			—			—
Paydowns, distributions or sales	(638		)	(187,036		)	(135,575		)	638			—			—
Deconsolidation	(44,070		)	—			(124,344		)	43,847			—			—
Transfer out of liabilities into equity	—			—			—			—			12,539			—
Transfers out of Level 3	—			(132,527		)	—			—			6,381			—
Contribution to Colony Credit (Note 4)	—			(26,134		)	—			—			—			—
Realized gains in earnings	—			3,208			4,787			—			—			—
Unrealized gains (losses):
In earnings	(715		)	(1,328		)	—			57			1,730			(1,084		)
In other comprehensive income (loss)	—			—			(21,666		)	—			—			—
Fair value at September 30, 2018	$	—		$	81,183		$	64,352		$	—		$	—		$	(8,503	)
Unrealized gains (losses) on ending balance:
In earnings	$	(715	)	$	(1,328	)	$	—		$	57		$	1,730		$	(1,084	)
In other comprehensive income (loss)	$	—		$	—		$	(3,346	)	$	—		$	—		$	—

Transfers of Level 3 Assets and Liabilities

Transfers of assets and liabilities into or out of Level 3 are presented at their fair values as measured at the end of the reporting period. Assets transferred out of level 3 represent investments in third party private funds that were valued based on their contracted sales price in June 2018 and sold in September 2018. Liabilities transferred out of level 3 represent dividends earned on the final number of shares of class A common stock and OP Units determined as of June 30, 2018, the end of the measurement period of the contingent consideration associated with the Internalization, and which were paid out in August 2018.

Investments Carried at Fair Value Using Net Asset Value

Investments in a Company-sponsored non-traded REIT and limited partnership interest in a third party private fund are valued using NAV of the respective vehicles effective January 1, 2018, with aggregate fair values of $22.8 million at September 30, 2018 .

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The Company has remaining unfunded commitment of $14.5 million to the third party sponsored closed-end private fund at September 30, 2018 . The Company's limited partnership interest in the fund is not subject to redemption, with distributions to be received through liquidation of underlying investments of the fund. The fund has an expected life of eight years from its inception in 2017, which may be extended in one year increments up to two years at the discretion of its general partner, an equity method investee of the Company.

No secondary market currently exists for shares of the non-traded REIT and the Company does not currently expect to seek liquidity of its shares of the non-traded REIT. Subject to then-existing market conditions, the board of directors of the non-traded REIT, along with the Company, as sponsor, expects to consider alternatives for providing liquidity to the non-traded REIT shares beginning five years from completion of the offering stage in January 2016, but with no definitive date by which it must do so. In addition, the Company has agreed that any right to have its shares redeemed is subordinated to third party stockholders for so long as its advisory agreement is in effect.

Nonrecurring Fair Values

The Company measures fair value of certain assets on a nonrecurring basis when events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Adjustments to fair value generally result from the application of lower of amortized cost or fair value accounting for assets held for sale or write-down of asset values due to impairment.

The following table summarizes assets carried at fair value on a nonrecurring basis, measured at the time of impairment.



	September 30, 2018						December 31, 2017
(In thousands)	Level 2		Level 3		Total		Level 2		Level 3		Total
Real estate held for sale	$	9,862	$	66,821	$	76,683	$	13,252	$	36,246	$	49,498
Real estate held for investment	—		292,237		292,237		—		224,935		224,935
Intangible assets—investment management contracts	—		36,400		36,400		—		51,100		51,100
Investments in unconsolidated ventures	—		6,380		6,380		—		11,871		11,871

The following table summarizes the fair value write-downs to assets carried at nonrecurring fair values during the periods presented.



	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2018		2017		2018		2017
Impairment loss
Real estate held for sale	$	5,894	$	13,256	$	21,204	$	24,786
Real estate held for investment	63,603		1,756		70,784		11,507
Intangible assets—investment management contracts	7,000		—		140,429		—
Intangible assets—trade name	—		—		59,464		—
Earnings from investments in unconsolidated ventures	5,590		—		22,057		2,144

Real Estate Held For Sale —The write down to fair value less cost to sell was estimated based on contracted sales prices, classified as Level 2 of the fair value hierarchy, or based on broker price opinions, discounted cash flows or income capitalization approach, classified as Level 3 of the fair value hierarchy, net of selling costs between 1.5% and 8% of the respective fair values.

Real Estate Held For Investment —Impaired real estate held for investment consisted predominantly of certain properties in the hotel segment for which the Company determined in the third quarter of 2018 to adopt a sales strategy, with the intention of initiating a sale in the near term. Prior to the third quarter of 2018, the Company held a long-term hold strategy on these properties. As a result, the Company considered indicative broker price opinions to estimate its recoverable value of these properties. Impairment was also recorded on properties in the Company's European portfolio, resulting from a combination of a reduction in the estimated holding period of these properties, tenant vacancy as well as exposure to the retail and leisure markets in the United Kingdom. Fair value of the impaired European properties were determined using a future cash flow analysis that included an eventual sale of the properties, with expected sale price based on broker price opinions, and applying terminal capitalization rates ranging from 6.5% to 13% , with longer term cash flow projections discounted at 10% . Additionally, impairment was recorded on certain properties in our healthcare segment and THL portfolio that were damaged by hurricanes or fire based on estimates from insurance appraisers. At

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December 31, 2017 , impaired real estate also included certain RIDEA properties that were converted into net lease properties in the healthcare segment.

Impairment is discussed in Note 6 for loans receivable, Note 7 for investments in unconsolidated ventures and Note 9 for goodwill and other intangible assets.

Fair Value Information on Financial Instruments Reported at Cost

Carrying amounts and estimated fair values of financial instruments reported at amortized cost are presented below. The carrying values of cash, interest receivable, accounts receivable, due from and to affiliates, interest payable and accounts payable approximate fair value due to their short term nature and credit risk, if any, are negligible.



	Fair Value Measurements								Carrying Value
(In thousands)	Level 1		Level 2		Level 3		Total		Carrying Value
September 30, 2018
Assets
Loans at amortized cost	$	—	$	—	$	1,788,135	$	1,788,135	$	1,784,491
Liabilities
Debt at amortized cost
Convertible and exchangeable senior notes	568,872		13,095		—		581,967		611,687
Secured and unsecured debt					9,018,766		9,018,766		9,057,720
Junior subordinated debt					205,627		205,627		198,569
December 31, 2017
Assets
Loans at amortized cost	$	—	$	—	$	3,232,301	$	3,232,301	$	3,178,339
Liabilities
Debt at amortized cost
Corporate credit facility	—		50,000		—		50,000		50,000
Convertible and exchangeable senior notes	608,491		13,979		—		622,470		610,331
Secured and unsecured debt	—		—		9,703,680		9,703,680		9,622,175
Securitization bonds payable	—		132,815		169,908		302,723		303,709
Junior subordinated debt	—		—		216,316		216,316		197,053

Loans Receivable —Loans receivable carried at amortized cost consist of first mortgages, subordinated mortgages and corporate loans, including such loans held by securitization trusts consolidated by the Company. Fair values were determined by comparing the current yield to the estimated yield of newly originated loans with similar credit risk or the market yield at which a third party might expect to purchase such investment; or based on discounted cash flow projections of principal and interest expected to be collected, which includes consideration of the financial standing of the borrower or sponsor as well as operating results of the underlying collateral. Carrying values of loans held for investment carried at amortized cost are presented net of allowance for loan losses, where applicable.

Debt —Fair value of the credit facility approximated carrying value as its prevailing interest rate and applicable terms were renegotiated within the last 12 months . Fair value of convertible notes was determined using the last trade price in active markets. Fair value of exchangeable notes was determined based on unadjusted quoted prices in a non-active market. Fair value of secured and unsecured debt were estimated by discounting expected future cash outlays at interest rates currently available to the Company for instruments with similar terms and remaining maturities; and such fair values approximated carrying value for floating rate debt with credit spreads that approximate market rates. Fair value of securitization bonds payable was based on quotations from brokers or financial institutions that act as underwriters of the securitized bonds. Fair value of junior subordinated debt was based on unadjusted quotations from a third party valuation firm, with such quotes derived using a combination of internal valuation models, comparable trades in non-active markets and other market data.

Other —The carrying values of cash, interest receivable, accounts receivable, due from and to affiliates, interest payable and accounts payable approximate fair value due to their short term nature and credit risk, if any, are negligible.

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15 . Variable Interest Entities

A VIE is an entity that lacks sufficient equity to finance its activities without additional subordinated financial support from other parties, or whose equity holders lack the characteristics of a controlling financial interest. The following discusses the Company's involvement with VIEs where the Company is the primary beneficiary and consolidates the VIEs or where the Company is not the primary beneficiary and does not consolidate the VIEs.

Operating Subsidiary

The Company's operating subsidiary, OP, is a limited liability company that has governing provisions that are the functional equivalent of a limited partnership. The Company holds the majority of membership interest in OP, acts as the managing member of OP and exercises full responsibility, discretion and control over the day-to-day management of OP. The noncontrolling interests in OP do not have substantive liquidation rights, or substantive kick-out rights without cause, or substantive participating rights that could be exercised by a simple majority of noncontrolling interest members (including by such a member unilaterally). The absence of such rights, which represent voting rights in a limited partnership equivalent structure, would render OP to be a VIE. The Company, as managing member, has the power to direct the core activities of OP that most significantly affect OP's performance, and through its majority interest in OP, has both the right to receive benefits from and the obligation to absorb losses of OP. Accordingly, the Company is the primary beneficiary of OP and consolidates OP. As the Company conducts its business and holds its assets and liabilities through OP, the total assets and liabilities of OP represent substantially all of the total consolidated assets and liabilities of the Company.

Securitizations

The Company previously securitized loans receivable and CRE debt securities using VIEs. Upon securitization, the Company had retained beneficial interests in the securitization vehicles, usually in the form of equity tranches or subordinate securities. The Company also acquired securities issued by securitization trusts that are VIEs. The securitization vehicles were structured as pass-through entities that receive principal and interest on the underlying mortgage loans and debt securities and distribute those payments to the holders of the notes, certificates or bonds issued by the securitization vehicles. The loans and debt securities were transferred into securitization vehicles such that these assets are restricted and legally isolated from the creditors of the Company, and therefore are not available to satisfy the Company's obligations but only the obligations of the securitization vehicles. The obligations of the securitization vehicles do not have any recourse to the general credit of the Company and its other subsidiaries.

Consolidated Securitizations —Prior to June 30, 2018, the Company consolidated securitization trusts for which it had a retained interest and for which it acts as special servicer or collateral manager or otherwise, its interest in the trust may become the controlling class or directing holder. As special servicer, the Company has the power to direct activities during the loan workout process on defaulted and delinquent loans. As collateral manager of certain N-Star CDOs, the Company has the power to invest in additional or replacement collateral during the investment period and subsequent to the investment period, has the power to identify an asset as distressed or credit risk and sell certain distressed collateral. As directing holder or controlling class representative, the Company had the right to appoint or remove the third party special servicer. As a result, the Company's role as special servicer, collateral manager or as controlling class or directing holder provided the Company with the ability to direct activities that most significantly impact the economic performance of the securitization vehicles, and together with the interests previously retained by the Company in the securitization vehicles, the Company was deemed to be the primary beneficiary and consolidated these securitization vehicles. Accordingly, these securitizations did not qualify as sale transactions and were accounted for as secured financing with the underlying mortgage loans and debt securities pledged as collateral.

As of June 30, 2018, the Company no longer has any consolidated securitization trusts. The Company contributed its interests in three consolidated securitization trusts to Colony Credit upon closing of the Combination and sold its interests in two consolidated securitization trusts to third parties in the second quarter of 2018, resulting in a deconsolidation of these securitization trusts. The Company has retained its role as special servicer or as collateral manager in these securitization trusts. However, the Company may be removed as special servicer by the controlling class interest holders and may be removed as collateral manager through a right of removal provided to the buyer. Additionally, as of June 30, 2018, the underlying assets of the Company's remaining consolidated securitization trust has been liquidated.

The Company’s exposure to the obligations of its previously consolidated securitization vehicles was generally limited to its investment in these entities, which was $490.1 million at December 31, 2017 . The Company was not obligated to provide any financial support to these securitization vehicles, although it could, in its sole discretion, provide support such as protective and other advances as it deemed appropriate. The Company did not provide any such financial support to these securitization vehicles in 2018 prior to their deconsolidation or in 2017.

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Unconsolidated Securitizations —The Company does not consolidate the assets and liabilities of CDOs in which the Company has an interest but does not retain the collateral management function. NRF had previously delegated the collateral management rights for certain sponsored N-Star CDOs and third party-sponsored CDOs to a third party collateral manager or collateral manager delegate who is entitled to a percentage of the senior and subordinate collateral management fees. The Company continues to receive fees as named collateral manager or collateral manager delegate and retained administrative responsibilities. The Company determined that the fees paid to the third party collateral manager or collateral manager delegate represent a variable interest in the CDOs and that the third party is acting as a principal. The Company concluded that it does not have the power to direct the activities that most significantly impact the economic performance of these CDOs, which include but are not limited to, the ability to sell distressed collateral, and therefore the Company is not the primary beneficiary of such CDOs and does not consolidate these CDOs. The Company’s exposure to loss is limited to its investment in these unconsolidated CDOs, comprising CDO equity and CDO bonds, which aggregate to $67.5 million at September 30, 2018 and $102.2 million at December 31, 2017 .

Company-Sponsored Private Funds

The Company sponsors private funds and other investment vehicles as general partner for the purpose of providing investment management services in exchange for management fees and performance-based fees. These private funds are established as limited partnerships or equivalent structures. Limited partners of the private funds do not have either substantive liquidation rights, or substantive kick-out rights without cause, or substantive participating rights that could be exercised by a simple majority of limited partners or by a single limited partner. Accordingly, the absence of such rights, which represent voting rights in a limited partnership, results in the private funds being considered VIEs. The nature of the Company's involvement with its sponsored funds comprise fee arrangements and equity interests. The fee arrangements are commensurate with the level of management services provided by the Company, and contain terms and conditions that are customary to similar at-market fee arrangements.

Consolidated Company-Sponsored Private Fund —The Company currently consolidates a sponsored private fund where it has more than insignificant equity interest in the fund as general partner during the early stages of the fund while additional third party capital is being raised. As a result, the Company is considered to be acting in the capacity of a principal of the sponsored private fund and is therefore the primary beneficiary of the fund. The Company’s exposure is limited to the value of its outstanding investment in the consolidated private fund of $16.3 million and $10.2 million at September 30, 2018 and December 31, 2017 , respectively. The Company, as general partner, is not obligated to provide any financial support to the consolidated private fund.

Unconsolidated Company-Sponsored Private Funds —The Company does not consolidate its sponsored private funds where it has insignificant direct equity interests or capital commitments to these funds as general partner. The Company may invest alongside certain of its sponsored private funds through joint ventures between the Company and these funds, or the Company may have capital commitments to its sponsored private funds that are satisfied directly through the co-investment joint ventures as an affiliate of the general partner. In these instances, the co-investment joint ventures are consolidated by the Company. As the Company's direct equity interests in its sponsored private funds as general partner absorb insignificant variability, the Company is considered to be acting in the capacity of an agent of these funds and is therefore not the primary beneficiary of these funds. The Company accounts for its equity interests in unconsolidated sponsored private funds under the equity method. The Company's maximum exposure to loss is limited to the carrying value of its investment in the unconsolidated sponsored private funds, totaling $91.9 million at September 30, 2018 and $6.9 million at December 31, 2017 , included within investments in unconsolidated ventures on the consolidated balance sheets.

Trusts

The Company, through the Merger, acquired the Trusts, wholly-owned subsidiaries of NRF formed as statutory trusts. The Trusts issued preferred securities in private placement offerings, and used the proceeds to purchase junior subordinated notes to evidence loans made to NRF (Note 12 ). The Company owns all of the common stock of the Trusts but does not consolidate the Trusts as the holders of the preferred securities issued by the Trusts are the primary beneficiaries of the Trusts. The Company accounts for its interest in the Trusts under the equity method and its maximum exposure to loss is limited to its investment carrying value of $3.7 million at September 30, 2018 and at December 31, 2017, recorded in investments in unconsolidated ventures on the consolidated balance sheet. The junior subordinated notes are recorded as debt on the Company's consolidated balance sheet.

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16 . Stockholders’ Equity

The table below summarizes the share activities of the Company's preferred and common stock.

As a result of the Merger, each outstanding share of Colony's class A and class B common stock was converted into the right to receive 1.4663 shares of the Company's class A and class B common stock, respectively. Accordingly, the Company's common shares outstanding for all periods prior to January 10, 2017 have been adjusted to reflect the Colony exchange ratio of 1.4663 .



	Number of Shares
(In thousands)	Preferred Stock		Class A Common Stock		Class B Common Stock
Shares outstanding at December 31, 2016	25,030		166,440		770
Consideration for the Merger ⁽¹⁾	39,466		392,120		—
Issuance of preferred stock	26,400		—		—
Redemption of preferred stock	(25,432	)	—		—
Shares canceled ⁽²⁾	—		(2,984	)	—
Shares issued upon redemption of OP Units	—		1,680		—
Conversion of class B to class A common stock	—		28		(28	)
Repurchase of common stock	—		(17,296	)	—
Exchange of notes for class A common stock	—		208		—
Equity-based compensation, net of forfeitures	—		8,075		—
Shares canceled for tax withholding on vested stock awards	—		(427	)	—
Shares outstanding at September 30, 2017	65,464		547,844		742

Shares outstanding at December 31, 2017	65,464		542,599		736
Redemption of preferred stock	(8,000	)	—		—
Shares issued upon redemption of OP Units ⁽³⁾	—		2,064		—
Shares issued for settlement of contingent consideration—Internalization (Note 14)	—		15		40
Conversion of class B to class A common stock	—		42		(42	)
Repurchase of common stock	—		(54,813	)
Equity-based compensation, net of forfeitures	—		3,362		—
Shares canceled for tax withholding on vested stock awards	—		(2,950	)	—
Shares outstanding at September 30, 2018	57,464		490,319		734

__________

⁽¹⁾

Shares were legally issued by the Company, as the surviving combined entity, as consideration for the Merger. However, as the Merger was accounted for as a reverse acquisition, the consideration transferred was measured based upon the number of shares of common stock and preferred stock that Colony, as the accounting acquirer, would theoretically have issued to the shareholders of NSAM and NRF to achieve the same ratio of ownership in the Company upon completion of the Merger (Note 3 ).


⁽²⁾	Represents NRF shares held by NSAM that were canceled upon consummation of the Merger, after giving effect to the exchange ratio.


⁽³⁾	Includes 572,567 shares of class A common stock issued upon redemption of an equivalent number of OP Units that were issued for settlement of the contingent consideration in connection with the Internalization (Note 17 ).

Preferred Stock

In the event of a liquidation or dissolution of the Company, preferred stockholders have priority over common stockholders for payment of dividends and distribution of net assets.

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The table below summarizes the preferred stock issued and outstanding at September 30, 2018 :



Description	Dividend Rate Per Annum		Initial Issuance Date	Shares Outstanding (in thousands)	Par Value (in thousands)		Liquidation Preference (in thousands)		Earliest Redemption Date
Series B	8.25	%	February 2007 ⁽¹⁾	6,114	$	61	$	152,855	Currently redeemable
Series E	8.75	%	May 2014 ⁽¹⁾	10,000	100		250,000		May 15, 2019
Series G	7.5	%	June 2014 ⁽¹⁾	3,450	35		86,250		June 19, 2019
Series H	7.125	%	April 2015 ⁽¹⁾	11,500	115		287,500		April 13, 2020
Series I	7.15	%	June 2017	13,800	138		345,000		June 5, 2022
Series J	7.125	%	September 2017	12,600	126		315,000		September 22, 2022
				57,464	$	575	$	1,436,605

__________


⁽¹⁾	Represents initial issuance date pre-Merger by NRF or Colony, as applicable.

All series of preferred stock are at parity with respect to dividends and distributions, including distributions upon liquidation, dissolution or winding up of the Company. Dividends on each series of preferred stock of the Company are payable quarterly in arrears, in the case of the Series B and E preferred stock, in February, May, August and November, and in the case of Series G, H, I and J preferred stock, in January, April, July and October.

Each series of preferred stock is redeemable on or after the earliest redemption date for that series at $25.00 per share plus accrued and unpaid dividends (whether or not declared) exclusively at the Company’s option. The redemption period for each series of preferred stock is subject to the Company’s right under limited circumstances to redeem the preferred stock earlier in order to preserve its qualification as a REIT or upon the occurrence of a change of control (as defined in the articles supplementary relating to each series of preferred stock).

Preferred stock generally does not have any voting rights, except if the Company fails to pay the preferred dividends for six or more quarterly periods (whether or not consecutive). Under such circumstances, the preferred stock will be entitled to vote, together as a single class with any other series of parity stock upon which like voting rights have been conferred and are exercisable, to elect two additional directors to the Company’s board of directors, until all unpaid dividends have been paid or declared and set aside for payment. In addition, certain changes to the terms of any series of preferred stock cannot be made without the affirmative vote of holders of at least two-thirds of the outstanding shares of each such series of preferred stock voting separately as a class for each series of preferred stock.

Issuance and Redemption of Preferred Stock

The Company issued 13.8 million shares of Series I preferred stock in June 2017 and 12.6 million shares of Series J preferred stock in September 2017 with dividend rates of 7.15% and 7.125% per annum, respectively. Proceeds received for Series I and Series J preferred stock totaled $637.9 million , net of underwriting discounts and offering costs payable by the Company. The Company applied the proceeds from the offerings, combined with available cash, to redeem all of the outstanding shares of Series A, Series F and Series C preferred stock and a portion of the outstanding shares of Series B preferred stock for $644.9 million in aggregate.

In May 2018, the Company issued a notice of redemption for all outstanding Series D preferred stock, with the redemption settled in July 2018.

All preferred stock redemptions were at $25.00 per share liquidation preference plus accrued and unpaid dividends prorated to their respective redemption dates. The excess or deficit of the $25.00 per share liquidation preference over the carrying value of the respective preferred stock redeemed results in a decrease or increase to net income attributable to common stockholders, respectively.

Common Stock

Except with respect to voting rights, class A common stock and class B common stock have the same rights and privileges and rank equally, share ratably in dividends and distributions, and are identical in all respects as to all matters. Class A common stock has one vote per share and class B common stock has thirty-six and one-half votes per share. This gives the holders of class B common stock a right to vote that reflects the aggregate outstanding non-voting economic interest in the Company (in the form of OP Units) attributable to class B common stock holders and therefore, does not provide any disproportionate voting rights. Class B common stock was issued as consideration in the Company's acquisition in April 2015 of the investment management business and operations of its former manager, which was previously controlled by the Company's Executive Chairman. Each share of class B common stock shall convert automatically into one share of class A common stock if the Executive Chairman or his beneficiaries directly or indirectly

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transfer beneficial ownership of class B common stock or OP Units held by them, other than to certain qualified transferees, which generally includes affiliates and employees. In addition, each holder of class B common stock has the right, at the holder’s option, to convert all or a portion of such holder’s class B common stock into an equal number of shares of class A common stock.

In connection with the consummation of the Merger, on January 20, 2017, the Company paid a dividend of $0.04444 per share of each Colony and NRF common stock to stockholders of record on January 9, 2017, representing a pro rata dividend for the period from January 1, 2017 through January 10, 2017 on a pre-exchange basis (or $0.03 after giving effect to the Colony exchange ratio of 1.4663 ). Additionally, the Company declared a dividend of $0.24 per share for the period from January 11, 2017 through March 31, 2017. Accordingly, dividends declared for the first quarter of 2017 per common share is equivalent to $0.27 per share after giving effect to the exchange ratio. On January 27, 2017, the Company paid a one-time special dividend of $1.16 per share of common stock to former NSAM stockholders of record on January 3, 2017.

Common Stock Repurchases

On May 23, 2018, the Company announced that its board of directors authorized a common stock repurchase program pursuant to which the Company may repurchase up to $300 million of its outstanding shares of class A common stock over a one -year period, either in the open market or through privately negotiated transactions. The newly announced program is in addition to the $300 million share repurchase program the Company announced in February 2018, which program was completed in May 2018.

During the nine months ended September 30, 2018 , the Company repurchased 54,813,323 shares of its class A common stock, at an aggregate cost of approximately $318.5 million (excluding commissions), or a weighted-average price of $5.81 per share.

In 2017, the Company had a similar stock repurchase program in which the Company repurchased the full authorized amount of $300.0 million (excluding commissions) of its outstanding class A common stock, equivalent to a total of 23,371,071 shares, at a weighted-average price of $12.84 per share. This included 2,150,120 shares of class A common stock repurchased for $29.8 million concurrent with the termination of the Call Spread, as discussed below.

Dividend Reinvestment and Direct Stock Purchase Plan

The Company's Dividend Reinvestment and Direct Stock Purchase Plan (the “DRIP Plan”) provides existing common stockholders and other investors the opportunity to purchase shares (or additional shares, as applicable) of the Company's class A common stock by reinvesting some or all of the cash dividends received on their shares of the Company's class A common stock or making optional cash purchases within specified parameters. The DRIP Plan involves the acquisition of the Company's class A common stock either in the open market, directly from the Company as newly issued common stock, or in privately negotiated transactions with third parties. There were no shares of class A common stock acquired under the DRIP Plan in the nine months ended September 30, 2018 or the year ended December 31, 2017 in the form of new issuances.

Call Spread

Subsequent to the Merger, the Company guaranteed NSAM's obligation to a third party counterparty under a call option previously sold by NSAM, specifically a call spread transaction (the “Call Spread”) in which NSAM had previously purchased and sold a call option on its common stock. In March 2017, the Company terminated the Call Spread and received $21.9 million in settlement, including the release of $15.0 million of cash pledged as collateral. The net settlement was accounted for as a capital transaction.

Accumulated Other Comprehensive Income (Loss)

The following tables present the changes in each component of AOCI attributable to stockholders and noncontrolling interests in investment entities, net of immaterial tax effect. AOCI attributable to noncontrolling interests in Operating Company is immaterial.

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Changes in Components of AOCI—Stockholders



(In thousands)	Company's Share in AOCI of Equity Method Investments			Unrealized Gain (Loss) on Securities			Unrealized Gain (Loss) on Cash Flow Hedges			Foreign Currency Translation Gain (Loss)			Unrealized Gain (Loss) on Net Investment Hedges			Total
AOCI at December 31, 2016	$	85		$	(112	)	$	(41	)	$	(76,426	)	$	44,385		$	(32,109	)
Other comprehensive income (loss) before reclassifications	3,711			(1,065		)	41			116,545			(64,752		)	54,480
Amounts reclassified from AOCI	(29		)	(106		)	—			(2,232		)	5,827			3,460
AOCI at September 30, 2017	$	3,767		$	(1,283	)	$	—		$	37,887		$	(14,540	)	$	25,831

AOCI at December 31, 2017	$	5,616		$	14,418		$	—		$	45,931		$	(18,649	)	$	47,316
Cumulative effect of adoption of new accounting pronouncements	(202		)													(202		)
Other comprehensive income (loss) before reclassifications	(275		)	(15,386		)				(30,415		)	19,078			(26,998		)
Amounts reclassified from AOCI				(4,806		)				8,715			(8,889		)	(4,980		)
Deconsolidation of N-Star CDO	—			2,596			—			—			—			2,596
AOCI at September 30, 2018	$	5,139		$	(3,178	)	$	—		$	24,231		$	(8,460	)	$	17,732

Changes in Components of AOCI—Noncontrolling Interests in Investment Entities



(In thousands)	Unrealized Gain (Loss) on Securities			Foreign Currency Translation Gain (Loss)			Unrealized Gain (Loss) on Net Investment Hedges			Total
AOCI at December 31, 2016	$	(527	)	$	(57,213	)	$	11,798		$	(45,942	)
Other comprehensive income (loss) before reclassifications	981			86,501			(9,018		)	78,464
Amounts reclassified from AOCI	(454		)	(1,678		)	1,730			(402		)
AOCI at September 30, 2017	$	—		$	27,610		$	4,510		$	32,120

AOCI at December 31, 2017	$	—		$	38,948		$	3,127		$	42,075
Other comprehensive income (loss) before reclassifications	—			(21,285		)	5,172			(16,113		)
Amounts reclassified from AOCI	—			2,615			(1,126		)	1,489
AOCI at September 30, 2018	$	—		$	20,278		$	7,173		$	27,451

Reclassifications out of AOCI—Stockholders

Information about amounts reclassified out of AOCI attributable to stockholders by component is presented below:



(In thousands)	Three Months Ended September 30,						Nine Months Ended September 30,						Affected Line Item in the Consolidated Statements of Operations
Component of AOCI reclassified into earnings	2018			2017			2018			2017
Realized gain (loss) on marketable securities	$	—		$	—		$	10,100		$	106		Other gain (loss), net
Other-than-temporary impairment and write-offs of securities	—			—			(5,294		)	—			Other gain (loss), net
Deconsolidation of N-Star CDO	—			—			(2,596		)	—			Other gain (loss), net
Release of cumulative translation adjustments	(4,557		)	3,166			(8,715		)	2,232			Other gain (loss), net
Unrealized gain (loss) on dedesignated net investment hedges	271			(1,365		)	855			(2,109		)	Other gain (loss), net
Realized gain (loss) on net investment hedges	5,831			(4,678		)	8,034			(3,718		)	Other gain (loss), net
Release of equity in AOCI of unconsolidated ventures	—			49			—			29			Earnings from investments in unconsolidated ventures

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17 . Noncontrolling Interests

Redeemable Noncontrolling Interests

This represents noncontrolling interests in a consolidated open-end fund sponsored by the Company beginning in August 2017, and in Townsend for the period from January 10, 2017 through December 29, 2017, the date the Company sold its interest in Townsend. In connection with the Townsend sale, $20.0 million of the consideration received was allocated to certain members of Townsend management and the noncontrolling interests in Townsend was fully redeemed.

The following table presents a summary of changes in redeemable noncontrolling interests:



	Nine Months Ended September 30,
(In thousands)	2018			2017
Beginning balance	$	34,144		$	—
Assumed through the Merger	—			78,843
Assumed through consolidation of sponsored fund	—			24,763
Contributions	305			4,200
Distributions and redemptions	(2,102		)	(1,731		)
Net income	2,042			3,015
Currency translation adjustment and other	—			(100		)
Ending balance	$	34,389		$	108,990

Noncontrolling Interests in Investment Entities

These are interests in consolidated investment entities held by private investment funds managed by the Company, or by third party joint venture parties.

In January 2017, the Company sold an 18.7% noncontrolling interest in its healthcare real estate portfolio through a newly formed joint venture pursuant to a purchase and sale agreement executed in November 2016 based upon terms negotiated prior to the Merger. The net excess of the carrying value of the noncontrolling interest sold over the consideration received resulted in a $41.2 million decrease to additional paid-in capital, including $9.2 million of cost of new capital.

For the nine months ended September 30, 2018 , contributions from new limited partners reduced the Company's ownership interest in its industrial joint venture. The new limited partners were admitted at net asset value of the joint venture, based upon valuations determined by independent third parties, at the time of contributions. The difference between contributions received and the noncontrolling interests' share of the joint venture resulted in an increase to additional paid-in capital of $28.8 million .

Noncontrolling Interests in Operating Company

Certain employees of the Company directly or indirectly own interests in OP, presented as noncontrolling interests in the Operating Company. Noncontrolling interests in OP have the right to require OP to redeem part or all of such member’s OP Units for cash based on the market value of an equivalent number of shares of class A common stock at the time of redemption, or at the Company's election as managing member of OP, through issuance of shares of class A common stock (registered or unregistered) on a one -for-one basis. At the end of each period, noncontrolling interests in OP is adjusted to reflect their ownership percentage in OP at the end of the period, through a reallocation between controlling and noncontrolling interests in OP, as applicable.

For the nine months ended September 30, 2018 , the Company redeemed 2,859,795 OP Units, of which 2,063,830 OP Units were redeemed in exchange for an equal number of shares of class A common stock on a one -for-one basis, and 795,965 OP Units were redeemed in exchange for cash of $4.8 million to satisfy the tax obligations of OP unitholders. The redemptions included 1.0 million of 1.95 million OP Units issued for settlement of the contingent consideration in connection with the Internalization (Note 14 ).

For the year ended December 31, 2017 , the Company redeemed 2,076,214 OP Units through the issuance of 1,684,170 shares of class A common stock (adjusted for the Merger exchange ratio) on a one -for-one basis and cash settlement of approximately $5.1 million to satisfy tax obligations of the OP unitholders.

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18 . Discontinued Operations

Asset groups acquired in connection with purchase business combinations that meet the criteria to be accounted for as held for sale at the date of acquisition are reported as discontinued operations.

Discontinued operations consisted of a manufactured housing portfolio acquired through the Merger in January 2017 and certain properties acquired through consensual foreclosure of the THL Hotel Portfolio in July 2017.

The manufactured housing portfolio was valued at its contracted sale price of $2.0 billion upon closing of the Merger, with $1.3 billion of related mortgage financing assumed by the buyer. The sale of the manufactured housing portfolio closed in March 2017, with the Company having received approximately $664.4 million in net proceeds, as adjusted for prorations and other reimbursements, for its interest in the portfolio.

The properties held for sale in the THL Hotel Portfolio that constituted discontinued operations were fully disposed in the second quarter of 2018.

Net income generated from operations of these held for sale asset groups is presented below.



	Three Months Ended September 30,		Nine Months Ended September 30,
(In thousands)	2017		2018			2017
Revenues
Property operating income	$	6,446	$	1,186		$	40,303
Other income	95		—			2,352
Expenses
Property operating expenses	5,056		1,159			17,451
Interest expense	—		—			9,028
Loss on sale of real estate assets	—		—			2,108
Other expenses	4		129			27
Net income (loss) from discontinued operations	1,481		(102		)	14,041
Income tax expense	—		—			—
Net income (loss) from discontinued operations after tax	1,481		(102		)	14,041
Net income (loss) from discontinued operations attributable to:
Noncontrolling interests in investment entities	648		(45		)	648
Noncontrolling interests in Operating Company	46		(4		)	46
Net income (loss) from discontinued operations attributable to Colony Capital, Inc.	$	787	$	(53	)	$	13,347

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19 . Earnings per Share

The following table provides the basic and diluted earnings per common share computations:



	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands, except per share data)	2018			2017			2018			2017
Net income (loss) allocated to common stockholders
Income (loss) from continuing operations	$	(13,946	)	$	71,108		$	(81,991	)	$	215,930
Income (loss) from discontinued operations	—			1,481			(102		)	14,041
Net income (loss)	(13,946		)	72,589			(82,093		)	229,971
Net (income) loss attributable to noncontrolling interests:
Redeemable noncontrolling interests	(865		)	(1,678		)	(2,042		)	(3,015		)
Investment entities	(32,382		)	(36,906		)	(79,904		)	(87,765		)
Operating Company	4,403			(97		)	14,509			(1,344		)
Net income (loss) attributable to Colony Capital, Inc.	(42,790		)	33,908			(149,530		)	137,847
Preferred stock redemption	—			918			3,995			(4,530		)
Preferred dividends	(27,185		)	(33,176		)	(89,960		)	(98,328		)
Net income (loss) attributable to common stockholders	(69,975		)	1,650			(235,495		)	34,989
Net income allocated to participating securities	(639		)	(2,677		)	(1,911		)	(7,461		)
Net income (loss) allocated to common stockholders—basic	(70,614		)	(1,027		)	(237,406		)	27,528
Interest expense attributable to convertible notes ⁽¹⁾	—			—			—			—
Net income (loss) allocated to common stockholders—diluted	$	(70,614	)	$	(1,027	)	$	(237,406	)	$	27,528
Weighted average common shares outstanding ⁽²⁾
Weighted average number of common shares outstanding—basic	484,754			542,855			501,202			531,251
Weighted average effect of dilutive shares ^(1)(3)(4)	—			—			—			—
Weighted average number of common shares outstanding—diluted	484,754			542,855			501,202			531,251
Basic earnings (loss) per share
Income (loss) from continuing operations	$	(0.15	)	$	0.00		$	(0.47	)	$	0.03
Income from discontinued operations	—			0.00			—			0.02
Net income (loss) attributable to common stockholders per basic common share	$	(0.15	)	$	0.00		$	(0.47	)	$	0.05
Diluted earnings (loss) per share
Income (loss) from continuing operations	$	(0.15	)	$	0.00		$	(0.47	)	$	0.03
Income from discontinued operations	—			0.00			—			0.02
Net income (loss) attributable to common stockholders per diluted common share	$	(0.15	)	$	0.00		$	(0.47	)	$	0.05

__________

⁽¹⁾

For the three months ended September 30, 2018 and 2017 , excluded from the calculation of diluted earnings per share is the effect of adding back $7.1 million and $7.1 million of interest expense, respectively, and 38,112,100 and 38,246,500 weighted average dilutive common share equivalents, respectively, for the assumed conversion or exchange of the Company's outstanding convertible and exchangeable notes, as applicable, as their inclusion would be antidilutive. For the nine months ended September 30, 2018 and 2017 , excluded from the calculation of diluted earnings per share is the effect of adding back $21.4 million and $21.8 million of interest expense, respectively, and 38,112,100 and 38,599,200 weighted average dilutive common share equivalents, respectively, for the assumed conversion or exchange of the Company's outstanding convertible and exchangeable notes, as applicable, as their inclusion would be antidilutive.


⁽²⁾	As a result of the Merger, each outstanding share of common stock of Colony was exchanged for 1.4663 of newly issued common shares of the Company. Accordingly, the historical share counts used to calculate the weighted average number of shares for the nine months ended September 30, 2018 reflect the exchange ratio of 1.4663 applied to shares outstanding prior to the Closing Date.

⁽³⁾

The calculation of diluted earnings per share excluded the weighted average unvested non-participating restricted shares of 573,100 and 613,600 for the three and nine months ended September 30, 2018 , respectively, as well as the weighted average shares of class A common stock that are contingently issuable in relation to PSUs (Note 21 ) of 712,500 for the nine months ended September 30, 2018 as the inclusion of these shares would be antidilutive.


⁽⁴⁾	OP Units, subject to lock-up agreements, may be redeemed for registered or unregistered class A common shares on a one -for-one basis. At September 30, 2018 and 2017 , there were 31,369,100 and 32,285,700 redeemable OP Units, respectively. These OP Units would not be dilutive and were not included in the computation of diluted earnings per share for all periods presented.

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20 . Fee Income

The Company's real estate investment management platform manages capital on behalf of institutional and retail investors in private funds, traded and non-traded REITs and investment companies, for which the Company earns fee income. For investment vehicles in which the Company co-sponsors with a third party or for which the Company engages a third party sub-advisor, such fee income is shared with the respective co-sponsor or sub-advisor.

On December 29, 2017, the Company sold its interest in Townsend, an investment management subsidiary acquired through the Merger. Upon closing of the Combination on January 31, 2018, the Company's management contracts with NorthStar I and NorthStar II were terminated; concurrently, the Company entered into a new management agreement with Colony Credit. On April 30, 2018, the Company combined NorthStar Securities, LLC ("NorthStar Securities"), the Company's captive broker-dealer platform that raises capital in the retail market, with a third party joint venture partner, S2K Financial Holdings, LLC ("S2K") to form Colony S2K Holdings, LLC ("Colony S2K"). Colony S2K will distribute both the current and future investment products sponsored by the Company and S2K as well as third party sponsored products. Beginning in May 2018, the Company's share of income and expense from Colony S2K is reflected as earnings from investments in unconsolidated ventures.

The Company's fee income is earned from the following sources:



	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2018		2017		2018		2017
Institutional funds	$	12,945	$	16,001	$	43,257	$	46,287
Non-traded REITs	6,143		24,667		23,846		67,693
Public companies—NRE, Colony Credit	15,708		3,770		44,099		10,495
Broker-dealer, Townsend and other clients	259		15,255		619		42,787
	$	35,055	$	59,693	$	111,821	$	167,262

The following table presents the Company's fee income by type:



	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2018		2017		2018		2017
Base management fees ($34,144, $42,027, $103,627 and $123,668 from affiliates, respectively)	$	34,410	$	47,219	$	104,336	$	137,336
Asset management fees—from affiliates	588		652		2,023		2,405
Acquisition and disposition fees—from affiliates	—		7,202		1,922		14,226
Incentive fees ($0, $69, $0, $93 from affiliates, respectively)	—		414		—		684
Other fee income ($0, $0, $3,389 and $0 from affiliates, respectively)	57		4,206		3,540		12,611
Total fee income	$	35,055	$	59,693	$	111,821	$	167,262

Base Management Fees — The Company earns base management fees for the day-to-day operations and administration of its managed private funds, traded and non-traded REITs, and investment companies, calculated as follows:


•	Private Funds — generally 1% per annum of the limited partners' net funded capital;

•

Non-Traded REITs— 1% to 1.25% per annum of gross assets for NorthStar/RXR NY Metro (through its liquidation in October 2018) and for NorthStar I and NorthStar II (through January 31, 2018 upon closing of the Combination), as well as 1.5% per annum of most recently published net asset value (as may be subsequently adjusted for any special distribution) for NorthStar Healthcare. Effective January 1, 2018, $2.5 million per quarter of base management fee for NorthStar Healthcare will be paid in shares of NorthStar Healthcare common stock at a price per share equal to its most recently published net asset value per share (as may be subsequently adjusted for any special distribution);


•	Investment Companies— 1.25% per annum of average net assets;

•

NRE — a variable fee of 1.5% per annum of NRE's reported European Public Real Estate Association Net Asset Value ("EPRA NAV" as defined in its management agreement) for EPRA NAV up to and including $2.0 billion , and 1.25% per annum for EPRA NAV amounts exceeding $2.0 billion . Prior to 2018, it was a fixed fee of $14.2 million per annum, subject to increase by an amount equal to 1.5% per annum of certain provisions in accordance with terms set out in its governing agreement. The management agreement had provided for the Company's management of NRE through at least January 1, 2023. On November 7, 2018, NRE and the

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Company reached an agreement to terminate the management agreement upon a sale of NRE or, if no sale is consummated, in connection with the internalization of the management of NRE. Such termination will result in a termination payment to the Company of $70 million , less any incentive payments; and


•	Colony Credit — 1.5% per annum of Colony Credit's stockholders' equity (as defined in its management agreement).

In 2017, the Company also earned base management fees from Townsend private funds at a fixed percentage of either assets under management, net asset value, total assets, committed capital or invested capital.

Asset Management Fees — The Company earns asset management fees from its managed private funds, which represents a one-time fee upon closing of each investment, calculated as a fixed percentage, generally 0.5% of the limited partners' net funded capital on each investment.

Acquisition and Disposition Fees — The Company earns an acquisition fee of 1% of the amount funded or allocated to originate or acquire an investment by NorthStar I and NorthStar II (through January 31, 2018 upon closing of the Combination); and a disposition fee of 1% to 2% of the contractual sales price for disposition of an investment by NorthStar I and NorthStar II (through January 31, 2018 upon closing of the Combination) and by NorthStar Healthcare (through December 31, 2017 following an amendment to its advisory agreement).

Incentive Fees — The Company may earn contractual incentive fees from NRE and Colony Credit (and in 2017, from Townsend segregated mandate accounts). Contractual incentive fees are determined based on the performance of the investment vehicles subject to the achievement of minimum return hurdles, with such thresholds varying across investment vehicles in accordance with the terms set out in their respective governing agreements. A portion of the incentive fees earned by the Company (generally at 40% ) is allocable to senior management, investment professionals and certain other employees of the Company through their participation in the Company-sponsored investment vehicles.

Other Fee Income — Other fees include advisory fees from affiliated and/or unaffiliated third parties, and prior to May 2018, selling commission and dealer manager fees. The Company, through NorthStar Securities, had earned fees for selling equity in certain classes of shares in the retail companies, calculated as a percentage of the gross offering proceeds raised, up to 8% for selling commissions and dealer manager fees, depending on the share classes of the retail companies. All or a portion of selling commission and dealer manager fees may be reallowed to participating broker-dealers. In 2017, other income also included advisory fees from Townsend clients at a fixed annual retainer.

21 . Equity-Based Compensation

Upon consummation of the Merger, each outstanding Colony employee restricted stock award granted under the 2014 Equity Incentive Plan (the “Colony Equity Incentive Plan”) that did not vest and was not forfeited was assumed by the Company and was converted into an equivalent restricted stock award of the Company, after giving effect to the Colony exchange ratio. As of January 2, 2017, all shares reserved under the Colony Equity Incentive Plan had been issued. While the Colony Equity Incentive Plan continues to exist following the Merger, no new awards will be granted under this plan.

Outstanding equity awards granted under Colony's 2009 Non-Executive Director Stock Plan (the “Colony Director Stock Plan”) fully vested upon consummation of the Merger and were settled through the issuance of 44,464 shares of the Company's class A common stock. The Colony Director Stock Plan was assumed by the Company upon closing of the Merger.

Substantially all of the outstanding NSAM and NRF equity awards prior to the Merger, except for certain awards as described below, vested upon consummation of the Merger. The vested equity awards were settled in NSAM and NRF shares respectively and converted into the Company's class A common stock based on their respective exchange ratios. All of the vested NSAM and NRF equity awards relate to pre-combination services and form part of the merger consideration.

NSAM 2014 Stock Plan

Upon consummation of the Merger, the Company assumed the following outstanding awards previously issued under NSAM's 2014 Omnibus Stock Incentive Plan ("NSAM 2014 Stock Plan"). Subsequent to the Merger, the Company adopted the NSAM 2014 Stock Plan, as further described below.

Townsend — Restricted stock awards granted to Townsend’s management team, who were previously employees of the Company, did not vest by their terms in connection with the Merger and were converted into the Company's restricted stock awards on a one -for-one basis. On December 29, 2017, the outstanding Townsend awards were fully vested upon the sale of the Company's interest in Townsend.

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American Healthcare Investors Joint Venture — In December 2014, NSAM acquired a 43% interest in American Healthcare Investors, LLC (“AHI"), structured as a joint venture between NSAM and the principals of AHI, a healthcare-focused real estate investment management firm, and James F. Flaherty III, former Chief Executive Officer of HCP, Inc., that is accounted for as an equity method investment.

In connection with this arrangement, certain AHI employees were granted equity awards for a fixed dollar amount with a variable number of shares, classified as a liability award. The outstanding award to certain AHI employees did not accelerate in the Merger. In March 2017, $1.0 million or the equivalent of 70,261 shares of class A common stock were issued in settlement of the equity award to certain AHI employees, and the corresponding $1.0 million outstanding liability was relieved. This was a non-employee award, with equity-based compensation recorded in earnings from investments in unconsolidated ventures on the consolidated statement of operations

Pursuant to a separate contractual arrangement entered into in connection with the investment in AHI, the AHI principals, subject to certain annual performance targets being met, are also entitled to incremental grants of the Company's common stock, which will vest immediately upon issuance. As of September 30, 2018 , no incremental awards have been granted.

NRF Incentive Plan

Upon consummation of the Merger, the Company assumed the following outstanding non-employee stock awards that were previously issued under NRF’s Third Amended and Restated 2004 Omnibus Stock Incentive Plan (the "NRF Incentive Plan"), and which continue to be governed by the terms of the NRF Incentive Plan subsequent to the Merger.

Healthcare Strategic Partnership — In January 2014, NRF entered into a strategic partnership with James F. Flaherty, III, focused on expanding the Company’s healthcare business (“Healthcare Strategic Partnership”). In connection with this arrangement, Mr. Flaherty was granted NRF restricted stock units ("RSUs"), which upon the spin-off of NSAM from NRF in July 2014, were adjusted to also relate to an equal number of units of NSAM RSUs, and continue to be governed by the NRF Incentive Plan. This RSU award did not vest by its terms in connection with the consummation of the Merger and was converted into the right to receive an award in the same form for that number of units of the Company's RSU, after giving effect to the relevant Merger exchange ratios. As a non-employee award, the RSUs were remeasured each period end based on the closing price of the Company's class A common stock as of such period end, with related equity-based compensation cost recorded in investment and servicing expense on the consolidated statement of operations and in equity on the consolidated balance sheet. In September 2017, the RSU award was fully vested upon the occurrence of a vesting event under the terms of the applicable governing agreement.

CLNY Equity Incentive Plan

Following the Merger, the Company adopted the NSAM 2014 Stock Plan as the Company's successor equity incentive plan and named such plan the Colony NorthStar 2014 Omnibus Stock Incentive Plan, thereafter renamed Colony Capital 2014 Omnibus Stock Incentive Plan in June 2018 (the "CLNY Equity Incentive Plan"). The CLNY Equity Incentive Plan provides for the grant of restricted stock, performance stock units ("PSUs"), Long Term Incentive Plan ("LTIP") units, RSUs, deferred stock units ("DSUs"), options, warrants or rights to purchase shares of the Company's common stock, cash incentives and other equity-based awards. Shares reserved for the issuance of awards under the CLNY Equity Incentive Plan are subject to equitable adjustment upon the occurrence of certain corporate events, provided that this number automatically increases each January 1st by 2% of the outstanding number of shares of the Company’s class A common stock on the immediately preceding December 31st. At September 30, 2018 , an aggregate of 44.7 million shares of the Company's class A common stock were reserved for the issuance of awards under the CLNY Equity Incentive Plan.

In 2017, the Company issued certain equity awards, which had a service condition only, in connection with the Merger. This included replacement equity awards issued in January 2017 to certain executives of NSAM, consisting of an aggregate of 4,669,518 shares of restricted common stock and 3,506,387 LTIP units. The number of shares and units issued for the replacement awards were determined based on the volume-weighted average price of the Company's class A common stock over the first five trading days following the Closing Date, subject to a floor of $15.00 per share. All of the replacement equity awards vested on January 10, 2018. Additionally, restricted stock awards were also granted to certain employees as retention awards, subject to graded vesting through January 2020.

Restricted Stock — Restricted stock awards relating to the Company's class A common stock are granted to senior executives and certain employees, with a service condition only and generally subject to annual time-based vesting in equal tranches over a three -year period. Restricted stock is entitled to dividends declared and paid on the Company's class A common stock and such dividends are not forfeitable prior to vesting of the award. Restricted stock awards are

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valued based on the Company's class A common stock price on grant date and equity-based compensation expense is recognized on a straight-line basis over the requisite three -year service period.

Performance Stock Units ("PSUs") — PSUs are granted to senior executives and certain employees, and are subject to both a service condition and market condition. PSUs vest annually in equal tranches over a three -year period. Upon vesting, the recipient of PSUs will be issued a number of shares of the Company's class A common stock, ranging from 0% to 200% of the number of PSUs granted, to be determined based upon the performance of the Company's class A common stock relative to that of a specified peer group over a three -year measurement period (such measurement metric the "total shareholder return"). PSUs also contain dividend equivalent rights which entitle the recipients to a payment equal to the amount of dividends that would have been paid on the shares that are ultimately issued at the end of the measurement period.

Fair value of PSUs, including dividend equivalent rights, was determined using a Monte Carlo simulation under a risk-neutral premise, with the following assumptions:



	2018 PSU Grant
Expected volatility of the Company's class A common stock ⁽¹⁾	38	%
Expected annual dividend yield ⁽²⁾	7.6	%
Risk-free rate (per annum) ⁽³⁾	2.44	%

__________


⁽¹⁾	Based on a combination of implied volatilities on actively traded stock options and historical volatilities, on the stock of the Company and the specified peer group.


⁽²⁾	Based on an average of the Company's current and historical dividend yields.


⁽³⁾	Based on the prevailing 3-year zero coupon US Treasury yield on grant date.

Fair value of the PSU award on grant date, excluding dividend equivalent rights, is recognized on a straight-line basis over the three -year measurement period as compensation expense, and is not subject to reversal even if the market condition is not achieved. The dividend equivalent right is accounted for as a liability-classified award. The fair value of the dividend equivalent right is recognized as compensation expense on a straight-line basis over the measurement period, and is subject to adjustment to fair value at each reporting period.

LTIP Units — LTIP units are designated as profits interests for federal income tax purposes. Unvested LTIP units do not accrue distributions. Each vested LTIP unit is convertible, at the election of the holder, into one common OP Unit and upon conversion, subject to the redemption terms of OP Units (Note 17 ). LTIP units are valued based on the Company's class A common stock price on grant date, with equity-based compensation cost recognized on a straight-line basis over the service period and represent an allocation to noncontrolling interest in the Operating Company.

Deferred Stock Units — Certain non-employee directors may elect to defer the receipt of annual base fees and/or restricted stock awards, and in lieu, receive awards of DSUs. DSUs awarded in lieu of annual base fees are fully vested on their grant date, while DSUs awarded in lieu of restricted stock awards vest one year from their grant date. DSUs are entitled to a dividend equivalent, in the form of additional DSUs based on dividends declared and paid on the Company's class A common stock. Any such additional DSUs will also be credited with additional DSUs as cash dividends are paid, subject to the same restrictions and vesting conditions, if any. Upon separation of service from the Company, vested DSUs are to be settled in shares of the Company’s class A common stock or cash, at the option of the Company. Fair value of DSUs are determined based on the price of the Company's class A common stock on grant date and recognized immediately if fully vested upon grant, otherwise, on a straight-line basis over the vesting period as equity based compensation expense and equity.

Equity-based compensation expense is included in the following line items in the consolidated statements of operations:



	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2018		2017		2018		2017
Compensation expense (including $173, $0, $376 and $0 amortization of fair value of dividend equivalent right)	$	8,557	$	38,184	$	30,123	$	107,173
Earnings from investments in unconsolidated ventures	—		—		—		61
Investment and servicing expense	—		3,022		—		4,070
	$	8,557	$	41,206	$	30,123	$	111,304

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Changes in the Company’s unvested equity awards are summarized below:



											Weighted Average Grant Date Fair Value
	Restricted Stock		LTIP Units		DSUs		PSUs ⁽¹⁾		Total		PSUs		All Other Awards
Unvested shares and units at December 31, 2017	9,149,516		3,506,387		78,267		—		12,734,170		$	—	$	14.53
Granted	3,432,893		—		236,115		2,138,858		5,807,866		5.09		6.25
Vested	(6,316,465	)	(3,506,387	)	(134,867	)	—		(9,957,719	)	—		14.52
Forfeited	(70,001	)	—		—		(10,764	)	(80,765	)	5.09		9.89
Unvested shares and units at September 30, 2018	6,195,943		—		179,515		2,128,094		8,503,552		$	5.09	$	9.82

__________


⁽¹⁾	Represents the number of PSUs granted which does not reflect potential increases or decreases that could result from the final outcome of the total shareholder return at the end of the performance period.

Fair value of equity awards that vested, determined based on their respective fair values at vesting date, was $0.1 million and $11.0 million for the three months ended September 30, 2018 and 2017 , respectively, and $106.7 million and $26.0 million for the nine months ended September 30, 2018 and 2017 , respectively.

At September 30, 2018 , aggregate unrecognized compensation cost for all unvested equity awards was $47.8 million , which is expected to be recognized over a weighted-average period of 2.0 years.

Awards Granted by Managed Companies

In March 2018, NRE and Colony Credit issued restricted stock and performance stock units to the Company and certain of the Company's employees (collectively, "managed company awards"). NRE awards generally have similar terms as the Company's stock awards, except that the NRE performance stock units measure NRE's stock performance against either an absolute total shareholder return threshold or relative to the performance of a specified market index. Employees are entitled to receive shares of NRE common stock if service conditions and/or market conditions are met. Colony Credit awards are primarily restricted stock grants that typically vest over a three -year period, subject to service conditions. Generally, the Company then grants the managed company awards that it receives in its capacity as manager to its employees with substantially the same terms and service requirements.

Managed company awards granted to the Company, pending the grant by the Company to its employees, are recognized based upon their fair value at grant date as an investment in unconsolidated ventures and other liabilities on the consolidated balance sheet. The deferred revenue liability is amortized into other income as the awards vest to the Company. Managed company awards granted to employees, directly by NRE or Colony Credit, or through the Company, are recorded as other asset and other liability, and amortized on a straight-line basis as equity-based compensation expense and as other income, respectively, as the awards vest to the employees. The other asset and other liability associated with managed company awards granted to employees are subject to adjustment to fair value at each reporting period, with changes reflected in equity-based compensation and other income, respectively.

Equity-based compensation expense recognized in relation to managed company awards was $2.9 million and $7.9 million for the three and nine months ended September 30, 2018 , respectively. A corresponding amount is recognized in other income for managed company awards granted to employees (Note 22 ). At September 30, 2018 , aggregate unrecognized compensation cost for unvested managed company awards was $23.0 million , which is expected to be recognized over a weighted-average period of 2.5 years.

22 . Transactions with Affiliates

Affiliates include (i) private funds, traded and non-traded REITs and investment companies that the Company manages or sponsors, and in which the Company may have an equity interest or co-invests with; (ii) the Company's investments in unconsolidated ventures; and (iii) directors, senior executives and employees of the Company (collectively, "employees").

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Amounts due from and due to affiliates consist of the following:



(In thousands)	September 30, 2018		December 31, 2017
Due from Affiliates
Investment vehicles and unconsolidated ventures
Fee income	$	31,388	$	19,366
Cost reimbursements and recoverable expenses	9,231		30,749
Employees and other affiliates	1,230		1,403
	$	41,849	$	51,518
Due to Affiliates
Investment vehicles and unconsolidated ventures	$	—	$	2,884
Employees	—		20,650
	$	—	$	23,534

Transactions with affiliates include the following:

Fee Income— Fee income earned from investment vehicles that the Company manages and/or sponsors, and may have an equity interest or co-investment, are presented in Note 20 .

Cost Reimbursements— The Company received cost reimbursement income related primarily to the following arrangements:


•	Direct and indirect operating costs, including but not limited to compensation, overhead and other administrative costs, for managing the operations of the non-traded REITs, investment companies and Colony Credit, with reimbursements for non-traded REITs limited to the greater of 2% of average invested assets or 25% of net income (net of base management fees);


•	Direct costs of personnel dedicated solely to NRE plus 20% of such personnel costs for related overhead charges, not to exceed, in aggregate, specified thresholds as set out in the NRE management agreement;


•	Costs incurred in performing investment due diligence for retail companies and private funds managed by the Company (presented gross on the consolidated statement of operations effective January 1, 2018);


•	Equity awards granted by NRE and Colony Credit to employees of the Company, which are presented gross on the consolidated statement of operations as other income and compensation expense (see Note 21 );


•	Certain expenses incurred on behalf of the clients of Townsend such as legal, due diligence and investment advisory team travel expenses (in 2017 only);


•	Services provided to the Company's unconsolidated investment ventures for servicing and managing their loan portfolios, including foreclosed properties;


•	Administrative services provided to an equity method investee (through July 2017 only); and


•	Administrative services provided to certain senior executives of the Company.

Cost reimbursements, included in other income, were as follows. These amounts include $0.9 million and $2.9 million for the three and nine months ended September 30, 2018 , respectively, of costs incurred by the Company and reimbursed by its managed private funds that are presented gross on the consolidated statement of operations beginning in 2018 pursuant to the new revenue recognition guidance (Note 2 ).



	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2018		2017		2018		2017
Retail companies	$	899	$	4,324	$	3,770	$	14,994
Public companies—NRE and Colony Credit	2,959		—		7,653		—
Private funds and other	1,895		949		6,155		2,896
Equity awards of NRE and Colony Credit (Note 21)	3,023		—		8,085		—
Townsend	—		693		—		1,752
	$	8,776	$	5,966	$	25,663	$	19,642

Recoverable Expenses— The Company pays organization and offering costs associated with the formation and capital raising of the retail companies and private funds sponsored by the Company, for which the Company recovers from these investment vehicles, up to specified thresholds for certain private funds and up to 1% of proceeds expected to be raised from the offering of retail companies (excluding shares offered pursuant to distribution reinvestment plans).

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Credit Facility— The Company has committed to provide NorthStar Healthcare with an unsecured revolving credit facility at market terms with a maximum principal amount of $35.0 million . The credit facility matures in December 2020, with a six -month extension option. Advances under the credit facility accrue interest at LIBOR plus 3.5% . There is no commitment fee for the unused portion of the facility. The credit facility is intended to provide additional liquidity to NorthStar Healthcare on an as needed basis. At September 30, 2018 and December 31, 2017 , there were no outstanding advances under the revolving credit facility.

Liquidating Trust— In connection with the closing of the Combination, a wholly-owned subsidiary of the Company entered into a management services agreement with the liquidating trust that holds the NorthStar I Retained Asset (as discussed in Note 4 ). The Company was engaged as an advisor to service and assist in the potential sale of the NorthStar I Retained Asset, and to provide administrative services to the liquidating trust on such terms and conditions as approved by the trustees for a management fee of 1.25% per annum of the net assets of the liquidating trust. Such fee amount is immaterial.

Sales to Colony Credit— In May 2018, the Company sold a preferred equity investment sponsored by the Company's equity method investee, RXR Realty, to Colony Credit at the unpaid principal amount of the investment of $89.1 million .

In July 2018, the Company sold to Colony Credit its interest in a subsidiary holding a net lease property in Norway that was partially financed by a non-callable bond for $121.5 million based on an appraised value of the property, resulting in a gain on sale of real estate of $28.6 million .

These transactions were approved by the audit committee of Colony Credit.

Healthcare Strategic Partnership— The Healthcare Strategic Partnership was formed to expand the Company’s healthcare business (see Note 21 ). In connection with this arrangement, the Healthcare Strategic Partnership is entitled to incentive fees ranging from 20% to 25% of distributions above certain hurdles for new and existing healthcare real estate investments held by the Company and a portion of incentive fees earned from NorthStar Healthcare. To date, no incentive fees have been earned by the Healthcare Strategic Partnership.

American Healthcare Investors Joint Venture— The Company has an equity method investment in AHI, through a joint venture with the principals of AHI and Mr. Flaherty (see Note 21 ). AHI provides certain healthcare-focused real estate investment management and related services to the Company and NorthStar Healthcare in order to assist the Company in managing current and future healthcare assets (excluding certain joint venture assets) acquired by the Company and, subject to certain conditions, other managed companies. The Company incurred property management fees and sub-advisory fees totaling $1.3 million for each of the three months ended September 30, 2018 and 2017 , and $3.9 million and $3.5 million for the nine months ended September 30, 2018 and 2017 , respectively. In January 2018, the Company provided a notice of termination of its management agreement to AHI with such termination effective October 2018.

Arrangements with Company-Sponsored Private Fund— The Company co-invests alongside a Company-sponsored private fund through joint ventures between the Company and the sponsored private fund. These co-investment joint ventures are consolidated by the Company. The Company has capital commitments, as general partner, directly into the private fund and as an affiliate of the general partner, capital commitments satisfied through co-investment joint ventures. In connection with the Company's commitments as an affiliate of the general partner, the Company is allocated a proportionate share of the costs of the private fund such as financing and administrative costs. Such costs expensed during the three and nine months ended September 30, 2018 and 2017 were immaterial and relate primarily to the Company's share of the fund's operating costs and deferred financing costs on borrowings of the fund.

Contingent Consideration for Internalization —Contingent consideration for Internalization was payable to certain senior management personnel of the Company in connection with Colony's acquisition of the real estate investment management business and operations of its former manager in April 2015, amounting to $20.7 million at December 31, 2017 . As discussed in Note 14 , the final contingent consideration was measured at the end of its earnout period on June 30, 2018, with the common stock and OP Units issuable to the senior management personnel valued at $12.5 million reclassified out of liabilities into equity, while the associated dividends of approximately $6.4 million remained in due to affiliates liability. Contingent consideration, including the accrued dividends thereon, was settled in August 2018 in a combination of class A and class B common stock, OP Units and cash.

Equity Awards of NRE and Colony Credit —As discussed in Note 21 , NRE and Colony Credit grant equity awards to the Company and certain of the Company's employees, either directly by NRE and Colony Credit, or indirectly through the Company, are recognized as a gross-up of equity-based compensation expense over the vesting period with a corresponding amount in other income.

Investment in Managed Investment Vehicles —Subject to the Company's related party policies and procedures, senior management, investment professionals and certain other employees may participate on a discretionary basis in

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investment vehicles sponsored by the Company, either directly or indirectly through the general partner. These investments are generally not subject to management fees and incentive fees, but otherwise bear their proportionate share of other operating expenses of the investment vehicles. At September 30, 2018 and December 31, 2017 , such investments amounted to $12.8 million and $4.8 million , respectively, reflected in redeemable noncontrolling interests and noncontrolling interests on the consolidated balance sheet. Their share of net income was $3.5 million and $6.3 million for the three and nine months ended September 30, 2018 , respectively, and was immaterial for the same periods in 2017.

Advances to Employees —The Company grants loans to certain employees in the form of promissory notes bearing interest at the prime rate with varying terms and repayment conditions. Outstanding advances were immaterial at September 30, 2018 and December 31, 2017 .

Corporate Aircraft— The Company's corporate aircraft may occasionally be used for business purposes by affiliated entities or for personal use by certain senior executives of the Company. Affiliated entities and senior executives reimburse the Company for their usage based on the incremental cost to the Company of making the aircraft available for such use, and includes direct and indirect variable costs of operating the flights. These reimbursements amounted to $0.1 million and $0.6 million for the three months ended September 30, 2018 and 2017 , respectively, and $0.5 million and $1.5 million for the nine months ended September 30, 2018 and 2017 , respectively.

23 . Commitments and Contingencies

Lease Commitments

Office Leases— The Company leases office space under noncancelable operating leases. The lease agreements require minimum rent payments and reimbursement of operating expenses incurred by the landlord, subject to escalation clauses. Rent expense on office leases, included in administrative expenses, was $2.6 million and $3.9 million for the three months ended September 30, 2018 and 2017 , respectively, and $7.9 million and $9.9 million for the nine months ended September 30, 2018 and 2017 , respectively.

Contingent Consideration

In connection with a consensual foreclosure of the THL Hotel Portfolio, contingent consideration is payable to a preferred equity holder of the borrower in an amount up to $13.0 million , as discussed in Notes 3 and 14 .

Litigation and Claims

The Company may be involved in litigation and claims in the ordinary course of business. As of September 30, 2018 , the Company was not involved in any legal proceedings that are expected to have a material adverse effect on the Company’s results of operations, financial position or liquidity.

24 . Segment Reporting

The Company conducts its business through the following six reportable segments:

•

Healthcare— The Company's healthcare segment is composed of a diverse portfolio of medical office buildings, senior housing, skilled nursing facilities and other healthcare properties, including hospitals. The Company earns rental income from medical office buildings as well as senior housing and skilled nursing facilities structured under net leases to healthcare operators, and resident fee income from senior housing operating facilities that operate through management agreements with independent third party operators.


•	Industrial— The Company's industrial segment is composed primarily of light industrial assets in infill locations throughout the U.S. that are vital for e-commerce and other tenants that require increasingly quick delivery times.


•	Hospitality— The Company's hotel portfolio is composed of primarily extended stay hotels and premium branded select service hotels primarily located in major metropolitan markets in the U.S. with the majority affiliated with top hotel brands.


•	CLNC— This represents the Company's investment in Colony Credit, a commercial real estate credit REIT with a diverse portfolio consisting of senior mortgage loans, mezzanine loans, preferred equity, debt securities and net lease properties predominantly in the U.S. Following the Combination, the Company presents Colony Credit in a separate reportable segment.


•	Other Equity and Debt— The Company's other equity and debt segment includes our portfolios of net lease, multifamily and multi-tenant office properties, the THL Hotel Portfolio, our interest in a portfolio of CRE loans and securities, limited partnership interests in real estate private equity funds and various other equity investments.

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•	Investment Management— The Company generates fee income through investment management services, sponsoring numerous investment products across a diverse set of institutional and retail investors.

In 2018, the Company determined that its equity interests in various investment vehicles as sponsor and general partner, which were previously included in the industrial and other equity and debt segments, would be part of its investment management segment. The reclassification of investments in unconsolidated ventures and corresponding earnings on investments in unconsolidated ventures was applied retrospectively to all prior periods presented. The reclassification was not material to segment results.

Amounts not allocated to specific segments include corporate level cash and corresponding interest income, fixed assets for administrative use, corporate level financing and related interest expense, income and expense related to cost reimbursement arrangements with certain affiliates, costs in connection with unconsummated investments, compensation expense not directly attributable to reportable segments, corporate level administrative and overhead costs as well as Merger-related transaction and integration costs.

The chief operating decision maker assesses the performance of the business based on net income (loss) of each of the reportable segments. The various reportable segments generate distinct revenue streams, consisting of property operating income, interest income and fee income. Costs which are directly attributable, or otherwise can be subjected to a reasonable and systematic allocation, have been allocated to each of the reportable segments.

Selected Segment Results of Operations

The following table presents selected results of operations of the Company's reportable segments:



(In thousands)	Healthcare			Industrial			Hospitality			CLNC			Other Equity and Debt			Investment Management		Amounts Not Allocated to Segments			Total
Three Months Ended September 30, 2018
Total revenues	$	147,907		$	73,902		$	224,384		$	—		$	182,288		$	44,127	$	2,161		$	674,769
Property operating expenses	66,298			21,409			146,440			—			73,648			—		—			307,795
Interest expense	47,620			10,872			41,646			—			31,306			—		13,673			145,117
Depreciation and amortization	43,697			33,503			36,503			—			24,933			5,140		1,534			145,310
Provision for loan loss	213			—			—			—			7,612			—		—			7,825
(Recovery of) impairment loss	(274		)	774			61,865			—			7,132			7,000		—			76,497
Gain on sale of real estate	—			2,104			—			—			33,016			—		—			35,120
Earnings (losses) from investments in unconsolidated ventures	—			—			—			(19,480		)	24,517			8,761		—			13,798
Income tax benefit (expense)	(1,030		)	3			(855		)	—			719			2,707		223			1,767
Net income (loss)	(15,051		)	6,296			(66,620		)	(19,480		)	88,053			23,509		(30,653		)	(13,946		)
Net income (loss) attributable to Colony Capital, Inc.	(12,197		)	1,001			(62,900		)	(18,328		)	57,715			19,145		(27,226		)	(42,790		)

Three Months Ended September 30, 2017
Total revenues	$	157,732		$	63,410		$	221,987		$	—		$	279,952		$	64,918	$	1,854		$	789,853
Property operating expenses	73,217			16,620			143,042			—			99,127			—		—			332,006
Interest expense	48,586			8,803			35,351			—			46,333			—		12,981			152,054
Depreciation and amortization	44,646			29,010			34,549			—			38,579			14,457		1,453			162,694
Provision for loan loss	1,588			—			—			—			3,528			—		—			5,116
Impairment loss	8,250			44			—			—			6,718			9,061		—			24,073
Gain on sale of real estate	—			—			—			—			72,541			—		—			72,541
Earnings from investments in unconsolidated ventures	—			—			—			—			13,071			4,376		—			17,447
Income tax benefit (expense)	408			(16		)	(1,262		)	—			(982		)	9,552		2,913			10,613
Income (loss) from continuing operations	(22,318		)	5,741			4,169			—			145,077			30,757		(92,318		)	71,108
Income from discontinued operations	—			—			—			—			1,481			—		—			1,481
Net income (loss)	(22,318		)	5,741			4,169			—			146,558			30,757		(92,318		)	72,589
Net income (loss) attributable to Colony Capital, Inc.	(17,219		)	1,602			3,319			—			103,123			28,484		(85,401		)	33,908

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(In thousands)	Healthcare			Industrial			Hospitality			CLNC			Other Equity and Debt			Investment Management			Amounts Not Allocated to Segments			Total

Nine Months Ended September 30, 2018
Total revenues	$	445,921		$	215,132		$	649,539		$	—		$	578,392		$	136,191		$	5,857		$	2,031,032
Property operating expenses	203,247			62,703			425,856			—			242,433			—			—			934,239
Interest expense	143,740			31,918			112,501			—			118,062			—			41,094			447,315
Depreciation and amortization	123,053			95,930			107,885			—			77,423			19,020			4,600			427,911
Provision for loan losses	213			—			—			—			26,920			—			—			27,133
Impairment loss	5,488			948			61,865			—			23,687			207,741			—			299,729
Gain on sale of real estate	—			4,397			—			—			91,869			—			—			96,266
Earnings (losses) from investments in unconsolidated ventures	—			—			—			(17,721		)	59,501			6,158			—			47,938
Income tax benefit (expense)	(2,383		)	(38		)	(930		)	—			(4,082		)	42,392			200			35,159
Income (loss) from continuing operations	(47,665		)	17,285			(71,735		)	(17,721		)	218,337			(109,815		)	(70,677		)	(81,991		)
Income (loss) from discontinued operations	—			—			—			—			(102		)	—			—			(102		)
Net income (loss)	(47,665		)	17,285			(71,735		)	(17,721		)	218,235			(109,815		)	(70,677		)	(82,093		)
Net income (loss) attributable to Colony Capital, Inc.	(36,913		)	3,089			(67,183		)	(16,670		)	138,157			(108,445		)	(61,565		)	(149,530		)

Nine Months Ended September 30, 2017
Total revenues	$	455,902		$	176,577		$	619,222		$	—		$	635,011		$	185,089		$	4,589		$	2,076,390
Property operating expenses	206,363			49,312			401,351			—			145,046			—			—			802,072
Interest expense	137,522			29,163			98,484			—			112,782			—			40,641			418,592
Depreciation and amortization	135,104			79,453			98,098			—			93,691			42,534			4,345			453,225
Provision for loan losses	1,588			—			—			—			11,319			—			—			12,907
Impairment loss	8,250			44			—			—			27,998			9,061			—			45,353
Gain on sale of real estate	—			8,695			—			—			88,006			—			—			96,701
Earnings from investments in unconsolidated ventures	—			—			—			—			241,462			12,371			—			253,833
Income tax benefit (expense)	(1,624		)	(2,164		)	(2,209		)	—			(3,020		)	13,762			2,245			6,990
Income (loss) from continuing operations	(42,978		)	15,332			6,303			—			510,615			76,858			(350,200		)	215,930
Income from discontinued operations	—			—			—			—			1,481			—			12,560			14,041
Net income (loss)	(42,978		)	15,332			6,303			—			512,096			76,858			(337,640		)	229,971
Net income (loss) attributable to Colony Capital, Inc.	(33,728		)	4,815			5,122			—			403,046			70,734			(312,142		)	137,847

Total assets and equity method investments of the reportable segments are summarized as follows:



(In thousands)	Healthcare		Industrial		Hospitality		CLNC		Other Equity and Debt		Investment Management		Amounts Not Allocated to Segments		Total
September 30, 2018
Total assets	$	5,664,200	$	3,151,088	$	4,022,868	$	1,107,168	$	6,099,418	$	2,038,990	$	221,548	$	22,305,280
Equity method investments	—		—		—		1,107,168		886,441		221,565		3,742		2,218,916
December 31, 2017
Total assets	$	5,813,552	$	2,810,135	$	4,094,596	$	—	$	9,251,963	$	2,714,840	$	100,564	$	24,785,650
Equity method investments	—		—		—		—		1,315,670		207,642		3,742		1,527,054

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Geography

Geographic information about the Company's total income and long-lived assets are as follows. Geography is generally presented as the location in which the income producing assets reside or the location in which income generating services are performed.



	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2018		2017		2018		2017
Total income by geography:
United States	$	598,013	$	714,518	$	1,823,842	$	2,072,950
Europe	81,778		85,909		229,163		234,922
Other	—		907		302		2,709
Total ⁽¹⁾	$	679,791	$	801,334	$	2,053,307	$	2,310,581



(In thousands)	September 30, 2018		December 31, 2017
Long-lived assets by geography:
United States	$	12,925,574	$	13,224,197
Europe	1,474,564		1,749,282
Total ⁽²⁾	$	14,400,138	$	14,973,479

__________


⁽¹⁾	Total income includes earnings from investments in unconsolidated ventures and excludes cost reimbursement income from affiliates.


⁽²⁾	Long-lived assets comprise real estate, real estate related intangible assets, and fixed assets, and exclude financial instruments, assets held for sale and investment management related intangible assets.

25. Supplemental Disclosure of Cash Flow Information



	Nine Months Ended September 30,
(In thousands)	2018		2017
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest, net of capitalized interest of $3,831 and $0, respectively	$	383,466	$	334,749
Cash paid for income taxes, net of refunds	13,193		36,747
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Dividends and distributions payable	$	84,604	$	187,145
Net assets of CLNY Investment Entities deconsolidated, net of cash and restricted cash contributed (Note 4)	936,547		—
Redemption of OP Units for common stock	28,904		22,788
Improvements in operating real estate in accrued and other liabilities	3,705		5,033
Deconsolidation of net assets of securitization trusts (Note 15)	131,386		—
Change in contributions receivable from noncontrolling interests	25,501		4,734
Assets held for sale contributed to equity method investee	20,350		—
Deferred tax liabilities assumed by buyer of related real estate	26,629		—
Debt assumed by buyer in sale of real estate	196,416		1,258,558
Foreclosures and exchanges of loans receivable for real estate	26,001		14,576
Net assets of investment entity deconsolidated, net of cash and restricted cash contributed	—		153,368
Preferred stock redemptions payable	—		322,118
Investment deposits applied to acquisition of loans receivable, real estate and CPI Group	—		66,020
Share repurchase payable	—		6,588
Assets acquired in Merger, net of cash and restricted cash assumed (Note 3)	—		16,777,092
Liabilities assumed in Merger (Note 3)	—		11,299,855
Noncontrolling interests assumed in Merger (Note 3)	—		592,690
Common stock issued for acquisition of NSAM and NRF (Note 3)	—		5,710,134
Preferred stock issued for acquisition of NRF (Note 3)	—		1,010,320
Net assets acquired in CPI restructuring, net of cash and restricted cash assumed (Note 3)	—		219,278
Net assets acquired in THL Hotel Portfolio (Note 3)	—		361,346

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	Nine Months Ended September 30,
(In thousands)	2018	2017
Net assets of sponsored fund consolidated, net of cash and restricted cash assumed (Note 15)	—	13,370
Proceeds from loan repayments and asset sales held in escrow	—	21,263
Exchange of notes for class A common shares	—	2,968
Proceeds from secured financing in other assets	—	22,856

26 . Subsequent Events

Following a strategic review process, on November 7, 2018, the Company announced a corporate restructuring and reorganization plan that is expected to reduce its global workforce by approximately 15% .

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FORWARD-LOOKING STATEMENTS

Some of the statements contained in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and we intend such statements to be covered by the safe harbor provisions contained therein. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” or “potential” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions.

The forward-looking statements contained in this Quarterly Report reflect our current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause our actual results to differ significantly from those expressed in any forward-looking statement. The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:


•	the market, economic and environmental conditions in the healthcare, hospitality and industrial real estate, other commercial real estate equity and debt, and investment management sectors;


•	any decrease in our net income and funds from operations as a result of the Merger or otherwise, or our other acquisition activity;


•	our ability to integrate and maintain consistent standards and controls following the Merger, including our ability to manage our acquisitions effectively and to realize the anticipated benefits of such acquisitions;


•	our ability to realize substantial efficiencies and synergies and anticipated strategic and financial benefits of the Merger;


•	our exposure to risks to which we have not historically been exposed, including liabilities with respect to the assets acquired through the Merger and our other acquisitions;


•	our business and investment strategy, including the ability of the businesses in which we have a significant investment (such as Colony Credit Real Estate, Inc. (NYSE:CLNC)) to execute their business strategies;


•	performance of our investments relative to our expectations and the impact on our actual return on invested equity, as well as the cash provided by these investments and available for distribution;


•	our ability to grow our business by raising capital for the companies that we manage;


•	our ability to deploy capital into new investments consistent with our business strategies, including the earnings profile of such new investments;


•	the impact of adverse conditions affecting a specific asset class in which we have investments;


•	the availability of attractive investment opportunities;


•	our ability to achieve any of the anticipated benefits of the combination of our captive broker-dealer with S2K Financial Holdings, LLC;


•	our ability to satisfy and manage our capital requirements;


•	the general volatility of the securities markets in which we participate;


•	our ability to obtain and maintain financing arrangements, including securitizations;


•	changes in interest rates and the market value of our assets;


•	interest rate mismatches between our assets and any borrowings used to fund such assets;


•	effects of hedging instruments on our assets;


•	the impact of economic conditions on third parties on which we rely;


•	any litigation and contractual claims against us and our affiliates, including potential settlement and litigation of such claims;

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•	adverse domestic or international economic conditions and the impact on the commercial real estate or real-estate related sectors;


•	the impact of legislative, regulatory and competitive changes;


•	actions, initiatives and policies of the U.S. and non-U.S. governments and changes to U.S. or non-U.S. government policies and the execution and impact of these actions, initiatives and policies;


•	our ability to maintain our qualification as a real estate investment trust for U.S. federal income tax purposes;


•	our ability to maintain our exemption from registration as an investment company under the Investment Company Act of 1940, as amended (the “1940 Act”);


•	availability of qualified personnel;


•	our ability to make or maintain distributions to our stockholders; and


•	our understanding of our competition.

While forward-looking statements reflect our good faith beliefs, assumptions and expectations, they are not guarantees of future performance. Furthermore, we disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes. Moreover, because we operate in a very competitive and rapidly changing environment, new risk factors are likely to emerge from time to time. We caution investors not to place undue reliance on these forward-looking statements and urge you to carefully review the disclosures we make concerning risks in sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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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 the accompanying notes thereto, which are included in Item 1 of this Quarterly Report, as well as the information contained in our Annual Report on Form 10-K for the year ended December 31, 2017 , which is accessible on the SEC's website at www.sec.gov .

Overview

We are a leading global investment management firm with approximately $44 billion in assets under management. The Company manages capital on behalf of its stockholders, as well as institutional and retail investors in private funds, traded and non-traded real estate investment trusts ("REITs") and registered investment companies. The Company has significant holdings in: (a) the healthcare, industrial and hospitality property sectors; (b) Colony Credit Real Estate, Inc. (NYSE: CLNC) and NorthStar Realty Europe Corp. (NYSE: NRE) which are externally managed by subsidiaries of the Company; and (c) various other equity and debt investments. The Company is headquartered in Los Angeles, with key offices in New York, Paris and London, and has over 400 employees in 17 locations in ten countries.

We were orga nized on May 31, 2016 as a Maryland corporation, and elected to be taxed as a REIT for U.S. federal income tax purposes commencing with our 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. As of September 30, 2018 , we owned 94% of the Operating Company and are its sole managing member.

Colony Credit

On August 25, 2017, certain subsidiaries of the Company entered into a combination agreement with NorthStar Real Estate Income Trust, Inc. (“NorthStar I”) and NorthStar Real Estate Income II, Inc. (“NorthStar II”), both publicly registered non-traded real estate investment trusts sponsored and managed by a subsidiary of the Company, and certain other subsidiaries of the foregoing. Pursuant to the combination agreement, certain subsidiaries of the Company agreed to contribute the CLNY Contributed Portfolio (as defined below), represented by their ownership interests ranging from 38% to 100% in certain investment entities ("CLNY Investment Entities") to Colony Credit Real Estate, Inc. (formerly Colony NorthStar Credit Real Estate, Inc.) ("Colony Credit") and its operating company, and NorthStar I and NorthStar II agreed to merge with and into Colony Credit, with, in each case, Colony Credit surviving, in all-stock mergers (collectively, the “Combination”). In consideration for the Company’s contribution of the CLNY Contributed Portfolio, the Company received approximately 44.4 million shares of Colony Credit’s class B-3 common stock and approximately 3.1 million common membership units in Colony Credit’s operating company ("CLNC OP Units"). Colony Credit’s class B-3 Common Stock will automatically convert to class A common stock of Colony Credit, which is tradable on the NYSE upon the close of trading on February 1, 2019. The CLNC OP Units are redeemable for cash or class A common stock of Colony Credit, in Colony Credit’s sole discretion.

The CLNY Contributed Portfolio comprised the Company's interests in certain of its commercial real estate loans, net lease properties and limited partnership interests in third party sponsored funds, which represented a select portfolio of U.S. investments within the Company’s other equity and debt segment that were transferable assets consistent with Colony Credit's strategy. The contribution of the CLNY Contributed Portfolio was a tax-free transaction to the Company.

On January 18, 2018, the Combination was approved by the stockholders of NorthStar I and NorthStar II. The Combination closed on January 31, 2018 and Colony Credit's class A common stock began trading on the NYSE on February 1, 2018 under the symbol "CLNC." The Combination created a prominent publicly-listed commercial real estate credit REIT.

Upon closing of the Combination, the Company and its affiliates, NorthStar I stockholders and NorthStar II stockholders each own approximately 37%, 32% and 31%, respectively, of Colony Credit on a fully diluted basis.

On June 25, 2018, Colony Credit changed its name from "Colony NorthStar Credit Real Estate, Inc." to "Colony Credit Real Estate, Inc." Additionally, in June 2018, Colony Credit was added to the Small-cap Russell 2000 and broad-market Russell 3000 Indexes.

Refer to Note 4 to the consolidated financial statements for further information related to the Combination.

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Our Business

Our vision is to establish the Company as a leading global investment management firm, principally focused on real estate strategies. We believe our deep understanding of commercial real estate provides us a significant advantage in identifying relative value throughout real estate cycles. Through our prudent sector or subsector capital allocation and operational capabilities, we aim to generate outsized total returns to stockholders. In addition, we expect to have third-party investor participation in sponsored investment vehicles that serve as a potential enhancement to stockholder returns through fee income and as an additional source of liquidity and growth. We expect our embedded investment management platform to allow us to scale our core segments while providing revenue diversification.

We conduct our business through the following six segments:

•

Healthcare— Our healthcare segment is composed of a diverse portfolio of medical office buildings, senior housing, skilled nursing and other healthcare properties, including hospitals. We earn rental income from medical office buildings as well as senior housing and skilled nursing facilities structured under net leases to healthcare operators, and resident fee income from senior housing operating facilities that operate through management agreements with independent third-party operators.


•	Industrial— Our industrial segment is composed primarily of light industrial assets in infill locations throughout the U.S. that are vital for e-commerce and other tenants that require increasingly quick delivery times.


•	Hospitality— Our hotel portfolio is composed of primarily extended stay hotels and premium branded select service hotels primarily located in major metropolitan markets, in the U.S. with the majority affiliated with top hotel brands.


•	CLNC— This represents our investment in Colony Credit, a commercial real estate credit REIT with a diverse portfolio consisting primarily of senior mortgage loans, mezzanine loans, preferred equity, debt securities and net lease properties predominantly in the U.S.


•	Other Equity and Debt— Our other equity and debt segment includes our portfolios of net lease, multifamily and multi-tenant office properties, the THL Hotel Portfolio, our interest in a portfolio of CRE loans and securities, limited partnership interests in real estate private equity funds and various other equity investments.


•	Investment Management— We generate fee income through investment management services, sponsoring numerous investment products across a diverse set of institutional and retail investors.

Highlights

During the nine months ended September 30, 2018 and through November 6, 2018, significant developments affecting our business and results of operations included the following:

Acquisitions, Dispositions and Fundraising


•	Consummated the Combination to create Colony Credit, a prominent publicly-listed commercial real estate credit REIT. Colony Credit's class A common stock began trading on the NYSE on February 1, 2018.


•	Syndicated 30% of our portfolio of distressed CRE loans in Ireland to a third party investor for $67.0 million.


•	Closed on a co-sponsored digital real estate infrastructure vehicle on February 28, 2018, in partnership with Digital Bridge. As of November 6, 2018, total callable commitments of the vehicle were $4.0 billion , inclusive of our capital commitments which are capped at $250 million .


•	Participated in the acquisition of an interest in a multinational European hospitality group, AccorInvest, the property arm of AccorHotels, alongside a consortium of global institutional investors, in which we c o-investe d $58 million in our sponsored fund, together with $760 million of third party capital raised and managed by us.


•	Continued fundraising in our open-end industrial fund with $329 million of additional capital raised, bringing total third party capital raised to date in our industrial platform to approximately $1.5 billion .

Financing and Capital Transactions


•	Repurchased 54.8 million shares of our class A common stock for approximately $319 million under our February 2018 $300 million stock repurchase program which was completed in May 2018, and our additional $300 million stock repurchase program announced in May 2018.


•	Redeemed all outstanding shares of our Series D preferred stock for $200 million.

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Results of Operations

The following table summarizes our results of operations by segment:



(in thousands)	Total Revenues				Net Income (Loss)						Net Income (Loss) Attributable to Colony Capital, Inc.
Three Months Ended September 30,	2018		2017		2018			2017			2018			2017
Healthcare	$	147,907	$	157,732	$	(15,051	)	$	(22,318	)	$	(12,197	)	$	(17,219	)
Industrial	73,902		63,410		6,296			5,741			1,001			1,602
Hospitality	224,384		221,987		(66,620		)	4,169			(62,900		)	3,319
CLNC	—		—		(19,480		)	—			(18,328		)	—
Other Equity and Debt	182,288		279,952		88,053			146,558			57,715			103,123
Investment Management	44,127		64,918		23,509			30,757			19,145			28,484
Amounts not allocated to segments	2,161		1,854		(30,653		)	(92,318		)	(27,226		)	(85,401		)
	$	674,769	$	789,853	$	(13,946	)	$	72,589		$	(42,790	)	$	33,908
Nine Months Ended September 30,
Healthcare	$	445,921	$	455,902	$	(47,665	)	$	(42,978	)	$	(36,913	)	$	(33,728	)
Industrial	215,132		176,577		17,285			15,332			3,089			4,815
Hospitality	649,539		619,222		(71,735		)	6,303			(67,183		)	5,122
CLNC	—		—		(17,721		)	—			(16,670		)	—
Other Equity and Debt	578,392		635,011		218,235			512,096			138,157			403,046
Investment Management	136,191		185,089		(109,815		)	76,858			(108,445		)	70,734
Amounts not allocated to segments	5,857		4,589		(70,677		)	(337,640		)	(61,565		)	(312,142		)
	$	2,031,032	$	2,076,390	$	(82,093	)	$	229,971		$	(149,530	)	$	137,847

Selected Balance Sheet Data

The following table summarizes key balance sheet data by segment:



(In thousands)	Healthcare		Industrial		Hospitality		CLNC		Other Equity and Debt		Investment Management		Amounts Not Allocated to Segments		Total
September 30, 2018
Real estate, net	$	5,234,325	$	2,811,976	$	3,764,562	$	—	$	2,147,661	$	—	$	—	$	13,958,524
Loans receivable, net	51,035		—		—		—		1,715,783		17,673		—		1,784,491
Investments in unconsolidated ventures	—		—		—		1,107,168		998,372		221,565		3,742		2,330,847
Securities, at fair value	—		—		—		—		139,028		—		—		139,028
Debt, net	3,220,645		1,062,728		2,599,798		—		2,136,827		—		847,978		9,867,976
December 31, 2017
Real estate, net	$	5,298,168	$	2,451,091	$	3,881,857	$	—	$	2,833,142	$	—	$	—	$	14,464,258
Loans receivable, net	70,641		—		—		—		3,135,450		17,671		—		3,223,762
Investments in unconsolidated ventures	—		—		—		—		1,443,855		207,642		3,742		1,655,239
Securities, at fair value	—		—		—		—		383,942		—		—		383,942
Debt, net	3,242,837		1,001,458		2,560,485		—		3,126,428		—		896,602		10,827,810

Comparison of 2018 to 2017

As a result of the Merger, the historical financial information included herein as of any date or for any periods on or prior to the Closing Date represents the pre-Merger financial information of Colony, and the results of operations of NSAM and NRF were incorporated into the Company effective from January 11, 2017. Additionally, as a result of the Combination which closed on January 31, 2018, the historical financial information in 2018 includes one month of operating results from the CLNY Contributed Portfolio prior to their contribution to Colony Credit; thereafter, 2018 reflects our share of results from our equity method investment in Colony Credit. Consequently, our results for the three and nine months ended September 30, 2018 are not directly comparable to the same periods in 2017.

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Consolidated Results of Operations

Comparison of the Three Months Ended September 30, 2018 to the Three Months Ended September 30, 2017

Our consolidated results of operations were as follows:



	Three Months Ended September 30,
(In thousands)	2018			2017			Change
Revenues
Property operating income	$	567,981		$	613,665		$	(45,684	)
Interest income	59,990			106,479			(46,489		)
Fee income	35,055			59,693			(24,638		)
Other income	11,743			10,016			1,727
Total revenues	674,769			789,853			(115,084		)
Expenses
Property operating expense	307,795			332,006			(24,211		)
Interest expense	145,117			152,054			(6,937		)
Investment and servicing expense	11,117			18,421			(7,304		)
Transaction costs	228			4,636			(4,408		)
Placement fees	5,184			—			5,184
Depreciation and amortization	145,310			162,694			(17,384		)
Provision for loan loss	7,825			5,116			2,709
Impairment loss	76,497			24,073			52,424
Compensation expense	46,726			85,022			(38,296		)
Administrative expenses	23,278			26,502			(3,224		)
Total expenses	769,077			810,524			(41,447		)
Other income
Gain on sale of real estate	35,120			72,541			(37,421		)
Earnings from investments in unconsolidated ventures	13,798			17,447			(3,649		)
Other gain (loss), net	29,677			(8,822		)	38,499
Income (loss) before income taxes	(15,713		)	60,495			(76,208		)
Income tax benefit	1,767			10,613			(8,846		)
Income (loss) from continuing operations	(13,946		)	71,108			(85,054		)
Income from discontinued operations	—			1,481			(1,481		)
Net income (loss)	(13,946		)	72,589			(86,535		)
Net income (loss) attributable to noncontrolling interests:
Redeemable noncontrolling interests	865			1,678			(813		)
Investment entities	32,382			36,906			(4,524		)
Operating Company	(4,403		)	97			(4,500		)
Net income (loss) attributable to Colony Capital, Inc.	(42,790		)	33,908			(76,698		)
Preferred stock redemption	—			(918		)	918
Preferred stock dividends	27,185			33,176			(5,991		)
Net income (loss) attributable to common stockholders	$	(69,975	)	$	1,650		(71,625		)

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Property Operating Income and Expenses



	Three Months Ended September 30,
(In thousands)	2018		2017		Change
Property operating income:
Healthcare	$	146,462	$	156,107	$	(9,645	)
Industrial	73,036		62,711		10,325
Hospitality	224,327		221,965		2,362
Other Equity and Debt	124,156		172,882		(48,726		)
	$	567,981	$	613,665	(45,684		)
Property operating expenses:
Healthcare	$	66,298	$	73,217	$	(6,919	)
Industrial	21,409		16,620		4,789
Hospitality	146,440		143,042		3,398
Other Equity and Debt	73,648		99,127		(25,479		)
	$	307,795	$	332,006	(24,211		)

Healthcare— Property operating income and expenses were lower overall in the three months ended September 30, 2018 compared to the same period in 2017 , primarily due to three skilled nursing facilities that were converted into net lease properties in November 2017 (which resulted in income recorded net of certain operating expenses), as well as the sales of our non-core healthcare properties. Additionally, the decrease in property operating income was also due to rent concessions granted in the third quarter of 2018, while the decrease in property operating expenses was partially offset by lower bad debt expense in the third quarter of 2018.

Industrial — Increases in property operating income and expenses for the three months ended September 30, 2018 compared to the same period in 2017 reflect the continued growth of our industrial portfolio. As of September 30, 2018 and September 30, 2017 , our industrial portfolio consisted of 406 and 388 buildings, respectively, with a net addition of 18 buildings and approximately 4.8 million rentable square feet between September 30, 2017 and September 30, 2018 .

Comparing our industrial portfolio on a same store basis for the three months ended September 30, 2018 and 2017 , the increase in property operating income reflects generally higher rental rates on new and renewed leases as well as higher tenant reimbursements. Average occupancy, however, decreased to 93.5% for the three months ended September 30, 2018 compared to 94.4% for the same period in 2017 , partially due to delays in tenant build-outs which in turn delayed lease commencements. Same store property operating expenses also increased during this period, primarily due to higher real estate taxes as well as repair and maintenance costs.



	Three Months Ended September 30,				Change
($ in thousands)	2018		2017		Amount		%
Industrial: ⁽¹⁾
Same store property operating income	$	46,793	$	45,794	$	999	2.2	%
Same store property operating expenses	13,666		12,513		1,153		9.2	%

__________

⁽¹⁾

The same store portfolio is defined once a year at the beginning of the current calendar year and includes buildings that were owned, stabilized and held-for-use throughout the entirety of both the current and prior calendar years. Stabilized properties are held for more than one year or are greater than 90% leased. Properties acquired, disposed or held-for-sale after the same store portfolio is determined are excluded. Our same store portfolio consisted of 259 buildings.

Hospitality— Property operating income and expenses were higher in the three months ended September 30, 2018 , compared to the same period in 2017 . Overall, revenue per available room ("RevPAR") remained flat but occupancy increased marginally from 78.1% to 78.7% comparing the three months ended September 30, 2018 and 2017 . Outside of room revenue, other income was also higher with increases in parking and cancellation fees as well as food and beverage income. In terms of property operating expenses, the increase was driven largely by higher labor costs, property taxes as well as property operations and maintenance.

Other Equity and Debt — P roperty operating income and expenses decreased $48.7 million and $25.5 million , respectively, for the three months ended September 30, 2018 compared to the same period in 2017 . This can be attributed to continued sales of our non-core properties over time, deconsolidation of a real estate investment following a third party syndication in September 2017, as well as our contribution of $219.7 million of real estate to Colony Credit on January 31, 2018 which had previously contributed $6.3 million of property operating income and $2.2 million of property operating expenses in the third quarter of 2017.

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Interest Income

Interest income decreased $46.5 million for the three months ended September 30, 2018 compared to the same period in 2017 . The decrease can be attributed to the contribution of $1.3 billion of loans to Colony Credit on January 31, 2018 which reduced interest income by $36.4 million, $9.0 million decrease in interest income from sale and deconsolidation of our securitization trusts in the second quarter of 2018, as well as decreases due to continued loan repayments, payoffs and sales.

Fee Income

Fee income is earned from the following sources:



	Three Months Ended September 30,
(In thousands)	2018		2017		Change
Institutional funds	$	12,945	$	16,001	$	(3,056	)
Non-traded REITs	6,143		24,667		(18,524		)
Public companies—NRE, Colony Credit	15,708		3,770		11,938
Broker-dealer, Townsend private funds and other clients	259		15,255		(14,996		)
	$	35,055	$	59,693	(24,638		)

Fee income decreased $24.6 million during the three months ended September 30, 2018 compared to the same period in 2017 . This resulted primarily from sale of the Townsend investment management business in December 2017, which had contributed $14.8 million of fee income in the third quarter of 2017. Additionally, an amendment to the advisory agreement with NorthStar Healthcare that became effective in 2018, which changed its management fee basis from 1% of gross assets to 1.5% of NAV and no longer provides for acquisition fees, resulted in a $7.4 million decrease in fee income. Fee income from our institutional funds business also decreased by $3.1 million as continued realization of investments by liquidating funds more than offset fees from new fee-earning capital. Fee income from Colony Credit, which replaced fees from NorthStar I and NorthStar II, was fairly consistent in the periods under comparison. Although Colony Credit has a larger fee base from converting our on balance sheet equity into fee generating assets under management through contribution of the CLNY Contributed Portfolio to Colony Credit, its fee structure excludes one-off acquisition and disposition fees, which aggregated to $5.2 million for NorthStar I and NorthStar II in the third quarter of 2017.

Other Income

Other income increased $1.7 million in the three months ended September 30, 2018 compared to the same period in 2017 , attributable to amounts grossed up in other income and equity-based compensation expense beginning in 2018 related to equity awards granted by Colony Credit and NRE to the Company and certain of its employees, partially offset by lower recovery income from our loan portfolios which continue to be resolved or sold over time.

Interest Expense



	Three Months Ended September 30,
(In thousands)	2018		2017		Change
Investment-level financing:
Healthcare	$	47,620	$	48,586	$	(966	)
Industrial	10,872		8,803		2,069
Hospitality	41,646		35,351		6,295
Other Equity and Debt	31,306		46,333		(15,027		)
Corporate-level debt	13,673		12,981		692
	$	145,117	$	152,054	(6,937		)

The net $6.9 million decrease in interest expense during the three months ended September 30, 2018 compared to the same period in 2017 can be attributed to the following:

Healthcare— Approximately $1.0 million decrease in interest expense can be attributed to the effect of early debt payoff from sale of our non-core healthcare property in the third quarter of 2018 and continued debt paydowns over time, partially offset by the effect of higher LIBOR on variable rate debt.

Industrial— $2.1 million increase in interest expense reflects the financing costs from additional debt obtained to fund our portfolio growth, with total outstanding debt principal in this segment of $1.1 billion at September 30, 2018 compared to $0.9 billion at September 30, 2017 .

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Hospitality— Net increase in interest expense of $6.3 million resulted from additional debt obtained upon refinancing of one of our hotel portfolios as well as the effect of higher LIBOR on variable rate debt, partially offset by a lower periodic expense of debt discount in 2018 following the extension of a debt maturity in December 2017.

Other Equity and Debt — $15.0 million decrease in interest expense resulted primarily from (i) $6.4 million decrease in interest expense related to approximately $380 million of debt contributed to Colony Credit in January 2018, (ii) $5.4 million decrease in interest expense from sale and deconsolidation of our securitization trusts in the second quarter of 2018, (iii) $3.2 million decrease in interest expense from deconsolidation of a real estate investment following a third party syndication in September 2017, as well as (iv) the effect of debt payoffs from continued sales and resolutions of our non-core investments, partially offset by (v) $3.1 million increase in interest expense from the THL Hotel Portfolio subsequent to its debt refinancing.

Corporate-level debt — $0.7 million net increase in interest expense can be attributed primarily to our junior subordinated notes as a result of higher LIBOR as well as marginally higher utilization of our corporate facility.

Investment and Servicing Expense

Investment and servicing expense includes costs incurred for servicing and managing loan portfolios and foreclosed properties, fees paid to third parties for management of our real estate portfolios, fees incurred in relation to investment level debt refinancing or restructuring, and unconsummated deal costs. The $7.3 million decrease in expenses for the three months ended September 30, 2018 compared to the same period in 2017 can be attributed primarily to the accelerated expense recognition on a non-employee RSU award that became fully vested in September 2017, lower expenses incurred in connection with our loan portfolios and the THL Hotel Portfolio as they are resolved or sold over time, as well as expenses associated with the Townsend business that was sold in December 2017.

Transaction Costs

Transaction costs are $4.4 million lower in the three months ended September 30, 2018 compared to the same period in 2017. The prior year included transaction costs incurred in connection with the foreclosure of the THL Hotel Portfolio.

Placement Fees

Placement fees incurred in the third quarter of 2018 were in connection with fundraising for our co-investment vehicle in AccorInvest.

Depreciation and Amortization

The net decrease of $17.4 million in depreciation and amortization for the three months ended September 30, 2018 compared to the same period in 2017 can be attributed to the following: (i) contribution of real estate to Colony Credit in January 2018 as well as real estate classified as held for sale or sold in 2017, mainly in our other equity and debt segment; (ii) deconsolidation of a real estate investment following a third party syndication in September 2017; as well as (iii) lower amortization on our investment management intangible assets following the sale of Townsend in December 2017, write-off of management contracts in connection with the Combination in January 2018 and write-off of the NorthStar trade name in June 2018; all of which were partially offset by (iv) continued growth in our industrial portfolio.

Provision for Loan Losses



	Three Months Ended September 30,
(In thousands)	2018		2017		Change
Non-PCI loans	$	214	$	3,965	$	(3,751	)
PCI loans	7,611		1,151		6,460
Total provision for loan losses	$	7,825	$	5,116	2,709

Provision for loan losses was $2.7 million higher in the three months ended September 30, 2018 compared to the same period in 2017 . The third quarter of 2017 had included a $2.9 million recovery of provision on PCI loans and absent the recovery, overall provision for loan losses would have been fairly consistent with the third quarter of 2018. Provision for loan loss in the third quarter of 2018 relates primarily to PCI loans, attributable to a decline in collateral value and write-downs upon sale of two loan portfolios. Outside of PCI loans, provision for loan loss in the third quarter of 2017 was in connection with a development loan and a loan in our healthcare segment.

Of the total provision for loan losses, $5.3 million and $2.5 million in the three months ended September 30, 2018 and 2017 , respectively, were attributed to noncontrolling interests in investment entities.

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Impairment Loss



	Three Months Ended September 30,
(In thousands)	2018			2017		Change
Healthcare	$	(274	)	$	8,250	$	(8,524	)
Industrial	774			44		730
Hospitality	61,865			—		61,865
Other Equity and Debt	7,132			6,718		414
Investment Management	7,000			9,061		(2,061		)
	$	76,497		$	24,073	52,424

Healthcare — In the three months ended September 30, 2018 , there was a $0.2 million impairment of sold real estate and a $0.5 million reversal of impairment upon final assessment and settlement of hurricane-related loss, which was initially recorded in the third quarter of 2017, as reflected in the approximately $8.3 million impairment in 2017.

Industrial — Impairment in the three months ended September 30, 2018 and 2017 are both related to properties sold or held for sale.

Hospitality — Impairment was recorded on certain properties for which we adopted a sales strategy in the third quarter of 2018, with the intention of initiating a sale in the near term. Prior to the third quarter of 2018, we held a long-term hold strategy on these properties. Impairment was estimated based on indicative broker price opinions to ascertain the recoverable value of these properties.

Other Equity and Debt — Impairment in the third quarter of 2018 arose primarily from two properties in our THL Hotel Portfolio that are being sold and certain of our European properties. In the third quarter of 2017, impairment was related primarily to our non-core limited service hotels and net lease properties that were sold and certain of our European properties.

Investment Management — Impairment of $7.0 million was recorded on the NorthStar Healthcare management contract intangible in the third quarter of 2018 based upon revised estimated future cash flows. The $9.1 million impairment in the third quarter of 2017 represented a then preliminary write-down of goodwill allocated to the Townsend operating segment, which was subsequently reversed upon finalization of the net asset value and sales price of the Townsend business upon closing of its sale in December 2017.

Of the $76.5 million and $24.1 million of total impairment for the three months ended September 30, 2018 and 2017 , $4.9 million and $4.7 million was attributable to noncontrolling interests in investment entities, respectively.

Compensation Expense

The table below provides the components of compensation expense:



	Three Months Ended September 30,
(In thousands)	2018		2017		Change
Cash compensation and benefits	$	33,741	$	43,969	$	(10,228	)
Equity-based compensation	11,474		7,848		3,626
	45,215		51,817		(6,602		)
Merger-related compensation expense:
Equity-based compensation for replacement awards to NSAM executives subject to one year vesting	—		30,336		(30,336		)
Severance and other employee transition	1,511		2,869		(1,358		)
	1,511		33,205		(31,694		)
Total compensation expense	$	46,726	$	85,022	(38,296		)

Compensation expense for the three months ended September 30, 2017 included $31.7 million of incremental Merger-related costs, predominantly equity-based compensation related to replacement equity awards issued to certain NSAM executives which vested one year from the Closing Date, as well as $7.9 million of compensation costs in connection with the Townsend business that was sold in December 2017 and the broker-dealer business that was contributed to Colony S2K in April 2018.

Excluding these costs, compensation expense increased $1.3 million in the three months ended September 30, 2018 compared to the same period in 2017 as a result of higher equity-based compensation in 2018 from new equity grants, including a $2.9 million gross up of equity-based compensation related to equity awards granted by Colony Credit and

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NRE to the Company and its employees, partially offset by lower overall cash compensation, driven by lower bonus accruals.

Administrative Expense

Administrative expense was $23.3 million in the three months ended September 30, 2018 , a $3.2 million decrease from the same period in 2017 , largely due to a decrease in overall rent expense after the Merger and lower administrative expenses related to our broker-dealer business which was contributed to Colony S2K in April 2018.

Gain on Sale of Real Estate



	Three Months Ended September 30,
(In thousands)	2018		2017		Change
Industrial	$	2,104	$	—	$	2,104
Other Equity and Debt	33,016		72,541		(39,525		)
	$	35,120	$	72,541	(37,421		)

Industrial — We recorded a $2.1 million gain from the sale of one building in Denver during the three months ended September 30, 2018 , while the sale of one property in Atlanta during the third quarter of 2017 did not result in a gain.

Other Equity and Debt — We recorded gains totaling $33.0 million in the three months ended September 30, 2018 , predominantly from sales of our European properties, of which $28.6 million was from the sale of a net lease property in Norway to Colony Credit. The $72.5 million gain in the three months ended September 30, 2017 was primarily driven by a $68.1 million gain from the sale of two net lease properties in Switzerland.

Gain on sale of $4.3 million and $3.1 million in the three months ended September 30, 2018 and 2017 , respectively, was attributed to noncontrolling interests in investment entities.

Earnings (Losses) from Investments in Unconsolidated Ventures



	Three Months Ended September 30,
(In thousands)	2018			2017		Change
CLNC	$	(19,480	)	$	—	$	(19,480	)
Other Equity and Debt	24,517			13,071		11,446
Investment Management	8,761			4,376		4,385
	$	13,798		$	17,447	(3,649		)

CLNC — For the three months ended September 30, 2018 , our share of net loss from Colony Credit was $19.5 million . The loss was largely driven by: (i) a provision for loan loss on four related New York hospitality loans in which the progress of discussions with the borrower in the third quarter of 2018 led Colony Credit to explore additional options for a potential resolution, including a recapitalization and earlier than expected receipt and sale of collateral; as well as (ii) impairments on three properties arising from new developments in the third quarter of 2018, including a reduction in estimated holding period and tenant vacancy.

Other Equity and Debt — Earnings from investments in unconsolidated ventures was $11.4 million higher during the three months ended September 30, 2018 compared to the same period in 2017 , attributable primarily to (i) additional fundings made on our preferred equity and ADC loan investments, (ii) increase in fair value of AccorInvest which is held through our sponsored fund, (iii) higher share of net income from our interest in NRE, and (iv) a net gain from our remaining private equity fund investments compared to a net loss in prior year. These increases were partially offset by the loss in earnings following our contribution of investments to Colony Credit on January 31, 2018.

Investment Management — We recorded net earnings of $8.8 million during the three months ended September 30, 2018 compared to net earnings of $4.4 million in the same period in 2017 . The increase was driven by approximately $8.5 million of carried interest allocation from our sponsored open-end industrial fund and AccorInvest fund, $3.5 million of income, primarily management fees, from our joint venture with Digital Bridge that co-manages our digital infrastructure vehicle, partially offset by $8.2 million of impairment recorded on an equity method investee.

Earnings from investments in unconsolidated ventures of $8.3 million and $6.9 million in the three months ended September 30, 2018 and 2017 , respectively, were attributed to noncontrolling interests in investment entities.

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Other Gain (Loss), Net

Other gain was $29.7 million for the three months ended September 30, 2018 compared to a loss of $8.8 million , for the three months ended September 30, 2017 , a difference of $38.5 million net gain, which can be attributed primarily to the following:


•	a $27.5 million gain compared to a $8.5 million loss recorded in the third quarter of 2018 and 2017, respectively, due to rising interest rates on a non-designated out-of-money interest rate swap assumed through the Merger. The swap was intended to hedge future refinancing risk on certain NRF mortgage debt; and


•	$7.2 million other-than-temporary impairment and $3.2 million loss from write-offs in our CRE securities portfolio in the third quarter of 2017.

These increases were partially offset by:


•	a $1.1 million loss on remeasurement of a foreign currency loan receivable in our healthcare segment in the third quarter of 2018 compared to a $2.6 million gain in the same period in 2017; and

•

a $6.1 million unrealized gain in the third quarter of 2017 on the contingent consideration liability in connection with Colony's management internalization in 2015. There was no unrealized gain or loss recognized in the third quarter of 2018 as the contingent consideration had a final measurement on June 30, 2018, the end of its earnout period, and was settled in August 2018 (refer to Note 14 to the consolidated financial statements).

Income Tax Benefit

We recorded an income tax benefit of $1.8 million in the three months ended September 30, 2018 compared to $10.6 million in the three months ended September 30, 2017 . A preliminary impairment on the Townsend goodwill, which was tax-deductible, contributed to the larger income tax benefit in the third quarter of 2017. In the third quarter of 2018, income tax benefit was lower, partially resulting from the Tax Cuts and Jobs Act enacted in December 2017, which provides for a reduction in the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018.

Income from Discontinued Operations

Preferred Stock Redemption

In the three months ended September 30, 2017 , $0.9 million was recorded to increase net income available to common stockholders, representing the excess in aggregate carrying value of the legacy NRF Series B and Series C preferred stock, for which redemption notices were delivered in September 2017, over their redemption price of $25.00 per share. This was because the Series C preferred stock carrying value included a premium that was recognized based on its trading price at the closing of the Merger.

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Comparison of the Nine Months Ended September 30, 2018 to the Nine Months Ended September 30, 2017

Our consolidated results of operations were as follows:



	Nine Months Ended September 30,
(In thousands)	2018			2017			Change
Revenues
Property operating income	$	1,713,349		$	1,541,050		$	172,299
Interest income	168,027			333,286			(165,259		)
Fee income	111,821			167,262			(55,441		)
Other income	37,835			34,792			3,043
Total revenues	2,031,032			2,076,390			(45,358		)
Expenses
Property operating expense	934,239			802,072			132,167
Interest expense	447,315			418,592			28,723
Investment and servicing expense	55,721			43,968			11,753
Transaction costs	3,585			94,416			(90,831		)
Placement fees	6,477			2,398			4,079
Depreciation and amortization	427,911			453,225			(25,314		)
Provision for loan loss	27,133			12,907			14,226
Impairment loss	299,729			45,353			254,376
Compensation expense	151,369			257,599			(106,230		)
Administrative expenses	72,638			80,163			(7,525		)
Total expenses	2,426,117			2,210,693			215,424
Other income
Gain on sale of real estate	96,266			96,701			(435		)
Earnings from investments in unconsolidated ventures	47,938			253,833			(205,895		)
Other gain (loss), net	133,731			(7,291		)	141,022
Income (loss) before income taxes	(117,150		)	208,940			(326,090		)
Income tax benefit	35,159			6,990			28,169
Income (loss) from continuing operations	(81,991		)	215,930			(297,921		)
Income (loss) from discontinued operations	(102		)	14,041			(14,143		)
Net income (loss)	(82,093		)	229,971			(312,064		)
Net income (loss) attributable to noncontrolling interests:
Redeemable noncontrolling interests	2,042			3,015			(973		)
Investment entities	79,904			87,765			(7,861		)
Operating Company	(14,509		)	1,344			(15,853		)
Net income (loss) attributable to Colony Capital, Inc.	(149,530		)	137,847			(287,377		)
Preferred stock redemption	(3,995		)	4,530			(8,525		)
Preferred stock dividends	89,960			98,328			(8,368		)
Net income (loss) attributable to common stockholders	$	(235,495	)	$	34,989		(270,484		)

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Property Operating Income and Property Operating Expenses



	Nine Months Ended September 30,
(In thousands)	2018		2017		Change
Property operating income:
Healthcare	$	441,438	$	451,099	$	(9,661	)
Industrial	212,358		175,064		37,294
Hospitality	648,845		619,027		29,818
Other Equity and Debt	410,708		295,860		114,848
	$	1,713,349	$	1,541,050	172,299
Property operating expenses:
Healthcare	$	203,247	$	206,363	$	(3,116	)
Industrial	62,703		49,312		13,391
Hospitality	425,856		401,351		24,505
Other Equity and Debt	242,433		145,046		97,387
	$	934,239	$	802,072	132,167

Healthcare— Property operating income and expenses for the nine months ended September 30, 2018 and 2017 are not directly comparable as the 2017 period excluded 10 days of pre-Merger results.

After giving effect to the 10-day pre-Merger period in 2017, property operating income and expenses decreased $25.3 million and $10.4 million , respectively, for the nine months ended September 30, 2018 compared to the same period in 2017 , primarily due to three skilled nursing facilities that were converted into net lease properties in November 2017 (which resulted in income recorded net of certain operating expenses), as well as sales of our non-core healthcare properties. Additionally, property operating income was also reduced by the accelerated amortization of above-market leases following lease modifications in the second quarter of 2018, as well as rent concessions granted in 2018, both of which were partially offset by termination fees from an early lease termination in the first quarter of 2018.

Industrial — Increases in property operating income and expenses for the nine months ended September 30, 2018 and 2017 reflect the continued growth of our industrial portfolio. As of September 30, 2018 and September 30, 2017 , our industrial portfolio consisted of 406 and 388 buildings, respectively, with a net addition of 18 buildings and approximately 4.8 million rentable square feet between September 30, 2017 and September 30, 2018 .

Comparing our industrial portfolio on a same store basis for the nine months ended September 30, 2018 and 2017 , the increase in property operating income reflects generally higher rental rates on new and renewal leases as well as higher tenant reimbursements. Average occupancy, however, decreased to 94.0% from 95.1% for the nine months ended September 30, 2018 and 2017 , partially due to delays in tenant build-outs which in turn delayed lease commencements. Same store property operating expenses also increased during this period, primarily due to higher real estate taxes, repair and maintenance costs as well as bad debt expense.



	Nine Months Ended September 30,
($ in thousands)	2018		2017		% change
Industrial: ⁽¹⁾
Same store property operating income	$	142,396	$	137,039	3.9	%
Same store property operating expenses	42,130		38,557		9.3	%

__________

⁽¹⁾

Hospitality— Property operating income and expenses for the nine months ended September 30, 2018 compared to the same period in 2017 are not directly comparable as the 2017 period excluded 10 days of pre-Merger results. After giving effect to the 10-day pre-Merger period in 2017, property operating income and expenses increased $13.2 million and $11.9 million , respectively. The overall increase can be attributed to a 2.1% higher RevPar, which in turn was driven by higher occupancy, increasing 1.3% from 75.3% to 76.3% in the nine months ended September 30, 2018 compared to the same period in 2017 , supported by strong corporate and group demand as well as post-renovation demand in the first half of 2018. In addition to room revenue, there was higher other income such as food and beverage, parking and cancellation fees. In terms of property operating expenses, the increase was driven largely by higher labor costs, some of

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which was related to a franchisor's new food and beverage wage rate program, and to a lesser extent, by a combination of higher operating expenses which are tied to revenues, property taxes as well as property operations and maintenance.

Other Equity and Debt — P roperty operating income and expenses increased by $114.8 million and $97.4 million , respectively, during the nine months ended September 30, 2018 compared to the same period in 2017 . This can be attributed primarily to the THL Hotel Portfolio which was acquired through a consensual foreclosure in July 2017, therefore 2018 included an additional $167.9 million of hotel operating income and $118.3 million of hotel operating expenses from the first six months of 2018. However, these increases were partially offset by decreases resulting from continued sales of our non-core properties, deconsolidation of a real estate investment following a third party syndication in September 2017, as well as our contribution of $219.7 million of real estate to Colony Credit on January 31, 2018 which had contributed decreases of $15.4 million in property operating income and $4.9 million in property operating expenses.

Interest Income

Interest income decreased $165.3 million for the nine months ended September 30, 2018 compared to the same period in 2017 . The decrease can be attributed to our contribution of $1.3 billion of loans to Colony Credit on January 31, 2018 which reduced interest income by $98.9 million, $20.6 million decrease in interest income from sale and deconsolidation of our securitization trusts in the second quarter of 2018, consensual foreclosure of the THL Hotel Portfolio loan on July 1, 2018 which had previously contributed interest income of $18.8 million, as well as decreases due to continuing loan repayments, payoffs and sales.

Fee Income

Fee income is earned from the following sources:



	Nine Months Ended September 30,
(In thousands)	2018		2017		Change
Institutional funds	$	43,257	$	46,287	$	(3,030	)
Non-traded REITs	23,846		67,693		(43,847		)
Public company—NRE, Colony Credit	44,099		10,495		33,604
Broker-dealer, Townsend funds and other clients	619		42,787		(42,168		)
	$	111,821	$	167,262	(55,441		)

Fee income decreased $55.4 million during the nine months ended September 30, 2018 compared to the same period in 2017 . This resulted primarily from sale of the Townsend investment management business in December 2017, which had contributed $41.1 million of fee income during the nine months ended September 30, 2017 . Additionally, an amendment to the advisory agreement of NorthStar Healthcare that became effective in 2018, which changed its management fee basis from 1% of gross assets to 1.5% of NAV and no longer provides for acquisition fees, contributed a decrease in fee income of $14.5 million. Fee income from our institutional funds business also recorded a net decrease of $3.0 million as continued realization of investments by liquidating funds more than offset fees from new capital raised. These decreases were partially offset by an approximately $2.0 million increase in fee income from Colony Credit, which replaced fees from non-traded REITs, NorthStar I and NorthStar II, and has a larger fee base as we converted our on balance sheet equity into fee generating assets under management through contribution of the CLNY Contributed Portfolio to Colony Credit. Fee income from NRE also recorded a $1.9 million increase resulting from a higher net asset value in 2018.

Other Income

Other income increased $3.0 million in the nine months ended September 30, 2018 compared to the same period in 2017 , attributable primarily to (i) amounts grossed up in other income and equity-based compensation expense beginning in 2018 related to equity awards granted by Colony Credit and NRE to the Company and certain of its employees, and to a lesser extent, (ii) higher dividend income from a sponsored private fund that was consolidated in the third quarter of 2017, and (iii) higher CDO advisory fees following a deconsolidation of a CDO securitization trust, all of which were partially offset by (iv) lower recovery income from our loan portfolios which continue to be resolved or sold over time, as well as (v) lower cost reimbursement income from our sponsored retail companies, in particular following the Combination.

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Interest Expense



	Nine Months Ended September 30,
(In thousands)	2018		2017		Change
Investment-level financing:
Healthcare	$	143,740	$	137,522	$	6,218
Industrial	31,918		29,163		2,755
Hospitality	112,501		98,484		14,017
Other Equity and Debt	118,062		112,782		5,280
Corporate-level debt	41,094		40,641		453
	$	447,315	$	418,592	28,723

The $28.7 million net increase in interest expense for the nine months ended September 30, 2018 compared to the same period in 2017 can be attributed to the following:

Healthcare— Interest expense in the nine months ended September 30, 2018 and 2017 are not directly comparable as the nine months ended September 30, 2017 excluded 10 days of interest expense pre-Merger. After giving effect to the 10-day pre-Merger period in 2017, there was a marginal increase in interest expense of $0.4 million in the nine months ended September 30, 2018 compared to the same period in 2017 , attributable to the impact of higher LIBOR on variable rate debt which was offset by early debt payoffs from sales of our non-core healthcare properties and continued debt paydowns over time.

Industrial— Net increase in interest expense of $2.8 million resulted from new financing obtained to fund our portfolio growth, partially offset by accelerated amortization of deferred financing costs upon extinguishment of our variable rate acquisition debt through a refinancing in the first and second quarters of 2017.

Hospitality— Interest expense in the nine months ended September 30, 2018 and 2017 are not directly comparable as the nine months ended September 30, 2017 excluded 10 days of interest expense pre-Merger. After giving effect to the 10-day pre-Merger period in 2017, interest expense increased approximately $11.0 million in the nine months ended September 30, 2018 compared to the same period in 2017 resulting from a combination of (i) additional debt obtained upon refinancing of one of our hotel portfolios, (ii) higher deferred financing costs from a full year of expense in 2018 and additional debt refinanced in 2018, as well as (iii) the impact from higher LIBOR on variable rate debt, all of which were partially offset by (iv) lower periodic expense of debt discount in 2018 following the extension of a debt maturity in December 2017.

Other Equity and Debt — $5.3 million increase in interest expense driven by (i) $37.8 million increase in interest expense due to debt assumed from the consensual foreclosure of the THL Hotel Portfolio in July 2017, partially offset by (ii) $19.3 million decrease in interest expense related to approximately $380 million of debt contributed to Colony Credit in January 2018, (iii) $7.0 million decrease in interest expense from sale and deconsolidation of our securitization trusts in the second quarter of 2018, (iv) $4.1 million decrease in interest expense from deconsolidation of a real estate investment following a third party syndication in September 2017, and (v) the effect of debt payoffs from continued sales and resolutions of our non-core investments.

Corporate-level debt — Interest expense in the nine months ended September 30, 2018 and 2017 are not directly comparable as the nine months ended September 30, 2017 excluded 10 days of interest expense pre-Merger. After giving effect to the 10-day pre-Merger period in 2017, there was a marginal increase in interest expense of $0.1 million as the effect of higher LIBOR on our credit line and junior subordinated debt was largely offset by lower utilization of our credit line.

Investment and Servicing Expense

Investment and servicing expense includes costs incurred for servicing and managing loan portfolios and foreclosed properties, fees paid to third parties for management of our real estate portfolios, fees incurred in relation to investment-level debt refinancing or restructuring, and unconsummated deal costs. The $11.8 million increase in costs for the nine months ended September 30, 2018 compared to the same period in 2017 can be attributed primarily to a write-off of cost reimbursement receivable from NorthStar/RXR NY Metro following the termination of its offering period in March 2018, a write-off of organization and offering costs receivable related to certain retail companies, as well as special servicing and hotel management fees incurred in connection with the THL Hotel Portfolio acquired in July 2017. These increases were partially offset by expense recognition of a non-employee RSU award which became fully vested in September 2017, lower expenses related to our loan portfolios as they are resolved or sold over time, as well as expenses incurred in 2017

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associated with the Townsend business that was sold and the broker-dealer business that was contributed to the Colony S2K joint venture.

Transaction Costs

Significant transaction costs totaling $85.3 million were incurred in the nine months ended September 30, 2017 in relation to the Merger, consisting of primarily professional fees for legal, financial advisory, accounting and consulting services, including $66.8 million of investment banking fees that were contingent upon closing of the Merger. Excluding Merger-related costs, the higher transaction costs in 2017 can also be attributed to costs incurred in connection with the foreclosure of the THL Hotel Portfolio and acquisition of a distressed loan portfolio in Ireland.

Placement Fees

Placement fees were $6.5 million in the nine months ended September 30, 2018 and $2.4 million in the same period last year. The higher fees in 2018 were attributed to the fundraising for our co-investment vehicle in AccorInvest while fees incurred in 2017 were in connection with fundraising for our open-end industrial fund and our distressed credit fund.

Depreciation and Amortization

The net decrease of $25.3 million in depreciation and amortization for the nine months ended September 30, 2018 compared to the same period in 2017 can be attributed to the following: (i) contribution of real estate to Colony Credit in January 2018 as well as real estate classified as held for sale or sold in 2017, mainly in our other equity and debt segment; (ii) deconsolidation of a real estate investment following a third party syndication in September 2017; as well as (iii) lower amortization on our investment management intangible assets following the sale of Townsend in December 2017, write-off of management contracts in connection with the Combination in January 2018 and write-off of the Northstar trade name in June 2018, all of which were partially offset by (iv) lower expenses in the nine months ended September 30, 2017 on assets acquired through the Merger as 2017 excluded 10 days of activities pre-Merger; (v) acquisition of the THL Hotel Portfolio through a consensual foreclosure in July 2017, and (vi) continued growth in our industrial portfolio.

Provision for Loan Losses



	Nine Months Ended September 30,
(In thousands)	2018		2017		Change
Non-PCI loans	$	7,950	$	6,890	$	1,060
PCI loans	19,183		6,017		13,166
Total provision for loan losses	$	27,133	$	12,907	14,226

Provision for loan losses was $14.2 million higher in the nine months ended September 30, 2018 compared to the same period in 2017 , primarily due to higher provision on PCI loans, driven by write-downs on our loan portfolios upon sale. Additionally, the nine months ended September 30, 2017 had included $4.4 million recovery of provision on PCI loans. In terms of non-PCI loans, provision for loan loss in 2018 arose largely from the sale of our interest in a securitization trust that resulted in a deconsolidation of the trust in June 2018 and from a loan that is in maturity default, while the provision in 2017 relates to certain loans in the securitization trust that was deconsolidated in 2018, as well as a development loan and a loan in our healthcare segment.

Of the total provision for loan losses, $15.2 million and $6.3 million in the nine months ended September 30, 2018 and 2017 , respectively, were attributed to noncontrolling interests in investment entities.

Impairment Loss



	Nine Months Ended September 30,
(In thousands)	2018		2017		Change
Healthcare	$	5,488	$	8,250	$	(2,762	)
Industrial	948		44		904
Hospitality	61,865		—		61,865
Other Equity and Debt	23,687		27,998		(4,311		)
Investment Management	207,741		9,061		198,680
	$	299,729	$	45,353	254,376

Healthcare — Impairment of $5.5 million was recorded in the nine months ended September 30, 2018 on properties that have since been sold, and also included additional write-downs based on revised insurance estimates on properties

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with hurricane-related damage that were initially written-down in the third quarter of 2017, as reflected in the approximately $8.3 million impairment in 2017.

Industrial — Impairment in the nine months ended September 30, 2018 and 2017 both relate to properties sold or held for sale.

Other Equity and Debt — Impairment was lower at $23.7 million in the nine months ended September 30, 2018 compared to $28.0 million in the nine months ended September 30, 2017 , largely due to lower write-downs on our European properties. In addition to foreclosed properties, other notable impairments included certain properties in the THL Hotel Portfolio that were sold or held for sale in 2018 and in 2017, non-core limited service hotels and net lease properties that were sold.

Investment Management — Impairment in the nine months ended September 30, 2018 was related to (i) the write-off of NorthStar I and NorthStar II management contract intangibles totaling $139.0 million as these contracts were terminated upon closing of the Combination on January 31, 2018; (ii) the write-off of NorthStar/RXR NY Metro management contract intangible of approximately $1.4 million upon the termination of its offering period effective March 31, 2018; (iii) write-off of the NorthStar trade name of $59.5 million; and (iv) $7.0 million impairment of the NorthStar Healthcare management contract intangible in the third quarter of 2018 based upon revised estimated future cash flows. The $9.1 million impairment in the third quarter of 2017 represented a then preliminary write-down of goodwill allocated to the Townsend business, which was subsequently reversed upon finalization of the net asset value and sales price of the Townsend business upon closing of its sale in December 2017.

Of the $299.7 million and $45.4 million of impairment in the nine months ended September 30, 2018 and 2017 , respectively, $18.3 million and $20.2 million were attributable to noncontrolling interests in investment entities, respectively.

Compensation Expense

The following table provides the components of compensation expense.



	Nine Months Ended September 30,
(In thousands)	2018		2017		Change
Cash compensation and benefits	$	103,545	$	126,623	$	(23,078	)
Equity-based compensation	34,725		20,783		13,942
	138,270		147,406		(9,136		)
Merger-related compensation expense
Equity-based compensation for replacement awards to NSAM executives subject to one year vesting	3,297		86,390		(83,093		)
Severance and other employee transition	9,802		23,803		(14,001		)
	13,099		110,193		(97,094		)
	$	151,369	$	257,599	(106,230		)

The nine months ended September 30, 2017 included $97.1 million of incremental Merger-related costs, predominantly equity-based compensation related to replacement equity awards issued to certain NSAM executives which vested one year from the Closing Date, as well as $20.3 million of incremental compensation costs in connection with the Townsend business that was sold in December 2017 and the broker-dealer business that was contributed to Colony S2K in April 2018.

Excluding these items, compensation expense increased $11.2 million during the nine months ended September 30, 2018 compared to the same period in 2017 as a result of higher equity-based compensation from new equity grants, including $7.9 million gross up of equity-based compensation related to equity awards granted by Colony Credit and NRE to the Company and its employees, partially offset by lower overall cash compensation, driven by lower bonus accruals.

Administrative Expense

Administrative expense was $72.6 million in the nine months ended September 30, 2018 , a $7.5 million decrease from the same period in 2017 , largely due to a decrease in expenses incurred in connection with integrating the

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operations of the combined entities following the Merger, including lower overall rent expense, as well as lower administrative expenses related to our broker-dealer business which was contributed to Colony S2K in April 2018.

Gain on Sale of Real Estate



	Nine Months Ended September 30,
(In thousands)	2018		2017		Change
Industrial	$	4,397	$	8,695	$	(4,298	)
Other Equity and Debt	91,869		88,006		3,863
	$	96,266	$	96,701	(435		)

Industrial — The $4.4 million gain in the nine months ended September 30, 2018 was realized from the sales of one building each in the Orlando and Denver markets. In the nine months ended September 30, 2017 , the $8.7 million gain was generated predominantly from sales of nine properties in the Chicago market.

Other Equity and Debt — We recorded gains totaling $91.9 million in the nine months ended September 30, 2018 and $88.0 million in the nine months ended September 30, 2017 , of which $79.6 million and $76.0 million, respectively, resulted from sales of our European properties, the largest being $28.6 million from sale of a net lease property in Norway in August 2018 and $68.1 million from sale of two net lease properties in Switzerland in July 2017. Other significant gains include $11.2 million from a U.S. multifamily property and $6.0 million from a U.S. net lease property in the second quarters of 2018 and 2017, respectively.

Gain on sale of $34.7 million and $14.3 million in the nine months ended September 30, 2018 and 2017 , respectively, were attributed to noncontrolling interests in investment entities.

Earnings (Losses) from Investments in Unconsolidated Ventures



	Nine Months Ended September 30,
(In thousands)	2018			2017		Change
CLNC	$	(17,721	)	$	—	$	(17,721	)
Other Equity and Debt	59,501			241,462		(181,961		)
Investment Management	6,158			12,371		(6,213		)
	$	47,938		$	253,833	(205,895		)

CLNC — For the nine months ended September 30, 2018 , our share of net loss in Colony Credit was $17.7 million . The loss resulted from: (i) significant transaction costs incurred in connection with the closing of the Combination; (ii) a provision for loan loss on four related New York hospitality loans in which the progress of discussions with the borrower in the third quarter of 2018 led Colony Credit to explore additional options for a potential resolution, including a recapitalization and earlier than expected receipt and sale of collateral; as well as (iii) impairments on three properties arising from new developments in the third quarter of 2018, including a reduction in estimated holding period and tenant vacancy.

Other Equity and Debt — 2017 included a $191.2 million gain from the sale of our 14% interest in Starwood Waypoint Homes along with our proportionate share of gain from additional share issuance by the investee. Excluding this gain, earnings from investments in unconsolidated ventures was $9.2 million higher in the nine months ended September 30, 2018 , attributable primarily to (i) additional fundings made on our preferred equity and ADC loan investments, (ii) increase in fair value of AccorInvest which is held through our sponsored fund, and (iii) higher share of net income from our interest in NRE. These increases were partially offset by (iv) reduction in earnings from contribution of certain investments to Colony Credit in January 2018, (v) net loss from our private equity fund investments compared to net gain in the prior year, as well as (vi) impairment taken on an equity method investment based on an offer price.

Investment Management — The $6.2 million decrease in net earnings was driven by $19.4 million of impairment recorded on an equity method investment and a net decrease in earnings from existing investments, partially offset by $13.3 million of carried interest allocation from our sponsored open-end industrial fund and AccorInvest fund as well as $3.5 million of income, primarily management fees, from our joint venture with Digital Bridge that co-manages our digital infrastructure vehicle.

Earnings from investments in unconsolidated ventures of $19.4 million and $18.1 million in the nine months ended September 30, 2018 and 2017 , respectively, were attributed to noncontrolling interests in investment entities.

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Other Gain (Loss), Net

Other gain was $133.7 million for the nine months ended September 30, 2018 compared to loss of $7.3 million for the nine months ended September 30, 2017 , resulting primarily from the following:


•	$108.6 million gain relative to a $14.3 million loss recorded in the nine months ended September 30, 2018 and 2017, respectively, on a non-designated out-of-money interest rate swap assumed through the Merger due to rising interest rates. The swap was intended to hedge future refinancing risk on certain legacy NRF mortgage debt;


•	$10.9 million gain from deconsolidation of consolidated N-Star CDOs in the second quarter of 2018;


•	$10.8 million increase in net gains from sale of CRE securities; and


•	$9.9 million gain recorded in connection with the Combination, which represents the excess of fair value over carrying value of the Company's equity interest in the CLNY Investment Entities, retained through the Company’s 37% interest in Colony Credit (refer to Note 4 of the consolidated financial statements).

These increases were partially offset by


•	$12.6 million decrease in unrealized gain on the contingent consideration liability in connection with Colony's management internalization in 2015, which had a final measurement on June 30, 2018, the end of its earnout period, and was settled in August 2018 (refer to Note 14 of the consolidated financial statements); and


•	$3.1 million loss compared to $6.8 million gain in the nine months ended September 30, 2018 and 2017, respectively, on remeasurement of a foreign currency loan receivable in our healthcare segment.

Income Tax Benefit

We recorded income tax benefit of $35.2 million in the nine months ended September 30, 2018 compared to $7.0 million in the nine months ended September 30, 2017 . The larger income tax benefit in 2018 was driven by a $38.1 million deferred tax liability that was reversed in connection with the write-off of the management contract intangible assets for NorthStar I and NorthStar II as the contracts were terminated upon closing of the Combination. This was partially offset by income tax expense related to equity based compensation.

Income from Discontinued Operations

Income from discontinued operations represents net income generated from businesses that we acquired through business combinations that were classified as held for sale at the time of acquisition. There was immaterial net loss from discontinued operations in the nine months ended September 30, 2018 from operations of hotels held for sale in the THL Hotel Portfolio acquired in July 2017, while the $14.0 million net income from discontinued operations in the nine months ended September 30, 2017 was derived predominantly from operations of our manufactured housing portfolio during the approximately two month period prior to its disposition in March 2017.

Preferred Stock Redemption

During the nine months ended September 30, 2018 , approximately $4.0 million was recorded to decrease net loss attributable to common stockholders, representing the excess in aggregate carrying value of the Series D preferred stock, over their redemption price of $25.00 per share. This was because the Series D preferred stock carrying value included a premium that was recognized based on its trading price at the closing of the Merger.

In comparison, a $4.5 million charge against net income available to common stockholders was recorded in the nine months ended September 30, 2017 , representing the excess of the redemption price at $25.00 per share over the carrying value of our Series A and Series F preferred stock which we redeemed in full in June 2017, as well as Series B and Series C preferred stock for which redemption notices were delivered in September 2017 and settled in October 2017.

Segments

The following discussion summarizes key information on each of our six segments.

Net operating income ("NOI") and earnings before interest, income tax, depreciation and amortization ("EBITDA") for our core real estate segments were determined as follows. NOI and EBITDA are discussed further and reconciled to the most directly comparable GAAP figure in " —Non-GAAP Supplemental Financial Measures. "

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	Healthcare						Industrial						Hospitality
	Three Months Ended September 30,						Three Months Ended September 30,						Three Months Ended September 30,
(In thousands)	2018			2017			2018			2017			2018			2017
Total revenues	$	147,907		$	157,732		$	73,902		$	63,410		$	224,384		$	221,987
Straight-line rent revenue and amortization of above- and below-market lease intangibles	(5,140		)	(6,513		)	(3,012		)	(2,011		)	(6		)	(3		)
Interest income	—			—			(107		)	(165		)	—			—
Property operating expenses ⁽¹⁾	(66,298		)	(73,217		)	(21,409		)	(16,620		)	(146,440		)	(143,042		)
Compensation and administrative expense ⁽¹⁾	—			—			(387		)	(336		)	—			—
NOI or EBITDA	$	76,469		$	78,002		$	48,987		$	44,278		$	77,938		$	78,942



	Healthcare						Industrial						Hospitality
	Nine Months Ended September 30,						Nine Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2018			2017			2018			2017			2018			2017
Total revenues	$	445,921		$	455,902		$	215,132		$	176,577		$	649,539		$	619,222
Straight-line rent revenue and amortization of above- and below-market lease intangibles	(11,039		)	(21,897		)	(7,863		)	(4,824		)	(19		)	(30		)
Interest income	—			—			(701		)	(165		)	—			—
Other income	—			—			—			—			(556		)	—
Property operating expenses ⁽¹⁾	(203,247		)	(206,363		)	(62,703		)	(49,312		)	(425,856		)	(401,351		)
Transaction, investment and servicing costs	—			—			—			(101		)	—			—
Compensation and administrative expense ⁽¹⁾	—			—			(1,166		)	(1,229		)	—			—
NOI or EBITDA	$	231,635		$	227,642		$	142,699		$	120,946		$	223,108		$	217,841

__________


⁽¹⁾	For healthcare and hospitality, fees paid to third parties for property management are included in property operating expenses. For industrial, compensation and administrative costs of employees engaged in property management and operations are included in compensation and administrative expenses.

Healthcare

Our healthcare segment is composed of a diverse portfolio of medical office buildings, senior housing, skilled nursing and other healthcare properties. Over half of our healthcare properties are medical office buildings as well as senior housing and skilled nursing facilities structured under net leases to healthcare operators for which we earn rental income. Substantially all of our net leases include annual escalating rent provisions. We also earn resident fee income from senior housing operating facilities that operate through management agreements with independent third-party operators, predominantly through structures permitted by REIT Investment Diversification and Empowerment Act of 2007 (“RIDEA”), which allows us, through a TRS, to directly receive resident fee income and incur customary operating expenses.

At September 30, 2018 , our interest in our healthcare segment was 71%.

Portfolio Overview

Our healthcare portfolio is located across 33 states domestically and 11% of our portfolio (based on property count) is in the United Kingdom.

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



(In thousands)	September 30, 2018
Real estate
Held for investment	$	5,234,325
Debt	3,220,645

The following table presents selected operating metrics of our healthcare segment as of and for the three months ended September 30, 2018 and 2017 :



	Number of Buildings	Capacity	Average Occupancy ⁽¹⁾		Average Remaining Lease Term (Years)
2018
Senior housing — operating	108	6,411 units	87.1	%	N/A
Medical office buildings	108	3.8 million sq. ft.	83.0	%	N/A
Net lease—senior housing	84	4,231 units	82.0	%	11.7
Net lease—skilled nursing facilities	99	11,829 beds	81.9	%	6.1
Net lease—hospitals	14	872 beds	57.1	%	9.9
Total	413
2017
Senior housing — operating	109	6,436 units	87.8	%	N/A
Medical office buildings	109	3.9 million sq. ft.	83.5	%	4.9
Net lease—senior housing	82	4,065 units	82.3	%	11.1
Net lease—skilled nursing facilities	103	12,420 beds	82.1	%	7.2
Net lease—hospitals	14	872 beds	61.5	%	11.7
Total	417

__________

⁽¹⁾

Occupancy represents property operator's patient occupancy for all types except medical office buildings. Average occupancy is based on the number of units, beds or square footage by type of facility. Occupancy percentage is as of the last day of the quarter presented for medical office buildings, average of the quarter presented for senior housing — operating, and average of the prior quarter for net lease properties.

Revenue mix of our healthcare portfolio weighted by NOI for the twelve months ended June 30, 2018 (as our operators report on a quarter lag) is as follows:



Payor Sources	Revenue Mix % ⁽¹⁾
Private Pay	60	%
Medicaid	30	%
Medicare	10	%
Total	100	%

__________


⁽¹⁾	Excludes two operating partners who do not track or report payor source data, representing approximately 2% of revenues for the trailing twelve month period.

Acquisition and Dispositions

In September 2018, we exercised a purchase option on our U.K. development loan facility to a healthcare operator to acquire a 78-bed, 90% occupied, senior housing facility in the United Kingdom that is net leased, at a purchase price of $24.4 million , equivalent to the outstanding principal balance of our development loan.

During the nine months ended September 30, 2018 , we sold three skilled nursing facilities under net leases totaling 471 beds for aggregate gross proceeds of $14.1 million and one operating senior housing with 25 units for gross sales proceeds of $1.6 million. These activities reflect our continued monetization initiatives on non-core assets. Additionally, one medical office building encumbered with a $3 million mortgage was consensually transferred to the lender in February 2018.

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Financing

At September 30, 2018 , our healthcare portfolio is financed by $3.25 billion of outstanding debt principal, of which $2.17 billion is fixed and $1.08 billion is variable rate debt, carrying an overall weighted average rate of 5.22% .

In May 2018, we modified $46.5 million of debt in our healthcare portfolio, extending its maturity from May 2019 to May 2020 with a one-year extension option. Separately, we are currently finalizing the maturity extension from December 2018 to December 2019 on $205.0 million of outstanding principal on a senior debt financing our healthcare portfolio in the United Kingdom.

Additionally, as discussed in Note 12 of the financial statements, on November 9, 2018, the Company repaid in full a $100.5 million floating rate component of a $1.85 billion non-recourse mortgage debt on certain properties in our U.S. healthcare portfolio. The repayment was made primarily with proceeds received from a refinancing of a select portfolio of medical office buildings in the healthcare segment. The remaining $1.75 billion fixed rate component of the debt is scheduled to mature in December 2019. We are currently evaluating our options in connection with the scheduled maturity on the fixed rate component. In connection with pursuing the options available to us, we may re-evaluate certain assumptions, including with respect to the holding period of the real estate assets collateralizing the debt, which could result in impairment of these assets in a future period. At September 30, 2018 , the carrying value of such real estate assets was $2.8 billion .

Performance

Results of operations of our Healthcare segment were as follows:



(In thousands)	Three Months Ended September 30, 2018			Nine Months Ended September 30, 2018
Total revenues	$	147,907		445,921
Net loss attributable to Colony Capital, Inc.	(12,197		)	(36,913	)

NOI generated by our healthcare portfolio was as follows:



	Three Months Ended September 30,				2018 vs. 2017					Nine Months Ended September 30,				2018 vs. 2017
($ in thousands)	2018		2017		$ Change			% Change		2018		2017		$ Change			% Change
Senior housing—operating	$	16,464	$	18,704	$	(2,240	)	-12	%	$	50,706	$	54,436	$	(3,730	)	-7	%
Medical office buildings	13,386		13,843		(457		)	-3	%	43,655		40,225		3,430			9	%
Net lease—senior housing	15,294		14,638		656			4	%	45,316		41,506		3,810			9	%
Net lease—skilled nursing facilities	26,257		25,513		744			3	%	77,161		75,801		1,360			2	%
Net lease—hospitals	5,068		5,304		(236		)	-4	%	14,797		15,674		(877		)	-6	%
Total NOI	$	76,469	$	78,002	$	(1,533	)	-2	%	$	231,635	$	227,642	$	3,993		2	%

The $1.5 million , or 2% decrease in NOI for the three months ended September 30, 2018 compared to the same period in 2017 was primarily due to sales of non-core healthcare properties, lower contractual rents and rental concessions granted in 2018.

NOI for the nine months ended September 30, 2018 and 2017 are not directly comparable as the nine months ended September 30, 2017 excluded 10 days of activities pre-Merger. After giving effect to the 10-day pre-Merger period in 2017, NOI decreased $4.3 million as a result of sales of non-core healthcare properties, lower contractual rents and rental concessions granted in 2018, all of which were partially offset by additional income from early lease termination fees in the first quarter of 2018 .

Industrial

Our industrial segment is composed primarily of light industrial assets. Our strategy is to pursue accretive asset acquisitions, capturing the benefits of scale as one of the few institutional investors primarily focused on the fragmented light industrial sector.

Light industrial buildings are generally multi-tenant buildings up to 250,000 square feet with an office build out of less than 20%. They are typically located in supply constrained locations and are designed to meet the local and regional distribution needs of businesses of every size, from large international to local and regional firms, by providing smaller industrial distribution spaces located closer to a company's customer base.

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Our investment in the industrial portfolio is made alongside third party limited partners through a joint venture, composed of two sponsored and managed partnerships, including an open end industrial fund. We also have a wholly owned industrial operating platform which provides vertical integration from acquisition and development to asset management and property management of the industrial assets.

Capitalization

At September 30, 2018 , we owned 36.0% of our industrial platform based on net asset value through our capital contributions of $749.2 million. Our ownership interest decreased from 41.5% at December 31, 2017 as we continued to expand our industrial platform through third party capital, with $329 million of additional capital closed in the first nine months of 2018 , bringing the total third party capital to approximately $1.5 billion at September 30, 2018 .

Portfolio Overview

Our industrial portfolio is well-diversified with 48.9 million square feet and over 950 tenants across 20 major U.S. markets, with significant concentrations (by total square feet) in Atlanta (16%) and Dallas (15%).

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



(In thousands)	September 30, 2018
Real estate
Held for investment	$	2,811,976
Held for sale	133,216
Debt	1,062,728

We present and discuss below certain key metrics related to our industrial portfolio:



	Number of Buildings	Rentable Square Feet (in thousands)	Leased %		Average Remaining Lease Term (Years)
September 30, 2018	406	48,913	94.0	%	3.9
December 31, 2017	369	43,325	95.1	%	3.7


•	At September 30, 2018 , 77% of our tenants (based on leased square feet) were international and national companies, with the top ten tenants making up 8.5% of our portfolio based on annualized base rent.

•

Total portfolio leased percentage declined from 95% at December 31, 2017 to 94% at September 30, 2018 , driven in part by vacancy in new acquisitions. Notwithstanding, leasing activity and tenant demand continue to remain strong, with initial rental rates on new and renewed leases commencing in 2018 (excluding leases less than 12 months) experiencing a 5% growth compared to prior ending rents (on a cash basis).


•	At September 30, 2018 , no more than 17% of existing leases by square footage was scheduled to expire in any single year over the next ten years.

• Acquisitions and dispositions in the nine months ended September 30, 2018 are summarized below. We continually seek to sell less strategic assets and redeploy capital into high quality real estate in line with our strategy.



	Number of Buildings	Rentable Square Feet (in thousands)	Weighted Average Leased % At Acquisition		Purchase Price ⁽¹⁾ (in thousands)		Gross Sales Price (in thousands)		Realized Gain (in thousands)
Acquisitions ⁽²⁾	40	5,893	83	%	$	569,167	NA		NA
Dispositions	3	305	NA		NA		$	20,537	$	4,397

_________


⁽¹⁾	Purchase price includes capitalized transaction costs for asset acquisitions.


⁽²⁾	Includes acquisition of $12.8 million of land for co-development with operating partners.


•	As of September 30, 2018 , we funded $4.5 million with remaining unfunded purchase commitment of $137.8 million for the acquisition of five buildings aggregating to approximately 1.3 million square feet, of which two buildings totaling approximately 0.6 million square feet are under construction.


•	At September 30, 2018 , 45 buildings in various locations with total carrying value of $133.2 million were held for sale, financed by approximately $1.5 million of debt. Disposition of three buildings in Salt Lake City totaling 47,000 square feet closed in October 2018.

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Financing

In May 2018, we increased the capacity on our Industrial line of credit from $200 million to $400 million. At September 30, 2018 , we have outstanding debt with total carrying value of $1.06 billion , nearly all of which bears fixed interest at a weighted average rate of 3.83% , with a weighted average remaining maturity of 10.8 years.

Performance

Results of operations of our Industrial segment were as follows:



(In thousands)	Three Months Ended September 30, 2018		Nine Months Ended September 30, 2018
Total revenues	$	73,902	215,132
Net income attributable to Colony Capital, Inc.	1,001		3,089

NOI generated by our industrial portfolio was as follows:



	Three Months Ended September 30,				Change				Nine Months Ended September 30,				Change
($ in thousands)	2018		2017		$		%		2018		2017		$		%
NOI—Industrial	$	48,987	$	44,278	$	4,709	10.6	%	$	142,699	$	120,946	$	21,753	18.0	%

The increase in NOI for the three months ended September 30, 2018 compared to the same period in 2017 as well as for the nine month periods was driven by strong tenant demand in the light industrial sector, growth in the size of our portfolio, higher tenant reimbursements and higher rental rates for both new leases and renewals. Average occupancy, however, decreased from 93.5% to 92.0%, in the three month periods and from 94.1% to 92.8% in the nine month periods under comparison, driven by vacancy in newly acquired properties, lag in timing between leasing and occupancy for new leases, as well as delays in tenant build-outs which further delayed lease commencements.

Hospitality

Our hotel portfolio consists primarily of extended stay hotels and premium branded select service hotels. Select service hotels generally generate higher operating margins and have less volatile cash flow streams relative to full service hotels. We seek to achieve value optimization through capital improvements, asset management and as appropriate, opportunistic asset sales.

At September 30, 2018 , we owned 94% of our Hospitality segment.

Financing

At September 30, 2018 , our hotel portfolio is financed by $2.6 billion of outstanding debt, predominantly variable rate debt, carrying a weighted average interest rate of 5.45% .

In July 2018, we refinanced $512 million of existing debt principal, encumbering 40 assets, with $550 million of new debt principal, encumbering 30 assets, at the prevailing market rate and extended debt maturity to July 2020 with five one-year extension options. Additionally, in August 2018, we exercised our extension options on $336 million of debt principal to extend their maturities to August 2019.

Portfolio Overview

Our hotel portfolio is located across 26 states in the U.S, with concentrations (based on EBITDA) in California (22.5%), Texas (12.6%) and New Jersey (12.0%).

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



(In thousands)	September 30, 2018
Real estate
Held for investment	$	3,764,562
Debt	2,599,798

A majority of our portfolio is affiliated with top hotel brands. Composition of our hotel portfolio by brand at September 30, 2018 is as follows:



Brands	% by Rooms
Marriott	79	%
Hilton	16	%
Hyatt	4	%
Intercontinental	1	%
Total	100	%

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



	September 30,		Three Months Ended September 30,						Nine Months Ended September 30,
Type	Number of Hotel Properties	Number of Rooms	Average Occupancy		ADR ⁽¹⁾		RevPAR ⁽²⁾		Average Occupancy		ADR ⁽¹⁾		RevPAR ⁽²⁾
2018
Select service	97	13,194	75.3	%	$	123	$	93	73.8	%	$	124	$	92
Extended stay	66	7,936	85.0	%	137		116		80.8	%	134		108
Full service	4	962	72.6	%	155		113		72.6	%	167		121
Total	167	22,092	78.7	%	130		102		76.3	%	130		99
2017
Select service	97	13,193	74.5	%	$	123	$	92	72.7	%	$	124	$	90
Extended stay	66	7,936	84.4	%	138		117		79.9	%	134		107
Full service	4	962	74.2	%	153		114		74.1	%	159		117
Total	167	22,091	78.1	%	130		102		75.3	%	129		97

_________


⁽¹⁾	Average daily rate (“ADR”) is calculated by dividing room revenue by total rooms sold.


⁽²⁾	RevPAR is calculated by dividing room revenue by room nights available for the period.

Performance

Results of operations of our Hospitality segment were as follows.



(In thousands)	Three Months Ended September 30, 2018			Nine Months Ended September 30, 2018
Total revenues	$	224,384		649,539
Net loss attributable to Colony Capital, Inc.	(62,900		)	(67,183	)

Net loss recognized in the three months ended September 30, 2018 and nine months ended September 30, 2018 was driven by $61.9 million of impairment recorded on 10 properties for which we adopted a sales strategy in the third quarter of 2018, with the intention of initiating a sale in the near term. Prior to the third quarter of 2018, we held a long-term hold strategy on these properties. As a result, we considered indicative broker price opinions to estimate the recoverable value of these properties.

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EBITDA generated by our hospitality portfolio was as follows:



	Three Months Ended September 30,				Change					Nine Months Ended September 30,				Change
($ in thousands)	2018		2017		$			%		2018		2017		$		%
Select service	$	40,164	$	40,944	$	(780	)	(1.9	)%	$	120,632	$	117,386	$	3,246	2.8	%
Extended stay	34,614		35,337		(723		)	(2.0	)%	91,081		91,078		3		—	%
Full service	3,160		2,661		499			18.8	%	11,395		9,377		2,018		21.5	%
Total EBITDA	$	77,938	$	78,942	$	(1,004	)	(1.3	)%	$	223,108	$	217,841	$	5,267	2.4	%

EBITDA decreased $1.0 million or 1.3% in the three months ended September 30, 2018 compared to the same period in 2017 as the increase in costs, primarily labor costs, taxes as well as property operations and maintenance outpaced a lower increase in room revenue and other income, coupled with the effects of room renovations.

EBITDA for the nine months ended September 30, 2018 and 2017 are not directly comparable as the nine months ended September 30, 2017 excluded 10 days of pre-Merger activities. After giving effect to the 10-day pre-Merger period in 2017, EBITDA increased $1.3 million as RevPar was 2.1% higher due to occupancy increasing 1.3% from 75.3% to 76.3% . Strong corporate and group demand in the first half of 2018 more than offset corresponding increase in expenses, primarily labor costs, taxes, property operations and maintenance.

CLNC and Other Equity and Debt

CLNC

At September 30, 2018 , we have a 36.6% interest (on a fully diluted basis) in Colony Credit with a carrying value of $1.1 billion . Our share of net loss in Colony Credit was $19.5 million for the three months ended September 30, 2018 and $17.7 million for the nine months ended September 30, 2018 . The loss resulted from: (i) a provision for loan loss on four related New York hospitality loans in which the progress of discussions with the borrower in the third quarter of 2018 led Colony Credit to explore additional options for a potential resolution, including a recapitalization and earlier than expected receipt and sale of collateral; (ii) impairments on three properties arising from new developments in the third quarter of 2018, including a reduction in estimated holding period and tenant vacancy, as well as (iii) significant transaction costs incurred in connection with the closing of the Combination.

Other Equity and Debt

Our interests in other equity and debt assets are held as direct interests as well as indirect interests through unconsolidated ventures. Strategic investments represent our co-investments alongside third party capital that we raised and manage for investment management economics in the form of real estate, loans receivable and investments in unconsolidated ventures, including through direct limited partnership interests in our sponsored funds. Non-strategic investments include net lease, multifamily and multi-tenant office properties, the THL Hotel Portfolio, our interest in a portfolio of CRE loans and securities, limited partnership interests in real estate private equity funds and various other equity investments. Over time, we intend to recycle capital from non-strategic investments in our other equity and debt investments and shift our balance sheet exposure to strategic investments and our core real estate segments.

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



(In thousands)	Three Months Ended September 30, 2018		Nine Months Ended September 30, 2018
Total revenues	$	182,288	$	578,392
Net income attributable to Colony Capital, Inc.	57,715		138,157

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Significant investments and corresponding debt in our other equity and debt portfolio at September 30, 2018 were as follows.



Type	Carrying Value (In thousands)
Real estate
Held for investment	$	2,147,661
Held for sale	437,456
Investments in unconsolidated ventures
NRE	73,775
Third party private funds acquired through the Merger, at fair value	6,659
Limited partnership interests in our sponsored funds	71,472
Other ⁽¹⁾	846,466
Loans receivable	1,715,783
CRE debt securities, at fair value	64,352
Debt ⁽²⁾	2,136,827

_________


⁽¹⁾	Significant investments include acquisition, development and construction loans ( $198.4 million ) and preferred equity investments ( $354.1 million ).


⁽²⁾	Includes debt carrying value of $265.7 million financing real estate held for sale.

Significant activities in our other equity and debt segment in the nine months ended September 30, 2018 were as follows:

•

Upon closing of the Combination on January 31, 2018, we contributed $1.9 billion of assets and $0.4 billion of liabilities or net equity of $1.1 billion (net of noncontrolling interests) from our other equity and debt segment to Colony Credit. This included certain of our U.S. commercial real estate loans, net lease properties, limited partnership interests in third party private funds as well as acquisition, development and construction loans accounted for as equity method investments, which represent transferable assets consistent with Colony Credit's strategy. In consideration for our contribution, we received common shares in Colony Credit and membership units in its operating subsidiary. As discussed in Note 4 to the consolidated financial statements, we deconsolidated the subsidiaries holding the contributed interests, resulting in the recognition of a gain of $9.9 million , measured as the excess of fair value over carrying value of our retained interests. At September 30, 2018 , we hold a 36.6% interest (on a fully diluted basis) in Colony Credit.


•	In March 2018, we syndicated 30% of equity in our portfolio of distressed CRE loans in Ireland to a third party investor for $67.0 million.


•	In May 2018, we p articipated in the acquisition of an interest in AccorInvest, the property arm of AccorHotels, alongside a consortium of global institutional investors, in which we co-invested $58 million in our sponsored fund, together with third party capital raised by us.


•	In June 2018, we syndicated to two third party investors 30% of equity in our subordinated loan financing a mixed use development in Southern California for $94.7 million.

•

In addition to the contribution of our interests in three of our sponsored securitization trusts to Colony Credit in January 2018, in the second quarter of 2018, we fully disposed of our interests in two of our sponsored securitization trusts, including a consolidated N-Star CDO, to third parties, resulting in a deconsolidation of these securitization trusts; while the underlying assets of the remaining consolidated N-Star CDO was liquidated. As a result, we no longer have any consolidated securitization trusts.


•	In the third quarter of 2018, we sold the majority of our investments in third party private funds acquired through the Merger for gross proceeds of $132.6 million .


•	At September 30, 2018 , we made a deposit of $48.9 million , with remaining unfunded purchase commitments totaling $419.7 million , for the acquisition of a commercial real estate portfolio in France alongside a sponsored credit fund. The Company's share of unfunded commitment, net of amounts attributable to noncontrolling interest, is $83.6 million.


•	At September 30, 2018 , we also funded $21.3 million , with remaining unfunded commitments of $247.4 million , to a joint venture for its acquisition of a freehold land for development in Ireland, alongside the Company's sponsored credit fund and Colony Credit. The Company's share of unfunded commitment, net of amounts attributable to noncontrolling interests, is $64.8 million .

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•	We continue to monetize other non-strategic assets, primarily our loan portfolios and our real estate in Europe, in our efforts to streamline our business and redeploy capital to more strategic areas.

Investment Management

We manage capital on behalf of third party institutional and retail investors through private funds, traded and non-traded REITs and investment companies, which provide a stable stream of management fee income.

Our investment management platform allows us to raise private third party capital in partnership with our own balance sheet to further scale our core real estate segments and also allows us to pursue a balance sheet light strategy.

Significant Developments in the Investment Management Segment

Colony Credit— Upon closing of the Combination on January 31, 2018, our management contracts with NorthStar I and NorthStar II were terminated. Concurrently, we entered into a management agreement with Colony Credit. The management agreement provides for a base management fee of 1.5% per annum of Colony Credit's stockholders' equity (as defined in the management agreement) and incentive fees subject to the achievement of minimum return levels in accordance with terms set out in the management agreement, each payable quarterly in arrears in cash. The management agreement has an initial term of three years and will be automatically renewed for a one-year term thereafter unless earlier terminated.

Digital Colony Infrastructure Vehicle— In partnership with Digital Bridge, we closed on a new co-sponsored digital real estate infrastructure vehicle on February 28, 2018. As of November 6, 2018, total callable commitments of the vehicle was approximately $4.0 billion , inclusive of our capital commitments which are capped at $250 million in aggregate as both limited partner and co-general partner. Fee income and carried interest will be shared with our co-sponsor, Digital Bridge.

AccorInvest Fund— We have raised $760 million of third party capital in a new sponsored fund, which we closed in May 2018, alongside our invested capital in the fund as general partner and limited partner, to participate in the acquisition of AccorInvest , the property arm of AccorHotels .

NorthStar RXR/NY Metro— In October 2018, NorthStar/RXR NY Metro was liquidated, as approved by its board of directors and shareholders. We wrote off our $1.5 million investment in NorthStar/RXR NY Metro in the third quarter of 2018 as we effectively forfeited our shareholding upon liquidation, along with our co-sponsor, RXR Realty.

NorthStar Realty Europe— On November 7, 2018, NRE and the Company reached an agreement to terminate its management agreement upon a sale of NRE or, if no sale is consummated, in connection with the internalization of the management of NRE. Such termination will result in a termination payment to the Company of $70 million , less any incentive payments.

Retail Distribution Business— On April 30, 2018, the Company combined NorthStar Securities, the Company's captive broker-dealer platform that raises capital in the retail market, with a third party joint venture partner, S2K, to form Colony S2K. Colony S2K will distribute both the current and future investment products sponsored by the Company and S2K as well as third party sponsored products.

Performance

Results of operations of our Investment Management segment were as follows.

Net loss recognized through the nine months ended September 30, 2018 was driven by a $139.0 million write-off of the NorthStar I and NorthStar II management contract intangible assets upon closing of the Combination, write-off of the NorthStar trade name of $59.5 million in June 2018, and $19.4 million of impairment recorded on an equity method investment. In addition to $111.8 million of fee income, these losses were partially offset by $13.3 million of carried interest allocation from our sponsored open-end industrial fund and AccorInvest fund, as well as $3.5 million of income, primarily management fees, from our joint venture with Digital Bridge that manages our digital infrastructure vehicle.



(In thousands)	Three Months Ended September 30, 2018		Nine Months Ended September 30, 2018
Total revenues ⁽¹⁾	$	44,127	$	136,191
Net income (loss) attributable to Colony Capital, Inc.	19,145		(108,445		)

__________


⁽¹⁾	Includes $3.9 million and $11.4 million of cost reimbursement income from retail companies, NRE and Colony Credit for the three and nine months ended September 30, 2018 , which are recorded gross as income and expense in the results of operations.

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Balance sheet investments of $221.6 million in our Investment Management segment generally consist of our general partner and co-general partner interests in investment vehicles we sponsor or co-sponsor of $20.5 million as well as interests in other asset managers.

Capital Raising, Assets Under Management and Fee Earning Equity Under Management

In the nine months ended September 30, 2018 , we raised $5.2 billion of third party capital commitments (including our pro rata share from equity method investments in third party asset managers of $0.3 billion), driven primarily by capital commitments of $3.7 billion from our co-sponsored digital real estate infrastructure vehicle and approximately $0.8 billion from our co-investment vehicle in AccorInvest, partially offset by continued asset sales.

Below is our total third party assets under management ("AUM") and fee earning equity under management ("FEEUM") at September 30, 2018 :



(In billions)	September 30, 2018	December 31, 2017
Third party AUM ⁽¹⁾	$28.9	$26.9
Third party FEEUM ⁽²⁾	$17.7	$15.4

__________

⁽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 incentives. AUM is based on reported gross undepreciated carrying value of managed investments as reported by each underlying vehicle. AUM further includes a) uncalled capital commitments and b) the Company’s pro rata share of assets of the real estate investment management platform of its joint ventures and investees as presented and calculated by them. The Company's calculation of AUM may differ materially from those of other asset managers, and as a result, may not be comparable to similar measures presented by other asset managers.

⁽²⁾

Equity for which the Company and its affiliates provide investment management services and derive management fees and/or incentives. FEEUM generally represents a) the basis used to derive fees, which may be based on invested equity, stockholders’ equity, or fair value pursuant to the terms of each underlying investment management agreement and b) the Company’s pro-rata share of fee bearing equity of its joint ventures and investees as presented and calculated by them. The Company's calculation of FEEUM may differ materially from other asset managers, and as a result, may not be comparable to similar measures presented by other asset managers.

The Company's third party FEEUM at September 30, 2018 increased $2.3 billion from December 31, 2017 as new fee-bearing capital was raised in 2018 primarily through our co-sponsored digital real estate infrastructure vehicle and our sponsored co-investment vehicle in AccorInvest, partially offset by continued realization of investments by liquidating funds.

Below is a summary of our third party AUM and FEEUM at September 30, 2018 :

Type

Products

Description

AUM

(in billions)

FEEUM

(in billions)

Institutional funds

Credit funds, opportunistic funds, value-add funds, Colony industrial open end fund and other co-investment vehicles

Earns base and asset management fees from all managed funds; potential for carried interest on sponsored funds

9.8

6.2

Retail Companies

NorthStar Healthcare

Earns base management fees and potential for carried interest

3.6

1.6

CC Real Estate Income Fund (formerly NorthStar Real Estate Capital Income Fund)

Public companies

NorthStar Realty Europe Corp.

NYSE-listed European equity REIT

5.5

4.2

Colony Credit Real Estate, Inc. ⁽¹⁾

NYSE-listed credit REIT

Earns base management fees and potential for incentive fees

Non-wholly owned real estate investment management platform

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

Earns share of earnings from investments in unconsolidated ventures

10.0

5.7

Includes co-sponsored digital real estate infrastructure vehicle, investments in RXR Realty (27% interest in a real estate investor, developer and asset manager) and AHI (43% interest in a healthcare asset manager and sponsor of non-traded vehicles)

28.9

17.7

__________


⁽¹⁾	Represents third party ownership share at September 30, 2018 of CLNC's pro rata share of total assets, excluding consolidated securitization trusts.

Non-GAAP Supplemental Financial Measures

The Company reports funds from operations ("FFO") as an overall non-GAAP supplemental financial measure. The Company also reports NOI for the healthcare and industrial segments and EBITDA for the hospitality segment, which are

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supplemental non-GAAP financial measures widely used in the equity REIT industry. FFO, NOI and EBITDA 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, NOI and EBITDA 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, which defines FFO as net income or loss calculated in accordance with GAAP, excluding extraordinary items, as defined by GAAP, gains and losses from sales of depreciable real estate and impairment write-downs associated with depreciable real estate, plus real estate-related depreciation and amortization, and after similar adjustments for unconsolidated partnerships and joint ventures. Included in FFO are gains and losses from sales of assets which are not depreciable real estate such as loans receivable, investments in unconsolidated joint ventures as well as investments in debt and other equity 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, as well as gains or losses related to sales of previously depreciated real estate.

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,
(In thousands)	2018			2017
Net income (loss) attributable to common stockholders	$	(69,975	)	$	1,650
Adjustments for FFO attributable to common interests in Operating Company and common stockholders:
Net income (loss) attributable to noncontrolling common interests in Operating Company	(4,403		)	97
Real estate depreciation and amortization	153,303			146,026
Impairment of real estate	78,595			19,610
Gain on sales of real estate	(38,432		)	(72,541		)
Less: Adjustments attributable to noncontrolling interests in investment entities ⁽¹⁾	(46,959		)	(46,160		)
FFO attributable to common interests in Operating Company and common stockholders	$	72,129		$	48,682

__________

⁽¹⁾

For the three months ended September 30, 2018 , adjustments attributable to noncontrolling interests in investment entities include $46.4 million of real estate depreciation and amortization, $4.9 million of impairment of real estate, offset by $4.3 million of gain on sales of real estate. For the three months ended September 30, 2017 , adjustments attributable to noncontrolling interests in investment entities include $44.0 million of real estate depreciation and amortization, $4.9 million of impairment of real estate, offset by $2.7 million of gain on sales of real estate.

NOI and EBITDA

NOI for healthcare and industrial segments represents total property and related income less property operating expenses, adjusted for the effects of (i) straight-line rental income adjustments; (ii) amortization of acquired above- and below-market lease adjustments to rental income; and (iii) other items such as adjustments for our share of NOI of unconsolidated ventures.

EBITDA for the hospitality segment represents income from continuing operations of that segment, excluding interest expense, income tax expense or benefit, and depreciation and amortization.

We believe that NOI and EBITDA are useful measures of operating performance of our respective real estate portfolios as they are 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 and EBITDA exclude historical cost depreciation and amortization, which are based on 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

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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 and EBITDA provide 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 and EBITDA.

The following tables present reconciliations of net income (loss) from continuing operations of the healthcare, industrial and hospitality segments to NOI or EBITDA of the respective segments.



	Healthcare						Industrial						Hospitality
	Three Months Ended September 30,						Three Months Ended September 30,						Three Months Ended September 30,
(In thousands)	2018			2017			2018			2017			2018			2017
Net income (loss) from continuing operations	$	(15,051	)	$	(22,318	)	$	6,296		$	5,741		$	(66,620	)	$	4,169
Adjustments:
Straight-line rent revenue and amortization of above- and below-market lease intangibles	(5,140		)	(6,513		)	(3,012		)	(2,011		)	(6		)	(3		)
Interest income	—			—			(107		)	(165		)	—			—
Interest expense	47,620			48,586			10,872			8,803			41,646			35,351
Transaction, investment and servicing costs	1,556			4,631			41			7			1,938			1,784
Depreciation and amortization	43,697			44,646			33,503			29,010			36,503			34,549
Provision for loan losses	213			1,588			—			—			—			—
(Recovery of) impairment loss	(274		)	8,250			774			44			61,865			—
Compensation and administrative expense	1,696			1,511			2,727			2,833			1,579			1,681
Gain on sale of real estate	—			—			(2,104		)	—			—			—
Other (gain) loss, net	1,122			(1,971		)	—			—			178			149
Income tax (benefit) expense	1,030			(408		)	(3		)	16			855			1,262
NOI or EBITDA	$	76,469		$	78,002		$	48,987		$	44,278		$	77,938		$	78,942



	Healthcare						Industrial						Hospitality
	Nine Months Ended September 30,						Nine Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2018			2017			2018			2017			2018			2017
Income (loss) from continuing operations	$	(47,665	)	(42,978		)	$	17,285		15,332			$	(71,735	)	6,303
Adjustments:
Straight-line rent revenue and amortization of above- and below-market lease intangibles	(11,039		)	(21,897		)	(7,863		)	(4,824		)	(19		)	(30		)
Interest income	—			—			(701		)	(165		)	—			—
Other income	—			—			—			—			(556		)	—
Interest expense	143,740			137,522			31,918			29,163			112,501			98,484
Transaction, investment and servicing costs	6,976			9,052			175			33			7,026			6,570
Depreciation and amortization	123,053			135,104			95,930			79,453			107,885			98,098
Provision for loan losses	213			1,588			—			—			—			—
Impairment loss	5,488			8,250			948			44			61,865			—
Compensation and administrative expense	5,825			5,302			9,366			8,441			5,194			5,763
Gain on sale of real estate	—			—			(4,397		)	(8,695		)	—			—
Other (gain) loss, net	2,661			(5,925		)	—			—			17			444
Income tax expense	2,383			1,624			38			2,164			930			2,209
NOI or EBITDA	$	231,635		$	227,642		$	142,699		$	120,946		$	223,108		$	217,841

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Liquidity and Capital Resources

Our current primary liquidity needs are to fund:


•	acquisitions of our target assets and related ongoing commitments;


•	our general partner commitments to our future investment vehicles and co-investment commitments to other investment vehicles;


•	principal and interest payments on our borrowings, including interest obligation on our corporate level debt;


•	our operations, including compensation, administrative and overhead costs;


•	distributions to our stockholders;


•	acquisitions of common stock under our common stock repurchase program; 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 credit facilities;


•	fees received from our investment management business;


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


•	proceeds from full or partial realization of investments;


•	investment-level financing;


•	proceeds from public or private equity and debt offerings; and


•	third party capital commitments of sponsored investment vehicles.

We believe that our capital resources are sufficient to meet our short-term and long-term capital requirements. 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.

Additional discussions of our liquidity needs and sources of liquidity are presented below.

Liquidity Needs

Commitments

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

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 the following dividends in 2018 :



Declaration Date	Record Date	Payment Date	Dividend Per Share
February 26, 2018	March 29, 2018	April 16, 2018	$	0.11
May 8, 2018	June 29, 2018	July 16, 2018	0.11
August 2, 2018	September 28, 2018	October 15, 2018	0.11
November 5, 2018	December 31, 2018	January 15, 2019	0.11

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Preferred Stock— We are required to make quarterly cash distributions on our outstanding preferred stock as follows:



		Shares Outstanding September 30, 2018 (In thousands)	Quarterly Cash Distributions
Description	Dividend Rate Per Annum	Shares Outstanding September 30, 2018 (In thousands)	Total (In thousands)		Per Share
Series B	8.25%	6,114	$	3,153	$	0.5156250
Series E	8.75%	10,000	5,469		0.5468750
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
		57,464	$	27,138

In May 2018, the Company issued a notice of redemption for all outstanding Series D preferred stock, with the redemption settled in July 2018.

Common Stock Repurchases

On May 23, 2018, the Company's board of directors authorized a new common stock repurchase program, pursuant to which the Company may repurchase up to $300 million of its outstanding class A common stock in a one-year period, either in the open market or through privately negotiated transactions. The May 2018 repurchase program is in addition to the $300 million share repurchase program the Company announced in February 2018, which program was completed in May 2018. During the nine months ended September 30, 2018 , the Company repurchased 54,813,323 shares of its class A common stock, at an aggregate cost of approximately $318.5 million (excluding commissions), or a weighted-average price of $5.81 per share. As of November 6, 2018, $281.5 million remained outstanding under the May 2018 stock repurchase program.

In 2017, the Company had a similar stock repurchase program pursuant to which the Company repurchased the full authorized amount of $300 million of its outstanding class A common stock through both open market trades and privately negotiated transactions.

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 some of our investments in unconsolidated ventures. Such income is partially offset by interest expense associated with borrowings against our investments.

Additionally, we generate fee revenue from our investment management segment through the management of various types of investment products, including both institutional and retail capital. Management fee income is generally a predictable and stable revenue stream, while performance based incentive income is 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.

Investment-Level Financing

We have various forms of investment-level financing, as described in Note 12 to the consolidated financial statements. [Additionally, as discussed in Note 12 of the financial statements, on November 9, 2018, the Company repaid in full a $100.5 million floating rate component of a $1.85 billion non-recourse mortgage debt on certain properties in our US healthcare portfolio. The repayment was made primarily with proceeds received from a refinancing of a select portfolio of medical office buildings in the healthcare segment. The remaining $1.75 billion fixed rate component of the debt is scheduled to mature in December 2019. We are currently evaluating our options in connection with the scheduled maturity on the fixed rate component. In connection with pursuing the options available to us, we may re-evaluate certain assumptions, including with respect to the holding period of the real estate assets collateralizing the debt, which could result in impairment of these assets in a future period. At September 30, 2018 , the carrying value of such real estate assets was $2.8 billion .

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

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Corporate Credit Facility

As described in Note 12 to the consolidated financial statements, the JPM Credit Agreement provides a secured revolving credit facility in the maximum principal amount of $1.0 billion , which may be increased up to $1.5 billion , subject to customary conditions. The credit facility is scheduled to mature in January 2021 , with two 6 -month extension options.

The maximum amount available at any time is limited by a borrowing base of certain investment assets. As of November 6, 2018, the borrowing base valuation was sufficient to permit borrowings of up to the full $1.0 billion commitment, of which the full amount was available to be drawn.

The JPM Credit Agreement contains various affirmative and negative covenants, including financial covenants that require the Company to maintain minimum tangible net worth, liquidity levels and financial ratios, as defined in the JPM Credit Agreement. We were in compliance with the financial covenants as of September 30, 2018 .

Convertible and Exchangeable Senior Notes

Convertible and exchangeable senior notes issued by us and that remain outstanding are described in Note 12 to the consolidated financial statements.

Public Offerings

We may offer and sell various types of securities under our effective 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 were no public offering of securities in the nine months ended September 30, 2018 .

In 2017, we issued our Series I preferred stock in June and our Series J preferred stock in September with dividend rates of 7.15% and 7.125% per annum, respectively. We applied the proceeds from these offerings, combined with available cash, to redeem all of the outstanding shares of Series A, Series F and Series C preferred stock and a portion of the outstanding shares of Series B preferred stock.

Cash Flows

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



	Nine Months Ended September 30,
(In thousands)	2018			2017
Net cash provided by (used in):
Operating activities	$	393,299		$	406,077
Investing activities	81,982			876,672
Financing activities	(1,029,265		)	(494,593		)

Operating Activities

Cash inflows from operating activities are generated primarily through property operating income from our real estate portfolio, interest received from loans receivable and securities, distributions of earnings received from unconsolidated ventures, 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 cash of $393.3 million and $406.1 million in the nine months ended September 30, 2018 and 2017 , respectively. However, our operating activities during the nine months ended September 30, 2018 and 2017 are not directly comparable as the first ten days of 2017 include only the pre-Merger activities of Colony and do not incorporate the operating results of NSAM and NRF. Additionally, 2017 also reflected significant payments of Merger-related costs, including $66.8 million of success-based fees paid to investment bankers.

We believe cash flows from operations, available cash balances and our ability to generate cash through short and long-term borrowings are sufficient to fund our operating liquidity needs.

Investing Activities

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

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Net cash provided by investing activities for the nine months ended September 30, 2018 and 2017 was $82.0 million and $876.7 million , respectively.

In the nine months ended September 30, 2018 , we received $229.3 million of net proceeds from sales of our investments in unconsolidated ventures, which included $132.6 million from sale of our interests in certain third party private private equity funds. We also received $260.6 million of return of capital from our investments, of which $142.3 million was from our initial investment in a digital real estate infrastructure joint venture as we raised third party capital through a co-sponsored investment vehicle. Additionally, our loan and securities portfolio generated $73.9 million of net cash inflows, which included $142.3 million of proceeds from the sale of our equity interests in two securitization trusts, net of cash and restricted cash deconsolidated. These increases were partially offset by a contribution of $141.2 million of cash and restricted cash to Colony Credit as part of the Combination, additional contributions to our joint venture investments of $210.2 million , net cash outflow of $163.3 million for acquisitions of and additions to real estate, primarily in industrial, exceeding proceeds from sale of real estate, as well as funding of $95.6 million of deposits for acquisition of new investments.

The significantly higher net cash inflow from investing activities in the nine months ended September 30, 2017 was driven by net proceeds of $500.5 million from the sale of our shares in Starwood Waypoint Homes and proceeds from the sale of various non-core real estate investments totaling $1,340.1 million , of which $664.4 million was from the sale of our manufactured housing portfolio acquired in the Merger. This was partially offset by cash outflow of $1.19 billion for the acquisition of and additions to real estate as well as $152.8 million net cash outflows related to our loan and securities portfolio, including $559.3 million for the acquisition of a distressed loan portfolio in Ireland.

Additionally, although the Merger was completed in an all-stock exchange in 2017 , we assumed certain liabilities of NSAM and NRF which arose as a result of the Merger and were settled shortly after the Closing Date. These amounts included approximately $226.1 million which was paid to former NSAM stockholders, representing a one-time special dividend, and approximately $78.9 million in payroll taxes representing shares that were canceled and remitted to taxing authorities on behalf of employees whose equity-based compensation was accelerated and fully vested upon closing of the Merger. Cash and restricted cash assumed of $437.4 million is presented net of these payments as an investing cash inflow in the consolidated statement of cash flows in the nine months ended September 30, 2017 .

Financing Activities

We finance our investing activities largely through borrowings secured by our investments along with capital from third party or affiliated co-investors. We also have the ability to raise capital in the public markets through issuances of preferred stock, common stock and debt such as our convertible and exchangeable notes, as well as draw upon our corporate credit facility, to finance our investing and operating activities. Accordingly, we incur cash outlays for payments on our corporate debt and third party debt, dividends to our preferred and common stockholders as well as distributions to our noncontrolling interests.

Net cash used in financing activities for the nine months ended September 30, 2018 and 2017 was $1.03 billion and $494.6 million , respectively. The lower net cash outflows from financing activities in the nine months ended September 30, 2017 was largely due to $638.1 million of additional capital raised from the issuance of our new Series I and Series J preferred stock which was used to fund our $538.3 million common stock repurchase and preferred stock redemptions. In the nine months ended September 30, 2018 our $519.0 million common stock repurchase and preferred stock redemption was funded through our investing and operating activities. Additionally, contributions from our noncontrolling interests, net of distributions, was higher in the nine months ended September 30, 2017 at $457.2 million compared to $337 million in the nine months ended September 30, 2018 as we sold a minority interest in our healthcare platform for $330 million in January 2017. The higher cash inflows in the nine months ended September 30, 2017 , however, were partially offset by higher dividend payments to common stockholders at $333.9 million compared to $256.5 million in the nine months ended September 30, 2018 following additional common stock repurchases and a reduction in dividend rates in 2018. In terms of debt financing activities, repayments and payment of financing costs exceeded borrowings in both the nine months ended September 30, 2018 and 2017 , but was higher at $591.6 million in 2017 relative to $459.6 million in 2018.

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, 2017 .

Guarantees and Off-Balance Sheet Arrangements

In connection with financing arrangements for certain unconsolidated ventures, we provided customary non-recourse carve-out guarantees. We believe that the likelihood of making any payments under the guarantees is remote and no liability has been recorded as of September 30, 2018 .

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In connection with the THL Hotel Portfolio, we entered into guarantee agreements with various hotel franchisors, pursuant to which we guaranteed the franchisees’ obligations, including payments of franchise fees and marketing fees, for the term of the agreements, which expire between 2018 and 2037. In the event of default or termination of the franchise agreements, the Company is liable for liquidated damages not to exceed $100 million.

We have off-balance sheet arrangements with respect to our retained interests in certain deconsolidated 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. 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, we closely monitor our portfolio and actively manage risks associated with, among other things, our assets and interest rates. In addition, the risk committee of our board of directors, in consultation with our chief risk officer, internal auditor and other senior management, will periodically review 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 will maintain oversight of financial reporting risk matters.

Underwriting

Prior to making any equity or debt investment, our underwriting team, in conjunction with third-party providers, undertakes a rigorous asset-level due diligence process, involving intensive data collection and analysis, to ensure that we understand fully the state of the market and the risk-reward profile of the asset. In addition, we evaluate material accounting, legal, financial and business issues surrounding such investment. These issues and risks are built into the valuation of an asset and ultimate pricing of an investment.

During the underwriting process, we review the following data, including, but not limited to: property financial data including historic and budgeted financial statements, liquidity and capital expenditure plans, property operating metrics (including occupancy, leasing activity, lease expirations, sales information, tenant credit review, tenant delinquency reports, operating expense efficiency and property management efficacy) and local real estate market conditions including vacancy rates, absorption, new supply, rent levels and comparable sale 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 portfolio of assets. Prior to making a final investment decision, we determine whether a target asset will cause our portfolio of assets to be too heavily concentrated with, or cause too much risk exposure to, any one 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.

Asset Management

The comprehensive portfolio management process generally includes day-to-day oversight by the portfolio management and servicing team, regular management meetings and quarterly credit review process. These processes are designed to enable management to evaluate and proactively identify asset-specific credit 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 credit reviews.

We use many methods to actively manage our credit risk to preserve our income and capital, in order to minimize credit losses that could decrease income and portfolio value. For commercial real estate equity and debt investments, frequent re-underwriting and dialogue with tenants, operators, partners and/or borrowers and regular inspections of our collateral and owned properties have proven to be an effective process for identifying issues early. With respect to our healthcare properties, we consider the impact of regulatory changes on operator performance and property values. During the quarterly credit review, or more frequently as necessary, investments are monitored and identified for possible asset impairment and loan loss reserves, as appropriate, based upon several factors, including missed or late contractual payments, significant declines in collateral performance and other data which may indicate a potential issue in our ability to recover our invested capital from an investment. In addition, we seek to utilize services of certain strategic partnerships

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and joint ventures with third parties with expertise in commercial real estate or other sectors and markets 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 in order to 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.

Financing Strategy

Our financing strategy is to employ investment-specific financing principally on a non-recourse basis with matching terms and currencies, as available and applicable, through first mortgages, senior loan participations or securitizations. In addition to investment-specific financings, we may use and have used credit facilities on a shorter term basis and repurchase facilities and public and private, secured and unsecured debt issuances on a longer term basis. The amount of leverage we use is based on our assessment of a variety of factors, including, among others, the anticipated liquidity and price volatility of the assets in our investment portfolio, the potential for losses and extension risk in our portfolio, the ability to raise additional equity to reduce leverage and create liquidity for future investments, the availability of credit at favorable prices or at all, the credit quality of our assets, our outlook for borrowing costs relative to the income earned on our assets and financial covenants within our credit facilities. Our decision to use leverage to finance our assets is at our discretion and not subject to the approval of our stockholders.

We currently expect to target an overall leverage rate of approximately 50% or less. To the extent that we use leverage in the future, we may mitigate interest rate risk through utilization of hedging instruments, primarily interest rate swap and cap agreements, to serve as a hedge against future interest rate increases on our borrowings.

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. The carrying values of our investments represent their depreciated historical cost bases or, for investments that have been previously impaired, their fair values or net realizable values. Such amounts are based upon our current reasonable assumptions about the highest and best use of our investments and our intent and ability to hold them for a reasonable period that would allow for the recovery of our carrying values. If such assumptions change and we shorten our expected hold period, we may be required to record impairment losses to adjust our carrying values to fair value or fair value less cost to sell.

Other than the adoption of new accounting pronouncements for revenue recognition and financial instruments, which are included in Note 2 to our consolidated financial statements, 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 fiscal year ended December 31, 2017 .

Recent Accounting Updates

Recent accounting updates are included in Note 2 to our consolidated financial statements in Item 1 of this Quarterly Report.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Market risk includes the exposure to loss resulting from changes in interest rates, credit curve spreads, foreign currency exchange rates, commodity prices, equity prices and credit risk in our underlying investments. Our primary market risks are credit risk, interest rate risk, credit curve spread risk, foreign currency risk and inflation, either directly or indirectly through our investments in unconsolidated ventures.

Credit Risk

We are subject to the credit risk of the tenant/operators of our properties. We seek to undertake a rigorous credit evaluation of each tenant and healthcare operator prior to acquiring properties. This analysis includes an extensive due diligence investigation of the tenant/operator’s business as well as an assessment of the strategic importance of the underlying real estate to the tenant/operator’s core business operations. Where appropriate, we may seek to augment the tenant/operator’s commitment to the facility by structuring various credit enhancement mechanisms into the underlying leases. These mechanisms could include security deposit requirements or guarantees from entities we deem creditworthy.

In addition, our investment in loans receivable is subject to a high degree of credit risk through exposure to loss from loan defaults. Default rates are subject to a wide variety of factors, including, but not limited to, borrower financial condition, property performance, property management, supply/demand factors, construction trends, consumer behavior, regional economics, interest rates, the strength of the U.S. economy and other factors beyond our control. All loans are subject to a certain probability of default. We manage credit risk through the underwriting process, acquiring our investments at the appropriate discount to face value, if any, and establishing loss assumptions. We also carefully monitor the performance of the loans, including those held through our joint venture investments, as well as external factors that may affect their value.

For more information, see Item 2 “ Management's Discussion and Analysis — Risk Management .”

Interest Rate and Credit Curve Spread Risk

Interest rate risk relates to the risk that the future cash flow of a financial instrument will fluctuate because of changes in market interest rates. Interest rate risk is highly sensitive to many factors, including governmental, monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control. Credit curve spread risk is highly sensitive to the dynamics of the markets for loans and securities we hold. Excessive supply of these assets combined with reduced demand will cause the market to require a higher yield. This demand for higher yield will cause the market to use a higher spread over the U.S. Treasury securities yield curve, or other benchmark interest rates, to value these assets.

As U.S. Treasury securities are priced to a higher yield and/or the spread to U.S. Treasuries used to price the assets increases, the price at which we could sell some of our fixed rate financial assets may decline. Conversely, as U.S. Treasury securities are priced to a lower yield and/or the spread to U.S. Treasuries used to price the assets decreases, the value of our fixed rate financial assets may increase. Fluctuations in LIBOR may affect the amount of interest income we earn on our floating rate borrowings and interest expense we incur on borrowings indexed to LIBOR, including under credit facilities and investment-level financing.

In connection with the Merger, we assumed a $2 billion notional forward starting interest rate swap intended to hedge against future refinancing costs of certain mortgage debt assumed in the Merger. The interest rate swap is currently out of the money and may be subject to future margin calls. If an early termination event were to occur with respect to the swap, we would be required to pay the termination value to our counterparty. As of November 6, 2018, the termination value was approximately $21.8 million . This interest rate swap does not qualify for hedge accounting, therefore, unrealized gains (losses) resulting from fair value changes at the end of each reporting period are recognized in earnings. As of November 6, 2018, a hypothetical 100 basis point increase or decrease in the 10-year treasury forward curve applied to our interest rate swap would result in an unrealized gain of approximately $157.5 million or unrealized loss of $177.7 million .

We utilize a variety of financial instruments on some of our investments, including interest rate swaps, caps, floors and other interest rate exchange contracts, in order to limit the effects of fluctuations in interest rates on our operations. The use of these types of derivatives to hedge interest-earning assets and/or interest-bearing liabilities carries certain risks, including the risk that losses on a hedge position will reduce the funds available for distribution and that such losses may exceed the amount invested in such instruments. A hedge may not perform its intended purpose of offsetting losses of rising interest rates. Moreover, with respect to certain of the instruments used as hedges, we are exposed to the risk that the counterparties with which we trade may cease making markets and quoting prices in such instruments, which may render us unable to enter into an offsetting transaction with respect to an open position. If we anticipate that the

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income from any such hedging transaction will not be qualifying income for REIT income purposes, we may conduct all or part of our hedging activities through a to-be-formed corporate subsidiary that is fully subject to federal corporate income taxation. Our profitability may be adversely affected during any period as a result of changing interest rates.

Foreign Currency Risk

We have foreign currency rate exposures related to our foreign currency-denominated investments held predominantly by our foreign subsidiaries and to a lesser extent, by U.S. subsidiaries. Changes in foreign currency rates can adversely affect the fair values and earnings of our non-U.S. holdings. We generally mitigate this foreign currency risk by utilizing currency instruments to hedge our net investments in our foreign subsidiaries. The types of hedging instruments that we may employ on our foreign subsidiary investments are forwards and costless collars (buying a protective put while writing an out-of the-money covered call with a strike price at which the premium received is equal to the premium of the protective put purchased) which involved no initial capital outlay. The puts are generally structured with strike prices up to 10% lower than our cost basis in such investments, thereby limiting any foreign exchange fluctuations to up to 10% of the original capital invested.

At September 30, 2018 , we had approximately €538.7 million and £238.9 million or a total of $936.3 million , in net investments in our European subsidiaries and a £39.2 million or $51.0 million loan receivable held by a U.S subsidiary. A 1% change in these foreign currency rates would result in a $9.4 million increase or decrease in translation gain or loss included in other comprehensive income in connection with our investment in our European subsidiaries, and a $0.5 million gain or loss in earnings in connection with the foreign denominated loan receivable held by a U.S subsidiary.

A summary of the foreign exchange contracts in place at September 30, 2018 , including notional amount and key terms, is included in Note 13 to the consolidated financial statements. The maturity dates of these instruments approximate the projected dates of related cash flows for specific investments. Termination or maturity of currency hedging instruments may result in an obligation for payment to or from the counterparty to the hedging agreement. We are exposed to credit loss in the event of non-performance by counterparties for these contracts. To manage this risk, we select major international banks and financial institutions as counterparties and perform a quarterly review of the financial health and stability of our trading counterparties. Based on our review at September 30, 2018 , we do not expect any counterparty to default on its obligations.

Inflation

Many of our assets and liabilities are interest rate sensitive in nature. As a result, interest rates and other factors influence our performance more so than inflation, although inflation rates can often have a meaningful influence over the direction of interest rates. Furthermore, our financial statements are prepared in accordance with GAAP and our distributions as determined by our board of directors will be primarily based on our taxable income, and, in each case, our activities and balance sheet are measured with reference to historical cost and/or fair value without considering inflation.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) that are designed to ensure that information required to be disclosed in our reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

As required by Rule 13a-15(b) of the Exchange Act, we have evaluated, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at September 30, 2018 .

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Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended September 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

The Company may be involved in litigations and claims in the ordinary course of business. As of September 30, 2018 , the Company was not involved in any material legal proceedings.

Item 1A. Risk Factors.

There have been no material changes to the risk factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 .

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

Redemption of OP Units —Holders of OP Units have the right to require the OP to redeem all of a portion of their OP Units for cash or, at our option, shares of our class A common stock on a one-for-one basis. In August 2018 and September 2018, in satisfaction of redemption requests by certain OP Unit holders, we issued an aggregate of 575,361 shares of our class A common stock, of which:


•	78,889 shares of our class A common stock were issued to certain of our employees and to an entity controlled by certain of our employees; and


•	496,472 shares of our class A common stock were issued to entities controlled by Thomas J. Barrack, Jr., the Company's Executive Chairman.

In connection with the redemption of OP Units by Mr. Barrack in August 2018, we issued 13,936 shares of our class A common stock to Mr. Barrack upon conversion of an equal number of shares of our class B common stock held by Mr. Barrack.

Such shares of class A common stock were issued in reliance on Section 4(a)(2) of the Securities Act.

Purchases of Equity Securities by Issuer and Affiliated Purchasers

On May 23, 2018, the Company's board of directors authorized a common stock repurchase program pursuant to which the Company may repurchase up to $300 million of its outstanding shares of class A common stock over a one-year period, either in the open market or through privately negotiated transactions. The May 2018 repurchase program is in addition to the $300 million share repurchase program the Company announced in February 2018, which program was completed in May 2018.

There were no purchases by the Company of its class A common stock in the third quarter of 2018. As of September 30, 2018 , the maximum dollar value that may be purchased under the May 2018 repurchase program was $281.5 million.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Management Changes

Effective as of November 5, 2018, the board of directors (the “Board”) of Colony Capital, Inc. (the “Company”) appointed Thomas J. Barrack, Jr. as the Company’s Chief Executive Officer in addition to his role as the Company’s Executive Chairman. Concurrently with Mr. Barrack’s appointment, on November 5, 2018, Darren J. Tangen was appointed as the Company’s President and, effective on January 1, 2019, has resigned from his roles as the Company’s Chief Financial Officer and Treasurer. In addition, effective on January 1, 2019, Mark M. Hedstrom has been appointed as the Company’s Chief Financial Officer and Treasurer in addition to his role as the Company’s Chief Operating Officer.

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In connection with the foregoing appointments, on November 5, 2018, the Board and Richard B. Saltzman reached a mutual agreement in which Mr. Saltzman no longer serves as the Company’s President and Chief Executive Officer, and Mr. Saltzman resigned as a member of the Board effective November 6, 2018. Mr. Saltzman's resignation did not involve a disagreement with the Company or any matter relating to the Company's operations, policies or practices. In connection with Mr. Saltzman’s departure, Mr. Saltzman is eligible to receive the separation payments and benefits set forth in his employment agreement with the Company, dated December 23, 2014 and amended on June 2, 2016, subject to his execution of a release of claims in favor of the Company.

All required information relating to Messrs. Barrack’s, Tangen’s and Hedstrom’s respective biography and work experience is included in the Company's Definitive Proxy Statement filed on April 3, 2018 with the Securities and Exchange Commission and such information is incorporated herein by reference. None of Messrs. Barrack, Tangen and Hedstrom entered into any agreements with the Company in connection with their respective appointments described above and there were no changes to their respective compensation from that which was in effect immediately prior to such appointments.

Amendment to NRE Management Agreement

On November 7, 2018, CNI NRE Advisors LLC, an affiliate of the Company (the “Asset Manager”), and NorthStar Realty Europe Corp. (“NRE”) entered into Amendment No. 1 (the “Amendment”) to the Amended and Restated Management Agreement, dated as of November 9, 2017 (the “Asset Management Agreement”) between the Asset Manager and NRE. The Amendment provides for the automatic termination of the Asset Management Agreement (the date of such termination, the “Termination Date”) upon the earlier of (i) the closing of an NRE Change of Control (as defined in the Asset Management Agreement) and (ii) the completion of an internalization of the management of NRE within nine months of the later of (x) April 30, 2019, if on such date there is not in place a definitive agreement for an NRE Change of Control and (y) if on April 30, 2019 there is a definitive agreement for an NRE Change of Control, such date on which such agreement is terminated, if any, if no other definitive agreement for an NRE Change of Control is entered into within 30 days thereafter (the later of such dates being the “Triggering Date”).

The Amendment provides that upon the Termination Date, NRE will be obligated to pay to the Asset Manager a termination payment equal to (i) $70 million, minus (ii) the amount of any Incentive Fee (as defined in the Asset Management Agreement) paid pursuant to the Asset Management Agreement on or after the date of the Amendment and on or prior to the Termination Date. No Incentive Fee will be payable to the Asset Manager for any NRE Change of Control in connection with which a Termination Payment is made or for any period on or after the Termination Date.

Under the terms of the Amendment, at the direction of the Strategic Review Committee (the “SRC”) of NRE’s board of directors (the “NRE Board”), NRE has agreed to use commercially reasonable efforts, consistent with the fiduciary duties of the SRC and the NRE Board, to enter into a definitive agreement providing for an NRE Change of Control. The Amendment provides that the Asset Manager will continue to manage NRE and provide services to NRE under the terms the Asset Management Agreement until the Termination Date and during such period the Asset Manager will be entitled to expense reimbursements, the Base Management Fee and any Incentive Fee, each as defined in, and pursuant to, the Asset Management Agreement. Commencing on the Triggering Date and for a period of nine months thereafter, the Asset Manager will reasonably cooperate with NRE to finalize the internalization of the management of NRE as soon as reasonably practicable. In addition, the Asset Manager and NRE agreed to negotiate in good faith to execute a definitive transition services agreement to remain in place for a period commencing upon the Termination Date and for nine months thereafter (or such shorter time requested by the NRE Board).

The foregoing descriptions of the Amendment and the Asset Management Agreement do not purport to describe all of the terms of the Amendment and the Asset Management Agreement and are qualified in their entirety by reference to the Amendment, which is filed as Exhibit 10.1 hereto, and the Asset Management Agreement, which is filed as Exhibit 10.15 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, and are incorporated herein by reference.

Amendment to Operating Company Agreement

On November 5, 2018, the Company, in its capacity as managing member of Colony Capital Operating Company, LLC, entered into Amendment No. 4 (the “OP Amendment”) to the Third Amended and Restated Limited Liability Company Agreement of the Operating Company to clarify certain provisions regarding issuances to the Company of membership units in the Operating Company.

The foregoing description of the OP Amendment does not purport to describe all of the terms of the OP Amendment and is qualified in its entirety by reference to the OP Amendment, which is filed as Exhibit 10.2 hereto, and is incorporated herein by reference.

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Item 6. Exhibits.



Exhibit Number		Description

3.1		Articles of Amendment and Restatement of Colony Capital, Inc. (fka Colony NorthStar, Inc.), as amended (incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2018)
3.2		Articles Supplementary designating Colony Capital, Inc.'s (fka Colony NorthStar, Inc.) 7.15% Series I Cumulative Redeemable Perpetual Preferred Stock, liquidation preference $25.00 per share, par value $0.01 per share (incorporated by reference to Exhibit 3.2 to the Company’s Form 8-A filed on June 5, 2017)
3.3		Articles Supplementary designating Colony Capital, Inc.'s (fka Colony NorthStar, Inc.) 7.125% Series J Cumulative Redeemable Perpetual Preferred Stock, liquidation preference $25.00 per share, par value $0.01 per share (incorporated by reference to Exhibit 3.3 to the Company’s Registration Statement on Form 8-A filed on September 22, 2017)
3.4		Amended and Restated Bylaws of Colony Capital, Inc. (fka Colony NorthStar, Inc.) (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on June 25, 2018)
4.1		Form of stock certificate evidencing the 7.125% Series J Cumulative Redeemable Perpetual Preferred Stock, liquidation preference $25.00 per share, par value $0.01 per share (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form 8-A filed on September 22, 2017)
4.2		Form of stock certificate evidencing the 7.15% Series I Cumulative Redeemable Perpetual Preferred Stock, liquidation preference $25.00 per share, par value $0.01 per share (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form 8-A filed on June 5, 2017)
10.1*		Amendment No. 1 to Amended and Restated Asset Management Agreement between NorthStar Realty Europe Corp. and CNI NRE Advisors, LLC, dated as of November 7, 2018
10.2*		Amendment No. 4 to Third Amended and Restated Limited Liability Company Agreement of Colony Capital Operating Company, LLC, dated as of November 5, 2018
31.1*		Certification of Thomas J. Barrack Jr., Chief Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*		Certification of Darren J. Tangen, Chief Financial Officer and Treasurer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*		Certification of Thomas J. Barrack Jr., Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*		Certification of Darren J. Tangen, Chief Financial Officer and Treasurer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101**		Financial statements from the Quarterly Report on Form 10-Q of Colony Capital, Inc. for the quarter ended September 30, 2018, formatted in XBRL (eXtensible Business Reporting Language): (1) Consolidated Balance Sheets, (2) Consolidated Statements of Operations, (3) Consolidated Statements of Comprehensive Income, (4) Consolidated Statements of Equity, (5) Consolidated Statements of Cash Flows and (6) Notes to Consolidated Financial Statements.

__________



*	Filed herewith
**	Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: November 9, 2018



COLONY CAPITAL, INC.

By:		/s/ Thomas J. Barrack, Jr.
		Thomas J. Barrack, Jr.
		Chief Executive Officer (Principal Executive Officer)

By:		/s/ Darren J. Tangen
		Darren J. Tangen
		Chief Financial Officer (Principal Financial Officer)

By:		/s/ Neale Redington
		Neale Redington
		Chief Accounting Officer (Principal Accounting Officer)

Exhibit 10.1

AMENDMENT NO. 1 TO AMENDED AND RESTATED ASSET

MANAGEMENT AGREEMENT

This amendment (this “ Amendment ”), dated as of November 7, 2018 hereby amends the Amended and Restated Asset Management Agreement dated as of November 9, 2017 (the “ Asset Management Agreement ”) by and between NorthStar Realty Europe Corp., a Maryland corporation (“ NRE ”), and CNI NRE Advisors, LLC, a Delaware limited liability company (the “ Asset Manager ”). Each capitalized term used in this Amendment and not otherwise defined herein shall have the meaning ascribed to such term in the Asset Management Agreement.

NOW, THEREFORE, the parties hereto, for good and valuable consideration, the adequacy of which is hereby acknowledged, and intending to be legally bound, hereby wish to amend the Asset Management Agreement on the terms set forth herein:

AGREEMENTS

1. Press Release . NRE has issued a press release announcing this Amendment and that the SRC, is conducting a process to review strategic alternatives in an effort to enhance stockholder value, including by means of a potential sale of NRE.

2. Commercially Reasonable Efforts . At the direction of the SRC, NRE shall use commercially reasonable efforts, consistent with the fiduciary duties of the SRC and the Board of Directors of NRE, to enter into a definitive agreement providing for an NRE Change of Control.

3. Management . Subject to the other terms and conditions of this Amendment, from the date hereof through the Termination Date (as defined below), the Asset Manager shall continue to manage NRE and provide Services pursuant to the existing terms of the Asset Management Agreement, including in exchange for NRE’s payment of the Base Management Fee, any Incentive Fee and expense reimbursement due pursuant to the existing terms of the Asset Management Agreement.

4. Retention and Transition Plan. Promptly after the date hereof, the Asset Manager and NRE (through its Board of Directors) hereby agree to formulate a management transition and retention program to induce the employees of the Asset Manager and its Subsidiaries set forth on Exhibit A to continue providing Services to NRE through the Termination Date and substantially similar services to NRE following the Termination Date, which program shall be reasonably acceptable to the Board of Directors of NRE and the Asset Manager.

5. Termination of the Asset Management Agreement . After the date hereof and prior to the Outside Date, the Asset Manager and NRE acknowledge and agree that any definitive agreement entered into with respect to an NRE Change of Control need not comply with Section 19(b) of the Asset Management Agreement. The Asset Management Agreement will automatically terminate (the date of such termination, the “ Termination Date ”), without further action of either party hereto, effective upon the earlier of (A) (i) the closing of an NRE Change of Control, and (ii) the completion of an internalization

of the management of NRE within nine months of a Triggering Date (as defined below) (the date which is nine months after the Triggering Date being referred to as the “ Outside Date ”), following which each of NRE and the Asset Manager shall have no further rights or obligations under the Asset Management Agreement other than the payment of the Termination Payment in accordance with the terms hereof; provided that following the Triggering Date, NRE shall promptly make a public announcement regarding the termination of its process to review strategic alternatives and initiation of the internalization process, at which time NRE’s obligations under Section 2 shall terminate. “ Triggering Date ” means the later of (x) April 30, 2019 if on such date there is not in place a definitive agreement for an NRE Change of Control, and (y) if on April 30, 2019 there is a definitive agreement for an NRE Change of Control, such date on which such agreement is terminated, if any, if no other definitive agreement for an NRE Change of Control is entered into within 30 days thereafter. On the Termination Date, NRE shall pay to the Asset Manager a termination payment equal to (I) $70,000,000, minus (II) the amount of any Incentive Fee paid pursuant to the Asset Management Agreement on or after the date hereof and on or prior to the Termination Date (the “ Termination Payment ”). Any internalization of the management of NRE shall be pursuant to a definitive agreement, the form of which shall be of a customary nature for transactions of this type, shall be negotiated in good faith and shall be reasonably acceptable to the Board of Directors of NRE and the Asset Manager. During the period from any Triggering Date to the corresponding Outside Date, the Asset Manager shall reasonably cooperate with NRE to finalize the internalization of the management of NRE as soon as reasonably practicable after such Triggering Date.

6. Incentive Fee. Each of NRE and the Asset Manager hereby agree that (i) the payment of all Incentive Fees in accordance with the Asset Management Agreement on or prior to the Outside Date shall in no event exceed $70,000,000 in the aggregate and (ii) no Incentive Fee shall be due or payable to the Asset Manager pursuant to the terms of the Asset Management Agreement in respect of any NRE Change of Control in connection with which the Termination Payment is paid or any period on or after the Termination Date. For the avoidance of doubt and for illustrative purposes only, if all Incentive Fees paid prior to the Termination Date equal to fifteen million dollars ($15,000,000), the Termination Payment would equal fifty-five million dollars ($55,000,000).

7. Transition Services Agreement. At the request of the Board of Directors of NRE, the Asset Manager and NRE agree to negotiate in good faith to execute a definitive transition services agreement, the form of which is reasonably acceptable to the Board of Directors of NRE and the Asset Manager, which transition services agreement shall remain in place for a period commencing upon the Termination Date and for nine (9) months thereafter (or such shorter time as the Board of Directors of NRE shall request).

8. Miscellaneous. The provisions set forth in Section 22 through Section 30 and Section 32 through Section 35 of the Asset Management Agreement are hereby incorporated herein, with all references to the “Agreement” being references to the Asset Management Agreement as amended by this Amendment. This Amendment may be executed in one or more counterparts, and each of such counterparts shall, for all purposes, be deemed to be an original, but all of such counterparts shall constitute one and the same instrument.

[Signatures on Next Page]



NORTHSTAR REALTY EUROPE CORP.


By:	/s/ Ronald M. Sanders
	Name: Ronald M. Sanders
	Title: Assistant Secretary


CNI NRE ADVISORS, LLC


By:	/s/ Mark M. Hedstrom
	Name: Mark M. Hedstrom
	Title: Vice President

Exhibit 10.2

AMENDMENT NO. 4

THIRD AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

COLONY CAPITAL OPERATING COMPANY, LLC

This Amendment No. 4 to the Third Amended and Restated Limited Liability Company Agreement of Colony Capital Operating Company, LLC (this “Amendment”) is made as of November 5, 2018 by Colony Capital, Inc. (fka Colony NorthStar, Inc.), a Maryland corporation, as the sole Managing Member (the “Managing Member”) of Colony Capital Operating Company, LLC, a Delaware limited liability company (the “Operating Partnership”), pursuant to the authority granted to the Managing Member in the Third Amended and Restated Limited Liability Company Agreement of Colony Capital Operating Company, LLC, dated as of January 10, 2017 (as amended from time to time, the “Partnership Agreement”). Capitalized terms used and not defined herein shall have the meanings set forth in the Partnership Agreement.

WHEREAS, the Managing Member desires to amend the Partnership Agreement through this Amendment to clarify certain provisions regarding issuances of Membership Units pursuant to Section 4.2.B of the Partnership Agreement; and

WHEREAS, Section 7.3.C(3) of the Partnership Agreement provides that the Managing Member may so amend the Partnership Agreement to reflect a change that does not adversely affect the Non-Managing Members in any material respect without the consent of the Members or any non-Managing Member.

NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the Partnership Agreement is hereby amended as follows:

1. Section 4.2.B of the Partnership Agreement is hereby amended and restated in its entirety to read as follows:

B. Issuances to the Managing Member or CLNS . No additional Membership Units shall be issued to CLNS unless (i) the additional Membership Units are issued to all Members holding Membership Common Units in proportion to their respective Percentage Interests in the Membership Common Units, (ii) (a) the additional Membership Units are (x) Membership Common Units issued in connection with an issuance of REIT Shares, or (y) Company Equivalent Units (other than Membership Common Units) issued in connection with an issuance of Capital Shares, Preferred Shares, New Securities or other interests in CLNS (other than REIT Shares), and (b) CLNS contributes to the Company the cash proceeds or other consideration received in connection with the issuance of such REIT Shares, Capital Shares, Preferred Shares, New Securities or other interests in CLNS, (iii) the additional Membership Units are issued upon the conversion, redemption or exchange of Debt, Membership Units or other securities issued by the Company, or (iv) the additional Membership Units are issued pursuant to Section 4.2.A, Section 4.2.D, Section 4.4, Section 4.7 or Section 4.11.

2. Except as modified herein, all terms and conditions of the Partnership Agreement shall remain in full force and effect, which terms and conditions the Managing Member hereby ratifies and confirms.

3. This Amendment shall be construed and enforced in accordance with and governed by the laws of the State of Delaware, without regard to conflicts of law.

4. If any provision of this Amendment is or becomes invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby.

[ Signature page follows ]

IN WITNESS WHEREOF, the undersigned has executed this Amendment as of the date first set forth above.

COLONY CAPITAL, INC.,

as Managing Member

By: /s/ Ronald M. Sanders

Name: Ronald M. Sanders

Title: Executive Vice President, Chief Legal

Officer and Secretary

[Signature Page to Amendment No. 4 to the Third Amended and Restated Limited Liability Company Agreement of Colony Capital Operating Company, LLC]

Exhibit 31.1

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Thomas J. Barrack, Jr., certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q of Colony Capital, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date:	November 9, 2018	/s/ Thomas J. Barrack, Jr.
		Thomas J. Barrack, Jr. Chief Executive Officer

Exhibit 31.2

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Darren J. Tangen, certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q of Colony Capital, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date:	November 9, 2018	/s/ Darren J. Tangen
		Darren J. Tangen Chief Financial Officer and Treasurer

Exhibit 32.1

Certification of Chief Executive Officer

Pursuant to 18 U.S.C. Section 1350,

As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Colony Capital, Inc. (the “Company”) on Form 10-Q for the three months ended September 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas J. Barrack, Jr., Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(i) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Date:	November 9, 2018	/s/ Thomas J. Barrack, Jr.
		Thomas J. Barrack, Jr. Chief Executive Officer

The foregoing certification is being furnished solely pursuant to 18 U.S.C §1350 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended or incorporated by reference in any registration statement of the Company filed under the Securities Act of 1933, as amended.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

Exhibit 32.2

Certification of Chief Financial Officer

Pursuant to 18 U.S.C. Section 1350,

As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Colony Capital, Inc. (the “Company”) on Form 10-Q for the three months ended September 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Darren J. Tangen, Chief Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(i) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Date:	November 9, 2018	/s/ Darren J. Tangen
		Darren J. Tangen Chief Financial Officer and Treasurer