Colony Credit Real Estate, Inc. (NYSE: CLNC) (“Colony Credit
Real Estate” or the “Company”) today announced its financial
results for the third quarter ended September 30, 2018.
Third Quarter 2018 Significant
Developments and Subsequent Events
- Third quarter 2018 GAAP net loss
attributable to common stockholders of $52.7 million, or $0.42 per
diluted share, and core earnings of $38.8 million, or $0.30 per
diluted share. Excluding a $6.9 million loss related to
mark-to-market adjustments on real estate private equity
investments, core earnings of $45.7 million, or $0.35 per diluted
share
- Undepreciated book value of $3.0
billion, or $23.18 per diluted share, as of September 30, 2018
- Declared and paid a monthly cash
dividend of $0.145 per share of class A and class B-3 common stock
for July, August and September. The dividend represents an
annualized dividend of $1.74 per share of common stock, equating to
an 8.2% annualized dividend yield based on the $21.18 closing price
on November 2, 2018
- Subsequent to quarter end, the
Company’s Board of Directors declared a monthly cash dividend of
$0.145 per share of class A and class B-3 common stock for October
and November
- During the third quarter of 2018,
allocated and initially funded $841 million and $810 million of
capital, respectively. This includes two European investments
including the purchase of a triple net leased office campus and a
senior loan investment in a core-office development project
- During the third quarter, the progress
of discussions with a borrower on certain NY hospitality loans led
the Company to explore additional options for a potential
resolution, including a recapitalization and earlier than expected
receipt and sale of collateral. Based upon these new developments,
the Company recorded a $35 million provision for loan loss
- Recorded an impairment on real estate
held for investment of $25 million at CLNC ownership share for
three properties, resulting from changes during the quarter,
including a reduction in the estimated holding period and tenant
vacancy
- Subsequent to quarter end, allocated
and initially funded an additional $620 million and $356 million of
capital, respectively, through closed deals or deals in advanced
stages of execution. This includes a third European senior loan
investment in a mixed-use development project
- Subsequent to quarter end, sold largest
non-core owned real estate multi-tenant office portfolio by book
value for a total sales price of $177 million
- Year-to-date, allocated approximately
$2.2 billion of total capital through closed deals or deals in
advanced stages of execution, with an expected weighted average
return on equity and total internal rate of return of approximately
12% and 16%, respectively
- As of November 2, 2018, total corporate
liquidity of approximately $189 million through cash-on-hand and
availability under the corporate revolving credit facility. In
addition, excess master repurchase facility capacity of $1.2
billion including $300 million of new capacity which closed
subsequent to quarter end
Kevin P. Traenkle, President and Chief Executive Officer of
Colony Credit Real Estate, commented, “We are pleased to report the
results for our third quarter 2018. During the quarter, we made
substantial progress in deploying our corporate liquidity and began
utilizing asset-level leverage capacity in order to increase our
run-rate core earnings power. In addition, subsequent to the third
quarter, we completed our third investment in Europe as we further
diversify our portfolio and leverage Colony’s global
infrastructure, decades-long international track record and best-in
class deal-sourcing capabilities.”
Mr. Traenkle added, “We are pleased with our robust and
accretive quarterly deployment and year-to-date commitments of over
$2 billion. Additionally, we recognized an impairment and a loan
loss provision due to recent developments at certain investments.
These developments include, among other things, the potential
monetization of lower-yielding and non-core assets earlier than
expected. However, doing so will allow Colony Credit Real Estate to
move forward with our business plan, including redeploying
lower-yielding capital into higher-yielding assets.”
Common Stock and Operating Partnership
Units
As of November 5, 2018, the Company had approximately 127.9
million shares of class A and class B-3 common stock outstanding
and the Company’s operating partnership had approximately 3.1
million operating partnership units (“OP units”) outstanding held
by members other than the Company or its subsidiaries.
Dividend
The Company’s Board of Directors declared a monthly cash
dividend of $0.145 per share of class A and class B-3 common stock
(the “common stock”) (i) for the monthly period ended July 31,
2018, which was paid on August 10, 2018, to stockholders of record
on July 31, 2018, (ii) for the monthly period ended August 31,
2018, which was paid on September 10, 2018, to stockholders of
record on August 31, 2018, and (iii) for the monthly period ended
September 30, 2018, which was paid on October 10, 2018, to
stockholders of record on September 28, 2018.
Subsequent to the end of the third quarter, the Company’s Board
of Directors declared a monthly cash dividend of $0.145 per share
of common stock (i) for the monthly period ended October 31, 2018,
which will be paid on November 9, 2018, to stockholders of record
on October 31, 2018, and (ii) for the monthly period ended November
30, 2018, which will be paid on December 10, 2018, to stockholders
of record on November 30, 2018.
Non-GAAP Financial Measures and
Definitions
Core Earnings
We present Core Earnings, which is a non-GAAP supplemental
financial measure of our performance. We believe that Core Earnings
provides meaningful information to consider in addition to our net
income and cash flow from operating activities determined in
accordance with U.S. GAAP. This supplemental financial measure
helps us to evaluate our performance excluding the effects of
certain transactions and U.S. GAAP adjustments that we believe are
not necessarily indicative of our current portfolio and operations.
We also use Core Earnings to determine the incentive fees we pay to
our Manager. For information on the fees we pay our Manager, see
Note 11, “Related Party Arrangements” to our consolidated financial
statements included in Form 10-Q to be filed with the U.S.
Securities and Exchange Commission (“SEC”). In addition, we believe
that our investors also use Core Earnings or a comparable
supplemental performance measure to evaluate and compare the
performance of us and our peers, and as such, we believe that the
disclosure of Core Earnings is useful to our investors.
We define Core Earnings as U.S. GAAP net income (loss)
attributable to our common stockholders (or, without duplication,
the owners of the common equity of our direct subsidiaries, such as
our operating partnership) and excluding (i) non-cash equity
compensation expense, (ii) the expenses incurred in connection with
our formation, (iii) the incentive fee, (iv) acquisition costs from
successful acquisitions, (v) depreciation and amortization, (vi)
any unrealized gains or losses or other similar non-cash items that
are included in net income for the current quarter, regardless of
whether such items are included in other comprehensive income or
loss, or in net income, (vii) one-time events pursuant to changes
in U.S. GAAP and (viii) certain material non-cash income or expense
items that in the judgment of management should not be included in
Core Earnings. For clauses (vii) and (viii), such exclusions shall
only be applied after discussions between our Manager and our
independent directors and after approval by a majority of our
independent directors. Core Earnings reflects adjustments to U.S.
GAAP net income to exclude impairment of real estate and provision
for loan losses. Upon realization of the related investments, such
impairment and losses, to the extent realized, would be reflected
in Core Earnings.
Core Earnings does not represent net income or cash generated
from operating activities and should not be considered as an
alternative to U.S. GAAP net income or an indication of our cash
flows from operating activities determined in accordance with U.S.
GAAP, a measure of our liquidity, or an indication of funds
available to fund our cash needs, including our ability to make
cash distributions. In addition, our methodology for calculating
Core Earnings may differ from methodologies employed by other
companies to calculate the same or similar non-GAAP supplemental
financial measures, and accordingly, our reported Core Earnings may
not be comparable to the Core Earnings reported by other
companies.
The Company calculates core earnings per share, a non-GAAP
financial measure, based on a weighted average number of class A
and class B-3 common shares and operating partnership units (held
by members other than the Company or its subsidiaries).
Return on Equity
We present Return on Equity (“ROE”), which is a supplemental
financial measure that represents the initial net investment-level
earnings generated by an investment expressed as a percentage of
the net equity capital invested. The Company calculates net
investment-level earnings for investments in loans and CRE debt
securities as the sum of the stated cash coupon income and any
non-cash income (such as payment in-kind income and
amortization/accretion of purchase discounts and origination,
extension and exit fees) less investment-level financing costs. For
investments in net lease real estate, the Company calculates net
investment-level earnings by subtracting investment-level financing
costs from net operating income. Net equity capital invested is
calculated by taking the gross initial invested capital less any
financing. With respect to certain loans and investment-level
financing, the Company assumes the one-month USD LIBOR as of
September 30, 2018 when calculating ROE. The Company’s ROE
calculation relies on a number of assumptions and estimates that
are subject to change, some of which are outside the control of the
Company. Actual results may differ materially from the Company’s
expectations. As such, there can be no assurance that the actual
ROE will be equivalent to the estimated ROE. In addition, the
Company’s methodology for calculating ROE may differ from
methodologies employed by other companies to calculate the same or
similar supplemental financial measures, and accordingly, the
presented ROE may not be comparable to the ROE reported by other
companies.
Internal Rate of Return
We present Internal Rate of Return (“IRR”), which is a
supplemental financial measure that represents the rate of return
of an investment over a specific holding period expressed as a
percentage of the net equity capital invested. It is the discount
rate that makes net present value of all cash outflows equal to the
net present value of cash inflows. The weighted average
underwritten IRR reflects the returns underwritten and relies on a
number of assumptions and estimates that are subject to change.
Such assumptions and estimates around hold period, prepayments or
defaults, cost of borrowing, cap rates, rent increases, operating
costs, and exit assumptions, among many others, may be outside of
the control of the Company. With respect to certain loans included
in the weighted average underwritten IRR shown, the calculation
assumes certain estimates with respect to the timing and magnitude
of the initial future fundings for the total loan commitment and
associated loan repayments. In addition, the Company’s methodology
for calculating IRR involves subjective judgment and discretion and
may differ from methodologies used by other companies, when
calculating the same or similar supplemental financial measures and
may not be comparable with other companies. Actual results may
differ materially from the Company’s expectations. As such, there
can be no assurance that the actual weighted average IRRs will be
equivalent to the underwritten weighted average IRRs presented.
Third Quarter 2018 Conference
Call
The Company will conduct a conference call to discuss the
financial results on November 6, 2018 at 8:00 a.m. PT / 11:00 a.m.
ET. To participate in the event by telephone, please dial (877)
407-0784 ten minutes prior to the start time (to allow time for
registration). International callers should dial (201) 689-8560.
The call will also be broadcast live over the Internet and can be
accessed on the Shareholders section of the Company’s website at
www.clncredit.com. A webcast of the call will be available for 90
days on the Company’s website.
For those unable to participate during the live call, a replay
will be available starting November 6, 2018, at 10:00 a.m. PT /
1:00 p.m. ET, through November 13, 2018, at 8:59 p.m. PT / 11:59
p.m. ET. To access the replay, dial (844) 512-2921 (U.S.), and use
passcode 13684137. International callers should dial (412) 317-6671
and enter the same conference ID number.
Supplemental Financial
Report
A Third Quarter 2018 Supplemental Financial Report will be
available on the Company’s website at www.clncredit.com. This
information will be furnished to the SEC in a Current Report on
Form 8-K.
About Colony Credit Real Estate,
Inc.
Colony Credit Real Estate (NYSE: CLNC) is one of the largest
publicly traded commercial real estate (CRE) credit REITs, focused
on originating, acquiring, financing and managing a diversified
portfolio consisting primarily of CRE senior mortgage loans,
mezzanine loans, preferred equity, debt securities and net leased
properties predominantly in the United States. Colony Credit Real
Estate is externally managed by a subsidiary of leading global real
estate and investment management firm, Colony Capital, Inc. Colony
Credit Real Estate is organized as a Maryland corporation that
intends to elect to be taxed as a REIT for U.S. federal income tax
purposes for its taxable year ending December 31, 2018. For
additional information regarding the Company and its management and
business, please refer to www.clncredit.com.
Cautionary Statement Regarding
Forward-Looking Statements
This press release may contain forward-looking statements within
the meaning of the federal securities laws. 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. Forward-looking statements involve
known and unknown risks, uncertainties, assumptions and
contingencies, many of which are beyond our control, and may cause
actual results to differ significantly from those expressed in any
forward-looking statement. Among others, the following
uncertainties and other factors could cause actual results to
differ from those set forth in the forward-looking statements:
operating costs and business disruption may be greater than
expected; the Company’s operating results may differ materially
from the pro forma information presented in the Company’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2017;
the fair value of the Company’s investments may be subject to
uncertainties; the Company’s use of leverage could hinder its
ability to make distributions and may significantly impact its
liquidity position; given the Company’s dependence on its external
manager, an affiliate of Colony Capital, Inc., any adverse changes
in the financial health or otherwise of its manager or Colony
Capital, Inc. could hinder the Company’s operating performance and
return on stockholder’s investment; the ability to realize
substantial efficiencies as well as anticipated strategic and
financial benefits, including, but not limited to expected returns
on equity, yields and/or internal rates of return on investments;
and the impact of legislative, regulatory and competitive changes.
The foregoing list of factors is not exhaustive. Additional
information about these and other factors can be found in Part I,
Item 1A of the Company’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2017, as well as in Colony Credit Real
Estate’s other filings with the Securities and Exchange
Commission.
We caution investors not to unduly rely on any forward-looking
statements. The forward-looking statements speak only as of the
date of this press release. Colony Credit Real Estate is under no
duty to update any of these forward-looking statements after the
date of this press release, nor to conform prior statements to
actual results or revised expectations, and Colony Credit Real
Estate does not intend to do so.
Colony Credit Real Estate was formed on January 31, 2018,
through the combination of a select commercial real estate debt and
credit real estate portfolio of Colony Capital, Inc. (“Colony
Capital Investment Entities”) with substantially all of the assets
and liabilities of NorthStar Real Estate Income Trust, Inc. and all
of the assets and liabilities of NorthStar Real Estate Income II,
Inc. For the period ending and prior to December 31, 2017, the
following financial statements represent only the results of
operations for the Colony Capital Investment Entities, the
Company’s accounting predecessor, on a stand-alone basis. As a
result, comparisons of the Company’s period to period accompanying
consolidated financial information may not be meaningful.
COLONY CREDIT REAL ESTATE, INC. CONSOLIDATED
BALANCE SHEETS (In thousands, except share and per share
data)
September 30,
2018
December 31, (Unaudited) 2017 Assets
Cash and cash equivalents $ 56,289 $ 25,204 Restricted cash 115,963
41,901 Loans and preferred equity held for investment, net
1,919,122 1,300,784 Real estate securities, available for sale, at
fair value 231,241 - Real estate, net 1,980,180 219,740 Investments
in unconsolidated ventures ($210,440 and $24,417 at fair value,
respectively) 770,102 203,720 Receivables, net 37,821 35,512
Deferred leasing costs and intangible assets, net 141,576 11,014
Assets held for sale 172,200 - Other assets 99,581 1,527 Mortgage
loans held in securitization trusts, at fair value 3,124,226
-
Total assets $ 8,648,301
$ 1,839,402 Liabilities Securitization
bonds payable, net $ 81,372 $ 108,679 Mortgage and other notes
payable, net 1,282,325 280,982 Credit facilities 1,022,318 - Due to
related party 14,581 - Accrued and other liabilities 101,584 5,175
Intangible liabilities, net 16,268 36 Liabilities related to assets
held for sale 324 - Escrow deposits payable 75,911 36,960 Dividends
payable 18,992 - Mortgage obligations issued by securitization
trusts, at fair value 2,982,239 -
Total
liabilities 5,595,914
431,832 Commitments and contingencies
Equity
Stockholders’ equity Preferred stock, $0.01 par value, 50,000,000
shares authorized, no shares issued and outstanding as of September
30, 2018 and December 31, 2017 - - Common stock, $0.01 par value
per share Class A, 905,000,000 shares authorized, 83,487,352 and
100 shares issued and outstanding as of September 30, 2018 and
December 31, 2017, respectively 835 - Class B-3, 45,000,000 shares
authorized, 44,399,444 and no shares issued and outstanding as of
September 30, 2018, and December 31, 2017, respectively 444 -
Additional paid-in capital 2,898,184 821,031 Retained earnings
(accumulated deficit) (10,619 ) 258,777 Accumulated other
comprehensive income 2,469 - Total
stockholders’ equity 2,891,313 1,079,808 Noncontrolling interests
in investment entities 90,989 327,762 Noncontrolling interests in
the Operating Partnership 70,085 - Total
equity 3,052,387 1,407,570
Total
liabilities and equity $ 8,648,301
$ 1,839,402 COLONY CREDIT REAL
ESTATE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data) (Unaudited)
Three Months Ended September 30,
2018 2017 Net interest income Interest
income $ 40,139 $ 36,387 Interest expense (13,148 ) (4,694 )
Interest income on mortgage loans held in securitization trusts
39,261 - Interest expense on mortgage obligations issued by
securitization trusts (36,294 ) - Net interest
income 29,958 31,693
Property and other income
Property operating income 51,684 6,306 Other income 2,253
108
Total property and other income
53,937 6,414
Expenses Management fee expense 11,877 -
Property operating expense 21,217 2,239 Transaction, investment and
servicing expense 3,631 716 Interest expense on real estate 13,341
1,717 Depreciation and amortization 30,538 2,537 Provision for loan
losses 35,059 - Impairment of operating real estate 29,378 -
Administrative expense (including $1,822 and $0 of equity-based
compensation expense, respectively) 6,797
2,913 Total expenses 151,838 10,122
Other income (loss) Unrealized loss on
mortgage loans and obligations held in securitization trusts, net
(939 ) - Realized loss on mortgage loans and obligations held in
securitization trusts, net (549 ) - Other loss on investments, net
(15 ) (80 )
Income (loss) before equity in
earnings of unconsolidated ventures and income taxes
(69,446 ) 27,905 Equity in earnings of
unconsolidated ventures 8,324 3,042 Income tax benefit 2,456
535
Net income (loss) (58,666
) 31,482 Net (income) loss attributable to
noncontrolling interests: Investment entities 4,688 (10,230 )
Operating Partnership 1,275 -
Net
income (loss) attributable to Colony Credit Real Estate, Inc.
common stockholders $ (52,703 ) $
21,252 Net income (loss) per common share –
basic and diluted $ (0.42 ) $
0.45 Weighted average shares of common
stock outstanding – basic and diluted 127,887
44,399 Dividends declared per
share of common stock $ 0.44 $
- COLONY CREDIT REAL ESTATE,
INC. RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL
INFORMATION (In thousands, except per share data)
(Unaudited)
GAAP Net Loss to
Core Earnings
Three Months Ended September 30, 2018 Net loss
attributable to Colony Credit Real Estate, Inc. common stockholders
$ (52,703 ) Adjustments: Net income attributable to noncontrolling
interest of the Operating Partnership (1,275 ) Non-cash equity
compensation expense 1,822 Transaction costs 406 Depreciation and
amortization 30,956 Net unrealized loss on investments: Impairment
of operating real estate(1) 29,378 Provision for loan losses(1)
35,059 Other unrealized loss on investments 921 Adjustments related
to noncontrolling interests (5,751 ) Core earnings
attributable to Colony Credit Real Estate, Inc. common stockholders
and noncontrolling interest of the Operating Partnership(1) $
38,813 Core earnings per share(2) $ 0.30 Weighted
average number of common shares and OP units(2) 130,962
(1) Core Earnings reflects adjustments to U.S.
GAAP net income to exclude impairment of real estate and provision
for loan losses. Upon realization of the related investments, such
impairment and losses, to the extent realized, would be reflected
in Core Earnings. (2) The Company calculates core earnings per
share, a non-GAAP financial measure, based on a weighted average
number of common shares and OP units (held by members other than
the Company or its subsidiaries). For the third quarter 2018, the
weighted average number of common shares and OP units was
approximately 131.0 million.
GAAP Book Value
to Undepreciated Book Value
As of September 30, 2018 GAAP book
value (excluding noncontrolling interests in investment entities) $
2,961,398 Accumulated depreciation and amortization 74,892
Undepreciated book value $ 3,036,290 Undepreciated book value per
share(1) $ 23.18 Total common shares and OP units outstanding(1)
130,962 (1) The Company calculates
undepreciated book value per share, a non-GAAP financial measure,
based on the total number of common shares and OP units (held by
members other than the Company or its subsidiaries) outstanding at
the end of the reporting period. As of September 30, 2018, the
total number of common shares and OP units outstanding was
approximately 131.0 million.
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Investor RelationsColony Credit Real Estate, Inc.Addo
Investor RelationsLasse Glassen310-829-5400
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