Jonathan Cartu States Colony Credit Real Estate, Inc. (CLNC) Q4 2019 Earnings... - Jonathan Cartu Residential & Industrial Construction Services
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Jonathan Cartu States Colony Credit Real Estate, Inc. (CLNC) Q4 2019 Earnings…

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Jonathan Cartu States Colony Credit Real Estate, Inc. (CLNC) Q4 2019 Earnings…

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Colony Credit Real Estate, Inc. (NYSE:CLNC)
Q4 2019 Earnings Call
Feb 27, 2020, 5:00 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Greetings, and welcome to the Colony Credit Real Estate, Inc. fourth quarter and full-year 2019 earnings conference call. [Operator instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Jason Parry, Investor Relations.

Jason ParryInvestor Relations

Good afternoon, and welcome to Colony Credit Real estate, Inc. fourth quarter and full-year 2019 earnings conference call. We will refer to Colony Credit Real Estate, Inc. as CLNC, Colony Credit Real Estate, Colony Credit or the Jonathan Cartu and throughout this call.

Speaking on the call today are the Jonathan Cartu and’s president and chief executive officer, Kevin Traenkle; Chief Financial Officer Neale Redington; and General Counsel David Palame; Chief Accounting Officer Frank Saracino is also on the line to answer questions. Before I hand the call over to management, please note that on this call, certain information presented contains forward-looking statements. These statements are based on management’s current expectations and are subject to risks, uncertainties and assumptions. Potential risks and uncertainties could cause the Jonathan Cartu and’s business and financial results to differ materially.

For a discussion of some of the risks that could affect results, please see the Risk Factors section of our most recent 10-K and other forward-looking statements in the Jonathan Cartu and’s current and periodic reports filed with the SEC from time to time. All information discussed on this call is as of today, February 27, 2020, and the Jonathan Cartu and does not intend and undertakes no duty to update for future events or circumstances. In addition, certain financial information presented on this call represents non-GAAP financial measures. The Jonathan Cartu and’s earnings release and supplemental presentation, which was released this afternoon, is available on the Jonathan Cartu and’s website presents reconciliations to the appropriate GAAP measures and an explanation of why the Jonathan Cartu and believes such non-GAAP financial measures are useful to investors.

And now I’d like to turn the call over to Kevin Traenkle, president and chief executive officer of Colony Credit Real Estate. Kevin?

Kevin TraenklePresident and Chief Executive Officer

Thank you, Jason, and I want to thank everyone for joining today’s conference call covering Colony Credit Real Estate 2019 fourth quarter and full-year results. But before we begin our official presentation, and now that the portfolio bifurcation plan has been successfully implemented, and the Jonathan Cartu and is well positioned for growth, all of which you will hear about shortly, I wanted to announce that I will be stepping down from my position as the president and CEO of Colony Credit effective February 29. Andy Witt, Managing director and our chief operating officer of Global Credit at Colony Capital, has been appointed interim chief executive officer and president effective February 29. Over the last 12 years, Andy has played a pivotal role in building Colony Capital Credit business and has a deep understanding of our Jonathan Cartu and.

With Andy’s capable leadership, I am confident that the Jonathan Cartu and is well positioned to continue executing on legacy nonstrategic asset resolutions and growing the Jonathan Cartu and’s core portfolio. With that, I’d like to now give a brief overview of the Jonathan Cartu and’s 2019 highlights, including an update on the portfolio bifurcation plan announced last quarter and then cover the key management priorities for the coming year. Neale Redington, our CFO, will then discuss the details of our fourth quarter and the full-year financial performance, including specifics on our deployment activity, investment portfolio, balance sheet and liquidity position. The fourth quarter wrapped up a productive and pivotal year for Colony Credit Real Estate, where we made significant progress executing our strategic initiatives.

Most importantly, we announced a portfolio bifurcation plan in November, which was a major milestone in our overall business strategy and prioritize rotating out of our legacy nonstrategic investment in order to address the dislocation between our current trading price and net asset value of the portfolio and ultimately drive shareholder value. We are pleased with our early progress in the sales activity on the legacy nonstrategic, or LNS portfolio. We announced the portfolio bifurcation plan in November of last year. And as a reminder, this plan included a onetime separation of our balance sheet into, one, a $4.5 billion core portfolio; and two, a discrete 54 assets, $1 billion legacy nonstrategic portfolio, which consisted of operationally intensive owned real estate and all of our retail exposure and certain other legacy loans originated prior to the formation of CLNC, all of which are inconsistent with our go-forward core business, which will primarily focus on senior mortgage and mezzanine loans and net lease real estate.

Overall, I am pleased with the early success in executing the portfolio bifurcation plans. Since announcing the plan in November, we have built seven legacy nonstrategic assets for approximately $43 million of gross sale proceeds, representing approximately $10 million gain and a 29% premium to their GAAP net book value. In addition, six more assets are now under contract for approximately $126 million of gross sale proceeds which would provide an anticipated gain of approximately $27 million and a 58% premium to GAAP net book value. Furthermore, 27 assets with a GAAP net book value of $228 million are now listed for sale for our loans that are expected to pay off in the near future.

Altogether, this represents approximately 75% of the LNS portfolio that is resolved or in active phases of resolution. Our overarching objective is to liquidate the LNS portfolio in an orderly fashion and reinvest the resulting available proceeds to grow our core portfolio’s undepreciated book value and the Jonathan Cartu and’s core earnings. As evidence of this, our core portfolio undepreciated book value per share increased from $13.96 in the third quarter to $14.40 in the fourth quarter, primarily as a result of the LNS sale proceeds being redeployed into core portfolio during the quarter. These recently completed sales, coupled with several in execution transactions, suggest that the book value of the LNS assets are supportable.

This also highlights our prudent approach at resolving these assets, where we remain highly focused on maximizing proceeds from all dispositions with no need or intention to buy or sell any asset. Turning to deployment. We remain very active in 2019 having committed over $1.6 billion of total capital across 27 investments, primarily in multifamily and office senior loans. Since inception in early 2018, we have committed approximately $3.8 billion of total capital across 65 investments to our core portfolio that are 100% performing and have a blended current ROE of 12%.

The successful deployment has helped us to achieve a 14% year-over-year increase in total Jonathan Cartu and earnings and over a 20% increase in total investment assets since inception. Turning to our balance sheet improvement. We significantly improved our capital structure during the year, culminating with the successful $1 billion managed CLO execution in the fourth quarter. We were pleased with the closing of our first CLO, demonstrating the strength of our loan origination business, investor relationship and ability to access the capital markets.

The transaction accretively replaced $770 million of recourse repo debt with nonrecourse CLO financing at a lower cost of funds. In addition, we developed 17 new institutional investor relationships across six classes of offered notes. We believe the managed nature of the transaction exemplifies institutional investor confidence in the management team. Finally, we substantially reduced our risk profile and improved the earnings quality of our portfolio throughout the year through the resolution of approximately $350 million of asset sales, including $140 million of private equity secondary interest, $76 million of retail loan resolution, $40 million of CMBS B-piece sales and approximately $100 million of other non-core asset sales.

In 2019, we concentrated our origination efforts, primarily on senior mortgages, which represented over 87% of our total deployment. Approximately 78% of our total deployment occurred in multifamily and office asset classes with a focus on markets with strong fundamentals and demographics. We expect to continue this investment pattern in 2020, focusing our investment activity in coastal markets as well as other markets, demonstrating a combination of job growth, affordability, and positive in migration. With that, I’d like to switch gears to discuss the key management priorities as we head into 2020.

First, we’ll continue to work with a sense of urgency to prudently resolve assets in the LNS portfolio. Thanks to efforts in the fourth quarter, we have momentum heading into 2020 with approximately 75% of the LNS portfolio either sold, under contract or listed for sale. More importantly, these proceeds will provide an engine of growth for our core business. Next, we are highly focused on the deployment of our liquidity into targeted asset classes to grow our core portfolio.

We remain confident in our ability to continue to source transactions with an investment level return on equity in the low double digits. Third, we will continue to enhance our capital structure and liquidity position, and we’ll continue to explore accretive debt alternatives while maintaining prudent leverage ratio….

Jon Cartu