CLNC - Earnings call transcript Q4 2019 | BrightSpire Capital, Inc.

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Operator

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 would now turn the conference over to your host, Jason Terry, Investor Relations.

Jason Terry

Good afternoon, and welcome to Colony Credit Real Estate, Inc.'s fourth quarter and full year 2019 earnings conference call.

Colony Estate, to refer will Credit Inc. Real We Estate, or the CLNC, Colony throughout Credit Real Credit as company Colony this call.

call Kevin Officer, on the Speaking Chief Accounting Officer, Counsel, the today to is company's Chief the on also Saracino President David Executive Palamé; Officer, Redington; answer Traenkle; Neale Financial line Frank Chief and General are and questions.

are current presented to to on this Before and that contains statements. to I and note forward-looking hand risks, management’s cause financial management, assumptions. and the please company’s based These are subject Potential results statements call business and materially. expectations uncertainties certain information on the over uncertainties, differ call, could risks

SEC section these that filed XX-K some the of a information recent results, in on of future update for not and as this of circumstances. other to is For forward-looking does duty company Factors to company’s intend could reports call XX, the All our from events risks time or and periodic discussion current and no statements most please undertakes of and affect the February discussed with Risk today, see time. the XXXX,

such and and financial explanation released on The this financial on information company’s financial website an the certain presents are which non-GAAP company's believes this the measures appropriate presentation, call non-GAAP measure earnings of the represents addition, In afternoon GAAP presented and available useful release, supplemental to was measures. is to company investors. reconciliations why

Kevin? Officer Kevin President to I'd and like to Chief now, Executive Estate. Colony Real turn of Traenkle, the over call Credit And

Kevin Traenkle

Estate's results. fourth covering everyone for Colony quarter to and Thank you, Credit today’s joining thank year Jason, conference and full want call XXXX Real I

now by Credit has be Colony Colony well and that official for February Operating plan growth which Andy the of CEO Chief we position Credit presentation wanted President portfolio is implemented hear Officer successfully Interim all Witt, XX. to shortly, our that before my I appointed bifurcation the as But effective you stepping Managing Capital February positioned Director would and been and the effective I of Global down Chief company announce of our the President Executive begin been and XX. will Officer has and

last executing has role building leadership, the capable am and Colony and growing played Andy our that XX well Andy’s the Over With on years, confident pivotal asset non-strategic has Credit in business portfolio. understanding is resolution legacy deep to the a continue Capital core a positioned company company. of company's I

update overview management highlights, key like the the now I'd of bifurcation then and XXXX that, for give priorities including to last company's portfolio brief plan the a With cover an on announced quarter the the balance year. including portfolio, our financial discuss Redington, on our of full our coming liquidity CFO specifics Neale details the performance, and and sheet year then quarter investment activity, deployment position. fourth will

quarter the and where plan productive was value shareholder strategy the and portfolio our the a strategic up Real and for significant Most announced pivotal The year in Credit fourth portfolio our executing the major we wrapped made initiative. we bifurcation which progress November, milestone importantly Colony Estate, to legacy of net and our out prioritize business drive overall investment rotating order asset in dislocation the our in address of value. ultimately trading price, non-strategic current between

pleased non-strategic legacy and are LNS on progress or We our the with activity sales the early portfolio.

senior two which mortgages, prior other which to plan XX all loans of are $X with business, reminder a balance go-forward this bifurcation our originated loans as exposure of our and included operationally portfolio certain net primarily in of discrete and legacy billion non-strategic a retail one, intensive November one-time our sheet a of a We announced mezzanine inconsistent separation focus assets the $X.X and of core owned last core real plan of consisted estate, the legacy portfolio leased formation billion real year of and on portfolio estate. which the all and CLNC, into will

plan, of XX% the announcing legacy have sales approximately and in seven we representing Overall the GAAP sold I’m plan to pleased success for executing the with net non-strategic in gross $XX gain assets November, portfolio $XX since early approximately million their bifurcation million proceeds value. premium a book

contract XX% GAAP anticipated six are book more addition million gain value. net provide million which the of assets of a growth $XXX approximately In under would premium now to for proceeds sale $XX approximately and

to loans net XX approximately the with in of is Altogether in value Furthermore now phases portfolio active sale are represents LNS the of $XXX expected resolution. payoff near assets GAAP future. of that are resolved that are book a this for or or million listed XX%

Our is orderly value and LNS our portfolio core liquidate to Core available reinvest book fashion earnings. in resulting the overarching objective underappreciated the and company's to proceeds grow an the Portfolio’s

As to $XX.XX our Core in per a the LNS fourth as result quarter. proceeds redeployed primarily this, evidence being of third from the quarter Core the into in during the book sales underappreciated share $XX.XX Portfolio quarter value Portfolio of increased

in that with need sales or This proceeds intention assets These the highlights focused on asset. from or prudent our these also with value to assets no buy of suggest supportable. coupled several any execution all were at approach where sell recently highly maximizing transactions remain LNS book we dispositions completed resolving the

billion remain primarily total inception have Since very deployment we over XX% committed across increase $X.X since inception. XX%. blended total early in we XX and total current XX% to and our capital of have year-over-year investments of billion This senior active XX increase multifamily, assets in in are over a Portfolio that deployment, company in $X.X total achieve loan. approximately Core committed XXXX and us XXXX, across having capital XXX% earnings office in a investments performing of to investments, successful to has helped a Turning ROE

the to fourth strength the origination culminating our the in our CLO execution quarter. structure ability our capital of with we investor with access improved the to of the first managed were loan capital the sheet balance improvement, billion business, $X pleased We relationship and our demonstrating Turning CLO market. during successful significantly closing year

financing repo of fund. of with recourse at transaction non-recourse cost CLO replaced $XXX debt lower million The a accretively

In team. We in addition, classes notes. believe relationship investor transaction of investor nature confidence management the we the institutional XX institutional the managed across six new of developed exemplifies offered

we $XXX of million $XXX fee Finally, $XXX resolution, private reduced interest, asset other and of earnings sales our risk through $XX profile including portfolio substantially of improved sales. our million retail non-core resolution year the approximately of the asset secondary million piece and approximately loan million throughout equity $XX of sales of of CMBS quality the million

market efforts which strong of our origination deployment a office Approximately total mortgages, multi-family over our represented fundamentals In with and XXXX, asset XX% we demographics. senior on concentrated XX% focus deployment. our of total and with in primarily classes on occurred

growth, We a investment other this job combination as to of in-migration. well markets XXXX, and expect in focusing pattern our continue as demonstrating market, positive activity investment coastal affordability in

I'd and head With to we discuss into priorities gears that, like management switch XXXX. the key as

we sale. XX% heading quarter, with First, of efforts urgency LNS into prudently in listed work LNS continue we or in momentum the sold, sense the approximately under assets XXXX to contract portfolio of either resolve the fourth had portfolio. to with will or Thanks to

core importantly business. proceeds our engine More these growth provide will for an of

continue level the highly ability investment to remain We in Next, of confident focused source portfolio. to transactions into on liquidity we core classes equity asset in targeted with low-double-digit. return our to our our an the deployment are on grow

liquidity Third, structure maintaining explore while leverage to debt and and position, ratio. continue accretive alternatives we’ll prudent

our increase analyst at LNS equity gap And significantly execute between real and us we will be to on book research progress the and close estate. and Colony finally long-term our in the investor success. expanding business of real of our of ability and goals coverage our plan priorities these simplified estate will current expect Ultimately share to sales initiatives institutional to value with position confidence a look and I’m visibility with XXXX in for credit allow good ownership goals price

With explanation and and that, the Redington Neale call year fourth turn of results. the full now a quarter I'll detailed financial the operational more for over

Neale Redington

Thank Kevin. Good afternoon, you, everyone.

to each in to to description and earnings. report supplemental on website define our draw quarter your information segments fourth attention of of available discussing results, year addition core is I our full a additional includes financial we financial how on want business our Before which

unconsolidated losses. separately. we Further loan This core losses impairments real including will and estate for preferred of earnings gains, will to ventures earnings equity provision solely definition joint earnings portfolio, excluded core legacy from from while non-strategic include will core come but investments our report

clarity of Similar asset filed for our holdings providing asset details We as report segments. given assets believe it and supplemental and between all and portfolios two will will legacy value data the research analysts better believe be help Form mission. XX-K investments business our our investors understand as as quarter company transparency this added and provides core which shortly. well financial to around the We delineating non-strategic our creates last the core on additional our we're of by

Further Portfolio million Core core million net $X.XX value we and of reported it $XX of GAAP will $X.XX assets, quarter or CLNC’s and share. within a or share per believe the understanding embedded our company the greater for facilitate earnings fourth income $XX.X its per of

the $X.XX of earnings LNS generated $X.X GAAP $X.X or of Portfolio $X.XX company’s net or Non-Strategic addition, and per share Legacy, share In per million million

million share year fiscal or income $X.XX of per of earnings $XX.X portfolio GAAP and million reported net the per core XXXX, For $XXX or share. $X.XX we core

a monthly paid dividend share $X.XXX the December. share $X.XX month cash dividend and common November of per per the for of and a quarter of During we months cash of monthly fourth common October for

cash In covered share dividend February addition $X.XX full this XXX% year, fully January more XXXX we per monthly per $X.XX earnings. and for month declared core is a percent of year the of share dividend than our of at of annual

initially use and mezzanine deployment XX%. and senior both and capital States expected during These within Turning loan equity over on now with and two collateralized properties an consisted by return funded we loan quarter, the blended multi-family activity and deployment, one million of fourth respectively United the are the to million mixed of $XXX of investments allocated $XX one

successfully billion approximately investments senior investments XX% year equity over is core XX% portfolio. to allocated an mezzanine fiscal with and and These XX billion approximately X% of our respectively $X.X loans, capital return XXXX these an initially allocations the on funded expected carry across mix $X.X other. For blended of we the loans and XX%

XX% and with spread investments US these country. the evenly areas All the over little West of Northeast in about a of between the are

mixed investment is and X% XX% fully for saw the office, XX% industrial strategy. line Property our type prudent with activity deployment mix and X% overall we diversified in Overall XX% of multifamily, approximately the was hotel. use, year

activities of proceeds. with portfolio repayment million repayments loan for one the gross partial of Additional to $XX full proceeds gross million along totaling quarter full included $XX

GAAP to five slight sales of of book hotel one total premium a and premium sold six for of a sales third the value get million at and net are of during million during portfolio the There proceeds $XX a contract to under for asset book which quarter, net core LNS net $XXX XX% value. quarter portfolio is

Turning core share per or in undepreciated third as to our mentioned up share, at book value approximately $XX.XX stands portfolio; $XX.XX per billion dollars from this quarter. $X.X Kevin

Our size, book an is approximately loan with current collateral, of book - in portfolio largest of and diversified the Furthermore, year-end. at value on size well billion Blended geography. terms the X.X% segment the remains of with be loan to loan leverage $X.X average yield $XX continues type million. loan approximately our

grade-rated debt CRE investment $XXX securities. million quarter-end and portfolio has portfolio, core Moving our value of consists a to predominantly carrying a our securities of within

securities our As investment we've options well and our attractive has efficient access CRE as the debt provides to as additional an alternatives. mentioned portfolio, within liquidity with before, company borrowing yield

of at our billion XX% value industrial comprises core net real core the consists of within lease office carrying This of the the and estate fourth portfolio, a quarter. portfolio $X.X had end and portfolio of Also to weighted years. to potential due long capital of flows The strategy stable term the core leased cash with net average assets they properties, provide, to appreciation. least the for a investment are addition X.X in our

more risk core implemented detail of regarding in our part in business. our and introduced the third order portfolio and our credit to were the profile of ratings quarter, provide online risk within we which on core in-house As disclosures,

That Colony at at and increase home rating risk mixed overall change bulk approach. is rating. remains based planning San on located June position, courses. residential X individual sale with continue XXXX to The in sales strategy future consistent is exit still Rafael, at a to we'll a loans monitor with the repay in loan this from to one line update will we borrower you a to in borrowers maturity in Our and California moving mezzanine prior was year end X.X, the use from quarter X a

to approximately and intensive per originated estate, this CLNC. of book other operationally legacy our is formation predominantly prior to at GAAP stands or Total non-strategic net million Turning legacy portfolio; certain $XXX this retail real the loans composed segment for of all portfolio share. value $X.XX owned

mentioned average are critically $X a plus coupon collateral and with managed loan office X.XX% period. of before of the Kevin floating As at estate properties reinvestment which XX of financed fourth in initial in mortgage we transaction states commercial collateralized secured XX closes XX The costs. multifamily, on District weighted by rate LIBOR quarter obligation advance XX.X rate includes during and two-year Columbia issuance loan hospitality billion across earlier, real the properties the features interest a loan

our result fostered, of improve origination return execution structure investor on CRE retained capabilities. bolstered capabilities and we direct capital is and interest teams’ relationships on equity company’s The have a markets the the the CLO capital

balance $X.X billion at assets of XX, to our total Moving added December approximately our stood as XXXX. sheet, share

was debt our of assets ratio $XXX liquidity at credit the end facility. on million revolving cash quarter our Our the XX% to availability current under and approximately at hand stands between and

Lastly losses CECL we credit was expected expect or XXXX and our would like XXXX X, company December based the of XX, adopted size on January on comment which the standard by portfolio as record……. to current composition I on to accounting

of and on like on on would adopted a portfolio accounting to the Based X, approximately comment expected XXXX January December X, we per to XXXX. which million book day reserve CECL as by or expect January the I credit of share. to have $X.XX losses record our standard impact Lastly was $XX will XX, one approximately an our which current CECL company XXXX composition value size

of future contracts. reserve through decline. expands as adjustment periods attributes credit will or improve income our and or in risk quality The loans The to our CECL an modulate net portfolio

weaken. overall or Our market conditions strengthen

XXXX further impacts conference to of continue to call. ongoing in QX, will earnings provide disclosure CECL reserve We due the

a we rationalizing our transformational assets while strategy. the In growing our closing our actions was non-strategic business The significant CLNC focus to XXXX demonstration are portfolio. efficacy fourth results undertook portfolio of on of quarter as our year ongoing effort within for core legacy

increased the portfolio to reinvesting XXXX, with resolutions as more Looking we result core core forward to from expect see capital of stabilized earnings LNS core a into performance assets.

behalf Kevin, recognize like to General Kevin his and to his last call Counsel, David two friendship I Palamé, to Before of for over we years. and both handing our you wish tireless our luck. personally David? to leadership thank strategy would the bring efforts best on Thank to the team and the you, and our fruition over of

David Palamé

you, Thank Neale.

onto the the of like process. committee moving portion discuss to call, the I review Q&A special Before would

independent announced fourth the management Estate’s previously to internalization of possible credit from Real Colony during the Directors proposing CLNC As the Capital’s the through management received and Colony of explore quarter, Credit Colony CLNC. of the Capital letter transfer

Directors special proposal financial adviser as independent both that pending review. engaged their as alternative. strategic consisting disinterested and The other our response, committee formed this independent assist of an has of legal well explore a In adviser committee and special Board Directors XX.XX to exclusively internalization

it As with enter today disposition with with publicly a further and/or one Capital agreement action reported CLNC management necessary plans to into Capital’s an to update, to CLNC. Colony agreement or take Colony of more respect third-party that

of management private interest. CLNC Colony management The credit a Colony Capital’s management, Capital’s and Capital’s the private such sale in dispose transaction to Capital’s agreement Subject platform which internalization CLNC the of management or with agreement management focused similar with CLNC. an with of of and to of whether transaction of Colony is credit the any agreement consent associated is form company’s Colony scope investment effect not on

refer XX-K soon on regarding on these not earnings be time. questions at and matters. release be With otherwise will disclosure further we to to our Please to for process, these filed respect call or the the matters this any addressing

full our quarter fourth With open the only year to will that, Operator? for questions results. and limited we line

Operator

Thank you.

from comes Randy Please with FBR. question. your proceed today B. of question’s Riley Our Binner

Randy Binner

you. Yes thank

Just on good been professional luck to and endeavor. your with wanted your of next say it’s work Kevin best

Kevin Traenkle

Randy. you, Thank

Randy Binner

to going you to to think think doing you're for relative rivals buyback other you just portfolio. a allocating implying you that I opportunities call. Can how you're at investment trading fourth out book would I I'm try talk mean a in capital the the bet. capital in considering of potential to listed but free the that that XX% still earnings press the and us didn’t allocation yield it all-in risk think decision? through discuss back you guess kind quarter of you buyback stock results, release the But of walk the what on - buying is I in how of Yes,

Kevin Traenkle

comparing you're authorized have considered right. calls of didn't terms that that that loans Board the We investment for still pipeline. out or making And the are past Randy opportunities so think to buyback. and in some in terms So compelling there discussed and think extended the some disclose of opportunities that that, we there I our previously in very investment a we has and authorization good we've on

that, I blackout. just do beyond a because the we And have would process, say in we're

- the really because on blackout. So, it hasn't of been table that

Randy Binner

to the wanted to million more and and available book for And there's outlined real you estate estate proceeds that there how that the $XXX Okay. you and is sale I book go the expect - value. But than - the I sales the sale real mentioned in above think all to comments just the you that script for in Correct? have that. simply is legacy that in this legacy transact you're around press back release transacting the then,

Neale Redington

page release And a right, has LNS Randy. the of listing the The resolutions. press perhaps helpful. That's this last of is

one sold listed a and powerful for got then sale. there expected under contract we've is - So,

is the sale. the for you the loan And expected X.XX see sale. another and So, listed then payoff where carrying that's value net that combination the there's for is group of preparing

listed looking carrying we'll could also at see be associated that with the So, currently and in value. gross not the But, you future.

any net debt described we've So, associated that of

Randy Binner

going environment that's the the of expectations broader macroeconomic the in little helpful. week. estate and negotiations a first your environment in seeing light Understood, Are this in what’s market, has there activities been - okay change then rescue in a commercial you And different an And bit quarter the day anything market? in of to supportive. real or was

Neale Redington

Well, been seen last view we've perhaps a heightened last the say, where over really the but on as - topics, and of coronavirus. this other week, you it’s risk coronavirus mainly

We in are the we're and haven't overall day-to-day potential last of really borrowers. couple monitoring terms of monitoring I a with business conversations, very now of substantial shift that this terms days But in had over approach, carefully. our

area. obviously to But area, as book on with past loan our the be in focused core probably focused the our which in think, here described XX% in we've potential about exposure of I We’re that this hospitality around that would industry book. is

have very deals. in a have equity of amount subordination and strong sponsors those decent in a we those We involved deals,

comfortable obviously. blips then some - what So withstand knock that Other happens this. economy just on may on the sides has to to through come just we in about think feel impacts which term potential of rates terms interest it, longer to of

think too early our So, we’re still but thinking strategy around that, it. to change about little I

Randy Binner

was that line better in our you the map - other the was quarter? good Right, line of in and in the question broader income than significantly unusually there then, property last kind anything the is

Kevin Traenkle

but of I there but think better so. have there can we is it we release sort we'd what out, And anticipated. XX-K movements, any for with will which was can our think do We explanation don't check if coming Randy, double have explanations MD&A see I consistent that.

Operator

much. so you Thank

conference. question-and-answer This have the We conclude today's of the session. end will reached

appreciate lines You may this your have participation We evening. disconnect great and a your time. of

BrightSpire Capital (BRSP) 27 Feb 202019 Q4 Earnings call transcript