Colony Credit Real Estate, Inc. Provides Company Updates
Michael J. Mazzeijoined as Chief Executive Officer and President of the Company on April 1, 2020. Mr. Mazzeiand management have been engaged in the Company’s business, including banking, financial, borrower and partner relationships, regarding its properties and business operations, and taking measures to support the balance sheet and financial flexibility, as described in further detail below. In addition, notwithstanding governmental mandated stay-home policies, business continuity systems at the Company and its manager have allowed the team to effectively communicate, execute corporate, investment and portfolio management demands, maintain internal financial and other controls, and stay virtually connected, while protected by in-place cybersecurity systems and protocols.
Cash Position. As of the date hereof, the Company has approximately
$329 millionof available liquidity between cash on hand and the Company’s corporate revolving credit facility.
Corporate Revolving Bank Credit Facility. As of
December 31, 2019and the date hereof, the borrowing base valuation is sufficient to support the outstanding borrowings under the bank credit facility. Given ongoing impact of the COVID-19 global pandemic on the Company’s underlying investments, the Company is in discussions regarding potential modifications to the bank credit facility.
CRE CMBS Securitiesand Master Repurchase Facilities. As of December 31, 2019, the Company’s exposure to CRE CMBS securities had a carrying value of $362.8 million, which was approximately 6.5% of the Company’s total book value and 8% of the book value of the Company’s Core Portfolio. As of December 31, 2019, $252.7 millionof such CRE CMBS securities were financed by master repurchase facilities. The Company has met all margin calls under financing arrangements on its CMBS securities, with the most recent call received and timely paid on March 26, 2020. Subsequently:
April 6, 2020, the Company consolidated its CMBS securities master repurchase facility borrowings with one existing counterparty bank.
April 6, 2020, the Company paid down its master repurchase facility borrowing advance rate to a blended borrowing advance rate of 61% and extended the repurchase date on all such borrowings to June 30, 2020. This pay down provides a 15% buffer on a bond specific basis before further margin calls.
As of the date hereof, the Company maintains approximately
$125 millionof repurchase financing on such CMBS securities, which are collateralized by both investment grade-rated bonds ( $99 millionobligation) and non-investment grade-rated bonds ( $26 millionobligation). The financing bears a fixed interest rate of 4.50%.
Senior Loans and Master Repurchase Facilities. As of
December 31, 2019, the Company’s exposure to CRE senior mortgage loan investments had a carrying value of $2.33 billion, which was approximately 42% of the Company’s total book value and 51% of the book value of the Company’s Core Portfolio; $1.1 billionwas financed with $780.2 millionunder its senior loan master repurchase facilities with 5 repurchase facility bank lenders.
As of the date hereof, the Company’s exposure to senior loan master repurchase facility financing was approximately
$715 million, diversified across 23 loans. As a percentage of total outstanding borrowings, this repurchase financing is comprised of 37% office, 24% hospitality, 11% self-storage, 10% multifamily, 7% mixed-use, 7% student housing and 2% retail.
Hospitality and Retail Senior Mortgage Loans on Repurchase Financing. As of the date hereof, the Company maintains (i) four senior mortgage hospitality loans with aggregate outstanding borrowings of
$172.7 millionand (ii) one senior mortgage retail loan with outstanding borrowing of $15.2 million. The Company received and timely paid one margin call on one hospitality loan. In addition, the Company made voluntarily paydowns on 2 other hospitality loans and the retail loan, received a holiday from future margin calls between 3 and 4 months, and obtained broader discretion to enter into permitted modifications with its borrowers on these 3 specific loans, if necessary, in the upcoming 4 to 6 months.
- Other Efforts. The Company is in active discussions with other master repurchase facility lenders to achieve a result similar to the agreements described above, either on an asset specific basis or across all assets with the specific lender.
- As of the date hereof, the Company’s exposure to senior loan master repurchase facility financing was approximately
Legacy, Non-Strategic (“LNS”) Portfolio Sales. During the first quarter of 2020 through the date hereof:
10 Sold Investments: 10 LNS investments were sold for a total gross sales price of
$231 millionand a net sales price of $153 millionafter transaction costs, debt repayment and promote, representing an approximately $4 millionloss and a 3% discount to GAAP net book value on such investments.
NY Hospitality Loans. Given the immediate and significant detrimental impact of COVID-19 on the
U.S.hospitality industry, including on operations at the 1,300-room hotel collateralizing the Company’s four New York Hospitality Loans, subsidiaries of the Company are discussing solutions with the borrowers and other related parties. The Company anticipates incurring an approximate $37 millionloss (or $0.27per common share) against the carrying value of such investment as of December 31, 2019.
- 10 Sold Investments: 10 LNS investments were sold for a total gross sales price of
Investment and Portfolio Updates.
- No New Investments in 2020. The Company has not closed any new investments in 2020 through the date hereof and is primarily focused on existing investments and commitments.
- Loan Portfolio Management; Use of Reserves and/or Payment-in-Kind. The Company is working closely with its borrowers to address the impacts of COVID-19 on their business. To the extent that certain borrowers are experiencing significant financial dislocation, the Company may consider the use of interest and other reserves and/or replenishment obligations of the borrower and/or guarantors to meet current interest payment obligations, for a limited period of time. Similarly, the Company may evaluate converting certain current interest payment obligations to payment-in-kind as a potential bridge period solution.
Dividend Policy. The COVID-19 pandemic has caused extraordinary volatility and unprecedented market conditions, including actual and unanticipated consequences to the Company and certain investments, which may continue. Having made stock dividend payments through
March 31, 2020, the Board of Directors and management believe it is prudent and in the best interests of the Company to conserve available liquidity and suspend the Company’s monthly stock dividend beginning with the monthly period ending April 30, 2020. The Board of Directors will evaluate dividends in future periods based upon customary considerations, including market conditions. Importantly, the Company continues to monitor its taxable income to ensure that the Company meets the minimum distribution requirements to maintain its status as a REIT for the annual period ending December 31, 2020.
Internalization Discussions with Colony Capital, Inc. Due to ongoing uncertainty surrounding the duration and magnitude of the COVID-19 pandemic and its impact on the global economy, on
April 1, 2020, Colony Capital reported in Amendment No. 3 to Schedule 13D (filed with the Securities and Exchange Commission) that it has postponed any decision regarding a disposition of its management agreement with the Company until market conditions improve. Previously, on February 27, 2020, the Company and Colony Capital, Inc. acknowledged a process regarding the potential disposition of Colony Capital’s management agreement with the Company, subject to its consent, whether in the form of an internalization of the Company’s management, a sale of Colony Capital’s management agreement with the Company to a third-party, or similar transaction the effect of which is to dispose of Colony Capital’s management agreement with the Company.
For further information regarding the Company’s business, portfolio and earnings, and risk factors, see the cautionary statement regarding forward-looking statements below and the Company’s Annual Report on Form 10-K for the fiscal year ended
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; uncertainties regarding the ongoing impact of the novel coronavirus (COVID-19), the severity of the disease, the duration of the COVID-19 outbreak, actions that may be taken by governmental authorities to contain the COVID-19 outbreak or to treat its impact, the potential negative impacts of COVID-19 on the global economy and its adverse impact on the real estate market, the economy and the Company’s investments (including, but not limited to, the
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.
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