Colony Credit Disappointed the Skeptics For a Change

Key points from 1Q19 results (Press Release, Financial Supplement, and Conference Call):

  • Undepreciated Book Value was $21.68 at 3/31/19.  BVPS fell by $0.13 from 12/31, but  the company generated a positive shareholder return with $0.425 of dividend payments.
  • “Core Earnings” of $0.38/share included some small non-recurring benefits.  Management suggested the quarter-end earnings run rate was $0.36, but reaffirmed expectations of covering the quarterly dividend by the end of 2019.
  • Private equity interests were sold in line with year-end carrying value, except for a small remaining balance held through partnerships.
  • New investments were largely offset by repayments and asset sales.  The company still needs to increase its assets by about $1Bn to reach its targeted leverage.
  • The typical blather from CEO Kevin Traenkle about not repurchasing shares.

Colony Credit is trading at a 28% discount to book value while large cap peers trade at an average 22% premium.

CLNC Comps 050819

 

Bloomberg reported that Colony Capital was in negotiation with Oaktree at the end of last year regarding a potential sale of its interest in Colony Credit (presumably the shares + management contract).  Those talks did not result in a transaction and Oaktree sold itself instead, however the talks illustrate that CLNC could be involved in a strategic transaction that would deliver value to CLNY and an improved outlook for CLNC’s public shareholders.

CLNC did not report any significant impairments in 1Q19.  During the conference call CEO Kevin Traenkle provided a vague response when asked about credit quality.  The 10-Q may have helpful details about the restructuring of the Row Hotel loan in New York City and other assets previously disclosed as troubled.

Disclosures

The author is a shareholder of CLNC.  The author does not make any recommendation regarding any investment in any company mentioned in this article.  Investors are encouraged to check all of the key facts cited here from SEC filings and other sources prior to making their own investment decisions.

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