Colony Credit Real Estate, Inc.

CLNC reported first-quarter 2021 GAAP net loss attributable to common shareholders of $92.3 million, or $0.71 per share, and distributable earnings of $13.8 million, or $0.10 per share. Excluding realized gains and losses and fair value and other adjustments, adjusted distributable earnings were $18 million, or $0.14 per share, versus $26.1 million, or $0.20 per share in 4Q20. The GAAP loss reflected $109.2 million of restructuring charges, including a one-time cash payment of $102.3 million to terminate the management contract. GAAP net book value per share fell from $12.96 to $11.98, and un-depreciated book value per share fell from $14.14 to $12.84. Management said the $0.14 dividend was covered by cash and expects earnings to improve as capital is deployed, a second CLO is completed around July, and non-earning assets are addressed.

Mike Mazzei framed the quarter as the start of a new chapter after internalization, saying the company now has the flexibility to “chart its own course.” He described CLNC as being at the “trough” of earnings because of peak liquidity, with more than $1 billion of loan originations already completed and additional earnings coming from the internalized structure and the next CLO. Strategically, he said the goal is to evolve CLNC into a “pure play” commercial mortgage REIT with predictable earnings and to rotate the balance sheet further into first-mortgage bridge loans and selective mezzanine lending.

Frank Saracino said first-quarter adjusted distributable earnings were $18 million, or $0.14 per share, down from $26.1 million, or $0.20 per share in 4Q20, mainly because of the net lease industrial portfolio sale, legacy asset resolutions, origination ramp timing, and the San Jose hotel going on non-accrual. He highlighted $109.2 million of restructuring charges, including the $102.3 million cash payment to terminate the external management contract, which drove the GAAP loss. He also pointed to book value declines to $11.98 per share GAAP and $12.84 per share un-depreciated, while management expects the internalization to lower expenses and be accretive over time.

Analysts pressed on whether the $0.14 dividend is sustainable and what earnings growth will cover it; management said the dividend was covered by cash this quarter and expects earnings to rise as cash is redeployed, the CLO closes, and non-earning assets are converted back into earning assets. Questions also focused on the investment pipeline, with Mike Mazzei saying CLNC will still emphasize first mortgages but will expand into more property types and selectively do $10 million to $25 million mezzanine loans, with construction lending only very selectively. On CLO structure and funding costs, management said the second CLO is being tee’d up for around July, with a more specified pool and limited ramp-up preferred for better execution, and noted bank warehouse pricing has been tightening even as advance rates have improved modestly.