Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-38377



	COLONY CREDIT REAL ESTATE, INC.
	(Exact Name of Registrant as Specified in Its Charter)

	Maryland		38-4046290
	(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

515 S. Flower Street, 44th Floor

Los Angeles, CA 90071

(Address of Principal Executive Offices, Including Zip Code)

(310) 282-8820

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A common stock, par value $0.01 per share	CLNC	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer	☒	Accelerated filer	☐	Non-accelerated filer	☐	Smaller reporting company	☐
						Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☐

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:

As of November 7, 2019, Colony Credit Real Estate, Inc. had 128,538,703 shares of Class A common stock, par value $0.01 per share, outstanding

Table of Contents

EXPLANATORY NOTE

This Quarterly Report on Form 10-Q of Colony Credit Real Estate, Inc., a Maryland corporation (the “Company”), includes the financial statements and other financial information of (i) the Company and (ii) the Company’s accounting predecessor, which are investment entities in which Colony Capital Operating Company, LLC (“CLNY OP”) or its subsidiaries owned interests ranging from approximately 38% to 100% and that were contributed to the Company on January 31, 2018 in connection with the closing of the Combination (as defined below) and certain intercompany balances between those entities and CLNY OP or its subsidiaries (the “CLNY Investment Entities”).

On January 31, 2018, the Company completed the transactions contemplated by that certain Master Combination Agreement, dated as of August 25, 2017, as amended and restated on November 20, 2017 (the “Combination Agreement”), by and among (i) the Company, (ii) Credit RE Operating Company, LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company (the “OP”), (iii) CLNY OP, a Delaware limited liability company and the operating company of Colony Capital, Inc., formerly Colony NorthStar, Inc. (“Colony Capital”), a Maryland corporation, (iv) NRF RED REIT Corp., a Maryland corporation and indirect subsidiary of CLNY OP (“RED REIT”), (v) NorthStar Real Estate Income Trust, Inc., a Maryland corporation (“NorthStar I”), (vi) NorthStar Real Estate Income Trust Operating Partnership, LP, a Delaware limited partnership and the operating partnership of NorthStar I (“NorthStar I OP”), (vii) NorthStar Real Estate Income II, Inc., a Maryland corporation (“NorthStar II”), and (viii) NorthStar Real Estate Income Operating Partnership II, LP, a Delaware limited partnership and the operating partnership of NorthStar II (“NorthStar II OP”).

Pursuant to the Combination Agreement, (i) CLNY OP contributed and conveyed to the Company a select portfolio of assets and liabilities (the “CLNY Contributed Portfolio”) of CLNY OP (the “CLNY OP Contribution”), (ii) RED REIT contributed and conveyed to the OP a select portfolio of assets and liabilities of RED REIT (the “RED REIT Contribution” and, together with the CLNY OP Contribution, the “CLNY Contributions”), (iii) NorthStar I merged with and into the Company, with the Company surviving the merger (the “NorthStar I Merger”), (iv) NorthStar II merged with and into the Company, with the Company surviving the merger (the “NorthStar II Merger” and, together with the NorthStar I Merger, the “Mergers”), and (v) immediately following the Mergers, the Company contributed and conveyed to the OP the CLNY Contributed Portfolio and the equity interests of each of NorthStar I OP and NorthStar II OP then-owned by the Company in exchange for units of membership interest in the OP (the “Company Contribution” and, collectively with the Mergers and the CLNY Contributions, the “Combination”). To satisfy the condition to completion of the Combination that the Company’s Class A common stock, par value $0.01 per share (the “Class A common stock”), be approved for listing on a national securities exchange in connection with either an initial public offering or a listing, the Class A common stock was approved for listing by the New York Stock Exchange and began trading under the ticker “CLNC” on February 1, 2018.

The CLNY Contributions were accounted for as a reorganization of entities under common control, since both the Company and CLNY Investment Entities were under common control of Colony Capital at the time the contributions were made. Accordingly, the Company’s financial statements for prior periods were recast to reflect the consolidation of the CLNY Investment Entities as if the contribution had occurred on the date of the earliest period presented.

As used throughout this document, the terms the “Company,” “we,” “our” and “us” mean:


•	Colony Credit Real Estate, Inc. and the consolidated CLNY Investment Entities for periods on or prior to the closing of the Combination on January 31, 2018; and


•	The combined operations of Colony Credit Real Estate, Inc., NorthStar I and NorthStar II beginning February 1, 2018, following the closing of the Combination.

Accordingly, comparisons of the period to period financial information of the Company as set forth herein may not be meaningful because the CLNY Investment Entities represents only a portion of the assets and liabilities Colony Credit Real Estate, Inc. acquired in the Combination and does not reflect any potential benefits that may result from realization of future cost savings from operating efficiencies, or other incremental synergies expected to result from the Combination.

In addition to the financial statements contained herein, you should read and consider the audited financial statements and accompanying notes thereto of the Company for the year ended December 31, 2018 included in our Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 28, 2019.

Table of Contents

COLONY CREDIT REAL ESTATE, INC.

FORM 10-Q

TABLE OF CONTENTS



Index		Page

Part I.	Financial Information	3
Item 1.	Financial Statements	3
	Consolidated Balance Sheets as of September 30, 2019 (unaudited) and December 31, 2018	3
	Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2019 and 2018	5
	Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three and nine months ended September 30, 2019 and 2018	6
	Consolidated Statements of Equity (unaudited) for the three and nine months ended September 30, 2019 and 2018	7
	Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2019 and 2018	9
	Notes to Financial Statements (unaudited)	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	67
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	103
Item 4.	Controls and Procedures	105
Part II.	Other Information	106
Item 1.	Legal Proceedings	106
Item 1A.	Risk Factors	106
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	106
Item 3.	Defaults Upon Senior Securities	106
Item 4.	Mine Safety Disclosures	106
Item 5.	Other Information	106
Item 6.	Exhibits	107
Signatures

Table of Contents

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q 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;


•	our operating results may differ materially from the information presented in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, as well as in Colony Credit Real Estate’s other filings with the Securities and Exchange Commission;


•	the fair value of our investments may be subject to uncertainties;


•	our use of leverage could hinder our ability to make distributions and may significantly impact our liquidity position;


•	given our dependence on our external manager, an affiliate of Colony Capital, Inc., any adverse changes in the financial health or otherwise of our manager or Colony Capital, Inc. could hinder our operating performance and return on stockholder’s investment;


•	the ability to realize substantial efficiencies as well as anticipated strategic and financial benefits, including, but not limited to expected returns on equity and/or yields on investments;


•	adverse impacts on our liquidity, including our ability to continue to generate liquidity from sales of legacy, non-strategic assets;


•	our ability to liquidate our legacy, non-strategic assets within the projected timeframe or at the projected values;


•	the timing of and ability to deploy available capital;


•	our ability to maintain or grow the dividend at all in the future;


•	the timing of and ability to complete repurchases of our stock;


•	our ability to refinance certain mortgage debt on similar terms to those currently existing or at all;


•	and the impact of legislative, regulatory and competitive changes.

The foregoing list of factors is not exhaustive. We urge you to carefully review the disclosures we make concerning risks in the sections entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018, the section entitled “Risk Factors” in this Form 10-Q for the quarter ended September 30, 2019 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein.

We caution investors not to unduly rely on any forward-looking statements. The forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. The Company is under no duty to update any of these forward-looking statements after the date of this Quarterly Report on Form 10-Q, nor to conform prior statements to actual results or revised expectations, and the Company does not intend to do so.

Table of Contents

PART I. Financial Information

Item 1. Financial Statements

COLONY CREDIT REAL ESTATE, INC.

CONSOLIDATED BALANCE SHEETS

(in Thousands, Except Share and Per Share Data)



	September 30, 2019 (Unaudited)			December 31, 2018
Assets
Cash and cash equivalents	$	60,332		$	77,317
Restricted cash	139,549			110,146
Loans and preferred equity held for investment, net	2,516,197			2,020,497
Real estate securities, available for sale, at fair value	255,937			228,185
Real estate, net	1,568,682			1,959,690
Investments in unconsolidated ventures ($14,323 and $160,851 at fair value, respectively)	571,365			903,037
Receivables, net	42,559			48,806
Deferred leasing costs and intangible assets, net	125,072			134,068
Assets held for sale	183,895			—
Other assets	76,266			62,006
Mortgage loans held in securitization trusts, at fair value	1,904,003			3,116,978
Total assets	$	7,443,857		$	8,660,730
Liabilities
Securitization bonds payable, net	$	—		$	81,372
Mortgage and other notes payable, net	1,245,721			1,173,019
Credit facilities	1,907,556			1,365,918
Due to related party (Note 11)	14,227			15,019
Accrued and other liabilities	138,024			106,187
Intangible liabilities, net	23,916			15,096
Liabilities related to assets held for sale	5,487			—
Escrow deposits payable	87,349			65,995
Dividends payable	19,087			18,986
Mortgage obligations issued by securitization trusts, at fair value	1,793,435			2,973,936
Total liabilities	5,234,802			5,815,528
Commitments and contingencies (Note 17)
Equity
Stockholders’ equity
Preferred stock, $0.01 par value, 50,000,000 shares authorized, no shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively	—			—
Common stock, $0.01 par value per share
Class A, 950,000,000 and 905,000,000 shares authorized, 128,538,703 and 83,410,376 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively	1,285			834
Class B-3, no shares authorized, issued and outstanding as of September 30, 2019 and 45,000,000 shares authorized and 44,399,444 shares issued and outstanding as of December 31, 2018	—			444
Additional paid-in capital	2,905,906			2,899,353
Accumulated deficit	(809,344		)	(193,327		)
Accumulated other comprehensive income (loss)	28,915			(399		)
Total stockholders’ equity	2,126,762			2,706,905
Noncontrolling interests in investment entities	31,410			72,683
Noncontrolling interests in the Operating Partnership	50,883			65,614
Total equity	2,209,055			2,845,202
Total liabilities and equity	$	7,443,857		$	8,660,730

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

COLONY CREDIT REAL ESTATE, INC.

CONSOLIDATED BALANCE SHEETS

(in Thousands)

The following table presents assets and liabilities of securitization trusts and certain real estate properties that have noncontrolling interests as variable interest entities for which the Company is determined to be the primary beneficiary.



	September 30, 2019 (Unaudited)		December 31, 2018
Assets
Cash and cash equivalents	$	13,877	$	12,561
Restricted cash	18,022		18,464
Loans and preferred equity held for investment, net	14,085		167,219
Real estate, net	392,147		547,444
Receivables, net	19,764		17,811
Deferred leasing costs and intangible assets, net	41,186		38,681
Assets held for sale	112,024		—
Other assets	28,437		1,698
Mortgage loans held in securitization trusts, at fair value	1,904,003		3,116,978
Total assets	$	2,543,545	$	3,920,856
Liabilities
Securitization bonds payable, net	$	—	$	43,870
Mortgage and other notes payable, net	342,559		325,187
Credit facilities	23,124		—
Accrued and other liabilities	60,749		32,452
Intangible liabilities, net	21,727		11,993
Liabilities related to assets held for sale	5,487		—
Escrow deposits payable	5,796		9,603
Mortgage obligations issued by securitization trusts, at fair value	1,793,435		2,973,936
Total liabilities	$	2,252,877	$	3,397,041

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

COLONY CREDIT REAL ESTATE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in Thousands, Except Per Share Data)

(Unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net interest income
Interest income	$	46,991		$	40,139		$	127,473		$	113,073
Interest expense	(23,167		)	(13,148		)	(63,505		)	(30,266		)
Interest income on mortgage loans held in securitization trusts	22,586			39,261			99,718			104,622
Interest expense on mortgage obligations issued by securitization trusts	(20,299		)	(36,294		)	(91,690		)	(97,031		)
Net interest income	26,111			29,958			71,996			90,398

Property and other income
Property operating income	63,492			51,684			191,393			119,706
Other income	820			2,253			1,431			3,152
Total property and other income	64,312			53,937			192,824			122,858

Expenses
Management fee expense	11,355			11,877			34,070			31,668
Property operating expense	29,756			21,217			86,076			49,186
Transaction, investment and servicing expense	1,433			3,631			3,013			38,212
Interest expense on real estate	14,281			13,341			41,786			29,447
Depreciation and amortization	25,934			30,538			82,853			72,689
Provision for loan losses	110,314			35,059			220,572			34,542
Impairment of operating real estate	272,722			29,378			282,846			29,378
Administrative expense (including $2,910, $1,822, $7,466 and $3,905 of equity-based compensation expense, respectively)	7,732			6,797			22,395			16,909
Total expenses	473,527			151,838			773,611			302,031

Other income (loss)
Unrealized gain (loss) on mortgage loans and obligations held in securitization trusts, net	(1,976		)	(939		)	4,602			3,254
Realized gain (loss) on mortgage loans and obligations held in securitization trusts, net	2,724			(549		)	2,772			(2,752		)
Other loss, net	(2,688		)	(15		)	(13,829		)	460
Loss before equity in earnings of unconsolidated ventures and income taxes	(385,044		)	(69,446		)	(515,246		)	(87,813		)
Equity in earnings (loss) of unconsolidated ventures	(15,905		)	8,324			17,962			39,773
Income tax benefit (expense)	(1,046		)	2,456			(544		)	2,847
Net loss	(401,995		)	(58,666		)	(497,828		)	(45,193		)
Net loss attributable to noncontrolling interests:
Investment entities	37,445			4,688			38,623			2,788
Operating Partnership	8,519			1,275			10,741			996
Net loss attributable to Colony Credit Real Estate, Inc. common stockholders	$	(356,031	)	$	(52,703	)	$	(448,464	)	$	(41,409	)

Net loss per common share - basic and diluted (Note 19)	$	(2.77	)	$	(0.42	)	$	(3.51	)	$	(0.36	)

Weighted average shares of common stock outstanding - basic and diluted (Note 19)	128,541			127,887			128,341			118,252

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

COLONY CREDIT REAL ESTATE, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in Thousands)

(Unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net loss	$	(401,995	)	$	(58,666	)	$	(497,828	)	$	(45,193	)
Other comprehensive income (loss)
Unrealized gain on real estate securities, available for sale	5,102			6,192			22,723			3,347
Change in fair value of net investment hedges	12,791			(416		)	21,124			(416		)
Foreign currency translation loss	(14,445		)	(402		)	(13,832		)	(402		)
Total other comprehensive income	3,448			5,374			30,015			2,529
Comprehensive loss	(398,547		)	(53,292		)	(467,813		)	(42,664		)
Comprehensive (income) loss attributable to noncontrolling interests:
Investment entities	37,445			4,688			38,623			2,788
Operating Partnership	8,439			1,148			10,040			936
Comprehensive loss attributable to common stockholders	$	(352,663	)	$	(47,456	)	$	(419,150	)	$	(38,940	)

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

COLONY CREDIT REAL ESTATE, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(in Thousands)

(Unaudited)



	Common Stock						Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity		Noncontrolling Interests in Investment Entities		Noncontrolling Interests in the Operating Partnership		Total Equity
	Class A			Class B-3
	Shares	Amount		Shares	Amount
Balance at December 31, 2017	—	$	—	—	$	—	$	821,031	$	258,777	$	—	$	1,079,808	$	327,762	$	—	$	1,407,570
Distributions	—	—		—	—		—		—		—		—