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Thursday, Aug 11, 2022

Colony Capital Plots Revival

Colony Capital Inc. is selling assets and overhauling its investment strategy in an effort to return to profitability after years of losses.

The downtown-based investment firm has reported more than $1.2 billion in combined losses since purchasing NorthStar Asset Management Group and real estate investment trust NorthStar Realty Finance in early 2017.

Over the two years following that acquisition, Colony slashed dividends by 59% on an annualized basis to 44 cents a share from $1.08. Colony Capital’s stock price had dropped 60% since the deal, closing at $4.71 on Aug. 13.

Executive Chairman and Chief Executive Thomas Barrack Jr. ranked No. 55 on the Business Journal’s list of Wealthiest Angelenos in 2017, with an estimated net worth of $1.13 billion, but a key portion of his holdings declined in 2018, and Barrack fell off the list last year.

But Barrack, who plans to step down from the chief executive role by 2021, vowed the company is making strides to improve its performance. “We are in a turnaround mode,” he told the Business Journal this month.

Colony Capital executives have declined to comment further on the firm’s future dispositions or discuss its strategic direction with the Business Journal. According to sources familiar with the company, billions of dollars’ worth of assets could be jettisoned from the firm’s books in coming months in the initial stage of the turnaround effort.

Jade Rahmani, an analyst with Keefe Bruyette & Woods Inc. in New York, wrote in an Aug. 9 note to investors that Colony needs to pick up the pace of its restructuring efforts.

“At this point, we believe Colony should undertake a strategic shift to accelerate disposition of all non-core assets … and make needed investments in asset management,” including the hiring and recruitment of key personnel, Rahmani said.

Some of the turnaround push has been fueled by New York City-based activist investor Blackwells Capital, which became a “significant holder” of Colony Capital shares in 2018.

Blackwells pressured the company to undertake a strategic review of its business and eventually won two seats with the company’s nine-member board in February as well as and a mutually agreed upon appointment for a third seat in June.

A Blackwells spokesman declined to comment on the alternative investment firm’s strategy.

A selling strategy

In February, Colony Capital announced a strategic review of its business that analysts said was likely to lead to the sale of assets across its four main lines of business — industrial, healthcare, hospitality and “other equity debt” investments that are privately held.

On an Aug. 9 conference call with Wall Street analysts following release of its latest quarterly results, company executives confirmed plans to sell its industrial portfolio of 450 properties by the end of 2019.

Barrack said on the call that if offers for the business are made at “compelling levels,” a closing could happen by year-end.

Analysts and sources familiar with the company said Colony Capital could fetch “way over $5 billion” for the industrial properties, returning at least $1.4 billion in cash after paying off debt.

The market may be ripe for a deal.

Sources cited two recent transactions — Blackstone Group Inc.’s $18.7 billion purchase of the U.S. warehouse portfolio of Singapore-based GLP in June and Prologis Inc.’s acquisition in July of warehouse owner Black Creek Group’s Industrial Property Trust for about $4 billion — as proof that there’s an appetite for deals in the sector.

The sale of Colony Capital’s industrial portfolio — if it happens — “could be material,” Randy Binner, an analyst with Santa Monica-based B. Riley FBR Inc., wrote in a research note.

Sources familiar with Colony Capital’s business said the company is in various stages of selling its positions in two publicly traded companies — Colony Credit Real Estate Inc. and NorthStar Realty Europe Corp.

NorthStar in Europe was sold last month to Axa Investment Managers. Colony Capital could receive an estimated $160 million in cash from the sale.

Meanwhile, other Colony Capital assets are being eyed for possible sale.

John Cobb, chief investment officer and executive vice president at Ventas Inc., a Chicago-based real estate investment trust focused on the healthcare industry, told analysts in June that his company was interested in purchasing Colony Capital’s healthcare assets. Ventas, he said, is in a “good spot” to buy them as it already owns $490 million worth of Colony Capital’s debt.

Still making acquisitions

Colony’s new strategy isn’t keeping the firm from buying assets. Last month, Colony said it would invest up to $500 million in a Central California drilling project. In a separate $325 million deal — announced the same week — Colony acquired Digital Bridge, a digital infrastructure firm with investments in cell towers and data centers.

The Digital Bridge deal is widely viewed as the future of Colony Capital as it builds out what sources described as an “investment manager model” to replace or substantially reduce its holdings across its current four lines of business. Essentially, Colony Capital wants to earn fees for running an operation rather than strictly owning the business, sources said.

“The Digital Bridge acquisition is a preview of what is yet to come,” Barrack said.


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