Press Release

Blackwells Capital Issues Open Letter to Colony Credit Board of Directors in Response to Value Destruction and Mismanagement

Decries 35% Share Price Decline Since February 2018 Public Listing, in Marked Contrast to Strong Positive Returns from Public Peers

Significant Dividend Cut and Asset Impairments, Despite Management Assurances to Contrary, Have Shaken Investor Confidence, Leading Stock to Trade at 25% Discount to Book Value

Calls on Board to Replace Current Colony Capital-Provided Investment Team, Not “Internalize” It, as Proposed by Colony Capital Chairman and CEO Tom Barrack

NEW YORK, Dec. 09, 2019 (GLOBE NEWSWIRE) — Blackwells Capital LLC (together with its affiliates “Blackwells”), an alternative investment management firm which owns shares of Colony Credit Real Estate, Inc. (NYSE: CLNC) (“Colony Credit” or the “Company”) directly and indirectly through its ownership of Colony Capital, Inc. (NYSE: CLNY) (“Colony Capital”), today issued an open letter to the Company’s Board of Directors, calling for change in the leadership of Colony Credit.

“Colony Credit is ideally positioned to deliver strong shareholder returns – with a broad mandate and diversified portfolio in a strong commercial real estate environment – but for a management team that has consistently failed to deliver on this opportunity,” said Jason Aintabi, Chief Investment Officer of Blackwells.  “Under the leadership of CEO Kevin Traenkle and Colony Capital Executive Chairman Tom Barrack, Colony Credit has repeatedly written down its assets and cut its dividend dramatically. Unsurprisingly, investors have lost confidence in this team and the stock now trades at a significant discount to book value, while public peers trade at a premium.”

Mr. Aintabi continued, “We call on the Colony Credit Board to act in the interests of shareholders by insisting that Colony Capital provide competent investment managers or move its management contract to a known credit manager that has such a team.  To ‘internalize’ the current failing team provided by Colony Capital, as proposed last month by Mr. Barrack, would simply enshrine Colony Credit’s history of failure for the foreseeable future.”

Despite its conflicts of interest, the Colony Credit Board must act in the best interests of Colony Credit shareholders. Blackwells will continue to engage with the independent directors of Colony Credit and work to ensure that proper and necessary actions are taken.

The full text of the letter is below:

December 9, 2019

The Board of Directors
Colony Credit Real Estate, Inc.
515 South Flower Street, 44th Floor
Los Angeles, CA 90071

Dear Directors:

Blackwells Capital LLC, together with its affiliates (“Blackwells”), is a shareholder of Colony Credit Real Estate, Inc. (NYSE: CLNC) (“Colony Credit” or the “Company”).  We are also shareholders of Colony Capital, Inc. (NYSE: CLNY) (“Colony”), which owns 37% of Colony Credit and serves as its external manager.1

Colony Credit shareholders have suffered meaningfully since the company was formed and publicly listed in February 2018.  Management has consistently disappointed investors with extraordinary book value impairments, repeated earnings misses and a drastic dividend cut.

Colony Credit, like other commercial real estate credit REITs, originates and acquires secure cash flow streams tied to commercial real estate, using a combination of equity and leverage, passing the net income from those borrowers and tenants to stockholders.  The Company’s stated mission is to “consistently provid[e] attractive risk-adjusted returns to the Company stockholders … primarily through cash distributions and the preservation of invested capital …”2

The other commercial real estate credit REITs fulfill that mission well.  Starwood Property Trust (“Starwood”), for example, aims to generate income for its shareholders while preserving its investors’ capital. It has successfully generated annualized returns above 10% over the last five years and 32% in 2019 alone.3  Blackstone Mortgage Trust (“Blackstone”) has similarly generated annualized returns over 13% over the last five years and has generated a 21% return to-date in 2019.3  Both of these peer companies have had stable tangible book values per share, as they invest carefully in income-generating, real estate-backed financial instruments with the same goal as Colony Credit: predictable and recurring cash dividend distributions and the preservation of invested capital.

By contrast, the performance of Colony Credit since its public listing in February 2018, measured against its own stated objective and its publicly traded peers, is nothing short of a total fiasco.

In less than two years, Colony Credit’s share price has lost 35% of its value.  Tangible book value per share has declined by nearly 30%.  And, in its short life as a public company, Colony Credit has cut its dividend by more than 30%.

As a result, shareholders have lost confidence – Colony Credit currently trades at a remarkable 25% discount to the stated value of the Company’s net assets.4  By contrast, both Starwood Property Trust and Blackstone Mortgage Trust trade at a premium to book value (and have consistently maintained their dividends since Colony Credit’s listing).

Since Colony Credit’s public share listing, the S&P 500, MSCI US REIT Index, and Colony Credit’s commercial mortgage REIT peers have returned approximately +15%, +28%, and +42%, respectively. Colony Credit shares had a negative 22% total return over the same period.5  In fact, Colony Credit is the only publicly traded commercial mortgage REIT that has posted a negative shareholder return among its peers in the period since the Company’s public listing.

CLNC Total Returns vs. Public Peers, MSCI US REIT Index, and S&P 500 Since 2018 Listing

This absolute and relative underperformance is vexing.  Colony Credit has the same broad mandate and healthy real estate market in which to invest – and the advantage of having a more diverse portfolio – as most of its publicly traded peers.  Yet, the Company hasn’t even come close to matching the performance of its competitors, who are successfully identifying and investing in stable, income-producing assets on behalf of their shareholders and generating attractive total shareholder returns.

Quarter after quarter, Colony Credit’s executive team has assured investors that the Company’s assets were properly valued on its balance sheet.  For instance, in February 2019 Colony Credit Chief Executive Officer Kevin Traenkle told investors on an earnings call, “We believe these impairments are now behind us.”6  When queried by a sell-side analyst regarding the risk of additional write-downs during the same conference call, Mr. Traenkle stated confidently:

“The risks are very low. We’ve gone through the portfolio pretty extensively kind of asset by asset, loan by loan.”5

Then in May 2019, Colony Credit Chief Financial Officer Neil Reddington reiterated Mr. Traenkle’s view, saying, “We don’t see any additional impairments.”7  Just months later, the Company wrote down its assets by $273 million.8

In its short life as a public company, Colony Credit has taken more impairment charges than all other public commercial real estate credit REITs, combined.

CLNC Total Impairments vs. Public Peers Since February 2018

Despite repeated assurances from the Company’s CEO of the dividend’s sustainability, Colony Credit shocked investors when its dividend was cut in November.  In fact, Mr. Traenkle told investors only eight months prior that “[w]e expect to generate core earnings run rate that fully covers our dividend by the year end 2019.”5  In May 2019, he further assured that “[o]ur models show us covering the dividend on a run rate basis by the end of the year”9 and in August 2019, he emphasized that “dividend coverage … is our #1 priority.”7  Despite these repeated assurances, Colony Credit reduced its monthly dividend from $0.145 per share to $0.10 per share, which contributed to a more than 20% decline in the Company’s share price last month.

The problems at Colony Credit inexorably sit at the feet of its investment managers and executive leaders, who have made harrowing investment decisions, questionable valuation determinations and value-destructive portfolio management judgments.

The Board of Colony Credit has a duty to demand that Colony Capital immediately change course.  Colony Credit deserves competent executive management with proven publicly traded commercial mortgage real estate experience and with a history profitable investing.  And so, the Board should insist that Colony Capital replace the senior investment personnel and leadership team that have destroyed so much value at Colony Credit.

Once Colony Capital changes the investment team responsible for Colony Credit and restores confidence among Colony Credit shareholders, the gap between Colony Credit’s stock price and Colony Credit’s book value should close.  By virtue of its equity stake in Colony Credit, Colony Capital and its shareholders will also benefit.  It is imperative for both companies to eschew the incumbent bad managers and decisions of the past and to install a new team to oversee Colony Credit.

Unfortunately, Colony Capital has recently proposed a different reform scheme.  Last month, Tom Barrack, Colony Capital’s Chairman and CEO, sent a letter to the Company’s Board proposing that Colony Credit “internalize” its management by directly hiring, from Colony Capital, the very people who have incompetently managed the Colony Credit portfolio for years.  This makes no sense for either organization’s shareholders.

Mr. Barrack wrote that his proposal would position Colony Credit “as one of the world’s most powerful, differentiated, and effective credit real estate brands and publicly-held investment vehicles worldwide.”10  No one could possibly believe that, given that Colony Credit has the worst track record in its industry by a country mile.

The external management structure of Colony Credit is not the problem.  There are many successful publicly traded commercial real estate credit REITs that have performed well over the last two years while being externally managed, including both Starwood and Blackstone.  At this point, they – not Colony – are the “world’s most powerful, differentiated and effective credit real estate brands.”

This is not the first time Mr. Barrack and his “athletes” attempt the internalization play.  We wish they would learn from prior disastrous results.

In April 2015, when Colony Capital’s stock price was trading in the mid $20s, Colony Capital LLC was internalized into publicly traded Colony Financial Inc. (and re-branded as Colony Capital).11  Less than two years later, Mr. Barrack internalized the management of the publicly traded NorthStar entities with Colony Capital as part of a three-way merger that closed in early 2017, when Colony’s share price was $14.  Colony Capital’s stock is now worth less than $5 per share.

We hope that despite this Board’s many current and prior connections with Colony Capital, you recognize your fiduciary duties are to Colony Credit shareholders.  Two of you are current employees of Colony Capital.  Two others were previously with NorthStar entities that merged with Colony Capital.12  A fifth, current Chairman Saltzman, was most recently CEO and an Executive Director of Colony Capital.

Notwithstanding these entanglements, the directors of Colony Credit must do what is right for Colony Credit and refuse to be saddled with ineffectual investment managers, whether they are at Colony Capital or on the Colony Credit payroll.  It is up to this Board to demand the responsible alternative:  Colony Capital must provide capable stewardship, or it should move its management contract to an organization that will.

In recent months, one of your directors, in discussions with us, agreed that given the Company’s poor performance, a potential CEO change was necessary.  Working in good faith, we suggested the Company meet with a certain highly respected and accomplished commercial real estate credit REIT executive who would be able to provide expert leadership and restore investor confidence.  Although the director accepted and scheduled a meeting with our CEO candidate, the director cancelled that meeting at the last moment.  We continue to encourage you to reconsider and act upon this opportunity.

In the meantime, the Colony Credit Board should put in place a moratorium on any loans or investments.  Capital should be solely allocated to accretive share repurchases until the discount of the share price to the book value per share is eliminated.  As we noted in our August 29th letter to Colony Capital’s Board, the deployment of one dollar of new capital at Colony Credit, only to have it valued at a considerable discount in the public market, is a fool’s game.

Blackwells believes that Colony Credit has the potential to generate sustainable and attractive shareholder returns under new leadership and new investment managers.  We intend to continue to work with shareholders and insist that the Board provide independent and objective oversight of the external manager.

We look forward to discussing these topics in greater detail with the independent directors of Colony Credit at their earliest convenience.

Jason Aintabi
Blackwells Capital

About Blackwells Capital

Blackwells Capital was founded in 2016 by Jason Aintabi, its Chief Investment Officer.  Since that time, it has made investments in public securities, engaging with management and boards, both publicly and privately, to help unlock value for stakeholders, including shareholders, employees and communities. Throughout their careers, Blackwells’ principals have invested globally on behalf of leading public and private equity firms and have held operating roles and served on the boards of media, energy, technology, insurance and real estate enterprises.  For more information, please visit

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This material does not constitute an offer to sell or a solicitation of an offer to buy any of the securities described herein in any state to any person.  In addition, the discussions and opinions in this press release are for general information only, and are not intended to provide investment advice.  All statements contained in this press release that are not clearly historical in nature or that necessarily depend on future events are “forward-looking statements,” which are not guarantees of future performance or results, and the words “anticipate,” “believe,” “expect,” “potential,” “could,” “opportunity,” “estimate,” and similar expressions are generally intended to identify forward-looking statements.  The projected results and statements contained in this press release that are not historical facts are based on current expectations, speak only as of the date of this press release and involve risks that may cause the actual results to be materially different.  Certain information included in this material is based on data obtained from sources considered to be reliable.  No representation is made with respect to the accuracy or completeness of such data, and any analyses provided to assist the recipient of this presentation in evaluating the matters described herein may be based on subjective assessments and assumptions and may use one among alternative methodologies that produce different results.  Accordingly, any analyses should also not be viewed as factual and also should not be relied upon as an accurate prediction of future results.  All figures are unaudited estimates and subject to revision without notice.  Blackwells disclaims any obligation to update the information herein and reserves the right to change any of its opinions expressed herein at any time as it deems appropriate.  Past performance is not indicative of future results.

1 Colony Credit Real Estate, Inc. 13-D filing, November 7, 2019.

2 Colony NorthStar Credit Real Estate, Inc., Form S-4/A, December 4, 2017, at page 199.

3 Bloomberg data as of November 29, 2019.

4 Colony Credit Real Estate, Inc. Supplemental Financial Report, Third Quarter 2019, November 7, 2019 and CLNC closing price per Bloomberg on November 29, 2019.

5 Bloomberg data as of November 29, 2019.

6 Colony Credit Real Estate, Inc. 4Q 2018 earnings call, February 28, 2019.

7 Colony Credit Real Estate, Inc. 2Q 2019 earnings call, August 8, 2019.

8 Colony Credit Real Estate, Inc. 3Q 2019 earnings press release, November 7, 2019.

9 Colony Credit Real Estate, Inc. 1Q 2019 earnings call, May 8, 2019.

10 Colony Credit Real Estate, Inc. 13-D filing, November 6, 2019.

11 Colony Financial, Inc. press release, April 2, 2015.

12 Colony Credit Real Estate, Inc. 2019 proxy, March 27, 2019.