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Edited Transcript of CLNC.N earnings conference call or presentation 8-Aug-19 9:00pm GMT

Q2 2019 Colony Credit Real Estate Inc Earnings Call

Aug 15, 2019 (Thomson StreetEvents) -- Edited Transcript of Colony Credit Real Estate Inc earnings conference call or presentation Thursday, August 8, 2019 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Kevin P. Traenkle

Colony Credit Real Estate, Inc. - CEO, President & Director

* Lasse Glassen

ADDO Investor Relations - MD

* Neale W. Redington

Colony Credit Real Estate, Inc. - CFO & Treasurer

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Conference Call Participants

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* Jade Joseph Rahmani

Keefe, Bruyette, & Woods, Inc., Research Division - Director

* Ryan William Aceto

B. Riley FBR, Inc., Research Division - Research Analyst

* Stephen Albert Laws

Raymond James & Associates, Inc., Research Division - Research Analyst

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Presentation

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Operator [1]

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Greetings. Welcome to the Colony Credit Real Estate Second Quarter 2019 Earnings Conference Call. (Operator Instructions)

Please note, this conference is being recorded. I will now turn the conference over to your host, Lasse Glassen, Managing Director, Investor Relations. Mr. Glassen, you may begin.

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Lasse Glassen, ADDO Investor Relations - MD [2]

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Good afternoon, everyone, and welcome to Colony Credit Real Estate, Inc.'s Second Quarter 2019 Earnings Conference Call. We will refer to Colony Credit Real Estate, Inc. as CLNC, Colony Credit Real Estate or the company throughout the call. With us today are the company's President and Chief Executive Officer; Kevin Traenkle; and Chief Financial Officer, Neale Redington. Chief Accounting Officer, Frank Saracino, is also on the line to answer questions.

Before I hand the call over to them, please note that on this call, certain information presented contains forward-looking statements. These statements are based on management's current expectations and are subject to risks, uncertainties and assumptions. Potential risks and uncertainties that could cause the company's business and financial results to differ materially from these forward-looking statements are described in the company's periodic reports filed with the SEC from time-to-time.

All information discussed on this call is as of today, August 8, 2019, and the company does not intend and undertakes no duty to update for future events or circumstances.

In addition, certain financial information presented on this call represents non-GAAP financial measures. The company's earnings release and supplemental presentation, which was released this afternoon and is available on the company's website, presents reconciliations to the appropriate GAAP measure and an explanation of why the company believes such non-GAAP financial measures are useful to investors.

And now I'd like to turn the call over to Kevin Traenkle, President and Chief Executive Officer of Colony Credit Real Estate. Kevin?

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Kevin P. Traenkle, Colony Credit Real Estate, Inc. - CEO, President & Director [3]

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Thank you, Lasse, and thanks to everyone for joining Colony Credit Real Estate's conference call to discuss the company's 2019 second quarter results. I will provide a brief overview of our second quarter, including an update on the acceleration of our portfolio rationalization strategy. Neale Redington, our CFO, will discuss the details of our second quarter financial performance, including specifics on our earnings growth, deployment activity, investment portfolio, balance sheet and liquidity position.

Colony Credit Real Estate had a productive second quarter, and we are pleased with our progress towards delivering a stabilized portfolio of core holdings. Originations activity, portfolio rationalization efforts and quarter-over-quarter in-place core earnings growth all continue on a positive trajectory, while at the same time we

continue to cull the portfolio of legacy non-core and low-yielding assets. We have prioritized the deployment of our available cash as well as rotating out of select assets that provide a minimal and, in some cases, no yield. Our team has established new borrower relationships and fostered repeat customer business.

Since listing less than 18 months ago, we have completed $3.4 billion in committed transactions, including $1.2 billion year-to-date. Over this short period, excluding gains and losses, prioritizing deployment has resulted in approximately 20% increase in annualized core earnings from $170 million to $203 million today. As planned, we have converted excess liquidity into high-quality loans, generating stable yield.

From the onset of launching Colony Credit Real Estate, the plan has consistently been to rotate out of non-core assets, including the sale of our real estate private equity interests as well as other opportunistic dispositions. Along those lines, the company has already reduced its exposure to non-core assets identified at the time of our listing by over 50%. This includes the disposition of a significant majority of our private equity secondary interest, resulting in $142 million of newly available cash for us to deploy.

Our remaining non-core assets are mainly comprised of operating real estate that we categorize as other real estate and select legacy nonperforming or low-yielding investments. It's worth mentioning that the majority of these non-core assets were contributed as part of the merger with 2 legacy non-traded REITs at our formation and are not part of our long-term targeted asset classes or assets typically associated with credit REITs. These assets will be of particular focus during the next quarter, and we will continue to explore ways to accelerate the resolution of these non-core assets. Our plan of simplifying the business, growing earnings, prudently divesting non-core or underperforming assets is paramount.

As we move forward with our accelerated rationalization strategy, there may be an interim impact on our financial statements. However, we believe the end result of executing this strategy will be an in-place portfolio that produces stable core earnings. Additionally, we will continue to grow earnings through the deployment of our liquidity into target asset classes at low double-digit yields. We are confident in our ability to continue to execute this transition, and we expect the results of these initiatives will allow us to close the gap between current share price and net asset value, and best position Colony Credit Real Estate for long-term success.

And now I'll turn the call over to Neale Redington for a more detailed explanation of our second quarter operational financial results.

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Neale W. Redington, Colony Credit Real Estate, Inc. - CFO & Treasurer [4]

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Thank you, Kevin, and good afternoon, everyone. As we discuss our second quarter financial results, I want to draw your attention to our supplemental financial report, which is available on our website. We believe this supplement will help investors and research analysts understand our company better, given the additional data it provides on each of our business segments.

CLNC reported a second quarter GAAP net loss of $107.3 million or $0.84 per common share and core earnings of $36.3 million or $0.28 per diluted share.

Excluding realized losses during the quarter, core earnings were $50.7 million or $0.39 per diluted share. After adjusting for favorable hotel seasonality, run rate for earnings for the second quarter was approximately $0.38 per diluted share, increasing our dividend coverage to 86%. As a reminder, reported core earnings does not include the impairment of real-estate provision for loan losses until a realization event occurs.

In the fourth quarter of 2018, we recorded a $14.5 million loan loss provision in anticipation of a loan book closure that occurred in the second quarter of 2019. So because of this timing difference, the provision reduced GAAP net income during the fourth quarter and reduced reported core earnings during the second quarter. This timing issue will probably recur in the future as we execute on the accelerated portfolio rationalization strategy that Kevin communicated in his remarks.

Now I'd like to take a moment to discuss the impairments taken during the second quarter 2019. As just Kevin mentioned, as part of our overall portfolio rationalization strategy, we've begun to significantly accelerate the pace at which we divest our non-core assets. As a result, we recorded $119 million of provisions for loan losses during the quarter related to 4 separate borrowers as well as a $10 million impairment on owned real estate held for investment.

So let me provide some specifics about the $129 million in write-down taken during the second quarter. One of the impairments was related to the ongoing resolution efforts of New York City hospitality loans. This is a key part of our overall portfolio rationalization strategy as the 4 loans secured by this asset remain on nonaccrual status, and therefore, are not currently contributing to core earnings. We initially impaired this asset in the third quarter last year based on market pricing estimates provided to the borrower by its broker. The borrower launched the sales process for the property earlier this year, which was adversely impacted by deteriorating hotel market conditions throughout New York City in the second quarter. This resulted in lower bids from potential buyers than originally anticipated. And therefore, during the second quarter, we impaired the asset to a revised estimated current value. The borrower is monitoring market conditions, and we will share our progress with you in the near future.

In addition, during the second quarter, we impaired a portfolio of owned real estate in preparation for a disposition we intend to execute in an accelerated time frame. One of the assets from that portfolio is under contract, and we expect it to close during the third quarter. And lastly, additional impairments were also taken related to 3 separate borrowers whose loans, secured by regional mall retail assets, deteriorated in credit quality during the quarter. These retail assets are a high priority focus of CLNC and are included in our portfolio rationalization strategy.

Turning to deployments. We had an active second quarter by allocating and initially funding $750 million and $616 million of capital, respectively. The deployment activity for the quarter was all within the United States, and the property-type mix was approximately 57% multi-family, 41% office and 2% diversified. In addition, so far in the third quarter, we've initially allocated and funded an additional $234 million and $107 million of capital, respectively.

During the second quarter, we paid a monthly cash dividend of $0.145 per common share for the month of April, May and June, and we have declared a $0.145 per share dividend for the months of July and August. Based on our current stock price, our annualized dividend of $1.74 per share represents an above-market yield of approximately 11%.

Looking at our in-place investment portfolio. Our loan book continues to be the largest segment within our portfolio with a carrying value of approximately $3.1 billion at quarter end. The unlevered yield on our loan book is 8%, and with an average loan size of $44 million, the portfolio remains well diversified in terms of size, collateral type and geography.

Net leased real estate comprises 23% of the portfolio and had a carrying value of $1.3 billion at the end of the second quarter. This portfolio consists primarily of industrial and office properties with a high single-digits weighted average return on equity and a weighted average lease term of 9.2 years. We view the net leased assets as a core business of CLNC, providing long-term stable cash flows with the potential for capital appreciation.

Moving to CRE debt securities. Our portfolio had a carrying value of $399 million at quarter end. And the majority is investment-grade rated. In addition to generating attractive yields, our CRE debt securities portfolio provides CLNC with additional liquidity options within our investment portfolio and access to efficient borrowing. To the [attic bends], subsequent to quarter end, we sold a CMBS B-piece at a premium-to-fair-market value, which resulted in an approximately $33 million of proceeds and a $4 million realized gain that we recognized in the third quarter.

Turning to our other real estate segment. This segment is predominantly cash flowing operating real estate, with a carrying value of $789 million as of quarter end. This increase during the second quarter is mainly due to a previously identified foreclosure.

Moving to our balance sheet. Our total at share assets stood at approximately $5.8 billion as of June 30, 2019. Our debt-to-assets ratio was 52% at the end of the quarter, and our current liquidity stands at approximately $383 million between cash on hand and availability under our revolving credit facility.

In closing, we remain focused on executing our deployment strategy, and are convinced that our acceleration of portfolio rationalization activities focused on non-core and low-yielding assets is the best path towards delivering a stabilized portfolio.

Looking ahead to the second half of 2019, we will continue in our efforts to enhance our portfolio, and we feel we are well positioned to achieve our strategic objectives for the year and to drive shareholder value. I'd like to thank you for your time today. And we'll now ask the operator to please open the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from Stephen Laws, Raymond James.

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Stephen Albert Laws, Raymond James & Associates, Inc., Research Division - Research Analyst [2]

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Neale, I guess, maybe to jump in, and I apologize if I missed this because I was trying to write some stuff down about the loan loss provisions and the impairment. But a couple of them, you mentioned accelerated resolution, third quarter or even second half. Has there any -- anything changed since June 30 to make you think you need to take a bigger provision or impairment just given the -- what's going on in the market, especially recent volatility of rates, if that's having any impact? And then along those same lines, I may have missed this, but is any of this due to the New York City rent legislation? Or do you have any exposure there to multifamily assets that face that new legislation?

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Neale W. Redington, Colony Credit Real Estate, Inc. - CFO & Treasurer [3]

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So, Stephen, let me -- perhaps I'll answer the last part first because that was the largest piece of the impairment during the quarter, which was in the New York area. There are a number of different factors impacting the New York market. I think most of it we see is actually foreign tourism being down. That has adversely impacted the entire New York market and, in particular, this property. There are some other factors, like you mentioned, the apartment aspect, but we're really seeing it probably most related to the overall inbound market from Europe and from the U.K.

Jumping back up to your first question as to whether we reevaluate it. We do evaluate through issuance of financials, so -- which will be tomorrow. And, no, we don't see any additional impairments that are related specific to the movement in the bond market in particular, and the outlook. It is something that we'll continue to monitor. But as of today, we don't see any further impact.

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Stephen Albert Laws, Raymond James & Associates, Inc., Research Division - Research Analyst [4]

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Great. And this -- couple of moving parts to this next question, but we've kind had a goal from, I think, the February call of dividend coverage by end of year, kind of on a run rate basis, maybe for December. When we adjust Q1, I think on the call, from my note, that kind of a run rate number of $0.36, that looks like this quarter, that number is $0.39, excluding the realized loan losses. It seems like the trajectory is still there to exit the year on a run rate basis of $0.435. So I guess, first, is that accurate to think about, if we exclude the realized loan losses that may take place, especially given the recent provisioning that you guys took? Because it looks like the loss you took in Q2 was right in line with the provision that was recorded last year for that asset, if I'm comparing everything correctly.

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Kevin P. Traenkle, Colony Credit Real Estate, Inc. - CEO, President & Director [5]

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Yes. So Stephen, I'll take that, and Neale might be able to fill in on some of the specifics. But I mean, just kind of going back and reiterating what our #1 priority has been and, I guess, our top priorities. Well, one, kind of getting to that stabilized, steady-state portfolio. And kind of -- and we talked about it accelerating our portfolio rationalization plan, kind of getting to what we believe to be our core business going forward and eventually divesting ourselves from some of these legacy assets that don't belong in a credit REIT. But right up there is delivering a sustainable, well-covered dividend. So we are highly focused on growing earnings. We put a lot of liquidity to work since listing. And we've made the -- a number of investments. We've increased our earnings pretty tremendously. Our dividend coverage has gone up by probably over 20% from when we first listed. So that is one of our priorities. Now some of that is dependent upon when we rotate out of some of these lower-yielding assets, and we did talk a little bit, and you mentioned just a little bit ago, the New York City hospitality loan. That is on nonaccrual status right now. So 100% of the capital that's tied up in that investing -- investment is not giving us any credit to our core earnings. When we monetize that is going to have an impact in terms of when we hit run rate dividend coverage, but it is -- it's our #1 priority. So it's something that we're very focused on.

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Stephen Albert Laws, Raymond James & Associates, Inc., Research Division - Research Analyst [6]

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Right. I appreciate that update. And putting the money to work, you mentioned in your answer, and that was that lead to my next question. The new investment, number of investments, they are roughly the same, average size increased a pretty good amount, $36 million to $44 million. Are you seeing larger investments now, opportunities there? Can you talk about what's your -- the shift you're seeing that's causing that average loan size to increase and maybe kind of what the pipeline looks like here for the second half?

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Kevin P. Traenkle, Colony Credit Real Estate, Inc. - CEO, President & Director [7]

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Yes. Yes, absolutely. And, yes, our market is tied to the broader markets and the global markets at a certain extent, and we have seen -- everyone's seeing what's going on in the stock market and what's going on in the bond market, which is pretty amazing right now. So interest rates, just in general, have been coming down. It's something that we've been very focused on. We've been also very focused on kind of looking at and maybe revisiting the risk/reward profiles of the investments that we make that are both in our pipeline and some of the targeted areas that we want to go after in the future. So it's something that we are pretty focused on. I mean we have put a lot of capital to work this year. You have seen migration to larger loans. I think what you're also seeing there and is probably a migration towards safer positions in better markets, better credit. I think right now, given where we are, we think that we'd rather be in a safer position within the capital structure right now, even if it means it's trading some basis points in terms of yield. It's just a better place to be. There is a lot of capital that is in the market. I mean we're cognizant of that. We're not going to chase deals just for the sake of chasing deals. But we do have a pretty big pipeline of transactions that we're pursuing. I think we're going to continue to maybe be a little bit more biased to the bigger assets, the better sponsors, the bigger markets in a time like this.

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Stephen Albert Laws, Raymond James & Associates, Inc., Research Division - Research Analyst [8]

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Great. And maybe touch on Europe a little bit along that. I mean you've got the financing facilities in place. You talked about, even looking at my notes from back in February, the opportunities there. Is it less competitive? Are the returns more attractive? Do you like the credit more there? Can you maybe talk about what makes the increase in the focus in Europe attractive to you?

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Kevin P. Traenkle, Colony Credit Real Estate, Inc. - CEO, President & Director [9]

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Yes. So yes, we still are focused in Europe and it's a market that we have a lot of knowledge of and a lot of relationships. So we do have a pipeline of investments that we are looking at in Europe. The overall volume and deal volume itself in Europe is not that high. I think maybe the overall financing market probably still isn't as healthy as it is here in the U.S. So just the amount of opportunities that we have to put to work might not be as great as what we have here. But we also don't think that there is as much capital chasing the opportunities that are there. So perhaps on a relative basis, I think we can get better yields. And it doesn't seem like when we are invited to maybe pitch for a particular business, we're not competing with nearly as many people as we're competing with here in the States. And in a lot of circumstances, we're dealing with some proprietary relationships that we've had for a number of years. So Europe is an area that we're continuing to look at. We do have a pipeline there. We'll do the selected deals and, once again, in the bigger markets with the better sponsors. So it's going to be a market that we continue to focus on.

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Stephen Albert Laws, Raymond James & Associates, Inc., Research Division - Research Analyst [10]

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Great. And one last thing, looking for an update on the remaining private equity stuff. I think from my notes, it looks like, I think, remaining 10% was in a JV and I believe you guys have been having ongoing discussions with those partners about liquidity options. Any developments you can share with us on that or time lines to dispose the remaining PE interest?

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Neale W. Redington, Colony Credit Real Estate, Inc. - CFO & Treasurer [11]

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That piece, Stephen, we're probably going to hold on for a period of time. It is in a JV. And I think our partner is happy to hold onto that for a period of time. Perhaps just in terms of our metrics, and I think you might see that coming through. We're 90%, I think, collected on the cash we were expecting to receive, right? So we will get the rest of that in Q3. So we're pretty much out of the sales process, just takes a little while to get the cash in, and that will be coming through over the next month or so.

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Operator [12]

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Our next question is from Randy Binner, FBR.

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Ryan William Aceto, B. Riley FBR, Inc., Research Division - Research Analyst [13]

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It's actually Ryan Aceto on for Randy today. I just want to follow up on the write-down. I don't know if you guys are able to size up between the 4 borrowers, how much the $120 million made up. I'm assuming the hospitality loan made up a decent chunk of that?

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Neale W. Redington, Colony Credit Real Estate, Inc. - CFO & Treasurer [14]

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Yes. It is. I mean frankly, it's 80% of it. So $104 million was related to that side of things. And then the remainder were in the retail assets.

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Ryan William Aceto, B. Riley FBR, Inc., Research Division - Research Analyst [15]

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Perfect. And then turning to the sale of the B-piece you guys announced after the quarter. Can you just touch on what you guys are seeing in the market that prompted you to sell that? And then going forward, if you see those conditions, are you going to be using that book as a source of liquidity? Or are you going to be selling opportunistically? So any color there would be great.

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Kevin P. Traenkle, Colony Credit Real Estate, Inc. - CEO, President & Director [16]

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Yes. So I think we have seen an appreciation in that book, just given like where interest rates are. We have exposure to a handful of different trusts. Each trust have their own makeup in terms of credit, asset class, geographic exposure. So it's a book that we're actively monitoring. And then from time to time, we see bonds that are trading at pretty attractive levels. We're a little bit opportunistic in terms of the sales process. I think that was more of an opportunistic sale. I think we saw a run-up in the price of that bond for some reason. That was actually several bonds that we sold in a particular trust. And just given what was in that particular trust, we thought it was a very attractive opportunity to sell at a pretty nice price.

Just given the overall strategy with that part of the portfolio, yes, it's not something that -- it's not like a trading operation that we're looking to do. I mean we're more than happy to kind of hold those bonds right through to maturity if we have to. We do, do detailed underwriting of the individual assets within the trust and feel good about the levels at which we're purchasing various bonds. But it is a very liquid asset class. So we view it as we get a twofer. One, we're getting good risk-adjusted investment current returns. But at the same time, if we do see market conditions that give us the opportunity to sell something at a price that looks attractive to us, we'll do it. And then in addition, if we have a need for capital -- for deployment opportunities in the other asset classes or origination opportunities, we can use that as a source of liquidity to redeploy capital out of that part of our portfolio into other parts.

So yes, we will be opportunistic. We have seen a run-up in prices, especially with interest rates dropping. Spreads, I think, typically lag interest rates a little bit, especially when we see interest rates kind of moving as fast as you do now. So I think we're going to see spreads probably tighten over time. You've got to give that a little bit of time. I think the market, generally speaking, probably this is for all asset classes, not even for credit or even for real estate, I think they feel like they're getting a little bit whipsawed maybe by some of the political climate around the world and some of the trade issues going on. But if the low interest rates do persist, I think we will see a tightening in spreads as well.

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Ryan William Aceto, B. Riley FBR, Inc., Research Division - Research Analyst [17]

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Understood. And then one more, if I could. The -- outside of, obviously, the New York hospitality loan and the 3 other borrowers you talked about this quarter, the rest of the non-core assets, is that going to be more of a next year thing, just trying to get through this year, cleaning up all the problem loans you guys do have? Or are you guys going to be making any progress on that this year?

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Kevin P. Traenkle, Colony Credit Real Estate, Inc. - CEO, President & Director [18]

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Yes. So I mean just to be clear, the non-core bucket isn't all problem loans. I mean we do have some lower-yielding assets and loans. But for instance, the New York hospitality loan that's not yielding anything that we'd love to monetize and redeploy that capital. But our non-core bucket is primarily operating real estate. It's just like basically core holdings in office buildings, multifamily buildings, et cetera. So I think we will look to opportunistically sell those as well. I think our priorities have been to focus on the ones that have been lower yielding so we can get those off the books and then redeploy that capital into our core asset classes. In some cases, some of the assets that we do have do have longer-term debt that would have some defeasance and some kind of breakage costs if we sold them today. So we're always looking at the most efficient time to sell that -- those types of assets and redeploy them. So I think, definitely, our focus is on the lower-yielding stuff. First, obviously then anything in the portfolio that we deem to be a little bit more risky or volatile. And we've talked about some of our retail holdings in the past. Retail continues to be an asset class that struggles, really hasn't found its footing yet to the extent that we can lighten our exposure to retail. It's something we're going to continue to do. We're not making new retail loans going forward. We -- in the last quarter, we had a couple of retail loans pay off. We're actively in discussions with other borrowers and getting those borrowers, they're going to refinance the debt of positions because we like our exposure. It's down to around 5% today, our retail exposure to the overall book. It was something a little bit higher when we first started. We want that to kind of keep on going in that direction for the foreseeable future, so.

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Neale W. Redington, Colony Credit Real Estate, Inc. - CFO & Treasurer [19]

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Yes, Kevin, just to expand on that. Ryan, we had $400 million of retail loans at the beginning of the year. And we've -- year-to-date we've reduced that by about $110 million, including a couple of payoffs quite recently. So we're quite pleased with the reduction there in terms of our overall risk exposure.

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Operator [20]

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Our next question is from Jade Rahmani, KBW.

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Jade Joseph Rahmani, Keefe, Bruyette, & Woods, Inc., Research Division - Director [21]

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The secondary PE investments, who is the JV with? Is that with Colony Capital?

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Neale W. Redington, Colony Credit Real Estate, Inc. - CFO & Treasurer [22]

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No. It's not. It's with a different third party. But no, no it isn't with Colony Capital.

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Jade Joseph Rahmani, Keefe, Bruyette, & Woods, Inc., Research Division - Director [23]

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The decline in undepreciated book value, was that due to the loan loss provisions this quarter?

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Neale W. Redington, Colony Credit Real Estate, Inc. - CFO & Treasurer [24]

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It was a combination of things. It was primarily the loan loss provisions. And then just generally, depreciation. There's a fair bit of depreciation. I think I want to say it was about $0.22 or so related to depreciation on our operating real estate.

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Jade Joseph Rahmani, Keefe, Bruyette, & Woods, Inc., Research Division - Director [25]

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So the undepreciated book value declined based on loss provisions then?

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Neale W. Redington, Colony Credit Real Estate, Inc. - CFO & Treasurer [26]

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I'm sorry. You asked me about undepreciated. I thought you said depreciated. So yes, it relates to the loan loss provisions for the undepreciated, yes.

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Jade Joseph Rahmani, Keefe, Bruyette, & Woods, Inc., Research Division - Director [27]

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Okay. The $119 million of loan loss provisions, you say that, that's CLNC's pro rata share. Do you know what the aggregate amount was, inclusive of the other party?

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Neale W. Redington, Colony Credit Real Estate, Inc. - CFO & Treasurer [28]

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It wasn't that much, more -- about $4 million more. I think it was $4 million or $5 million, it was a little bit more. There's just very small JV persistent in that.

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Jade Joseph Rahmani, Keefe, Bruyette, & Woods, Inc., Research Division - Director [29]

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And do you know what percentage of the carrying value or property basis that represented, just to put that amount in context? Even a range -- just a general ballpark would be helpful.

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Neale W. Redington, Colony Credit Real Estate, Inc. - CFO & Treasurer [30]

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It varies quite a bit by the different types of properties. So for a couple of the smaller adjustments, it was 10% or so. But I think on the larger asset, like the New York hospitality loan, that was a pretty sizable, I mean, sizable amount, perhaps as much as 50%. It is quite highly levered, so that our proportionate share of that or the equity position as opposed to the total value of the assets, the underlying assets.

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Jade Joseph Rahmani, Keefe, Bruyette, & Woods, Inc., Research Division - Director [31]

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Okay. Looking at the fixed-rate mortgage portfolio, which totals about $872 million, there's $225 million of first mortgages, senior loans, and they actually have the highest yield in that portfolio with only a 1.3-year remaining term. So first of all, what kinds of loans are these that are bearing a 14.1% unlevered yield? And two, what's the likelihood of default over the next 1.3 years?

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Neale W. Redington, Colony Credit Real Estate, Inc. - CFO & Treasurer [32]

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So that's our European exposure, where as we think we've mentioned, there are better opportunities to deploy, frankly, at higher rates there. We're quite comfortable with the credit rating over there and are not expecting default related to that investment.

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Jade Joseph Rahmani, Keefe, Bruyette, & Woods, Inc., Research Division - Director [33]

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So just to push back, I mean, they're yielding, it says in the presentation, 14.1%. You can unlever, you can redeploy that at 14 -- at higher than 14.1%?

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Kevin P. Traenkle, Colony Credit Real Estate, Inc. - CEO, President & Director [34]

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Yes. No. So those investments, I mean in -- primarily, it's in the Dublin market right now. We have exposure to 2 loans in Dublin right now, senior financing on 2 mixed-use development projects. So the yield can be higher, especially when you're talking about the -- a development project. One of which of those projects has now been fully let to one of the biggest companies like in the world on a 25-year triple net lease basis. So we're feeling pretty good about that

exposure. We have a pretty good insight and the developer has insight that we're financing to let out spacing in the other building that we're financing. But the construction lending market in Europe in general, but in particular, in Dublin is not very advanced at all. We did do a very big dive on Dublin itself. We like a lot of the metrics there, and we're pretty bullish on the go-forward, I guess, outlook for Dublin. We don't think that there is -- I mean we just originated those loans, so we don't think that there's much chance of a default at all. It is early days in terms of the second loan, the one loan where we have the triple net lease and I think we feel very, very comfortable about. The other loan on the building that is to be leased, just given some of the progress and discussions that the developers had with some major multinational corporations in terms of space that they need, we feel pretty confident that, that building will get let out as well. The Class A office market in Dublin is less than 4% vacant right now. Just based upon some of the demand that we've had on other buildings that we've owned in Dublin, it's just -- it's kind of off the charts; there's just not enough space in Dublin. So we're confident that the space does get let out and it derisks the project pretty extensively. So it's something that we're actually pretty bullish on and pretty happy to make these kind of returns given the risk profile.

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Operator [35]

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We have reached the end of the question-and-answer session. And I will now turn the call back over to management for closing remarks.

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Kevin P. Traenkle, Colony Credit Real Estate, Inc. - CEO, President & Director [36]

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All right. Well, thank you, everyone, for joining us today. I mean there are a couple of highlights that I'd love to reiterate because we've made a lot of progress with this company since going public about 18 months ago. A few of these, we've invested $3.4 billion in some high-quality investments since listing. And we've grown our AUM by over 30%. We've grown our core earnings by 20%. We've increased our dividend coverage rate from the low 70% range to the mid- to high 80% range. And we're also reducing our non-core investments, and we've reduced that from around 24% of our total portfolio to 15% today. So there's a lot of positive things going on at the company. And we look forward to continuing to update you as we grow our earnings and execute our portfolio rationalization strategy. And thanks again for joining us today.

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Operator [37]

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This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.