Colony Financial Announces Second Quarter 2013 Financial Results

  Colony Financial Announces Second Quarter 2013 Financial Results

Business Wire

LOS ANGELES -- August 6, 2013

Colony Financial, Inc. (NYSE: CLNY) (the “Company”) today announced financial
results for the second quarter ended June 30, 2013.

Second Quarter 2013 Highlights

  *Core Earnings, a non-GAAP financial measure, of $23.6 million, or $0.36
    per basic and diluted share and net income attributable to common
    stockholders of $20.3 million, or $0.31 per basic and diluted share
  *During the quarter, the Company invested approximately $462 million,
    composed of $50 million into two portfolio acquisitions of primarily
    performing first mortgage loans at an average price of 79% of par, $237
    million into four originations with a blended interest rate of
    approximately 11% and an additional $175 million (for an aggregate
    investment of $550 million) into CAH Operating Partnership, L.P. (“CAH
    OP”), the single family home rental platform known as Colony American
    Homes
  *Issued $200 million of 5.00% Convertible Senior Notes due in April 2023;
    the notes were sold to the underwriters at a discount of 3%, resulting in
    net proceeds of $194 million to the Company
  *Declared and paid a second quarter dividend of $0.35 per share of common
    stock, consistent with the first quarter of 2013
  *Subsequent to quarter end: (i) the Company invested or agreed to invest
    (subject to various approvals and conditions) approximately $217 million,
    composed of $20 million into a loan acquisition, $54 million into two
    originations with a blended interest rate of approximately 14% and $143
    million towards a multifamily loan origination joint venture; and (ii)
    replaced its existing $175 million credit facility with a $360 million
    credit facility at more attractive terms and pricing

Second Quarter Operating Results

For the second quarter of 2013, equity in income of unconsolidated joint
ventures and interest income and other income from affiliates contributed
$23.0 million and $17.8 million, respectively, to total income of $40.8
million. Total expenses for the quarter were $13.5 million including
administrative expenses of $1.7 million. During the second quarter of 2013,
the Company reported net income attributable to common stockholders of $20.3
million, or $0.31 per basic and diluted share. Colony Financial’s Core
Earnings were $23.6 million, or $0.36 per basic and diluted share, for the
second quarter of 2013.

“We are extremely pleased that all of our business strategies exceeded
expectations during the second quarter,” said Richard Saltzman, Colony
Financial’s President and Chief Executive Officer. “Furthermore, prospective
activity is extremely robust, as the fundamentals for U.S. commercial real
estate are improving across the board consistent with the macro U.S. economy.
Other than the continuing opportunity in single family acquisitions, U.S.
property distress is primarily behind us and the beginnings of the real up
cycle are present. This is against the backdrop of limited new supply of
commercial real estate and more restrictive regulation and capital adequacy
requirements for traditional financial institutions, providing a very sanguine
environment in both debt and equity investments. On the other hand, distressed
property opportunities outside of the U.S. are accelerating, as Europe, Japan,
and others appear to be several years behind the U.S. from a credit cycle
perspective.”

Second Quarter Activity

  *The Company invested in a joint venture with investment funds managed by
    an affiliate of our Company’s manager (“Co-Investment Funds(s)”) that
    acquired a portfolio of first mortgage loans secured by commercial and
    residential real estate. The portfolio included 52 loans, of which 83%
    were performing at acquisition, with an aggregate unpaid principal balance
    (UPB) of approximately $72 million. The purchase price for the portfolio
    was approximately $54 million, or 75% of the portfolio’s UPB. The
    Company’s share of this investment is 50%, or $27 million.
  *The Company invested in a joint venture with Co-Investment Funds that
    acquired a portfolio of first mortgage loans secured by commercial and
    residential real estate. The portfolio included 41 loans, of which 100%
    were performing at acquisition, with an aggregate UPB of approximately $55
    million. The purchase price for the portfolio was approximately $45
    million, or 83% of the portfolio’s UPB. The Company’s share of this
    investment is 50%, or $23 million.
  *The Company, certain Co-Investment Funds and an unaffiliated investor
    participated in the origination of $560 million of mezzanine debt,
    consisting of senior and junior tranches, secured by the equity interests
    in an entity owning a diversified portfolio of 152 full service, select
    service and extended stay hotels located throughout the U.S. The Company
    holds senior and junior tranches that bear interest at a blended rate of
    LIBOR plus 10.8% and are subordinate to a $775 million first mortgage. The
    loans have an initial maturity date of June 2016 and can be extended for a
    maximum of 24 months, subject to certain conditions. The Company and the
    Co-Investment Funds funded $328 million at closing, net of origination
    fees, of which the Company’s share is $173 million. An unaffiliated
    investor funded the balance of the $560 million mezzanine loan.
  *The Company originated a $33 million first mortgage loan secured by a
    regional mall located near Boston. In addition to an initial funding
    component of $33 million bearing interest at LIBOR plus 6.0%, the loan
    includes a $9 million future funding component bearing interest at LIBOR
    plus 11.5% that the borrower can draw for reimbursement of budgeted tenant
    improvements, capital expenditures and leasing commissions. The mortgage
    loan has an initial maturity date of June 2016 and can be extended for a
    maximum of 24 months, subject to payment of extension fees and
    satisfaction of debt yield requirements. The Company expects to originate
    loans of similar profile and in sufficient volume to create an opportunity
    to subsequently finance the loan portfolio though a collateralized loan
    obligation bond offering. If completed, this execution would allow the
    Company to obtain matched term, non-recourse financing and based on
    current market conditions, it is expected leveraged equity returns would
    exceed 12%.
  *The Company invested in a joint venture with certain Co-Investment Funds
    that originated a $23 million loan to finance the development of a master
    planned residential community near Austin, Texas. The loan has a five year
    term and bears an interest rate of 14% paid-in-kind plus an additional
    profit participation. The Company’s share of this investment is 50%, or
    $12 million.
  *In June 2013, we and a minority unaffiliated investor invested an
    additional $25 million (of which our share was $21 million) of
    participating preferred equity in the joint venture we refer to as
    Multifamily Portfolio Preferred Equity to facilitate the acquisition and
    renovation of approximately 1,400 apartment units in Florida and Texas.
    The sponsor funded $8 million of common equity at closing. The additional
    investment was made on the same terms as the original investment. As of
    June 30, 2013, the aggregate participating preferred equity is $66 million
    which has a crossed interest in approximately 3,700 units across nine
    apartment communities in Georgia, Texas and Florida. Our share of this
    participating preferred equity investment is 83%, or $55 million.
  *The Company increased its funded investment in CAH OP to $550 million,
    from $375 million funded as of March 31, 2013. As of June 30, 2013, Colony
    American Homes owned 12,358 homes in nine states and the portfolio of
    homes owned for greater than 180 days was 85% leased, while the overall
    portfolio was 49% leased. As of August 5, 2013, Colony American Homes
    owned 13,276 homes in nine states. Renovation and leasing productivity
    also continued to improve since the first quarter. In June 2013,
    approximately 1,000 homes were renovated and 850 homes were leased and in
    July 2013, approximately 1,350 homes were renovated and 940 homes were
    leased. This compares to acquisitions that have averaged a little more
    than 1,000 homes per month for the three months May through July 2013.
    Colony American Homes has also continued to make a number of key strategic
    hires in an effort to build out the management platform including the
    appointment of a new chief operating officer, Fred Tuomi.
  *During the second quarter of 2013, three of our loan portfolio investments
    obtained financing from a commercial bank for net proceeds to the Company
    of approximately $52 million or 57% of our initial invested equity on a
    combined basis. The financings bear interest at LIBOR plus 3.75% to 4%.

Activities Subsequent to Second Quarter 2013

  *In July 2013, the Company agreed to invest in a joint venture with a
    minority unaffiliated investor to fund an additional $23 million (of which
    our share was $19 million) of participating preferred equity in the joint
    venture we refer to as Multifamily Portfolio Preferred Equity to
    facilitate the acquisition and renovation of approximately 1,150 apartment
    units in Georgia, Texas and Florida. The sponsor will fund $8 million at
    closing. The additional investment was made on the same terms as the
    original investment. Upon the completion of this transaction, the
    aggregate participating preferred equity will be $89 million which will
    have a crossed interest in approximately 4,800 units across 12 apartment
    communities in Georgia, Texas and Florida. The Company’s share of this
    participating preferred investment entity is 83%, or $74 million.
  *In July 2013, the Company invested in a joint venture with a Co-Investment
    Fund that originated a $30 million first mortgage loan ($10 million
    initially funded) to finance the acquisition and redevelopment of
    high-end, single family residential properties in infill, coastal southern
    California markets. The loan bears an interest rate of 15%, of which 7%
    may be paid-in-kind, and is subject to certain other fees. The term of the
    loan is four years. The joint venture may fund an additional $40 million
    that would be funded at our sole discretion. The Company’s share of the
    investment is 50%, or $5 million funded to date.
  *In August 2013, the Company agreed to invest in a joint venture with
    certain Co-Investment Funds to acquire a U.S. dollar denominated $40
    million junior first mortgage interest secured by a luxury beach resort in
    Mexico. The loan will bear an interest rate of 11.5%, of which 3% may be
    paid-in-kind and is subject to certain other fees and yield maintenance
    features. The term of the loan is five years. The Company’s share of this
    investment is 50%, or $20 million.
  *In August 2013, the Company entered into a joint venture with unaffiliated
    investors to form a platform to originate short-term, first mortgage loans
    on multifamily properties. This lending platform was formed in part to
    take advantage of the void expected to be left by the recently announced
    multifamily lending curtailment by Government Sponsored Enterprises
    (“GSEs”). Subject to various approvals and conditions, the Company expects
    to invest approximately $143 million in the joint venture which is
    targeting leveraged returns in excess of 11%.

Convertible Debt Offering

In April, the Company issued $200 million of 5.00% Convertible Senior Notes
due in April 2023. The 10-year notes carry a conversion price of $23.60 per
share and were sold to the underwriters at a discount of 3%, resulting in net
proceeds of $194 million.

Credit Facility

On August 6, 2013, the Company obtained a new credit facility to replace the
prior credit facility. Subject to certain conditions and limitations, the new
credit facility provides maximum availability of $360 million (with an option
to accordion to $600 million) and the Company currently has the ability to
borrow the maximum amount. Compared to the prior facility, the new facility
has expanded the types of assets and associated income that can qualify for
the borrowing base and carries a lower interest rate of LIBOR plus 2.75% or
3.00% depending on the Company’s leverage ratio (down from a rate of LIBOR
plus 3.50% or 3.75% for the prior facility). The new revolving facility has a
three year term with an ability to extend any outstanding balance at initial
maturity for an additional two years subject to certain terms and conditions.

Book Value

The Company’s GAAP book value per common share was $18.58 on June 30, 2013,
unchanged from March 31, 2013. As of August 6, 2013, the Company had
66,349,618 shares of common stock outstanding.

Fair Value

If the Company accounted for all of its financial assets and liabilities at
fair value, the net fair value of the Company’s financial assets and
liabilities at June 30, 2013 would have been $87.9 million in excess of the
net carrying value of the Company’s financial assets and liabilities as of the
same date.

Common and Preferred Stock Dividends

The Company's Board of Directors declared a regular way quarterly dividend of
$0.35 per common share for the second quarter of 2013. The dividend was paid
on July 15, 2013, to stockholders of record on June 28, 2013.

In addition, the Company's Board of Directors declared a cash dividend of
$0.53125 per share on the Company's 8.50% Series A Cumulative Perpetual
Preferred Stock with liquidation preference of $25 per share for the quarterly
period ending July 15, 2013. The dividend was paid on July 15, 2013, to
stockholders of record on June 28, 2013.

Core Earnings

Core Earnings, a non-GAAP financial measure, is used to compute incentive fees
payable to the Company’s manager and the Company believes it is a useful
measure for investors to better understand the Company’s recurring earnings
from its core business. For these purposes, “Core Earnings” mean the net
income (loss), computed in accordance with GAAP, excluding (i) non-cash equity
compensation expense, (ii) the expenses incurred in connection with the
formation of the Company and the Initial Public Offering, including the
initial and additional underwriting discounts and commissions, (iii) the
incentive fee, (iv) real estate depreciation and amortization, (v) any
unrealized gains or losses from mark to market valuation changes (other than
permanent impairment) that are included in net income, (vi) one-time events
pursuant to changes in GAAP and (vii) non-cash items which in the judgment of
management should not be included in Core Earnings. For clauses (vi) and
(vii), such exclusions shall only be applied after discussions between the
manager and the Independent Directors and approval by a majority of the
Independent Directors.

Conference Call

Colony Financial, Inc. will conduct a conference call to discuss the results
on Wednesday, August 7, 2013, at 7:00 a.m. PT / 10:00 a.m. ET. To participate
in the event by telephone, please dial (877) 407-0784 ten minutes prior to the
start time (to allow time for registration) and use conference ID 417646.
International callers should dial (201) 689-8560 and enter the same conference
ID number. For those unable to participate during the live broadcast, a replay
will be available beginning August 7, 2013 at 10:00 a.m. PT / 1:00 p.m. ET,
through August 21, 2013, at 8:59 p.m. PT / 11:59 p.m. ET. To access the
replay, dial (877) 870-5176 (U.S.), and use passcode 417646. International
callers should dial (858) 384-5517 and enter the same conference ID number.
The call will also be broadcast live over the Internet and can be accessed on
the Investor Relations section of the Company’s Web site at
www.colonyfinancial.com. A replay of the call will also be available for 90
days on the Company’s Web site.

About Colony Financial, Inc.

Colony Financial, Inc. is a real estate investment and finance company that is
focused on acquiring, originating and managing a diversified portfolio of real
estate-related debt and equity investments at attractive risk-adjusted
returns. Our investment portfolio and target assets are primarily composed of
interests in: (i) loans acquired at a discount to par in the secondary market;
(ii) new originations; and (iii) real estate equity, including single family
homes held as rental investment properties. Secondary debt purchases may
include performing, sub-performing or non-performing loans (including
loan-to-own strategies). The Company has elected to be taxed as a real estate
investment trust, or REIT, for U.S. federal income tax purposes.

Forward-Looking Statements

This press release 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 the Company's control, and may cause
actual results to differ significantly from those expressed in any
forward-looking statement. All forward-looking statements reflect the
Company’s good faith beliefs, assumptions and expectations, but they are not
guarantees of future performance. Furthermore, the Company disclaims any
obligation to publicly update or revise any forward-looking statement to
reflect changes in underlying assumptions or factors, of new information, data
or methods, future events or other changes. For a further discussion of these
and other factors that could cause the Company’s future results to differ
materially from any forward-looking statements, see the section entitled “Risk
Factors” in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2012 filed with the Securities and Exchange Commission on March
11, 2013, as amended by Amendment No. 1 to the Company’s Annual Report on Form
10-K for the year ended December 31, 2012 filed with the Securities and
Exchange Commission on March 12, 2013, the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 2013 filed with the SEC on May 9, 2013,
and other risks described in documents subsequently filed by the Company from
time to time with the SEC.


COLONY FINANCIAL, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)

                                                June 30, 2013  December 31,
                                                 (Unaudited)     2012
ASSETS
Cash                                             $ 20,100        $ 170,199
Investments in unconsolidated joint ventures       1,251,878       877,081
Loans held for investment, net                     755,034         333,569
Loan held for sale                                 32,780          —
Beneficial interests in debt securities,           31,192          32,055
available-for-sale, at fair value
Other assets                                      24,117        22,663    
Total assets                                     $ 2,115,101    $ 1,435,567 
                                                                 
LIABILITIES AND EQUITY
Liabilities:
Line of credit                                   $ 89,000        $ —
Secured financing                                  84,093          108,167
Accrued and other liabilities                      9,137           12,944
Due to affiliates                                  6,201           4,984
Dividends payable                                  28,339          26,442
Convertible senior notes                          200,000       —         
Total liabilities                                 416,770       152,537   
Commitments and contingencies
                                                                 
Equity:
Stockholders’ equity:
Preferred stock, $0.01 par value, 8.5% Series
A Cumulative Redeemable Perpetual, liquidation
preference of $25 per share, 50,000,000 shares     101             101
authorized, 10,080,000 shares issued and
outstanding
Common stock, $0.01 par value, 450,000,000
shares authorized, 65,669,962 and 53,091,623       657             531
shares issued and outstanding, respectively
Additional paid-in capital                         1,480,744       1,222,682
Distributions in excess of retained earnings       (16,413   )     (5,167    )
Accumulated other comprehensive income            7,160         5,184     
Total stockholders’ equity                         1,472,249       1,223,331
Noncontrolling interests                          226,082       59,699    
Total equity                                      1,698,331     1,283,030 
Total liabilities and equity                     $ 2,115,101    $ 1,435,567 



COLONY FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)

                Three Months Ended June 30,    Six Months Ended June 30,
                 2013          2012             2013          2012
Income
Equity in
income of        $ 22,992       $ 15,994         $ 44,794       $ 31,435
unconsolidated
joint ventures
Interest           17,455         9,051            28,867         14,877
income
Other income
from              317           569            688           1,119      
affiliates
Total income      40,764        25,614         74,349        47,431     
Expenses
Management         6,422          3,944            12,792         8,464
fees
Investment         542            1,091            1,150          1,771
expenses
Interest           4,816          1,829            7,171          3,323
expense
Administrative    1,736         1,478          3,579         3,232      
expenses
Total expenses    13,516        8,342          24,692        16,790     
Realized gain
on payoff of       3,560          —                3,560          —
loan
receivable
Other gain        196           (276       )    133           (504       )
(loss), net
Income before      31,004         16,996           53,350         30,137
income taxes
Income tax        242           441            594           805        
provision
Net income         30,762         16,555           52,756         29,332
Net income
attributable
to                5,111         1,454          7,698         1,763      
noncontrolling
interests
Net income
attributable
to Colony          25,651         15,101           45,058         27,569
Financial,
Inc.
Preferred         5,355         3,082          10,710        3,458      
dividends
Net income
attributable     $ 20,296       $ 12,019        $ 34,348       $ 24,111     
to common
stockholders
Net income per
common share:
Basic            $ 0.31         $ 0.36          $ 0.54         $ 0.73       
Diluted          $ 0.31         $ 0.36          $ 0.54         $ 0.73       
Weighted
average number
of common
shares
outstanding:
Basic             64,384,000    32,745,500     63,212,100    32,696,100 
Diluted           71,928,900    32,806,900     63,212,100    32,731,400 



COLONY FINANCIAL, INC.
CORE EARNINGS
(In thousands, except share and per share data)
(Unaudited)

              Three Months Ended June 30,      Six Months Ended June 30,
               2013            2012             2013                2012
GAAP net
income
attributable   $ 20,296         $ 12,019         $ 34,348            $ 24,111
to common
stockholders
Adjustments
to GAAP net
income to
reconcile to
Core
Earnings:
Noncash
equity           1,059            693              2,246               2,609
compensation
expense
Incentive        —                523              —                   936
fee
Depreciation     2,519            654              4,354               1,504
expense
Net
unrealized
(gain) loss     (297       )    (100       )    (324       )       80
on
derivatives
Core           $ 23,577        $ 13,789        $ 40,624           $ 29,240
Earnings
Basic          $ 0.36          $ 0.42          $ 0.64             $ 0.88
Diluted        $ 0.36          $ 0.42          $ 0.64        ^(1) $ 0.88
Basic
weighted
average                                            
number of       64,384,000     32,745,500                       32,696,100
common                                             63,212,100
shares
outstanding
Diluted
weighted                                           
average
number of       71,928,900     32,806,900                ^(1)  32,731,400
common
shares                                             67,005,400
outstanding


(1) Includes the effect of adding back $2,329,000 of interest expense
associated with convertible senior notes and 3,793,300 weighted average
dilutive common share equivalents for the assumed dilutive effect of the
convertible senior notes. The effect of the assumed conversion was
antidilutive to net income per common share but dilutive to Core Earnings per
common share.

Contact:

Investor Contact:
Colony Financial, Inc.
Darren Tangen
Chief Operating Officer and Chief Financial Officer
(310) 552-7230
or
Addo Communications, Inc.
Lasse Glassen
(310) 829-5400
lasseg@addocommunications.com
or
Media Contact:
Owen Blicksilver P.R., Inc.
Caroline Luz
(203) 656-2829
caroline@blicksilverpr.com
 
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