Business Context and Reporting Period
This Form 8-K, filed on February 1, 2018, reports the completion of a complex corporate combination on January 31, 2018. The transaction involved Colony NorthStar, Inc. (the "Company"), Colony Capital Operating Company, LLC ("CLNS OP"), and two NorthStar entities (NorthStar I and NorthStar II). The combination resulted in the formation of a new credit-focused real estate platform, Colony NorthStar Credit Real Estate, Inc. ("Colony NorthStar Credit"), which will trade on the NYSE under the symbol "CLNC" starting February 1, 2018.
Key Financial Metrics and Transaction Consideration
The filing details the equity exchange ratios and share issuances rather than standard operating financial metrics for the period.
- Share Issuance: Colony NorthStar Credit issued approximately 42.1 million shares of Class A Common Stock to former NorthStar I stockholders and 40.4 million shares to former NorthStar II stockholders.
- Exchange Ratios: NorthStar I shareholders received 0.3532 shares of Class A Common Stock per share; NorthStar II shareholders received 0.3511 shares per share.
- CLNS OP Contribution: CLNS OP received approximately 44.4 million shares of Class B-3 Common Stock (convertible to Class A on February 1, 2019) in exchange for contributed assets.
- Special Dividend: NorthStar I declared a special cash dividend of $0.013777364 per share to true up contribution values.
- Pro Forma Estimates: The contribution of CLNS assets is estimated to reduce total assets by approximately $1.9 billion and total liabilities by $0.4 billion as of December 31, 2017. The acquisition of the CLNS Contribution Consideration is estimated to increase total assets by approximately $1.2 billion (based on a $24.89 per share listing price).
Material Changes and New Agreements
The filing documents the entry into several material definitive agreements effective January 31, 2018:
- Management Agreement: CLNC Manager, LLC was appointed to manage Colony NorthStar Credit's assets and operations.
- Base Fee: 1.5% of stockholders' equity per annum (0.375% per quarter).
- Incentive Fee: 20% of Core Earnings exceeding a 7% annualized return on common equity.
- Termination Fee: Three times the sum of the average annual base and incentive fees earned over the preceding 24 months if terminated without cause.
- Stockholders Agreement: CLNS OP agreed to vote its shares in favor of the Board's director nominees and maintain a majority of independent directors for two years. A one-year lock-up on transfers of OP Units was also established.
- Registration Rights Agreement: CLNS OP and RED REIT secured rights to register shares for resale within 13 months of the combination.
Outlook and Risks
The Company expects to begin trading as "CLNC" on the NYSE. The filing notes that pro forma financial information and financial statements of the acquired businesses will be filed in an amendment within 71 days. No specific forward-looking revenue or earnings guidance is provided in this text, other than the structural changes to the balance sheet described in the pro forma estimates.
Investor Verification Checklist
- Verify the final trading price of "CLNC" on the NYSE opening on February 1, 2018, to assess the valuation of the transaction.
- Review the upcoming amendment to this 8-K (due within 71 days) for the detailed pro forma financial statements and historical financials of the acquired entities.
- Confirm the exact conversion date and mechanics for the 44.4 million shares of Class B-3 Common Stock held by CLNS OP.
- Monitor the calculation of "Core Earnings" in future reports to understand the impact on the Manager's incentive fee.
- Check for any subsequent filings regarding the $0.013777364 special dividend payment status to NorthStar I shareholders.