Some sizable changes are afoot at Colony Capital (NYSE: CLNS), the company formerly known as Colony NorthStar. The firm is a major owner of U.S. senior housing real estate, but its new CEO suggested that it may shrink that part of its portfolio as disposition opportunities arise.
Tom Barrack, a businessman and sometimes-confidant of President Donald Trump, is set to once again run the $44 billion global investment management firm. Barrack founded the predecessor company, also named Colony Capital, in 1991, and bowed out of the CEO role at that company for the executive chairman title in 2014. He continued as executive chairman after the merger with NorthStar last year.
Colony today announced that its board of directors and outgoing CEO Richard Saltzman reached a mutual agreement in which Saltzman would resign as CEO, president and director for the company, but stay on in a non-executive capacity as chairman of both Colony Credit Real Estate Inc. (NYSE: CLNC) and NorthStar Realty Europe (NYSE: NRE), both of which are externally managed by Colony subsidiaries.
The move comes during a turbulent period for the firm. For the third quarter of 2018, Capital saw a net loss of $70 million and a core FFO of $102.2 million, or 20 cents per share. The company’s stock price has tumbled since last year, from $14.66 per share in July 2017 to $6.01 per share by the time the markets closed Wednesday.
To help right the ship, the company has announced a corporate restructuring and reorganization plan. It expects to generate $50 million to $55 million of annual compensation and administrative cost savings in the next 12 to 18 months.
In a third-quarter earnings call Wednesday, Barrack spoke about the firm’s consolidated health care portfolio, which consists of 192 senior housing properties, 108 medical office properties, 99 skilled nursing facilities and 14 hospitals. In particular, he touched upon how capital expenditure obligations can complicate the health care real estate business.
“When you go below the line, and you look at what it takes in recurring CapEx just to keep market share … you’re just staying even,” Barrack said. “So, if you look at all of our competitive REITs, they all have the same problem, which is to keep market share as occupancy is moving up and [average daily rent] is slowly moving up, wages and expenses eat into it and then just as you start making gains … CapEx comes in and you lose it again.”
And Barrack also acknowledged that the firm’s third-party partners make exiting the space in one fell swoop difficult, should the company decide to do that.
“The third-party annexing of assets in both of those portfolios is piecemeal, too complicated to do in whole,” Barrack said.
Given this situation, he added, Colony may be looking to “run to the exit door every time we can to lighten up our balance sheet load.”
Barrack did single out the company’s senior housing business in the U.K. as “tremendous.”
Written by Tim Regan