Greetings and welcome to the Colony NorthStar Fourth Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Lasse Glassen. Please go ahead.

Good morning, everyone, and welcome to Colony NorthStar, Inc.’s fourth quarter 2016 earnings conference call. With us today are Company’s Chief Executive Officer, Richard Saltzman, and Chief Financial Officer, Darren Tangen. Kevin Traenkle, the Company’s Chief Investment Officer, and Neale Redington, the Company’s Chief Accounting Officer, are 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, March 1, 2017, and Colony NorthStar does not intend and undertakes no duty to update future events or circumstances. In addition, certain of the financial information presented in this call represents non-GAAP financial measures reported on both a consolidated and segment basis. The Company’s earnings release, which was issued yesterday 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. In addition, the Company has prepared a table that reconciles certain non-GAAP financial measures to the appropriate GAAP measure by reportable segment. And this reconciliation is also available on the Company’s website. And now, I’d like to turn the call over to Richard Saltzman, Chief Executive Officer of Colony NorthStar. Richard?

Thank you, Lasse. It’s with great enthusiasm that I welcome everyone to our inaugural earnings call as Colony NorthStar. As the merger between Colony Capital, NorthStar Asset Management Group, and NorthStar Realty Finance wasn’t completed until early January, the earnings release issued last night is unique, in that we reported stand alone fourth quarter results for each of the three predecessor companies. From an SEC disclosure standpoint, the only requirement was to release NorthStar Asset Management’s financial statements, as NSAM is the surviving legal entity. However, we thought it more appropriate to provide an update on all three companies’ year-end financial performance at this time. Although these fourth quarter results are important to understand, in our view, they are not indicative of the future value or earnings potential of Colony NorthStar. With this in mind, my comments today will focus more on some of our recent accomplishments as well as our strategy, vision, and near-term priorities as we look ahead to 2017 and beyond as one unified company. And on a related note, we also introduced a new investor presentation last night, which is available on our website. First off, I’d like to emphasize that we couldn’t be more excited about our future prospects. Colony NorthStar represents a world-class real estate investment management platform with a unique combination of competitive strengths. We have a colossal opportunity before us, and we are blessed to enjoy significantly enhanced scale and market presence with a common equity capitalization now of more than $8 billion. This places Colony NorthStar in the top quartile of equity REITs within the MSCI U.S. REIT or RMZ Index, to which we were added coincident with the merger closing last month. Furthermore, our new expanded footprint includes more than 500 people around the globe and 17 cities with a…

Thank you, and good morning, everyone. As Richard noted, this is a unique report where we are presenting standalone results for each of the three predecessor companies. So, consistent with past practice, we have published a supplemental financial package for each of Colony Capital and NorthStar Realty Finance or NRF, both of which are filed and available on our website. However, when we report earnings as a combined Company for the first time in May, we will publish a brand-new financial supplement for Colony NorthStar, which will provide investors with more granular data for each of our five reportable segments, healthcare; industrial; hospitality; other equity and debt; and investment management. Also, in a couple of weeks, we will file pro forma financials as of December 31, 2016, for the combined company, similar in format to the pro forma financials as of September 30, 2016, which were included in our proxy at the end of last year. Now, I will briefly touch on each company’s financial results for the fourth quarter. As a general comment, there was a considerable amount of noise in the fourth quarter results, primarily resulting from the merger transaction and two of the companies completing their final year of operations. Beginning with NorthStar Asset Management or NSAM. NSAM reported net loss attributable to common stockholders of $11.1 million or negative $0.06 per share and cash available for distribution or CAD of $37.7 million or $0.20 per share. These results included higher compensation expense of $15 million or negative $0.08 per share in CAD relative to compensation expense in the prior quarter. Aside from this, earnings from the retail companies, NorthStar Realty Europe, Townsend and other corporate investments were relatively consistent with earnings in the third quarter of 2016. Second, Colony Capital, or CLNY, reported net loss attributable…

Thank you. We’ll now be conducting a question-and-answer session. [Operator Instructions]. Our first question comes from the line of Jade Rahmani with KBW. Please proceed with your question.

Thanks very much for taking my questions, and congratulations on completing the merger. Just a big picture question on the strategy. I guess, why the emphasis on joint ventures and having the ratios that you described from -- between balance sheet capital and outside third-party? Is it because of the return profile and the asset management fees generated; is it a risk management tool since effectively it’s a form of financial leverage? Just overarching, what would you say the themes are because I would suspect that equity REIT investors, they will apply a discount since really this would be more of an asset management company in the form of a REIT.

Okay, Jade. That was a long question, and thank you for asking it. Look, I think the strategy is we’re an equity REIT first, okay? And we’re making very substantial bets, if you will. And these three to five very significant areas that are going to be our verticals, on the one hand, where we think the supply/demand dynamics are the most compelling around the globe. Then, on top of that, we’re an investment manager. When you think about both, NorthStar and Colony, historically, we’ve excelled at being in the investment management business and we’re able to overlay that on top of this significant exposure that we have through these verticals in order to turbocharge or generate higher returns, like you were suggesting in your question and hopefully generate better growth than a typical equity REIT in a single sector might be able to produce as a function of those incremental streams and the growth in those streams. Separate and apart, we have other activities that we’re going to continue to do in the investment manager where we believe that they wouldn’t be as well understood by the public market equity REIT investors, as you were also suggesting in your question. And so, these are the regular debt business, these are more opportunistic investments, these are businesses that might be viewed as more cyclical or more volatile in their streams, and those, we’re going to choose to put in the investment management category, where we will be willing to commit balance sheet and be aligned with the partners who come into those strategies. But it will be at a vastly reduced amount, so that at least from a valuation standpoint, you’re going to look at much less financial risk in that part of the business. And yes, I agree with how you worded the question that we view the investment management as non-financial leverage in terms of the ability to turbocharge our earnings and the resultant return on equity that we’re going to be able to produce.

And from your vantage point today, what would you identify as the core strategic verticals? And also, can you say whether you’re going through a strategic review, an internal research process, to identify where you think investment opportunities are likely to be greatest? You mentioned around the globe, but greatest going forward?

Sure. So, first and foremost we have two that we’re really excited that we already have significant investment exposure in and that will definitely be strategic verticals for us. One is global healthcare and two is industrial. And I took in my comments earlier, I described the history with respect to how we have been building that industrial platform as an example of the way in which we’d like to do this for other verticals in terms of how it could be streamlined and all in one place balance sheet, investors, all aligned together in terms of the go forward opportunity. And we’ve got tremendous legs in terms of the demand characteristics in that industrial business, occupancies and believe it or not, in the high 90s now, I mean at 96%, plus or minus, and arguably the best rental demand characteristics that I’ve seen in close to a 40-year career, doing what we do. And it’s just exceptional and a lot of it is driven by some of the ecommerce trends and the need for close-in places to store merchandise and goods and be able to do same-day or next-day delivery. Similarly, we’re really excited about what NorthStar has already built out on the global healthcare side, and I do say global because we have UK exposure. And we anticipate that with some of the partners that have now joined us, we may be able to expand that to other geographies outside the U.S. But obviously, the demographics in terms of global healthcare real estate are incredibly strong. And we hope to continue to take advantage of that, albeit in a way that’s going to be simplified and streamlined in terms of how we reshape that vertical. Then, on your next question, which is what are the other verticals going to be, I think it’s a little premature on this call for us to specifically identify them. But, we have a pretty good sense now as versus when we announced this transaction back in June as to what they will be. And it’s based on the type of research that you were identifying, combined with really for the most part looking inward at what we already have in the portfolio in terms of assets and strategies that are really working well, combined with teams who we know and who are already our partners or are inside our firm that we also know well and have tremendous confidence in. So, I think we have, based on that research, even though we’re not 100% done yet kind of perfecting what the ultimate other two to three verticals will be, we have a pretty good sense at this point and hopefully within the next couple of quarters it’s going to become a lot clearer as to what those strategies are as we perfect our plans.

On the hospitality side, have your views changed? I think hotel REITSs have been amongst the strongest performing REITs this year. And with a potential improvement in economic growth and the reflation trade, hotel fundamentals do seem to be potentially improving. So, how do you feel about hospitality currently?

Well, we like hospitality and we always have. And I think if you look at again the histories of both Colony and NorthStar, we’ve both been very significant hospitality investors over our lives. And yes, you’re right. Hotels are looking like they’re going to bounce back from some negative perceptions around it being late in the cycle to given what’s now happening in terms of economic policy and potential growth in the economy, maybe another extended few innings to this cycle in a very positive way. And we’re excited about that in terms of the portfolio that we own. On the other hand, I mean, it is for sure one of these businesses that I was referring to that’s more cyclical and more volatile. So, in terms of how we position it for the long-term, we’re now examining, is this appropriately a vertical as it currently is constituted today or are we may be better off morphing it into something that’s a little bit more balance sheet light over on the investment management side. It’s definitely a business we really like, we want to stay in. It’s just question of is it going to be a vertical or is it going to be more in the investment management division.

And in terms of 4Q performance, you gave some helpful color. Just wondering if you could give any additional comments on the degree to which the merger undertaking impacted some of the business lines, for example, in investment management, the pace of asset sales monetizations, realizations or any other business lines. You did comment on the pace of capital raising; you said there’s positive momentum there, but anything else?

Well, I’m going to turn it over to Darren for some color here. But, look, I think there is for sure some noise in our numbers for all of the companies, at the end of last year, based on the merger deal and what that meant in terms of expenses and the like from a reporting standpoint and really trying to clean up everything as best we could prior to joining the companies together and integrating. I did specifically mention headwinds just in terms of confusion about the deal, was it going to happen, was it not going to happen, and how that impacted capital raising. But I think all of that is contained in those year-end results, which is why on the one hand, they are important for people to look at and see to how we all did. But on the other hand, I would say that’s behind kind of us, and a lot of it was just getting the deal done and putting it behind us. And now, we should really all be focused as partners together, given that we as insiders are very significant shareholders, we own about 7% of the stock collectively, those of us who are the senior executive officers of the Company, and really focus on what we can produce this year and how we can grow from there. So, Darren?

Yes. I mean, Jade, the only thing I would add to that obviously, some of the sectors that are subject to seasonality or annual cyclicality like hospitality, obviously the fourth quarter was not as strong as some of the prior quarters, third quarter in particular. And I think the other comment that I would make, and this started to show up a little bit in the fourth quarter and frankly will be something we’ll be managing through over the course of 2017 is as we’re transitioning out of some of these legacy, more opportunistic type investments, getting that capital back on the balance sheet and then redeploying, there will be a timing lag in some instances where we are not fully deployed and don’t have fully stabilized operations or earnings. And again, I think that was something that showed up in the fourth quarter and again will be something we’ll be managing through over the course of this year.

And, can you say how much of that either AUM runoff or capital return you anticipate this year?

I think as we mentioned in some of our materials last night, when the manufactured housing portfolio closes, the sale closes, we’ll have approximately $1 billion of liquidity. And then, there is actually another $1 billion of capital that we expect to return to the balance sheet over the course of 2017, and that’s from this other equity and debt category. So, that’s $2 billion of liquidity there, not all of which will get redeployed into new investments or stock repurchases; some of that will go towards deleveraging in order for us to maintain our target leverage levels, but obviously that’s still a substantial amount of capital that’s going to turn over.

And just lastly, what do you anticipate for recurring or maintenance CapEx in 2017?

So, on the hospitality segment, that historically I think has been running around 4% to 5% is where FF&E reserves have been established. So, I think that equates to somewhere around $35 million on an annual basis. For healthcare, I think that’s been closer to about, probably $0.01 a share a quarter, so $0.04 annualized. Right? So that’s maybe, call it $25 million roughly, $24 million, $25 million. And then on the industrial side of the business, which really doesn’t have a lot of maintenance CapEx per se. There is more TIs and LCs relating to some of the leasing activity that occurs in that portfolio, and I think that on an annual basis is somewhere around $20 million a year. So, those are just some basic guidelines. I know the two guidelines I just provided on hospitality and healthcare have been previously provided by the NorthStar companies. And I think we see a consistent level of CapEx for those businesses going forward. And the industrial again is not a very CapEx intensive business, other than the leasing costs.

Our next question is from the line of Jessica Levi-Ribner with FBR. Please proceed with your questions.

Just to turn back to deleveraging, Darren, you just mentioned with some of the liquidity, what can we expect from deleveraging? Are there preferreds that you can take out or that you’re planning to take out? Can you give us an idea of the magnitude and maybe the cost that’s coming off from any deleveraging you might do?

Yes. I think in terms of what you might see flow to the bottom-line, the preferreds currently are about $1.6 billion in total balance, all of which are priced above market relative to what we could do on a new issue basis. Now, not all $1.6 billion are callable today. I think by the time we get to the end of 2017, approximately half of that $1.6 billion, so $800 million of the $1.6 billion, will be callable. And so, certainly that’s one area where we can look to go in and do some accretive refinancings. But I think otherwise, the rest of the leverage really sits down at the asset level; it’s mortgage debt. And I think that the most important aspect of that -- there will be some deleveraging that we’ll want to do, but I think the other important thing from a liability management standpoint is for us to go in and start to push some of those maturities out. And I think the debt we have in place at the mortgage level is not necessarily below market -- or sorry, above market; in some cases, it may actually be a little bit below market. But as I mentioned in my remarks earlier, the real estate debt markets are quite liquid right now. And I think generally speaking, we can go in and refinance a lot of that mortgage debt at probably negligible difference in terms of cost of capital.

And deleverage simultaneously in some cases.

And as Richard mentioned, deleverage in some cases as well at the margin.

Okay. And as Jade mentioned, are you doing a strategic review there of what you can take off?

Absolutely.

I guess, what I’m asking is how quickly we can expect some of that to come off.

I think quite quickly. We are in the market with and we just closed on a mortgage in the industrial business where we were able to put on average 12-year new term debt on a fixed rate of approximately 4%. So that was a case in the industrial business where we’ve been replacing floating-rate debt with long-term fixed-rate debt. But, we’re going to be looking to refinance parts of both the hospitality and the healthcare portfolios, which is where the bulk of the mortgage debt in the Company sits and where maturities currently are generally in the 2019 timeframe. We’re going to be aggressively going to refinance that here in the weeks and months ahead.

The guidance, the revised guidance that you gave us, does it include the synergies that you’ve mentioned, $115 million of synergies?

It does. Yes.

It does. And also, the first part of January when you were separate companies, the earnings there as well?

Yes. No, that’s a full year of guidance.

That’s a full year of guidance. Okay. In terms of just going back to the hospitality portfolio, are you considering sales of properties or are you holding the portfolio until all the renovations are done and kind of see where that all shakes out?

So, we’re actively focused on strategically what we could be doing to reposition the hotel portfolio to either be a vertical in the manner that I was describing, or alternatively to shift it more into the investment management business. Now, as we’re hopefully realizing the fruits of our labors in terms of these various renovation programs, which for the most part are now complete, we’re simultaneously focused on that.

And lastly, the accelerated sales in the debt and equity portfolio, do you already have indications on the street or is that just something that you’re working on right now?

Jessica, is your question the pace of divestitures and resolutions in the other…

Yes.

Okay. So, no, we are in the process already of starting to liquidate parts of that portfolio. Now, a good portion of that portfolio are debt investments where there is a natural sort of payoff mechanism vis-à-vis those types of instruments and a lot of that is shorter term in duration, as I mentioned earlier. But as it relates to some of the more equity-oriented positions, that’s where we will be undertaking sort of an active divestiture program that in some cases for some of the positions has already begun and others we’ll be looking to execute over the course of this year and next.

[Operator Instructions] The next question is from the line of Mitch Germain with JMP Group. Please go ahead with your question.

Good morning. Just on that question about debt refis, what about some of the corporate level debt? I know you’ve got some notes and converts.

Yes, we do. We do have some convertible debt. That’s probably the most noteworthy of the other corporate level debt that we have. I am not sure that refinancing that right now, Mitch, is going to reap a lot of reward from a bottom-line perspective. So, that’s probably not where we’re going to be initially focused. I think the preferreds are definitely a bigger opportunity for us at the corporate level.

Great. And with regards to the NorthStar Healthcare joint venture, obviously I think it’s around give or take around 19%. Is there an option for your partner to take a greater stake in that existing portfolio or is the opportunity really growing that through selling additional stakes to new partners?

There is no option per se. But, there for sure is the potential to bring in additional capital, whether from that partner or from other partners. So, I think we have a fair amount of optionality there. But, there’s no option for them to literally take down more capital in that if they want. That would be a negotiation.

Got you. And with regard to the capital raising, I think you said $2 billion versus $1 billion last year. Is there a breakdown of retail versus institutional in terms of how that $2 billion is comprised?

Well, we haven’t been transparent about that. So, yes, there is a mix of institutional and retail. I’m probably not going to comment on it per se at this point. But I think, consistent with my comments earlier, I think we are pretty sanguine and cautiously optimistic about how we’re likely to do better in terms of capital raising this year. We were very disappointed with where we ended up last year for the reasons that I mentioned. But, I think now that we’re stabilized, the merger is behind us, the environment is as positive as it is, and we have all of these interesting opportunities in terms of both the existing balance sheet as well as what we’re doing on the investment management side, I’d be very surprised if we don’t exceed that for this year.

Okay. What type of vehicles would you consider with -- I think you talked about some of the more riskier, volatile type of investments, debt and other equity that you would consider in the future. What type of vehicles would you be thinking about establishing to? I think you mentioned about a 10% stake, give or take. Is that some sort of closed or open-end funds, and if you can just maybe talk about what your ideas are regarding that?

Sure. Look, historically, it’s been primarily closed-end funds on the institutional side, less open-end funds. I mean, really, the industrial is the first open-end fund that we’ve ever done. And I think it’s a template for other things that we could be doing in some other spaces. So, I don’t want to diminish the potential there, but closed-end funds, historically has been the more traditional vehicle, at least in the institutional market. Then, of course you have the retail side with both non-traded REITs as well as some of the new products that are now being developed, interval funds and the like, which are also experiencing better demand and have good momentum and could be conducive to organize around some of these strategies. So, I think it’s a mix; not one-size fits all.

Understood. And then, last one for me. I know some big portfolios out there, healthcare in particular, maybe some other sectors, industrial as well. I mean, what’s your appetite for utilizing some of your contacts in the institutional side to maybe consider M&A or is that really on hold as you work through the integration?

Look, it’s for sure not on hold. We’re always interested in interesting deals and we have the wherewithal, given our scale now to pursue most things. So, we keep our eye out on all of these types of opportunities. But, I would say we are more inwardly focused at the moment. So, I think the bar for something significant is high, other than deploying some of the capital that we already have in terms of liquidity in these different investment vehicles that we formed where for sure we’re doing our normal risk reward analysis. I think to do something significant from an M&A perspective, the bar is going to be high.

Thank you. At this time, I’ll turn the floor back to management for closing remarks.

Okay. Thanks everyone again for joining us today. We very much look forward to reporting on our progress in future quarters in terms of the various things that we discussed, simplification; further expense reductions that we’re going to be able to make; and growing our businesses in the manner that we described. So, I appreciate it again. Have a great rest of the day.

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