Greetings and welcome to Colony NorthStar Fourth Quarter 2017 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, Addo Investor Relations. Please go ahead.

Good morning everyone and welcome to Colony NorthStar, Inc.’s fourth quarter and full year 2017 earnings conference call. With us today from the Company is Tom Barrack, Executive Chairman; Richard Saltzman, President and Chief Executive Officer; and Darren Tangen, Chief Financial Officer. 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 upon 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, 2018 and Colony NorthStar does not intend now undertakes no duty to update future events or circumstances. In addition, certain financial information presented in this call represents non-GAAP financial measures reported both on a consolidated and segmented basis. The Company’s earnings release, which was released this morning 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 would like to turn the call over to Tom Barrack, Executive Chairman of Colony NorthStar. Tom?

Thanks, Lasse, and good morning everybody. Before we get to the meat of the presentation, I wanted to give you my personal perspective and headline. Those of you who know me personally understand I've always had a mantra of giving the bad news first and if you got the bad news this morning, and the organization understand, the true definition of not confusing efforts with the results, and efforts of the organization have been extraordinary and the results have been disappointing and that's product line. The good news is that the fundamental week that we had in this merger, still my personal belief and we will do going forward on a level setting base of turning from a yield driven model to a total retrenched models, necessary to current economic environment that we are finding ourselves in. I am 100% focused and still one of the large personal shareholders of this company, it’s majority of my personal net worth, it’s the dominant factor in my and my family’s pride, reputation and future and I don’t intend to leave it tainted or unattended. With that the investment management side of this business has never had better potential on calling its global franchise never been better and I intend to personally assure the operational side of that business in the future and be back with more details soon. With that, I’ll turn it over to Richard Saltzman.

Thanks, Tom, and good morning everyone. So, on the call today, I will provide a high level review of 2017 results and performance, talk about this morning’s announcement of our reduced go forward dividend. I’ll also provide the NorthStar merger postmortem, in terms of what went right and what went wrong, how we are addressing our underperforming areas and where we go from here. So, in terms of results, 2017 was a disappointing year overall; however, we did make significant progress on transitioning our business and simplifying our balance sheet, by monetizing $5 billion of non-strategic assets and platforms, refinancing more than $3 billion of corporate mortgage debt and achieving G&A merger synergies of approximately $150 million, which exceeded our original target of 115 million. We also raised 2 billion of new incremental third party capital during 2017, across all of our business lines and platforms, while deploying 2.8 billion of capital into the new investments $1.8 billion by the Company and $1 billion from funds managed by Colony NorthStar. Furthermore, since the beginning of 2018, we implemented the first phase of two very significant investment management strategic initiatives. First, the creation of Colony NorthStar credit real estate, market leading credit REIT at 5.1 billion assets scale with the corresponding 3.3 billion of equity book value. In addition to having robust growth prospects, Colony NorthStar's position starts with an approximately 1 billion equity balance sheet investment in this company along of side of $2 billion plus a permanent third party cap rate. Second, we just announced today a $1.4 billion first closing of our digital colony front to invest in global real estate digital infrastructure, such as data centers and cell towers. As part of that closing, we will soon transfer our recently acquired interest in ATP, Andean Tower Partners,…

Thank you, Richard, and good morning everyone. As a reminder in addition to the release of our fourth quarter and full year 2017 earnings, we filed a supplemental financial report this morning, and both of these documents are available within the public shareholders section of our website. On the call today, I will review fourth quarter and 2017 results, analyze the performance of each of our five business segments, speak about the dividend cut and rationale and conclude with some comments on liquidity and general business outlook. Turning to our financial results for the fourth quarter and full year 2017, net loss attributable to common stockholders in the fourth quarter was $368.1 million or a loss of $0.69 per share and full year 2017 net loss attributable to common stockholders was $333.1 million or a loss of $0.64 per share. A few material accounting items to mention during the fourth quarter that impacted our GAAP results, we recorded a goodwill impairment of $316 million to reflect the lower value in our investment management business primarily attributable to our retail broker dealer distribution business. And we also wrote down management agreement in essential assets by $35 million to reflect amendments to our management agreement in our healthcare non-treated REIT NHI, net of deferred tax impact. On the positive side, we recorded an income tax benefit of $25 million resulting from the corporate income tax rate changes enacted by the Tax Cuts and Jobs Act. On a combined basis, these non-cash items represented a negative $326 million charge to the income statement for the fourth quarter. These significant non-cash items were reversed in the calculation of core FFO for the period. Fourth quarter 2017 core FFO was $95.1 million or $0.16 per share compared with core FFO of $0.33 per share in…

At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question is coming from the line of Jade Rahmani with KBW. Please proceed with your question.

I think at the outset of the Colony NorthStar's merger, you set forth a strategy in which there would be key property verticals and you would raise third party capital around those and supplement those with opportunistic balance sheet live strategies. And so I've two questions one is, is that strategy when appealing to healthy investors who would be your partners in those investment, considering you have made some cautious comments on some of these verticals such as healthcare and hospitality? But secondly considering the magnitude of share price decline, is it time to rethink this strategy and in fact pivot focus on investment management as the heart of the Company, and pursue and reaccelerate aggressive asset dispositions of all non-core assets across the entire company, not just in other debt and equity, and take that excess liquidity and revamp investment management through the hiring of new personnel from some of your competitors?

Hi, Jade, it's Richard. Look, we still believe and what we set forth a year ago; however, I think the points that you are making resonate and certainly we would like to expedite the sale or the [indiscernible] of everything that’s non-core, not just what’s in other debt and equity. Albeit, we just have to be cautious around that just given the current market environment, some of the headwinds that we referenced, we are experiencing and some of these spaces. So it’s not necessarily easily done in an instantaneous fashion, but certainly focusing on investment management I mean that’s basically our core DNA, our core competency. And we agree with your comments that that’s the heart of what our business model should be albeit surrounded on a selective basis by smart balance sheet heavy investments, in those areas that we think have the most legs that can produce the most total return in market environment, which is good from the standpoint of the robust economic growth that seems to be out there from a macro standpoint. But on the other hand, in the real estate space just given the run up in terms of the low interest rate environment that we are in, and pockets of excess supply you just have to really careful in terms of your space selection. So, I think your comments are really resonated in terms of our company and our senior management team and we are focused on that.

Thank you. Our next question comes from the line of Mitch Germain with JMP Securities. Please proceed with your question.

So, Darren, you referenced a wholesale number of changes to kind of the way that we should be thinking about the outlook, and I am trying to understand, how should we view like a kind of run rate from this point? Yes, this quarter had some seasonality and some kind of one timers, I am just trying to quantify what’s the baseline here in terms of how they move forward?

Well, I think look I think the biggest -- there’s a couple of significant changes year-over-year to think about I mean I gave a little bit of guidance regarding the business segment the real estate vertical, hospitality, healthcare, industrial and sort of the outlook year-over-year for those. We've obviously had some pretty meaningful changes in the investment management business particularly around the retail investment management businesses, which is why I've sort of walked through the changes there, which are CLNC, the management agreement change at NHI and certainly the sale of Townsend will also be impactful. And then I think the next big thing is just the fact that we're expecting considerably less gains in 2018 versus 2017. So a 25% of our gains -- sorry 25% of our income, our core FFO in 2017 came from gains, we're not expecting that type of gain contribution going into 2018. So given the fourth quarter was really a quarter for the first time that we didn't have meaningful gain contributions as we highlighted, that’s probably a better proxy for kind of what the run rate is going forward.

And when you gave those changes of interest rate NHI and all those wholesale differences that was based on the full year 2017 result as to how to think about what that impact will be on a full year 2018?

Correct.

Okay. Richard, you said something interesting to me which was obviously synergy is higher but integration taking longer. And you've also referenced call it $5 billion or so of monetization and significant progress on that front. So help me reconcile, what's been done and what's taking longer in your view?

I mean I think what's taking longer cause that's where the emphasis of your question should be, right. We listed what's been done is accelerating to the extent that we can exiting non-core and redeploying that capital either in the strategic areas that we want to grow and perhaps on numeric too, you know but again can generate the best risk adjusted total returns and also have adjacency in terms of our being able to raise a lot of upside third party capital besides our own, combined with further deleveraging. You know perhaps you know just given where the shares are trading now maybe opportunistically purchase some shares presumed to the new stock buyback program that we just announced this morning but that shift right which we were hoping was only going to take us a year or 18 months at most clearly is taking a lot longer so to some degree you know while our thesis remains in place clearly the execution on that thesis is getting pushed out as a function of these headwinds and delays just in terms of being able to execute our business plan.

And Mitch, it's Darren. The other thing I would add to that is that internalization of some of the prior outsourced business model that NorthStar employed for some of their businesses is also something that we're still in the process of working through. So I think we also think about that as part of the overall merger integration as well.

And then I guess maybe which kind of is probably extends the kind of -- my question before which is. How do you foresee Morgan Stanley's role going forward? Are they really set out to try to identify those parts of your business that's need to potentially be sold or work with you to maybe takeaway some of that efforts and burden, so you cannot be completely standard on, one, and kind of look at the whole business as a totality going forward?

Well, look I think it's going to be an iterative process with them, so I think it starts with our plan and analyzing kind of the strengths and weaknesses around our ability to get to the finish line as expeditiously as we would like to. And then for the extent that there are weak links in that plan, perhaps some input as to how we adjust, how we may think about other options. But in general this is a financial exercise designed to help us expedite what we otherwise want to execute. That's what we are hoping to obtain from Morgan Stanly, but it's going to be an iterative process over the next couple of months.

And I think about a year ago, I would have said, I'm not really sure what that finish line looks like and here we are a year forward and I think we're still trying to figure how would that finish line looks like. I mean is there a kind of -- do you have what do you view as what do you -- where you want Colony to be versus where you are today? Or is that strategy still evolving?

No, I think we do, we know exactly where we want to be. What's frustrating is our ability to get there as quickly as we would like to. So all these moving pieces being able to deploy capital in the strategic areas that we want to emphasize and that we think make sense today that takes some time in this kind of environment because you do need to be careful, and at the same time exiting areas that and I kind of collection of assets that we want to be emphasize where it maybe there are headwinds, and therefore it's not so simple to just exit instantaneously. That's the challenge that we've been encountering again that we anticipate is still going to be a challenge in this year. Albeit, we did make a lot of progress on many of the other pieces and you all can expect to make a lot more progress on many of the other pieces this year we'll be net seller as I stated in my remarks.

Great, I think it will be helpful at least for myself and I'm not sure for others to kind of know what that finish line looks like or kind of what that strategy will be to get there because I think there is still a lot of uncertainty as to what you will be and how you will evolve over the course of next 12 to 24 months. Thank you.

Thank you.

Our next question is from the line of Jason Arnold with RBC Capital Markets. Please go ahead with your question.

I was just curious if you can comment on how we should kind of think about the asset management opportunity and outlook here for going forward in light of the retail broker dealer kind of asset opportunities assuming to be a little side track. Maybe can you just talk about retail in general as an opportunity set and then also kind of institutional?

Sure, look I think clearly markets are still quite liquid. There’s a lot of capital sitting on sidelines and I think that capital despite the liquidity is quite judicious and discriminating about where it wants to be and who it wants to be with. So, right now, our model for 2018 is pretty much a 100% focused on institutional side. We think given what's happened in the retail capital raising environment, that hopefully there is a strong future there, over the course of that whole state is transitioning to a new model and the new approach, but at least for the time being we just discounting it completely in terms of thinking that it’s really going to benefit us. So, we have a lot of confidence in our new partner, we haven’t yet closed that S2K that if there is a group that's going to be able to figure it out there at the front of class, but really the focus is completely on the institutional side of the business. And again, there’s plenty institutional capital sitting on the sidelines evidenced by this first closing that we just announced this morning in terms of the $1.4 billion that we raised. But again it’s got be in those spaces, which the market thinks are smart and where there’s the best risk adjusted opportunity which is not the majority of the spaces out there, okay, it’s clearly the minority of spaces, so that’s our plan.

And then I guess the other one I want to ask one was the outlook on gains being obviously less than before. Is that a productive just kind of what you expect to see from an asset disposition standpoint being maybe more of the stuff that you thought you might retain in hospitality and healthcare, but there maybe now doesn’t look quite as attractive? Or maybe you can talk a little bit further on kind of the gain lower gain outlook?

Sure, Jason, it's Darren. It really is more a function of the fact that the gains have been produced predominantly from legacy Colony investments and that’s partly to do with how the merger accounting work, because it was -- Colony was the accounting acquirer and the Colony asset came over a historic cost basis. So as we have been working our way through the other equity and debt segment, and selling some of those non-strategic non-core assets, that’s what was triggering a lot of the gains, last year, for instance the sale of our provision in FFR, which was the single family home for rent company. That produced a lot of gains for us last year. But as we are selling out of those non-strategic commissions which we have made a lot of progress on, we are just getting down closer to the end where there’s just not many of these non-strategic, non-core assets remaining to be sold that would be candidates for producing gains. But there’s still -- no, there’re a still few highlighted one examples today in terms of our position in the Albertsons company which just announced its merger with Rite Aid. I mean that’s an example of an existing non-core assets that could produce gains in the future.

Do you have any pro forma view on the gain on that one in particular or is it maybe little too early to talk about?

Well, I think you can -- you can work through some of the publically disclosed information about that merger. I think Albertsons company is going to end up holding about 70% of the company and the existing Rite Aid company will be about 30%. And so you can actually -- and we own today our investment is in the pre-merger Albertsons is about a 2.2% ownership interest. So I think you can look through where Rite Aid is trading today at around or at least as yesterday was about $2 a share, I think the deal is struck when they used and they pegged the share price at a $2.35 price, but you can through the math to sort of see what that 2.2% ownership interest that we hold in Albertsons would equate to. And it could end up being over a 2x kind of multiple.

Our next question comes from the line of Jade Rahmani with KBW. Please proceed with your question.

On the healthcare side, is there any plan to merge the CLNS portfolio with the non-traded REIT?

Nothing has been contemplated at the moment.

In terms of the fair value of the other debt and equity segment, is there view that it's in line with the current carrying value? Or should we anticipate future impairments? You've mentioned that their write-downs in the North Star CDOs and the secondary PE investment. So assuming those are the main sources of volatility perhaps carrying value is a fair assumption, but many people look at CLNS and have an NAV estimate and one of the key assumptions is the valuation of this other debt and equity portfolio.

Sure and for Jade yes, I think it’s a fair comment to say that the two subcomponents of other equity and debt that have had the most valuation volatility over the course of the last year have been the CDO, securities and private equities on secondary interest that we inherited from North Star. We took a number and a little bit of this just had to do with how the merger accounting worked and how purchase price was allocated at the closing of the merger I mean looking back there was too much value attributed to those two components and that's one of the reasons why we had to take impairments over the course of last year. We think we've now got them fairly marked and I would say for the balance of the other equity and debt segment, we feel comfortable with the values and certainly the net book value that you're seeing there. And I was highlighting a little bit earlier that safe, the Albertsons example I mean that's an investment that sits at cost in our other equity and debt segment right now and has the potential for us about it. So there are still some investments in that segment that have some upside valuation potential, but I think in terms of the net book value that you see disclosed in our materials that we feel good about it.

And the way the accounting works of CLNC and NRE, your equity in those entities is that going to be marked each quarter based on where those stocks are trading or is that at historical cost?

No so historical cost and we'll just pick up our pro rata share of earnings from those two companies based off of our 37% ownership interest in the case of CLNC and 10% ownership interest in the case of NRE.

In terms of this quarter's core FFO of $0.16 you mentioned include, it included a $0.01 net gain, did it include the tax benefit that you've got in the quarter, received in the quarter in investment management?

It did.

And what was that again on a per share basis?

About $0.03.

So ex-gains it would be something like $0.12 than we should adjust for $0.05 of negative seasonality on hospitality and then we should analyze that and take into account those other items you mentioned with respect to reduction of fees, in terms of sale et cetera?

Yes, and although, there were some other impairments to in the fourth quarter that in the CEO securities portfolio that you should probably assume or not going to continue and that was $0.02 as well. So that would be sort of a positive adjustment that you would make to get back to a better run rate number.

What's the environment like currently for fund raising I mean on the institutional side we've seen Blackstone and Starwood Brookfield raise enormous real estate funds so this seems to be a lot of demand and yet I think the Colony fund raising has been somewhat modest. What would you say as the current environment?

I think lots of liquidity all be at very discriminating and we did release 2 billion of capital last year, we just had a first closing of 1.4 billion in this new initiative that we talked about this morning, so we are raising meaningful amounts to capital but not as much as we need to relative to the burden left that we have last year and legacy funds that we manage combined with direct contributions we need to. So we need to again through a hired year that we are completely focused on and that's how we're going to make up this gap.

I've gotten some questions about the Company's liquidity profile and whether there is any of suspension risk to the entity we've seen in the preferred for example trade-off. So just looking at the capitalization merely all of the debt is secured, but there is about a billion dollars of unsecured debt including the troughs and there was about 1.6 billion of preferred. So what can you say about the Company's liquidity profile and sort of any existential risk you would think exists?

So Jade I mean I think we feel very good about our liquidity position. I mean as you know the 1.6 billion of preferred that we have outstanding are perpetual preferred. We do and the same thing with the troughs there is 280 million of troughs which are technically unsecured notes, but those have very long date of maturities that are sort of 15 plus years out in the future. And then we've got 600 million of convertible debt that's outstanding that. Again, we feel what's have medium data duration associated with them. So we feel very good that in combination with the fact that we're going to have as much capital being repatriated for the balance sheet over the next couple of years as we access some of these non-core assets and businesses sets us up to be in a place where we are going to have ample liquidity. But of course the other decision that has just been made in terms of reducing the dividend, that too will enable us to fortify our balance sheet and have more liquidity available for deleveraging our buying back securities or of course most importantly for deploying into value enhancing strategies.

Our next question comes from the Mitch Germain with JMP Securities. Please proceed with your question.

Just a quick one from me, in terms of the non-traded business I know you guys have talked about in bunch and clearly it seems like you are trying to get the thing back up and running. But when you guys acquired NSAM in NorthStar, many of the regulations and the many of the headwinds in the industry were somewhat already not so -- I am just curious, it seems like there had to be something else. Was it just mismanagement? Was it a lack of available product? Was it the distribution capabilities? What do you really truly think was the biggest headwind in the business?

Well, I think it’s a fair comment, Mitch, if you to say those headwinds were already on the horizon; however, the fiduciary rule hadn’t been implemented that didn't take place until the middle of last year. And just exactly how it was going to play out was somewhat unclear. It’s clearly gotten a lot worse before you could argue that there’s been a trough and it’s starting to improve, and people have really figured out what the new model is going forward. And this is not in idiosyncratic to us, this is an industry-wide phenomena. So you've seen certain groups get out of the business completely, you’ve seen other groups decide [indiscernible] try to get into the business this past year albeit at a much cheaper entry. So, it’s just -- it’s totally influx is what I would tell you, I mean the capital raising in aggregate was off in excess of 18% from what it was during the peak times. And absolutely that's worse than what it was when we were underwriting the merger initiative.

So, Blackstone had some success and I know we have Starwood and other well regard investors that are entering the fray. What are they doing right and how would you replicate that model?

So look I think Blackstone’s focus is currently in the wirehouses, okay, which was a channel that historically didn’t really participate in this retail distribution non-traded space. So the traditional channel was the independent broker dealers, also people are trying to access the RA community. But Blackstone given their reputational capital and relationships with the wirehouses and gotten access to those distribution systems and that’s clearly set them well. I think others who can also access that distribution system will also have success, but I think the traditional channels, the main challenge, and people are still trying to figure out how do you modify the products and the offerings to be attractive to those traditional channels and hopefully other channels. And historically the wirehouses have not wanted to open up their distribution systems to these types of products. Blackstone currently is an exception to that.

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

Okay, in summary as we stated 2017 was a very challenging year for us, but we've now level set avenue baseline that we're highly confident that we can grow from, albeit the execution on the NorthStar merger is pushed out for at least a year or two as I stated on the call. But I want to thank everyone for joining us this morning, your support is very important and critical to us, and we appreciate it. We look forward to further conversation and hopefully reporting much better news. Thank you.

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