Colony NorthStar Credit Real Estate (CLNC) has traded over $20 per share for the better part of a week. CLNC began trading in early February and is a new credit REIT comprised of assets from Colony NorthStar (CLNS) and two former non-traded REITs, NorthStar Real Estate Income Trust (NorthStar I) and NorthStar Real Estate Income II (NorthStar II). CLNC declared its first distribution this week, and the yields to NorthStar I and NorthStar II investors, based on an original $10.00 per share investment in the two REITs, are 6.6% and 6.1%, respectively. This compares to the pre-merger yields of 7.0% that each REIT was paying. (NorthStar I investors have a small amount of assets that were not part of the merger that may also pay a distribution at some point.)
Per-merger, Both NorthStar I and NorthStar II were paying more in distributions than they were generating in operating cash flow, a financial position that is unsustainable over the long run. While CLNC's current stock price represents a
discount-to-original-purchase-price of approximately 22% for NorthStar I
investors and 28% for NorthStar II investors, the lower adjusted
distribution is at a smaller discount than the stock price discount. In my opinion, that investors are able to receive yields above 6% is positive news considering the previous distribution over payment.