Merger Misfire

It has been almost a year since the Colony Capital, NorthStar Realty Finance, and NorthStar Asset Management's tri-party merger closed and began trading on the New York Stock Exchange under the symbol CLNS.  In a year that saw the S&P 500 rise 19%, CLNS fell 20%, nearly an inverse perforamnce to the broader market.  As an encore to 2017, CLNS is off 4% so far in 2018.  I don't think these results were what CLNS planned from the tri-party merger.  But given how inert the CLNS retail product side has been, I am not sure what results could have been expected.  Advisors and investors have shunned CLNS's lackluster, non-core, non-traded REIT (good luck finding any reference to CLNS's 27% ownership in RXR anywhere on CLNS's website) and its closed-end fund that is similar in objective to NorthStar's two distribution overpaying income REITs. 

The chronic distribution over payments at NorthStar's three income non-traded REITs are serious.  In an under reported December 2017 move, NorthStar Healthcare Income REIT cut its distribution in half, abruptly facing the reality of the income its investments were generating.  I am watching the merger of NorthStar Income I and II with certain CLNS assets to not only see what the new market value is compared to the original purchase price for each REIT, but what the new distribution is compared to what the two REITs are paying investors.  While their distribution over payment is not as acute as Healthcare's, Income I and II still pay out more in distributions than they generate in cash. 

The Colony and NorthStar executives had six months before the merger closed to devise new products and strategies that leveraged the strength of the new organization.  No products were announced at the time of the merger and nothing has been announced since the merger closed a year ago.  CLNS is selling the products NorthStar already had available or in registration.  Most NorthStar executives are now gone from CLNS, or will be soon.  It is hard not to think this executive exit was in the works all along.  The lack of initiative, innovation, or impetus has made CLNS and its retail products not only unattractive, but worse, irrelevant.