Colony NorthStar Inc. and certain of its affiliates have entered into a definitive tri-party agreement under which a select portfolio of Colony NorthStar assets and liabilities will combine with NorthStar I and NorthStar II in an all-stock combination transaction to create a leading commercial real estate credit REIT with approximately $5.5 billion in assets and $3.4 billion in equity value.
According to a prepared release, the transaction has been approved by the board of directors of Colony NorthStar and unanimously approved by the special committees and boards of directors of NorthStar I and NorthStar II. The combined company will be named “Colony NorthStar Credit Real Estate Inc.”
Upon completion of the transaction, Colony NorthStar, NorthStar I stockholders and NorthStar II stockholders will each own approximately 37%, 32% and 31%, respectively, of the company on a fully diluted basis, subject to certain adjustments as set forth in the combination agreement. The closing of the transaction is conditioned upon a listing of the company’s class A common stock on a national securities exchange, which may be effected up to nine months following approval of the transaction by the NorthStar I and NorthStar II stockholders.
At the closing, Colony NorthStar will be the largest single investor in the company and will enter into a management agreement on market terms to serve as the company’s external manager. It is expected that Kevin P. Traenkle, Colony NorthStar’s Executive Vice President and Chief Investment Officer, will be Chief Executive Officer of the Company, Sujan Patel, Colony NorthStar’s Managing Director and Co-Head of U.S. Investment Management, will be Chief Financial Officer of the Company and that the Company’s board of directors will be comprised of seven directors, including four independent directors, according to a prepared release.
The transaction is expected to deliver a number of strategic and financial benefits to the stockholders of NorthStar I and NorthStar II and to Colony NorthStar including the following:
- Creates a Leading Commercial Real Estate Credit REIT: The Company will have approximately $5.5 billion in assets and $3.4 billion in equity value, which will position it as the second-largest (by equity value) publicly listed commercial mortgage REIT.
- Attractive, Stabilized and Well-Diversified Income-Oriented Portfolio: The Company’s portfolio will consist of well-diversified and stabilized investments with attractive in-place yield and potential for capital appreciation and net asset value growth (through equity participations and owned real estate).
- Sponsorship, Management and Significant Ownership by Colony NorthStar: The substantial ownership by Colony NorthStar, a global leader in real estate and investment management with $56 billion in assets under management and deep transaction and asset management experience across the capital stack through multiple real estate cycles, will align Colony NorthStar’s interests with those of the Company’s stockholders.
In addition, the company will have a diversified investment mandate across the capital structure that should serve to mitigate reinvestment risk and provide flexibility through economic cycles to achieve appropriate risk-adjusted returns.
The transaction is expected to close either in late 2017 or the first quarter of 2018, subject to customary closing conditions, including approval by the NorthStar I and NorthStar II stockholders.
J.P. Morgan Securities LLC is acting as the lead financial advisor with Barclays acting as a financial advisor to Colony NorthStar, and Hogan Lovells US LLP is acting as legal counsel to Colony NorthStar.
Credit Suisse Securities (USA) LLC is acting as financial advisor to the NorthStar I special committee, and Alston & Bird LLP is acting as legal counsel to the NorthStar I special committee.
Moelis & Company LLC is acting as the financial advisor to the NorthStar II special committee, Venable LLP is acting as legal counsel to the NorthStar II special committee and Greenberg Traurig LLP is acting as legal counsel to NorthStar II.