|26 November, 2019

Colony Capital is easy target even minus politics

olony has approximately $53bln in assets under management

Colony Capital CEO Thomas Barrack speaks at the Republican National Convention in Cleveland, Ohio, U.S. July 21, 2016.

Colony Capital CEO Thomas Barrack speaks at the Republican National Convention in Cleveland, Ohio, U.S. July 21, 2016.

Reuters/Mike Segar

NEW YORK  - Not everything revolves around President Donald Trump, hard as it is to believe. Activist investor Blackwells Capital is calling for Tom Barrack, who chaired the U.S. president’s Inaugural Committee, to be replaced as chief executive of Colony Capital, a real-estate and investment-management firm with $53 billion in assets under management. Barrack may have been distracted by the Trump connection. But the real issues are more mundane: lousy returns and toothless corporate governance.

Barrack has some explaining to do in response to Blackwells’ concerns, outlined on Tuesday. Chief among them is the $2.4 billion Colony’s battered share price. It’s down about 65% since the closing of a tri-party merger with NorthStar Asset Management and NorthStar Realty Finance in 2017. It looks as if Colony overpaid for already overvalued assets, as the company is now trading at less than half its book value, according to Refinitiv data.

Then there are the funds managed under Colony’s umbrella. The Financial Times concluded earlier this year, considering data for 18 different funds raised between 1991 and 2015, that an average investor had lost around 3.7 cents for each dollar invested. Composite analysis like this can be misleading, but overall underperformance is consistent with the management company’s stock price trajectory over the past few years.

Yet no one seems to be holding Barrack accountable. Colony has said he will step down in 2021. But the company’s board seems to have rubber-stamped his successor, Marc Ganzi – a friend of Barrack’s who has never led a public company. Ganzi ran Digital Bridge, a recent Colony acquisition. That’s why Blackwells is also nominating five directors to replace some of the incumbents at Colony’s next annual meeting.

Barrack’s history with the Trump administration is still an issue. The inauguration committee’s fundraising has been investigated by Congress and federal agencies. That kind of thing raises the question of how the Colony CEO can also commit himself to leading the turnaround the company says is under way. But Blackwells doesn’t need to dwell on the political intrigue. The firm has found an easy target without it.


- Blackwells Capital, an alternative investment firm founded in 2016, said on Nov. 26 that it has a 1.85% stake in Colony Capital and is nominating five candidates for the company’s board of directors at the 2020 annual meeting. Blackwells is also asking the real-estate and investment-management firm to replace current Chief Executive Tom Barrack, among other changes. Blackwells founder Jason Aintabi said in a statement: “We believe the capital markets apply a lugubrious discount to Colony’s assets and cash flow because of Mr. Barrack.”

- Colony said in response that its board and management were committed to acting in the best interests of the company and its stockholders, and that it had already made significant turnaround progress in the past 12 months.

- Colony was involved with a three-way merger with NorthStar Realty Finance and NorthStar Asset Management that was announced in June 2016 and closed in January 2017. At closing, the combined market capitalization of the three firms was $9 billion, according to a Colony filing with the Securities and Exchange Commission. Colony has a current market capitalization of $2.4 billion.

- Colony has approximately $53 billion in assets under management, according to the company’s statement, including around $14 billion from Digital Bridge, a digital-infrastructure investment firm. Colony announced its acquisition of Digital Bridge in July 2019.

(Editing by Richard Beales and Amanda Gomez) ((anna.szymanski@thomsonreuters.com; Reuters Messaging: anna.szymanski.thomsonreuters.com@reuters.net))

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