Welcome to the Colony Capital First Quarter 2016 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Lasse Glassen with Addo Communications. Thank you, you may now begin.

Good morning, everyone and welcome to Colony Capital, Inc.'s 2016 first quarter earnings conference call. With us today are the Company's Chief Executive Officer Richard Saltzman and Chief Financial Officer Darren Tangen. Kevin Traenkle, the Company's Chief Investment Officer and Neale Redington, the Company's Chief Accounting Officer, are also on hand to answer questions. Before I turn the call over to them, please note that on this call certain information presented contains forward-looking statements. These statements are based on 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, May 9, 2016 and Colony Capital does not intend and undertakes no duty to update future events or circumstances. In addition, certain of the financial information presented in this call represents non-GAAP financial measures. The Company's earnings release which was released earlier 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. And now I would like to turn the call over to Richard Saltzman, Chief Executive Officer of Colony Capital. Richard?

Thank you, Lasse and welcome, everyone, to our first quarter 2016 earnings call. Before describing and commenting on our first quarter results and plans for the remainder of the year, I want to speak briefly about the joint press release that we, along with NorthStar Asset Management and NorthStar Realty Finance issued late on Friday. As a result of a press leak regarding discussions among the three parties to consummate a tri-party all stock merger based upon historical market prices, we felt compelled to announce that we're in exclusive negotiations, notwithstanding the fact that it would normally be premature at this stage to make such an announcement. As stated in the release, quote, the three companies believe that the combination would create a world-class diversified real estate and investment management equity REIT with significant scale, deep management talent and the opportunity to generate substantial revenue and expense synergies. Unfortunately, at this time we're not at liberty to say anything more and, of course, there is no assurance that a transaction between the parties will occur. So with that said, let me get back to Q1 and our current results and hopefully all of you will stay with us. Following an exceptional and transformative year in 2015, we're off to a promising start in 2016. First quarter core FFO was $0.41 per share which reflects significant ongoing same-store operating improvement within our real estate equity platforms, namely Colony Light Industrial and Colony Starwood Homes and continued strong results across our other legacy equity and debt investments. What the first quarter results do not yet reflect is productivity from our expected capital raising targets in 2016, nor did the first quarter benefit from anticipated net gain contributions more consistent with our historical averages. To this last point, first quarter results included only…

Thank you, Richard. Before my remarks on our first quarter results I'd like to remind our listeners that we filed a supplemental financial package concurrently with our earnings release this morning and both of these documents are available on our website. Now moving on to a summary of our financial results for the first quarter of 2016, Colony Capital reported core FFO of $56 million or $0.41 per basic share and FFO of $36.7 million or $0.27 per basic share. As Richard mentioned, we have a negligible amount of net gain contribution in our first quarter earnings, but still expect to track to a more normalized annualized level of approximately $0.40 per share for 2016. We're maintaining our quarterly dividend of $0.40 per share, still more than fully covered by recurring core FFO, with additional earnings upside potential from these incremental gains anticipated through the balance of the year. First quarter investment activity was lower than last year partly due to the market volatility experienced in the first six weeks of the year. More recently, overall market conditions have improved and as a result new deal activity has accelerated and capital deployment is expected to increase. At the same time we have prioritized capital deployment from our balance sheet towards investment management focused funds and platforms and away from direct real estate equity and debt investments. By focusing on the former and investing on average approximately 20% of the equity in these funds and platforms from our balance sheet, we will maintain exposure to attractive real estate investments while simultaneously reducing reliance on balance sheet capital and turbocharging our equity returns through the overlay of investment management economics. Notwithstanding the choppy market to start the year, we did find some compelling investment opportunities and invested and agree to invest approximately…

[Operator Instructions]. Our first question is from the line of Eric Beardsley with Goldman Sachs. Please go ahead with your question.

I was wondering if you could touch upon how we should expect the fee earning EUM to develop over the course of the year, understanding that you are coming to the end of some of the legacy fund lives, but that you do control the exits of some of the investments.

Well, good morning, Eric. We just said on this call that we expect to raise incrementally another $2 billion plus of capital by the time we get to yearend. Very little of that has taken place year to date. I think for this year most of the reduction in the legacy funds is already behind us. So, I think just coupling the two concepts together, I think you can get to where we're likely to finish the year.

So, we should probably look at you ending the year flat to where you ended 2015, is that a fair assumption?

Well, I mean plus or minus -- I mean again, because we don't know everything for sure that is going to fall into place either with respect to the new initiatives or alternatively other burn off of some of the legacy fee paying equity under management. But plus or minus in that general vicinity.

I guess just as we think about, at a higher level, the strategy of moving more towards equity investments and also to comment of simplifying the business model. It doesn't look like there is a lot that is held for sale today at the end of the first quarter. I guess how should we think about the pace of those monetizations over the course of the year? And I guess are we going to see I guess any more aggressive I guess repositioning of the investment portfolio from the debt book into equity this year?

Yes. So, a lot of the debt book, as I think you are aware, consists of legacy positions that were opportunistic debt acquisitions and originations that were done previously in conjunction with our global credit fund whereas the model has now shifted for this current global credit fund offering that I mentioned where we're now investing basically in the fund and so that is a primary shift. And so, I think you will continue to see -- as those assets are successfully resolved and come to a conclusion you will continue to see that part of our balance sheet decline, whereas we will have equity in the fund up to a cap of $500 million, as we stated, alongside our LPs. In terms of other things on the balance sheet currently, it is a little bit of a dynamic process in the sense that we're actually interested, if we can, to take substantially most of what we have on our balance sheet and try to create third-party capital models and platforms around them. On the other hand, I mean just depending on the near term feasibility and viability of doing that, that is what is really going to determine what else we might sell as versus what is going to be a long term keeper. I mean as we stated, we're very copacetic and happy with the strategies that we're in, just in terms of the general investment climate and returns that we're generating. I mean again, we continue to think, just from a macroeconomic perspective, this is kind of a glass half empty environment, very fragile with still very significant backdrop risks. So therefore what do we want to invest in? Global opportunistic credit, higher in the cap stack for equity returns and/or equity investments where the supply/demand fundamentals are really just extraordinarily compelling which is not in a lot of places today. But the good news is things like industrial here in the U.S., residential rental here in the U.S., global net lease credit which, again, has more defensive characteristics -- all of these things are doing extraordinarily well.

And a really quick follow up just on Darren's comments about the $0.40 per share of gains in terms of the run rate, should we think about you I guess recouping to that full $0.40 for the year or just you are talking about picking up $0.10 a quarter over the remainder of the year from 2Q to 4Q?

We think it will be at least that for the year.

Our next question is coming from the line of Jade Rahmani with Keith Bruyette & Woods. Please go ahead with your question.

I was wondering if we could just go through maybe quickly the top part of the income statement and just comment on what drove the sequential declines. I mean, I think given the nature of your investments it is sometimes difficult to track what is really moving the needle in terms of earnings. So for example, interest income, equity and income on consolidated joint ventures, fee income which you already touched on. But maybe those two items. And then if you could just clarify the gain on sale of real estate, if the offset to that is the non-controlling interest loss. I wanted to see if you could clarify that.

When you are making the comparisons I assume -- are you comparing to the fourth quarter of last year or are you looking at the first quarter 2016?

Yes, I was just looking sequentially from -- yes, fourth quarter of 2015 to first quarter of 2016, like interest income on the income statement declined to $89.4 million from $128 million.

Right. So the biggest component of that relative to last quarter was, if you recall, we had a large NPL revolution in the fourth quarter relating to a loan that was secured by some land down in Orlando. And so, when that resolution occurred that created a fairly significant amount of interest income pickup in the fourth quarter. And again, it was actually the entire consolidated interest of that loan position that came to our income statement in the fourth quarter of which there is a reasonably large non-controlling interest as a part of that. So, that is the reason why interest income stepped down somewhat here in the first quarter of this year. We talked about the fee income and what was your other question?

On the gain on the sale of real estate assets, if that was $51 million, that is a consolidated number, if the offset to that is in non-controlling interest?

Right, okay, so that relates to an asset resolution we had in a previously acquired German loan portfolio acquisition and we ended up selling an office building that was in that portfolio at a gain. Again, there was about a 30% interest in that deal that was owned by the balance sheet, the other 70% was owned by non-controlling interest. And then there was also some FX adjustments that came out of that that actually reduced the amount of that gain. But that was an event that happened in the first quarter.

So, the gain that you achieved in the first quarter was 30% of the $51 million less the FX?

Correct.

Okay and so do you know what the per share core FFO contribution of that was?

It was about $0.06, but then we had some -- and that is net of some of the FX adjustments. But then we had some other impairments and some transaction expenses that happened in the quarter that really netted that the $0.06 gain down to zero. So, when Richard and I made the comment that there was negligible net gain contribution that is taking that $0.06 net gain from the German resolution less some of these other one-time expenses which sort of brought that $0.06 down to essentially zero.

Okay. And just on the overall lower pace of net gains, was that lower than your expectation going into the year and reflected potentially the 1Q volatility that played out? Or had you anticipated this?

Well, I think the timing of gains is always a little bit uncertain. It is probably easier to measure gain contributions over the course of the year as opposed to over the course of three months and so, going into the first quarter I am not sure we knew exactly how the quarter was going to play out. But I think we're confident, as you heard Richard's remarks and my remarks, that by the time we get to the end of 2016 we should have a normalized level of gain contribution.

Okay. In terms of the legacy funds, can you quantify -- you said basically the bulk of anticipated run off has already taken place for 2016. Could you quantify what you expect just on the legacy fund side for 2017?

There will be continued burn off, Jade, but I don't think we're prepared to give a precise quantification of that right now.

Okay. And just in terms of the overall environment, I mean Starwood Property Trust on its call said that they are now seeing extremely attractive lending opportunities, that there is less competition in that space. Would you make similar remarks? Is lending, making new loans, are those the bulk of the most attractive investments you are seeing? Or is it more acquisitions directly from banks, Europe and some of the equity that you have been recently doing?

Yes, I mean, we like both. In particular I think on the credit side we like Europe. Europe still to us is kind of four to five years behind the U.S. with banks still dealing with legacy issues, having to re-equitize basically selling assets, not necessarily being in a position to provide credit. Here at the end of the year and beginning of this year of course you did see a lot of market volatility in credit markets. And that has meant, along with anticipation of changing regulatory rules regarding CMBS and other things, that the credit markets are a little choppier and that there may be opportunities to be a lender through these niches more aggressively here on a go-forward basis. But that is something, again, that for us that is something we want to do through this third-party capital model whereas historically we have done it more directly through our balance sheet, that is not what we're going to do on a go-forward basis.

[Operator Instructions]. Thank you. I will now turn back to management for additional comments.

Okay, thanks again everyone for joining us today. We know we had a lot to report on including the announcement that came out on Friday and more to come on that here in the near term, but unfortunately we're not at liberty to say much more than what was in the press release. So, we're off to a good start here in 2016, otherwise a lot more to come just in terms of continued progress in our various portfolios and also achieving some of the other things that are going to be more contributive to our earnings on a go-forward basis. So, we look forward to speaking to you about that again in ensuing quarters. Thanks again for all of your support and have a good rest of the day.

Thank you. This will conclude today's teleconference. You may disconnect your lines at this time, thank you for your participation.