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Executives

Lasse Glassen - Senior Vice President of Financial Relations Board Division

Richard B. Saltzman - Chief Executive Officer, President, Director and Member of Investment Committee

Darren J. Tangen - Chief Financial Officer, Chief Operating Officer, Principal Accounting Officer, Treasurer and Member of Investment Committee

Kevin P. Traenkle - Chief Investment Officer

Analysts

Zachary Tanenbaum - McNicoll, Lewis & Vlak LLC, Research Division

Joshua A. Barber - Stifel, Nicolaus & Co., Inc., Research Division

Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division

Kyle Rhoades

Colony Financial (CLNY) Q3 2012 Earnings Call November 6, 2012 10:00 AM ET

Operator

Greetings, and welcome to the Colony Financial, Inc. Third Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Lasse Glassen, with Addo Communications. Thank you. Mr. Glassen, you may begin.

Lasse Glassen

Good morning, everyone, and welcome to Colony Financial, Inc.'s Third Quarter 2012 Earnings Conference Call. With us today are the company's Chief Executive Officer, Richard Saltzman; and Chief Operating Officer 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 any questions.

Before I hand 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 expectation 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, November 6, 2012, and Colony Financial does not intend or undertakes no duty to update future events or circumstances. In addition, certain of the financial information presented in this call contains non-GAAP financial measures. The company's earnings release, which was released last night 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'd like to turn the call over to Richard Saltzman, Chief Executive Officer of Colony Financial. Richard?

Richard B. Saltzman

Thank you, Lasse, and welcome, everyone, to our third quarter earnings call. We had another productive quarter and won acquisitions by deploying an aggregate of $157 million across all 3 lines of business: loan acquisitions, new originations and single-family homes for rent. Two, asset management and dispositions, as demonstrated by the growth of our single-family rental platform, progress on the restructuring and imminent bankruptcy emergence of our 103-property Hotel Portfolio investment and additional sell down in our First Republic Bank position and continued accretive loan resolutions in our sub and nonperforming loan portfolios. And then three, capital formation by raising $255 million of common and preferred equity.

Our third quarter activity also reflects the continued evolution into more equity-oriented real estate investments, most notably our growing significant investment in CSFR, Colony's single-family home for rent platform. Last quarter, I gave our view on the macro thesis for the single-family rental strategy. Bottom line, we continue to be very excited about this once-in-a-lifetime opportunity to capitalize on the U.S. housing recovery through the establishment of the national operating and investment platform that matches up with this new institutional real estate asset class.

This quarter, we'd like to discuss some of the operational progress and early results from the business. Today, CSFR's total home count stands at approximately 4,200, up from 1,500 homes on our last earnings call, which is diversified across 6 states, including California, Arizona, Texas, Nevada, Colorado and Georgia. This includes a recently announced purchase of 970 homes from Fannie Mae under a structured partnership arrangement, not unlike the partnership arrangement we have with the FDIC on various small balance loan portfolio acquisitions. The partnership provides a favorable structure that incentivizes us to manage the portfolio cost effectively and to hold the investment for the long term. Excluding that recent structured Fannie deal, the average purchase price across the CSFR portfolio is approximately $135,000 per home, which, in our estimate, is a 30% to 40% discount to replacement cost. We are approximately 60% leased across the entire portfolio. And of the homes we have leased after acquisition, we have achieved rents consistent with underwriting.

We have now demonstrated our ability to significantly grow the portfolio at target prices and expected deals through an acquisition team that is buying homes across multiple channels. Large REO and rental portfolios from banks and government-sponsored enterprises like Fannie Mae, many bulk leased portfolios typically from local investors, and individual MLS and trustee sales. To be sure, this acquisition function demands considerable human resources in order to achieve this kind of scale.

In addition to acquisitions, the other major initiatives, which we are focused on include renovations, leasing and property management. To date, we have leased approximately 800 homes in the aggregate and our leasing velocity is increasing every month. October was our most productive leasing month to date with approximately 280 new leases signed, for example.

In terms of upfront capital expenditures, we are spending approximately $10,000 per vacant home on renovations. The spend level we expect will remain consistent over the near-term on new acquisitions. We are making great progress operationally on each of these disciplines with timelines showing improvement in each sequential month. We knew, going in, that this would be a time and management-intensive business, which is both the opportunity and the challenge. Similar to our small loan balance portfolio business, Colony has historically been successful identifying outsize returns and businesses possessing higher barriers to entry due to execution and operational complexities. In the case of the single-family rental platform, the blocking and tackling is made possible by 170 and growing full-time employees dedicated to this strategy. We believe we have the right human capital in place to succeed and are very pleased with the portfolio assembled to date and the exponential progress we have made on the operational front.

The Colony platform is already one of the largest owners of single-family homes for rent in the United States, and we expect to see continued strong growth from the company in terms of its asset base and operational performance in the future. Given our conviction in the investment strategy, Colony Financial has just committed another $75 million to CSFR bringing our aggregate investment in single-family homes for rent to $225 million or nearly 20% of our total assets. All things being equal and assuming further demonstrated progress in CSFR's operations and financial results, we would expect to increase our exposure to CSFR in the future from both an absolute and relative percentage of our balance sheet perspective.

Another example of our increasing exposure to equity investments and our ability to create value through date to asset management is our ownership of 103 select service hotels, formerly known to the public as the Jameson portfolio. We acquired ownership of this portfolio through an initial fulcrum mezzanine loan purchase in 2010 and subsequent January 2012 foreclosure. Colony Financial has a $30 million investment in this transaction and our cost basis in the portfolio is approximately $35,000 per key, well below replacement costs and at a basis that should allow for an attractive return on equity once our turnaround plan is executed and operations are stabilized.

Approximately 3 weeks ago, a plan of reorganization was filed with a bankruptcy court that involves restructuring the existing mortgage debt, selling a minority equity position to a new partner, changing hotel management and re-flagging the hotels with various nationally recognized brands. Among other things, the restructuring significantly deleverages the portfolio, better aligns our interest with the new management group, partly by making them a minority owner in the business and significantly upgrades the hotel flags relative to the legacy arrangement. Our expectation is that the plan should be approved and we should emerge from bankruptcy before year end and we should start to enjoy improved financial results from this investment in 2013 and beyond.

While we continue to increasingly pursue equity-oriented investments, where there is distressed and outsize growth potential, our other 2 primary debt focus business lines remain strong. The second half of 2012 has produced significant loan sale and loan origination activity that in turn is creating steady deal flow. Subsequent to the end of the third quarter, we agreed to participate in the acquisition of a portfolio of 60 performing and nonperforming loans with an unpaid principal balance of $70 million, or 53 cents on the dollar. And we also agreed to participate in 2 new loan originations with a blended fixed rate of 11.5%, representing a $34 million aggregate investment.

We are also underwriting several large loan portfolios at the present time and hope we will have more loan acquisitions to announce before year end. In fact, we're very proud of the diversified portfolio we have built between high yielding, CRE debt and more equity-oriented interests like single-family homes for rent, all of which fit perfectly in our overarching investment theme of providing a balanced mix of current return and capital appreciation.

And now I'll hand the call over to Darren Tangen, our COO and CFO, for a summary of our third quarter financial results.

Darren J. Tangen

Thank you, Richard. Third quarter 2012 Core Earnings were $12.5 million or $0.36 per basic and diluted share, and net income was $10.5 million or $0.30 per basic and diluted share. Of note, Core Earnings and net income in the third quarter of 2012 were inclusive of approximately $0.05 per share and $0.06 per share, respectively, of combined bankruptcy and related transaction expenses associated with our Hotel Portfolio investment and loss from CSFR, our single-family home rental investment, which is still in a start-up phase, as Richard mentioned. More specifically, our investment in CSFR produced a relatively small loss of $1 million in the third quarter. The loss reflects: one, a subscale portfolio that averaged 1,800 owned homes over the quarter versus 4,200 owned homes today.

Two, a non-stabilized occupancy that averaged approximately 50% over the quarter versus 60% today. And three, nonrecurring start-up and formation costs that needed to be expensed as opposed to capitalized.

Portfolio occupancy is trending upwards given recent leasing activity, but is also being held back given the significant number of vacant homes being acquired monthly. This 2 steps forward, 1 step back on occupancy will continue until the business ramps to a larger scale and acquisitions decrease on a relative basis, at which time we would expect portfolio occupancy and earnings to begin to stabilize.

Our early results on the lease portion of the portfolio are consistent with our earlier comments on the economics of the business, net-stabilized rental yields in the 6% to 7% range, pre-depreciation and before the potential benefit of leverage and future home price appreciation. We would expect that leverage will be meaningfully accretive to current yields on a stabilized portfolio and home price appreciation could ultimately deliver even higher equity total return over the longer term.

The other investment that created some noise around our third quarter results was our Hotel Portfolio investment. To date, the joint venture has incurred various legal, consulting and administrative costs related to the foreclosure, general litigation, bankruptcy and restructuring activity. For the third quarter, these expenses totaled approximately $0.03 per share, impacting both Core and GAAP earnings. We expect most of these non-operational restructuring-oriented expenses to continue into the fourth quarter when bankruptcy proceedings are anticipated to conclude. We expect the benefits from these financial and operational changes and the wind down of associated expenses to implement such changes to significantly improve portfolio cash flow and value in the future. The company also continues to pursue litigation against the former owners and subordinate mezzanine lenders to recover costs associated with the bankruptcy.

As Richard noted, we have significantly increased our exposure to equity-oriented investments, including CSFR. In fact, equity-oriented deals currently comprise approximately 28% of our investment portfolio, including the most recent incremental $75 million commitment to CSFR, and we expect this percentage will continue to increase. For this reason, and as we have stated before, we will continue to see a meaningful variance between our GAAP and Core Earnings as depreciation becomes a relatively larger component of our total expenses, and consequently, we believe that Core Earnings, which excludes depreciation, reflects a more relevant metric of sustainable earnings run rate for the company.

During the third quarter, we deployed $157 million of which $75 million was in homes, $45 million was invested as preferred equity in connection with the acquisition of a 1.2 million square foot class A office building in Long Island City and which we reported on last quarter and $37 million was in a new loan portfolio acquisition. The latter loan portfolio acquisition consisted of first mortgage loans that were sold by Maiden Lane and collateralized by retail, industrial and land assets with an aggregate unpaid principal balance of approximately $99 million. The purchase price for the portfolio was approximately $72 million or 73% as the portfolio's unpaid principal balance. Our share of this investment is 50%.

Subsequent to quarter end, we have thus far circled an additional $127 million of equity deployment, covering all 3 of our primary investment strategies. In addition to the incremental $75 million investment in CSFR for a total of $225 million investment, we contracted to acquire a portfolio of 60 performing and nonperforming loans with an unpaid principal balance of approximately $70 million from a U.S. commercial bank at a purchase price of 53 cents on the dollar. The portfolio consists of substantially all first mortgage recourse loans. The company's pro rata share of the purchase price was approximately $18 million or a 50% interest in the portfolio.

Also, we agreed to originate 2 new loans totaling $69 million of which our share is 50%, which have a blended current interest rate of 11.5% and one of the loans has an additional equity participation interest. We note that all of these investments on a combined basis are expected to generate blended total returns in the mid-teens range.

Regarding third quarter capital markets activity, we raised $255 million of common and preferred equity. In early July, we issued an additional $106 million of preferred equity at a premium price through our inaugural March issuance. And later in the quarter, we sold 8 million shares of common stock at a net price of $18.53 per share. The net common stock offering proceeds were approximately $149 million. This brings our total common and preferred equity capital to $1 billion as of the end of the third quarter. Total capital raised in 2012 equals approximately $400 million, representing more than a 60% increase in our total equity capitalization since the end of 2011.

On the liability side of our balance sheet, we also completed an amendment to our existing credit facility in September. The credit facility continues to provide the maximum principal amount of $175 million at the same interest rate and maturity date. However, the amendment expanded the types of assets and associated income qualifying for the borrowing base and modified certain financial covenants to be more favorable for the company to reflect the growth of the company's equity capital base since the previous amendment in September 2011.

As of November 5, 2012, the company has the ability to borrow up to $161 million under the facility of which none has been drawn. In addition to cash on hand and availability under our credit facility, we expect incremental liquidity from the return of capital from various investments in the fourth quarter, which also are expected to produce gains. For example, an asset resolution in one of our German loan portfolios will produce a gain of approximately $2 million, and William Lyon Homes has publicly announced it is attempting to refinance its outstanding debt and repay our loan before year end, which, if it occurs, will also trigger a gain. These events are consistent with our prior comments that capital gains will become a more regular feature of our earnings in the near term as we continue to successfully advance the asset management and loan resolution strategies across our investment portfolio.

That concludes our prepared remarks, and we would now like to open up the call to Q&A. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from the line of Zach Tanenbaum with MLV.

Zachary Tanenbaum - McNicoll, Lewis & Vlak LLC, Research Division

Can you remind us just the total amount of capital that's been raised at CSFR inclusive of your upsized investment?

Richard B. Saltzman

Well, it's an ongoing process. We continue to raise money privately and we had an initial closing where Colony Financial represented $150 million of CSFR. The aggregate capital raised at that time was approximately $525 million. And -- but we continue to raise money privately in addition to the incremental investment that we're making now from Colony Financial. We're really not at liberty to disclose though exactly what's happening with respect to that capital raise.

Zachary Tanenbaum - McNicoll, Lewis & Vlak LLC, Research Division

Okay. And then to date, has that vehicle utilized any leverage? And if so or if not, what form could leverage take for that vehicle going forward?

Darren J. Tangen

Hey, Zach, it's Darren here. So thus far, all the homes that we've purchased have been bought just purely with equity. We do anticipate putting some leverage into the business, probably by the end of the year. And I believe, at this point, the type of leverage we'll likely take on initially will be some kind of term revolving credit facility. That will probably be the first iteration. We're also watching the development of the securitization markets to finance the business as well. It's a little bit premature at this point, but I think once there's a little more operating history to the business, we think that's going to be a very efficient way to finance single-family homes for rent in the future.

Zachary Tanenbaum - McNicoll, Lewis & Vlak LLC, Research Division

Great. Just on the -- you mentioned good progress in terms of realization of gains in some of your higher yielding investments. Going forward, do you have a target in terms of the amount of capital recycling we could see maybe for the full year next year in terms of realization of those gains? Just thinking about the amount of capital you could potentially be redeploying into new investments.

Darren J. Tangen

Well, let me maybe just back up. Earlier this year in 2012, I think we had set a range of between $50 million to $100 million of our portfolio that we expected to recycle. And I think when we finish up this year, we're going to end up being considerably higher than that, probably almost double that initial range. I think as we look into 2013, it's probably a fair assumption that we'll be in a -- maybe not quite as high of a recycling as we had in 2012, but I do think sort of $100 million to $150 million of the portfolio could turn and there'll be, hopefully, gains associated with that and a return of capital that we'll be reinvesting into new deals.

Operator

Our next question is from the line of Joshua Barber with Stifel, Nicolaus.

Joshua A. Barber - Stifel, Nicolaus & Co., Inc., Research Division

I'm wondering if you guys could talk -- you mentioned on the Fannie Mae deal that you bought, it had a similar deal -- had a similar structure to that of the FDIC. Can you elaborate on that a little bit? Does that mean there's fully amortizing debt or hold back liabilities on that? Or is it just that you're getting some non-recourse financing from Fannie with a somewhat different structure?

Richard B. Saltzman

It's not something that we can comment on directly, unfortunately. But the substance is that it's not a structured purchase money financing like in the FDIC, but it is a structured incentive arrangement, which creates equivalent economics and equivalent incentives vis-à-vis our managing, if you will, on behalf of Fannie and ourselves' portfolio. But we're not at liberty, unfortunately, to disclose the details of it.

Joshua A. Barber - Stifel, Nicolaus & Co., Inc., Research Division

Okay. So it wouldn't be like a full cash flow sweep for the first couple of years, but there would be some promote, so to speak, for the federal government?

Richard B. Saltzman

There's no cash flow sweep to the extent that we put up capital. We're certainly earning a healthy return on that capital and then, if anything, the incentives work in the other direction for our benefit.

Joshua A. Barber - Stifel, Nicolaus & Co., Inc., Research Division

Okay. You guys seem to be able to find a number of good distressed portfolios and I understand that at least one of the portfolios that you bought are estimated to buy from the Maiden Lane asset, but can you talk about who else is selling those portfolios today, especially domestically in that 75% or less of par? Are you seeing either increased competition or a lot less selling from banks today?

Kevin P. Traenkle

This is Kevin Traenkle. We still have a pretty healthy pipeline of portfolios of the loans that we're currently underwriting. Fourth quarter, in particular, is substantially higher than what we were looking at in the third quarter, but that usually does happen. A lot of financial institutions and banks at the end of the year try to clean up their balance sheet. So there's a bit of seasonality with NPL portfolios. But we still are seeing banks that are getting more and more healthy in this environment, who are able to kind of take write-downs on their portfolios. I would say that that's probably accelerating, the volume of banks who are able to sell. So the pipeline's pretty robust. The European market, we are still monitoring. However, we haven't seen as much open up there yet, but we do think that that's just a matter of time, and there will be some quite good investment opportunities over time.

Richard B. Saltzman

So I mean, the constituencies that are -- I mean, it's really all of the same constituencies, including the U.S. government through the FDIC, who's actively marketing a portfolio this quarter. It's banks, insurance companies, specialty finance companies, and hopefully, over the long run, European banks, as Kevin was just referencing. But it's really all the same sources. There's still plenty more to go in terms of over-leveraged loans that basically need to be cleared out of bank balance sheets and the like and really unglued, in terms of the frozen nature of the real estate in the over-leveraged properties that still exist in the market today. Just from a competitive standpoint, Josh, I think you were asking about competition. For sure, there's a fair amount of competition in the market for this kind of product. I think we're still able to underwrite to the returns that we've been producing consistently since our inception, to be totally fair about that. I think, against the backdrop of a more stable and generally speaking, although spotty, modestly improving economy, typically, you have to dip down the capital stock a little bit perhaps in terms of taking a little bit of incremental credit risk and/or potentially sell off A notes or obtain leverage. In some modest fashion, that might get you back to the mid-teen rates of return that we're typically underwriting to. So competition is out there for sure, but notwithstanding the competition, we're still confident we're able to get the yields, albeit maybe taking either a little bit more credit risk or putting on a modest amount of leverage or, in some cases, maybe a tiny amount of both.

Joshua A. Barber - Stifel, Nicolaus & Co., Inc., Research Division

That's really helpful. Two quick questions on, just a follow-up, A, on the Jameson portfolio. I guess once that comes out of bankruptcy and you completed that whole reorganizational plan, again, assuming it's gets a boost by the bankruptcy court, is that an asset that you'd want to hold onto longer term after you repositioned it, just as part of Colony's overall strategy? And second, what is the remaining UPB on the term and loan portfolio after you got the fourth quarter payoff?

Darren J. Tangen

So on the Jameson portfolio, Josh, I think we would like to -- I think we're going to want to see and allow to gestate some of the changes that we put in place there, both from a balance sheet perspective as well as operationally. So I think it's going to take a little bit of time for us to see that stabilize and to create the value that we're hoping to create before we would look to exit that portfolio. Of course, we'll continue to monitor various exit alternatives, and if something attractive presents itself, we'll pursue it. But I think that ones probably going to take a little bit of time for that to materialize. As it relates to the German portfolio that we had the one asset sell, maybe Richard, do you want to...

Richard B. Saltzman

Sure. So just to remind everybody, we've actually acquired now 5 German loan portfolios. Now the particular one that this asset was sold from is the largest of the 5 and the total investment that Colony made in that portfolio was on the order of about $65 million of which Colony Financial is a 50% participant. And so we will still own substantially most of that portfolio pro forma for the sale and again the investment that Colony Financial had was roughly on the order of between $30 million and $35 million. I don't remember the precise amount.

Joshua A. Barber - Stifel, Nicolaus & Co., Inc., Research Division

The UPB was huge. I mean, it's $300 million.

Richard B. Saltzman

UPB, yes, I think that portfolio was bought at about 10 or 11 cents on the dollar, somewhere in that vicinity.

Operator

Our next question is from the line of Jade Rahmani of KBW.

Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division

Can you comment on the investment pipeline, excluding single-family, and how it's changed maybe the last couple of quarters? Do you expect investment activity to continue to run in the, on a gross basis, $150 million range on a quarterly basis for the foreseeable future?

Richard B. Saltzman

Yes, I think Kevin described what the pipeline looks like with respect to secondary sales, but we also have quite a robust pipeline in terms of new origination opportunities. And I would say that, easily, we should be able to meet and/or exceed what we've been doing in the past in terms of putting on new assets each quarter. Activity is quite good.

Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division

Okay. And then just with respect to asset sales, longer-term maturities and repayments, can you just indicate for the overall portfolio what the weighted average duration is?

Darren J. Tangen

The weighted average duration is between 3 to 4 years at this point, Jade, and so -- and I think initially, we have been sort of suggesting that the duration on the book was sort of 4 to 5 years but obviously, there's been some seasoning in the portfolio, but we're down between 3 and 4 at this point in time.

Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division

Okay. And regarding near-term potential repayments, is the William Lyon Home, to the extent they're able to issue debt and to repay that, is that the largest investment that could repay?

Darren J. Tangen

Correct. At this point in time, that's the largest investment that we have that could repay in the near term, meaning in the next quarter.

Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division

Okay. Do you have any idea whether you think it's definitely a 4Q event or...

Darren J. Tangen

At this point, we'd say that it's highly probable.

Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division

Okay. And just lastly, I was wondering if you could provide any credit metrics on the portfolio. We get a lot of questions on this and given that you're participating in joint ventures, I was wondering if you could provide any color on the percentage of the portfolio that's nonperforming. On the performing assets, any indication of debt service coverage or just the overall LTV on the portfolio and how those metrics have been trending?

Darren J. Tangen

Sure. Well, maybe what I could just quickly mention is where we are with some of our small balance loan portfolios and these are some metrics that we've highlighted previously. And in terms of loan resolutions within those portfolios, I think we've mentioned before that we've been recovering approximately 1.5x our purchase price basis on most loan resolutions. And that metric continues to hold consistent through the end of the third quarter. And if we look at the -- again, the small balance loan portfolios, we're currently generating about a 9% current yield against that portfolio and roughly 2/3 of those portfolios are nonperforming or sub-performing loans and only 1/3 is performing. So that 9% current yield is being generated from the 1/3 of the portfolio that is still performing. And then, of course, to the extent that we're continuing to generate a 1.5 multiple on those nonperforming loans within the portfolio, that should be accretive to that 9% current yield.

Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division

Okay. And as a percentage of your total portfolio, what percentage is the small balance loan portfolios?

Darren J. Tangen

So as of the end of the third quarter, everything that's in the universe is a metrics, I was just quoting that, represents about $240 million of book value or roughly 26% of our overall investment portfolio. So it represents a meaningful percentage of our overall investment portfolio.

Operator

Our next question is from the line of Ken Bruce with Bank of America.

Kyle Rhoades

This is actually Kyle Rhoades on behalf of Ken Bruce. I just -- I was wondering if you could give us a little color on the capital allocation decision between the single-family rental homes and your more traditional, either purchased or secondary debt, type investment. It seems that the single-family home with the 6% to 7% current yield is likely going to be lower than the current yield on debt investments, so maybe you can just give us a little color about that capital allocation decision.

Richard B. Saltzman

Sure. I mean, from the beginning, our strategy has been to pursue opportunities coming out of this very severe financial cycle that we've all been living through on the real estate side, including both the commercial sector as well as the residential sector. And it started off for sure primarily through purchases of loan portfolios in the secondary market, both the government and then subsequently for institutions directly. Then increasingly, we were starting to originate new loans also with very high yields as things started to improve, assets started to unfreeze and new financing was basically possible. As we saw the single-family distress evolve and all of a sudden it was clear that there was an opportunity to actually buy vacant homes and rent them, and we could accumulate that in very large scale size and the amount of distress in the single-family market really dwarfed, in this particular cycle, the magnitude of the distress in the commercial market. We decided to dip our toes in the water, if you will, and now maybe we're going further in terms of putting the foot in and maybe the whole leg. But I think it's consistent with trying to pursue total returns that really are kind of mid-teens or higher in distressed parts of the real estate market emanating from the financial crisis. We really have 3 legs to the stool. So it's secondary purchases alone, it's new originations alone and now it's owning single-family homes for rent. And given the incremental $75 million that we just committed to the homes platform, we're now at approximately 20% of our assets. We're certainly very comfortable taking that higher, maybe even to a level of as much as 1/3, consistent again with having kind of 3 legs to the stool. So I think, for now, somewhere between maybe 20% and 1/3 of our assets. As we see things unfold and we see the performance that we're able to generate in the homes portfolio relative to what we're doing in the other parts of our business, we'll make a decision somewhere within that range is kind of our best estimate today.

Kyle Rhoades

Okay, great. That's very helpful. And also, on that single-family home portfolio, can you clarify some of the numbers that you provided on occupancy? I've got essentially 4,200 homes purchased. What percentage of those are leased currently?

Richard B. Saltzman

60%.

Kyle Rhoades

So 60%.

Richard B. Saltzman

Correct.

Kyle Rhoades

And that's running at about 200 homes a month of new leases?

Richard B. Saltzman

Well, the most recent month, almost 300 homes that we leased.

Kyle Rhoades

Almost 300 in October.

Richard B. Saltzman

Yes, and it's been increasing exponentially. As we've been getting more heavily invested in the business and as we have figured out exactly how to renovate these properties quickly and then get them leased up fairly quickly.

Operator

We have reached the end of our allotted time for question-and-answers today. I'll turn the floor back to management for closing comments.

Richard B. Saltzman

Okay, great. Thanks, everyone, for joining us this morning. It was another really good quarter for Colony Financial. We know we had some noise around the ramp-up of our single-family rental investment platform but we actually expect, as we increase our investment in that platform, for results to stabilize sometime during calendar year 2013. Also, we had some noise in connection with the bankruptcy and hopefully, the emergence from bankruptcy for the Hotel Loan portfolio during Q4. But notwithstanding all of that, we think we had a really good quarter, and we appreciate your interest and support and look forward to speaking with you about our year end and Q4 results on our next call. Thank you very much.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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