Colony Credit Real Estate, Inc. (CLNC) CEO Mike Mazzei on Q1 2020 Results - Earnings Call Transcript

Colony Credit Real Estate, Inc. (CLNC) Q1 2020 Earnings Conference Call May 7, 2020 5:00 PM ET

Company Participants

David Palame - General Counsel and Secretary

Mike Mazzei - President & CEO

Andrew Witt - COO

Neale Redington - CFO

Frank Saracino - CAO

Conference Call Participants

Stephen Laws - Raymond James & Associates, Inc.l

Operator

Good day and welcome to the Colony Credit Real Estate Inc. First Quarter 2020 Earnings Call. Please note that today’s conference is being recorded.

And at this time I would now like to turn the conference over to Mr. David Palame. Please go ahead sir.

David Palame

Good afternoon and welcome to Colony Credit Real Estate Inc.’s first quarter 2020 earnings conference call. We will refer to Colony Credit Real Estate, Inc. as CLNC, Colony Credit Real Estate, Colony Credit or the Company, throughout this call.

Speaking on the call today are the Company's President and Chief Executive Officer, Mike Mazzei. Chief Operating Officer, Andrew E.; and Chief Financial Officer, Neale Redington. Chief Accounting Officer, Frank Saracino, is also on the line to answer questions.

Before I hand the call over, 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 could cause the company’s business and financial results to differ materially.

Currently one of the most significantly factors that could cause actual outcomes to differ materially from our forward-looking statement is the potential and adverse effect of the current pandemic of the Novel Coronavirus or COVID-19 on the financial condition, result of operations, cash flows, performance of the company, its borrowers and tenants,

the real estate market and the global economy and financial market.

The extent to which COVID-19 pandemic impacts us our borrowers and our tenants will depend on future development which are highly uncertain and cannot be predicted with confidence including the scope, severity and duration of the pandemic, the action taken to contain the pandemic or mitigate its impact and the direct and indirect economic effects on the pandemic and containment measures among others.

For a discussion of risk that could affect results, please see the risk factors section of our most recent 10-K and other forward-looking statements in the company's current and periodic reports filed with the SEC from time to time cautioning the interpretation of many of the risk should be heightened as a result of the ongoing and numerous adverse impacts of the COVID-19 pandemic.

All information discussed on this call is as of today, May 7, 2020, and the company does not intend and undertakes no duty to update for future events or circumstances.

In addition, certain financial information presented on this call represents non-GAAP financial measures. The company’s earnings release and supplemental presentation, which was released this afternoon 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 Mike Mazzei, President and Chief Executive Officer of Colony Credit Real Estate. Mike?

Mike Mazzei

Thank you David. First on behalf of CLNC management team we would like to begin by wishing everyone well as we navigate through these uncertain times. Our employees are safe in the remote working locations where in many cases their work lives and personal lives are fused together. I want to thank them for their warm virtual welcomes, work ethic and positive energy, especially in these challenging times.

I myself officially joined on April 1st and was able to promptly integrate remotely. In fact, the transition to a virtual workplace for the CLNC team and myself has been quite seamless with the help of technology. I have been fully engaged with all functional areas of the organization. The use of video meeting technology has allowed me to interact with all of my fellow colleagues. Our systems and controls are working well including our treasury and banking functions, accounting and internal audit, asset management and legal. Andrew Witt our COO will address certain kind of business actions and Neale Redington our CFO will address Q1 results shortly. I want to focus on what is happening today and the days ahead.

Our asset managers continue to be in very close communication with all borrowers and tenants. In light of everything borrower's and tenants we're dealing with, April was a successful month with most borrowers and tenants paying on schedule while we worked with certain others to effectuate their payments.

99% of interest payments were made on our core loan portfolio. However, in certain cases we agreed to utilize some portion of current reserves foot-long payments. On the tenant side the overall performance was strong. We will continue to evaluate comprehensive and creative ways to help both borrowers and tenants through these unprecedented circumstances resulting from COVID-19.

To provide further insight into April the entire combined loan portfolio inclusive of legacy non-strategic 90% of loans by unpaid principal balance were 50 loans paid current. Of this amount there were four loans for 14% by unpaid principal balance which required accessing existing reserves.

Our owned real estate portfolio experienced 87% rent collections and those tenants unable to pay rent were primarily confined to retail tenants in our legacy non-strategic portfolio. Of course CLNC's core owned real estate portfolio will remain current on all our investment level borrowings.

With regards to our bank counterparties we have worked closely with them and providing asset update for the borrowing base and master repurchase agreement. I'm happy to report that the dialogue has been productive and all of our banking partners have been constructive. We will continue to be actively engaged with our bank lenders in providing the massive updates.

To be clear maintaining and enhancing liquidity whatever possible has been and will remain a top priority as we navigate through this difficult time. Working cooperatively with our banking counterparties is essential to our ability to meet the challenges that we have faced and will continue to face. The capital markets continue to be volatile and in some sectors we are witnessing unprecedented event while the feds multi trillion-dollar market programs that help to stabilize on an equity market since March lows we feel many of the economic aspects of COVID-19 are still unknowable. This is especially the case in commercial real estate equity and debt markets.

As such the company is planning for a slower recovery with variation by region and property type which we have incorporated into our business plans in particular for hospitality investments. The commercial mortgage REIT sector has too been under pressure except for the GSP entities commercial real estate lenders had generally taken a pause. Lenders of every type are focused on balance sheet and asset management. Therefore we are also forecasting slower loan payoffs.

It is within this context that we've been focused on preserving our capital. As we

previously disclosed we have taken a serious step of suspending our monthly dividend in an effort to maintain and preserve liquidity. We’ve realized the importance of the dividend to our shareholders. However, given unprecedented circumstances of COVID-19 this was a prudent incremental step to support the balance sheet and to maximize the long term value of the company and its asset.

When the economic environment comes into focus and it is clear our liquidity needs on that with a meaningful margin for error the world we visit the dividend policy. Looking ahead given the impact of COVID-19 on the broader economy there will be challenges for commercial real estate.

In the coming months our emphasis will continue to be on asset and liability management and liquidity. We will continue to be vigilant in maintaining controls and procedures as we gradually transition back to the workplace. We'll continue to maintain an open dialogue with our shareholders, borrowers, tenants and banking constituents.

It is impossible right now to predict with any reasonable certainty the impact of COVID-19 on our industry and on our business. But we know it has been and will be substantial and we come to work every day with that as a backdrop.

Finally in terms of our business model the substantial majority of most of our recent origination activities have been in smaller to moderate sized CLO mortgages which fit well within pay low structures as we experienced with our $1 billion CLO execution in late 2019. We are taking a conservative posture today and when we together reach the other side of COVID-19 we look forward to growing this business model to take advantage of an attractive lending environment as owner operators seek to capitalize their asset.

With that I would now like to turn the call over to our Chief Operating Officer, Andy Witt. Andy?

Andrew Witt

Thank you, Mike. As previously highlighted and under the current circumstances the primary focus of the organization is on asset and liability management with particular attention on liquidity. As such we've reorganized our resources around select high-priority asset, future funding obligations and sources of financing and liquidity that may come through asset sales from both our legacy, non-strategic and core portfolios. We will continue to examine opportunities to monetize investment on our balance sheet with an eye towards enhancing liquidity in the coming quarters.

Prior to the onset of COVID-19 we initiated the process of selling legacy, non strategic assets as a result of a broader corporate initiative which has generated significant proceeds. We also reduced our exposure to warehouse line as a result of our $1 billion CLO CLNC issued in late 2019. As previously reported in October 2019 we executed on a securitization transaction which resulted in the sale of $840 million of CLO loans collateralized by a pool of 21 senior loans and participation that we originated with approximately 80% multifamily and office [indiscernible].

Most importantly, executing on the CLO removed exposure to mark to market financing on the $1 billion of senior loan collateral held in the securitization. Currently we have $700 million of home loan partial recourse repurchase financing collateralized by 22 positions. We have taken steps to minimize margin related risk by negotiating margin holiday. In return for a voluntary reduction of the advancement, during April we established or agreed to terms in certain cases on various margin holidays with our four largest counterparty banks which encompass our loan repo hospitality exposure.

Cadence has been managed collaboratively with our bank counterparty. The agreements with the counterparty banks also provides [indiscernible] with expanded permitted modification periods to work with our borrowers and navigate these uncertain times together.

Turning to CMBS securities our strategy utilized repurchase financing with liquidity deteriorated played in the first quarter as a result of COVID-19. CLNC received margin calls on these finance security. In total since Q1 2020 began CLNC has paid $91 million margin calls or pay down across its security portfolio.

Early in the second quarter CLNC consolidated its repo financing with one counterparty bank working together with our lender we agreed to buy down our advance rate in exchange for extending the term of the underlying debt through the end of June. Current outstanding borrowings are $124 million, the blended advance rate on the collateral is approximately 62%.

In addition to extending the rollover term such financing will not be subject to margin calls until the advance rate reaches 80% on the triple B bonds and 65 on the double B. The finance securities consist of 46 positions of which 75% of the portfolio. By value it's triple B rate. Following the Feds action since mid-April bond prices have been relatively stable. We continue to analyze the underlying collateral, review the remittance reports and monitor the portfolio in the context of potential COVID-19 related impact.

The most notable impacts relate to the financial condition of our borrowers including their abilities to make their monthly mortgage payments to remain in compliance with loan covenants and terms. Failure of our borrowers to meet their loan obligations may trigger repayment to our bank credit and master repurchase facilities. As Mike previously noted during the month of April, 99% of our core portfolio borrowers pay current.

In addition in the month of April 95% of our tenants within the core net lease portfolio paid rent which was sufficient to meet our debt service obligation. In the current environment our focus in the near term will be on liquidity management to ensure that we are actively managing our sources and uses of liquidity. Our liquidity stands at approximately $250 million and we will continue to enhance our liquidity position to prepare for the unknowns ahead.

We are managing the asset side of the balance sheet and year to-date have sold or resolved 13 legacy non-strategic assets generating net proceeds of approximately $170 million. At this point we have now disposed 48% of the legacy non-strategic portfolio as measured by net carrying value. We currently classified 26 owned real estate properties primarily within our legacy non-strategic portfolio as held for sale with a total net carrying value of 100 million as at quarter end.

Given the COVID-19 pandemic, we may not sell these properties in the near to medium term. Additionally, we are evaluating select asset sales from our core portfolio. We only intend to transact on sales or bids are consistent with our view of the underlying collateral value. Looking ahead we do not anticipate any meaningful new deployment activity in the short term.

However, we believe this uncertainty will ultimately give way to a favorable lending environment. At the moment we have reorganized the organization to focus squarely on our existing investments and are committed to working with borrowers, tenants, lenders and other counterparties to collectively navigate these unprecedented time.

Now I will turn the call over to our Chief Financial Officer Neale Redington.

Neale Redington

Thank you Mike and good afternoon everyone. Before discussing our first quarter results I would like to underscore few items that will be included in our Form 10-Q filing tomorrow. We have provided further details in the areas where an [indiscernible] judgment COVID-19 most impacted balance sheet and liquidity. We will provide tables identifying our hotel [40] loans as well as our mezzanine loans and preferred equity.

There's also further information about April interest receipts and we will provide specific loan level details with some larger investments that COVID-19 may have a material impact in the future.

I also want to draw your attention to our supplemental financial report which is available on our website. It includes additional information on each of our business segments in addition to a description on how we define core earnings. This definition will exclude from core earnings, incremental changes in CECL reserves and gains, losses and impairments of real estate including unconsolidated joint ventures and preferred equity investments or will include provision for loan losses.

However, core earnings will come solely from our core portfolio while we will report legacy non-strategic earnings separately. In addition, we continue to provide asset by asset details for all of our holdings in a supplemental financial report as well as Form 10-Q. We believe this added transparency will help investors and research analyst specially understand our company and the value of our assets given the additional detail it provides about our two business segments.

Delineating our investments between core and legacy non-strategic portfolios creates clarity around the core mission and vision at pro forma core portfolio to include senior and mezzanine loans, preferred equity, commercial, real estate debt securities and net lease real estate. Further we believe it will facilitate the greater understanding of our company and the value embedded within the assets.

Now turning to the quarter, for the first quarter CLNC's core portfolio reported GAAP net loss of $35 million or $0.27 per share and core earnings of $46.2 million or $0.35 per share excluding provisions for loan losses of $2.3 million and realized gains on FX hedges of $8.6 million, core earnings was $40 million or $0.30 per share.

In addition, the company's legacy non-strategic portfolio generated GAAP net loss of $43.8 million or $0.35 per share and [indiscernible] total earnings of $1.4 million or $0.01 per share. After excluding $36.8 million provision for loan losses and $0.7 million of other realized gains.

During the first quarter we paid a monthly cash dividend of $0.10 per common share for the months of January, February and March. The dividends paid in the first quarter were more than fully covered 100% of core earnings excluding one-time gains and losses. As previously noted due to the extraordinary volatility and unprecedented market conditions we have concluded that is prudent and in the best interest of the company to conserve available liquidity and sustain the company's monthly cash dividend beginning with monthly period ending April 30 of 2020.

The board will evaluate dividends in future periods based on customary considerations. Importantly, the company continues to monitor its taxable income to ensure that the company meets the minimum distribution requirements to maintain its status as a REIT.

In terms of deployment, the company has not closed any new investment so far in 2020, prior activity for quarter included three full loan repayments of $68 million of gross proceeds along with five partial repayments totaling $12 million of gross proceeds.

In addition, since year-end there have been 13 LNS asset sales or resolutions for approximately $269 million gross proceeds and $170 million of net proceeds representing an approximately $3 million gain or a 2% premium to GAAP net carrying value. Overall asset dispositions within the LNS portfolio have been quicker than previously projected and have been an embedded source of liquidity in this period of uncertainty. Since announcing the strategy in November 2019, we have sold our result 18 legacy non strategic assets for approximately $291 million gross sale proceeds and $192 million net sale proceeds.

In addition, two assets are now under contract for approximately $23 million of gross sales proceeds and 22 assets with the GAAP net carrying value of a $ 100 million and now it's listed for sale. Altogether this represents approximately 53% of the LNS portfolio by net carrying value that has been resolved based on the contract.

Given immediate and significant detrimental impact of COVID-19 on our assets we have taken additional steps to evaluate specific loan loss reserves in addition to implementation of CECL which I will discuss in a moment.

While our exposure to the U.S. hospitality industry is only 13% that I combined portfolio we have previously described the challenges faced by 1,300-room hotel collateralizing and New York hospitality loans. On April 22nd we entered into an agreement with the owners and operators of the hotel to permit a discounted loan payoff.

As a result we recorded $36.8 million impairment or $0.28 per share against this asset to reflect the resolution of this loan. Further we have recorded $2.3 million loan loss reserves against Minneapolis area hotel loan reflecting a revised estimate of recovery value from that loan.

Heading to our core portfolio and appreciated book value stands at the approximately $1.8 billion or $14.04 per share. Our loan book continues to be the largest segment of carrying value of approximately $2.9 billion at quarter end. The blended un-weathered yield on our loan book is approximately 7.5% with an average loan size of $54 million.

Furthermore the loan portfolio remains well diversified in terms of size, collateral type and geography.

Moving to CLE debt securities with the [core] portfolio. And the portfolio had a caring value of $270 million at March 31 and predominantly consists of investment grade-rated securities. As of March 31, 2020, $207 million of such CRE debt securities were financed by master repurchase facilities. We have met all margin calls under financing arrangements on the house CMBS securities to the most recent call received and timely paid on March 26, 2020.

[indiscernible] mostly the subjects to the recently agreed margin buffers an extension on rollover through June 2020 that Andy just addressed in his remarks.

Also within our core portfolio, net lease real estate comprises 25% of the core portfolio and had a carrying value of $1 billion at the end of the first quarter. This portfolio consists of industrial and office properties with a weighted average lease term of 9.5 years.

As part of our enhanced disclosures implemented last year, we introduced risk ratings on all loans within our core portfolio in order to provide more detail regarding the credit and risk profile of our corporate business.

Our overall risk rating at the end of the first quarter was 3.8 compared to 3.1 in the prior quarter primarily reflecting the increased risk resulting from the uncertainty related to COVID-19.

And our legacy non-strategic portfolio, this statement is predominantly composed of operational intensive owned real estate, all retail and certain other legacy loans originated prior to the formation of CLNC. Total GAAP net book value for this portfolio stands at approximately $196 million or $1.49 per share.

Moving to our balance sheet, our total at-share assets stood at approximately $5.4 billion as of March 31^st, 2020. Our debt to assets ratio was 60% at the end of the quarter and our current liquidity stands at approximately $250 million between cash on hand and availability under revolving credit facility.

Use of our revolving credit facility will continue to be a source of liquidity for the foreseeable future and we are currently renegotiating the terms of the revolver with our bank syndicate.

These terms include a reduction in the facility size, a reduction in the tangible net worth requirement and certain limitations on dividends, stock repurchases and a focus on senior loan originations and capabilities to support our existing portfolio.

We believe this new arrangement will allow us the liquidity and the flexibility we need to manage our business in the near term. Lastly, I would like to comment on the current expected credit losses our CECL accounting standard which was adopted by the company on January 1^st, 2020.

Based on our portfolio size and composition, we recorded a day one CECL reserve of $23 million and an additional reserve of $29 million during the first quarter as a result of a significant change to the economy caused by COVID-19. The combined impact of this new standard is an approximately $0.41 impact on our March 31^st 2020 book value per share.

The CECL will modulate in future periods during adjustments in net income as our portfolio expands or contracts the credit quality and risk attributes by loans improve or decline or overall market conditions strengthen or weaken.

That concludes our prepared remarks and with that let's open up the call for questions. Operator?

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] We will take our first question and our first question comes from Stephen Laws. Please go ahead, Stephen.

Stephen Laws

Yes. Hi, good afternoon. And I guess, Mike, first off congratulations on joining the company. I know it's been an interesting first 40 days or so to do that but congratulations on your new role.

Mike Mazzei

Thank you.

Stephen Laws

Mike and Andy, I wanted to ask the question and kind of follow-up. Typically, I would have asked Mike kind of how you see things maybe a year or two down the road once you've been able to do this. And I think that's probably an unfair question that kind of outlook given the current environment.

But Andy, you mentioned assets being under review to look at possibly shifting from core and then re-designating into the LNS portfolio. How do you see that process going, is it simply we're going to reevaluate that given the revolver and the focus on senior that we're going to get rid of mess and preferred equity or even net lease.

Or is it go the other way and certainly we're going to take the new group and reevaluate every investment one by one and what even senior loan to make it a real move in LNS. Can you give us some clarity how do you see the process going and how big it should be and what timeline you think that with the process will take place then?

Mike Mazzei

Thank you for the question, Stephen. Actually I'll answer that, this is Mike.

First of all, let me make one thing clear. In Andy's commentary, he wasn't suggesting that we were moving asset into LNS. I'm not sure that's what you meant but we are looking at certainly the LNS portfolio we've had a good experience like the date on that in terms of executing on almost half of that portfolio and we'll continue to do so.

The timeline might drag a little bit longer but we will continue to do so. Separately, as you heard in our prepared remarks, we're very focused on creating and enhancing more liquidity and so to do that we're also considering asset in our core portfolio and we'll do that on an asset-by-asset basis.

This is not a question about holding value aside, long-term value aside, this is a question on liquidity. So, when we look at an asset, we'll look at its size, look at how it's financed externally and internally and if it's an asset that we think is marketable and can garner a good impact on our current liquidity, then we'll consider selling that asset.

And the price of which it goes out could be at its value or there could be some discount for liquidity in the market place and we'll value that as well. So, some of the assets that we're considering are some of our larger net lease assets which really are good assets doing mortgage REIT.

But we think these assets are very marketable and so we are in various stages of discussions with potential buyers on assets. I can't promise an outcome but we're certainly in discussions.

Also in some of our preferred equity positions, we are in some discussions in marketing those as well. As I said earlier, these are positions where we think they'll have the biggest impact on potentially capturing more liquidity. And I think we'll also look at some loans sales potentially in the core portfolio as well.

Stephen Laws

Great, thanks for correcting me. I mean, I looked at my notes here, it was stated in the prepared remarks that pull out of the core portfolio.

So, thanks for the correction there. I want to touch base on our revolver, seems like a couple of covenants changed but it gives you it seems like significant amounts of flexibility and other options by putting some term on that facility and I think eliminating the mark-to-market risk.

But can you give us a little bit more detail what this allows you to do now and then kind of piggybacking that you mentioned I think in the prepared remarks of the presentation from preapproved or permitted modifications have already been preapproved or permitted.

So, could you give us some examples of what those offerings are that you're going through your to borrowers yet but then you're already preapproved or permitted from the counterparty?

Neale Redington

Stephen, I think you covered a couple of different things there, right. So, one is the revolver and perhaps I can address that to start with and I might and move it to Andy here as you said he was talking about some of the margin holidays and the likes.

So, in terms of the revolver, yes, we're very pleased with that. I mentioned in my prepared remarks today we're working on that and in fact we have completed that arrangement. So, we have moved a couple of things.

1) One the tangible net worth requirement has declined and we think that will give us some flexibility as it relates to potential transactions that may come down a little bit and I think Mike is fairly -- usually don’t well he know what we don’t know.

There is a whole lot of things that could happen over the next few months. And as we look to preserve liquidity, that gives us some flexibility around opportunities for the liquidity. And With that, we reduce the facility side from 560 million to 450 million and that compares to borrowing of about 300 million.

So, overall we are pleased with that. We had principle from all of the banks in that facility and there are some limitations that come with that around dividend and stock repurchases. And frankly, as we've been looking at liquidity, me and my friends buy it anyway in terms of wanting to preserve liquidity.

Hopefully that answers the question around the revolver and with that Andy would you like to talk a little bit about some of the retail arrangements?

Andrew Witt

Sure, thank you Neale. I think as it relates to the margin holidays, we've finalized agreements or agreed to terms with the number of our home loan repo lenders. And with the basic principle of those agreements, there's been a pay down of the advance rate in exchange for a margin holiday.

And generally, what that's included is a period of time in which to work with our borrowers under a predetermined set of modifications. And those may include forbearing interest; they may include the use of reserves; they may include waving certain covenants to keep the property operating.

And so, those are a few other things that we have worked out with our counterparty banks essentially.

Stephen Laws

Right, thanks for the comments then, Andy. And Mike, my last question I think, maybe back in queue but management structure I didn’t I may have missed it but I didn't hear a lot of comp or any comp material, thanks but is that can should be considered just on holding definitely at this point.

Or there's still the discussion going on with at the Colony level or the board? Can you give us any update or color on any progress or where we stand as of today with that?

Mike Mazzei

Thanks for the question, I got it. Colony capital was pretty clear, they put out a press release regarding this. I really have nothing more to add. The press release is pretty clear that it's on pause now.

Now separately, I think that in this environment that's common sense; a lot of these strategy things are put on pause. So, that I think it's consistent with the overall market but there was a press release to that effect.

Stephen Laws

Yes. No, fall out and where to make sure there's been no change. So, I appreciate the comments there and thank you for the time guys.

Mike Mazzei

Thank you for your questions.

Andrew Witt

Thanks, Stephen.

Operator

And our next question comes from Randy Binner from B. Riley.

Mike Mazzei

Hi, Randy.

Randy Binner

Hey, good evening. So yes, I'm just getting on these questions. I guess the first is on the cash or the 255 million, I think that's a little bit lower than the last update which I believe is 329 million. Can you describe what caused that number to move lower?

Neale Redington

We made some pay downs on the revolver. I think that was the main movement from our last situation. As I'm sure Randy, you know there's a lot of evolving pieces here. So, our liquidity projection involves a number of various outlays. And the main ones that have happened in that short period of time are fundings to our existing investments.

So, those deals where we have commitments to fund in the future. That's part of it. And then, there have been some small pay downs on repo as we've negotiated some of the extensions of the margin holding days that Andy described, quite small numbers and also pay downs on the revolver which is the combination of those three things.

Randy Binner

Great. And then, I think you quoted a number that you committed 91 million to-date to margin call pay downs. Is that correct that's going to be all in number since mid-March call?

Neale Redington

Yes. I think that's what Andy had described and yes that's the combination of either margin calls or pay downs associated with the repo facility extension and that's on the CMBS side.

Randy Binner

All the 91 in the CMBS book?

Neale Redington

Yes, that's right.

Mike Mazzei

Yes. Okay, thanks Randy, and yes then -- go ahead please.

Randy Binner

We said that again, we have been pushing a lot there in like --. Yes. So, we have a delay. I just -- and you described CRE debt securities and that's all just CMBS, correct?

Neale Redington

That is correct.

Randy Binner

Okay. And then, you were going to say that the $91 in the CMBS?

Neale Redington

Yes.

Randy Binner

Okay. And then I'm kind of just taking a little bit of the step back, all of this is really good detail. Can you I think that you talked about the debt of capital through, so company have all kind of in the 50% to 60% range?

So, for me that seems like a helpful way to kind of toggle if you will but where the balance sheet is going to come together. Is that still the right framework to think of from a debt levels perspective?

Neale Redington

I think that's right, Randy. As we try to, I mean we described this in numerous calls and discussions with you that we're in total of a 50% to 60% range mathematically. This quarter that increased because of the draw down on the line but and just over conceptually we still expect to be in that same range.

Randy Binner

Okay. And just another --.

Neale Redington

And I'm sorry to play out the math on. -- Sorry Randy, just to play out the math one just by drawing down if you had the same numbers to the numerator and denominator, that's why it's going up at this period. But those more as well resulted off the draw down. If you took a look to sort of net debt concept, I think it would have been more consistent.

Randy Binner

Alright, fair enough. And then David, kind of I heard I think I heard you disclose around 50% of your legacy thus far. I think I heard a 48% number and 53% number but resolved they're under contract or maybe they're under contract was the bigger of those two numbers for this?

Yes, is that the right way to think of it is that all that were started in legacy, already 50% has been resolved?

David Palame

Yes, that's exactly the way to think about it; 50% or approximately 50% that's now been resolved.

Randy Binner

Okay, that's great. And then, yes the comments around enhanced credit disclosures Neale in the 10-Q, can you maybe flush that out a little bit because it seems like you provided improved credit disclosures in the slide deck as well. So, what is other -- the further detail that we might expect to be in the queue?

Neale Redington

I'll actually address that. Okay great, thanks, fine. First of all we provide more tables now that we think are driven by the COVID environment, some table that shows whatever if use interest reserves and things like that by property type. So, you will see some of that flushed out in the filing.

We also make sure that when we because we moved risk ranking on about 30 assets with that this time. We want to give you a call on this loan listing that shows you the previous risk rating and the current risk rating, so you could see -- see the move there and then we also brought out some disclosures on some of the larger few of the larger assets that we have to give some more narrative around those and more insight to those.

Randy Binner

Okay, that's great. And then the newer hospitality loan, is that as it 100% resolved, it was 28 final term, correct?

Neale Redington

That is absolutely 100% resolved.

Randy Binner

Okay. And then, you said this plant the overall book is still 30% hospitality, that's the legacy end core and that's after the resolution in your new hospitality or is that the right sizing to go forward hospitality share of the book?

Neale Redington

That is. That is the core book, it's about 590 million about 10 loan. And generally speaking, listen as we go forward as I said in my prepared remarks, the thinking is that once we get pass this COVID-19 and we feel like we have an ample margin of a buffer of liquidity, then you'll see the orientation toward more moderately sized loans maybe the 25 million to 50 million.

More senior loans that are better suited for CLO type liability structures or CMBS conduit loan securitization as well as tripe net and less orientation toward larger loans and preferred equity and now.

Randy Binner

Alright that's great, I'll leave it there. Thanks for all the answers. Have a good night.

Neale Redington

Thanks, Randy.

Randy Binner

Thank you.

Operator

Ladies and gentlemen, that conclude our question-and-answer session for today. At this time I would like to turn the call back over to Mike Mazzei, Chief Executive Officer.

Mike Mazzei

Well, thank you for joining us Colony Credit and me for my call with the team today. We look forward to our next call with you for second quarter earnings that should be sometime in early August.

And in the meantime, please stay safe and we wish you well. Thank you.

Operator

Ladies and gentlemen, this does conclude our call today. On behalf of Colony Credit, we do appreciate your participation. At this time, you may disconnect. Have a great night. Thanks.