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Here's Why Colony Credit Real Estate Is Falling Today

What happened

Colony Credit Real Estate (NYSE: CLNC), a real estate investment trust, or REIT, focused mainly on commercial debt investments, is under pressure on Friday after reporting its third-quarter results. As of 12:30 p.m. EST, shares were down by about 16%.

So what

There's a significant shake-up happening in the business of Colony Credit Real Estate. Colony Capital (NYSE: CLNY), which is the REIT's largest shareholder, is planning to move the management of certain assets to Colony Credit.

Image source: Getty Images.

Along with this announcement, Colony Credit Real Estate gave investors some news that seems to be weighing on the stock.

Specifically, the company said it will divest a noncore asset portfolio. It reduced its book value to reflect the actual market value of the assets slated for disposal, and also decided to slash its dividend from $0.145 to $0.10 per month in order to ensure that its core assets could continue to cover the payments.

Now what

A dividend cut is almost never well received by investors, especially when it comes from an income-oriented stock like this. Plus, the shake-up of the company's portfolio and the management shift of the Colony Capital assets create a fair amount of uncertainty going forward. If everything goes smoothly with the plan and the company is able to successfully monetize its noncore assets, this dip could be temporary, especially if the dividend ends up rising back toward its previous level when the dust settles.

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Matthew Frankel, CFP has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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