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NorthStar Realty Finance Announces Third Quarter 2012 Results

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Third Quarter 2012 Highlights

- Increased third quarter 2012 cash dividend to $0.17 per common share, representing a 70% increase over the last five quarters.

- AFFO per diluted share of $0.28.

- $351 million CMBS transaction collateralized by CRE first mortgages originated by NorthStar and its sponsored non-traded CRE REIT priced in October 2012.

- Investments of $646 million in 2012, including $196 million since the end of the second quarter 2012.

- Total capital raised to date of $504 million for our sponsored non-traded CRE REIT, including $51 million raised in October 2012.

NEW YORK, Nov. 2, 2012 /PRNewswire/ -- NorthStar Realty Finance Corp. (NYSE: NRF) today announced its results for the quarter ended September 30, 2012.

Third Quarter 2012 Results

NorthStar reported adjusted funds from operations ("AFFO") for the third quarter 2012 of $0.28 per diluted share compared with $0.29 per diluted share for the third quarter 2011.  AFFO for the third quarter 2012 was $39.5 million compared to $29.3 million for the third quarter 2011.  Net loss to common stockholders for the third quarter 2012 was $(149.6) million, or $(1.11) per diluted share, compared to a net loss of $(24.6) million, or $(0.26) per diluted share for the third quarter 2011.  Third quarter 2012 net loss includes $(183.5) million of non-cash fair value adjustments, which includes a $193.7 million increase in the value of our CDO bonds, compared to $(43.5) million of non-cash fair value adjustments for the third quarter 2011.  These non-cash fair value losses are excluded from AFFO.  

David T. Hamamoto, chairman and chief executive officer, commented "We are extremely pleased with the execution of our recently announced CMBS transaction, which will provide us with attractively-priced, permanent financing on a non-recourse and non-mark-to-market basis, and demonstrates the strength and sophistication of our platform. The proceeds from this CMBS transaction will be used to retire borrowings on our credit facilities, which will provide us additional capacity to take advantage of our loan origination pipeline."

Mr. Hamamoto continued, "We expect the strong demand for this type of transaction will allow us to further access the securitization market as it continues to expand and improve. This increased flexibility in funding sources for our originated loans, combined with the opportunistic investments we continue to see and the continued growth of our non-traded REIT platform, position us well to further execute on our business strategy and continue to generate strong cash flows to NorthStar."

Investments

Since the second quarter 2012, NorthStar invested $29 million of equity in three commercial real estate loans with a $56 million aggregate principal balance.  During 2012, NorthStar invested $94 million of equity in 10 commercial real estate loans with a $227 million aggregate principal balance and expects a weighted average return on this invested equity of 18%, which reflects NorthStar's recently priced CMBS transaction.

The principal proceeds NorthStar could receive from CDO bonds acquired since the second quarter 2012 is $78 million, which were purchased for $40 million. The principal proceeds NorthStar could receive from CDO bonds acquired during 2012 is $326 million, which were purchased for $159 million and have an expected yield-to-maturity of over 20%. The CDO bonds acquired during 2012 had a weighted average original credit rating of AA-/Aa3.  As of today, the principal proceeds NorthStar could receive from its owned CDO bonds is $805 million, of which $655 million was repurchased at an average price of 37% in the secondary market and has a weighted average original credit rating of A+/A1.  The discount to par of $416 million represents potential imbedded cash flows that we may realize in future periods in addition to our capital invested in these bonds.  

Since the end of the second quarter 2012, NorthStar invested $62 million of equity in other opportunistic CRE investments. During 2012, NorthStar has invested $89 million of equity in other opportunistic CRE investments expected to generate a weighted average return on equity in excess of 16%.

NorthStar had approximately $7.1 billion of assets under management at September 30, 2012.

For additional details regarding NorthStar's investments, please refer to the tables on the following pages and to the corporate presentation which is posted on NorthStar's website, www.nrfc.com.

Asset Management Business

During the third quarter 2012, NorthStar received management fees from its consolidated CDOs of $3.5 million, which are eliminated on NorthStar's consolidated statement of operations.  In addition, during the third quarter 2012, NorthStar received $1.5 million of fees from our sponsored non-traded CRE REIT, NorthStar Real Estate Income Trust, Inc. ("NorthStar Income").

NorthStar Income raised $127 million in the third quarter 2012 and $504 million since inception, including $51 million in October 2012, through NorthStar Realty Securities, LLC, NorthStar's wholly-owned broker-dealer. NorthStar Realty Securities, LLC has total signed selling agreements with broker-dealers covering more than 61,000 registered representatives.  NorthStar expects to earn annual net fees approximately equal to three percentage points based on total capital raised for our sponsored non-traded REITs.

Since the second quarter 2012, NorthStar Income originated two loans with a $51 million aggregate principal balance. During 2012, NorthStar Income originated 11 loans with a $308 million aggregate principal balance. 

Liquidity, Financing and Capital Markets Highlights

Unrestricted cash as of September 30, 2012 totaled approximately $252 million.

In July 2012, NorthStar sold 3.2 mllion shares of its existing 8.25% Series B Preferred Stock at a public offering price of $22.95, generating net proceeds excluding accrued dividends of $70 million.

During the third quarter 2012, NorthStar sold 1.5 million shares of its existing 8.75% Series A Preferred Stock and 8.25% Series B Preferred Stock through an "at-the-market" preferred stock offering program for net proceeds of $33 million.

In October 2012, NorthStar sold 5.0 million shares of its 8.875% Series C Preferred Stock at a par value of $25 per share, generating net proceeds of $121 million.

Currently, NorthStar's only near-term unsecured corporate debt obligations relate to its exchangeable senior notes, of which $36 million principal amount of 11.5% notes are due in June 2013 and $13 million principal amount of 7.25% notes are payable in June 2014 at the holders' option. 

On October 26, 2012, NorthStar priced a $351 million CMBS transaction collateralized by CRE first mortgages originated by NorthStar and NorthStar Income.  A total of $228 million of investment grade bonds will be issued, representing an advance rate of approximately 65%, and the bonds will have a weighted average coupon of L+1.63%. NorthStar expects to generate a yield of approximately 20% on its invested equity in the CMBS transaction, inclusive of fees and estimated transaction expenses, assuming all of the underlying loans are repaid at their initial maturity.

Risk Management

At September 30, 2012, NorthStar had three loans on non-performing status ("NPL"), which had a $25 million aggregate principal amount and a $4 million carrying value.  This compares to two loans which had a $15 million aggregate principal amount and a $4 million carrying value at June 30, 2012.  NorthStar categorizes a loan as non-performing if it is in maturity default and/or is past due 90 days on its contractual debt service payments.

During the third quarter 2012, NorthStar recorded $6.4 million of provision for loan losses relating to two loans, compared to $6.5 million of provision for loan losses related to two loans recorded during the second quarter 2012.  As of September 30, 2012, loan loss reserves totaled $169 million, or 7% of total loans, related to 15 loans with a carrying value of $231 million.

As of September 30, 2012, NorthStar's core net lease portfolio was 96% leased with a 5.9 year weighted average remaining lease term.  As of September 30, 2012, 100% of NorthStar's net lease healthcare portfolio was leased to third-party operators with weighted average lease coverage of 1.3x and a 7.2 year weighted average remaining lease term.

Stockholders' Equity

At September 30, 2012, NorthStar had 141,076,880 total common shares and operating partnership units outstanding and $20 million of non-controlling interests relating to its operating partnership.  GAAP book value per share was $4.88 at September 30, 2012, which includes negative GAAP equity in certain of our non-recourse CDO financings due to non-cash fair value adjustments.  Adjusted book value at September 30, 2012 would be $7.10 per share, exclusive of certain unrealized and other adjustments, loan loss reserves and accumulated depreciation and amortization.  The adjusted book value does not take into consideration any value related to the in-place and anticipated advisory fee income streams generated by NorthStar's sponsored, non-traded REIT vehicles and NorthStar's CDO management fees.  For a reconciliation of adjusted book value per share to GAAP book value per share, please refer to the tables on the following pages.

Common Dividend Announcement

On November 1, 2012, NorthStar announced that its Board of Directors declared a cash dividend of $0.17 per share of common stock, payable with respect to the quarter ended September 30, 2012.  The dividend is expected to be paid on November 16, 2012 to shareholders of record as of the close of business on November 12, 2012. The Company's common shares will begin trading ex-dividend on November 7, 2012.

Earnings Conference Call

NorthStar will hold a conference call to discuss third quarter 2012 financial results on November 2, 2012, at 2:00 p.m. Eastern time.  Hosting the call will be David Hamamoto, chairman and chief executive officer; Albert Tylis, co-president and chief operating officer; Daniel Gilbert, co-president and chief investment officer; and Debra Hess, chief financial officer. 

The call will be webcast live over the Internet from NorthStar's website, www.nrfc.com, and will be archived on the Company's website.  The call can also be accessed live over the phone by dialing 800-762-8779, or for international callers, by dialing 480-629-9771.

A replay of the call will be available one hour after the call through Friday, November 9, 2012 by dialing 800-406-7325 or, for international callers, 303-590-3030, using pass code 4570570.

About NorthStar Realty Finance Corp.

NorthStar Realty Finance Corp. is a diversified commercial real estate investment and asset management company that is organized as a REIT.  For more information about NorthStar Realty Finance Corp., please visit www.nrfc.com.

 

NorthStar Realty Finance Corp.






Consolidated Statements of Operations





($ in thousands, except share and per share data)

 









Three Months Ended September 30,


Nine Months Ended September 30,



2012


2011


2012


2011


Net interest income











Interest income



$                82,558


$           100,682


$          243,367


$         310,484


Interest expense on debt and securities



12,304


10,715


38,569


32,244


    Net interest income on debt and securities



70,254


89,967


204,798


278,240













Other revenues











Rental and escalation income



29,960


26,996


87,619


85,879


Commission income



12,213


3,131


28,291


5,775


Advisory and other fees



1,507


130


4,766


425


Other revenue



366


86


1,996


329


    Total other revenues



44,046


30,343


122,672


92,408


Expenses











Other interest expense



23,618


29,160


67,316


75,257


Real estate properties – operating expenses



5,145


3,539


14,834


18,649


Asset management expenses



751


1,302


2,552


4,531


Commission expense



11,070


2,698


25,538


5,117


Other costs, net



-


-


392


-


Provision for loan losses



6,360


9,340


19,737


48,040


Provision for loss on equity investment



-


-


-


4,482


General and administrative











Salaries and equity-based compensation (1)



13,691


11,386


41,764


43,252


Other general and administrative



6,170


7,426


18,671


21,148


    Total general and administrative



19,861


18,812


60,435


64,400


Depreciation and amortization



11,735


12,762


36,718


32,370


    Total expenses



78,540


77,613


227,522


252,846


Income (loss) from operations



35,760


42,697


99,948


117,802


Equity in earnings (losses) of unconsolidated ventures



421


(604)


(416)


(4,387)


Other income (loss)



-


(11,826)


20,258


(1,688)


Unrealized gain (loss) on investments and other



(202,019)


(68,446)


(413,073)


(351,271)


Realized gain (loss) on investments and other



15,221


14,364


35,768


61,937


Gain from acquisitions



-


81


-


81


Income (loss) from continuing operations



(150,617)


(23,734)


(257,515)


(177,526)


Income (loss) from discontinued operations



(23)


(16)


(88)


(654)


Gain (loss) on sale from discontinued operations



29


2,881


314


17,328


Net income (loss)



(150,611)


(20,869)


(257,289)


(160,852)


    Less: net (income) loss allocated to non-controlling interests



7,704


1,743


13,911


1,393


Preferred stock dividends



(6,671)


(5,231)


(17,629)


(15,694)


Contingently redeemable non-controlling interest accretion



-


(196)


-


(5,178)


Net income (loss) attributable to NorthStar Realty Finance Corp. common stockholders



$            (149,578)


$           (24,553)


$         (261,007)


$        (180,331)













Net income (loss) per share from continuing operations (basic/diluted)



$                  (1.11)


$               (0.29)


$               (2.17)


$              (2.26)


Income (loss) per share from discontinued operations (basic/diluted)



-


(0.01)


-


(0.01)


Gain per share on sale of discontinued operations (basic/diluted)



-


0.04


-


0.21


Net income (loss) per common share attributable to NorthStar Realty Finance Corp. common stockholders (basic/diluted)



$                  (1.11)


$               (0.26)


$               (2.17)


$              (2.06)


Weighted average number of shares of common stock:











    Basic



134,272,289


95,957,333


120,491,186


87,105,058


    Diluted



140,609,372


100,229,735


126,445,659


91,397,552


Dividends declared per share of common stock



$                    0.17


$               0.125


$                0.48


$             0.325



































(1) The three months ended September 30, 2012 and 2011 include $2.9 million and $2.2 million, respectively, of equity‑based compensation expense. The nine months ended September 30, 2012 and 2011 include $10.0 million and $6.9 million, respectively, of equity‑based compensation expense.

 

NorthStar Realty Finance Corp.






Consolidated Balance Sheets






($ in thousands, except share data)




















September 30, 2012


December 31,




(Unaudited)


2011








Assets






  VIE Financing Structures






  Restricted cash


$                 243,731


$            261,295


  Operating real estate, net 


340,164


313,227


  Real estate securities, available for sale 


1,125,875


1,358,282


  Real estate debt investments, net 


1,513,131


1,631,856


  Investments in and advances to unconsolidated

  ventures


62,831


62,938


  Receivables, net of allowance of $1,158 in 2012 and 

  $1,179 in 2011


18,575


22,530


  Derivative assets, at fair value


-


61


  Deferred costs and intangible assets, net 


40,120


47,499


  Assets of properties held for sale


1,595


3,198


  Other assets


14,063


20,549




3,360,085


3,721,435








  Non-VIE Financing Structures






  Cash and cash equivalents


252,427


144,508


  Restricted cash


24,996


37,069


  Operating real estate, net


768,129


776,222


  Real estate securities, available for sale


128,065


115,023


  Real estate debt investments, net


316,917


78,726


  Investments in and advances to unconsolidated

  ventures


51,239


33,205


  Receivables


15,808


8,958


  Receivables, related parties


8,561


5,979


  Unbilled rent receivable


13,459


11,891


  Derivative assets, at fair value


9,425


5,674


  Deferred costs and intangible assets, net


48,095


50,885


  Other assets


14,554


16,862




1,651,675


1,285,002








Total assets 


$              5,011,760


$         5,006,437








Liabilities






  VIE Financing Structures






  CDO bonds payable


$              2,104,782


$         2,273,907


  Mortgage notes payable


228,446


228,525


  Secured term loan


14,682


14,682


  Accounts payable and accrued expenses


15,123


15,754


  Escrow deposits payable


75,917


52,660


  Derivative liabilities, at fair value


188,412


226,481


  Other liabilities


25,540


55,007




2,652,902


2,867,016








  Non-VIE Financing Structures






  Mortgage notes payable


552,661


554,732


  Credit facilities


150,146


64,259


  Exchangeable senior notes


290,256


215,853


  Junior subordinated notes, at fair value


182,100


157,168


  Accounts payable and accrued expenses


46,375


50,868


  Escrow deposits payable


14,973


196


  Derivative liabilities, at fair value


-


8,193


  Other liabilities


53,693


48,538




1,290,204


1,099,807


Total liabilities


3,943,106


3,966,823


Commitments and contingencies






Equity






NorthStar Realty Finance Corp. Stockholders' Equity





Preferred stock, 8.75% Series A, $0.01 par value,

  $61,675 and $60,000 liquidation preference as of

  September 30, 2012 and December 31, 2011,

  respectively


59,453


57,867


Preferred stock, 8.25% Series B, $0.01 par value,

  $349,975 and $190,000 liquidation preference as of

  September 30, 2012 and December 31, 2011,

  respectively


323,769


183,505


Common stock, $0.01 par value, 500,000,000 shares

  authorized, 134,837,497 and 96,044,383 shares

  issued and outstanding at September 30, 2012 and

  December 31, 2011, respectively    


1,348


960


Additional paid-in capital


1,018,610


809,826


Retained earnings (accumulated deficit)


(326,183)


(8,626)


Accumulated other comprehensive income (loss)


(24,563)


(36,160)


     Total NorthStar Realty Finance Corp. stockholders'

       equity


1,052,434


1,007,372


Non-controlling interests


16,220


32,242


Total equity


1,068,654


1,039,614


Total liabilities and equity


$              5,011,760


$         5,006,437








 Non-GAAP Financial Measures

Included in this press release are certain "non-GAAP financial measures," which are measures of NorthStar's historical or future financial performance that are different from measures calculated and presented in accordance with accounting principles generally accepted in the United States, or U.S. GAAP, within the meaning of the applicable Securities and Exchange Commission, or SEC, rules.  These include: Funds From Operations and Adjusted Funds From Operations.   NorthStar believes these terms can be useful measures of its performance, which are further defined following the table below.

 

Funds  from Operations (FFO) and Adjusted Funds from Operations (AFFO) ($ in

thousands, except share and per share data)







Three Months Ended September 30,


Nine Months Ended September 30,





2012


2011


2012


2011


Funds from operations:











Income (loss) from continuing operations 



$            (150,617)


$           (23,734)


$         (257,515)


$        (177,526)


Non-controlling interests(1)



645


658


1,185


(7,737)


Net income (loss) before non-controlling interest in Operating Partnership



(149,972)


(23,076)


(256,330)


(185,263)













Adjustments:











Preferred stock dividends



(6,671)


(5,231)


(17,629)


(15,694)


Depreciation and amortization



10,423


12,762


32,581


32,370


Funds from discontinued operations



(23)


(16)


(82)


138


Real estate depreciation and amortization, unconsolidated ventures                            

207


207


621


646


Funds from operations



(146,036)


(15,354)


(240,839)


(167,803)













Adjusted funds from operations:











Funds from operations



(146,036)


(15,354)


(240,839)


(167,803)


Straight-line rental income, net



(749)


(678)


(2,106)


(1,910)


Straight-line rental income/expense and fair value lease revenue, unconsolidated ventures

237


(32)


702


(84)


Amortization of above/below market leases



(347)


(272)


(865)


(656)


Amortization of equity-based compensation



2,891


2,204


10,049


6,851


Unrealized (gain) loss from fair value adjustments



183,467


43,537


351,812


270,001


Gain from acquisitions



-


(81)


-


(81)


Adjusted funds from operations



$                39,463


$             29,324


$           118,753


$         106,318













FFO per share of common stock



$                  (1.04)


$                (0.15)


$               (1.90)


$              (1.84)


AFFO per share of common stock



$                    0.28


$                 0.29


$                 0.94


$                1.16













(1) Amount excludes non-controlling limited partner interests in NorthStar's operating partnership.

Funds from Operations (FFO) and Adjusted Funds from Operations (AFFO)

Management believes that funds from operations, or FFO, and adjusted funds from operations, or AFFO, each of which are non-GAAP measures, are additional appropriate measures of the operating performance of a REIT and NorthStar in particular. We compute FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts (NAREIT), as net income (loss) (computed in accordance with U.S. GAAP), excluding gains (losses) from sales of depreciable properties, the cumulative effect of changes in accounting principles, real estate‑related depreciation and amortization, impairment charges on depreciable property owned directly or indirectly and after adjustments for unconsolidated ventures.    FFO, as defined by NAREIT, is a computation made by analysts and investors to measure a real estate company's cash flow generated by operations.

NorthStar calculates AFFO by subtracting from or adding to FFO:

  • normalized recurring expenditures that are capitalized by NorthStar and then amortized, but which are necessary to maintain NorthStar's properties and revenue stream, e.g., leasing commissions and tenant improvement allowances;
  • an adjustment to reverse the effects of the straight‑lining of rental income or expense and fair value lease revenue;
  • the amortization or accrual of various deferred costs including intangible assets and equity-based compensation;
  • an adjustment to reverse the effects of acquisition gains or losses; and
  • an adjustment to reverse the effects of non-cash unrealized gains (losses).

NorthStar's calculation of AFFO differs from the methodology used for calculating AFFO by certain other REITs and, accordingly, our AFFO may not be comparable to AFFO reported by other REITs.

Neither FFO nor AFFO is equivalent to net income or cash generated from operating activities determined in accordance with U.S. GAAP.  Furthermore, FFO and AFFO do not represent amounts available for management's discretionary use because of needed capital replacement or expansion, debt service obligations or other commitments or uncertainties.  Neither FFO nor AFFO should be considered as an alternative to net income as an indicator of NorthStar's operating performance or as an alternative to cash flow from operating activities as a measure of NorthStar's liquidity.

NorthStar urges investors to carefully review the U.S. GAAP financial information included as part of the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and quarterly earnings releases.





Assets Under Management at September 30, 2012 (1)




($ in thousands)





Amount


%





CRE Debt




  First mortgage loans

$            1,644,207


23.2%

  Mezzanine loans

442,850


6.2%

  Credit tenant and term loans

232,491


3.3%

  Subordinate mortgage interests

131,062


1.8%

  Other (2)

324,012


4.6%

Total CRE debt

2,774,622


39.1%





CRE Securities




  CMBS 

2,373,496


33.4%

  Third-party CDO notes 

225,959


3.2%

  Other securities

148,905


2.1%

Total CRE securities

2,748,360


38.7%





Net Lease




  Core net lease

404,532


5.7%

  Healthcare net lease

562,476


7.9%

Total net lease 

967,008


13.6%





Subtotal NorthStar

6,489,990


91.4%





Sponsored REIT




  NorthStar Income (3)

607,971


8.6%

Grand total

$            7,097,961


100.0%





(1) Based on principal amount of CRE debt and security investments and the cost basis of net lease properties. Any real estate owned (either directly or through a joint venture) as a result of taking title to a property through foreclosure, deed in lieu or otherwise ("taking title to a property") reflects the principal amount of the loan at time of foreclosure.

(2) Primarily related to real estate owned (either directly or through a joint venture) as a result of taking title to a property. 

(3) Based on consolidated total assets.

























Investments 








2012 Year-to-Date through November 2, 2012





($ in millions)
















NorthStar Balance Sheet Investments


Assets


Invested Equity 


Expected
ROE (1)










Repurchases of NorthStar CDO bonds


$        326


$        159


20%+


CRE Loans


227


94


18%  (2)


Opportunistic CRE investments 


93


89


16%+










Total / weighted average


$       646


$       342


18%+


































Originated loans in 2012  - NorthStar non-traded REIT

$       308














Total Loans 


$       535














(1) Management provides no assurances that the weighted average life or cash flows of investments will be consistent with management's expectations or that the CDO bonds, originated loans or other investments, will payoff at par, if at all.


Actual results could differ materially from those presented.  






(2) Reflects NorthStar's recently priced CMBS transaction.



















Balance Sheet Holdings of NorthStar CDO Bonds (1)





At November 2, 2012





($ in thousands)












Principal



Based on original credit rating:


Amount (2)








AAA


$             178,279



AA through BBB


434,792



Below investment grade


191,790



Total


$             804,861








Weighted average original credit rating of repurchased CDO bonds


A+ / A1



Weighted average purchase price of repurchased CDO bonds


37%













(1) Unencumbered CDO bonds are owned by NorthStar. The majority of CDO bonds are eliminated with



 the corresponding liability of the respective CDO on NorthStar's consolidated financial statements. 








(2) Represents the maximum amount of principal proceeds that could be received. 




 


CDOs primarily backed by CRE Debt












($ in thousands)















































N-Star IV


N-Star VI


N-Star VIII


CSE


CapLease 




Issue/Acquisition Date


Jun-05


Mar-06


Dec-06


Jul-10


Aug-11


Total 


Balance sheet as of September 30, 2012 (1)














Assets, principal amount


$    381,411


$    469,276


$      965,278


$    1,021,838


$    167,893


$    3,005,696


CDO bonds, principal amount (2)


260,893


361,354


727,063


949,218


148,476


2,447,004


Net assets 


$    120,518


$    107,922


$      238,215


$         72,620


$      19,417


$       558,692
































CDO quarterly cash distributions and coverage tests (3)





























Equity notes and retained original below investment grade bonds


$        1,671


$           989


$          6,009


$           6,629


$           654


$         15,952


Collateral management fees


287


471


1,019


523


86


2,386

















Interest coverage cushion (1)


1,710


1,030


4,872


9,952


412



















Overcollateralization cushion (shortfall) (1)


47,917


57,003


140,236


72,782


8,938





 At offering 


19,808


17,412


42,193


(151,595)

(4)

5,987

(5)

































(1) Based on remittance report issued on date nearest to September 30, 2012.








(2) Includes all outstanding CDO bonds payable to third parties and all CDO bonds owned by NorthStar.








(3) Interest coverage and overcollateralization coverage to the most constrained class.








(4) Based on trustee report as of June 24, 2010, closest to the date of acquisition.








(5) Based on trustee report as of August 31, 2011, closest to the date of acquisition.






















 

CDOs primarily backed by CRE Securities











($ in thousands)


































N-Star I


N-Star II


N-Star III


N-Star V


N-Star VII


N-Star IX



Issue/Acquisition Date


Aug-03


Jul-04


Mar-05


Sep-05


Jun-06


Feb-07


Total 

Balance sheet as of September 30, 2012 (1)















Assets, principal amount


$    159,943


$    177,990


$    264,997


$   409,249


$   400,316


$   1,040,151


$    2,452,646

CDO bonds, principal amount (2)


152,838


167,700


179,940


312,577


306,751


742,980


1,862,786

Net assets 


$        7,105


$      10,290


$      85,057


$     96,672


$     93,565


$      297,171


$       589,860

































CDO quarterly cash distributions and coverage tests (3)































Equity notes and retained original below investment grade bonds


$                -


$                -


$               -


$               -


$               -


$          2,568


$           2,568

Collateral management fees


60


62


88


91


82


776


1,159

















Interest coverage cushion (shortfall) (1)


NEG


1,043


429


NEG


NEG


2,972



















Overcollateralization cushion (shortfall) (1)


NEG


NEG


NEG


NEG


NEG


43,500




At offering


8,687


10,944


13,610


12,940


13,966


24,516



































(1) Based on remittance report issued on date nearest to September 30, 2012.













(2) Includes all outstanding CDO bonds payable to third parties and all CDO bonds owned by NorthStar.









(3) Interest coverage and overcollateralization coverage to the most constrained class.












 










GAAP Book Value Rollforward






($ in thousands, except per share data)





















Amount


Per Share

Common book value at June 30, 2012, per share



$           856,672


$6.13










Net income to common shareholders and non-controlling

 interest, excluding non-cash fair value adjustments

 included in net income (loss)


26,987


0.19










Fair value adjustments included in net income (loss):






   CDO bonds payable





(193,721)


(1.39)

   Trust preferred debt





(20,726)


(0.15)

   Securities 





24,109


0.17

   Derivatives





6,871


0.05










Equity component of exchangeable senior notes issued



193


0.00










Change in other comprehensive income


1,743


0.01










Common dividends


(22,572)


(0.16)










Accretion (dilution) from additional shares issued during quarter (1)

9,379


0.03

Total net increases/(decreases)




(167,737)


(1.25)










Common book value at September 30, 2012, per share (2)(3)



$           688,935


$4.88










Adjusted common book value at September 30, 2012, per share (3)(4)



$        1,002,104


$7.10










(1) Includes amortization of LTIPs, issuance of common shares from Dividend Reinvestment Plan and 1.25 million shares issued during the quarter in a private offering.

(2) Common book value is calculated as total stockholder's equity of $1.1 billion and non-controlling interest in the operating partnership of $20 million less preferred stock of $383 million. 

(3) U.S. GAAP book value per share and adjusted book value per share calculations do not take into consideration any value related to the in-place and anticipated advisory fee income streams generated by NorthStar's sponsored, non-traded REIT vehicles and NorthStar's CDO management fees and do not take into account any potential dilution from certain restricted stock units, exchangeable notes or warrants. 

(4) Cumulative net unrealized and other adjustments total a positive $52 million ($0.37 per share), loan loss reserves total a negative $169 million ($1.20 per share) and accumulated depreciation and amortization total a negative $196 million ($1.39 per share) as of September 30, 2012. Excluding from GAAP book value these unrealized and other adjustments, loan loss reserves and accumulated depreciation and amortization would result in a $7.10 adjusted book value per share at September 30, 2012.


















NRFC NNN Holdings, LLC Portfolio Summary








($ in thousands)  

















Remaining






Cost basis


Date



Square


Lease


Cost


Existing


 less


Acquired

Tenant or Guarantor of Tenant

Location/MSA

Feet


   Term (1)


Basis (2)


Debt


Debt















Oct-2004

ALGM Portfolio - Sbarro, Inc. (3)

One property in New York, NY

7,500


0.3


$    3,246


$               -


$       3,246


Nov-2007

Alliance Data Systems Corp.

Columbus, OH

199,112


5.2


33,829


22,726


11,103


Mar-2007

Citigroup, Inc.

Fort Mill, SC/Charlotte

165,000


8.1


34,303


29,614


4,689


Jun-2006

Covance, Inc.

Indianapolis, IN

333,600


13.3


34,519


27,126


7,393


Feb-2007

Credence Systems Corp. 

Milpitas, CA/San Jose

178,213


4.4


30,144


20,752


9,392


Sep-2006

Dick's Sporting Goods, Inc. / PetSmart, Inc. (3)

9 properties

467,971


3.3 - 11.9


64,503


46,081


18,422


Sep-2005

Electronic Data Systems Corp. 

2 in MI / 1 in CA / 1 in PA

387,842


3.0


62,718


44,793


17,925


Aug-2005

GSA - U.S. Department of Agriculture

Salt Lake City, UT

117,553


4.6


23,211


14,287


8,924


Jun-2007

Landis Logistics / East Penn

Reading, PA

609,000


3.6 - 5.3


26,223


18,148


8,075


Jul-2006

Northrop Grumman Space & Mission Systems Corp.

Aurora, CO/Denver

183,529


2.7


42,400


31,830


10,570


Mar-2006

Party City Corp. (Amscan) / Lerner Enterprises, Inc.

Rockaway, NJ/ Northern NJ

121,038


2.7 - 4.8


22,221


16,442


5,779


Feb-2006

Quantum Corporation (4)

Colorado Springs, CO

406,207


0.2 - 8.4


27,215


17,356


9,859















Total NRFC NNN Holdings, LLC Portfolio


3,176,565


5.9


$404,532


$      289,155


$   115,377














 

(1) Remaining lease term as of September 30, 2012. Total represents weighted average based on cost basis.
(2) Cost basis includes capitalized expenditures since acquisition.
(3) One ALGM property and six of ten Dick's Sporting Goods, Inc. / PetSmart, Inc. properties are ground lease interests.
(4) Dollar amounts shown are 50% of total relating to NRFC NNN Holding's, LLC subsidiary's 50% interest in a joint venture with an institutional investor.

 


Portfolio Cash Flow and Tenant Credit Profile

($ in thousands)









Three Months Ended September 30, 2012


Primary Tenant


Tenant or Guarantor of Tenant


Base Rent


NOI


Debt Service


NOI Less Debt Service


Market Cap (1)


Actual Credit Rating


















ALGM Portfolio - Sbarro, Inc.


$           254


$           254


$             -


$           254


 N/A 


not rated



Alliance Data Systems Corp.


582


576


(426)


150


7,465


not rated



Citigroup, Inc.


538


532


(512)


20


101,845


A- / A



Covance, Inc.


638


632


(517)


115


2,702


not rated



Credence Systems Corp. 


701


695


(447)


248


312


not rated



Dick's Sporting Goods, Inc. / PetSmart, Inc.


1,321


1,301


(972)


329


6,204


not rated

(2)


Electronic Data Systems Corp. 


1,508


1,495


(824)


671


13,900


not rated



GSA - U.S. Department of Agriculture


648


429


(302)


127


N/A


implied AAA



Landis Logistics / East Penn


406


396


(332)

(3)

64


N/A


not rated



Northrop Grumman Space & Mission Systems Corp.


846


846


(617)


229


17,038


BBB+/Baa1



Party City Corp. (Amscan) / Lerner Enterprises, Inc.


468


468


(303)


165


362


B/B2

(4)


Quantum Corporation  (50%)


626


621


(326)


295


397


not rated


















Total


$      8,536


$      8,245


$    (5,578)


$      2,667





















(1) Based on information from Bloomberg at close of market on September 30, 2012 and presented in millions.
(2) Dick's Sporting Goods, Inc. is not rated by the major credit rating agencies. PetSmart, Inc. is rated BB+ by S&P.
(3) A portion of debt service is currently funded from a reserve account made up of an early lease termination fee received from prior tenant, not reflected in this schedule.
(4) The Party City Corp. lease is guaranteed by Amscan Holdings, Inc. which has a B/B2 credit rating by S&P and Moody's, respectively.

 

Safe Harbor Statement

This press release contains certain "forward‑looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or Exchange Act. Forward‑looking statements are generally identifiable by use of forward‑looking terminology such as "may," "will," "should," "potential," "intend," "expect," "seek," "anticipate," "estimate," "believe," "could," "project," "predict," "continue," "future" or other similar words or expressions. Forward‑looking statements are not guarantees of performance and are based on certain assumptions, discuss future expectations, describe plans and strategies, contain projections of results of operations or of financial condition or state other forward‑looking information. Such statements include, but are not limited to, those relating to the operating performance of our investments, our financing needs, the effects of our current strategies, loan and securities activities, our ability to manage our collateralized debt obligations, or CDOs, and our ability to raise capital. Our ability to predict results or the actual effect of plans or strategies is inherently uncertain, particularly given the economic environment. Although we believe that the expectations reflected in such forward‑looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward‑looking statements and you should not unduly rely on these statements. These forward‑looking statements involve risks, uncertainties and other factors that may cause our actual results in future periods to differ materially from those forward looking statements. These factors include, but are not limited to: adverse economic conditions and the impact on the commercial real estate finance industry; access to debt and equity capital and our liquidity; our use of leverage; our ability to meet various coverage tests with respect to our CDOs; our ability to obtain mortgage financing on our net lease properties; the affect of economic conditions on the valuations of our investments; performance of our investments relating to our expectations and the impact on our actual return on equity; ability to source and close on attractive investment opportunities; the impact of economic conditions on the borrowers of the commercial real estate debt we originate and the commercial mortgage loans underlying the commercial mortgage backed securities in which we invest; our ability to realize the value of the bonds we have purchased and retained in our CDOs and other securitization vehicles; our ability to access the securitization market; any failure in our due diligence to identify all relevant facts in our underwriting process or otherwise; credit rating downgrades; tenant or borrower defaults or bankruptcy; illiquidity of properties in our portfolio; environmental compliance costs and liabilities; effect of regulatory actions, litigation and contractual claims against us and our affiliates, including the potential settlement and litigation of such claims; competition for investment opportunities; regulatory requirements with respect to our business and the related cost of compliance; the impact of any conflicts arising from our asset management business; the ability to raise capital for the non-traded real estate investment trusts, or REITs, we sponsor; changes in laws or regulations governing various aspects of our business; the loss of our exemption from the definition of "investment company" under the Investment Company Act of 1940, as amended; competition for qualified personnel and our ability to retain key personnel; the effectiveness of our risk management systems; failure to maintain effective internal controls; compliance with the rules governing REITs; performance of our own investments relative to our expectations and the impact on our actual return on equity; whether NorthStar's recently priced CMBS transaction closes on the terms anticipated, if at all, and the timing of any such closing as well as whether the underlying loans are repaid at their initial maturity; and the factors described in Item 1A. of our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 under the heading "Risk Factors."

The foregoing list of factors is not exhaustive. All forward‑looking statements included in this press release are based upon information available to us on the date hereof and we are under no duty to update any of the forward‑looking statements after the date of this report to conform these statements to actual results.

Factors that could have a material adverse effect on our operations and future prospects are set forth in "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 beginning on page 18. The factors set forth in the Risk Factors section could cause our actual results to differ significantly from those contained in any forward‑looking statement contained in this press release.

 

SOURCE NorthStar Realty Finance Corp.

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