NorthStar Realty Finance Announces Fourth Quarter And Full Year 2012 Results

NEW YORK, Feb. 14, 2013 /PRNewswire/ --

Fourth Quarter 2012 Highlights

  • Increased fourth quarter 2012 cash dividend to $0.18 per common share, representing an 80% increase over the last six quarters.
  • AFFO per share of $0.73.
  • Announced $390 million investment in real estate private equity fund interests, including $115 million from our non-traded REIT.
  • Acquired $326 million manufactured housing portfolio.
  • Total capital raised of $146 million in the fourth quarter for our non-traded REIT.

Full Year 2012 Highlights

  • AFFO per share of $1.71.
  • Committed to $1.3 billion of investments, including $691 million in the fourth quarter.
  • $351 million CMBS transaction collateralized by CRE first mortgages originated by NorthStar and its non-traded REIT.
  • Raised $443 million of capital in our non-traded REIT, bringing total capital raised to $600 million at December 31, 2012. 

NorthStar Realty Finance Corp. (NYSE: NRF) today announced its results for the fourth quarter and full year ended December 31, 2012.

Fourth Quarter 2012 Results

NorthStar reported adjusted funds from operations ("AFFO") for the fourth quarter 2012 of $0.73 per share compared with $0.44 per share for the fourth quarter 2011.  AFFO for the fourth quarter 2012 was $105.5 million compared to $43.6 million for the fourth quarter 2011.  Net loss to common stockholders for the fourth quarter 2012 was $(27.6) million, or $(0.20) per diluted share, compared to a net loss of $(82.7) million, or $(0.85) per diluted share for the fourth quarter 2011.  Fourth quarter 2012 net loss includes $(117.5) million of non-cash fair value adjustments, including a $106.9 million increase in the value of our CDO bonds, compared to $(115.5) million of non-cash fair value adjustments for the fourth quarter 2011.  These non-cash fair value adjustments are excluded from AFFO. 

Full Year 2012 Results

NorthStar reported AFFO for the full year 2012 of $1.71 per share compared with $1.60 per share for the full year 2011. AFFO for the full year 2012 was $224.2 million compared to $149.4 million for the full year 2011.  Net loss to common stockholders for the full year 2012 was $(288.6) million, or $(2.31) per diluted share, compared to a net loss of $(263.0) million, or $(2.94) per diluted share for the full year 2011.  Full year 2012 net loss includes $(469.3) million of non-cash fair value adjustments, including a $510.1 million increase in the value of our CDO bonds, compared to $(385.5) million of non-cash fair value adjustments for the full year 2011.  These non-cash fair value adjustments are excluded from AFFO.  

David T. Hamamoto, chairman and chief executive officer, commented "2012 was a transformative year for NorthStar.  We committed to $1.3 billion of highly accretive and diverse investments across the commercial real estate landscape, which allowed us to substantially increase our cash flow and increase our dividend each quarter of 2012.   The cash available for distribution that we expect to earn in 2013 represents a sizable cushion to our current dividend and we will continue to evaluate our distribution policy on a quarterly basis, balancing distributions with retaining cash flow for accretive investments.  As we begin 2013, our pipeline of compelling investment opportunities has never been stronger and we are very excited about our prospects for 2013." 

Mr. Hamamoto continued, "Our asset management business gained significant traction in 2012 and we expect this business to continue to grow as we enter the market with additional vehicles in 2013.  Based on our expectation of capital raising for our non-traded REITs in 2013, we anticipate earning over $40 million of net fees from our asset management business in 2013.  Because we are an internally managed REIT, our shareholders are the direct beneficiaries of this long-term, highly valuable and growing fee stream."

Investments

During the fourth quarter, NorthStar committed $390 million to subscribe for Class A limited partnership interests in one or more newly formed limited partnerships (collectively, the "Partnership"). The Partnership will acquire limited partnership interests in approximately 50 real estate private equity funds managed by top institutional-quality sponsors. This investment is expected to be funded with $275 million from NorthStar and $115 million from NorthStar's sponsored non-traded REIT, NorthStar Real Estate Income Trust, Inc. ("NorthStar Income I").  NorthStar expects the first closing of this investment in February 2013, at which time the full amount of the investment would be funded. The Partnership is entitled to all distributions of capital after June 30, 2012 from the private equity funds underlying this investment irrespective of when this investment may close. The closing of each fund is subject to customary closing conditions.

During the fourth quarter, NorthStar acquired a $326 million portfolio of 36 manufactured housing communities containing 6,296 pad rental sites and 604 manufactured homes located across those sites.  NorthStar financed the transaction with a $237 million non-recourse, 10-year mortgage with an interest rate of 4.38%.  NorthStar expects to earn an initial current yield of 15% on its $81 million of equity in this investment.  

During the fourth quarter, NorthStar invested $15 million of equity in two commercial real estate loans with a $38 million aggregate principal balance.  During 2012, NorthStar invested $109 million of equity in 12 commercial real estate loans with a $265 million aggregate principal balance and expects to earn a weighted average return on this invested equity of 18%, including $8 million of facility financing that closed subsequent to year end.

The principal proceeds NorthStar could receive from CDO bonds acquired during the fourth quarter is $40 million, which were purchased for $26 million with a weighted average original credit rating of AA/Aa2. The principal proceeds NorthStar could receive from CDO bonds acquired during 2012 is $326 million, which were purchased for $159 million with a weighted average original credit rating of AA-/Aa3 and have an expected yield-to-maturity of over 20%.

As of December 31, 2012, the principal proceeds NorthStar could receive from its owned CDO bonds is $708 million, of which $558 million was repurchased at an average price of 32% in the secondary market and has a weighted average original credit rating of A+/A1.  The discount to par of $379 million represents potential imbedded cash flows that we may realize in future periods in addition to our capital invested in these bonds.  

NorthStar had approximately $7.4 billion of assets under management at December 31, 2012.

For additional details regarding NorthStar's investments, please refer to the tables on the following pages and to the corporate presentation which will be posted on NorthStar's website, www.nrfc.com, following close of business on February 15, 2013.

Asset Management Business

During the fourth quarter 2012, NorthStar received management fees from its consolidated CDOs of $3.3 million, which are eliminated on NorthStar's consolidated statement of operations.  In addition, during the fourth quarter 2012, NorthStar received $3.2 million of fees from NorthStar Income I.

NorthStar Income I raised $146 million in the fourth quarter 2012 and $600 million of total capital as of December 31, 2012, through NorthStar Realty Securities, LLC, NorthStar's wholly-owned broker-dealer. NorthStar Realty Securities, LLC currently has total signed selling agreements with broker-dealers covering more than 65,000 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. NorthStar Healthcare Income, Inc. began signing selling agreements and subsequent to the fourth quarter broke escrow and anticipates raising capital shortly.

During the fourth quarter, we, through our wholly-owned subsidiary, originated four loans on behalf of NorthStar Income I with a $167 million aggregate principal balance. In 2012, we originated 15 loans on behalf of NorthStar Income I with a $475 million aggregate principal balance.

Liquidity, Financing and Capital Markets Highlights

Unrestricted cash as of December 31, 2012 totaled approximately $445 million. Unrestricted cash after the $275 million commitment to the Partnership (net of $40 million deposited in connection with the Partnership prior to December 31, 2012) would be $210 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.

In December 2012, NorthStar sold 28.75 million shares of its common stock at a public offering price of $6.40 per share, generating net proceeds of $177 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. 

Portfolio Management

At December 31, 2012, NorthStar had one loan on non-performing status ("NPL"), which had a $13 million aggregate principal amount and a $7 million carrying value.  This compares to three loans with a $25 million aggregate principal amount and a $4 million carrying value at September 30, 2012.  NorthStar categorizes a loan as a NPL if it is in maturity default and/or is past due 90 days on its contractual debt service payments.

During the fourth quarter 2012, NorthStar recorded $3.3 million of net provision for loan losses, compared to $6.4 million of net provision for loan losses during the third quarter 2012.  As of December 31, 2012, loan loss reserves totaled $157 million, or 7% of total loans, related to 13 loans with a carrying value of $223 million.

As of December 31, 2012, NorthStar's net lease portfolio was 94% leased with a 5.7 year weighted average remaining lease term.  As of December 31, 2012, NorthStar's healthcare portfolio that was leased to third-party operators was 100% leased with weighted average lease coverage of 1.3x and a 6.9 year weighted average remaining lease term.  As of December 31, 2012, NorthStar's manufactured housing portfolio was 86% leased.

Stockholders' Equity

At December 31, 2012, NorthStar had 169,835,986 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 $4.82 at December 31, 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 December 31, 2012 would be $6.75 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.  NorthStar expects over $40 million of net asset management fees in 2013.  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 February 13, 2013, NorthStar announced that its Board of Directors declared a cash dividend of $0.18 per share of common stock, payable with respect to the quarter ended December 31, 2012.  The dividend is expected to be paid on March 1, 2013 to shareholders of record as of the close of business on February 25, 2013. The Company's common shares will begin trading ex-dividend on February 21, 2013.

Earnings Conference Call

NorthStar will hold a conference call to discuss fourth quarter 2012 financial results on February 14, 2013, at 10:00 a.m. Eastern time.  Hosting the call will be David Hamamoto, chairman and chief executive officer; Albert Tylis, president; Daniel Gilbert, chief investment and operating 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 877-941-8609, or for international callers, by dialing 480-629-9771.

A replay of the call will be available one hour after the call through Thursday, February 21, 2013 by dialing 800-406-7325 or, for international callers, 303-590-3030, using pass code 4590712.

About NorthStar Realty Finance Corp.

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

 

NorthStar Realty Finance Corp.









Consolidated Statements of Operations


Three Months Ended 

Years Ended 

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


December 31,

December 31,



2012


2011


2012


2011



(Unaudited)


(Unaudited)


(Unaudited)












Net interest income









Interest income


$       142,686


$      90,570


$      386,053


$    401,201

Interest expense on debt and securities


11,988


13,036


50,557


45,280

Net interest income on debt and securities


130,698


77,534


335,496


355,921










Other revenues









Rental and escalation income


31,308


26,818


116,614


112,697

Commission income


14,094


6,249


42,385


12,024

Advisory and other fees - related party


3,150


1,277


7,916


959

Other revenue


276


-


2,272


925

    Total other revenues


48,828


34,344


169,187


126,605

Expenses









Other interest expense


24,154


21,683


91,470


96,940

Real estate properties – operating expenses


4,896


3,912


18,545


22,611

Asset management expenses


2,884


1,438


6,714


8,824

Commission expense


12,968


5,647


38,506


10,764

Other costs, net


2,179


-


2,571


-

Impairment on operating real estate


966


-


966


-

Provision for loan losses, net


3,300


4,940


23,037


52,980

Provision for loss on equity investment


-


-


-


4,482

General and administrative









Salaries and equity-based compensation (1)


20,549


22,931


62,313


66,183

Other general and administrative


2,845


6,096


19,787


24,882

    Total general and administrative


23,394


29,027


82,100


91,065

Depreciation and amortization


12,392


11,888


48,836


44,258

    Total expenses


87,133


78,535


312,745


331,924

Income (loss) from operations


92,393


33,343


191,938


150,602

Equity in earnings (losses) of unconsolidated ventures


504


1,649


88


(2,738)

Other income (loss)


-


5,850


20,258


4,162

Unrealized gain (loss) on investments and other


(135,204)


(138,633)


(548,277)


(489,904)

Realized gain (loss) on investments and other


24,717


16,845


60,485


78,782

Gain from acquisitions


-


8


-


89

Income (loss) from continuing operations


(17,590)


(80,938)


(275,508)


(259,007)

Income (loss) from discontinued operations


24


(606)


340


(717)

Gain (loss) on sale from discontinued operations


1,765


(130)


2,079


17,198

Net income (loss)


(15,801)


(81,674)


(273,089)


(242,526)

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


(2,384)


4,222


11,527


5,615

Preferred stock dividends


(9,396)


(5,231)


(27,025)


(20,925)

Contingently redeemable non-controlling interest accretion


-


-


-


(5,178)

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


$       (27,581)


$     (82,683)


$    (288,587)


$   (263,014)










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


$           (0.21)


$         (0.85)


$          (2.32)


$         (3.12)

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


-


-


-


(0.01)

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


0.01


-


0.01


0.19

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


$           (0.20)


$         (0.85)


$          (2.31)


$         (2.94)

Weighted average number of shares of common stock:









Basic


139,218,177


96,006,344


125,198,517


89,348,670

Diluted


145,455,938


100,244,453


131,224,199


93,627,456




















(1) The three months ended December 31, 2012 and 2011 include $2.8 million and $4.8 million, respectively, of equity‑based compensation expense. The twelve months ended December 31, 2012 and 2011 include $12.8 million and $11.7 million, respectively, of equity‑based compensation expense.

 






NorthStar Realty Finance Corp.





Consolidated Balance Sheets





($ in thousands, except share data)












December 31,



2012


2011



(Unaudited)



Assets





Cash and cash equivalents


$    444,927


$    144,508

Restricted cash


360,075


298,364

Operating real estate, net


1,401,658


1,089,449

Real estate securities, available for sale


1,124,668


1,473,305

Real estate debt investments, net


1,832,231


1,710,582

Investments in and advances to unconsolidated ventures


111,025


96,143

Receivables, net of allowance of $1,526 in 2012 and $1,179 in 2011


28,413


31,488

Receivables, related parties


23,706


5,979

Unbilled rent receivable


16,129


11,891

Derivative assets, at fair value


6,229


5,735

Deferred costs and intangible assets, net


97,700


98,384

Assets of properties held for sale


1,595


3,198

Other assets


65,422


37,411

Total assets(1)


$ 5,513,778


$ 5,006,437






Liabilities





CDO bonds payable 


$ 2,112,441


$ 2,273,907

Mortgage notes payable


1,015,670


783,257

CMBS bonds payable


98,005


-

Secured term loan


14,664


14,682

Credit facilities


61,088


64,259

Exchangeable senior notes


291,031


215,853

Junior subordinated notes, at fair value


197,173


157,168

Accounts payable and accrued expenses


45,895


66,622

Escrow deposits payable


90,032


52,856

Derivative liabilities, at fair value


170,840


234,674

Other liabilities


86,075


103,545

Total liabilities(2)


4,182,914


3,966,823






Commitments and contingencies 





Equity





NorthStar Realty Finance Corp. Stockholders' Equity





Preferred stock, $536,640 and $250,000 aggregate liquidation preference as of 





December 31, 2012 and 2011, respectively


504,018


241,372

Common stock, $0.01 par value, 500,000,000 shares authorized, 163,607,259 and 





96,044,383 shares issued and outstanding as of December 31, 2012 and 2011, respectively    


1,636


960

Additional paid-in capital


1,195,131


809,826

Retained earnings (accumulated deficit)


(376,685)


(8,626)

Accumulated other comprehensive income (loss)


(22,179)


(36,160)

     Total NorthStar Realty Finance Corp. stockholders' equity


1,301,921


1,007,372

Non-controlling interests


28,943


32,242

Total equity


1,330,864


1,039,614

Total liabilities and equity


$ 5,513,778


$ 5,006,437













(1) Assets of consolidated VIEs included in the total assets above:





Restricted cash


$    320,815


$    261,295

Operating real estate, net


342,461


313,227

Real estate securities, available for sale


1,015,972


1,358,282

Real estate debt investments, net 


1,478,503


1,631,856

Investments in and advances to unconsolidated ventures


59,939


62,938

Receivables, net of allowance 


16,609


22,530

Derivative assets, at fair value 


-


61

Deferred costs and intangible assets, net


37,753


47,499

Assets of properties held for sale 


1,595


3,198

Other assets 


14,814


20,549

Total assets of consolidated VIEs


$ 3,288,461


$ 3,721,435






(2) Liabilities of consolidated VIEs included in the total liabilities above:





CDO bonds payable 


$ 2,112,441


$ 2,273,907

Mortgage notes payable


228,446


228,525

Secured term loan


14,664


14,682

Accounts payable and accrued expenses 


13,626


15,754

Escrow deposits payable 


67,406


52,660

Derivative liabilities, at fair value 


170,840


226,481

Other liabilities 


25,144


55,007

Total liabilities of consolidated VIEs


$ 2,632,567


$ 2,867,016






 

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 per share data)


Three Months Ended 

Year Ended 



December 31,

December 31,



2012


2011


2012


2011

Funds from operations:









Income (loss) from continuing operations 


$       (17,590)


$     (80,938)


$    (275,508)


$   (259,007)

Non-controlling interests(1)


(3,620)


572


(2,435)


(7,165)

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


(21,210)


(80,366)


(277,943)


(266,172)










Adjustments:









Preferred stock dividends


(9,396)


(5,231)


(27,025)


(20,925)

Impairment on operating real estate


966


-


966


-

Depreciation and amortization


16,133


8,786


48,440


41,156

Funds from discontinued operations


115


(96)


711


74

Real estate depreciation and amortization, unconsolidated ventures                                     


205


207


826


853

Funds from Operations


(13,187)


(76,700)


(254,025)


(245,014)










Adjusted funds from operations:









Funds from operations


(13,187)


(76,700)


(254,025)


(245,014)

Straight-line rental income, net


(1,230)


(852)


(3,336)


(2,762)

Straight-line rental income/expense and amortization of above/below market leases, unconsolidated ventures

216


1,014


918


930

Amortization of above/below market leases


(533)


(235)


(1,398)


(891)

Amortization of equity-based compensation


2,768


4,831


12,817


11,682

Unrealized (gain) loss from fair value adjustments


117,458


115,512


469,270


385,513

Gain from acquisitions


-


(8)


-


(89)

Adjusted Funds from Operations


$       105,492


$      43,562


$      224,246


$    149,369










FFO per share of common stock


$           (0.09)


$         (0.76)


$          (1.94)


$         (2.62)

AFFO per share of common stock (2)


$             0.73


$          0.44


$            1.71


$          1.60










(1) Amount excludes non-controlling limited partner interest in NorthStar's operating partnership.
(2) AFFO per share does not take into account any potential dilution from certain restricted stock units, exchangeable notes or warrants.

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 December 31, 2012 (1)




($ in thousands)





Amount


%





CRE Debt




First mortgage loans

$            1,578,872


21.3%

Mezzanine loans

440,941


6.0%

Credit tenant and term loans

230,178


3.1%

Subordinate mortgage interests

121,473


1.6%

Other (2)

336,893


4.6%

Total CRE debt

2,708,357


36.6%





Real Estate




Net lease

401,286


5.4%

Healthcare

572,370


7.7%

Other real estate (3)

326,028


4.4%

Total real estate

1,299,684


17.5%





Asset Management




NorthStar Income I (4)

854,516


11.5%





CRE Securities




CMBS 

2,207,067


29.9%

Third-party CDO notes 

197,103


2.7%

Other securities

134,905


1.8%

Total CRE securities

2,539,075


34.4%





Grand total

$            7,401,632


100.0%





(1) Based on principal amount of CRE debt and security investments and the cost basis of our real estate. 

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) Relates to an investment in manufactured housing communities including $284 million of pad rental sites, $13 million of manufactured homes and $29 million of intangible and other assets.

(4) Based on consolidated total assets.




 

Investments 








2012








($ in millions)
















NorthStar Balance Sheet Investments


Assets


Invested Equity 


Expected ROE (1)










Opportunistic CRE investments (2)


$         362


$        362


17%+


Opportunistic CDO bond repurchases


326


159


20%+


Real estate portfolio


332


84


15%+


CRE loans


265


109


18%

(3)









Total / weighted average


$     1,285


$       714


18%+


































Originated loans in 2012  - NorthStar non-traded REIT


$         475














Total Loans 


$       740














(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) Includes $275 million investment in real estate private equity fund interests which is expected to close in February 2013.

(3) Reflects $8 million of credit facility financing obtained in January 2013.






 

Balance Sheet Holdings of NorthStar CDO Bonds (1)



At December 31, 2012



($ in thousands)








Principal

Based on original credit rating:


Amount (2)




AAA


$             129,005

AA through BBB


386,917

Below investment grade


191,790

Total


$           707,712




Weighted average original credit rating of repurchased CDO bonds


A+ / A1

Weighted average purchase price of repurchased CDO bonds


32%







(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.  There is no assurance

     NorthStar will receive the maximum amount of principal proceeds.



 

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 December 31, 2012 (1)













Assets, principal amount


$    359,529


$    459,309


$      938,171


$       993,252


$    165,619


$    2,915,880

CDO bonds, principal amount (2)


239,103


357,573


718,867


920,631


146,241


2,382,415

Net assets 


$    120,426


$    101,736


$      219,304


$         72,621


$      19,378


$       533,465





























CDO quarterly cash distributions and coverage tests(3)



























Equity notes and retained original below investment grade bonds


$        1,747


$           773


$          4,553


$           8,412


$           684


$         16,169

Collateral management fees


283


469


984


378


85


2,199















Interest coverage cushion (1)


1,861


944


3,102


7,680


412

















Overcollateralization cushion (shortfall) (1)


48,552


57,931


131,339


74,211


9,009



          At offering 


19,808


17,412


42,193


(151,595)

(4)

5,987

(5)


























(1)

Based on remittance report issued on date nearest to December 31, 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 December 31, 2012 (1)















Assets, principal amount


$    133,795


$    164,320


$    242,790


$   366,016


$   342,338


$   1,036,652


$    2,285,911

CDO bonds, principal amount (2)


131,048


153,332


160,316


300,889


284,391


737,697


1,767,673

Net assets 


$        2,747


$      10,988


$      82,474


$     65,127


$     57,947


$      298,955


$       518,238

































CDO quarterly cash distributions and coverage tests(3)































Equity notes and retained original below investment grade bonds


$                -


$                -


$               -


$               -


$               -


$          3,170


$           3,170

Collateral management fees


53


56


74


$            75


$            69


$             788


1,115

















Interest coverage cushion (shortfall) (1)


NEG


737


NEG


NEG


NEG


2,572



















Overcollateralization cushion (shortfall)(1)


NEG


NEG


NEG


NEG


NEG


18,749



 

          At offering


8,687


10,944


13,610


12,940


13,966


24,516



































(1)   Based on remittance report issued on date nearest to December 31, 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 September 30, 2012, per share




$           688,935


$4.88











Net income to common shareholders before non-controlling interest in Operating Partnership,





    excluding non-cash fair value adjustments included in net income (loss)



88,642


0.63











Fair value adjustments included in net income (loss):







   CDO bonds payable






(106,909)


(0.76)

   Trust preferred debt






(15,073)


(0.11)

   Securities 






(13,054)


(0.09)

   Derivatives






17,578


0.12











Change in other comprehensive income



2,491


0.02











Common dividends



(23,981)


(0.17)











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


179,188


0.30

Total net increases/(decreases)





128,882


(0.06)











Common book value at December 31, 2012, per share (2)(3)




$           817,817


$4.82











Adjusted common book value at December 31, 2012, per share (3)(4)




$        1,145,605


$6.75











2013 expected net asset management fees


 $        40,000+ 















(1)

Includes December common stock offering, amortization of LTIPs and issuance of common shares from Dividend Reinvestment Plan.

(2)

Common book value is calculated as total stockholder's equity of $1.3 billion and non-controlling interest in the operating partnership of $20 million less preferred stock of $504 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 $33 million ($0.19 per share), loan loss reserves total a negative $157 million ($0.92 per share) and accumulated depreciation and amortization total a negative $204 million ($1.20 per share) as of December 31, 2012.  Excluding from GAAP book value these unrealized and other adjustments, loan loss reserves and accumulated depreciation and amortization would result in adjusted book value of $6.75 per share at December 31, 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

























Nov-2007

Alliance Data Systems Corp.

Columbus, OH

199,112


4.9


$      33,829


$        22,643


$     11,186

Mar-2007

Citigroup, Inc.

Fort Mill, SC/Charlotte

165,000


7.8


34,303


29,526


4,777

Jun-2006

Covance, Inc.

Indianapolis, IN

333,600


13.0


34,519


27,023


7,496

Feb-2007

Credence Systems Corp. 

Milpitas, CA/San Jose

178,213


4.2


30,144


20,616


9,528

Sep-2006

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

9 properties

467,971


3.1 - 11.7


64,503


45,823


18,680

Sep-2005

Electronic Data Systems Corp. 

2 in MI / 1 in CA / 1 in PA

387,842


2.7


62,718


44,576


18,142

Aug-2005

GSA - U.S. Department of Agriculture

Salt Lake City, UT

117,553


4.3


23,211


14,132


9,079

Jun-2007

Landis Logistics / East Penn

Reading, PA

609,000


3.4 - 5.0


26,223


18,074


8,149

Jul-2006

Northrop Grumman Space & Mission Systems Corp.

Aurora, CO/Denver

183,529


2.5


42,400


31,713


10,687

Mar-2006

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

Rockaway, NJ/ Northern NJ

121,038


2.4 - 4.6


22,221


16,374


5,847

Feb-2006

Quantum Corporation (4)

Colorado Springs, CO

406,207


0.2 - 8.2


27,215


17,281


9,934













Total NRFC NNN Holdings, LLC Portfolio


3,169,065


5.7


$    401,286


$      287,781


$   113,505

























(1) Remaining lease term as of December 31, 2012.  Total represents weighted average based on cost basis. 
(2) Cost basis includes capitalized expenditures since acquisition. 
(3) 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 December 31, 2012


Primary Tenant


Tenant or Guarantor of Tenant


Base Rent


NOI


Debt Service


NOI Less Debt
Service


Market Cap (1)


Actual Credit
Rating






























Alliance Data Systems Corp.


$             599


$             592


$             (459)


$             133


7,488


not rated


Citigroup, Inc.


538


532


(516)


16


120,791


A- / A


Covance, Inc.


638


633


(522)


111


3,201


not rated


Credence Systems Corp. 


701


695


(450)


245


312


not rated


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


1,321


1,288


(990)


298


5,616


not rated

(2)

Electronic Data Systems Corp. 


1,508


1,499


(831)


668


13,900


not rated


GSA - U.S. Department of Agriculture


648


424


(342)


82


N/A


implied AAA


Landis Logistics / East Penn


409


343


(332)


11


N/A


not rated


Northrop Grumman Space & Mission Systems Corp.


873


873


(622)


251


16,766


BBB+/Baa1


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


468


459


(306)


153


362


B/B2

(3)

Quantum Corporation  (50%)


584


577


(321)


256


318


not rated
















Total


$        8,287


$         7,915


$        (5,691)


$         2,224




















(1) Based on information from Bloomberg at close of market on December 31, 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) 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," "hypothetical," "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, the fees earned from our asset management business, our financing needs, the anticipated funding of our investment in the Partnership, the effects of our current strategies, loan and securities activities, our ability to manage our collateralized debt obligations, or CDOs, our ability to earn sufficient cash to cover our payout ratio and our non-traded real estate investment trusts, or REITs', 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; our ability to source and close on attractive investment opportunities; performance of our investments relative 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 CDO financing transactions and other securitized financing transactions and our ability to complete securitized financing transactions on terms that are acceptable to us, or at all;  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/operator 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, and effectively implement the business plan of,  the non-traded REITs we sponsor or advise; the fee stream we will receive from our non-traded REITs and the valuation thereof; 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; whether NorthStar's investment in real estate private equity fund interests closes on the terms anticipated, if at all; 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 and otherwise described in our filings with United States Securities and Exchange Commission; 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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