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NorthStar Realty Finance Announces Third Quarter 2011 Results

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NEW YORK, Nov. 3, 2011 /PRNewswire/ --

Third Quarter 2011 Highlights

  • Declared third quarter 2011 dividend of $0.125 per common share, 25% increase over prior quarter.
  • AFFO per diluted share of $0.29.
  • $116 million of unrestricted cash at September 30, 2011.
  • Acquired $240 million CRE CDO.
  • Non-listed REIT surpasses $100 million of capital raised to-date.

NorthStar Realty Finance Corp. (NYSE: NRF) today announced its results for the quarter ended September 30, 2011.

Third Quarter 2011 Results

NorthStar reported adjusted funds from operations ("AFFO") for the third quarter 2011 of $0.29 per diluted share compared with $0.15 per diluted share for the third quarter 2010.  

Net loss to common stockholders for the third quarter 2011 was $(24.6) million, or $(0.26) per diluted share, compared to net loss of $(144.1) million, or $(1.87) per diluted share for the third quarter 2010.  Third quarter 2011 net loss includes $(43.5) million of unrealized losses relating to non-cash fair value adjustments, compared to $(169.4) million of unrealized losses for the third quarter 2010.  These non-cash fair value gains and losses are excluded from AFFO.  Realized gains totaled $13.7 million for the third quarter 2011, compared with $26.8 million for the third quarter 2010.

At September 30, 2011, GAAP book value per share was $8.88.  For a reconciliation of net income (loss) to AFFO and GAAP book value per share, please refer to the tables on the following pages.

David T. Hamamoto, chairman and chief executive officer, commented, "Over the past few quarters, we have deployed a substantial amount of capital in accretive and opportunistic investments, in addition to recycling our CDO cash into higher yielding investments. As a result, NorthStar is pleased to have increased its quarterly common dividend by 25%, while at the same time retaining excess cash flow to pursue new investment opportunities with attractive risk-adjusted returns."

Mr. Hamamoto continued, "Surpassing the critical $100 million benchmark for capital raised to-date in our current non-listed REIT offering is a clear sign of NorthStar's viability in that market and we have high expectations for the future. The significant number of selling agreements with best in class broker-dealers and their registered representatives we added during the past several quarters is translating into increased capital raising velocity.  We expect these positive trends to continue, resulting in an increasing stream of fee income and cash flow to NorthStar."

Investments and Fee Income

NorthStar's investments highlights for the third quarter 2011:

  • Repurchased $63 million par amount of its CDO bonds. As of September 30, 2011, NorthStar owned a total of $556 million of its own CDO bonds, of which $377 million were re-purchased at an average price of 32% of par and had a weighted average original credit rating of AA-/Aa3.  This discount to par of $256 million represents potential imbedded gains that we can realize in future periods.
  • Acquired the collateral management rights, equity notes and $14 million of principal of originally-investment grade bonds of a $240 million commercial real estate CDO from CapLease Inc. The investment was funded with $12 million of unrestricted cash and $11 million of CDO cash. The collateral  consists of 61 investment grade credit tenant leases (72%), corporate credit notes (7%) and CMBS (21%) having a total weighted average coupon of 6.5% and a weighted average life of approximately 8 years. The equity notes and collateral management fees are currently expected to generate an initial approximate 25% annualized cash yield on the $12 million unrestricted cash investment.
  • Voluntarily repaid in full the $100 million preferred membership interest in NRF Healthcare which had a 10.5% distribution rate and an option to convert into common equity of our healthcare net lease portfolio.

NorthStar had approximately $7.3 billion of assets under management at September 30, 2011.

During the third quarter 2011, NorthStar earned management fees from its consolidated CDOs of $4.4 million and special servicing fees of $0.1 million.  These fees are eliminated on NorthStar's consolidated statement of operations.  In addition, during the third quarter 2011, NorthStar received $0.2 million of advisory fees from NorthStar's sponsored non-listed REIT.

For additional details regarding our investments and fee income, please refer to the tables on the following pages.

Liquidity, Financing and Capital Markets

Total liquidity at September 30, 2011 included $116 million of unrestricted cash and $19 million of available cash for re-investment in NorthStar's CDOs.  At September 30, 2011, NorthStar's only unrestricted cash needs related to non-discretionary future funding obligations associated with existing loan commitments were approximately $4 million.

NorthStar Real Estate Income Trust ("NSREIT"), a non-listed REIT sponsored by NorthStar, raised $32 million in the third quarter 2011, representing an 81% increase compared to the prior quarter.  NSREIT has raised $59 million in 2011 and $88 million since inception through September 30, 2011. NRF Capital Markets, LLC, NorthStar's wholly-owned broker-dealer subsidiary, had total signed selling agreements with broker-dealers covering more than 40,000 registered representatives as of September 30, 2011.  NorthStar expects to earn recurring, net fees approximately equal to three percentage points based on total capital raised for each of our sponsored, non-listed REITs.

Currently, NorthStar's only near-term corporate debt obligations relate to its exchangeable senior notes, of which $22 million principal amount of 7.25% notes are payable in June 2012 at the holders' option and $36 million of 11.5% notes are due in June 2013.

Risk Management

At September 30, 2011, NorthStar had three loans on non-performing status ("NPL"), representing $41 million in aggregate principal amount and a $2 million book value.  This amount is unchanged from June 30, 2011.  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 2011, NorthStar recorded $9 million of loan loss provisions relating to three loans, compared to $14 million of loan loss provisions related to four loans recorded during the second quarter 2011.  As of September 30, 2011, loan loss provisions totaled $191 million, or 7% of total loans, related to 22 loans with a book value of $286 million.

As of September 30, 2011, NorthStar's core net lease portfolio was 94% leased with a 6.7 year weighted average remaining lease term. As of September 30, 2011, 100% of our net lease healthcare portfolio was leased to third-party operators with weighted average lease coverage of 1.4x and a 7.9 year weighted average remaining lease term.

Stockholders' Equity

At September 30, 2011, NorthStar had 100,237,463 total common shares and operating partnership units outstanding and $30 million of non-controlling interests relating to its operating partnership.  GAAP book value per share was $8.88 at September 30, 2011.  Exclusive of all unrealized adjustments, loan loss provisions, and accumulated depreciation and amortization, adjusted book value at September 30, 2011 would be $7.41 per share.  The adjusted book value does not take into consideration any value related to the in-place and anticipated advisory fee income streams generated by our sponsored, non-listed REIT vehicles and our CDO management fees.  For a calculation of adjusted book value per share, please refer to the tables on the following pages.

Common Dividend Announcement

On November 2, 2011, NorthStar announced that its Board of Directors declared a cash dividend of $0.125 per share of common stock, payable with respect to the quarter ended September 30, 2011.  The dividend is expected to be paid on November 18, 2011 to shareholders of record as of the close of business on November 14, 2011. The Company's common shares will begin trading ex-dividend on November 10, 2011.

Earnings Conference Call

NorthStar will hold a conference call to discuss third quarter 2011 financial results on Thursday November 3, 2011, at 10:00 a.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 Company will post on its website, www.nrfc.com, a September 30, 2011 update to its corporate presentation.

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 877-941-8631, or for international callers, by dialing 480-629-9867.

A replay of the call will be available one hour after the call through Thursday November 10, 2011 by dialing 800-406-7325 or 303-590-3030 for international callers, using pass code 4480879.

About NorthStar Realty Finance Corp.

NorthStar Realty Finance Corp. is a finance REIT that originates, acquires and manages portfolios of commercial real estate debt, commercial real estate securities and net lease properties.  In addition, NorthStar engages in asset management and other activities related to real estate and real estate finance.  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,

2011


2010

2011


2010









Revenues and other income








Interest income

$     99,504


$    88,791


$  307,934


$  207,087

Rental and escalation income

26,996


31,912


85,879


82,980

Commission income

3,131


1,861


5,775


2,233

Other revenue

1,389


1,854


3,299


5,004

   Total revenues

131,020


124,418


402,887


297,304

Expenses








Interest expense

39,875


29,558


107,501


96,213

Real estate properties – operating expenses

3,427


12,374


18,537


24,661

Asset management expenses

1,279


1,931


4,508


4,251

Commission expense

2,322


1,399


4,338


1,677

Provision for loan losses

9,340


42,877


48,040


136,134

Provision for loss on equity investment

-


-


4,482


-

General and administrative








Salaries and equity-based compensation (1)

11,762


11,863


44,031


40,708

Auditing and professional fees

1,782


2,051


6,509


6,156

Other general and administrative

5,399


3,814


14,394


12,752

   Total general and administrative

18,943


17,728


64,934


59,616

Depreciation and amortization

12,762


7,980


32,370


23,493

   Total expenses

87,948


113,847


284,710


346,045

Income (loss) from operations

43,072


10,571


118,177


(48,741)

Equity in earnings (losses) of unconsolidated ventures

(604)


(60)


(4,387)


6,155

Other income (loss)

(11,826)


-


(1,688)


-

Unrealized gain (loss) on investments and other

(68,446)


(199,572)


(351,271)


(206,408)

Realized gain (loss) on investments and other

13,712


26,795


61,285


109,766

Gain from acquisitions

81


15,363


81


15,363

Income (loss) from continuing operations

(24,011)


(146,903)


(177,803)


(123,865)

Income (loss) from discontinued operations

(391)


55


(1,029)


(1,042)

Gain on sale from discontinued operations

3,533


-


17,980


2,528

Consolidated net income (loss)

(20,869)


(146,848)


(160,852)


(122,379)

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

1,743


7,963


1,393


1,018

Preferred stock dividends

(5,231)


(5,231)


(15,694)


(15,694)

Contingently redeemable non-controlling interest accretion

(196)


-


(5,178)


-

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

$    (24,553)


$ (144,116)


$ (180,331)


$ (137,055)









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

$        (0.29)


$       (1.87)


$       (2.26)


$       (1.82)

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

(0.01)


-


(0.01)


(0.01)

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

0.04


-


0.21


0.03

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

$        (0.26)


$       (1.87)


$       (2.06)


$       (1.80)

Weighted average number of shares of common stock:








Basic

95,957,333


77,139,868


87,105,058


76,211,705

Diluted

100,229,735


82,364,109


91,397,552


82,287,543

Dividends declared per share of common stock

$       0.125


$        0.10


$      0.325


$        0.30


(1)  The three months ended September 30, 2011 and 2010 include $2,204 and $3,894 of equity-based compensation expense, respectively. The nine months ended September 30, 2011 and 2010 include $6,851 and $13,133 of equity-based compensation expense.



NorthStar Realty Finance Corp.

Consolidated Balance Sheets

($ in thousands, except share data)


September 30, 2011


December 31,


(Unaudited)


2010





Assets




VIE Financing Structures




Restricted cash

$          259,563


$        263,314

Operating real estate, net

246,015


8,040

Real estate securities, available for sale

1,501,605


1,687,793

Real estate debt investments, net

1,730,467


1,672,664

Real estate debt investments, held for sale

21,274


18,661

Investments in and advances to unconsolidated ventures

63,956


72,536

Receivables, net of allowance of $1,198 in 2011 and $824 in 2010

23,300


26,419

Derivative assets, at fair value

8


42

Deferred costs and intangible assets, net

35,170


150

Assets of properties held for sale

6,610


5,101

Other assets

19,207


14,275


3,907,175


3,768,995





Non-VIE Financing Structures




Cash and cash equivalents

115,821


125,439

Restricted cash

49,989


46,070

Operating real estate, net

781,319


938,062

Real estate securities, available for sale

45,296


3,261

Real estate debt investments, net

107,701


153,576

Investments in and advances to unconsolidated ventures

22,109


21,876

Receivables, net of allowance of $614 in 2011 and $1,818 in 2010

9,100


5,910

Receivables, related parties

8,793


4,101

Unbilled rents receivable

11,241


10,404

Derivative assets, at fair value

7,320


17

Deferred costs and intangible assets, net

49,268


52,823

Assets of properties held for sale

9,122


-

Other assets

18,047


21,457


1,235,126


1,382,996





Total assets

$       5,142,301


$     5,151,991





Liabilities




VIE Financing Structures




CDO bonds payable

$       2,394,643


$     2,258,805

Mortgage notes payable

212,000


-

Secured term loan

14,682


14,682

Accounts payable and accrued expenses

16,565


15,691

Escrow deposits payable

53,425


60,163

Derivative liabilities, at fair value

243,572


190,993

Liabilities of properties held for sale

30


99

Other liabilities

30,302


8,654


2,965,219


2,549,087





Non-VIE Financing Structures




Mortgage notes payable

556,786


803,114

Secured term loan

-


22,199

Exchangeable senior notes

238,685


126,889

Junior subordinated notes, at fair value

151,265


191,250

Accounts payable and accrued expenses

40,568


34,160

Escrow deposits payable

1,291


548

Derivative liabilities, at fair value

8,381


29,696

Other liabilities

44,649


22,535


1,041,625


1,230,391

Total liabilities

4,006,844


3,779,478





Contingently redeemable non-controlling interest

-


94,822





Equity




NorthStar Realty Finance Corp. Stockholders’ Equity




Preferred stock, 8.75% Series A, $0.01 par value, $25 liquidation preference per share,

57,867


57,867

   2,400,000 shares issued and outstanding at September 30, 2011 and December 31, 2010


Preferred stock, 8.25% Series B, $0.01 par value, $25 liquidation preference per share,

183,505


183,505

   7,600,000 shares issued and outstanding at September 30, 2011 and December 31, 2010


Common stock, $0.01 par value, 500,000,000 shares authorized, 95,974,012 and 78,104,753

960


781

   shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively    


Additional paid-in capital

809,885


723,102

Retained earnings

86,058


293,382

Accumulated other comprehensive loss

(36,362)


(36,119)

    Total NorthStar Realty Finance Corp. Stockholders’ Equity

1,101,913


1,222,518

Non-controlling interests

33,544


55,173

Total equity

1,135,457


1,277,691

Total liabilities and stockholders’ equity

$       5,142,301


$     5,151,991



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 applicable 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,


2011


2010


2011


2010

Funds from Operations:








Income (loss) from continuing operations

$    (24,011)


$ (146,903)


$ (177,803)


$ (123,865)

Non-controlling interests(1)

658


(1,853)


(7,737)


(8,780)

Consolidated net income (loss) before non-controlling interest in operating partnership

(23,353)


(148,756)


(185,540)


(132,645)









Adjustments:








Preferred stock dividends

(5,231)


(5,231)


(15,694)


(15,694)

Depreciation and amortization

12,762


7,980


32,370


23,493

Funds from discontinued operations

(391)


709


(237)


984

Real estate depreciation and amortization, unconsolidated ventures

207


237


646


711

Funds from Operations

(16,006)


(145,061)


(168,455)


(123,151)









Adjusted Funds from Operations:








Funds from Operations

(16,006)


(145,061)


(168,455)


(123,151)

Straight-line rental income, net

(678)


(341)


(1,910)


(1,248)

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

(32)


(18)


(84)


(63)

Amortization of above/below market leases

(272)


(213)


(656)


(691)

Amortization of equity-based compensation

2,204


3,894


6,851


13,133

Unrealized (gain) loss from fair value adjustments

43,537


169,431


270,001


135,654

Unrealized loss from fair value adjustments, unconsolidated ventures

-


-


-


3,357

Gain from acquisitions

(81)


(15,363)


(81)


(15,363)

Adjusted Funds from Operations

$     28,672


$    12,329


$  105,666


$    11,628









FFO per share of common stock

$        (0.16)


$       (1.76)


$       (1.84)


$       (1.50)

AFFO per share of common stock

$         0.29


$        0.15


$        1.16


$        0.14


(1)  Amount excludes non-controlling limited partner interests in our 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 or loss (computed in accordance with GAAP), excluding gains or losses from sales of depreciable properties, the cumulative effect of changes in accounting principles, real estaterelated depreciation and amortization, and after adjustments for unconsolidated/uncombined partnerships and joint 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 straightlining of rents 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 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, 2011 (1)



($ in thousands)





Amount


%

Investment-grade CRE securities

$    720,458


9.9%

Non-investment grade CRE securities

2,576,245


35.3%

Total CRE Securities

3,296,703


45.2%





First mortgages loans (2)

1,860,957


25.5%

Mezzanine and subordinate loans (3)

1,020,058


14.0%

Credit tenant leases

144,617


2.0%

Total CRE Debt

3,025,632


41.5%





Investment-grade net lease

161,845


2.2%

Non-investment grade net lease

808,338


11.1%

Total Net Lease

970,183


13.3%





Total

$ 7,292,518


100.0%





(1) Based on principal amount of CRE debt, CRE securities and equity investments and the purchase price of operating real estate.

(2) Includes $204 million of junior participations in first mortgage loans.

(3) Includes $513 million related to equity investments, joint ventures and operating real estate.



N-Star CDOs primarily backed by CRE Debt












($ in thousands)








































N-Star IV


N-Star VI


N-Star VIII


CSE


CapLease



Issue Date

Jun-05


Mar-06


Dec-06


Mar-05


Dec-06


Total

Balance sheet as of September 30, 2011












Assets, principal amount (1)

$ 439,073


$ 498,350


$ 946,899


$ 1,089,559


$   244,908


$ 3,218,789

CDO bonds, principal amount (2)

284,279


336,850


577,700


900,981


225,085


2,324,895

Net assets

$ 154,794


$ 161,500


$ 369,199


$    188,578


$     19,823


$    893,894














Principal amount of












Original below IG rated CDO bonds

$             -


$   13,950


$   59,400


$      47,450


$              -


$    120,800

Original IG rated CDO bonds

9,750


26,925


77,000


85,929


-


199,604

Total CDO bonds

$     9,750


$   40,875


$ 136,400


$    133,379


$              -


$    320,404














Weighted average original credit rating of original IG rated CDO bonds











A+/A1

Weighted average purchase price of original IG rated CDO bonds











30%














CDO quarterly cash distributions and coverage tests (3)

























Equity distributions

$     2,563


$        138


$     2,782


$      14,039


$          475

(4)

$      19,997

Collateral management fees

341


496


983


542


121

(4)

2,483














Interest coverage cushion (5)

$     3,646


$531


$     6,082


$        5,878


$53
















Overcollateralization cushion (5)

$   69,568


$   54,366


$ 118,623


$      42,266


$       5,987




At offering

19,808


17,412


42,193


(151,595)

(6)

5,987

(7)















(1)  Includes investments in N-Star issued CDO bonds that are eliminated in consolidation.    

(2)  Includes N-Star issued CDO bonds that are eliminated in consolidation.    

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

(4)  Represents first distributions received, which was in October 2011.    

(5)  Quarterly interest coverage and overcollateralization cushions from remittance report issued on date nearest to September 30, 2011.  

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

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



N-Star 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 Date

Aug-03


Jul-04


Mar-05


Sep-05


Jun-06


Feb-07


Total

Balance sheet as of September 30, 2011














Assets, principal amount (1)

$ 223,506


$ 215,306


$ 418,174


$ 555,388


$ 733,469


$ 1,042,713


$ 3,188,556

CDO bonds, principal amount (2)

184,147


177,094


318,678


364,772


428,088


682,980


2,155,759

Net assets

$   39,359


$   38,212


$   99,496


$ 190,616


$ 305,381


$    359,733


$ 1,032,797
















Principal amount of














Original below IG rated CDO bonds

$14,000


$   15,492


$             -


$             -


$   16,200


$      13,040


$      58,732

Original IG rated CDO bonds

9,000


3,512


16,855


26,129


45,726


75,980


177,202

Total CDO bonds

$   23,000


$   19,004


$   16,855


$   26,129


$   61,926


$      89,020


$    235,934
















Weighted average original credit rating of original IG rated CDO bonds













AA-/Aa3

Weighted average purchase price of original IG rated CDO bonds













34%
















CDO quarterly cash distributions and coverage tests (3)





























Equity distributions

$             -


$             -


$     1,677


$             -


$     1,001


$        1,407


$        4,085

Collateral management fees

78


76


344


181


508


774


1,961
















Interest coverage cushion (4)

$      (576)


$      (270)


$     2,047


$        685


$        870


$        3,790


















Overcollateralization cushion (4)

$ (20,420)


$ (17,331)


$     9,141

(5)

$ (29,573)


$   14,866


$      48,192




At offering

8,687


10,944


13,610


12,940


13,966


24,516


















(1)  Includes investments in N-Star issued CDO bonds that are eliminated in consolidation.    

(2)  Includes N-Star issued CDO bonds that are eliminated in consolidation.    

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

(4)  Quarterly interest coverage and overcollateralization cushions from remittance report issued on date nearest to September 30, 2011.  

(5)  Amount represents estimated overcollateralization cushion as of October 17, 2011.  



CMBS Vintages Under Management

($ in thousands)


Amount


%


Cumulative

1997

$      36,336


1.3%


1.3%

1998

50,973


1.8%


3.1%

1999

32,393


1.2%


4.3%

2000

83,528


3.0%


7.3%

2001

86,105


3.1%


10.4%

2002

71,037


2.5%


12.9%

2003

117,690


4.2%


17.1%

2004

309,397


11.0%


28.1%

2005

480,585


17.1%


45.2%

2006

814,130


29.0%


74.2%

2007

549,868


19.6%


93.8%

2008

38,046


1.4%


95.2%

2009

54,075


1.9%


97.1%

2010

1,000


0.0%


97.1%

2011

79,045


2.9%


100.0%







Total

$ 2,804,208


100.0%





Credit Rating Distribution of Real Estate Securities Under Management

($ in thousands)





Principal Amount


%

AAA

$    119,334


3.6%

AA

49,228


1.5%

A

186,192


5.6%

BBB

365,705


11.1%

BB

516,296


15.6%

B

425,786


12.9%

CCC

619,863


18.8%

CC

239,196


7.3%

C

260,127


7.9%

Below C

466,739


14.2%

NR

48,237


1.5%

Total (average of B- /B3)

$ 3,296,703


100.0%



GAAP Book Value Rollforward

($ in thousands, except per share data)






Amount


Per Share

Common book value at June 30, 2011, per share

$ 927,765


$9.26





Net income to common shareholders and non-controlling interest, excluding non-cash




  fair value adjustments included in net income

17,899


0.18





Fair value adjustments included in net income:




  CDO bonds payable

162,271


1.62

  Trust preferred debt

55,686


0.56

  Securities and investments held at fair value

(200,776)


(2.00)

  Derivatives

(60,718)


(0.61)





Change in other comprehensive income

(3,972)


(0.04)





Common dividends

(10,022)


(0.10)





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

2,215


0.01

Total net increases/(decreases)

(37,417)


(0.38)





Common book value at September 30, 2011, per share (2)(3)

$ 890,348


$8.88









(1)  Related to amortization of LTIP shares and issuance of common shares from the Dividend Reinvestment and Stock Purchase Plan.  

(2)  Common book value calculated as total stockholder's equity of $1,102 million and non-controlling interest in the operating partnership of $30 million less preferred stock of $241 million.    

(3)  Cumulative net unrealized adjustments total a positive $490 million ($4.89 per share), credit loss provisions total a negative $191 million ($1.91 per share) and accumulated depreciation and amortization total a negative $151 million ($1.51 per share) as of September 30, 2011. Excluding all unrealized adjustments, loan loss provisions and accumulated depreciation and amortization would result in a $7.41 adjusted book value per share at September 30, 2011.  



NRFC NNN Holdings, LLC Portfolio Summary

($ in thousands)  






Years






Acquisition

Date



Square


Net


Acquisition


Existing


Cost less

Acquired

Tenant or Guarantor of Tenant

Location/MSA

Feet


  Lease (1)


Cost (2)


Debt


Debt













Oct-2004

ALGM Portfolio - Sbarro, Inc. (3)

One property in New York, NY

7,500


1.3


$    3,246


$               -


$       3,246

Nov-2007

Alliance Data Systems Corp.

Columbus, OH

199,112


6.2


33,826


23,011


10,815

Mar-2007

Citigroup, Inc.

Fort Mill, SC/Charlotte

165,000


9.1


34,303


29,945


4,358

Jun-2007

Landis Logistics / East Penn

Reading, PA

609,000


6.3


28,473


18,414


10,059

Jun-2006

Covance, Inc.

Indianapolis, IN

333,600


14.3


34,519


27,513


7,006

Feb-2007

Credence Systems Corp.

Milpitas, CA/San Jose

178,213


5.4


30,144


21,269


8,875

Sep-2006

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

9 properties

467,971


4.3-12.9


64,503


47,022


17,481

Sep-2005

Electronic Data Systems Corp.

2 in MI / 1 in CA / 1 in PA

387,842


4.0


62,718


45,622


17,096

Aug-2005

GSA - U.S. Department of Agriculture

Salt Lake City, UT

117,553


0.6


22,424


14,736


7,688

Jul-2006

Northrop Grumman Space & Mission Systems Corp.

Aurora, CO/Denver

183,529


3.8


43,625


32,834

(4)

10,791

Mar-2006

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

Rockaway, NJ/ Northern NJ

121,038


3.7-5.8


21,955


16,699


5,256

Feb-2006

Quantum Corporation (5)

Colorado Springs, CO

406,207


1.2-9.4


27,635


17,678


9,957













Total NRFC NNN Holdings, LLC Portfolio


3,176,565


6.7


$407,371


$      294,743


$   112,628













(1) Remaining lease term as of September 30, 2011.  Total represents weighted average based on acquisition cost.

(2) Acquisition cost does not include purchase price allocations.  



(3) One ALGM property and six of ten Dick's Sporting Goods, Inc. / PetSmart, Inc. properties are ground lease interests.



(4) Property is financed via a $32.3 million first mortgage with a third party and a $0.5 million mezzanine loan held by a consolidated NorthStar entity.



(5) 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, 2011


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.

$       251


$    251


$        -


$     251


N/A

(2)

not rated



Alliance Data Systems Corp.

582


581


(455)


126


4,720


not rated



Citigroup, Inc.

538


537


(512)


25


74,891


A/A3



Landis Logistics / East Penn

198


95


(356)

(3)

(261)


N/A

(4)

not rated



Covance, Inc.

638


638


(517)


121


3,605


not rated



Credence Systems Corp.

688


686


(447)


239


312


not rated



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

1,321


1,295


(973)


322


4,453


not rated

(5)


Electronic Data Systems Corp.

1,508


1,506


(824)


682


13,900


not rated



GSA - U.S. Department of Agriculture

579


446


(302)


144


N/A


implied AAA



Northrop Grumman Space & Mission Systems Corp.

846


846


(750)


96


19,278


BBB+/Baa1



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

459


459


(304)


155


362

(6)

B/B2

(7)


Quantum Corporation  (50%)

611


610


(319)


291


759


B/B2

















Total

$    8,219


$ 7,950


$ (5,759)


$  2,191






(1) Based on information from Bloomberg at close of market on September 30, 2011.

(2) Sole tenant in leasehold interest, Sbarro, Inc. filed for bankruptcy protection (Chapter 11) in April 2011 and they are expected to assume our lease. No other recent data is available.

(3) 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) Privately-held company, market capitalization information is not publicly disclosed.

(5) Dick's Sporting Goods, Inc. is not rated by the major credit rating agency's.  PetSmart, Inc. is rated BB by S&P.

(6) Represents purchase price by Amscan Holdings, Inc. (controlled by Berkshire Partners and Weston Presidio) for Party City in December 2005.  No other recent data is available.

(7) 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

Certain items in this press release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which can be identified by words like "anticipate," "believe," "plan," "hope," "goal," "expect," "future," "intend," "will," "could" and "should," and similar expressions.  These statements are based on management's current expectations and beliefs and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements; NorthStar can give no assurance that its expectations will be attained.  Forward-looking statements are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying any forward-looking statements will not materialize or will vary significantly from actual results.  Variations of assumptions and results may be material.  Factors that could cause actual results to differ materially from NorthStar's expectations include, but are not limited to, changes in economic conditions generally and the real estate and bond markets specifically, availability of capital, ability to pursue available acquisitions and investment opportunities, possible impairments, ability to achieve targeted returns, increases in nonperforming loans, capital raising at & performance of NSREIT, ability to realize annualized cash yields, ability to compete effectively for servicing and selling agreements, failure to make new investments as and when anticipated, generally accepted accounting principles and policies and rules applicable to REITs.  Factors that could cause actual results to differ materially from those in the forward-looking statements are specified in the Company's Annual Report on Form 10-K, as amended, for the year ended December 31, 2010.  Such forward-looking statements speak only as of the date of this press release.  NorthStar expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in its expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.

SOURCE NorthStar Realty Finance



RELATED LINKS
http://www.nrfc.com

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