NorthStar Realty Finance Announces First Quarter 2011 Results

NorthStar Realty Finance Corp.

Consolidated Statements of Operations

($ in thousands, except per share amounts)

Three Months Ended
March 31,

2011

2010

(unaudited)

(unaudited)

Revenues and other income:

Interest income

$97,640

$57,575

Rental and escalation income

32,927

19,289

Commission income

918

-

Other revenue

333

2,194

Total revenues

131,818

79,058

Expenses:

       Interest expense

33,420

32,163

       Real estate properties – operating expenses

12,497

1,601

       Asset management expenses

1,680

711

       Commission expense

717

-

       Asset management fees – related parties

-

450

       Provision for loan losses

24,500

36,316

       Provision for equity investment losses

4,482

-

General and administrative:

       Salaries and equity-based compensation ⁽¹⁾

12,741

16,532

       Auditing and professional fees

2,419

2,158

       Other general and administrative

4,163

4,077

Total general and administrative

19,323

22,767

Depreciation and amortization

8,082

7,785

Total expenses

104,701

101,793

Income/(loss) from operations

27,117

(22,735)

Equity in (loss)/earnings of unconsolidated ventures

(2,228)

1,349

Unrealized (loss) on investments and other

(152,218)

(439)

Realized gain on investments and other

20,872

1,433

Loss from continuing operations

(106,457)

(20,392)

Income from discontinued operations

409

289

Gain on sale from discontinued operations

5,031

-

Consolidated net loss

(101,017)

(20,103)

   Less: net loss allocated to the non-controlling interests

5,464

411

Preferred stock dividends

(5,231)

(5,231)

Contingently redeemable non-controlling interest accretion

(3,009)

-

Net loss attributable to NorthStar Realty Finance Corp. common stockholders

($103,793)

($24,923)

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

($1.33)

($0.33)

Weighted average number of shares of common stock:

Basic

78,196,016

75,068,654

Diluted

82,534,563

82,217,223

(1) The three months ended March 31, 2011 and 2010 include $2,034 and $5,058 of equity-based compensation expense, respectively.  The three months ended March 31, 2010 includes $3,583 of cash compensation expense and $1,014 of equity based compensation expense relating to a separation and consulting agreement with a former executive.

NorthStar Realty Finance Corp.

Consolidated Balance Sheets

March 31,

December 31,

($ in thousands)

2011

2010

(unaudited)

ASSETS:

Cash and cash equivalents

$192,938

$125,439

Restricted cash (includes $207,655 and $263,314 from consolidated VIEs, respectively)

284,452

309,384

Operating real estate, net

896,838

849,499

Available for sale securities, at fair value (includes $1,856,742 and $1,668,217 from consolidated VIEs, respectively)

1,900,295

1,691,054

Real estate debt investments, net (includes $1,683,850 and $1,659,882 from consolidated VIEs, respectively)

1,793,175

1,826,239

Real estate debt investments, held-for-sale (includes $18,806 and $18,661  from consolidated VIEs, respectively)

18,806

18,662

Investments in and advances to unconsolidated ventures (includes $ -  and $66,959 from consolidated VIEs, respectively)

87,795

94,412

Receivables, net of allowance of $2,409 in 2011 and $2,642 in 2010 (includes net $27,993 and $26,337 from consolidated VIEs, respectively)

33,997

32,329

Unbilled rents receivable

10,306

10,404

Derivative instruments, at fair value (includes $55 and $42 from consolidated VIEs, respectively)

55

59

Deferred costs and intangible assets, net

54,679

49,811

Assets of properties held for sale (includes $5,100 and $13,141 from consolidated VIEs, respectively)

96,174

104,866

Other assets (includes $5,943 and $14,277 from consolidated VIEs, respectively)

32,152

39,833

Total assets

$5,401,662

$5,151,991

LIABILITIES:

Mortgage notes and loans payable

765,155

729,212

Exchangeable senior notes

249,535

126,889

Bonds payable, at fair value (includes $2,495,062 and $2,258,805 from consolidated VIEs, respectively)

2,495,062

2,258,805

Secured term loans

14,682

36,881

Liability to subsidiary trusts issuing preferred securities, at fair value

220,004

191,250

Accounts payable and accrued expenses (includes $16,356 and $15,668 from consolidated VIEs, respectively)

42,742

49,792

Escrow deposits payable (includes $42,016 and $60,163 from consolidated VIEs, respectively)

42,510

60,710

Derivative liability, at fair value (includes $174,924 and $190,993 from consolidated VIEs, respectively)

201,728

220,689

Liabilities of properties held for sale (includes $ -  and $131 from consolidated VIEs, respectively)

74,394

74,061

Other liabilities (includes $7,900 and $8,654 from consolidated VIEs, respectively)

26,808

31,189

Total liabilities

4,132,620

3,779,478

Contingently redeemable non-controlling interest

97,831

94,822

EQUITY:

NorthStar Realty Finance Corp. Stockholders’ Equity:

8.75% Series A preferred stock, $0.01 par value, $25 liquidation preference per share, 2,400,000 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively

57,867

57,867

8.25% Series B preferred stock, $0.01 par value, $25 liquidation preference per share, 7,600,000 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively

183,505

183,505

Common stock, $0.01 par value, 500,000,000 shares authorized, 78,608,319 and 78,104,753 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively    

786

781

Additional paid-in capital

740,165

723,102

Retained earnings

181,920

293,382

Accumulated other comprehensive loss

(34,344)

(36,119)

    Total NorthStar Realty Finance Corp. Stockholders’ Equity

1,129,899

1,222,518

Non-controlling interest

41,312

55,173

 Total equity

1,171,211

1,277,691

Total liabilities and stockholders’ equity

$5,401,662

$5,151,991

Three Months Ended

December 31,

2011

2010

Funds from Operations:

Loss from continuing operations

($106,457)

($20,392)

Non-controlling interest

(128)

(1,962)

Consolidated net loss before non-controlling interest  

in operating partnership                                

(106,585)

(22,354)

Adjustments:

Preferred stock dividends

(5,231)

(5,231)

Depreciation and amortization

8,082

7,785

Funds from discontinued operations

1,074

987

Real estate depreciation and amortization –  

 Unconsolidated ventures                                     

232

237

Funds from Operations

(102,428)

(18,576)

Adjusted Funds from Operations:

Funds from Operations

($102,428)

($18,576)

Straight-line rental income, net

(223)

(546)

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

(21)

(26)

Amortization of equity-based compensation

2,034

5,058

Amortization of above/below market leases

(214)

(264)

Unrealized loss/(gain) from mark-to-market

  adjustments

122,288

(20,158)

Unrealized loss from mark-to-market

 adjustments, unconsolidated ventures

-

625

Adjusted Funds from Operations

$21,436

($33,887)

FFO per share of common stock

($1.24)

($0.23)

AFFO per share of common stock

$0.26

($0.41)

Balance Sheet Holdings of NorthStar CDO Bonds ⁽¹⁾

at March 31, 2011

($ in thousands)

Current Face Amount

Original Investment Grade Bonds

Original Below Investment Grade Bonds

Total CDO Bonds

N-Star I

-

$10,000

$10,000

N-Star II

-

10,000

10,000

N-Star III

16,855

0

16,855

N-Star IV

5,000

0

5,000

N-Star V

3,807

0

3,807

N-Star VI

26,925

13,950

40,875

N-Star VII

5,100

16,200

21,300

N-Star VIII

63,240

59,400

122,640

N-Star IX

57,480

13,040

70,520

CSE RE 2006-A

59,930

47,450

107,380

  Total

$238,337

$170,040

$408,377

Average original credit rating

A+/A1

BB/ Ba2

(1) Unencumbered CDO bonds are owned by NorthStar. These CDO bonds are eliminated with the liability of the respective CDO issuer on NorthStar's financial statements. Therefore, the acquisition of these CDO bonds results in a reduction of debt and associated interest expense, as opposed to an additional asset and associated interest income.

Management Fees From NorthStar CDO Financings at March 31, 2011 

($ in thousands)

Annualized

Fee - Based

Annual Management Fee %

Management Fee

Assets

Senior

Subordinate

Total

Revenue

N-Star I

$211,539

0.15%

0.20%

0.35%

$740

N-Star II ⁽¹⁾

223,834

0.15%

0.20%

0.35%

336

N-Star III

392,668

0.15%

0.20%

0.35%

1,374

N-Star IV

453,806

0.15%

0.20%

0.35%

1,588

N-Star V

535,351

0.15%

0.20%

0.35%

1,874

N-Star VI

504,835

0.15%

0.25%

0.40%

2,019

N-Star VII

604,367

0.15%

0.20%

0.35%

2,115

N-Star VIII

974,132

0.15%

0.25%

0.40%

3,897

N-Star IX

760,155

0.15%

0.25%

0.40%

3,041

CSE RE 2006-A ^{(1) (2)}

1,153,304

0.15%

0.25%

0.40%

2,270

  Total

$5,813,991

$19,254

(1) Subordinate management fees not received for the first quarter.

(2) Includes advancing agent fees received during the first quarter 2011.

NorthStar CDO Financings Cash Distributions and Coverage Test Summary  

($ in thousands)

Quarterly

Cash Distributions ⁽¹⁾

Interest Coverage

Overcollateralization

Primary

Quarter Ended

Cushion ⁽²⁾

Cushion ⁽²⁾

Collateral

March 31,

March 31,

March 31,

At

Type

2011

2011

2011

Offering

N-Star I

CMBS

$447

($406)

($9,800)

$8,687

N-Star II

CMBS

0

(122)

(14,350)

10,944

N-Star III

CMBS

1,776

2,714

15,067

13,610

N-Star IV

Loans

2,189

1,936

57,438

19,808

N-Star V

CMBS

803

1,167

1,680

⁽³⁾

12,940

N-Star VI

Loans

650

923

31,639

17,412

N-Star VII

CMBS

2,416

2,880

11,858

13,966

N-Star VIII

Loans

3,479

3,199

118,005

42,193

N-Star IX

CMBS

1,640

2,530

27,019

24,516

CSE RE 2006-A

Loans

0

⁽⁴⁾ 

4,759

13,510

(151,595)

⁽⁵⁾

Table shows cash distributions to the retained income notes. Interest coverage and overcollateralization coverage to the

most constrained class.

(1) Cash distributions are exclusive of senior management fees which are not subject to the coverage tests.

(2) Quarterly interest cushion and overcollateralization cushions from remittance report issued on date nearest to March 31, 2011.

(3) As of April 2011, N-Star V's overcollateralization cushion is negative.

(4) As of March 31, 2011, $7 million is held in escrow pending resolution of certain assets.

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

Assets Under Management at March 31, 2011

($ in thousands)

$

%

Investment grade securities

$967,855

13.2%

First mortgages ⁽¹⁾

2,096,325

28.5%

Investment grade net lease ⁽²⁾

161,845

2.2%

Non-investment grade securities

2,367,825

32.2%

Mezzanine and other subordinate loans ⁽³⁾

784,696

10.7%

Non-investment grade net lease ⁽²⁾

972,190

13.2%

Total

$7,350,736

100.0%

(1) Includes $249 million of junior participations in first mortgages.

(2) Net lease amounts prior to accumulated depreciation and impact of purchase price allocations.

(3) Includes $208 million of investments primarily related to equity investments, joint ventures and real estate owned
    assets.

NorthStar CDO Investment Summary

($ in thousands)

First Quarter 2011

CRE Loans

Purchases

$39,227

Future Fundings

9,586

Repayments / Sales

59,742

CRE Securities

Purchases par

$161,956

Purchases cost

90,267

Purchases avg credit rating

A- / A3

Sales par

92,571

Sales cost

86,995

Credit Ratings Distribution of Securities Under Management

($ in thousands)

$

%

AAA

$159,691

4.8%

AA

40,862

1.2%

A

204,430

6.1%

BBB

538,843

16.2%

BB

527,208

15.8%

B

356,996

10.7%

CCC

613,675

18.4%

CC

278,389

8.3%

C

360,968

10.8%

Below C

254,617

7.7%

Total (average of B /B2)

$3,335,679

100.0%

CMBS Vintages Under Management

($ in thousands)

$

%

Cumulative

1997

$34,952

1.2%

1.2%

1998

59,678

2.1%

3.3%

1999

25,099

0.9%

4.2%

2000

100,817

3.6%

7.8%

2001

92,654

3.3%

11.1%

2002

71,799

2.6%

13.7%

2003

117,737

4.2%

17.9%

2004

311,538

11.1%

29.0%

2005

514,741

18.4%

47.4%

2006

835,563

29.8%

77.2%

2007

483,916

17.3%

94.5%

2008

98,046

3.5%

98.0%

2009

54,075

1.9%

99.9%

2010

2,300

0.1%

100.0%

2011

1,000

0.0%

100.0%

Total

$2,803,915

100.0%

Book Value Rollforward 

($ in thousands, except per share data)

$

Per Share

Common book value at December 31, 2010 (diluted)

$1,022,235

$12.41

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

  mark-to-market items included in net income 

12,903

0.16

Mark-to-market adjustments included in net income:

  CDO notes  

(302,110)

(3.67)

  Trust preferred debt  

(28,770)

(0.35)

  Securities and investments held at market value  

189,635

2.30

  Swaps and other hedges   

18,957

0.23

Mark-to-market adjustments in other comprehensive income and

non-controlling interest:

  Effective hedges  

1,873

0.02

Common dividends 

(8,237)

(0.10)

Equity component of exchangeable senior notes issued / repurchased 

12,139

0.15

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

114

(0.04)

Total net increases/(decreases)

(103,496)

(1.30)

Common book value at March 31, 2011 (diluted) ⁽²⁾

$918,739

$11.11

(1) Relates primarily to amortization of LTIP shares and issuance of common shares from DRIP and DSPP.  Per share dilution as a result of common shares issued.

(2) Cumulative net mark-to-market adjustments total a positive $573.5 million ($6.93 per diluted share), credit loss reserves total a negative $188.6 million ($2.28 per diluted share) and accumulated real estate depreciation and amortization total a negative $154.3 million ($1.86 per diluted share) as of March 31, 2011. Excluding all mark-to-market adjustments, loan loss reserves, and accumulated depreciation and amortization would result in a $8.32 diluted book value per common share at March 31, 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 - Various ^{(3) (4)}

One property in New York, NY

7,500

1.8

$3,246

⁽⁵⁾

$0

$3,246

Nov-2007

Alliance Data Systems Corp.

Columbus, OH

199,112

6.7

33,826

23,160

10,666

Mar-2007

Citigroup, Inc.

Fort Mill, SC/Charlotte

165,000

9.6

34,303

30,099

4,204

Jun-2007

Landis Logistics ⁽⁶⁾

Reading, PA

609,000

5.8

28,473

18,575

9,898

Jun-2006

Covance, Inc.

Indianapolis, IN

333,600

14.8

34,519

27,693

6,826

Feb-2007

Credence Systems Corp.

Milpitas, CA/San Jose

178,213

5.9

30,144

21,512

8,632

Sep-2006

Dick's Sporting Goods, Inc. / PetSmart, Inc. ⁽⁴⁾

9 properties

467,971

4.8-13.4

64,503

47,462

17,041

Sep-2005

Electronic Data Systems Corp.

2 in MI / 1 in CA / 1 in PA

387,842

4.5

62,718

46,013

16,705

Dec-2005

Cincom Systems, Inc. ⁽⁷⁾

Springdale, OH/Cincinnati

486,963

10.8

69,341

51,480

17,862

Aug-2005

GSA - U.S. Department of Agriculture

Salt Lake City, UT

117,553

1.1

22,424

14,950

7,474

Jul-2006

Northrop Grumman Space & Mission Systems Corp. ⁽⁸⁾

Aurora, CO/Denver

183,529

4.3

43,625

33,231

10,394

Mar-2006

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

Rockaway, NJ/ Northern NJ

121,038

4.2-6.3

21,955

16,819

5,135

Feb-2006

Quantum Corporation ⁽⁹⁾

Colorado Springs, CO

406,207

1.7-9.9

27,635

17,820

9,815

Total NRFC NNN Holdings, LLC Portfolio

3,663,528

6.7

$476,712

$348,814

$127,898

(1) Remaining lease terms as of March 31, 2011.  Total represents weighted average based on acquisition cost.  

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

(3) On May 18, 2010, a 10,800 square foot property in the portfolio sold for $3.3 million, and on March 30, 2011, a 17,665 square foot property in the portfolio sold for $7.4 million. The proceeds are being held in escrow for use in acquiring a suitable replacement property.

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

(5) One ALGM property was owned by NorthStar's predecessor prior to NorthStar's initial public offering.  The value in acquisition cost column reflects the undepreciated book value when the properties were transferred to a subsidiary of NRFC NNN Holdings, LLC at the time of  NorthStar's initial public offering (10/29/04).

(6) Landis Logistics commenced a seven year lease on January 5, 2010 for 105,000 square feet.

(7) As of March 15, 2010, General Electric Co. vacated  approximately 312,409 square feet of space.  In November 2010 the mortgage lender declared a payment default and began foreclosure  proceedings. In April 2011, NorthStar completed a deed in lieu of foreclosure and paid approximately $2.5 million for certain interest payments, tenant improvements and leasing commissions in connection with the property.

(8) The Northrop Grumman Space & Mission Systems Corp. property is financed with a $32.5 million first mortgage with a third party and a $0.8 million mezzanine loan held by a consolidated  NorthStar entity.

(9) Dollar amounts shown are 50% of total values, representing 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 March 31, 2011

Primary Tenant

NOI Less

Actual

Tenant or Guarantor of Tenant

Base Rent

NOI

Debt Service

Debt Service

Market Cap ⁽¹⁾

Credit Rating

ALGM Portfolio - Various

$366

$263

-

$263

mixed tenants

Alliance Data Systems Corp.

582

573

(455)

118

$4,278

not rated

Citigroup, Inc.

538

530

(510)

20

128,267

A/A3

Landis Logistics

104

(123)

(332)

(455)

N/A

⁽²⁾

not rated

Covance, Inc.

638

630

(517)

113

3,713

not rated

⁽³⁾

Credence Systems Corp.

679

670

(447)

223

312

not rated

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

1,309

1,231

(973)

258

4,907

not rated

⁽⁴⁾

Electronic Data Systems Corp.

1,508

1,499

(824)

675

13,900

not rated

⁽⁵⁾

Cincom Systems, Inc. ⁽⁶⁾

574

297

(768)

(471)

N/A

⁽²⁾

not rated

GSA - U.S. Department of Agriculture

579

445

(302)

143

N/A

implied AAA

Northrop Grumman Space & Mission Systems Corp.

814

814

(701)

113

17,850

BBB+/Baa1

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

441

441

(303)

138

362

⁽⁷⁾

B/B2

⁽⁸⁾

Quantum Corporation  (50%)

606

592

(332)

260

691

B/B2

Total

$8,738

$7,862

(6,464)

$1,398

(1) Based on information from Bloomberg at close of market on March 31, 2011.

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

(3) Covance has a $1.3 billion net worth and minimal long-term debt according to its December 31, 2010 financial statements.

(4) PetSmart, Inc. is rated BB by S&P.

(5) In August 2008, Hewlett-Packard Co. purchased Electronic Data Systems for $13.9 billion. During the first quarter of 2010, ratings for EDS were withdrawn.

(6) As of March 15 , 2010, General Electric Co. vacated  approximately 312,409 square feet of space. GE's quarterly base rent had been $771,000. In November 2010, the mortgage lender declared a payment default and began foreclosure proceedings.  In April 2011, NorthStar completed a deed in lieu of foreclosure and paid approximately $2.5 million for certain interest payments, tenant  improvements and leasing commissions in connection with the property.

(7) In December 2005, Amscan Holdings, Inc. (controlled by Berkshire Partners and Weston Presidio) purchased Party City for $362 million.

(8) 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.