NorthStar Realty Finance Announces First Quarter 2012 Results

NEW YORK, May 3, 2012 /PRNewswire/ --

First Quarter 2012 Highlights

• Increased first quarter 2012 dividend to $0.15 per common share.
• AFFO per diluted share of $0.47.
• Won the appeal on "WaMu" property, which reversed $46 million judgment.
• Total capital raised to date of $267 million for our sponsored non-traded CRE REIT, including $31 million in April.

NorthStar Realty Finance Corp. (NYSE: NRF) today announced its results for the quarter ended March 31, 2012.

First Quarter 2012 Results

NorthStar reported adjusted funds from operations ("AFFO") for the first quarter 2012 of $0.47 per diluted share compared with $0.26 per diluted share for the first quarter 2011.  AFFO for the first quarter 2012 was $51.0 million compared to $21.4 million for the first quarter 2011.  Net loss to common stockholders for the first quarter 2012 was $(33.9) million, or $(0.33) per diluted share, compared to net loss of $(103.8) million, or $(1.33) per diluted share for the first quarter 2011.  First quarter 2012 net loss includes $(73.9) million of unrealized losses relating to non-cash fair value adjustments, compared to $(122.3) million of unrealized losses for the first quarter 2011.  These non-cash fair value losses are excluded from AFFO.  

At March 31, 2012, GAAP book value per share was $7.00.  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, "We are very pleased to have increased our dividend for the third consecutive quarter, which is a reflection of the continued growth in our cash flows.  Subsequent to quarter-end, we have invested an additional $89 million of equity in loan originations and opportunistic investments, including repurchases of our own CDO bonds and investments within our $7 billion portfolio. We are optimistic about the continued growth of our cash flows and we intend to regularly evaluate our dividend accordingly."

Investments and Fee Income

As of today, the principal proceeds NorthStar could receive from its owned CDO bonds is $706 million, of which $527 million was repurchased at an average price of 36% in the secondary market and has a weighted average original credit rating of AA-/Aa3.  This discount to par of $339 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 $7.0 billion of assets under management at March 31, 2012.

During the first quarter 2012, NorthStar received management fees from its consolidated CDOs of $3.9 million, which are eliminated on NorthStar's consolidated statement of operations.  In addition, during the first quarter 2012, NorthStar received $0.6 million of fees from our sponsored non-traded CRE REIT, NorthStar Real Estate Income Trust, Inc. ("NorthStar Income") and $0.1 million of special servicing fees.

For additional details regarding NorthStar's investments and fee income, please refer to the tables on the following pages and to the March 31, 2012 corporate presentation which will be posted on NorthStar's website, www.nrfc.com.

Liquidity, Financing and Capital Markets

As of March 31, 2012, unrestricted cash was $194 million and NorthStar's only unrestricted cash needs related to non-discretionary future funding obligations associated with existing loan commitments was $2 million.

On February 27, 2012, NorthStar completed the sale of 15 million shares of its common stock at a public offering price of $5.55 per share.  On March 2, 2012, the full over-allotment option of 2.25 million shares was exercised by the underwriters.  The net proceeds to NorthStar were $90 million.

On March 21, 2012, NorthStar issued an additional 1.6 million shares of its existing 8.25% Series B Preferred Stock at a public offering price of $22.92 per share (excluding accrued dividends) generating net proceeds of $35 million.

NorthStar Income raised $77 million in the first quarter 2012 and $267 million since inception, including $31 million in April 2012.  NorthStar Realty Securities, LLC, NorthStar's wholly-owned broker-dealer, had total signed selling agreements with broker-dealers covering more than 45,000 registered representatives as of March 31, 2012.  NorthStar expects to earn recurring, net fees approximately equal to three percentage points based on total capital raised for our sponsored non-traded REITs.

Currently, NorthStar's only near-term unsecured corporate debt obligations relate to its exchangeable senior notes, of which $20 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 March 31, 2012, NorthStar had two loans on non-performing status ("NPL"), representing $39 million in aggregate principal amount and a $29 million carrying value, excluding the Hancock tower loan which we expect to be restructured shortly.  This compares to four loans representing $51 million in aggregate principal amount and a $2 million carrying value at December 31, 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 first quarter 2012, NorthStar recorded $6.8 million of provision for loan losses relating to four loans, compared to $4.9 million of provision for loan losses related to three loans recorded during the fourth quarter 2011.  As of March 31, 2012, loan loss reserves totaled $166 million, or 7% of total loans, related to 19 loans with a carrying value of $253 million.

As of March 31, 2012, NorthStar's core net lease portfolio was 94% leased with a 6.2 year weighted average remaining lease term.  As of March 31, 2012, 100% of NorthStar's net lease healthcare portfolio was leased to third-party operators with weighted average lease coverage of 1.4x and a 7.6 year weighted average remaining lease term.

Stockholders' Equity

At March 31, 2012, NorthStar had 119,682,487 total common shares and operating partnership units outstanding and $28 million of non-controlling interests relating to its operating partnership.  GAAP book value per share was $7.00 at March 31, 2012.  Exclusive of certain unrealized adjustments, loan loss reserves and accumulated depreciation and amortization, adjusted book value at March 31, 2012 would be $7.08 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 NorthStar's sponsored, non-traded REIT vehicle and our CDO management fees.  For a reconciliation of adjusted book value per share to GAAP book value per share, please refer to the tables on the following pages.

Common Dividend Announcement

On May 2, 2012, NorthStar announced that its Board of Directors declared a cash dividend of $0.15 per share of common stock, payable with respect to the quarter ended March 31, 2012.  The dividend is expected to be paid on May 18, 2012 to shareholders of record as of the close of business on May 14, 2012. The Company's common shares will begin trading ex-dividend on May 10, 2012.

Earnings Conference Call

NorthStar will hold a conference call to discuss first quarter 2012 financial results on May 3, 2012, 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 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 877-941-0843, or for international callers, by dialing 480-629-9770.

A replay of the call will be available one hour after the call through Thursday, May 10, 2012 by dialing 800-406-7325 or, for international callers, 303-590-3030, using pass code 4532081.

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.

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)

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 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.

GAAP Book Value Rollforward
($ in thousands, except per share data)
						Amount		Per Share
Common book value at December 31, 2011, per share						$ 795,712		$7.94
Net income to common shareholders and non-controlling interest, excluding non-cash
fair value adjustments included in net income (loss)						38,244		0.38
Fair value adjustments included in net income (loss):
CDO bonds payable						(123,137)		(1.23)
Trust preferred debt						(19,760)		(0.20)
Securities and investments held at fair value						54,577		0.55
Derivatives						14,456		0.14
Change in other comprehensive income						4,068		0.04
Common dividends						(13,829)		(0.14)
Accretion (dilution) from additional shares issued during quarter (1)						86,883		(0.48)
Total net increases/(decreases)						41,502		(0.94)
Common book value at March 31, 2012, per share (2)(3)						$ 837,214		$7.00
(1)  Includes $90 million of net proceeds from common stock offering completed in February 2012, net of common dividends associated with these shares paid during the quarter. Additional amounts relate to amortization of LTIPs and issuance of common shares from Dividend Reinvestment Plan.
(2)  Common book value calculated as total stockholder's equity of $1.1 billion and non-controlling interest in the operating partnership of $28 million less preferred stock of $277 million.
(3)  Cumulative net unrealized adjustments total a positive $330 million ($2.76 per share), loan loss reserves total a negative $166 million ($1.39 per share) and accumulated depreciation and amortization total a negative $174 million ($1.45 per share) as of March 31, 2012. Excluding certain unrealized adjustments, loan loss reserves and accumulated depreciation and amortization would result in a $7.08 adjusted book value per share at March 31, 2012. GAAP book value per share and adjusted book value per share calculations do not take into account any potential dilution from certain RSUs, exchangeable notes or warrants.

	NRFC NNN Holdings, LLC Portfolio Summary
	($ in thousands)
						Remaining						Cost basis
	Date			Square		Lease		Cost		Existing		less
	Acquired	Tenant or Guarantor of Tenant	Location/MSA	Feet		Term (1)		Basis (2)		Debt		Debt
	Oct- 2004	ALGM Portfolio - Sbarro, Inc.(3)	One property in New York, NY	7,500		0.8		$ 3,290		$ -		$ 3,290
	Nov-2007	Alliance Data Systems Corp.	Columbus, OH	199,112		5.7		33,829		22,857		10,972
	Mar-2007	Citigroup, Inc.	Fort Mill, SC/Charlotte	165,000		8.6		34,303		29,778		4,525
	Jun- 2006	Covance, Inc.	Indianapolis, IN	333,600		13.8		34,519		27,318		7,201
	Feb-2007	Credence Systems Corp.	Milpitas, CA/San Jose	178,213		4.9		30,144		21,011		9,133
	Sep-2006	Dick's Sporting Goods, Inc. / PetSmart, Inc.(3)	9 properties	467,971		3.8 - 12.4		64,503		46,552		17,951
	Sep-2005	Electronic Data Systems Corp.	2 in MI / 1 in CA / 1 in PA	387,842		3.5		62,718		45,207		17,511
	Aug-2005	GSA - U.S. Department of Agriculture	Salt Lake City, UT	117,553		0.1		22,851		14,513		8,338
	Jun- 2007	Landis Logistics / East Penn	Reading, PA	609,000		5.8		26,014		18,295		7,719
	Jul- 2006	Northrop Grumman Space & Mission Systems Corp.	Aurora, CO/Denver	183,529		3.2		42,400		32,187	(4)	10,213
	Mar-2006	Party City Corp. (Amscan) / Lerner Enterprises, Inc.	Rockaway, NJ/ Northern NJ	121,038		3.2 - 5.3		22,221		16,569		5,652
	Feb-2006	Quantum Corporation (5)	Colorado Springs, CO	406,207		0.7 - 8.9		27,635		17,514		10,121
	Total NRFC NNN Holdings, LLC Portfolio			3,176,565		6.2		$ 404,427		$ 291,801		$ 112,626
	(1)  Remaining lease term as of March 31, 2012. Total represents weighted average based on cost basis.
	(2)  Cost basis includes capitalized expenditures since acquisition.
	(3)  One ALGM property and six of ten Dick's Sporting Goods, Inc. / PetSmart, Inc. properties are ground lease interests.
	(4)  Property is financed via a $32.1 million first mortgage with a third party and a $0.1 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 March 31, 2012								Primary Tenant
	Tenant or Guarantor of Tenant		Base Rent		NOI		Debt Service		NOI Less Debt Service		Market Cap (1)		Actual Credit Rating
	ALGM Portfolio - Sbarro, Inc.		$ 160		$ 159		$ -		$ 159		N/A		not rated
	Alliance Data Systems Corp.		582		572		(455)		117		6,175		not rated
	Citigroup, Inc.		538		529		(511)		18		99,223		A- / A3
	Covance, Inc.		638		629		(517)		112		2,782		not rated
	Credence Systems Corp.		692		683		(447)		236		312		not rated
	Dick's Sporting Goods, Inc. / PetSmart, Inc.		1,321		1,256		(973)		283		4,994		not rated	(2)
	Electronic Data Systems Corp.		1,508		1,498		(824)		674		13,900		not rated
	GSA - U.S. Department of Agriculture		579		451		(302)		149		N/A		implied AAA
	Landis Logistics / East Penn		312		75		(332)	(3)	(257)		N/A	(4)	not rated
	Northrop Grumman Space & Mission Systems Corp.		846		846		(835)		11		14,847		BBB+/Baa1
	Party City Corp. (Amscan) / Lerner Enterprises, Inc.		468		468		(303)		165		362	(5)	B/B2	(6)
	Quantum Corporation (50%)		619		617		(326)		291		562		B/B2
	Total		$ 8,263		$ 7,783		$ (5,825)		$ 1,958
	(1) Based on information from Bloomberg at close of market on March 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) 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) 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.
	(6) 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 Har bor Statement

This press release contains certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or Exchange Act. Forward-looking statements are generally identifiable by use of forward-looking terminology such as "may," "will," "should," "potential," "intend," "expect," "seek," "anticipate," "estimate," "believe," "could," "project," "predict," "continue," "future" or other similar words or expressions. Forward-looking statements are not guarantees of performance and are based on certain assumptions, discuss future expectations, describe plans and strategies, contain projections of results of operations or of financial condition or state other forward-looking information. Such statements include, but are not limited to, those relating to the operating performance of our investments, our financing needs, the effects of our current strategies, loan and securities activities, our ability to manage our collateralized debt obligations, or CDOs, and our ability to raise capital. Our ability to predict results or the actual effect of plans or strategies is inherently uncertain, particularly given the economic environment. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements and you should not unduly rely on these statements. These forward-looking statements involve risks, uncertainties and other factors that may cause our actual results in future periods to differ materially from those forward looking statements. These factors include, but are not limited to: adverse economic conditions and the impact on the commercial real estate finance industry; access to debt and equity capital and our liquidity; our use of leverage; our ability to meet various coverage tests with respect to our CDOs; our ability to obtain mortgage financing on our net lease properties; the affect of economic conditions on the valuations of our investments; 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; any failure in our due diligence to identify all relevant facts in our underwriting process or otherwise; credit rating downgrades; tenant or borrower defaults or bankruptcy; illiquidity of properties in our portfolio; environmental compliance costs and liabilities; effect of regulatory actions, litigation and contractual claims against us and our affiliates, including the potential settlement and litigation of such claims; competition for investment opportunities; regulatory requirements with respect to our business and the related cost of compliance; the impact of any conflicts arising from our asset management business; the ability to raise capital for the non-listed real estate investment trusts, or REITs, we sponsor; changes in laws or regulations governing various aspects of our business; the loss of our exemption from the definition of "investment company" under the Investment Company Act of 1940, as amended; competition for qualified personnel and our ability to retain key personnel; the effectiveness of our risk management systems; failure to maintain effective internal controls; whether the decision issued by the Court of Appeal of the State of California, Second Appellate District, in our favor associated with litigation involving net lease investments formerly leased to Washington Mutual Bank stands and is no longer subject to further appeal; compliance with the rules governing REITs; and the factors described in Item 1A. of our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 under the heading "Risk Factors."

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

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

SOURCE NorthStar Realty Finance Corp.