NorthStar Realty Finance Announces Second Quarter 2011 Results

Aug 04, 2011, 07:30 ET from NorthStar Realty Finance Corp.

NEW YORK, Aug. 4, 2011 /PRNewswire/ --

Second Quarter 2011 Highlights

  • AFFO per diluted share of $0.61.
  • $191 million of unrestricted cash and $102 million of availability in CDOs at June 30, 2011.
  • Declared second quarter 2011 cash dividend of $0.10 per common share.
  • Repurchased $86 million par amount of NorthStar CDO bonds for $31 million, average 64% discount to par.

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

Second Quarter 2011 Results

NorthStar reported adjusted funds from operations ("AFFO") for the second quarter 2011 of $0.61 per diluted share compared with $0.41 per diluted share for the second quarter 2010.  

Net loss to common stockholders for the second quarter 2011 was $(52.0) million, or $(0.60) per diluted share, compared to net income of $32.0 million, or $0.42 per diluted share for the second quarter 2010.  Second quarter 2011 net loss includes $(104.2) million of unrealized losses relating to non-cash fair value adjustments, compared to a net gain of $10.2 million for the second quarter 2010.  These non-cash fair value gains and losses are excluded from AFFO.  Realized gains totaled $36.8 million for the second quarter 2011, compared with $81.5 million for the second quarter 2010.

At June 30, 2011, GAAP book value per diluted share was $9.26.  For a reconciliation of net income (loss) to AFFO and GAAP book value per diluted share, please refer to the tables on the following pages.

David T. Hamamoto, chairman and chief executive officer, commented, "Since the beginning of 2011, NorthStar has raised $232 million of corporate capital, which has enabled us to pursue a variety of opportunistic investments that we believe will provide accretive risk adjusted returns.  Through June 30th, we have invested approximately $150 million and subsequent to June 30th, we have closed and/or are working on an incremental $250 million of new investments (including availability in CDOs) which we expect will generate excess cash flow to NorthStar, including having signed a contract to acquire a CRE CDO from CapLease."  

Investments and Fee Income

During the second quarter 2011, NorthStar invested $70 million of unrestricted cash as follows:

  • $31 million to repurchase $86 million par amount of its CDO bonds with an average original credit rating of A/A2, representing a 64% average discount to par.  As of June 30, 2011, NorthStar owned a total of $495 million of its own CDO bonds, which are eliminated on its consolidated balance sheet.    
  • $11 million unrestricted cash and $15 million of restricted cash to acquire the "B-piece" in a $2.1 billion new issue CMBS transaction.  In addition, NorthStar was approved as special servicer for the CMBS transaction.
  • $13 million to retire corporate debt, including $9 million par amount of 7.25% exchangeable notes and $4 million par amount of 11.5% exchangeable notes.  
  • $15 million for a new mezzanine loan origination at a 15% fixed rate, secured by a portfolio of six Class-A office buildings located in the suburbs of Philadelphia, PA.

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

During the second quarter 2011, NorthStar received management fees from its consolidated CDOs of $4.4 million and special servicing fees of $0.8 million.  These fees are eliminated on NorthStar's consolidated statement of operations.  In addition, during the second quarter 2011, NorthStar received $0.2 million of advisor fees from NorthStar's sponsored non-listed REIT.

In July, NorthStar received a $14 million equity distribution from the CapitalSource CDO ("CSE CDO"), including $7 million that was held in an escrow account pending resolution of certain assets.

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 June 30, 2011 included $191 million of unrestricted cash and $102 million of available cash for re-investment in NorthStar's CDOs.  At June 30, 2011, NorthStar's only unrestricted cash needs related to non-discretionary future funding obligations associated with existing loan commitments were approximately $4 million.

On May 17, 2011, NorthStar completed the sale of 17.25 million shares of its common stock at a price of $4.25 per share, which includes the full over-allotment option exercised by the underwriters of the offering.  The net proceeds to NorthStar were approximately $69 million.  

NorthStar Real Estate Income Trust ("NSREIT"), a non-listed REIT sponsored by NorthStar, raised $18 million in the second quarter 2011.  NSREIT has raised $27 million in 2011 and $57 million since inception through June 30, 2011.  NRF Capital Markets LLC, NorthStar's wholly-owned broker-dealer subsidiary, executed selling agreements covering more than 30,000 registered representatives during the second quarter 2011, bringing our total signed selling agreements with broker-dealers to more than 40,000 registered representatives.

NorthStar's only near-term corporate obligations relate to its exchangeable senior notes, of which $23 million principal amount of 7.25% notes are payable in June 2012 at the holders' option and $47 million of 11.5% notes (net of $10 million held in an escrow account) are due in June 2013.

Risk Management

At June 30, 2011, excluding the CSE CDO, NorthStar had two loans on non-performing status ("NPL"), representing $41 million in aggregate principal amount and a $2 million book value.  This amount is unchanged from March 31, 2011.  In addition, at June 30, 2011, the CSE CDO had one loan on NPL status, representing $1 million in principal amount.  This compares to seven loans as of March 31, 2011, representing $158 million in aggregate principal amount and a $10 million book value.  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 second quarter 2011, NorthStar recorded $14 million of loan loss provisions relating to four loans, compared to $25 million of loan loss provisions related to eight loans recorded during the first quarter 2011.  As of June 30, 2011, loan loss provisions totaled $182 million, or 7% of total loans, related to 20 loans with a book value of $280 million.

As of June 30, 2011, NorthStar's net lease portfolio was 97% leased with a 6.4 year weighted average remaining lease term.

Stockholders' Equity

At June 30, 2011, NorthStar had 100,223,066 total common shares and operating partnership units outstanding, and $29 million of non-controlling interest relating to its operating partnership.  GAAP book value per diluted share was $9.26 at June 30, 2011.  Exclusive of all unrealized fair value adjustments, loan loss provisions, and accumulated depreciation and amortization, adjusted book value at June 30, 2011 would be $7.35 per diluted share.  For a calculation of adjusted book value per diluted share, please refer to the tables on the following pages.

Common Dividend Announcement

On August 3, 2011, NorthStar announced that its Board of Directors declared a cash dividend of $0.10 per share of common stock, payable with respect to the quarter ended June 30, 2011.  The dividend is expected to be paid on August 19, 2011 to shareholders of record as of the close of business on August 15, 2011. The Company's common shares will begin trading ex-dividend on August 11, 2011.

Earnings Conference Call

NorthStar will hold a conference call to discuss second quarter 2011 financial results on Thursday, August 4, 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 June 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 800-762-8795, or for international callers, by dialing 480-629-9724.

A replay of the call will be available one hour after the call through Thursday August 11, 2011 by dialing 800-406-7325 or 303-590-3030 for international callers, using pass code 4459199.

About NorthStar Realty Finance Corp.

NorthStar Realty Finance Corp. is a finance REIT that primarily originates, acquires and manages portfolios of commercial real estate debt, real estate securities and net lease properties.  In addition, we engage 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 June 30,

Six Months Ended June 30,

2011

2010

2011

2010

Revenues and other income

Interest income

$          110,790

$              60,721

$        208,430

$          118,296

Rental and escalation income

25,956

31,779

58,883

51,066

Commission income

1,726

372

2,644

372

Other revenue

1,577

956

1,910

3,150

   Total revenues

140,049

93,828

271,867

172,884

Expenses

Interest expense

34,206

34,492

67,626

66,655

Real estate properties – operating expenses

2,613

10,686

15,110

12,287

Asset management expenses

837

505

2,398

1,667

Commission expense

1,299

278

2,016

278

Provision for loan losses

14,200

56,941

38,700

93,257

Provision for loss on equity investment

-

-

4,482

-

General and administrative

Salaries and equity-based compensation (1)

19,528

12,313

32,269

28,845

Auditing and professional fees

2,308

1,947

4,727

4,104

Other general and administrative

5,544

5,516

9,826

9,592

   Total general and administrative

27,380

19,776

46,822

42,541

Depreciation and amortization

11,526

7,728

19,608

15,513

   Total expenses

92,061

130,406

196,762

232,198

Income (loss) from operations

47,988

(36,578)

75,105

(59,314)

Equity in earnings (losses) of unconsolidated ventures

(1,555)

4,866

(3,783)

6,215

Unrealized gain (loss) on investments and other

(130,607)

(6,397)

(282,825)

(6,836)

Realized gain on investments and other

36,839

81,538

57,711

82,971

Income (loss) from continuing operations

(47,335)

43,429

(153,792)

23,036

Income (loss) from discontinued operations

(1,047)

(1,384)

(638)

(1,095)

Gain on sale from discontinued operations

9,416

2,528

14,447

2,528

Consolidated net income (loss)

(38,966)

44,573

(139,983)

24,469

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

(5,813)

(7,357)

(349)

(6,945)

Preferred stock dividends

(5,231)

(5,231)

(10,463)

(10,463)

Contingently redeemable non-controlling interest accretion

(1,973)

-

(4,982)

-

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

$          (51,983)

$              31,985

$       (155,777)

$              7,061

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

$              (0.69)

$                  0.40

$             (2.05)

$                0.07

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

(0.01)

(0.01)

(0.01)

(0.01)

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

0.10

0.03

0.17

0.03

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

$              (0.60)

$                  0.42

$             (1.89)

$                0.09

Weighted average number of shares of common stock:

        Basic

86,966,645

76,407,339

82,605,559

76,579,403

        Diluted

91,233,904

82,279,682

86,908,265

82,305,725

Dividends declared per share of common stock

$                0.10

$                  0.10

$              0.20

$                0.20

(1) The three months ended June 30, 2011 and 2010 include $2,613 and $4,181 of equity-based compensation expense, respectively. The six months ended June 30, 2011 and 2010 include $4,647 and $9,239 of equity-based compensation expense, respectively.

NorthStar Realty Finance Corp.

Consolidated Balance Sheets

($ in thousands, except share data)

June 30, 2011

December 31,

(Unaudited)

2010

Assets:

Cash and cash equivalents

$                191,193

$          125,439

Restricted cash (includes $270,789 and $263,314 from consolidated VIEs, respectively)

322,597

309,384

Operating real estate, net (includes $247,788 and $ - from consolidated VIEs, respectively)

1,032,668

946,102

Real estate securities, available for sale (includes $1,759,891 and $1,668,217 from consolidated VIEs, respectively)

1,815,168

1,691,054

Real estate debt investments, net (includes $1,633,607 and $1,659,882 from consolidated VIEs, respectively)

1,750,485

1,826,239

Real estate debt investments, held for sale (includes $34,479 and $18,661 from consolidated VIEs, respectively)

34,479

18,662

Investments in and advances to unconsolidated ventures (includes $59,469 and $66,959 from consolidated VIEs,  

86,324

94,412

  respectively)

Receivables, net of allowance of $3,241 in 2011 and $2,642 in 2010 (includes net $22,183 and $26,337 from

32,066

32,329

  consolidated VIEs, respectively)

Receivables, related parties

6,302

4,101

Unbilled rents receivable (includes $448 and $ - from consolidated VIEs, respectively)

11,319

10,404

Derivative assets, at fair value (includes $31 and $42 from consolidated VIEs, respectively)

31

59

Deferred costs and intangible assets, net (includes $37,095 and $ - from consolidated VIEs, respectively)

88,175

52,973

Assets of properties held for sale (includes $5,166 and $13,141 from consolidated VIEs, respectively)

11,226

5,101

Other assets (includes $28,002 and $14,277 from consolidated VIEs, respectively)

48,583

35,732

Total assets

$             5,430,616

$       5,151,991

Liabilities:

CDO bonds payable, at fair value (includes $2,463,416 and $2,258,805 from consolidated VIEs, respectively)

$             2,463,416

$       2,258,805

Mortgage notes payable (includes $212,000 and $ - from consolidated VIEs, respectively)

887,619

803,114

Exchangeable senior notes

237,938

126,889

Junior subordinated notes, at fair value

206,950

191,250

Secured term loans

14,682

36,881

Accounts payable and accrued expenses (includes $18,977 and $15,668 from consolidated VIEs, respectively)

55,692

49,851

Escrow deposits payable (includes $49,121 and $60,163 from consolidated VIEs, respectively)

49,247

60,711

Derivative liabilities, at fair value (includes $185,385 and $190,993 from consolidated VIEs, respectively)

191,240

220,689

Liabilities of properties held for sale (includes $208 and $99 from consolidated VIEs, respectively)

208

99

Other liabilities (includes $30,558 and $8,654 from consolidated VIEs, respectively)

49,543

31,189

Total liabilities

4,156,535

3,779,478

Contingently redeemable non-controlling interest

99,804

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

57,867

57,867

  issued and outstanding at June 30, 2011 and December 31, 2010

8.25% Series B preferred stock, $0.01 par value, $25 liquidation preference per share, 7,600,000 shares

183,505

183,505

  issued and outstanding at June 30, 2011 and December 31, 2010

Common stock, $0.01 par value, 500,000,000 shares authorized, 95,949,693 and 78,104,753 shares issued

960

781

  and outstanding at June 30, 2011 and December 31, 2010, respectively    

Additional paid-in capital

809,694

723,102

Retained earnings

120,208

293,382

Accumulated other comprehensive loss

(32,559)

(36,119)

    Total NorthStar Realty Finance Corp. Stockholders’ Equity

1,139,675

1,222,518

Non-controlling interest

34,602

55,173

Total equity

1,174,277

1,277,691

Total liabilities and stockholders’ equity

$             5,430,616

$       5,151,991

Three Months Ended June 30,

Six Months Ended June 30,

2011

2010

2011

2010

Funds from Operations:

Income (loss) from continuing operations

$          (47,335)

$              43,429

$       (153,792)

$            23,036

Non-controlling interest

(8,267)

(4,965)

(8,395)

(6,927)

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

operating partnership

(55,602)

38,464

(162,187)

16,109

Adjustments:

Preferred stock dividends

(5,231)

(5,231)

(10,463)

(10,463)

Depreciation and amortization

11,526

7,728

19,608

15,513

Funds from discontinued operations

(909)

(749)

154

287

Real estate depreciation and amortization, unconsolidated ventures

207

237

439

474

Funds from Operations

(50,009)

40,449

(152,449)

21,920

Adjusted Funds from Operations:

Funds from Operations

(50,009)

40,449

(152,449)

21,920

Straight-line rental income, net

(1,009)

(361)

(1,232)

(907)

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

(31)

(19)

(52)

(45)

Amortization of above/below market leases

(170)

(214)

(384)

(478)

Amortization of equity-based compensation

2,613

4,181

4,647

9,239

Unrealized (gain) loss from fair value adjustments

104,176

(12,926)

226,464

(33,777)

Unrealized loss from fair value adjustments, unconsolidated ventures

-

2,731

-

3,357

Adjusted Funds from Operations

$            55,570

$              33,841

$          76,994

$                (691)

FFO per share of common stock

$               (0.55)

$                  0.49

$             (1.75)

$                0.27

AFFO per share of common stock

$                0.61

$                  0.41

$              0.89

$                0.00

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.  The following discussion defines these terms, which NorthStar believes can be useful measures of its performance.

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 June 30, 2011 (1)

($ in thousands)

Amount

%

Investment-grade CRE securities

$                    839,336

11.5%

Non-investment grade CRE securities

2,513,298

34.5%

Total CRE Securities

3,352,634

46.0%

First mortgages loans (2)

1,955,509

26.9%

Mezzanine and subordinate loans (3)

1,009,346

13.9%

Total CRE Debt

2,964,855

40.8%

Investment-grade net lease

161,845

2.2%

Non-investment grade net lease

801,852

11.0%

Total Net Lease

963,697

13.2%

Total

$                 7,281,186

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 $242 million of junior participations in first mortgage loans.

(3) Includes $475 million related to equity investments, joint ventures and operating real estate.

Balance Sheet Holdings of NorthStar CDO Bonds (1)

at June 30, 2011

($ in thousands)

Current Face Amount

Original Investment

Grade Bonds

Original Below

Investment Grade

Bonds

Total CDO Bonds

N-Star I

$                         9,000

$                   14,000

$                           23,000

N-Star II

0

15,106

15,106

N-Star III

16,855

0

16,855

N-Star IV

9,750

0

9,750

N-Star V

8,751

0

8,751

N-Star VI

26,925

13,950

40,875

N-Star VII

15,600

16,200

31,800

N-Star VIII

65,550

59,400

124,950

N-Star IX

75,980

13,040

89,020

CSE CDO

86,930

47,450

134,380

  Total

$                     315,341

$                 179,146

$                         494,487

WA 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 consolidated 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 June 30, 2011

($ in thousands)

Fee - Based

Annual Management Fee %

Assets

Senior

Subordinate

Total

N-Star I (1)

$     204,014

0.15%

0.20%

0.35%

N-Star II (1)

210,345

0.15%

0.20%

0.35%

N-Star III

386,448

0.15%

0.20%

0.35%

N-Star IV

445,664

0.15%

0.20%

0.35%

N-Star V (1)

496,911

0.15%

0.20%

0.35%

N-Star VI

498,893

0.15%

0.25%

0.40%

N-Star VII

588,046

0.15%

0.20%

0.35%

N-Star VIII

964,370

0.15%

0.25%

0.40%

N-Star IX

765,190

0.15%

0.25%

0.40%

CSE CDO (2)

1,120,716

0.15%

0.25%

0.40%

  Total

$  5,680,597

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

(2) Includes advancing agent fees received during the second 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

June 30,

June 30,

June 30,

At

Type

2011

2011

2011

Offering

N-Star I

CRE Securities

$                               -

$                  (516)

$           (11,396)

$            8,687

N-Star II

CRE Securities

-

223

(1,763)

10,944

N-Star III

CRE Securities

2,115

1,847

13,003

13,610

N-Star IV

CRE Debt

2,604

2,045

65,034

19,808

N-Star V

CRE Securities

-

860

(19,689)

12,940

N-Star VI

CRE Debt

530

845

54,197

17,412

N-Star VII

CRE Securities

1,722

1,724

19,130

13,966

N-Star VIII

CRE Debt

3,414

4,608

118,094

42,193

N-Star IX

CRE Securities

1,790

1,927

39,998

24,516

CSE CDO

CRE Debt

-

(3)

4,012

49,376

(151,595)

(4)

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 June 30, 2011.

(3) In July, NorthStar received a cash distribution totaling $14 million, including a $7 million accrued distribution.

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

NorthStar CDO Investment Activity Summary

($ in thousands)

Second Quarter

2011

CRE Debt

Purchases / new fundings

$            107,518

Future Fundings

4,665

Repayments / Sales

165,293

CRE Securities

Purchases, principal amount

$            106,070

Purchases, cost

68,652

Purchases WA credit rating

BB-/ Ba3

Sales, principal amount

55,796

Sales, cost

56,072

Credit Ratings Distribution of Real Estate Securities Under Management

($ in thousands)

Amount

%

AAA

$          130,996

3.9%

AA

48,017

1.5%

A

238,505

7.1%

BBB

421,819

12.6%

BB

526,335

15.7%

B

406,015

12.1%

CCC

603,030

18.0%

CC

279,602

8.3%

C

326,420

9.7%

Below C

323,656

9.7%

NR

48,239

1.4%

Total (average of B /B2)

$       3,352,634

100.0%

CMBS Vintages Under Management

($ in thousands)

Amount

%

Cumulative

1997

$             34,408

1.2%

1.2%

1998

55,402

1.9%

3.1%

1999

21,374

0.8%

3.9%

2000

94,791

3.3%

7.2%

2001

75,539

2.7%

9.9%

2002

71,764

2.5%

12.4%

2003

117,714

4.1%

16.5%

2004

315,500

11.1%

27.6%

2005

501,076

17.6%

45.2%

2006

823,895

29.0%

74.2%

2007

560,306

19.7%

93.9%

2008

38,046

1.3%

95.2%

2009

54,075

1.9%

97.1%

2010

2,300

0.1%

97.2%

2011

76,046

2.8%

100.0%

Total

$        2,842,236

100.0%

GAAP Book Value Rollforward

($ in thousands, except per share data)

Amount

Per Diluted Share

Common book value at March 31, 2011, per diluted share

$                918,739

$                11.11

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

  fair value adjustments included in net income

49,739

0.60

Fair value adjustments included in net income:

  CDO bonds payable

(22,691)

(0.27)

  Trust preferred debt

13,053

0.16

  Securities and investments held at fair value

(80,713)

(0.98)

  Derivatives

(13,825)

(0.17)

Amortization of other comprehensive income for derivatives

1,873

0.02

Common dividends (1)

(8,289)

(0.10)

Equity component of exchangeable senior notes repurchased

(285)

0.00

Accretion (dilution) from additional shares issued during quarter (2)

70,164

(1.11)

Total net increases/(decreases)

9,026

(1.85)

Common book value at June 30, 2011, per diluted share (3)

$                927,765

$                  9.26

(1) Excludes dividends paid on shares raised in common stock offering completed in May 2011.  

(2) Includes $69 million of net proceeds from common stock offering completed in May 2011, net of common dividends associated with these shares paid during the quarter.  Additional amounts relate to amortization of LTIP shares and issuance of common shares from the Dividend Reinvestment and Stock Purchase Plan.

(3) Cumulative net fair value adjustments total a positive $514.0 million ($5.13 per diluted share), credit loss reserves total a negative $181.8 million ($1.82 per diluted share) and accumulated depreciation and amortization total a negative $140.2 million ($1.40 per diluted share) as of June 30, 2011. Excluding all fair value adjustments, loan loss provisions, and accumulated depreciation and amortization would result in a $7.35 adjusted book value per diluted share at June 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) (4)

One property in New York, NY

7,500

1.5

$    3,246

$               -

$       3,246

Nov-2007

Alliance Data Systems Corp.

Columbus, OH

199,112

6.4

33,826

23,084

10,742

Mar-2007

Citigroup, Inc.

Fort Mill, SC/Charlotte

165,000

9.3

34,303

30,022

4,281

Jun-2007

Landis Logistics / East Penn

Reading, PA

609,000

6.5

28,473

18,507

9,966

Jun-2006

Covance, Inc.

Indianapolis, IN

333,600

14.5

34,519

27,604

6,915

Feb-2007

Credence Systems Corp.

Milpitas, CA/San Jose

178,213

5.7

30,144

21,392

8,752

Sep-2006

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

9 properties

467,971

4.4-13.2

64,503

47,244

17,259

Sep-2005

Electronic Data Systems Corp.

2 in MI / 1 in CA / 1 in PA

387,842

4.3

62,718

45,819

16,899

Aug-2005

GSA - U.S. Department of Agriculture

Salt Lake City, UT

117,553

0.8

22,424

14,844

7,580

Jul-2006

Northrop Grumman Space & Mission Systems Corp.

Aurora, CO/Denver

183,529

4.0

43,625

33,059

(5)

10,566

Mar-2006

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

Rockaway, NJ/ Northern NJ

121,038

3.9-6.1

21,955

16,760

5,195

Feb-2006

Quantum Corporation (6)

Colorado Springs, CO

406,207

1.4-9.7

27,635

17,745

9,890

ALGM Portfolio - Sbarro, Inc. (3) (4)

Total NRFC NNN Holdings, LLC Portfolio

3,176,565

6.9

$407,371

$      296,080

$   111,291

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

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

(3) Proceeds from sales of $10 million are being held in escrow for use in acquiring a suitable replacement property.

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

(5) Property is financed via a $32.4 million first mortgage with a third party and a $0.7 million mezzanine loan held by a consolidated NorthStar entity.

(6) 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 June 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.

$           206

$           206

$             -

$           206

N/A

(2)

not rated

Alliance Data Systems Corp.

582

581

(455)

126

4,847

not rated

Citigroup, Inc.

538

537

(507)

30

113,537

A/A3

Landis Logistics / East Penn

158

22

(332)

(310)

N/A

(3)

not rated

Covance, Inc.

638

637

(513)

124

3,685

not rated

Credence Systems Corp.

688

679

(443)

236

312

not rated

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

1,317

1,277

(966)

311

4,710

not rated

(4)

Electronic Data Systems Corp.

1,508

1,498

(817)

681

13,900

not rated

GSA - U.S. Department of Agriculture

579

454

(300)

154

N/A

Implied AAA

Northrop Grumman Space & Mission Systems Corp.

814

814

(695)

119

18,518

BBB+/Baa1

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

441

441

(301)

140

362

(5)

B/B2

(6)

Quantum Corporation  (50%)

611

609

(324)

285

727

B/B2

Total

$        8,080

$        7,755

$      (5,653)

$        2,102

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

(2) Sole tenant in leasehold interest, Sbarro, Inc. filed for bankruptcy protection (Chapter 11) in April 2011, no other recent data is available.

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

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

(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 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, 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 Corp.



RELATED LINKS

http://www.nrfc.com