NorthStar Realty Finance Announces Second Quarter 2012 Results

| August 5, 2012 | 0 Comments

NEW YORK, Aug. 2, 2012 /PRNewswire/ –

Second Quarter 2012 Highlights

  • Increased second quarter 2012 cash dividend to $0.16 per common share, representing a 60% increase over the prior year.
  • AFFO per diluted share of $0.22.
  • Investments of $552 million in 2012, including $371 million during the second quarter.
  • Total capital raised to date of $362 million for our sponsored non-traded CRE REIT, including $37 million raised in July 2012.

NorthStar Realty Finance Corp. (NRF) today announced its results for the quarter ended June 30, 2012.

Second Quarter 2012 Results

NorthStar reported adjusted funds from operations (“AFFO”) for the second quarter 2012 of $0.22 per diluted share compared with $0.61 per diluted share for the second quarter 2011.  AFFO for the second quarter 2012 was $28.3 million compared to $55.6 million for the second quarter 2011.  Net loss to common stockholders for the second quarter 2012 was $(77.5) million, or $(0.62) per diluted share, compared to a net loss of $(52.0) million, or $(0.60) per diluted share for the second quarter 2011.  Second quarter 2012 net loss includes $(94.5) million of unrealized losses relating to non-cash fair value adjustments, compared to $(104.2) million of unrealized losses for the second quarter 2011.  These non-cash fair value losses are excluded from AFFO.  

David T. Hamamoto, chairman and chief executive officer, commented, “Throughout the year we have been deploying capital into new investments which increased cash flow to NorthStar and created long-term value for our shareholders.  We continue to have a robust pipeline of exciting investment opportunities and are pleased to have declared another increase to our common dividend this quarter, representing a 60% increase over the last year.”

Investments

During the second quarter, NorthStar invested $77 million of equity in seven commercial real estate loans with a $171 million aggregate principal balance.  NorthStar expects a weighted average return on this invested equity of 17%.

The principal proceeds NorthStar could receive from CDO bonds acquired during the second quarter is $186 million, which were purchased for $94 million and have an expected yield-to-maturity of over 20%. The CDO bonds acquired during the second quarter had a weighted average original credit rating of A+/A1.  As of today, the principal proceeds NorthStar could receive from its owned CDO bonds is $800 million, of which $650 million was repurchased at an average price of 36% in the secondary market and has a weighted average original credit rating of A+/A1.  The discount to par of $417 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 $7.1 billion of assets under management at June 30, 2012.

For additional details regarding NorthStar’s investments, please refer to the tables on the following pages and to the corporate presentation which is posted on NorthStar’s website, www.nrfc.com.

Asset Management Business

During the second quarter 2012, NorthStar received management fees from its consolidated CDOs of $3.6 million, which are eliminated on NorthStar’s consolidated statement of operations.  In addition, during the second quarter 2012, NorthStar received $2.7 million of fees from our sponsored non-traded CRE REIT, NorthStar Real Estate Income Trust, Inc. (“NorthStar Income”).

NorthStar Income raised $92 million in the second quarter 2012 and $362 million since inception, including $37 million in July 2012, through NorthStar Realty Securities, LLC, NorthStar’s wholly-owned broker-dealer. NorthStar Realty Securities, LLC has total signed selling agreements with broker-dealers covering approximately 50,000 registered representatives as of today.  NorthStar expects to earn annual net fees approximately equal to three percentage points based on total capital raised for our sponsored non-traded REITs.

During the second quarter 2012, NorthStar originated on behalf of NorthStar Income, seven loans with a $232 million aggregate principal balance. 

Liquidity, Financing and Capital Markets Highlights

Unrestricted cash as of June 30, 2012 totaled approximately $196 million. NorthStar’s  unrestricted cash is approximately $205 million as of today.

In May 2012, NorthStar completed the sale of 20 million shares of its common stock at a public offering price of $5.70 per share, which generated net proceeds to NorthStar of $109 million.

In June 2012, NorthStar issued $75 million of 8.875% exchangeable senior notes due 2032 (“Notes”). Subsequently, in July 2012, an over-allotment option of $7 million of the Notes was exercised.  Total net proceeds to NorthStar were $79 million.

In July 2012, NorthStar sold 3.2 million shares of its existing 8.25% Series B Preferred Stock at a public offering price of $22.60 (excluding accrued dividends) generating net proceeds of $70 million.

In July 2012, NorthStar closed three credit facilities which will be used to finance loan originations; two for NorthStar Income with an aggregate initial availability of $90 million and one for NorthStar with an initial availability of $40 million.

Currently, NorthStar’s only near-term unsecured corporate debt obligations relate to its exchangeable senior notes, of which $36 million principal amount of 11.5% notes are due in June 2013 and $13 million principal amount of 7.25% notes are payable in June 2014 at the holders’ option. 

Risk Management

At June 30, 2012, NorthStar had two loans on non-performing status (“NPL”), which had a $15 million aggregate principal amount and a $4 million carrying value.  This compares to two loans which had a $39 million aggregate principal amount and $29 million in carrying value at March 31, 2012.  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 2012, NorthStar recorded $6.5 million of provision for loan losses relating to two loans, compared to $6.8 million of provision for loan losses related to four loans recorded during the first quarter 2012.  As of June 30, 2012, loan loss reserves totaled $172 million, or 7% of total loans, related to 18 loans with a carrying value of $252 million.

As of June 30, 2012, NorthStar’s core net lease portfolio was 96% leased with a 6.2 year weighted average remaining lease term.  As of June 30, 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 7.4 year weighted average remaining lease term.

The California Supreme Court recently denied the plaintiff’s petition to review the Court of Appeal decision related to the “WaMu” property litigation. NorthStar expects to receive $29 million related to a surety bond in the third quarter which is not currently reflected in unrestricted cash.

Stockholders’ Equity

At June 30, 2012, NorthStar had 139,814,505 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 $6.13 at June 30, 2012.  Exclusive of certain unrealized adjustments, loan loss reserves and accumulated depreciation and amortization, adjusted book value at June 30, 2012 would be $6.96 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 August 1, 2012, NorthStar announced that its Board of Directors declared a cash dividend of $0.16 per share of common stock, payable with respect to the quarter ended June 30, 2012.  The dividend is expected to be paid on August 17, 2012 to shareholders of record as of the close of business on August 13, 2012. The Company’s common shares will begin trading ex-dividend on August 9, 2012.

Earnings Conference Call

NorthStar will hold a conference call to discuss second quarter 2012 financial results on August 2, 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 888-549-7750, or for international callers, by dialing 480-629-9722.

A replay of the call will be available one hour after the call through Thursday, August 9, 2012 by dialing 800-406-7325 or, for international callers, 303-590-3030, using pass code 4551897.

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 June 30,

Six Months Ended June 30,

2012

2011

2012

2011

Revenues

Interest income

$             79,988

$           110,790

$           160,700

$            208,430

Rental and escalation income

29,226

25,956

57,659

58,883

Commission income

8,679

1,726

16,078

2,644

Advisory and other fee income

2,742

212

3,259

295

Other revenue

1,531

1,365

1,739

1,615

    Total revenues

122,166

140,049

239,435

271,867

Expenses

Interest expense

34,665

34,206

69,963

67,626

Real estate properties – operating expenses

5,025

2,613

9,689

15,110

Asset management expenses

304

1,328

1,801

2,889

Commission expense

6,748

1,299

12,397

2,016

Other costs, net

200

-

392

-

Provision for loan losses

6,537

14,200

13,377

38,700

Provision for loss on equity investment

-

-

-

4,482

General and administrative

Salaries and equity-based compensation (1)

16,014

19,528

30,144

32,269

Other general and administrative

5,570

7,361

12,501

14,062

    Total general and administrative

21,584

26,889

42,645

46,331

Depreciation and amortization

12,677

11,526

24,983

19,608

    Total expenses

87,740

92,061

175,247

196,762

Income (loss) from operations

34,426

47,988

64,188

75,105

Equity in earnings (losses) of unconsolidated ventures

(336)

(1,555)

(837)

(3,783)

Other income (loss)

-

-

20,258

10,138

Unrealized gain (loss) on investments and other

(115,648)

(130,607)

(211,054)

(282,825)

Realized gain (loss) on investments and other

5,195

36,839

20,547

47,573

Income (loss) from continuing operations

(76,363)

(47,335)

(106,898)

(153,792)

Income (loss) from discontinued operations

(43)

(1,047)

(65)

(638)

Gain (loss) on sale from discontinued operations

285

9,416

285

14,447

Net income (loss)

(76,121)

(38,966)

(106,678)

(139,983)

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

4,244

(5,813)

6,207

(349)

Preferred stock dividends

(5,635)

(5,231)

(10,958)

(10,463)

Contingently redeemable non-controlling interest accretion

-

(1,973)

-

(4,982)

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

$           (77,512)

$           (51,983)

$         (111,429)

$           (155,777)

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

$               (0.62)

$               (0.69)

$               (0.98)

$                 (2.05)

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

-

(0.01)

-

(0.01)

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

-

0.10

-

0.17

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

$               (0.62)

$               (0.60)

$               (0.98)

$                 (1.89)

Weighted average number of shares of common stock:

Basic

124,802,710

86,966,645

113,524,914

82,605,559

Diluted

131,178,131

91,233,904

119,285,979

86,908,265

Dividends declared per share of common stock

$                 0.16

$                 0.10

$                 0.31

$                  0.20

(1) The three months ended June 30, 2012 and 2011 include $4.8 million and $2.6 million, respectively, of equity‑based compensation expense. The six months ended June 30, 2012 and 2011 include $7.2 million and $4.6 million, respectively, of equity‑based compensation expense.

NorthStar Realty Finance Corp.

Consolidated Balance Sheets

($ in thousands, except share data)

June 30, 2012

December 31,

(Unaudited)

2011

Assets

VIE Financing Structures

Restricted cash

$                 233,778

$            261,295

Operating real estate, net 

341,997

313,227

Real estate securities, available for sale 

1,199,412

1,358,282

Real estate debt investments, net 

1,554,868

1,631,856

Investments in and advances to unconsolidated ventures

62,152

60,352

Receivables, net of allowance of $1,210 in 2012 and $1,179 in 2011

19,359

22,530

Derivative assets, at fair value

28

61

Deferred costs and intangible assets, net 

42,377

47,499

Assets of properties held for sale

1,597

3,198

Other assets

18,046

23,135

3,473,614

3,721,435

Non-VIE Financing Structures

Cash and cash equivalents

195,759

144,508

Restricted cash

48,983

37,069

Operating real estate, net

772,892

776,222

Real estate securities, available for sale

147,074

115,023

Real estate debt investments, net

225,212

78,726

Investments in and advances to unconsolidated ventures

40,077

33,205

Receivables

14,910

8,958

Receivables, related parties

7,275

5,979

Unbilled rent receivable

12,907

11,891

Derivative assets, at fair value

11,822

5,674

Deferred costs and intangible assets, net

49,036

50,885

Other assets

10,516

16,862

1,536,463

1,285,002

Total assets 

$              5,010,077

$         5,006,437

Liabilities

VIE Financing Structures

CDO bonds payable

$              2,062,304

$         2,273,907

Mortgage notes payable

228,446

228,525

Secured term loan

14,682

14,682

Accounts payable and accrued expenses

14,346

15,754

Escrow deposits payable

70,064

52,660

Derivative liabilities, at fair value

206,152

226,481

Other liabilities

48,733

55,007

2,644,727

2,867,016

Non-VIE Financing Structures

Mortgage notes payable

554,840

554,732

Credit facilities

132,318

64,259

Exchangeable senior notes

282,694

215,853

Junior subordinated notes, at fair value

161,374

157,168

Accounts payable and accrued expenses

37,486

50,868

Escrow deposits payable

12,345

196

Derivative liabilities, at fair value

-

8,193

Other liabilities

50,324

48,538

1,231,381

1,099,807

Total liabilities

3,876,108

3,966,823

Commitments and contingencies

Equity

NorthStar Realty Finance Corp. Stockholders’ Equity

Preferred stock, 8.75% Series A, $0.01 par value, $60,525 and $60,000 liquidation preference as of

 June 30, 2012 and December 31, 2011, respectively

58,357

57,867

Preferred stock, 8.25% Series B, $0.01 par value, $233,350 and $190,000 liquidation preference as of 

June 30, 2012 and December 31, 2011, respectively

221,643

183,505

Common stock, $0.01 par value, 500,000,000 shares authorized, 133,425,417 and 96,044,383 shares 

 issued and outstanding at June 30, 2012 and December 31, 2011, respectively    

1,334

960

Additional paid-in capital

1,008,913

809,826

Retained earnings (accumulated deficit)

(155,057)

(8,626)

Accumulated other comprehensive income (loss)

(26,229)

(36,160)

     Total NorthStar Realty Finance Corp. stockholders’ equity

1,108,961

1,007,372

Non-controlling interests

25,008

32,242

Total equity

1,133,969

1,039,614

Total liabilities and equity

$              5,010,077

$         5,006,437

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 March 31, 2012, per share

$           837,214

$7.00

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

   fair value adjustments included in net income (loss)

13,008

0.11

Fair value adjustments included in net income (loss):

   CDO bonds payable

(86,338)

(0.72)

   Trust preferred debt

15,554

0.13

   Securities and investments held at fair value

(29,539)

(0.25)

   Derivatives

5,839

0.05

Equity component of exchangeable senior notes issued

1,986

0.02

Change in other comprehensive income

6,367

0.05

Common dividends

(17,959)

(0.15)

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

110,540

(0.11)

Total net increases/(decreases)

19,458

(0.87)

Common book value at June 30, 2012, per share (2)(3)

$           856,672

$6.13

(1) Includes $106 million of net proceeds from common stock offering completed in May 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 is 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 $280 million. 

(3) Cumulative net unrealized adjustments total a positive $236 million ($1.69 per share), loan loss reserves total a
      negative $172 million ($1.23 per share) and accumulated depreciation and amortization total a negative $181
      million ($1.29 per share) as of June 30, 2012.  Excluding certain unrealized adjustments, loan loss reserves and
      accumulated depreciation and amortization would result in a $6.96 adjusted book value per share at June 30,
      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. 

Safe Harbor Statement

This press release contains certain “forward‑looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or Exchange Act. Forward‑looking statements are generally identifiable by use of forward‑looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “seek,” “anticipate,” “estimate,” “believe,” “could,” “project,” “predict,” “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; performance of our investments relating to our expectations and the impact on our actual return on equity; ability to source and close on attractive investment opportunities; the impact of economic conditions on the borrowers of the commercial real estate debt we originate and the commercial mortgage loans underlying the commercial mortgage backed securities in which we invest; 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.

 

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