NorthStar Realty Finance Announces Third Quarter 2012 Results

| November 3, 2012 | 0 Comments

NEW YORK, Nov. 2, 2012 /PRNewswire/ — NorthStar Realty Finance Corp. (NRF) today announced its results for the quarter ended September 30, 2012.

Third Quarter 2012 Results

NorthStar reported adjusted funds from operations (“AFFO”) for the third quarter 2012 of $0.28 per diluted share compared with $0.29 per diluted share for the third quarter 2011.  AFFO for the third quarter 2012 was $39.5 million compared to $29.3 million for the third quarter 2011.  Net loss to common stockholders for the third quarter 2012 was $(149.6) million, or $(1.11) per diluted share, compared to a net loss of $(24.6) million, or $(0.26) per diluted share for the third quarter 2011.  Third quarter 2012 net loss includes $(183.5) million of non-cash fair value adjustments, which includes a $193.7 million increase in the value of our CDO bonds, compared to $(43.5) million of non-cash fair value adjustments for the third quarter 2011.  These non-cash fair value losses are excluded from AFFO.  

David T. Hamamoto, chairman and chief executive officer, commented “We are extremely pleased with the execution of our recently announced CMBS transaction, which will provide us with attractively-priced, permanent financing on a non-recourse and non-mark-to-market basis, and demonstrates the strength and sophistication of our platform. The proceeds from this CMBS transaction will be used to retire borrowings on our credit facilities, which will provide us additional capacity to take advantage of our loan origination pipeline.”

Mr. Hamamoto continued, “We expect the strong demand for this type of transaction will allow us to further access the securitization market as it continues to expand and improve. This increased flexibility in funding sources for our originated loans, combined with the opportunistic investments we continue to see and the continued growth of our non-traded REIT platform, position us well to further execute on our business strategy and continue to generate strong cash flows to NorthStar.”

Investments

Since the second quarter 2012, NorthStar invested $29 million of equity in three commercial real estate loans with a $56 million aggregate principal balance.  During 2012, NorthStar invested $94 million of equity in 10 commercial real estate loans with a $227 million aggregate principal balance and expects a weighted average return on this invested equity of 18%, which reflects NorthStar’s recently priced CMBS transaction.

The principal proceeds NorthStar could receive from CDO bonds acquired since the second quarter 2012 is $78 million, which were purchased for $40 million. The principal proceeds NorthStar could receive from CDO bonds acquired during 2012 is $326 million, which were purchased for $159 million and have an expected yield-to-maturity of over 20%. The CDO bonds acquired during 2012 had a weighted average original credit rating of AA-/Aa3.  As of today, the principal proceeds NorthStar could receive from its owned CDO bonds is $805 million, of which $655 million was repurchased at an average price of 37% in the secondary market and has a weighted average original credit rating of A+/A1.  The discount to par of $416 million represents potential imbedded cash flows that we may realize in future periods in addition to our capital invested in these bonds.  

Since the end of the second quarter 2012, NorthStar invested $62 million of equity in other opportunistic CRE investments. During 2012, NorthStar has invested $89 million of equity in other opportunistic CRE investments expected to generate a weighted average return on equity in excess of 16%.

NorthStar had approximately $7.1 billion of assets under management at September 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 third quarter 2012, NorthStar received management fees from its consolidated CDOs of $3.5 million, which are eliminated on NorthStar’s consolidated statement of operations.  In addition, during the third quarter 2012, NorthStar received $1.5 million of fees from our sponsored non-traded CRE REIT, NorthStar Real Estate Income Trust, Inc. (“NorthStar Income”).

NorthStar Income raised $127 million in the third quarter 2012 and $504 million since inception, including $51 million in October 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 more than 61,000 registered representatives.  NorthStar expects to earn annual net fees approximately equal to three percentage points based on total capital raised for our sponsored non-traded REITs.

Since the second quarter 2012, NorthStar Income originated two loans with a $51 million aggregate principal balance. During 2012, NorthStar Income originated 11 loans with a $308 million aggregate principal balance. 

Liquidity, Financing and Capital Markets Highlights

Unrestricted cash as of September 30, 2012 totaled approximately $252 million.

In July 2012, NorthStar sold 3.2 mllion shares of its existing 8.25% Series B Preferred Stock at a public offering price of $22.95, generating net proceeds excluding accrued dividends of $70 million.

During the third quarter 2012, NorthStar sold 1.5 million shares of its existing 8.75% Series A Preferred Stock and 8.25% Series B Preferred Stock through an “at-the-market” preferred stock offering program for net proceeds of $33 million.

In October 2012, NorthStar sold 5.0 million shares of its 8.875% Series C Preferred Stock at a par value of $25 per share, generating net proceeds of $121 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. 

On October 26, 2012, NorthStar priced a $351 million CMBS transaction collateralized by CRE first mortgages originated by NorthStar and NorthStar Income.  A total of $228 million of investment grade bonds will be issued, representing an advance rate of approximately 65%, and the bonds will have a weighted average coupon of L+1.63%. NorthStar expects to generate a yield of approximately 20% on its invested equity in the CMBS transaction, inclusive of fees and estimated transaction expenses, assuming all of the underlying loans are repaid at their initial maturity.

Risk Management

At September 30, 2012, NorthStar had three loans on non-performing status (“NPL”), which had a $25 million aggregate principal amount and a $4 million carrying value.  This compares to two loans which had a $15 million aggregate principal amount and a $4 million carrying value at June 30, 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 third quarter 2012, NorthStar recorded $6.4 million of provision for loan losses relating to two loans, compared to $6.5 million of provision for loan losses related to two loans recorded during the second quarter 2012.  As of September 30, 2012, loan loss reserves totaled $169 million, or 7% of total loans, related to 15 loans with a carrying value of $231 million.

As of September 30, 2012, NorthStar’s core net lease portfolio was 96% leased with a 5.9 year weighted average remaining lease term.  As of September 30, 2012, 100% of NorthStar’s net lease healthcare portfolio was leased to third-party operators with weighted average lease coverage of 1.3x and a 7.2 year weighted average remaining lease term.

Stockholders’ Equity

At September 30, 2012, NorthStar had 141,076,880 total common shares and operating partnership units outstanding and $20 million of non-controlling interests relating to its operating partnership.  GAAP book value per share was $4.88 at September 30, 2012, which includes negative GAAP equity in certain of our non-recourse CDO financings due to non-cash fair value adjustments.  Adjusted book value at September 30, 2012 would be $7.10 per share, exclusive of certain unrealized and other adjustments, loan loss reserves and accumulated depreciation and amortization.  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 vehicles and NorthStar’s 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 November 1, 2012, NorthStar announced that its Board of Directors declared a cash dividend of $0.17 per share of common stock, payable with respect to the quarter ended September 30, 2012.  The dividend is expected to be paid on November 16, 2012 to shareholders of record as of the close of business on November 12, 2012. The Company’s common shares will begin trading ex-dividend on November 7, 2012.

Earnings Conference Call

NorthStar will hold a conference call to discuss third quarter 2012 financial results on November 2, 2012, at 2:00 p.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 800-762-8779, or for international callers, by dialing 480-629-9771.

A replay of the call will be available one hour after the call through Friday, November 9, 2012 by dialing 800-406-7325 or, for international callers, 303-590-3030, using pass code 4570570.

About NorthStar Realty Finance Corp.

NorthStar Realty Finance Corp. is a diversified commercial real estate investment and asset management company that is organized as a REIT.  For more information about NorthStar Realty Finance Corp., please visit www.nrfc.com.

 

NorthStar Realty Finance Corp.

Consolidated Statements of Operations

($ in thousands, except share and per share data)

 

Three Months Ended September 30,

Nine Months Ended September 30,

2012

2011

2012

2011

Net interest income

Interest income

$                82,558

$           100,682

$          243,367

$         310,484

Interest expense on debt and securities

12,304

10,715

38,569

32,244

    Net interest income on debt and securities

70,254

89,967

204,798

278,240

Other revenues

Rental and escalation income

29,960

26,996

87,619

85,879

Commission income

12,213

3,131

28,291

5,775

Advisory and other fees

1,507

130

4,766

425

Other revenue

366

86

1,996

329

    Total other revenues

44,046

30,343

122,672

92,408

Expenses

Other interest expense

23,618

29,160

67,316

75,257

Real estate properties – operating expenses

5,145

3,539

14,834

18,649

Asset management expenses

751

1,302

2,552

4,531

Commission expense

11,070

2,698

25,538

5,117

Other costs, net

-

-

392

-

Provision for loan losses

6,360

9,340

19,737

48,040

Provision for loss on equity investment

-

-

-

4,482

General and administrative

Salaries and equity-based compensation (1)

13,691

11,386

41,764

43,252

Other general and administrative

6,170

7,426

18,671

21,148

    Total general and administrative

19,861

18,812

60,435

64,400

Depreciation and amortization

11,735

12,762

36,718

32,370

    Total expenses

78,540

77,613

227,522

252,846

Income (loss) from operations

35,760

42,697

99,948

117,802

Equity in earnings (losses) of unconsolidated ventures

421

(604)

(416)

(4,387)

Other income (loss)

-

(11,826)

20,258

(1,688)

Unrealized gain (loss) on investments and other

(202,019)

(68,446)

(413,073)

(351,271)

Realized gain (loss) on investments and other

15,221

14,364

35,768

61,937

Gain from acquisitions

-

81

-

81

Income (loss) from continuing operations

(150,617)

(23,734)

(257,515)

(177,526)

Income (loss) from discontinued operations

(23)

(16)

(88)

(654)

Gain (loss) on sale from discontinued operations

29

2,881

314

17,328

Net income (loss)

(150,611)

(20,869)

(257,289)

(160,852)

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

7,704

1,743

13,911

1,393

Preferred stock dividends

(6,671)

(5,231)

(17,629)

(15,694)

Contingently redeemable non-controlling interest accretion

-

(196)

-

(5,178)

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

$            (149,578)

$           (24,553)

$         (261,007)

$        (180,331)

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

$                  (1.11)

$               (0.29)

$               (2.17)

$              (2.26)

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

-

(0.01)

-

(0.01)

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

-

0.04

-

0.21

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

$                  (1.11)

$               (0.26)

$               (2.17)

$              (2.06)

Weighted average number of shares of common stock:

    Basic

134,272,289

95,957,333

120,491,186

87,105,058

    Diluted

140,609,372

100,229,735

126,445,659

91,397,552

Dividends declared per share of common stock

$                    0.17

$               0.125

$                0.48

$             0.325

(1) The three months ended September 30, 2012 and 2011 include $2.9 million and $2.2 million, respectively, of equity‑based compensation expense. The nine months ended September 30, 2012 and 2011 include $10.0 million and $6.9 million, respectively, of equity‑based compensation expense.

 

NorthStar Realty Finance Corp.

Consolidated Balance Sheets

($ in thousands, except share data)

September 30, 2012

December 31,

(Unaudited)

2011

Assets

  VIE Financing Structures

  Restricted cash

$                 243,731

$            261,295

  Operating real estate, net 

340,164

313,227

  Real estate securities, available for sale 

1,125,875

1,358,282

  Real estate debt investments, net 

1,513,131

1,631,856

  Investments in and advances to unconsolidated

  ventures

62,831

62,938

  Receivables, net of allowance of $1,158 in 2012 and 

  $1,179 in 2011

18,575

22,530

  Derivative assets, at fair value

-

61

  Deferred costs and intangible assets, net 

40,120

47,499

  Assets of properties held for sale

1,595

3,198

  Other assets

14,063

20,549

3,360,085

3,721,435

  Non-VIE Financing Structures

  Cash and cash equivalents

252,427

144,508

  Restricted cash

24,996

37,069

  Operating real estate, net

768,129

776,222

  Real estate securities, available for sale

128,065

115,023

  Real estate debt investments, net

316,917

78,726

  Investments in and advances to unconsolidated

  ventures

51,239

33,205

  Receivables

15,808

8,958

  Receivables, related parties

8,561

5,979

  Unbilled rent receivable

13,459

11,891

  Derivative assets, at fair value

9,425

5,674

  Deferred costs and intangible assets, net

48,095

50,885

  Other assets

14,554

16,862

1,651,675

1,285,002

Total assets 

$              5,011,760

$         5,006,437

Liabilities

  VIE Financing Structures

  CDO bonds payable

$              2,104,782

$         2,273,907

  Mortgage notes payable

228,446

228,525

  Secured term loan

14,682

14,682

  Accounts payable and accrued expenses

15,123

15,754

  Escrow deposits payable

75,917

52,660

  Derivative liabilities, at fair value

188,412

226,481

  Other liabilities

25,540

55,007

2,652,902

2,867,016

  Non-VIE Financing Structures

  Mortgage notes payable

552,661

554,732

  Credit facilities

150,146

64,259

  Exchangeable senior notes

290,256

215,853

  Junior subordinated notes, at fair value

182,100

157,168

  Accounts payable and accrued expenses

46,375

50,868

  Escrow deposits payable

14,973

196

  Derivative liabilities, at fair value

-

8,193

  Other liabilities

53,693

48,538

1,290,204

1,099,807

Total liabilities

3,943,106

3,966,823

Commitments and contingencies

Equity

NorthStar Realty Finance Corp. Stockholders’ Equity

Preferred stock, 8.75% Series A, $0.01 par value,

  $61,675 and $60,000 liquidation preference as of

  September 30, 2012 and December 31, 2011,

  respectively

59,453

57,867

Preferred stock, 8.25% Series B, $0.01 par value,

  $349,975 and $190,000 liquidation preference as of

  September 30, 2012 and December 31, 2011,

  respectively

323,769

183,505

Common stock, $0.01 par value, 500,000,000 shares

  authorized, 134,837,497 and 96,044,383 shares

  issued and outstanding at September 30, 2012 and

  December 31, 2011, respectively    

1,348

960

Additional paid-in capital

1,018,610

809,826

Retained earnings (accumulated deficit)

(326,183)

(8,626)

Accumulated other comprehensive income (loss)

(24,563)

(36,160)

     Total NorthStar Realty Finance Corp. stockholders’

       equity

1,052,434

1,007,372

Non-controlling interests

16,220

32,242

Total equity

1,068,654

1,039,614

Total liabilities and equity

$              5,011,760

$         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 U.S. 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 June 30, 2012, per share

$           856,672

$6.13

Net income to common shareholders and non-controlling

 interest, excluding non-cash fair value adjustments

 included in net income (loss)

26,987

0.19

Fair value adjustments included in net income (loss):

   CDO bonds payable

(193,721)

(1.39)

   Trust preferred debt

(20,726)

(0.15)

   Securities 

24,109

0.17

   Derivatives

6,871

0.05

Equity component of exchangeable senior notes issued

193

0.00

Change in other comprehensive income

1,743

0.01

Common dividends

(22,572)

(0.16)

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

9,379

0.03

Total net increases/(decreases)

(167,737)

(1.25)

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

$           688,935

$4.88

Adjusted common book value at September 30, 2012, per share (3)(4)

$        1,002,104

$7.10

(1) Includes amortization of LTIPs, issuance of common shares from Dividend Reinvestment Plan and 1.25 million shares issued during the quarter in a private offering.

(2) Common book value is calculated as total stockholder’s equity of $1.1 billion and non-controlling interest in the operating partnership of $20 million less preferred stock of $383 million. 

(3) U.S. GAAP book value per share and adjusted book value per share calculations do 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 vehicles and NorthStar’s CDO management fees and do not take into account any potential dilution from certain restricted stock units, exchangeable notes or warrants. 

(4) Cumulative net unrealized and other adjustments total a positive $52 million ($0.37 per share), loan loss reserves total a negative $169 million ($1.20 per share) and accumulated depreciation and amortization total a negative $196 million ($1.39 per share) as of September 30, 2012. Excluding from GAAP book value these unrealized and other adjustments, loan loss reserves and accumulated depreciation and amortization would result in a $7.10 adjusted book value per share at September 30, 2012.

 

 

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; our ability to realize the value of the bonds we have purchased and retained in our CDOs and other securitization vehicles; our ability to access the securitization market; 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-traded 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; compliance with the rules governing REITs; performance of our own investments relative to our expectations and the impact on our actual return on equity; whether NorthStar’s recently priced CMBS transaction closes on the terms anticipated, if at all, and the timing of any such closing as well as whether the underlying loans are repaid at their initial maturity; 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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