NorthStar Realty Finance Announces Third Quarter 2012 Results Third Quarter 2012 Highlights - Increased third quarter 2012 cash dividend to $0.17 per common share, representing a 70% increase over the last five quarters. - AFFO per diluted share of $0.28. - $351 million CMBS transaction collateralized by CRE first mortgages originated by NorthStar and its sponsored non-traded CRE REIT priced in October 2012. - Investments of $646 million in 2012, including $196 million since the end of the second quarter 2012. - Total capital raised to date of $504 million for our sponsored non-traded CRE REIT, including $51 million raised in October 2012. PR Newswire NEW YORK, Nov. 2, 2012 NEW YORK, Nov. 2, 2012 /PRNewswire/ -- NorthStar Realty Finance Corp. (NYSE: 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 $231million. 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 Nine Months Ended September 30, September 30, 2012 2011 2012 2011 Net interest income Interest income $ $ $ $ 82,558 100,682 243,367 310,484 Interest expense on 12,304 10,715 38,569 32,244 debt and securities Net interest income on debt and 70,254 89,967 204,798 278,240 securities Other revenues Rental and 29,960 26,996 87,619 85,879 escalation income Commission income 12,213 3,131 28,291 5,775 Advisory and other 1,507 130 4,766 425 fees Other revenue 366 86 1,996 329 Total other 44,046 30,343 122,672 92,408 revenues Expenses Other interest 23,618 29,160 67,316 75,257 expense Real estate properties – 5,145 3,539 14,834 18,649 operating expenses Asset management 751 1,302 2,552 4,531 expenses Commission expense 11,070 2,698 25,538 5,117 Other costs, net - - 392 - Provision for loan 6,360 9,340 19,737 48,040 losses Provision for loss on equity - - - 4,482 investment General and administrative Salaries and equity-based 13,691 11,386 41,764 43,252 compensation ^(1) Other general and 6,170 7,426 18,671 21,148 administrative Total general 19,861 18,812 60,435 64,400 and administrative Depreciation and 11,735 12,762 36,718 32,370 amortization Total expenses 78,540 77,613 227,522 252,846 Income (loss) from 35,760 42,697 99,948 117,802 operations Equity in earnings (losses) of 421 (604) (416) (4,387) unconsolidated ventures Other income (loss) - (11,826) 20,258 (1,688) Unrealized gain (loss) on (202,019) (68,446) (413,073) (351,271) investments and other Realized gain (loss) on 15,221 14,364 35,768 61,937 investments and other Gain from - 81 - 81 acquisitions Income (loss) from continuing (150,617) (23,734) (257,515) (177,526) operations Income (loss) from discontinued (23) (16) (88) (654) operations Gain (loss) on sale from discontinued 29 2,881 314 17,328 operations Net income (loss) (150,611) (20,869) (257,289) (160,852) Less: net (income) loss allocated to 7,704 1,743 13,911 1,393 non-controlling interests Preferred stock (6,671) (5,231) (17,629) (15,694) dividends Contingently redeemable - (196) - (5,178) non-controlling interest accretion Net income (loss) attributable to $ $ $ $ NorthStar Realty (149,578) (24,553) (261,007) (180,331) Finance Corp. common stockholders Net income (loss) per share from $ $ $ $ continuing (0.29) (2.17) operations (1.11) (2.26) (basic/diluted) Income (loss) per share from discontinued - (0.01) - (0.01) operations (basic/diluted) Gain per share on sale of discontinued - 0.04 - 0.21 operations (basic/diluted) Net income (loss) per common share attributable to $ $ $ $ NorthStar Realty (0.26) (2.17) Finance Corp. (1.11) (2.06) common stockholders (basic/diluted) 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 0.125 0.48 0.325 stock 0.17 (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 1,125,875 1,358,282 sale Real estate debt investments, net 1,513,131 1,631,856 Investments in and advances to unconsolidated 62,831 62,938 ventures Receivables, net of allowance of $1,158 in 2012 and 18,575 22,530 $1,179 in 2011 Derivative assets, at fair value - 61 Deferred costs and intangible assets, 40,120 47,499 net 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 128,065 115,023 sale Real estate debt investments, net 316,917 78,726 Investments in and advances to unconsolidated 51,239 33,205 ventures 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 59,453 57,867 September 30, 2012 and December 31, 2011, respectively Preferred stock, 8.25% Series B, $0.01 par value, $349,975 and $190,000 liquidation preference as of 323,769 183,505 September 30, 2012 and December 31, 2011, respectively Common stock, $0.01 par value, 500,000,000 shares authorized, 134,837,497 and 96,044,383 shares 1,348 960 issued and outstanding at September 30, 2012 and December 31, 2011, respectively Additional paid-in capital 1,018,610 809,826 Retained earnings (accumulated deficit) (326,183) (8,626) Accumulated other comprehensive income (24,563) (36,160) (loss) Total NorthStar Realty Finance Corp. stockholders' 1,052,434 1,007,372 equity 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) ($ in thousands, except share and per share data) Three Months Ended Nine Months Ended September 30, September 30, 2012 2011 2012 2011 Funds from operations: Income (loss) from $ $ $ $ continuing operations (257,515) (177,526) (150,617) (23,734) Non-controlling 645 658 1,185 (7,737) interests^(1) Net income (loss) before non-controlling interest in (149,972) (23,076) (256,330) (185,263) Operating Partnership Adjustments: Preferred stock dividends (6,671) (5,231) (17,629) (15,694) Depreciation and 10,423 12,762 32,581 32,370 amortization Funds from discontinued (23) (16) (82) 138 operations Real estate depreciation and amortization, unconsolidated 207 207 621 646 ventures Funds from operations (146,036) (15,354) (240,839) (167,803) Adjusted funds from operations: Funds from operations (146,036) (15,354) (240,839) (167,803) Straight-line rental income, (749) (678) (2,106) (1,910) net Straight-line rental income/expense and fair value lease revenue, 237 (32) 702 (84) unconsolidated ventures Amortization of above/below (347) (272) (865) (656) market leases Amortization of equity-based 2,891 2,204 10,049 6,851 compensation Unrealized (gain) loss from 183,467 43,537 351,812 270,001 fair value adjustments Gain from acquisitions - (81) - (81) Adjusted funds from $ $ $ $ operations 118,753 106,318 39,463 29,324 FFO per share of common $ $ $ $ stock (1.04) (0.15) (1.90) (1.84) AFFO per share of common $ $ $ $ stock 0.28 0.29 0.94 1.16 (1) Amount excludes non-controlling limited partner interests in NorthStar's operating partnership. 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: onormalized 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; oan adjustment to reverse the effects of the straight‑lining of rental income or expense and fair value lease revenue; othe amortization or accrual of various deferred costs including intangible assets and equity-based compensation; oan adjustment to reverse the effects of acquisition gains or losses; and oan 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. Assets Under Management at September 30, 2012 ^(1) ($ in thousands) Amount % CRE Debt First mortgage loans $ 1,644,207 23.2% Mezzanine loans 442,850 6.2% Credit tenant and term loans 232,491 3.3% Subordinate mortgage interests 131,062 1.8% Other ^(2) 324,012 4.6% Total CRE debt 2,774,622 39.1% CRE Securities CMBS 2,373,496 33.4% Third-party CDO notes 225,959 3.2% Other securities 148,905 2.1% Total CRE securities 2,748,360 38.7% Net Lease Core net lease 404,532 5.7% Healthcare net lease 562,476 7.9% Total net lease 967,008 13.6% Subtotal NorthStar 6,489,990 91.4% Sponsored REIT NorthStar Income ^(3) 607,971 8.6% Grand total $ 7,097,961 100.0% (1) Based on principal amount of CRE debt and security investments and the cost basis of net lease properties.Any real estate owned (either directly or through a joint venture) as a result of taking title to a property through foreclosure, deed in lieu or otherwise ("taking title to a property") reflects the principal amount of the loan at time of foreclosure. (2) Primarily related to real estate owned (either directly or through a joint venture) as a result of taking title to a property. (3) Based on consolidated total assets. Investments 2012 Year-to-Date through November 2, 2012 ($ in millions) NorthStar Balance Sheet Assets Invested Expected Investments Equity ROE ^(1) Repurchases of NorthStar CDO $ 326 $ 159 20%+ bonds CRE Loans 227 94 18% (2) Opportunistic CRE 93 89 16%+ investments Total / weighted average $ 646 $ 342 18%+ Originated loans in 2012 - $ 308 NorthStar non-traded REIT Total Loans $ 535 (1) Management provides no assurances that the weighted average life or cash flows of investments will be consistent with management's expectations or that the CDO bonds, originated loans or other investments, will payoff at par, if at all. Actual results could differ materially from those presented. (2) Reflects NorthStar's recently priced CMBS transaction. Balance Sheet Holdings of NorthStar CDO Bonds ^(1) At November 2, 2012 ($ in thousands) Principal Based on original credit rating: Amount ^(2) AAA $ 178,279 AA through BBB 434,792 Below investment grade 191,790 Total $ 804,861 Weighted average original credit rating of A+ / A1 repurchased CDO bonds Weighted average purchase price of repurchased CDO 37% bonds (1) Unencumbered CDO bonds are owned by NorthStar. The majority of CDO bonds are eliminated with the corresponding liability of the respective CDO on NorthStar's consolidated financial statements. (2) Represents the maximum amount of principal proceeds that could be received. CDOs primarily backed by CRE Debt ($ in thousands) N-Star N-Star N-Star CSE CapLease IV VI VIII Issue/Acquisition Jun-05 Mar-06 Dec-06 Jul-10 Aug-11 Total Date Balance sheet as of September 30, 2012 ^(1) Assets, principal $ $ $ $ $ $ amount 381,411 469,276 965,278 1,021,838 167,893 3,005,696 CDO bonds, principal 260,893 361,354 727,063 949,218 148,476 2,447,004 amount ^(2) Net assets $ $ $ $ $ $ 120,518 107,922 238,215 72,620 19,417 558,692 CDO quarterly cash distributions and coverage tests ^(3) Equity notes and retained original $ $ $ $ $ $ below investment 1,671 989 6,009 6,629 654 15,952 grade bonds Collateral management 287 471 1,019 523 86 2,386 fees Interest coverage 1,710 1,030 4,872 9,952 412 cushion ^(1) Overcollateralization cushion (shortfall) ^ 47,917 57,003 140,236 72,782 8,938 (1) At offering 19,808 17,412 42,193 (151,595) (4) 5,987 (5) (1) Based on remittance report issued on date nearest to September 30, 2012. (2) Includes all outstanding CDO bonds payable to third parties and all CDO bonds owned by NorthStar. (3) Interest coverage and overcollateralization coverage to the most constrained class. (4) Based on trustee report as of June 24, 2010, closest to the date of acquisition. (5) Based on trustee report as of August 31, 2011, closest to the date of acquisition. CDOs primarily backed by CRE Securities ($ in thousands) N-Star I N-Star N-Star N-Star N-Star N-Star IX II III V VII Issue/Acquisition Aug-03 Jul-04 Mar-05 Sep-05 Jun-06 Feb-07 Total Date Balance sheet as of September 30, 2012 ^(1) Assets, principal $ $ $ $ $ $ $ amount 159,943 177,990 264,997 409,249 400,316 1,040,151 2,452,646 CDO bonds, principal 152,838 167,700 179,940 312,577 306,751 742,980 1,862,786 amount ^(2) Net assets $ $ $ $ $ $ $ 7,105 10,290 85,057 96,672 93,565 297,171 589,860 CDO quarterly cash distributions and coverage tests ^(3) Equity notes and $ $ $ $ $ retained original $ $ below investment - - - - - 2,568 2,568 grade bonds Collateral management 60 62 88 91 82 776 1,159 fees Interest coverage cushion (shortfall) NEG 1,043 429 NEG NEG 2,972 ^(1) Overcollateralization cushion (shortfall) ^ NEG NEG NEG NEG NEG 43,500 (1) At offering 8,687 10,944 13,610 12,940 13,966 24,516 (1) Based on remittance report issued on date nearest to September 30, 2012. (2) Includes all outstanding CDO bonds payable to third parties and all CDO bonds owned by NorthStar. (3) Interest coverage and overcollateralization coverage to the most constrained class. GAAP Book Value Rollforward ($ in thousands, except per share data) Amount Per Share Common book value at June 30, 2012, per share $ $6.13 856,672 Net income to common shareholders and non-controlling interest, excluding non-cash fair value 26,987 0.19 adjustments included in net income (loss) 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 193 0.00 issued Change in other comprehensive income 1,743 0.01 Common dividends (22,572) (0.16) Accretion (dilution) from additional shares issued 9,379 0.03 during quarter ^(1) Total net increases/(decreases) (167,737) (1.25) Common book value at September 30, 2012, per $ $4.88 share ^(2)(3) 688,935 Adjusted common book value at September 30, $ $7.10 2012, per share ^(3)(4) 1,002,104 (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 $7.10 adjusted book value per share at September 30, 2012. NRFC NNN Holdings, LLC Portfolio Summary ($ in thousands) Remaining Cost basis Date Square Lease Cost Existing less Tenant or Term Basis Acquired Guarantor of Location/MSA Feet ^(1) ^(2) Debt Debt Tenant ALGM One property $ Oct-2004 Portfolio - in New York, 7,500 0.3 $ $ Sbarro, Inc. NY 3,246 - 3,246 ^ (3) Alliance Nov-2007 Data Systems Columbus, OH 199,112 5.2 33,829 22,726 11,103 Corp. Mar-2007 Citigroup, Fort Mill, 165,000 8.1 34,303 29,614 4,689 Inc. SC/Charlotte Jun-2006 Covance, Indianapolis, 333,600 13.3 34,519 27,126 7,393 Inc. IN Credence Milpitas, Feb-2007 Systems CA/San Jose 178,213 4.4 30,144 20,752 9,392 Corp. Dick's Sporting 3.3 - Sep-2006 Goods, Inc. 9 properties 467,971 11.9 64,503 46,081 18,422 / PetSmart, Inc. ^ (3) Electronic 2 in MI / 1 Sep-2005 Data Systems in CA / 1 in 387,842 3.0 62,718 44,793 17,925 Corp. PA GSA - U.S. Aug-2005 Department Salt Lake 117,553 4.6 23,211 14,287 8,924 of City, UT Agriculture Landis Jun-2007 Logistics / Reading, PA 609,000 3.6 - 5.3 26,223 18,148 8,075 East Penn Northrop Grumman Jul-2006 Space & Aurora, 183,529 2.7 42,400 31,830 10,570 Mission CO/Denver Systems Corp. Party City Corp. Mar-2006 (Amscan) / Rockaway, NJ/ 121,038 2.7 - 4.8 22,221 16,442 5,779 Lerner Northern NJ Enterprises, Inc. Quantum Colorado Feb-2006 Corporation Springs, CO 406,207 0.2 - 8.4 27,215 17,356 9,859 ^(4) Total NRFC NNN $ $ Holdings, LLC 3,176,565 5.9 $404,532 289,155 115,377 Portfolio (1) Remaining lease term as of September 30, 2012. Total represents weighted average based on cost basis. (2) Cost basis includes capitalized expenditures since acquisition. (3) One ALGM property and six of ten Dick's Sporting Goods, Inc. / PetSmart, Inc. properties are ground lease interests. (4) Dollar amounts shown are 50% of total relating to NRFC NNN Holding's, LLC subsidiary's 50% interest in a joint venture with an institutional investor. Portfolio Cash Flow and Tenant Credit Profile ($ in thousands) Three Months Ended September 30, 2012 Primary Tenant Tenant or NOI Market Actual Guarantor of Base NOI Debt Less Cap Credit Tenant Rent Service Debt ^(1) Rating Service ALGM $ $ $ $ Portfolio - - 254 N/A not rated Sbarro, Inc. 254 254 Alliance Data 582 576 (426) 150 7,465 not rated Systems Corp. Citigroup, 538 532 (512) 20 101,845 A- / A Inc. Covance, Inc. 638 632 (517) 115 2,702 not rated Credence Systems 701 695 (447) 248 312 not rated Corp. Dick's Sporting Goods, Inc. / 1,321 1,301 (972) 329 6,204 not rated ^(2) PetSmart, Inc. Electronic Data Systems 1,508 1,495 (824) 671 13,900 not rated Corp. GSA - U.S. implied Department of 648 429 (302) 127 N/A AAA Agriculture Landis Logistics / 406 396 (332) ^(3) 64 N/A not rated East Penn Northrop Grumman Space 846 846 (617) 229 17,038 BBB+/Baa1 & Mission Systems Corp. Party City Corp. (Amscan) / 468 468 (303) 165 362 B/B2 ^(4) Lerner Enterprises, Inc. Quantum Corporation 626 621 (326) 295 397 not rated (50%) Total $ $ $ $ 8,536 8,245 (5,578) 2,667 (1) Based on information from Bloomberg at close of market on September 30, 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) A portion of 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) 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 This press release contains certain "forward‑looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section27A of the Securities Act of 1933, as amended, or Securities Act, and Section21E 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 Item1A. of our Annual Report on Form10-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 Form10-K for the fiscal year ended December 31, 2011 beginning on page18. 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. Website: http://www.nrfc.com Contact: Investor Relations, Joe Calabrese, +1-212-827-3772
NorthStar Realty Finance Announces Third Quarter 2012 Results
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