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NorthStar Realty Finance Announces Fourth Quarter And Full Year 2012 Results

 NorthStar Realty Finance Announces Fourth Quarter And Full Year 2012 Results  PR Newswire  NEW YORK, Feb. 14, 2013  NEW YORK, Feb. 14, 2013 /PRNewswire/ --  Fourth Quarter 2012 Highlights    oIncreased fourth quarter 2012 cash dividend to $0.18 per common share,     representing an 80% increase over the last six quarters.   oAFFO per share of $0.73.   oAnnounced $390 million investment in real estate private equity fund     interests, including $115 million from our non-traded REIT.   oAcquired $326 million manufactured housing portfolio.   oTotal capital raised of $146 million in the fourth quarter for our     non-traded REIT.  Full Year 2012 Highlights    oAFFO per share of $1.71.   oCommitted to $1.3 billion of investments, including $691 million in the     fourth quarter.   o$351 million CMBS transaction collateralized by CRE first mortgages     originated by NorthStar and its non-traded REIT.   oRaised $443 million of capital in our non-traded REIT, bringing total     capital raised to $600 million at December 31, 2012.  NorthStar Realty Finance Corp. (NYSE: NRF) today announced its results for the fourth quarter and full year ended December 31, 2012.  Fourth Quarter 2012 Results  NorthStar reported adjusted funds from operations ("AFFO") for the fourth quarter 2012 of $0.73 per share compared with $0.44 per share for the fourth quarter 2011. AFFO for the fourth quarter 2012 was $105.5 million compared to $43.6 million for the fourth quarter 2011. Net loss to common stockholders for the fourth quarter 2012 was $(27.6) million, or $(0.20) per diluted share, compared to a net loss of $(82.7) million, or $(0.85) per diluted share for the fourth quarter 2011. Fourth quarter 2012 net loss includes $(117.5) million of non-cash fair value adjustments, including a $106.9 million increase in the value of our CDO bonds, compared to $(115.5) million of non-cash fair value adjustments for the fourth quarter 2011. These non-cash fair value adjustments are excluded from AFFO.  Full Year 2012 Results  NorthStar reported AFFO for the full year 2012 of $1.71 per share compared with $1.60 per share for the full year 2011. AFFO for the full year 2012 was $224.2 million compared to $149.4 million for the full year 2011. Net loss to common stockholders for the full year 2012 was $(288.6) million, or $(2.31) per diluted share, compared to a net loss of $(263.0) million, or $(2.94) per diluted share for the full year 2011. Full year 2012 net loss includes $(469.3) million of non-cash fair value adjustments, including a $510.1 million increase in the value of our CDO bonds, compared to $(385.5) million of non-cash fair value adjustments for the full year 2011. These non-cash fair valueadjustments are excluded from AFFO.   David T. Hamamoto, chairman and chief executive officer, commented "2012 was a transformative year for NorthStar. We committed to $1.3 billion of highly accretive and diverse investments across the commercial real estate landscape, which allowed us to substantially increase our cash flow and increase our dividend each quarter of 2012. The cash available for distribution that we expect to earn in 2013 represents a sizable cushion to our current dividend and we will continue to evaluate our distribution policy on a quarterly basis, balancing distributions with retaining cash flow for accretive investments. As we begin 2013, our pipeline of compelling investment opportunities has never been stronger and we are very excited about our prospects for 2013."  Mr. Hamamoto continued, "Our asset management business gained significant traction in 2012 and we expect this business to continue to grow as we enter the market with additional vehicles in 2013. Based on our expectation of capital raising for our non-traded REITs in 2013, we anticipate earning over $40 million of net fees from our asset management business in 2013. Because we are an internally managed REIT, our shareholders are the direct beneficiaries of this long-term, highly valuable and growing fee stream."  Investments  During the fourth quarter, NorthStar committed $390 million to subscribe for Class A limited partnership interests in one or more newly formed limited partnerships (collectively, the "Partnership"). The Partnership will acquire limited partnership interests in approximately 50 real estate private equity funds managed by top institutional-quality sponsors. This investment is expected to be funded with $275 million from NorthStar and $115 million from NorthStar's sponsored non-traded REIT, NorthStar Real Estate Income Trust, Inc. ("NorthStar Income I"). NorthStar expects the first closing of this investment in February 2013, at which time the full amount of the investment would be funded. The Partnership is entitled to all distributions of capital after June 30, 2012 from the private equity funds underlying this investment irrespective of when this investment may close. The closing of each fund is subject to customary closing conditions.  During the fourth quarter, NorthStar acquired a $326 million portfolio of 36 manufactured housing communities containing 6,296 pad rental sites and 604 manufactured homes located across those sites. NorthStar financed the transaction with a $237 million non-recourse, 10-year mortgage with an interest rate of 4.38%. NorthStar expects to earn an initial current yield of 15% on its $81 million of equity in this investment.   During the fourth quarter, NorthStar invested $15 million of equity in two commercial real estate loans with a $38 million aggregate principal balance. During 2012, NorthStar invested $109 million of equity in 12 commercial real estate loans with a $265 million aggregate principal balance and expects to earn a weighted average return on this invested equity of 18%, including $8 million of facility financing that closed subsequent to year end.  The principal proceeds NorthStar could receive from CDO bonds acquired during the fourth quarter is $40 million, which were purchased for $26 million with a weighted average original credit rating of AA/Aa2. The principal proceeds NorthStar could receive from CDO bonds acquired during 2012 is $326 million, which were purchased for $159 million with a weighted average original credit rating of AA-/Aa3 and have an expected yield-to-maturity of over 20%.  As of December 31, 2012, the principal proceeds NorthStar could receive from its owned CDO bonds is $708 million, of which $558 million was repurchased at an average price of 32% in the secondary market and has a weighted average original credit rating of A+/A1. The discount to par of $379 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 $7.4 billion of assets under management at December 31, 2012.  For additional details regarding NorthStar's investments, please refer to the tables on the following pages and to the corporate presentation which will be posted on NorthStar's website, www.nrfc.com, following close of business on February 15, 2013.  Asset Management Business  During the fourth quarter 2012, NorthStar received management fees from its consolidated CDOs of $3.3 million, which are eliminated on NorthStar's consolidated statement of operations. In addition, during the fourth quarter 2012, NorthStar received $3.2 million of fees from NorthStar Income I.  NorthStar Income I raised $146 million in the fourth quarter 2012 and $600 million of total capital as of December 31, 2012, through NorthStar Realty Securities, LLC, NorthStar's wholly-owned broker-dealer. NorthStar Realty Securities, LLC currently has total signed selling agreements with broker-dealers covering more than 65,000 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. NorthStar Healthcare Income, Inc. began signing selling agreements and subsequent to the fourth quarter broke escrow and anticipates raising capital shortly.  During the fourth quarter, we, through our wholly-owned subsidiary, originated four loans on behalf of NorthStar Income I with a $167 million aggregate principal balance. In 2012, we originated 15 loans on behalf of NorthStar Income I with a $475 million aggregate principal balance.  Liquidity, Financing and Capital Markets Highlights  Unrestricted cash as of December 31, 2012 totaled approximately $445 million. Unrestricted cash after the $275 million commitment to the Partnership (net of $40 million deposited in connection with the Partnership prior to December 31, 2012) would be $210 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.  In December 2012, NorthStar sold 28.75 million shares of its common stock at a public offering price of $6.40 per share, generating net proceeds of $177 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.  Portfolio Management  At December 31, 2012, NorthStar had one loan on non-performing status ("NPL"), which had a $13 million aggregate principal amount and a $7 million carrying value. This compares to three loans with a $25 million aggregate principal amount and a $4 million carrying value at September 30, 2012. NorthStar categorizes a loan as a NPL if it is in maturity default and/or is past due 90 days on its contractual debt service payments.  During the fourth quarter 2012, NorthStar recorded $3.3 million of net provision for loan losses, compared to $6.4 million of net provision for loan losses during the third quarter 2012. As of December 31, 2012, loan loss reserves totaled $157 million, or 7% of total loans, related to 13 loans with a carrying value of $223million.  As of December 31, 2012, NorthStar's net lease portfolio was 94% leased with a 5.7 year weighted average remaining lease term. As of December 31, 2012, NorthStar's healthcare portfolio that was leased to third-party operators was 100% leased with weighted average lease coverage of 1.3x and a 6.9 year weighted average remaining lease term. As of December 31, 2012, NorthStar's manufactured housing portfolio was 86% leased.  Stockholders' Equity  At December 31, 2012, NorthStar had 169,835,986 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 $4.82 at December 31, 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 December 31, 2012 would be $6.75 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. NorthStar expects over $40 million ofnet asset management fees in 2013. 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 February 13, 2013, NorthStar announced that its Board of Directors declared a cash dividend of $0.18 per share of common stock, payable with respect to the quarter ended December 31, 2012. The dividend is expected to be paid on March 1, 2013 to shareholders of record as of the close of business on February 25, 2013. The Company's common shares will begin trading ex-dividend on February 21, 2013.  Earnings Conference Call  NorthStar will hold a conference call to discuss fourth quarter 2012 financial results on February 14, 2013, at 10:00 a.m. Eastern time. Hosting the call will be David Hamamoto, chairman and chief executive officer; Albert Tylis, president; Daniel Gilbert, chief investment and operating officer; and Debra Hess, chief financial officer.  The call will be webcast live over the Internet from NorthStar's website, www.nrfc.com, and will be archived on the Company's website. The call can also be accessed live over the phone by dialing 877-941-8609, or for international callers, by dialing 480-629-9771.  A replay of the call will be available one hour after the call through Thursday, February 21, 2013 by dialing 800-406-7325  or, for international callers, 303-590-3030, using pass code 4590712.  About NorthStar Realty Finance Corp.  NorthStar Realty Finance Corp. is a diversified commercial real estate investment and asset management company that is organized as an internally managed REIT. For more information about NorthStar Realty Finance Corp., please visit www.nrfc.com.    NorthStar Realty Finance Corp. Consolidated Statements of           Three Months Ended           Years Ended Operations ($ in thousands, except share and per    December 31,                  December 31, share data)                         2012           2011           2012          2011                         (Unaudited)    (Unaudited)    (Unaudited) Net interest income Interest income         $           $            $           $                          142,686        90,570        386,053      401,201 Interest expense on     11,988         13,036         50,557        45,280 debt and securities Net interest income on debt and             130,698        77,534         335,496       355,921 securities Other revenues Rental and escalation   31,308         26,818         116,614       112,697 income Commission income       14,094         6,249          42,385        12,024 Advisory and other      3,150          1,277          7,916         959 fees - related party Other revenue           276            -              2,272         925  Total other         48,828         34,344         169,187       126,605 revenues Expenses Other interest          24,154         21,683         91,470        96,940 expense Real estate properties –            4,896          3,912          18,545        22,611 operating expenses Asset management        2,884          1,438          6,714         8,824 expenses Commission expense      12,968         5,647          38,506        10,764 Other costs, net        2,179          -              2,571         - Impairment on           966            -              966           - operating real estate Provision for loan      3,300          4,940          23,037        52,980 losses, net Provision for loss on   -              -              -             4,482 equity investment General and administrative Salaries and equity-based            20,549         22,931         62,313        66,183 compensation ^(1) Other general and       2,845          6,096          19,787        24,882 administrative  Total general and   23,394         29,027         82,100        91,065 administrative Depreciation and        12,392         11,888         48,836        44,258 amortization  Total expenses      87,133         78,535         312,745       331,924 Income (loss) from      92,393         33,343         191,938       150,602 operations Equity in earnings (losses) of             504            1,649          88            (2,738) unconsolidated ventures Other income (loss)     -              5,850          20,258        4,162 Unrealized gain (loss) on investments   (135,204)      (138,633)      (548,277)     (489,904) and other Realized gain (loss) on investments and      24,717         16,845         60,485        78,782 other Gain from               -              8              -             89 acquisitions Income (loss) from      (17,590)       (80,938)       (275,508)     (259,007) continuing operations Income (loss) from discontinued            24             (606)          340           (717) operations Gain (loss) on sale from discontinued       1,765          (130)          2,079         17,198 operations Net income (loss)       (15,801)       (81,674)       (273,089)     (242,526)  Less: net (income) loss allocated to            (2,384)        4,222          11,527        5,615 non-controlling interests Preferred stock         (9,396)        (5,231)        (27,025)      (20,925) dividends Contingently redeemable              -              -              -             (5,178) non-controlling interest accretion Net income (loss) attributable to         $           $            $            $  NorthStar Realty        (27,581)       (82,683)       (288,587)    (263,014) Finance Corp. common stockholders Net income (loss) per share from continuing   $         $          $         $     operations              (0.21)         (0.85)         (2.32)       (3.12) (basic/diluted) Income (loss) per share from discontinued            -              -              -             (0.01) operations (basic/diluted) Gain per share on sale of discontinued    0.01           -              0.01          0.19 operations (basic/diluted) Net income (loss) per common share attributable to         $         $          $         $     NorthStar Realty        (0.20)         (0.85)         (2.31)       (2.94) Finance Corp. common stockholders (basic/diluted) Weighted average number of shares of common stock: Basic                   139,218,177    96,006,344     125,198,517   89,348,670 Diluted                 145,455,938    100,244,453    131,224,199   93,627,456 (1) The three months ended December 31, 2012 and 2011 include $2.8 million and $4.8 million, respectively, of equity‑based compensation expense. The twelve months ended December 31, 2012 and 2011 include $12.8 million and $11.7 million, respectively, of equity‑based compensation expense.    NorthStar Realty Finance Corp. Consolidated Balance Sheets ($ in thousands, except share data)                                                     December 31,                                                     2012          2011                                                     (Unaudited) Assets Cash and cash equivalents                           $  444,927  $  144,508 Restricted cash                                     360,075       298,364 Operating real estate, net                          1,401,658     1,089,449 Real estate securities, available for sale          1,124,668     1,473,305 Real estate debt investments, net                   1,832,231     1,710,582 Investments in and advances to unconsolidated       111,025       96,143 ventures Receivables, net of allowance of $1,526 in 2012     28,413        31,488 and $1,179 in 2011 Receivables, related parties                        23,706        5,979 Unbilled rent receivable                            16,129        11,891 Derivative assets, at fair value                    6,229         5,735 Deferred costs and intangible assets, net           97,700        98,384 Assets of properties held for sale                  1,595         3,198 Other assets                                        65,422        37,411 Total assets^(1)                                    $ 5,513,778   $ 5,006,437 Liabilities CDO bonds payable                                  $ 2,112,441   $ 2,273,907 Mortgage notes payable                              1,015,670     783,257 CMBS bonds payable                                  98,005        - Secured term loan                                   14,664        14,682 Credit facilities                                   61,088        64,259 Exchangeable senior notes                           291,031       215,853 Junior subordinated notes, at fair value            197,173       157,168 Accounts payable and accrued expenses               45,895        66,622 Escrow deposits payable                             90,032        52,856 Derivative liabilities, at fair value               170,840       234,674 Other liabilities                                   86,075        103,545 Total liabilities^(2)                               4,182,914     3,966,823 Commitments and contingencies Equity NorthStar Realty Finance Corp. Stockholders' Equity Preferred stock, $536,640 and $250,000 aggregate liquidation preference as of December 31, 2012 and 2011, respectively            504,018       241,372 Common stock, $0.01 par value, 500,000,000 shares authorized, 163,607,259 and 96,044,383 shares issued and outstanding as of      1,636         960 December 31, 2012 and 2011, respectively Additional paid-in capital                          1,195,131     809,826 Retained earnings (accumulated deficit)             (376,685)     (8,626) Accumulated other comprehensive income (loss)       (22,179)      (36,160)  Total NorthStar Realty Finance Corp.           1,301,921     1,007,372 stockholders' equity Non-controlling interests                           28,943        32,242 Total equity                                        1,330,864     1,039,614 Total liabilities and equity                        $ 5,513,778   $ 5,006,437 ^(1) Assets of consolidated VIEs included in the total assets above: Restricted cash                                     $  320,815  $  261,295 Operating real estate, net                          342,461       313,227 Real estate securities, available for sale          1,015,972     1,358,282 Real estate debt investments, net                  1,478,503     1,631,856 Investments in and advances to unconsolidated       59,939        62,938 ventures Receivables, net of allowance                      16,609        22,530 Derivative assets, at fair value                   -             61 Deferred costs and intangible assets, net           37,753        47,499 Assets of properties held for sale                 1,595         3,198 Other assets                                       14,814        20,549 Total assets of consolidated VIEs                   $ 3,288,461   $ 3,721,435 ^(2) Liabilities of consolidated VIEs included in the total liabilities above: CDO bonds payable                                  $ 2,112,441   $ 2,273,907 Mortgage notes payable                              228,446       228,525 Secured term loan                                   14,664        14,682 Accounts payable and accrued expenses              13,626        15,754 Escrow deposits payable                            67,406        52,660 Derivative liabilities, at fair value              170,840       226,481 Other liabilities                                  25,144        55,007 Total liabilities of consolidated VIEs              $ 2,632,567   $ 2,867,016    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)                            Three Months Ended   Year Ended ($ in thousands, except per share data)                                   December 31,          December 31,                                   2012       2011       2012         2011 Funds from operations: Income (loss) from continuing     $       $        $           $  operations                       (17,590)   (80,938)   (275,508)   (259,007) Non-controlling interests^(1)     (3,620)    572        (2,435)      (7,165) Net income (loss) before non-controlling interest in       (21,210)   (80,366)   (277,943)    (266,172) Operating Partnership Adjustments: Preferred stock dividends         (9,396)    (5,231)    (27,025)     (20,925) Impairment on operating real      966        -          966          - estate Depreciation and amortization     16,133     8,786      48,440       41,156 Funds from discontinued           115        (96)       711          74 operations Real estate depreciation and amortization, unconsolidated      205        207        826          853 ventures  Funds from Operations             (13,187)   (76,700)   (254,025)    (245,014) Adjusted funds from operations: Funds from operations             (13,187)   (76,700)   (254,025)    (245,014) Straight-line rental income, net  (1,230)    (852)      (3,336)      (2,762) Straight-line rental income/expense and amortization   216        1,014      918          930 of above/below market leases, unconsolidated ventures Amortization of above/below       (533)      (235)      (1,398)      (891) market leases Amortization of equity-based      2,768      4,831      12,817       11,682 compensation Unrealized (gain) loss from fair  117,458    115,512    469,270      385,513 value adjustments Gain from acquisitions            -          (8)        -            (89) Adjusted Funds from Operations    $       $        $          $                                    105,492    43,562    224,246     149,369 FFO per share of common stock     $      $      $        $                                        (0.09)   (0.76)     (1.94)      (2.62) AFFO per share of common stock    $      $      $       $     ^(2)                                0.73   0.44      1.71        1.60 (1) Amount excludes non-controlling limited partner interest in NorthStar's operating partnership. (2) AFFO per share does not take into account any potential dilution from certain restricted stock units, exchangeable notes or warrants.  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 December 31, 2012 ^(1) ($ in thousands)                                   Amount                            % CRE Debt First mortgage loans              $      1,578,872            21.3% Mezzanine loans                   440,941                           6.0% Credit tenant and term loans      230,178                           3.1% Subordinate mortgage interests    121,473                           1.6% Other ^(2)                        336,893                           4.6% Total CRE debt                    2,708,357                         36.6% Real Estate Net lease                         401,286                           5.4% Healthcare                        572,370                           7.7% Other real estate ^(3)            326,028                           4.4% Total real estate                 1,299,684                         17.5% Asset Management NorthStar Income I ^(4)           854,516                           11.5% CRE Securities CMBS                             2,207,067                         29.9% Third-party CDO notes            197,103                           2.7% Other securities                  134,905                           1.8% Total CRE securities              2,539,075                         34.4% Grand total                       $      7,401,632            100.0% (1) Based on principal amount of CRE debt and security investments and the cost basis of our real estate. 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) Relates to an investment in manufactured housing communities including $284 million of pad rental sites, $13 million ofmanufactured homes and $29 million of intangible and other assets. (4) Based on consolidated total assets.    Investments 2012 ($ in millions) NorthStar Balance Sheet      Assets        Invested        Expected ROE Investments                                Equity         ^(1) Opportunistic CRE            $         $    362    17%+ investments ^(2)             362 Opportunistic CDO bond       326           159             20%+ repurchases Real estate portfolio        332           84              15%+ CRE loans                    265           109             18%           ^(3) Total / weighted             $   1,285   $    714     18%+ average Originated loans in          $     2012 - NorthStar            475 non-traded REIT Total Loans                 $    740 (1) Management provides no assurances that the weighted average life or cash flows of investments will be consistent withmanagement'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) Includes $275 million investment in real estate private equity fund interests which is expected to close in February 2013. (3) Reflects $8 million of credit facility financing obtained in January 2013.    Balance Sheet Holdings of NorthStar CDO Bonds ^(1) At December 31, 2012 ($ in thousands)                                                        Principal Based on original credit rating:                       Amount ^(2) AAA                                                    $       129,005 AA through BBB                                         386,917 Below investment grade                                 191,790 Total                                                  $      707,712 Weighted average original credit rating of             A+ / A1 repurchased CDO bonds Weighted average purchase price of repurchased CDO     32% 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. There is no assurance  NorthStar will receive the maximum amount of principal proceeds.    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 December 31, 2012 ^(1) Assets, principal      $        $        $       $           $             $  amount                 359,529  459,309  938,171  993,252        165,619       2,915,880 CDO bonds, principal   239,103   357,573   718,867   920,631        146,241        2,382,415 amount ^(2) Net assets            $        $        $       $          $            $                           120,426  101,736  219,304  72,621         19,378        533,465 CDO quarterly cash distributions and coverage tests^(3) Equity notes and retained original      $      $      $      $          $          $     below investment       1,747      773    4,553   8,412         684          16,169 grade bonds Collateral management  283       469       984       378            85             2,199 fees Interest coverage      1,861     944       3,102     7,680          412 cushion ^(1) Overcollateralization cushion (shortfall)    48,552    57,931    131,339   74,211         9,009 ^(1) At           19,808    17,412    42,193    (151,595) ^(4) 5,987     ^(5) offering (1)               Based on remittance report issued on date                   nearest to December 31, 2012.                   Includes all outstanding CDO bonds payable (2)               to third parties and all CDO bonds owned by                   NorthStar. (3)               Interest coverage and overcollateralization                   coverage to the most constrained class.                   Based on trustee report as of June (4)               24, 2010, closest to the date of                   acquisition.                   Based on trustee report as of (5)               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 December 31, 2012 ^(1) Assets, principal      $        $        $        $       $       $         $  amount                 133,795  164,320  242,790  366,016  342,338  1,036,652  2,285,911 CDO bonds, principal   131,048   153,332   160,316   300,889  284,391  737,697    1,767,673 amount ^(2) Net assets            $      $       $       $      $      $        $                           2,747    10,988   82,474   65,127   57,947   298,955   518,238 CDO quarterly cash distributions and coverage tests^(3) Equity notes and       $      $      $      $     $    retained original                                  $      $     below investment       -        -        -         -        -        3,170      3,170 grade bonds Collateral management  53        56        74        $     $     $      1,115 fees                                                   75    69    788 Interest coverage cushion (shortfall)    NEG       737       NEG       NEG      NEG      2,572 ^(1) Overcollateralization cushion                NEG       NEG       NEG       NEG      NEG      18,749 (shortfall)^(1)                         8,687     10,944    13,610    12,940   13,966   24,516 At offering (1) Based on remittance report issued on date nearest to December 31, 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 September 30,                    $          $4.88 2012, per share                                       688,935 Net income to common shareholders before non-controlling interest in Operating Partnership,  excluding non-cash fair value adjustments included in net income                    88,642          0.63 (loss) Fair value adjustments included in net income (loss):  CDO bonds payable                                  (106,909)       (0.76)  Trust preferred debt                               (15,073)        (0.11)  Securities                                        (13,054)        (0.09)  Derivatives                                        17,578          0.12 Change in other comprehensive income                  2,491           0.02 Common dividends                                      (23,981)        (0.17) Accretion (dilution) from additional shares issued    179,188         0.30 during quarter ^(1) Total net increases/(decreases)                       128,882         (0.06) Common book value at December 31,                     $          $4.82 2012, per share ^(2)(3)                               817,817 Adjusted common book value at                         $    December 31, 2012, per share                          1,145,605      $6.75 ^(3)(4) 2013 expected net asset management     $ fees                                   40,000+                      Includes December common stock offering, amortization of (1)                  LTIPs and issuance of common shares from Dividend                      Reinvestment Plan.                      Common book value is calculated as total stockholder's (2)                  equity of $1.3 billion and non-controlling interest in                      the operating partnership of $20 million less preferred                      stock of $504 million.                      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 (3)                  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.                      Cumulative net unrealized and other adjustments total a (4)                  positive $33 million ($0.19 per share), loan loss                      reserves total a negative $157 million ($0.92 per share)                      and accumulated depreciation and amortization total a                      negative $204 million ($1.20 per share) as of December                      31, 2012. Excluding from GAAP book value these                      unrealized and other adjustments, loan loss reserves and                      accumulated depreciation and amortization would result in                      adjusted book value of $6.75 per share at December 31,                      2012.    NRFC NNN Holdings, LLC Portfolio Summary ($ 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          Alliance                                         $       $      $   Nov-2007 Data Systems Columbus, OH  199,112    4.9        33,829   22,643   11,186          Corp. Mar-2007 Citigroup,   Fort Mill,    165,000    7.8        34,303    29,526    4,777          Inc.         SC/Charlotte Jun-2006 Covance,     Indianapolis, 333,600    13.0       34,519    27,023    7,496          Inc.         IN          Credence     Milpitas, Feb-2007 Systems      CA/San Jose   178,213    4.2        30,144    20,616    9,528          Corp.          Dick's          Sporting                              3.1 - Sep-2006 Goods, Inc.  9 properties  467,971    11.7       64,503    45,823    18,680          / PetSmart,          Inc.^(3)          Electronic   2 in MI / 1 Sep-2005 Data Systems in CA / 1 in  387,842    2.7        62,718    44,576    18,142          Corp.       PA          GSA - U.S. Aug-2005 Department   Salt Lake     117,553    4.3        23,211    14,132    9,079          of           City, UT          Agriculture          Landis Jun-2007 Logistics /  Reading, PA   609,000    3.4 - 5.0  26,223    18,074    8,149          East Penn          Northrop          Grumman Jul-2006 Space &      Aurora,       183,529    2.5        42,400    31,713    10,687          Mission      CO/Denver          Systems          Corp.          Party City          Corp. Mar-2006 (Amscan) /   Rockaway, NJ/ 121,038    2.4 - 4.6  22,221    16,374    5,847          Lerner       Northern NJ          Enterprises,          Inc.          Quantum      Colorado Feb-2006 Corporation  Springs, CO   406,207    0.2 - 8.2  27,215    17,281    9,934          ^(4) Total NRFC NNN                                            $        $       $  Holdings, LLC                       3,169,065  5.7        401,286  287,781  113,505 Portfolio (1) Remaining lease term as of December 31, 2012. Total represents weighted average based on cost basis. (2) Cost basis includes capitalized expenditures since acquisition. (3) 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           Three Months Ended December 31, 2012  Primary Tenant thousands) Tenant or       Base             Debt       NOI Less  Market    Actual Guarantor of    Rent      NOI    Service    Debt      Cap ^(1)  Credit Tenant                                      Service             Rating Alliance Data   $      $    $      $    Systems Corp.                (459)         7,488     not rated                 599        592             133 Citigroup,      538       532    (516)      16        120,791   A- / A Inc. Covance, Inc.   638       633    (522)      111       3,201     not rated Credence        701       695    (450)      245       312       not rated Systems Corp. Dick's Sporting        1,321     1,288  (990)      298       5,616     not rated ^(2) Goods, Inc. / PetSmart, Inc. Electronic Data Systems    1,508     1,499  (831)      668       13,900    not rated Corp. GSA - U.S.                                                      implied Department of   648       424    (342)      82        N/A       AAA Agriculture Landis Logistics /     409       343    (332)      11        N/A       not rated East Penn Northrop Grumman Space   873       873    (622)      251       16,766    BBB+/Baa1 & Mission Systems Corp. Party City Corp. (Amscan) / Lerner        468       459    (306)      153       362       B/B2      ^(3) Enterprises, Inc. Quantum Corporation    584       577    (321)      256       318       not rated (50%)                 $      $    $       $    Total           8,287         (5,691)    2,224                           7,915 (1) Based on information from Bloomberg at close of market on December 31, 2012 and presented in millions.  (2) Dick's Sporting Goods, Inc. is not rated by the major credit rating agencies. PetSmart, Inc. is rated BB+ by S&P.  (3) 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," "hypothetical," "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, the fees earned from our asset management business, our financing needs, the anticipated funding of our investment in the Partnership, the effects of our current strategies, loan and securities activities, our ability to manage our collateralized debt obligations, or CDOs, our ability to earn sufficient cash to cover our payout ratio and our non-traded real estate investment trusts, or REITs', 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; our ability to source and close on attractive investment opportunities; performance of our investments relative 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 CDO financing transactions and other securitized financing transactions and our ability to complete securitized financing transactions on terms that are acceptable to us, or at all; 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/operator 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, and effectively implement the business plan of, the non-traded REITs we sponsor or advise; the fee stream we will receive from our non-traded REITs and the valuation thereof; 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; whether NorthStar's investment in real estate private equity fund interests closes on the terms anticipated, if at all; 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 and otherwise described in our filings with United States Securities and Exchange Commission; 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