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
NorthStar Realty Finance Announces Fourth Quarter And Full Year 2012 Results
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