NorthStar Realty Finance Announces First Quarter 2010 Results

NorthStar Realty Finance Corp.

Consolidated Statements of Operations

($ in thousands, except per share amounts)

Three Months Ended
March 31,

2010

2009

(unaudited)

(unaudited)

Revenues and other income:

Interest income

$57,575

$36,781

Interest income – related parties

621

4,507

Rental and escalation income

21,780

25,176

Advisory and management fee income – related parties

518

1,691

Other revenue

1,055

168

Total revenues

81,549

68,323

Expenses:

Interest expense

32,073

33,187

Real estate properties – operating expenses

1,769

2,127

Asset management fees – related parties

466

853

Provision for loan losses

36,316

21,462

General and administrative:

Salaries and equity-based compensation (1)

16,532

11,610

Auditing and professional fees

2,940

2,261

Other general and administrative

4,012

3,568

Total general and administrative

23,484

17,439

Depreciation and amortization

8,483

14,285

Total expenses

102,591

89,353

(Loss) from operations

(21,042)

(21,030)

Equity in earnings/(loss) of unconsolidated ventures

1,349

(4,418)

Unrealized (loss)/gain on investments and other

(1,843)

90,661

Realized gain on investments and other

1,433

36,913

(Loss)/income from continuing operations

(20,103)

102,126

Income from discontinued operations

-

605

Consolidated net (loss)/income

(20,103)

102,731

 Net income (loss) attributable to the non-controlling interests

411

(12,864)

Preferred stock dividends

(5,231)

(5,231)

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

($24,923)

$84,636

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

($0.33)

$1.32

Weighted average number of shares of common stock:

Basic

75,068,654

64,348,264

Diluted

82,217,223

72,255,413

(1) The three months ended March 31, 2010 and 2009 include $5,058 and $5,144 of equity-based compensation expense, respectively.  The three months ended March 31, 2010 includes $3,583 of cash compensation expense and $1,014 of equity based compensation expense relating to a separation and consulting agreement with a former executive.        

NorthStar Realty Finance Corp.

Consolidated Balance Sheets

March 31,

December 31,

($ in thousands)

2010

2009

(unaudited)

ASSETS:

Cash and cash equivalents

$116,771

$138,928

Restricted cash (includes $87,895 and $74,453 from consolidated VIEs, respectively)

135,381

129,180

Operating real estate – net

963,228

978,902

Available for sale securities, at fair value (includes $1,198,123 and $283,184 from consolidated VIEs, respectively)

1,249,484

336,220

Real estate debt investments, net (includes $1,282,138 and $1,356,038 from consolidated VIEs, respectively)

1,864,790

1,936,482

Real estate debt investments, held-for-sale (includes $40,515 and $- from consolidated VIEs, respectively)

40,515

611

Investments in and advances to unconsolidated ventures

40,178

38,299

Receivables, net of allowance of $103 in 2010 and $1,349 in 2009 (includes net $17,777 and $7,421 from consolidated VIEs, respectively)

25,061

17,912

Unbilled rents receivable

10,730

10,206

Derivative instruments, at fair value (includes $57 and $- from consolidated VIEs, respectively)

57

-

Deferred costs and intangible assets, net

57,446

57,551

Other assets (includes $3,454 and $2,888 from consolidated VIEs, respectively)

24,174

25,273

Total assets

$4,527,815

$3,669,564

LIABILITIES:

Mortgage notes and loans payable

796,648

795,915

Exchangeable senior notes

126,204

125,992

Bonds payable, at fair value (includes $1,178,610 and $584,615 from consolidated VIEs, respectively)

1,178,610

584,615

Secured term loans

386,952

368,865

Liability to subsidiary trusts issuing preferred securities, at fair value

190,846

167,035

Obligations under capital leases

3,519

3,527

Accounts payable and accrued expenses (includes $5,025 and $1,631 from consolidated VIEs, respectively)

26,847

30,071

Escrow deposits payable (includes $28,410 and $28,608 from consolidated VIEs, respectively)

39,261

39,461

Derivative liability, at fair value (includes $124,563 and $46,187 from consolidated VIEs, respectively)

147,447

67,044

Other liabilities (includes $387 and $358 from consolidated VIEs, respectively)

26,584

28,399

Total liabilities

2,922,918

2,210,924

EQUITY:

NorthStar Realty Finance Corp. Stockholders’ Equity:

8.75% Series A preferred stock, $0.01 par value, $25 liquidation preference per share, 2,400,000 shares issued and outstanding at March 31, 2010 and December 31, 2009, respectively

57,867

57,867

8.25% Series B preferred stock, $0.01 par value, $25 liquidation preference per share, 7,600,000 shares issued and outstanding at March 31, 2010 and December 31, 2009, respectively

183,505

183,505

Common stock, $0.01 par value, 500,000,000 shares authorized, 75,425,755 and 74,882,600 shares issued and outstanding at March 31, 2010 and December 31, 2009, respectively    

754

749

Additional paid-in capital

668,441

662,805

Retained earnings

550,439

460,915

Accumulated other comprehensive loss

(50,595)

(92,670)

    Total NorthStar Realty Finance Corp. Stockholders’ Equity

1,410,411

1,273,171

Non-controlling interest

194,486

185,469

 Total equity

1,604,897

1,458,640

Total liabilities and stockholders’ equity

$4,527,815

$3,669,564

Three Months Ended

March 31,

2010

2009

Funds from Operations:

(Loss)/income from continuing operations

($20,103)

$102,126

Non-controlling interest in joint ventures

(1,962)

(2,464)

Consolidated net (loss)/income before non-controlling interest  

in operating partnership    

(22,065)

99,662

Adjustments:

Preferred stock dividends

(5,231)

(5,231)

Depreciation and amortization

8,483

14,285

Funds from discontinued operations

-

1,134

Real estate depreciation and amortization –  

 unconsolidated ventures  

237

247

Funds from Operations

(18,576)

110,097

Adjusted Funds from Operations:

Funds from Operations

($18,576)

$110,097

Straight-line rental income, net

(546)

(472)

Straight-line rental income, discontinued operations

Straight-line rental income and fair value lease revenue, unconsolidated ventures

(26)

(32)

Amortization of equity-based compensation

5,058

5,144

Amortization of above/below market leases

(264)

(325)

Unrealized (gains)/losses from mark-to-market

  adjustments

(20,158)

(94,563)

Unrealized (gains)/losses from mark-to-market

 adjustments, unconsolidated ventures

625

2,765

Adjusted Funds from Operations

($33,887)

$22,614

FFO per share of common stock

($0.23)

$1.52

AFFO per share of common stock

($0.41)

$0.31

Return on Average Common Book Equity (including and excluding G&A)

($ in thousands)

Three Months

Ended

March 31, 2010

Annualized (2)

Adjusted Funds from Operations (AFFO)

($33,887)

($135,548)

(A)

Plus:  General & administrative expenses

23,484

Less:  Equity-based compensation included in G&A

5,058

Less:  Bad debt expense included in G&A

323

AFFO, excluding G&A

(15,784)

(63,136)

(B)

Average Common Book Equity & Operating Partnership Non-Controlling Interest (1)

$1,191,879

(C)

          Return on Average Common Book Equity (including G&A)

Neg

(A)/(C)

          Return on Average Common Book Equity (excluding G&A)

Neg

(B)/(C)

(1) Average Common Book Equity & Operating Partnership Non-Controlling Interest computed using beginning and ending of period balances. ROE will be impacted by the timing of new investment closings and repayments during the quarter.

(2) Annualized numbers are calculated by taking the current quarter amounts and multiplying by 4.

Return on Average Common Book Equity by Business Segment (Pre-G&A)

Including and Excluding Mark-to-Market Adjustments, Credit Loss Reserves, and Accumulated Depreciation and Amortization

($ in thousands)

Lending

Securities

Healthcare Net Lease

Core Net Lease

Corporate / Other (1)

Total

AFFO, Pre-G&A

($31,296)

$15,460

$1,633

$834

($2,415)

($15,784)

Annualized (A)

(125,184)

61,840

6,532

3,336

(9,660)

(63,136)

Average common book equity and operating

 partnership non-controlling interest (B) (2)

$762,328

$194,049

$30,119

$43,064

$162,319

$1,191,879

Allocated cumulative mark-to-market adjustments for assets, liabilities and interest rate swaps

(434,831)

(111,731)

(38,295)

(41,263)

(16,979)

(643,099)

Accumulated depreciation and amortization

-

-

60,271

63,568

-

123,839

Average common book equity and operating partnership non-controlling

  interest excluding mark-to-market adjustments, credit loss reserves
  and accumulated depreciation and amortization (C) (2)

$327,497

$82,318

$52,095

$65,369

$145,340

$672,619

ROE, Net (A/B)

Neg

31.9%

21.7%

7.7%

Neg

Neg

ROE, Gross (A/C)

Neg

75.1%

12.5%

5.1%

Neg

Neg

(1) Corporate / other average common book equity and operating partnership non-controlling interest includes $117 million of unrestricted cash.

(2) Average common book equity & operating partnership non-controlling interest computed using beginning and ending of period balances.  ROE will be impacted by the timing of new investment closings and repayments during the quarter.

Management Fees From NorthStar CDO Financings at March 31, 2010

($ in thousands)

Annualized

Fee - Based

Annual Management Fee %

Management Fee

Assets

Senior

Subordinate

Total

Revenue

N-Star I (1)

$274,978

0.15%

0.20%

0.35%

$962

N-Star II (1)

292,615

0.15%

0.20%

0.35%

1,024

N-Star III (1)

435,774

0.15%

0.20%

0.35%

1,525

N-Star IV

426,484

0.15%

0.20%

0.35%

1,493

N-Star V (1)

598,619

0.15%

0.20%

0.35%

2,095

N-Star VI

463,801

0.15%

0.25%

0.40%

1,855

N-Star VII

689,236

0.15%

0.20%

0.35%

2,412

N-Star VIII

927,362

0.15%

0.25%

0.40%

3,709

N-Star IX (2)

787,513

0.15%

0.25%

0.40%

3,150

  Total

$4,896,382

$18,225

(1) As of January 1, 2010  the CDOs are consolidated and NorthStar has elected the fair value option for the available for sale securities and bonds payable.

(2) N-Star IX is owned by the NorthStar Real Estate Securities Opportunity Fund.  NorthStar directly receives 31% of the management fees related to N-Star IX.

NorthStar CDO Financings Cash Distributions and Coverage Test Summary

($ in thousands)

Quarterly

Cash Distributions (1)

Interest Coverage

Overcollateralization

Primary

Quarter Ended

Cushion (2)

Cushion

Collateral

March 31,

March 31,

March 31,

At

Type

2010

2010

2010

Offering

N-Star I (3)

CMBS

$429

$350

$8,812

$8,687

N-Star II

CMBS

177

137

4,671

10,944

N-Star III

CMBS

1,688

1,904

52,579

13,610

N-Star IV

Loans

2,228

2,131

47,973

19,808

N-Star V

CMBS

1,269

1,432

54,589

12,940

N-Star VI

Loans

1,125

3,510

34,951

17,412

N-Star VII

CMBS

2,501

2,192

80,206

13,966

N-Star VIII

Loans

3,912

5,055

71,032

42,193

N-Star IX (4)

CMBS

1,468

1,501

55,481

24,516

Table shows cash distributions to the retained income notes. Interest coverage and overcollateralization coverage to the most constrained class.

(1) Cash distributions are exclusive of senior management fees which are not subject to the coverage tests.

(2) Quarterly interest cushion and overcollateralization cushion from remittance report issued on date nearest to March 31, 2010.

(3) N-Star I equity cash flow represent NorthStar's 83% ownership percentage. Q1'10 quarter cash distribution excludes a $914k fee received related to a tender offer.

(4) NorthStar indirectly owns approximately 31% of N-Star IX income notes through its interest in the Securities Fund.

CMBS Vintages Under Management

($ in thousands)

$

%

Cumulative

1996

$257

0.0%

0.0%

1997

40,961

1.9%

1.9%

1998

86,085

4.1%

6.0%

1999

30,456

1.5%

7.5%

2000

124,862

5.9%

13.4%

2001

91,116

4.3%

17.7%

2002

67,751

3.2%

20.9%

2003

128,690

6.1%

27.0%

2004

282,679

13.3%

40.3%

2005

390,959

18.3%

58.6%

2006

451,147

21.3%

79.9%

2007

264,843

12.5%

92.4%

2008

90,540

4.3%

96.7%

2009

69,076

3.3%

100.0%

Total

$2,119,422

100.0%

Securities Fund

670,560

Total CMBS

$2,789,982

Credit Ratings Distribution of Securities Under Management

($ in thousands)

$

%

AAA

$92,569

3.6%

AA

58,608

2.3%

A

229,217

8.9%

BBB

782,584

30.2%

BB

643,110

24.9%

B

396,167

15.3%

CCC

231,378

8.9%

CC

81,442

3.1%

C

68,458

2.6%

Below C

6,153

0.2%

Total

$2,589,686

100.0%

Securities Fund

917,787

Total Securities

$3,507,473

Assets Under Management at March 31, 2010

($ in thousands)

$

%

Investment grade securities

$1,342,397

19.9%

First mortgage (1)

1,339,860

19.8%

Investment grade net lease (2)

161,845

2.4%

Non-investment grade securities

2,165,075

32.1%

Mezzanine and other subordinate loans (3)

763,791

11.3%

Non-investment grade net lease (2)

979,299

14.5%

Total

$6,752,267

100.0%

(1) Includes $236 million of junior participations in first mortgages.

(2) Net lease amounts prior to accumulated depreciation and impact of purchase price allocations.

(3) Includes $83 million of equity investments primarily related to real estate and corporate loans.

First Quarter Funded Securities Investment Statistics

($ in thousands)

Amount
Invested (1)

CMBS

$81,214

REIT Debt

6,144

Total Securities

$87,358

(1) Par amount was $120 million.

Book Value Rollforward

($ in thousands, except per share data)

$

Per Share

Common book value at December 31, 2009 (diluted)

$1,117,402

$13.59

Adjustment to retained earnings, other comprehensive income, and non-controlling interest

  related to consolidation of previously off-balance sheet CDO financings

180,355

2.20

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

  mark-to-market items included in net income

(46,829)

(0.57)

Mark-to-market adjustments included in net income:

  Securities fund

(625)

(0.01)

  CDO notes

(41,838)

(0.51)

  Trust preferred debt

(23,811)

(0.29)

  Securities and investments held at market value

98,960

1.20

  Swaps and other hedges

(13,153)

(0.16)

Mark-to-market adjustments in other comprehensive income and

non-controlling interest:

  Effective hedges

858

0.01

  Available-for-sale securities

(44)

0.00

Common dividends

(8,221)

(0.10)

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

3,304

0.04

Total net increases/(decreases)

148,956

1.81

Common book value at March 31, 2010 (diluted) (2)

$1,266,358

$15.40

(1) Primarily relates to amortization of LTIP shares and issuance of common shares from DRIP and DSPP. Per share dilution as a result of common shares issued.

(2) Cumulative net mark-to-market adjustments total a positive $844.6 million ($10.27 per diluted share), credit loss reserves total a negative $108.7 million ($1.32 per diluted share) and accumulated real estate depreciation and amortization total a negative $128.9 million ($1.57 per diluted share) as of March 31, 2010. Excluding all mark-to-market adjustments, credit loss reserves, and accumulated depreciation and amortization would result in a $8.02 diluted book value per common share at March 31, 2010.

NRFC NNN Holdings, LLC Portfolio Summary

($ in thousands)  

Years

Acquisition

Date

Square

Net

Acquisition

Existing

Cost less

Acquired

Tenant or Guarantor of Tenant

Location/MSA

Feet

Lease (1)

Cost (2)

Debt

Debt

Oct-2004

ALGM Portfolio - Various  (3)

Three properties in New York, NY

35,965

1.2-7.3

$10,355

(4)

$0

$10,355

Nov-2007

Alliance Data Systems Corp.

Columbus, OH

199,112

7.7

33,826

23,469

10,357

Mar-2007

Citigroup, Inc.

Fort Mill, SC/Charlotte

165,000

10.6

34,303

30,375

3,928

Jun-2007

Landis Logistics (5)

Reading, PA

609,000

6.8

28,473

18,841

9,632

Jun-2006

Covance, Inc.

Indianapolis, IN

333,600

15.8

34,519

28,050

6,469

Feb-2007

Credence Systems Corp.

Milpitas, CA/San Jose

178,213

6.9

30,144

21,988

8,156

Sep-2006

Dick's Sporting Goods, Inc. / PetSmart, Inc. (3)

9 properties

467,971

5.8-14.4

64,503

48,323

16,180

Sep-2005

Electronic Data Systems Corp.

2 in MI / 1 in CA / 1 in PA

387,842

5.5

62,718

46,783

15,935

Dec-2005

Cincom Systems, Inc. (6)

Springdale, OH/Cincinnati

486,963

1.8-11.8

69,341

52,563

16,778

Aug-2005

GSA - U.S. Department of Agriculture

Salt Lake City, UT

117,553

2.1

22,424

15,368

7,056

Jul-2006

Northrop Grumman Space & Mission Systems Corp. (7)

Aurora, CO/Denver

183,529

5.3

43,625

33,902

9,723

Mar-2006

Party City Corp. (Amscan) / Lerner Enterprises, Inc.

Rockaway, NJ/ Northern NJ

121,038

5.2-7.3

21,955

17,058

4,897

Feb-2006

Quantum Corporation (8)

Colorado Springs, CO

406,207

0.9-10.9

27,635

18,112

9,523

Jan-2005

Vacant (9)

Chatsworth, CA/ Los Angeles, CA

Total NRFC NNN Holdings, LLC Portfolio

3,691,993

7.4

$483,821

$354,832

$128,989

(1) Remaining lease terms as of March 31, 2010.  Total represents weighted average based on acquisition cost.  

(2) Acquisition cost does not include purchase price allocations.  

(3) The three ALGM portfolio properties, and six of ten Dick's Sporting Goods, Inc. / PetSmart, Inc. properties are ground lease interests.

(4) The three ALGM properties were owned by NorthStar's predecessor prior to NorthStar's initial public offering.  The value in acquisition cost column reflects the undepreciated book value when the properties were transferred to a subsidiary of NRFC NNN Holdings, LLC at the time of  NorthStar's initial public offering (10/29/04).

(5) Landis Logistics commenced a seven year lease on January 5, 2010 for 105,000 square feet.

(6) As of March 15 , 2010, General Electric Co. vacated  approximately 312,409 square feet of space.

(7) The Northrop Grumman Space & Mission Systems Corp. property is financed with a $32.9 first mortgage with a third party and a $1.0 million mezzanine loan held by a consolidated NorthStar  entity.

(8) Dollar amounts shown are 50% of total values, representing NRFC NNN Holding's, LLC subsidiary's 50% interest in a joint venture with an institutional investor.

(9) The special servicer of the first mortgage loan began foreclosure proceedings in September 2009. The property is no longer considered held in NorthStar's NNN portfolio.

Portfolio Cash Flow and Tenant Credit Profile

($ in thousands)

Three Months Ended March 31, 2010

Primary Tenant

NOI Less

Actual

Tenant or Guarantor of Tenant

Base Rent

NOI

Debt Service

Debt Service

Market Cap (1)

Credit Rating

ALGM Portfolio - Various

$535

$276

-

$276

mixed tenants

Alliance Data Systems Corp.

582

568

(455)

113

$3,340

not rated

Citigroup, Inc.

525

511

(500)

11

115,912

A/A3

Landis Logistics (2)

0

(250)

(333)

(583)

N/A

(3)

not rated

Covance, Inc.

608

594

(518)

76

3,935

not rated

(4)

Credence Systems Corp.

665

653

(447)

206

441

not rated

Dick's Sporting Goods, Inc. / PetSmart, Inc.

1,285

1,229

(974)

255

2,998

not rated

(5)

Electronic Data Systems Corp.

1,371

1,358

(825)

533

13,900

not rated

(6)

Cincom Systems, Inc. (7)

876

593

(845)

(252)

N/A

(3)

not rated

GSA - U.S. Department of Agriculture

579

440

(303)

137

N/A

implied AAA

Northrop Grumman Space & Mission Systems Corp.

814

814

(701)

113

20,121

BBB+/Baa1

Party City Corp. (Amscan) / Lerner Enterprises, Inc.

437

437

(304)

133

362

(8)

B/B2

(9)

Quantum Corporation  (50%)

618

603

(322)

281

563

B-/B3

Vacant

0

(186)

0

(186)

N/A

N/A

Total

$8,895

$7,640

(6,527)

$1,113

(1) Based on information from FactSet at close of market on March 31, 2010.

(2) Landis Logistics lease includes first four months full rent abatement and four additional months of half rent abatement in the first year of the lease.

(3) Privately-held company, market capitalization information is not publicly disclosed.

(4) Covance has a $1.4 billion net worth and no long-term debt according to its December 31,2009 financial statements.

(5) PetSmart, Inc. is rated BB by S&P.

(6) In August 2008, Hewlett-Packard Co. purchased Electronic Data Systems for $13.9 billion. During the first quarter of 2010, ratings for EDS were withdrawn by the rating agency's.

(7) As of March 15 , 2010, General Electric Co. vacated  approximately 312,409 square feet of space. GE's quarterly base rent had been $771 thousand.

(8) In December 2005, Amscan Holdings, Inc. (controlled by Berkshire Partners and Weston Presidio) purchased Party City for $362 million.

(9) 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.