NorthStar Realty Finance Announces Second Quarter 2014 Results

NorthStar Realty Finance Corp.

Consolidated Statements of Operations (Unaudited)

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

Three Months Ended 

Six Months Ended 

June 30,

June 30,

2014

2013

2014

2013

Net interest income

Interest income

$         75,867

$        73,148

$   154,546

$      143,483

Interest expense on debt and securities

3,106

11,588

6,389

22,985

Net interest income on debt and securities

72,761

61,560

148,157

120,498

Other revenues

Rental and escalation income

78,776

64,253

147,201

102,189

Resident fee and hotel income

37,586

-

37,586

-

Other revenue

2,995

961

5,479

1,306

Total other revenues

119,357

65,214

190,266

103,495

Expenses

Other interest expense

44,880

34,344

83,913

60,124

Real estate properties – operating expenses

51,671

18,069

73,629

26,734

Other expenses

154

1,423

930

2,659

Transaction costs

31,650

6,750

39,760

10,503

Provision for loan losses, net

833

-

2,719

2,336

General and administrative expenses

Salaries expense

17,392

6,075

20,720

12,894

Equity-based compensation

7,879

1,970

11,784

6,688

Other general and administrative expenses

3,580

4,341

8,102

7,863

Total general and administrative expenses

28,851

12,386

40,606

27,445

Depreciation and amortization

33,672

21,526

60,721

36,231

Total expenses

191,711

94,498

302,278

166,032

Income (loss) from operations

407

32,276

36,145

57,961

Equity in earnings (losses) of unconsolidated ventures

31,380

15,119

63,172

23,432

Unrealized gain (loss) on investments and other

(56,605)

(57,834)

(198,945)

(45,978)

Realized gain (loss) on investments and other

(320)

12,133

(45,832)

17,944

Gain (loss) from deconsolidation of N-Star CDOs

(34,778)

-

(31,423)

-

Income (loss) from continuing operations

(59,916)

1,694

(176,883)

53,359

Income (loss) from discontinued operations⁽¹⁾

(572)

(2,240)

(6,711)

(4,209)

Net income (loss)

(60,488)

(546)

(183,594)

49,150

Net (income) loss attributable to non-controlling interests

2,512

913

6,248

(820)

Preferred stock dividends

(15,590)

(12,993)

(31,181)

(24,334)

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

$       (73,566)

$      (12,626)

$  (208,527)

$        23,996

-

-

-

-

Earnings (loss) per share:⁽²⁾

Basic

$           (0.42)

$          (0.13)

$        (1.25)

$            0.26

Diluted 

$           (0.42)

$          (0.13)

$        (1.25)

$            0.26

Weighted average number of shares:⁽²⁾

Basic

174,180,959

99,424,114

167,385,527

93,911,477

Diluted 

178,190,300

104,318,411

171,531,801

100,108,570

Dividends declared per share of common stock⁽²⁾

$             0.50

$            0.40

$         1.00

$            0.78

______________________

(1)  The three months ended June 30, 2014 and 2013 include $8.0 million and $2.2 million, respectively, of equity-based compensation included  in discontinued operations. The six months ended June 30, 2014 and 2013 include $13.7 million and $3.5 million, respectively, of equity-based compensation included in discontinued operations.

(2)  Adjusted for the one-for-two reverse stock split completed on June 30, 2014. 

NorthStar Realty Finance Corp.

Consolidated Balance Sheets

($ in thousands, except share data)

June 30,

2014

(Unaudited)

2013

Assets

     Cash and cash equivalents

$

452,149

$

635,990

     Restricted cash

265,160

166,487

     Operating real estate, net

4,276,135

2,370,183

     Real estate debt investments, net

1,236,221

1,031,078

     Investments in private equity funds, at fair value

550,141

586,018

     Investments in and advances to unconsolidated ventures

208,434

142,340

     Real estate securities, available for sale

956,628

1,052,320

     Receivables

45,918

59,895

     Receivables, related parties

1,997

25,262

     Unbilled rent receivable

16,303

15,006

     Derivative assets, at fair value

2,068

3,469

     Deferred costs and intangible assets, net

154,180

96,886

     Assets of properties held for sale

51,809

30,063

     Other assets

151,703

145,053

Total assets⁽¹⁾

$

8,368,846

$

6,360,050

Liabilities

     Mortgage and other notes payable

$

3,606,585

$

2,113,334

     CDO bonds payable, at fair value

399,772

384,183

     Securitization bonds payable

82,372

82,340

     Credit facilities

101,168

70,038

     Senior notes

481,118

-

     Exchangeable senior notes

151,750

490,973

     Junior subordinated notes, at fair value

221,445

201,203

     Accounts payable and accrued expenses

113,404

74,547

     Escrow deposits payable

109,049

90,929

     Derivative liabilities, at fair value

23,807

52,204

     Liabilities of properties held for sale

28,962

28,962

     Other liabilities

92,188

73,874

Total liabilities⁽²⁾

5,411,620

3,662,587

Commitments and contingencies

Equity

NorthStar Realty Finance Corp. Stockholders' Equity

Preferred stock, $986,640 and $736,640 aggregate liquidation preference as of June 30, 2014 and

     December 31, 2013, respectively

939,166

697,352

Common stock, $0.01 par value, 500,000,000 shares authorized, 188,596,952 and 154,403,414

     shares issued and outstanding as of June 30, 2014 and December 31, 2013, respectively⁽³⁾

1,886

1,544

Additional paid-in capital

2,939,195

2,649,450

Retained earnings (accumulated deficit)

(1,067,970)

(685,936)

Accumulated other comprehensive income (loss)

40,985

(4,334)

Total NorthStar Realty Finance Corp. stockholders' equity

2,853,262

2,658,076

Non-controlling interests

103,964

39,387

Total equity

2,957,226

2,697,463

Total liabilities and equity

$

8,368,846

$

6,360,050

     ⁽¹⁾ Assets of consolidated VIEs included in the total assets above:

     Restricted cash

$

11,795

$

24,411

     Operating real estate, net

4,895

4,945

     Real estate debt investments, net

25,942

44,298

     Real estate securities, available for sale

481,267

644,015

     Receivables

2,563

4,476

     Other assets

566

269

     Total assets of consolidated VIEs

$

527,028

$

722,414

     ⁽²⁾ Liabilities of consolidated VIEs included in the total liabilities above:

     CDO bonds payable

399,772

384,183

     Accounts payable and accrued expenses

1,655

2,686

     Derivative liabilities, at fair value

23,553

52,204

     Other liabilities

2,411

2,993

     Total liabilities of consolidated VIEs

$

427,391

$

442,066

(3)  Adjusted for the one-for-two reverse stock split completed on June 30, 2014.

Reconciliation of Cash Available for Distribution

(Amount in thousands except per share data)

Three Months Ended 

Six Months Ended 

June 30, 2014

June 30, 2014

Net income (loss) attributable to common stockholders

$                (73,566)

$              (208,527)

Non-controlling interests attributable to the Operating Partnership

(1,700)

(5,296)

(Gain) loss from deconsolidation of N-Star CDOs

34,778

31,423

Subtotal

(40,488)

(182,400)

Adjustments:

Depreciation and amortization items ⁽¹⁾

55,436

97,185

N-Star CDO bond discounts ⁽²⁾

2,323

6,780

Non-cash net interest income in consolidated N-Star CDOs

(6,680)

(14,722)

Unrealized (gain) loss from fair value adjustments / Provision for loan
losses, net

53,481

190,970

Realized (gain) loss on investments⁽³⁾

6,787

52,299

Distributions to joint venture partners

(1,492)

(2,166)

Other ⁽⁴⁾

34,475

47,350

$               103,842

$                195,296

CAD per share ⁽⁵⁾

$0.58

$1.13

(1) The three months ended June 30, 2014 includes depreciation and amortization of $34.2 million including $0.5 million related to unconsolidated ventures, straight-line rental income of $(1.2) million, amortization of above/below market leases of $(0.2) million, amortization of deferred financing costs of $3.9 million, amortization of discount on financings and other of $2.8 million and amortization of equity based compensation of $15.9 million. The six months ended June 30, 2014 includes depreciation and amortization of $61.7 million including $1.0 million related to unconsolidated ventures, straight-line rental income of $(1.5) million, amortization of above/below market leases of $(0.4) million, amortization of deferred financing costs of $5.6 million, amortization of discount on financings and other of $6.3 million and amortization of equity based compensation of $25.5 million.

(2) For CAD, realized discounts on CDO bonds are accreted on an effective yield basis based on expected maturity. For CDOs that were deconsolidated, CDO bond accretion is included in net income attributable to common stockholders from the date of deconsolidation.

(3) The three and six months ended June 30, 2014 includes $6.8 million and $44.7 million, respectively, of non-cash loss from extinguishment and exchange of debt.

(4) The three months ended June 30, 2014 includes transaction costs in connection with real estate related acquisitions of $31.7 million and $2.8 million of cash flow related to N-Star CDO equity interests. The six months ended June 30, 2014 includes transaction costs in connection with real estate related acquisitions of $39.8 million and $7.6 million of cash flow related to N-Star CDO equity interests.

(5) CAD per share does not take into account any potential dilution from our exchangeable notes or restricted stock units subject to performance metrics not currently achieved.

NorthStar Assets as of June 30, 2014

($ in thousands)

  Amount ⁽¹⁾⁽²⁾

%

Real Estate

Healthcare 

$               5,576,040

39.3%

Manufactured housing communities

1,543,419

10.9%

Hotel 

1,308,048

9.2%

Private equity fund investments

845,452

6.0%

Net lease 

781,386

5.5%

Multifamily

370,438

2.6%

Investments in unconsolidated ventures⁽³⁾

155,802

1.1%

Total real estate

10,580,585

74.6%

CRE Debt

First mortgage loans

538,762

3.8%

Mezzanine loans

155,840

1.1%

Subordinate interests

302,728

2.1%

Term loans

230,343

1.6%

Subtotal

1,227,673

8.6%

CRE Debt of N-Star CDOs

41,310

0.3%

Other⁽⁴⁾

37,431

0.3%

Total CRE debt

1,306,414

9.2%

CRE Securities

N-Star CDO bonds ⁽⁵⁾

610,575

4.3%

N-Star CDO equity

152,284

1.1%

CMBS and other securities

109,411

0.8%

Total CRE securities

872,270

6.2%

Subtotal

Assets Underlying Deconsolidated CRE Debt CDOs ⁽⁶⁾

Grand total

$             14,182,656

100.0%

(1) Based on cost for real estate investments which includes net purchase price allocation related to net intangibles and other assets and liabilities, fair value

      for our investments in joint ventures owning limited partnership interests in real estate private equity funds, or PE Investments, and includes

      the deferred purchase price for PE Investment II, principal amount for our CRE debt and securities investments and fair value for N-Star CDO equity.

(2) Pro forma for the acquisition of Griffin-American and includes a $273 million hotel portfolio acquired in August 2014, a commitment to purchase a $406 million 

      industrial portfolio and limited partnership interests in three private equity funds purchased through a joint venture acquired in July 2014.

(3) Represents our investments in RXR Realty LLC and Aerium Group.

(4) Primarily relates to certain CRE debt investments accounted for as joint ventures.

(5) Includes an aggregate $88 million principal amount of  N-Star CDO bonds related to CRE securities CDOs that are eliminated in consolidation.

(6)  Includes assets of deconsolidated collateralized debt obligations, or CDOs, referred to as N-Star CDOs.  Based on the respective remittance report issued on date 

       nearest to June 30, 2014.  This amount excludes $678 million of aggregate N-Star CDO equity and N-Star CDO bonds included in CRE securities.

2014 Investments Year-to-Date Through August 6, 2014

($ in millions)

NorthStar Balance Sheet Investments

Assets

Invested Equity 

Expected Current Yield⁽¹⁾

Real estate portfolio

$      2,850

$          808

14%

CRE loans

231

220

16%

Opportunistic

204

188

14%

Total / weighted average

$     3,285

$      1,216

14%

NSAM non-traded REITs

$         735

$          433

Total Investments

$     4,020

$      1,649

(1) Management provides no assurances that the weighted average life or cash flows of investments will be consistent with 

management's expectations or that the CDO bonds, originated loans or other investments, will payoff at par, if at all.

Actual results could differ materially from those presented.  

Balance Sheet Holdings of NorthStar Realty CDO Bonds ⁽¹⁾

As of August 6, 2014

($ in thousands)

Principal

Based on original credit rating:

Amount ⁽²⁾

AAA

$       63,472

AA through BBB

386,656

Below investment grade

160,447

Total

Weighted average original credit rating of repurchased CDO bonds

A / A2

Weighted average purchase price of repurchased CDO bonds

33%

(1) Unencumbered N-Star CDO bonds are owned by NorthStar Realty. $88 million of these N-Star CDO bonds and 

      the corresponding liability of the respective CDO are eliminated on NorthStar's consolidated 

     financial statements. 

(2) Represents the maximum amount of principal proceeds that could be received.  There is no assurance

     NorthStar Realty will receive the maximum amount of principal proceeds.

Healthcare Real Estate by Property Type ⁽¹⁾

As of June 30, 2014

Type ⁽²⁾

%

SNF

29.5%

MOB

28.6%

ALF-NNN

20.8%

ALF-RIDEA

15.7%

Hospital

5.4%

100.0%

(1) Based on contractual lease rents for net lease properties and NOI for RIDEA properties.  

      Includes the $4 billion Griffin-American portfolio.

(2) Assisted living facility (ALF), skilled nursing facility (SNF) and medical office building (MOB).

Healthcare Real Estate Portfolio ⁽¹⁾

As of June 30, 2014

($ in millions)

Total Portfolio

Number of properties

462

Number of units/beds ⁽²⁾

24,154

NOI ⁽³⁾

$                     382

(1) Includes the $4 billion Griffin-American portfolio.

(2) Represents number of units for ALF/ILF property types and number of beds for SNF property types.

(3) Projected 2015 NOI including the $4 billion Griffin-American portfolio.

Manufactured Housing Communities Portfolio

As of June 30, 2014

($ in millions)

Total Portfolio

Number of communities

123

Number of pad rental sites

29,038

NOI⁽¹⁾

$                                       107

NOI related to:

Pad rental sites

89%

Other 

11%

WA occupancy 

87%

(1) NOI represents trailing twelve month actual net operating income for communities owned by NorthStar Realty for a period

    greater than twelve months and annualized actual net operating income from acquisition date through June 30, 2014 

    for communities owned by NorthStar Realty for less than twelve months.  Also includes rent from pad sites

    and homes and interest from seller financing.

Manufactured Housing Communities Portfolio Net Operating Income by Location

As of June 30, 2014

State

%

Colorado

30.4%

Utah (Salt Lake City)

19.1%

Florida

18.7%

Texas

10.4%

Wyoming

5.4%

New York

5.3%

Kansas

4.8%

Missouri

1.9%

Illinois

1.6%

Arizona

1.2%

Michigan

0.8%

Arkansas

0.4%

Total

100.0%

Hotels

As of June 30, 2014

($ in millions)

Total Portfolio

Number of hotels

67

Number of rooms

8,022

NOI⁽¹⁾

$                                         94

(1) Represents trailing twelve month net operating income.

Hotels by Geographic Location ⁽¹⁾

As of June 30, 2014

Region

%

West

25.2%

Northeast

22.8%

Southwest

22.2%

Southeast

18.0%

Mid-Atlantic

6.9%

Midwest

4.9%

Total

100.0%

(1) Based on number of rooms.

Hotels by Brand ⁽¹⁾

As of June 30, 2014

Region

%

Marriot

64.9%

Hilton

15.6%

Hyatt

7.9%

Starwood

7.2%

Intercontinental

4.4%

Total

100.0%

(1) Based on number of rooms.

Office, Retail and Industrial Real Estate

As of June 30, 2014

($ in millions)

Total Portfolio

Number of properties

64

Square feet

8,828,793

NOI⁽¹⁾

$                                         62

WA remaining lease term (in years)

8.4

(1) NOI represents contractual rents less operating expenses annualized based on second 
     quarter 2014 amounts. 

Office, Retail and Industrial Real Estate by Geographic Location ⁽¹⁾

As of June 30, 2014

Region

%

West

32.4%

Midwest

31.0%

Southeast

17.5%

Northeast

7.8%

Mid - Atlantic

6.7%

Southwest

4.6%

Total

100.0%

(1) Based on cost basis.

PE Investments ⁽¹⁾

($ in millions)

Aggregate /
Weighted Average
PE Investments

Number of funds

85

Number of general partners

47

Initial NAV

$                 1,825

Closing NAV as a percentage of net cost ⁽²⁾

72%

Reported annual NAV growth ⁽³⁾

16%

Underlying assets, at cost

$                52,200

Implied leverage ⁽⁴⁾

41%

Expected remaining future capital contributions ⁽⁵⁾

$                      25

(1)  Based on financial data reported by the underlying funds as of March 31, 2014, except as otherwise noted.

(2)  Net cost represents total funded capital less distributions received.

(3)  The reported NAV growth is measured from the agreed upon reported NAV at date of acquisition, or Initial NAV.

       The reported NAV growth for PE Investments owned for less than twelve months is annualized based on 

       actual reported income from the Initial NAV through March 31, 2014.

(4)  Represents implied leverage for funds with investment-level financing, calculated as debt divided by assets at fair value.

(5)  Represents the estimated amount of expected future capital contributions to funds as of June 30, 2014.

Three months ended June 30, 2014

Aggregate PE
Investments

Our Proportionate Share of PE Investments

Income

$                      29

Return of capital

33

Total distributions ⁽¹⁾

62

Contributions

3

Net

$                      59

(1)  Net of a $3 million reserve for taxes in the aggregate for all PE Investments.

From initial closing date through June 30, 2014 ⁽¹⁾

Aggregate PE
Investments

Our Proportionate Share of PE Investments

Income

$                    140

Return of capital

211

Total distributions ⁽²⁾

351

Contributions

38

Net

$                    313

(1)  Represents activity from the respective initial closing date through June 30, 2014. 

(2)  Net of a $12 million reserve for taxes in the aggregate for all PE Investments.

PE Investments by Underlying Investment Type ⁽¹⁾

As of March 31, 2014

Type

%

Office

20.9%

Multifamily

18.3%

Lodging

13.5%

Residential/Condo

8.6%

Retail

7.0%

Cash

6.7%

Land

6.2%

Debt

4.9%

Industrial

3.9%

Financial Services

3.4%

Operating Companies

2.3%

Healthcare

2.2%

Other

2.1%

Total

100.0%

(1)  Based on most recently available individual 

      fund financial statements.

PE Investments by Underlying Geographic Location ⁽¹⁾

As of March 31, 2014

Region

%

West

21.1%

Primarily Various U.S.

17.3%

Northeast

12.3%

Europe

10.9%

Southeast

10.9%

Midwest

8.9%

Mid-Atlantic

7.2%

Cash

6.7%

Asia

4.7%

Total

100.0%

(1)  Based on most recently available individual 

      fund financial statements.

CDOs primarily backed by CRE Debt

($ in thousands)

Deconsolidated CDOs

N-Star IV

N-Star VI

N-Star VIII

CapLease 

CSE

Issue/Acquisition Date

Jun-05

Mar-06

Dec-06

Aug-11

Jul-10

Total 

Balance sheet as of June 30, 2014 ⁽¹⁾

Assets, principal amount

$        285,797

$         367,365

$        860,517

$      138,798

$        724,201

$  2,376,678

CDO bonds, principal amount ⁽²⁾

172,447

297,561

675,217

124,715

652,681

1,922,621

Net assets 

$        113,350

$           69,804

$        185,300

$        14,083

$          71,520

$     454,057

CDO quarterly cash distributions and coverage tests⁽³⁾

Equity notes and subordinate bonds

$               715

$             1,050

$            2,894

$             722

$            3,764

$         9,145

Collateral management and other fees

199

348

755

68

333

1,703

Interest coverage cushion ⁽¹⁾

695

2,780

3,728

389

4,567

Overcollateralization cushion⁽¹⁾

56,355

34,183

109,903

9,653

86,509

 At offering 

19,808

17,412

42,193

5,987

⁽⁴⁾

(151,595)

⁽⁵⁾

(1)Based on remittance report issued on date nearest to June 30, 2014.

(2)Includes all outstanding CDO bonds payable to third parties and all CDO bonds owned by NorthStar.

(3)Interest coverage and overcollateralization coverage to the most constrained class.

(4)Based on trustee report as of August 31, 2011, closest to the date of acquisition.

(5)Based on trustee report as of June 24, 2010, closest to the date of acquisition.

CDOs primarily backed by CRE Securities

($ in thousands)

Consolidated CDOs

N-Star I

N-Star IX

Issue/Acquisition Date

Aug-03

Feb-07

Total 

Balance sheet as of June 30, 2014 ⁽¹⁾

Assets, principal amount

$        62,899

$      890,506

$      953,405

CDO bonds, principal amount

62,633

665,086

727,719

Net assets 

$             266

$      225,420

$      225,686

CDO quarterly cash distributions and coverage tests⁽³⁾

Equity notes and subordinate bonds

$                  -

$          2,060

$          2,060

Collateral management and other fees

20

664

684

Interest coverage cushion ⁽¹⁾

NEG

2,869