NEW YORK, May 6 /PRNewswire-FirstCall/ --
First Quarter Summary -- First quarter AFFO loss per share of $(0.41). -- NorthStar has a strong liquidity position with $214 million available liquidity at March 31, 2010. -- First quarter 2010 cash dividend of $0.10 per common share. -- All of NorthStar's CDOs continue to comply with their respective overcollateralization and interest coverage tests. -- NorthStar's commercial real estate securities portfolio appreciated by $99 million during the first quarter. -- NorthStar broker-dealer, NRF Capital Markets, has been duly registered with the SEC and approved as a member of FINRA.
NorthStar Realty Finance Corp. today announced its results for the quarter ended March 31, 2010.
First Quarter 2010 Results
NorthStar reported adjusted funds from operations ("AFFO") for the first quarter 2010 of $(0.41) per share compared with $0.31 per share for the first quarter 2009. AFFO for the first quarter 2010 was $(33.9) million compared with $22.6 million for the first quarter 2009. Net loss to common stockholders for the first quarter 2010 was $(24.9) million, or $(0.33) per share, compared to net income of $84.6 million, or $1.32 per share for the first quarter 2009. Realized gains totaled $1.4 million for the first quarter 2010, compared to $36.9 million for the first quarter 2009. First quarter 2010 net income includes $19.5 million of unrealized gains, relating to non-cash mark-to-market adjustments, compared to $91.8 million of unrealized gains for the first quarter 2009, relating to non-cash mark-to-market adjustments. The non-cash mark-to-market gains and losses are excluded from AFFO.
On January 1, 2010, NorthStar adopted recent Financial Accounting Standards Board ("FASB") guidance resulting in NorthStar consolidating four of its previously off-balance sheet CDO financings, which are referred to as N-Star I, II, III and V. NorthStar elected the fair value option of accounting for the available for sale securities and bonds payable of these financings. Adoption of the FASB guidance resulted in a positive adjustment to January 1, 2010 diluted GAAP book value totaling $180 million.
At March 31, 2010, diluted GAAP book value per common share was $15.40. For a reconciliation of net income to AFFO and calculations of return on average common book equity and diluted book value per common share, please refer to the tables on the following pages.
David T. Hamamoto, chairman and chief executive officer, commented, "NorthStar's first quarter results reflect the continuing difficult commercial real estate market conditions. Although we are now seeing some positive economic data and new issue activity in the CMBS markets, we believe that we are in the early stages of an economic recovery and still expect commercial real estate to lag the recovery through 2010. Our real estate loan portfolio continues to reflect challenging credit conditions while at the same time spreads on CMBS that we own have tightened and our portfolio has increased in value since year end."
Mr. Hamamoto continued, "We continue to implement our asset management initiatives and are optimistic about new capital raising prospects in the non-traded REIT sector. NorthStar Income Opportunity REIT I, an unregistered and unlisted REIT sponsored and advised by NorthStar, broke escrow during the first quarter and we expect that NorthStar Real Estate Income Trust, a NorthStar sponsored REIT which filed a $1.1 billion registration statement, should be declared effective shortly. NRF Capital Markets, our broker dealer subsidiary is now registered with the SEC, and we have a team of over a dozen professionals who are experienced and recognized leaders in the non-traded REIT industry. Consequently, we expect to see an increase in capital raising velocity as our wholesaler organization becomes involved in distribution of this product."
Investment Summary
During the first quarter 2010, NorthStar funded $10 million relating to prior period loan commitments and received $24 million of loan repayments, including $10 million related to two full loan payoffs and $10 million related to the foreclosure and sale of a $15 million first mortgage loan. NorthStar acquired, during the first quarter 2010, $87 million of securities having a par amount of $120 million and having an average A/A2 credit rating, and received $29 million of proceeds from sales of securities. No net lease properties were acquired during the first quarter 2010.
NorthStar had approximately $6.8 billion of assets under management at March 31, 2010 based on book value (exclusive of the related reserve amounts) of loans, par of securities, and purchase prices of owned real estate assets.
Financing and Liquidity
Total available liquidity at March 31, 2010 was approximately $214 million, including $117 million of unrestricted cash and cash equivalents, and $97 million of uninvested and available cash in NorthStar's CDO financings. At March 31, 2010 NorthStar's only non-discretionary future funding obligations relate to existing loan commitments and totaled approximately $69 million. As of March 31, 2010, approximately $62 million have committed financing sources in our CDOs or from bank debt and NorthStar expects to have unrestricted cash needs of just $7 million for these obligations.
At March 31, 2010, NorthStar had $387 million outstanding under its secured term facilities and $129 million of corporate exchangeable senior notes. The weighted-average cost of NorthStar's on-balance sheet debt was 2.65% at March 31, 2010.
Risk Management
During the first quarter 2010, NorthStar did not add any assets to its non-performing loan (NPL) status. As of March 31, 2010, five of NorthStar's loans were on NPL status. These loans represent $84 million, or 4.2% of total loans, compared to six loans representing $99 million or 4.9% of total loans as of December 31, 2009. NorthStar designates a loan as non-performing at such time as the loan becomes 90 days delinquent on contractual debt service payments or the loan has a maturity default.
For the three months ended March 31, 2010, NorthStar recorded $37 million of credit loss provisions relating to eight loans and recorded a $1 million credit for a loan sold in April 2010 for more than its carrying value at the time of sale. The first quarter 2010 credit loss provision includes $7 million relating to a $39 million performing available for sale mezzanine loan which was sold in April 2010. During March 2010 NorthStar foreclosed on a $15 million defaulted first mortgage loan backed by hotel collateral and NorthStar subsequently sold the hotel for approximately $10 million. In prior periods NorthStar had recorded $5 million of credit loss reserves for this asset and it was a NPL at December 31, 2009. As of March 31, 2010, loan loss reserves totaled $109 million and related to 12 loans having an aggregate $311 million book value (exclusive of the related reserve).
NorthStar's securities portfolio had one upgrade action for $5 million and 145 downgrades representing $0.7 billion of securities during the first quarter 2010. NorthStar reports all current rating actions issued by each agency independently of actions issued during prior quarters. As of March 31, 2010 the average credit rating of NorthStar's real estate securities was BB/Ba2, with approximately 59% having a vintage prior to 2006 based on the face value of the securities. During the first quarter 2010, Fitch downgraded several classes of notes issued by N-Star I, II, V, VI, VII, VIII, and IX, seven of NorthStar's CDO financings. In addition, several classes of N-Star IV and IX, two of NorthStar's CDO financings, were downgraded during the first quarter by Moody's and S&P, respectively. Rating agency actions associated with NorthStar's issued CDO financings have no impact on the payment terms of such debt.
As of March 31, 2010, NorthStar's net lease portfolio was 89% leased and net lease assets have a 7.4-year weighted average remaining lease term. For more information regarding the core net lease assets (exclusive of healthcare net leased real estate), please refer to the tables on the following pages.
Andrew C. Richardson, chief financial officer and treasurer, stated, "Credit risk and liquidity management remain our top priorities. During the first quarter the high volume of credit ratings downgrade actions, which we had been expecting since 2009, finally hit our real estate securities portfolio. Notwithstanding these actions, our securities CDOs continue to comply with their collateral and interest coverage tests. Our pro-active management of this portfolio and the opportunistic purchases of discounted securities in 2009 provided increased credit enhancement which cushioned the impact of ratings downgrades and created potential long term value. At March 31, 2010 all of our CDO financings continue to meet their interest and overcollateralization coverage tests."
Stockholder's Equity and Dividends
At March 31, 2010, NorthStar had 82,229,885 total shares and operating partnership units outstanding, and $97 million of non-controlling interest relating to its operating partnership. Book value per diluted common share was $15.40 at March 31, 2010. Exclusive of all unrealized mark-to-market adjustments, credit loss reserves, and accumulated depreciation, book value at March 31, 2010 would be $8.02 per diluted common share. For a calculation of book value per diluted common share, please refer to the table on the following pages.
On April 20, 2010, NorthStar announced that its Board of Directors declared a dividend of $0.10 per share of common stock, payable with respect to the quarter ended March 31, 2010. The dividend will be paid on May 14, 2010 to shareholders of record as of the close of business on May 4, 2010.
Earnings Conference Call
NorthStar will hold a conference call to discuss first quarter 2010 financial results on Thursday May 6, 2010, at 10:00 AM Eastern time. Hosting the call will be David Hamamoto, chairman, president and chief executive officer, and Andrew Richardson, chief financial officer and treasurer. The Company will post on its website, http://www.nrfc.com/, a March 31, 2010 update to its corporate presentation.
The call will be webcast live over the Internet from NorthStar's website, http://www.nrfc.com/, and will be archived on the Company's website. The call can also be accessed live over the phone by dialing 877-941-2928 or for international callers, by dialing 480-629-9725.
A replay of the call will be available one hour after the call through Thursday May 13, 2010 by dialing 800-406-7325 or 303-590-3030 for international callers, using pass code 4282012.
About NorthStar Realty Finance Corp.
NorthStar Realty Finance Corp. is a finance REIT that primarily originates and invests in commercial real estate debt, real estate securities and net lease properties. For more information about NorthStar Realty Finance Corp., please visit http://www.nrfc.com/.
NorthStar Realty Finance Corp. Consolidated Statements of Operations ($ 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 $1,014 of equity based compensation expense relating to a separation and consulting agreement with a former executive. NorthStar Realty Finance Corp. December Consolidated Balance Sheets March 31, 31, ($ 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 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 applicable SEC rules. These include: (i) Funds From Operations; (ii) Adjusted Funds From Operations; (iii) Return on Average Common Book Equity; and (iv) Return on Average Common Book Equity by business line. The following discussion defines these terms, which NorthStar believes can be useful measures of its performance.
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 or loss (computed in accordance with GAAP), excluding gains or losses from sales of depreciable properties, the cumulative effect of changes in accounting principles, real estaterelated depreciation and amortization, and after adjustments for unconsolidated/uncombined partnerships and joint ventures. AFFO, 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: -- normalized 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; -- an adjustment to reverse the effects of the straightlining of rents and fair value lease revenue; -- the amortization or accrual of various deferred costs including intangible assets and equity-based compensation; and -- an 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.
Return on Average Common Book Equity
NorthStar calculates return on average common book equity ("ROE") on a consolidated basis and for each of NorthStar's major business lines. NorthStar believes that ROE provides investors and management with a good indication of the performance of the Company and its business lines because it provides the best approximation of cash returns on common equity invested. Management also uses ROE, among other factors, to evaluate profitability and efficiency of equity capital employed, and as a guide in determining where to allocate capital within its business. ROEs may fluctuate from quarter to quarter based upon a variety of factors, including the timing and amount of investment fundings, repayments and asset sales, capital raised and leverage used, and the yield on investments funded.
NorthStar urges investors to carefully review the 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.
Return on Average Common Book Equity (including and excluding G&A) ($ in thousands) Three Months Ended March 31, Annualized 2010 (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) Healthcare Lending Securities Net Lease ------- ---------- ---------- AFFO, Pre-G&A ($31,296) $15,460 $1,633 Annualized (A) (125,184) 61,840 6,532 Average common book equity and operating partnership non-controlling interest (B) (2) $762,328 $194,049 $30,119 Allocated cumulative mark-to- market adjustments for assets, liabilities and interest rate swaps (434,831) (111,731) (38,295) Accumulated depreciation and amortization - - 60,271 --- --- ------ Average common book equity and operating partnership non- controlling interest excluding mark-to- market adjustments, credit loss reserves $327,497 $82,318 $52,095 and accumulated depreciation and amortization (C) (2) ROE, Net (A/B) Neg 31.9% 21.7% ROE, Gross (A/C) Neg 75.1% 12.5% Corporate Core Net /Other Lease (1) Total -------- ---------- ----- AFFO, Pre-G&A $834 ($2,415) ($15,784) Annualized (A) 3,336 (9,660) (63,136) Average common book equity and operating partnership non-controlling interest (B) (2) $43,064 $162,319 $1,191,879 Allocated cumulative mark-to- market adjustments for assets, liabilities and interest rate swaps (41,263) (16,979) (643,099) Accumulated depreciation and amortization 63,568 - 123,839 ------ --- ------- Average common book equity and operating partnership non- controlling interest excluding mark-to- market adjustments, credit loss reserves $65,369 $145,340 $672,619 and accumulated depreciation and amortization (C) (2) ROE, Net (A/B) 7.7% Neg Neg ROE, Gross (A/C) 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 Interest (1) 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) Date Acquired Tenant or Guarantor of Tenant Location/MSA -------- ----------------------------- ------------ Three properties in Oct-2004 ALGM Portfolio - Various (3) New York, NY Nov-2007 Alliance Data Systems Corp. Columbus, OH Fort Mill, SC/ Mar-2007 Citigroup, Inc. Charlotte Jun-2007 Landis Logistics (5) Reading, PA Jun-2006 Covance, Inc. Indianapolis, IN Feb-2007 Credence Systems Corp. Milpitas, CA/San Jose Dick's Sporting Goods, Inc. / Sep-2006 PetSmart, Inc. (3) 9 properties 2 in MI /1 in CA /1 Sep-2005 Electronic Data Systems Corp. in PA Springdale, OH/ Dec-2005 Cincom Systems, Inc. (6) Cincinnati GSA -U.S. Department of Aug-2005 Agriculture Salt Lake City, UT Northrop Grumman Space & Mission Jul-2006 Systems Corp. (7) Aurora, CO/Denver Party City Corp. (Amscan) /Lerner Rockaway, NJ/ Mar-2006 Enterprises, Inc. Northern NJ Feb-2006 Quantum Corporation (8) Colorado Springs, CO Chatsworth, CA/ Los Jan-2005 Vacant (9) Angeles, CA Total NRFC NNN Holdings, LLC Portfolio Years Acquisition Date Square Net Acquisition Existing Cost less Lease Acquired Feet (1) Cost (2) Debt Debt -------- ---- ------ -------- ---- ---- Oct-2004 35,965 1.2-7.3 $10,355 (4) $0 $10,355 Nov-2007 199,112 7.7 33,826 23,469 10,357 Mar-2007 165,000 10.6 34,303 30,375 3,928 Jun-2007 609,000 6.8 28,473 18,841 9,632 Jun-2006 333,600 15.8 34,519 28,050 6,469 Feb-2007 178,213 6.9 30,144 21,988 8,156 Sep-2006 467,971 5.8-14.4 64,503 48,323 16,180 Sep-2005 387,842 5.5 62,718 46,783 15,935 Dec-2005 486,963 1.8-11.8 69,341 52,563 16,778 Aug-2005 117,553 2.1 22,424 15,368 7,056 Jul-2006 183,529 5.3 43,625 33,902 9,723 Mar-2006 121,038 5.2-7.3 21,955 17,058 4,897 Feb-2006 406,207 0.9-10.9 27,635 18,112 9,523 Jan-2005 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 --------------------------------- NOI Less Tenant or Guarantor of Base Debt Debt Tenant Rent NOI Service Service ----- --- -------- -------- ALGM Portfolio - Various $535 $276 - $276 Alliance Data Systems Corp. 582 568 (455) 113 Citigroup, Inc. 525 511 (500) 11 Landis Logistics (2) 0 (250) (333) (583) Covance, Inc. 608 594 (518) 76 Credence Systems Corp. 665 653 (447) 206 Dick's Sporting Goods, Inc. /PetSmart, Inc. 1,285 1,229 (974) 255 Electronic Data Systems Corp. 1,371 1,358 (825) 533 Cincom Systems, Inc. (7) 876 593 (845) (252) GSA -U.S. Department of Agriculture 579 440 (303) 137 Northrop Grumman Space & Mission Systems Corp. 814 814 (701) 113 Party City Corp. (Amscan) /Lerner Enterprises, Inc. 437 437 (304) 133 Quantum Corporation (50%) 618 603 (322) 281 Vacant 0 (186) 0 (186) Total $8,895 $7,640 (6,527) $1,113 ($ in thousands) Primary Tenant -------------- Actual Market Cap Credit Tenant or Guarantor of Tenant (1) Rating ------- ------- ALGM Portfolio - Various mixed tenants not Alliance Data Systems Corp. $3,340 rated Citigroup, Inc. 115,912 A/A3 not Landis Logistics (2) N/A (3) rated not Covance, Inc. 3,935 rated (4) not Credence Systems Corp. 441 rated Dick's Sporting Goods, Inc. / not PetSmart, Inc. 2,998 rated (5) not Electronic Data Systems Corp. 13,900 rated (6) not Cincom Systems, Inc. (7) N/A (3) rated GSA -U.S. Department of implied Agriculture N/A AAA Northrop Grumman Space & Mission Systems Corp. 20,121 BBB+/Baa1 Party City Corp. (Amscan) /Lerner Enterprises, Inc. 362 (8) B/B2 (9) Quantum Corporation (50%) 563 B-/B3 Vacant N/A N/A Total (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. Safe Harbor Statement
Certain items in this press release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and beliefs and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements; NorthStar Realty can give no assurance that its expectations will be attained. Factors that could cause actual results to differ materially from NorthStar Realty's expectations include, but are not limited to changes in economic conditions generally and the real estate and bond markets specifically, legislative or regulatory changes (including changes to laws governing the taxation of REITs), availability of capital, interest rates and interest rate spreads, policies and rules applicable to REITs, the continued service of key management personnel, the effect of competition in the real estate finance industry, the costs associated with compliance and corporate governance, including the Sarbanes-Oxley Act and related regulations and requirements, and other risks detailed from time to time in NorthStar Realty's SEC reports. Factors that could cause actual results to differ materially from those in the forward-looking statements will be specified in the Company's Annual Report on Form 10-K for the year ended December 31, 2009. Such forward-looking statements speak only as of the date of this press release. NorthStar Realty expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in its expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.
NorthStar Realty Finance Corp.
CONTACT: Investor Relations, Joe Calabrese, +1-212-827-3772, for
NorthStar Realty Finance Corp.
Web Site: http://www.nrfc.com/
