our operations for at least the next 12 months. In order to fund investments that we may make in the next 12 months, we may borrow additional funds under our current credit facilities, issue debt securities or raise additional equity capital. On October 12, 2005 we filed a registration statement with the Securities and Exchange Commission on Form S-11 in connection with an offering by us to the public of 8,000,000 shares and up to 1,200,000 shares to cover any over-allotments.
We expect to meet our long term liquidity requirements, including the repayment of debt and our investment funding needs, through existing cash resources and additional borrowings, the issuance of debt and/or equity securities and the liquidation or refinancing of assets.
Salt Lake City Mortgage Loan. The Salt Lake City Mortgage matures on September 1, 2012 and bears interest at a fixed rate of 5.16%. This non-recourse loan requires monthly payments of $100,971 representing interest in arrears and principal sufficient to amortize the loan to a balance of approximately $14.32 million at maturity, as well as monthly escrow deposits for real estate taxes.
EDS Mortgage Loan. The EDS Mortgage matures on October 8, 2015 and bears interest at a fixed rate of 5.373%. This non-recourse loan requires monthly payments of $274,997 representing interest in arrears and principal sufficient to amortize the loan to a balance of approximately $41.91 million at maturity, as well as monthly escrow deposits for real estate taxes.
Chatsworth Mezzanine Loan. This non-recourse loan bears interest at a fixed rate of 6.64%, and requires monthly payments of interest only of $71,955 for the period February 1, 2005, through February 1, 2006, and principal and interest payments of $170,914, thereafter, which will fully amortize the loan by the maturity date of May 1, 2014.
Repurchase Obligations. We have $58.3 million of repurchase agreements with three counterparties. These repurchase agreements are used to finance our AAA-rated, short term, floating rate securities, backed by commercial or residential mortgage loans, and other investments, generally, prior to obtaining permanent financing. These repurchase obligations mature in less than thirty days, with interest rates of LIBOR plus 0.05% to 0.07%.
Wachovia Facility. On July 13, 2005, our wholly owned subsidiary NRFC WA Holdings, LLC, or NRFC WA, entered into a master repurchase agreement with Wachovia Bank, National Association, or the Wachovia facility. The Wachovia facility was amended in September 2005 and currently NRFC WA may borrow up to $350 million under this credit facility in order to finance the acquisition of primarily real estate debt and other real estate loans and securities. The additional capacity and flexibility under the amendment will allow us to accumulate sufficient collateral for a contemplated real estate debt CDO, or CDO VI, and to continue to finance other investments.
Advance rates under the Wachovia facility range from 55% to 95% (subject to increase under certain circumstances) of the value of the assets for which the advance is made. Amounts borrowed under the Wachovia facility bear interest at one-month LIBOR plus a spread which ranges from 0.20% to 3.00%, depending on the type of asset for which the amount is borrowed. The Wachovia facility has an initial maturity date of July 12, 2008, except that certain advances under the Wachovia facility are required to be repaid by February 24, 2006. If a securitization transaction is not consummated by March 30, 2006, certain advances under the facility will be subject to commitment and unused facility fees. We have agreed to a limited guarantee for the amounts borrowed by NRFC WA under the Wachovia facility.
NRFC WA may extend the term of the Wachovia facility for one year if it is not in default and must pay an extension fee of 0.25% of the aggregate amount then outstanding under the facility. If NRFC WA extends the facility's term, it will be required to retire 25% of the aggregate amount then outstanding under the facility during each quarter of the remaining year of the term. NRFC WA paid Wachovia a $750,000 structuring fee in connection with the execution of this facility.
The debt outstanding under the Wachovia facility is subject to a number of terms, conditions and restrictions including, without limitation, scheduled interest payments and the maintenance of certain margin percentages on amounts outstanding under the facility. If the market value of an asset securing outstanding debt declines, NRFC WA may be required to satisfy a margin call by paying cash or providing additional collateral. Failure to meet any margin call could result in an event of default which would enable Wachovia to exercise various rights and remedies including acceleration of the maturity date of the debt outstanding under the facility and the sale of the collateral. Following September 30, 2005, an affiliate of NRFC WA was added as a borrower under the Wachovia facility.
Bank of America Facility. On September 28, 2005, we entered into a master loan, guarantee and security agreement with Bank of America, N.A., our operating partnership and NS Advisors LLC, which we refer to as the Bank of America facility. The Bank of America facility provides for an unsecured, $50 million revolving credit facility. The term of the unsecured facility is one year, with up to two one-year extensions at the discretion of Bank of America. If the unsecured facilty is not
41
extended by Bank of America, we have the option in lieu of immediate repayment to amortize the outstanding principal balance of the unsecured facility in equal quarterly installments over twelve months after the payment of a quarterly 12.5 basis point fee on the outstanding balance under the unsecured facility at September 27, 2006 and each quarter thereafter. The interest rate on the unsecured facility is LIBOR, plus 325 basis points.
The Bank of America facility contains certain covenants, including, among other things, financial covenants requiring minimum cash liquidity, minimum tangible net worth, maximum debt to tangible net worth and minimum debt service coverage. The Bank of America facility also contains certain customary representations and warranties and events of default. The obligations of our operating partnership, which is the borrower under the unsecured facility, are guaranteed by us, NS Advisors LLC and any subsidiary of our operating partnership whose assets are included in the borrowing base for the unsecured facility.
Liability to Subsidiary Trusts Issuing Preferred Securities. On April 12, 2005 and May 25, 2005, NorthStar Realty Finance Trust and NorthStar Realty Finance Trust II, which we refer to as the Trusts, sold, in two private placements, trust preferred securities for an aggregate amount of $40 million and $25 million, respectively. We own all of the common stock of the Trusts. The Trusts used the proceeds to purchase our operating partnership's junior subordinated notes due March 30, 2035 and September 30, 2035, respectively, which represent all of the Trusts' assets. The terms of the junior subordinated notes are substantially the same as the terms of the trust preferred securities. The trust preferred securities have a fixed interest rate of 8.15% and 7.74% per annum, respectively, during the first ten years, after which the interest rate will float and reset quarterly at the three-month LIBOR rate plus 3.25% per annum.
We may redeem the notes, in whole or in part, for cash, at par, after March 30, 2010 and September 30, 2010, respectively. To the extent we redeem the notes, the Trusts are required to redeem a corresponding amount of trust preferred securities. On September 16, 2005, we amended the trust agreements and indentures to modify some of the payment dates for a portion of the junior subordinated notes and trust preferred securities.
The ability of the Trusts to pay dividends depends on the receipt of interest payments on the notes. We have the right, pursuant to certain qualifications and covenants, to defer payments of interest on the notes for up to nine consecutive quarters. If payment of interest on the notes is deferred, the Trusts will defer the quarterly distributions on the trust preferred securities for a corresponding period. Additional interest accrues on deferred payments at the annual rate payable on the notes, compounded quarterly.
The indenture for NorthStar Realty Finance Trust II, has certain covenants that are substantially similar to those under the DBAG facility, the Wachovia facility and the unsecured facility with Bank of America and certain restrictions on issuing additional trust preferred securities.
DBAG Facility and CDO Bonds Payable. On December 21, 2004, NRFC DB Holdings, LLC, one of our subsidiaries, entered into a $150 million master repurchase agreement with Deutsche Bank AG, Cayman Islands Branch, which we refer to as the DBAG facility. On March 21, 2005, the DBAG facility was amended and restated to allow NRFC DB Holdings to borrow up to $300 million in order to finance the acquisition of primarily subordinate real estate debt and other real estate loans and securities. The additional capacity and flexibility under the amendment of the DBAG facility allowed us to accumulate sufficient collateral for CDO IV, and to continue to finance other investments.
On June 14, 2005, we closed CDO IV and issued $300 million face amount of the CDO Bonds which were sold in a private placement to third parties. The proceeds of the CDO IV issuance were used to repay the entire outstanding principal balance of the DBAG facility of $233.6 million at closing. The availability under the DBAG facility was reduced to $150 million subsequent to the closing of CDO IV.
The DBAG facility has an initial three-year term, which may be extended for one additional year if NRFC DB Holdings is not in default and pays an extension fee of 0.25% of the aggregate
42
outstanding amount under the facility. If NRFC DB Holdings extends the term of the facility, it will be required to retire 25% of the aggregate outstanding amount each quarter during the remaining year of the term.
Under the terms of the DBAG facility, NRFC DB Holdings is able to finance the acquisition of mortgage loans secured by first liens on commercial or multifamily properties, junior participation interests in mortgage loans secured by first or second liens on commercial or multifamily properties, mezzanine loans secured by a pledge of the entire ownership interest in a commercial or multifamily property, B– or higher rated CMBS and BB or higher rated real estate CDOs, debt securities issued by a REIT and syndicated bank loans.
During the period from March 21, 2005 through June 14, 2005, amounts advanced under the DBAG facility in order to finance the acquisition of assets that were included in CDO IV bore interest at one-month LIBOR plus a spread of 1.00% and amounts advanced for all other assets bore interest at one-month LIBOR plus a spread which ranges from 0.75% to 2.25%. After June 14, 2005, all amounts advanced under the amended DBAG facility bear interest at a rate of one-month LIBOR plus the spread which ranges from 0.75% to 2.25%. Assets will be financed at advance rates ranging from 40% to 92.5% of the value of the assets as applicable to the asset category.
Effective April 1, 2005, the covenants under the DBAG facility require us to maintain at a certain minimum tangible net worth, a certain minimum debt service coverage ratio, a certain range of ratios of recourse indebtedness to net worth and certain minimum amounts of cash or marketable securities based on our ratio of recourse indebtedness to net worth.
The debt that may be outstanding under the DBAG facility is subject to a number of terms, conditions and restrictions including, without limitation, the maintenance of certain margin percentages on amounts outstanding under the facility. If the market value of an asset securing the outstanding debt declines, cash flow due NRFC DB Holdings may be suspended and if market value continues to decline, NRFC DB Holdings may be required to satisfy a margin call by paying cash or providing additional collateral. Failure to meet any margin call could result in an event of default which would enable Deutsche Bank AG to exercise various rights and remedies including acceleration of the maturity date of the debt outstanding under the DBAG facility or the sale of the assets financed thereunder. At November 9, 2005, we had no borrowings under the DBAG facility.
At September 30, 2005, we are in compliance with all covenants under our debt obligations.
Capital Expenditures
During 2005, we expect to incur approximately $150,000 in connection with new tenant leasing costs and capital expenditures with respect to the net lease portfolio owned by ALGM. We anticipate the sources of funds for these expenditures will come from our working capital and lender reserves.
Other Investment Activity
Warehouse Agreement for CDO VII
On September 27, 2005, we entered into a warehouse arrangement with a major commercial bank whereby the bank has agreed to purchase up to $400 million of CMBS and other real estate debt securities under our direction, with the expectation of selling such securities to our fifth investment grade CDO issuance, or CDO VII. As of September 30, 2005, we have deposited $2.5 million as security for the purpose of covering a portion of any losses or costs associated with the accumulation of these securities under the warehouse agreement and will be required to deposit additional equity based on accumulations of securities that will be made under the warehouse agreement. The bank had accumulated no real estate securities under the terms of the warehouse agreement as of September 30, 2005. From September 30, 2005 through November 10, 2005, the warehouse provider has acquired approximately $108.8 million in CMBS and REIT debt securities under the warehouse agreement. The CDO VII warehouse agreement also provides for our notional participation in the income that the assets generate after deducting a notional debt cost.
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Cash Flows
The net cash flow provided by operating activities of $807.0 million, increased $804.6 million for the nine months ended September 30, 2005 from $2.4 million of cash provided by operations for the nine months ended September 30, 2004. This increase was primarily due to sales of short term highly liquid investments included in operating activities, where the corresponding repayment of short term repurchase financing is included in financing activities.
The net cash flow used in investing activities of $712.6 million increased by $692.7 million for the nine months ended September 30, 2005 from $19.9 million for the nine months ended September 30, 2004. Net cash used in investing activities in 2005 consisted primarily of the purchase of operating real estate, funds used to purchase debt securities available for sale, real estate debt investments, as well as funding of new warehouse deposits for our CDOs.
The net cash flow used in financing activities of $121.6 million increased by $140.2 million for the nine months ended September 30, 2005 from $18.6 million of cash flow provided by financing activities for the nine months ended September 30, 2004. The primary use of cash flow in financing activities in 2005 was for the repayment of our repurchase agreements which financed our short term, highly liquid investments, the repayment of the DBAG facility in connection with the closing of CDO IV, the repayment of a portion of the existing mortgage on the ALGM portfolio in connection with the sale of 729 Seventh Avenue and payments of dividends and distributions to our unit holders of $8.0 million. This was offset by proceeds from the issuance of CDO IV bonds, issuance of trust preferred securities and our mortgage and credit faciility borrowings.
Recent Developments
Real Estate Debt Investments
The following summarizes real estate investments acquired subsequent to September 30, 2005:
| | | | | | | | | | | | | | | | | | |
| | | Carrying Value
(in thousands) | | Allocation by
Investment Type | | Average Fixed
Rate | | Average
Spread Over
LIBOR |
| Whole loans, floating rate | | $ | 12,849 | | | | 31.1 | % | | | — | | | | 3.25 | % |
| Whole loans, fixed rate | | | 13,367 | | | | 32.4 | % | | | 5.27 | % | | | — | |
| Mezzanine loan, floating rate | | | 15,000 | | | | 36.3 | % | | | — | | | | 6.00 | % |
| Mezzanine loans, fixed rate | | | 95 | | | | 0.2 | % | | | 15.00 | % | | | — | |
| Total / Average | | $ | 41,311 | | | | 100.0 | % | | | 5.33 | % | | | 4.73 | % |
|
Timarron Acquisition
On October 21, 2005, we entered into a definitive purchase agreement with Allied Capital Corporation or Allied to acquire Timarron Capital, Inc. Timarron, based in Dallas, Texas, was organized by former senior executives of Principal Financial and other leading financial institutions to develop a nationwide commercial mortgage loan origination platform. The closing of the acquisition is expected to occur in January 2006. Allied Capital has agreed to continue to provide Timarron with warehouse financing to fund its origination activities through the closing. The purchase price will be between $2.0 million and $2.6 million, depending upon whether certain performance hurdles are achieved by Timarron prior to the closing. Following the closing of the acquisition, Timarron will be renamed NorthStar Mortgage Capital LP. NorthStar Mortgage Capital will originate commercial mortgage loans for our commercial real estate debt portfolio.
1552 Broadway Sale Contract
On October 25, 2005 we entered into a definitive agreement to sell our fee interest in the property at 1552 Broadway in New York City to Riese, for a purchase price of $48 million, or $3,970 per square foot. Riese made a $2.0 million non-refundable deposit in connection with this agreement. The four-story, 12,091 square foot building is located at the corner of Broadway and West 46th Street in Times Square. The transaction, which is subject to customary closing conditions, is scheduled to close in the fourth quarter of 2005. We estimate that we will record a gain on sale of approximately $23.1 million upon closing of the sale of the property.
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Dividends
On October 6, 2005, the Company declared a dividend of $0.23 per share of common stock, payable with respect to the quarter ended September 30, 2005 to stockholders of record as of October 14, 2005. The Company made this payment on October 21, 2005.
Related Party Transactions
Advisory Fee — NorthStar Funding LLC
In 2001, our predecessor entered into an advisory agreement with the NSF venture, pursuant to which it receives as compensation for its management of investments of the NSF venture an advisory fee equal to 1% per annum of the capital invested by the NSF venture. Additionally, NorthStar Funding Managing Member LLC is entitled to an incentive profit participation equal to 10% of the profit after a minimum required return on the NSF venture's capital and a return of and on capital based upon the operating performance of the NSF venture's investments. Prior to the contribution of the initial investments to our operating partnership and the related IPO transactions, NorthStar Funding Managing Member LLC received 75% of this incentive profit participation equal to 10% of the profit after a minimum required return on NSF venture's capital and a return of and on capital based on the operating performance of the NSF venture's investments. We earned and recognized advisory fees from the NSF venture of approximately $108,000 and $408,000 for the three and nine months ended September 30, 2005. Our predecessor earned and recognized advisory fees from the NSF venture of approximately $251,000 and $744,000 for the three and nine months ended September 30, 2004. We have received combined profit participation distributions of $925,000 during the nine months ended September 30, 2005. Because such distributions may have to be refunded, no profit participation distributions were recognized as income pursuant to Method 1 of Emerging Issues Task Force Topic D-96.
Advisory and Management Fee Income
In August 2003, July 2004, March 2005 and September 2005, CDO I, CDO II, CDO III and CDO V, respectively, entered into agreements with NS Advisors, to perform certain advisory services. We earned total fees of approximately $1,054,000 and $2,825,000 for the three and nine months ended September 30, 2005. Our predecessor earned total fees of approximately $701,000 and $1,390,000 for the three and nine months ended September 30, 2004. The unpaid advisory fees of $223,000 and $82,000 are included in due from affiliates in our condensed consolidated balance sheets as of September 30, 2005 and December 31, 2004. We also earned a structuring fee of $500,000 in connection with the closing of CDO III for the nine months ended September 30, 2005, which was used to reduce our investment in debt securities available for sale.
ALGM
On December 28, 2004, we terminated the asset management agreement with Emmes Asset Management Co. LLC, an affiliate of NorthStar Capital, for a contractual termination payment of approximately $380,000, which is equal to two quarters of payments of the annual fee of $760,000. On that date, ALGM and Emmes entered into a new asset management agreement which is cancelable on 30 days notice by ALGM. The annual asset management fee under the new agreement is equal to 3.5% of gross collections from tenants of the properties not to exceed $350,000 or be less than $300,000 per year, except that in the event the assets under management are decreased the fee shall not have a minimum. Total fees incurred under the asset management agreement were $24,000 and $67,000 for the three and nine months ended September 30, 2005.
Sublease Agreement
Upon consummation of our IPO, we entered into a one-year agreement with NorthStar Capital pursuant to which NorthStar Capital agreed to provide us, directly or through its subsidiaries, with the
45
following facilities and services: 1) fully-furnished office space for our employees at NorthStar Capital's corporate headquarters; 2) use of common facilities and office equipment, supplies and storage space at NorthStar Capital's corporate headquarters; 3) accounting support and treasury functions; 4) tax planning and REIT compliance advisory services; and 5) other administrative services. For the initial one year term of the agreement, NorthStar Capital provided these facilities and services to us for an annual fee of approximately $1.57 million, payable in monthly installments, plus additional charges for out-of-pocket expenses and taxes.
Since our IPO, we have hired additional accounting, legal and administrative personnel and have obtained separate office space sufficient to temporarily accommodate most of our business operations. Accordingly, following the initial one-year term of the shared facilities agreement, which expired on October 29, 2005, we terminated the agreement and entered into a more limited sublease agreement with NorthStar Capital. Under the new sublease, we will rent on a month-to-month basis the NorthStar Capital office space currently used by our accounting, legal and administrative personnel (currently 7 people). The sublease rent is calculated as a per person monthly charge, based on a "turn key" office arrangement (computer, network, telephone and furniture supplied) for each person utilizing the NorthStar Capital facilities. We may increase or decrease the number of people needing such accommodations, and we expect that the sublease rental payment would increase or decrease accordingly. Rent under the sublease is $30,001 per month commencing November 1, 2005. The sublease agreement has been approved by a majority of the independent board members of both our board of directors and the board of directors of NorthStar Capital.
Total fees and expenses incurred by us under the shared facilities and services agreement amounted to $0.3 million and $1.0 million for the three and nine months ended September 30, 2005.
Contractual Commitments
As of September 30, 2005, we had the following contractual commitments and commercial obligations (in thousands):
| | | | | | | | | | | | | | | | | | | | | | |
| | | Payments Due by Period |
| Contractual Obligations | | Total | | Less than 1 year | | 1-3 years | | 3-5 years | | After 5 years |
| Mortgage loan – ALGM | | $ | 14,464 | | | $ | 14,464 | | | $ | — | | | $ | — | | | $ | — | |
| Mortgage loan – Chatsworth | | | 43,844 | | | | 67 | | | | 558 | | | | 619 | | | | 42,600 | |
| Mortgage loan – Salt Lake City | | | 16,972 | | | | 54 | | | | 687 | | | | 760 | | | | 15,471 | |
| Mortgage loan – EDS | | | 49,120 | | | | — | | | | 749 | | | | 1,394 | | | | 46,977 | |
| Mezzanine loan payable – Chatsworth | | | 13,000 | | | | — | | | | 2,308 | | | | 2,860 | | | | 7,832 | |
| Repurchase agreements | | | 58,302 | | | | 58,302 | | | | — | | | | — | | | | — | |
| Securities sold, not yet purchased | | | 24,553 | | | | 24,553 | | | | — | | | | — | | | | — | |
| CDO bonds payable | | | 300,000 | | | | — | | | | — | | | | — | | | | 300,000 | |
| Liability to subsidiary trusts issuing preferred securities | | | 67,020 | | | | — | | | | — | | | | — | | | | 67,020 | |
| Wachovia facility | | | 192,804 | | | | — | | | | — | | | | 192,804 | | | | — | |
| Bank of America facility | | | 12,000 | | | | 3,000 | (1) | | | 9,000 | (1) | | | — | | | | — | |
| Capital leases(2) | | | 17,866 | | | | 88 | | | | 712 | | | | 934 | | | | 16,132 | |
| Operating leases | | | 13,735 | | | | 304 | | | | 1,104 | | | | 944 | | | | 11,383 | |
| Total contractual obligations | | $ | 823,680 | | | $ | 100,832 | | | $ | 15,118 | | | $ | 200,315 | | | $ | 507,415 | |
|
| |
| (1) | Assumes the unsecured facility with Bank of America is not extended and assumes the payment of a quarterly 12.5 basis point fee on the outstanding balance under the unsecured facility at September 27, 2006 and each quarter thereafter. |
| |
| (2) | Includes interest on the capital leases. |
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Off Balance Sheet Arrangements
As of September 30, 2005, we had the material off balance sheet arrangements described below.
We have provided an indemnity to NorthStar Partnership for any liability it may have under its limited guaranties to the lender under ALGM's mortgage loan. At September 30, 2005, NorthStar Partnership had a maximum exposure of $14.5 million under its guaranty to Greenwich Capital for such triggering events as fraud, misapplication of funds and failure to pay taxes. NorthStar Partnership also provided Greenwich Capital with a limited repayment guaranty that may be triggered by the termination of a lease related to one of the properties in the New York property portfolio. The maximum exposure for such lease termination was equal to $2.5 million at September 30, 2005.
Our potential losses in CDO I, CDO II, CDO III and CDO V are limited to our aggregate carrying value which was approximately $107.0 million at September 30, 2005.
The terms of the portfolio of real estate securities held by CDO I, CDO II, CDO III and CDO V are matched with the terms of the non-recourse CDO liabilities. These CDO liabilities are repaid with the proceeds of the principal payments on the real estate securities collateralizing the CDO liabilities when these payments are actually received. There is no refinancing risk associated with the CDO liabilities, as principal is only due to the extent that it has been collected on the underlying real securities and the stated maturities are noted above. CDOs produce a relatively predictable income stream based on the spread between the interest earned on the underlying securities and the interest paid on the CDO liabilities. This spread may be reduced by credit losses on the underlying securities or by hedging mismatches. CDO I, CDO II, CDO III and CDO V have not incurred any losses on any of their securities investments from the date of purchase through September 30, 2005. We receive quarterly cash distributions from CDO I and monthly cash distributions from CDO II, CDO III and CDO V, each representing our proportionate share of the residual cash flow from the CDOs, as well as collateral advisory fees and interest income on the unrated income notes of CDO II, CDO III and CDO V. Our residual interests in the cash flows of CDO I, CDO II, CDO III and CDO V are accounted for as debt securities pursuant to Emerging Issues Task Force Topic 99-20.
The following table describes certain terms of the collateral for and the notes issued by CDO I, CDO II, CDO III and CDO V as of September 30, 2005:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | CDO Collateral | | CDO Notes |
| | | Par Value of
CDO
Collateral
(in thousands) | | Weighted
Average
Interest
Rate | | Weighted
Average
Expected
Life (years) | | Outstanding
CDO Notes
(in thousands)(1) | | Weighted
Average
Interest
Rate | | Stated
Maturity |
| CDO I | | $ | 352,066 | | | | 6.60 | % | | | 6.47 | | | $ | 336,776 | | | | 6.05 | % | | | 8/1/2038 | |
| CDO II | | $ | 393,485 | | | | 6.22 | % | | | 7.26 | | | $ | 357,083 | | | | 5.49 | % | | | 6/1/2039 | |
| CDO III | | $ | 401,929 | | | | 6.20 | % | | | 6.74 | | | $ | 361,000 | | | | 5.40 | % | | | 6/1/2040 | |
| CDO V | | $ | 490,979 | | | | 5.84 | % | | | 8.52 | | | $ | 461,500 | | | | 2.88 | % | | | 9/5/2045 | |
|
| |
| (1) | Includes only notes held by third parties. |
CDO I, CDO II, CDO III and CDO V are variable interest entities. However, management has determined that we are not, and our predecessor was not, the primary beneficiary of CDO I, CDO II, CDO III and CDO V and as such, in accordance with FIN 46R, we did not consolidate CDO I, CDO II,CDO III and CDO V. The FASB has continued to discuss potential refinements to FIN 46R associated with, among other things, the types of interests which create variability and which type of interests absorb income and loss variability, and how such income and loss variability should be measured. In the event that the FASB modifies its interpretation of FIN 46R as it applies to the consolidation of variable interest entities, we would reevaluate our determination of the primary beneficiary. Depending on the modifications which are made, it is possible that the Company may be required to consolidate our interests in our CDOs in the future.
At this time, we do not anticipate a substantial risk of incurring a loss with respect to any of the arrangements described above.
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Inflation
Our leases for tenants of our net lease properties are either:
| | |
| • | net leases where the tenants are responsible for all real estate taxes, insurance and operating expenses and the leases provide for increases in rent either based on changes in the Consumer Price Index (CPI) or pre-negotiated increases; or |
| | |
| • | operating leases which provide for separate escalations of real estate taxes and operating expenses over a base amount, and/or increases in the base rent based on changes in the CPI. |
We believe that inflationary increases in expenses will generally be offset by the expense reimbursements and contractual rent increases described above to the extent of occupancy.
We believe that the risk associated with an increase in market interest rates on the floating rate debt used to finance our investments in CDO I, CDO II, CDO III, CDO V, ALGM, and our direct investments in real estate debt, is largely offset by our strategy of matching the terms of our assets with the terms of our liabilities and through our use of hedging instruments.
Funds from Operations and Adjusted Funds from Operations
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. We compute FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts, or 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 estate-related depreciation and amortization, and after adjustments for unconsolidated/uncombined partnerships and joint ventures. We calculate AFFO by subtracting from (or adding) to FFO:
| | |
| • | normalized recurring expenditures that are capitalized by us and then amortized, but which are necessary to maintain our properties and revenue stream, e.g., leasing commissions and tenant improvement allowances; |
| | |
| • | an adjustment to reverse the effects of straight-lining of rents and fair value lease revenue under FAS 141; and |
| | |
| • | the amortization or accrual of various deferred costs including intangible assets and equity based compensation. |
Our calculation of AFFO differs from the methodology for calculating AFFO utilized by certain other REITs and, accordingly, may not be comparable to such other REITs.
We believe that FFO and AFFO are additional appropriate measures of our operating performance because they facilitate an understanding of our operating performance after adjustment for certain non-cash expenses, such as real estate depreciation, which assumes that the value of real estate assets diminishes predictably over time. Since FFO is generally recognized as industry standards for measuring the operating performance of an equity REIT, we also believe that FFO provides investors with an additional useful measure to compare our financial performance to other REITs.
Neither FFO nor AFFO is equivalent to net income or cash generated from operating activities determined in accordance with 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 our operating performance or as an alternative to cash flow from operating activities as a measure of our liquidity.
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Set forth below is a reconciliation of our calculations of FFO and AFFO to net income before minority interests for the three and nine months ended September 30, 2005:
| | | | | | | | | | |
| | | Three Months | | Nine Months |
| | | Ended September 30, 2005 |
| Funds from Operations: | | | | | | | | |
| Income before minority interests | | $ | 5,679,000 | | | $ | 8,454,000 | |
| Adjustments: | | | | | | | | |
| Depreciation and amortization | | | 1,080,000 | | | | 2,833,000 | |
| Funds from discontinued operations | | | 136,000 | | | | 509,000 | |
| Funds from Operations | | $ | 6,895,000 | | | $ | 11,796,000 | |
| Adjusted Funds from Operations: | | | | | | | | |
| Funds from Operations | | $ | 6,895,000 | | | $ | 11,796,000 | |
| Straightline rental income, net | | | (13,000 | ) | | | (47,000 | ) |
| Straightline rental income, discontinued operations | | | — | | | | (290,000 | ) |
| Amortization of deferred compensation | | | 740,000 | | | | 2,499,000 | |
| Fair value lease revenue (FAS 141 adjustment) | | | (1,000 | ) | | | (4,000 | ) |
| Adjusted Funds from Operations | | $ | 7,621,000 | | | $ | 13,954,000 | |
|
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the exposure to loss resulting from changes in interest rates and equity prices. We are subject to credit risk and interest rate risk with respect to our investments in real estate debt and real estate securities. The primary market risk that we are exposed to is interest rate risk. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control. Our interest rate risk sensitive assets, liabilities and related derivative positions are generally held for non-trading purposes. A hypothetical 100 basis point increase in interest rates applied to our variable rate assets would increase our annual interest income by approximately $5,810,000, offset by an increase in our interest expense of approximately $5,294,000 on our variable rate liabilities.
Real Estate Debt
We invest in real estate debt instruments secured by commercial and multifamily properties, including first lien mortgage loans, junior participations in first lien mortgage loans, second lien mortgage loans, mezzanine loans, and preferred equity interests in borrowers who own such properties. We generally hold these instruments for investment rather than trading purposes. These investments are either floating or fixed rate. The interest rates on our floating rate investments typically float at a fixed spread over an index such as LIBOR. These instruments typically reprice every 30 days based upon LIBOR in effect at that time. Given the frequent and periodic repricing of our floating rate investments, changes in interest rates are unlikely to affect the value of our floating rate portfolio. Changes in short term rates will, however, affect earnings from our investments. Increases in LIBOR will increase the interest income received by us on our investments and therefore will increase our earnings. Decreases in LIBOR have the opposite effect.
We also invest in fixed rate investments. The value of these investments may be affected by changes in long term interest rates. To the extent that long term interest rates increase, the value of long term fixed rate assets is diminished. Any fixed rate debt investments which we hold would be similarly impacted. We do not generally seek to hedge this type of risk unless the asset is leveraged as the costs of such a hedging transaction over the term of such an investment would generally outweigh the benefits. If fixed rate debt is funded with floating rate liabilities, the funding cost will be fixed through the use of interest rate swaps, caps or other hedges. Because the interest rates on our fixed rate investments are generally fixed through maturity of the investment, changes in interest rates do not affect the income we earn from our fixed rate investments.
49
In our real estate debt business we are also exposed to credit risk, which is the risk that a borrower under our loan agreements cannot repay its obligations to us in a timely manner. While we have never experienced a payment default or even a late payment to date, our position in the capital structure may expose us to losses as a result of such default in the future. In the event that the borrower cannot repay our loan, we may exercise our remedies under the loan documents which may include a foreclosure against the collateral if we have a foreclosure right as a real estate debtholder under the loan agreement. The real estate debt that we intend to invest in will generally allow us to demand foreclosure as a real estate debtholder if our loan is in default. To the extent the value of our collateral exceeds the amount of our loan (including all debt senior to us) and the expenses we incur in collecting on our loan, we would collect 100% of our loan amount. To the extent that the amount of our loan plus all debt senior to our position exceeds the realizable value of our collateral, then we would incur a loss. We also incur credit risk in our periodically scheduled interest payments which may be interrupted as a result of the operating performance of the underlying collateral.
We seek to manage credit risk through a thorough financial analysis of a transaction before we make such an investment. Our analysis is based upon a broad range of real estate, financial, economic and borrower-related factors which we believe are critical to evaluating the credit risk inherent in a transaction.
We expect our investments to be denominated in U.S. dollars or, if they are denominated in another currency, to be converted back to U.S. dollars through the use of currency swaps. It may not be possible to eliminate all of the currency risk as the payment characteristics of the currency swap may not exactly match the payment characteristics of the investments.
Real Estate Securities
In our real estate securities business, we mitigate credit risk through credit analysis, subordination and diversification. The commercial mortgage-backed securities we invest in are generally junior in right of payment of interest and principal to one or more senior classes, but benefit from the support of one or more subordinate classes of securities or other form of credit support within a securitization transaction. The senior unsecured REIT debt securities we invest in reflect comparable credit risk. Credit risk refers to each individual borrower's ability to make required interest and principal payments on the scheduled due dates. We believe that these securities offer attractive risk-adjusted returns with reasonable long term principal protection under a variety of default and loss scenarios. While the expected yield on these securities is sensitive to the performance of the underlying assets, the more subordinated securities and certain other features of a securitization, in the case of mortgage backed securities, and the issuer's underlying equity and subordinated debt, in the case of REIT securities, are designed to bear the first risk of default and loss. The real estate securities portfolios of our CDOs are diversified by asset type, industry, location and issuer. We further minimize credit risk by actively monitoring CDO I's, CDO II's, CDO III's and CDO V's real estate securities portfolios and the underlying credit quality of their holdings and, where appropriate, liquidating our investments to mitigate the risk of loss.
At September 30, 2005, the real estate securities that serve as collateral for CDO I, CDO II, CDO III and CDO V each had an overall weighted average credit rating of approximately BBB- and approximately 74.6%, 74.4%, 72.2% and 81.1%, respectively, of these securities are investment grade.
The real estate securities underlying CDO I, CDO II , CDO III and CDO V are also subject to spread risk. The majority of these securities are fixed rate securities, which are valued based on a market credit spread over the rate payable on fixed rate U.S. Treasuries of like maturity. In other words, their value is dependent on the yield demanded on such securities by the market, as based on their credit relative to U.S. Treasuries. An excessive supply of these securities combined with reduced demand will generally cause the market to require a higher yield on these securities, resulting in the use of a higher or "wider" spread over the benchmark rate (usually the applicable U.S. Treasury security yield) to value these securities. Under these conditions, the value of our real estate securities portfolio would tend to decrease. Conversely, if the spread used to value these securities were to decrease or "tighten," the value of our real estate securities would tend to increase. Such changes in
50
the market value of our real estate securities portfolio may affect our net equity or cash flow either directly through their impact on unrealized gains or losses on available-for-sale securities by diminishing our ability to realize gains on such securities, or indirectly through their impact on our ability to borrow and access capital.
Returns on our real estate securities are sensitive to interest rate volatility. If interest rates increase, the funding cost on liabilities that finance the securities portfolio will increase if these liabilities are at a floating rate or have maturities shorter than the assets.
Our general financing strategy focuses on the use of "match-funded" structures. This means that we seek to align the maturities of our debt obligations with the maturities of our investments in order to minimize the risk of being forced to refinance our liabilities prior to the maturities of our assets, as well as to reduce the impact of fluctuating interest rates on earnings. In addition, we generally match interest rates on our assets with like-kind debt, so that fixed rate assets are financed with fixed rate debt and floating rate assets are financed with floating rate debt, directly or through the use of interest rate swaps, caps or other financial instruments or through a combination of these strategies. CDO I, CDO II, CDO III and CDO V utilize interest rate swaps to minimize the mismatch between its fixed rate assets and floating rate liabilities. We expect to hedge the interest rate risk in future CDOs in a similar manner.
Our financing strategy is dependent on our ability to place the match-funded debt we use to finance our real estate securities at spreads that provide a positive arbitrage. If spreads on the bonds issued by CDOs widen or if demand for these liabilities ceases to exist, then our ability to execute future CDO financings will be severely restricted.
Interest rate changes may also impact our net book value as our investments in debt securities are marked-to-market each quarter with changes in fair value reflected in other comprehensive income (a separate component of owners' equity). Generally, as interest rates increase, the value of fixed rate securities within the CDO, such as CMBS, decreases and as interest rates decrease, the value of these securities will increase. These swings in value have a corresponding impact on the value of our investment in the CDO. Within the CDO, we seek to hedge against changes in cash flows attributable to changes in interest rates by entering into interest rate swaps/caps and other derivative instruments as allowed by our predecessor's risk management policy. Such derivatives are designated as cash flow hedge relationships according to SFAS No. 133.
During the warehouse period for CDOs, the market value of the securities in the warehouse is hedged, typically by short selling U.S. agency-sponsored (Federal National Mortgage Association or Federal Home Loan Mortgage Corp.) debentures or U.S. Treasury securities in the warehouse. Movements in interest rates are expected to result in a price movement for the hedge position that is opposite to and offsets the price movement of the fixed rate securities in the warehouse.
Debt Securities Held for Trading
Subsequent to the closing of our IPO, we temporarily invested a portion of the net proceeds of our IPO in primarily AAA-rated, short term, floating rate commercial and residential mortgage-backed securities which are subject to fluctuations in market value. These securities are financed with leverage of up to 97% which may magnify this price volatility. If the market value of these securities were to decline, we would need to post additional collateral or liquidate a portion of these securities, possibly at a loss. The short term securities that we have temporarily invested in have been selected to mitigate this risk to the extent possible. Their floating rate coupon, short duration, and high credit ratings all serve to maximize liquidity and to minimize the price volatility of these securities. Nevertheless, even a small decline in the price of these securities may be magnified by the leverage and result in a loss to us when the assets are liquidated. Unrealized losses may also occur even if the assets are not liquidated because these securities are held for trading purposes.
Net Lease Properties
Our ability to manage the interest rate risk and credit risk associated with the assets we acquire is integral to the success of our net lease properties investment strategy. Although we may, in special
51
situations, finance our purchase of net lease assets with floating rate debt, our general policy will be to mitigate our exposure to rising interest rates by financing our purchases with fixed rate mortgages. We will seek to match the term of fixed rate mortgages to our expected holding period for the underlying asset. Factors we will consider to assess the expected holding period will include, among others, the primary term of the lease as well as any extension options that may exist.
We expect the credit profiles of our tenants will primarily be unrated and below investment grade. In order to ensure that we have as complete an understanding as possible of a tenant's ability to satisfy its obligations under its lease, we expect to undertake a rigorous credit evaluation of each tenant prior to executing sale/leaseback or net lease asset acquisitions. This analysis will include an extensive due diligence investigation of the tenant's business as well as an assessment of the strategic importance of the underlying real estate to the tenant's core business operations. Where appropriate, we may seek to augment the tenant's commitment to the facility by structuring various protection mechanisms into the underlying leases. These mechanisms could include security deposit requirements or affiliate guarantees from entities we deem to be creditworthy.
Derivatives and Hedging Activities
To limit the exposure to the variable LIBOR rate on our corporate debt, we entered into various swap agreements to fix the LIBOR rate on a portion of our variable rate debt. The fixed LIBOR rates ranges from 4.18% to 5.03%. The following table summarizes the notional amounts and fair (carrying) values of our derivative financial instruments as of September 30, 2005 (in thousands):
| | | | | | | | | | | | | | |
| | | Notional Amount | | Fair Value | | Range of Maturity |
| Interest rate swaps, treated as hedges | | $ | 39,912 | | | $ | 248 | | | | December 2010 – November 2018 | |
|
ITEM 4. CONTROLS AND PROCEDURES
NorthStar Realty Finance Corp. (the "Company") became subject to the periodic and other reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") on October 25, 2004, the effective date of the Company's registration statement relating to its IPO. On October 29, 2004, the Company received an initial portfolio of real estate-related investments (the "Initial Investments") pursuant to certain contribution agreements with subsidiaries of NorthStar Capital Investment Corp. ("NCIC") and commenced operations. The financial statements included in this Quarterly Report on Form 10-Q are for the Company as of September 30, 2005 and for the three and nine months ended September 30, 2005 and for NorthStar Realty Finance Corp. Predecessor (the "Predecessor"), a combination of NCIC's controlling and non-controlling interests in entities representing the Initial Investments, as of December 31, 2004 and for the three and nine months ended September 30, 2004.
The Company formed a Disclosure Committee in November 2004 in order to assure that its disclosure controls and procedures were effective to ensure that information required to be disclosed in the Company's periodic reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. The Disclosure Committee is currently comprised of each of the Company's five executive officers and the Company's in-house corporate counsel. Meetings frequently include other employees with knowledge of information that may be considered material in the SEC reporting process. The Disclosure Committee has been given the responsibility of developing and assessing the financial and non-financial information to be included in the Company's SEC reports and assisting the Company's chief executive officer and chief financial officer in connection with their certifications contained in the Company's SEC reports. The Disclosure Committee meets and reports to the Audit Committee on at least a quarterly basis.
As disclosed in the Company's Quarterly Report on Form 10-Q for the period ending September 30, 2004 (the "Third Quarter 10-Q") filed on December 30, 2004, management identified certain deficiencies in the Predecessor's internal controls over financial reporting during the course of management's review in December 2004 of the financial statements of the Predecessor that were to be included in the Third Quarter Form 10-Q. Based upon further investigation, the Company discovered
52
certain errors in the accounting for transactions entered into during September and the third quarter of 2004 in connection with the Predecessor's CDO II and in the reporting of allocated general and administrative expenses. These errors required the Company to adjust the Predecessor's financial statements for the nine months ended September 30, 2004, as described in Note 2 to the financial statements included in the Third Quarter Form 10-Q, and to make certain adjustments to the Predecessor's financial statements for the three and nine months ended September 30, 2004. As further disclosed in the Third Quarter Form 10-Q, the deficiencies identified by management in December 2004 included (1) the communication between business unit personnel and financial reporting personnel with respect to the accounting for certain transactions associated with the Predecessor's CDO investments and other Company activity, (2) the level of training of accounting and financial reporting personnel, and (3) the level of detailed, quality control review of the Predecessor's financial statements. Taken together, these deficiencies rose to the level of a material weakness in the Predecessor's internal controls over financial reporting for the three months ended September 30, 2004. As a result of the material weakness identified in the Predecessor's internal controls over financial reporting and the issues that arose during the course of the review in December 2004 of the Predecessor's financial statements for the third quarter of 2004, the Company's chief executive officer and chief financial officer concluded that the Predecessor's disclosure controls and procedures at September 30, 2004 were not effective to ensure that financial information related to such items was recorded, processed, summarized and reported accurately within the time periods specified in the SEC's rules and forms.
Commencing in December 2004 and continuing into the third quarter of 2005, the Company has undertaken a number of initiatives to remedy the deficiencies identified by management in the Predecessor's internal controls over financial reporting so that the Company's disclosure controls and procedures will be effective for subsequent periods. In this regard, the Company (1) hired a chief accounting officer with significant GAAP and SEC financial reporting experience on January 20, 2005, (2) hired three additional accounting staff members (3) hired a manager of operations for its securities trading and CDO related activities, (4) hired an in-house corporate counsel, (5) implemented policies to enhance communication between business unit and financial reporting personnel in order to ensure comprehensive review by management level business unit personnel of the recording of Company transactions, (6) retained an outside accounting firm to review processes and procedures that the Company has adopted in connection with its financial reporting and to assist in the preparation and review of its financial reports, (7) adopted processes for documenting and verifying the accounting for CDO related transactions, and (8) implemented procedures requiring more detailed, timely and comprehensive reporting from third party service providers, including its CDO warehouse provider. In addition, the Company has improved its training of accounting and financial reporting personnel by formalizing in writing and distributing to personnel the accounting policies and treatment of transactions entered into by each business segment of the Company.
The Company believes that the initiatives described above, some of which have already been taken and others of which are in the process of being implemented, will, when fully implemented, substantially remedy the deficiencies noted above. However, as a result of the material weakness identified in the Predecessor's internal controls over financial reporting for the three months ended September 30, 2004, the issues that arose during the course of the review in December 2004 of the financial statements to be included in the Third Quarter Form 10-Q, and the timing of the implementation of the corrective actions described above, the Company's chief executive officer and chief financial officer concluded that the Company's disclosure controls and procedures at September 30, 2005 were not effective to ensure that financial information related to such items was recorded, processed, summarized and reported accurately within the time periods specified in the SEC's rules and forms. However, based upon their knowledge, which includes a review of the financial statements included in this report, the Company's chief executive officer and chief financial officer believe that the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company and the Predecessor as of and for the periods presented in this report.
53
The Company has and will continue to evaluate the effectiveness of its disclosure controls and procedures and internal controls over financial reporting on an ongoing basis and will take corrective action and implement improvements as appropriate.
Except for the initiatives described above, there were no changes in the Company's internal control over financial reporting during the fiscal quarter ended September 30, 2005 that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
54
ITEM 6. EXHIBITS
| |
| (a) | Exhibits |
| | | | | | |
| No. | | Exhibit Description |
| 2.1 | | Contribution Agreement, dated as of October 29, 2004, by and among NS Advisors Holdings LLC, Presidio Capital Investment Company, LLC and NorthStar Realty Finance Limited Partnership* |
| 2.2 | | Contribution Agreement, dated as of October 29, 2004, by and among NorthStar Partnership, L.P., NorthStar Funding Managing Member Holdings LLC and NorthStar Realty Finance Limited Partnership* |
| 2.3 | | Purchase and Sale Agreement, dated as of October 29, 2004, between NorthStar Realty Finance Limited Partnership and ALGM I Equity, LLC* |
| 3.1 | | Articles of Amendment and Restatement of NorthStar Realty Finance Corp., as filed with the State Department of Assessments and Taxation of Maryland on October 20, 2004 (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-11 (File No. 333-114675)) |
| 3.2 | | Bylaws of NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-11 (File No. 333-114675)) |
| 3.3 | | Amendment No. 1 to the Bylaws of NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 3.3 to the Company's Current Report on Form 8-K, filed on April 27, 2005) |
| 4.1 | | Registration Rights Agreement, dated as of October 29, 2004, by and among NorthStar Realty Finance Corp., NorthStar Partnership, L.P., NorthStar Funding Managing Member Holdings LLC and NS Advisors Holdings LLC* |
| 10.1 | | Agreement of Limited Partnership of NorthStar Realty Finance Limited Partnership, dated as of October 19, 2004, by and among NorthStar Realty Finance Corp., as sole general partner and initial limited partner and the other limited partners a party thereto from time to time* |
| 10.2 | | Non-Competition Agreement, dated as of October 29, 2004, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership, NorthStar Capital Investment Corp. and NorthStar Partnership, L.P.* |
| 10.3 | | Shared Facilities and Services Agreement, dated as of October 29, 2004, by and between NorthStar Realty Finance Corp. and NorthStar Capital Investment Corp.* |
| 10.4 | | Amended, Restated and Consolidated Fee and Leasehold Mortgage, Assignment of Leases and Rents and Security Agreement, dated as of December 4, 2002, by and among 729 Demi-Tasse LLC, 1552 Lonsdale LLC, ALGM Leasehold II LLC, ALGM Leasehold III LLC, ALGM Leasehold VI LLC, ALGM Leasehold VIII LLC, ALGM Leasehold IX LLC, ALGM Leasehold X LLC, ALGM Leasehold XII LLC and Greenwich Capital Financial Products, Inc. (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-11 (File No. 333-114675)) |
| 10.5 | | Executive Employment Agreement, dated as of October 22, 2004, between David T. Hamamoto and NorthStar Realty Finance Corp.* |
| 10.6 | | Executive Employment Agreement, dated as of October 22, 2004, between Mark E. Chertok and NorthStar Realty Finance Corp.* |
|
55
| | | | | | |
| No. | | Exhibit Description |
| 10.7 | | Executive Employment Agreement, dated as of October 22, 2004, between Jean-Michel Wasterlain and NorthStar Realty Finance Corp.* |
| 10.8 | | Executive Employment Agreement, dated as of October 22, 2004, between Daniel R. Gilbert and NorthStar Realty Finance Corp.* |
| 10.9 | | NorthStar Realty Finance Corp. 2004 Omnibus Stock Incentive Plan* |
| 10.10 | | LTIP Unit Vesting Agreement under the NorthStar Realty Finance Corp. 2004 Omnibus Stock Incentive Plan among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and NRF Employee, LLC* |
| 10.11 | | Form of Vesting Agreement for Units of NRF Employee, LLC, each dated as of October 29, 2004, between NRF Employee, LLC and certain employees and co-employees of NorthStar Realty Finance Corp.* |
| 10.12 | | Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.7(a) to the Company's Registration Statement on Form S-11 (File No. 333-114675)) |
| 10.13 | | NorthStar Realty Finance Corp. 2004 Long Term Incentive Bonus Plan* |
| 10.14 | | Form of Notification under NorthStar Realty Finance Corp. 2004 Long Term Incentive Bonus Plan* |
| 10.15 | | Form of Indemnification Agreement for directors and officers of NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.15 to the Company's Registration Statement on Form S-11 (File No. 333-114675)) |
| 10.16 | | Amended and Restated Master Repurchase Agreement, dated as of March 21, 2005, between NRFC DB Holdings, LLC and Deutsche Bank AG, Cayman Islands Branch** |
| 10.17 | | Amended and Restated Junior Subordinated Indenture, dated as of September 16, 2005, between NorthStar Realty Finance Limited Partnership and JPMorgan Chase Bank, National Association, as trustee**** |
| 10.18 | | Second Amended and Restated Trust Agreement, dated as of September 16, 2005, among NorthStar Realty Finance Limited Partnership, as depositor, JPMorgan Chase Bank, National Association, as property trustee, Chase Bank USA, National Association, as Delaware trustee and Mark Chertok, David Hamamoto and Richard McCready, each as administrative trustees**** |
| 10.19 | | Amended and Restated Junior Subordinated Indenture, dated as of September 16, 2005, between NorthStar Realty Finance Limited Partnership and JPMorgan Chase Bank, National Association, as trustee**** |
| 10.20 | | Second Amended and Restated Trust Agreement, dated as of September 16, 2005, among NorthStar Realty Finance Limited Partnership, as depositor, JPMorgan Chase Bank, National Association, as property trustee, Chase Bank USA, National Association, as Delaware trustee and Mark Chertok, David Hamamoto and Richard McCready, each as administrative trustees**** |
| 10.21 | | Master Repurchase Agreement, dated as of July 13, 2005, between NRFC WA Holdings, LLC and Wachovia Bank, National Association (incorporated by reference to the like-numbered exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2005) |
| 10.22 | | First Amendment to the Master Repurchase Agreement, dated as of August 24, 2005, between NRFC WA Holdings, LLC and Wachovia Bank, National Association**** |
|
56
| | | | | | |
| No. | | Exhibit Description |
| 10.23 | | Second Amendment to the Master Repurchase Agreement, dated as of September 20, 2005, between NRFC WA Holdings, LLC and Wachovia Bank, National Association**** |
| 10.24 | | Master Loan, Guarantee and Security Agreement, dated as of September 28, 2005, between NorthStar Realty Finance Limited Partnership, NorthStar Realty Finance Corp., NS Advisors LLC and Bank of America, N.A.**** |
| 10.25 | | Third Amendment to the Master Repurchase Agreement, dated as of September 30, 2005, by and among NRFC WA Holdings, LLC and Wachovia Bank, National Association**** |
| 10.26 | | Omnibus Amendment to the Master Repurchase Agreement, dated as of October 21, 2005, between NRFC WA Holdings, LLC, NRFC WA Holdings II, LLC and Wachovia Bank, National Association |
| 10.27 | | Agreement of Purchase and Sale, dated October 25, 2005, between 1552 Lonsdale, LLC and 1552 Bway Owner, LLC |
| 10.28 | | Fourth Amendment to the Master Repurchase Agreement, dated October 28, 2005, by and among NRFC WA Holdings, LLC, NRFC WA Holdings II, LLC and Wachovia Bank, National Association |
| 10.29 | | Sublease, dated October 29, 2005, between NorthStar Partnership, L.P. and NorthStar Realty Finance Limited Partnership |
| 31.1 | | Certification of David T. Hamamoto, Chief Executive Officer pursuant to Rule 13a - 14(a) of the Exchange Act |
| 31.2 | | Certification of Mark E. Chertok, Chief Financial Officer pursuant to Rule 13a - 14(a) of the Exchange Act |
| 32.1 | | Certification of David T. Hamamoto, Chief Executive Officer pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code |
| 32.2 | | Certification of Mark E. Chertok, Chief Financial Officer pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code |
|
| |
| * | Incorporated by reference to the like-numbered exhibit to NorthStar Realty Finance Corp.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004. |
| |
| ** | Incorporated by reference to the like-numbered exhibit to NorthStar Realty Finance Corp.'s Annual Report on Form 10-K for the year ended December 31, 2004. |
| |
| *** | Incorporated by reference to the like-numbered exhibit to NorthStar Realty Finance Corp.'s Amendment No. 1 to the Annual Report on Form 10-K for the year ended December 31, 2004. |
| |
| **** | Incorporated by reference to the like-numbered exhibit to the NorthStar Realty Finance Corp. Registration Statement on Form S-11 filed on October 12, 2005. |
57
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | |
| | | NORTHSTAR REALTY FINANCE CORP. |
| Date: November 14, 2005 | | By: | | /S/ David T. Hamamoto
Name: David T. Hamamoto
Title: Chief Executive Officer |
| | | By: | | /S/ Mark E. Chertok
Name: Mark E. Chertok
Title: Chief Financial Officer |
|
58
EXHIBIT INDEX
| | | | | | |
| No. | | Exhibit Description |
| 2.1 | | Contribution Agreement, dated as of October 29, 2004, by and among NS Advisors Holdings LLC, Presidio Capital Investment Company, LLC and NorthStar Realty Finance Limited Partnership* |
| 2.2 | | Contribution Agreement, dated as of October 29, 2004, by and among NorthStar Partnership, L.P., NorthStar Funding Managing Member Holdings LLC and NorthStar Realty Finance Limited Partnership* |
| 2.3 | | Purchase and Sale Agreement, dated as of October 29, 2004, between NorthStar Realty Finance Limited Partnership and ALGM I Equity, LLC* |
| 3.1 | | Articles of Amendment and Restatement of NorthStar Realty Finance Corp., as filed with the State Department of Assessments and Taxation of Maryland on October 20, 2004 (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-11 (File No. 333-114675)) |
| 3.2 | | Bylaws of NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-11 (File No. 333-114675)) |
| 3.3 | | Amendment No. 1 to the Bylaws of NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 3.3 to the Company's Current Report on Form 8-K, filed on April 27, 2005) |
| 4.1 | | Registration Rights Agreement, dated as of October 29, 2004, by and among NorthStar Realty Finance Corp., NorthStar Partnership, L.P., NorthStar Funding Managing Member Holdings LLC and NS Advisors Holdings LLC* |
| 10.1 | | Agreement of Limited Partnership of NorthStar Realty Finance Limited Partnership, dated as of October 19, 2004, by and among NorthStar Realty Finance Corp., as sole general partner and initial limited partner and the other limited partners a party thereto from time to time* |
| 10.2 | | Non-Competition Agreement, dated as of October 29, 2004, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership, NorthStar Capital Investment Corp. and NorthStar Partnership, L.P.* |
| 10.3 | | Shared Facilities and Services Agreement, dated as of October 29, 2004, by and between NorthStar Realty Finance Corp. and NorthStar Capital Investment Corp.* |
| 10.4 | | Amended, Restated and Consolidated Fee and Leasehold Mortgage, Assignment of Leases and Rents and Security Agreement, dated as of December 4, 2002, by and among 729 Demi-Tasse LLC, 1552 Lonsdale LLC, ALGM Leasehold II LLC, ALGM Leasehold III LLC, ALGM Leasehold VI LLC, ALGM Leasehold VIII LLC, ALGM Leasehold IX LLC, ALGM Leasehold X LLC, ALGM Leasehold XII LLC and Greenwich Capital Financial Products, Inc. (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-11 (File No. 333-114675)) |
| 10.5 | | Executive Employment Agreement, dated as of October 22, 2004, between David T. Hamamoto and NorthStar Realty Finance Corp.* |
| 10.6 | | Executive Employment Agreement, dated as of October 22, 2004, between Mark E. Chertok and NorthStar Realty Finance Corp.* |
| 10.7 | | Executive Employment Agreement, dated as of October 22, 2004, between Jean-Michel Wasterlain and NorthStar Realty Finance Corp.* |
|
59
| | | | | | |
| No. | | Exhibit Description |
| 10.8 | | Executive Employment Agreement, dated as of October 22, 2004, between Daniel R. Gilbert and NorthStar Realty Finance Corp.* |
| 10.9 | | NorthStar Realty Finance Corp. 2004 Omnibus Stock Incentive Plan* |
| 10.10 | | LTIP Unit Vesting Agreement under the NorthStar Realty Finance Corp. 2004 Omnibus Stock Incentive Plan among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and NRF Employee, LLC* |
| 10.11 | | Form of Vesting Agreement for Units of NRF Employee, LLC, each dated as of October 29, 2004, between NRF Employee, LLC and certain employees and co-employees of NorthStar Realty Finance Corp.* |
| 10.12 | | Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.7(a) to the Company's Registration Statement on Form S-11 (File No. 333-114675)) |
| 10.13 | | NorthStar Realty Finance Corp. 2004 Long Term Incentive Bonus Plan* |
| 10.14 | | Form of Notification under NorthStar Realty Finance Corp. 2004 Long Term Incentive Bonus Plan* |
| 10.15 | | Form of Indemnification Agreement for directors and officers of NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.15 to the Company's Registration Statement on Form S-11 (File No. 333-114675)) |
| 10.16 | | Amended and Restated Master Repurchase Agreement, dated as of March 21, 2005, between NRFC DB Holdings, LLC and Deutsche Bank AG, Cayman Islands Branch** |
| 10.17 | | Amended and Restated Junior Subordinated Indenture, dated as of September 16, 2005, between NorthStar Realty Finance Limited Partnership and JPMorgan Chase Bank, National Association, as trustee**** |
| 10.18 | | Second Amended and Restated Trust Agreement, dated as of September 16, 2005, among NorthStar Realty Finance Limited Partnership, as depositor, JPMorgan Chase Bank, National Association, as property trustee, Chase Bank USA, National Association, as Delaware trustee and Mark Chertok, David Hamamoto and Richard McCready, each as administrative trustees**** |
| 10.19 | | Amended and Restated Junior Subordinated Indenture, dated as of September 16, 2005, between NorthStar Realty Finance Limited Partnership and JPMorgan Chase Bank, National Association, as trustee**** |
| 10.20 | | Second Amended and Restated Trust Agreement, dated as of September 16, 2005, among NorthStar Realty Finance Limited Partnership, as depositor, JPMorgan Chase Bank, National Association, as property trustee, Chase Bank USA, National Association, as Delaware trustee and Mark Chertok, David Hamamoto and Richard McCready, each as administrative trustees**** |
| 10.21 | | Master Repurchase Agreement, dated as of July 13, 2005, between NRFC WA Holdings, LLC and Wachovia Bank, National Association (incorporated by reference to the like-numbered exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2005) |
| 10.22 | | First Amendment to the Master Repurchase Agreement, dated as of August 24, 2005, between NRFC WA Holdings, LLC and Wachovia Bank, National Association**** |
| 10.23 | | Second Amendment to the Master Repurchase Agreement, dated as of September 20, 2005, between NRFC WA Holdings, LLC and Wachovia Bank, National Association**** |
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| | | | | | |
| No. | | Exhibit Description |
| 10.24 | | Master Loan, Guarantee and Security Agreement, dated as of September 28, 2005, between NorthStar Realty Finance Limited Partnership, NorthStar Realty Finance Corp., NS Advisors LLC and Bank of America, N.A.**** |
| 10.25 | | Third Amendment to the Master Repurchase Agreement, dated as of September 30, 2005, between NRFC WA Holdings, LLC and Wachovia Bank, National Association**** |
| 10.26 | | Omnibus Amendment to the Master Repurchase Agreement, dated as of October 21, 2005, by and among NRFC WA Holdings, LLC, NRFC WA Holdings II, LLC and Wachovia Bank, National Association |
| 10.27 | | Agreement of Purchase and Sale, dated October 25, 2005, between 1552 Lonsdale, LLC and 1552 Bway Owner, LLC |
| 10.28 | | Fourth Amendment to the Master Repurchase Agreement, dated October 28, 2005, by and among NRFC WA Holdings, LLC, NRFC WA Holdings II, LLC and Wachovia Bank, National Association |
| 10.29 | | Sublease, dated October 29, 2005, between NorthStar Partnership, L.P. and NorthStar Realty Finance Limited Partnership |
| 31.1 | | Certification of David T. Hamamoto, Chief Executive Officer pursuant to Rule 13a - 14(a) of the Exchange Act |
| 31.2 | | Certification of Mark E. Chertok, Chief Financial Officer pursuant to Rule 13a - 14(a) of the Exchange Act |
| 32.1 | | Certification of David T. Hamamoto, Chief Executive Officer pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code |
| 32.2 | | Certification of Mark E. Chertok, Chief Financial Officer pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code |
|
| |
| * | Incorporated by reference to the like-numbered exhibit to NorthStar Realty Finance Corp.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004. |
| |
| ** | Incorporated by reference to the like-numbered exhibit to NorthStar Realty Finance Corp.'s Annual Report on Form 10-K for the year ended December 31, 2004. |
| |
| *** | Incorporated by reference to the like-numbered exhibit to NorthStar Realty Finance Corp.'s Amendment No. 1 to the Annual Report on Form 10-K for the year ended December 31, 2004. |
| |
| **** | Incorporated by reference to the like-numbered exhibit to the NorthStar Realty Finance Corp. Registration Statement on Form S-11 filed on October 12, 2005. |
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