Exhibit 99.1
NORTHSTAR REALTY FINANCE
ANNOUNCES THIRD QUARTER 2008 RESULTS
Third Quarter Highlights
· Third quarter 2008 AFFO per share of $0.40, excluding $0.02 charge for Lehman Brothers exposure.
· NorthStar has a strong liquidity position with $280 million available liquidity at September 30, 2008.
· No non-performing assets as of September 30, 2008.
· Third quarter 2008 loan repayments total $130 million.
· $15.59 diluted GAAP book value per common share.
· Sold $100 million of convertible preferred equity in healthcare net lease joint venture.
NEW YORK, NY, November 6, 2008 ¾ NorthStar Realty Finance Corp. (NYSE: NRF) today announced its results for the quarter ended September 30, 2008.
NorthStar reported adjusted funds from operations (“AFFO”) for the quarter of $0.38 per share compared to $0.30 per share for the third quarter 2007. AFFO for the third quarter 2008 was $26.6 million, compared to $19.6 for the third quarter 2007. Net income available to common stockholders for the third quarter 2008 was $233.5 million, or $3.72 per share, compared to $8.7 million, or $0.14 per share for third quarter 2007. Third quarter 2008 net income includes $249.2 million of income relating to SFAS 159 mark-to-market adjustments and NorthStar’s $1.6 million share of a charge in its securities fund relating to cash collateral held by a bankrupt Lehman Brothers entity. The charge is included in NorthStar’s third quarter 2008 AFFO and the mark-to-market income is excluded from AFFO.
At September 30, 2008, diluted GAAP book value per common share was $15.59. For the quarter ended September 30, 2008, NorthStar generated a 14.7% return on average common book equity, excluding general and administrative expenses, and 10.9% inclusive of these corporate costs. 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 strong liquidity position, discipline in deploying capital and strong credit performance have differentiated our Company from many other financial services companies during these very difficult times. We are seeing unprecedented disruptions in the capital markets resulting in many competitors exiting the market or who do not have the liquidity to take advantage of the extraordinary opportunities that we believe are being created by these conditions. Our return expectations for new investments have increased over the past few months, and our current view is that liquidity remains our most important asset in this capital-constrained environment.”
Mr. Hamamoto continued, “Our view that the business environment will remain very challenging through 2009 is consistent with our position in prior quarters, and our investors should expect us to remain very cautious in deploying capital. NorthStar’s resources are dedicated to managing liquidity and aggressively working through our asset base to manage risk. NorthStar is not immune to macroeconomic conditions, but we believe our organization and balance sheet are well positioned to deal with the challenges to come.”
Investment Summary
During the quarter, NorthStar funded $73 million of loan investments, of which $43 million related to prior period loan commitments. NorthStar also received $130 million in proceeds from loan repayments during the quarter. NorthStar invested in $11 million of securities and received $1 million of proceeds from securities payoffs and sales. In addition, NorthStar acquired $33 million face amount of its own CDO notes at an average 50% discount to par with ratings ranging from AAA to BBB and recognized a $7 million gain compared to its carrying value. NorthStar also invested $11 million into its LandCap Partners joint venture with Whitehall Real Estate, a Goldman, Sachs and Co. affiliate, and made no new healthcare or corporate net lease property investments during the quarter.
1
NorthStar had approximately $6.4 billion of assets under management at September 30, 2008.
Financing
Total available liquidity at September 30, 2008 was approximately $280 million, including $165 million of unrestricted cash and cash equivalents, and $115 million of uninvested cash in its secured term financings. At September 30, 2008, NorthStar had $458 million outstanding under its $952 million of committed on-balance sheet secured term and revolving credit facilities and the average cost of NorthStar’s on-balance sheet senior and subordinate debt was 4.72%.
On July 9, 2008, NorthStar’s healthcare net lease joint venture sold a $100 million convertible preferred equity interest bearing a 10.5% dividend to Inland American Real Estate Trust Inc. The preferred equity is convertible into an approximately 42% interest in the venture after the first anniversary of the closing and upon the occurrence of certain events. NorthStar received approximately $90 million of the net proceeds from the transaction.
On October 7, 2008, NorthStar amended and extended its secured credit facility with JPMorgan. The maximum committed amount was reduced to $150 million from $350 million. Interest and advance rates on assets currently financed under the facility range from LIBOR plus 1.25% - 1.80% and 55% - 85%, respectively. Interest and advance rates on future borrowings under the facility will be determined by the lender. The facility matures on August 8, 2009 and may be extended for one year at the lender’s discretion. As of September 30, 2008, there was $48 million outstanding on the facility. Exclusive of this facility, NorthStar has no significant final debt maturities until the second half of 2010.
During the third quarter 2008, Fitch affirmed the ratings on all classes of notes issued by N-Star V, VI, VIII and IX, four of NorthStar’s commercial real estate term financings.
Risk Management
NorthStar had no non-performing assets and no delinquencies of contractual interest or principal due as of September 30, 2008. NorthStar designates a loan as non-performing at such time as the loan becomes 90 days delinquent or the loan has a maturity default. During the third quarter, NorthStar recorded $3.2 million of credit loss provisions relating to three loans and reversed a previously recorded $0.8 million reserve on a $19.5 million first mortgage loan. The property securing the mortgage was sold during the third quarter and our loan was assumed by the new borrower as part of the transaction. Loan credit loss reserves total $5.7 million at September 30, 2008. At September 30, 2008, the weighted average first and last dollar loan-to-value ratios of NorthStar’s real estate loans were 26.5% and 79.6%, respectively.
NorthStar’s securities portfolio had five upgrades representing $20.8 million of securities and 20 downgrades representing $161.7 million of securities during the third quarter. The average credit rating of NorthStar’s real estate securities was BBB/Baa2 (investment grade) at the end of the third quarter, consistent with prior quarters in 2008.
NorthStar’s net lease portfolio was 92% leased as of September 30, 2008. The net lease assets have an 8.7 year weighted average remaining lease term at September 30, 2008. During the third quarter NorthStar completed a lease termination relating to an industrial distribution facility formerly leased to Cott Beverage. Cott agreed to make cash payments to NorthStar totaling $9.1 million and NorthStar recognized $5.6 million of net income from the termination in the third quarter. NorthStar is actively seeking one or more tenants for this facility. In addition, during the third quarter Washington Mutual Bank, FA, the tenant of NorthStar’s Chatsworth, CA office facilities, was acquired by JPMorgan in a transaction facilitated by the FDIC. WaMu has made all contractual lease payments to date and JPMorgan is currently within a contractual period in which they may accept or reject the lease. For more information regarding the core net lease assets, please refer to the tables on the following pages.
NorthStar’s “watch list” totaled $205.4 million as September 30, 2008. The watch list is developed based upon a comprehensive review of NorthStar’s entire asset base each quarter. Those assets requiring intensive management attention are candidates for the list. During the quarter NorthStar added to the watch list three first mortgage loans totaling $78.9 million, one mezzanine loan totaling $20.8 million and its $15.2 million net equity investment in the WaMu facility pending resolution on the leasing status. NorthStar removed a $19.5 million first mortgage loan because the property was recapitalized. Since inception of the watch list in 2007, NorthStar has resolved $66.5 million of watch list assets with no loss of principal. For a more detailed discussion of risk management and the watch list, please refer to Management’s Discussion and Analysis in NorthStar’s third quarter 10-Q filing.
2
Andrew C. Richardson, chief financial officer and treasurer stated, “During the third quarter the U.S. economic outlook worsened and we expect the environment to become more challenging in 2009. Weakening economic fundamentals will pressure all asset classes, including commercial real estate. Capital is scarce, but our borrowers continued to find debt financing evidenced by a strong $130 million of repayment volume during the third quarter. Unless liquidity begins to return to the market, we expect a very high percentage of our borrowers to continue to exercise extension options if they are available. In addition, the rating agencies continue to modify their ratings models with more conservative assumptions regarding loss rates and recoveries. These changes could result in ratings downgrades for commercial real estate securities even though the underlying collateral performance may not have materially changed.”
Mr. Richardson continued, “Our asset base has performed very well in these difficult times; nonetheless, it is reasonable to expect some level of deterioration in credit as economic conditions worsen. NorthStar’s top priority is protecting its shareholders’ capital, and senior management spends a majority of their time on portfolio credit and liquidity management.”
Stockholder’s Equity and Dividends
At September 30, 2008, NorthStar had 70,390,645 total shares and operating partnership units outstanding, and $79.3 million of minority interest relating to its operating partnership. Book value per diluted common share was $15.59. For a calculation of book value per diluted common share, please refer to the table on the following pages.
On October 8, 2008, NorthStar announced that its Board of Directors declared a cash dividend of $0.36 per share of common stock, payable with respect to the quarter ended September 30, 2008. The dividend is expected to be paid on November 14, 2008 to shareholders of record as of the close of business on November 4, 2008. The Company’s Board also authorized a share repurchase program of up to 10 million shares of NorthStar’s common stock.
Earnings Conference Call
NorthStar will hold a conference call to discuss third quarter 2008 financial results on Thursday November 6, 2008, 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, www.nrfc.com, a September 30, 2008 update to its corporate presentation.
The call will be webcast live over the Internet from NorthStar’s website, www.nrfc.com, and will be archived on the Company’s website. The call can also be accessed live over the phone by dialing 800-257-1836, or for international callers, by dialing 303-228-2960.
A replay of the call will be available one hour after the call through Thursday November 13, 2008 by dialing 800-405-2236 or 303-590-3000 for international callers, using pass code 11120844.
About NorthStar Realty Finance Corp.
NorthStar Realty Finance Corp. is an internally managed 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 www.nrfc.com.
3
NorthStar Realty Finance Corp.
Condensed Consolidated Statements of Operations
(Amounts in thousands)
(Unaudited)
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||||||
|
| 2008 |
| 2007 |
| 2008 |
| 2007 |
| ||||||||
Revenues and other income: |
|
|
|
|
|
|
|
|
| ||||||||
Interest income |
| $ | 49,783 |
| $ | 78,082 |
| $ | 163,373 |
| $ | 216,286 |
| ||||
Interest income – related parties |
| 3,424 |
| 3,767 |
| 10,767 |
| 9,698 |
| ||||||||
Rental and escalation income |
| 29,028 |
| 26,674 |
| 87,005 |
| 67,877 |
| ||||||||
Advisory and management fee income – related parties |
| 1,812 |
| 2,441 |
| 10,688 |
| 5,256 |
| ||||||||
Other revenue |
| 9,493 |
| 1,714 |
| 14,452 |
| 5,275 |
| ||||||||
Total revenues |
| 93,540 |
| 112,678 |
| 286,285 |
| 304,392 |
| ||||||||
Expenses: |
|
|
|
|
|
|
|
|
| ||||||||
Interest expense |
| 45,484 |
| 65,290 |
| 146,306 |
| 177,393 |
| ||||||||
Real estate properties – operating expenses |
| 1,938 |
| 2,158 |
| 6,023 |
| 6,406 |
| ||||||||
Asset management fees – related parties |
| 853 |
| 1,405 |
| 3,892 |
| 2,868 |
| ||||||||
Fundraising fees, debt issuance costs and other |
| — |
| 6,295 |
| 4,948 |
| 6,295 |
| ||||||||
Provision for loss on investments |
| 2,450 |
| — |
| 5,700 |
| — |
| ||||||||
General and administrative: |
|
|
|
|
|
|
|
|
| ||||||||
Salaries and equity based compensation (1) |
| 9,429 |
| 9,525 |
| 31,084 |
| 27,175 |
| ||||||||
Auditing and professional fees |
| 963 |
| 1,347 |
| 4,638 |
| 5,558 |
| ||||||||
Other general and administrative |
| 3,333 |
| 3,517 |
| 10,744 |
| 10,157 |
| ||||||||
Total general and administrative |
| 13,725 |
| 14,389 |
| 46,466 |
| 42,890 |
| ||||||||
Depreciation and amortization |
| 13,566 |
| 9,163 |
| 33,481 |
| 23,594 |
| ||||||||
Total expenses |
| 78,016 |
| 98,700 |
| 246,816 |
| 259,446 |
| ||||||||
Income from operations |
| 15,524 |
| 13,978 |
| 39,469 |
| 44,946 |
| ||||||||
Equity in (loss)/earnings of unconsolidated ventures |
| 772 |
| (4,578 | ) | (4,846 | ) | (5,162 | ) | ||||||||
Unrealized gain (loss) on investments and other |
| 245,319 |
| 4,416 |
| 427,733 |
| (3,762 | ) | ||||||||
Realized gain on investments and other |
| 6,973 |
| 997 |
| 14,057 |
| 3,524 |
| ||||||||
Income from continuing operations before minority interest |
| 268,588 |
| 14,813 |
| 476,413 |
| 39,546 |
| ||||||||
|
|
|
|
|
|
|
|
|
| ||||||||
Minority interest in operating partnership |
| (27,524 | ) | (680 | ) | (47,346 | ) | (1,835 | ) | ||||||||
|
|
|
|
|
|
|
|
|
| ||||||||
Minority interest in joint ventures |
| (2,300 | ) | (215 | ) | (2,097 | ) | (351 | ) | ||||||||
Income from continuing operations |
| 238,764 |
| 13,918 |
| 426,970 |
| 37,360 |
| ||||||||
Loss from discontinued operations, net of minority interest |
| — |
| — |
| — |
| (56 | ) | ||||||||
Net income (loss) |
| 238,764 |
| 13,918 |
| 426,970 |
| 37,304 |
| ||||||||
Preferred stock dividends |
| (5,231 | ) | (5,231 | ) | (15,693 | ) | (11,302 | ) | ||||||||
Net income available to common stockholders |
| $ | 233,533 |
| $ | 8,687 |
| $ | 411,277 |
| $ | 26,002 |
| ||||
Net income per share from continuing operations (basic/diluted) |
| $ | 3.72 |
| $ | 0.14 |
| $ | 6.55 |
| $ | 0.42 |
| ||||
Income per share from discontinued operations (basic/diluted) |
| — |
| — |
| — |
| — |
| ||||||||
Net income available to common stockholders |
| $ | 3.72 |
| $ | 0.14 |
| $ | 6.55 |
| $ | 0.42 |
| ||||
Weighted average number of shares of common stock: |
|
|
|
|
|
|
|
|
| ||||||||
Basic |
| 62,825,383 |
| 61,629,938 |
| 62,772,013 |
| 61,448,490 |
| ||||||||
Diluted |
| 70,229,958 |
| 64,659,852 |
| 69,998,215 |
| 64,400,903 |
| ||||||||
(1) The three months ended September 30, 2008 and 2007 include $5,439 and $3,948 of equity based compensation expense, respectively.
The nine months ended September 30, 2008 and 2007 include a $18,396 and $11,837 of equity based compensation expense, respectively.
4
NorthStar Realty Finance Corp.
Condensed Consolidated Balance Sheets
(Amounts in thousands)
|
| September 30, |
| December 31, |
| ||||
|
| 2008 |
| 2007 |
| ||||
|
| (unaudited) |
|
|
| ||||
ASSETS: |
|
|
|
|
| ||||
Cash and cash equivalents |
| $ | 164,593 |
| $ | 153,829 |
| ||
Restricted cash |
| 162,288 |
| 202,295 |
| ||||
Operating real estate – net |
| 1,136,378 |
| 1,134,136 |
| ||||
Available for sale securities, at fair value |
| 391,509 |
| 549,522 |
| ||||
Collateral held by broker |
| — |
| 12,746 |
| ||||
Real estate debt investments, net |
| 2,005,697 |
| 2,007,022 |
| ||||
Corporate loan investments |
| — |
| 457,139 |
| ||||
Investments in and advances to unconsolidated ventures |
| 106,007 |
| 33,143 |
| ||||
Receivables, net of allowance of $0 and $1 in 2008 and 2007, respectively |
| 27,131 |
| 32,141 |
| ||||
Unbilled rents receivable |
| 7,488 |
| 5,684 |
| ||||
Derivative instrument, at fair value |
| 42 |
| — |
| ||||
Deferred costs and intangible assets, net |
| 78,014 |
| 126,677 |
| ||||
Other assets |
| 41,718 |
| 78,448 |
| ||||
Total assets |
| $ | 4,120,865 |
| $ | 4,792,782 |
| ||
|
|
|
|
|
| ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY: |
|
|
|
|
| ||||
Liabilities: |
|
|
|
|
| ||||
Mortgage notes and loans payable |
| 908,601 |
| 912,365 |
| ||||
Exchangeable senior notes, measured at fair value as of September 30, 2008 |
| 196,770 |
| 172,500 |
| ||||
Bonds payable, measured at fair value as of September 30, 2008 |
| 860,771 |
| 1,654,185 |
| ||||
Credit facilities |
| 48,216 |
| 501,432 |
| ||||
Secured term loans |
| 410,281 |
| 416,934 |
| ||||
Liability to subsidiary trusts issuing preferred securities, measured at fair value as of September 30, 2008 |
| 95,582 |
| 286,258 |
| ||||
Repurchase obligations |
| 1,540 |
| 1,864 |
| ||||
Securities sold, not yet purchased, at fair value |
| — |
| 12,856 |
| ||||
Obligations under capital leases |
| 3,561 |
| 3,541 |
| ||||
Accounts payable and accrued expenses |
| 20,979 |
| 34,893 |
| ||||
Escrow deposits payable |
| 49,947 |
| 65,445 |
| ||||
Derivative liability, at fair value |
| 44,902 |
| 49,280 |
| ||||
Other liabilities |
| 39,385 |
| 40,695 |
| ||||
Total liabilities |
| 2,680,535 |
| 4,152,248 |
| ||||
|
|
|
|
|
| ||||
Minority interest in operating partnership |
| 79,347 |
| 7,534 |
| ||||
Minority interest in joint ventures |
| 101,306 |
| 14,961 |
| ||||
|
|
|
|
|
| ||||
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 September 30, 2008 and December 31, 2007, 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 September 30, 2008 and December 31, 2007, respectively |
| 183,505 |
| 183,505 |
| ||||
Common stock, $0.01 par value, 500,000,000 shares authorized, 62,986,070 and 61,719,469 shares issued and outstanding at September 30, 2008 and December 31, 2007, respectively |
| 630 |
| 617 |
| ||||
Additional paid-in capital |
| 607,573 |
| 595,418 |
| ||||
Retained earnings (deficit) |
| 494,615 |
| (40,075 | ) | ||||
Accumulated other comprehensive loss |
| (84,513 | ) | (179,293 | ) | ||||
Total stockholders’ equity |
| 1,259,677 |
| 618,039 |
| ||||
Total liabilities and stockholders’ equity |
| $ | 4,120,865 |
| $ | 4,792,782 |
| ||
5
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| September 30, |
| September 30, |
| ||||||||
|
| 2008 |
| 2007 |
| 2008 |
| 2007 |
| ||||
Funds from Operations: |
|
|
|
|
|
|
|
|
| ||||
Income from continuing operations before minority interest |
| $ | 268,588 |
| $ | 14,813 |
| $ | 476,413 |
| $ | 39,546 |
|
Minority interest in joint ventures |
| (2,300 | ) | (215 | ) | (2,097 | ) | (351 | ) | ||||
Income from continuing operations before minority interest in operating partnership |
| 266,288 |
| 14,598 |
| 474,316 |
| 39,195 |
| ||||
Adjustments: |
|
|
|
|
|
|
|
|
| ||||
Preferred stock dividends |
| (5,231 | ) | (5,231 | ) | (15,693 | ) | (11,302 | ) | ||||
Depreciation and amortization |
| 13,566 |
| 9,163 |
| 33,481 |
| 23,594 |
| ||||
Funds from discontinued operations |
| — |
| — |
| — |
| 17 |
| ||||
Real estate depreciation and amortization – unconsolidated ventures |
| 247 |
| 247 |
| 742 |
| 743 |
| ||||
Funds from Operations |
| $ | 274,870 |
| $ | 18,777 |
| $ | 492,846 |
| $ | 52,247 |
|
|
|
|
|
|
|
|
|
|
| ||||
Adjusted Funds from Operations: |
|
|
|
|
|
|
|
|
| ||||
Funds from Operations |
| $ | 274,870 |
| $ | 18,777 |
| $ | 492,846 |
| $ | 52,247 |
|
Straight-line rental income, net |
| (344 | ) | (866 | ) | (1,817 | ) | (1,853 | ) | ||||
Straight-line rental income, discontinued operations |
| — |
| — |
| — |
| 10 |
| ||||
Straight-line rental income and fair value lease revenue (SFAS 141 adjustment), unconsolidated ventures |
| (39 | ) | (54 | ) | (125 | ) | (167 | ) | ||||
Amortization of equity-based compensation |
| 5,439 |
| 3,948 |
| 18,396 |
| 11,837 |
| ||||
Fair value lease revenue (SFAS 141 adjustment) |
| (809 | ) | (271 | ) | (1,420 | ) | (611 | ) | ||||
Unrealized(gains)/losses from mark-to-market adjustments |
| (249,244 | ) | (6,365 | ) | (438,565 | ) | 3,473 |
| ||||
Unrealized(gains)/losses from mark-to-market adjustments, unconsolidated ventures |
| (3,291 | ) | 4,393 |
| 6,356 |
| 4,393 |
| ||||
Adjusted Funds from Operations |
| $ | 26,582 |
| $ | 19,562 |
| $ | 75,671 |
| $ | 69,329 |
|
|
|
|
|
|
|
|
|
|
| ||||
FFO per share of Common Stock |
| $ | 3.91 |
| $ | 0.29 |
| $ | 7.04 |
| $ | 0.81 |
|
AFFO per share of Common Stock |
| $ | 0.38 |
| $ | 0.30 |
| $ | 1.08 |
| $ | 1.08 |
|
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 estate-related 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.
6
NorthStar calculates 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 NorthStar’s properties and revenue stream, e.g., leasing commissions and tenant improvement allowances;
· an adjustment to reverse the effects of the straight-lining of rents and fair value lease revenue under SFAS 141;
· 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.
7
Return on Average Common Book Equity (including and excluding G&A)
($ in thousands)
|
| Three |
|
|
| ||
|
| Ended |
|
|
| ||
|
| September |
| Annualized (2) |
| ||
Adjusted Funds from Operations (AFFO) |
| $ | 26,582 |
| $ | 106,328 | (A) |
Plus: General & Administrative Expenses |
| 13,725 |
|
|
| ||
Plus: General & Administrative Expenses from Unconsolidated Ventures |
| 1,070 |
|
|
| ||
Less: Equity-Based Compensation and Straight-Line Rent included in G&A |
| 5,439 |
|
|
| ||
AFFO, excluding G&A |
| 35,938 |
| 143,752 | (B) | ||
|
|
|
|
|
| ||
Average Common Book Equity & Operating Partnership Minority Interest (1) |
| $ | 979,020 | (C) |
|
| |
|
|
|
|
|
| ||
Return on Average Common Book Equity (including G&A) |
| 10.9 | %(A)/(C) |
|
| ||
Return on Average Common Book Equity (excluding G&A) |
| 14.7 | %(B)/(C) |
|
| ||
(1) Average Common Book Equity & Operating Partnership Minority 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 and Accumulated Depreciation and Amortization
($ in thousands)
|
| Lending |
| Net Lease |
| Securities |
| Corporate |
| Total |
| |||||
AFFO, Pre-G&A |
| $ | 13,767 |
| $ | 15,449 |
| $ | 2,936 |
| $ | 3,786 |
| $ | 35,938 |
|
Annualized (A) |
| 55,068 |
| 61,796 |
| 11,744 |
| 15,144 |
| 143,752 |
| |||||
Average Common Book Equity and Operating Partnership Minority Interest (B) (1) |
| 705,252 |
| 120,213 |
| 29,815 |
| 123,740 |
| 979,020 |
| |||||
Allocated Cumulative Mark-To-Market Adjustments for Assets, Liabilities and Interest Rate Swaps |
| (436,205 | ) | (55,878 | ) | 44,351 |
| (3,441 | ) | (451,173 | ) | |||||
Accumulated Depreciation and Amortization |
| — |
| 82,234 |
| — |
| — |
| 82,234 |
| |||||
Average Common Book Equity and Operating Partnership Minority Interest Excluding Mark-to-Market Adjustments and Accumulated Depreciation and Amortization(C) (1) |
| $ | 269,047 |
| $ | 146,568 |
| $ | 74,165 |
| $ | 120,299 |
| $ | 610,079 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
ROE, Net (A/B) |
| 7.8 | % | 51.4 | % | 39.4 | % | 12.2 | % | 14.7 | % | |||||
ROE, Gross (A/C) |
| 20.5 | % | 42.2 | % | 15.8 | % | 12.6 | % | 23.6 | % | |||||
(1) Average Common Book Equity & Operating Partnership Minority 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.
8
Third Quarter Committed and Funded Real Estate Loan and Net Lease Statistics
$ in thousands
|
| Real Estate Loans | Net |
| |||||||
|
| Fixed |
| Floating |
| Total |
| Lease |
| ||
Amount Funded |
| NA |
| $ | 30,000 |
| $ | 30,000 |
| NA |
|
Weighted Average Yield |
| NA |
| 25.69 | % | 25.69 | % | NA |
| ||
Weighted Average all-in spread/margin(1) |
| NA |
| 22.50 | % | 22.50 | % | NA |
| ||
Weighted Average First $LTV |
| NA |
| 16.5 | % | 16.5 | % | NA |
| ||
Weighted Average Last $LTV |
| NA |
| 41.3 | % | 41.3 | % | NA |
| ||
(1) Based on average quarterly and one-month LIBOR and US Treasury rates during the quarter. All-in spread and margin includes up-front origination fees and exit points, if any.
Third Quarter Funded Securities Investment Statistics
($ in thousands)
|
| Amount |
| |
CMBS (investment grade) |
| $ | 11,147 |
|
Total |
| $ | 11,147 |
|
Management Fees From Secured Term Debt Financings at September 30, 2008
($ in thousands)
|
|
|
|
|
|
|
|
|
| Annualized |
| ||
|
| Fee - Based |
| Annual Management Fee % | Management |
| |||||||
|
| Assets |
| Senior |
| Subordinate |
| Total |
| Revenue |
| ||
N-Star I |
| $ | 301,910 |
| 0.15 | % | 0.20 | % | 0.35 | % | $ | 1,057 |
|
N-Star II |
| 331,878 |
| 0.15 | % | 0.20 | % | 0.35 | % | 1,162 |
| ||
N-Star III |
| 400,000 |
| 0.15 | % | 0.20 | % | 0.35 | % | 1,400 |
| ||
N-Star IV |
| 400,000 |
| 0.15 | % | 0.20 | % | 0.35 | % | 1,400 |
| ||
N-Star V |
| 500,000 |
| 0.15 | % | 0.20 | % | 0.35 | % | 1,750 |
| ||
N-Star VI |
| 450,000 |
| 0.15 | % | 0.25 | % | 0.40 | % | 1,800 |
| ||
N-Star VII |
| 550,000 |
| 0.15 | % | 0.20 | % | 0.35 | % | 1,925 |
| ||
N-Star VIII |
| 900,000 |
| 0.15 | % | 0.25 | % | 0.40 | % | 3,600 |
| ||
N-Star IX(1) |
| 800,000 |
| 0.15 | % | 0.25 | % | 0.40 | % | 3,200 |
| ||
|
|
|
|
|
|
|
|
|
|
|
| ||
Total |
| $ | 4,633,788 |
|
|
|
|
|
|
| $ | 17,294 |
|
(1) N-Star IX is owned by the NorthStar Real Estate Securities Opportunity Fund. The Company directly receives 33% of the management fees related to N-Star IX.
9
CMBS Vintages Under Management
($ in thousands)
|
| $ |
| % |
| Cumulative |
| |
1996 |
| $ | 1,050 |
| 0.1 | % | 0.1 | % |
1997 |
| 45,728 |
| 3.1 | % | 2.6 | % | |
1998 |
| 118,414 |
| 7.9 | % | 10.6 | % | |
1999 |
| 49,534 |
| 3.3 | % | 14.6 | % | |
2000 |
| 140,462 |
| 9.4 | % | 24.0 | % | |
2001 |
| 102,729 |
| 6.9 | % | 30.6 | % | |
2002 |
| 69,949 |
| 4.7 | % | 35.3 | % | |
2003 |
| 139,717 |
| 9.3 | % | 43.6 | % | |
2004 |
| 233,553 |
| 15.6 | % | 59.2 | % | |
2005 |
| 343,158 |
| 22.9 | % | 82.0 | % | |
2006 |
| 202,595 |
| 13.5 | % | 95.3 | % | |
2007 |
| 51,264 |
| 3.3 | % | 100.0 | % | |
Total |
| $ | 1,498,153 |
| 100.0 | % |
|
|
|
|
|
|
|
|
|
| |
Securities Fund |
| 484,156 |
|
|
|
|
| |
|
|
|
|
|
|
|
| |
Total CMBS |
| $ | 1,982,309 |
|
|
|
|
|
Credit Ratings Distribution of Securities Under Management
($ in thousands)
|
| $ |
| % |
|
|
| |
AAA |
| $ | 115,080 |
| 5.3 | % |
|
|
AA |
| 67,453 |
| 3.1 | % |
|
| |
A |
| 154,628 |
| 7.1 | % |
|
| |
BBB |
| 1,025,369 |
| 47.4 | % |
|
| |
BB |
| 386,618 |
| 17.9 | % |
|
| |
B |
| 157,216 |
| 7.3 | % |
|
| |
CCC |
| 46,938 |
| 2.2 | % |
|
| |
Unrated |
| 210,744 |
| 9.7 | % |
|
| |
Total |
| $ | 2,164,046 |
| 100.0 | % |
|
|
|
|
|
|
|
|
|
| |
Securities Fund |
| 800,959 |
|
|
|
|
| |
Total Securities |
| $ | 2,965,005 |
|
|
|
|
|
10
Assets Under Management at September 30, 2008
($ in thousands)
|
| $ |
| % |
|
|
| |
Investment grade securities |
| $ | 2,070,914 |
| 32.5 | % |
|
|
First mortgage (1) |
| 1,441,478 |
| 22.6 | % |
|
| |
Non-investment grade securities |
| 894,090 |
| 14.0 | % |
|
| |
Mezzanine and other subordinate loans |
| 675,048 |
| 10.6 | % |
|
| |
Non-investment grade net lease (2) |
| 1,015,805 |
| 15.9 | % |
|
| |
Investment grade net lease (2) |
| 271,382 |
| 4.4 | % |
|
| |
Total |
| $ | 6,368,717 |
| 100.0 | % |
|
|
(1) Includes $326 million of junior participations in first mortgages.
(2) Net lease amounts prior to accumulated depreciation and impact of statement of FAS No. 141.
Book Value Rollforward
($ in thousands, except per share data)
|
| $ |
| Per Share |
| ||
Common book value at June 30, 2008 (diluted) |
| $ | 860,387 |
| $ | 12.23 |
|
|
|
|
|
|
| ||
Net income to common stockholders and minority interest, excluding non-cash mark to market items included in net income |
| 8,523 |
| 0.12 |
| ||
|
|
|
|
|
| ||
Mark to market adjustments included in net income: |
|
|
|
|
| ||
Securities fund |
| 3,291 |
| 0.05 |
| ||
Exchangeable senior notes |
| 16,180 |
| 0.23 |
| ||
Secured debt liabilities |
| 251,020 |
| 3.57 |
| ||
Trust preferred debt |
| 42,938 |
| 0.61 |
| ||
Securities and Investments held at market value under FAS159 |
| (57,717 | ) | (0.82 | ) | ||
Swaps and other hedges |
| (3,177 | ) | (0.05 | ) | ||
|
|
|
|
|
| ||
Mark to market adjustments in other comprehensive income and minority interest: |
|
|
|
|
| ||
Effective hedges |
| (24 | ) | (0.00 | ) | ||
Available for sale securities |
| (4,157 | ) | (0.06 | ) | ||
|
|
|
|
|
| ||
Dividends and distributions paid to common stockholders and minority interest |
| (25,326 | ) | (0.36 | ) | ||
|
|
|
|
|
| ||
Accretion/(dilution) from additional shares issued during quarter (1) |
| 5,714 |
| 0.07 |
| ||
Total net increases/(decreases) |
| 237,265 |
| 3.36 |
| ||
|
|
|
|
|
| ||
Common book value at September 30, 2008 (diluted) (2) |
| $ | 1,097,652 |
| $ | 15.59 |
|
(1) Related to issuance of common stock in from DRIP and DSTT plan, equity distribution agreement, and amortization of LTIP units.
(2) Cumulative net mark-to-market adjustments total a positive $568.1 million ($8.07 per diluted share) and accumulated real estate depreciation and amortization total a negative $81.9 million ($1.16 per diluted share) as of September 30, 2008.
11
NRFC NNN Holdings, LLC Portfolio Summary
($ in thousands)
|
|
|
|
|
|
|
| Years |
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
| Net |
|
|
|
|
| Acquisition |
| ||||
Date |
|
|
|
|
| Square |
| Lease |
| Acquisition |
| Existing |
| Cost less |
| ||||
Acquired |
| Tenant or Guarantor of Tenant |
| Location/MSA |
| Feet |
| (1) |
| Cost (2) |
| Debt |
| Debt |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Oct-2004 |
| ALGM Portfolio - Various (3) |
| Three properties in New York, NY |
| 35,965 |
| 2.8-8.8 |
| $ | 10,355 | (4) | $ | 0 |
| $ | 10,355 |
| |
Nov-2007 |
| Alliance Data Systems Corp. |
| Columbus, OH |
| 199,112 |
| 9.2 |
| 33,826 |
| 23,848 |
| 9,978 |
| ||||
Mar-2007 |
| Citigroup, Inc. |
| Fort Mill, SC/Charlotte |
| 165,000 |
| 12.1 |
| 34,303 |
| 30,744 |
| 3,559 |
| ||||
Jun-2007 |
| Vacant |
| Reading, PA |
| 609,000 |
| — |
| 28,473 |
| 19,213 |
| 9,260 |
| ||||
Jun-2006 |
| Covance, Inc. |
| Indianapolis, IN |
| 333,600 |
| 17.3 |
| 34,519 |
| 28,553 |
| 5,966 |
| ||||
Feb-2007 |
| Credence Systems Corp. |
| Milpitas, CA/San Jose |
| 178,213 |
| 8.4 |
| 30,144 |
| 22,655 |
| 7,489 |
| ||||
Sep-2006 |
| Dick’s Sporting Goods, Inc. / PetSmart, Inc. (3) |
| 9 properties |
| 467,971 |
| 7.3-15.9 |
| 64,503 |
| 49,523 |
| 14,980 |
| ||||
Sep-2005 |
| Electronic Data Systems Corp. |
| 2 in MI / 1 in CA / 1 in PA |
| 387,842 |
| 7.0 |
| 62,718 |
| 47,874 |
| 14,844 |
| ||||
Dec-2005 |
| General Electric Co. & Cincom Systems, Inc. |
| Springdale, OH/Cincinnati |
| 486,963 |
| 1.3-3.3 |
| 69,341 |
| 51,480 |
| 17,861 |
| ||||
Aug-2005 |
| GSA - U.S. Department of Agriculture |
| Salt Lake City, UT |
| 117,553 |
| 3.6 |
| 22,424 |
| 15,957 |
| 6,467 |
| ||||
Jul-2006 |
| Northrop Grumman Space & Mission Systems Corp. |
| Aurora, CO/Denver |
| 183,529 |
| 6.8 |
| 43,625 |
| 34,607 |
| 9,018 |
| ||||
Mar-2006 |
| Party City Corp. (Amscan) / Lerner Enterprises, Inc. |
| Rockaway, NJ/ Northern NJ |
| 121,038 |
| 6.7-8.8 |
| 21,955 |
| 17,395 |
| 4,560 |
| ||||
Feb-2006 |
| Quantum Corporation (5) |
| Colorado Springs, CO |
| 406,207 |
| 1.7-12.4 |
| 27,635 |
| 18,507 |
| 9,128 |
| ||||
Jan-2005 |
| Washington Mutual Bank, FA (3) |
| Chatsworth, CA/ Los Angeles |
| 257,336 |
| 6.7 |
| 65,159 |
| 52,666 | (6) | 12,493 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total NRFC NNN Holdings, LLC Portfolio |
|
|
| 3,949,329 |
| 8.2 |
| $ | 548,980 |
| $ | 413,022 |
| $ | 135,958 |
| |||
(1) Remaining lease terms as of September 30, 2008. Total represents weighted average based on acquisition cost.
(2) Acquisition cost does not include SFAS 141 “Business Combinations” purchase price allocations.
(3) The three ALGM portfolio properties, six of ten Dick’s Sporting Goods, Inc. / PetSmart, Inc. properties and one of the three Washington Mutual Bank, FA 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) 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.
(6) The Washington Mutual Bank, FA properties are financed with a $43.0 million non-recourse first mortgage with a third party and a $9.7 million mezzanine loan held by an affiliate of NorthStar.
12
Portfolio Cash Flow and Tenant Credit Profile
($ in thousands)
|
| Three Months Ended September 30, 2008 |
| Primary Tenant |
| ||||||||
|
|
|
|
|
|
|
| NOI Less |
|
|
| Actual |
|
Tenant or Guarantor of Tenant |
| Base Rent |
| NOI |
| Debt |
| Debt |
| Market Cap |
| Credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALGM Portfolio - Various |
| $236 |
| $503 |
| — |
| $503 |
| mixed tenants |
| ||
Alliance Data Systems Corp. |
| 582 |
| 580 |
| (456 | ) | 124 |
| $4,579 |
| not rated |
|
Citigroup, Inc. |
| 525 |
| 525 |
| (501 | ) | 24 |
| 111,769 |
| AA-/Aa3 |
|
Cott Corporation (6) |
| — |
| 46 |
| (333 | ) | (287 | ) | 81 |
| B-/B3 |
|
Covance, Inc. |
| 608 |
| 607 |
| (490 | ) | 117 |
| 5,566 |
| not rated | (2) |
Credence Systems Corp. |
| 648 |
| 647 |
| (447 | ) | 200 |
| 110 |
| not rated |
|
Dick’s Sporting Goods, Inc. / PetSmart, Inc. |
| 1,361 |
| 1,230 |
| (974 | ) | 256 |
| 2,186 |
| not rated | (3) |
Electronic Data Systems Corp. |
| 1,393 |
| 1,371 |
| (825 | ) | 546 |
| 13,900 |
| NR/A2 |
|
General Electric Co. & Cincom Systems, Inc. |
| 1,370 |
| 1,415 |
| (770 | ) | 645 |
| 267,644 |
| AAA/Aaa |
|
GSA - U.S. Department of Agriculture |
| 579 |
| 456 |
| (303 | ) | 153 |
| NA |
| implied AAA |
|
Northrop Grumman Space & Mission Systems Corp. |
| 776 |
| 776 |
| (875 | ) | (99 | ) | 20,432 |
| NR/Baa1 |
|
Party City Corp. (Amscan) / Lerner Enterprises, Inc. |
| 437 |
| 431 |
| (304 | ) | 127 |
| 362 | (4) | B/B2 | (5) |
Quantum Corporation (50%) |
| 592 |
| 590 |
| (125 | ) | 465 |
| 217 |
| B/B3 |
|
Washington Mutual Bank, FA |
| 1,594 |
| 1,465 |
| (1,205 | ) | 260 |
| NA |
| R/Ca | (7) |
Total |
| $10,701 |
| $10,642 |
| $(7,608 | ) | $3,034 |
|
|
|
|
|
(1) Based on information from FactSet at close of market on September 30, 2008.
(2) Covance has a $1.0 billion net worth and no long-term debt.
(3) PetSmart, Inc. is rated BB.
(4) In December 2005, Amscan Holdings, Inc. (controlled by Berkshire Partners and Weston Presidio) purchased Party City for $362 million.
(5) 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.
(6) On July 24, 2008 the Cott lease was terminated for $9.05 million.
(7) An obligator rated ‘R’ is under regulatory supervision owing to its financial condition. On September 25, 2008, JPMorgan Chase & Co. acquired all deposits, assets and certain liabilities
of Washington Mutal Bank, FA’s banking operations from the FDIC. JPMorgan is currently within a statutory period to determine whether it will assume or reject the Chatsworth, CA lease. Washington Mutal Bank, FA has made all required lease payments to date.
13
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, 2007. 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.
Contact:
Investor Relations
Joe Calabrese
(212) 827-3772
14