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SECURITIES AND EXCHANGE COMMISSION
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Maryland | 26-4141646 | |
(State or other Jurisdiction of | (I.R.S. Employer Identification No.) | |
Incorporation or Organization) | ||
399 Park Avenue, 18th Floor | 10022 | |
New York, New York | (Zip Code) | |
(Address of Principal Executive Offices) |
(Registrant’s telephone number, including area code)
Large accelerated filero | Accelerated filero | Non-accelerated filero | Smaller reporting companyþ | |||
(Do not check if a smaller reporting company) |
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PART I | ||||||||
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PART II | ||||||||
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38 | ||||||||
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PART III | ||||||||
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PART IV | ||||||||
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Exhibit 12.1 | ||||||||
Exhibit 21.1 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 |
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Item 1. | Business |
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Carrying | Estimated | |||||||
December 31, 2010 | Value | Fair Value | ||||||
CMBS | $ | 29,539,694 | $ | 31,264,331 | ||||
Total | $ | 29,539,694 | $ | 31,264,331 | ||||
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Item 1A. | Risk Factors |
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• | the continuation, renewal or enforcement of our agreements with our Advisor and its affiliates, including the advisory agreement and our Dealer Manager agreement; |
• | public offerings of equity by us, which entitle our Dealer Manager to dealer manager fees and will likely entitle our Advisor to increased acquisition fees and asset management fees; |
• | acquisitions of investments and originations of loans, which entitle our Advisor to acquisition fees and asset management fees and, in the case of acquisitions of investments from other NorthStar entities, might entitle affiliates of our Advisor to disposition fees in connection with services for the seller; |
• | sales of investments, which entitle our Advisor to disposition fees; |
• | borrowings to acquire investments and to originate loans, which borrowings will increase the acquisition fees and asset management fees payable to our Advisor; |
• | whether and when we seek to list our common stock on a national securities exchange, which listing could entitle NorthStar OP Holdings, LLC, as the holder of special units in our operating partnership (“NorthStar OP Holdings”), to have its interest in our operating partnership redeemed; |
• | whether we seek stockholder approval to internalize our management, which may entail acquiring assets from our Sponsor (such as office space, furnishings and technology costs) and employing our Sponsor’s real estate and debt finance professionals performing services for us on behalf of our Advisor for consideration that would be negotiated at that time and may result in these real estate and debt finance professionals receiving more compensation from us than they currently receive from our Sponsor; and |
• | whether and when we seek to sell our company or its assets, which would entitle NorthStar OP Holdings, as holder of the special units, to a subordinated distribution. |
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• | natural disasters such as hurricanes, earthquakes and floods; |
• | acts of war or terrorism, including the consequences of terrorist attacks, such as those that occurred on September 11, 2001; |
• | adverse changes in national and local economic and real estate conditions; |
• | an oversupply of (or a reduction in demand for) space in the areas where particular properties are located and the attractiveness of particular properties to prospective tenants; |
• | changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance therewith and the potential for liability under applicable laws; |
• | costs of remediation and liabilities associated with environmental conditions affecting properties; and |
• | the potential for uninsured or underinsured property losses. |
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• | interest rate hedging can be expensive, particularly during periods of rising and volatile interest rates; |
• | available interest rate hedging may not correspond directly with the interest rate risk for which protection is sought; |
• | the duration of the hedge may not match the duration of the related liability or asset; |
• | our hedging opportunities may be limited by the treatment of income from hedging transactions under the rules determining REIT qualification; |
• | the credit quality of the party owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction; |
• | the party owing money in the hedging transaction may default on its obligation to pay; and |
• | we may purchase a hedge that turns out not to be necessary, i.e., a hedge that is out of the money. |
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• | that our co-venturer or partner in an investment could become insolvent or bankrupt; |
• | that such co-venturer or partner may at any time have economic or business interests or goals that are or that become inconsistent with our business interests or goals; or |
• | that such co-venturer or partner may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives. |
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• | limitations on capital structure; |
• | restrictions on specified investments; |
• | prohibitions on transactions with affiliates; and |
• | compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations that would significantly increase our operating expenses. |
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• | In order to qualify as a REIT, we must distribute annually at least 90% of our REIT taxable income (which is determined without regard to the dividends paid deduction or net capital gain for this purpose) to our stockholders. To the extent that we satisfy the distribution requirement but distribute less than 100% of our REIT taxable income, we will be subject to federal corporate income tax on the undistributed income. |
• | We will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions we pay in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years. |
• | If we have net income from the sale of foreclosure property that we hold primarily for sale to customers in the ordinary course of business or other non-qualifying income from foreclosure property, we must pay a tax on that income at the highest corporate income tax rate. |
• | If we sell an asset, other than foreclosure property, that we hold primarily for sale to customers in the ordinary course of business, our gain would be subject to the 100% “prohibited transaction” tax unless such sale were made by one of our taxable REIT subsidiaries. |
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Item 1B. | Unresolved Staff Comments |
Item 2. | Properties |
Item 3. | Legal Proceedings |
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Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
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• | 274,506 shares, equal to $2,697,040 in aggregate gross offering proceeds, in our “best efforts” offering; and | ||
• | 6,214 shares, equal to $59,032 in aggregate gross offering proceeds, pursuant to the DRP. |
Type of Costs | Amount | |||
Offering costs to related parties | $ | 260,678 |
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Item 6. | Selected Financial Data |
Period from | ||||||||
January 26, 2009 | ||||||||
Year Ended | (inception) to | |||||||
December 31, 2010 | December 31, 2009 | |||||||
Statements of Operations Data: | ||||||||
Revenues: | ||||||||
Interest income | $ | 1,484,691 | $ | 94,795 | ||||
Total revenues | 1,484,691 | 94,795 | ||||||
Expenses: | ||||||||
Interest expense | 799,911 | — | ||||||
Advisory fees — related party | 53,760 | — | ||||||
Auditing and professional fees | 238,059 | — | ||||||
General and administrative expenses | 687,282 | — | ||||||
Total expenses | 1,779,012 | — | ||||||
(Loss)/income from operations | (294,321) | 94,795 | ||||||
Realized gain on investments | 199,604 | — | ||||||
Unrealized gain on investments | 1,724,637 | 587,096 | ||||||
Consolidated net income | 1,629,920 | 681,891 | ||||||
Net income attributable to the non-controlling interest | 328 | 1,361 | ||||||
Net income attributable to NorthStar Real Estate Income Trust, Inc. common stockholders | $ | 1,629,592 | $ | 680,530 | ||||
Net income per share of common stock, basic / diluted | $ | 0.77 | $ | 5.98 | ||||
Common stock distributions declared per share | $ | 0.44 | $ | — | ||||
Weighted average number of shares of common stock outstanding: | 2,104,915 | 113,828 |
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December 31, | ||||||||
2010 | 2009 | |||||||
Balance Sheet Data | ||||||||
Cash | $ | 20,404,832 | $ | 55,630 | ||||
Restricted cash | — | 1,815,023 | ||||||
Available for sale securities, at fair value | 31,264,331 | 1,620,000 | ||||||
Total assets | 52,077,933 | 3,498,914 | ||||||
Secured term loans | 24,061,212 | — | ||||||
Distribution payable | 208,594 | — | ||||||
Related party payable | 162,075 | — | ||||||
Other liabilities | — | 1,815,023 | ||||||
Non-controlling interests | 4,234 | 3,361 | ||||||
Total equity | 27,552,253 | 1,683,891 | ||||||
Total liabilities and equity | $ | 52,077,933 | $ | 3,498,914 |
Period from | ||||||||
January 26, 2009 | ||||||||
Year Ended | (inception) to | |||||||
December 31, 2010 | December 31, 2009 | |||||||
Other Data: | ||||||||
Cash Flow from: | ||||||||
Operating activities | $ | 1,423,328 | $ | 53,630 | ||||
Investing activities | (27,763,765 | ) | (1,000,000 | ) | ||||
Financing activities | 46,689,639 | 1,002,000 |
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Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
• | originate, acquire, and asset manage; |
(i) | commercial real estate loans, including senior mortgage loans, subordinate mortgage loans (or B-Notes), mezzanine loans, and participations in such loans; | ||
(ii) | commercial real estate-related debt securities, such as CMBS, CDOs and REIT senior unsecured debt; and | ||
(iii) | select commercial real estate equity investments. |
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Level 1: |
• | Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market (examples include active exchange-traded equity securities, listed derivatives, most U.S. Government and agency securities, and certain other sovereign government obligations). |
Level 2: |
• | Financial assets and liabilities whose values are based on the following: |
• | quoted prices for similar assets or liabilities in active markets (for example, restricted stock); |
• | quoted prices for identical or similar assets or liabilities in non-active markets (examples include corporate and municipal bonds, which trade infrequently); |
• | pricing models whose inputs are observable for substantially the full term of the asset or liability (examples include most over-the-counter derivatives, including interest rate and currency swaps); and |
• | pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability (for example, certain mortgage loans). |
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Level 3: |
• | Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability (examples include private equity investments, commercial mortgage backed securities, and long-dated or complex derivatives including certain foreign exchange options and long dated options on gas and power). |
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• | the amortization or accrual of various deferred costs including equity based compensation; and |
• | an adjustment to reverse the effects of unrealized gains/(losses). |
Period from | ||||||||
January 26, 2009 | ||||||||
Year Ended | (inception) to | |||||||
December 31, 2010 | December 31, 2009 | |||||||
Funds from Operations: | ||||||||
Consolidated net income | $ | 1,629,920 | $ | 681,891 | ||||
Funds from Operations | $ | 1,629,920 | $ | 681,891 | ||||
Adjusted Funds from Operations: | ||||||||
Funds from Operations | 1,629,920 | 681,891 | ||||||
Amortization of equity-based compensation | 8,439 | — | ||||||
Unrealized (gains)/losses from mark-to-market adjustments | (1,724,637 | ) | (587,096 | ) | ||||
Adjusted Funds from Operations | $ | (86,278 | ) | $ | 94,795 | |||
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Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
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Item 8. | Financial Statements and Supplementary Data |
NORTHSTAR REAL ESTATE INCOME TRUST, INC. AND SUBSIDIARIES
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
NorthStar Real Estate Income Trust, Inc.
We have audited the accompanying consolidated balance sheets of NorthStar Real Estate Income Trust, Inc. and subsidiaries (the “Company”) as of December 31, 2010 and 2009, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year ended December 31, 2010 and for the period January 26, 2009 through December 31, 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of NorthStar Real Estate Income Trust, Inc. and subsidiaries as of December 31, 2010 and 2009, and the results of its operations and its cash flows for the year ended December 31, 2010 and for the period January 26, 2009 through December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.
/s/ GRANT THORNTON LLP
New York, New York
March 28, 2011
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December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Assets | ||||||||
Cash | $ | 20,404,832 | $ | 55,630 | ||||
Restricted cash | — | 1,815,023 | ||||||
Available for sale securities, at fair value | 31,264,331 | 1,620,000 | ||||||
Receivables | 128,287 | 8,261 | ||||||
Deferred financing costs, net | 46,216 | — | ||||||
Other assets | 234,267 | — | ||||||
Total Assets | 52,077,933 | 3,498,914 | ||||||
Liabilities: | ||||||||
Secured term loans | 24,061,212 | — | ||||||
Accounts payable and accrued expenses | 93,799 | — | ||||||
Distribution payable | 208,594 | — | ||||||
Related party payable | 162,075 | — | ||||||
Other liabilities | — | 1,815,023 | ||||||
Total Liabilities | 24,525,680 | 1,815,023 | ||||||
Equity: | ||||||||
NorthStar Real Estate Income Trust, Inc. stockholders’ equity | ||||||||
Preferred stock, $0.01 par value per share; 50,000,000 shares authorized, no shares issued and outstanding at December 31, 2010 and December 31, 2009 | — | — | ||||||
Common stock, $0.01 par value per share; 400,000,000 shares authorized, 3,193,414 and 113,828 shares issued and outstanding at December 31, 2010 and December 31, 2009, respectively | 31,934 | 1,138 | ||||||
Additional paid-in capital | 26,775,538 | 998,862 | ||||||
Retained earnings | 740,547 | 680,530 | ||||||
Total NorthStar Real Estate Income Trust, Inc. stockholder’s equity | 27,548,019 | 1,680,530 | ||||||
Non-controlling interest | 4,234 | 3,361 | ||||||
Total equity | 27,552,253 | 1,683,891 | ||||||
Total liabilities and equity | $ | 52,077,933 | $ | 3,498,914 | ||||
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Period from January 26, | ||||||||
Year Ended | 2009 (inception) to | |||||||
December 31, 2010 | December 31, 2009 | |||||||
Revenues and other income: | ||||||||
Interest income | $ | 1,484,691 | $ | 94,795 | ||||
Total revenues | 1,484,691 | 94,795 | ||||||
Expenses: | ||||||||
Interest expense | 799,911 | — | ||||||
Advisory fees — related party | 53,760 | — | ||||||
Auditing and professional fees | 238,059 | |||||||
General and administrative expenses | 687,282 | — | ||||||
Total expenses | 1,779,012 | — | ||||||
(Loss)/income from operations | (294,321) | 94,795 | ||||||
Realized gain on investments | 199,604 | — | ||||||
Unrealized gain on investments | 1,724,637 | 587,096 | ||||||
Consolidated net income | 1,629,920 | 681,891 | ||||||
Net income attributable to the non-controlling interests | 328 | 1,361 | ||||||
Net income attributable to NorthStar Real Estate Income Trust, Inc. common stockholders | $ | 1,629,592 | $ | 680,530 | ||||
Net income per share of common stock, basic / diluted | $ | 0.77 | $ | 5.98 | ||||
Weighted-average number of shares of common stock outstanding, basic / diluted | 2,104,915 | 113,828 |
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Common Stock | ||||||||||||||||||||||||||||
Additional | Total Company's | Total | ||||||||||||||||||||||||||
Common | Paid-in | Retained | Stockholders' | Non-Controlling | Stockholders' | |||||||||||||||||||||||
Stock | Amount | Capital | Earnings | Equity | Interest | Equity | ||||||||||||||||||||||
Balance, January 26, 2009 (Date of Inception) | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
Proceeds from issuance of common stock | 113,828 | 1,138 | 998,862 | — | 1,000,000 | — | 1,000,000 | |||||||||||||||||||||
Non-controlling interest contributions | — | — | — | — | — | 2,000 | 2,000 | |||||||||||||||||||||
Consolidated net income | — | — | — | 680,530 | 680,530 | 1,361 | 681,891 | |||||||||||||||||||||
Balance, December 31, 2009 | 113,828 | $ | 1,138 | $ | 998,862 | $ | 680,530 | $ | 1,680,530 | $ | 3,361 | $ | 1,683,891 | |||||||||||||||
Activity prior to the merger: | ||||||||||||||||||||||||||||
Proceeds from issuance of common stock | 3,669,919 | 36,699 | 35,032,407 | — | 35,069,106 | — | 35,069,106 | |||||||||||||||||||||
Cost of capital | — | — | (3,459,410 | ) | — | (3,459,410 | ) | — | (3,459,410 | ) | ||||||||||||||||||
Stock distribution reinvestment | 7,915 | 79 | 74,262 | — | 74,341 | — | 74,341 | |||||||||||||||||||||
Distribution paid | — | — | — | (1,075,268 | ) | (1,075,268 | ) | — | (1,075,268 | ) | ||||||||||||||||||
Shares redeemed for cash | (893,968 | ) | (8,939 | ) | (8,233,445 | ) | — | (8,242,384 | ) | — | (8,242,384 | ) | ||||||||||||||||
Balance as of October 18, 2010 | 2,897,694 | $ | 28,977 | $ | 24,412,676 | $ | (394,738 | ) | $ | 24,046,915 | $ | 3,361 | $ | 24,050,276 | ||||||||||||||
Shares of the accounting acquiree* | 39,039 | 390 | 62,326 | — | 62,716 | 545 | 63,261 | |||||||||||||||||||||
Proceeds from issuance of common stock | 250,467 | 2,505 | 2,493,805 | — | 2,496,310 | — | 2,496,310 | |||||||||||||||||||||
Cost of capital | — | — | (260,678 | ) | — | (260,678 | ) | — | (260,678 | ) | ||||||||||||||||||
Stock distribution reinvestment | 6,214 | 62 | 58,970 | — | 59,032 | — | 59,032 | |||||||||||||||||||||
Distribution paid | — | — | — | (285,713 | ) | (285,713 | ) | — | (285,713 | ) | ||||||||||||||||||
Distribution declared | — | — | — | (208,594 | ) | (208,594 | ) | — | (208,594 | ) | ||||||||||||||||||
Amortization of equity based compensation | — | — | 8,439 | — | 8,439 | — | 8,439 | |||||||||||||||||||||
Net income | — | — | — | 1,629,592 | 1,629,592 | 328 | 1,629,920 | |||||||||||||||||||||
Balance, December 31, 2010 | 3,193,414 | $ | 31,934 | $ | 26,775,538 | $ | 740,547 | $ | 27,548,019 | $ | 4,234 | $ | 27,552,253 | |||||||||||||||
* | Northstar Real Estate Income Trust, Inc. the surviving legal entity issued 24,039 shares for its initial capitalization and 15,000 shares to its Board of Directors prior to the merger with NSIO REIT. |
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Period from January 26, | ||||||||
Year Ended | 2009 (inception) to | |||||||
December 31, 2010 | December 31, 2009 | |||||||
Cash flows from operating activities: | ||||||||
Consolidated net income | $ | 1,629,920 | $ | 681,891 | ||||
Adjustments to reconcile net income to net cash used in operating activities | ||||||||
Amortization of premium (discount) on securities | 43,675 | (32,904 | ) | |||||
Amortization of deferred financing costs | 9,071 | — | ||||||
Realized gain on investment | (199,604 | ) | — | |||||
Unrealized gain on investments | (1,724,637 | ) | (587,096 | ) | ||||
Equity based compensation | 8,439 | — | ||||||
Changes in assets and liabilities | ||||||||
Restricted cash | 1,815,023 | (1,815,023 | ) | |||||
Receivables | (120,026 | ) | (8,261 | ) | ||||
Other assets | (234,267 | ) | — | |||||
Accounts payable and accrued expenses | 51,506 | — | ||||||
Related party payables | 144,228 | — | ||||||
Other liabilities | — | 1,815,023 | ||||||
Net cash provided by operating activities: | 1,423,328 | 53,630 | ||||||
Cash flows from investing activities: | ||||||||
Acquisition of available for sale securities | (29,616,265 | ) | (1,000,000 | ) | ||||
Disposition of available for sale securities | 1,852,500 | — | ||||||
Net cash used in investing activities | (27,763,765 | ) | (1,000,000 | ) | ||||
Cash flows from financing activities: | ||||||||
Non-controlling interest | — | 2,000 | ||||||
Proceeds from issuance of common stock | 35,855,949 | 1,000,000 | ||||||
Cost of capital | (3,702,241 | ) | — | |||||
Distributions paid on common stock | (1,227,609 | ) | — | |||||
Redemption of common stock | (8,242,385 | ) | — | |||||
Financing of secured term debt | 24,089,417 | — | ||||||
Repayment of secured term debt | (28,205 | ) | — | |||||
Payment of deferred financing costs | (55,287 | ) | — | |||||
Net cash provided by financing activities | 46,689,639 | 1,002,000 | ||||||
Net increase in cash | 20,349,202 | 55,630 | ||||||
Cash, beginning of period | 55,630 | — | ||||||
Cash, end of period | $ | 20,404,832 | $ | 55,630 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for interest | $ | 749,267 | $ | — | ||||
Supplemental disclosure of non-cash investing and financing activities: | ||||||||
Distributions payable | $ | 208,594 | $ | — | ||||
Accrued cost of capital | $ | 17,847 | $ | — | ||||
See accompanying notes to consolidated financial statements. |
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Level 1. | Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market (examples include active exchange-traded equity securities, listed derivatives, most U.S. government and agency securities, and certain other sovereign government obligations). | |||||
Level 2. | Financial assets and liabilities whose values are based on the following: | |||||
a) | Quoted prices for similar assets or liabilities in active markets (for example, restricted stock); | |||||
b) | Quoted prices for identical or similar assets or liabilities in non-active markets (examples include corporate and municipal bonds, which trade infrequently); | |||||
c) | Pricing models whose inputs are observable for substantially the full term of the asset or liability (examples include most over-the-counter derivatives, including interest rate and currency swaps); and | |||||
d) | Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability (for example, certain mortgage loans). | |||||
Level 3. | Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability (examples include private equity investments, beneficial interest in securitizations and long-dated or complex derivatives, including certain foreign exchange options and long-dated options on gas and power). |
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Assets at Fair Value | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Available for sale securities — CMBS | $ | — | $ | 31,264,331 | $ | — | $ | 31,264,331 |
Available | ||||
for Sale | ||||
Securities | ||||
Beginning balance: | $ | 1,620,000 | ||
Total net transfers into/out of Level 3 | — | |||
Purchases, sales, issuance and settlements, net | (1,819,604 | ) | ||
Less: total losses and premium/discount amortization (realized or unrealized): | ||||
Included in earnings | — | |||
Included in other comprehensive loss | — | |||
Plus: total gains and premium/discount amortization (realized or unrealized): | ||||
Included in earnings | 199,604 | |||
Included in other comprehensive loss | — | |||
Ending balance | $ | — | ||
The amount of total gains for the period included in earnings attributable to the change in unrealized gains or losses relating to assets or liabilities still held at the reporting date | $ | — |
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Financial Instruments, at Fair Value | ||||
Available for sale securities | $ | 31,264,331 | ||
Amount | ||||||||||||
Fair Value at | Due Upon | |||||||||||
December 31, 2010 | Maturity | Difference | ||||||||||
Available for sale securities — CMBS | $ | 31,264,331 | $ | 28,856,000 | $ | 2,408,331 |
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Period From | ||||||||
Year | January 26, 2009 | |||||||
Ended | (inception) to | |||||||
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Pro Forma revenues | $ | 1,484,281 | $ | 94,795 | ||||
Pro Forma gains | 1,924,421 | 587,096 | ||||||
Pro Forma net income | 1,483,635 | 680,530 | ||||||
Pro Forma net income per common share—basic/diluted | $ | 0.72 | $ | 6.12 | ||||
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Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
Item 9A. | Controls and Procedures |
Item 9B. | Other Information |
Item 10. | Directors and Executive Officers and Corporate Governance |
Name | Age | |||
David T. Hamamoto | 51 | |||
Jonathan T. Albro | 48 | |||
Charles W. Schoenherr | 51 | |||
Jack F. Smith, Jr. | 59 |
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Name | Age | Position | ||
David T. Hamamoto* | 51 | Chairman and Chief Executive Officer | ||
Daniel R. Gilbert | 41 | President and Chief Investment Officer | ||
Lisa Meyer | 46 | Chief Financial Officer and Treasurer | ||
Albert Tylis | 37 | Chief Operating Officer, General Counsel and Secretary |
* | Biographical information is provided above under “Board of Directors.” |
Item 11. | Executive Compensation |
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Fees Earned or | ||||||||||||
Name | Paid in Cash ($)(1) | Stock Awards ($)(2) | Total ($) | |||||||||
Jonathan T. Albro | 49,250 | 45,000 | 94,250 | |||||||||
Charles W. Schoenherr | 49,250 | 45,000 | 94,250 | |||||||||
Jack F. Smith, Jr. | 58,410 | 45,000 | 103,410 | |||||||||
Total | 156,910 | 135,000 | 291,910 |
(1) | The amounts shown in this column include cash payments for attendance at Board and Audit Committee meetings and annual cash retainers. | |
(2) | On July 19, 2010, each of our independent directors received 5,000 shares of restricted stock, which will vest quarterly over a four-year period that began on October 1, 2010. As of December 31, each of our independent directors held 312.50 vested shares and 4687.50 unvested shares of restricted stock. |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
• | each of our directors and each nominee for director; | ||
• | each of our named executive officers; and | ||
• | all of our directors and executive officers as a group. |
Amount and Nature of Beneficial Ownership(1) | ||||||||
Name and Address of Beneficial Owner | Number(1) | Percentage(1) | ||||||
NRFC Sub-REIT Corp. | 137,867 | 3.42 | % | |||||
Directors and Executive Officers(2): | ||||||||
David T. Hamamoto | — | — | ||||||
Daniel R. Gilbert | — | — | ||||||
Lisa Meyer | — | — | ||||||
Albert Tylis | — | — | ||||||
Jonathan T. Albro(3) | 5,000 | * | ||||||
Charles W. Schoenherr(3) | 5,000 | * | ||||||
Jack F. Smith, Jr. (3) | 5,000 | * | ||||||
All directors and officers as a group (8) | 15,000 | * |
* | Less than one percent. |
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(1) | Under SEC rules, a person is deemed to be a “beneficial owner” of a security if that person has or shares (i) “voting power”, which includes the power to vote or to direct the voting of such security, or (ii) “investment power”, which includes the power to dispose of or direct the disposition of such security. A person also is deemed to be a beneficial owner of any securities which that person has a right to acquire within 60 days. Under these rules, more than one person may be deemed to be a beneficial owner of securities as to which he or she has no economic or pecuniary interest. | |
(2) | The address of each of the directors and executive officers is 399 Park Avenue, New York, NY 10022. | |
(3) | Includes 5,000 shares of restricted stock that were granted under our independent director stock plan in connection with the commencement of our initial public offering. The restricted stock will generally vest over four years; provided, however that the restricted stock will become fully vested on the earlier occurrence of (i) the termination of the independent director’s service as a director due to his or her death or disability or (ii) a change in control the Company. |
Item 13. | Certain Relationships and Related Transactions and Directors Independence |
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• | We will reimburse organization and offering expenses up to 15.0% of the gross proceeds from our primary offering (not to exceed actual expenses incurred by NS REIT Advisor). These expenses include all expenses (other than selling commissions and the dealer manager fee) to be paid by us in connection with the offering, including our legal, accounting, printing, mailing and filing fees, charges of our escrow agent and transfer agent, charges of our advisor for administrative services related to our formation and the offering, reimbursement ofbona fidedue diligence expenses of broker-dealers, reimbursement of our advisor for costs in connection with preparing supplemental sales materials, the cost of bona fide training and education meetings held by us (primarily the travel, meal and lodging costs of registered representatives of broker-dealers), attendance and sponsorship fees and travel, meal and lodging costs for registered persons associated with our dealer manager and officers and employees of our affiliates to attend retail seminars conducted by broker-dealers and, in special cases, reimbursement to participating broker-dealers for technology costs associated with the offering, costs and expenses related to such technology costs, and costs and expenses associated with the facilitation of the marketing of our shares and the ownership of our shares by such broker-dealers’ customers. For the year ended December 31, 2010, NS REIT Advisor had incurred $2,773,580 of organization and offering costs on our behalf, of which $2,713,580 have not been reimbursed. | ||
• | We will reimburse NS REIT Advisor for all expenses paid or incurred by the Advisor in connection with the services provided to the us, subject to the limitation that the we will not reimburse the NS REIT Advisor for any amount by which its operating expenses (including the asset management fee) at the end of the four preceding fiscal quarters exceeds the greater of: (i) 2% of its average invested assets or (ii) 25% of its net income determined without reduction for any additions to reserves for depreciation, bad debts or other similar non-cash reserves and excluding any gain from the sale of the assets for that period. Notwithstanding the above, the we may reimburse the NS REIT Advisor for expenses in excess of this limitation if a majority of the independent directors determines that such excess expenses are justified based on unusual and non-recurring factors. The Company calculates the expense reimbursement quarterly and will true-up the calculation at the end of the twelve month period. As of December 31, 2010, NS REIT Advisor has incurred operating expenses of $588,549 on our behalf. Based upon the quarterly calculation we reimbursed NS REIT Advisor $92,898 of these costs. | ||
• | We will reimburse NS REIT Advisor for acquisition expenses actually incurred in connection with the selection, acquisition or origination of an investment, whether or not we ultimately acquire or originate the investment. For the year ended December 31, 2010, NS REIT Advisor had not incurred any acquisition expenses on our behalf. | ||
• | We will pay NS REIT Advisor an acquisition fee of 1% of the amount funded by us to acquire or originate commercial real estate loans or the amount invested in the case of other real estate investments including any acquisition and origination expenses and any debt attributable to such investments. For the year ended December 31, 2010, we had not incurred any acquisition fees to NS REIT Advisor. | ||
• | We will pay NS REIT Advisor monthly asset management fees equal to one-twelfth of 1.25% of the sum of the cost of all investments made and of our investments in joint ventures, including acquisition fees, acquisition and origination expenses and any debt attributable to such investments, less any principal repaid by borrowers on our debt investments (or our proportionate share thereof in the case of debt investments made through joint ventures). For the year ended December 31, 2010, we had incurred $14,051 of asset management fees to NS REIT Advisor. |
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• | Selling Commissions—7.0% of gross offering proceeds from the sale of our shares in the primary offering, all of which may be reallowed to participating broker-dealers. From July 19, 2010, the date the SEC declared our offering effective, through December 31, 2010, we incurred selling commissions of $167,722 to NRF Capital. | ||
• | Dealer Manager Fee—3.0% of gross offering proceeds from the sale of our shares in the primary offering, a portion of which may be reallowed to participating broker-dealers. From July 19, 2010, the date the SEC declared our offering effective, through December 31, 2010, we incurred dealer manager fees of $75,107 to NRF Capital. |
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Item 14. | Principal Accountant Fees and Services |
Type of Fee | 2009 | 2010 | ||||||
Audit Fees | $ | 130,750 | $ | 159,600 | ||||
Audit-Related Fees | — | — | ||||||
Tax Fees | — | — | ||||||
All Other Fees | — | — | ||||||
Total | $ | 130,750 | $ | 159,600 |
Item 15. | Exhibits and Financial Statement Schedules |
(a) | and (c) Financial Statement and Schedules—see Index to Financial Statements and Schedules included in Item 8. |
(b) | Exhibits |
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Exhibit | ||||
Number | Description | |||
3.1 | Second Articles of Amendment and Restatement of NorthStar Real Estate Income Trust, Inc. (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on August 26, 2010 and incorporated herein by reference) | |||
3.2 | Bylaws of NorthStar Real Estate Income Trust, Inc. (filed as Exhibit 3.2 to the Company’s Registration Statement on Form S-11 (File No. 333-157688) and incorporated herein by reference) | |||
4.1 | Form of Subscription Agreement (filed as Exhibit 4.1 to Pre-Effective Amendment No. 6 to the Company’s Registration Statement on Form S-11 (File No. 333-157688) and incorporated herein by reference) | |||
4.2 | Form of Distribution Reinvestment Plan (filed as Exhibit 4.2 to Pre-Effective Amendment No. 6 to the Company’s Registration Statement on Form S-11 (File No. 333-157688) and incorporated herein by reference) | |||
10.1 | Escrow Agreement (filed as Exhibit 10.1 to Pre-Effective Amendment No. 6 to the Company’s Registration Statement on Form S-11 (File No. 333-157688) and incorporated herein by reference) | |||
10.2 | Advisory Agreement (filed as Exhibit 10.2 to Pre-Effective Amendment No. 5 to the Company’s Registration Statement on Form S-11 (File No. 333-157688) and incorporated herein by reference) | |||
10.3 | Limited Partnership Agreement of NorthStar Real Estate Income Trust Operating Partnership, LP (filed as Exhibit 10.3 to Pre-Effective Amendment No. 5 to the Company’s Registration Statement on Form S-11 (File No. 333-157688) and incorporated herein by reference) | |||
10.4 | NorthStar Real Estate Income Trust, Inc. Long-Term Incentive Plan (filed as Exhibit 10.4 to Pre-Effective Amendment No. 5 to the Company’s Registration Statement on Form S-11 (File No. 333-157688) and incorporated herein by reference) | |||
10.5 | NorthStar Real Estate Income Trust, Inc. Independent Directors Compensation Plan (filed as Exhibit 10.5 to Pre-Effective Amendment No. 5 to the Company’s Registration Statement on Form S-11 (File No. 333-157688) and incorporated herein by reference) | |||
10.6 | Amendment to the NorthStar Real Estate Income Trust, Inc. Independent Directors Compensation Plan (filed as Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q filed on August 26, 2010 and incorporated herein by reference) | |||
10.7 | Distribution Support Agreement (filed as Exhibit 10.6 to Pre-Effective Amendment No. 5 to the Company’s Registration Statement on Form S-11 (File No. 333-157688) and incorporated herein by reference) | |||
10.8 | Form of Indemnification Agreement (filed as Exhibit 10.7 to Pre-Effective Amendment No. 3 to the Company’s Registration Statement on Form S-11 (File No. 333-157688) and incorporated herein by reference) | |||
10.9 | Form of Restricted Stock Award (filed as Exhibit 10.8 to Pre-Effective Amendment No. 5 to the Company’s Registration Statement on Form S-11 (File No. 333-157688) and incorporated herein by reference) | |||
10.10 | Agreement and Plan of Merger Between NorthStar Real Estate Income Trust, Inc. and NorthStar Income Opportunity REIT I, Inc. (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 9, 2010 and incorporated herein by reference) | |||
10.11 | Amendment No. 1 to Advisory Agreement, dated February 24, 2011, by and among NorthStar Real Estate Income Trust, Inc., NorthStar Real Estate Income Trust Operating Partnership, LP, NS Real Estate Income Trust Advisor, LLC and NorthStar Realty Finance Corp (filed as Exhibit 10.1 to the Company’s Current Report on form 8-K filed on March 2, 2011 and incorporated herein by reference) | |||
12.1 | Ratio of Earnings to Combined Fixed Charges | |||
21.1 | Significant Subsidiaries of NorthStar Real Estate Income Trust, Inc. | |||
24.1 | Power of Attorney (included in signature page) | |||
31.1 | * | Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
31.2 | * | Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
32.1 | * | Certification by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
32.2 | * | Certification by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
* | Filed herewith |
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NorthStar Real Estate Income Trust, Inc. | ||||
By: | /s/David T. Hamamoto | |||
Name: | David T. Hamamoto | |||
Title: | Chairman and Chief Executive Officer |
Signature | Title | Date | ||
/s/David T. Hamamoto | Chairman and Chief Executive Officer | March 29, 2011 | ||
David T. Hamamoto | (Principal Executive Officer) | |||
/s/Lisa Meyer | Chief Financial Officer and Treasurer | March 29, 2011 | ||
Lisa Meyer | (Principal Financial Officer and Principal Accounting Officer) | |||
/s/Jonathan Albro | Director | March 29, 2011 | ||
Jonathan Albro | ||||
/s/charles w. schoenherr | Director | March 29, 2011 | ||
Charles W. Schoenherr | ||||
/s/Jack f. smith, jr. | Director | March 29, 2011 | ||
Jack F. Smith, Jr. |
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