NorthStar Realty Finance Announces Fourth Quarter And Full Year 2012 Results

NEW YORK, Feb. 14, 2013 /PRNewswire/ --

Fourth Quarter 2012 Highlights

• Increased fourth quarter 2012 cash dividend to $0.18 per common share, representing an 80% increase over the last six quarters.
• AFFO per share of $0.73.
• Announced $390 million investment in real estate private equity fund interests, including $115 million from our non-traded REIT.
• Acquired $326 million manufactured housing portfolio.
• Total capital raised of $146 million in the fourth quarter for our non-traded REIT.

Full Year 2012 Highlights

• AFFO per share of $1.71.
• Committed to $1.3 billion of investments, including $691 million in the fourth quarter.
• $351 million CMBS transaction collateralized by CRE first mortgages originated by NorthStar and its non-traded REIT.
• Raised $443 million of capital in our non-traded REIT, bringing total capital raised to $600 million at December 31, 2012. 

NorthStar Realty Finance Corp. (NYSE: NRF) today announced its results for the fourth quarter and full year ended December 31, 2012.

Fourth Quarter 2012 Results

NorthStar reported adjusted funds from operations ("AFFO") for the fourth quarter 2012 of $0.73 per share compared with $0.44 per share for the fourth quarter 2011.  AFFO for the fourth quarter 2012 was $105.5 million compared to $43.6 million for the fourth quarter 2011.  Net loss to common stockholders for the fourth quarter 2012 was $(27.6) million, or $(0.20) per diluted share, compared to a net loss of $(82.7) million, or $(0.85) per diluted share for the fourth quarter 2011.  Fourth quarter 2012 net loss includes $(117.5) million of non-cash fair value adjustments, including a $106.9 million increase in the value of our CDO bonds, compared to $(115.5) million of non-cash fair value adjustments for the fourth quarter 2011.  These non-cash fair value adjustments are excluded from AFFO. 

Full Year 2012 Results

NorthStar reported AFFO for the full year 2012 of $1.71 per share compared with $1.60 per share for the full year 2011. AFFO for the full year 2012 was $224.2 million compared to $149.4 million for the full year 2011.  Net loss to common stockholders for the full year 2012 was $(288.6) million, or $(2.31) per diluted share, compared to a net loss of $(263.0) million, or $(2.94) per diluted share for the full year 2011.  Full year 2012 net loss includes $(469.3) million of non-cash fair value adjustments, including a $510.1 million increase in the value of our CDO bonds, compared to $(385.5) million of non-cash fair value adjustments for the full year 2011.  These non-cash fair value adjustments are excluded from AFFO.  

David T. Hamamoto, chairman and chief executive officer, commented "2012 was a transformative year for NorthStar.  We committed to $1.3 billion of highly accretive and diverse investments across the commercial real estate landscape, which allowed us to substantially increase our cash flow and increase our dividend each quarter of 2012.   The cash available for distribution that we expect to earn in 2013 represents a sizable cushion to our current dividend and we will continue to evaluate our distribution policy on a quarterly basis, balancing distributions with retaining cash flow for accretive investments.  As we begin 2013, our pipeline of compelling investment opportunities has never been stronger and we are very excited about our prospects for 2013." 

Mr. Hamamoto continued, "Our asset management business gained significant traction in 2012 and we expect this business to continue to grow as we enter the market with additional vehicles in 2013.  Based on our expectation of capital raising for our non-traded REITs in 2013, we anticipate earning over $40 million of net fees from our asset management business in 2013.  Because we are an internally managed REIT, our shareholders are the direct beneficiaries of this long-term, highly valuable and growing fee stream."

Investments

During the fourth quarter, NorthStar committed $390 million to subscribe for Class A limited partnership interests in one or more newly formed limited partnerships (collectively, the "Partnership"). The Partnership will acquire limited partnership interests in approximately 50 real estate private equity funds managed by top institutional-quality sponsors. This investment is expected to be funded with $275 million from NorthStar and $115 million from NorthStar's sponsored non-traded REIT, NorthStar Real Estate Income Trust, Inc. ("NorthStar Income I").  NorthStar expects the first closing of this investment in February 2013, at which time the full amount of the investment would be funded. The Partnership is entitled to all distributions of capital after June 30, 2012 from the private equity funds underlying this investment irrespective of when this investment may close. The closing of each fund is subject to customary closing conditions.

During the fourth quarter, NorthStar acquired a $326 million portfolio of 36 manufactured housing communities containing 6,296 pad rental sites and 604 manufactured homes located across those sites.  NorthStar financed the transaction with a $237 million non-recourse, 10-year mortgage with an interest rate of 4.38%.  NorthStar expects to earn an initial current yield of 15% on its $81 million of equity in this investment.  

During the fourth quarter, NorthStar invested $15 million of equity in two commercial real estate loans with a $38 million aggregate principal balance.  During 2012, NorthStar invested $109 million of equity in 12 commercial real estate loans with a $265 million aggregate principal balance and expects to earn a weighted average return on this invested equity of 18%, including $8 million of facility financing that closed subsequent to year end.

The principal proceeds NorthStar could receive from CDO bonds acquired during the fourth quarter is $40 million, which were purchased for $26 million with a weighted average original credit rating of AA/Aa2. The principal proceeds NorthStar could receive from CDO bonds acquired during 2012 is $326 million, which were purchased for $159 million with a weighted average original credit rating of AA-/Aa3 and have an expected yield-to-maturity of over 20%.

As of December 31, 2012, the principal proceeds NorthStar could receive from its owned CDO bonds is $708 million, of which $558 million was repurchased at an average price of 32% in the secondary market and has a weighted average original credit rating of A+/A1.  The discount to par of $379 million represents potential imbedded cash flows that we may realize in future periods in addition to our capital invested in these bonds.  

NorthStar had approximately $7.4 billion of assets under management at December 31, 2012.

For additional details regarding NorthStar's investments, please refer to the tables on the following pages and to the corporate presentation which will be posted on NorthStar's website, www.nrfc.com, following close of business on February 15, 2013.

Asset Management Business

During the fourth quarter 2012, NorthStar received management fees from its consolidated CDOs of $3.3 million, which are eliminated on NorthStar's consolidated statement of operations.  In addition, during the fourth quarter 2012, NorthStar received $3.2 million of fees from NorthStar Income I.

NorthStar Income I raised $146 million in the fourth quarter 2012 and $600 million of total capital as of December 31, 2012, through NorthStar Realty Securities, LLC, NorthStar's wholly-owned broker-dealer. NorthStar Realty Securities, LLC currently has total signed selling agreements with broker-dealers covering more than 65,000 registered representatives.  NorthStar expects to earn annual net fees approximately equal to three percentage points based on total capital raised for our sponsored non-traded REITs. NorthStar Healthcare Income, Inc. began signing selling agreements and subsequent to the fourth quarter broke escrow and anticipates raising capital shortly.

During the fourth quarter, we, through our wholly-owned subsidiary, originated four loans on behalf of NorthStar Income I with a $167 million aggregate principal balance. In 2012, we originated 15 loans on behalf of NorthStar Income I with a $475 million aggregate principal balance.

Liquidity, Financing and Capital Markets Highlights

Unrestricted cash as of December 31, 2012 totaled approximately $445 million. Unrestricted cash after the $275 million commitment to the Partnership (net of $40 million deposited in connection with the Partnership prior to December 31, 2012) would be $210 million.

In October 2012, NorthStar sold 5.0 million shares of its 8.875% Series C Preferred Stock at a par value of $25 per share, generating net proceeds of $121 million.

In December 2012, NorthStar sold 28.75 million shares of its common stock at a public offering price of $6.40 per share, generating net proceeds of $177 million.

Currently, NorthStar's only near-term unsecured corporate debt obligations relate to its exchangeable senior notes, of which $36 million principal amount of 11.5% notes are due in June 2013 and $13 million principal amount of 7.25% notes are payable in June 2014 at the holders' option. 

Portfolio Management

At December 31, 2012, NorthStar had one loan on non-performing status ("NPL"), which had a $13 million aggregate principal amount and a $7 million carrying value.  This compares to three loans with a $25 million aggregate principal amount and a $4 million carrying value at September 30, 2012.  NorthStar categorizes a loan as a NPL if it is in maturity default and/or is past due 90 days on its contractual debt service payments.

During the fourth quarter 2012, NorthStar recorded $3.3 million of net provision for loan losses, compared to $6.4 million of net provision for loan losses during the third quarter 2012.  As of December 31, 2012, loan loss reserves totaled $157 million, or 7% of total loans, related to 13 loans with a carrying value of $223 million.

As of December 31, 2012, NorthStar's net lease portfolio was 94% leased with a 5.7 year weighted average remaining lease term.  As of December 31, 2012, NorthStar's healthcare portfolio that was leased to third-party operators was 100% leased with weighted average lease coverage of 1.3x and a 6.9 year weighted average remaining lease term.  As of December 31, 2012, NorthStar's manufactured housing portfolio was 86% leased.

Stockholders' Equity

At December 31, 2012, NorthStar had 169,835,986 total common shares and operating partnership units outstanding and $20 million of non-controlling interests relating to its operating partnership.  GAAP book value per share was $4.82 at December 31, 2012, which includes negative GAAP equity in certain of our non-recourse CDO financings due to non-cash fair value adjustments.  Adjusted book value at December 31, 2012 would be $6.75 per share, exclusive of certain unrealized and other adjustments, loan loss reserves and accumulated depreciation and amortization.  

The adjusted book value does not take into consideration any value related to the in-place and anticipated advisory fee income streams generated by NorthStar's sponsored, non-traded REIT vehicles and NorthStar's CDO management fees.  NorthStar expects over $40 million of net asset management fees in 2013.  For a reconciliation of adjusted book value per share to GAAP book value per share, please refer to the tables on the following pages.

Common Dividend Announcement

On February 13, 2013, NorthStar announced that its Board of Directors declared a cash dividend of $0.18 per share of common stock, payable with respect to the quarter ended December 31, 2012.  The dividend is expected to be paid on March 1, 2013 to shareholders of record as of the close of business on February 25, 2013. The Company's common shares will begin trading ex-dividend on February 21, 2013.

Earnings Conference Call

NorthStar will hold a conference call to discuss fourth quarter 2012 financial results on February 14, 2013, at 10:00 a.m. Eastern time.  Hosting the call will be David Hamamoto, chairman and chief executive officer; Albert Tylis, president; Daniel Gilbert, chief investment and operating officer; and Debra Hess, chief financial officer. 

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 877-941-8609, or for international callers, by dialing 480-629-9771.

A replay of the call will be available one hour after the call through Thursday, February 21, 2013 by dialing 800-406-7325 or, for international callers, 303-590-3030, using pass code 4590712.

About NorthStar Realty Finance Corp.

NorthStar Realty Finance Corp. is a diversified commercial real estate investment and asset management company that is organized as an internally managed REIT.  For more information about NorthStar Realty Finance Corp., please visit www.nrfc.com.

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 the applicable Securities and Exchange Commission, or SEC, rules.  These include: Funds From Operations and Adjusted Funds From Operations.   NorthStar believes these terms can be useful measures of its performance, which are further defined following the table below.

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 (loss) (computed in accordance with U.S. GAAP), excluding gains (losses) from sales of depreciable properties, the cumulative effect of changes in accounting principles, real estate‑related depreciation and amortization, impairment charges on depreciable property owned directly or indirectly and after adjustments for unconsolidated ventures.    FFO, as defined by NAREIT, is a computation made by analysts and investors to measure a real estate company's cash flow generated by operations.

NorthStar calculates AFFO by subtracting from or adding to FFO:

• normalized recurring expenditures that are capitalized by NorthStar and then amortized, but which are necessary to maintain NorthStar's properties and revenue stream, e.g., leasing commissions and tenant improvement allowances;
• an adjustment to reverse the effects of the straight‑lining of rental income or expense and fair value lease revenue;
• the amortization or accrual of various deferred costs including intangible assets and equity-based compensation;
• an adjustment to reverse the effects of acquisition gains or losses; 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.

NorthStar urges investors to carefully review the U.S. 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.   

Safe Harbor Statement

This press release contains certain "forward‑looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or Exchange Act. Forward‑looking statements are generally identifiable by use of forward‑looking terminology such as "may," "will," "should," "potential," "intend," "expect," "seek," "anticipate," "estimate," "believe," "could," "project," "predict," "hypothetical," "continue," "future" or other similar words or expressions. Forward‑looking statements are not guarantees of performance and are based on certain assumptions, discuss future expectations, describe plans and strategies, contain projections of results of operations or of financial condition or state other forward‑looking information. Such statements include, but are not limited to, those relating to the operating performance of our investments, the fees earned from our asset management business, our financing needs, the anticipated funding of our investment in the Partnership, the effects of our current strategies, loan and securities activities, our ability to manage our collateralized debt obligations, or CDOs, our ability to earn sufficient cash to cover our payout ratio and our non-traded real estate investment trusts, or REITs', ability to raise capital. Our ability to predict results or the actual effect of plans or strategies is inherently uncertain, particularly given the economic environment. Although we believe that the expectations reflected in such forward‑looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward‑looking statements and you should not unduly rely on these statements. These forward‑looking statements involve risks, uncertainties and other factors that may cause our actual results in future periods to differ materially from those forward looking statements. These factors include, but are not limited to: adverse economic conditions and the impact on the commercial real estate finance industry; access to debt and equity capital and our liquidity; our use of leverage; our ability to meet various coverage tests with respect to our CDOs; our ability to obtain mortgage financing on our net lease properties; the affect of economic conditions on the valuations of our investments; our ability to source and close on attractive investment opportunities; performance of our investments relative to our expectations and the impact on our actual return on equity; ability to source and close on attractive investment opportunities; the impact of economic conditions on the borrowers of the commercial real estate debt we originate and the commercial mortgage loans underlying the commercial mortgage backed securities in which we invest; our ability to realize the value of the bonds we have purchased and retained in our CDO financing transactions and other securitized financing transactions and our ability to complete securitized financing transactions on terms that are acceptable to us, or at all;  our ability to access the securitization market; any failure in our due diligence to identify all relevant facts in our underwriting process or otherwise; credit rating downgrades; tenant/operator or borrower defaults or bankruptcy; illiquidity of properties in our portfolio; environmental compliance costs and liabilities; effect of regulatory actions, litigation and contractual claims against us and our affiliates, including the potential settlement and litigation of such claims; competition for investment opportunities; regulatory requirements with respect to our business and the related cost of compliance; the impact of any conflicts arising from our asset management business; the ability to raise capital for, and effectively implement the business plan of,  the non-traded REITs we sponsor or advise; the fee stream we will receive from our non-traded REITs and the valuation thereof; changes in laws or regulations governing various aspects of our business; the loss of our exemption from the definition of "investment company" under the Investment Company Act of 1940, as amended; competition for qualified personnel and our ability to retain key personnel; the effectiveness of our risk management systems; failure to maintain effective internal controls; compliance with the rules governing REITs; whether NorthStar's investment in real estate private equity fund interests closes on the terms anticipated, if at all; and the factors described in Item 1A. of our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 under the heading "Risk Factors."

The foregoing list of factors is not exhaustive. All forward‑looking statements included in this press release are based upon information available to us on the date hereof and we are under no duty to update any of the forward‑looking statements after the date of this report to conform these statements to actual results.

Factors that could have a material adverse effect on our operations and future prospects are set forth in "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 beginning on page 18. The factors set forth in the Risk Factors section and otherwise described in our filings with United States Securities and Exchange Commission; could cause our actual results to differ significantly from those contained in any forward‑looking statement contained in this press release.

SOURCE NorthStar Realty Finance Corp.