AFFO Per Share Increases to $0.29; Net Income of $0.23 Per Share
Highlights
----------
-- Increased AFFO to $7.9 million from $3.3 million, a
quarter-over-quarter increase of 139%
-- Closed $567 million of new investments
-- Signed definitive agreement to sell 1552 Broadway,
which upon closing will result in a $23.1 million
increase in book value
-- Declared third quarter dividend of $0.23 per share
NEW YORK, Nov. 8, 2005 (PRIMEZONE) -- NorthStar Realty Finance Corp. (NYSE:NRF) today announced its results for the quarter ended September 30, 2005. The Company reported Adjusted Funds from Operations (AFFO) of $7.9 million in the third quarter of 2005, or $0.29 per share, compared to $3.3 million, or $0.13 per share, for the second quarter of 2005. The Company generated revenues of $17.6 million in the third quarter of 2005 compared to $14.2 million in the second quarter of 2005, as adjusted for discontinued operations. Net income for the third quarter of 2005 was $4.8 million, or $0.23 per share, compared to $1.2 million, or $0.06 per share in the second quarter, excluding an $8.6 million gain on the sale of an asset, or $0.41 per share. For a reconciliation of net income to AFFO, please refer to the tables on the following pages.
The Company's quarter-over-quarter revenues, after deducting interest income on cash and short-term investments, increased approximately 37% from $11.6 million in the second quarter, as adjusted for discontinued operations, to $15.9 million in the third quarter.
David Hamamoto, President and Chief Executive Officer, commented, "We have now fully deployed over $270 million of equity and trust preferred capital. Our third quarter results, excluding approximately $0.05 per share of certain realized and unrealized gains, reflect the investment of approximately $250 million of this amount on a weighted average basis during the third quarter. We remain guided by our objectives of achieving our targeted returns and maintaining our credit discipline, while financing our assets on a match funded basis with long term, low cost, non-recourse funding through our CDOs and non-recourse mortgages. Utilizing this strategy, we have substantially mitigated the risk associated with future interest rate volatility, which is best illustrated by the fact that an immediate 100 basis point increase in interest rates at September 30, 2005, would increase our annualized earnings by approximately $500,000."
Mr. Hamamoto added, "We continue to focus on improving our balance sheet. To this end, we have signed a definitive agreement to sell 1552 Broadway for $48 million, or $3,970 per square foot. The sale of this asset, coupled with the sale of 729 Seventh Avenue in the second quarter, has unlocked significant value for our shareholders. We expect to record a gain on sale of approximately $23.1 million in connection with the closing of 1552 Broadway."
Investment Activities
The Company closed on $567 million of new investments during the third quarter, bringing its total assets under management to approximately $2.6 billion.
During the third quarter, the Company acquired 505,395 square feet of office buildings in Salt Lake City, Utah, Rancho Cordova, California, Auburn Hills, Michigan and Camp Hill, Pennsylvania, for approximately $83.4 million. The Salt Lake City property is leased to the General Services Administration under a lease that expires in April 2012, and the other properties are leased to Electronic Data Systems Corp. under leases expiring in 2015.
With regard to the real estate securities business, the Company closed on $247.5 million of primarily investment grade CMBS securities funded through its warehouse facility for CDO V, which closed in September.
During the third quarter, the Company originated $114 million of first mortgage loans, 50% of which were sold to a third-party, and acquired $186.6 million of additional real estate loans. The Company financed $95.2 million of its loans closed in the third quarter through CDO IV, investing the $72 million balance of the financing proceeds from CDO IV's June closing. The company anticipates that the majority of the $148.4 million of loans closed in the third quarter that were not placed into CDO IV will be financed on a long-term, match funded basis through the Company's next proposed real estate debt CDO - CDO VI.
Financing Activities
The net leased properties that the Company acquired in the third quarter are financed with long-term, non-recourse mortgages. The property leased to the GSA is financed with a 5.16% fixed rate, seven year, $17 million mortgage loan. The properties leased to EDS are financed with a 5.373% fixed rate, ten year, $49.1 million mortgage loan.
In September 2005, the Company closed CDO V. The Company issued $500 million of primarily investment grade CDO bonds that have an average life of approximately nine years and bear interest at LIBOR plus a weighted average yield, including costs, of 0.55%. The CDO bonds are collateralized by a $500 million portfolio of primarily CMBS, senior debt of REITs and commercial real estate CDOs.
In September 2005, the Company also entered into a $400 million warehouse facility with a major financial institution under which collateral will be acquired and financed for the Company's next proposed investment grade securities CDO - CDO VII.
In July 2005, the Company entered into a master repurchase agreement with Wachovia Bank, National Association. The facility, as amended, permits the Company to borrow up to $350 million at LIBOR plus a spread, which ranges from 0.20% to 3.00%, in order to acquire first priority mortgage loans, senior or junior participation interests or B notes in first priority mortgage loans, mezzanine loans secured by commercial and multi-family properties and certain commercial properties, primarily in anticipation of CDO VI.
In September 2005, the Company also entered into an unsecured, $50 million revolving credit facility with Bank of America. The interest rate on the unsecured facility is LIBOR plus 325 basis points.
Subsequent Events
In October 2005, the Company entered into a definitive agreement, backed by a $2 million non-refundable deposit, to sell the property at 1552 Broadway in New York City to The Riese Organization's Restaurant Division, National Restaurants Management Inc., for a purchase price of $48 million, or $3,970 per square foot. The four-story, 12,091 square foot building is located at the corner of Broadway and West 46th Street in Times Square. The transaction, which is subject to customary closing conditions, is scheduled to close in the fourth quarter of 2005.
In October 2005, the Company also entered into a definitive purchase agreement with Allied Capital Corporation to acquire Timarron Capital, Inc. for a purchase price of between $2.0 million and $2.6 million, depending upon whether certain performance hurdles are achieved prior to closing. Timarron, based in Dallas, Texas, was organized by former senior executives of Principal Financial and other leading financial institutions to develop a nationwide commercial mortgage loan origination platform. Following the closing of the acquisition, which is expected in January 2006, Timarron will be renamed NorthStar Mortgage Capital. NorthStar Mortgage Capital will originate commercial mortgage loans for NorthStar's commercial real estate debt portfolio.
Mr. Hamamoto commented, "We are very enthusiastic about this strategic acquisition, which expands our existing origination capabilities with a team of very experienced and well respected real estate lending professionals."
Dividends
The Company declared a cash dividend of $0.23 per share of common stock, payable with respect to the quarter ended September 30, 2005, compared with a dividend of $0.15 per share of common stock paid in the second quarter. The dividend was paid on October 21, 2005 to shareholders of record as of the close of business on October 14, 2005.
For the quarter ended September 30, 2005, the Company had 26,790,161 weighted average diluted shares outstanding.
Earnings Conference Call
NorthStar Realty Finance Corp. will hold a conference call to discuss third quarter 2005 financial results today, November 8, 2005, at 5:00 PM Eastern time. Hosting the call will be David Hamamoto, President and Chief Executive Officer, and Mark Chertok, Chief Financial Officer and Treasurer.
A simultaneous webcast of the conference call may be accessed by logging onto the Company's website at www.nrfc.com under the Investor Relations section. The call will also be archived on the Company's website for at least one year. The call can also be accessed live over the phone by dialing (800) 289-0494 or for international callers by dialing (913) 981-5520.
A replay of the call will be available one hour after the call and can be accessed by dialing (888) 203-1112 or (719) 457-0820 for international callers. The replay will be available from 8:00 p.m. on November 8, 2005, through midnight November 15, 2005. The password for the replay will be 6314062.
About NorthStar Realty Finance Corp.
NorthStar Realty Finance Corp. is an internally managed REIT that makes investments 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
NorthStar Realty Finance Corp.
and NorthStar Realty Finance Corp. Predecessor
Condensed Consolidated and Combined Statements of Operations
(unaudited)
Northstar Realty Finance Corp. Predecessor
Condensed Consolidated and Combined Statements of Operations
Co.(1) Pred.(2) Co. Pred.
----------- ---------- ----------- ----------
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2005 2004 2005 2004
----------- ---------- ----------- ----------
Revenues and
other income:
Rent and escalation
income $ 2,983,000 $ -- $ 7,857,000 $ --
Advisory and manage-
ment fee income 21,000 57,000 92,000 165,000
Advisory and manage-
ment fee income -
related parties 1,162,000 952,000 3,233,000 2,134,000
Interest income
- debt securities 11,657,000 22,000 26,770,000 22,000
Interest income
- debt securities
- related party 1,824,000 906,000 5,128,000 1,469,000
Other revenue 2,000 -- 7,000 --
----------- ---------- ----------- ----------
Total revenues 17,649,000 1,937,000 43,087,000 3,790,000
Expenses:
Real estate properties
- operating expenses 586,000 -- 1,722,000 --
Interest expense 8,812,000 201,000 21,126,000 201,000
Management fees
- related party 24,000 -- 67,000 --
General &
Administrative:
Direct:
Salaries and other
compensation 1,395,000 238,000 3,934,000 838,000
Shared Services
- related party 344,000 -- 1,030,000 --
Equity based
compensation 740,000 -- 2,499,000 --
Insurance 257,000 -- 687,000 --
Accounting and
auditing fees 133,000 -- 1,362,000 --
Other general and
administrative 735,000 46,000 2,665,000 147,000
Allocated:
Salaries and other
compensation -- 1,520,000 -- 2,764,000
Insurance -- 90,000 -- 285,000
Other general and
administrative -- 323,000 -- 845,000
----------- ---------- ----------- ----------
Total general and
administrative 3,604,000 2,217,000 12,177,000 4,879,000
Depreciation and
amortization 1,080,000 -- 2,833,000 --
----------- ---------- ----------- ----------
Total expenses 14,106,000 2,418,000 37,925,000 5,080,000
Income (loss) from
operations 3,543,000 (481,000) 5,162,000 (1,290,000)
----------- ---------- ----------- ----------
Equity in earnings of
unconsolidated/un-
combined ventures 61,000 487,000 167,000 1,351,000
----------- ---------- ----------- ----------
Unrealized gain (loss)
on investments and
other 651,000 (292,000) 1,200,000 425,000
Realized gain (loss)
on investments and
other 1,661,000 636,000 2,162,000 636,000
----------- ---------- ----------- ----------
Income (loss) before
minority interests
and discontinued
operations 5,916,000 350,000 8,691,000 1,122,000
----------- ---------- ----------- ----------
Minority interest (1,220,000) -- (1,792,000) --
----------- ---------- ----------- ----------
Net income (loss)
from continuing
operations 4,696,000 350,000 6,899,000 1,122,000
Income (loss) from
discontinued
operations, net of
minority interest 108,000 -- 153,000 --
Gain on sale of dis-
continued operations,
net of minority
interest -- -- 8,630,000 --
----------- ---------- ----------- ----------
Net income (loss) $ 4,804,000 $ 350,000 $15,682,000 $1,122,000
=========== ========== =========== ==========
Earnings per share
Net income (loss)
from continuing
operations before
discontinued
operations $ 0.22 $ 0.32
Income (loss) from
discontinued
operations 0.01 0.01
Gain on sale of
discontinued
operations -- 0.41
----------- -----------
Net income
available to
common
shareholders $ 0.23 $ 0.74
=========== ===========
Weighted average
number of shares of
common stock
outstanding
Basic 21,264,930 21,255,190
=========== ===========
Diluted 26,790,161 26,774,300
=========== ===========
(a) The results of operations for the nine and three ended
September 30, 2004 represent the results of the Company's
predecessor, a combination of certain controlling and
non-controlling interests in real estate-related entities that
represent the initial portfolio of assets contributed to the
Company by certain subsidiaries of NorthStar Capital Investment
Corp. on October 29, 2004. Management does not believe that the
results of operations of the Company's predecessor are indicative
of its results as a separate operating entity subsequent to the
closing of its IPO.
(1) The Company
(2) The Predecessor
Northstar Realty Finance Corp.
Condensed Consolidated Balance Sheets
-------------------------------------
September 30, December 31,
2005 2004
-------------- --------------
Assets:
Cash and cash equivalents $ 20,524,000 $ 47,733,000
Restricted cash 10,250,000 2,713,000
Debt securities held for trading 33,022,000 826,611,000
Operating real estate - net 138,504,000 43,544,000
Debt securities available for sale 179,933,000 37,692,000
CDO deposit and warehouse agreements 2,500,000 2,988,000
Collateral held by broker 26,878,000 24,831,000
Subordinate real estate
debt investments 524,716,000 70,841,000
Investment in common securities 2,020,000 --
Investments in and advances to
uncombined ventures 2,212,000 5,363,000
Deferred costs and intangible
assets, net 31,470,000 4,233,000
Assets held for sale 21,040,000 --
Other assets 8,856,000 11,801,000
-------------- --------------
Total assets $1,001,925,000 $1,078,350,000
============== ==============
Liabilities:
Mortgage notes and loans payable $ 137,400,000 $ 40,557,000
Liability to subsidiary trusts
issuing preferred securities 67,020,000 --
Credit facility 204,804,000 27,821,000
Repurchase obligations 58,302,000 800,418,000
CDO Bonds payable 300,000,000 --
Securities sold, not yet purchased 24,553,000 24,114,000
Obligations under capital leases 3,356,000 3,303,000
Accounts payable and
accrued expenses 7,029,000 5,603,000
Due to affiliates 70,000 250,000
Other liabilities 2,637,000 528,000
-------------- --------------
Total liabilities 805,171,000 902,594,000
--------------
Minority interest 38,510,000 32,447,000
Commitments and contingencies -- --
Stockholders' equity 158,244,000 143,309,000
-------------- --------------
Total stockholder' equity 158,244,000 143,309,000
-------------- --------------
Total liabilities and
stockholders' equity $1,001,925,000 $1,078,350,000
============== ==============
Northstar Realty Finance Corp.
and Northstar Realty Finance Corp. Predecessor
Reconciliation of Net income to Funds from Operations
and Adjusted Funds from Operations
The following is a reconciliation of net income to FFO and AFFO and
illustrates the difference in this measure of operating performance
-------------------------------------------------------------------
Co. Pred. Co. Pred.
---------- ---------- ----------- ----------
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
---------- ---------- ----------- ----------
Funds from Operations:
Income before
minority interests $5,916,000 $ 350,000 $ 8,691,000 $1,122,000
Adjustments:
Depreciation
and
amortization 1,080,000 -- 2,833,000 --
Funds from
discontinued
operations 136,000 -- 509,000 --
Real estate
depreciation and
amortization -
unconsolidated
ventures -- 489,000 -- 1,461,000
---------- ---------- ----------- ----------
Funds from
Operations (FFO) $7,132,000 $ 839,000 $12,033,000 $2,583,000
---------- ---------- ----------- ----------
Adjusted Funds
from Operations:
Funds from
Operations (FFO) $7,132,000 $ 839,000 $12,033,000 $2,583,000
Straightline rental
income, net (13,000) -- (47,000) --
Straightline rental
income - discontinued
operations -- -- (290,000) --
Amortization of fair
market rental
adjustment
(FAS 141) (1,000) -- (4,000) --
Amortization of
deferred
compensation 740,000 -- 2,499,000 --
---------- ---------- ----------- ----------
Adjusted funds from
operations (AFFO) $7,858,000 $ 839,000 $14,191,000 $2,583,000
========== ========== =========== ==========
FFO Per Share of
Common Stock $ 0.27 $ 0.45
========== ===========
AFFO per Share of
Common Stock $ 0.29 $ 0.53
========== ===========
Non-GAAP Financial Measures
Included in this press release are certain "non-GAAP financial measures," which are measures of the Company'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, and (ii) Adjusted Funds From Operations. The following discussion defines these terms, which the Company believes can be useful measures of its performance.
Funds from Operations (FFO) and Adjusted Funds from Operations (AFFO) Management believes that FFO and AFFO, each of which are non-GAAP measures, are additional appropriate measures of the operating performance of a REIT. We compute FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts (NAREIT), as net income or loss (computed in accordance with GAAP), excluding gains or losses from sales of depreciable properties, the cumulative effect of changes in accounting principles, real estate-related depreciation and amortization, and after adjustments for unconsolidated/uncombined partnerships and joint ventures. We calculate AFFO by subtracting from (or adding) to FFO:
-- normalized recurring expenditures that are capitalized by us and then amortized, but which are necessary to maintain our properties and revenue stream, e.g., leasing commissions and tenant improvement allowances;
-- an adjustment to reverse the effects of straight-lining of rents and fair value lease revenue under FAS 141; and
-- the amortization or accrual of various deferred costs including intangible assets and equity based compensation.
Our calculation of AFFO differs from the methodology used for calculating AFFO by certain other REITs and, accordingly, may not be comparable to such other REITs.
We believe that FFO and AFFO are additional appropriate measures of our operating performance because they facilitate an understanding of our operating performance after adjustment for certain non-cash expenses, such as real estate depreciation, which assumes that the value of real estate assets diminishes predictably over time. Since FFO is generally recognized as industry standards for measuring the operating performance of an equity REIT, we also believe that FFO provides investors with an additional useful measure to compare our financial performance to other REITs.
Neither FFO nor AFFO is equivalent to net income or cash generated from operating activities determined in accordance with 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 our operating performance or as an alternative to cash flow from operating activities as a measure of our liquidity.
The Company 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.
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 are specified in the Company's Annual Report on Form 10-K for the year ended December 31, 2004. 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.