NorthStar Realty Finance Announces Second Quarter 2014 Results

Mr. Hamamoto continued, "Our investment pipeline has also started to expand in Europe and we expect to close our first investment, an approximately $100 million, high-quality office building outside of London, later this month. We are enormously excited for the future of NRF and remain committed to exploring all alternatives for creating shareholder value."

Investments

Healthcare Real Estate

During the second quarter 2014, NorthStar Realty acquired a $1.1 billion healthcare real estate portfolio comprised of over 8,500 beds, diversified across senior housing and skilled nursing facilities, which was financed with seven separate non-recourse mortgages in the aggregate amount of $648 million at a weighted average interest rate of LIBOR plus 3.91% and weighted average final maturity of five years. NorthStar Realty expects to earn a weighted average initial current yield of approximately 12% on its $358 million of invested equity.

Subsequent to the second quarter 2014, NorthStar Realty announced a definitive merger agreement to acquire Griffin-American for $4 billion, including approximately $600 million of debt. The portfolio is comprised of predominantly medical office buildings (43%) and senior housing facilities (30%) in the United States and the United Kingdom and the acquisition price represents an approximate 6.4% cash cap rate based on our estimated 2015 NOI of $256 million. Transaction expenses, including the Griffin promote, are expected to add approximately $200 million of costs.

Manufactured Housing Real Estate

During the second quarter 2014, NorthStar Realty acquired four manufactured housing communities for $55 million. NorthStar Realty expects to earn an initial current yield of approximately 12% on its invested equity, including additional financing anticipated to be obtained during the third quarter 2014.

Hotel Real Estate

During the second quarter 2014, NorthStar Realty acquired a $1.1 billion hotel portfolio consisting of 47 upscale extended stay hotels and premium branded select service hotels with approximately 6,100 rooms (the "Innkeepers Portfolio"). NorthStar Realty acquired the Innkeepers Portfolio through a joint venture with Chatham Lodging Trust (NYSE: CLDT) ("Chatham") where NorthStar Realty contributed approximately $193 million of equity for an approximate 90% ownership interest and Chatham retained its existing 10% minority interest. The Innkeepers Portfolio continues to be managed by Island Hospitality. NorthStar Realty expects to earn an initial current yield of approximately 18% on its invested equity.

Subsequent to the second quarter 2014, NorthStar Realty acquired a $273 million hotel portfolio consisting of 20 premium branded select service hotels with approximately 1,922 rooms located predominantly in Texas and California. The properties are affiliated with Marriott, Hilton and Intercontinental and will be managed by Island Hospitality. NorthStar Realty invested approximately $52 million of equity, representing an approximate 98% ownership interest, and expects to earn an initial current yield of approximately 18% on its invested equity. 

Real Estate Loans

During the second quarter 2014, NorthStar Realty originated three commercial real estate loans with a $105 million aggregate principal amount and expects to generate a weighted average initial current yield on its invested equity of approximately 15%.

Strategic Investments

During the second quarter 2014, NorthStar Realty acquired a minority interest in Aerium Group ("Aerium"), a pan-European real estate investment manager specializing in commercial real estate properties and headquartered in Luxembourg with additional offices in London, Paris, Istanbul, Geneva, Dusseldorf and Bahrain, for €50 million ($69 million).  As of June 30, 2014, Aerium managed approximately €6.1 billion of real estate assets across 12 countries and employed over 180 professionals, some of whom provide services to NSAM.

During and subsequent to the second quarter 2014, NorthStar Realty invested $108 million to acquire limited partnership interests in 25 real estate private equity funds with an initial aggregate reported net asset value of $120 million. NorthStar Realty expects to earn a weighted average initial current yield of approximately 16% on its invested equity.

Investment Portfolio

NorthStar Realty's assets, including assets of deconsolidated loan CDOs, totaled approximately $14.2 billion as of June 30, 2014, including investments that NorthStar Realty acquired or entered into an agreement to acquire subsequent to the second quarter 2014.

For additional details regarding NorthStar Realty and its investments, please refer to the corporate presentation that will be posted on NorthStar Realty's website, www.nrfc.com.

Non-traded REITs

NorthStar Realty's originally sponsored non-traded REITs raised $479 million year-to-date, $208 million in the second quarter and $97 million in July 2014.

During the second quarter 2014, NorthStar Realty earned $13.1 million of fees from its management of the sponsored non-traded REITs.  In addition, during the second quarter 2014, NorthStar Realty received collateral management and other fees from its CDOs of $2.4 million.

Liquidity, Financing and Capital Markets Highlights

In April 2014, NorthStar Realty issued 2.8 million shares of common stock, after giving effect to the one-for-two reverse split, in connection with the exchange of $54 million principal amount of 5.375% notes.

In May 2014, NorthStar Realty issued 17.3 million shares of its common stock, including the over-allotment option shares, after giving effect to the one-for-two reverse split, at a public offering price of $30.90 per share and received net proceeds of $519 million.

In May 2014, NorthStar Realty issued 10 million shares of its new 8.75% Series E Preferred Stock at a par value of $25 per share and received net proceeds of $242 million.

Subsequent to the second quarter 2014, NorthStar Realty issued 8.7 million shares of common stock in connection with the exchange of $78 million principal amount of 5.375% notes and issued 0.5 million shares of common stock in connection with the exchange of $2.8 million principal amount of 8.875% notes.

Subsequent to the second quarter 2014, NorthStar Realty entered into a $500 million revolving corporate credit facility with Deutsche Bank Securities Inc. as the sole lead arranger and sole bookrunner and certain other commercial bank lenders (the "Revolving Credit Facility").  The Revolving Credit Facility has a three year term and an interest rate of LIBOR plus 3.50%.

As of August 5, 2014, unrestricted cash was approximately $282 million and no amounts were drawn on the Revolving Credit Facility.

Portfolio Management

As of June 30, 2014, NorthStar Realty did not have any loans on non-performing status ("NPL"). NorthStar Realty 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.  

As of June 30, 2014, NorthStar Realty's healthcare portfolio that was leased to third-party operators was 97% leased with weighted average lease coverage of 1.6x and a 9.1 year weighted average remaining lease term, pro-forma for the acquisition of Griffin-American. As of June 30, 2014, NorthStar Realty's portfolio of manufactured housing communities were 87% occupied. As of June 30, 2014, NorthStar Realty's net lease portfolio was 99% leased with a 8.4 year weighted average remaining lease term, including the $406 million industrial portfolio NorthStar Realty entered into an agreement to acquire during the first quarter 2014. For additional details regarding NorthStar Realty's real estate portfolio, please refer to the tables on the following pages.

During the second quarter 2014, NorthStar Realty deconsolidated N-Star CDO III.

Stockholders' Equity

As of June 30, 2014, NorthStar Realty had 190 million total common shares, deferred LTIP units and RSUs not subject to performance hurdles, outstanding.  Subsequent to the second quarter 2014, NorthStar Realty exchanged or received exchange notices for $81 million principal amount of 5.375% and 8.875% notes and issued an aggregate of 9 million shares of common stock. As of August 5, 2014, NorthStar Realty had 199 million total common shares, deferred LTIP units and RSUs not subject to performance hurdles, outstanding. As of August 5, 2014, NorthStar Realty had an aggregate $77 million principal amount of 5.375% and 8.875% exchangeable notes remaining and if all these notes were exchanged, this would result in the issuance of an additional 9 million shares of common stock.

Common Dividend Announcement

On August 6, 2014, NorthStar Realty announced that its Board of Directors declared a cash dividend of $0.50 per share of common stock, payable with respect to the quarter ended June 30, 2014. The dividend is expected to be paid on August 22, 2014 to shareholders of record as of the close of business on August 18, 2014. The Company's common shares will begin trading ex-dividend on August 14, 2014. Following the completion of the spin-off of NSAM as of July 1, 2014, NorthStar Realty expects to pay a quarterly dividend of $0.40 per share of common stock for each of the quarters ending September 30, 2014 and December 31, 2014.

Earnings Conference Call

NorthStar Realty will hold a conference call to discuss second quarter 2014 financial results on August 7, 2014, at 9:00 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 Realty'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 888-427-9419, or for international callers, by dialing 719-325-2464.

A replay of the call will be available two hours after the call through Thursday, August 14, 2014 by dialing 888-203-1112 or, for international callers, 719-457-0820, using pass code 9583325.

About NorthStar Realty Finance Corp.

NorthStar Realty Finance Corp. is a diversified commercial real estate investment company that is organized as a REIT. NorthStar Realty is managed by an affiliate of NorthStar Asset Management Group Inc. (NYSE: NSAM), a global asset management firm. For more information about NorthStar Realty Finance Corp., please visit www.nrfc.com. 

NorthStar Realty Finance Corp.
Consolidated Statements of Operations (Unaudited)
($ in thousands, except share and per share data)
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2014		2013		2014		2013
Net interest income
Interest income	$         75,867		$        73,148		$   154,546		$      143,483
Interest expense on debt and securities	3,106		11,588		6,389		22,985
Net interest income on debt and securities	72,761		61,560		148,157		120,498
Other revenues
Rental and escalation income	78,776		64,253		147,201		102,189
Resident fee and hotel income	37,586		-		37,586		-
Other revenue	2,995		961		5,479		1,306
Total other revenues	119,357		65,214		190,266		103,495
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