Fourth Quarter Highlights
- Fourth quarter 2008 AFFO per share of $0.35, excluding $0.14 restructuring and impairment charges.
- NorthStar has a strong liquidity position with $257 million available liquidity at December 31, 2008.
- $19.50 diluted GAAP book value per common share.
Full Year Highlights
- Full year 2008 AFFO per share of $1.50, excluding $0.21 one-time charges.
- Raised $170 million of unsecured capital.
- No chargeoffs in loan portfolio for the year ended December 31, 2008.
- Loan repayments totaled $252 million.
- Retired $111 million of NorthStar debt at an average 55% discount to par during 2008.
NEW YORK, Feb. 24 /PRNewswire-FirstCall/ -- NorthStar Realty Finance Corp. (NYSE: NRF) today announced its results for the quarter and year ended December 31, 2008.
Fourth Quarter 2008 Results
NorthStar reported adjusted funds from operations ('AFFO') for the quarter of $0.35 per share, exclusive of $0.14 per share of one-time items, compared to $0.39 per share for the fourth quarter 2007. AFFO for the fourth quarter 2008 was $14.9 million, compared to $26.4 for the fourth quarter 2007. Net income available to common stockholders for the fourth quarter 2008 was $284.9 million, or $4.51 per share, compared to $5.3 million, or $0.09 per share for fourth quarter 2007. Fourth quarter 2008 net income includes $318.1 million of income relating to unrealized mark-to-market adjustments and $9.4 million of restructuring and impairment charges. The restructuring charges include a $2.9 million write-off of goodwill and $0.9 million relating to a corporate restructuring and downsizing completed during the fourth quarter 2008. NorthStar also recorded a $5.6 million impairment charge as of the fourth quarter 2008 relating to its investment in three office buildings located in Chatsworth, CA which are leased to the Federal Deposit Insurance Corporation ('FDIC') as a result of the FDIC's seizure of Washington Mutual Bank in September 2008. The restructuring and impairment charges are included in NorthStar's fourth quarter 2008 AFFO, and the net unrealized mark-to-market gains are excluded from AFFO.
Full Year 2008 Results
NorthStar reported AFFO for the full year 2008 of $1.50 per share, exclusive of $0.21 per share of one-time items, compared to $1.47 per share for the full year 2007. AFFO for the full year 2008 was $90.6 million, compared to $95.7 for the full year 2007. Net income available to common stockholders for the full year 2008 was $698.7 million, or $11.07 per share, compared to $31.3 million, or $0.51 per share for the full year 2007. Full year 2008 net income includes $750.3 million of income relating to unrealized mark-to-market adjustments and $14.3 million of one-time costs, which includes $4.9 million of debt issuance costs and $9.4 million of restructuring and impairment charges. The one-time costs are included in NorthStar's full year 2008 AFFO and the net unrealized mark-to-market gains are excluded from AFFO.
David T. Hamamoto, chairman and chief executive officer, commented, 'NorthStar's conservative balance sheet and liquidity management, and intensive risk management focus served us well during 2008. We have been operating in the midst of the most challenging conditions for commercial real estate in the past 20 years caused by weak economic conditions and scarce capital. Our goal has been to manage NorthStar to maximize long-term value. Our belief continues to be that aggressively managing credit, liquidity and continuing to seek alternative sources of capital should enable our commercial real estate investment platform to be opportunistic in accessing the exceptional opportunities that are likely to arise in these types of markets and to thrive when market conditions improve.'
Mr. Hamamoto continued, 'We expect 2009 to be a difficult year for most financial services companies, including ours. NorthStar has continued to perform without access to any of the U.S. Government liquidity programs that are available to banks and life companies. We expect that a majority of our resources during 2009 will be focused on working with our borrowers through these difficult times, and in managing future debt maturities.'
Investment Summary
NorthStar did not commit to or fund any new real estate loan investments during the fourth quarter. The Company funded $53 million of loan investments related to prior period loan commitments. NorthStar also received $6 million in proceeds from loan repayments during the quarter. NorthStar invested in $10 million of securities and received $5 million of proceeds from securities payoffs and sales. NorthStar acquired $31 million face amount of its own CDO notes at an average 74% discount to par with ratings ranging from AA to BBB- and recognized a $15 million gain compared to the carrying value of the notes. NorthStar repurchased $18 million face amount of its corporate bonds at an average discount to par of 66% and recognized a $7 million gain compared to the carrying value of the bonds. NorthStar also repurchased 475,051 common shares at an average price of $2.91 per share.
For the full year 2008, NorthStar originated $119 million of total new investment commitments, funded $336 million, including fundings of prior period commitments, and received $252 million of proceeds from loan repayments and asset sales. Weighted average first and last dollar loan-to-value was 33.7% and 68.8% respectively, of real estate loan commitments and fundings during 2008. NorthStar's real estate securities investments in 2008 had a weighted average credit rating of A+/A1.
NorthStar had approximately $6.5 billion of assets under management at December 31, 2008.
Financing
Total available liquidity at December 31, 2008 was approximately $257 million, including $134 million of unrestricted cash and cash equivalents, and $123 million of uninvested and available cash in NorthStar's secured term financings. At December 31, 2008, NorthStar had $449 million outstanding under its $744 million of on-balance sheet secured term and revolving credit facilities and the average cost of NorthStar's on-balance sheet debt was 4.81%.
Risk Management
NorthStar had no chargeoffs in the loan portfolio for the year ended December 31, 2008, and NorthStar had one non-performing loan with an outstanding principal balance of $21 million as of December 31, 2008. The first mortgage is secured by a condo/hotel development site in New York City. NorthStar designates a loan as non-performing at such time as the loan becomes 90 days delinquent on contractual debt service payments or the loan has a maturity default. During the fourth quarter, NorthStar recorded $9.2 million of credit loss provisions relating to five loans and reversed a previously recorded $3.7 million reserve on three loans that were sold in January 2009. Loan credit loss reserves total $11.2 million at December 31, 2008. At December 31, 2008, the weighted average first and last dollar loan-to-value ratios of NorthStar's real estate loans were 26.1% and 78.4%, respectively. NorthStar generally uses original loan-to-cost statistics in its reported loan-to-value ratios, except when there are asset-specific events which would indicate revaluation of the collateral is necessary, such as for watch list assets, loans where a credit loss reserve is deemed appropriate and for non-performing loans.
NorthStar's securities portfolio had seven upgrades representing $37 million of securities and 26 downgrades representing $122 million of securities during the fourth quarter. The average credit rating of NorthStar's real estate securities was BBB-/Baa3 (investment grade) at the end of the fourth quarter. In December 2008, Moody's downgraded nine classes of notes issued by N-Star I and II, two of NorthStar's commercial real estate term financings. The downgraded classes of notes issued by N-Star I included A-1, A-2A, A-2B, B-1, B-2. The downgraded classes of notes issued by N-Star II included A-1, B-1, B-2, C-1. As a result of prior upgrades by Moody's, the N-Star I B-1 and B-2 classes of notes remain higher rated than as of initial offering. In January 2009, Fitch downgraded all classes of notes issued by four additional NorthStar commercial real estate term financings primarily backed by commercial real estate securities, N-Star III, V, VII, and IX.
NorthStar's net lease portfolio was 92% leased and net lease assets have an 8.5 year weighted average remaining lease term as of December 31, 2008. During February 2009, the FDIC informed NorthStar that JPMorgan would vacate on March 23, 2009 the Chatsworth, CA properties formerly leased to WaMu Bank F.A. Based on this information, NorthStar reviewed its carrying values of these properties and recorded a $5.6 million impairment charge due to the pending vacancy. For more information regarding the core net lease assets, please refer to the tables on the following pages.
NorthStar's 'watch list' totaled $160 million as of December 31, 2008 down $45 million from $205 million as of September 30, 2008. The watch list is a subjective internal management tool used for prioritizing resources, and is developed based upon a comprehensive review of NorthStar's entire asset base each quarter. Those assets requiring intensive management attention are candidates for the list. Delinquencies, realized credit losses, non-performing loans and actual credit loss reserves are the appropriate basis for evaluating and comparing NorthStar's credit performance to other financial services companies. These metrics are much more objective and comparable than management's assessment of watch list criteria. During the fourth quarter NorthStar added to the watch list two first mortgage loans totaling $61 million and one mezzanine loan totaling $9 million. NorthStar removed $115 million of loans from the watch list. In January 2009, five loans on the watch list were sold at par to an unaffiliated party in a transaction in which NorthStar financed its purchase with a mortgage collateralized in part by the sold loans, and the buyer provided substantial equity capital. The five sold assets were removed from our watch list in the fourth quarter. For a more detailed discussion of risk management and the watch list, please refer to Management's Discussion and Analysis in NorthStar's Form 10-K for the year ended December 31, 2008.
Andrew C. Richardson, chief financial officer and treasurer, stated, 'We have set up our business for this difficult market and expect conditions to get worse through 2009. We do not have any significant final debt maturities until the second half of 2010 and will continue to aggressively manage our liquidity position. While we do not have maturity risk associated with our term debt CDO financings, our ability to obtain regular cash flows from the assets securing these financings is dependent upon continuing to meet interest coverage and overcollateralization coverage tests within each financing. Given the heightened attention to these tests, this quarter we began including this information in the tables contained in this earnings release. We are in compliance with these tests at December 31, 2008.'
Stockholder's Equity and Dividends
At December 31, 2008, NorthStar had 70,973,904 total shares and operating partnership units outstanding, and $109.1 million of minority interest relating to its operating partnership. During the fourth quarter of 2008, NorthStar repurchased 475,051 shares of its common stock for an average price of $2.91 per share, inclusive of brokerage commissions. Book value per diluted common share was $19.50 at December 31, 2008. Exclusive of all unrealized mark-to-market adjustments and accumulated depreciation book value at December 31, 2008 would be $8.40 per diluted common share. For a calculation of book value per diluted common share, please refer to the table on the following pages.
On January 20, 2009, NorthStar announced that its Board of Directors declared a dividend of $0.25 per share of common stock, payable with respect to the quarter ended December 31, 2008. NorthStar will pay approximately $7.1 million of cash and issue approximately 3.7 million shares relating to the dividend. The dividend is expected to be paid on February 27, 2009 to shareholders of record as of the close of business on January 28, 2009. Additionally, the Company intends to distribute 90% of its 2009 taxable income as dividends and intends to 'true-up' the dividend at year-end if necessary to meet the 90% distribution target.
Earnings Conference Call
NorthStar will hold a conference call to discuss fourth quarter 2008 financial results on Tuesday February 24, 2009, at 2:00 PM Eastern time. Hosting the call will be David Hamamoto, chairman, president and chief executive officer, and Andrew Richardson, chief financial officer and treasurer. The Company will post on its website, www.nrfc.com, a December 31, 2008 update to its corporate presentation.
The call will be webcast live over the Internet from NorthStar's website, www.nrfc.com, and will be archived on the Company's website.
