First Quarter Highlights
- First quarter 2009 AFFO per share of $0.31.
- NorthStar has a strong liquidity position with $201 million available liquidity at March 31, 2009.
- NorthStar has repurchased a total of $84 million of its 7.25% exchangeable notes at an average 58% discount to par.
- First quarter common stock cash dividend of $0.10 per share.
NEW YORK, May 7 /PRNewswire-FirstCall/ -- NorthStar Realty Finance Corp. (NYSE: NRF) today announced its results for the first quarter ended March 31, 2009.
NorthStar reported adjusted funds from operations ('AFFO') for the first quarter 2009 of $0.31 per share compared to $0.34 per share for the first quarter 2008. AFFO for the first quarter 2009 was $22.6 million, compared to $23.7 million for the first quarter 2008. Net income available to common stockholders for the first quarter 2009 was $84.6 million, or $1.32 per share, compared to $193.8 million, or $3.11 per share for first quarter 2008. First quarter 2009 net income includes $91.8 million of income relating to mark-to-market adjustments, compared to $209.1 million in the first quarter 2008. The non-cash mark-to-market income is excluded from AFFO.
At March 31, 2009, diluted GAAP book value per common share was $18.05. For the quarter ended March 31, 2009, NorthStar generated a 10.1% return on average common book equity, excluding general and administrative expenses, and 6.6% inclusive of these corporate costs. For a reconciliation of net income to AFFO and calculations of return on average common book equity and diluted book value per common share, please refer to the tables on the following pages.
David T. Hamamoto, chairman and chief executive officer, commented, 'Commercial real estate and broader credit market and economic conditions continue to remain extremely challenging. It appears that the U.S. Government has begun to focus on the importance of healthy and functioning commercial real estate markets to economic growth, and we hope that the recently announced Public-Private Investment Program combined with expansion of the Fed's Term Asset Lending Facility will facilitate healing the commercial real estate finance markets. We believe that our commercial real estate finance and investment platform is well-positioned to attract capital returning to this market and to capitalize on investment opportunities arising from the unprecedented disruptions experienced by the commercial real estate sector.'
Mr. Hamamoto continued, 'Over the past two years NorthStar's focus on liquidity, credit and preservation of capital has positively differentiated the Company from other market participants. While liquidity and credit management remain our top priorities, we have also continued to seek other sources of capital and expansion opportunities. To that end, in the first quarter we created NorthStar Real Estate Income Trust, a REIT that will be managed by NorthStar and for which we hope to raise capital in the non-listed REIT equity market, an area of the capital markets which continues to experience net capital inflows.'
Investment Summary
During the first quarter 2009, NorthStar repurchased $61 million face amount of its 7.25% exchangeable notes for approximately $26 million cash at a 58% average discount to par. NorthStar also sold to an unaffiliated party at par five loans totaling $71 million. Concurrent with the loan sale, NorthStar provided to the buyer a new $92 million loan collateralized in part by the sold loans and an additional property. During the first quarter 2009, NorthStar received $5 million in proceeds from partial loan repayments and received no full loan payoffs. NorthStar also invested in $36 million of securities, received $46 million of proceeds from securities sales and acquired no net lease properties during the first quarter.
NorthStar had approximately $6.5 billion of assets under management at March 31, 2009.
Financing
Total available liquidity at March 31, 2009 was approximately $201 million, including $121 million of unrestricted cash and cash equivalents, and $80 million of uninvested and available cash in NorthStar's secured term financings. At March 31, 2009, NorthStar had $411 million outstanding under its $743 million of on-balance sheet secured term and revolving credit facilities and the average cost of NorthStar's on-balance sheet debt was 3.44%. As of May 6, 2009, NorthStar has repurchased a total of $83.7 million face of its 7.25% exchangeable notes for approximately $34.8 million cash.
Risk Management
As of March 31, 2009, NorthStar had two non-performing loans ('NPLs') with aggregate outstanding principal balances totaling $50 million. 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. NorthStar recorded $21.5 million of credit loss provisions relating to 10 loans during the first quarter 2009, increasing total credit loss reserves to $32.7 million at March 31, 2009. The weighted average first and last dollar loan-to-value ratios of NorthStar's real estate loans were 26.5% and 81.2%, respectively, at March 31, 2009. 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 loans where a credit loss reserve is deemed appropriate and for non-performing loans.
NorthStar's NPLs at March 31, 2009 consist of a first mortgage with an outstanding balance of $21 million secured by a condo/hotel development site in New York City and a junior participation in a first mortgage with an outstanding balance of $29 million secured by a master planned community located in Orlando, Florida. Both NPLs have maturity defaults and NorthStar has reserves totaling $6 million for these assets as of March 31, 2009. Subsequent to March 31, 2009, two additional loans with outstanding principal balances of $9 million and $14 million for which NorthStar has recorded credit loss reserves totaling $9 million and $1 million, respectively, at March 31, 2009, reached non-performing status. Both loans are each separately backed by multi-family development sites in Washington, D.C. and New York City.
NorthStar's securities portfolio had two upgrades representing $12 million of securities and 193 downgrades representing $1.1 billion of securities during the first quarter. Most of the downgrade actions resulted from each of the three major rating agencies updating their ratings criteria for commercial real estate structured finance securities. As a result of the rating agency ratings methodology changes, the average credit rating of NorthStar's real estate securities decreased to BB+/Ba1 at the end of the first quarter from BBB-/Baa3 at year end 2008. During the first quarter 2009, Fitch downgraded several classes of notes issued by six NorthStar commercial real estate term financings primarily backed by commercial real estate securities, N-Star I, II, III, V, VII, and IX. During the first quarter, Moody's downgraded several classes of notes issued by N-Star VII, VIII, and IX, three NorthStar commercial real estate term financings, and affirmed the AAA rated classes issued by N-Star VIII. Rating agency actions associated with NorthStar's issued secured term debt notes have no impact on the payment terms of such debt.
NorthStar's net lease portfolio was 92% leased and net lease assets have an 8.3 year weighted average remaining lease term as of March 31, 2009. On March 23, 2009, as previously announced, JPMorgan vacated the Chatsworth, CA properties formerly leased to WaMu Bank F.A. and NorthStar is in discussions with the special servicer of the first mortgage loan to transfer the properties to the mortgage holder. During the fourth quarter of 2008, NorthStar took an impairment charge relating to the Chatsworth properties and its carrying value approximately equals the outstanding balance of the first mortgage loan; therefore NorthStar does not expect a material net impact on its financial statements from transferring the properties to the lender. For more information regarding the core net lease assets, please refer to the tables on the following pages.
Andrew C. Richardson, chief financial officer and treasurer, stated, 'Our portfolio continues to experience pressures from poor economic conditions and a scarcity of debt capital available to refinance existing maturities. Our flexible and long-term liability structure provides a wide range of asset management alternatives to deal with credit issues. These alternatives include using recourse guarantees, for which approximately 41% of our loans have at least partial recourse to their sponsors, to obtain more collateral, and/or partial repayment in return for an extension. We also may more aggressively seek to sell loans at discounts than we have in the past. Since the beginning of 2008, we have retired NorthStar debt at an aggregate $97 million discount to par, which has created a cushion in our equity capital base for credit losses, discounted asset sales and payoffs. In effect, our creditors have absorbed these potential losses rather than our stockholders because the lenders were willing to sell their debt below its face amount. Our focus on conservative liquidity management has provided the cash needed to execute on this strategy.'
'Our next material final debt maturity is in October 2010. Our only material non-discretionary capital need for 2009 relates to future funding commitments under our loan assets. Based on approved leverage from our lenders as of March 31, 2009, and assuming all loans that have funding requirements qualify for funding under these loans, NorthStar expects to have maximum unrestricted cash needs of approximately $58 million relating to these commitments for the remainder of 2009.'
Mr. Richardson continued, 'Despite the rating agencies this year changing their ratings criteria for commercial real estate securities, our term debt financings remain in compliance with all of their overcollateralization and interest coverage tests as of March 31, 2009, and we continue to receive cash distributions for our retained interests. Our investment focus on older vintage and more senior classes of CMBS securities has somewhat cushioned our financings from these downgrades; however, maintaining compliance with these tests continues to be challenging in this environment.'
Stockholder's Equity and Dividends
At March 31, 2009, NorthStar had 74,694,741 total shares and operating partnership units outstanding, and $107.3 million of minority interest relating to its operating partnership. In February 2009, NorthStar issued 3.7 million common shares related to the fourth quarter 2008 dividend. Book value per diluted common share was $18.05 at March 31, 2009. Exclusive of all unrealized mark-to-market adjustments and accumulated depreciation, book value at March 31, 2009 would be $8.21 per diluted common share. For a calculation of book value per diluted common share, please refer to the table on the following pages.
On April 21, 2009, NorthStar announced that its Board of Directors declared a dividend of $0.10 per share of common stock, payable with respect to the quarter ended March 31, 2009. The dividend is expected to be paid on May 15, 2009 to shareholders of record as of the close of business on May 5, 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 first quarter 2009 financial results on Thursday May 7, 2009, at 10:00 AM 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 March 31, 2009 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. The call can also be accessed live over the phone by dialing 800-762-8908, or for international callers, by dialing 480-629-9041.
A replay of the call will be available one hour after the call through Thursday May 14, 2009 by dialing 800-406-7325 or 303-590-3030 for international callers, using pass code 4058508.
About NorthStar Realty Finance Corp.
NorthStar Realty Finance Corp. is a finance REIT that primarily originates and invests 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.
