Nov. 5, 2009 (PR Newswire) -- NEW YORK, Nov. 5 /PRNewswire-FirstCall/ -- NorthStar Realty Finance Corp. (NYSE: NRF) today announced its results for the third quarter ended September 30, 2009.

NorthStar reported adjusted funds from operations ("AFFO") for the third quarter 2009 of $0.25 per share compared with $0.37 per share for the third quarter 2008. AFFO for the third quarter 2009 was $19.5 million, compared with $25.8 million for the third quarter 2008. Net loss to common stockholders for the third quarter 2009 was ($66.5) million, or ($0.95) per share, compared to net income of $218.3 million, or $3.47 per share for the third quarter 2008. Third quarter 2009 net loss includes ($85.0) million of unrealized losses relating to non-cash mark-to-market adjustments, compared to $236.4 million of unrealized gains in the third quarter 2008, relating to non-cash mark-to-market adjustments. The non-cash mark-to-market gains and losses are excluded from AFFO.

At September 30, 2009, diluted GAAP book value per common share was $15.93. For the quarter ended September 30, 2009, NorthStar generated a 9.1% return on average common book equity, excluding general and administrative expenses, and 5.9% 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, "The recently announced three-year extension of the Wells Fargo debt represents the final significant milestone in managing our contractual liquidity needs over the next several years. Last quarter we reduced unrestricted cash needs for our non-discretionary future funding obligations which are currently just $21 million, and now our next corporate debt maturity is approximately $68 million of corporate notes in June 2012. Our liquidity position remains strong, with NorthStar having over $100 million of unrestricted cash after completion of the debt extension."

Mr. Hamamoto continued, "We believe that commercial real estate market challenges will continue well into 2010 and will lag the eventual U.S. economic recovery. Nevertheless, these conditions should eventually present outstanding investment opportunities resulting from distressed sellers. Experienced real estate investors have been raising capital in the private and public markets to take advantage of these conditions. We are continuing our proactive efforts to access the registered non-listed REIT equity market which should enable NorthStar to benefit from its broad investment platform to generate management fee income for our shareholders."

Investment Summary

During the third quarter 2009, NorthStar repurchased $10 million face amount of its 7.25% exchangeable notes for approximately $5 million and $19 million face amount of its 11.50% exchangeable notes for approximately $10 million. These repurchases represents 52% and 47% discounts to par for the 7.25% and 11.5% notes, respectively. During the third quarter 2009 NorthStar funded $20 million relating to prior period loan commitments, received $10 million of partial loan repayments, and no full loan payoffs. NorthStar acquired for $82 million, securities having a par amount of $253 million and having an average BBB+/Baa1 credit rating, and received $65 million of proceeds from securities sales. No net lease properties were acquired during the third quarter 2009.

NorthStar had approximately $6.7 billion of assets under management at September 30, 2009.

Financing

Total available liquidity at September 30, 2009 was approximately $251 million, including $108 million of unrestricted cash and cash equivalents, and $143 million of uninvested and available cash in NorthStar's secured term financings. During the third quarter 2009, NorthStar fully repaid the total outstanding $12 million balance on the JP Morgan credit facility. At September 30, 2009, NorthStar had $405 million outstanding under its secured term facilities and the average cost of NorthStar's on-balance sheet debt was 3.10%. As of September 30, 2009, NorthStar had repurchased a total of $104 million face of its 7.25% exchangeable notes for approximately $45 million cash, and $19 million face of its 11.50% exchangeable notes for approximately $10 million cash.

On October 28, 2009, NorthStar announced the renewal and extension of its Wells Fargo bank debt having an original final maturity of November 2010. The new debt extends the maturity date to October 28, 2012, increases the interest rate spread over LIBOR by approximately 1.5%, eliminates all margin call provisions as long as semi-annual amortization hurdles are met, except for defaulted assets which would be credited to the semi-annual amortization hurdles, and eliminates corporate fixed charge and recourse debt covenants. The new facility requires $15 million of semi-annual reductions over the three-year term, and NorthStar repaid approximately $52.5 million of the facility and guaranteed the remaining amount outstanding. There are no limitations on NorthStar's ability to pay dividends so long as the semi-annual reductions to the credit facility are met. NorthStar issued the lender one million warrants at an $8.59 weighted average strike price having expirations ranging from 2019 through 2021. The new debt also provides for $300 million of additional borrowing capacity as the amount outstanding is reduced below $300 million, on a dollar-for-dollar basis.

Risk Management

During the third quarter, NorthStar added a $10 million junior participation in a first mortgage secured by two retail properties in New York to non-performing loan ("NPL") status due to a maturity default. The collateral properties securing this loan have a cash flow yield in excess of 10% to NorthStar's basis and the borrower is currently working with the special servicer of the mortgage to restructure and extend the final maturity. As of September 30, 2009, NorthStar had five non-performing loans totaling $83 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 $24 million of credit loss provisions relating to 10 loans during the third quarter 2009, increasing total credit loss reserves to $74 million on 15 loans at September 30, 2009. In October 2009, NorthStar was foreclosed out of the $9 million mezzanine multi-family loan in NPL status. NorthStar had fully reserved for this asset in prior periods so there was no third quarter earnings impact related to this foreclosure.

NorthStar's NPLs, exclusive of the $9 million foreclosed loan, consist of a first mortgage with an outstanding balance of $21 million secured by a condo/hotel development site in New York City, a first mortgage with an outstanding balance of $14 million secured by a seven-unit condominium/multi-family development site in New York City, a junior participation in a first mortgage with an outstanding balance of $29 million secured by a master planned community located in Orlando, Florida, and the junior participation in a first mortgage with an outstanding balance of $10 million previously discussed. All of these NPLs have maturity defaults and NorthStar has reserves totaling $25 million for these assets.

The weighted average first and last dollar loan-to-value ratios of NorthStar's real estate loans were 25.7% and 81.3%, respectively, at September 30, 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 securities portfolio had one upgrade representing $5 million and 86 downgrades representing $583 million of securities during the third quarter 2009. NorthStar reports all current rating actions issued by each agency independently of actions issued during prior quarters. The average credit rating of NorthStar's real estate securities was BB+/Ba1, which was the same as the prior quarter, with approximately 65% having a vintage prior to 2006. During the third quarter 2009, S&P, Moody's, and Fitch did not issue any rating actions on notes issued by NorthStar commercial real estate term financings. 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 8.0 year weighted average remaining lease term as of September 30, 2009. 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, "Credit risk management remains very challenging. Traditional providers of debt capital to real estate owners, such as banks, life companies and the CMBS markets essentially remain closed. Macroeconomic conditions also continue to pressure underlying real estate cash flows making it more difficult for borrowers to service their debt. NorthStar remains focused on pro-actively and aggressively identifying and dealing with potential credit problems in order to maximize recovery for our shareholders. Over the past two years, our discounted repurchases of CDO and corporate debt have created an approximately $189 million cushion to our equity for credit issues."

Mr. Richardson continued, "We have been pro-active in managing liquidity and extending debt maturities, with no significant corporate debt maturing before June 2012. In addition, NorthStar's CDO financings remain in compliance with all of their overcollateralization and interest coverage tests as of September 30, 2009."

Stockholder's Equity and Dividends

At September 30, 2009, NorthStar had 81,380,597 total shares and operating partnership units outstanding, and $101.3 million of minority interest relating to its operating partnership. During the third quarter 2009, NorthStar issued approximately 5.3 million common shares at a weighted average net price of $3.60 per share. Book value per diluted common share was $15.93 at September 30, 2009. Exclusive of all unrealized mark-to-market adjustments and accumulated depreciation, book value at September 30, 2009 would be $7.54 per diluted common share. For a calculation of book value per diluted common share, please refer to the table on the following pages.

On October 20, 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 September 30, 2009. The dividend is expected to be paid on November 16, 2009 to shareholders of record as of the close of business on November 6, 2009.

Earnings Conference Call

NorthStar will hold a conference call to discuss third quarter 2009 financial results on Thursday November 5, 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 September 30, 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 877-941-0844, or for international callers, by dialing 480-629-9645.

A replay of the call will be available one hour after the call through Thursday November 12, 2009 by dialing 800-406-7325 or 303-590-3030 for international callers, using pass code 4173151.

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.