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NorthStar Realty Finance Announces Second Quarter 2012 Results

NEW YORK, Aug. 2, 2012 /PRNewswire/ --

Second Quarter 2012 Highlights

  • Increased second quarter 2012 cash dividend to $0.16 per common share, representing a 60% increase over the prior year.
  • AFFO per diluted share of $0.22.
  • Investments of $552 million in 2012, including $371 million during the second quarter.
  • Total capital raised to date of $362 million for our sponsored non-traded CRE REIT, including $37 million raised in July 2012.

NorthStar Realty Finance Corp. (NYSE: NRF) today announced its results for the quarter ended June 30, 2012.

Second Quarter 2012 Results

NorthStar reported adjusted funds from operations ("AFFO") for the second quarter 2012 of $0.22 per diluted share compared with $0.61 per diluted share for the second quarter 2011. AFFO for the second quarter 2012 was $28.3 million compared to $55.6 million for the second quarter 2011. Net loss to common stockholders for the second quarter 2012 was $(77.5) million, or $(0.62) per diluted share, compared to a net loss of $(52.0) million, or $(0.60) per diluted share for the second quarter 2011. Second quarter 2012 net loss includes $(94.5) million of unrealized losses relating to non-cash fair value adjustments, compared to $(104.2) million of unrealized losses for the second quarter 2011. These non-cash fair value losses are excluded from AFFO.

David T. Hamamoto, chairman and chief executive officer, commented, "Throughout the year we have been deploying capital into new investments which increased cash flow to NorthStar and created long-term value for our shareholders. We continue to have a robust pipeline of exciting investment opportunities and are pleased to have declared another increase to our common dividend this quarter, representing a 60% increase over the last year."

Investments

During the second quarter, NorthStar invested $77 million of equity in seven commercial real estate loans with a $171 million aggregate principal balance. NorthStar expects a weighted average return on this invested equity of 17%.

The principal proceeds NorthStar could receive from CDO bonds acquired during the second quarter is $186 million, which were purchased for $94 million and have an expected yield-to-maturity of over 20%. The CDO bonds acquired during the second quarter had a weighted average original credit rating of A+/A1. As of today, the principal proceeds NorthStar could receive from its owned CDO bonds is $800 million, of which $650 million was repurchased at an average price of 36% in the secondary market and has a weighted average original credit rating of A+/A1. The discount to par of $417 million represents potential imbedded cash flows that we may realize in future periods in addition to our capital invested in these bonds.

NorthStar had approximately $7.1 billion of assets under management at June 30, 2012.

For additional details regarding NorthStar's investments, please refer to the tables on the following pages and to the corporate presentation which is posted on NorthStar's website, www.nrfc.com.

Asset Management Business

During the second quarter 2012, NorthStar received management fees from its consolidated CDOs of $3.6 million, which are eliminated on NorthStar's consolidated statement of operations. In addition, during the second quarter 2012, NorthStar received $2.7 million of fees from our sponsored non-traded CRE REIT, NorthStar Real Estate Income Trust, Inc. ("NorthStar Income").

NorthStar Income raised $92 million in the second quarter 2012 and $362 million since inception, including $37 million in July 2012, through NorthStar Realty Securities, LLC, NorthStar's wholly-owned broker-dealer. NorthStar Realty Securities, LLC has total signed selling agreements with broker-dealers covering approximately 50,000 registered representatives as of today. NorthStar expects to earn annual net fees approximately equal to three percentage points based on total capital raised for our sponsored non-traded REITs.

During the second quarter 2012, NorthStar originated on behalf of NorthStar Income, seven loans with a $232 million aggregate principal balance.

Liquidity, Financing and Capital Markets Highlights

Unrestricted cash as of June 30, 2012 totaled approximately $196 million. NorthStar's unrestricted cash is approximately $205 million as of today.

In May 2012, NorthStar completed the sale of 20 million shares of its common stock at a public offering price of $5.70 per share, which generated net proceeds to NorthStar of $109 million.

In June 2012, NorthStar issued $75 million of 8.875% exchangeable senior notes due 2032 ("Notes"). Subsequently, in July 2012, an over-allotment option of $7 million of the Notes was exercised. Total net proceeds to NorthStar were $79 million.

In July 2012, NorthStar sold 3.2 million shares of its existing 8.25% Series B Preferred Stock at a public offering price of $22.60 (excluding accrued dividends) generating net proceeds of $70 million.

In July 2012, NorthStar closed three credit facilities which will be used to finance loan originations; two for NorthStar Income with an aggregate initial availability of $90 million and one for NorthStar with an initial availability of $40 million.

Currently, NorthStar's only near-term unsecured corporate debt obligations relate to its exchangeable senior notes, of which $36 million principal amount of 11.5% notes are due in June 2013 and $13 million principal amount of 7.25% notes are payable in June 2014 at the holders' option.

Risk Management

At June 30, 2012, NorthStar had two loans on non-performing status ("NPL"), which had a $15 million aggregate principal amount and a $4 million carrying value. This compares to two loans which had a $39 million aggregate principal amount and $29 million in carrying value at March 31, 2012. NorthStar categorizes a loan as non-performing if it is in maturity default and/or is past due 90 days on its contractual debt service payments.

During the second quarter 2012, NorthStar recorded $6.5 million of provision for loan losses relating to two loans, compared to $6.8 million of provision for loan losses related to four loans recorded during the first quarter 2012. As of June 30, 2012, loan loss reserves totaled $172 million, or 7% of total loans, related to 18 loans with a carrying value of $252 million.

As of June 30, 2012, NorthStar's core net lease portfolio was 96% leased with a 6.2 year weighted average remaining lease term. As of June 30, 2012, 100% of NorthStar's net lease healthcare portfolio was leased to third-party operators with weighted average lease coverage of 1.4x and a 7.4 year weighted average remaining lease term.

The California Supreme Court recently denied the plaintiff's petition to review the Court of Appeal decision related to the "WaMu" property litigation. NorthStar expects to receive $29 million related to a surety bond in the third quarter which is not currently reflected in unrestricted cash.

Stockholders' Equity

At June 30, 2012, NorthStar had 139,814,505 total common shares and operating partnership units outstanding and $28 million of non-controlling interests relating to its operating partnership. GAAP book value per share was $6.13 at June 30, 2012. Exclusive of certain unrealized adjustments, loan loss reserves and accumulated depreciation and amortization, adjusted book value at June 30, 2012 would be $6.96 per share. The adjusted book value does not take into consideration any value related to the in-place and anticipated advisory fee income streams generated by NorthStar's sponsored, non-traded REIT vehicle and our CDO management fees. For a reconciliation of adjusted book value per share to GAAP book value per share, please refer to the tables on the following pages.

Common Dividend Announcement

On August 1, 2012, NorthStar announced that its Board of Directors declared a cash dividend of $0.16 per share of common stock, payable with respect to the quarter ended June 30, 2012. The dividend is expected to be paid on August 17, 2012 to shareholders of record as of the close of business on August 13, 2012. The Company's common shares will begin trading ex-dividend on August 9, 2012.

Earnings Conference Call

NorthStar will hold a conference call to discuss second quarter 2012 financial results on August 2, 2012, at 10:00 a.m. Eastern time. Hosting the call will be David Hamamoto, chairman and chief executive officer; Albert Tylis, co-president and chief operating officer; Daniel Gilbert, co-president and chief investment officer; and Debra Hess, chief financial officer.

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 888-549-7750, or for international callers, by dialing 480-629-9722.

A replay of the call will be available one hour after the call through Thursday, August 9, 2012 by dialing 800-406-7325 or, for international callers, 303-590-3030, using pass code 4551897.

About NorthStar Realty Finance Corp.

NorthStar Realty Finance Corp. is a finance REIT that originates, acquires and manages portfolios of commercial real estate debt, commercial real estate securities and net lease properties. In addition, NorthStar engages in asset management and other activities related to real estate and real estate finance. For more information about NorthStar Realty Finance Corp., please visit www.nrfc.com.


NorthStar Realty Finance Corp.



Consolidated Statements of Operations



($ in thousands, except share and per share data)









Three Months Ended June 30,


Six Months Ended June 30,



2012


2011



2012


2011
















Revenues













Interest income



$ 79,988


$ 110,790



$ 160,700


$ 208,430



Rental and escalation income



29,226


25,956



57,659


58,883



Commission income



8,679


1,726



16,078


2,644



Advisory and other fee income



2,742


212



3,259


295



Other revenue



1,531


1,365



1,739


1,615



Total revenues



122,166


140,049



239,435


271,867



Expenses













Interest expense



34,665


34,206



69,963


67,626



Real estate properties – operating expenses



5,025


2,613



9,689


15,110



Asset management expenses



304


1,328



1,801


2,889



Commission expense



6,748


1,299



12,397


2,016



Other costs, net



200


-



392


-



Provision for loan losses



6,537


14,200



13,377


38,700



Provision for loss on equity investment



-


-



-


4,482



General and administrative













Salaries and equity-based compensation (1)



16,014


19,528



30,144


32,269



Other general and administrative



5,570


7,361



12,501


14,062



Total general and administrative



21,584


26,889



42,645


46,331



Depreciation and amortization



12,677


11,526



24,983


19,608



Total expenses



87,740


92,061



175,247


196,762



Income (loss) from operations



34,426


47,988



64,188


75,105



Equity in earnings (losses) of unconsolidated ventures



(336)


(1,555)



(837)


(3,783)



Other income (loss)



-


-



20,258


10,138



Unrealized gain (loss) on investments and other



(115,648)


(130,607)



(211,054)


(282,825)



Realized gain (loss) on investments and other



5,195


36,839



20,547


47,573



Income (loss) from continuing operations



(76,363)


(47,335)



(106,898)


(153,792)



Income (loss) from discontinued operations



(43)


(1,047)



(65)


(638)



Gain (loss) on sale from discontinued operations



285


9,416



285


14,447



Net income (loss)



(76,121)


(38,966)



(106,678)


(139,983)



Less: net (income) loss allocated to non-controlling interests



4,244


(5,813)



6,207


(349)



Preferred stock dividends



(5,635)


(5,231)



(10,958)


(10,463)



Contingently redeemable non-controlling interest accretion



-


(1,973)



-


(4,982)



Net income (loss) attributable to NorthStar Realty Finance Corp. common stockholders



$ (77,512)


$ (51,983)



$ (111,429)


$ (155,777)
















Net income (loss) per share from continuing operations (basic/diluted)



$ (0.62)


$ (0.69)



$ (0.98)


$ (2.05)



Income (loss) per share from discontinued operations (basic/diluted)



-


(0.01)



-


(0.01)



Gain per share on sale of discontinued operations (basic/diluted)



-


0.10



-


0.17



Net income (loss) per common share attributable to NorthStar Realty Finance Corp. common stockholders (basic/diluted)



$ (0.62)


$ (0.60)



$ (0.98)


$ (1.89)



Weighted average number of shares of common stock:













Basic



124,802,710


86,966,645



113,524,914


82,605,559



Diluted



131,178,131


91,233,904



119,285,979


86,908,265



Dividends declared per share of common stock



$ 0.16


$ 0.10



$ 0.31


$ 0.20
















(1) The three months ended June 30, 2012 and 2011 include $4.8 million and $2.6 million, respectively, of equity-based compensation expense. The six months ended June 30, 2012 and 2011 include $7.2 million and $4.6 million, respectively, of equity-based compensation expense.


NorthStar Realty Finance Corp.





Consolidated Balance Sheets





($ in thousands, except share data)







June 30, 2012


December 31,



(Unaudited)


2011






Assets





VIE Financing Structures





Restricted cash


$ 233,778


$ 261,295

Operating real estate, net


341,997


313,227

Real estate securities, available for sale


1,199,412


1,358,282

Real estate debt investments, net


1,554,868


1,631,856

Investments in and advances to unconsolidated ventures


62,152


60,352

Receivables, net of allowance of $1,210 in 2012 and $1,179 in 2011


19,359


22,530

Derivative assets, at fair value


28


61

Deferred costs and intangible assets, net


42,377


47,499

Assets of properties held for sale


1,597


3,198

Other assets


18,046


23,135



3,473,614


3,721,435






Non-VIE Financing Structures





Cash and cash equivalents


195,759


144,508

Restricted cash


48,983


37,069

Operating real estate, net


772,892


776,222

Real estate securities, available for sale


147,074


115,023

Real estate debt investments, net


225,212


78,726

Investments in and advances to unconsolidated ventures


40,077


33,205

Receivables


14,910


8,958

Receivables, related parties


7,275


5,979

Unbilled rent receivable


12,907


11,891

Derivative assets, at fair value


11,822


5,674

Deferred costs and intangible assets, net


49,036


50,885

Other assets


10,516


16,862



1,536,463


1,285,002






Total assets


$ 5,010,077


$ 5,006,437






Liabilities





VIE Financing Structures





CDO bonds payable


$ 2,062,304


$ 2,273,907

Mortgage notes payable


228,446


228,525

Secured term loan


14,682


14,682

Accounts payable and accrued expenses


14,346


15,754

Escrow deposits payable


70,064


52,660

Derivative liabilities, at fair value


206,152


226,481

Other liabilities


48,733


55,007



2,644,727


2,867,016






Non-VIE Financing Structures





Mortgage notes payable


554,840


554,732

Credit facilities


132,318


64,259

Exchangeable senior notes


282,694


215,853

Junior subordinated notes, at fair value


161,374


157,168

Accounts payable and accrued expenses


37,486


50,868

Escrow deposits payable


12,345


196

Derivative liabilities, at fair value


-


8,193

Other liabilities


50,324


48,538



1,231,381


1,099,807

Total liabilities


3,876,108


3,966,823






Commitments and contingencies





Equity





NorthStar Realty Finance Corp. Stockholders' Equity





Preferred stock, 8.75% Series A, $0.01 par value, $60,525 and $60,000 liquidation preference as of





June 30, 2012 and December 31, 2011, respectively


58,357


57,867

Preferred stock, 8.25% Series B, $0.01 par value, $233,350 and $190,000 liquidation preference as of





June 30, 2012 and December 31, 2011, respectively


221,643


183,505

Common stock, $0.01 par value, 500,000,000 shares authorized, 133,425,417 and 96,044,383 shares





issued and outstanding at June 30, 2012 and December 31, 2011, respectively


1,334


960

Additional paid-in capital


1,008,913


809,826

Retained earnings (accumulated deficit)


(155,057)


(8,626)

Accumulated other comprehensive income (loss)


(26,229)


(36,160)

Total NorthStar Realty Finance Corp. stockholders' equity


1,108,961


1,007,372

Non-controlling interests


25,008


32,242

Total equity


1,133,969


1,039,614

Total liabilities and equity


$ 5,010,077


$ 5,006,437

Non-GAAP Financial Measures

Included in this press release are certain "non-GAAP financial measures," which are measures of NorthStar'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 the applicable Securities and Exchange Commission, or SEC, rules. These include: Funds From Operations and Adjusted Funds From Operations. NorthStar believes these terms can be useful measures of its performance, which are further defined following the table below.

Funds from Operations (FFO) and Adjusted Funds from Operations (AFFO) ($ in thousands, except share and per share data)














Three Months Ended June 30,


Six Months Ended June 30,




2012


2011



2012


2011


Funds from Operations:












Income (loss) from continuing operations



$ (76,363)


$ (47,335)



$ (106,898)


$ (153,792)


Non-controlling interests(1)



280


(8,267)



540


(8,395)


Net income (loss) before non-controlling interest in Operating Partnership



(76,083)


(55,602)



(106,358)


(162,187)














Adjustments:












Preferred stock dividends



(5,635)


(5,231)



(10,958)


(10,463)


Depreciation and amortization



11,238


11,526



22,158


19,608


Funds from discontinued operations



(40)


(909)



(61)


154


Real estate depreciation and amortization, unconsolidated
ventures

207


207



414


439


Funds from Operations



(70,313)


(50,009)



(94,805)


(152,449)














Adjusted Funds from Operations:












Funds from Operations



(70,313)


(50,009)



(94,805)


(152,449)


Straight-line rental income, net



(687)


(1,009)



(1,357)


(1,232)


Straight-line rental income/expense and fair value
lease revenue, unconsolidated ventures

234


(31)



468


(52)


Amortization of above/below market leases



(260)


(170)



(518)


(384)


Amortization of equity-based compensation



4,829


2,613



7,158


4,647


Unrealized (gain) loss from fair value adjustments



94,479


104,176



168,342


226,464


Adjusted Funds from Operations



$ 28,282


$ 55,570



$ 79,288


$ 76,994














FFO per share of common stock



$ (0.54)


$ (0.55)



$ (0.79)


$ (1.75)


AFFO per share of common stock



$ 0.22


$ 0.61



$ 0.66


$ 0.89














(1) Amount excludes non-controlling limited partner interests in NorthStar's operating partnership.



Funds from Operations (FFO) and Adjusted Funds from Operations (AFFO)

Management believes that funds from operations, or FFO, and adjusted funds from operations, or AFFO, each of which are non-GAAP measures, are additional appropriate measures of the operating performance of a REIT and NorthStar in particular. We compute FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts (NAREIT), as net income (loss) (computed in accordance with U.S. GAAP), excluding gains (losses) from sales of depreciable properties, the cumulative effect of changes in accounting principles, real estate-related depreciation and amortization, impairment charges on depreciable property owned directly or indirectly and after adjustments for unconsolidated ventures. FFO, as defined by NAREIT, is a computation made by analysts and investors to measure a real estate company's cash flow generated by operations.

NorthStar calculates AFFO by subtracting from or adding to FFO:

  • normalized recurring expenditures that are capitalized by NorthStar and then amortized, but which are necessary to maintain NorthStar's properties and revenue stream, e.g., leasing commissions and tenant improvement allowances;
  • an adjustment to reverse the effects of the straight-lining of rental income or expense and fair value lease revenue;
  • the amortization or accrual of various deferred costs including intangible assets and equity-based compensation;
  • an adjustment to reverse the effects of acquisition gains or losses; and
  • an adjustment to reverse the effects of non-cash unrealized gains (losses).

NorthStar's calculation of AFFO differs from the methodology used for calculating AFFO by certain other REITs and, accordingly, our AFFO may not be comparable to AFFO reported by 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 NorthStar's operating performance or as an alternative to cash flow from operating activities as a measure of NorthStar's liquidity.

NorthStar 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.

Assets Under Management at June 30, 2012(1)




($ in thousands)





Amount


%





CRE Debt




First mortgage loans

$ 1,640,343


23.2%

Mezzanine loans

447,559


6.3%

Credit tenant and term loans

191,021


2.7%

Subordinate mortgage interests

130,737


1.8%

Other (2)

324,012


4.5%

Total CRE debt

2,733,672


38.5%





CRE Securities




CMBS

2,527,232


35.7%

Third-party CDO notes

261,131


3.7%

Other securities

161,338


2.3%

Total CRE securities

2,949,701


41.7%





Net Lease




Core net lease

404,459


5.7%

Healthcare net lease

561,641


7.9%

Total net lease

966,100


13.6%





Subtotal NorthStar

6,649,473


93.8%





Sponsored REIT




NorthStar Income (3)

435,826


6.2%

Grand total

$ 7,085,299


100.0%





(1) Based on principal amount of CRE debt and security investments and the cost basis of net lease properties.

Any real estate owned (either directly or through a joint venture) as a result of taking title to a property through foreclosure,

deed in lieu or otherwise ("taking title to a property") reflects the principal amount of the loan at time of foreclosure.

(2) Primarily related to real estate owned (either directly or through a joint venture) as a result of taking title to a property.

(3) Based on consolidated total assets.




Investments







2012 Year-to-Date through August 2, 2012







($ in millions)














NorthStar Balance Sheet Investments


Assets


Invested
Equity


Expected
ROE (1)








Repurchases of NorthStar CDO bonds


$285


$132


20%+

CRE Loans


186


81


17%

Opportunistic CRE investments


81


77


16%+








Total / weighted average


$552


$290


18%+





























Originated loans in 2012 - NorthStar non-traded REIT

$265












Total Loans


$451












(1) Management provides no assurances that the weighted average life or cash flows of investments will be consistent with

management's expectations or that the CDO bonds, originated loans or other investments, will payoff at par, if at all.

Actual results could differ materially from those presented.








Balance Sheet Holdings of NorthStar CDO Bonds (1)



At August 2, 2012



($ in thousands)








Principal

Based on original credit rating:


Amount (2)




AAA


$ 213,503

AA through BBB


394,417

Below investment grade


191,790

Total


$ 799,710




Weighted average original credit rating of repurchased CDO bonds


A+ / A1

Weighted average purchase price of repurchased CDO bonds


36%







(1) Unencumbered CDO bonds are owned by NorthStar. The majority of CDO bonds are eliminated with

the corresponding liability of the respective CDO on NorthStar's consolidated financial statements.




(2) Represents the maximum amount of principal proceeds that could be received.



CDOs primarily backed by CRE Debt













($ in thousands)












































N-Star IV


N-Star VI


N-Star VIII


CSE


CapLease



Issue/Acquisition Date


Jun-05


Mar-06


Dec-06


Jul-10


Aug-11


Total

Balance sheet as of June 30, 2012 (1)













Assets, principal amount


$ 381,796


$ 470,522


$ 965,940


$ 1,067,565


$ 170,094


$ 3,055,917

CDO bonds, principal amount (2)


261,238


362,650


727,702


992,642


150,730


2,494,962

Net assets


$ 120,558


$ 107,872


$ 238,238


$ 74,923


$ 19,364


$ 560,955





























CDO quarterly cash distributions and coverage tests(3)



























Equity notes and retained original below investment grade bonds


$ 1,412


$ 322


$ 5,109


$ 8,423


$ 679


$ 15,945

Collateral management fees


296


478


1,003


541


88


2,406















Interest coverage cushion (1)


1,574


1,078


6,976


9,902


405

















Overcollateralization cushion (shortfall)(1)


54,972


56,641


139,942


70,784


8,788




At offering


19,808


17,412


42,193


(151,595)

(4)

5,987

(5)






























(1) Based on remittance report issued on date nearest to June 30, 2012.



(2) Includes all outstanding CDO bonds payable to third parties and all CDO bonds owned by NorthStar.



(3) Interest coverage and overcollateralization coverage to the most constrained class.



(4) Based on trustee report as of June 24, 2010, closest to the date of acquisition.



(5) Based on trustee report as of August 31, 2011, closest to the date of acquisition.




CDOs primarily backed by CRE Securities















($ in thousands)


































N-Star I


N-Star II


N-Star III


N-Star V


N-Star VII


N-Star IX



Issue/Acquisition Date


Aug-03


Jul-04


Mar-05


Sep-05


Jun-06


Feb-07


Total

Balance sheet as of June 30, 2012 (1)















Assets, principal amount


$ 189,181


$ 197,639


$ 303,816


$ 444,267


$ 454,050


$ 1,072,576


$ 2,661,529

CDO bonds, principal amount (2)


177,923


182,531


217,065


322,118


324,335


747,051


1,971,023

Net assets


$ 11,258


$ 15,108


$ 86,751


$ 122,149


$ 129,715


$ 325,525


$ 690,506

































CDO quarterly cash distributions and coverage tests(3)































Equity notes and retained original below investment grade bonds


$ -


$ -


$ -


$ -


$ -


$ 2,033


$ 2,033

Collateral management fees


66


64


117


105


120


742


1,214

















Interest coverage cushion (shortfall) (1)


NEG


NEG


1,047


NEG


NEG


2,355



















Overcollateralization cushion (shortfall)(1)


NEG


NEG


NEG


NEG


NEG


75,852




At offering


8,687


10,944


13,610


12,940


13,966


24,516



































(1) Based on remittance report issued on date nearest to June 30, 2012.






(2) Includes all outstanding CDO bonds payable to third parties and all CDO bonds owned by NorthStar.






(3) Interest coverage and overcollateralization coverage to the most constrained class.






















GAAP Book Value Rollforward






($ in thousands, except per share data)





















Amount


Per Share

Common book value at March 31, 2012, per share



$ 837,214


$7.00










Net income to common shareholders and non-controlling
interest, excluding non-cash




fair value adjustments included in net income (loss)


13,008


0.11










Fair value adjustments included in net income (loss):






CDO bonds payable





(86,338)


(0.72)

Trust preferred debt





15,554


0.13

Securities and investments held at fair value




(29,539)


(0.25)

Derivatives





5,839


0.05










Equity component of exchangeable senior notes issued



1,986


0.02










Change in other comprehensive income


6,367


0.05










Common dividends


(17,959)


(0.15)










Accretion (dilution) from additional shares issued during quarter (1)

110,540


(0.11)

Total net increases/(decreases)




19,458


(0.87)










Common book value at June 30, 2012, per share (2)(3)



$ 856,672


$6.13



















(1) Includes $106 million of net proceeds from common stock offering completed in May 2012, net of common
dividends associated with these shares paid during the quarter. Additional amounts relate to amortization of
LTIPs and issuance of common shares from Dividend Reinvestment Plan.

(2) Common book value is calculated as total stockholder's equity of $1.1 billion and non-controlling interest in
the operating partnership of $28 million less preferred stock of $280 million.

(3) Cumulative net unrealized adjustments total a positive $236 million ($1.69 per share), loan loss reserves total a
negative $172 million ($1.23 per share) and accumulated depreciation and amortization total a negative $181
million ($1.29 per share) as of June 30, 2012. Excluding certain unrealized adjustments, loan loss reserves and
accumulated depreciation and amortization would result in a $6.96 adjusted book value per share at June 30,
2012. GAAP book value per share and adjusted book value per share calculations do not take into account any
potential dilution from certain RSUs, exchangeable notes or warrants.

NRFC NNN Holdings, LLC Portfolio Summary







($ in thousands)












Remaining






Cost basis

Date



Square


Lease


Cost


Existing


less

Acquired

Tenant or Guarantor of Tenant

Location/MSA

Feet


Term (1)


Basis (2)


Debt


Debt













Oct-2004

ALGM Portfolio - Sbarro, Inc.(3)

One property in New York, NY

7,500


0.5


$ 3,290


$ -


$ 3,290

Nov-2007

Alliance Data Systems Corp.

Columbus, OH

199,112


5.4


33,829


22,776


11,053

Mar-2007

Citigroup, Inc.

Fort Mill, SC/Charlotte

165,000


8.3


34,303


29,697


4,606

Jun-2006

Covance, Inc.

Indianapolis, IN

333,600


13.5


34,519


27,223


7,296

Feb-2007

Credence Systems Corp.

Milpitas, CA/San Jose

178,213


4.7


30,144


20,883


9,261

Sep-2006

Dick's Sporting Goods, Inc. / PetSmart, Inc.(3)

9 properties

467,971


3.6 - 12.2


64,503


46,318


18,185

Sep-2005

Electronic Data Systems Corp.

2 in MI / 1 in CA / 1 in PA

387,842


3.2


62,718


45,001


17,717

Aug-2005

GSA - U.S. Department of Agriculture

Salt Lake City, UT

117,553


4.8


22,851


14,401


8,450

Jun-2007

Landis Logistics / East Penn

Reading, PA

609,000


3.9 - 5.5


26,014


18,222


7,792

Jul-2006

Northrop Grumman Space & Mission Systems Corp.

Aurora, CO/Denver

183,529


3.0


42,400


31,940


10,460

Mar-2006

Party City Corp. (Amscan) / Lerner Enterprises, Inc.

Rockaway, NJ/ Northern NJ

121,038


2.9 - 5.1


22,221


16,506


5,715

Feb-2006

Quantum Corporation (4)

Colorado Springs, CO

406,207


0.4 - 8.7


27,635


17,435


10,200













Total NRFC NNN Holdings, LLC Portfolio


3,176,565


6.2


$404,427


$ 290,402


$ 114,025












(1) Remaining lease term as of June 30, 2012. Total represents weighted average based on cost basis.
(2) Cost basis includes capitalized expenditures since acquisition.
(3) One ALGM property and six of ten Dick's Sporting Goods, Inc. / PetSmart, Inc. properties are ground lease interests.
(4) Dollar amounts shown are 50% of total relating to NRFC NNN Holding's, LLC subsidiary's 50% interest in a joint venture with an institutional investor.


Portfolio Cash Flow and Tenant Credit Profile















($ in thousands)


Three Months Ended June 30, 2012


Primary Tenant


Tenant or Guarantor of Tenant


Base Rent


NOI


Debt Service


NOI Less
Debt Service


Market Cap (1)


Actual Credit
Rating


















ALGM Portfolio - Sbarro, Inc.


$ 218


$ 218


$ -


$ 218


N/A


not rated



Alliance Data Systems Corp.


582


579


(455)


124


7,006


not rated



Citigroup, Inc.


538


535


(507)


28


77,116


A- / A3



Covance, Inc.


638


636


(513)


123


2,596


not rated



Credence Systems Corp.


701


667


(443)


224


312


not rated



Dick's Sporting Goods, Inc. / PetSmart, Inc.


1,321


1,279


(967)


312


5,730


not rated

(2)


Electronic Data Systems Corp.


1,508


1,495


(818)


677


13,900


not rated



GSA - U.S. Department of Agriculture


625


419


(300)


119


N/A


implied AAA



Landis Logistics / East Penn


349


328


(332)

(3)

(4)


N/A

(4)

not rated



Northrop Grumman Space & Mission Systems Corp.


846


846


(751)


95


15,860


BBB+/Baa1



Party City Corp. (Amscan) / Lerner Enterprises, Inc.


468


468


(301)


167


362

(5)

B/B2

(6)


Quantum Corporation (50%)


626


618


(324)


294


334


not rated


















Total


$ 8,420


$ 8,088


$ (5,711)


$ 2,377






















(1) Based on information from Bloomberg at close of market on June 30, 2012 and presented in millions.
(2) Dick's Sporting Goods, Inc. is not rated by the major credit rating agencies. PetSmart, Inc. is rated BB+ by S&P.
(3) A portion of debt service is currently funded from a reserve account made up of an early lease termination fee received from prior tenant, not reflected in this schedule.
(4) Privately-held company, market capitalization information is not publicly disclosed.
(5) Represents purchase price by Amscan Holdings, Inc. (controlled by Berkshire Partners and Weston Presidio) for Party City in December 2005. No other recent data is available.
(6) The Party City Corp. lease is guaranteed by Amscan Holdings, Inc. which has a B/B2 credit rating by S&P and Moody's, respectively.

Safe Harbor Statement

This press release contains certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or Exchange Act. Forward-looking statements are generally identifiable by use of forward-looking terminology such as "may," "will," "should," "potential," "intend," "expect," "seek," "anticipate," "estimate," "believe," "could," "project," "predict," "continue," "future" or other similar words or expressions. Forward-looking statements are not guarantees of performance and are based on certain assumptions, discuss future expectations, describe plans and strategies, contain projections of results of operations or of financial condition or state other forward-looking information. Such statements include, but are not limited to, those relating to the operating performance of our investments, our financing needs, the effects of our current strategies, loan and securities activities, our ability to manage our collateralized debt obligations, or CDOs, and our ability to raise capital. Our ability to predict results or the actual effect of plans or strategies is inherently uncertain, particularly given the economic environment. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements and you should not unduly rely on these statements. These forward-looking statements involve risks, uncertainties and other factors that may cause our actual results in future periods to differ materially from those forward looking statements. These factors include, but are not limited to: adverse economic conditions and the impact on the commercial real estate finance industry; access to debt and equity capital and our liquidity; our use of leverage; our ability to meet various coverage tests with respect to our CDOs; our ability to obtain mortgage financing on our net lease properties; the affect of economic conditions on the valuations of our investments; performance of our investments relating to our expectations and the impact on our actual return on equity; ability to source and close on attractive investment opportunities; the impact of economic conditions on the borrowers of the commercial real estate debt we originate and the commercial mortgage loans underlying the commercial mortgage backed securities in which we invest; any failure in our due diligence to identify all relevant facts in our underwriting process or otherwise; credit rating downgrades; tenant or borrower defaults or bankruptcy; illiquidity of properties in our portfolio; environmental compliance costs and liabilities; effect of regulatory actions, litigation and contractual claims against us and our affiliates, including the potential settlement and litigation of such claims; competition for investment opportunities; regulatory requirements with respect to our business and the related cost of compliance; the impact of any conflicts arising from our asset management business; the ability to raise capital for the non-listed real estate investment trusts, or REITs, we sponsor; changes in laws or regulations governing various aspects of our business; the loss of our exemption from the definition of "investment company" under the Investment Company Act of 1940, as amended; competition for qualified personnel and our ability to retain key personnel; the effectiveness of our risk management systems; failure to maintain effective internal controls; whether the decision issued by the Court of Appeal of the State of California, Second Appellate District, in our favor associated with litigation involving net lease investments formerly leased to Washington Mutual Bank stands and is no longer subject to further appeal; compliance with the rules governing REITs; and the factors described in Item 1A. of our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 under the heading "Risk Factors."

The foregoing list of factors is not exhaustive. All forward-looking statements included in this press release are based upon information available to us on the date hereof and we are under no duty to update any of the forward-looking statements after the date of this report to conform these statements to actual results.

Factors that could have a material adverse effect on our operations and future prospects are set forth in "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 beginning on page 18. The factors set forth in the Risk Factors section could cause our actual results to differ significantly from those contained in any forward-looking statement contained in this press release.

SOURCE NorthStar Realty Finance Corp.

Investor Relations, Joe Calabrese, +1-212-827-3772