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NorthStar Realty Finance Corp. Reports Operating Results (10-Q)

August 05, 2010 | About:
10qk

10qk

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NorthStar Realty Finance Corp. (NRF) filed Quarterly Report for the period ended 2010-06-30.

Northstar Realty Finance Corp. has a market cap of $249.6 million; its shares were traded at around $3.31 with and P/S ratio of 0.9. The dividend yield of Northstar Realty Finance Corp. stocks is 12.1%. Northstar Realty Finance Corp. had an annual average earning growth of 87.9% over the past 5 years.NRF is in the portfolios of Kenneth Fisher of Fisher Asset Management, LLC, Jim Simons of Renaissance Technologies LLC.

Highlight of Business Operations:

Despite these conditions, REITs have collectively raised nearly $52 billion of debt and equity capital, and the Morgan Stanley REIT Index returned approximately 28.6% for 2009 and approximately 5.7% year-to-date through June 30, 2010. In addition, three newly-formed REITs with a real estate debt focus raised approximately $1.5 billion of capital in 2009, but no new commercial mortgage REITs have gone public during the first six months of 2010. Notwithstanding the ability of the public REIT market to raise capital, this market is very small relative to the size of the estimated $1.5 trillion commercial real estate finance market. More recently, U.S. economic conditions appear to be improving (based on GDP growth), however, the unemployment rate remains high indicating a low rate of business expansion, which drives commercial real estate cash flows. Commercial real estate tends to lag economic recoveries and we expect commercial real estate fundamentals to continue to deteriorate through 2010.

On June 30, 2010, we fully repaid and extinguished, at a discount to the outstanding principal amount, our WA Secured Term Loan, which was fully recourse to us, having an outstanding principal balance of approximately $304.0 million and secured by assets having an aggregate unpaid principal balance of approximately $448.6 at the time of the payoff. We paid approximately $208.0 million of cash and granted the lender a 40% participation interest in the principal proceeds of the German Loan. Additionally, the lender agreed to use commercially reasonable efforts to provide us and/or our affiliates with a new credit facility which is expected to have a minimum availability of $200.0 million.

As of June 30, 2010, approximately $3.9 billion of our collateralized debt obligations permit reinvestment of capital proceeds which means when the underlying assets repay we are able to reinvest the proceeds in new assets without having to repay the liabilities. Approximately $406.9 million of our funded loan commitments have their initial maturity date during the remainder of 2010; however, most of the loans contain extension options of at least one year (many subject to performance criteria). We also expect that a majority of the $245.5 million of loans having final maturities during the remainder of 2010 will have their maturities extended beyond 2010 with the expectation that future periods will have more attractive economic conditions and cheaper debt capital. It is therefore difficult to estimate how much capital, if any, will be generated in our CDO financings from loan repayments during the remainder of 2010.

We had recorded $7.0 million of loan loss reserves for this asset during the first quarter. In April 2010, we also foreclosed on an $18.0 million first mortgage loan backed by office collateral located in Philadelphia, PA. We had in prior periods recorded $8.8 million of loan loss reserves for this asset and took a $1.2 million impairment charge during the second quarter related to the foreclosed real estate. In June 2010, we sold a $40.0 first mortgage loan backed by hotel collateral located in New York, NY for approximately $32.0 million. We recorded an $8.1 million credit loss provision for this asset.

As of June 30, 2010, loan loss reserves totaled $135.9 million and related to 11 loans having an aggregate $346.0 million book value (exclusive of the related reserve).

We own a $92.5 million pari passu participation in a $498.6 million first mortgage that is secured by a retail/entertainment complex located in East Rutherford, NJ (the "NJ Loan"). The NJ Loan was most recently modified as of March 31, 2010, and the maturity date of the NJ Loan was extended to August 9, 2010, to provide the borrower additional time to seek new capital for the project. We do not currently believe that the borrower will be successful in attracting the capital necessary for the project and, accordingly, we believe that the NJ Loan is likely to default in the future. While the lending group may take title to the property and seek to recapitalize the property, if the NJ Loan were to default, we may lose a substantial amount of our investment, which could have a material adverse effect on our business and operations. During the second quarter 2010, we recorded a $23.1 million provision for loan loss related to the NJ Loan.

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