NorthStar Realty Finance CEO Discusses Q3 2010 Results - Earnings Call Transcript

NorthStar Realty Finance Corp. (

NRF

)

Q3 2010 Earnings Call

November 04, 2010 10:00 am ET

Executives

Al Tylis - COO & General Counsel

David Hamamoto - Chairman & CEO

Andy Richardon - EVP, CFO & Treasurer

Analysts

Joshua Barber - Stifel Nicolaus

James Shanahan - Wells Fargo

Presentation

Operator

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Previous Statements by NRF
» NorthStar Realty Finance Corp. Q2 2010 Earnings Call Transcript
» NorthStar Realty Finance Corp. Q1 2010 Earnings Call Transcript
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» NorthStar Realty Finance Corp. Q3 2009 Earnings Call Transcript

Ladies and gentlemen, thank you for standing by. Welcome to the NorthStar Realty Finance third quarter 2010 results conference call. During today’s presentation, all parties will be in a listen-only mode and following the presentation, the conference will be open for questions. (Operator instructions) This conference is being recorded today, Thursday, November 4

th

of 2010.

I would like to turn the conference over to Al Tylis, Chief Operating Officer & General Counsel for NorthStar Realty Finance. Please go ahead, sir.

Al Tylis

Thank you very much. Welcome to NorthStar third quarter 2010 quarterly conference call. Before the call begins, I would like to remind everyone that certain statements made in the course of this call are not based on historical information and may constitute forward-looking statements. These statements are based on management’s current expectations and beliefs, and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.

I refer you to the company’s filings made with the SEC for a more detailed discussion of the risks and factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. The company undertakes no duty to update any forward-looking statements that maybe made in the course of this call.

Additionally, certain non-GAAP financial measures will be discussed on this conference call. Our presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with Generally Accepted Accounting Principles. Reconciliations of these non-GAAP financial measures to the most comparable measures prepared in accordance with Generally Accepted Accounting Principles can be accessed through our filings with the SEC at www.sec.gov.

With that, I'm now going to turn the call over to our Chairman and Chief Executive Officer, David Hamamoto. David?

David Hamamoto

Thanks Al and thanks everyone for joining us this morning. In addition to Al, I am joined today by Andy Richardson, our CFO and Dan Gilbert, our CIO. During the third quarter, we saw some interesting dynamics in the commercial real estate markets with greater capital inflows seeking yields, driving down credit risk premiums and increasing liquidity for the sector, light fundamentals remaining weak. Although we continue to be cautious in our macroeconomic expectations to sustain low interest rate environment is finally drawing investor interest to commercial real estate, the multi-borrower CMBS market is healing with most experts predicting over $10 billion of new issuance in 2010 compared to 9 in 2009.

Yet this market is far from meeting the needs of the vast majority of borrower space in debt maturity. This increased liquidity and risk tolerance by investors is positively impacting our portfolio. In the third quarter, we sold a $32 million mezzanine loan backed by hotel collateral maturing next year for 80% of par and looking at the first few weeks of our fourth quarter, we recently sold a 21 million B-note on an office building at par. While credit risk management remains challenging, we continue to build credit reserves against our loan assets, we believe that the Fed commitment to low interest rates for the foreseeable future should be a positive driver for commercial real estate conditions until an economic recovery gains traction.

During the third quarter, we integrated the capital first loan

CDO

in our portfolio management platform and received approximately 1.3 million of deeds from this 7 million acquisition. Through active portfolio management, we believe that we have already increased value in the CDO.

As a result, the over-collateralization debt that was reduced from a 152 million at closing to 124 million at December 30

th

and as of this October recording date the deficit was further reduced to approximately 27 million. In September, the two non-traded debt sponsored and advised by NorthStar agreed to merge. At quarter end, we had raised approximately 35 million of equity capital in a non-traded REIT for credit and investment, a majority of whose shareholders in October approved the merger into NorthStar Real Estate Income Trust or NS REIT. This is a registered REIT whose perspective was declared effective in July.

NS REIT is targeting to raise over a billion dollars and its stock is being distributed by our wholly-owned broker dealer NRF Capital markets. We have received significant interest in our real estate debt product from the independent broker dealer community and believe that NorthStar’s unique position as a publicly traded advisor to this market should enable us to successfully raise equity capital and to generate management fee revenue that enhance the value of our platform and enhance shareholder value.

Turning to the WAMU property legal situation there is no update from last quarter. As discussed, the field process timing is difficult to predict, it could take a year or more. We are continuing to pursue all avenues available to us to resolve the matter in our favor. I would like to turn the call over to Andy right now. Thanks. Andy?

Andy Richardon

Thanks David. For the third quarter, our GAAP net loss inclusive of a negative $169 million of non-cash mark-to-market adjustment principally caused by tighter credit spreads increasing the value of our liabilities with a $144 million or $1.87 per share. AFFO for the third quarter was 12 million or $0.15 per share. We invested approximately 18 million of equity capital and received approximately $43 million of net loan sales and repayment proceeds during the third quarter exclusive of the CapitalSource CDO loans.

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