NorthStar Realty Finance's CEO Discusses Q2 2012 Results - Earnings Call Transcript

NorthStar Realty Finance Corporation (NRF)

Q2 2012 Earnings Call

August 2, 2012, 10:00 am ET

Executives

Al Tylis - Co-President, COO & Secretary

David Hamamoto - Chairman & CEO

Debra Hess - CFO

Analysts

Joshua Barber - Stifel Nicolaus

Steve Delaney - JMP Securities

Zach Tanenbaum - MLV & Company

Presentation

Operator

Good day ladies and gentlemen, thank you for standing-by. Welcome to the NorthStar Realty Finance second quarter 2012 results conference call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions) This conference is being recorded today, August 2, 2012.

I would now like to turn the conference over to Al Tylis, Co-President and Chief Operating Officer for NorthStar. Please go ahead.

Al Tylis

Thank you very much. Welcome to NorthStar’s second quarter 2012 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 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 may be 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 GAAP. 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 am 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. In addition to Al, I am joined today by Dan Gilbert, Co-President and Chief Investment Officer; Debra Hess our CFO and Ron Lieberman, our General Counsel.

During the second quarter of 2012, mixed U.S. economic indicators along with heightened concerns our Europe’s sovereign debt crisis resulted in slower than expected economic growth in U.S. Despite the overall uneven economic recovery, we continue to see a steady positive trend in commercial real estate fundamental and investor interest in this sector remains strong, supported by the extended low interest rate environment.

Liquidity in commercial real estate debt market continues to improve amplified by $12 billion of non-agency CMBS issuance during the second quarter, which was double the $6 billion of issuance during the first quarter. And it appears we're on-track for full-year 2012 estimated issuance of $35 billion to $40 billion which is in line with expectation.

Throughout the first half of 2012, we continue of focus on steadily expanding our overall platform and making accretive investments with expected total returns in excess of our current cost of capital. Last week, we announced our fourth consecutive increase to our common dividend, representing a 60% increase in cash distributions to our shareholders over the past 12 months. As we look ahead to the remainder of 2012 and beyond, we’re well positioned to continue executing our business strategy and we will continue to evaluate over dividend on a quarterly basis.

We remain disciplined in managing our balance sheet and continue to maintain a healthy liquidity position, especially relative to our near-term corporate debt maturity. For the last several quarters, we’ve highlighted that given the significant volume of commercial real estate loans maturing over the next several years and the limited liquidity available to commercial real estate owners relative to historic norm, there is a compelling investment environment for lenders to have access to capital and an established commercial real estate loan origination platform with a strong track record

Towards this end, since the beginning of 2012, we have directly originated 18 loans with a principle balance of $451 million including $265 million on behalf of our non-traded REIT, NorthStar Real Estate Income Trust or NorthStar Income. Originations year-to-date were primarily first mortgages and the loans originated for NRF balance sheet are expected to generate a 17% return on invested equity.

Looking at our lines of credit for financing the loans that we originate, as of today we are almost fully drawn on our $200 million of credit facilities with Wells Fargo for financing mortgage loans at NorthStar and NorthStar Income. Furthermore, we have recently closed three additional credit facilities, two of which are for NorthStar Income with a combined initial size of $90 million and a third facility for NorthStar’s balance sheet with an initial size of $40 million, but with expectations for near term increases and availability.

In addition to financing our loan originations with long-term bank credit facilities, the three facilities that we just closed have terms of five, six and six years respectively includes the debt extension option. We have had preliminary conversations, rating agencies and banks about returning to the securitization market to finance these loans.

As we have indicated previously, we believe that some form of securitization should become available to commercial real estate finance companies like ours that have proven track records, deep investment organizations and a willingness to retain risks associated with loans that we directly originate.

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