Quarterly Report (10-q)

Table of Contents

 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016
Commission File Number: 001-32330
NORTHSTAR REALTY FINANCE CORP.
(Exact Name of Registrant as Specified in its Charter)
Maryland
(State or Other Jurisdiction of
Incorporation or
Organization)
02-0732285
(IRS Employer
Identification No.)
399 Park Avenue, 18th Floor, New York, NY 10022
(Address of Principal Executive Offices, Including Zip Code)
(212) 547-2600
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x     No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x     No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x
 
Accelerated filer o
 
Non-accelerated filer o
  (Do not check if a
smaller reporting company)
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o     No  x
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:
The Company has one class of common stock, $0.01 par value per share, 180,752,147 shares outstanding as of November 7, 2016 .


Table of Contents

NORTHSTAR REALTY FINANCE CORP.
FORM 10-Q
TABLE OF CONTENTS

Index
 
Page
 
 
 
 
 
 
 
 


2
Table of Contents

FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q 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 liquidity and financing needs, the impact of the pending merger with NorthStar Asset Management Group Inc., or NSAM, and Colony Capital, Inc., or Colony, on our business and operations, the effects of our current strategies and investment activities, our ability to manage our portfolio in accordance with the long-term management contract with an affiliate of NSAM, until the merger is completed, and our ability to raise and effectively deploy 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:
•
our ability to consummate the merger with NSAM and Colony on the contemplated terms or at all, including whether the merger will have the full or any strategic and financial benefits, efficiencies and synergies we expect and whether such benefits will be delayed or materialize at all;
•
adverse domestic or international economic conditions and the impact on the commercial real estate industry;
•
the effect of economic conditions on the valuation of our investments;
•
volatility, disruption or uncertainty in the financial markets;
•
access to debt and equity capital and our liquidity;
•
our substantial use of leverage and our ability to comply with the terms of our borrowing arrangements;
•
our ability to monetize our assets on favorable terms or at all;
•
illiquidity of properties in our portfolio;
•
the effects of being an externally-managed company, including our reliance on NSAM and its affiliates and sub-advisors/co-venturers in providing management services to us, the payment of substantial base management and incentive fees to NSAM, the allocation of investments by NSAM among us and the manager’s other sponsored or managed companies and strategic vehicles and various conflicts of interest in our relationship with NSAM;
•
a change in the ownership, board or management of NSAM;
•
the effectiveness of NSAM’s portfolio management techniques and strategies;
•
the spin-off of NorthStar Realty Europe Corp. may not have the full or any strategic and financial benefits that we expect;
•
whether we determine to undergo future restructurings, including internalization of our management company and/or spin-offs of additional assets and businesses in the future, our ability to complete such transactions and the impact of such transactions on our business and financial condition;
•
risks associated with joint ventures, including our reliance on joint venture partners, lack of sole decision making authority and the financial condition of our joint venture partners;
•
our ability to successfully integrate assets or companies acquired into our business and operations, maintain consistent standards and controls and realize the anticipated benefits of the acquisitions;
•
performance of our investments relative to our expectations and the impact on our actual return on invested equity, as well as the cash provided by these investments and available for distribution;
•
the impact of adverse conditions affecting a specific asset class in which we have investments, such as healthcare, hotel, manufactured housing, multi-tenant office and limited partnership interests in real estate private equity funds;

3
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•
the impact of economic conditions on the tenants/operators/residents/guests of the real property that we own as well as on the borrowers of the commercial real estate debt we originate and acquire and the commercial mortgage loans underlying the commercial mortgage-backed securities in which we invest;
•
the ability and willingness of our tenants/operators/managers and other third parties to satisfy their respective obligations to us, including in some cases their obligation to indemnify us from and against various claims and liabilities;
•
any failure in our due diligence to identify all relevant facts in our underwriting process or otherwise;
•
the financial weakness of tenants/operators/managers or borrowers, including defaults or bankruptcy;
•
our ability to manage our costs in line with our expectations and the impact on our cash available for distribution;
•
our ability to satisfy and manage our capital requirements;
•
our ability to obtain mortgage financing on our real estate portfolio on favorable terms or at all;
•
the impact of fluctuations in interest rates;
•
our ability to comply with, as well as the impact of changes in, laws or regulations governing various aspects of our business, including in particular potential reforms in labor regulation and healthcare regulation, such as changes in reimbursement policies, rates and procedures;
•
the impact of shareholder activism, if any;
•
environmental and regulatory requirements, compliance costs and liabilities relating to owning and operating properties in our portfolio and to our business in general;
•
effect of regulatory actions, litigation and contractual claims against us and our affiliates, including the potential settlement and litigation of such claims;
•
the possibility that the net asset value of interests in certain real estate private equity funds we acquired do not necessarily reflect the fair value of such fund interests or that the actual amount of our future capital commitments underlying such fund interests varies materially from our expectations;
•
the loss of our exemption from the definition of an “investment company” under the Investment Company Act of 1940, as amended;
•
NSAM’s ability to hire and retain qualified personnel and potential changes to key personnel providing management services to us;
•
our ability to grow and profit from our commercial real estate origination activities;
•
the impact of damage to our brand and reputation resulting from internal or external causes;
•
the potential failure to maintain effective internal controls and disclosure controls and procedures; and
•
compliance with the rules governing real estate investment trusts.
The foregoing list of factors is not exhaustive. All forward-looking statements included in this Quarterly Report on Form 10-Q are based on 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 our filings with the United States Securities and Exchange Commission, or the SEC, included in Part I, Item 1A. of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 and in Part II, Item 1A. of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 under the heading “Risk Factors.” The risk factors set forth in our filings with the SEC could cause our actual results to differ significantly from those contained in any forward-looking statement contained in this report.

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Table of Contents

PART I. Financial Information
Item 1.    Financial Statements
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Data)
 
September 30, 2016 (Unaudited)
 
December 31,
2015
 
 
Assets

 
 
Cash and cash equivalents
$
725,360


$
224,101

Restricted cash
180,068

 
299,288

Operating real estate, net
7,371,996


8,702,259

Real estate debt investments, net (refer to Note 4)
348,539


501,474

Real estate debt investments, held for sale (refer to Note 4)
—

 
224,677

Investments in private equity funds, at fair value (refer to Note 5)
484,876


1,101,650

Investments in unconsolidated ventures (refer to Note 6)
161,744


155,737

Real estate securities, available for sale (refer to Note 7)
526,966


702,110

Receivables, net of allowance of $4,323 and $4,318 as of September 30, 2016 and December 31, 2015, respectively
264,961

 
66,197

Receivables, related parties
1,888

 
2,850

Intangible assets, net
343,717

 
527,277

Assets of properties held for sale (refer to Note 3)
2,653,959


2,742,635

Other assets
300,815

 
154,146

Total assets (1)
$
13,364,889

 
$
15,404,401

Liabilities
 
 
 
Mortgage and other notes payable
$
6,922,027

 
$
7,164,576

Credit facilities and term borrowings
420,409

 
654,060

CDO bonds payable, at fair value
257,877

 
307,601

Exchangeable senior notes
27,356

 
29,038

Junior subordinated notes, at fair value
191,175

 
183,893

Accounts payable and accrued expenses
132,016

 
170,120

Due to related party (refer to Note 9)
46,939

 
50,903

Derivative liabilities, at fair value
302,316

 
103,293

Intangible liabilities, net
113,967

 
149,642

Liabilities of properties held for sale (refer to Note 3)
1,502,659

 
2,209,689

Other liabilities
73,126

 
165,856

Total liabilities (1)
9,989,867


11,188,671

Commitments and contingencies

 

Equity
 
 
 
NorthStar Realty Finance Corp. Stockholders’ Equity
 
 
 
Preferred stock, $986,640 aggregate liquidation preference as of September 30, 2016 and December 31, 2015
939,118


939,118

Common stock, $0.01 par value, 500,000,000 shares authorized, 180,729,894 and 183,239,708 shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively
1,807

 
1,832

Additional paid-in capital
5,116,100

 
5,149,349

Retained earnings (accumulated deficit)
(2,891,153
)
 
(2,309,564
)
Accumulated other comprehensive income (loss)
(63,709
)
 
18,485

Total NorthStar Realty Finance Corp. stockholders’ equity
3,102,163

 
3,799,220

Non-controlling interests
272,859

 
416,510

Total equity
3,375,022


4,215,730

Total liabilities and equity
$
13,364,889

 
$
15,404,401

_______________________
(1)
Represents the consolidated assets and liabilities of NorthStar Realty Finance Limited Partnership (the “Operating Partnership”). The Operating Partnership is a consolidated variable interest entity (“VIE”), of which the Company is the sole general partner and owns approximately 99% . As of September 30, 2016 , the assets and liabilities of the Operating Partnership include $10.8 billion and $7.7 billion of assets and liabilities, respectively, of certain VIEs that are consolidated by the Operating Partnership. Refer to Note 16 for further disclosure.




Refer to accompanying notes to consolidated financial statements.

5
Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016 (1)
 
2015 (1)
 
2016 (1)
 
2015 (1)
Property and other revenues
 
 
 
 
 
 
 
Rental and escalation income
$
165,060

 
$
194,518

 
$
527,252

 
$
539,542

Hotel related income
220,578

 
219,427

 
636,283

 
594,284

Resident fee income
72,988

 
70,257

 
219,193

 
199,463

Other revenue
5,038

 
2,501

 
14,747

 
9,719

Total property and other revenues
463,664

 
486,703

 
1,397,475

 
1,343,008

Net interest income
 
 
 
 
 
 
 
Interest income (refer to Note 9)
34,669

 
60,840

 
115,117

 
185,986

Interest expense on debt and securities
1,614

 
1,289

 
5,309

 
5,245

Net interest income on debt and securities
33,055

 
59,551

 
109,808

 
180,741

Expenses
 
 
 
 
 
 
 
Management fee, related party (refer to Note 9)
46,771

 
51,285

 
139,955

 
151,260

Interest expense—mortgage and corporate borrowings
114,296

 
127,111

 
356,743

 
360,295

Real estate properties—operating expenses
236,992

 
248,983

 
708,934

 
670,480

Other expenses
6,472

 
7,495

 
20,933

 
22,457

Transaction costs
3,599

 
2,633

 
15,590

 
31,976

Impairment losses
70,433

 
—

 
75,506

 
—

Provision for (reversal of) loan losses, net
1,892

 
53

 
7,974

 
820

General and administrative expenses
 
 
 
 
 
 
 
Compensation expense (2)
7,528

 
7,794

 
23,295

 
31,135

Other general and administrative expenses
3,585

 
4,885

 
12,708

 
12,863

Total general and administrative expenses
11,113

 
12,679

 
36,003

 
43,998

Depreciation and amortization
84,726

 
118,826

 
260,287

 
340,185

Total expenses
576,294

 
569,065

 
1,621,925

 
1,621,471

Other income (loss)
 
 
 
 
 
 
 
Unrealized gain (loss) on investments and other
(26,648
)
 
(132,251
)
 
(269,052
)
 
(171,238
)
Realized gain (loss) on investments and other
939

 
614

 
(11,768
)
 
13,921

Income (loss) before equity in earnings (losses) of unconsolidated ventures and income tax benefit (expense)
(105,284
)

(154,448
)
 
(395,462
)
 
(255,039
)
Equity in earnings (losses) of unconsolidated ventures
26,054

 
60,359

 
101,838

 
171,738

Income tax benefit (expense)
(3,567
)
 
2,142

 
(12,329
)
 
(9,610
)
Income (loss) from continuing operations
(82,797
)
 
(91,947
)
 
(305,953
)
 
(92,911
)
Income (loss) from discontinued operations (refer to Note 3)
—

 
(16,581
)
 
—

 
(114,236
)
Net income (loss)
(82,797
)

(108,528
)
 
(305,953
)
 
(207,147
)
Net (income) loss attributable to non-controlling interests
3,506

 
3,477

 
7,960

 
15,110

Preferred stock dividends
(21,060
)
 
(21,060
)
 
(63,178
)
 
(63,178
)
Net income (loss) attributable to NorthStar Realty Finance Corp. common stockholders
$
(100,351
)

$
(126,111
)
 
$
(361,171
)
 
$
(255,215
)
Earnings (loss) per share: (3)
 
 
 
 
 
 
 
Income (loss) per share from continuing operations
$
(0.56
)
 
$
(0.60
)
 
$
(2.00
)
 
$
(0.82
)
Income (loss) per share from discontinued operations
—

 
(0.09
)
 
—

 
(0.67
)
Basic
$
(0.56
)

$
(0.69
)
 
$
(2.00
)
 
$
(1.49
)
Diluted
$
(0.56
)

$
(0.69
)
 
$
(2.00
)
 
$
(1.49
)
Weighted average number of shares: (3)
 
 
 
 
 
 
 
Basic
179,890,187

 
182,343,301

 
180,802,905

 
171,137,667

Diluted
181,746,499


184,187,524

 
182,663,677

 
172,475,489

Dividends per share of common stock (3)
$
0.40

 
$
0.75

 
$
1.20

 
$
2.35

____________________
(1)
The consolidated financial statements for the three and nine months ended September 30, 2016 represent the Company’s results of operations following the NRE Spin-off on October 31, 2015. The three and nine months ended September 30, 2015 include a carve-out of revenues and expenses attributable to NorthStar Europe recorded in discontinued operations.
(2)
The three months ended September 30, 2016 and 2015 includes $5.9 million and $6.2 million of equity-based compensation expense, respectively. The nine months ended September 30, 2016 and 2015 includes $17.7 million and $24.7 million of equity-based compensation expense, respectively. Refer to Note 10 for further disclosure.
(3)
The three and nine months ended September 30, 2015 is adjusted for the one-for-two reverse stock split completed on November 1, 2015. Refer to Note 11. “Stockholders’ Equity” for additional disclosure.

Refer to accompanying notes to consolidated financial statements.

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollars in Thousands)
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Net income (loss)
$
(82,797
)
 
$
(108,528
)
 
$
(305,953
)
 
$
(207,147
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized gain (loss) on real estate securities, available for sale, net
(14,694
)
 
(8,076
)
 
(79,672
)
 
(28,943
)
Amortization of swap (gain) loss into interest expense—mortgage and corporate borrowings (refer to Note 14)
223

 
223

 
669

 
711

Foreign currency translation adjustment, net
(1,163
)
 
1,557

 
(4,726
)
 
(912
)
Total other comprehensive income (loss)
(15,634
)
 
(6,296
)
 
(83,729
)
 
(29,144
)
Comprehensive income (loss)
(98,431
)
 
(114,824
)
 
(389,682
)
 
(236,291
)
Comprehensive (income) loss attributable to non-controlling interests
3,836

 
3,155

 
9,495

 
15,340

Comprehensive income (loss) attributable to NorthStar Realty Finance Corp.
$
(94,595
)
 
$
(111,669
)
 
$
(380,187
)

$
(220,951
)
   





















Refer to accompanying notes to consolidated financial statements.

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Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(Dollars and Shares in Thousands)

Preferred Stock

Common Stock

Additional
Paid-in
Capital

Retained
Earnings
(Accumulated
Deficit)

Accumulated
Other
Comprehensive
Income (Loss)

Total NorthStar Stockholders’ Equity
 
Non-controlling
Interests


 


Total
Equity

Shares

Amount

Shares

Amount

Balance as of December 31, 2014
39,466

 
$
939,118

 
150,842

 
$
1,508

 
$
4,828,928

 
$
(1,422,399
)
 
$
49,540

 
$
4,396,695

 
$
316,961

 
$
4,713,656

Net proceeds from offering of common stock
—

 
—

 
38,000

 
380

 
1,325,860

 
—

 
—

 
1,326,240

 
—

 
1,326,240

Non-controlling interests—contributions
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
126,484

 
126,484

Non-controlling interests—distributions
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(36,661
)
 
(36,661
)
Non-controlling interests—reallocation of interest in Operating Partnership (refer to Note 12)
—

 
—

 
—

 
—

 
(14,548
)
 
—

 
—

 
(14,548
)
 
14,548

 
—

Dividend reinvestment plan
—

 
—

 
7

 
—

 
194

 
—

 
—

 
194

 
—

 
194

Amortization of equity-based compensation
—

 
—

 
—

 
—

 
13,757

 
—

 
—

 
13,757

 
11,935

 
25,692

Conversion of exchangeable senior notes
—

 
—

 
829

 
8

 
13,582

 
—

 
—

 
13,590

 
—

 
13,590

Other comprehensive income (loss)
—


—


—


—


—


—


(16,713
)

(16,713
)

(529
)

(17,242
)
Conversion of Deferred LTIP Units to LTIP Units
—

 
—

 
—

 
—

 
(18,730
)
 
—

 
—

 
(18,730
)
 
18,730

 
—

Retirement of shares of common stock
—

 
—

 
(6,470
)
 
(64
)
 
(117,983
)
 
—

 
—

 
(118,047
)
 
—

 
(118,047
)
Issuance of restricted stock, net of tax withholding
—

 
—

 
32

 
—

 
(3,602
)
 
—

 
—

 
(3,602
)
 
—

 
(3,602
)
Spin-off of NorthStar Europe (refer to Note 3)
—

 
—

 
—

 
—

 
(878,109
)
 
—

 
(14,342
)
 
(892,451
)
 
(7,450
)
 
(899,901
)
Dividends on common stock and equity-based awards (refer to Note 10)
—

 
—

 
—

 
—

 
—

 
(559,668
)
 
—

 
(559,668
)
 
(3,500
)
 
(563,168
)
Dividends on preferred stock
—

 
—

 
—

 
—

 
—

 
(84,238
)
 
—

 
(84,238
)
 
—

 
(84,238
)
Net income (loss)
—

 
—

 
—

 
—

 
—

 
(243,259
)
 
—

 
(243,259
)
 
(24,008
)
 
(267,267
)
Balance as of December 31, 2015
39,466

 
$
939,118

 
183,240

 
$
1,832

 
$
5,149,349

 
$
(2,309,564
)
 
$
18,485

 
$
3,799,220

 
$
416,510

 
$
4,215,730

Non-controlling interests—contributions
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
1,642

 
1,642

Non-controlling interests—distributions
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(28,784
)
 
(28,784
)
Non-controlling interest – sale or deconsolidation of subsidiary
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(104,906
)
 
(104,906
)
Non-controlling interests—reallocation of interest in Operating Partnership (refer to Note 12)
—

 
—

 
—

 
—

 
6,031

 
—

 
—

 
6,031

 
(6,031
)
 
—

Dividend reinvestment plan
—

 
—

 
12

 
—

 
154

 
—

 
—

 
154

 
—

 
154

Amortization of equity-based compensation
—

 
—

 
—

 
—

 
10,931

 
—

 
—

 
10,931

 
5,843

 
16,774

Conversion of exchangeable senior notes
—

 
—

 
200

 
2

 
1,869

 
—

 
—

 
1,871

 
—

 
1,871

Other comprehensive income (loss)
—

 
—

 
—

 
—

 
—

 
—

 
(82,194
)
 
(82,194
)
 
(1,535
)
 
(83,729
)
Retirement of shares of common stock
—

 
—

 
(3,890
)
 
(39
)
 
(49,994
)
 
—

 
—

 
(50,033
)
 
—

 
(50,033
)
Issuance of stock, net of tax withholding
—

 
—

 
1,168

 
12

 
(2,240
)
 
—

 
—

 
(2,228
)
 
—

 
(2,228
)
Dividends on common stock and equity-based awards (refer to Note 10)
—

 
—

 
—

 
—

 
—

 
(220,418
)
 
—

 
(220,418
)
 
(1,920
)
 
(222,338
)
Dividends on preferred stock
—

 
—

 
—

 
—

 
—

 
(63,178
)
 
—

 
(63,178
)
 
—

 
(63,178
)
Net income (loss)
—

 
—

 
—

 
—

 
—

 
(297,993
)
 
—

 
(297,993
)
 
(7,960
)
 
(305,953
)
Balance as of September 30, 2016 (unaudited)
39,466

 
$
939,118

 
180,730

 
$
1,807

 
$
5,116,100

 
$
(2,891,153
)
 
$
(63,709
)
 
$
3,102,163

 
$
272,859

 
$
3,375,022

























Refer to accompanying notes to consolidated financial statements.

8
Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
 
Nine Months Ended September 30,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(305,953
)
 
$
(207,147
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
Equity in (earnings) losses of PE Investments
(79,248
)
 
(155,670
)
Equity in (earnings) losses of unconsolidated ventures
(22,590
)
 
(16,068
)
Depreciation and amortization
260,287

 
375,208

Amortization of premium/accretion of discount on investments
(42,988
)
 
(46,498
)
Interest accretion on investments
(830
)
 
(12,904
)
Amortization of deferred financing costs
41,156

 
37,485

Amortization of equity-based compensation
16,774

 
23,161

Unrealized (gain) loss on investments and other
262,084

 
180,428

Realized (gain) loss on investments and other
11,768

 
(14,607
)
Impairment losses
75,506

 
—

Distributions from PE Investments (refer to Note 5)
76,452

 
155,670

Distributions from unconsolidated ventures
7,836

 
6,456

Distributions from equity investments
9,613

 
20,770

Amortization of capitalized above/below market leases
5,158

 
9,806

Straight line rental income, net
(21,697
)
 
(26,842
)
Deferred income taxes, net
(11,971
)
 
(19,986
)
Provision for (reversal of) loan losses, net
7,974

 
820

Allowance for uncollectible accounts
3,510

 
2,156

Other
—

 
804

Changes in assets and liabilities:
 
 
 
Restricted cash
(22,588
)
 
(20,566
)
Receivables
5,229

 
26,097

Receivables, related parties
1,058

 
1,357

Other assets
(11,674
)
 
11,337

Accounts payable and accrued expenses
5,555

 
17,377

Due to related party
(3,964
)
 
4,593

Other liabilities
(8,647
)
 
34,594

Net cash provided by (used in) operating activities
257,810


387,831

Cash flows from investing activities:
 
 
 
Acquisition of operating real estate
—

 
(3,224,390
)
Acquisition of manufactured homes, held for sale
(10,047
)
 
(3,115
)
Improvements of real estate
(112,457
)
 
(82,641
)
Improvements of real estate, held for sale
(10,475
)
 
(7,869
)
Proceeds from sale of real estate
368,984

 
19,683

Origination of or fundings for real estate debt investments
(19,015
)
 
(68,799
)
Acquisition of real estate debt investments
—

 
(72,950
)
Proceeds from sale of real estate debt investments
312,585

 
—

Repayment of real estate debt investments
67,383

 
306,331

Investment in PE Investments (refer to Note 5)
(6,979
)
 
(552,395
)
Distributions from PE Investments (refer to Note 5)
106,958

 
353,129

Proceeds from sale of PE Investments (refer to Note 5)
217,970

 
—

Investment in unconsolidated ventures
(5,014
)
 
(3,702
)
Distributions from unconsolidated ventures
5,059

 
21,341

Acquisition of real estate securities, available for sale
(1,150
)
 
(23,808
)
Proceeds from sale of real estate securities, available for sale
53,886

 
95,664

Repayment of real estate securities, available for sale
35,878

 
76,243

Change in restricted cash
77,764

 
11,070

Payment of leasing costs
(3,131
)
 
(4,610
)
Investment deposits and pending deal costs
(2,283
)
 
(13,226
)
Other assets
(3,995
)
 
(15,747
)
Net cash provided by (used in) investing activities
1,071,921


(3,189,791
)
Refer to accompanying notes to consolidated financial statements.

9

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in Thousands)
(Unaudited)
 
Nine Months Ended September 30,
 
2016
 
2015
Cash flows from financing activities:
 
 
 
Borrowings from mortgage and other notes payable
$
184,086

 
$
2,097,089

Repayment of mortgage and other notes payable
(202,484
)
 
(37,757
)
Repayment of CDO bonds
(49,661
)
 
(52,825
)
Repurchase of CDO bonds
—

 
(20,491
)
Repayment of securitization bonds payable
—

 
(41,831
)
Borrowings from credit facilities
—

 
885,000

Repayment of credit facilities
(237,053
)
 
(831,877
)
Proceeds from senior notes
—

 
340,000

Payment of financing costs
(6,108
)
 
(106,191
)
Purchase of derivative instruments
(76
)
 
(29,666
)
Payment of cash collateral on derivatives
(161,215
)
 
—

Change in restricted cash
14,075

 
302

Net proceeds from common stock offering
—

 
1,086,332

Repurchase of common stock
(52,034
)
 
—

Proceeds from dividend reinvestment plan
154

 
135

Dividends
(284,984
)
 
(479,968
)
Repurchase of shares related to equity-based awards and tax withholding
(5,865
)
 
—

Contributions from non-controlling interests
1,642

 
116,393

Distributions to non-controlling interests
(28,784
)
 
(29,397
)
Net cash provided by (used in) financing activities
(828,307
)

2,895,248

Effect of foreign currency translation on cash and cash equivalents
(165
)
 
(4,218
)
Net increase (decrease) in cash and cash equivalents
501,259

 
89,070

Cash and cash equivalents—beginning of period
224,101

 
296,964

Cash and cash equivalents—end of period
$
725,360

 
$
386,034
















Refer to accompanying notes to consolidated financial statements.

10

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
Business and Organization
NorthStar Realty Finance Corp. is a diversified commercial real estate company (the “Company” or “NorthStar Realty”).  The Company invests in multiple asset classes across commercial real estate (“CRE”) that it expects will generate attractive risk-adjusted returns and may take the form of acquiring real estate, originating or acquiring senior or subordinate loans, as well as pursuing opportunistic CRE investments. The Company is a Maryland corporation and completed its initial public offering in October 2004. The Company conducts its operations so as to continue to qualify as a real estate investment trust (“REIT”) for U.S. federal income tax purposes. The Company is externally managed and advised by an affiliate of NorthStar Asset Management Group Inc. (NYSE: NSAM), which together with its affiliates is referred to as NSAM.
Substantially all of the Company’s assets, directly or indirectly, are held by, and the Company conducts its operations, directly or indirectly, through NorthStar Realty Finance Limited Partnership, a Delaware limited partnership and the operating partnership of the Company (the “Operating Partnership”). All references herein to the Company refer to NorthStar Realty Finance Corp. and its consolidated subsidiaries, including the Operating Partnership, collectively, unless the context otherwise requires.
Merger Agreement with NSAM and Colony Capital, Inc.
In June 2016, the Company announced that it entered into a merger agreement with NSAM and Colony Capital, Inc. (“Colony”) under which the companies will combine in an all-stock merger of equals transaction to create an internally-managed, diversified real estate and investment management platform (the “Mergers”). The transaction has been approved by the Company’s and NSAM’s respective board of directors, including the unanimous approval by their respective Special Committees and the board of directors of Colony.
Under the terms of the merger agreement, as amended, NSAM will redomesticate to Maryland and elect to be treated as a REIT beginning in 2017 and the Company and Colony, through a series of transactions, will merge with and into the redomesticated NSAM, which will be renamed Colony NorthStar, Inc. (“Colony NorthStar”). The Company’s common stockholders will receive 1.0996 shares of Colony NorthStar’s common stock for each share of common stock they own. Holders of preferred stock will receive shares of preferred stock of Colony NorthStar that are substantially similar to the preferred stock held prior to the closing of the transaction. Upon completion of the transaction, NSAM stockholders will own approximately 32.85% , Colony stockholders will own approximately 33.25% and the Company’s stockholders will own approximately 33.90% of the combined company on a fully diluted basis, excluding the effect of certain equity-based awards issuable in connection with the Mergers.
In October 2016, the Company amended the merger agreement and provided for, among other matters, an enhanced governance structure for Colony NorthStar, modified severance terms for NSAM’s executive officers and a special cash dividend for NSAM’s stockholders now totaling $228 million . In connection with the amendment to the merger agreement, NSAM entered into a voting agreement with MSD Capital L.P. (“MSD”) and its affiliates, which together own approximately 10.2% of NSAM’s outstanding shares, pursuant to which MSD agreed to vote in favor of the Mergers and related proposals. In addition, Colony NorthStar, a Maryland subsidiary of NSAM that will be the surviving parent company of the combined company, filed with the SEC an amended registration statement on Form S-4 that includes a joint proxy statement of the Company, Colony and NSAM and that also constitutes a prospectus of Colony NorthStar.
The transaction is expected to close in January 2017, subject to, among other things, regulatory approvals and the receipt of the Company’s, Colony’s and NSAM’s respective stockholder approvals.
Sales Initiatives
The Company continues to execute a series of sales initiatives including: (i) sales of certain real estate assets; (ii) sales of certain of the Company’s limited partnership interests in real estate private equity funds (“PE Investments”); and (iii) sales and/or accelerated repayments of the Company’s CRE debt and securities investments.
2.
Summary of Significant Accounting Policies
Basis of Quarterly Presentation
The accompanying unaudited consolidated financial statements and related notes of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and note disclosures normally included in the consolidated financial statements prepared under U.S. GAAP have been condensed or omitted. In the opinion of management, all adjustments considered necessary for a fair presentation of the Company’s financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The operating results presented for interim periods are not

11
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

necessarily indicative of the results that may be expected for any other interim period or for the entire year. These consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 , which was filed with the United States Securities and Exchange Commission (the “SEC”).
The three and nine months ended September 30, 2016 represent the Company’s results of operations following the spin-off of its European real estate business (the “NRE Spin-off”) into a separate publicly-traded REIT, NorthStar Realty Europe Corp. (“NorthStar Europe”). The three and nine months ended September 30, 2015 include a carve-out of revenues and expenses attributable to NorthStar Europe recorded in discontinued operations. As a result, the three and nine months ended September 30, 2016 may not be comparable to the prior periods presented. Expenses also included an allocation of indirect expenses of the Company to NorthStar Europe, including salaries and other general and administrative expenses (primarily occupancy and other cost) based on an estimate had the European real estate business been run as an independent entity. This allocation method was principally based on relative headcount and management’s knowledge of the Company’s operations.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, the Operating Partnership and their consolidated subsidiaries. The Company consolidates variable interest entities (“VIE”) where the Company is the primary beneficiary and voting interest entities which are generally majority owned or otherwise controlled by the Company. All significant intercompany balances are eliminated in consolidation.
Variable Interest Entities
A VIE is an entity that lacks one or more of the characteristics of a voting interest entity. A VIE is defined as an entity in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The determination of whether an entity is a VIE includes both a qualitative and quantitative analysis. The Company bases its qualitative analysis on its review of the design of the entity, its organizational structure including decision-making ability and relevant financial agreements and the quantitative analysis on the forecasted cash flow of the entity.
The Company reassesses its initial evaluation of an entity as a VIE upon the occurrence of certain reconsideration events.
A VIE must be consolidated only by its primary beneficiary, which is defined as the party who, along with its affiliates and agents has both the: (i) power to direct the activities that most significantly impact the VIE’s economic performance; and (ii) obligation to absorb the losses of the VIE or the right to receive the benefits from the VIE, which could be significant to the VIE. The Company determines whether it is the primary beneficiary of a VIE by considering qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of its investment; the obligation or likelihood for the Company or other interests to provide financial support; consideration of the VIE’s purpose and design, including the risks the VIE was designed to create and pass through to its variable interest holders and the similarity with and significance to the business activities of the Company and the other interests. The Company reassesses its determination of whether it is the primary beneficiary of a VIE each reporting period. Significant judgments related to these determinations include estimates about the current and future fair value and performance of investments held by these VIEs and general market conditions.
The Company evaluates its CRE debt and securities, investments in unconsolidated ventures and securitization financing transactions, such as its collateralized debt obligations (“CDOs”) and its liabilities to subsidiary trusts issuing preferred securities (“junior subordinated notes”) to determine whether they are a VIE. The Company analyzes new investments and financings, as well as reconsideration events for existing investments and financings, which vary depending on type of investment or financing.
Voting Interest Entities
A voting interest entity is an entity in which the total equity investment at risk is sufficient to enable it to finance its activities independently and the equity holders have the power to direct the activities of the entity that most significantly impact its economic performance, the obligation to absorb the losses of the entity and the right to receive the residual returns of the entity. The usual condition for a controlling financial interest in a voting interest entity is ownership of a majority voting interest. If the Company has a majority voting interest in a voting interest entity, the entity will generally be consolidated. The Company does not consolidate a voting interest entity if there are substantive participating rights by other parties and/or kick-out rights by a single party or through a simple majority vote.

12
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

The Company performs on-going reassessments of whether entities previously evaluated under the voting interest framework have become VIEs, based on certain events, and therefore subject to the VIE consolidation framework.
Investments in Unconsolidated Ventures
A non-controlling, unconsolidated ownership interest in an entity may be accounted for using the equity method, at fair value or the cost method.
Under the equity method, the investment is adjusted each period for capital contributions and distributions and its share of the entity’s net income (loss). Capital contributions, distributions and net income (loss) of such entities are recorded in accordance with the terms of the governing documents. An allocation of net income (loss) may differ from the stated ownership percentage interest in such entity as a result of a preferred return and allocation formula, if any, as described in such governing documents.
The Company may account for an investment in an unconsolidated entity at fair value by electing the fair value option. The Company elected the fair value option for its investments (directly or indirectly in joint ventures) that own PE Investments and certain investments in unconsolidated ventures (refer to Note 6). The Company records the change in fair value for its share of the projected future cash flow of such investments from one period to another in equity in earnings (losses) from unconsolidated ventures in the consolidated statements of operations. Any change in fair value attributed to market related assumptions is considered unrealized gain (loss).
The Company may account for an investment that does not qualify for equity method accounting or for which the fair value option was not elected using the cost method if the Company determines the investment in the unconsolidated entity is insignificant. Under the cost method, equity in earnings is recorded as dividends are received to the extent they are not considered a return of capital, which is recorded as a reduction of cost of the investment.
Non-controlling Interests
A non-controlling interest in a consolidated subsidiary is defined as the portion of the equity (net assets) in a subsidiary not attributable, directly or indirectly, to the Company. A non-controlling interest is required to be presented as a separate component of equity on the consolidated balance sheets and presented separately as net income (loss) and other comprehensive income (loss) (“OCI”) attributable to non-controlling interests. An allocation to a non-controlling interest may differ from the stated ownership percentage interest in such entity as a result of a preferred return and allocation formula, if any, as described in such governing documents.
Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that could affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates and assumptions.
Reclassifications
Certain prior period amounts have been reclassified in the consolidated financial statements to conform to current period presentation including amounts related to discontinued operations (refer to Note 3).
Comprehensive Income (Loss)
The Company reports consolidated comprehensive income (loss) in separate statements following the consolidated statements of operations. Comprehensive income (loss) is defined as the change in equity resulting from net income (loss) and OCI. The components of OCI principally include: (i) unrealized gain (loss) on real estate securities available for sale for which the fair value option is not elected; (ii) the reclassification of unrealized gain (loss) on real estate securities available for sale for which the fair value option was not elected to realized gain (loss) upon sale or realized event; (iii) the reclassification of unrealized gain (loss) to interest expense on derivative instruments that are or were deemed to be effective hedges; (iv) foreign currency translation adjustment; and (v) reclassification of foreign currency translation into realized gain (loss) on investments and other upon realized event.

13
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Restricted Cash
Restricted cash primarily consists of amounts related to operating real estate. The following table presents a summary of restricted cash as of September 30, 2016 and December 31, 2015 (dollars in thousands):
 
 
September 30, 2016 (Unaudited)
 
December 31, 2015
 
 
 
Capital expenditures reserves (1)
 
$
102,271

 
$
196,421

Operating real estate escrow reserves (2)
 
69,686

 
82,690

CRE debt escrow deposits
 
26

 
8,815

Cash in N-Star CDOs (3)
 
8,085

 
11,362

Total
 
$
180,068

 
$
299,288

__________________________________________________
(1)
Primarily represents capital improvements, furniture, fixtures and equipment, tenant improvements, lease renewal and replacement reserves related to operating real estate.
(2)
Primarily represents insurance, real estate tax, repair and maintenance, tenant security deposits and other escrows related to operating real estate.
(3)
Represents proceeds from repayments and/or sales pending distribution in consolidated N-Star CDOs.
Fair Value Option
The fair value option provides an election that allows a company to irrevocably elect to record certain financial assets and liabilities at fair value on an instrument-by-instrument basis at initial recognition. The Company may elect to apply the fair value option for certain investments due to the nature of the instrument. Any change in fair value for assets and liabilities for which the election is made is recognized in earnings.
Operating Real Estate
Operating real estate is carried at historical cost less accumulated depreciation. Ordinary repairs and maintenance are expensed as incurred. Major replacements and improvements which improve or extend the life of the asset are capitalized and depreciated over their useful life. Operating real estate is depreciated using the straight-line method over the estimated useful lives of the assets, summarized as follows:
Category:
 
Term:
Building (fee interest)
 
15 to 40 years
Building improvements
 
Lesser of the useful life or remaining life of the building
Building leasehold interests
 
Lesser of 40 years or remaining term of the lease
Land improvements
 
10 to 30 years
Tenant improvements
 
Lesser of the useful life or remaining term of the lease
The Company accounts for purchases of operating real estate that qualify as business combinations using the acquisition method, where the purchase price is allocated to tangible assets such as land, building, tenant and land improvements and other identified intangibles, such as goodwill. Costs directly related to an acquisition deemed to be a business combination are expensed and included in transaction costs in the consolidated statements of operations. The Company evaluates whether real estate acquired in connection with a foreclosure, UCC/deed in lieu of foreclosure or a consentual modification of a loan (herein collectively referred to as taking title to collateral) (“REO”) constitutes a business and whether business combination accounting is appropriate. Any excess upon taking title to collateral between the carrying value of a loan over the estimated fair value of the property is charged to provision for loan losses.
Operating real estate, including REO, which has met the criteria to be classified as held for sale, is separately presented on the consolidated balance sheets. Such operating real estate is recorded at the lower of its carrying value or its estimated fair value less the cost to sell. Once a property is determined to be held for sale, depreciation is no longer recorded. The Company records a gain (loss) on sale of real estate when title is conveyed to the buyer and the Company has no substantial economic involvement with the property. If the sales criteria for the full accrual method are not met, the Company defers some or all of the gain (loss) recognition by applying the finance, leasing, profit sharing, deposit, installment or cost recovery method, as appropriate, until the sales criteria are met.
Real Estate Debt Investments

14
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

CRE debt investments are generally intended to be held to maturity and, accordingly, are carried at cost, net of unamortized loan fees, premium and discount. CRE debt investments that are deemed to be impaired are carried at amortized cost less a loan loss reserve, if deemed appropriate, which approximates fair value. CRE debt investments where the Company does not have the intent to hold the loan for the foreseeable future or until its expected payoff are classified as held for sale and recorded at the lower of cost or estimated value.
The Company may syndicate a portion of the CRE debt investments that it originates or sell the CRE debt investments individually. When a transaction meets the criteria for sale accounting, the Company will derecognize the CRE debt investment sold and recognize gain or loss based on the difference between the sales price and the carrying value of the CRE debt investment sold.
Any related unamortized deferred origination fee, original issue discount, loan origination costs, discount or premium at the time of sale are recognized as an adjustment to the gain (loss) on sale, which is included in interest income on the consolidated statement of operations. Any fees received at the time of sale or syndication are recognized as part of interest income.
Real Estate Securities
The Company classifies its CRE securities investments as available for sale on the acquisition date, which are carried at fair value. The Company historically elected to apply the fair value option for its CRE securities investments. For those CRE securities for which the fair value option was elected, any unrealized gains (losses) from the change in fair value is recorded in unrealized gains (losses) on investments and other in the consolidated statements of operations.
The Company may decide to not elect the fair value option for certain CRE securities due to the nature of the particular instrument. For those CRE securities for which the fair value option was not elected, any unrealized gain (loss) from the change in fair value is recorded as a component of accumulated OCI in the consolidated statements of equity, to the extent impairment losses are considered temporary.
Deferred Costs
Deferred costs primarily include deferred financing costs and deferred lease costs. Deferred financing costs represent commitment fees, legal and other third-party costs associated with obtaining financing. Costs related to revolving credit facilities are recorded in other assets and are amortized to interest expense using the straight-line basis over the term of the facility. Costs related to other borrowings are recorded net against the carrying value of such borrowings and are amortized to interest expense using the effective interest method. Unamortized deferred financing costs are expensed when the associated facility is repaid before maturity. Costs incurred in seeking financing transactions, which do not close, are expensed in the period in which it is determined that the financing will not occur. Deferred lease costs consist of fees incurred to initiate and renew operating leases, which are amortized on a straight-line basis over the remaining lease term and are recorded to depreciation and amortization in the consolidated statements of operations.
Intangible Assets and Intangible Liabilities
The Company records acquired identified intangibles, which includes intangible assets (such as value of the above-market leases, in-place leases, below-market ground leases, goodwill and other intangibles) and intangible liabilities (such as the value of below-market leases), based on estimated fair value. The value allocated to the identified intangibles are amortized over the remaining lease term. Above/below-market leases are amortized into rental income, below-market ground leases are amortized into real estate properties-operating expense and in-place leases are amortized into depreciation and amortization expense.
Goodwill represents the excess of the purchase price over the fair value of net tangible and intangible assets acquired in a business combination and is not amortized. The Company analyzes goodwill for impairment on an annual basis and whenever events or changes in circumstances indicate that the carrying value of goodwill may not be fully recoverable. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit, related to such goodwill, is less than the carrying amount as a basis to determine whether the two-step impairment test is necessary. The first step in the impairment test compares the fair value of the reporting unit with its carrying amount. If the carrying amount exceeds fair value, the second step is required to determine the amount of the impairment loss, if any, by comparing the implied fair value of the reporting unit goodwill with the carrying amount of such goodwill. The implied fair value of goodwill is derived by performing a hypothetical purchase price allocation for the reporting unit as of the measurement date, allocating the reporting unit’s estimated fair value to its net assets and identifiable intangible assets. The residual amount represents the implied fair value of goodwill. To the extent this amount is below the carrying value of goodwill, an impairment loss is recorded in the consolidated statements of operations. For the nine months ended September 30, 2016 , there were no triggering events that required a test of impairment of goodwill.

15
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Summary
The following table presents identified intangibles as of September 30, 2016 and December 31, 2015 (dollars in thousands):
 
 
September 30, 2016 (Unaudited)
 
December 31, 2015
 
 
Gross Amount
 
Accumulated Amortization
 
Net Amount
 
Gross Amount
 
Accumulated Amortization
 
Net Amount
Intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
In-place leases
 
$
167,329

 
$
(62,662
)
 
$
104,667

 
$
289,124

 
$
(82,089
)
 
$
207,035

Above-market leases
 
193,503

 
(36,500
)
 
157,003

 
268,426

 
(35,940
)
 
232,486

Goodwill (1)
 
44,767

 
NA

 
44,767

 
48,635

 
NA

 
48,635

Other (2)
 
40,580

 
(3,300
)
 
37,280

 
41,149

 
(2,028
)
 
39,121

Total
 
$
446,179

 
$
(102,462
)
 
$
343,717

 
$
647,334

 
$
(120,057
)
 
$
527,277

 
 
 
 
 
 
 
 
 
 
 
 
 
Intangible liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Below-market leases
 
$
145,830

 
$
(34,002
)
 
$
111,828

 
$
177,931

 
$
(30,462
)
 
$
147,469

Above-market ground leases
 
2,236

 
(97
)
 
2,139

 
2,236

 
(63
)
 
2,173

Total
 
$
148,066

 
$
(34,099
)
 
$
113,967

 
$
180,167


$
(30,525
)

$
149,642

_______________________
(1)
Represents goodwill associated with two acquisitions of healthcare portfolios that operate through the REIT Investment Diversification and Empowerment Act of 2007 (“RIDEA”) structures. For the year ended December 31, 2015 , the Company recorded an estimated goodwill impairment of $25.5 million related to a healthcare portfolio acquired in 2014, which was finalized during the three months ended March 31, 2016. The change in goodwill for the nine months ended September 30, 2016 relates to foreign currency translation associated with a healthcare portfolio in the United Kingdom.
(2)
Primarily represents the value associated with certificates of need associated with certain healthcare properties, franchise agreements associated with certain hotel properties and other intangible assets.
Other Assets and Other Liabilities
The following tables present a summary of other assets and other liabilities as of September 30, 2016 and December 31, 2015 (dollars in thousands):
 
 
September 30, 2016 (Unaudited)
 
December 31, 2015
 
 
 
Other assets:
 
 
 
 
Cash collateral held by derivative counterparty (refer to Note 14)
 
$
161,215

 
$
—

Unbilled rent receivable, net of allowance of $116 as of September 30, 2016 and December 31, 2015
 
58,335

 
46,262

Investment-related reserves
 
26,268

 
47,380

Prepaid expenses
 
19,269

 
22,573

Deferred tax assets, net
 
15,325

 
24,435

Investment deposits and pending deal costs
 
8,892

 
568

Deferred costs
 
8,744

 
9,461

Derivative assets (refer to Note 14)
 
4

 
116

Other
 
2,763

 
3,351

Total
 
$
300,815

 
$
154,146

 
 
 
 
 
 
 
September 30, 2016 (Unaudited)
 
December 31, 2015
 
 
 
Other liabilities:
 

 
 
Deferred tax liabilities
 
$
27,263

 
$
50,341

Prepaid rent and unearned revenue
 
19,934

 
24,697

Tenant security deposits
 
11,538

 
30,327

Escrow deposits payable
 
4,184

 
11,753

PE Investment XIV deferred purchase price (refer to Note 5)
 
3,161

 
44,212

Other
 
7,046

 
4,526

Total
 
$
73,126

 
$
165,856


16
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Revenue Recognition
Operating Real Estate
Rental and escalation income from operating real estate is derived from leasing of space to various types of tenants and healthcare operators. Rental revenue recognition commences when the tenant takes possession of the leased space and the leased space is substantially ready for its intended use. The leases are for fixed terms of varying length and generally provide for annual rentals and expense reimbursements to be paid in monthly installments. Rental income from leases is recognized on a straight-line basis over the term of the respective leases. The excess of rents recognized over amounts contractually due pursuant to the underlying leases are included in unbilled rent receivable in other assets on the consolidated balance sheets. The Company amortizes any tenant inducements as a reduction of revenue utilizing the straight-line method over the term of the lease. Escalation income represents revenue from tenant/operator leases which provide for the recovery of all or a portion of the operating expenses and real estate taxes paid by the Company on behalf of the respective property. This revenue is accrued in the same period as the expenses are incurred.
The Company generates operating income from healthcare and hotel properties permitted by RIDEA. Revenue related to healthcare properties includes resident room and care charges and other resident charges. Revenue related to operating hotel properties primarily consists of room and food and beverage sales. Revenue is recognized when such services are provided, generally defined as the date upon which a resident or guest occupies a room or uses the healthcare property or hotel services and is recorded in resident fee income for healthcare properties and hotel related income for hotel properties in the consolidated statements of operations.
In a situation in which a lease(s) associated with a significant tenant have been, or are expected to be, terminated early, the Company evaluates the remaining useful life of depreciable or amortizable assets in the asset group related to the lease that will be terminated (i.e., tenant improvements, above- and below-market lease intangibles, in-place lease value and deferred leasing costs). Based upon consideration of the facts and circumstances surrounding the termination, the Company may write-off or accelerate the depreciation and amortization associated with the asset group. Such amounts are included within rental and escalation income for above-and below-market lease intangibles and depreciation and amortization in the consolidated statements of operations.
Real Estate Debt Investments
Interest income is recognized on an accrual basis and any related premium, discount, origination costs and fees are amortized over the life of the investment using the effective interest method. The amortization is reflected as an adjustment to interest income in the consolidated statements of operations. The amortization of a premium or accretion of a discount is discontinued if such loan is reclassified to held for sale.
Real Estate Securities
Interest income is recognized using the effective interest method with any premium or discount amortized or accreted through earnings based on expected cash flow through the expected maturity date of the security. Changes to expected cash flow may result in a change to the yield which is then applied retrospectively for high-credit quality securities that cannot be prepaid or otherwise settled in such a way that the holder would not recover substantially all of the investment or prospectively for all other securities to recognize interest income.
Credit Losses and Impairment on Investments
Operating Real Estate
The Company’s real estate portfolio is reviewed on a quarterly basis, or more frequently as necessary, to assess whether there are any indicators that the value of its operating real estate may be impaired or that its carrying value may not be recoverable. A property’s value is considered impaired if the Company’s estimate of the aggregate expected future undiscounted cash flow to be generated by the property is less than the carrying value of the property. In conducting this review, the Company considers U.S. and global macroeconomic factors and real estate sector conditions together with investment specific and other factors. To the extent an impairment has occurred, the loss is measured as the excess of the carrying value of the property over the estimated fair value of the property and recorded in impairment losses in the consolidated statements of operations.
An allowance for a doubtful account for a receivable is established based on a periodic review of aged receivables resulting from estimated losses due to the inability of such tenant/operator/resident/guest to make required rent and other payments contractually due. Additionally, the Company establishes, on a current basis, an allowance for future lessee credit losses on unbilled rent receivable based on an evaluation of the collectability of such amounts.

17
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Real Estate Debt Investments
Loans are considered impaired when based on current information and events, it is probable that the Company will not be able to collect principal and interest amounts due according to the contractual terms. The Company assesses the credit quality of the portfolio and adequacy of loan loss reserves on a quarterly basis or more frequently as necessary. Significant judgment of the Company is required in this analysis. The Company considers the estimated net recoverable value of the loan as well as other factors, including but not limited to the fair value of any collateral, the amount and the status of any senior debt, the quality and financial condition of the borrower and the competitive situation of the area where the underlying collateral is located. Because this determination is based on projections of future economic events, which are inherently subjective, the amount ultimately realized may differ materially from the carrying value as of the balance sheet date. If upon completion of the assessment, the estimated fair value of the underlying collateral is less than the net carrying value of the loan, a loan loss reserve is recorded with a corresponding charge to provision for loan losses. The loan loss reserve for each loan is maintained at a level that is determined to be adequate by management to absorb probable losses.
Income recognition is suspended for a loan at the earlier of the date at which payments become 90 -days past due or when, in the opinion of the Company, a full recovery of income and principal becomes doubtful. When the ultimate collectability of the principal of an impaired loan is in doubt, all payments are applied to principal under the cost recovery method. When the ultimate collectability of the principal of an impaired loan is not in doubt, contractual interest is recorded as interest income when received, under the cash basis method until an accrual is resumed when the loan becomes contractually current and performance is demonstrated to be resumed. A loan is written off when it is no longer realizable and/or legally discharged.
Investments in Unconsolidated Ventures
The Company reviews its investments in unconsolidated ventures for which the Company did not elect the fair value option on a quarterly basis, or more frequently as necessary, to assess whether there are any indicators that the value may be impaired or that its carrying value may not be recoverable. An investment is considered impaired if the projected net recoverable amount over the expected holding period is less than the carrying value. In conducting this review, the Company considers U.S. and global macroeconomic factors, including real estate sector conditions, together with investment specific and other factors. To the extent an impairment has occurred and is considered to be other than temporary, the loss is measured as the excess of the carrying value of the investment over the estimated fair value and recorded in provision for loss on equity investment in the consolidated statements of operations.
Real Estate Securities
CRE securities for which the fair value option is elected are not evaluated for other-than-temporary impairment (“OTTI”) as any change in fair value is recorded in the consolidated statements of operations. Realized losses on such securities are reclassified to realized gain (loss) on investments and other as losses occur.
CRE securities for which the fair value option is not elected are evaluated for OTTI quarterly. Impairment of a security is considered to be other-than-temporary when: (i) the holder has the intent to sell the impaired security; (ii) it is more likely than not the holder will be required to sell the security; or (iii) the holder does not expect to recover the entire amortized cost of the security. When a CRE security has been deemed to be other-than-temporarily impaired due to (i) or (ii), the security is written down to its fair value and an OTTI is recognized in the consolidated statements of operations. In the case of (iii), the security is written down to its fair value and the amount of OTTI is then bifurcated into: (a) the amount related to expected credit losses; and (b) the amount related to fair value adjustments in excess of expected credit losses. The portion of OTTI related to expected credit losses is recognized in the consolidated statements of operations. The remaining OTTI related to the valuation adjustment is recognized as a component of accumulated OCI in the consolidated statements of equity. The portion of OTTI recognized through earnings is accreted back to the amortized cost basis of the security through interest income, while amounts recognized through OCI are amortized over the life of the security with no impact on earnings. CRE securities which are not high-credit quality are considered to have an OTTI if the security has an unrealized loss and there has been an adverse change in expected cash flow. The amount of OTTI is then bifurcated as discussed above.
Troubled Debt Restructuring
CRE debt investments modified in a troubled debt restructuring (“TDR”) are modifications granting a concession to a borrower experiencing financial difficulties where a lender agrees to terms that are more favorable to the borrower than is otherwise available in the current market. Management judgment is necessary to determine whether a loan modification is considered a TDR. Troubled debt that is fully satisfied via taking title to collateral, repossession or other transfers of assets is generally included in the definition of TDR. Loans acquired as a pool with deteriorated credit quality that have been modified are not considered a TDR.

18
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Equity-Based Compensation
The Company accounts for equity-based compensation awards, including awards granted to co-employees, using the fair value method, which requires an estimate of fair value of the award. Awards may be based on a variety of measures such as time, performance, market or a combination thereof. For time-based awards, fair value is determined based on the stock price on the grant date. The Company recognizes compensation expense over the vesting period on a straight-line basis or the attribution method depending if the grant is to an employee or non-employee. For performance-based awards, fair value is determined based on the stock price at the date of grant and an estimate of the probable achievement of such measure. The Company recognizes compensation expense over the requisite service period, net of estimated forfeitures, using the accelerated attribution expense method. For market-based measures, fair value is determined using a Monte Carlo analysis under a risk-neutral premise using a risk-free interest rate. The Company recognizes compensation expense, over the requisite service period, net of estimated forfeitures, on a straight-line basis. For awards with a combination of performance or market measures, the Company estimates the fair value as if it were two separate awards. First, the Company estimates the probability of achieving the performance measure. If it is not probable the performance condition will be met, the Company records the compensation expense based on the fair value of the market measure, as described above. This expense is recorded even if the market-based measure is never met. If the performance-based measure is subsequently estimated to be achieved, the Company records compensation expense based on the performance-based measure. The Company would then record a cumulative catch-up adjustment for any additional compensation expense.
Equity-based compensation issued to non-employees is accounted for using the fair value of the award at the earlier of the performance commitment date or performance completion date. Time-based awards are remeasured every quarter based on the stock price as of the end of the reporting period until such awards vest, if any.
Foreign Currency
Assets and liabilities denominated in a foreign currency for which the functional currency is a foreign currency are translated using the currency exchange rate in effect at the end of the period presented and the results of operations for such entities are translated into U.S. dollars using the average currency exchange rate in effect during the period. The resulting foreign currency translation adjustment is recorded as a component of accumulated OCI in the consolidated statements of equity.
Assets and liabilities denominated in a foreign currency for which the functional currency is the U.S. dollar are remeasured using the currency exchange rate in effect at the end of the period presented and the results of operations for such entities are remeasured into U.S. dollars using the average currency exchange rate in effect during the period. The resulting foreign currency remeasurement adjustment is recorded in unrealized gain (loss) on investments and other in the consolidated statements of operations.
Earnings Per Share
The Company’s basic earnings per share (“EPS”) is calculated by dividing net income (loss) attributable to common stockholders by the weighted average number of common stock outstanding. Diluted EPS includes restricted stock and the potential dilution that could occur if outstanding restricted stock units (“RSUs”) or other contracts to issue common stock, assuming performance hurdles have been met, were converted to common stock (including limited partnership interests in the Operating Partnership which are structured as profits interests (“LTIP Units”) (refer to Note 10), where such exercise or conversion would result in a lower EPS. The dilutive effect of such RSUs and LTIP Units is calculated assuming all units are converted to common stock.
Discontinued Operations
Subsequent to the early adoption of the accounting standards update on the presentation of discontinued operations beginning in April 2014, the Company presents spin-offs of businesses and portfolios of properties that are sold or classified as held for sale as discontinued operations provided that the disposal represents a strategic shift that has (or will have) a major effect on the Company’s operations and financial results.
Income Taxes
The Company has elected to be taxed as a REIT and to comply with the related provisions of the Internal Revenue Code of 1986, as amended, the (“Code”). Accordingly, the Company generally will not be subject to U.S. federal income tax to the extent of its distributions to stockholders and as long as certain asset, income and share ownership tests are met. To maintain its qualification as a REIT, the Company must annually distribute at least 90% of its REIT taxable income to its stockholders and meet certain other requirements. The Company may also be subject to certain state, local and franchise taxes. Under certain circumstances, federal income and excise taxes may be due on its undistributed taxable income. If the Company were to fail to meet these requirements, it would be subject to U.S. federal income tax, which could have a material adverse impact on its results of operations

19
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

and amounts available for distributions to its stockholders. The Company believes that all of the criteria to maintain the Company’s REIT qualification have been met for the applicable periods, but there can be no assurance that these criteria will continue to be met in subsequent periods.
The Company may invest through a taxable REIT subsidiary (“TRS”) which can be subject to U.S. federal, state and local income taxes and foreign taxes. In general, a TRS of the Company may perform non-customary services for tenants, hold assets that the REIT cannot hold directly and may engage in real estate or non-real estate-related business. The Company has established several TRSs in jurisdictions for which no taxes are assessed on corporate earnings. The Company generally must include in earnings the income from these TRSs even if it has received no cash distributions. Additionally, the Company has invested in certain real estate assets in Europe, for which local country level taxes will be due on earnings (or other measure) and in some cases withholding taxes for the repatriation of earnings back to the REIT. The REIT will not generally be subject to any additional U.S. taxes on the repatriation of its earnings.
Current and deferred taxes are recorded on the portion of earnings (losses) recognized by the Company with respect to its interest in TRSs and taxable foreign subsidiaries. Deferred income tax assets and liabilities are calculated based on temporary differences between the Company’s U.S. GAAP consolidated financial statements and the federal, state, local and foreign tax basis of assets and liabilities as of the consolidated balance sheet date. The Company evaluates the realizability of its deferred tax assets (e.g., net operating loss and capital loss carryforwards) and recognizes a valuation allowance if, based on the available evidence, it is more likely than not that some portion or all of its deferred tax assets will not be realized. When evaluating the realizability of its deferred tax assets, the Company considers estimates of expected future taxable income, existing and projected book/tax differences, tax planning strategies available and the general and industry specific economic outlook. This realizability analysis is inherently subjective, as it requires the Company to forecast its business and general economic environment in future periods. Changes in estimate of deferred tax asset realizability, if any, are included in provision for income tax expense included in income tax benefit (expense) in the consolidated statements of operations.
Other
Refer to Note 2 of the consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 for further disclosure of the Company’s significant accounting policies.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued an accounting update requiring a company to recognize as revenue the amount of consideration it expects to be entitled to in connection with the transfer of promised goods or services to customers. The accounting standard update will replace most of the existing revenue recognition guidance currently promulgated by U.S. GAAP. In July 2015, the FASB decided to delay the effective date of the new revenue standard by one year. The effective date of the new revenue standard for the Company will be January 1, 2018. The Company is evaluating the impact, if any, of the update on its consolidated financial position, results of operations and financial statement disclosures.
In February 2015, the FASB issued updated guidance that changes the rules regarding consolidation. The pronouncement eliminates specialized guidance for limited partnerships and similar legal entities and removes the indefinite deferral for certain investment funds. The new guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, with early adoption permitted. The Company adopted this guidance in the first quarter 2016 and determined the Company’s Operating Partnership is considered a VIE. The Company is the primary beneficiary of the VIE, the VIE’s assets can be used for purposes other than the settlement of the VIE’s obligations and the Company’s partnership interest is considered a majority voting interest. As such, this standard resulted in the identification of additional VIEs, however it did not have a material impact on the Company’s consolidated financial position or results of operations. Refer to Note 16 for further disclosure.
In January 2016, the FASB issued an accounting update that addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company is evaluating the impact, if any, that this guidance will have on its consolidated financial position, results of operations and financial statement disclosures.
In February 2016, the FASB issued an accounting update that requires lessees to present right-of-use assets and lease liabilities on the balance sheet. The new guidance is to be applied using a modified retrospective approach at the beginning of the earliest comparative period in the financial statements and is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is evaluating the impact, if any, that this guidance will have on its consolidated financial position, results of operations and financial statement disclosures.

20
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

In March 2016, the FASB issued guidance clarifying that an assessment of whether an embedded contingent put or call option is clearly and closely related to a borrowing requires only an analysis of the four-step decision sequence. Additionally, entities are not required to separately assess whether the contingency itself is clearly and closely related. Entities are required to apply the guidance to existing instruments in scope using a modified retrospective transition method as of the period of adoption. The guidance is effective for fiscal years beginning after December 15, 2016 and interim periods within those years. Early adoption is permitted. The Company is evaluating the impact, if any, that this guidance will have on its consolidated financial position, results of operations and financial statement disclosures.
In March 2016, the FASB issued guidance which eliminates the requirement for an investor to retroactively apply the equity method when its increase in ownership interest (or degree of influence) in an investee triggers equity method accounting. The update requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment become qualified for equity method accounting. The update should be applied prospectively upon their effective date to increases in the level of ownership interests or degree of influence that results in the adoption of the equity method. The guidance is effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. Early adoption is permitted. The Company has concluded that this guidance will not have any impact on its consolidated financial position, results of operations and financial statement disclosures.
In March 2016, the FASB issued guidance which amends several aspects of the accounting for equity-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statements of cash flows. The guidance is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. The Company is evaluating the impact, if any, that this guidance will have on its consolidated financial position, results of operations and financial statement disclosures.
In June 2016, the FASB issued guidance which changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. Additionally, entities will have to disclose significantly more information, including information used to track credit quality by year of origination, for most financing receivables. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Early adoption is permitted. The Company is evaluating the impact, if any, that this guidance will have on its consolidated financial position, results of operations and financial statement disclosures.
In September 2016, the FASB issued final amendments to clarify how entities should classify certain cash receipts and cash payments in the consolidated statement of cash flows as they may have aspects of more than one class of cash flows. The guidance is effective for fiscal years and interim periods within those years, beginning after December 15, 2017. The Company is evaluating the impact, if any, that this guidance will have in its consolidated statement of cash flows.
3.
Operating Real Estate
The following table presents operating real estate, net as of September 30, 2016 and December 31, 2015 (dollars in thousands):
 
 
September 30, 2016 (Unaudited)
 
December 31,
2015
 
 
 
Land and improvements
 
$
1,035,654

 
$
1,195,915

Buildings and improvements
 
5,799,139

 
6,728,957

Building leasehold interests and improvements
 
723,185

 
723,573

Furniture, fixtures and equipment
 
376,525

 
346,628

Tenant improvements
 
109,078

 
165,539

Construction in progress
 
78,444

 
57,663

Subtotal
 
8,122,025

 
9,218,275

Less: Accumulated depreciation
 
(675,399
)
 
(511,113
)
Less: Operating real estate impairment
 
(74,630
)
 
(4,903
)
Operating real estate, net
 
$
7,371,996

 
$
8,702,259

Real Estate Impairment
During the quarter ended September 30, 2016, the Company identified an indicator of impairment at 18 of its hotels in one of its hotel portfolios, primarily due to decreased operating performance and continued economic weakness. As required by the impairment guidance, once an indicator of impairment is identified, the Company is required to perform a test of recoverability. This test compares the sum of the estimated future cash flow attributable to the hotel over its remaining anticipated holding period

21
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

and from its disposition to its carrying value. Assumptions used for the individual hotels were determined by management, based on discussions with NSAM’s asset management group and its hotel management company. The Company determined that the estimated undiscounted future cash flow attributable to the hotels did not exceed their carrying value and impairment existed. As a result, the Company recorded a $69.7 million impairment charge in the consolidated statements of operations. Fair value was determined based on a discounted cash flow using third-party market data, considered Level 3 inputs. As the fair value of the properties impaired for the three months ended September 30, 2016 was determined in part by management estimates, a reasonable possibility exists that future changes to inputs and assumptions could affect the accuracy of management’s estimates and such future changes could lead to recovery of impairment or further possible impairment in the future.
In addition, in connection with a property held for sale, the Company recognized a $0.7 million impairment charge to reduce the carrying value of such property as compared to its estimated net realizable value. The impairment charge was based upon certain disposition costs incurred in connection with such sale. These inputs are classified as Level 3 of the fair value hierarchy.
Real Estate Held for Sale
The following table summarizes the Company’s operating real estate held for sale as of September 30, 2016 (dollars in thousands):
 
 
 
 
Assets
 
Liabilities
 
 
Description
 
Properties
 
Operating Real Estate, Net
 
Intangible Assets, Net
 
Other Assets
 
Total (1)
 
Mortgage and Other Notes Payable, Net
 
Intangible Liabilities, Net
 
Other Liabilities
 
Total
 
WA Ownership Interest
Manufactured housing communities (2)
 
135
 
$
1,441,656

 
$
23,983

 
$
126,719

 
$
1,592,358

 
$
1,255,454

 
$
—

 
$
25,983

 
$
1,281,437

 
94
%
Medical office buildings (3)
 
38
 
742,485

 
63,818

 
1,428

 
807,731

 
—

 
19,229

 
—

 
19,229

 
86
%
Multifamily (4)
 
6
 
181,627

 
—

 
—

 
181,627

 
146,662

 
—

 
—

 
146,662

 
90
%
Other
 
5
 
69,693

 
2,539

 
11

 
72,243

 
41,051

 
14,280

 
—

 
55,331

 
NA

Total
 
184
 
$
2,435,461


$
90,340


$
128,158

 
$
2,653,959


$
1,443,167


$
33,509


$
25,983

 
$
1,502,659



______________________________________
(1)
Represents operating real estate and intangible assets, net of depreciation and amortization of $269.0 million .
(2)
In May 2016, the Company entered into an agreement to sell its manufactured housing portfolio for $2.0 billion with $1.3 billion of related mortgage financing expected to be assumed as part of the transaction. The Company expects to receive $614.8 million of net proceeds, including a $50.0 million deposit made by the buyer. The Company expects the transaction to close in the first quarter 2017. There is no assurance this transaction will close on the terms anticipated, if at all.
(3)
In September 2016, the Company entered into a definitive agreement to sell a portfolio of medical office buildings within the Griffin-American Healthcare REIT II, Inc. portfolio (“Griffin-American Portfolio”) for $837.9 million with $692.2 million of related mortgage financing expected to be paid off as part of the transaction. The Company expects to receive $114.8 million of net proceeds. The Company expects the transaction to close in the fourth quarter 2016. There is no assurance this transaction will close on the terms anticipated, if at all.
(4)
To date through November 2016, the Company sold ten multifamily properties for $307 million with $210 million of mortgage financing assumed as part of the transaction. The Company received $85 million of net proceeds. The Company continues to explore the sale of the remaining two properties, including one multifamily property accounted for as an investment in unconsolidated venture (refer to Note 6).
In March 2016, the Company sold its 60% interest in the $898.7 million independent living facility portfolio (“Senior Housing Portfolio”) for $534.5 million . The Company received $149.4 million of proceeds, net of sales costs. Refer to Note 9. Related Party Arrangements for further disclosure.
In September 2016, the Company redeemed its interests in a net lease industrial real estate portfolio (“Industrial Portfolio”) for $169.6 million of net proceeds, including $3.1 million of acceleration of discount and fees.

22
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Spin-off of European Real Estate Business
On October 31, 2015, the Company completed the NRE Spin-off into a separate publicly-traded REIT, NorthStar Europe, in the form of a taxable distribution. In connection with the NRE Spin-off, each of the Company’s common stockholders received shares of NorthStar Europe’s common stock on a one-for-six basis, before giving effect to a one-for-two reverse stock split of the Company’s common stock (the “Reverse Split”). The Company contributed to NorthStar Europe approximately $2.6 billion of European real estate, at cost (excluding the Company’s European healthcare properties), comprised of 52 properties spanning across some of Europe’s top markets and $250 million of cash. In connection with the NRE Spin-off, $2.8 billion of assets were transferred and $1.9 billion of liabilities were assumed by NorthStar Europe.
For the three months ended September 30, 2015 , the Company recorded a $16.6 million net loss included in discontinued operations in the Company’s consolidated statements of operations associated with NorthStar Europe which represented a carve-out of revenues of $41.7 million and expenses of $58.3 million , primarily related to transaction costs. For the nine months ended September 30, 2015 , the Company recorded a $114.2 million net loss included in discontinued operations in the Company’s consolidated statements of operations associated with NorthStar Europe which represented a carve-out of revenues of $75.7 million and expenses of $189.9 million , primarily related to transaction costs.
4.
Real Estate Debt Investments
The following table presents CRE debt investments as of September 30, 2016 (dollars in thousands):
 
 
 
 
 
 
 
 
 
 
Weighted Average
 
Floating Rate
as % of
Principal Amount (3)
 
 
Number
 
Principal
Amount
 
Carrying
Value
 
Allocation by
Investment
Type (3)
 
Fixed Rate
 
Spread
Over
LIBOR (4)
 
Yield (5)
 
Asset Type:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

First mortgage loans (1)
 
6
 
$
145,034

 
$
117,927

 
35.8
%
 
6.98
%

8.47
%

4.66
%
 
42.7
%
Mezzanine loans
 
6
 
22,566

 
16,940

 
5.6
%
 
9.10
%

3.57
%

7.86
%
 
49.6
%
Subordinate interests
 
4
 
167,598

 
166,466

 
41.4
%
 
11.83
%

11.99
%

8.22
%
 
59.4
%
Corporate loans
 
4
 
35,747

 
31,154

 
8.8
%
 
12.92
%

—
%

14.82
%
 
—
%
Subtotal/Weighted average (2)(6)
 
20
 
370,945

 
332,487

 
91.6
%
 
11.90
%

13.85
%

7.56
%
 
46.6
%
CRE debt in N-Star CDOs
 
 
 
 
 
 
 


 
 
 
 
 
 
 
 
First mortgage loans
 
1
 
21,273

 
3,637

 
5.3
%
 
—
%
 
—
%
 
—
%
 
100.0
%
Mezzanine loans
 
1
 
11,000

 
10,915

 
2.7
%
 
8.00
%
 
—
%
 
8.06
%
 
—
%
Corporate loans
 
6
 
1,500

 
1,500

 
0.4
%
 
6.75
%
 
—
%
 
6.75
%
 
—
%
Subtotal/Weighted average
 
8
 
33,773

 
16,052

 
8.4
%
 
7.85
%
 
—
%
 
6.11
%
 
63.0
%
Total
 
28
 
$
404,718


$
348,539

 
100.0
%
 
11.50
%
 
12.33
%
 
7.49
%
 
47.9
%
____________________________________________________________
(1)
Includes three loans that pursuant to certain terms and conditions which may or may not be satisfied, where the Company has an option to purchase the properties securing these loans. One of these three loans is a Sterling denominated loan of £66.7 million , of which £22.0 million is available to be funded as of September 30, 2016 . This loan has various maturity dates depending upon the timing of advances; however, will be no later than March 2022.
(2)
Assuming that all loans that have future fundings meet the terms to qualify for such funding, the Company’s cash requirement on future fundings would be $7.9 million .
(3)
Based on principal amount.
(4)
$62.0 million principal amount (excluding CRE debt in N-Star CDOs) has a weighted average LIBOR floor of 0.94% .
(5)
Based on initial maturity and for floating-rate debt, calculated using one -month LIBOR as of September 30, 2016 and for CRE debt with a LIBOR floor greater than LIBOR, using such floor.
(6)
All CRE debt investments are unleveraged.
To date through November 2016, the Company sold or received repayment for 15 CRE debt investments and a REO with a total principal amount of $388.6 million and used $72.1 million of proceeds to pay down the Company’s loan facility in full, resulting in $313.2 million of net proceeds.

23
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

The following table presents CRE debt investments as of December 31, 2015 (dollars in thousands):

 








Weighted Average

Floating Rate
as % of
Principal Amount (2)

 
Number

Principal
Amount

Carrying
Value

Allocation by
Investment
Type (2)

Fixed Rate

Spread
Over
LIBOR (3)

Yield (4)

Asset Type:
 



 











First mortgage loans (1)
 
11
 
$
286,628

 
$
260,237

 
51.6
%
 
7.09
%
 
4.95
%
 
3.80
%
 
55.8
%
Mezzanine loans
 
6
 
22,361

 
18,630

 
4.0
%
 
9.04
%
 
4.00
%
 
7.10
%
 
39.9
%
Subordinate interests
 
4
 
171,044

 
169,781

 
30.8
%
 
13.04
%
 
5.65
%
 
8.72
%
 
59.0
%
Corporate loans
 
4
 
35,215

 
30,681

 
6.3
%
 
12.93
%
 
—
%
 
14.84
%
 
—
%
Subtotal/Weighted average
 
25

515,248

 
479,329

 
92.7
%
 
10.51
%
 
5.26
%
 
6.38
%
 
52.5
%
CRE debt in N-Star CDOs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
First mortgage loans
 
2
 
26,957

 
9,321

 
4.9
%
 
—
%
 
1.27
%
 
3.78
%
 
100.0
%
Mezzanine loans
 
1
 
11,000

 
10,675

 
2.0
%
 
8.00
%
 
—
%
 
8.24
%
 
—
%
Corporate loans
 
6
 
2,149

 
2,149

 
0.4
%
 
6.74
%
 
—
%
 
6.74
%
 
—
%
Subtotal/Weighted average
 
9

40,106

 
22,145

 
7.3
%
 
7.79
%
 
1.27
%
 
6.22
%
 
67.2
%
Total
 
34

$
555,354

 
$
501,474

 
100.0
%
 
10.33
%
 
4.79
%
 
6.37
%
 
53.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate debt, held for sale (5)
 
7
 
$
225,037

 
$
224,677

 
NA

 
13.65
%
 
7.41
%
 
10.89
%
 
52.5
%
____________________________________________________________
(1)
Includes three loans that pursuant to certain terms and conditions which may or may not be satisfied, where the Company has an option to purchase the properties securing these loans. One is a Sterling denominated loan of £66.7 million . This loan has various maturity dates depending upon the timing of advances; however, will be no later than March 2022.
(2)
Based on principal amount.
(3)
$63.9 million principal amount (excluding CRE debt in N-Star CDOs) has a weighted average LIBOR floor of 0.95% . Includes one first mortgage loan with a principal amount of $5.8 million with a spread over the prime rate.
(4)
Based on initial maturity and for floating-rate debt, calculated using one -month LIBOR as of December 31, 2015 and for CRE debt with a LIBOR floor, using such floor.
(5)
In the first quarter 2016, the Company sold these seven loans and used $46.9 million of proceeds to pay down the Company’s loan facility, resulting in net proceeds of $178.2 million .
The following table presents maturities of CRE debt investments based on principal amount as of September 30, 2016 (dollars in thousands):

 
Current
Maturity

Maturity
Including
Extensions (1)
October 1 to December 31, 2016
 
$
65,356

 
$
65,356

Years ending December 31:
 
 
 
 
2017
 
5,903

 
5,903

2018
 
1,343

 
1,343

2019
 
—

 
—

2020
 
—

 
—

Thereafter
 
267,819

 
267,819

Total (2)
 
$
340,421

 
$
340,421

____________________________________________________________
(1)
Assumes that all debt with extension options will qualify for extension at such maturity according to the conditions stipulated in the governing documents.
(2)
Excludes four non-performing loans (“NPLs”) with an aggregate principal amount of $64.3 million as of September 30, 2016 due to maturity defaults.
As of September 30, 2016 , the weighted average maturity, including extensions, of CRE debt investments was 5.1 years.
Actual maturities may differ from contractual maturities as certain borrowers may have the right to prepay with or without prepayment penalty. The Company may also extend certain contractual maturities in connection with loan modifications.
The principal amount of CRE debt investments differs from the carrying value primarily due to unamortized origination fees and costs, unamortized premium and discount and loan loss reserves recorded as part of the carrying value of the investment. As of September 30, 2016 , the Company had $39.5 million of net unamortized discount and $1.3 million of net unamortized origination fees and costs.

24
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Provision for Loan Losses
The following table presents activity in loan loss reserves on CRE debt investments for the three and nine months ended September 30, 2016 and 2015 (dollars in thousands):

 
Three Months Ended September 30,
 
Nine Months Ended September 30,

 
2016
 
2015
 
2016
 
2015
Beginning balance
 
$
10,960

 
$
5,799

 
$
7,839

 
$
5,599

Provision for (reversal of) loan losses, net (1)
 
1,802


—


4,923

(2)  
200

Ending balance
 
$
12,762

 
$
5,799

 
$
12,762

 
$
5,799

____________________________________________________________
(1)
Excludes $0.1 million and $0.3 million provision for loan losses for the three and nine months ended September 30, 2016 , respectively, relating to manufactured housing notes receivables recorded in assets of properties held for sale as of September 30, 2016 and $0.1 million and $0.7 million for the three and nine months ended September 30, 2015 , respectively, recorded in other assets as of September 30, 2015 .
(2)
Excludes $2.8 million of provision for loan losses primarily relating to exit fees on real estate debt, held for sale.
Credit Quality Monitoring
CRE debt investments are typically loans secured by direct senior priority liens on real estate properties or by interests in entities that directly own real estate properties, which serve as the primary source of cash for the payment of principal and interest. The Company evaluates its debt investments at least quarterly and differentiates the relative credit quality principally based on: (i) whether the borrower is currently paying contractual debt service in accordance with its contractual terms; and (ii) whether the Company believes the borrower will be able to perform under its contractual terms in the future, as well as the Company’s expectations as to the ultimate recovery of principal at maturity.
The Company categorizes a debt investment for which it expects to receive full payment of contractual principal and interest payments as a “loan with no loan loss reserve.” The Company categorizes a debt investment as an NPL if it is in maturity default and/or past due at least 90  days on its contractual debt service payments. The Company considers the remaining debt investments to be of weaker credit quality and categorizes such loans as “other loans with a loan loss reserve/non-accrual status.” These loans are not considered NPLs because such loans are performing in accordance with contractual terms but the loans have a loan loss reserve and/or are on non-accrual status. Even if a borrower is currently paying contractual debt service or debt service is not due in accordance with its contractual terms, the Company may still determine that the borrower may not be able to perform under its contractual terms in the future and make full payment upon maturity. The Company’s definition of an NPL may differ from that of other companies that track NPLs.
The following table presents the carrying value of CRE debt investments, by credit quality indicator, as of each applicable balance sheet date (dollars in thousands):
 
 
September 30, 2016
 
December 31,
2015
Credit Quality Indicator:
 

Loans with no loan loss reserve:
 



First mortgage loans (1)
 
$
79,365

 
$
168,978

Mezzanine loans
 
22,232

 
29,305

Subordinate interests
 
166,466

 
169,781

Corporate loans
 
32,654

 
32,830

Subtotal
 
300,717

 
400,894

Other loans with a loan loss reserve/non-accrual status:
 
 
 
 
First mortgage loans
 
—

 
4,137

Mezzanine loans (2)
 
5,623

 
—

Subtotal
 
5,623

 
4,137

Non-performing loans
 
42,199

 
96,443

Total
 
$
348,539

 
$
501,474

____________________________________________________________
(1)
Includes one first mortgage loan acquired with deteriorated credit quality with a carrying value of $3.0 million and $3.1 million as of September 30, 2016 and December 31, 2015 , respectively.
(2)
Includes one mezzanine loan with a 100% loan loss reserve with a principal amount of $3.8 million as of September 30, 2016 and December 31, 2015 . Such loan is not considered a NPL as debt service is currently being received.

25
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Impaired Loans
The Company considers impaired loans to generally include NPLs, loans with a loan loss reserve, loans on non-accrual status (excluding loans acquired with deteriorated credit quality) and TDRs. The following table presents impaired loans as of September 30, 2016 and December 31, 2015 (dollars in thousands):
 
September 30, 2016
 
December 31, 2015
 
Number
 
Principal Amount (1)
 
Carrying Value (1)
 
Loan Loss Reserve
 
Number
 
Principal Amount (1)
 
Carrying Value (1)
 
Loan Loss Reserve
Class of Debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
First mortgage loans (2)
4
 
$
64,297

 
$
42,199

 
$
7,194

 
5
 
$
119,677

 
$
100,580

 
$
4,073

Mezzanine loans
2
 
11,190

 
5,623

 
5,568

 
1
 
3,766

 
—

 
3,766

Total
6
 
$
75,487

 
$
47,822

 
$
12,762

 
6
 
$
123,443

 
$
100,580

 
$
7,839

____________________________________________________________
(1)
Principal amount differs from carrying value primarily due to unamortized origination fees and costs, unamortized premium or discount and loan loss reserves included in the carrying value of the investment. Excludes one first mortgage loan acquired with deteriorated credit quality with a carrying value of $3.0 million and $3.1 million as of September 30, 2016 and December 31, 2015 , respectively.
(2)
Includes one loan with a carrying value of $33.9 million for which the Company entered into a discounted payoff agreement in the second quarter 2016. Such loan is considered a TDR as of September 30, 2016.
The following table presents average carrying value of impaired loans by type and the income recorded on such loans subsequent to them being deemed impaired for the three months ended September 30, 2016 and 2015 (dollars in thousands):
 
September 30, 2016
 
September 30, 2015
 
Number
 
Average
Carrying
Value
 
Quarter
Ended
Income
 
Number
 
Average
Carrying
Value
 
Quarter
Ended
Income
Class of Debt:
 
 
 
 
 
 
 
 
 
 
 
First mortgage loans
4
 
$
60,360

 
$
—

 
3
 
$
43,443

 
$
—

Mezzanine loans
2
 
1,874

 
—

 
1
 
—

 
—

Total/weighted average
6
 
$
62,234

 
$
—

 
4
 
$
43,443

 
$
—

The following table presents average carrying value of impaired loans by type and the income recorded on such loans subsequent to them being deemed impaired for the nine months ended September 30, 2016 and 2015 (dollars in thousands):
 
September 30, 2016
 
September 30, 2015
 
Number
 
Average Carrying Value
 
Nine Months Ended Income
 
Number
 
Average
Carrying
Value
 
Nine Months Ended Income
Class of Debt:
 
 
 
 
 
 
 
 
 
 
 
First mortgage loans
6
 
$
70,415

 
$
—

 
3
 
$
43,443

 
$
2,453

Mezzanine loans
2
 
1,406

 
—

 
1
 
—

 
3

Total/weighted average
8
 
$
71,821

 
$
—

 
4
 
$
43,443

 
$
2,456

As of September 30, 2016 , the Company had four loans past due from maturity default on the principal amount, of which three loans are past due greater than 90 days. As of December 31, 2015 , the Company had two loans past due greater than 90 days.

26
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

5.
Investments in Private Equity Funds
The following is a description of investments in private equity funds that own PE Investments either through unconsolidated ventures (“PE Investment I” and “PE Investment II”) or consolidated ventures and direct investments (“PE Investment III to XIV,” collectively “Direct PE Investments”) which are recorded as investments in private equity funds at fair value on the consolidated balance sheets. The Company elected the fair value option for PE Investments, of which certain are cost method investments and the remainder are equity method investments. As a result, the Company records equity in earnings (losses) based on the change in fair value for its share of the projected future cash flow from one period to another. All PE Investments are considered variable interest entities, except for PE Investment I and II (refer to Note 16). PE Investment I and II are considered voting interest entities and are not consolidated by the Company due to the substantive participating rights of the partners in joint ventures that own the interests in the real estate private equity funds. The Company does not consolidate any of the underlying real estate private equity funds owned in Direct PE Investments as it does not own a majority voting interest in any such funds or is not the primary beneficiary of such funds.
The following tables summarize the Company’s PE Investments as of September 30, 2016 (dollars in millions):
 
 
 
 
Carrying Value
 
Three Months Ended September 30, 2016
 
Three Months Ended September 30, 2015
PE Investment
 
Number of Funds
 
September 30, 2016
 
December 31, 2015
 
Income (2)
 
Distributions
 
Contributions
 
Income (2)
 
Distributions
 
Contributions
PE Investment I
 
45
 
$
98.5

 
$
154.0

 
$
4.9

 
$
18.9

 
$
0.6

 
$
9.9

 
$
8.8

 
$
0.6

PE Investment II (4)
 
24
 
2.6

 
2.7

 
0.1

 
0.4

 
0.7

 
0.2

 
0.6

 
—

PE Investment III
 
8
 
27.4

 
26.8

 
2.0

 
4.2

 
—

 
0.4

 
3.1

 
—

PE Investment IV
 
1
 
2.3

 
7.6

 
0.4

 
5.1

 
—

 
0.3

 
0.3

 
—

PE Investment V
 
3
 
5.6

 
7.7

 
0.2

 
1.4

 
—

 
0.4

 
—

 
—

PE Investment VI
 
14
 
49.5

 
62.0

 
1.2

 
6.1

 
—

 
2.2

 
4.0

 
—

PE Investment VII
 
9
 
22.6

 
21.0

 
0.7

 
0.4

 
—

 
1.4

 
4.3

 
0.1

PE Investment IX
 
6
 
43.3

 
44.7

 
1.6

 
3.8

 
—

 
3.9

 
6.2

 
0.1

PE Investment X
 
8
 
49.4

 
68.2

 
1.9

 
11.3

 
0.1

 
3.5

 
9.0

 
—

PE Investment XII
 
1
 
2.2

 
2.6

 
—

 
0.4

 
—

 
0.1

 
0.2

 
—

PE Investment XIII
 
5
 
178.1

 
177.7

 
4.1

 
1.4

 
—

 
9.9

 
52.2

 
—

PE Investment XIV (3)
 
2
 
3.4

 
5.6

 
0.9

 
0.3

 
—

 
0.1

 
24.9

 
0.3

Subtotal (1)(6)
 
126
 
484.9

 
580.6

 
18.0

 
53.7

 
1.4

 
32.3

 
113.6

 
1.1

PE Investment Sale (4)
 
—
 
—

 
521.1

 
—

 
—

 
—

 
22.8

 
68.7

 
1.1

Total
 
126
(5)  
$
484.9

 
$
1,101.7

 
$
18.0

 
$
53.7

 
$
1.4

 
$
55.1

 
$
182.3

 
$
2.2

_____________________________________________
(1)
As of September 30, 2016, the Company’s expected future contributions to funds is $2 million with $6 million of remaining deferred purchase price. The actual amount of future contributions underlying the fund interests that may be called and funded by the Company could vary materially from the Company’s expectations.
(2)
Recorded in equity in earnings in the consolidated statements of operations.
(3)
In September 2016, the Company paid $3.1 million of deferred purchase price to the original seller. PE Investment XIV will pay the remaining deferred purchase price of $3.2 million to the original seller in September 2017. Such amount is included in other liabilities on the consolidated balance sheets.
(4)
In February 2016, the Company sold substantially all of its interest in PE Investment II for proceeds of $184.1 million . In September 2016, the Company sold a portfolio of PE Investments for a gross sales price of $317.6 million with $44.7 million of deferred purchase price assumed as part of the transaction, including $5.6 million of deferred purchase price which was the obligation of an unconsolidated joint venture. The Company received $33.9 million of net proceeds and will receive the remaining $204.7 million of net proceeds in the fourth quarter 2016. Refer to Note 9. Related Party Arrangements for further disclosure.
(5)
The total number of funds includes 12 funds held across multiple PE Investments.
(6)
As of September 30, 2016 , cash flow is expected through June 30, 2022, with a weighted average expected remaining life of 1.2 years.



27
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

 
 
Nine Months Ended September 30, 2016
 
Nine Months Ended September 30, 2015
PE Investment
 
Income (1)
 
Distributions
 
Contributions
 
Income (1)
 
Distributions
 
Contributions
PE Investment I (2)
 
$
18.6

 
$
67.2

 
$
1.2

 
$
36.1

 
$
59.1

 
$
1.8

PE Investment II
 
0.3

 
1.1

 
1.2

 
0.6

 
1.6

 
0.6

PE Investment III
 
6.8

 
6.1

 
—

 
1.6

 
9.5

 
0.1

PE Investment IV
 
0.9

 
6.2

 
—

 
0.9

 
0.3

 
—

PE Investment V
 
0.7

 
2.8

 
—

 
1.5

 
1.5

 
—

PE Investment VI
 
3.8

 
16.3

 
—

 
7.3

 
12.2

 
—

PE Investment VII
 
2.4

 
0.9

 
0.1

 
4.4

 
11.6

 
0.1

PE Investment IX
 
6.8

 
8.4

 
0.2

 
13.4

 
28.8

 
0.1

PE Investment X
 
8.7

 
27.5

 
0.1

 
11.3

 
29.2

 
0.2

PE Investment XII
 
0.2

 
0.6

 
—

 
0.3

 
3.8

 
0.1

PE Investment XIII
 
17.7

 
17.8

 
0.4

 
13.8

 
121.7

 
—

PE Investment XIV
 
1.5

 
3.4

 
0.2

 
0.1

 
24.9

 
0.3

Subtotal
 
68.4

 
158.3

 
3.4

 
91.3

 
304.2

 
3.3

PE Investment Sale (3)
 
10.8

 
28.7

 
0.5

 
64.4

 
193.3

 
46.6

Total
 
$
79.2

 
$
187.0

 
$
3.9

 
$
155.7

 
$
497.5

 
$
49.9

____________________________________________________________
(1)
Recorded in equity in earnings in the consolidated statements of operations.
(2)
The Company recorded an unrealized loss of $8.2 million for the nine months ended September 30, 2016 , which represented an unwind of an unrealized gain of $32.6 million recorded for the year ended December 31, 2014 .
(3)
The distributions received for the nine months ended September 30, 2016 excludes proceeds of $218.0 million in connection with the sales of PE Investments.
Unconsolidated PE Investments
PE Investment I
In February 2013, the Company completed the initial closing (“PE I Initial Closing”) of PE Investment I which owns a portfolio of limited partnership interests in real estate private equity funds managed by institutional-quality sponsors. Pursuant to the terms of the agreement, at the PE I Initial Closing, the full purchase price was funded, excluding future capital commitments. Accordingly, the Company funded $282.1 million and NorthStar Real Estate Income Trust, Inc. (“NorthStar Income”) (together with the Company, the “NorthStar Entities”) funded $118.0 million . The NorthStar Entities have an aggregate ownership interest in PE Investment I of 51% , of which the Company owns 70.5% . The Company assigned its rights to the remaining 29.5% to a subsidiary of NorthStar Income. Teachers Insurance and Annuity Association of America (the “Class B Partner”) contributed its interests in 49 funds subject to the transaction in exchange for all of the Class B partnership interests in PE Investment I.
PE Investment I provides for all cash distributions on a priority basis to the NorthStar Entities as follows: (i) first, 85% to the NorthStar Entities and 15% to the Class B Partner until the NorthStar Entities receive a 1.5 x multiple on all of their invested capital, including amounts funded in connection with future capital commitments; (ii) second, 15% to the NorthStar Entities and 85% to the Class B Partner until the Class B Partner receives a return of its then remaining June 30, 2012 capital; and (iii) third, 51% to the NorthStar Entities and 49% to the Class B Partner. All amounts paid to and received by the NorthStar Entities are based on each partner’s proportionate interest.
The Company guaranteed all of its funding obligations that may be due and owed under PE Investment I agreements directly to PE Investment I entities. The Company and NorthStar Income each agreed to indemnify the other proportionately for any losses that may arise in connection with the funding and other obligations as set forth in the governing documents in the case of a joint default by the Company and NorthStar Income. The Company and NorthStar Income further agreed to indemnify each other for all of the losses that may arise as a result of a default that is solely caused by the Company or NorthStar Income, as the case may be.
PE Investment II
In June 2013, the Company, NorthStar Income and funds managed by Goldman Sachs Asset Management (each a “Partner”) formed joint ventures and entered into an agreement with Common Pension Fund E, a common trust fund created under New Jersey law, to acquire a portfolio of limited partnership interests in 24 real estate private equity funds managed by institutional-quality sponsors. The aggregate reported net asset value (“NAV”) acquired was $910.0 million as of September 30, 2012. In February 2016, the Company sold substantially all of its interest in PE Investment II to the other Partners for proceeds of $184.1 million . In connection with the sale, the buyers, Goldman Sachs Asset Management and NorthStar Income, each assumed substantially all of the Company’s $243 million portion of the deferred purchase price obligation of the PE Investment II joint venture.

28
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

6.
Investments in Unconsolidated Ventures
The following is a description of investments in unconsolidated ventures. The investments in RXR Realty LLC (“RXR Realty”), Aerium Group (“Aerium”) and SteelWave, LLC (formerly known as Legacy Partners Commercial, LLC) (“SteelWave”) are accounted for at fair value due to the election of the fair value option (refer to Note 13). The investments in the NSAM Retail Companies (as defined below) were accounted for under the equity method prior to the spin-off of the Company’s historical asset management business (“NSAM Spin-off”) and are accounted for under the cost method subsequent to the NSAM Spin-off. All other investments in unconsolidated ventures are accounted for under the equity method.
The following table summarizes the Company’s investments in unconsolidated ventures as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015 (dollars in millions):
 
 
 
 
Carrying Value
 
Equity in Earnings (Losses)
 
 
Ownership
 
September 30, 2016 (Unaudited)
 
December 31, 2015
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Investment
 
Interest
 
 
 
2016
 
2015
 
2016
 
2015
RXR Realty (1)
 
27%
 
$
101.1

 
$
89.3

 
$
6.6

 
$
4.3

 
$
19.0

 
$
12.0

NSAM Retail Companies (2)
 
Various
 
17.8

 
14.0

 
—

 
—

 
—

 
0.2

Office Joint Venture (3)
 
10%
 
8.5

 
8.5

 
—

 
—

 
—

 
—

LandCap (4)
 
49%
 
7.5

 
7.7

 
0.5

 
0.5

 
0.7

 
1.1

SteelWave (5)
 
40%
 
9.1

 
6.8

 
0.8

 
0.5

 
2.3

 
1.3

Aerium (6)
 
15%
 
4.5

 
16.5

 
—

 
—

 
—

 
1.3

CS/Federal (7)
 
50%
 
5.4

 
5.7

 
(0.2
)
 
0.1

 
(0.2
)
 
0.1

Multifamily Joint Venture (8)
 
90%
 
4.1

 
3.5

 
0.3

 
(0.1
)
 
0.8

 
—

NorthStar Realty Finance Trusts (9)
 
N/A
 
3.7

 
3.7

 
—

 
—

 
—

 
—

Total
 
 
 
$
161.7

 
$
155.7

 
$
8.0

 
$
5.3

 
$
22.6

 
$
16.0

___________________________________________________________
(1)
In December 2013, the Company entered into a strategic transaction with RXR Realty, a leading real estate owner, developer and investment management company focused on high-quality real estate in the New York Tri-State area. The Company’s equity interest in RXR Realty is structured so that NSAM is entitled to certain fees in connection with RXR Realty’s investment management business. Refer to Note 9. “Related Party Arrangements - NorthStar Asset Management Group - Management Agreement” for further disclosure.
(2)
Represents the Company’s investment in NSAM sponsored companies: NorthStar Income, NorthStar Healthcare Income, Inc. (“NorthStar Healthcare”), NorthStar Real Estate Income II, Inc. (“NorthStar Income II”), NorthStar Corporate Income Fund (“NorthStar Corporate Fund”) and NorthStar/RXR New York Metro Real Estate, Inc. (“NorthStar/RXR New York Metro”). Affiliates of NSAM manage NorthStar Income, NorthStar Healthcare, NorthStar Income II, NorthStar Corporate Fund, NorthStar/RXR New York Metro, NorthStar Real Estate Capital Income Fund (“NorthStar Capital Fund”) which, together with any new retail company sponsored by NSAM, are collectively referred to as the “NSAM Retail Companies”. The Company’s ownership interest in NorthStar Income and NorthStar Healthcare as of September 30, 2016 is 0.5% and 0.3% , respectively.
(3)
In June 2013, in connection with the restructuring of an existing mezzanine loan, the Company acquired a 9.99% equity interest for $8.5 million in a joint venture that owns two office buildings in Chicago.
(4)
In October 2007, the Company entered into a joint venture with Whitehall Street Global Real Estate Limited Partnership 2007 (“Whitehall”) to form LandCap Partners and LandCap LoanCo. (collectively referred to as “LandCap”). The joint venture is managed by a third-party management group. The Company and Whitehall agreed to no longer provide additional new investment capital in the LandCap joint venture.
(5)
In September 2014, the Company entered into an investment with SteelWave, a real estate investment manager, owner and operator with a portfolio of commercial assets focused in key markets in the western United States.
(6)
Aerium is a pan-European real estate investment manager specializing in commercial real estate properties. The Company recorded an unrealized loss on its interest in Aerium of $9.6 million for the nine months ended September 30, 2016 . The Company’s equity interest in Aerium is structured so that NSAM is entitled to certain fees in connection with Aerium’s asset management business. Refer to Note 9. “Related Party Arrangements - NorthStar Asset Management Group - Management Agreement” for further disclosure.
(7)
CS Federal Drive, LLC (“CS/Federal”) owns three adjacent class A office/flex buildings in Colorado. The properties were acquired for $54.3 million and were financed with two separate non-recourse mortgages totaling $38.0 million and the remainder in cash. The mortgages matured on February 11, 2016 and the Company is currently in negotiations with the lender.
(8)
In July 2013, the Company through a joint venture with a private investor, acquired a multifamily property with 498 units, located in Philadelphia, Pennsylvania for an aggregate purchase price of $41.0 million , including all costs, escrows and reserves. The property was financed with a non-recourse mortgage note of $29.5 million and the remainder in cash. In April 2015, the property obtained additional non-recourse financing of $7.0 million . Both financings mature on July 1, 2023 and have a weighted average fixed interest rate of 3.87% . The joint venture is exploring the sale of the property.
(9)
The Company owns all of the common stock of NorthStar Realty Finance Trusts I through VIII (collectively, the “Trusts”). The Trusts were formed to issue trust preferred securities. Refer to Note 16 for further disclosure.

29
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

NSAM Retail Companies
The Company committed to purchase up to $10 million in shares of each of NSAM’s Retail Companies’ common stock during the period from when each offering was declared effective through the end of their respective offering period, in the event that NSAM Retail Companies’ distributions to its stockholders, on a quarterly basis, exceed certain measures of operating performance.
In addition, pursuant to the management agreement with NSAM, the Company committed up to $10 million to invest as distribution support consistent with past practice in each future public non-traded NSAM Retail Company, up to a total of five new companies per year. The following table summarizes the Company’s total shares purchased of each NSAM Retail Company as part of its current obligation under the distribution support agreement and the remaining obligations as of September 30, 2016 (dollars in millions):
 
 
Term of
 
Ownership
 
Amount
 
Remaining
NSAM Retail Company
 
Commitment
 
Interest
 
Purchased
 
Commitment
NorthStar Income II
 
May 2013 - November 2016
 
0.6%
 
$
5.8

 
$
4.2

NorthStar/RXR New York Metro (1)
 
February 2015 - February 2017
 
38.5%
 
1.5

 
6.0

NorthStar Corporate Fund (2)
 
February 2016 - February 2018
 
50.0%
 
1.0

 
4.0

NorthStar Capital Fund (3)(4)
 
May 2016 - May 2018
 
100.0%
 
2.0

 
8.0

Total
 
 
 
 
 
$
10.3

 
$
22.2

___________________________________________________________
(1)
NorthStar/RXR New York Metro’s registration statement filed with the SEC seeks to offer up to $2 billion in a public offering of multiple classes of common stock. In December 2015, the Company and RXR Realty satisfied NorthStar/RXR New York Metro’s minimum offering amount as a result of the purchase of 0.2 million shares of its common stock for an aggregate $2.0 million , of which $1.5 million was invested. The Company is responsible for 75% of the distribution support commitment to NorthStar/RXR New York Metro, with RXR Realty responsible for the remaining 25% . NSAM began raising capital for NorthStar/RXR New York Metro in the second quarter 2016.
(2)
NorthStar Corporate Fund’s registration statement on Form N-2 filed with the SEC seeks to raise up to  $3 billion  in a public offering of common stock. In January 2016, the Company and an affiliate of Och-Ziff Capital Management Group (“OZ Corporate Investors”) invested $2.0 million of seed capital into NorthStar Corporate Fund, of which $1.0 million was invested. The Company is responsible for 50% of the distribution support commitment to NorthStar Corporate Fund, with OZ Corporate Investors responsible for the remaining 50% . In February 2016, NorthStar Corporate Fund was declared effective by the SEC and expects to begin raising capital from third parties in the first half 2017.
(3)
NorthStar Capital Fund’s registration statement on Form N-2 filed with the SEC seeks to raise up to $3 billion in a public offering of common stock. In March 2016, the Company invested $2.0 million of seed capital into NorthStar Capital Fund. In May 2016, NorthStar Capital Fund was declared effective by the SEC and expects to begin raising capital from third parties in the first half 2017.
(4)
The Company currently consolidates the company based on its majority voting interest in the entity.
7.
Real Estate Securities, Available for Sale
The following table presents CRE securities as of September 30, 2016 (dollars in thousands):
 
 
 
 
 
 
 
 
Cumulative Unrealized
 
 
 
Allocation by
 
Weighted
 
Weighted

Number

Principal
 Amount (3)

Amortized
Cost

Gains

(Losses)

Fair
Value

Investment
Type (3)

Average
Coupon

Average Yield (4)
Asset Type:

 

















N-Star CDO bonds (1)(8)
24

 
 
$
371,279

 
$
178,316

 
$
4,410

 
$
(62,459
)
 
$
120,267

 
33.3
%
 
2.41
%
 
25.46
%
N-Star CDO equity (5)(8)
4

 
 
61,391

 
61,391

 
855

 
(30,360
)
 
31,886

 
5.5
%
 
NA

 
4.94
%
CMBS and other securities (6)
11

 
 
58,824

 
42,660

 
185

 
(21,034
)
 
21,811

 
5.3
%
 
0.70
%
 
0.73
%
Subtotal (2)
39

 
 
491,494

 
282,367

 
5,450

 
(113,853
)
 
173,964

 
44.1
%
 
2.17
%
 
17.26
%
CRE securities in N-Star CDOs (5)(7)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CMBS
109

 
 
471,534

 
361,450

 
16,737

 
(91,766
)
 
286,421

 
42.3
%
 
3.50
%
 
9.24
%
Third-party CDO notes
6

 
 
49,229

 
48,031

 
—

 
(41,701
)
 
6,330

 
4.5
%
 
—
%
 
—
%
Agency debentures
8

 
 
87,172

 
32,873

 
12,946

 
—

 
45,819

 
7.8
%
 
—
%
 
4.32
%
Unsecured REIT debt
1

 
 
8,000

 
8,198

 
565

 
—

 
8,763

 
0.7
%
 
7.50
%
 
5.88
%
Trust preferred securities
2

 
 
7,225

 
7,225

 
—

 
(1,556
)
 
5,669

 
0.6
%
 
2.25
%
 
2.43
%
Subtotal
126

 
 
623,160

 
457,777

 
30,248

 
(135,023
)
 
353,002

 
55.9
%
 
2.77
%
 
7.75
%
Total
165

 
 
$
1,114,654

 
$
740,144

 
$
35,698

 
$
(248,876
)
 
$
526,966

 
100.0
%
 
2.53
%
 
11.38
%
____________________________________________________________
(1)
Excludes $142.0 million principal amount of N-Star CDO bonds payable that are eliminated in consolidation and includes $2.3 million of N-Star CDO bonds owned in N-Star CDO IX.
(2)
All securities are unleveraged.
(3)
Based on amortized cost for N-Star CDO equity and principal amount for remaining securities.
(4)
Based on expected maturity and for floating-rate securities, calculated using the applicable LIBOR as of September 30, 2016 .
(5)
The fair value option was elected for these securities (refer to Note 13).
(6)
The fair value option was elected for $ 16.0 million carrying value of these securities (refer to Note 13).
(7)
Investments in the same securitization tranche held in separate CDO financing transactions are reported as separate investments.

30
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

(8)
As of September 30, 2016 , the weighted average remaining life of the N-Star CDO bonds and N-Star CDO equity is 1.3 years and 2.4 years, respectively.
The Company sponsored nine CDOs, three of which were primarily collateralized by CRE debt and six of which were primarily collateralized by CRE securities. The Company acquired equity interests of two CRE debt focused CDOs, the CSE RE 2006-A CDO (“CSE CDO”) and the CapLease 2005-1 CDO (“CapLease CDO”) sponsored by third parties. These CDOs are collectively referred to as the N-Star CDOs. All N-Star CDOs are considered VIEs (refer to Note 16). At the time of issuance of the sponsored CDOs, the Company retained the below investment grade bonds, which are referred to as subordinate bonds, and preferred shares and equity notes, which are referred to as equity interests. In addition, the Company repurchased CDO bonds originally issued to third parties at discounts to par. These repurchased CDO bonds and retained subordinate bonds are herein collectively referred to as N-Star CDO bonds.
As of September 30, 2016 , the Company’s CRE securities portfolio is comprised of N-Star CDO bonds and N-Star CDO equity and other securities which are predominantly conduit commercial mortgage-backed securities (“CMBS”), meaning each asset is a pool backed by a large number of commercial real estate loans. As a result, this portfolio is typically well-diversified by collateral type and geography. As of September 30, 2016 , contractual maturities of CRE securities investments ranged from three months to 37 years, with a weighted average expected maturity of 3.2 years.
The following table presents CRE securities as of December 31, 2015 (dollars in thousands):
 
 
 
 
 
 
 
 
Cumulative Unrealized
 
 
 
Allocation by

Weighted

Weighted
 
Number
 
Principal
Amount (3)
 
Amortized
Cost
 
Gains
 
Losses
 
Fair
Value
 
Investment
Type (3)
 
Average
Coupon
 
Average Yield (4)
Asset Type:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
N-Star CDO bonds (1)
26

 
 
$
401,848

 
$
194,908

 
$
24,332

 
$
(2,513
)
 
$
216,727

 
31.3
%
 
1.98
%
 
22.01
%
N-Star CDO equity (5)
4

 
 
71,003

 
71,003

 
1,290

 
(27,388
)
 
44,905

 
5.5
%
 
NA

 
12.41
%
CMBS and other securities (6)
15

 
 
116,681

 
61,520

 
15,340

 
(21,295
)
 
55,565

 
9.1
%
 
2.15
%
 
5.52
%
Subtotal (2)
45

 
 
589,532

 
327,431

 
40,962

 
(51,196
)
 
317,197

 
45.9
%
 
2.01
%
 
16.83
%
CRE securities in N-Star CDOs (5)(7)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CMBS
123

 
 
538,205

 
398,343

 
31,244

 
(103,076
)
 
326,511

 
41.9
%
 
3.48
%
 
10.13
%
Third-party CDO notes
8

 
 
55,509

 
50,047

 
—

 
(43,362
)
 
6,685

 
4.3
%
 
0.01
%
 
—
%
Agency debentures
8

 
 
87,172

 
31,774

 
6,384

 
(842
)
 
37,316

 
6.8
%
 
—

 
4.57
%
Unsecured REIT debt
1

 
 
8,000

 
8,285

 
691

 
—

 
8,976

 
0.6
%
 
7.50
%
 
5.88
%
Trust preferred securities
2

 
 
7,225

 
7,225

 
—

 
(1,800
)
 
5,425

 
0.5
%
 
2.25
%
 
2.32
%
Subtotal
142

 
 
696,111

 
495,674

 
38,319

 
(149,080
)
 
384,913

 
54.1
%
 
2.80
%
 
8.56
%
Total
187

 
 
$
1,285,643

 
$
823,105

 
$
79,281

 
$
(200,276
)
 
$
702,110

 
100.0
%
 
2.46
%
 
11.85
%
_________________________________________________________
(1)
Excludes $142.9 million principal amount of N-Star CDO bonds payable that are eliminated in consolidation.
(2)
All securities are unleveraged.
(3)
Based on amortized cost for N-Star CDO equity and principal amount for remaining securities.
(4)
Based on expected maturity and for floating-rate securities, calculated using the applicable LIBOR as of December 31, 2015 .
(5)
The fair value option was elected for these securities (refer to Note 13).
(6)
The fair value option was elected for $48.7 million carrying value of these securities (refer to Note 13).
(7)
Investments in the same securitization tranche held in separate CDO financing transactions are reported as separate investments.
There were no sales of CRE securities for the three months ended September 30, 2016 . For the nine months ended September 30, 2016 , proceeds from the sale of CRE securities was $53.9 million and resulting in a net realized loss of $5.6 million . The Company recognized a $9.7 million net cash gain related to acceleration of discount in connection with these sales. For the three and nine months ended September 30, 2015 , proceeds from the sale of CRE securities were $14.9 million and $95.7 million resulting in a net realized gain of $9.3 million and $22.1 million , respectively.
CRE securities investments, not held in N-Star CDOs, include 25 securities for which the fair value option was not elected. As of September 30, 2016 , the aggregate carrying value of these securities was $126.1 million , representing $57.9 million of accumulated net unrealized losses included in OCI. As of September 30, 2016 , the Company held 17 securities with an aggregate carrying value of $80.9 million with an unrealized loss of $62.5 million , three of which were in an unrealized loss position for a period of greater than 12 months. Based on management’s quarterly evaluation, the Company recorded OTTI of $0.4 million and $12.5 million for the three and nine months ended September 30, 2016 , respectively, which was recorded in realized gain (loss) on investments and other in the consolidated statements of operations. As of September 30, 2016 , the Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell these securities prior to recovery of its amortized cost basis, which may be at maturity.

31
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

8.
Borrowings
The following table presents borrowings as of September 30, 2016 and December 31, 2015 (dollars in thousands):







September 30, 2016

December 31, 2015

Recourse vs.
Non-Recourse

Final
Maturity

Contractual
Interest Rate (1)(2)

Principal
Amount

Carrying
Value (3)

Principal
Amount

Carrying
Value (3)
Mortgage and other notes payable: (4)
 

 
 
 








Healthcare

















East Arlington, TX
Non-recourse
 
May-17
 
5.89%
 
$
3,058

 
$
3,056

 
$
3,101

 
$
3,097

SLC Portfolio
Non-recourse
 
Jan-19
 
LIBOR + 3.00%
 
171,900

 
168,207

 
176,553

 
175,674

Formation Portfolio (6)(15)
Non-recourse
 
May-19 (7) /Jan-25/Feb-26
 
LIBOR + 4.25% (8) /4.54%/4.59%
 
703,624

 
696,933

 
701,819

 
695,060

Minnesota Portfolio
Non-recourse
 
Nov-19
 
LIBOR + 3.50%
 
37,800

 
37,302

 
37,800

 
37,171

Griffin-American - U.K. (6)
Non-recourse
 
Dec-19 (7)
 
LIBOR + 4.25% (8)
 
284,054

 
281,346

 
327,890

 
322,415

Griffin-American - U.S. - Fixed (6)(9)
Non-recourse
 
Dec-19 (7) / Jun-25
 
4.68% (8)
 
1,763,008

 
1,705,663

 
1,763,036

 
1,692,098

Griffin-American - U.S. - Floating (6)(9)
Non-recourse
 
Dec-19 (7)
 
LIBOR + 3.05% (8)
 
854,565

 
826,769

 
854,565

 
820,180

Wakefield Portfolio
Non-recourse
 
April-20
 
LIBOR + 4.00%
 
54,042

 
53,666

 
54,694

 
54,228

Healthcare Preferred (10)
Non-recourse

Jul-21

LIBOR + 7.75%

75,000

 
75,000

 
75,000

 
75,000

Indiana Portfolio (10)
Non-recourse
 
Sept-21
 
LIBOR + 4.50%
 
121,130

 
121,130

 
121,130

 
121,130

Subtotal Healthcare/weighted average
 
 
 
 
 
 
4,068,181

 
3,969,072

 
4,115,588

 
3,996,053

Hotel
 
 
 
 
 
 


 
 
 
 
 
 
Innkeepers Portfolio (6)
Non-recourse
 
Jun-19 (7)
 
LIBOR + 3.39% (8)
 
840,000

 
839,975

 
840,000

 
837,137

K Partners Portfolio (6)(16)
Non-recourse
 
Aug-19 (7)
 
LIBOR + 3.25% (8)
 
211,681

 
211,664

 
211,681

 
210,660

Courtyard Portfolio (6)
Non-recourse
 
Oct-19 (7)
 
LIBOR + 2.90% (8)
 
512,000

 
512,000

 
512,000

 
509,554

Inland Portfolio (6)
Non-recourse
 
Nov-19 (7)
 
LIBOR + 3.60% (8)
 
817,000

 
815,987

 
817,000

 
811,927

NE Portfolio (6)
Non-recourse
 
Jun-20 (7)
 
LIBOR + 3.85% (8)
 
132,250

 
131,563

 
132,250

 
130,824

Miami Hotel Portfolio (6)
Non-recourse
 
Jul-20 (7)
 
LIBOR + 3.90% (8)
 
115,500

 
114,613

 
115,500

 
113,833

Subtotal Hotel/weighted average
 
 
 
 
 
 
2,628,431

 
2,625,802

 
2,628,431

 
2,613,935

Net lease
 
 
 
 
 
 
 
 
 
 
 
 
 
Indianapolis, IN
Non-recourse
 
Feb-17
 
6.06%
 
25,303

 
25,299

 
25,674

 
25,663

Milpitas, CA
Non-recourse
 
Mar-17
 
5.95%
 
18,331

 
18,325

 
18,827

 
18,807

Fort Mill, SC
Non-recourse
 
Apr-17
 
5.63%
 
27,700

 
27,691

 
27,700

 
27,675

Fort Mill, SC - Mezzanine
Non-recourse
 
Apr-17
 
6.21%
 
301

 
301

 
663

 
663

Salt Lake City, UT
Non-recourse
 
Sept-17
 
5.16%
 
12,228

 
12,177

 
12,646

 
12,555

Green Pond, NJ
Non-recourse
 
Jun-21
 
4.00%
 
13,260

 
12,998

 
15,486

 
15,481

South Portland, ME
Non-recourse
 
Jul-23
 
LIBOR + 2.15% (8)
 
2,964

 
2,922

 
3,241

 
3,190

Aurora, CO
Non-recourse
 
Aug-26
 
4.08%
 
32,600

 
32,177

 
30,175

 
30,169

DSG Portfolio (5)
Non-recourse
 
Nov-26
 
4.45%
 
29,980

 
29,941

 
30,481

 
30,428

Industrial Portfolio
—
 
—
 
—
 
—

 
—

 
221,125

 
224,635

Subtotal Net lease/weighted average
 
 
 
 
 
 
162,667

 
161,831

 
386,018

 
389,266

Multi-tenant Office
 
 
 
 
 
 
 
 
 
 
 
 
 
SteelWave Properties (6)
Non-recourse
 
Nov-19/Feb-20 (7)
 
LIBOR + 2.15% (8)
 
113,804

 
112,650

 
112,988

 
111,266

Subtotal Multi-tenant Office
 
 
 
 
 
 
113,804

 
112,650

 
112,988

 
111,266

Other
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured borrowing
Non-recourse
 
May-23
 
LIBOR + 1.60%
 
52,672

 
52,672

 
54,056

 
54,056

Subtotal Other
 
 
 
 
 
 
52,672

 
52,672

 
54,056

 
54,056

Subtotal Mortgage and other notes payable
 
 
 
 
 
 
7,025,755

 
6,922,027

 
7,297,081

 
7,164,576

Credit facilities and term borrowings:
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate Revolver (11)
Recourse
 
Aug-17
 
LIBOR + 3.50% (8)
 
—

 
—

 
165,000

 
165,000

Corporate Term Borrowing
Recourse
 
Sept-17
 
4.60% / 4.55% (12)
 
425,000

 
420,409

 
425,000

 
417,039

Loan Facility
Partial Recourse (13)
 
Mar-18 (7)
 
—
 
—

 
—

 
72,053

 
72,021

Subtotal Credit facilities and term borrowings
 
 
 
 
 
 
425,000


420,409

 
662,053

 
654,060

CDO bonds payable:
 
 
 
 
 
 
 
 
 
 
 
 
 
N-Star I
Non-recourse
 
Aug-38
 
7.01%
 
9,206

 
9,161

 
10,869

 
10,814

N-Star IX
Non-recourse
 
Aug-52
 
LIBOR + 0.51% (8)
 
377,624

 
248,716

 
425,622

 
296,787

Subtotal CDO bonds payable
 
 
 
 
 
 
386,830


257,877

 
436,491

 
307,601


32
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)








September 30, 2016

December 31, 2015

Recourse vs.
Non-Recourse

Final
Maturity

Contractual
Interest Rate (1)(2)

Principal
Amount

Carrying
Value (3)

Principal
Amount
 
Carrying
Value (3)
Exchangeable senior notes:
 
 
 
 
 
 
 
 
 
 
 
 
 
7.25% Notes
Recourse
 
Jun-27
 
7.25%
 
12,955

 
12,955

 
12,955

 
12,955

5.375% Notes
Recourse
 
Jun-33
 
5.375%
 
16,405

 
14,401

 
17,405

 
15,116

8.875% Notes
—
 
—
 
—
 
—

 
—

 
1,000

 
967

Subtotal Exchangeable senior notes
 
 
 
 
 
 
29,360


27,356

 
31,360

 
29,038

Junior subordinated notes:
 
 
 
 
 
 
 
 
 
 
 
 
 
Trust I
Recourse
 
Mar-35
 
LIBOR + 3.25% (8)
 
41,240

 
30,246

 
41,240

 
29,033

Trust II
Recourse
 
Jun-35
 
LIBOR + 3.25% (8)
 
25,780

 
18,910

 
25,780

 
18,152

Trust III
Recourse
 
Jan-36
 
LIBOR + 2.83% (8)
 
41,238

 
28,116

 
41,238

 
27,003

Trust IV
Recourse
 
Jun-36
 
LIBOR + 2.80% (8)
 
50,100

 
33,812

 
50,100

 
33,446

Trust V
Recourse
 
Sept-36
 
LIBOR + 2.70% (8)
 
30,100

 
19,920

 
30,100

 
18,978

Trust VI
Recourse
 
Dec-36
 
LIBOR + 2.90% (8)
 
25,100

 
17,123

 
25,100

 
16,348

Trust VII
Recourse
 
Apr-37
 
LIBOR + 2.50% (8)
 
31,459

 
19,970

 
31,459

 
18,960

Trust VIII
Recourse
 
Jul-37
 
LIBOR + 2.70% (8)
 
35,100

 
23,078

 
35,100

 
21,973

Subtotal Junior subordinated notes
 
 
 
 
 
 
280,117


191,175

 
280,117

 
183,893

Subtotal
 
 
 
 
 
 
8,147,062

 
7,818,844

 
8,707,102

 
8,339,168

Borrowings of properties, held for sale: (4)
 
 
 
 
 
 
 
 
 
 
 
 
 
EDS Portfolio (14)
Non-recourse
 
Oct-15
 
5.37%
 
41,051

 
41,051

 
41,742

 
41,742

Manufactured Housing Communities
Non-recourse
 
Dec-21 - Dec-25
 
4.32% (8)
 
1,266,318

 
1,255,454

 
1,274,643

 
1,262,726

Multifamily
Non-recourse
 
Apr-23 - Jul-23
 
4.05% (8)
 
147,940

 
146,662

 
249,709

 
247,019

Senior Housing Portfolio
—
 
—
 
—
 
—

 
—

 
648,211

 
644,486

Subtotal Borrowings of properties held for sale
 
 
 
 
 
 
1,455,309


1,443,167

 
2,214,305


2,195,973

Grand Total
 
 
 
 
 
 
$
9,602,371

 
$
9,262,011

 
$
10,921,407

 
$
10,535,141

____________________________________________________________
(1)
Refer to Note 14 for further disclosure regarding derivative instruments which are used to manage interest rate exposure.
(2)
For borrowings with a contractual interest rate based on LIBOR, represents three -month LIBOR for the SLC and Wakefield Portfolio and one -month LIBOR for the other borrowings.
(3)
Carrying value represents fair value with respect to CDO bonds payable and junior subordinated notes due to the election of the fair value option (refer to Note 13) and amortized cost, net of deferred financing costs for the other borrowings.
(4)
Mortgage and other notes payable are subject to customary non-recourse carveouts.
(5)
In October 2016, the Company refinanced the DSG Portfolio borrowing. The final maturity and contractual interest rate disclosed represents the updated terms based on the refinancing.
(6)
An aggregate principal amount of $6.3 billion is comprised of 21 senior mortgage notes totaling $4.9 billion and 16 mezzanine mortgage notes totaling $1.4 billion .
(7)
Represents final maturity taking into consideration the Company’s extension options.
(8)
Contractual interest rate represents a weighted average.
(9)
In connection with a definitive agreement to sell a portfolio of medical office buildings within the Griffin-American Portfolio, the Company expects to pay off $692.2 million of such borrowings, a portion of which represents a pay down above the assets aggregate allocated borrowing amount.
(10)
Represents borrowings in unconsolidated N-Star CDOs.
(11)
Secured by collateral relating to a borrowing base comprised primarily of unlevered CRE debt, net lease and securities investments with a carrying value of $210 million as of September 30, 2016 .
(12)
Represents the respective fixed rate applicable to each borrowing under the Corporate Term Borrowing.
(13)
Recourse solely with respect to certain types of loans as defined in the governing documents. In April 2016, Loan Facility was repaid in full.
(14)
In October 2015, the mortgage matured for the EDS Portfolio and in April 2016, the Company conveyed three properties back to the lender and expects to convey the remaining property back to the lender in the fourth quarter 2016. At such time, the Company expects to record a realized gain of $39.0 million upon extinguishment related to such borrowing.
(15)
As of September 30, 2016, the borrower was not in compliance with certain operating covenants a result of the tenant’s failure to satisfy the portfolio coverage covenant under the master lease.  The Company expects to receive a waiver from the lenders for such default.
(16)
As of September 30, 2016, as a result of a debt yield test, the Company is currently funding net operating cash of the hotel portfolio collateral related to this borrowing into a lender controlled escrow account to fund debt service.  The Company may need to fund additional amounts until the test is satisfied.  The Company does not believe the impact will be material.

33
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

The following table presents a reconciliation of principal amount to carrying value of the Company’s mortgage and other notes payable by asset class as of September 30, 2016 and December 31, 2015 (dollars in thousands):
 
 
September 30, 2016
 
December 31, 2015
Asset Class:
 
Principal Amount
 
Discount (Premium), Net
 
Deferred Financing Costs, Net
 
Carrying Value
 
Principal Amount
 
Discount (Premium), Net
 
Deferred Financing Costs, Net
 
Carrying Value
Healthcare
 
$
4,068,181

 
$
(44,775
)
 
$
(54,334
)
 
$
3,969,072

 
$
4,115,588

 
$
(55,441
)
 
$
(64,094
)
 
$
3,996,053

Hotel
 
2,628,431

 
—

 
(2,629
)
 
2,625,802

 
2,628,431

 
—

 
(14,496
)
 
2,613,935

Net lease
 
162,667

 
—

 
(836
)
 
161,831

 
386,018

 
4,389

 
(1,141
)
 
389,266

Multi-tenant office
 
113,804

 
—

 
(1,154
)
 
112,650

 
112,988

 
—

 
(1,722
)
 
111,266

Other
 
52,672

 
—

 
—

 
52,672

 
54,056

 
—

 
—

 
54,056

Total
 
$
7,025,755

 
$
(44,775
)
 
$
(58,953
)
 
$
6,922,027

 
$
7,297,081

 
$
(51,052
)
 
$
(81,453
)
 
$
7,164,576

The following table presents scheduled principal maturities on borrowings, based on final maturity as of September 30, 2016 (dollars in thousands):

 
Total

Mortgage
and Other Notes
Payable (2)
 
Credit Facilities and Term Borrowings
 
CDO Bonds
Payable
 
Exchangeable
Senior Notes (1)
 
Junior
Subordinated
Notes
 
Borrowings of Properties, Held for Sale (3)
October 1 to December 31, 2016
 
$
72,157

 
$
1,833

 
$
—

 
$
—

 
$
—

 
$
—

 
$
70,324

Years ending December 31:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
 
549,066

 
94,184

 
425,000

 
—

 
12,955

 
—

 
16,927

2018
 
316,052

 
295,070

 
—

 
—

 
—

 
—

 
20,982

2019
 
5,407,608

 
5,384,630

 
—

 
—

 
—

 
—

 
22,978

2020
 
380,039

 
355,785

 
—

 
—

 
—

 
—

 
24,254

Thereafter
 
2,877,449

 
894,253

 
—

 
386,830

 
16,405

 
280,117

 
1,299,844

Total
 
$
9,602,371

 
$
7,025,755

 
$
425,000

 
$
386,830

 
$
29,360

 
$
280,117

 
$
1,455,309

____________________________________________________________
(1)
The 7.25% Notes and 5.375% Notes have a final maturity date of June 15, 2027 and June 15, 2033, respectively. The above table reflects the holders’ repurchase rights which may require the Company to repurchase the 7.25% Notes and 5.375% Notes on June 15, 2017 and June 15, 2023, respectively.
(2)
In connection with a definitive agreement to sell a portfolio of medical office buildings (refer to Note 3), the Company expects to pay off $692.2 million of such borrowings, a portion of which represents a pay down above the assets aggregate allocated borrowing amount.
(3)
Borrowings of properties held for sale are expected to be paid off, assumed by buyers of the assets being sold or extinguished upon conveying the asset to the lender in the near term (refer to Note 3).
As of September 30, 2016 , with the exception of the covenants disclosed above, the Company was in compliance with all of its financial covenants.
Credit Facilities and Term Borrowings
Corporate Borrowings
In August 2014, the Company obtained a corporate revolving credit facility (as amended, the “Corporate Revolver”) with certain commercial bank lenders, with a three -year term. The Corporate Revolver is secured by collateral relating to a borrowing base and guarantees by certain subsidiaries of the Company. In May 2015, the Company amended and restated the Corporate Revolver to substitute the Operating Partnership as the borrower, with the Company becoming a guarantor. In February 2016, the Company amended the agreement and decreased the aggregate amount of the revolving commitment to $250.0 million , subject to certain conditions. In February 2016, the Corporate Revolver was repaid and there is currently no outstanding balance.
In September 2014, the Company entered into a corporate term borrowing agreement (as amended, the “Corporate Term Borrowing”) with a commercial bank lender to establish term borrowings. In March 2015, the Company amended and restated the Corporate Term Borrowing to substitute the Operating Partnership as the borrower, with the Company becoming a guarantor. Borrowings may be prepaid at any time subject to customary breakage costs. In September and December 2014, the Company entered into a credit agreement providing for a term borrowing under the Corporate Term Borrowing in a principal amount of $275.0 million and $150.0 million , respectively, with a fixed interest rate of 4.60% and 4.55% , respectively, with each maturing on September 19, 2017. There is no available financing remaining under the Corporate Term Borrowing.
The Corporate Revolver and the Corporate Term Borrowing and related agreements contain representations, warranties, covenants, conditions precedent to funding, events of default and indemnities that are customary for agreements of these types.

34
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Loan Facility
In March 2013, a subsidiary of the Company entered into a master repurchase agreement (“Loan Facility”) of $200.0 million to finance first mortgage loans and senior interests secured by commercial real estate. In connection with Loan Facility, the Company entered into a guaranty agreement under which the Company guaranteed certain of the obligations under Loan Facility. Loan Facility and related agreements contain representations, warranties, covenants, conditions precedent to funding, events of default and indemnities that are customary for agreements of these types. In addition, the Company has agreed to guarantee certain customary obligations under Loan Facility if the Company or an affiliate of the Company engage in certain customary bad acts. In April 2016, Loan Facility was repaid in full.
9.
Related Party Arrangements
NorthStar Asset Management Group
Management Agreement
Upon completion of the NSAM Spin-off, the Company entered into a management agreement with an affiliate of NSAM for an initial term of 20 years, which automatically renews for additional 20 -year terms each anniversary thereafter unless earlier terminated. As asset manager, NSAM is responsible for the Company’s day-to-day operations, subject to supervision and management of the Company’s board of directors. Through its global network of subsidiaries and branch offices, NSAM performs services and engages in activities relating to, among other things, investments and financing, portfolio management and other administrative services, such as accounting and investor relations, to the Company and its subsidiaries other than the Company’s CRE loan origination business. The management agreement with NSAM provides for a base management fee and incentive fee.
In connection with the NRE Spin-off, NorthStar Europe entered into a management agreement with NSAM with an initial term of 20 years on terms substantially consistent with the terms of the Company’s management agreement with NSAM. The Company’s management agreement with NSAM was amended and restated in connection with the NRE Spin-off to, among other things, adjust the annual base management fee and incentive fee hurdles for the NRE Spin-off. Upon completion of the Mergers, the management agreement with NSAM will cease to exist.
Base Management Fee
For the three months ended September 30, 2016 and 2015 , the Company incurred $46.8 million and $49.0 million, respectively, related to the base management fee. For the nine months ended September 30, 2016 and 2015 , the Company incurred $140.0 million and $142.5 million , respectively, related to the base management fee. As of September 30, 2016 , $46.8 million is recorded in due to related party on the consolidated balance sheets. The base management fee to NSAM could increase subsequent to September 30, 2016 by an amount equal to 1.5% per annum of the sum of:
•
cumulative net proceeds of all future common equity and preferred equity issued by the Company;
•
equity issued by the Company in exchange or conversion of exchangeable notes based on the stock price at the date of issuance;
•
any other issuances by the Company of common equity, preferred equity or other forms of equity, including but not limited to LTIP Units in the Company’s Operating Partnership (excluding units issued to the Company and equity-based compensation, but including issuances related to an acquisition, investment, joint venture or partnership); and
•
cumulative cash available for distribution (“CAD”) of the Company in excess of cumulative distributions paid on common stock, LTIP units or other equity awards beginning the first full calendar quarter after the NSAM Spin-off.
Additionally, the Company’s equity interest in RXR Realty and Aerium is structured so that NSAM is entitled to the portion of distributable cash flow from each investment in excess of the $10 million minimum annual base amount.
Incentive Fee
For the three and nine months ended September 30, 2016 , the Company did no t incur an incentive fee. For the three and nine months ended September 30, 2015 , the Company incurred $ 2.3 million and $ 8.7 million related to the incentive fee, respectively. The incentive fee is calculated and payable quarterly in arrears in cash, equal to:
•
the product of: (a) 15% and (b) the Company’s CAD before such incentive fee, divided by the weighted average shares outstanding for the calendar quarter, of any amount in excess of $0.68 per share and up to $0.78 per share, after giving effect to the Reverse Split and the NRE Spin-off (“ 15% Hurdle”); plus

35
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

•
the product of: (a) 25% and (b) the Company’s CAD before such incentive fee, divided by the weighted average shares outstanding for the calendar quarter, of any amount in excess of $0.78 per share, after giving effect to the Reverse Split and the NRE Spin-off (“ 25% Hurdle”);
•
multiplied by the Company’s weighted average shares outstanding for the calendar quarter.
In addition, NSAM may also earn an incentive fee from the Company’s healthcare investments in connection with NSAM’s Healthcare Strategic Partnership (refer to below).
Weighted average shares represents the number of shares of the Company’s common stock, LTIP Units or other equity-based awards (with some exclusions), outstanding on a daily weighted average basis. With respect to the base management fee, all equity issuances are allocated on a daily weighted average basis during the fiscal quarter of issuance. With respect to the incentive fee, such amounts will be appropriately adjusted from time to time to take into account the effect of any stock split, reverse stock split, stock dividend, reclassification, recapitalization or other similar transaction.
Additional Management Agreement Terms
If the Company were to spin-off any asset or business in the future, such entity would be managed by NSAM on terms substantially similar to those set forth in the management agreement between the Company and NSAM. The management agreement further provides that the aggregate base management fee in place immediately after any future spin-off will not be less than the aggregate base management fee in place at the Company immediately prior to such spin-off.
The Company’s management agreement with NSAM provides that in the event of a change of control of NSAM or other event that could be deemed an assignment of the management agreement, the Company will consider such assignment in good faith and not unreasonably withhold, condition or delay the Company’s consent. The management agreement further provides that the Company anticipates consent would be granted for an assignment or deemed assignment to a party with expertise in commercial real estate and over $10 billion of assets under management. The management agreement also provides that, notwithstanding anything in the agreement to the contrary, to the maximum extent permitted by applicable law, rules and regulations, in connection with any merger, sale of all or substantially all of the assets, change of control, reorganization, consolidation or any similar transaction of the Company or NSAM, directly or indirectly, the surviving entity will succeed to the terms of the management agreement.
Payment of Costs and Expenses and Expense Allocation
The Company is responsible for all of its direct costs and expenses and reimburses NSAM for costs and expenses incurred by NSAM on the Company’s behalf. In addition, NSAM may allocate indirect costs to the Company related to employees, occupancy and other general and administrative costs and expenses in accordance with the terms of, and subject to the limitations contained in, the Company’s management agreement with NSAM (the “G&A Allocation”). The Company’s management agreement with NSAM provides that the amount of the G&A Allocation will not exceed the following: (i) 20% of the combined total of: (a) the Company’s and NorthStar Europe’s (the “NorthStar Listed Companies”) general and administrative expenses as reported in their consolidated financial statements excluding (1) equity-based compensation expense, (2) non-recurring items, (3) fees payable to NSAM under the terms of the applicable management agreement and (4) any allocation of expenses to the NorthStar Listed Companies (“NorthStar Listed Companies’ G&A”); and (b) NSAM’s general and administrative expenses as reported in its consolidated financial statements, excluding equity-based compensation expense and adding back any costs or expenses allocated to any managed company of NSAM; less (ii) the NorthStar Listed Companies’ G&A. The G&A Allocation may include the Company’s allocable share of NSAM’s compensation and benefit costs associated with dedicated or partially dedicated personnel who spend all or a portion of their time managing the Company’s affairs, based upon the percentage of time devoted by such personnel to the Company’s affairs. The G&A Allocation may also include rental and occupancy, technology, office supplies, travel and entertainment and other general and administrative costs and expenses, which may be allocated based on various methodologies, such as weighted average employee count or the percentage of time devoted by personnel to the Company’s affairs. In addition, the Company will pay directly or reimburse NSAM for an allocable portion of any severance paid pursuant to any employment, consulting or similar service agreements in effect between NSAM and any of its executives, employees or other service providers.
In connection with the NRE Spin-off and the related agreements, the NorthStar Listed Companies’ obligations to reimburse NSAM for the G&A Allocation and any severance are shared among the NorthStar Listed Companies, at NSAM’s discretion, and the 20% cap on the G&A Allocation, as described above, applies on an aggregate basis to the NorthStar Listed Companies. NSAM currently determined to allocate these amounts based on assets under management.

36
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

For the three months ended September 30, 2016, NSAM did not allocate any expenses to the Company. For the three months ended September 30, 2015, NSAM allocated $0.8 million to the Company. Included in the three months ended September 30, 2015 is $ 0.3 million recorded in discontinued operations related to NorthStar Europe. For the nine months ended September 30, 2016 and 2015 , NSAM allocated $0.4 million and $3.5 million , respectively, to the Company. Included in the nine months ended September 30, 2015 is $1.4 million recorded in discontinued operations related to NorthStar Europe.
In addition, the Company, together with NorthStar Europe and any company spun-off from the Company or NorthStar Europe, will pay directly or reimburse NSAM for up to 50% of any long-term bonus or other compensation that NSAM’s compensation committee determines shall be paid and/or settled in the form of equity and/or equity-based compensation to executives, employees and service providers of NSAM during any year. Subject to this limitation and limitations contained in any applicable management agreement between NSAM and NorthStar Europe or any company spun-off from the Company or NorthStar Europe, the amount paid by the Company, NorthStar Europe and any company spun-off from the Company or NorthStar Europe will be determined by NSAM in its discretion. At the discretion of NSAM’s compensation committee, this compensation may be granted in shares of the Company’s restricted stock, restricted stock units, LTIP Units or other forms of equity compensation or stock-based awards; provided that if at any time a sufficient number of shares of the Company’s common stock are not available for issuance under the Company’s equity compensation plan, such compensation shall be paid in the form of RSUs, LTIP Units or other securities that may be settled in cash. The Company’s equity compensation for each year may be allocated on an individual-by-individual basis at the discretion of the NSAM compensation committee and, as long as the aggregate amount of the equity compensation for such year does not exceed the limits set forth in the management agreement, the proportion of any particular individual’s equity compensation may be greater or less than 50% .
In connection with the above obligation, the Company was responsible for paying approximately 50% of the 2015 and 2014 long-term bonuses earned under the NorthStar Asset Management Group Inc. Executive Incentive Bonus Plan (“NSAM Bonus Plan”). Long-term bonuses were paid to executives in the form of equity-based awards of both the Company and NSAM, subject to performance-based and time-based vesting conditions over the four -year performance period from January 1, 2014 through December 31, 2017. The long-term bonuses paid in the form of equity-based awards of the Company were adjusted for the NRE Spin-off and Reverse Split in the same manner as all other equity-based awards of the Company.
Investment Opportunities
Under the management agreement, the Company agreed to make available to NSAM for the benefit of NSAM and its managed companies, including the Company, all investment opportunities sourced by the Company. NSAM agreed to fairly allocate such opportunities among NSAM’s managed companies, including the Company and NSAM in accordance with an investment allocation policy. Pursuant to the management agreement, the Company is entitled to fair and reasonable compensation for its services in connection with any loan origination opportunities sourced by the Company, which may include first mortgage loans, subordinate mortgage interests, mezzanine loans and preferred equity interests, in each case relating to commercial real estate. For the three and nine months ended September 30, 2016 , the Company earned $0.4 million and $0.8 million from NSAM, recorded in other revenue, for services in connection with loan origination opportunities.
NSAM provides services with regard to such areas as payroll, human resources and employee benefits, financial systems management, treasury and cash management, accounts payable services, telecommunications services, information technology services, property management services, legal and accounting services and various other corporate services to the Company as it relates to its loan origination business for CRE debt.
Credit Agreement
In connection with the NSAM Spin-off, the Company entered into a revolving credit agreement with NSAM pursuant to which the Company makes available to NSAM, on an “as available basis,” up to $250 million of financing with a maturity of June 30, 2019 at LIBOR plus 3.50% . The revolving credit facility is unsecured. The terms of the revolving credit facility contain various representations, warranties, covenants and conditions, including the condition that the Company’s obligation to advance proceeds to NSAM is dependent upon the Company and its affiliates having at least $100 million of either unrestricted cash and cash equivalents or amounts available under committed lines of credit, after taking into account the amount NSAM seeks to draw under the facility. As of September 30, 2016 , the Company has not funded any amounts to NSAM in connection with this agreement.

37
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Healthcare Strategic Joint Venture
In January 2014, NSAM entered into a long-term strategic partnership with James F. Flaherty III, former Chief Executive Officer of HCP, Inc., focused on expanding the Company’s healthcare business into a preeminent healthcare platform (“Healthcare Strategic Partnership”). In connection with the partnership, Mr. Flaherty oversees both the Company’s healthcare real estate portfolio and the portfolio of NorthStar Healthcare. In connection with entering into the partnership, the Company granted Mr. Flaherty certain RSUs (refer to Note 10). The Healthcare Strategic Partnership is entitled to incentive fees ranging from 20% to 25% above certain hurdles for new and existing healthcare real estate investments held by the Company. For the three and nine months ended September 30, 2016 and 2015 , the Company did not incur any incentive fees related to the Healthcare Strategic Partnership.
N-Star CDOs
The Company earns certain collateral management fees from the N-Star CDOs primarily for administrative services. Such fees are recorded in other revenue in the consolidated statements of operations. For the three months ended September 30, 2016 and 2015 , the Company earned $0.7 million and $1.3 million in fee income, respectively, of which $0.2 million and $0.6 million , respectively, were eliminated in consolidation. For the nine months ended September 30, 2016 and 2015 , the Company earned $ 2.0 million and $4.1 million in fee income, respectively, of which $ 0.5 million and $1.8 million , respectively, were eliminated in consolidation.
Additionally, the Company earns interest income from the N-Star CDO bonds and N-Star CDO equity in deconsolidated N-Star CDOs. For the three months ended September 30, 2016 and 2015 , the Company earned $12.7 million and $16.6 million , respectively, of interest income from such investments related to deconsolidated N-Star CDOs. For the nine months ended September 30, 2016 and 2015 , the Company earned $ 35.5 million and $46.3 million , respectively, of interest income from such investments in deconsolidated N-Star CDOs. Refer to Note 7 and Note 16 for additional disclosure regarding the N-Star CDOs.
American Healthcare Investors
In December 2014, NSAM acquired a 43% interest in American Healthcare Investors LLC (“AHI”) and James F. Flaherty III, a strategic partner of NSAM, acquired a 12% interest in AHI. AHI is a healthcare-focused real estate investment management firm that co-sponsored and advised Griffin-American Healthcare REIT II, Inc. until it was acquired by the Company and NorthStar Healthcare. In connection with this acquisition, AHI provides certain management and related services, including property management, to NSAM, NorthStar Healthcare and the Company in order to assist NSAM in managing the current and future healthcare assets (excluding any joint venture assets) acquired by the Company and, subject to certain conditions, other NSAM managed companies. For the three months ended September 30, 2016 and 2015 , the Company incurred $0.4 million of property management fees to AHI. For the nine months ended September 30, 2016 and 2015 , the Company incurred $1.3 million of property management fees to AHI. These fees are recorded in real estate properties - operating expenses in the consolidated statements of operations.
Island Hospitality Management
In January 2015, NSAM acquired a 45% interest in Island Hospitality Management Inc. (“Island”). Island is a leading, independent select service hotel management company that currently manages 164 hotel properties, representing $3.8 billion of assets, of which 110 hotel properties are owned by the Company. Island provides certain asset management, property management and other services to the Company to assist in managing the Company’s hotel properties. Island receives a base management fee of 2.5% to 3.0% of the current monthly revenue of the hotel properties it manages for the Company. For the three months ended September 30, 2016 and 2015 , the Company incurred $4.7 million of base property management and other fees to Island. For the nine months ended September 30, 2016 and 2015 , the Company incurred $13.5 million and $11.1 million , respectively, of base property management and other fees to Island. These fees are recorded in real estate properties - operating expenses in the consolidated statements of operations. NSAM’s investment in Island is expected to be sold in connection with the Mergers.
NSAM purchase of common stock
In 2015, NSAM purchased 2.7 million shares of the Company’s common stock in the open market for $49.9 million .
Recent Sales or Commitments to Sell to NSAM Retail Companies
The Company sold or entered into agreements to sell certain assets to NSAM Retail Companies:
•
In February 2016, the Company sold substantially all of its 70% interest in PE Investment II to the existing owners of the remaining 30% interest, one a third party which purchased approximately 80% of the interest sold and the other NorthStar Income which purchased the other approximate 20% of the interest sold. NorthStar Income paid $37.3 million

38
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

for its respective interest. As part of the transaction, both buyers assumed the deferred purchase price obligation, on a pro rata basis, of the PE Investment II joint venture.
•
In February 2016, the Company sold a 49% interest in one loan with a total principal amount of $40.3 million to a third party, at par, with the remaining 51% interest sold to NorthStar Income II, also at par.
•
In February 2016, the Company sold one CRE security with a carrying value of $12.5 million to NorthStar Income II.
•
In March 2016, the Company sold its 60% interest in the Senior Housing Portfolio to NorthStar Healthcare, which owned the remaining 40% interest, for $534.5 million . NorthStar Healthcare assumed the Company’s portion of the $648.2 million of related mortgage financing and the Company received approximately $149.4 million of proceeds, net of sales costs.
•
In September 2016, the Company sold a portfolio of PE Investments to NorthStar Income II for a gross sales price of $317.6 million with $44.7 million of deferred purchase price assumed as part of the transaction, including $5.6 million of deferred purchase price which was the obligation of an unconsolidated joint venture. The Company received $33.9 million of net proceeds and will receive the remaining $204.7 million of net proceeds in the fourth quarter 2016. Such amount is included in receivables, net on the consolidated balance sheets.
•
In connection with the redemption of the Company’s interest in the Industrial Portfolio, the third party equity obtained a preferred loan of $98.4 million from NorthStar Income II to finance the transaction.
The board of directors of each NSAM Retail Company, including all of the independent directors, approved each of the respective transactions, with the exception of the Industrial Portfolio which did not warrant board approval, after considering, among other matters, third-party pricing support.
10.
Compensation Expense
Summary

The following table presents a summary of compensation expense for the three and nine months ended September 30, 2016 and 2015 (dollars in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Salaries and related expenses
$
1,676


$
1,616

 
$
5,555


$
6,422

Equity-based compensation expense
5,852


6,178

 
17,740

 
24,713

Total
$
7,528

 
$
7,794

 
$
23,295

 
$
31,135

Equity-Based Compensation
The Company has issued equity-based awards to directors, officers, employees, consultants and advisors pursuant to the NorthStar Realty Finance Corp. 2004 Omnibus Stock Incentive Plan (the “Stock Plan”) and the NorthStar Realty Executive Incentive Bonus Plan, as amended (the “Plan” and collectively the “NorthStar Realty Equity Plans”).
Prior to the NSAM Spin-off, the Company conducted substantially all of its operations and made its investments through an operating partnership which issued LTIP Units as equity-based compensation. Additionally, prior to the NSAM Spin-off, the Company completed an internal corporate reorganization whereby the Company collapsed its three tier holding company structure, including such operating partnership, into a single tier (the “Reorganization”). All of the vested and unvested equity-based awards granted by the Company prior to the NSAM Spin-off remain outstanding following the Reorganization and the NSAM Spin-off. Appropriate adjustments were made to all awards to reflect the Reorganization, the Reverse Split and the NSAM Spin-off and NRE Spin-off, collectively referred to as the Spin-offs. Pursuant to the Reorganization, such LTIP Units were converted into an equal number of shares of common stock of the Company (refer to Note 12), which are referred to as restricted stock, and holders of such shares received an equal number of shares of NSAM’s common stock in connection with the NSAM Spin-off, all of which generally remain subject to the same vesting and other terms that applied prior to the NSAM Spin-off. In connection with the NSAM Spin-off, equity and equity-based awards relating to the Company’s common stock, such as RSUs and Deferred LTIP Units, were adjusted to also relate to an equal number of shares of NSAM’s common stock, but otherwise generally remain subject to the same vesting and other terms that applied prior to the NSAM Spin-off. Vesting conditions for outstanding awards have been adjusted to reflect the impact of NSAM in terms of employment for service based on awards and total stockholder return for performance-based awards with respect to periods after the NSAM Spin-off.
In connection with the formation of the Operating Partnership, the Operating Partnership issued LTIP Units to each holder of the Company’s outstanding Deferred LTIP Units, which were equity awards representing the right to receive either LTIP units in the Company’s successor operating partnership or, if such LTIP units were not available upon settlement of the award, shares of

39
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

common stock of the Company, in settlement of such Deferred LTIP Units on a one for one basis in accordance with the terms of the outstanding Deferred LTIP Units. Conditioned upon minimum allocations to the capital account of the LTIP Unit for federal income tax purposes, each LTIP Unit will be convertible, at the election of the holder, into one common unit of limited partnership interest in the Operating Partnership (“OP Unit”). Each of the OP Units underlying these LTIP Units will be redeemable at the election of the OP Unit holder for: (i) cash equal to the then fair market value of one share of the Company’s common stock; or (ii) at the option of the Company in its capacity as general partner of the Operating Partnership, one share of the Company’s common stock. LTIP Units issued remain subject to the same vesting terms as the Deferred LTIP Units.
In connection with the NRE Spin-off, equity and equity-based awards relating to the Company’s common stock, such as RSUs, were adjusted to also relate to one share of NorthStar Europe common stock for each six shares of the Company’s common stock, but otherwise generally remain subject to the same vesting and other terms that applied prior to the NRE Spin-off. Appropriate adjustments were also made to all awards to reflect the Reverse Split.
Following the Spin-offs, the Company and the compensation committee of its board of directors (the “Committee”) continues to administer all awards issued under the NorthStar Realty Equity Plans but NSAM and NorthStar Europe are obligated to issue shares of their common stock or other equity awards of their subsidiaries or make cash payments in lieu thereof with respect to dividend or distribution equivalent obligations to the extent required by such awards previously issued under the NorthStar Realty Equity Plans. These awards will continue to be governed by the NorthStar Realty Equity Plans, as applicable, and shares of NSAM’s common stock or NorthStar Europe’s common stock issued pursuant to these awards will not be issued pursuant to, or reduce availability, under the NorthStar Realty Equity Plans.
All of the adjustments made in connection with the Reorganization, the Spin-offs and the Reverse Splits were deemed to be equitable adjustments pursuant to anti-dilution provisions in accordance with the terms of the NorthStar Realty Equity Plans. As a result, there was no incremental value attributed to these adjustments and these adjustments do not impact the amount recorded for equity-based compensation expense for the three and nine months ended September 30, 2016 and 2015 .
The following summarizes the equity-based compensation plans and related expenses.
All share amounts and related information disclosed below have been retrospectively adjusted to reflect the Reverse Split.
NorthStar Realty Equity Plans
Omnibus Stock Incentive Plan
In September 2004, the board of directors of the Company adopted the Stock Plan, and such plan, as amended and restated, was further adopted by the board of directors of the Company on April 27, 2016 and approved by the stockholders on June 20, 2016. The Stock Plan provides for the issuance of stock-based incentive awards, including incentive stock options, non-qualified stock options, stock appreciation rights, shares of common stock of the Company, in the form of restricted stock and other equity-based awards such as LTIP Units or any combination of the foregoing. The eligible participants in the Stock Plan include directors, officers, employees, consultants and advisors of the Company.
As of September 30, 2016 , 791,552 unvested shares of restricted stock issued under the Stock Plan were outstanding and 3,400,652 shares of common stock remained available for issuance pursuant to the Stock Plan, which includes shares reserved for issuance upon settlement of outstanding LTIP Units and RSUs. Holders of shares of restricted stock or LTIP Units are entitled to receive dividends or distributions with respect to the Company’s shares of restricted stock and vested and unvested LTIP Units for as long as such shares and LTIP Units remain outstanding.
Incentive Compensation Plan
In July 2009, the Committee approved the material terms of the Plan for the Company’s executive officers and other employees. Pursuant to the Plan, an incentive pool was established each calendar year through 2013. The size of the incentive pool was calculated as the sum of: (a)  1.75% of the Company’s “adjusted equity capital” for the year; and (b)  25% of the Company’s adjusted funds from operations, as adjusted, above a 9% return hurdle on adjusted equity capital. Payout from the incentive pool is or was subject to achievement of additional performance and/or time-based goals summarized below.
The portion of the incentive pool for the executive officers was divided into the following three separate incentive compensation components: (a) an annual cash bonus, tied to annual performance of the Company and paid prior to or shortly after completion of the year-end audit (“Annual Bonus”); (b) a deferred bonus, determined based on the same year’s performance, but paid 50% following the close of each of the first and second years after such incentive pool is determined, subject to the participant’s continued employment through each payment date (“Deferred Bonus”); and (c) a long-term incentive in the form of RSUs, LTIP Units and/or Deferred LTIP Units. RSUs are subject to the Company achieving cumulative performance hurdles and/or total stockholder

40
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

return hurdles established by the Committee for a three - or four -year period, subject to the participant’s continued employment through the payment date. Upon the conclusion of the applicable performance period, each executive officer will receive a payout, if any, equal to the value of one share of common stock at the time of such payout, including the dividends paid with respect to a share of common stock following the first year of the applicable performance period, for each RSU actually earned (the “Long-Term Amount Value”). The Long-Term Amount Value, if any, other than the portion related to dividends paid, will be paid in the form of shares of common stock of the Company or LTIP Units in the Operating Partnership, to the extent available under the NorthStar Realty Equity Plans, or in cash to the extent shares of common stock of the Company or LTIP Units in the Operating Partnership are unavailable under the NorthStar Realty Equity Plans, and, pursuant to adjustments made in connection with the NSAM Spin-off and the NRE Spin-off, shares of NSAM’s common stock or LTIP Units in NSAM’s operating partnership and shares of NorthStar Europe’s common stock or LTIP Units in NorthStar Europe’s operating partnership (the “Long-Term Amount Payout”). These performance-based RSUs were adjusted to refer to combined total stockholder return of the Company and NSAM with respect to periods after the NSAM Spin-off. These performance-based RSUs were again adjusted to refer to combined total stockholder return of the Company, NorthStar Europe and NSAM after the NRE Spin-off. Restricted stock or LTIP Units granted as a portion of the long-term incentive are subject to vesting based on continued employment during the performance period, but are not subject to performance-based vesting hurdles.
Under the Plan, for 2011, the Company issued 381,449 RSUs to executive officers which were subject to vesting based on continued employment and achieving total stockholder return hurdles for the four -year period ended December 31, 2014 . The grant date fair value was $4.32 per RSU determined using a risk-free interest rate of 0.42% . As of December 31, 2014 , the Company determined the performance hurdle was met which resulted in all of these RSUs vesting. To settle these RSUs, the Company issued 24,575 shares of common stock, net of the minimum statutory tax withholding requirements, on January 1, 2015 and the Operating Partnership issued 334,871 LTIP Units. Under the Plan, for 2011, the Company also granted 381,449 LTIP Units to executive officers which were subject to vesting in four annual installments ending on January 29, 2015, subject to the executive officer’s continued employment through the applicable vesting date, and were converted into shares of restricted stock pursuant to the Reorganization. The Company also granted 151,340 shares of restricted stock (net of forfeitures occurring through September 30, 2016 ) to certain non-executive employees, which were subject to vesting quarterly over three years beginning April 2012, subject to continued employment through the applicable vesting date.
Under the Plan, for 2012, the Company issued 352,418 RSUs to executive officers which are subject to vesting based on continued employment and achieving total stockholder return hurdles for the four -year period ending December 31, 2015 . The grant date fair value was $9.86 per RSU determined using a risk-free interest rate of 0.44% . As of December 31, 2015 , the Company determined the performance hurdle was met which resulted in all of these RSUs vesting. To settle these RSUs, the Company issued 158,191 shares of common stock, net of the minimum statutory tax withholding requirements, on January 4, 2016. Under the Plan, for 2012, the Company also granted 352,418 LTIP Units to executive officers which were subject to vesting in four annual installments beginning on January 29, 2013, subject to the executive officer’s continued employment through the applicable vesting date, and were converted into shares of restricted stock pursuant to the Reorganization. The Company also granted 144,883 LTIP Units (net of forfeitures occurring through September 30, 2016 ) to certain non-executive employees which are subject to vesting quarterly over three years beginning April 2013, subject to continued employment through the applicable vesting date, and were converted into shares of restricted stock pursuant to the Reorganization.
Under the Plan, for 2013, the Company issued 250,184 RSUs to executive officers which are subject to vesting based on continued employment and achieving total stockholder return hurdles for the four -year period ending December 31, 2016. The grant date fair value was $21.57 per RSU determined using a risk-free interest rate of 0.63% . Under the Plan, for 2013, the Company also granted 250,184 Deferred LTIP Units to executive officers which are subject to vesting in four annual installments beginning on January 29, 2014, subject to the executive officer’s continued employment through the applicable vesting date and 130,787 Deferred LTIP Units which were subject to vesting based on continued employment through December 31, 2015 . The Company also granted 136,262 Deferred LTIP Units (net of forfeitures occurring through September 30, 2016 ) to certain non-executive employees which were subject to vesting quarterly over three years beginning April 2014, subject to continued employment through the applicable vesting date. Such Deferred LTIP Units were subsequently settled as LTIP Units in the Operating Partnership or shares of restricted stock, which remain subject to the same vesting terms that applied to the Deferred LTIP Units.
NSAM Bonus Plan
In connection with the NSAM Bonus Plan, for 2014, approximately 31.65% of the long-term bonus was paid in Deferred LTIP Units and approximately 18.35% of the long-term bonus was paid by the Company by issuing RSUs. In connection with the long-term bonuses to be paid by the Company, in February 2015, the Company granted 519,115 Deferred LTIP Units to executive officers of which 25% were vested upon grant and the remainder was subject to vesting in three equal annual installments beginning on December 31, 2015 , subject to the executive officer’s continued employment through the applicable vesting dates. The Company

41
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

also granted 292,438 RSUs to NSAM’s executive officers subject to vesting based on continued employment and achieving total stockholder return hurdles for the four -year period ending December 31, 2017. The grant date fair value of such RSUs was $18.64 per RSU determined using a risk-free interest rate of 1.00% . After the NRE Spin-off, these performance-based RSUs were adjusted to refer to combined total stockholder return of the Company and NorthStar Europe. In the first quarter 2015, the Company also granted 329,416 Deferred LTIP Units (net of forfeitures occurring through September 30, 2016 ) to certain of NSAM’s non-executive employees, with substantially similar terms to the executive awards subject to time based vesting conditions. Such Deferred LTIP Units were settled as LTIP Units in the Operating Partnership or shares of restricted stock, which remain subject to the same vesting terms that applied to the Deferred LTIP Units.
In connection with the NSAM Bonus Plan, for 2015, a portion of the long-term bonus was paid in restricted shares of common stock and a portion of the long-term bonus was paid by the Company by issuing RSUs. In connection with the 2015 long-term bonuses paid by the Company, in February 2016, the Company granted 1,006,006 restricted shares of common stock to NSAM’s executive officers, of which 25% were vested upon grant and the remainder is subject to vesting in equal installments on December 31, 2016, 2017 and 2018, subject to the recipient’s continued employment through the applicable vesting dates. In connection with the issuance of these shares , in February 2016, the Company retired 132,654 of the vested shares of common stock to satisfy the minimum statutory withholding requirements. In addition, in February 2016, the Company granted 583,261 RSUs to NSAM’s executive officers, which are subject to vesting based on the Company’s absolute total stockholder return, CAD and continued employment over the four -year period ending December 31, 2018. The grant date fair value of such RSUs was $1.70 per RSU determined using a risk-free interest rate of 0.88% . Following the determination of the number of these performance-based RSUs that vest, the Company will settle the vested RSUs by issuing an equal number shares of common stock (or, if shares are not then available, paying cash in an amount equal to the value of such shares) and the NSAM executives will be entitled to receive the distributions that would have been paid with respect to a share of common stock (for each RSU that vests) on or after January 1, 2015. In February 2016, the Company also granted 513,306 restricted shares (net of forfeitures occurring through September 30, 2016 ) of common stock and/or RSUs to its Chief Executive Officer and certain of the Company’s and NSAM’s non-executive employees, with substantially similar terms to the executive awards subject to time-based vesting conditions.
Other Issuances
Healthcare Strategic Joint Venture
In connection with entering into the Healthcare Strategic Partnership, the Company granted Mr. Flaherty 250,000 RSUs on January 22, 2014 which vest on January 22, 2019, unless certain conditions are met. In connection with the Spin-offs, the RSUs granted to Mr. Flaherty were adjusted to also relate to shares of NSAM’s common stock and NorthStar Europe’s common stock. The RSUs are entitled to dividend equivalents prior to vesting and may be settled either in shares of common stock of the Company, NSAM and NorthStar Europe or in cash at the option of the Company.
Equity-based Compensation Summary
The following table presents a summary of equity-based awards outstanding. The balance as of September 30, 2016 represents unvested shares of restricted stock, LTIP Units and restricted stock units outstanding, whether vested or not (grants in thousands):
 
Nine Months Ended September 30, 2016
 
Restricted Stock
 
LTIP Units
 
Restricted Stock Units (1)
 

Total Grants
 
Weighted
Average
Grant Price
December 31, 2015
81

 
1,868

 
250

 
2,199

 
$
33.44

Granted
1,040

 
—

 
505

 
1,545

 
10.73

Converted
—

 
—

 
(81
)
 
(81
)
 
10.73

Forfeited
—

 
(12
)
 
(13
)
 
(25
)
 
20.08

Vesting
(329
)
 
—

 
—

 
(329
)
 
11.31

September 30, 2016
792

 
1,856

 
661

 
3,309

 
$
25.70

____________________________________________________________
(1)
Represents employee and non-employee grants subject to time-based vesting conditions.
As of September 30, 2016 , equity-based compensation expense to be recognized over the remaining vesting period through August 2019 is $24.3 million , provided there are no forfeitures.
In connection with the Mergers, substantially all outstanding time-based equity awards issued to executives and non-executive employees will vest in accordance with their terms. In addition, all or a portion of the outstanding performance-based awards issued to executives will vest in accordance with their terms subject to forfeiture and reduction.

42
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

11.
Stockholders’ Equity
Reverse Split
On November 1, 2015, the Company effected a Reverse Split of its common stock with any fractional shares settled in cash. As a result of the Reverse Split, common stock was reduced by dividing the par value prior to the Reverse Split by two (including retrospective adjustment of prior periods) with a corresponding increase to additional paid-in capital. The par value per share of common stock remained unchanged.
Share and per share amounts disclosed in the Company’s consolidated financial statements and the accompanying notes have been retrospectively adjusted to reflect the Reverse Split, including common stock outstanding, earnings per share and shares or units outstanding related to equity-based compensation, where applicable (refer to Note 10).
Share Repurchase
In September 2015, the Company’s board of directors authorized the repurchase of up to $500.0 million of its outstanding common stock. The authorization expired in September 2016. For the nine months ended September 30, 2016 , the Company repurchased 3.9 million shares of its common stock for $50.0 million . From September 2015 through September 30, 2016 , the Company repurchased 10.4 million shares for $168.0 million .
Dividend Reinvestment Plan
In April 2007, as amended effective January 1, 2012, the Company implemented a Dividend Reinvestment Plan (the “DRP”), pursuant to which it registered with the SEC and reserved for issuance 3,569,962 shares of its common stock, after giving effect to the Reverse Split. Pursuant to the amended terms of the DRP, stockholders are able to automatically reinvest all or a portion of their dividends for additional shares of the Company’s common stock. The Company expects to use the proceeds from the DRP for general corporate purposes. For the nine months ended September 30, 2016 , the Company issued 11,808 shares of its common stock pursuant to the DRP for $0.2 million of proceeds.
Dividends
The following table presents dividends declared (on a per share basis) for the nine months ended September 30, 2016 :
Common Stock
 
Preferred Stock
 
 
 
 
 
 
Dividend Per Share
Declaration
Date
 
Dividend Per Share
 
Declaration
Date
 
Series A
 
Series B
 
Series C
 
Series D
 
Series E
February 25
 
$
0.40

 
January 28
 
$
0.54688

 
$
0.51563

 
$
0.55469

 
$
0.53125

 
$
0.54688

May 4
 
$
0.40

 
April 27
 
$
0.54688

 
$
0.51563

 
$
0.55469

 
$
0.53125

 
$
0.54688

August 2
 
$
0.40

 
July 28
 
$
0.54688

 
$
0.51563

 
$
0.55469

 
$
0.53125

 
$
0.54688


43
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Accumulated Other Comprehensive Income (Loss)
The following tables present the components of accumulated OCI for the three and nine months ended September 30, 2016 and 2015 (dollars in thousands):
Three months ended September 30, 2016
 
Unrealized Gain (Loss) on Available for Sale Securities
 
Interest Rate Swap Gain (Loss)
 
Foreign Currency Translation
 
Total
Balance as of June 30, 2016 (Unaudited)
 
$
(43,303
)
 
$
(326
)
 
$
(4,776
)
 
$
(48,405
)
Unrealized gain (loss) on real estate securities, available for sale
 
(14,694
)
 
—

 
—

 
(14,694
)
Amortization of swap (gain) loss into interest expense—mortgage and corporate borrowings (refer to Note 14)
 
—

 
223

 
—

 
223

Foreign currency translation adjustment
 
—

 
—

 
(1,163
)
 
(1,163
)
Non-controlling interests
 
149

 
(2
)
 
183

 
330

Balance as of September 30, 2016 (Unaudited)
 
$
(57,848
)
 
$
(105
)
 
$
(5,756
)
 
$
(63,709
)
 
 
 
 
 
 
 
 
 
Nine months ended September 30, 2016
 
 
 
 
 
 
 
 
Balance as of December 31, 2015
 
$
21,016

 
$
(767
)
 
$
(1,764
)
 
$
18,485

Unrealized gain (loss) on real estate securities, available for sale
 
(80,264
)
 
—

 
—

 
(80,264
)
Unrealized (gain) loss on real estate securities, available for sale recorded to realized gain (loss) on investments and other
 
592

 
—

 
—

 
592

Amortization of swap (gain) loss into interest expense—mortgage and corporate borrowings (refer to Note 14)
 
—

 
669

 
—

 
669

Foreign currency translation adjustment
 
—

 
—

 
(4,726
)
 
(4,726
)
Non-controlling interests
 
808

 
(7
)
 
734

 
1,535

Balance as of September 30, 2016 (Unaudited)
 
$
(57,848
)
 
$
(105
)
 
$
(5,756
)
 
$
(63,709
)

44
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Three months ended September 30, 2015
 
Unrealized Gain (Loss) on Available for Sale Securities
 
Interest Rate Swap Gain (Loss)
 
Foreign Currency Translation
 
Total
Balance as of June 30, 2015 (Unaudited)
 
$
35,228

 
$
(1,208
)
 
$
(6,776
)
 
$
27,244

Unrealized gain (loss) on real estate securities, available for sale
 
(7,559
)
 
—

 
—

 
(7,559
)
Reclassification of unrealized (gain) loss on real estate securities, available for sale into realized gain (loss) on investments and other
 
(517
)
 
—

 
—

 
(517
)
Amortization of swap (gain) loss into interest expense—mortgage and corporate borrowings (refer to Note 14)
 
—

 
223

 
—

 
223

Foreign currency translation adjustment
 
—

 
—

 
1,557

 
1,557

Non-controlling interests
 
80

 
(2
)
 
(400
)
 
(322
)
Balance as of September 30, 2015 (Unaudited)
 
$
27,232

 
$
(987
)
 
$
(5,619
)
 
$
20,626

 
 
 
 
 
 
 
 
 
Nine months ended September 30, 2015
 
 
 
 
 
 
 
 
Balance as of December 31, 2014
 
$
56,072

 
$
(1,694
)
 
$
(4,838
)
 
$
49,540

Unrealized gain (loss) on real estate securities, available for sale
 
(14,817
)
 
—

 
—

 
(14,817
)
Unrealized (gain) loss on real estate securities, available for sale recorded to realized gain (loss) on investments and other
 
(14,126
)
 
—

 
—

 
(14,126
)
Amortization of swap (gain) loss into interest expense—mortgage and corporate borrowings (refer to Note 14)
 
—

 
711

 
—

 
711

Foreign currency translation adjustment
 
—

 
—

 
(912
)
 
(912
)
Non-controlling interests
 
103

 
(4
)
 
131

 
230

Balance as of September 30, 2015 (Unaudited)
 
$
27,232

 
$
(987
)
 
$
(5,619
)
 
$
20,626

Earnings Per Share
The following table presents EPS for the three and nine months ended and September 30, 2016 and 2015 (dollars and shares in thousands, except per share data):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,

 
2016
 
2015
 
2016
 
2015
Numerator:
 
 
 
 
 
 
 
 
Net income (loss) attributable to NorthStar Realty Finance Corp. common stockholders
 
$
(100,351
)
 
$
(126,111
)
 
$
(361,171
)
 
$
(255,215
)
Net income (loss) attributable to LTIP Units non-controlling interests
 
(1,034
)
 
(1,301
)
 
(3,537
)
 
(2,370
)
Net income (loss) attributable to common stockholders and LTIP Units (1)
 
$
(101,385
)
 
$
(127,412
)
 
$
(364,708
)
 
$
(257,585
)
Denominator: (2)(3)
 
 
 
 
 
 
 
 
Weighted average shares of common stock
 
179,890

 
182,343

 
180,803

 
171,138

Weighted average LTIP Units (1)
 
1,856

 
1,845

 
1,861

 
1,337

Weighted average shares of common stock and LTIP Units (2)
 
181,746

 
184,188

 
182,664

 
172,475

Earnings (loss) per share: (3)
 
 
 
 
 
 
 
 
Basic
 
$
(0.56
)
 
$
(0.69
)
 
$
(2.00
)
 
$
(1.49
)
Diluted
 
$
(0.56
)
 
$
(0.69
)
 
$
(2.00
)
 
$
(1.49
)
____________________________________________________________
(1)
The EPS calculation takes into account LTIP Units, which receive non-forfeitable dividends from the date of grant, share equally in the Company’s net income (loss) and convert on a one -for-one basis into common stock.
(2)
Excludes the effect of exchangeable senior notes, restricted stock and RSUs outstanding that were not dilutive as of September 30, 2016 . These instruments could potentially impact diluted EPS in future periods, depending on changes in the Company’s stock price and other factors.
(3)
The three and nine months ended September 30, 2015 is adjusted for the Reverse Split effected on November 1, 2015.
12.
Non-controlling Interests
Operating Partnership
Non-controlling interests include the aggregate LTIP Units held by limited partners (the “Unit Holders”) in the Operating Partnership. Net income (loss) attributable to this non-controlling interest is based on the weighted average Unit Holders’ ownership percentage of the Operating Partnership for the respective period. The issuance of additional common stock or LTIP Units changes

45
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

the percentage ownership of both the Unit Holders and the Company. Since an LTIP Unit is generally redeemable for cash or common stock at the option of the Company, it is deemed to be equivalent to common stock. Therefore, such transactions are treated as capital transactions and result in an allocation between stockholders’ equity and non-controlling interests on the accompanying consolidated balance sheets to account for the change in the ownership of the underlying equity in the Operating Partnership. On a quarterly basis, the carry value of such non-controlling interest is allocated based on the number of LTIP Units held by Unit Holders in total in proportion to the number of LTIP Units in total plus the number of shares of common stock. As of September 30, 2016 , LTIP Units of 1,855,571 were outstanding representing a 1.0% ownership and non-controlling interest in the Operating Partnership. Net income (loss) attributable to the Operating Partnership non-controlling interest for the three months ended September 30, 2016 and 2015 was a net loss of $1.0 million and $1.3 million , respectively. Net income (loss) attributable to the Operating Partnership non-controlling interest for the nine months ended September 30, 2016 and 2015 was a net loss of $ 3.5 million and $ 2.4 million, respectively. In connection with the Mergers, the Operating Partnership will merge with and into NorthStar Realty and each LTIP Unit outstanding as of immediately prior to such effective time will convert into one share of common stock.
Other
Other non-controlling interests represent third-party equity interests in ventures that are consolidated with the Company’s financial statements. Net income (loss) attributable to the other non-controlling interests for the three months ended September 30, 2016 and 2015 was a net loss of $2.5 million and $2.2 million , respectively. Net income (loss) attributable to the other non-controlling interests for the nine months ended September 30, 2016 and 2015 was a net loss of $ 4.4 million and $ 12.7 million, respectively.
The following table presents net income (loss) attributable to the Company’s common stockholders for the three and nine months September 30, 2016 and 2015 (dollars in thousands):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,

 
2016
 
2015
 
2016
 
2015
Income (loss) from continuing operations
 
$
(100,351
)
 
$
(109,537
)
 
$
(361,171
)
 
$
(141,963
)
Income (loss) from discontinued operations
 
—

 
(16,574
)
 
—

 
(113,252
)
Net income (loss) attributable to NorthStar Realty Finance Corp. common stockholders
 
$
(100,351
)
 
$
(126,111
)
 
$
(361,171
)
 
$
(255,215
)
13.
Fair Value
Fair Value Measurement
The fair value of financial instruments is categorized based on the priority of the inputs to the valuation technique and categorized into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
Financial assets and liabilities are recorded at fair value on the consolidated balance sheets and are categorized based on the inputs to the valuation techniques as follows:
Level 1.
Quoted prices for identical assets or liabilities in an active market.
Level 2.
Financial assets and liabilities whose values are based on the following:
(a)
Quoted prices for similar assets or liabilities in active markets.
(b)
Quoted prices for identical or similar assets or liabilities in non-active markets.
(c)
Pricing models whose inputs are observable for substantially the full term of the asset or liability.
(d)
Pricing models whose inputs are derived principally from or corroborated by observable market data for substantially the full term of the asset or liability.
Level 3.
Prices or valuation techniques based on inputs that are both unobservable and significant to the overall fair value measurement.

46
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following is a description of the valuation techniques used to measure fair value of assets and liabilities accounted for at fair value on a recurring basis and the general classification of these instruments pursuant to the fair value hierarchy.
PE Investments
The Company accounts for PE Investments at fair value which is determined based on a valuation model using assumptions for the timing and amount of expected future cash flow for income and realization events for the underlying assets in the funds and discount rate. This fair value measurement is generally based on unobservable inputs and, as such, is classified as Level 3 of the fair value hierarchy. The Company is not using the NAV (practical expedient) of the underlying funds for purposes of determining fair value.
Investments in Unconsolidated Ventures
The Company accounts for certain investments in unconsolidated ventures at fair value determined based on a valuation model using assumptions for the timing and amount of expected future cash flow for income and realization events for the underlying assets, discount rate and foreign currency exchange rates. Additionally, the Company accounts for a CRE debt investment made in connection with an investment in unconsolidated venture at fair value, which is determined based on comparing the current yield to the estimated yield for newly originated loans with similar credit risk. These fair value measurements are generally based on unobservable inputs and, as such, are classified as Level 3 of the fair value hierarchy.
Real Estate Securities
N-Star CDO Bonds
The fair value of N-Star CDO bonds is determined using quotations from nationally recognized financial institutions that generally acted as underwriter for the transactions. These quotations are not adjusted and are generally based on a valuation model with observable inputs such as interest rate and other unobservable inputs for assumptions related to the timing and amount of expected future cash flow, discount rate, estimated prepayments and projected losses. The fair value of subordinate N-Star CDO bonds is determined using an internal price interpolated based on third-party prices of the more senior N-Star CDO bonds of the respective CDO. All N-Star CDO bonds are classified as Level 3 of the fair value hierarchy.
N-Star CDO Equity
The fair value of N-Star CDO equity is determined based on a valuation model using assumptions for the timing and amount of expected future cash flow for income and realization events for the underlying collateral of these CDOs and discount rate. This fair value measurement is generally based on unobservable inputs and, as such, is classified as Level 3 of the fair value hierarchy.
Other CRE Securities
Other CRE securities are generally valued using a third-party pricing service or broker quotations. These quotations are not adjusted and are based on observable inputs that can be validated, and as such, are classified as Level 2 of the fair value hierarchy. Certain CRE securities may be valued based on a single broker quote or an internal price which may have less observable pricing, and as such, would be classified as Level 3 of the fair value hierarchy. Management determines the prices are representative of fair value through a review of available data, including observable inputs, recent transactions as well as its knowledge of and experience in the market.
Derivative Instruments
Derivative instruments are valued using a third-party pricing service. These quotations are not adjusted and are generally based on valuation models with observable inputs such as interest rates and contractual cash flow, and as such, are classified as Level 2 of the fair value hierarchy. Derivative instruments are also assessed for credit valuation adjustments due to the risk of non-performance by the Company and derivative counterparties. If a credit valuation adjustment is applied to a derivative asset or liability, such fair value measurement is classified as Level 3 of the fair value hierarchy. For derivatives held in non-recourse CDO financing structures where, by design, the derivative contracts are senior to all the CDO bonds payable, there is no material impact of a credit valuation adjustment.

47
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

CDO Bonds Payable
CDO bonds payable are valued using quotations from nationally recognized financial institutions that generally acted as underwriter for the transactions. These quotations are not adjusted and are generally based on a valuation model with observable inputs such as interest rate and other unobservable inputs for assumptions related to the timing and amount of expected future cash flow, discount rate, estimated prepayments and projected losses. CDO bonds payable are classified as Level 3 of the fair value hierarchy.
Junior Subordinated Notes
Junior subordinated notes may be valued using quotations from nationally recognized financial institutions or an internal model. A quotation from a financial institution is not adjusted. The fair value is generally based on a valuation model with observable inputs such as interest rate and other unobservable inputs for assumptions related to the implied credit spread of the Company’s other borrowings and the timing and amount of expected future cash flow. Junior subordinated notes are classified as Level 3 of the fair value hierarchy.
Financial assets and liabilities recorded at fair value on a recurring basis are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following tables present financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2016 and December 31, 2015 by level within the fair value hierarchy (dollars in thousands):

September 30, 2016

Level 1

Level 2

Level 3

Total
Assets:







PE Investments
$
—


$
—

 
$
484,876

 
$
484,876

Investments in unconsolidated ventures (1)
—


—

 
122,596

 
122,596

Real estate securities, available for sale:
 
 
 
 
 
 

N-Star CDO bonds
—

 
—

 
120,267

 
120,267

N-Star CDO equity
—

 
—

 
31,886

 
31,886

CMBS and other securities
—

 
8,603

 
13,208

 
21,811

CRE securities in N-Star CDOs
 
 
 
 
 
 


CMBS
—

 
242,337

 
44,084

 
286,421

Third-party CDO notes
—

 
—

 
6,330

 
6,330

Agency debentures
—

 
45,819

 
—

 
45,819

Unsecured REIT debt
—

 
8,763

 
—

 
8,763

Trust preferred securities
—

 
—

 
5,669

 
5,669

Subtotal CRE securities in N-Star CDOs
—

 
296,919

 
56,083

 
353,002

           Subtotal real estate securities, available for sale
—

 
305,522

 
221,444

 
526,966

Derivative assets
—

 
4

 
—

 
4

Total assets
$
—

 
$
305,526

 
$
828,916

 
$
1,134,442

Liabilities:
 
 
 
 
 
 
 
CDO bonds payable
$
—

 
$
—

 
$
257,877

 
$
257,877

Junior subordinated notes
—

 
—

 
191,175

 
191,175

Derivative liabilities
—

 
1,108

 
301,208

(2)  
302,316

Total liabilities
$
—

 
$
1,108

 
$
750,260

 
$
751,368

_____________________________________________________________________
(1)
Includes a CRE debt investment made in connection with an investment in unconsolidated venture, for which the fair value option was elected.
(2)
Represents an interest rate swap in the corporate segment and includes a credit valuation adjustment.

48
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


December 31, 2015

Level 1

Level 2

Level 3

Total
Assets:







PE Investments
$
—

 
$
—

 
$
1,101,650

 
$
1,101,650

Investments in unconsolidated ventures (1)
—

 
—

 
120,392

 
120,392

Real estate securities, available for sale:
 
 
 
 
 


N-Star CDO bonds
—

 
—

 
216,727

 
216,727

N-Star CDO equity
—

 
—

 
44,905

 
44,905

CMBS and other securities
—

 
12,318

 
43,247

 
55,565

CRE securities in N-Star CDOs
 
 
 
 
 
 


CMBS
—

 
261,552

 
64,959

 
326,511

Third-party CDO notes
—

 
—

 
6,685

 
6,685

Agency debentures
—

 
37,316

 
—

 
37,316

Unsecured REIT debt
—

 
8,976

 
—

 
8,976

Trust preferred securities
—

 
—

 
5,425

 
5,425

Subtotal CRE securities in N-Star CDOs
—

 
307,844

 
77,069

 
384,913

         Subtotal real estate securities, available for sale
—

 
320,162

 
381,948

 
702,110

Derivative assets
—

 
116

 
—

 
116

Total assets
$
—

 
$
320,278

 
$
1,603,990

 
$
1,924,268

Liabilities:
 
 
 
 
 
 
 
CDO bonds payable
$
—

 
$
—

 
$
307,601

 
$
307,601

Junior subordinated notes
—

 
—

 
183,893

 
183,893

Derivative liabilities
—

 
7,385

 
95,908

(2)  
103,293

Total liabilities
$
—

 
$
7,385

 
$
587,402

 
$
594,787

_____________________________________________________________________
(1)
Includes CRE debt investments made in connection with certain investments in unconsolidated ventures, for which the fair value option was elected.
(2)
Represents an interest rate swap in the corporate segment and includes a credit valuation adjustment.

The following table presents the changes in fair value of financial assets and liabilities which are measured at fair value on a recurring basis using Level 3 inputs to determine fair value for the nine months ended September 30, 2016 (dollars in thousands):
 
Assets
 
Liabilities (3)

PE Investments
 
Investments in Unconsolidated Ventures (1)
 
CRE Securities
 
CDO Bonds
Payable

Junior
Subordinated
Notes
January 1, 2016
$
1,101,650

 
$
120,392

 
$
381,948

 
$
307,601

 
$
183,893

Transfers into Level 3 (2)
—

 
—

 
20,611

 
—

 
—

Transfers out of Level 3 (2)
—

 
—

 
(11,029
)
 
—

 
—

Purchases / borrowings / amortization / contributions
3,892

 
48

 
32,711

 
—

 
—

Sales
(503,593
)
 
—

 
(53,886
)
 
—

 
—

Paydowns / distributions
(187,039
)
 
(10,762
)
 
(42,217
)
 
(49,661
)
 
—

Gains:
 
 
 
 
 
 
 
 
 
Equity in earnings of unconsolidated ventures
79,248

 
21,276

 
—

 
—

 
—

Unrealized gains included in earnings
—

 
—

 
14,110

 
(2,533
)
 
—

Realized gains included in earnings
—

 
—

 
445

 
—

 
—

Unrealized gain on real estate securities, available for sale included in OCI
—

 
—

 
3,263

 
—

 
—

Losses:
 
 
 
 
 
 
 
 
 
Unrealized losses included in earnings
(8,202
)
 
(8,358
)
 
(17,504
)
 
2,470

 
7,282

Realized losses included in earnings
(1,080
)
 
—

 
(23,877
)
 
—

 
—

Unrealized loss on real estate securities, available for sale included in OCI
—

 
—

 
(83,131
)
 
—

 
—

September 30, 2016
$
484,876

 
$
122,596

 
$
221,444

 
$
257,877

 
$
191,175

Gains (losses) included in earnings attributable to the change in unrealized gains (losses) relating to assets or liabilities still held
$
(8,202
)
 
$
(8,358
)
 
$
(3,394
)
 
$
63

 
$
(7,282
)
____________________________________________________________
(1)
Includes CRE debt investments made in connection with an investment in unconsolidated venture, for which the fair value option was elected.
(2)
Transfers between Level 2 and Level 3 represent a fair value measurement from a third-party pricing service or broker quotations that have become more or less observable during the period. Transfers are assumed to occur at the beginning of the year.
(3)
Excludes one derivative instrument, which for the nine months ended September 30, 2016 , an unrealized loss of $205.3 million was recorded. Such amount includes an unrealized loss of $10.9 million related to a credit valuation adjustment.

49
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

The following table presents the changes in fair value of financial assets and liabilities which are measured at fair value on a recurring basis using Level 3 inputs to determine fair value for the year ended December 31, 2015 (dollars in thousands):
 
Assets
 
Liabilities (3)
 
PE Investments
 
Investments in Unconsolidated Ventures (1)
 
CRE
Securities
 
CDO Bonds
Payable
 
Junior
Subordinated
Notes
January 1, 2015
$
962,038

 
$
276,437

 
$
481,576

 
$
390,068

 
$
215,172

Transfers into Level 3 (2)
—

 
—

 
24,170

 
—

 
—

Transfers out of Level 3 (2)
—

 
—

 
(3,052
)
 
—

 
—

Purchases / borrowings / amortization / contributions
614,578

 
(4,053
)
 
93,477

 
(25,531
)
 
—

Sales
—

 
—

 
(77,230
)
 
—

 
—

Paydowns / distributions
(639,884
)
 
(125,285
)
 
(124,480
)
 
(90,070
)
 
—

Gains:
 
 
 
 
 
 
 
 
 
Equity in earnings of unconsolidated ventures
198,159

 
19,177

 
—

 
—

 
—

Unrealized gains included in earnings
—

 
—

 
81,532

 
—

 
(31,279
)
Realized gains included in earnings
—

 
—

 
22,418

 
—

 
—

Unrealized gain on real estate securities, available for sale included in OCI
—

 
—

 
1,213

 
—

 
—

Losses:
 
 
 
 
 
 
 
 
 
Unrealized losses included in earnings
(33,241
)
 
(45,884
)
 
(75,523
)
 
29,275

 
—

Realized losses included in earnings
—

 
—

 
(5,886
)
 
3,859

 
—

Unrealized loss on real estate securities, available for sale included in OCI
—

 
—

 
(36,267
)
 
—

 
—

December 31, 2015
$
1,101,650

 
$
120,392

 
$
381,948

 
$
307,601

 
$
183,893

Gains (losses) included in earnings attributable to the change in unrealized gains (losses) relating to assets or liabilities still held
$
(33,241
)
 
$
(45,884
)
 
$
6,009

 
$
(29,275
)
 
$
31,279

____________________________________________________________
(1)
Includes CRE debt investments made in connection with certain investments in unconsolidated ventures, for which the fair value option was elected.
(2)
Transfers between Level 2 and Level 3 represent a fair value measurement from a third-party pricing service or broker quotations that have become more or less observable during the period. Transfers are assumed to occur at the beginning of the year.
(3)
Excludes one derivative instrument, which for the year ended December 31, 2015 , an unrealized loss of $95.9 million was recorded. Such amount is net of an unrealized gain of $23.1 million related to a credit valuation adjustment.
There were no transfers, other than those identified in the tables above, during the periods ended September 30, 2016 and December 31, 2015 .
The Company relies on the third-party pricing exception with respect to the requirement to provide quantitative disclosures about significant Level 3 inputs being used to determine fair value measurements related to CRE securities (including N-Star CDO bonds), junior subordinated notes and CDO bonds payable. The Company believes such pricing service or broker quotation for such items may be based on a market transaction of comparable securities, inputs including forecasted market rates, contractual terms, observable discount rates for similar securities and credit (such as credit support and delinquency rates).
For the nine months ended September 30, 2016 , quantitative information about the Company’s remaining Level 3 fair value measurements on a recurring basis are as follows (dollars in thousands):
 
Fair Value
 
Valuation Technique
 
Key Unobservable Inputs (2)
 
Weighted Average
PE Investments
$
484,876

 
Discounted Cash Flow Model
 
Discount Rate
 
12%
Investments in unconsolidated ventures (1)
$
122,596

 
Discounted Cash Flow Model/Credit Spread
 
Discount Rate/Credit Spread
 
25%
N-Star CDO equity
$
31,886

 
Discounted Cash Flow Model
 
Discount Rate
 
18%
_________________________________________
(1)
Includes CRE debt investments made in connection with an investment in unconsolidated venture, for which the fair value option was elected.
(2)
Includes timing and amount of expected future cash flow.
Significant increases (decreases) in any one of the inputs described above in isolation may result in a significantly different fair value for the financial assets and liabilities using such Level 3 inputs.

50
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis
Non-financial assets and liabilities measured at fair value on a non-recurring basis in the consolidated financial statements consist of real estate held for sale or assets for which an impairment has been recorded, such as goodwill. Such fair value measurements are generally considered to be Level 3 within the valuation hierarchy, where applicable, based on estimated sales price, adjusted for closing costs and expenses, determined by discounted cash flow analysis, direct capitalization analyses or a sales comparison approach if no contracts had been consummated. The discounted cash flow and direct capitalization analyses include all estimated cash inflows and outflows over a specific holding period and, where applicable, any estimated debt premiums. This cash flow is comprised of unobservable inputs which included forecasted rental revenues and expenses based upon existing in-place leases, market conditions and expectations for growth. Capitalization rate and discount rate used in these analyses are based upon observable rates that the Company believes to be within a reasonable range of current market rates for the respective properties.
Valuations are prepared using internally-developed valuation models. These valuations are reviewed and approved, during each reporting period, by management, as deemed necessary, including personnel from the accounting, finance and operations and the valuations are updated as appropriate. In addition, the Company may engage third-party valuation experts to assist with the preparation of certain of its valuations. Refer to Note 3 for further disclosure regarding non-recurring fair value measurement of impairment on operating real estate.
Fair Value Option
The Company has historically elected to apply the fair value option for the following financial assets and liabilities existing at the time of adoption or at the time the Company recognizes the eligible item for the purpose of consistent accounting application: CRE securities financed in N-Star CDOs; CDO bonds payable; and junior subordinated notes. Given past market volatility the Company had observed that the impact of electing the fair value option would generally result in additional variability to the Company’s consolidated statements of operations which management believes is not a useful presentation for such financial assets and liabilities. Therefore, the Company more recently has not elected the fair value option for new investments in CRE securities and securitization financing transactions. The Company may elect the fair value option for certain of its financial assets or liabilities due to the nature of the instrument. In the case of PE Investments, certain investments in unconsolidated ventures (refer to Note 6) and N-Star CDO equity, the Company elected the fair value option because management believes it is a more useful presentation for such investments. The Company determined recording such investments based on the change in fair value of projected future cash flow from one period to another better represents the underlying economics of the respective investment.

51
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

The following table presents the fair value of financial instruments for which the fair value option was elected as of September 30, 2016 and December 31, 2015 (dollars in thousands):
 
September 30, 2016
 
December 31, 2015


Assets:



PE Investments
$
484,876

 
$
1,101,650

Investments in unconsolidated ventures (1)
122,596

 
120,392

Real estate securities, available for sale: (2)
 
 
 
N-Star CDO equity
31,886

 
44,905

CMBS and other securities
15,967

 
48,711

CRE securities in N-Star CDOs
 
 
 
CMBS
286,421

 
326,511

Third-party CDO notes
6,330

 
6,685

Agency debentures
45,819

 
37,316

Unsecured REIT debt
8,763

 
8,976

Trust preferred securities
5,669

 
5,425

Subtotal CRE securities in N-Star CDOs
353,002

 
384,913

   Subtotal real estate securities, available for sale
400,855

 
478,529

Total assets
$
1,008,327

 
$
1,700,571

Liabilities:
 
 
 
CDO bonds payable
$
257,877

 
$
307,601

Junior subordinated notes
191,175

 
183,893

Total liabilities
$
449,052

 
$
491,494

___________________________________________________________
(1)
Includes CRE debt investments made in connection with certain investments in unconsolidated ventures, for which the fair value option was elected.
(2)
September 30, 2016 excludes 25 CRE securities including $120.3 million of N-Star CDO bonds and $5.8 million of CRE securities, for which the fair value option was not elected. December 31, 2015 excludes 28 CRE securities including $216.7 million of N-Star CDO bonds and $6.9 million of CRE securities, for which the fair value option was not elected.
The Company attributes the change in the fair value of floating-rate liabilities to changes in instrument-specific credit spreads. For fixed-rate liabilities, the Company attributes the change in fair value to interest rate-related and instrument-specific credit spread changes.
Change in Fair Value Recorded in the Statements of Operations
The following table presents unrealized gains (losses) on investments and other related to the change in fair value of financial assets and liabilities in the consolidated statements of operations for the three and nine months ended September 30, 2016 and 2015 (dollars in thousands):
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,

2016
 
2015
 
2016
 
2015
Assets:
 
 
 
 
 
 
 
Real estate securities, available for sale (1)
$
(1,671
)
 
$
(8,805
)
 
$
(15,768
)
 
$
13,252

PE Investments (1)
748

 
(9,148
)
 
(8,202
)
 
(22,497
)
Investments in unconsolidated ventures (1)
2,329

 
(30,446
)
 
(9,568
)
 
(39,789
)
Foreign currency remeasurement (2)
(4,964
)
 
(6,609
)
 
(21,972
)
 
(6,099
)
Liabilities:
 
 
 
 
 
 
 
CDO bonds payable (1)
(922
)
 
(9,998
)
 
63

 
(23,572
)
Junior subordinated notes (1)
(6,916
)
 
22,576

 
(7,282
)
 
30,493

Subtotal unrealized gain (loss), excluding derivatives
(11,396
)

(42,430
)
 
(62,729
)
 
(48,212
)
Derivatives
(13,249
)
 
(86,890
)
 
(199,355
)
 
(114,037
)
Subtotal unrealized gain (loss)
(24,645
)
 
(129,320
)
 
(262,084
)
 
(162,249
)
Net cash payments on derivatives (refer to Note 14)
(2,003
)
 
(2,931
)
 
(6,968
)
 
(8,989
)
Total
$
(26,648
)
 
$
(132,251
)
 
$
(269,052
)
 
$
(171,238
)
____________________________________________________________
(1)
Represents financial assets and liabilities for which the fair value option was elected.
(2)
Represents foreign currency remeasurement on investments, cash and deposits primarily denominated in British Pounds.

52
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Fair Value of Financial Instruments
In addition to the above disclosures regarding financial assets or liabilities which are recorded at fair value, U.S. GAAP requires disclosure of fair value about all financial instruments. The following disclosure of estimated fair value of financial instruments was determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on estimated fair value.
The following table presents the principal amount, carrying value and fair value of certain financial assets and liabilities as of September 30, 2016 and December 31, 2015 ( dollars in thousands):

September 30, 2016

December 31, 2015

Principal /
Notional
Amount

Carrying
Value

Fair Value

Principal /
Notional
Amount

Carrying
Value

Fair Value
Financial assets: (1)
 
 
 
 
 
 
 
 
 
 
 
Real estate debt investments, net
$
404,718

 
$
348,539

 
$
349,084

 
$
555,354

 
$
501,474

 
$
594,698

Real estate debt investments, held for sale
—

 
—

 
—

 
225,037

 
224,677

 
224,677

Real estate securities, available for sale (2)
1,114,654

 
526,966

 
526,966

 
1,285,643

 
702,110

 
702,110

Derivative assets (2)(3)
4,113,600

 
4

 
4

 
4,173,872

 
116

 
116

Financial liabilities: (1)
 
 
 
 
 
 
 
 
 
 
 
Mortgage and other notes payable
$
7,025,755

 
$
6,922,027

 
$
6,858,807

 
$
7,297,081

 
$
7,164,576

 
$
7,175,374

Credit facilities and term borrowings
425,000

 
420,409

 
420,409

 
662,053

 
654,060

 
654,060

CDO bonds payable (2)(4)
386,830

 
257,877

 
257,877

 
436,491

 
307,601

 
307,601

Exchangeable senior notes
29,360

 
27,356

 
29,441

 
31,360

 
29,038

 
50,121

Junior subordinated notes (2)(4)
280,117

 
191,175

 
191,175

 
280,117

 
183,893

 
183,893

Derivative liabilities (2)(3)
2,113,781

 
302,316

 
302,316

 
2,225,750

 
103,293

 
103,293

Borrowings of properties held for sale
1,455,309

 
1,443,167

 
1,447,197

 
2,214,305

 
2,195,973

 
2,200,686

____________________________________________________________
(1)
The fair value of other financial instruments not included in this table is estimated to approximate their carrying value.
(2)
Refer to “Determination of Fair Value” above for disclosures of methodologies used to determine fair value.
(3)
Derivative assets and liabilities exclude timing swaps with an aggregate notional amount of $28.0 million as of September 30, 2016 and December 31, 2015 .
(4)
The fair value option has been elected for these liabilities.
Disclosure about fair value of financial instruments is based on pertinent information available to management as of the reporting date. Although management is not aware of any factors that would significantly affect fair value, such amounts have not been comprehensively revalued for purposes of these consolidated financial statements since that date and current estimates of fair value may differ significantly from the amounts presented herein.
Real Estate Debt Investments
For CRE debt investments, fair value was approximated by comparing the current yield to the estimated yield for newly originated loans with similar credit risk or the market yield at which a third party might expect to purchase such investment. Fair value was determined assuming fully-extended maturities regardless of structural or economic tests required to achieve such extended maturities. For any CRE debt investments that are deemed impaired, carrying value approximates fair value. The fair value of CRE debt investments held for sale is determined based on the expected sales price. Fair value measurements related to CRE debt are generally based on unobservable inputs and, as such, are classified as Level 3 of the fair value hierarchy.
Mortgage and Other Notes Payable
For mortgage and other notes payable, the Company primarily uses rates currently available with similar terms and remaining maturities to estimate fair value. These measurements are determined using comparable U.S. Treasury rates as of the end of the reporting period or market credit spreads over the rate payable on fixed rate U.S. Treasury of like maturities. These fair value measurements are based on observable inputs, and as such, are classified as Level 2 of the fair value hierarchy. For the borrowings of properties held for sale, the Company uses available market information, which includes quoted market prices or recent transactions, if available, to estimate their fair value and are, therefore, based on observable inputs, and as such, are classified as Level 2 of the fair value hierarchy.

53
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Credit Facilities and Term Borrowings
As of the reporting date, the Company believes the carrying value of its credit facilities and term borrowings approximate fair value. These fair value measurements are based on observable inputs, and as such, are classified as Level 2 of the fair value hierarchy.
Exchangeable Senior Notes
For the exchangeable senior notes, the Company uses available market information, which includes quoted market prices or recent transactions, if available, to estimate their fair value and are, therefore, based on observable inputs, and as such, are classified as Level 2 of the fair value hierarchy.
14.
Risk Management and Derivative Activities
Derivatives
The Company uses derivative instruments primarily to manage interest rate risk and such derivatives are not considered speculative. These derivative instruments are typically in the form of interest rate swap and cap agreements and the primary objective is to minimize interest rate risks associated with investment and financing activities. The counterparties of these arrangements are major financial institutions with which the Company may also have other financial relationships. The Company is exposed to credit risk in the event of non-performance by these counterparties and it monitors their financial condition; however, the Company currently does not anticipate that any of the counterparties will fail to meet their obligations.
The following tables present derivative instruments that were not designated as hedges under U.S. GAAP as of September 30, 2016 and December 31, 2015 (dollars in thousands):

Number

Notional
Amount (1)

Fair Value
Net Asset
(Liability)

Range of
Fixed LIBOR / Forward Rate

Range of Maturity
As of September 30, 2016:
 
 
 
 
 
 
 
 
 
 
Interest rate caps
12

 
 
$
4,113,600


$
4

 
2.50% - 5.00%
 
October 2016 - August 2018
Interest rate swaps - N-Star CDOs
9

 
 
110,817

 
(997
)
(2)  
5.02% - 5.25%
 
January 2017 - July 2018
Interest rate swaps - other
2

 
 
2,002,964

 
(301,319
)
 
3.39% - 4.17%
 
December 2019 - July 2023 (3)
Total
23

 
 
$
6,227,381

 
$
(302,312
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2015:
 
 
 
 
 
 
 
 
 
 
Interest rate caps
14

 
 
$
4,173,872

 
$
116

 
2.50% - 5.00%
 
January 2016 - December 2017
Interest rate swaps - N-Star CDOs
9

 
 
222,510

 
(7,321
)
(2)  
5.02% - 5.25%
 
January 2017 - July 2018
Interest rate swaps - other
2

 
 
2,003,240

 
(95,972
)
 
3.39% - 4.17%
 
December 2019 - July 2023 (3)
Total
25

 
 
$
6,399,622

 
$
(103,177
)
 
 
 
 
____________________________________________________________
(1)
Excludes timing swaps with a notional amount of $28.0 million as of September 30, 2016 and December 31, 2015 .
(2)
Interest rate swaps in consolidated N-Star CDOs are liabilities and are only subject to the credit risks of the respective CDO transaction. As the interest rate swaps are senior to all the liabilities of the respective CDO and the fair value of each of the CDO’s investments exceeded the fair value of the CDO’s derivative liabilities, a credit valuation adjustment was not recorded.
(3)
Includes a $2.0 billion notional forward-starting interest rate swap with a maturity date of December 3, 2029, which requires a mandatory cash redemption by December 3, 2019 at fair value.
The change in number and notional amount of derivative instruments from December 31, 2015 relates to contractual notional amortization and the maturity of interest rate caps in the Company’s healthcare portfolio. The Company had no derivative financial instruments that were designated as hedges in qualifying hedging relationships as of September 30, 2016 and December 31, 2015 .
The following table presents the fair value of derivative instruments, as well as their classification on the consolidated balance sheets, as of September 30, 2016 and December 31, 2015 (dollars in thousands):
 
Balance Sheet
 
September 30,
2016
 
December 31,
2015

Location
 
 
Interest rate caps
Other assets
 
$
4

 
$
116

Interest rate swaps
Derivative liabilities
 
$
302,316

 
$
103,293


54
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

The following table presents the effect of derivative instruments in the consolidated statements of operations for the three and nine months ended September 30, 2016 and 2015 (dollars in thousands):



Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,

Statements of Operations Location

2016
 
2015
 
2016
 
2015
Amount of gain (loss) recognized in earnings (loss):


 
 
 
 
 
 
 
Adjustment to fair value of interest rate swaps and caps
Unrealized gain (loss) on investments and other

$
(13,249
)
 
$
(86,890
)
 
$
(199,355
)
 
$
(114,037
)
Net cash payment on derivatives
Unrealized gain (loss) on investments and other

(2,003
)
 
(2,931
)
 
(6,968
)
 
(8,989
)
Amount of swap gain (loss) amortization from OCI into earnings
Interest expense—mortgage and corporate borrowings

(223
)
 
(223
)
 
(669
)
 
(711
)

The counterparty for the corporate interest rate swap held $161.2 million of cash margin as collateral against the derivative contract as of September 30, 2016 . The Company’s counterparties did not hold any cash margin as collateral against the Company’s derivative contracts as of December 31, 2015 .
Risk Management
Concentrations of credit risk arise when a number of tenants, operators or issuers related to the Company’s investments are engaged in similar business activities or located in the same geographic region to be similarly affected by changes in economic conditions. The Company monitors its portfolios to identify potential concentrations of credit risks. With respect to the Company’s healthcare portfolio, for the three and nine months ended September 30, 2016 , Senior Lifestyle Holding Company, LLC was the healthcare operator as it related to 74.4% of the Company’s resident fee income, for each period, and 10.9% and 10.8% , respectively, of the Company’s total revenue, respectively. Otherwise, the Company has no other tenant or operator that generates 10% or more of its total revenue. The Company believes the remainder of its portfolios are reasonably well diversified and do not contain any unusual concentration s of credit risks.
15.
Commitments and Contingencies
The Company is involved in various litigation matters arising in the ordinary course of its business. Although the Company is unable to predict with certainty the eventual outcome of any litigation, in the opinion of management, the current legal proceedings are not expected to have a material adverse effect on the Company’s financial position or results of operations.
Merger Related Arrangements and Other Costs
The Company entered into fee arrangements with service providers and advisors pursuant to which certain fees incurred by the Company in connection with the Mergers will become payable only if the Company consummates the Mergers. The Company has and will incur other professional fees related to the Mergers. There can be no assurances that the Company will complete this or any other transaction. For the three months ended September 30, 2016 and since the announcement of the Mergers through September 30, 2016 , the Company recorded an aggregate of $3.4 million and $10.4 million , respectively, in transaction costs in the consolidated statements of operations. To the extent the Mergers are consummated, the Company anticipates incurring a significant amount of additional costs.
Guaranty Agreements
In connection with certain hotel acquisitions, the Company entered into guaranty agreements with various hotel franchisors, pursuant to which the Company guaranteed the franchisees’ obligations, including payments of franchise fees and marketing fees, for the term of the agreements, which expires from 2029 to 2034. As of September 30, 2016 , the aggregate amount under these guarantees is $2.0 million .
In connection with the NRE Spin-off, the 4.635% senior stock-settlable notes issued by NorthStar Europe and due in December 2016 are senior unsubordinated and unsecured primary obligations of NorthStar Europe and the Company continues to guarantee payments subsequent to the NRE Spin-off. Subject to certain conditions, NorthStar Europe may elect to settle all or part of the principal amount of the senior notes in its common stock in lieu of cash. As of September 30, 2016 , the principal amount outstanding of such senior notes was $67.2 million .

55
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

16.
Variable Interest Entities
As of September 30, 2016 , the Company has identified certain consolidated and unconsolidated VIEs. Assets of each of the VIEs, other than the Operating Partnership, may only be used to settle obligations of the respective VIE. Creditors of each of the VIEs have no recourse to the general credit of the Company. The Company identified several VIEs which were originally consolidated under the voting interest model prior to changes in the consolidation rules under U.S. GAAP (refer to Note 2).
Consolidated VIEs
The Company’s most significant newly identified consolidated VIEs are its Operating Partnership and certain properties that have non-controlling interests. These entities are VIEs because the non-controlling interests do not have substantive kick-out or participating rights and the Company is the primary beneficiary. The Operating Partnership consolidates certain properties that have non-controlling interests. Included in operating real estate, net on the Company’s consolidated balance sheets as of September 30, 2016 is $6.2 billion related to such consolidated VIEs. Included in mortgage and other notes payable on the Company’s consolidated balance sheets as of September 30, 2016 is $5.7 billion collateralized by the real estate assets of the related consolidated VIEs. Included in assets held for sale on the Company’s consolidated balance sheets as of September 30, 2016 is $2.6 billion related to such consolidated VIEs. Included in liabilities related to assets held for sale on the Company’s consolidated balance sheets as of September 30, 2016 is $1.4 billion collateralized by the real estate assets of the related consolidated VIEs. These balances are separate from the assets and liabilities related to the N-Star CDOs. Included in real estate securities, available for sale on the Company’s consolidated balance sheets as of September 30, 2016 is $0.3 billion related to the N-Star CDOs. Included in CDO bonds payable, at fair value on the Company’s consolidated balance sheets as of September 30, 2016 is $0.3 billion collateralized by the real estate securities of the related N-Star CDOs.
N-Star CDOs
As of September 30, 2016 , the Company serves as collateral manager and/or special servicer for N-Star CDOs I and IX which are primarily collateralized by CRE securities. The Company consolidates these entities as the Company has the power to direct the activities that most significantly impact the economic performance of these CDOs, and therefore, continues to be the primary beneficiary.
The Company is not contractually required to provide financial support to any of the consolidated N-Star CDOs, however, the Company, in its capacity as collateral manager and/or special servicer, may in its sole discretion provide support such as protective and other advances it deems appropriate. The Company did not provide any other financial support to any of the consolidated N-Star CDOs for the nine months ended September 30, 2016 and 2015 .
Unconsolidated VIEs
N-Star CDOs
The Company delegated the collateral management rights for N-Star CDOs IV, VI and VIII and the CapLease CDO on September 30, 2013 and the CSE CDO on December 31, 2013 to a third-party collateral manager/collateral manager delegate who is entitled to a percentage of the senior and subordinate collateral management fees. The Company continues to receive fees as named collateral manager or collateral manager delegate and retained administrative responsibilities. The Company evaluated the fees paid to the third-party collateral manager/collateral manager delegate and concluded that such fees represented a variable interest in the deconsolidated loan CDOs and that the third party was functioning as a principal. The Company determined that the delegation of the Company’s collateral management power in the CDOs was a VIE reconsideration event and concluded that these CDOs were still VIEs as the equity investors do not have the characteristics of a controlling financial interest. The Company then reconsidered if it was the primary beneficiary of such VIEs and determined that it no longer has the power to direct the activities that most significantly impact the economic performance of these CDOs, which includes but is not limited to selling collateral, and therefore is no longer the primary beneficiary of such CDOs. As a result, the Company does not consolidate the assets and liabilities for N-Star CDOs IV, VI and VIII, CSE CDO and the CapLease CDO. In September 2015, N-Star CDO IV was liquidated.
In March 2014, the Company determined it no longer had the power to direct the activities that most significantly impact the economic performance of N-Star CDO V due to the ability of a single party to remove the Company as collateral manager as a result of an existing event of default. The Company was no longer the primary beneficiary of N-Star CDO V, and as a result, in the first quarter 2014, the Company deconsolidated the assets and liabilities of this CDO.
In May 2014, the Company determined it no longer had the power to direct the activities that most significantly impact the economic performance of N-Star CDO III due to the ability of a single party to remove the Company as collateral manager as a result of an

56
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

existing event of default. The Company was no longer the primary beneficiary of N-Star CDO III, and as a result, in the second quarter 2014, the Company deconsolidated the assets and liabilities of this CDO.
Similar events of default in the future, if they occur, could cause the Company to deconsolidate its remaining consolidated N-Star CDO financing transactions.
Other Unconsolidated VIEs
Based on management’s analysis, the Company is not the primary beneficiary of the VIEs summarized below and as such, these VIEs are not consolidated into the Company’s financial statements as of September 30, 2016 . These unconsolidated VIEs are summarized as follows:
Real Estate Debt Investments
The Company identified certain CRE debt investments with a carrying value of $ 173.5 million as a variable interest in a VIE. The Company determined that it is not the primary beneficiary of such VIE, and as such, the VIE is not consolidated in the Company’s financial statements. For all other CRE debt investments, the Company determined that these investments are not VIEs and, as such, the Company continues to account for all CRE debt investments as loans.
Real Estate Securities
The Company identified N-Star CDO bonds, equity and CMBS and other securities (excluding CRE securities in consolidated N-Star CDOs) with a fair value of $174.0 million as variable interests in VIEs. The Company determined that either it was not the controlling class of such securitization or was the controlling class and the Company determined at that time and continues to believe that it does not currently or potentially hold a significant interest in such securitizations and, therefore, is not the primary beneficiary.
NorthStar Realty Finance Trusts
The Company owns all of the common stock of the Trusts. The Trusts were formed to issue trust preferred securities. The Company determined that the holders of the trust preferred securities were the primary beneficiaries of the Trusts. As a result, the Company did not consolidate the Trusts and has accounted for the investment in the common stock of the Trusts under the equity method. As of September 30, 2016 , the Company’s carrying value and maximum exposure to loss related to its investment in the Trusts is $3.7 million and is recorded in investments in unconsolidated ventures on the consolidated balance sheets.
PE Investments
The Company determined all PE Investments are VIEs, with the exception of PE Investment I and II, as the non-controlling interests do not have substantive kick-out or participating rights. As of September 30, 2016 , the Company’s investment in these entities is $383.8 million  and the amount of expected future contributions is $3.8 million .
Summary of Unconsolidated VIEs
The following table presents the classification, carrying value and maximum exposure of unconsolidated VIEs as of September 30, 2016 (dollars in thousands):

Junior
Subordinated
Notes, at
Fair Value

Real Estate Debt Investments, Net
 
Real Estate
Securities,
Available
for Sale

PE Investments
 
Total
 
Maximum
Exposure
to Loss (1)
Real estate debt investments, net
$
—

 
$
173,521

 
$
—

 
$
—

 
$
173,521

 
$
173,521

Investments in unconsolidated ventures
3,742

 
—

 
—

 
—

 
3,742

 
3,742

Investments in private equity funds, at fair value
—

 
—

 
—

 
383,848

 
383,848

 
383,848

Real estate securities, available for sale:
 
 
 
 
 
 
 
 
 
 
 
N-Star CDO bonds
—

 
—

 
120,267

 
—

 
120,267

 
120,267

N-Star CDO equity
—

 
—

 
31,886

 
—

 
31,886

 
31,886

CMBS and other securities
—

 
—

 
21,811

 
—

 
21,811

 
21,811

Subtotal real estate securities, available for sale
—

 
—

 
173,964

 
—

 
173,964

 
173,964

Total assets
3,742

 
173,521

 
173,964

 
383,848

 
735,075

 
735,075

Junior subordinated notes, at fair value
191,175

 
—

 
—

 
—

 
191,175

 
NA

Total liabilities (2)
191,175

 
—

 
—

 
—

 
191,175

 
NA

Net
$
(187,433
)
 
$
173,521

 
$
173,964

 
$
383,848

 
$
543,900

 
$
735,075

____________________________________________________________
(1)
The Company’s maximum exposure to loss as of September 30, 2016 would not exceed the carrying value of its investment.

57
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

(2)
Excludes a secured borrowing with a carrying value of $52.7 million related to a real estate debt investment.
Other than described above as it relates to expected future fundings on PE Investments, the Company is not contractually required to provide financial support to any of its unconsolidated VIEs during the nine months ended September 30, 2016 and 2015 however, the Company, in its capacity as collateral manager/collateral manager delegate and/or special servicer of the deconsolidated N-Star CDOs, may in its sole discretion provide support such as protective and other advances it deems appropriate. As of September 30, 2016 , there were no explicit arrangements or implicit variable interests that could require the Company to provide financial support to any of its unconsolidated VIEs.
17.
Segment Reporting
The Company currently conducts its business through the following five segments (excluding the European real estate business which the Company spun off on October 31, 2015, which is no longer a separate operating segment), based on how management reviews and manages its business:
•
Real Estate - The real estate business pursues various types of investments in commercial real estate located throughout the United States that includes healthcare, hotel, net lease and multi-tenant office properties. In addition, it includes certain healthcare properties located outside of the United States and PE Investments diversified by property type and geography. In addition, the Company is also invested in manufactured housing communities and multifamily properties, which the Company has recently entered into agreements to sell.
•
Healthcare - The healthcare properties are comprised of a diverse portfolio of medical office buildings, senior housing, skilled nursing and other healthcare properties. The majority of the healthcare properties are medical office buildings and properties structured under a net lease to healthcare operators. In addition, the Company owns senior operating facilities, which include healthcare properties that operate through management agreements with independent third-party operators, predominantly through structures permitted by RIDEA that permit the Company, through a TRS, to have direct exposure to resident fee income and incur customary related operating expenses. In March 2016, the Company sold its 60% interest in a $899 million Senior Housing Portfolio for $534.5 million . The buyer assumed the Company’s portion of the $648.2 million of related mortgage financing and the Company received approximately $149.4 million of proceeds, net of sales costs. In September 2016, the Company entered into a definitive agreement to sell a portfolio of medical office buildings within the Griffin-American Portfolio for $837.9 million with $692.2 million of related mortgage financing expected to be paid off as part of the transaction. The Company expects to receive $114.8 million of net proceeds. The Company expects the transaction to close in the fourth quarter 2016. In November 2016, the Company entered into an agreement to sell an interest in its healthcare portfolio for net proceeds of approximately $340 million . There is no assurance these transactions will close on the terms anticipated, if at all.
•
Hotel - The hotel portfolio is a geographically diverse portfolio primarily comprised of extended stay hotels and premium branded select service hotels primarily located in major metropolitan markets with the majority affiliated with top hotel brands.
•
Manufactured Housing - The manufactured housing portfolio consists of communities that lease pad rental sites for placement of factory built homes located throughout the United States. In addition, the portfolio includes manufactured homes and receivables related to the financing of homes sold to residents. In May 2016, the Company entered into an agreement to sell its manufactured housing portfolio for $2.0 billion with $1.3 billion of related mortgage financing expected to be assumed as part of the transaction. The Company expects to receive $614.8 million of net proceeds. The Company expects the transaction to close in the first quarter 2017. There is no assurance this transaction will close on the terms anticipated, if at all. Such assets and related liabilities are classified as held for sale on the Company’s consolidated balance sheet.
•
Net Lease - The net lease properties are primarily industrial, office and retail properties typically under net leases to corporate tenants. In September 2016, the Company redeemed its interests in the Industrial Portfolio for $169.6 million of net proceeds.
•
Multifamily - The multifamily portfolio primarily focuses on properties located in suburban markets that are well suited to capture the formation of new households. To date through November 2016, the Company sold ten multifamily properties for $307 million with $210 million of mortgage financing assumed as part of the transaction. The Company received $85 million of net proceeds. The Company continues to explore the sale of the remaining two properties, including one multifamily property accounted for as an investment in unconsolidated venture. Such assets and related liabilities are classified as held for sale on the Company’s consolidated balance sheet.

58
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

•
Multi-tenant Office - The Company pursues the acquisition of multi-tenant office properties currently focused on the western United States.
•
PE Investments - The real estate business also includes investments (directly or indirectly in joint ventures) owning PE Investments managed by institutional quality sponsors and diversified by property type and geography. In February 2016, the Company sold substantially all of its interest in PE Investment II for proceeds of $184.1 million . In September 2016, the Company sold a portfolio of PE Investments for a gross sales price of $317.6 million with $44.7 million of deferred purchase price assumed as part of the transaction, including $5.6 million of deferred purchase price which was the obligation of an unconsolidated joint venture. The Company received $33.9 million of net proceeds and will receive the remaining $204.7 million of net proceeds in the fourth quarter 2016. Refer to Note 9. Related Party Arrangements for further disclosure.
•
Commercial Real Estate Debt - The CRE debt business is focused on originating, acquiring and asset managing senior and subordinate debt investments secured primarily by commercial real estate and includes first mortgage loans, subordinate mortgage and mezzanine loans and participations in such loans and preferred equity interests. The Company may from time to time take title to collateral in connection with a CRE debt investment as REO which would be included in the CRE debt business. To date through November 2016, the Company sold or received repayment for 15 debt investments and a REO with a total principal amount of $388.6 million and used $72.1 million of proceeds to pay down the Company’s loan facility in full, resulting in $313.2 million of net proceeds.
•
Commercial Real Estate Securities - The CRE securities business is predominately comprised of N-Star CDO bonds and N-Star CDO equity of deconsolidated N-Star CDOs and includes other securities, mostly CMBS meaning each asset is a pool backed by a large number of commercial real estate loans. The Company also invests in opportunistic CRE securities such as an investment in a “B-piece” CMBS. In 2016, the Company sold certain CRE securities for $53.9 million of net proceeds.
•
N-Star CDOs - The Company historically originated or acquired CRE debt and securities investments that were predominantly financed through permanent, non-recourse CDOs. The Company’s remaining consolidated CDOs are past the reinvestment period and given the nature of these transactions, these CDOs are amortizing over time as the underlying assets pay down or are sold. The Company has been winding down its legacy CDO business and investing in a broad and diverse range of CRE assets. As a result, this distinct business is a significantly smaller portion of its business today than in the past. As of September 30, 2016 , only N-Star securities CDOs I and IX continue to be consolidated. Refer to Note 16 for further disclosure regarding deconsolidated N-Star CDOs. The Company continues to receive collateral management fees related to administrative responsibilities for deconsolidated N-Star CDO financing transactions, which are recorded in other revenue and included in the N-Star CDOs segment.
•
Corporate - The corporate segment includes NSAM management fees incurred, corporate level interest income and interest expense and general and administrative expenses.
The Company primarily generates revenue from rental income from its real estate properties, operating income from healthcare and hotel properties permitted by the RIDEA and net interest income on the CRE debt and securities portfolios. Additionally, the Company records equity in earnings of unconsolidated ventures, including from PE Investments. The Company’s income is primarily derived through the difference between revenue and the cost at which the Company is able to finance its investments. The Company may also acquire investments which generate attractive returns without any leverage.

59
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

The following tables present segment reporting for the three and nine months ended September 30, 2016 and 2015 (dollars in thousands):
Statement of Operations:






N-Star CDOs (2)




Three months ended September 30, 2016
Real Estate (1)

CRE
Debt

CRE
Securities

CRE
Securities

Corporate

Total
Rental and escalation income
$
165,060

 
$
—

 
$
—

 
$
—

 
$
—

 
$
165,060

Hotel related income
220,578

 
—

 
—

 
—

 
—

 
220,578

Resident fee income
72,988

 
—

 
—

 
—

 
—

 
72,988

Net interest income on debt and securities
3,037

(3)  
4,894

 
12,879

 
8,729

(4)  
3,516

(4)  
33,055

Interest expense—mortgage and corporate borrowings
104,509

 
—

 
—

 
—

 
9,787

 
114,296

Income (loss) before equity in earnings (losses) and income tax benefit (expense)
(33,626
)
(5)  
2,997

 
12,249

 
1,514

 
(88,418
)
(6)  
(105,284
)
Equity in earnings (losses) of unconsolidated ventures
26,033

 
—

 
—

 
—

 
21

 
26,054

Income tax benefit (expense)
(3,408
)
 
(159
)
 
—

 
—

 
—

 
(3,567
)
Income (loss) from continuing operations
(11,001
)
 
2,838

 
12,249

 
1,514

 
(88,397
)
 
(82,797
)
Net income (loss)
(11,001
)
 
2,838

 
12,249

 
1,514

 
(88,397
)
 
(82,797
)
___________________________________
(1)
Includes $8.2 million of rental and escalation income and $0.5 million of net income from a portfolio of healthcare assets located in the United Kingdom.
(2)
Based on CDO financing transactions that were primarily collateralized by CRE securities and may include other types of investments. $0.7 million of collateral management fees were earned from CDO financing transactions, of which $0.2 million was eliminated in consolidation.
(3)
Primarily represents interest income earned from notes receivable on manufactured homes and interest income on loans in the Company’s healthcare portfolio.
(4)
Represents income earned from N-Star CDO bonds repurchased at a discount, recognized using the effective interest method, that is eliminated in consolidation. The corresponding interest expense is recorded in net interest income in the N-Star CDOs segment.
(5)
Primarily relates to depreciation and amortization of $84.5 million.
(6)
Includes management fees to NSAM of $46.8 million and an unrealized loss on a derivative instrument of $13.2 million .

Statement of Operations:
 
 
 
 
 
 
N-Star CDOs (2)
 
 
 
 
 
 
Three months ended September 30, 2015
Real Estate (1)
 
CRE
Debt
 
CRE
Securities
 
CRE
Securities
 
Corporate
 
European Real Estate (3)
 
Total
Rental and escalation income
$
194,518

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
194,518

Hotel related income
219,427

 
—

 
—

 
—

 
—

 
—

 
219,427

Resident fee income
70,257

 
—

 
—

 
—

 
—

 
—

 
70,257

Net interest income on debt and securities
3,103

(4)  
23,737

 
17,228

 
12,407

(5)  
3,076

(5)  
—

 
59,551

Interest expense—mortgage and corporate borrowings
113,788

 
—

 
—

 
—

 
13,323

 
—

 
127,111

Income (loss) before equity in earnings (losses) and income tax benefit (expense)
(52,137
)
(6)  
24,871

 
15,465

 
(5,160
)
 
(137,487
)
(7)  
—

 
(154,448
)
Equity in earnings (losses) of unconsolidated ventures
60,359

 
—

 
—

 
—

 
—

 
—

 
60,359

Income tax benefit (expense)
2,378

 
(154
)
 
(82
)
 
—

 
—

 
—

 
2,142

Income (loss) from continuing operations
10,600

 
24,717

 
15,383

 
(5,160
)
 
(137,487
)
 
—

 
(91,947
)
Income (loss) from discontinued operations
(11
)
 
—

 
—

 
—

 
—

 
(16,570
)
(8)  
(16,581
)
Net income (loss)
10,589

 
24,717

 
15,383

 
(5,160
)
 
(137,487
)
 
(16,570
)
 
(108,528
)
___________________________________
(1)
Includes $9.7 million of rental and escalation income and $1.2 million of net income from a portfolio of healthcare assets located in the United Kingdom.
(2)
Based on CDO financing transactions that were primarily collateralized by either CRE debt or securities and may include other types of investments. $1.3 million of collateral management fees were earned from CDO financing transactions, of which $0.6 million were eliminated in consolidation.
(3)
Prior to the NRE Spin-off, the Company generated rental and escalation income from its European properties. The European real estate segment represents the consolidated results of operations and balance sheet of such European real estate business which was transferred to NorthStar Europe in connection with the NRE Spin-off. Amounts related to the European real estate business are reported in discontinued operations. Represents the consolidated statements of operations of NorthStar Europe reported in discontinued operations and includes an allocation of indirect expenses from the Company (refer to Note 3).
(4)
Primarily represents interest income earned from notes receivable on manufactured homes and interest income on loans in the Company’s healthcare portfolio.
(5)
Represents income earned from N-Star CDO bonds repurchased at a discount, recognized using the effective interest method, that is eliminated in consolidation. The corresponding interest expense is recorded in net interest income in the N-Star CDO segments.
(6)
Primarily relates to transaction costs of $3.7 million and depreciation and amortization of $118.4 million .
(7)
Includes management fees to NSAM of $51.3 million .
(8)
Primarily relates to depreciation and amortization of $18.8 million .


60
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Statement of Operations:
 
 
 
 
 
 
N-Star CDOs (2)
 
 
 
 
Nine months ended September 30, 2016
Real Estate (1)
 
CRE
Debt
 
CRE
Securities
 
CRE
Securities
 
Corporate
 
Total
Rental and escalation income
$
527,252

 
$
—

 
$
—

 
$
—

 
$
—

 
$
527,252

Hotel related income
636,283

 
—

 
—

 
—

 
—

 
636,283

Resident fee income
219,193

 
—

 
—

 
—

 
—

 
219,193

Net interest income on debt and securities
8,703

(3)  
28,910

 
36,109

 
21,454

(4)  
14,632

(4)  
109,808

Interest expense—mortgage and corporate borrowings
325,189

 
—

 
—

 
—

 
31,554

 
356,743

Income (loss) before equity in earnings (losses) and income tax benefit (expense)
(14,491
)
(5)  
21,124

 
13,164

 
5,250

 
(420,509
)
(6)  
(395,462
)
Equity in earnings (losses) of unconsolidated ventures
101,793

 
—

 
—

 
—

 
45

 
101,838

Income tax benefit (expense)
(11,859
)
 
(470
)
 
—

 
—

 
—

 
(12,329
)
Income (loss) from continuing operations
75,443

 
20,654

 
13,164

 
5,250

 
(420,464
)
 
(305,953
)
Net income (loss)
75,443

 
20,654

 
13,164

 
5,250

 
(420,464
)
 
(305,953
)
___________________________________
(1)
Includes $26.1 million of rental and escalation income and $1.2 million of net income from a portfolio of healthcare assets located in the United Kingdom.
(2)
Based on CDO financing transactions that were primarily collateralized by CRE securities and may include other types of investments. $2.0 million of collateral management fees were earned from CDO financing transactions, of which $0.5 million was eliminated in consolidation.
(3)
Primarily represents interest income earned from notes receivable on manufactured homes and interest income on loans in the Company’s healthcare portfolio.
(4)
Represents income earned from N-Star CDO bonds repurchased at a discount, recognized using the effective interest method, that is eliminated in consolidation. The corresponding interest expense is recorded in net interest income in the N-Star CDOs segment.
(5)
Primarily relates to depreciation and amortization of $259.7 million.
(6)
Includes management fees to NSAM of $140.0 million and an unrealized loss on a derivative instrument of $199.4 million .

Statement of Operations:
 
 
 
 
 
 
N-Star CDOs (2)
 
 
 
 
 
 
Nine months ended September 30, 2015
Real Estate (1)
 
CRE
Debt
 
CRE
Securities
 
CRE
Securities
 
Corporate
 
European Real Estate (3)
 
Total
Rental and escalation income
$
539,240

 
$
—

 
$
—

 
$
302

 
$
—

 
$
—

 
$
539,542

Hotel related income
594,284

 
—

 
—

 
—

 
—

 
—

 
594,284

Resident fee income
199,463

 
—

 
—

 
—

 
—

 
—

 
199,463

Net interest income on debt and securities
8,031

(4)  
79,061

 
49,671

 
35,723

(5)  
8,255

(5)  
—

 
180,741

Interest expense—mortgage and corporate borrowings
319,341

 
—

 
—

 
—

 
40,954

 
—

 
360,295

Income (loss) before equity in earnings (losses) and income tax benefit (expense)
(103,677
)
(6)  
80,652

 
87,827

 
(823
)
 
(319,018
)
(7)  
—


(255,039
)
Equity in earnings (losses) of unconsolidated ventures
171,738

 
—

 
—

 
—

 
—

 
—

 
171,738

Income tax benefit (expense)
(9,109
)
 
(382
)
 
(119
)
 
—

 
—

 
—

 
(9,610
)
Income (loss) from continuing operations
58,952

 
80,270

 
87,708

 
(823
)
 
(319,018
)
 
—

 
(92,911
)
Income (loss) from discontinued operations
(11
)
 
—

 
—

 
—

 
—

 
(114,225
)
(8)  
(114,236
)
Net income (loss)
58,941

 
80,270

 
87,708

 
(823
)
 
(319,018
)
 
(114,225
)
 
(207,147
)
___________________________________
(1)
Includes $28.3 million of rental and escalation income and $0.8 million of net loss from a portfolio of healthcare assets located in the United Kingdom.
(2)
Based on CDO financing transactions that were primarily collateralized by CRE securities and may include other types of investments. $4.1 million of collateral management fees were earned from CDO financing transactions, of which $1.8 million were eliminated in consolidation.
(3)
Prior to the NRE Spin-off, the Company generated rental and escalation income from its European properties. The European real estate segment represents the consolidated results of operations and balance sheet of such European real estate business which was transferred to NorthStar Europe in connection with the NRE Spin-off. Amounts related to the European real estate business are reported in discontinued operations. Represents the consolidated statements of operations of NorthStar Europe reported in discontinued operations and includes an allocation of indirect expenses from the Company (refer to Note 3).
(4)
Primarily represents interest income earned from notes receivable on manufactured homes and interest income on loans in the Company’s healthcare portfolio.
(5)
Represents income earned from CDO bonds repurchased at a discount, recognized using the effective interest method, that is eliminated in consolidation. The corresponding interest expense is recorded in net interest income in the N-Star CDOs segment.
(6)
Primarily relates to transaction costs of $22.9 million and depreciation and amortization of $338.8 million .
(7)
Includes management fees to NSAM of $151.3 million .
(8)
Primarily relates to transaction costs of $110.0 million and depreciation and amortization of $35.0 million .


61
NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

The following table presents total assets by segment as of September 30, 2016 and December 31, 2015 (dollars in thousands):
 
 
 
 
 
 
 
N-Star CDOs (1)
 
 
 
 
Total Assets
Real Estate
 
CRE
Debt
 
CRE
Securities
 
CRE
Securities
 
Corporate
 
Total
September 30, 2016
$
11,719,541

 
$
261,805

 
$
175,256

 
$
381,193

 
$
827,094

 
$
13,364,889

December 31, 2015
$
13,871,796

 
$
661,348

 
$
319,937

 
$
422,953

 
$
128,367

 
$
15,404,401

______________________________________
(1)
Based on CDO financing transactions that are primarily collateralized by CRE securities and may include other types of investments.
18.
Supplemental Disclosures of Non-cash Investing and Financing Activities
The following table presents non-cash investing and financing activities for the nine months ended September 30, 2016 and 2015 (dollars in thousands):
 
Nine Months Ended September 30,
 
2016
 
2015
Reclassification of operating real estate, net to assets held for sale
$
1,097,859

 
$
364,435

Assignment / reduction of mortgage note payable upon sale / redemption of real estate
973,392

 
—

Non-cash related to PE Investments
210,010

 
8,008

Reclassification of intangible assets to assets held for sale
126,410

 
—

Non-controlling interest – sale or deconsolidation of subsidiary
104,906

 
—

Reclassification of other assets to assets held for sale
44,120

 
—

PE Investments deferred purchase price assumed upon sale
39,059

 
—

Reclassification of restricted cash to assets held for sale
22,941

 
—

Reclassification of intangible liabilities to liabilities held for sale
19,229

 
—

Escrow deposit payable related to CRE debt investments
8,789

 
42,996

Non-controlling interests—reallocation of interest in Operating Partnership
6,031

 
24,776

Amounts payable relating to improvements of operating real estate
4,699

 
—

Dividends payable related to RSUs
2,039

 
3,283

Conversion of exchangeable senior notes
1,871

 
13,590

Amounts payable relating to real estate related pending deal costs
1,741

 
—

Amounts payable relating to deferred leasing commissions
631

 
—

Reclassification of mortgage note payable to liabilities held for sale
—

 
273,360

Assumption of mortgage note payable upon purchase
—

 
273,023

Reclassification of operating real estate to intangible assets
—

 
216,345

Reduction of assets and liabilities held for sale via taking title
—

 
28,962

Reclassification of other assets to operating real estate
—

 
25,577

Acquired assets and liabilities in connection with European real estate
—

 
49,942

Conversion of Deferred LTIP Units to LTIP Units
—

 
18,730

Deferred purchase price for PE Investment XIV
—

 
47,808

Retirement of shares of common stock
—

 
18,183

Contribution from non-controlling interest
—

 
1,461

19.
Subsequent Events
Dividends
On November 1, 2016 , the Company declared a dividend of $0.40 per share of common stock. The common stock dividend will be paid on November 18, 2016 to stockholders of record as of the close of business on November 14, 2016 . On October 27, 2016 , the Company declared a dividend of $0.54688 per share of Series A preferred stock, $0.51563 per share of Series B preferred stock, $0.55469 per share of Series C preferred stock, $0.53125 per share of Series D Preferred Stock and $0.54688 per share of Series E Preferred Stock. Dividends will be paid on all series of preferred stock on November 15, 2016 to stockholders of record as of the close of business on November 7, 2016 .
Colony NorthStar Registration Statement
In October 2016, the Company amended the merger agreement and provided for, among other matters, an enhanced governance structure for Colony NorthStar, modified severance terms for NSAM’s executive officers and a special cash dividend for NSAM’s stockholders now totaling $228 million . In connection with the amendment to the merger agreement, NSAM entered into a voting agreement with MSD and its affiliates, which together own approximately 10.2% of NSAM’s outstanding shares, pursuant to which MSD agreed to vote in favor of the Mergers and related proposals. In addition, Colony NorthStar, a Maryland subsidiary of NSAM that will be the surviving parent company of the combined company, filed with the SEC an amended registration statement on Form S-4 that includes a joint proxy statement of the Company, Colony and NSAM and that also constitutes a prospectus of Colony NorthStar.



62

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our unaudited consolidated financial statements and notes thereto included in Item 1. “Financial Statements” of this report. References to “N-Star,” “NorthStar Realty,” the “Company,” “we,” “us” or “our” refer to NorthStar Realty Finance Corp. and its subsidiaries unless the context specifically requires otherwise.
Introduction
We are a diversified commercial real estate company, with 91% of our total assets invested directly or indirectly in real estate. We generated 92% of our revenue from our real estate portfolio for the nine months ended September 30, 2016 . We invest in multiple asset classes across commercial real estate, or CRE, that we expect will generate attractive risk-adjusted returns and may take the form of acquiring real estate, originating or acquiring senior or subordinate loans, as well as pursuing opportunistic CRE investments. We seek to generate stable cash flow for distribution to our stockholders through our diversified portfolio of commercial real estate assets and in turn build long-term franchise value. However, given recent market conditions, we are currently focused on exploring sales to generate liquidity.
We are a Maryland corporation and completed our initial public offering in October 2004. We conduct our operations so as to continue to qualify as a real estate investment trust, or REIT, for U.S. federal income tax purposes. We are externally managed and advised by an affiliate of NorthStar Asset Management Group Inc. (NYSE: NSAM), which together with its affiliates is referred to as NSAM.
Significant Developments
Merger Agreement with NSAM and Colony Capital, Inc.
In June 2016, we announced that we entered into a merger agreement with NSAM and Colony Capital, Inc., or Colony, under which the companies will combine in an all-stock merger of equals transaction to create an internally-managed, diversified real estate and investment management platform, or the Mergers. The transaction has been approved by our and NSAM’s respective board of directors, including the unanimous approval by their respective Special Committees and the board of directors of Colony.
Under the terms of the merger agreement, as amended, NSAM will redomesticate to Maryland and elect to be treated as a REIT beginning in 2017 and we and Colony, through a series of transactions, will merge with and into the redomesticated NSAM, which will be renamed Colony NorthStar, Inc., or Colony NorthStar. Our common stockholders will receive 1.0996 shares of Colony NorthStar’s common stock for each share of common stock they own. Holders of preferred stock will receive shares of preferred stock of Colony NorthStar that are substantially similar to the preferred stock held prior to the closing of the transaction. Upon completion of the transaction, NSAM stockholders will own approximately 32.85%, Colony stockholders will own approximately 33.25% and our stockholders will own approximately 33.90% of the combined company on a fully diluted basis, excluding the effect of certain equity-based awards issuable in connection with the Mergers.
In October 2016, we amended the merger agreement and provided for, among other matters, an enhanced governance structure for Colony NorthStar, modified severance terms for NSAM’s executive officers and a special cash dividend for NSAM’s stockholders now totaling $228 million.  In connection with the amendment to the merger agreement, NSAM entered into a voting agreement with MSD Capital L.P., or MSD, and its affiliates, which together own approximately 10.2% of NSAM’s outstanding shares, pursuant to which MSD agreed to vote in favor of the Mergers and related proposals. In addition, Colony NorthStar, a Maryland subsidiary of NSAM that will be the surviving parent company of the combined company, filed with the SEC an amended registration statement on Form S-4 that includes a joint proxy statement of NorthStar Realty, Colony and NSAM and that also constitutes a prospectus of Colony NorthStar.
The transaction is expected to close in January 2017, subject to, among other things, regulatory approvals and the receipt of NorthStar Realty’s, Colony’s and NSAM’s respective stockholder approvals.
Sales Initiatives
We continue to execute a series of sales initiatives including: (i) sales of certain real estate assets; (ii) sales of certain of our limited partnership interests in real estate private equity funds, or PE Investments; and (iii) sales and/or accelerated repayments of our CRE debt and securities investments.
Since the beginning of the fourth quarter 2015 through November 2016, assets sold or committed to sell totaled $6.6 billion , including an agreement to sell an interest in our healthcare portfolio, of which net proceeds to us received or expected to be received totaled approximately $2.5 billion . There is no assurance this transaction will close on the terms anticipated, if at all.

63
Table of Contents

Summary of Business
Our primary business lines are as follows:
•
Real Estate - Our real estate business pursues various types of investments in commercial real estate located throughout the United States that includes healthcare, hotel, net lease and multi-tenant office properties. In addition, it includes certain healthcare properties located outside of the United States and PE Investments, diversified by property type and geography. In addition, we are also invested in manufactured housing communities and multifamily properties, which we have recently entered into agreements to sell.
•
Healthcare - Our healthcare properties are comprised of a diverse portfolio of medical office buildings, senior housing, skilled nursing and other healthcare properties. The majority of our healthcare properties are medical office buildings and properties structured under a net lease to healthcare operators. In addition, we own senior operating facilities, which include healthcare properties that operate through management agreements with independent third-party operators, predominantly through structures permitted by the REIT Investment Diversification and Empowerment Act of 2007, or RIDEA, that permit us, through a taxable REIT subsidiary, or TRS, to have direct exposure to resident fee income and incur customary related operating expenses. In March 2016, we sold our 60% interest in a $899 million portfolio of independent living facilities, or Senior Housing Portfolio, for $535 million. The buyer assumed our portion of the $648 million of related mortgage financing and we received approximately $150 million of proceeds, net of sales costs. In September 2016, we entered into a definitive agreement to sell a portfolio of medical office buildings within the Griffin-American Healthcare REIT II, Inc. portfolio, or Griffin-American Portfolio, for $838 million with $692 million of related mortgage financing expected to be paid off as part of the transaction. We expect to receive $115 million of net proceeds. We expect the transaction to close in the fourth quarter 2016. In November 2016, we entered into an agreement to sell an interest in our healthcare portfolio for net proceeds of approximately $340 million. There is no assurance these transactions will close on the terms anticipated, if at all.
•
Hotel - Our hotel portfolio is a geographically diverse portfolio primarily comprised of extended stay hotels and premium branded select service hotels primarily located in major metropolitan markets with the majority affiliated with top hotel brands.
•
Manufactured Housing - Our manufactured housing portfolio consists of communities that lease pad rental sites for placement of factory built homes located throughout the United States. In addition, the portfolio includes manufactured homes and receivables related to the financing of homes sold to residents. In May 2016, we entered into an agreement to sell our manufactured housing portfolio for $2.0 billion with $1.3 billion of related mortgage financing expected to be assumed as part of the transaction. We expect to receive $615 million of net proceeds. We expect the transaction to close in the first quarter 2017. There is no assurance this transaction will close on the terms anticipated, if at all. Such assets and related liabilities are classified as held for sale on our consolidated balance sheet.
•
Net Lease - Our net lease properties are primarily industrial, office and retail properties typically under net leases to corporate tenants. In September 2016, we redeemed our interests in a net lease industrial real estate portfolio, or Industrial Portfolio, for $170 million of net proceeds.
•
Multifamily - Our multifamily portfolio primarily focuses on properties located in suburban markets that are well suited to capture the formation of new households. To date through November 2016, we sold ten multifamily properties for $307 million with $210 million of mortgage financing assumed as part of the transaction. We received $85 million of net proceeds. We continue to explore the sale of the remaining two properties, including one multifamily property accounted for as an investment in unconsolidated venture. Such assets and related liabilities are classified as held for sale on our consolidated balance sheet.
•
Multi-tenant Office - We pursue the acquisition of multi-tenant office properties currently focused on the western United States.
•
PE Investments - Our real estate business also includes investments (directly or indirectly in joint ventures) owning PE Investments managed by institutional quality sponsors and diversified by property type and geography. In February 2016, we sold substantially all of our interest in PE Investment II for proceeds of $184 million. In September 2016, we sold a portfolio of PE Investments for a gross sales price of $318 million with $45 million of deferred purchase price assumed as part of the transaction, including $6 million of deferred purchase price which was the obligation of an unconsolidated joint venture. We received $34 million of net proceeds and will receive the remaining $205 million of net proceeds in the fourth quarter 2016.

64
Table of Contents

•
Commercial Real Estate Debt - Our CRE debt business is focused on originating, acquiring and asset managing senior and subordinate debt investments secured primarily by commercial real estate and includes first mortgage loans, subordinate mortgage and mezzanine loans and participations in such loans and preferred equity interests. We may from time to time take title to collateral in connection with a CRE debt investment as real estate owned, or REO, which would be included in our CRE debt business. To date through November 2016, we sold or received repayment for 15 debt investments and a REO with a total principal amount of $389 million and used $72 million of proceeds to pay down our loan facility in full, resulting in $313 million of net proceeds.
•
Commercial Real Estate Securities - Our CRE securities business is predominately comprised of N-Star CDO bonds and N-Star CDO equity of deconsolidated N-Star CDOs and includes other securities, mostly conduit commercial mortgage-backed securities, or CMBS, meaning each asset is a pool backed by a large number of commercial real estate loans. We also invest in opportunistic CRE securities such as an investment in a “B-piece” CMBS. In 2016, we sold certain CRE securities for $54 million of net proceeds.
We have the ability to invest in a broad spectrum of commercial real estate assets and seek to provide attractive risk-adjusted returns. Our ability to invest across the CRE market creates complementary and overlapping sources of investment opportunities based upon common reliance on real estate fundamentals and application of similar portfolio management skills to maximize value and to protect capital. Additionally, we have pursued opportunistic investments across all our business lines including CRE equity and debt investments. Examples of opportunistic investments have included PE Investments, strategic joint ventures and repurchasing our CDO bonds at a discount to their principal amount.
We have not been actively raising capital due to current market conditions and the pending merger with Colony and NSAM.
We predominantly use investment-level financing as part of our strategy to prudently leverage our investments and deliver attractive risk-adjusted returns to our stockholders. We pursue a variety of financing arrangements such as mortgage notes from the CMBS market, government-sponsored agencies, finance companies, banks and securitization financing transactions. In addition, we use corporate-level financing such as credit facilities and other term borrowings. We generally seek to limit our reliance on recourse borrowings. Borrowing levels for our CRE investments may be dependent upon the nature of the assets and the related financing that is available.
The availability of attractive long-term, non-recourse, non mark-to-market, assignable financing through the CMBS and agency financing markets bolstered opportunities to acquire real estate in the past few years. For longer duration, stable investment cash flow such as those derived from net lease assets, we tend to use fixed rate financing. For investment cash flow with greater growth potential such as hotels and healthcare under a RIDEA structure, we tend to use floating rate financing which provides prepayment flexibility and may provide a better match between underlying cash flow and potential increases in interest rates.
Our financing strategy for debt investments is to obtain match-funded borrowing at rates that provide a positive net spread. In late 2011, we began using secured term credit facilities provided by major financial institutions to partially finance CRE debt which currently provide for an aggregate of up to $200 million. Additionally, we have historically demonstrated the ability to securitize our CRE debt investments and expect to continue to pursue similar transactions to finance our newly-originated debt investments that might initially be financed on our credit facilities. In November 2012 and August 2013, we, and on behalf of NorthStar Real Estate Income Trust, Inc., or NorthStar Income, entered into securitization financing transactions with an aggregate $610 million of principal amount of bonds issued providing permanent, non-recourse, non-mark-to-market financing for newly-originated CRE debt investments of ours and NorthStar Income. We will continue to seek to use the capital markets to finance any new debt investments. In January 2015, Securitization 2012-1 with $228 million principal amount of original bonds issued was repaid in full.
With respect to corporate-level financing, in August 2014, we entered into a corporate revolving credit facility, or Corporate Revolver, with certain commercial bank lenders, with a total current commitment amount of $250 million for a three-year term. In September 2014, we entered into a corporate term borrowing with a commercial bank lender with respect to the establishment of term borrowings. In February 2016, our Corporate Revolver was repaid and we expect our remaining corporate recourse borrowings to be repaid from proceeds from sales initiatives. Refer to Liquidity and Capital Resources for further discussion.
We believe that we maintain a competitive advantage through a combination of deep industry relationships and access to market leading CRE credit underwriting and capital markets expertise which enables us to manage credit risk across our business lines as well as to structure and finance our assets efficiently. Our ability to invest across the spectrum of commercial real estate investments allows us to take advantage of complementary and overlapping sources of investment opportunities based on a common reliance on CRE fundamentals and application of similar underwriting and asset management skills as we seek to maximize stockholder value and to protect our capital. However, we are currently focused on exploring sales to generate liquidity.

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Our Investments
The following table presents our investments as of September 30, 2016 and pro forma for sales and commitments to sell through November 4, 2016 (refer to the below for further discussion) (dollars in thousands):
 
 
 
 
 
 
 
Pro Forma
 
 
Amount (1)
 
%
 
Amount
 
%
Real Estate
 
 
 
 
 
 
 
 
Healthcare (2)
 
$
5,762,657

 
30.5
%
 
$
4,878,741

(3)
30.4
%
Hotel
 
3,461,477

 
18.3
%
 
3,461,477

 
21.5
%
Manufactured housing communities (held for sale)
 
1,776,226

 
9.4
%
 
—

(4)
—
%
Net lease
 
344,745

 
1.8
%
 
314,612

(5)
2.0
%
Multifamily (held for sale)
 
242,463

 
1.3
%
 
93,050

(6)
0.6
%
Multi-tenant office
 
179,014

 
0.9
%
 
179,014

 
1.1
%
Subtotal
 
11,766,582

 
62.2
%
 
8,926,894

 
55.6
%
Private equity fund investments
 
487,832

 
2.6
%
 
487,832

 
3.0
%
Corporate investments (7)
 
114,719

 
0.6
%
 
114,719

 
0.7
%
Total real estate
 
12,369,133

 
65.4
%
 
9,529,445

 
59.3
%
CRE Debt
 
 
 
 
 
 
 
 
CRE debt
 
370,945

 
2.0
%
 
370,945

 
2.3
%
CRE debt of consolidated N-Star CDOs
 
33,773

 
0.2
%
 
33,773

 
0.2
%
Other
 
16,324

 
0.1
%
 
16,324

 
0.1
%
Total CRE debt
 
421,042

 
2.3
%
 
421,042

 
2.6
%
CRE Securities
 
 
 
 
 
 
 
 
N-Star CDO bonds (8)
 
511,068

 
2.7
%
 
511,068

 
3.2
%
N-Star CDO equity
 
61,391

 
0.3
%
 
61,391

 
0.4
%
Other securities
 
58,824

 
0.3
%
 
58,824

 
0.4
%
Total CRE securities
 
631,283

 
3.3
%
 
631,283

 
4.0
%
Subtotal
 
13,421,458

 
71.0
%
 
10,581,770

 
65.9
%
Assets underlying RXR Realty (9)
 
3,921,887

 
20.7
%
 
3,921,887

 
24.4
%
Assets underlying SteelWave (10)
 
968,994

 
5.1
%
 
968,994

 
6.0
%
Assets underlying deconsolidated CRE Debt CDOs (11)
 
594,844

 
3.2
%
 
594,844

 
3.7
%
Grand total
 
$
18,907,183

 
100.0
%
 
$
16,067,495

 
100.0
%
____________________________________________________________
(1)
Based on cost for real estate investments which includes net purchase price allocation related to net intangibles, deferred costs and other assets, if any, fair value for PE Investments and includes the deferred purchase price for PE Investment II, carrying value for our corporate investments, principal amount for our CRE debt and securities investments and amortized cost for N-Star CDO equity. Represents 100% of all real estate assets in consolidated joint ventures.
(2)
Includes $425 million of Sterling denominated real estate in the United Kingdom owned in connection with the acquisition of the Griffin-American Portfolio.
(3)
In September 2016, we entered into a definitive agreement to sell a portfolio of medical office buildings within the Griffin-American Portfolio for $838 million with $692 million of related mortgage financing expected to be paid off as part of the transaction. We expect to receive $115 million of net proceeds. We expect the transaction to close in the fourth quarter 2016. There is no assurance this transaction will close on the terms anticipated, if at all. In April 2016, a purchase option on one of our healthcare properties was exercised by the tenant.
(4)
In May 2016, we entered into an agreement to sell our manufactured housing portfolio for $2.0 billion with $1.3 billion of related mortgage financing expected to be assumed as part of the transaction. We expect to receive $615 million of net proceeds, including a $50 million deposit made by the buyer. We expect the transaction to close in the first quarter 2017. There is no assurance this transaction will close on the terms anticipated, if at all.
(5)
In the fourth quarter 2016, we expect to convey to the lender a net lease property.
(6)
To date through November 2016, we sold ten multifamily properties for $307 million with $210 million of mortgage financing assumed as part of the transaction. We received $85 million of net proceeds. We continue to explore the sale of the remaining two properties.
(7)
Represents our investments in RXR Realty LLC, or RXR Realty, Aerium Group, or Aerium, and SteelWave, LLC, or SteelWave.
(8)
Includes N-Star CDO bonds with a principal amount of $140 million related to CRE securities CDOs that are eliminated in consolidation.
(9)
Represents our proportionate interest in RXR Realty’s total assets under management, as of September 30, 2016, comprised of primarily Class-A real estate investments in the New York Tri-State area, less our corporate investment in RXR Realty.
(10)
Represents our proportionate interest in SteelWave’s total assets under management, as of December 31, 2015 , which is the most recent financial information available, less our corporate investment in SteelWave.
(11)
Represents assets of deconsolidated N-Star CDOs and is based on the respective remittance report issued on the date nearest to September 30, 2016 . This amount excludes $433 million of aggregate principal amount of N-Star CDO bonds and amortized cost of N-Star CDO equity of such deconsolidated N-Star CDOs included in CRE securities.
We have the ability to invest in a broad spectrum of commercial real estate assets and seek to provide attractive risk-adjusted returns to our stockholders. As a result, we pursue opportunistic investments across all our business lines including CRE equity and debt investments.
For financial information regarding our reportable segments, refer to Note 17. “Segment Reporting” in our accompanying consolidated financial statements included in Part I, Item 1. “Financial Statements.”

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Real Estate
Overview
As part of our real estate strategy, we explore a variety of real estate investments, both directly and through joint ventures. Opportunities to purchase real estate have been bolstered by attractive long-term, non-recourse, non mark-to-market financing available through CMBS and agency financing markets. Our portfolio is primarily comprised of healthcare, hotel, manufactured housing communities, net lease and multifamily properties. We also invest in other opportunistic real estate investments such as indirect interests in real estate through PE Investments. Our hotel and certain healthcare properties acquired operate through RIDEA structures where we participate directly in the operational cash flow of a property. Our real estate equity investments that operate under the RIDEA structure generate resident and hotel guest related income from short-term residential agreements and incur customary related operating expenses.
Recently, we sold or are pursuing the sale of certain real estate assets and are exploring other sales or joint ventures to further monetize certain of our real estate assets. There is no assurance we will enter into any transactions on favorable terms, or at all. Refer to the below for further discussion.
Our Portfolio
As of September 30, 2016 , $17.3 billion, or 91%, of our assets were invested directly in real estate properties, indirectly through our PE Investments, corporate interests and our proportionate interest in the assets under management of RXR Realty and SteelWave. The following table presents our direct investments in real estate properties as of September 30, 2016 (refer to the below for further discussion) (dollars in thousands):
Type
 
Number of Properties
 
Amount (1)
 
% of Portfolio
 
Capacity
 
Primary Locations
Healthcare
 
 
 
 
 
 
 
 
 
 
 
Medical office buildings (MOB) (2)
 
149
 
$
2,103,114

 
17.9
%
 
6.0 million

square feet
 
IN, TX, GA, CO, IL
Net lease
 
 
 
 
 
 
 
 
 
 
 
Skilled nursing facilities (SNF) (3)
 
107
 
1,340,578

 
11.4
%
 
12,550

beds
 
FL, PA, IL, IN, VA
Assisted living facilities (ALF)
 
82
 
875,913

 
7.4
%
 
4,300

units
 
UK, NC, OR, MN, IN
Hospital (HOS)
 
14
 
257,032

 
2.2
%
 
800

beds
 
CA, MO, TX
Senior housing-operating
 
 
 
 
 
 
 
 
 
 
 
Assisted living facilities - RIDEA (ALF-RIDEA)
 
109
 
1,186,020

 
10.1
%
 
6,300

units
 
IL, OR, OH, TX, MA, WA
Subtotal
 
461
 
5,762,657

 
49.0
%
 
 
 
 
 
Hotel
 
167
 
3,461,477

 
29.4
%
 
22,091

rooms
 
TX, FL, NJ, CA, VA
Manufactured housing communities (held for sale) (4)
 
135
 
1,776,226

 
15.1
%
 
32,256

pad sites
 
CO, UT, FL, TX, WY, NY
Net lease
 
 
 
 
 
 
 
 
 
 
 
Office (5)
 
12
 
280,505

 
2.4
%
 
1.9 million

square feet
 
CO, CA, UT
Retail
 
10
 
64,240

 
0.5
%
 
467,971

square feet
 
NH, MA, ME
Subtotal
 
22
 
344,745

 
2.9
%
 
 
 
 
 
Multifamily (held for sale) (5)(6)
 
7
 
242,463

 
2.1
%
 
3,036

units
 
TN, GA, FL
Multi-tenant office
 
13
 
179,014

 
1.5
%
 
1.0 million

square feet
 
CO, TX, CA
Total
 
805
 
$
11,766,582

 
100.0
%
 
 
 
 
 
___________________________________________________________
(1)
Represents cost, which includes net purchase price allocation of $582 million related to net intangibles. Additionally, includes $62 million of notes receivable and $238 million of escrows and other assets.
(2)
In September 2016, we entered into a definitive agreement to sell a portfolio of medical office buildings within the Griffin-American Portfolio for $838 million with $692 million of related mortgage financing expected to be paid off as part of the transaction. We expect to receive $115 million of net proceeds. We expect the transaction to close in the fourth quarter 2016. There is no assurance this transaction will close on the terms anticipated, if at all.
(3)
Includes three properties with a cost of $14 million owned pursuant to a RIDEA structure.
(4)
In May 2016, we entered into an agreement to sell our manufactured housing portfolio for $2.0 billion with $1.3 billion of related mortgage financing expected to be assumed as part of the transaction. We expect to receive $615 million of net proceeds. We expect the transaction to close in the first quarter 2017. There is no assurance this transaction will close on the terms anticipated, if at all.
(5)
Includes our interest in joint ventures that own a net lease property and multifamily property of $27 million and $39 million, respectively.
(6)
To date through November 2016, we sold ten multifamily properties for $307 million with $210 million of mortgage financing assumed as part of the transaction. We received $85 million of net proceeds. We continue to explore the sale of the remaining two properties.
Healthcare Properties
Our healthcare properties are comprised of a diverse portfolio of medical office buildings, senior housing, skilled nursing and other healthcare properties. The majority of our healthcare properties are medical office buildings and properties structured under a net lease to healthcare operators. In addition, we own senior operating facilities properties that operate through management agreements with independent third-party operators, predominantly through RIDEA structures that permit us, through a TRS, to have direct exposure to resident fee income and incur customary related operating expenses. In March 2016, we sold our 60% interest in the Senior Housing Portfolio for $535 million. The buyer assumed our portion of the $648 million of related mortgage

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financing and we received approximately $150 million of proceeds, net of sales costs. In September 2016, we entered into a definitive agreement to sell a portfolio of medical office buildings within the Griffin-American Portfolio for $838 million with $692 million of related mortgage financing expected to be paid off as part of the transaction. We expect to receive $115 million of net proceeds. We expect the transaction to close in the fourth quarter 2016. In November 2016, we entered into an agreement to sell an interest in our healthcare portfolio for net proceeds of approximately $340 million. There is no assurance these transactions will close on the terms anticipated, if at all.
As of September 30, 2016 , $5.8 billion , or 30.5% , of our assets were invested in healthcare properties. The following presents a summary of our healthcare portfolio and diversity across property type based on net cash flow:
 
 
 
Healthcare by Property Type
Total Healthcare Portfolio
$5.8 billion

 
HCPIECHART93016.JPG
Number of facilities
461

 
Number of units/beds (1)
23,950

 
 
 
 
Weighted average occupancy (2)
85
%
 
Weighted average lease coverage
1.7x

 
Weighted average lease term
8.5 years

 
 
 
 
Net cash flow related to:
 
 
Medical office buildings
28
%
 
Net lease
52
%
 
Senior operating facilities - RIDEA
20
%
 
___________________________________
(1)
Represents number of units for ALF property types and number of beds for SNF property types.
(2)
Represents weighted average occupancy for ALF, SNF, and hospital property types based on number of units/beds. Percentage excludes medical office buildings, which has a weighted average occupancy of 89%, based on square footage.
Hotel Portfolio
Our hotel portfolio is a geographically diverse portfolio primarily comprised of extended stay hotels and premium branded select service hotels primarily located in major metropolitan markets with the majority affiliated with top hotel brands. As of September 30, 2016 , $3.5 billion , or 18.3% , of our assets were invested in hotel properties.
The following presents a summary of our hotel portfolio and diversity across geographic location based on number of rooms:
 
 
 
Hotel by Geographic Location
Total Hotel Portfolio
$3.5 billion

HOTEL630.JPG
Number of hotels
167

Number of rooms
22,091

Weighted average occupancy (1)
78
%
 
 
Rooms by brand:
 
Marriott
75
%
Hilton
16
%
Starwood
4
%
Hyatt
4
%
 
Intercontinental
1
%
 
___________________
(1)
Represents weighted average occupancy for the third quarter 2016 based on number of rooms available.

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Manufactured Housing Communities
Our manufactured housing portfolio consists of communities that lease pad rental sites for placement of factory built homes located throughout the United States. The manufactured housing industry has traditionally demonstrated low cash flow volatility and steady annual rent increases, although there is no assurance that will continue to be the case. In May 2016, we entered into an agreement to sell our manufactured housing portfolio for $2.0 billion with $1.3 billion of related mortgage financing expected to be assumed as part of the transaction. We expect to receive $615 million of net proceeds. We expect the transaction to close in the first quarter 2017. There is no assurance this transaction will close on the terms anticipated, if at all.
As of September 30, 2016 , $1.8 billion , or 9.4% , of our assets were invested in manufactured housing communities. The following presents a summary of our manufactured housing communities portfolio and diversity across geographic location based on net cash flow:
 
 
 
Manufactured Housing Communities by Geographic Location
Total Manufactured Housing Portfolio
$1.8 billion

MHPIECHART93016A02.JPG
Number of communities
135

Number of pad rental sites
32,256

Number of manufactured homes
4,267

Number of states
13

Weighted average occupancy
86
%
 
 
Net cash flow related to:
 
Pad rental sites
92
%
Other
8
%
Net Lease Properties
Our real estate that is net leased to corporate tenants is primarily comprised office and retail properties. These net lease properties are typically leased to a single tenant who agrees to pay basic rent, plus all taxes, insurance, capital and operating expenses arising from the use of the leased property generally leaving us, as owner, with minimal ongoing operational or expense obligations. We may also invest in properties that are leased to tenants for which we are responsible for some of the operating expenses and capital costs. At the end of the lease term, the tenant typically has a right to renew the lease at market rates or to vacate the property with no further ongoing obligation.
As of September 30, 2016 , $345 million , or 1.8% , of our assets were invested in net lease properties, including one property owned through an unconsolidated joint venture. In September 2016, we redeemed our interests in our Industrial Portfolio for $170 million of net proceeds.
The following presents a summary of our net lease portfolio and diversity across geographic location based on number of properties:
 
 
 
Net Lease by Geographic Location
Total Net Lease Portfolio
$345 million

NNNGEOGRAPHY93016.JPG
Number of properties
22

Number of states
14

Total square feet (1)
2.2 million

Weighted average occupancy (1)
93
%
Weighted average lease term (1)
5.2 years

 
 
Net cash flow related to:
 
Industrial (2)
49
%
Office
36
%
Retail
15
%

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___________________________________
(1)
Excludes a net lease property that we expect to convey to the lender in the fourth quarter 2016.
(2)
In September 2016, we redeemed our interests in our Industrial Portfolio for $170 million of net proceeds.

Multifamily Properties
Our multifamily portfolio primarily focuses on properties located in suburban markets that we believe are well suited to capture the formation of new households. To date through November 2016, we sold ten multifamily properties for $307 million with $210 million of mortgage financing assumed as part of the transaction. We received $85 million of net proceeds. We continue to explore the sale of the remaining two properties.
As of September 30, 2016 , $242 million , or 1.3% , of our assets were invested in multifamily properties, including one property owned through an unconsolidated joint venture. The following presents a summary of our multifamily portfolio and diversity across geographic location based on net cash flow:
 
 
 
Multifamily by Geographic Location
Total Multifamily Portfolio
$242 million

MFGEOGRAPHY93016A02.JPG
Number of properties
7

Number of states
4

Number of units
3,036

 
 
Weighted average occupancy
95
%
Multi-tenant Office
We, through a joint venture with SteelWave, acquired multi-tenant office properties in the western United States. As of September 30, 2016 , $ 179 million , or 0.9% , of our assets were invested in multi-tenant office properties. The following presents a summary of our multi-tenant office portfolio and diversity across geographic location based on cost:
 
 
 
Multi-tenant Office by Geographic Location
Total Multi-tenant Office Portfolio
$179 million

MTOPIECHART93016A01.JPG
Number of properties
13

Number of states
3

Total square feet
1,021,400

 
 
Weighted average occupancy
85
%

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PE Investments
Our PE Investments own limited partnership interests in real estate private equity funds acquired in the secondary market and are managed by institutional-quality sponsors, which we refer to as fund interests. In February 2016, we sold substantially all of our interest in PE Investment II for proceeds of $184 million. In September 2016, we sold a portfolio of PE Investments for a gross sales price of $318 million with $45 million of deferred purchase price assumed as part of the transaction, including $6 million of deferred purchase price which was the obligation of an unconsolidated joint venture. We received $34 million of net proceeds and will receive the remaining $205 million of net proceeds in the fourth quarter 2016. As of September 30, 2016 , $488 million , or 2.6% , of our assets were invested in PE Investments through unconsolidated ventures or direct investments. The following tables present a summary of our PE Investments (dollars in millions):
 
 
 
 
 
 
 
 
 
 
Underlying Fund Interests
PE Investment (1)
 
Initial Closing Date
 
Amount
 
Number of Funds
 
Number of General Partners
 
Assets, at Cost
 
Implied Leverage (3)
PE Investment I (4)
 
February 15, 2013
 
$
98.5

 
45
 
26
 
$
14,100

 
42.5
%
PE Investment II (5)
 
July 3, 2013
 
5.5

 
24
 
15
 
17,500

 
35.7
%
PE Investment III
 
December 31, 2013
 
27.4

 
8
 
4
 
2,000

 
45.4
%
PE Investment IV
 
May 30, 2014
 
2.3

 
1
 
1
 
600

 
43.0
%
PE Investment V
 
July 1, 2014
 
5.6

 
3
 
1
 
300

 
50.2
%
PE Investment VI
 
July 30, 2014
 
49.5

 
14
 
10
 
3,300

 
51.7
%
PE Investment VII
 
August 15, 2014
 
22.6

 
9
 
8
 
200

 
50.4
%
PE Investment IX
 
October 2, 2014
 
43.3

 
6
 
6
 
3,000

 
8.0
%
PE Investment X
 
December 4, 2014
 
49.4

 
8
 
4
 
1,300

 
59.0
%
PE Investment XII
 
May 5, 2015
 
2.2

 
1
 
1
 
700

 
28.1
%
PE Investment XIII
 
May 22, 2015
 
178.1

 
5
 
3
 
900

 
49.4
%
PE Investment XIV
 
September 9, 2015
 
3.4

 
2
 
2
 
700

 
86.6
%
Total (2)
 
 
 
$
487.8

 
126
(6)  
81
(6)  
$
44,600

 
 
____________________________________________________________
(1)
Based on financial data reported by the underlying funds as of June 30, 2016, which is the most recent financial information from the underlying funds, except as otherwise noted.
(2)
As of September 30, 2016, our expected future contributions to funds is $2 million with $6 million of remaining deferred purchase price. The actual amount of future contributions underlying the fund interests that may be called and funded by us could vary materially from our expectations.
(3)
Represents implied leverage for funds with investment-level financing, calculated as the underlying borrowing divided by assets at fair value.
(4)
We, together with NorthStar Income, have an ownership interest in PE Investment I of 51%, of which we own 70.5% and NorthStar Income owns 29.5%.
(5)
In February 2016, we sold substantially all of our interest in PE Investment II for proceeds of $184 million. In connection with the sale, the buyers assumed substantially all of our $243 million portion of the deferred purchase price obligation of the joint venture. Amount above includes our remaining deferred purchase price obligation of $2.9 million.
(6)
Includes 12 funds and 16 general partners held across multiple PE Investments.

 
 
Our Proportionate Share of PE Investments
 
 
September 30, 2016
 
 
Three Months Ended
 
Nine Months Ended
 
Inception to Date (2)
Income (1)
 
$
18.0

 
$
79.2

 
$
493.9

Return of capital
 
35.7

 
107.8

 
916.6

Total distributions (3)
 
53.7

 
187.0

 
1,410.5

Contributions
 
1.4

 
3.9

 
109.7

Net
 
$
52.3

 
$
183.1

 
$
1,300.8

__________________________________________________
(1)
Recorded in equity in earnings in the consolidated statements of operations.
(2)
Represents activity from the respective initial closing date through September 30, 2016 .
(3)
Excludes proceeds of $218 million in connection with the sales of PE Investments.

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The following presents the underlying fund interests in our PE Investments by investment type and geographic location based on NAV as of June 30, 2016:
PE Investments by Underlying Investment Type (1)
 
PE Investments by Underlying Geographic Location (1)
PEPROPERTYTYPE3Q16.JPG
 
PEGEOGRAPHY3Q16.JPG
____________________________________________________________
(1)
Based on individual fund financial statements.
Corporate Investments
RXR Realty
In December 2013, we entered into a strategic transaction with RXR Realty, a leading real estate owner, developer and investment management company focused on Class-A real estate investments in the New York Tri-State area. The investment includes an approximate 27% equity interest in RXR Realty, which represented a carrying value of $101 million as of September 30, 2016 . As of September 30, 2016, our proportionate interest in RXR Realty’s assets under management totals $3.9 billion .
SteelWave
In September 2014, we entered into a debt and equity investment with SteelWave, comprised of a 40% interest in the common equity of certain entities affiliated with SteelWave. SteelWave is a leading real estate investment manager, owner and operator with a portfolio of commercial assets focused in key markets in the western United States. The investment in SteelWave represented a carrying value of $9 million as of September 30, 2016 . As of December 31, 2015 , which is the most recent financial information available, our proportionate interest in SteelWave’s assets under management totals $969 million .
Commercial Real Estate Debt
Overview
Our CRE debt investment strategy is focused on originating, acquiring and asset managing CRE debt investments, including first mortgage loans, subordinate mortgage and mezzanine loans and participations in such loans and preferred equity interests.
We emphasize direct origination of our debt investments as this allows us a greater degree of control over how they are underwritten and structured and it provides us the opportunity to syndicate senior or subordinate interests in the loan to maximize returns, if desired. Further, it facilitates a more direct relationship with our borrowers which helps us maintain a robust pipeline, provides an opportunity for us to earn origination and other fees and offers us an important advantage when considering any potential future modifications or restructurings.
The supply/demand imbalance driven by the large amount of maturing CRE loans could create an opportunity for us. Even with some increased supply by lenders, demand for debt financing is allowing investors with capital and real estate expertise, such as us, the opportunity to make investments with attractive risk/return profiles. We are currently focused on monetizing many of our CRE debt investments through sales or accelerated repayments.
We believe we have built a franchise with a reputation for providing capital to high-quality real estate owners who want a responsive and flexible balance sheet lender. Given that we are a lender who generally retains control of the loans we originate, we are able to maintain flexibility in how we structure loans to meet the needs of our borrowers. Typical CMBS and other capital markets driven lenders generally cannot provide these types of loans due to constraints within their funding structures and because of their requirement to sell the entire loan to third parties and relinquish all control. Even when we finance our investments through securitizations, we maintain a significant capital investment in our loans. Our centralized investment organization has enabled senior management to review potential new loans early in the origination process which, unlike many large institutional lenders

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with several levels of approval required to commit to a loan, allows us to respond quickly and provide a high degree of certainty to our borrowers that we would close a loan on terms substantially similar to those initially proposed. We believe that this level of service has enhanced our reputation in the marketplace. In addition, we believe the early and active role of senior management in our portfolio management process has been key to maximizing recoveries of invested capital from our investments and our ability to be responsive to changing market conditions.
Our Portfolio
As of September 30, 2016 , $371 million , or 2.0% , of assets were invested in CRE debt, excluding CRE debt financed in consolidated N-Star CDOs, consisting of 20 loans with an average investment size of $19 million and weighted average extended maturity of 5.5 years. We directly originated approximately 91% of our current portfolio of CRE debt investments (excluding debt investments acquired in connection with Griffin-American). The following table presents a summary of our CRE debt investments as of September 30, 2016 (dollars in thousands):
 
 
 
 
 
 
 
 
 
 
Weighted Average
 
Floating Rate
as % of
Principal Amount (2)
 
Number
 
Principal
Amount
 
Carrying
Value
 
Allocation by
Investment
Type (2)
 
Fixed
Rate
 
Spread
Over
LIBOR (3)
 
Yield
 
Asset Type:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
First mortgage loans
6

 
 
$
145,034

 
$
117,927

 
39.1
%
 
6.98
%
 
8.47
%
 
4.66
%
 
42.7
%
Mezzanine loans
6

 
 
22,566

 
16,940

 
6.1
%
 
9.10
%
 
3.57
%
 
7.86
%
 
49.6
%
Subordinate interests
4

 
 
167,598

 
166,466

 
45.2
%
 
11.83
%
 
11.99
%
 
8.22
%
 
59.4
%
Corporate loans
4

 
 
35,747

 
31,154

 
9.6
%
 
12.92
%
 
—

 
14.82
%
 
—

Total/Weighted average (1)(4)
20

 
 
$
370,945

 
$
332,487

 
100.0
%
 
11.90
%
 
13.85
%
 
7.56
%
 
46.6
%
____________________________________________________________
(1)
Excludes amounts underlying our N-Star CDOs.
(2)
Based on principal amount.
(3)
Based on initial maturity and for floating-rate debt, calculated using one -month LIBOR as of September 30, 2016 and for CRE debt with a LIBOR floor greater than LIBOR, using such floor.
(4)
Assuming that all loans that have future fundings meet the terms to qualify for such funding, our cash requirement on future fundings would be $7.9 million .
The following presents our $371 million CRE debt portfolio’s diversity across property type and geographic location based on principal amount.
Debt Investments by Property Type
 
Debt Investments by Geographic Location
CREDPIECHARTPROP93016.JPG
 
CREDPIECHARTGEOG93016A02.JPG

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Commercial Real Estate Securities
We historically originated or acquired CRE debt and securities investments that were predominately financed through permanent, non-recourse CDOs. We sponsored nine CDOs, three of which were primarily collateralized by CRE debt and six of which were primarily collateralized by CRE securities. In addition, we acquired the equity interests of two CRE debt focused CDOs, CSE RE 2006-A CDO, or CSE CDO, and CapLease 2005-1 CDO, or CapLease CDO. At the time of issuance of the N-Star CDOs, we retained the below investment grade bonds, which are referred to as subordinate bonds, and preferred shares and equity notes, which are referred to as equity interests. In addition, since the initial issuance of the N-Star CDOs, we repurchased CDO bonds originally issued to third parties at discounts to par. These repurchased CDO bonds and retained subordinate bonds are herein collectively referred to as N-Star CDO bonds. We own the equity interests in all of our N-Star CDO financing transactions whether or not we consolidate these transactions on our balance sheet. Substantially all of our N-Star CDO equity is invested in our CRE debt CDOs. In fact, our CRE debt CDOs have distributed regular cash flow since their inception. We do not, however, own undivided interests in any of the assets within our N-Star CDOs and all senior and junior bondholders of the CDOs have economic interests that are senior to our equity interests. In September 2015, N-Star CDO IV was liquidated and the third-party senior bondholders of N-Star CDO IV were repaid in full.
We historically consolidated these CDO financing transactions under accounting principles generally accepted in the United States, or U.S. GAAP. Our legacy CDO business is winding down, resulting in liquidation and deconsolidation of certain of our N-Star CDOs. Repurchased N-Star CDO bonds that are consolidated are not presented as an investment but rather are eliminated in our consolidated financial statements and, as a result, the interest and realization of any discount will generally not be recorded as income in our consolidated statements of operations under U.S. GAAP. All of our CRE debt CDOs were deconsolidated in 2013 and currently only N-Star securities CDOs I and IX continue to be consolidated. All N-Star CDOs are past their reinvestment period and given the nature of these transactions, these CDOs are amortizing over time as the underlying assets pay down or are sold.
Our CRE securities portfolio is predominately comprised of N-Star CDO bonds and N-Star CDO equity of our deconsolidated N-Star CDOs and includes other securities, mostly conduit CMBS, meaning each asset is a pool backed by a large number of commercial real estate loans. We have also invested in opportunistic CRE securities such as an investment in a “B-piece” CMBS. More recently, we are pursuing the sale of certain of our CRE securities. In 2016, we sold five CRE securities for $54 million of net proceeds.
The following table presents our interest in the N-Star CDOs as of September 30, 2016 (dollars in thousands):
 
Number
 
Amount (1)
N-Star CDO bonds (2)(3)
 
 
 
AAA
2
 
$
108,900

AA through BBB
18
 
241,723

Below investment grade
10
 
160,445

 
30
 
511,068

N-Star CDO equity (4)
4
 
61,391

Total
34
 
$
572,459

_______________________________________________________
(1)
Based on principal amount for N-Star CDO bonds and amortized cost for N-Star CDO equity.
(2)
Based on original credit rating. Includes N-Star CDO bonds with a principal amount of $140 million related to our securities CDOs that are eliminated in consolidation.
(3)
Unencumbered N-Star CDO bonds are owned by us, of which $377 million of principal amount were repurchased at a discount to par at a weighted average original credit rating of A / A2 and a weighted average purchase price of 37%.
(4)
Represents our equity interests in the deconsolidated CRE debt N-Star CDOs.


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The following table presents a summary of our deconsolidated N-Star CRE debt CDOs as of September 30, 2016 (dollars in thousands):
Issue/Acquisition Date
N-Star VI
Mar-06
 
N-Star VIII
Dec-06
 
CapLease
Aug-11
 
CSE
Jul-10
 
Total
Balance sheet as of September 30, 2016 (1)
 
 
 
 
 
 
 
 
 
Assets, principal amount
$
184,502

 
$
540,507

 
$
116,427

 
$
418,309

 
$
1,259,745

CDO bonds, principal amount (2)
127,493

 
383,571

 
99,627

 
339,563

 
950,254

Net assets
$
57,009

 
$
156,936

 
$
16,800

 
$
78,746

 
$
309,491

 
 
 
 
 
 
 
 
 
 
CDO quarterly cash distributions and coverage tests (3)
 
 
 
 
 
 
 
 
 
Equity notes and subordinate bonds
$
—

 
$
2,176

 
$
516

 
$
844

 
$
3,536

Collateral management and other fees (4)
74

 
528

 
57

 
183

 
842

Interest coverage cushion at September 30, 2016 (IC) (1)
(168
)
 
1,321

 
420

 
1,012

 
 
Overcollateralization cushion (OC)
 
 
 
 
 
 
 
 
 
At September 30, 2016 (1)
34,062

 
146,092

 
10,014

 
1,900

 
 
At offering
17,412

 
42,193

 
5,987

(5)  
(151,595
)
(6)  
 
____________________________________________________________
(1)
Based on remittance report issued on date nearest to September 30, 2016 .
(2)
Includes all outstanding CDO bonds payable to third parties and all CDO bonds owned by us.
(3)
IC and OC coverage to the most constrained class.
(4)
Based on cash receipts.
(5)
Based on trustee report as of August 31, 2011, closest to the date of acquisition.
(6)
Based on trustee report as of June 24, 2010, closest to the date of acquisition.
The following presents the diversity across property type and geographic location of the CRE debt in our deconsolidated N-Star CDOs, based on principal amount, as of September 30, 2016 :
Assets of N-Star Debt CDOs by Property Type
 
Assets of N-Star Debt CDOs by Geographic Location
CDOBYPROPTYPE09302016.JPG
 
CDOBYGEOGRAPHY09302016.JPG
Sources of Operating Revenues and Cash Flows
We primarily generate revenue from rental and other operating income from our real estate properties and net interest income on our CRE debt and securities portfolios. Additionally, we record equity in earnings of unconsolidated ventures, including from PE Investments. Our income is primarily derived through the difference between revenue and the cost at which we are able to finance our investments. We may also acquire investments which generate attractive returns without any leverage.
Operations of our hotel portfolio are affected by seasonal patterns resulting from overall economic cycles, geographic locations, weather and customer mix at the hotels. Generally, we expect our hotel portfolio to have higher revenue, operating income and cash flow in the second and third quarters of each year and lower revenue, operating income and cash flow in the first and fourth quarters of each year.
Profitability and Performance Metrics
We calculate cash available for distribution, or CAD, and net operating income, or NOI, as metrics to evaluate the profitability and performance of our business (refer to “Non-GAAP Financial Measures” for a description of these metrics).
Outlook and Recent Trends
The U.S. economy demonstrated improvement in 2015, which prompted the Federal Reserve in December 2015 to raise the Federal Funds Rate for the first time in nine years. The U.S. economy has continued to show strength throughout 2016 with approximately

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5% unemployment and positive trends in the housing market. Despite this, concerns still remain regarding low inflation in the United States, a stronger U.S. dollar, oil price instability, slow U.S. GDP and global growth, the U.S. Presidential election and increasing international market volatility. Many other global central banks have been easing monetary policy to combat low inflation and stagnant growth and the Federal Reserve is signaling that it may further adjust the Federal Funds Rate in 2016, especially in light of certain global events described below.
Our business and operations are dependent on the commercial real estate industry generally, which in turn is dependent upon broad economic conditions in the United States, Europe, China and elsewhere. Recently, concerns over the U.S. mortgage market and sustainability of continued growth in the real estate market in the United States have contributed to increased domestic economic uncertainty and the potential for a recessionary environment.
In June 2016, a non-binding referendum was passed in the United Kingdom supporting the exit from the European Union which in turn resulted in considerable instability to global markets and currencies especially European markets, the U.K.’s economy and the British Pound Sterling which has continued to devalue. In addition, dramatic political change in the United Kingdom has resulted including the election of a new Prime Minister in July 2016. Much uncertainty remains as to the process for a potential March 2017 start to “Brexit” and the long-term impacts to the global, European and British economies. Sovereign banks have been actively easing monetary policy resulting in sustained low-to-negative, interest rate environments, while several key global economies, including England, Germany and Japan, have recently reached positive interest rate territory in the benchmark 10-year paper. The Bank of England and other central banks remain poised for further monetary and financial policy action should the U.K.’s economy enter a downturn or as a tool to encourage positive economic growth. Despite the unexpected result of the referendum, markets have generally continued to function properly and in some cases recovered from the initial shock (e.g., U.S. equity markets). The potential for ongoing volatility and uncertainty resulting from “Brexit” and other geopolitical or financial unrest may have a significant impact on the overall global economic environment.
CRE fundamentals remain relatively healthy across U.S. property types. Investor demand in 2015 for commercial real estate increased transaction activity and prices as rent and vacancy fundamentals improved across most property sectors. Private capital investment remained aggressive throughout 2015 and, although public markets slowed at the beginning of 2016, continued to remain aggressive throughout 2016, leading to continued appreciation in real estate values. However, property price appreciation has slowed and there is speculation that certain markets may be entering the late stage of the current real estate cycle and, in some markets, rent growth and capitalization rate compression has started to slow. One of the factors that may contribute to periodic volatility in the commercial real estate market is the large amount of maturing commercial real estate debt that may have difficulties being refinanced.
Approximately $1.4 trillion of commercial real estate debt in the United States is scheduled to mature through 2018. While there appears to be a supply of available liquidity to satisfy many of these maturities, 2016 private-label CMBS year-to-date is 43% compared to the same period in 2015 and industry experts estimate a projected total origination volume of approximately $65 billion for 2016 versus volume of $95 billion in 2015. Despite non-traditional lenders significantly increasing loan origination volumes, this trend is potentially one symptom that could point to broader difficulties in the ability of the market to refinance the large amount of maturing real estate debt and may lead to a negative impact on the overall real estate market.
The recent volatility in the equity market has and may continue to diminish our capital raising activity. A return to weak economic conditions in the future, such as those of the credit crisis of 2008, could reduce a tenant’s/operator’s/resident’s/guest’s ability to make payments in accordance with the contractual terms and could weaken demand for companies to lease or occupy new space. To the extent that market rental and occupancy rates weaken, property-level cash flow could be negatively affected, and therefore, reduce our ability to make distributions to stockholders.
Our Strategy
Our primary business objectives are to invest in commercial real estate property and other real estate assets that we expect will generate attractive risk-adjusted returns and in turn will generate stable cash flow for distribution to our stockholders. Until recently, our investment activity and uses of available cash liquidity was focused on acquiring real estate, originating or acquiring loans, as well as pursuing opportunistic CRE investments across our businesses. Opportunistic investments have included investing in real estate private equity funds, strategic joint ventures and repurchasing our N-Star CDO bonds at discounts to par.
Availability and cost of capital impacts our profitability and earnings since we would be required to raise new capital to fund a majority of this growth. Given recent market conditions, we are currently focused on exploring sales to generate liquidity to reduce our corporate recourse borrowings and prudently manage our portfolio so it is well positioned.
We have not been actively raising capital due to current market conditions and the pending merger with Colony and NSAM. Further, we have access to other forms of corporate-level financing. In August 2014, we entered into a Corporate Revolver with certain commercial bank lenders, with a total current commitment amount of $250 million for a three-year term, subject to certain conditions. In September 2014, we entered into a corporate term borrowing with a commercial bank lender. In February 2016,

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our Corporate Revolver was repaid and we expect our remaining corporate recourse borrowings to be repaid from proceeds from sales initiatives.
In addition, we have a loan facility of $200 million to finance the origination of CRE first mortgage loans. In April 2016, our loan facility was repaid. Additionally, we have historically demonstrated the ability to securitize our CRE debt investments and expect to continue to pursue similar transactions to finance our newly-originated debt investments that might initially be financed on our credit facilities. In November 2012 and August 2013, we, and on behalf of NorthStar Income, entered into securitization financing transactions with an aggregate $610 million of principal amount of bonds issued to finance debt investments on a permanent, non-recourse, non-mark-to-market basis that were previously financed on credit facilities. In January 2015, Securitization 2012-1 with $228 million principal amount of original bonds issued was repaid in full.
Financing Strategy
We seek to access a wide range of secured and unsecured debt and public and private equity capital sources to fund our investment activities and asset growth.
We predominantly use investment-level financing as part of our strategy to prudently leverage our investments and deliver attractive risk-adjusted returns to our stockholders. We pursue a variety of financing arrangements such as mortgage notes from the CMBS market, government-sponsored agencies, finance companies, banks and securitization financing transactions. In addition, we use corporate-level financing such as credit facilities and other term borrowings. We generally seek to limit our reliance on recourse borrowings. Borrowing levels for our CRE investments may be dependent upon the nature of the assets and the related financing that is available.
The availability of attractive long-term, non-recourse, non mark-to-market assignable financing through the CMBS and agency financing markets bolstered opportunities to acquire real estate in the past few years. For longer duration, stable investment cash flow such as those derived from net lease assets, we tend to use fixed rate financing. For investment cash flow with greater growth potential such as hotels and healthcare under a RIDEA structure, we tend to use floating rate financing which provides prepayment flexibility and may provide a better match between underlying cash flow and potential increases in interest rates.
Our financing strategy for debt investments is to obtain match-funded borrowing at rates that provide a positive net spread. In late 2011, we began using secured term credit facilities provided by major financial institutions to partially finance CRE debt, which currently provide for up to $200 million. Additionally, we have historically demonstrated the ability to securitize our CRE debt investments and expect to continue to pursue similar transactions to finance our newly-originated debt investments that might initially be financed on our credit facilities. In November 2012 and August 2013, we, and on behalf of NorthStar Income, entered into securitized financing transactions (Securitization 2012-1 and Securitization 2013-1) with an aggregate $610 million of principal amount of bonds issued providing permanent, non-recourse, non-mark-to-market financing for newly-originated CRE debt investments of ours and NorthStar Income. In January 2015, Securitization 2012-1 with $228 million principal amount of original bonds issued was repaid in full. We will continue to seek to use the capital markets to finance any new debt investments. In April 2016, our loan facility was repaid.
With respect to corporate-level financing, in August 2014, we entered into a Corporate Revolver with certain commercial bank lenders, with a total current commitment of $250 million. In September 2014, we entered into a corporate term borrowing with a commercial bank lender with respect to the establishment of term borrowings. However, given recent market conditions, we are currently focused on exploring sales to generate liquidity. In February 2016, our Corporate Revolver was repaid and we expect our remaining corporate recourse borrowings to be repaid from proceeds from sales initiatives. Refer to Liquidity and Capital Resources for further discussion.
Historically, we used CDOs to finance CRE debt and securities investments. Our legacy CDO business is winding down as we invest in a broader, more diverse range of CRE assets. As a result, such legacy business is a significantly smaller portion of our business today than in the past.
Portfolio Management
NSAM performs portfolio management services on our behalf. The comprehensive portfolio management process that generally includes day-to-day oversight by the portfolio management and servicing team, regular management meetings and an exhaustive quarterly credit review process. These processes are designed to enable management to evaluate and proactively identify asset-specific credit issues and trends on a portfolio-wide basis. Nevertheless, we cannot be certain that such review will identify all issues within our portfolio due to, among other things, adverse economic conditions or events adversely affecting specific assets; therefore, potential future losses may also stem from investments that are not identified during these credit reviews. NSAM uses many methods to actively manage our credit risk to preserve our income and capital, which includes our ability to manage our assets in a manner that minimizes credit losses that could decrease income and portfolio value. For CRE equity and debt investments, frequent re-underwriting and dialogue with borrowers/tenants/operators/partners and regular inspections of our collateral and owned properties have proven to be an effective process for identifying issues early. With respect to our healthcare properties, we consider the impact of regulatory changes on operator performance and property values. During the quarterly credit review,

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or more frequently as necessary, investments are put on highly-monitored status and identified for possible asset impairment/loan loss reserves, as appropriate, based upon several factors, including missed or late contractual payments, significant declines in collateral performance and other data which may indicate a potential issue in our ability to recover our invested capital from an investment. The portfolio management process related to CRE debt and securities underlying our deconsolidated CDOs is limited to monitoring the CDO bonds and equity interests in such CDO financing transactions.
Critical Accounting Policies
Principles of Consolidation
Our consolidated financial statements include the accounts of NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership, or our Operating Partnership, and their consolidated subsidiaries. We consolidate variable interest entities, or VIEs, where we are the primary beneficiary and voting interest entities which are generally majority owned or otherwise controlled by us. All significant intercompany balances are eliminated in consolidation.
Variable Interest Entities
A VIE is an entity that lacks one or more of the characteristics of a voting interest entity. A VIE is defined as an entity in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The determination of whether an entity is a VIE includes both a qualitative and quantitative analysis. We base the qualitative analysis on our review of the design of the entity, its organizational structure including decision-making ability and relevant financial agreements and the quantitative analysis on the forecasted cash flow of the entity. We reassess the initial evaluation of an entity as a VIE upon the occurrence of certain reconsideration events.
A VIE must be consolidated only by its primary beneficiary, which is defined as the party who, along with its affiliates and agents has both the: (i) power to direct the activities that most significantly impact the VIE’s economic performance; and (ii) obligation to absorb the losses of the VIE or the right to receive the benefits from the VIE, which could be significant to the VIE. We determine whether we are the primary beneficiary of a VIE by considering qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of its investment; the obligation or likelihood for us or other interests to provide financial support; consideration of the VIE’s purpose and design, including the risks the VIE was designed to create and pass through to its variable interest holders and the similarity with and significance to our business activities and the other interests. We reassess the determination of whether we are the primary beneficiary of a VIE each reporting period. Significant judgments related to these determinations include estimates about the current and future fair value and performance of investments held by these VIEs and general market conditions.
We evaluate our CRE debt and securities, investments in unconsolidated ventures and securitization financing transactions, such as our CDOs and our liabilities to subsidiary trusts issuing preferred securities to determine whether they are a VIE. We analyze new investments and financings, as well as reconsideration events for existing investments and financings, which vary depending on type of investment or financing.
Voting Interest Entities
A voting interest entity is an entity in which the total equity investment at risk is sufficient to enable it to finance its activities independently and the equity holders have the power to direct the activities of the entity that most significantly impact its economic performance, the obligation to absorb the losses of the entity and the right to receive the residual returns of the entity. The usual condition for a controlling financial interest in a voting interest entity is ownership of a majority voting interest. If we have a majority voting interest in a voting interest entity, the entity will generally be consolidated. We do not consolidate a voting interest entity if there are substantive participating rights by other parties and/or kick-out rights by a single party or through a simple majority vote.
We perform on-going reassessments of whether entities previously evaluated under the voting interest framework have become VIEs, based on certain events, and therefore subject to the VIE consolidation framework.
Investments in Unconsolidated Ventures
A non-controlling, unconsolidated ownership interest in an entity may be accounted for using the equity method, at fair value or the cost method.
Under the equity method, the investment is adjusted each period for capital contributions and distributions and its share of the entity’s net income (loss). Capital contributions, distributions and net income (loss) of such entities are recorded in accordance with the terms of the governing documents. An allocation of net income (loss) may differ from the stated ownership percentage interest in such entity as a result of a preferred return and allocation formula, if any, as described in such governing documents.
We may account for an investment in an unconsolidated entity at fair value by electing the fair value option. We elected the fair value option for PE Investments and certain investments in unconsolidated ventures. PE Investments are recorded as investments

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in private equity funds, at fair value. We record the change in fair value for our share of the projected future cash flow of such investments from one period to another in equity in earnings (losses) from unconsolidated ventures in the consolidated statements of operations. Any change in fair value attributed to market related assumptions is considered unrealized gain (loss).
We may account for an investment that does not qualify for equity method accounting or for which the fair value option was not elected using the cost method if we determine the investment in the unconsolidated entity is insignificant. Under the cost method, equity in earnings is recorded as dividends are received to the extent they are not considered a return of capital, which is recorded as a reduction of cost of the investment.
Fair Value Option
The fair value option provides an election that allows a company to irrevocably elect to record certain financial assets and liabilities at fair value on an instrument-by-instrument basis at initial recognition. We may elect to apply the fair value option for certain investments due to the nature of the instrument. Any change in fair value for assets and liabilities for which the election is made is recognized in earnings.
Operating Real Estate
Operating real estate is carried at historical cost less accumulated depreciation. Ordinary repairs and maintenance are expensed as incurred. Major replacements and improvements which improve or extend the life of the asset are capitalized and depreciated over their useful life. Operating real estate is depreciated using the straight-line method over the estimated useful lives of the assets.
We account for purchases of operating real estate that qualify as business combinations using the acquisition method, where the purchase price is allocated to tangible assets such as land, building, tenant and land improvements and other identified intangibles, such as goodwill. Costs directly related to an acquisition deemed to be a business combination are expensed and included in transaction costs in our consolidated statements of operations. We evaluate whether REO constitutes a business and whether business combination accounting is appropriate. Any excess upon taking title to collateral between the carrying value of a loan over the estimated fair value of the property is charged to provision for loan losses.
Operating real estate, including REO, which has met the criteria to be classified as held for sale, is separately presented on the consolidated balance sheets. Such operating real estate is recorded at the lower of its carrying value or its estimated fair value less the cost to sell. Once a property is determined to be held for sale, depreciation is no longer recorded. We record a gain (loss) on sale of real estate when title is conveyed to the buyer and we have no substantial economic involvement with the property. If the sales criteria for the full accrual method are not met, we defer some or all of the gain (loss) recognition by applying the finance, leasing, profit sharing, deposit, installment or cost recovery method, as appropriate, until the sales criteria are met.
Real Estate Debt Investments
CRE debt investments are generally intended to be held to maturity and, accordingly, are carried at cost, net of unamortized loan fees, premium and discount. CRE debt investments that are deemed to be impaired are carried at amortized cost less a loan loss reserve, if deemed appropriate, which approximates fair value. CRE debt investments where we do not have the intent to hold the loan for the foreseeable future or until its expected payoff are classified as held for sale and recorded at the lower of cost or estimated value.
We may syndicate a portion of the CRE debt investments that we originate or sell the CRE debt investments individually. When a transaction meets the criteria for sale accounting, we will derecognize the CRE debt investment sold and recognize gain or loss based on the difference between the sales price and the carrying value of the CRE debt investment sold. Any related unamortized deferred origination fee, original issue discount, loan origination costs, discount or premium at the time of sale are recognized as an adjustment to the gain (loss) on sale, which is included in interest income on the consolidated statement of operations. Any fees received at the time of sale or syndication are recognized as part of interest income.
Real Estate Securities
We classify our CRE securities investments as available for sale on the acquisition date, which are carried at fair value. We have historically elected to apply the fair value option for our CRE securities investments. For those CRE securities for which the fair value option was elected, any unrealized gains (losses) from the change in fair value is recorded in unrealized gains (losses) on investments and other in the consolidated statements of operations.
We may decide to not elect the fair value option for certain CRE securities due to the nature of the particular instrument. For those CRE securities for which the fair value option was not elected, any unrealized gain (loss) from the change in fair value is recorded as a component of accumulated other comprehensive income, or OCI, in the consolidated statements of equity, to the extent impairment losses are considered temporary.

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Deferred Costs
Deferred costs primarily include deferred financing costs and deferred lease costs. Deferred financing costs represent commitment fees, legal and other third-party costs associated with obtaining financing. Costs related to revolving credit facilities are recorded in other assets and are amortized to interest expense using the straight-line basis over the term of the facility. Costs related to other borrowings are recorded net against the carrying value of such borrowings and are amortized to interest expense using the effective interest method. Unamortized deferred financing costs are expensed when the associated facility is repaid before maturity. Costs incurred in seeking financing transactions, which do not close, are expensed in the period in which it is determined that the financing will not occur. Deferred lease costs consist of fees incurred to initiate and renew operating leases, which are amortized on a straight-line basis over the remaining lease term and are recorded to depreciation and amortization in the consolidated statements of operations.
Intangible Assets and Intangible Liabilities
We record acquired identified intangibles, which includes intangible assets (such as value of the above-market leases, in-place leases, below-market ground leases, goodwill and other intangibles) and intangible liabilities (such as the value of below-market leases), based on estimated fair value. The value allocated to the identified intangibles are amortized over the remaining lease term. Above/below-market leases are amortized into rental income, below-market ground leases are amortized into real estate properties-operating expense and in-place leases are amortized into depreciation and amortization expense.
Goodwill represents the excess of the purchase price over the fair value of net tangible and intangible assets acquired in a business combination and is not amortized. We analyze goodwill for impairment on an annual basis and whenever events or changes in circumstances indicate that the carrying value of goodwill may not be fully recoverable. We first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit, related to such goodwill, is less than the carrying amount as a basis to determine whether the two-step impairment test is necessary. The first step in the impairment test compares the fair value of the reporting unit with its carrying amount. If the carrying amount exceeds fair value, the second step is required to determine the amount of the impairment loss, if any, by comparing the implied fair value of the reporting unit goodwill with the carrying amount of such goodwill. The implied fair value of goodwill is derived by performing a hypothetical purchase price allocation for the reporting unit as of the measurement date, allocating the reporting unit’s estimated fair value to its net assets and identifiable intangible assets. The residual amount represents the implied fair value of goodwill. To the extent this amount is below the carrying value of goodwill, an impairment loss is recorded in the consolidated statements of operations. For the nine months ended September 30, 2016 , there were no triggering events that required a test of impairment of goodwill.
Fair Value Measurement
The fair value of financial instruments is categorized based on the priority of the inputs to the valuation technique and categorized into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
Financial assets and liabilities are recorded at fair value on our consolidated balance sheets and are categorized based on the inputs to the valuation techniques as follows:
Level 1.
Quoted prices for identical assets or liabilities in an active market.
Level 2.
Financial assets and liabilities whose values are based on the following:
(a)
Quoted prices for similar assets or liabilities in active markets.
(b)
Quoted prices for identical or similar assets or liabilities in non-active markets.
(c)
Pricing models whose inputs are observable for substantially the full term of the asset or liability.
(d)
Pricing models whose inputs are derived principally from or corroborated by observable market data for substantially the full term of the asset or liability.
Level 3.
Prices or valuation techniques based on inputs that are both unobservable and significant to the overall fair value measurement.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Financial assets and liabilities recorded at fair value on a recurring basis are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Management determines the prices are representative of fair value through a review of available data, including observable inputs, recent transactions as well as our knowledge and experience of the market.

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With respect to valuation for CRE securities, we generally obtain at least one quote from a pricing service or broker. Furthermore, we may use internal pricing models to establish arm’s length prices. Generally, the quote from the pricing service is used to determine fair value for the securities. The quotes are not adjusted. The pricing service uses market-based measurements based on valuation techniques that reflect market participants’ assumptions and maximize the use of relevant observable inputs including prices for similar assets, benchmark yield curves and market corroborated inputs such as contractual terms, discount rates for similar securities and credit (such as credit support and delinquency rates). We believe such broker quote is generally based on a market transaction of comparable securities.
To determine the fair value of CRE securities, we maintain a comprehensive quarterly process that includes a valuation committee comprised of senior members of the investment and accounting teams that is designed to enable management to ensure the prices used are representative of fair value and the instruments are properly classified pursuant to the fair value hierarchy.
Initially, a member of the investment team on the valuation committee reviews the prices at quarter end to ensure current market conditions are fairly presented. The investment team is able to assess these values because they are actively engaged in the market, reviewing bid lists, recent sales and frequently have discussions with various banks and other financial institutions regarding the state of the market. We then perform a variety of analyses to ensure the quotes are in a range which we believe to be representative of fair value and to validate the quotes obtained and used in determining the ultimate value used in the financial statements. At the portfolio level, we evaluate the overall change in fair value versus the overall change in the market. We review significant changes in fair value for individual instruments, both positive and negative, from the prior period. We perform back testing on any securities sold to validate the quotes used for the prior quarter. Where multiple quotes are available, we evaluate any large variance between the high and low price. We obtain any available market data that provides insight into the price through recent or comparable security trades, multiple broker bids and other pertinent information. This data may be available through the pricing service or based on data directly available to us. If as part of any of these processes, we are aware of data which we believe better supports the fair value, we challenge the quote provided by either the pricing service or broker. Any discrepancy identified from our processes are reviewed and resolved. The valuation committee approves the final prices. We believe these procedures are designed to enable us to estimate fair value.
Once we determine fair value of CRE securities, we review to ensure the instrument is properly classified pursuant to the fair value hierarchy consistent with U.S. GAAP through our understanding of the valuation methodologies used by the pricing service via discussion with representatives of the pricing service and review of any documentation describing its valuation methodology.
Generally, when fair value is based on the pricing service or multiple broker quotes, we believe, based on our analysis, such quotes are based on observable inputs and are therefore classified as Level 2. Where the price is based on either a single broker quote or an internal pricing model, we generally consider such price to be based on less observable data and therefore classify such instruments as Level 3.
Assets and Liabilities Measured at Fair Value on a Non-recurring Basis
Non-financial assets and liabilities measured at fair value in the consolidated financial statements consist of real estate held for sale or assets for which an impairment has been recorded, such as goodwill. Such fair value measurements are generally considered to be Level 3 within the valuation hierarchy, where applicable, based on estimated sales price, adjusted for closing costs and expenses, determined by discounted cash flow analysis, direct capitalization analyses or a sales comparison approach if no contracts had been consummated. The discounted cash flow and direct capitalization analyses include all estimated cash inflows and outflows over a specific holding period and, where applicable, any estimated debt premiums. This cash flow is comprised of unobservable inputs which included forecasted rental revenues and expenses based upon existing in-place leases, market conditions and expectations for growth. Capitalization rate and discount rate used in these analyses are based upon observable rates that we believe to be within a reasonable range of current market rates for the respective properties.
Valuations are prepared using internally-developed valuation models. These valuations are reviewed and approved, during each reporting period, by management, as deemed necessary, including personnel from the accounting, finance and operations and the valuations are updated as appropriate. In addition, we may engage third-party valuation experts to assist with the preparation of certain of its valuations.
Revenue Recognition
Operating Real Estate
Rental and escalation income from operating real estate is derived from leasing of space to various types of tenants and healthcare operators. Rental revenue recognition commences when the tenant takes possession of the leased space and the leased space is substantially ready for its intended use. The leases are for fixed terms of varying length and generally provide for annual rentals and expense reimbursements to be paid in monthly installments. Rental income from leases is recognized on a straight-line basis over the term of the respective leases. The excess of rents recognized over amounts contractually due pursuant to the underlying leases are included in unbilled rent receivable in other assets on our consolidated balance sheets. We amortize any tenant inducements as a reduction of revenue utilizing the straight-line method over the term of the lease. Escalation income represents

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revenue from tenant/operator leases which provide for the recovery of all or a portion of the operating expenses and real estate taxes paid by us on behalf of the respective property. This revenue is accrued in the same period as the expenses are incurred.
We generate operating income from healthcare and hotel properties permitted by RIDEA. Revenue related to healthcare properties includes resident room and care charges and other resident charges. Revenue related to operating hotel properties primarily consists of room and food and beverage sales. Revenue is recognized when such services are provided, generally defined as the date upon which a resident or guest occupies a room or uses the healthcare property or hotel services and is recorded in resident fee income for healthcare properties and hotel related income for hotel properties in the consolidated statements of operations.
In a situation in which a lease(s) associated with a significant tenant have been, or are expected to be, terminated early, we evaluate the remaining useful life of depreciable or amortizable assets in the asset group related to the lease that will be terminated (i.e., tenant improvements, above- and below-market lease intangibles, in-place lease value and deferred leasing costs). Based upon consideration of the facts and circumstances surrounding the termination, we may write-off or accelerate the depreciation and amortization associated with the asset group. Such amounts are included within rental and escalation income for above- and below-market lease intangibles and depreciation and amortization in the consolidated statements of operations.
Real Estate Debt Investments
Interest income is recognized on an accrual basis and any related premium, discount, origination costs and fees are amortized over the life of the investment using the effective interest method. The amortization is reflected as an adjustment to interest income in our consolidated statements of operations. The amortization of a premium or accretion of a discount is discontinued if such loan is reclassified to held for sale.
Real Estate Securities
Interest income is recognized using the effective interest method with any premium or discount amortized or accreted through earnings based on expected cash flow through the expected maturity date of the security. Changes to expected cash flow may result in a change to the yield which is then applied retrospectively for high-credit quality securities that cannot be prepaid or otherwise settled in such a way that the holder would not recover substantially all of the investment or prospectively for all other securities to recognize interest income.
Credit Losses and Impairment on Investments
Operating Real Estate
Our real estate portfolio is reviewed on a quarterly basis, or more frequently as necessary, to assess whether there are any indicators that the value of our operating real estate may be impaired or that its carrying value may not be recoverable. A property’s value is considered impaired if management’s estimate of the aggregate expected future undiscounted cash flow to be generated by the property is less than the carrying value of the property. In conducting this review, management considers U.S. and global macroeconomic factors and real estate sector conditions together with investment specific and other factors. To the extent an impairment has occurred, the loss is measured as the excess of the carrying value of the property over the estimated fair value of the property and recorded in impairment losses in our consolidated statements of operations.
An allowance for a doubtful account for a receivable is established based on a periodic review of aged receivables resulting from estimated losses due to the inability of such tenant/operator/resident/guest to make required rent and other payments contractually due. Additionally, we establish, on a current basis, an allowance for future lessee credit losses on unbilled rent receivable based on an evaluation of the collectability of such amounts.
Real Estate Debt Investments
Loans are considered impaired when based on current information and events, it is probable that we will not be able to collect principal and interest amounts due according to the contractual terms. We assess the credit quality of the portfolio and adequacy of loan loss reserves on a quarterly basis or more frequently as necessary. Significant judgment of management is required in this analysis. We consider the estimated net recoverable value of the loan as well as other factors, including but not limited to the fair value of any collateral, the amount and the status of any senior debt, the quality and financial condition of the borrower and the competitive situation of the area where the underlying collateral is located. Because this determination is based on projections of future economic events, which are inherently subjective, the amount ultimately realized may differ materially from the carrying value as of the balance sheet date. If upon completion of the assessment, the estimated fair value of the underlying collateral is less than the net carrying value of the loan, a loan loss reserve is recorded with a corresponding charge to provision for loan losses. The loan loss reserve for each loan is maintained at a level that is determined to be adequate by management to absorb probable losses.
Income recognition is suspended for a loan at the earlier of the date at which payments become 90-days past due or when, in the opinion of management, a full recovery of income and principal becomes doubtful. When the ultimate collectability of the principal of an impaired loan is in doubt, all payments are applied to principal under the cost recovery method. When the ultimate collectability

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of the principal of an impaired loan is not in doubt, contractual interest is recorded as interest income when received, under the cash basis method until an accrual is resumed when the loan becomes contractually current and performance is demonstrated to be resumed. A loan is written off when it is no longer realizable and/or legally discharged.
Investments in Unconsolidated Ventures
We review our investments in unconsolidated ventures for which we did not elect the fair value option on a quarterly basis, or more frequently as necessary, to assess whether there are any indicators that the value may be impaired or that its carrying value may not be recoverable. An investment is considered impaired if the projected net recoverable amount over the expected holding period is less than the carrying value. In conducting this review, we consider U.S. and global macroeconomic factors, including real estate sector conditions, together with investment specific and other factors. To the extent an impairment has occurred and is considered to be other than temporary, the loss is measured as the excess of the carrying value of the investment over the estimated fair value and recorded in provision for loss on equity investment in our consolidated statements of operations.
Real Estate Securities
CRE securities for which the fair value option is elected are not evaluated for other-than-temporary impairment, or OTTI, as any change in fair value is recorded in our consolidated statements of operations. Realized losses on such securities are reclassified to realized gain (loss) on investments and other as losses occur.
CRE securities for which the fair value option is not elected are evaluated for OTTI quarterly. Impairment of a security is considered to be other-than-temporary when: (i) the holder has the intent to sell the impaired security; (ii) it is more likely than not the holder will be required to sell the security; or (iii) the holder does not expect to recover the entire amortized cost of the security. When a CRE security has been deemed to be other-than-temporarily impaired due to (i) or (ii), the security is written down to its fair value and an OTTI is recognized in the consolidated statements of operations. In the case of (iii), the security is written down to its fair value and the amount of OTTI is then bifurcated into: (a) the amount related to expected credit losses; and (b) the amount related to fair value adjustments in excess of expected credit losses. The portion of OTTI related to expected credit losses is recognized in our consolidated statements of operations. The remaining OTTI related to the valuation adjustment is recognized as a component of accumulated OCI in our consolidated statements of equity. The portion of OTTI recognized through earnings is accreted back to the amortized cost basis of the security through interest income, while amounts recognized through OCI are amortized over the life of the security with no impact on earnings. CRE securities which are not high-credit quality are considered to have an OTTI if the security has an unrealized loss and there has been an adverse change in expected cash flow. The amount of OTTI is then bifurcated as discussed above.
Other
Refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 for a complete discussion of our critical accounting policies.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board, or FASB, issued an accounting update requiring a company to recognize as revenue the amount of consideration it expects to be entitled to in connection with the transfer of promised goods or services to customers. The accounting standard update will replace most of the existing revenue recognition guidance currently promulgated by U.S. GAAP. In July 2015, the FASB decided to delay the effective date of the new revenue standard by one year. The effective date of the new revenue standard for us will be January 1, 2018. We are evaluating the impact, if any, of the update on our consolidated financial position, results of operations and financial statement disclosures.
In February 2015, the FASB issued updated guidance that changes the rules regarding consolidation. The pronouncement eliminates specialized guidance for limited partnerships and similar legal entities and removes the indefinite deferral for certain investment funds. The new guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, with early adoption permitted. We adopted this guidance in the first quarter 2016 and determined our Operating Partnership is considered a VIE. We are the primary beneficiary of the VIE, the VIE’s assets can be used for purposes other than the settlement of the VIE’s obligations and our partnership interest is considered a majority voting interest. As such, this standard resulted in the identification of additional VIEs, however it did not have a material impact on our consolidated financial position or results of operations.
In January 2016, the FASB issued an accounting update that addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. We are evaluating the impact, if any, that this guidance will have on our consolidated financial position, results of operations and financial statement disclosures.
In February 2016, the FASB issued an accounting update that requires lessees to present right-of-use assets and lease liabilities on the balance sheet. The new guidance is to be applied using a modified retrospective approach at the beginning of the earliest comparative period in the financial statements and is effective for fiscal years beginning after December 15, 2018, including

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interim periods within those fiscal years. Early adoption is permitted. We are evaluating the impact, if any, that this guidance will have on its consolidated financial position, results of operations and financial statement disclosures.
In March 2016, the FASB issued guidance clarifying that an assessment of whether an embedded contingent put or call option is clearly and closely related to a borrowing requires only an analysis of the four-step decision sequence. Additionally, entities are not required to separately assess whether the contingency itself is clearly and closely related. Entities are required to apply the guidance to existing instruments in scope using a modified retrospective transition method as of the period of adoption. The guidance is effective for fiscal years beginning after December 15, 2016 and interim periods within those years. Early adoption is permitted. We are evaluating the impact, if any, that this guidance will have on our consolidated financial position, results of operations and financial statement disclosures.
In March 2016, the FASB issued guidance which eliminates the requirement for an investor to retroactively apply the equity method when its increase in ownership interest (or degree of influence) in an investee triggers equity method accounting. The update requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment become qualified for equity method accounting. The update should be applied prospectively upon their effective date to increases in the level of ownership interests or degree of influence that results in the adoption of the equity method. The guidance is effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. Early adoption is permitted. We have concluded that this guidance will not have any impact on our consolidated financial position, results of operations and financial statement disclosures.
In March 2016, the FASB issued guidance which amends several aspects of the accounting for equity-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statements of cash flows. The guidance is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. We are evaluating the impact, if any, that this guidance will have on our consolidated financial position, results of operations and financial statement disclosures.
In June 2016, the FASB issued guidance which changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. Additionally, entities will have to disclose significantly more information, including information used to track credit quality by year of origination, for most financing receivables. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Early adoption is permitted. We are evaluating the impact, if any, that this guidance will have on our consolidated financial position, results of operations and financial statement disclosures.
In September 2016, the FASB issued final amendments to clarify how entities should classify certain cash receipts and cash payments in the consolidated statement of cash flows as they may have aspects of more than one class of cash flows. The guidance is effective for fiscal years and interim periods within those years, beginning after December 15, 2017. We are evaluating the impact, if any, that this guidance will have in our consolidated statement of cash flows.

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Results of Operations
Comparison of the Three Months Ended September 30, 2016 to September 30, 2015 (dollars in thousands):
The following table represents our results of operations for the three months ended September 30, 2016 and 2015 (dollars in thousands).
The consolidated financial statements for the three months ended September 30, 2016 represent our results of operations following the NRE Spin-off on October 31, 2015. The three months ended September 30, 2015 include a carve-out of revenues and expenses attributable to NorthStar Europe recorded in discontinued operations.
 
Three Months Ended September 30,
 
Increase (Decrease)
 
2016
 
2015
 
Amount

%
Property and other revenues
 
 
 
 
 
 
 
Rental and escalation income
$
165,060

 
$
194,518

 
$
(29,458
)
 
(15.1
)%
Hotel related income
220,578

 
219,427

 
1,151

 
0.5
 %
Resident fee income
72,988

 
70,257

 
2,731

 
3.9
 %
Other revenue
5,038

 
2,501

 
2,537

 
101.4
 %
Total property and other revenues
463,664

 
486,703

 
(23,039
)
 
(4.7
)%
Net interest income
 
 
 
 
 
 
 
Interest income
34,669

 
60,840

 
(26,171
)

(43.0
)%
Interest expense on debt and securities
1,614

 
1,289

 
325

 
25.2
 %
Net interest income on debt and securities
33,055

 
59,551

 
(26,496
)
 
(44.5
)%
Expenses
 
 
 
 
 
 
 
Management fee, related party
46,771

 
51,285

 
(4,514
)
 
(8.8
)%
Interest expense—mortgage and corporate borrowings
114,296

 
127,111

 
(12,815
)
 
(10.1
)%
Real estate properties—operating expenses
236,992

 
248,983

 
(11,991
)
 
(4.8
)%
Other expenses
6,472

 
7,495

 
(1,023
)
 
(13.6
)%
Transaction costs
3,599

 
2,633

 
966

 
36.7
 %
Impairment losses
70,433

 
—

 
70,433

 
NA

Provision for (reversal of) loan losses, net
1,892

 
53

 
1,839

 
3,469.8
 %
General and administrative expenses
 
 
 
 
 
 
 
Compensation expense
7,528

 
7,794

 
(266
)
 
(3.4
)%
Other general and administrative expenses
3,585

 
4,885

 
(1,300
)
 
(26.6
)%
Total general and administrative expenses
11,113

 
12,679

 
(1,566
)
 
(12.4
)%
Depreciation and amortization
84,726

 
118,826

 
(34,100
)
 
(28.7
)%
Total expenses
576,294

 
569,065

 
7,229

 
1.3
 %
Other income (loss)
 
 
 
 
 
 
 
Unrealized gain (loss) on investments and other
(26,648
)
 
(132,251
)
 
105,603

 
(79.9
)%
Realized gain (loss) on investments and other
939

 
614

 
325

 
52.9
 %
Income (loss) before equity in earnings (losses) of unconsolidated ventures and income tax benefit (expense)
(105,284
)

(154,448
)

49,164


(31.8
)%
Equity in earnings (losses) of unconsolidated ventures
26,054


60,359

 
(34,305
)
 
(56.8
)%
Income tax benefit (expense)
(3,567
)
 
2,142

 
(5,709
)
 
(266.5
)%
Income (loss) from continuing operations
(82,797
)
 
(91,947
)
 
9,150

 
(10.0
)%
Income (loss) from discontinued operations
—

 
(16,581
)
 
16,581

 
(100.0
)%
Net income (loss)
$
(82,797
)
 
$
(108,528
)
 
$
25,731

 
(23.7
)%
Property and Other Revenues
Rental and Escalation Income
Rental and escalation income decreased $29.5 million , primarily attributable to the loss of income from sales in 2016 of our Senior Housing Portfolio, certain of our multifamily properties and our Industrial Portfolio ($34.7 million) and lower income from net lease and healthcare properties ($0.7 million), offset by the acquisition of a portfolio of manufactured housing communities ($4.2 million) and higher income from our remaining portfolios of manufactured housing communities ($1.8 million), all in our real estate segment.
Hotel Related Income
Hotel related income increased $1.2 million primarily related to acquisitions in 2015, offset by a decrease in operations in certain portfolios due to renovations and other, including a portfolio for which we recorded an impairment loss in the third quarter 2016, all in our real estate segment.

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Resident Fee Income
Resident fee income increased $2.7 million related to our healthcare properties which transitioned to a RIDEA structure in 2015 ($0.8 million) and rate increases at our healthcare properties ($1.9 million), all in our real estate segment.
Other Revenue
Other revenue increased $2.5 million primarily due to an increase in real estate related fees ($1.5 million) in our real estate segment and other income ($1.3 million) in our CRE debt segment, offset by a decrease in advisory fees related to our deconsolidated CDOs ($0.3 million) in our N-Star CDOs - CRE Securities segment.
Net Interest Income
Net interest income is generated on our interest-earning assets less related interest-bearing liabilities and is primarily related to our CRE debt, securities and N-Star CDO segments and includes certain CRE debt and notes receivable investments included as part of our real estate segment. For assets financed in a CDO, the N-Star CDO segment is based on the primary collateral of the CDO financing transaction and as such may include other types of investments.
The following table presents the average balance of interest-earning assets less related interest-bearing liabilities, associated interest income and expense and corresponding yield earned and incurred for the three months ended September 30, 2016 and 2015 . Amounts presented have been impacted by the timing of new investments, sales and repayments during the periods (dollars in thousands):
 
Three Months Ended September 30,
 
 
2016
 
2015
 
 
Average
Carrying
Value (1)
 
Interest
Income/
Expense (2)
 
WA Yield/
Financing
Cost (3)
 
Average
Carrying
Value (1)
 
Interest
Income/
Expense (2)
 
WA Yield/
Financing
Cost (3)
 
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
 
CRE debt investments (4)
$
415,516

 
$
8,773

 
8.45
%
 
$
909,582

 
$
26,755

 
11.77
%
 
CRE securities investments
749,843

 
25,896

 
13.81
%
 
880,432

 
34,085

 
15.49
%
 
 
$
1,165,359


34,669

 
11.90
%
 
$
1,790,014

 
60,840

 
13.60
%
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
CDO bonds payable
$
397,181

 
$
1,125

 
3.15
%
(5)  
$
509,761

 
$
1,072

 
3.14
%
(5)  
Loan facilities
—

 
205

 
NA

(6)  
65,903

 
217

 
4.03
%
 
Secured borrowing
53,134

 
284

 
2.14
%
 
—

 
—

 
—

 
 
$
450,315


1,614

 
3.03
%
 
$
575,664

 
1,289

 
3.24
%
 
Net interest income
 
 
$
33,055

 
 
 
 
 
$
59,551

 
 
 
____________________________________________________________
(1)
Based on amortized cost for CRE debt and securities investments, principal amount for CDO bonds payable, loan facilities and secured borrowing. All amounts are calculated based on quarterly averages. Additionally, amounts include manufactured housing notes receivables recorded in assets of properties held for sale based on carrying value.
(2)
Includes the effect of amortization of premium or accretion of discount and deferred fees.
(3)
Calculated as interest income or expense divided by average carrying value.
(4)
Includes $1.5 million and $1.4 million of interest income related to manufactured housing notes receivables recorded in assets of properties held for sale and included in our real estate segment for the three months ended September 30, 2016 and 2015 , respectively.
(5)
We use interest rate swaps in CDO financing transactions to manage interest rate risk. Weighted average financing cost includes $2.0 million and $2.9 million of net cash payments on interest rate swaps in our consolidated N-Star CDOs recorded in unrealized gain (loss) in our consolidated statements of operations for the three months ended September 30, 2016 and 2015 , respectively.
(6)
We paid off our loan facility in April 2016. The interest expense for the three months ended September 30, 2016 represents amortization of deferred financing costs.
Interest income decreased $26.2 million , primarily attributable to decreased income on debt investments due to payoffs and sales ($18.3 million) in our CRE debt segment, decreased income on investments in our consolidated CDOs ($3.9 million) in our N-Star CDOs - CRE securities segment and decreased income on investments in deconsolidated N-Star CDO bonds and equity notes ($4.0 million), in our CRE securities segment.
Interest expense increased $0.3 million , primarily attributable to increased interest expense related to a secured borrowing ($0.3 million) in our CRE debt segment.
Expenses
Management Fee, Related Party
Management fee, related party decreased $4.5 million primarily related to the spin-off of NorthStar Europe, in our corporate segment.

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Interest Expense—Mortgage and Corporate Borrowings
Interest expense on mortgage and corporate borrowings decreased $12.8 million , primarily attributable to sales in 2016 of our Senior Housing Portfolio, certain of our multifamily properties and our Industrial Portfolio ($9.0 million), all in our real estate segment, and lower interest expense on our corporate borrowings primarily attributable to the repayment of our Corporate Revolver ($5.4 million) in our corporate segment, offset by the acquisition of a portfolio of manufactured housing communities ($1.2 million) in our real estate segment.
Real Estate Properties—Operating Expenses
Real estate operating expenses primarily relate to utilities, real estate taxes, insurance and repair and maintenance expense and with respect to RIDEA properties, salaries, food and beverage and resident services. Real estate properties operating expenses decreased $12.0 million , primarily attributable to sales in 2016 of our Senior Housing Portfolio, certain of our multifamily properties and our Industrial Portfolio ($18.0 million), offset by a hotel acquisition in 2015 and an acquisition of a portfolio of manufactured housing communities in November 2015 ($4.0 million) and our healthcare properties which transitioned to a RIDEA structure in 2015 ($2.0 million), all in our real estate segment.
Other Expenses
Other expenses primarily represents third-party asset management, audit and legal fees and other administrative related fees related to portfolio management of our real estate segment and other expenses such as legal and consulting fees for loan modifications and restructurings and other expenses associated with managing the N-Star CDOs. Other expenses decreased $1.0 million primarily related to lower state and local taxes and professional fees in our real estate segment.
Transaction Costs
Transaction costs represent costs such as professional fees associated with new investments, merger related costs, dead deal costs and restructuring costs which are related to specific transactions. For the three months ended September 30, 2016 , transaction costs of $3.6 million primarily related to costs incurred in connection with the Mergers, in our corporate segment. For the three months ended September 30, 2015 , transaction costs of $2.6 million primarily related to real estate acquisitions and restructurings, which includes transaction costs related to the restructurings related to our healthcare portfolios ($1.1 million) and a hotel acquisition ($0.3 million), all in our real estate segment.
Impairment Losses
Impairment losses of $70.4 million related to a hotel portfolio ($69.7 million) and a medical office building in our healthcare portfolio where the tenant exercised its purchase option ($0.7 million), both in our real estate segment.
Provision for (Reversal of) Loan Losses, Net
For the three months ended September 30, 2016 , provision for loan losses, net of $1.9 million related to one loan ($1.8 million) in our CRE debt segment and notes receivable related to our manufactured housing portfolio ($0.1 million) in our real estate segment. For the three months ended September 30, 2015 , provision for loan losses, net primarily related to a provision for loan loss relating to manufactured housing notes receivable in our real estate segment.
General and Administrative Expenses
General and administrative expenses are principally incurred at the corporate level. General and administrative expenses decreased $1.6 million primarily attributable to the following:
The following table presents compensation expense for the three months ended September 30, 2016 and 2015 (dollars in thousands):
 
Three Months Ended September 30,
 
2016
 
2015
 
Increase (Decrease)
Salaries and related expenses
$
1,676

 
$
1,616

 
$
60

Equity-based compensation expense
5,852

 
6,178

 
(326
)
Total
$
7,528

 
$
7,794

 
$
(266
)
Compensation expense decreased $0.3 million primarily due to equity-based compensation expense related to less grants issued subsequent to the spin-off of NSAM.
Other general and administrative expenses decreased $1.3 million related to lower corporate expenses and a lower cost allocation from NSAM.

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Depreciation and Amortization
Depreciation and amortization expense decreased $34.1 million , primarily related to our manufactured housing and multifamily properties which were classified as held for sale in 2015 ($16.7 million) and sales in 2016 of our Senior Housing Portfolio, certain of our multifamily properties and our Industrial Portfolio ($15.3 million), all in our real estate segment.
Other Income (Loss)
Unrealized Gain (Loss) on Investments and Other
Unrealized gain (loss) on investments and other is primarily related to the non-cash change in fair value adjustments and the remaining amount is related to net cash payments on interest rate swaps. The following tables present a summary of unrealized gain (loss) on investments and other by operating segment for the three months ended September 30, 2016 and 2015 (dollars in thousands):
 
 
Three Months Ended September 30, 2016
 
 
 
 
 
 
N-Star CDOs
 
 
 
 
 
 
Real Estate
 
CRE
Securities
 
CRE
Securities
 
Corporate
 
Total
Change in fair value of:
 
 
 
 
 
 
 
 
 
 
Real estate securities, available for sale (1)
 
$
—

 
$
46

 
$
(1,717
)
 
$
—

 
$
(1,671
)
PE Investments (1)
 
748

 
—

 
—

 
—

 
748

CDO bonds payable, at fair value (1)
 
—

 
—

 
(922
)
 
—

 
(922
)
Junior subordinated notes, at fair value (1)
 
—

 
—

 
—

 
(6,916
)
 
(6,916
)
Derivatives, at fair value
 
(69
)
 
—

 
1,760

 
(14,940
)
(2)  
(13,249
)
Foreign currency remeasurement (3)
 
(4,952
)
 
—

 
—

 
(12
)
 
(4,964
)
Investments in unconsolidated ventures (1)
 
2,329

 
—

 
—

 
—

 
2,329

Subtotal unrealized gain (loss)
 
(1,944
)
 
46

 
(879
)
 
(21,868
)
 
(24,645
)
Net cash payments on derivatives
 
(12
)
 
—

 
(1,991
)
 
—

 
(2,003
)
Total unrealized gain (loss) on investments and other
 
$
(1,956
)
 
$
46

 
$
(2,870
)
 
$
(21,868
)
 
$
(26,648
)
__________________________________________________________
(1)
Represents financial assets and liabilities for which the fair value option was elected.
(2)
Includes an unrealized loss on a derivative instrument of $11.2 million and $3.7 million related to a credit valuation adjustment.
(3)
Represents foreign currency remeasurement on investments, cash and deposits primarily denominated in British Pounds.
 
 
Three Months Ended September 30, 2015
 
 
 
 
 
 
N-Star CDOs
 
 
 
 
 
 
Real Estate
 
CRE
Securities
 
CRE
Securities
 
Corporate
 
Total
Change in fair value of:
 
 
 
 
 
 
 
 
 
 
Real estate securities, available for sale (1)
 
$
—

 
$
(7,644
)
 
$
(1,161
)
 
$
—

 
$
(8,805
)
PE Investments (1)
 
(9,148
)
 
—

 
—

 
—

 
(9,148
)
CDO bonds payable, at fair value (1)
 
—

 
—

 
(9,998
)
 
—

 
(9,998
)
Junior subordinated notes, at fair value (1)
 
—

 
—

 
—

 
22,576

 
22,576

Derivatives, at fair value
 
(649
)
 
—

 
2,432

 
(88,673
)
 
(86,890
)
Foreign currency remeasurement (2)
 
(6,000
)
 
—

 
—

 
(609
)
 
(6,609
)
Investments in unconsolidated ventures (1)
 
(30,446
)
 
—

 
—

 
—

 
(30,446
)
Subtotal unrealized gain (loss)
 
(46,243
)
 
(7,644
)
 
(8,727
)
 
(66,706
)
 
(129,320
)
Net cash payments on derivatives
 
(82
)
 
—

 
(2,849
)
 
—

 
(2,931
)
Total unrealized gain (loss) on investments and other
 
$
(46,325
)
 
$
(7,644
)
 
$
(11,576
)
 
$
(66,706
)
 
$
(132,251
)
__________________________________________________________
(1)
Represents financial assets and liabilities for which the fair value option was elected.
(2)
Primarily represents foreign currency remeasurement on an investment denominated in British Pounds.

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Realized Gain (Loss) on Investments and Other
The following table presents a summary of realized gain (loss) on investments and other by segment for the three months ended September 30, 2016 and 2015 (dollars in thousands):
 
 
 
 
Three Months Ended September 30,
Description
 
Segment
 
2016
 
2015
Sale of real estate investments (1)
 
Real Estate
 
$
7,516

 
$
—

Conversion of exchangeable senior notes
 
Corporate
 
(66
)
 
(160
)
Other-than-temporary impairment
 
CRE Securities
 
(436
)
 
—

Sale of manufactured homes
 
Real Estate
 
(1,299
)
 
(955
)
Losses on CRE Securities
 
N-Star CDOs - CRE Securities
 
(4,937
)
 
(2,708
)
Repurchase of N-Star CDO bonds
 
CRE Securities
 
—

 
(3,229
)
Sales/repayments from N-Star CDO bonds and securities (2)
 
CRE Securities
 
—

 
9,276

Other
 
Various
 
161

 
(1,610
)
Total
 
 
 
$
939

 
$
614

_________________________________________________________
(1)
For the three months ended September 30, 2016, we sold our Industrial Portfolio and one multifamily property. Amount includes $3.1 million of acceleration of discount and fees related to our Industrial Portfolio.
(2)
Represents accelerated amortization on N-Star CDO bonds.
Equity in Earnings (Losses) of Unconsolidated Ventures and Income Tax Benefit (Expense)
Equity in Earnings (Losses) of Unconsolidated Ventures
The following table presents a summary of our equity in earnings (losses) of unconsolidated ventures, substantially all of which is generated from investments in our real estate segment, for the three months ended September 30, 2016 and 2015 (dollars in thousands):
 
 
Three Months Ended September 30,
 
 
2016
 
2015
 
Increase (Decrease)
PE Investments (1)
 
$
18,033

 
$
55,089

 
$
(37,056
)
Investment in RXR Realty
 
6,555

 
4,303

 
2,252

Other unconsolidated ventures
 
1,466

 
967

 
499

Total
 
$
26,054

 
$
60,359

 
$
(34,305
)
__________________________________________________________
(1)
The decrease is primarily a result of sales of PE Investments in 2016.
Income Tax Benefit (Expense)
Income tax expense for the three months ended September 30, 2016 represents a net expense of $ 3.6 million primarily related to a provision for income tax for our corporate interest in RXR Realty, our healthcare facilities and hotel properties and PE Investments, all in our real estate segment. Income tax expense for the three months ended September 30, 2015 represents a net benefit of $2.1 million primarily related to a net benefit related to our healthcare facilities, offset by a provision for income tax for our PE Investments, our corporate interest in RXR Realty and our hotel properties, all in our real estate segment.
Discontinued Operations
Income (Loss) from Discontinued Operations
For the three months ended September 30, 2016 , we did not record any income (loss) from discontinued operations. For the three months ended September 30, 2015 , we recorded a $16.6 million loss included in discontinued operations associated with NorthStar Europe which represented a carve-out of revenues of $41.7 million and expenses of $58.3 million , primarily related to transaction costs.

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Comparison of the Nine Months Ended September 30, 2016 to September 30, 2015 (dollars in thousands):
The following table represents our results of operations for the nine months ended September 30, 2016 and 2015 (dollars in thousands).
The consolidated financial statements for the nine months ended September 30, 2016 represent our results of operations following the NRE Spin-off on October 31, 2015. The nine months ended September 30, 2015 include a carve-out of revenues and expenses attributable to NorthStar Europe recorded in discontinued operations.
 
Nine Months Ended September 30,
 
Increase (Decrease)
 
2016
 
2015
 
Amount
 
%
Property and other revenues
 
 
 
 
 
 
 
Rental and escalation income
$
527,252

 
$
539,542

 
$
(12,290
)
 
(2.3
)%
Hotel related income
636,283

 
594,284

 
41,999

 
7.1
 %
Resident fee income
219,193

 
199,463

 
19,730

 
9.9
 %
Other revenue
14,747

 
9,719

 
5,028

 
51.7
 %
Total property and other revenues
1,397,475

 
1,343,008

 
54,467

 
4.1
 %
Net interest income
 
 
 
 
 
 
 
Interest income
115,117

 
185,986

 
(70,869
)
 
(38.1
)%
Interest expense on debt and securities
5,309

 
5,245

 
64

 
1.2
 %
Net interest income on debt and securities
109,808

 
180,741

 
(70,933
)
 
(39.2
)%
Expenses
 
 
 
 
 
 
 
Management fee, related party
139,955

 
151,260

 
(11,305
)
 
(7.5
)%
Interest expense—mortgage and corporate borrowings
356,743

 
360,295

 
(3,552
)
 
(1.0
)%
Real estate properties—operating expenses
708,934

 
670,480

 
38,454

 
5.7
 %
Other expenses
20,933

 
22,457

 
(1,524
)
 
(6.8
)%
Transaction costs
15,590

 
31,976

 
(16,386
)
 
(51.2
)%
Impairment losses
75,506

 
—

 
75,506

 
NA

Provision for (reversal of) loan losses, net
7,974

 
820

 
7,154

 
872.4
 %
General and administrative expenses
 
 
 
 

 
 
Compensation expense
23,295

 
31,135

 
(7,840
)
 
(25.2
)%
Other general and administrative expenses
12,708

 
12,863

 
(155
)
 
(1.2
)%
Total general and administrative expenses
36,003

 
43,998

 
(7,995
)
 
(18.2
)%
Depreciation and amortization
260,287

 
340,185

 
(79,898
)
 
(23.5
)%
Total expenses
1,621,925

 
1,621,471

 
454

 
—
 %
Other income (loss)
 
 
 
 
 
 
 
Unrealized gain (loss) on investments and other
(269,052
)
 
(171,238
)
 
(97,814
)
 
57.1
 %
Realized gain (loss) on investments and other
(11,768
)
 
13,921

 
(25,689
)
 
(184.5
)%
Income (loss) before equity in earnings (losses) of unconsolidated ventures and income tax benefit (expense)
(395,462
)
 
(255,039
)
 
(140,423
)
 
55.1
 %
Equity in earnings (losses) of unconsolidated ventures
101,838

 
171,738

 
(69,900
)
 
(40.7
)%
Income tax benefit (expense)
(12,329
)
 
(9,610
)
 
(2,719
)
 
28.3
 %
Income (loss) from continuing operations
(305,953
)
 
(92,911
)
 
(213,042
)
 
229.3
 %
Income (loss) from discontinued operations
—

 
(114,236
)
 
114,236

 
(100.0
)%
Net income (loss)
$
(305,953
)
 
$
(207,147
)
 
$
(98,806
)
 
47.7
 %
Property and Other Revenues
Rental and Escalation Income
Rental and escalation income decreased $12.3 million , primarily attributable to the loss of income from sales in 2016 of our Senior Housing Portfolio, certain of our multifamily properties and our Industrial Portfolio ($28.9 million), our healthcare properties which transitioned to a RIDEA structure in 2015 ($2.7 million) and lower income from net lease and healthcare properties ($0.3 million), offset by the acquisition of a portfolio of manufactured housing communities in November 2015 and a portfolio of multi-tenant office properties in February 2015 ($15.1 million) and higher income from our remaining portfolios of manufactured housing communities ($4.6 million), all in our real estate segment.
Hotel Related Income
Hotel related income increased $42.0 million primarily related to acquisitions in 2015, offset by a decrease in operations in certain portfolios due to renovations and other, including a portfolio for which we recorded an impairment loss in the third quarter 2016, all in our real estate segment.

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Resident Fee Income
Resident fee income increased $19.7 million related to our healthcare properties which transitioned to a RIDEA structure in 2015 ($17.2 million) and rate increases at our healthcare properties ($2.5 million), all in our real estate segment.
Other Revenue
Other revenue increased $5.0 million primarily due to an increase in real estate related fees ($2.3 million) in our real estate segment and other income ($3.2 million) in our CRE debt segment, offset by a decrease in advisory fees related to our deconsolidated CDOs ($0.7 million) in our N-Star CDOs - CRE Securities segment.
Net Interest Income
Net interest income is generated on our interest-earning assets less related interest-bearing liabilities and is primarily related to our CRE debt, securities and N-Star CDO segments and includes certain CRE debt and notes receivable investments included as part of our real estate segment. For assets financed in a CDO, the N-Star CDO segment is based on the primary collateral of the CDO financing transaction and as such may include other types of investments.
The following table presents the average balance of interest-earning assets less related interest-bearing liabilities, associated interest income and expense and corresponding yield earned and incurred for the nine months ended September 30, 2016 and 2015 . Amounts presented have been impacted by the timing of new investments, sales and repayments during the periods (dollars in thousands):
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
 
Average
Carrying
Value (1)
 
Interest
Income/
Expense (2)
 
WA Yield/
Financing
Cost (3)
 
Average
Carrying
Value (1)
 
Interest
Income/
Expense (2)
 
WA Yield/
Financing
Cost (3)
 
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
 
CRE debt investments (4)
$
465,066

 
$
40,763

 
11.69
%
 
$
970,862

 
$
95,064

 
13.06
%
 
CRE securities investments
773,138

 
74,354

 
12.82
%
 
918,601

 
90,922

 
13.20
%
 
 
$
1,238,204


115,117

 
12.40
%
 
$
1,889,463

 
185,986

 
13.12
%
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
CDO bonds payable
$
412,902

 
$
3,360

 
3.34
%
(5)  
$
531,324

 
$
3,251

 
3.07
%
(5)  
Securitization bonds payable
—

 
—

 
—
%
 
20,585

 
150

 
—
%
 
Loan facilities
29,951

 
1,115

 
4.96
%
 
66,937

 
1,844

 
4.56
%
 
Secured borrowing
53,480

 
834

 
2.08
%
 
—

 
—

 
—

 
 
$
496,333


5,309

 
3.30
%
 
$
618,846

 
5,245

 
3.13
%
 
Net interest income
 

 
$
109,808

 
 
 
 
 
$
180,741

 
 
 
____________________________________________________________
(1)
Based on amortized cost for CRE debt and securities investments, principal amount for CDO bonds payable, securitization bonds payable, loan facilities and secured borrowing. All amounts are calculated based on quarterly averages. Additionally, amounts include manufactured housing notes receivables recorded in assets of properties held for sale based on carrying value.
(2)
Includes the effect of amortization of premium or accretion of discount and deferred fees.
(3)
Calculated as interest income or expense divided by average carrying value.
(4)
Includes $4.3 million and $4.7 million of interest income related to manufactured housing notes receivables recorded in assets of properties held for sale and included in our real estate segment for the nine months ended September 30, 2016 and 2015 , respectively.
(5)
We use interest rate swaps in CDO financing transactions to manage interest rate risk. Weighted average financing cost includes $7.0 million and $9.0 million of net cash payments on interest rate swaps in our consolidated N-Star CDOs recorded in unrealized gain (loss) in our consolidated statements of operations for the nine months ended September 30, 2016 and 2015 , respectively.
Interest income decreased $70.9 million , primarily attributable to decreased income on debt investments due to payoffs and sales ($49.8 million) in our CRE debt segment, decreased income on investments in our consolidated CDOs ($10.3 million) in our N-Star CDOs - CRE securities segment and decreased income on investments in deconsolidated N-Star CDO bonds and equity notes ($10.8 million), in our CRE securities segment.
Interest expense increased $0.1 million , primarily attributable to increased interest expense related to a secured borrowing ($0.8 million), offset by lower interest expense on our loan facility ($0.7 million) which was paid off in April 2016, both in our CRE debt segment.
Expenses
Management Fee, Related Party
Management fee, related party decreased $11.3 million primarily related to the spin-off of NorthStar Europe, in our corporate segment.

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Interest Expense—Mortgage and Corporate Borrowings
Interest expense on mortgage and corporate borrowings decreased $3.6 million , primarily attributable to lower interest expense on our corporate borrowings primarily attributable to the repayment of our Corporate Revolver ($11.3 million), in our corporate segment, lower interest expense from sales in 2016 of our Senior Housing Portfolio, certain of our multifamily properties and our Industrial Portfolio ($7.8 million) and lower interest expense at our healthcare and net lease properties ($3.0 million), offset by increased interest expense related to new mortgage and other notes payable associated with hotel acquisitions in 2015 and a manufactured housing portfolio acquisition in November 2015 ($11.4 million) and increased interest expense at our remaining hotel portfolios ($7.1 million), all in our real estate segment.
Real Estate Properties—Operating Expenses
Real estate operating expenses primarily relate to utilities, real estate taxes, insurance and repair and maintenance expense and with respect to RIDEA properties, salaries, food and beverage and resident services. Real estate properties operating expenses increased $38.5 million , primarily attributable to hotel acquisitions in 2015 and an acquisition of a manufactured housing portfolio in November 2015 ($35.3 million), our healthcare properties which transitioned to a RIDEA structure in 2015 ($12.5 million) and an increase in operating expenses at our healthcare, hotel and net lease properties ($5.5 million), offset by sales in 2016 of our Senior Housing Portfolio, certain of our multifamily properties and our Industrial Portfolio ($14.9 million), all in our real estate segment.
Other Expenses
Other expenses primarily represents third-party asset management, audit and legal fees and other administrative related fees related to portfolio management of our real estate segment and other expenses such as legal and consulting fees for loan modifications and restructurings and other expenses associated with managing the N-Star CDOs. Other expenses decreased $1.5 million primarily related to lower professional fees, offset by an increase in state and local taxes, in our real estate segment.
Transaction Costs
Transaction costs represent costs such as professional fees associated with new investments, merger related costs, dead deal costs and restructuring costs which are related to specific transactions. For the nine months ended September 30, 2016 , transaction costs of $15.6 million primarily related to costs incurred in connection with the Mergers, in our corporate segment. For the nine months ended September 30, 2015 , transaction costs of $32.0 million primarily related to real estate acquisitions and restructurings, which includes transaction costs related to the acquisitions and restructurings related to our healthcare portfolios ($17.6 million), our multi-tenant office acquisitions ($0.7 million) and our hotel acquisitions ($4.6 million), all in our real estate segment.
Impairment Losses
Impairment losses of $75.5 million related to a hotel portfolio ($69.7 million) and a medical office building in our healthcare portfolio where the tenant exercised its purchase option ($5.8 million), both in our real estate segment.
Provision for (Reversal of) Loan Losses, Net
For the nine months ended September 30, 2016 , provision for loan losses, net of $8.0 million related to two loans ($4.9 million) and exit fees on one loan sold in April 2016 ($2.8 million), both in our CRE debt segment and notes receivable related to our manufactured housing portfolio ($0.3 million) in our real estate segment. For the nine months ended September 30, 2015 , provision for loan losses, net primarily related to a provision for loan loss relating to manufactured housing notes receivable in our real estate segment.
General and Administrative Expenses
General and administrative expenses are principally incurred at the corporate level. General and administrative expenses decreased $8.0 million primarily attributable to the following:
The following table presents compensation expense for the nine months ended September 30, 2016 and 2015 (dollars in thousands):
 
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
Increase (Decrease)
Salaries and related expenses
 
$
5,555

 
$
6,422

 
$
(867
)
Equity-based compensation expense
 
17,740

 
24,713

 
(6,973
)
Total
 
$
23,295

 
$
31,135

 
$
(7,840
)
Compensation expense decreased $7.8 million primarily due to equity-based compensation expense related to less grants issued subsequent to the spin-off of NSAM.

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Other general and administrative expenses decreased $0.2 million related to lower corporate expenses.
Depreciation and Amortization
Depreciation and amortization expense decreased $79.9 million , primarily related to our manufactured housing and multifamily properties which were classified as held for sale in 2015 ($52.4 million) and sales in 2016 of our Senior Housing Portfolio, certain of our multifamily properties and our Industrial Portfolio ($24.5 million), all in our real estate segment.
Other Income (Loss)
Unrealized Gain (Loss) on Investments and Other
Unrealized gain (loss) on investments and other is primarily related to the non-cash change in fair value adjustments and the remaining amount is related to net cash payments on interest rate swaps. The following tables present a summary of unrealized gain (loss) on investments and other by operating segment for the nine months ended September 30, 2016 and 2015 (dollars in thousands):
 
 
Nine Months Ended September 30, 2016
 
 
 
 
 
 
N-Star CDOs
 
 
 
 
 
 
Real Estate
 
CRE
Securities
 
CRE
Securities
 
Corporate
 
Total
Change in fair value of:
 
 
 
 
 
 
 
 
 
 
Real estate securities, available for sale (1)
 
$
—

 
$
(4,547
)
 
$
(11,221
)
 
$
—

 
$
(15,768
)
PE Investments (1)(2)
 
(8,202
)
 
—

 
—

 
—

 
(8,202
)
CDO bonds payable, at fair value (1)
 
—

 
—

 
63

 
—

 
63

Junior subordinated notes, at fair value (1)
 
—

 
—

 
—

 
(7,282
)
 
(7,282
)
Derivatives, at fair value
 
(380
)
 
—

 
6,324

 
(205,299
)
(3)  
(199,355
)
Foreign currency remeasurement (4)
 
(21,951
)
 
—

 
—

 
(21
)
 
(21,972
)
Investments in unconsolidated ventures (1)
 
(9,568
)
 
—

 
—

 
—

 
(9,568
)
Subtotal unrealized gain (loss)
 
(40,101
)
 
(4,547
)
 
(4,834
)
 
(212,602
)
 
(262,084
)
Net cash payments on derivatives
 
(37
)
 
—

 
(6,931
)
 
—

 
(6,968
)
Total unrealized gain (loss) on investments and other
 
$
(40,138
)
 
$
(4,547
)
 
$
(11,765
)
 
$
(212,602
)
 
$
(269,052
)
__________________________________________________________
(1)
Represents financial assets and liabilities for which the fair value option was elected.
(2)
Represents a $8.2 million unrealized loss related to an unwind of an unrealized gain of $32.6 million recorded for the year ended December 31, 2014 .
(3)
Includes an unrealized loss on a derivative instrument of $194.4 million and $10.9 million related to a credit valuation adjustment.
(4)
Represents foreign currency remeasurement on investments, cash and deposits primarily denominated in British Pounds.
 
 
Nine Months Ended September 30, 2015
 
 
 
 
 
 
N-Star CDOs
 
 
 
 
 
 
Real Estate
 
CRE
Securities
 
CRE
Securities
 
Corporate
 
Total
Change in fair value of:
 
 
 
 
 
 
 
 
 
 
Real estate securities, available for sale (1)
 
$
—

 
$
15,010

 
$
(3,967
)
 
$
2,209

 
$
13,252

PE Investments (1)
 
(22,497
)
 
—

 
—

 
—

 
(22,497
)
CDO bonds payable, at fair value (1)
 
—

 
—

 
(23,572
)
 
—

 
(23,572
)
Junior subordinated notes, at fair value (1)
 
—

 
—

 
—

 
30,493

 
30,493

Derivatives, at fair value
 
(1,951
)
 
—

 
7,318

 
(119,404
)
 
(114,037
)
Foreign currency remeasurement (2)
 
(9,642
)
 
—

 
—

 
3,543

 
(6,099
)
Investments in unconsolidated ventures (1)
 
(39,789
)
 
—

 
—

 
—

 
(39,789
)
Subtotal unrealized gain (loss)
 
(73,879
)
 
15,010

 
(20,221
)
 
(83,159
)
 
(162,249
)
Net cash payments on derivatives
 
(253
)
 
—

 
(8,736
)
 
—

 
(8,989
)
Total unrealized gain (loss) on investments and other
 
$
(74,132
)
 
$
15,010

 
$
(28,957
)
 
$
(83,159
)
 
$
(171,238
)
__________________________________________________________
(1)
Represents financial assets and liabilities for which the fair value option was elected.
(2)
Primarily represents foreign currency remeasurement on an investment denominated in British Pounds.


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Realized Gain (Loss) on Investments and Other
The following table presents a summary of realized gain (loss) on investments and other by segment for the nine months ended September 30, 2016 and 2015 (dollars in thousands):
 
 
 
 
Nine Months Ended September 30,
Description
 
Segment
 
2016
 
2015
Sale of real estate investments (1)
 
Real Estate
 
$
34,399

 
$
(843
)
Sale of REO
 
CRE Debt
 
1,101

 
2,980

Conversion of exchangeable senior notes
 
Corporate
 
(35
)
 
(1,308
)
Foreclosure of real estate (2)
 
Real Estate
 
(17,337
)
 
—

Sale of CRE debt
 
CRE Debt
 
(635
)
 
—

Other-than-temporary impairment
 
CRE Securities
 
(12,509
)
 
(1,421
)
Sale of manufactured homes
 
Real Estate
 
(3,626
)
 
(1,793
)
Sales/repayments from N-Star CDO bonds and securities (3)
 
CRE Securities
 
(5,614
)
 
22,094

Losses on CRE Securities
 
N-Star CDOs - CRE Securities
 
(5,899
)
 
(5,356
)
Repurchase of N-Star CDO bonds
 
CRE Securities
 
—

 
(3,229
)
Mortgage payoff of a net lease property
 
Real Estate
 
—

 
2,074

Other
 
Various
 
(1,613
)
 
723

Total
 
 
 
$
(11,768
)
 
$
13,921

_________________________________________________________
(1)
For the nine months ended September 30 2016, we sold our 60% interest in our Senior Housing Portfolio, our Industrial Portfolio and five multifamily properties. Amount includes $3.1 million of acceleration of discount and fees related to our Industrial Portfolio.
(2)
Represents three properties conveyed back to the lender with an additional property with a carrying value of $16.6 million that we expect to convey in the fourth quarter 2016. At such time, we expect to record a realized gain of $22.4 million upon extinguishment related to such borrowing and the carrying value of the real estate.
(3)
Represents accelerated amortization on N-Star CDO bonds.
Equity in Earnings (Losses) of Unconsolidated Ventures and Income Tax Benefit (Expense)
Equity in Earnings (Losses) of Unconsolidated Ventures
The following table presents a summary of our equity in earnings (losses) of unconsolidated ventures, substantially all of which is generated from investments in our real estate segment, for the nine months ended September 30, 2016 and 2015 (dollars in thousands):
 
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
Increase (Decrease)
PE Investments (1)
 
$
79,248

 
$
155,670

 
$
(76,422
)
Investment in RXR Realty
 
19,026

 
12,018

 
7,008

Other unconsolidated ventures
 
3,564

 
4,050

 
(486
)
Total
 
$
101,838

 
$
171,738

 
$
(69,900
)
__________________________________________________________
(1)
The decrease is primarily a result of sales of PE Investments in 2016.

Income Tax Benefit (Expense)
Income tax expense for the nine months ended September 30, 2016 represents a net expense of $12.3 million primarily related to a provision for income tax for our corporate interest in RXR Realty and our PE Investments, both in our real estate segment. Income tax expense for the nine months ended September 30, 2015 represents a net expense of $9.6 million primarily related to a provision for income tax for our PE Investments and our corporate interest in RXR Realty, offset by an income tax benefit related to our healthcare facilities, all in our real estate segment.
Discontinued Operations
Income (Loss) from Discontinued Operations
For the nine months ended September 30, 2016 , we did not record any income (loss) from discontinued operations. For the nine months ended September 30, 2015, we recorded a $114.2 million loss included in discontinued operations associated with NorthStar Europe which represented a carve-out of revenues of $75.7 million and expenses of $189.9 million , primarily related to transaction costs.

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Liquidity and Capital Resources
We require capital to fund our operating expenses and investment activities. Our capital sources may include cash flow from operations, net proceeds from asset repayments and sales, borrowings under credit facilities, financings secured by our assets such as mortgage notes, securitization financing transactions, long-term senior and subordinate corporate capital such as revolving credit facilities, senior term loans, senior notes, senior exchangeable notes, trust preferred securities, perpetual preferred stock and common stock. For instance, we are currently exploring the sale of certain real estate, CRE debt and securities, and since the beginning of the fourth quarter 2015 through November 2016, assets sold or committed to sell totaled $6.6 billion, including an agreement to sell an interest in our healthcare portfolio, to generate liquidity. There is no assurance this transaction will close on the terms anticipated, if at all.
In addition, in connection with the NSAM Spin-off, we entered into a revolving credit agreement with NSAM pursuant to which we make available, on an “as available basis,” up to $250 million of financing to NSAM subject to certain conditions (refer to Related Party Arrangements). The terms of the NSAM revolving credit facility contain various representations, warranties, covenants and conditions, including the condition that our obligation to advance proceeds to NSAM is dependent upon us and our affiliates having at least $100 million of either unrestricted cash and cash equivalents or amounts available under committed lines of credit, after taking into account the amount NSAM seeks to draw under the facility. In addition, in connection with the NRE Spin-off, we provided NorthStar Europe with an initial capitalization of $250 million.
We seek to meet our long-term liquidity requirements, including the repayment of borrowings and our investment funding needs, through existing cash resources, issuance of debt or equity capital, return of capital from investments and the liquidation or refinancing of assets. Nonetheless, our ability to meet a long-term (beyond one year) liquidity requirement may be subject to obtaining additional debt and equity financing. Any decision by our lenders and investors to provide us with financing will depend upon a number of factors, such as our compliance with the terms of our existing credit arrangements, our financial performance, industry or market trends, the general availability of and rates applicable to financing transactions, such lenders’ and investors’ resources and policies concerning the terms under which they make capital commitments and the relative attractiveness of alternative investment or lending opportunities.
As a REIT, we are required to distribute at least 90% of our annual REIT taxable income to our stockholders, including taxable income where we do not receive corresponding cash, and we intend to distribute all or substantially all of our REIT taxable income in order to comply with the REIT distribution requirements of the Internal Revenue Code and to avoid federal income tax and the non-deductible excise tax. On a quarterly basis, our board of directors determines an appropriate common stock dividend based upon numerous factors, including CAD, REIT qualification requirements, availability of existing cash balances, borrowing capacity under existing credit agreements, access to cash in the capital markets and other financing sources, our view of our ability to realize gains in the future through appreciation in the value of our assets, general economic conditions and economic conditions that more specifically impact our business or prospects. Future dividend levels are subject to adjustment based upon our evaluation of the factors described above, as well as other factors that our board of directors may, from time-to-time, deem relevant to consider when determining an appropriate common stock dividend.
We currently believe that our existing sources of funds should be adequate for purposes of meeting our short-term liquidity needs. Unrestricted cash as of November 4, 2016 was approximately $1.1 billion, which includes $205 million of proceeds to be received in the fourth quarter 2016 related to a sale of a portfolio of PE Investments.
Securitization Financing Transactions
We have historically demonstrated the ability to securitize our CRE debt investments and expect to continue to pursue similar transactions to finance our newly-originated debt investments that might initially be financed on our credit facilities. In 2012 and 2013 we, and on behalf of NorthStar Income, entered into two securitization financing transactions with an aggregate $610 million of principal amount of bonds issued providing permanent, non-recourse, non-mark-to-market financing for CRE debt investments of ours and NorthStar Income’s. In January 2015, Securitization 2012-1 with $228 million principal amount of original bonds issued was repaid in full.
Corporate Borrowings
In August 2014, we entered into our Corporate Revolver with certain commercial bank lenders, with a total current amount of $250 million for a three year term. Additionally, in September 2014, we entered into a corporate term arrangement with respect to the establishment of term borrowings. In February 2016, our Corporate Revolver was repaid and we expect our remaining corporate recourse borrowings to be repaid from proceeds from sales initiatives.

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Loan Facility
With respect to investment-level financing, we maintain a loan facility that provides up to $200 million to finance the origination of first mortgage loans and senior loan participations secured by commercial real estate. The interest rate and advance rate depend on asset type and characteristic. In March 2016, the maturity date for the facility was extended for one year with final maturity in March 2018. In April 2016, our loan facility was repaid.
Our loan facility contains representations, warranties, covenants, conditions precedent to funding, events of default and indemnities that are customary for agreements of this type. We are currently in compliance with all of our financial covenants under our loan facility.
Exchangeable Senior Notes
For the nine months ended September 30, 2016 , we issued 0.2 million shares of our common stockholders related to the conversion of exchangeable senior notes. As of November 4, 2016, we had $29 million in principal amount of exchangeable senior notes outstanding.
Cash Flows
The following presents a summary of our consolidated statements of cash flows for the nine months ended September 30, 2016 and 2015 (dollars in thousands).
The consolidated cash flows for the nine months ended September 30, 2016 represents our cash flow following the NRE Spin-off on October 31, 2015. The consolidated cash flows for the nine months ended September 30, 2015 includes cash flow attributable to revenues and expenses of NorthStar Europe recorded in discontinued operations. As a result, cash flows for the nine months ended September 30, 2016 may not be comparative to our cash flows reported for the prior period presented.
 
 
Nine Months Ended September 30,
Cash flow provided by (used in):
 
2016
 
2015
Operating activities
 
$
257,810

 
$
387,831

Investing activities
 
1,071,921

 
(3,189,791
)
Financing activities
 
(828,307
)
 
2,895,248

Effect of foreign currency translation on cash and cash equivalents
 
(165
)
 
(4,218
)
Net increase (decrease) in cash and cash equivalents
 
$
501,259

 
$
89,070

Nine Months Ended September 30, 2016 Compared to September 30, 2015
Net cash provided by operating activities was $258 million for the nine months ended September 30, 2016 compared to $388 million for the nine months ended September 30, 2015 . The decrease was primarily related to sales and repayments of investments in 2016.
Net cash provided by investing activities was $ 1.1 billion for the nine months ended September 30, 2016 compared to net cash used in investing activities of $3.2 billion for the nine months ended September 30, 2015 . The primary investing activities for the nine months ended September 30, 2016 related to proceeds of sales and repayment of real estate, certain loans and securities and PE Investments. The nine months ended September 30, 2015 primarily related to the acquisition of European real estate subsequently spun off as part of the NRE Spin-off.
Net cash used in financing activities was $828 million for the nine months ended September 30, 2016 compared to net cash provided by financing activities of $2.9 billion for the nine months ended September 30, 2015 . The primary cash outflows for the nine months ended September 30, 2016 was $255 million for the repayment of our credit facilities and borrowings, $285 million for the payment of dividends, $161 million for the payment of cash collateral on derivatives, $52 million for the repurchase of our common stock, $50 million for repayment of CDO bonds and $27 million of net distributions to non-controlling interests. The primary cash inflows for the nine months ended September 30, 2015 was $1.1 billion of net new capital, $2.1 billion of net new borrowings, $340 million of proceeds from senior notes and $87 million of net contributions from non-controlling interests, offset by $480 million for the payment of dividends, $106 million for the payment of financing costs and $73 million for net repurchase/repayment of CDO bonds.

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Contractual Obligations and Commitments
As of September 30, 2016, we continue to be subject to the material contractual obligations and commitments referred to in our annual report on Form 10-K for the year ended December 31, 2015 , with the exception of certain borrowings that have been repaid or future funding obligations disclosed in Note 5. “Investments in Private Equity Funds” and Note 8. “Borrowings” in Item 1. “Financial Statements.”
Merger Related Arrangements and Other Costs
We entered into fee arrangements with service providers and advisors pursuant to which certain fees incurred by us in connection with the Mergers will become payable only if we consummate the Mergers. We have and will incur other professional fees related to the Mergers. There can be no assurances that we will complete this or any other transaction. For the nine months ended September 30, 2016 , we recorded an aggregate of $10 million in transaction costs in our consolidated statements of operations. To the extent the Mergers are consummated, we anticipate incurring a significant amount of additional costs.
Off-Balance Sheet Arrangements
As of September 30, 2016 , we had off-balance sheet arrangements with respect to retained interests in certain deconsolidated N-Star CDOs. Refer to Note 16. “Variable Interest Entities” in Item 1. “Financial Statements” for a discussion of such retained interests in such N-Star CDOs in our consolidated financial statements. In each case, our exposure to loss is limited to the carrying value of our investment.
Additionally, we have certain arrangements which do not meet the definition of off-balance sheet arrangements, but do have some of the characteristics of off-balance sheet arrangements, including certain investments in unconsolidated ventures. Refer to Note 5. “Investments in Private Equity Funds” and Note 6. “Investments in Unconsolidated Ventures” in Item 1. “Financial Statements” for a discussion of such unconsolidated ventures in our consolidated financial statements. In each case, our exposure to loss is limited to the carrying value of our investment.
Related Party Arrangements
NorthStar Asset Management Group
Management Agreement
Upon completion of the NSAM Spin-off, we entered into a management agreement with an affiliate of NSAM for an initial term of 20 years, which automatically renews for additional 20 -year terms each anniversary thereafter unless earlier terminated. As asset manager, NSAM is responsible for our day-to-day operations, subject to supervision and management of our board of directors. Through its global network of subsidiaries and branch offices, NSAM performs services and engages in activities relating to, among other things, investments and financing, portfolio management and other administrative services, such as accounting and investor relations, to us and our subsidiaries other than our CRE loan origination business. The management agreement with NSAM provides for a base management fee and incentive fee.
In connection with the NRE Spin-off, NorthStar Europe entered into a management agreement with NSAM with an initial term of 20 years on terms substantially consistent with the terms of our management agreement with NSAM. Our management agreement with NSAM was amended and restated in connection with the NRE Spin-off to, among other things, adjust the annual base management fee and incentive fee hurdles for the NRE Spin-off. Upon completion of the Mergers, the management agreement with NSAM will cease to exist.
Base Management Fee
For the three and nine months ended September 30, 2016 , we incurred $47 million and $140 million , respectively, related to the base management fee. The base management fee to NSAM could increase subsequent to September 30, 2016 by an amount equal to 1.5% per annum of the sum of:
•
cumulative net proceeds of all future common equity and preferred equity issued by us;
•
equity issued by us in exchange or conversion of exchangeable notes based on the stock price at the date of issuance;
•
any other issuances by us of common equity, preferred equity or other forms of equity, including but not limited to limited partnership interests, or LTIP Units, in our Operating Partnership (excluding units issued to us and equity-based compensation, but including issuances related to an acquisition, investment, joint venture or partnership); and
•
cumulative CAD in excess of cumulative distributions paid on common stock, LTIP units or other equity awards beginning the first full calendar quarter after the NSAM Spin-off.
Additionally, our equity interest in RXR Realty and Aerium is structured so that NSAM is entitled to the portion of distributable cash flow from each investment in excess of the $10 million minimum annual base amount.

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Incentive Fee
For the three and nine months ended September 30, 2016 , we did not incur an incentive fee. The incentive fee is calculated and payable quarterly in arrears in cash, equal to:
•
the product of: (a) 15% and (b) our CAD before such incentive fee, divided by the weighted average shares outstanding for the calendar quarter, of any amount in excess of $0.68 per share and up to $0.78 per share, after giving effect to the Reverse Split and the NRE Spin-off, or the 15% Hurdle; plus
•
the product of: (a) 25% and (b) our CAD before such incentive fee, divided by the weighted average shares outstanding for the calendar quarter, of any amount in excess of $0.78 per share, after giving effect to the Reverse Split and the NRE Spin-off, or the 25% Hurdle;
•
multiplied by our weighted average shares outstanding for the calendar quarter.
In addition, NSAM may also earn an incentive fee from our healthcare investments in connection with NSAM’s Healthcare Strategic Partnership (refer to below).
Weighted average shares represents the number of shares of our common stock, LTIP Units or other equity-based awards (with some exclusions), outstanding on a daily weighted average basis. With respect to the base management fee, all equity issuances are allocated on a daily weighted average basis during the fiscal quarter of issuance. With respect to the incentive fee, such amounts will be appropriately adjusted from time to time to take into account the effect of any stock split, reverse stock split, stock dividend, reclassification, recapitalization or other similar transaction.
Additional Management Agreement Terms
If we were to spin-off any asset or business in the future, such entity would be managed by NSAM on terms substantially similar to those set forth in the management agreement between us and NSAM. The management agreement further provides that the aggregate base management fee in place immediately after any future spin-off will not be less than our aggregate base management fee in place immediately prior to such spin-off.
Our management agreement with NSAM provides that in the event of a change of control of NSAM or other event that could be deemed an assignment of the management agreement, we will consider such assignment in good faith and not unreasonably withhold, condition or delay our consent. The management agreement further provides that we anticipate consent would be granted for an assignment or deemed assignment to a party with expertise in commercial real estate and over $10 billion of assets under management. The management agreement also provides that, notwithstanding anything in the agreement to the contrary, to the maximum extent permitted by applicable law, rules and regulations, in connection with any merger, sale of all or substantially all of the assets, change of control, reorganization, consolidation or any similar transaction of us or NSAM, directly or indirectly, the surviving entity will succeed to the terms of the management agreement.
Payment of Costs and Expenses and Expense Allocation
We are responsible for all of our direct costs and expenses and reimburse NSAM for costs and expenses incurred by NSAM on our behalf. In addition, NSAM may allocate indirect costs to us related to employees, occupancy and other general and administrative costs and expenses in accordance with the terms of, and subject to the limitations contained in, our management agreement with NSAM, or the G&A Allocation. Our management agreement with NSAM provides that the amount of the G&A Allocation will not exceed the following: (i) 20% of the combined total of: (a) our and NorthStar Europe’s, or the NorthStar Listed Companies’, general and administrative expenses as reported in their consolidated financial statements excluding (1) equity-based compensation expense, (2) non-recurring items, (3) fees payable to NSAM under the terms of the applicable management agreement and (4) any allocation of expenses to the NorthStar Listed Companies, or NorthStar Listed Companies’ G&A; and (b) NSAM’s general and administrative expenses as reported in its consolidated financial statements, excluding equity-based compensation expense and adding back any costs or expenses allocated to any managed company of NSAM; less (ii) the NorthStar Listed Companies’ G&A. The G&A Allocation may include our allocable share of NSAM’s compensation and benefit costs associated with dedicated or partially dedicated personnel who spend all or a portion of their time managing our affairs, based upon the percentage of time devoted by such personnel to our affairs. The G&A Allocation may also include rental and occupancy, technology, office supplies, travel and entertainment and other general and administrative costs and expenses, which may be allocated based on various methodologies, such as weighted average employee count or the percentage of time devoted by personnel to our affairs. In addition, we will pay directly or reimburse NSAM for an allocable portion of any severance paid pursuant to any employment, consulting or similar service agreements in effect between NSAM and any of its executives, employees or other service providers.
In connection with the NRE Spin-off and the related agreements, the NorthStar Listed Companies’ obligations to reimburse NSAM for the G&A Allocation and any severance are shared among the NorthStar Listed Companies, at NSAM’s discretion, and the 20% cap on the G&A Allocation, as described above, applies on an aggregate basis to the NorthStar Listed Companies. NSAM currently determined to allocate these amounts based on assets under management.

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For the three months ended September 30, 2016, NSAM did not allocate any expenses to us. For the nine months ended September 30, 2016 , NSAM allocated $ 0.4 million to us.
In addition, we, together with NorthStar Europe and any company spun-off from us or NorthStar Europe, will pay directly or reimburse NSAM for up to 50% of any long-term bonus or other compensation that NSAM’s compensation committee determines shall be paid and/or settled in the form of equity and/or equity-based compensation to executives, employees and service providers of NSAM during any year. Subject to this limitation and limitations contained in any applicable management agreement between NSAM and NorthStar Europe or any company spun-off from us or NorthStar Europe, the amount paid by us, NorthStar Europe and any company spun-off from us or NorthStar Europe will be determined by NSAM in its discretion. At the discretion of NSAM’s compensation committee, this compensation may be granted in shares of our restricted stock, restricted stock units, LTIP Units or other forms of equity compensation or stock-based awards; provided that if at any time a sufficient number of shares of our common stock are not available for issuance under our equity compensation plan, such compensation shall be paid in the form of restricted stock units, or RSUs, LTIP Units or other securities that may be settled in cash. Our equity compensation for each year may be allocated on an individual-by-individual basis at the discretion of the NSAM compensation committee and, as long as the aggregate amount of the equity compensation for such year does not exceed the limits set forth in the management agreement, the proportion of any particular individual’s equity compensation may be greater or less than 50% .
In connection with the above obligation, we were responsible for paying approximately 50% of the 2015 and 2014 long-term bonuses earned under the NorthStar Asset Management Group Inc. Executive Incentive Bonus Plan, or NSAM Bonus Plan. Long-term bonuses were paid to executives in the form of equity-based awards of both us and NSAM, subject to performance-based and time-based vesting conditions over the four-year performance period from January 1, 2014 through December 31, 2017. The long-term bonuses paid in the form of equity-based awards of ours were adjusted for the NRE Spin-off and Reverse Split in the same manner as all other equity-based awards of ours.
Investment Opportunities
Under the management agreement, we agreed to make available to NSAM for the benefit of NSAM and its managed companies, including us, all investment opportunities that we source. NSAM agreed to fairly allocate such opportunities among NSAM’s managed companies, including us, and NSAM in accordance with an investment allocation policy. Pursuant to the management agreement, we are entitled to fair and reasonable compensation for our services in connection with any loan origination opportunities sourced by us, which may include first mortgage loans, subordinate mortgage interests, mezzanine loans and preferred equity interests, in each case relating to commercial real estate. For the three and nine months ended September 30, 2016 , we earned $0.4 million and $0.8 million from NSAM for services in connection with loan origination opportunities.
NSAM provides services with regard to such areas as payroll, human resources and employee benefits, financial systems management, treasury and cash management, accounts payable services, telecommunications services, information technology services, property management services, legal and accounting services and various other corporate services to us as it relates to our loan origination business for CRE debt.
Credit Agreement
In connection with the NSAM Spin-off, we entered into a revolving credit agreement with NSAM pursuant to which we make available to NSAM, on an “as available basis,” up to $250 million of financing with a maturity of June 30, 2019 at LIBOR plus 3.50% . The revolving credit facility is unsecured. The terms of the revolving credit facility contain various representations, warranties, covenants and conditions, including the condition that our obligation to advance proceeds to NSAM is dependent upon us and its affiliates having at least $100 million of either unrestricted cash and cash equivalents or amounts available under committed lines of credit, after taking into account the amount NSAM seeks to draw under the facility. As of September 30, 2016 , we have not funded any amounts to NSAM in connection with this agreement.
Healthcare Strategic Joint Venture
In January 2014, NSAM entered into a long-term strategic partnership with James F. Flaherty III, former Chief Executive Officer of HCP, Inc., focused on expanding our healthcare business into a preeminent healthcare platform, or the Healthcare Strategic Partnership. In connection with the partnership, Mr. Flaherty oversees both our healthcare real estate portfolio and the portfolio of NorthStar Healthcare. In connection with entering into the partnership, we granted Mr. Flaherty certain RSUs (refer to Note 10. “Equity-Based Compensation” in Item 1. “Financial Statements”). The Healthcare Strategic Partnership is entitled to incentive fees ranging from 20% to 25% above certain hurdles for new and existing healthcare real estate investments held by us. For the three and nine months ended September 30, 2016 , we did not incur any incentive fees related to the Healthcare Strategic Partnership.
NSAM Retail Companies
We committed to purchase up to $10 million in shares of each of NSAM’s Retail Companies’ common stock during the period from when each offering was declared effective through the end of their respective offering period, in the event that NSAM Retail Companies’ distributions to its stockholders, on a quarterly basis, exceed certain measures of operating performance.

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In addition, pursuant to the management agreement with NSAM, we committed up to $10 million to invest as distribution support consistent with past practice in each future public non-traded NSAM Retail Company, up to a total of five new companies per year. The following table summarizes our total shares purchased of each NSAM Retail Company as part of our current obligation under the distribution support agreement and our remaining obligations as of September 30, 2016 (dollars in millions):
 
 
Term of
 
Ownership
 
Amount
 
Remaining
NSAM Retail Company
 
Commitment
 
Interest
 
Purchased
 
Commitment (5)
NorthStar Income II
 
May 2013 - November 2016
 
0.6
%
 
$
6

 
$
4

NorthStar/RXR New York Metro (1)
 
February 2015 - February 2017
 
38.5
%
 
1

 
6

NorthStar Corporate Fund (2)
 
February 2016 - February 2018
 
50.0
%
 
1

 
4

NorthStar Capital Fund (3)(4)
 
May 2016 - May 2018
 
100.0
%
 
2

 
8

Total
 
 
 
 
 
$
10

 
$
22

___________________________________________________________
(1)
NorthStar/RXR New York Metro Real Estate, Inc., or NorthStar/RXR New York Metro’s registration statement filed with the United States Securities and Exchange Commission, or the SEC, seeks to offer up to $2 billion in a public offering of multiple classes of common stock. In December 2015, we and RXR Realty satisfied NorthStar/RXR New York Metro’s minimum offering amount as a result of the purchase of 0.2 million shares of its common stock for an aggregate $2.0 million, of which $1.5 million was invested. NSAM began raising capital for NorthStar/RXR New York Metro in the second quarter 2016.
(2)
NorthStar Corporate Income Fund’s, or NorthStar Corporate Fund, registration statement on Form N-2 filed with the SEC seeks to raise up to $3 billion in a public offering of common stock. In January 2016, an affiliate of Och-Ziff Capital Management Group and us invested $2 million of seed capital into NorthStar Corporate Fund, of which $1 million was invested. In February 2016, NorthStar Corporate Fund was declared effective by the SEC and expects to begin raising capital from third parties in the first half 2017.
(3)
NorthStar Real Estate Capital Income Fund’s registration statement on Form N-2 filed with the SEC seeks to raise up to $3 billion in a public offering of common stock. In March 2016, we invested $2 million of seed capital into NorthStar Capital Fund. In May 2016, NorthStar Capital Fund was declared effective by the SEC and expects to begin raising capital from third parties in the first half 2017.
(4)
We currently consolidate the company based on our majority voting interest in the entity.
(5)
We expect Colony NorthStar to continue the distribution support obligations following the closing of the Mergers.
N-Star CDOs
We earn certain collateral management fees from the N-Star CDOs primarily for administrative services. For the three and nine months ended September 30, 2016 , we earned $1 million and $2 million in fee income, respectively, of which $0.2 million and $0.5 million, respectively, were eliminated in consolidation.
Additionally, we earn interest income from the N-Star CDO bonds and N-Star CDO equity in deconsolidated N-Star CDOs. For the three and nine months ended September 30, 2016 , we earned $ 13 million and $36 million, respectively, of interest income from such investments related to deconsolidated N-Star CDOs.
American Healthcare Investors
In December 2014, NSAM acquired a 43% interest in American Healthcare Investors LLC, or AHI, and James F. Flaherty III, a strategic partner of NSAM, acquired a 12% interest in AHI. AHI is a healthcare-focused real estate investment management firm that co-sponsored and advised Griffin-American, until Griffin-American was acquired by us and NorthStar Healthcare. In connection with this acquisition, AHI provides certain management and related services, including property management, to NSAM, NorthStar Healthcare and us in order to assist NSAM in managing the current and future healthcare assets (excluding any joint venture assets) acquired by us and, subject to certain conditions, other NSAM managed companies. For the three and nine months ended September 30, 2016 , we incurred $0.4 million and $1.3 million, respectively, of property management fees to AHI.
Island Hospitality Management
In January 2015, NSAM acquired a 45% interest in Island Hospitality Management Inc., or Island. Island is a leading, independent select service hotel management company that currently manages 164 hotel properties, representing $4 billion of assets, of which 110 hotel properties are owned by us. Island provides certain asset management, property management and other services to us to assist in managing our hotel properties. Island receives a base management fee of 2.5% to 3.0% of the current monthly revenue of our hotel properties it manages for us. For the three and nine months ended September 30, 2016 we incurred $5 million and $14 million, respectively, of base property management and other fees to Island. NSAM’s investment in Island is expected to be sold in connection with the Mergers.
NSAM purchase of common stock
In 2015, NSAM purchased 2.7 million shares of our common stock in the open market for $50 million.
Recent Sales or Commitments to Sell to NSAM Retail Companies
We sold or entered into agreements to sell certain assets to NSAM Retail Companies:
•
In February 2016, we sold substantially all of our 70% interest in PE Investment II to the existing owners of the remaining 30% interest, one a third party which purchased approximately 80% of the interest sold and the other NorthStar Income

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which purchased the other approximate 20% of the interest sold. NorthStar Income paid $37 million for its respective interest. As part of the transaction, both buyers assumed the deferred purchase price obligation, on a pro rata basis, of the PE Investment II joint venture.
•
In February 2016, we sold a 49% interest in one loan with a total principal amount of $40 million to a third party, at par, with the remaining 51% interest sold to NorthStar Income II, also at par.
•
In February 2016, we sold one CRE security with a carrying value of $13 million to NorthStar Income II.
•
In March 2016, we sold our 60% interest in the Senior Housing Portfolio to NorthStar Healthcare, which owned the remaining 40% interest, for $535 million. NorthStar Healthcare assumed our portion of the $648 million of related mortgage financing and we received approximately $150 million of proceeds, net of sales costs.
•
In September 2016, we sold a portfolio of PE Investments to NorthStar Income II for a gross sales price of $318 million with $45 million of deferred purchase price assumed as part of the transaction, including $6 million of deferred purchase price which was the obligation of an unconsolidated joint venture. We received $34 million of net proceeds and will receive the remaining $205 million of net proceeds in the fourth quarter 2016.
•
In connection with the redemption of our interest in the Industrial Portfolio, the third party equity obtained a preferred loan of $98 million from NorthStar Income II to finance the transaction.
The board of directors of each NSAM Retail Company, including all of the independent directors, approved each of the respective transactions, with the exception of the Industrial Portfolio which did not warrant board approval, after considering, among other matters, third-party pricing support.
Recent Developments
Dividends
On November 1, 2016 , we declared a dividend of $0.40 per share of common stock. The common stock dividend will be paid on November 18, 2016 to stockholders of record as of the close of business on November 14, 2016 . On October 27, 2016 , we declared a dividend of $0.54688 per share of Series A preferred stock, $0.51563 per share of Series B preferred stock, $0.55469 per share of Series C preferred stock, $0.53125 per share of Series D Preferred Stock and $0.54688 per share of Series E Preferred Stock. Dividends will be paid on all series of preferred stock on November 15, 2016 to stockholders of record as of the close of business on November 7, 2016 .
Colony NorthStar Registration Statement
In October 2016, we amended the merger agreement and provided for, among other matters, an enhanced governance structure for Colony NorthStar, modified severance terms for NSAM’s executive officers and a special cash dividend for NSAM’s stockholders now totaling $228 million. In connection with the amendment to the merger agreement, we entered into a voting agreement with MSD and its affiliates, which together own approximately 10.2% of NSAM’s outstanding shares, pursuant to which MSD agreed to vote in favor of the Mergers and related proposals. In addition, Colony NorthStar, a Maryland subsidiary of NSAM that will be the surviving parent company of the combined company, filed with the SEC an amended registration statement on Form S-4 that includes a joint proxy statement of NorthStar Realty, Colony and NSAM and that also constitutes a prospectus of Colony NorthStar.
Inflation
Virtually all of our assets and liabilities are interest rate sensitive in nature. As a result, interest rates and other factors influence our performance significantly more than inflation does. A change in interest rates may correlate with inflation rates. Substantially all of the leases at our manufactured housing communities and multifamily properties allow for monthly or annual rent increases which provide us with the opportunity to achieve increases, where justified by the market, as each lease matures. Such types of leases generally minimize the risks of inflation on our manufactured housing communities and multifamily properties. Refer to Item 3. “Quantitative and Qualitative Disclosures About Market Risk” for additional details.

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Non-GAAP Financial Measures
We use CAD and NOI, each a non-GAAP measure, to evaluate our profitability.
Cash Available for Distribution
We believe that CAD provides investors and management with a meaningful indicator of operating performance. We also believe that CAD is useful because it adjusts for a variety of items that are consistent with presenting a measure of operating performance (such as transaction costs, N-Star CDO equity interests, depreciation and amortization, equity-based compensation, realized gain (loss) on investments, provision for loan losses, asset impairment, non-recurring bad debt expense and certain interest income and expense items). We adjust for transaction costs because these costs are not a meaningful indicator of our operating performance. For instance, these transaction costs include costs such as professional fees associated with new investments or restructuring of investments, which are expenses related to specific transactions. We adjust for N-Star CDO equity interests to represent the net economic interest generated from the N-Star CDO equity interests. This adjustment is a component of our ongoing return on such investments, and therefore, is adjusted in CAD as it provides investors and management with a meaningful indicator of our operating performance. Furthermore, CAD adjusts N-Star CDO bond discounts to record such investments on an effective yield basis over the expected weighted average life of the investment. N-Star CDO bond discounts relates to repurchased CDO bonds of consolidated CDO financing transactions at a discount to par. These CDO bonds typically have a low interest rate and the majority of the return is generated from repurchasing the CDO bonds at a discount to expected recovery value. Because the return generated through the accretion of the discount is a meaningful contributor to our operating performance, such accretion is adjusted in CAD. The computation for the accretion of the discount under U.S. GAAP and CAD is the same. However, for CDO financing transactions that are consolidated under U.S. GAAP, the CDO bonds are not presented as an investment but rather are eliminated in our consolidated financial statements. In addition, we adjust for distributions and adjustments to joint venture partners, which represent the net return generated from our investments allocated to our non-controlling interests. For our owned hotels, our CAD calculation does not make an adjustment for furniture, fixtures and equipment (FF&E) reserves. CAD may fluctuate from period to period based upon a variety of factors, including, but not limited to, the timing and amount of investments, repayments and asset sales, capital raised, use of leverage, changes in the expected yield of investments and the overall conditions in commercial real estate and the economy generally. Management also believes that quarterly distributions are principally based on operating performance and our board of directors includes CAD as one of several metrics it reviews to determine quarterly distributions to stockholders.
We calculate CAD by subtracting from or adding to net income (loss) attributable to common stockholders, non-controlling interests and the following items: depreciation and amortization items including straight-line rental income or expense, amortization of above/below market leases, amortization of deferred financing costs, amortization of discount on financings and other and equity-based compensation; net economic interest generated from N-Star CDO equity interests; accretion of consolidated N-Star CDO bond discounts; net interest income in consolidated N-Star CDOs; unrealized gain (loss) from the change in fair value; realized gain (loss) on investments and other, excluding accelerated amortization related to sales of CDO bonds or other investments; provision for loan losses, net; impairment on depreciable property; non-recurring bad debt expense; acquisition gains or losses; distributions and adjustments related to joint venture partners; transaction costs; foreign currency gains (losses); impairment on goodwill and other intangible assets; and one-time events pursuant to changes in U.S. GAAP and certain other non-recurring items.
CAD should not be considered as an alternative to net income (loss) attributable to common stockholders, determined in accordance with U.S. GAAP, as an indicator of operating performance. In addition, our methodology for calculating CAD involves subjective judgment and discretion and may differ from the methodologies used by other comparable companies, including other REITs, when calculating the same or similar supplemental financial measures and may not be comparable with these companies.
The following table presents a reconciliation of CAD to net income (loss) attributable to common stockholders for the three months ended September 30, 2016 (dollars in thousands):
Net income (loss) attributable to common stockholders
$
(100,351
)
Non-controlling interests
(3,506
)
 
 
Adjustments:
 
Depreciation and amortization items (1)
97,904

N-Star CDO bond discounts (2)
3,516

Net interest income in consolidated N-Star CDOs
(9,644
)
Unrealized (gain) loss from fair value adjustments / Provision for (reversal of) loan losses, net
26,549

Realized (gain) loss on investments (3)
2,170

Distributions / adjustments to joint venture partners
(9,714
)
Transaction costs and other (4)
76,569

CAD
$
83,493


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____________________________________________________________
(1)
Represents an adjustment to exclude depreciation and amortization of $84.9 million (including $0.2 million related to unconsolidated ventures), straight-line rental income of $(7.6) million, amortization of above/below market leases of $1.5 million, amortization of deferred financing costs of $12.7 million, amortization of discount on financings and other of $0.5 million and amortization of equity-based compensation of $5.9 million.
(2)
For CAD, discounts expected to be realized on N-Star CDO bonds for consolidated CDOs are accreted on an effective yield basis based on expected maturity. For deconsolidated N-Star CDOs, N-Star CDO bond accretion is already included in net income attributable to common stockholders.
(3)
Represents an adjustment to exclude a $4.4 million net gain related to the sale of real estate investments, a $(0.4) million loss related to the foreclosure of real estate, $(5.4) million non-cash loss related to securities in our consolidated CDOs, $(1.3) million loss related to the sale of manufactured homes, $0.5 million of other real estate gains and includes a $3.1 million gain related to acceleration of discount and fees.
(4)
Represents an adjustment to exclude $70.4 million of impairment, $3.6 million of transaction costs and include $2.5 million related to N-Star CDO equity interests.
Net Operating Income (NOI)
We believe NOI is a useful metric of the operating performance of our real estate portfolio in the aggregate. Portfolio results and performance metrics represent 100% for all consolidated investments and represent our ownership percentage for unconsolidated joint ventures. Net operating income represents total property and related revenues, adjusted for: (i) amortization of above/below market rent; (ii) straight line rent; (iii) other items such as adjustments related to joint ventures and non-recurring bad debt expense; and (iv) less property operating expenses. However, the usefulness of NOI is limited because it excludes general and administrative costs, interest expense, transaction costs, depreciation and amortization expense, realized gains (losses) from the sale of properties and other items under U.S. GAAP and capital expenditures and leasing costs necessary to maintain the operating performance of properties, all of which may be significant economic costs. NOI may fail to capture significant trends in these components of U.S. GAAP net income (loss) which further limits its usefulness.
NOI should not be considered as an alternative to net income (loss), determined in accordance with U.S. GAAP, as an indicator of operating performance. In addition, our methodology for calculating NOI involves subjective judgment and discretion and may differ from the methodologies used by other comparable companies, including other REITs, when calculating the same or similar supplemental financial measures and may not be comparable with these companies.The following table presents a reconciliation of NOI to property and other related revenues less property operating expenses for our property types in our real estate segment for the three months ended September 30, 2016 (dollars in thousands):

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Manufactured
 
 
 
 
 
Multi-tenant
 
Total
 
Healthcare (5)(6)
 
Hotel
 
Housing (6)
 
Net Lease
 
Multifamily (6)
 
Office
Property and other revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
Rental and escalation income
$
165,060

 
$
88,996

 
$
22

 
$
49,424

 
$
14,433

 
$
6,961

 
$
5,224

Hotel related income
220,578

 
—

 
220,578

 
—

 
—

 
—

 
—

Resident fee income
72,988

 
72,988

 
—

 
—

 
—

 
—

 
—

Other revenue (1)
2,929

 
585

 
83

 
1,408

 
332

 
368

 
153

Total property and other revenues
461,555

 
162,569


220,683


50,832


14,765


7,329


5,377

Real estate properties—operating expenses
236,992

 
68,056

 
140,513

 
19,882

 
2,584

 
3,621

 
2,336

Adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income (2)
3,033

 
1,470

 
11

 
1,548

 
4

 
—

 
—

Equity in earnings (3)
145

 
—

 
—

 
—

 
(166
)
 
311

 
—

Amortization and other items (4)
(5,013
)
 
(4,377
)
 
(34
)
 
—

 
(782
)
 
359

 
(179
)
NOI (7)
$
222,728


$
91,606


$
80,147


$
32,498


$
11,237


$
4,378


$
2,862

___________________________________________________________
(1)
Certain other revenue earned is not included as part of NOI, including collateral management fees for administrative services in our N-Star CDOs, that are not part of our real estate segment.
(2)
Primarily represents interest income earned from notes receivable on manufactured homes and loans in our healthcare portfolio.
(3)
Includes an adjustment related to our interest in an unconsolidated joint venture in a net lease and multifamily property.
(4)
Primarily includes amortization of straight-line rental income, amortization of above/below market leases and non-recurring bad debt.
(5)
The following table presents NOI by asset class within our healthcare property type for the three months ended September 30, 2016 (dollars in thousands):
 
Total
 
Medical
 
Senior Housing
 
Skilled
 
 
 
Healthcare
 
Office
 
Operating
 
Net Lease
 
Nursing
 
Hospitals
Property and other revenues
 
 
 
 
 
 
 
 
 
 
 
Rental and escalation income
$
88,996

 
$
39,435

 
$
—

 
$
13,930

 
$
29,710

 
$
5,921

Resident fee income
72,988

 
—

 
67,486

 
—

 
5,502

 
—

Other revenue
585

 
583

 
—

 
—

 
—

 
2

Total property and other revenues
162,569

 
40,018

 
67,486

 
13,930

 
35,212

 
5,923

Real estate properties—operating expenses
68,056

 
12,450

 
49,670

 
219

 
5,310

 
407

Adjustments:
 
 
 
 
 
 
 
 
 
 
 
Interest income
1,470

 
1

 
1

 
1,114

 
57

 
297

Amortization and other items
(4,377
)
 
(1,810
)
 
224

 
(730
)
 
(1,279
)
 
(782
)
NOI
$
91,606

 
$
25,759

 
$
18,041

 
$
14,095

 
$
28,680

 
$
5,031


(6)
During 2016, we entered into definitive agreements to sell certain of our real estate portfolios, including ten multifamily properties, of which five properties were sold as of September 30, 2016 , our manufactured housing portfolio and a portion of our medical office building portfolio.
(7)
The following table presents a reconciliation of NOI of our real estate segment to net income (loss) for the three months ended September 30, 2016 (dollars in thousands):
NOI
$
222,728

Adjustments:
 
Straight-line rental revenue and amortization of above/below-market leases
6,185

Interest expense—mortgage and corporate borrowings
(104,510
)
Other expenses
(6,267
)
Depreciation and amortization
(84,536
)
Unrealized gain (loss) on investments and other
(1,956
)
Realized gain (loss) on investments and other
6,378

Equity in earnings (losses) of unconsolidated ventures
25,887

Impairment losses
(70,433
)
Income tax benefit (expense)
(3,408
)
Other items
(1,069
)
Net income (loss) - Real estate segment
$
(11,001
)
Remaining segments (i)
(71,796
)
Net income (loss)
$
(82,797
)
________________________________________________________
(i)    Represents the net income (loss) of our remaining segments to reconcile to total net income (loss).

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Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are primarily subject to interest rate risk and credit risk. These risks are dependent on various factors beyond our control, including monetary and fiscal policies, domestic and international economic conditions and political considerations. Our market risk sensitive assets, liabilities and related derivative positions are held for investment and not for trading purposes.
Interest Rate Risk
Changes in interest rates affect our net income, which is the difference between the income earned on our investments and the interest expense incurred in connection with our borrowings and derivatives.
Our general financing strategy has focused on the use of “match-funded” structures. This means that we seek to align the maturities of our liabilities with the maturities on our assets as closely as possible in order to manage the risks of being forced to refinance our liabilities prior to the maturities of our assets. Substantially all of our investments are financed with non-recourse mortgage notes. In addition, we seek to match the interest rate on our assets with like-kind borrowings, so fixed-rate investments are financed with fixed-rate borrowings and floating-rate assets are financed with floating-rate borrowings, directly or indirectly, through the use of interest rate swaps, caps and other financial instruments or through a combination of these strategies. For longer duration, relatively stable investment real estate cash flows such as those derived from net lease assets, we tend to use fixed rate financing. For real estate cash flows with greater growth potential such as hotels and healthcare under a RIDEA structure, we tend to use floating rate financing which provides prepayment flexibility and may provide a better match between underlying cash flow projections and potential increases in interest rates.
Our CRE debt and securities investments bear interest at either a floating or fixed rate. The interest rate on our floating-rate assets is a fixed spread over an index such as LIBOR and typically reprices every 30 days based on LIBOR in effect at the time. Given the frequent and periodic repricing of our floating-rate assets, changes in benchmark interest rates are unlikely to materially affect the value of our floating-rate portfolio. Changes in short-term rates will, however, affect income from these investments. However, certain of our CRE debt originations have LIBOR floors that are in excess of current LIBOR. We will not benefit from an increase in LIBOR until it is in excess of the floors.
As of September 30, 2016 , a hypothetical 100 basis point increase in one-month LIBOR or the applicable index applied to our floating-rate assets and liabilities (and related derivatives) would result in a decrease in net income of approximately $ 44 million annually, of which $ 30 million of the change is attributable to floating rate financing of hotel and healthcare operating real estate and does not reflect the potential increase in cash flow associated with economic growth that may be typical in a rising interest rate environment.
A change in interest rates could affect the value of our fixed-rate CRE debt and securities investments and our real estate investments. For example, increasing interest rates could result in a higher required yield on investments, which could decrease the value on existing fixed-rate investments in order to adjust their yields to current market levels. In addition, the value of our real estate properties may be influenced by changes in interest rates and credit spreads (as discussed below) because value is typically derived by discounting expected future cash flow generated by the property using interest rates (such as the 10-year U.S. Treasury Note yield) plus a risk premium based on the property type and creditworthiness of the tenants/operators. A lower risk-free rate generally results in a lower discount rate and, therefore, a higher valuation, and vice versa; however, an increase in the risk-free rate would not impact our net income.
A change in the interest rate and credit spread may also impact our net book value as CRE securities are marked-to-market each quarter with any change in fair value reflected in unrealized gains (losses) or OCI. Generally, as interest rates increase, the value of fixed-rate securities within our CDO financing transaction, such as CMBS, decreases and as interest rates decrease, the value of these securities will increase. A change in unrealized gains (losses) do not directly affect our operating cash flow or our ability to pay a dividend to stockholders.
We use derivative instruments to manage interest rate exposure. These derivatives are typically in the form of interest rate swap or cap agreements and the primary objective is to minimize interest rate risks associated with our investments and financing activities. The counterparties of these arrangements are major financial institutions with which we may also have other financial relationships. We are exposed to credit risk in the event of non-performance by these counterparties and we monitor their financial condition. For example, in June 2015 we entered into a $2 billion notional 10-year fixed interest rate swap in order to seek to hedge against future refinancing costs of certain of our mortgage borrowings. This swap is currently materially out of the money and we have posted $99 million of margin as of November 7, 2016 for the benefit of our counterparty and may be subject to future margin calls. If an early termination event occurs now with respect to this swap, which could be triggered by a change of control or similar merger transaction, in addition to losing the margin we have posted we would currently be required to pay approximately $160 million to our counterparty. As of September 30, 2016 , our counterparties do not hold any cash margin as collateral against our remaining derivative contracts. As of September 30, 2016 , none of our derivatives qualify for hedge accounting treatment, therefore, gains (losses) resulting from their fair value measurement at the end of each reporting period are recognized as an increase or decrease in unrealized gain (loss) on investments and other in our consolidated statements of operations. In addition,

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we are, and may in the future be, subject to additional expense based on the notional amount of the derivative and a specified spread over the applicable LIBOR. Because the fair value of these instruments can vary significantly between periods, we may experience significant fluctuations in the amount of our unrealized gain (loss) in any given period. As of September 30, 2016 , a hypothetical 100 basis point increase (decrease) in the 10-year treasury forward curve applied to our interest rate swap would result in an unrealized gain (loss) of approximately $172 million .
Credit Spread Risk
The value of our fixed and floating-rate investments also changes with market credit spreads. This means that when market-demanded risk premium, or credit spread, increases, the value of our fixed- and floating-rate assets decrease and vice versa. Fixed-rate assets are valued based on a market credit spread over the rate payable on fixed rate U.S. Treasury of like maturity. This means that their value is dependent on the yield demanded on such assets by the market, based on their credit relative to U.S. Treasuries. Floating-rate CRE debt and securities investments are valued based on a market credit spread over the applicable LIBOR. Demand for a higher yield on investments results in higher or “wider” spread over the benchmark rate (usually the applicable U.S. Treasury yield) to value these assets. Under these conditions, the value of our portfolio should decrease. Conversely, if the spread used to value these assets were to decrease or “tighten,” the value of these assets should increase.
Credit Risk
We are subject to the credit risk of the tenant/operators of our properties. We seek to undertake a rigorous credit evaluation of each tenant and healthcare operator prior to acquiring properties. This analysis includes an extensive due diligence investigation of the tenant/operator’s business as well as an assessment of the strategic importance of the underlying real estate to the tenant/operator’s core business operations. Where appropriate, we may seek to augment the tenant/operator’s commitment to the facility by structuring various credit enhancement mechanisms into the underlying leases. These mechanisms could include security deposit requirements or guarantees from entities we deem creditworthy. In addition, we actively monitor lease coverage at each facility within our healthcare portfolio.
Credit risk in our CRE debt and securities investments relates to each individual borrower’s ability to make required interest and principal payments on scheduled due dates. We seek to manage credit risk through a comprehensive credit analysis prior to making an investment, actively monitoring our portfolio and the underlying credit quality, including subordination and diversification of our portfolio. Our analysis is based on a broad range of real estate, financial, economic and borrower-related factors which we believe are critical to the evaluation of credit risk inherent in a transaction.
Our CRE debt investments are collateral dependent, meaning the principal source of repayment is from a sale or refinancing of the collateral securing our debt. In the event that a borrower cannot repay our debt, we may exercise our remedies under the debt agreements, which may include taking title to collateral. We describe many of the options available to us in this situation in the “Portfolio Management” section in Part I, Item 1. “Business.” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 . To the extent the value of the collateral underlying a CRE debt investment exceeds the carrying value of the investment (including all debt senior to us) and the expense we incur in collecting the debt, we would collect 100% of our investment. To the extent the carrying value of our CRE debt investment plus all senior debt to our position exceeds the realizable value to our collateral (net of expenses), then we would incur a loss. CMBS investments are generally junior in right of payment of interest and principal to one or more senior classes but benefit from the support of one or more subordinate classes of securities or other form of credit support within a securitization transaction.

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Item 4. Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this report, management conducted an evaluation as required under Rules 13a-15(b) and 15d-15(b) under the Securities Exchange Act of 1934, as amended, or Exchange Act, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act).
Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures to disclose material information otherwise required to be set forth in the Company’s periodic reports.
Internal Control over Financial Reporting
Changes in internal control over financial reporting.
There have not been any changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


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PART II
Item 1. Legal Proceedings
We are involved in various litigation matters arising in the ordinary course of our business. Although we are unable to predict with certainty the eventual outcome of any litigation, in the opinion of management, our current legal proceedings are not expected to have a material adverse effect on our financial position or results of operations. Refer to Note 15. “Commitments and Contingencies” in Part I, Item 1. “Financial Statements” for further disclosure regarding legal proceedings.
Item 6. Exhibits
Exhibit
Number
 
Description of Exhibit
2.1
 
Agreement and Plan of Merger, dated as of August 5, 2014, by and among NorthStar Realty Finance Corp., NRF Healthcare Subsidiary, LLC, NRF OP Healthcare Subsidiary, LLC, Griffin-American Healthcare REIT II Holdings, LP and Griffin-American Healthcare REIT II, Inc. (incorporated by reference to Exhibit 2.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on August 5, 2014).
2.2
 
Agreement and Plans of Merger, dated as of June 2, 2016, among NorthStar Realty Finance Corp., Colony Capital, Inc., NorthStar Asset Management Group Inc., New Polaris Inc., New Sirius Inc., NorthStar Realty Finance Limited Partnership, Sirius Merger Sub-T, LLC and New Sirius Merger Sub, LLC (incorporated by reference to Exhibit 2.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on June 8, 2016)
2.3
 
Agreement, dated as of June 2, 2016, among NorthStar Realty Finance Corp., Colony Capital, Inc. and NSAM J-NRF Ltd (incorporated by reference to Exhibit 2.2 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on June 8, 2016)
2.4
 
Letter Agreement, dated as of October 16, 2016, among NorthStar Realty Finance Corp., Colony Capital, Inc., NorthStar Asset Management Group Inc., Colony NorthStar, Inc. (formerly known as New Polaris Inc.), New Sirius Inc., NorthStar Realty Finance Limited Partnership, Sirius Merger Sub-T, LLC and New Sirius Merger Sub, LLC. (incorporated by reference to Exhibit 2.3 to Amendment No. 2 to Colony NorthStar, Inc.’s Registration Statement on Form S-4 (No. 333-212739) filed on October 17, 2016)
3.1
 
Articles of Restatement of NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 3.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on August 7, 2014)
3.2
 
Articles of Amendment to the Charter of NorthStar Realty Finance Corp., dated October 30, 2015 and effective November 1, 2015(incorporated by reference to Exhibit 3.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on November 2, 2015)
3.3
 
Articles of Amendment to the Charter of NorthStar Realty Finance Corp., dated October 30, 2015 and effective November 1, 2015(incorporated by reference to Exhibit 3.2 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on November 2, 2015)
3.4
 
Amended and Restated Bylaws of NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 3.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on June 3, 2016)
4.1
 
Registration Rights Agreement relating to the 7.25% Exchangeable Senior Notes due 2027 of NorthStar Realty Finance Limited Partnership, dated June 18, 2007 (incorporated by reference to Exhibit 4.2 to NorthStar Realty Finance Corp.’s Registration Statement on Form S-3 (File No. 333-146679))
4.2
 
Indenture dated as of June 18, 2007, among NorthStar Realty Finance Limited Partnership, as Issuer, NorthStar Realty Finance Corp., as Guarantor, and Wilmington Trust Company, as Trustee (incorporated by reference to Exhibit 4.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on June 22, 2007)
4.3
 
Supplemental Indenture dated as of June 30, 2014, relating to the 7.25% Exchangeable Senior Notes, by and among NorthStar Realty Finance Corp., NRFC Sub-REIT Corp. (renamed NorthStar Realty Finance Corp.) and Wilmington Trust, National Association (incorporated by reference to Exhibit 4.9 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2014)
4.4
 
Second Supplemental Indenture, relating to the 7.25% Exchangeable Senior Notes, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and Wilmington Trust Company, further supplementing the Indenture, dated as of June 18, 2007 and supplemented by the first Supplemental Indenture thereto dated June 30, 2014, by and among NorthStar Realty Finance Corp. and Wilmington Trust Company (incorporated by reference to Exhibit 4.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.5
 
Registration Rights Agreement relating to the 8.875% Exchangeable Senior Notes due 2032 of NorthStar Realty Finance Limited Partnership, dated as of June 12, 2012 (incorporated by reference to Exhibit 4.4 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed June 12, 2012)
4.6
 
Indenture dated as of June 12, 2012, among NorthStar Realty Finance Limited Partnership, as Issuer, NorthStar Realty Finance Corp. and NRFC Sub-REIT Corp., as Guarantors, and Wilmington Trust, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed June 12, 2012)
4.7
 
Supplemental Indenture, relating to the 8.875% Exchangeable Senior Notes, dated as of June 30, 2014, by and among NorthStar Realty Finance Corp., NRFC Sub-REIT Corp. (renamed NorthStar Realty Finance Corp.) and Wilmington Trust, National Association (incorporated by reference to Exhibit 4.6 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2014)
4.8
 
Second Supplemental Indenture, relating to the 8.875% Exchangeable Senior Notes, dated as of March 13, 2015 and supplemented on June 30, 2014, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and Wilmington Trust, National Association, further supplementing the Indenture, dated as of June 12, 2012 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, by and among NorthStar Realty Finance Corp. and Wilmington Trust, National Association (incorporated by reference to Exhibit 4.2 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.9
 
Registration Rights Agreement relating to the 5.375% Exchangeable Senior Notes due 2033 of NorthStar Realty Finance Limited Partnership, dated as of June 19, 2013 (incorporated by reference to Exhibit 4.4 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed June 19, 2013)
4.10
 
Indenture, dated as of June 19, 2013, among NorthStar Realty Finance Limited Partnership, as Issuer, NorthStar Realty Finance Corp. and NRFC Sub-REIT Corp., as Guarantors, and Wilmington Trust, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed June 19, 2013)

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Exhibit
Number
 
Description of Exhibit
4.11
 
Supplemental Indenture dated as of June 30, 2014, relating to the 5.375% Exchangeable Senior Notes, by and among NorthStar Realty Finance Corp., NRFC Sub-REIT Corp. (renamed NorthStar Realty Finance Corp.) and Wilmington Trust, National Association (incorporated by referent to Exhibit 4.3 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2014)
4.12
 
Second Supplemental Indenture, relating to the 5.375% Exchangeable Senior Notes, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and Wilmington Trust, National Association, further supplementing the Indenture, dated as of June 19, 2013 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, by and among NorthStar Realty Finance Corp. and Wilmington Trust, National Association (incorporated by reference to Exhibit 4.3 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.13
 
Indenture, dated as of March 31, 2014, between NorthStar Realty Finance Corp. and Wilmington Trust, National Association, as Trustee (including the Form of Security) (incorporated by reference to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed March 31, 2014)
4.14
 
Second Supplemental Indenture, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and The Bank of New York Mellon Trust Company, N.A., further supplementing the Indenture, dated as of April 12, 2005 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, between NorthStar Realty Finance Corp. and The Bank of New York Mellon Trust Company, N.A. (as successor trustee to JPMorgan Chase Bank, National Association) (incorporated by reference to Exhibit 4.4 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.15
 
Second Supplemental Indenture, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and The Bank of New York Mellon Trust Company, N.A., further supplementing the Indenture, dated as of May 25, 2005 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, between NorthStar Realty Finance Corp. and The Bank of New York Mellon Trust Company, N.A. (as successor trustee to JPMorgan Chase Bank, National Association) (incorporated by reference to Exhibit 4.5 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.16
 
Second Supplemental Indenture, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and The Bank of New York Mellon Trust Company, N.A., further supplementing the Indenture, dated as of November 22, 2005 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, between NorthStar Realty Finance Corp. and The Bank of New York Mellon Trust Company, N.A. (as successor trustee to JPMorgan Chase Bank, National Association) (incorporated by reference to Exhibit 4.6 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.17
 
Second Supplemental Indenture, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and Wilmington Trust Company, further supplementing the Indenture, dated as of March 10, 2006 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, between NorthStar Realty Finance Corp. and Wilmington Trust Company (incorporated by reference to Exhibit 4.7 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.18
 
Second Supplemental Indenture, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and Wilmington Trust Company, further supplementing the Indenture, dated as of August 1, 2006 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, between NorthStar Realty Finance Corp. and Wilmington Trust Company (incorporated by reference to Exhibit 4.8 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.19
 
Second Supplemental Indenture, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and Wilmington Trust Company, further supplementing the Indenture, dated as of October 6, 2006 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, between NorthStar Realty Finance Corp. and Wilmington Trust Company (incorporated by reference to Exhibit 4.9 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.20
 
Second Supplemental Indenture, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and Wilmington Trust Company, further supplementing the Indenture, dated as of March 30, 2007 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, between NorthStar Realty Finance Corp. and Wilmington Trust Company (incorporated by reference to Exhibit 4.10 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.21
 
Second Supplemental Indenture, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and Wilmington Trust Company, further supplementing the Indenture, dated as of June 7, 2007 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, between NorthStar Realty Finance Corp. and Wilmington Trust Company (incorporated by reference to Exhibit 4.11 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.22
 
Indenture, dated as of July 1, 2015, by and among NorthStar Realty Europe Corp., NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and Wilmington Trust, National Association (incorporated by reference to Exhibit 4.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2015)
4.23
 
Form of Note of NorthStar Realty Europe Corp. (incorporated by reference to Exhibit 4.2, which is included in Exhibit 4.1, to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2015)
4.24
 
Form of Guarantee of NorthStar Realty Finance Corp. and NorthStar Realty Finance Limited Partnership (incorporated by reference to Exhibit 4.3, which is included in Exhibit 4.1, to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2015)
 
 
Certain Instruments defining the rights of holders of long-term debt securities of the Registrant and its subsidiaries are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K. The Registrant hereby undertakes to furnish to the SEC, upon request, copies of any such instruments.
10.1
+
NorthStar Realty Finance Corp. Executive Incentive Bonus Plan (incorporated by reference to Exhibit 10.31 to NorthStar Realty Finance Corp.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009)
10.2
+
Amendment to the NorthStar Realty Finance Corp. Executive Incentive Bonus Plan (incorporated by reference to Exhibit 10.26 to NorthStar Realty Finance Corp.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011)
10.3
+
Form of Amended and Restated Indemnification Agreement for directors and officers of NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.25 to NorthStar Realty Finance Corp.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011)

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Exhibit
Number
 
Description of Exhibit
10.4
 
Subscription Agreement dated as of December 10, 2012, by and among NRFC PE Fund Investor LLC, NRFC Inception, LP, Inception GP, LLC, Teachers Insurance and Annuity Association of America and NRFC PE Fund GP, LLC, portions of which have been omitted pursuant to a request for confidential treatment (incorporated by reference to Exhibit 10.23 to Amendment No. 1 to NorthStar Realty Finance Corp.’s Annual Report on Form 10-K/A for the year ended December 31, 2013)
10.5
+
Amendment to the NorthStar Realty Finance Corp. Executive Incentive Bonus Plan (incorporated by reference to Exhibit 10.30 to NorthStar Realty Finance Corp.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013)
10.6
 
Purchase and Sale Agreement, effective as of February 15, 2013 among NRFC MH II Holdings, LLC. ARC Real Estate Holdings, LLC and certain of its affiliates (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K/A filed May 6, 2013)
10.7
 
Amendment to Purchase and Sale Agreement, made as of March 27, 2013 among NRFC MH II Holdings, LLC, ARC Real Estate Holdings, LLC and certain of its affiliates (incorporated by reference to Exhibit 10.2 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K/A filed May 6, 2013)
10.8
 
Master Repurchase Agreement, dated as of March 11, 2013, by and among NRFC DB Loan, LLC, as master seller, and Deutsche Bank AG, Cayman Islands Branch, as buyer (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed March 12, 2013)
10.9
 
Limited Guaranty, dated as of March 11, 2013, executed and delivered by NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and NRFC Sub-REIT Corp. to Deutsche Bank AG, Cayman Islands Branch (incorporated by reference to Exhibit 10.2 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed March 12, 2013)
10.10
+
Third Amended and Restated 2004 Omnibus Stock Incentive Plan of NorthStar Realty Finance Corp. (incorporated by reference to Appendix A to NorthStar Realty Finance Corp.’s Definitive Proxy Statement on Schedule 14A filed May 13, 2016)
10.11
 
Agreement of Purchase and Sale, dated as of June 12, 2013, by and between Project Shore JV I, LLC and Project Shore JV II, LLC, as Buyers, and Common Pensions Fund E, as Seller (incorporated by reference to Exhibit 10.36 to NorthStar Realty Finance Corp.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013)
10.12
 
Portfolio Acquisition Agreement and Interest Purchase and Sale Agreement dated as of March 14, 2014, by and among Seller (as defined therein) Eclipse Health Holdings-T, LLC, as Purchaser, Formation Capital Asset Management III LLC and Safanad, Inc., as Stakeholder Representatives and Madison Title Agency, LLC, as Escrow Agent (solely for the purposes of Sections 4(b), 11(l) and 34(c)) (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed March 17, 2014)
10.13
 
Limited Liability Company Agreement of Eclipse Investment, LLC, dated as of May 7, 2014, by and between FC Eclipse Investment, LLC and Eclipse Health Holdings-T, LLC (incorporated by reference to Exhibit A to the Portfolio Acquisition Agreement and Interest Purchase and Sale Agreement filed as Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed March 17, 2014)
10.14
 
Separation Agreement, dated June 30, 2014, between NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2014)
10.15
 
Amended and Restated Asset Management Agreement, dated as of October 31, 2015, between NSAM J-NRF Ltd and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on November 2, 2015)
10.16
 
Loan Origination Services Agreement, dated June 30, 2014, between NSAM US LLC and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.3 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2014)
10.17
 
Tax Disaffiliation Agreement, dated June 30, 2014, between NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.4 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2014)
10.18
 
Employee Matters Agreement, dated June 30, 2014, between NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.5 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2014)
10.19
 
Contribution Agreement, dated June 30, 2014, between NorthStar Asset Management Group Inc. and NRFC Sub-REIT Corp. (renamed NorthStar Realty Finance Corp.) (incorporated by reference to Exhibit 10.6 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2014)
10.20
 
Credit Agreement, dated June 30, 2014, between NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.7 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2014)
10.21
 
Amended and Restated Agreement of Limited Partnership of NorthStar Realty Finance Limited Partnership (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
10.22
 
Debt Commitment Letter, dated as of August 5, 2014, by and among NorthStar Realty Finance Corp., Citigroup Global Markets Inc., JPMorgan Chase Bank, National Association, Barclays Bank plc, and Column Financial, Inc. (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on August 5, 2014)
10.23
 
Confirmation of Registered Forward Transaction, dated September 3, 2014, by and among NorthStar Realty Finance Corp., Deutsche Bank Securities Inc. and Deutsche Bank AG, London Branch, including the First Amendment thereto dated September 4, 2014(incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on September 9, 2014)
10.24
 
Asset Purchase Agreement, dated as of September 17, 2014, by and among Inland American Real Estate Trust, Inc., as Parent, IHP I Owner JV, LLC, as Buyer I, IHP West Homestead (PA) Owner LLC, as Buyer II, and NorthStar Realty Finance Corp., as Buyer Parent (solely for the purposes of Article V, Section 10.11 and Article X as it relates to Article V and Section 10.11) (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on September 23, 2014)
10.25
 
Amended and Restated Facility Agreement, dated as of March 13, 2015, by and among NorthStar Realty Finance Limited Partnership, NorthStar Realty Finance Corp. and UBS AG Stamford Branch (incorporated by reference to Exhibit 10.2 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
10.26
 
Form of Credit Agreement, by and among NorthStar Realty Finance Limited Partnership, as borrower, NorthStar Realty Finance Corp., as guarantor, the various lenders party thereto from time to time and UBS AG Stamford Branch, as administrative agent (incorporated by reference to Exhibit 10.3 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)

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Exhibit
Number
 
Description of Exhibit
10.27
 
Loan Agreement dated as of December 3, 2014, among the Borrowers party thereto, as borrowers, and Citigroup Global Markets Realty Corp., JPMorgan Chase Bank, National Association, Barclays Bank PLC and Column Financial, Inc., as lenders (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on December 9, 2014)
10.28
 
Facility Agreement, dated as of December 3, 2014, among GA HC REIT II CH U.K. Senior Housing Portfolio Limited (as Original Borrower upon its accession in accordance with the terms thereof), the Original Borrower and certain of its subsidiaries (as Original Guarantors upon their accession in accordance with the terms thereof), NorthStar Realty Healthcare, LLC (as Indemnitor) and arranged by Credit Suisse AG, London Branch (as Mandated Lead Arranger and Original Lender), with Elavon Financial Services Limited as Agent, and U.S. Bank Trustees Limited as Security Agent (incorporated by reference to Exhibit 10.2 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on December 9, 2014)
10.29
 
Mezzanine A Loan Agreement dated as of December 3, 2014, among HC Mezz 1-T, LLC, Glenwood Owner MB1-T, LLC, Glenwood Ops MB2-T, LLC, MA Owner MB1-T, LLC, MA Ops MB2-T, LLC, CCRC Owner MB1-T, LLC and CCRC Ops MB2-T, LLC, as borrowers, and Citigroup Global Markets Realty Corp., JPMorgan Chase Bank, National Association, Barclays Bank PLC and Column Financial, Inc., as lenders (incorporated by reference to Exhibit 10.3 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on December 9, 2014)
10.30
 
Mezzanine B Loan Agreement dated as of December 3, 2014, among HC Mezz 2-T, LLC, Glenwood Owner MB2-T, LLC, Glenwood Ops MB3-T, LLC, MA Owner MB2-T, LLC, MA Ops MB3-T, LLC, CCRC Owner MB2-T, LLC and CCRC Ops MB3-T, LLC, as borrowers, and Citigroup Global Markets Realty Corp., JPMorgan Chase Bank, National Association, Barclays Bank PLC and Column Financial, Inc., as lenders (incorporated by reference to Exhibit 10.4 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on December 9, 2014)
10.31
 
Mezzanine C Loan Agreement dated as of December 3, 2014, among HC Mezz 3-T, LLC, Glenwood Owner MB3-T, LLC, Glenwood Ops MB4-T, LLC, MA Owner MB3-T, LLC, MA Ops MB4-T, LLC, CCRC Owner MB3-T, LLC and CCRC Ops MB4-T, LLC, as borrowers, and Citigroup Global Markets Realty Corp., JPMorgan Chase Bank, National Association, Barclays Bank PLC and Column Financial, Inc., as lenders (incorporated by reference to Exhibit 10.5 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on December 9, 2014)
10.32
 
Umbrella Agreement, dated December 22, 2014, by and among Prime Holdco C-T, S.à r.l., Prime GER Drehbahn - T S.à r.l., Prime GER Valentinskamp - T S.à r.l. and Trias Pool II A - T S.à r.l., as Buyers, and SEB Investment GmbH (“SEB”), SEB Investment GmbH, Filiale di Milano, SEB Investment GmbH, French Branch SEB Investment GmbH, Altair Issy S.A.S. and Balni bvba (SPRL), as Sellers (incorporated by reference to Exhibit 10.32 to NorthStar Realty Finance Corp.’s Annual Report on Form 10-K for the year ended December 31, 2014)
10.33
 
Umbrella Sale and Purchase Agreement, dated as of February 16, 2015, between SEB Investment GmbH, SEB Investment GmbH, Filiale di Milano, SEB Investment GmbH, French Branch SEB Investment GmbH, Altair Issy S.A.S. and Balni bvba (SPRL), collectively as the Sellers, and certain subsidiaries of the Company listed therein, as Buyers (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on February 20, 2015)
10.34
 
Confirmation of Registered Forward Transaction, dated March 2, 2015, by and among the Company, the Forward Seller and the Forward Counterparty, including the First Amendment thereto dated March 3, 2015 (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 6, 2015)
10.35
 
Amended and Restated Credit and Guaranty Agreement, dated as of May 5, 2015, by and among NorthStar Realty Finance Limited Partnership, as borrower, NorthStar Realty Finance Corp., as parent guarantor, certain subsidiaries of parent guarantor, as guarantors, the various lenders party thereto from time to time, Deutsche Bank AG New York Branch, as administrative agent and collateral agent, and Deutsche Bank Securities Inc., as sole lead arranger and sole bookrunner (incorporated by reference to Exhibit 10.34 to NorthStar Realty Finance Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015)
10.36
 
Second Amendment to Registered Forward Transaction, dated August 31, 2015, by and among the Company, the Forward Seller and the Forward Counterparty (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on September 1, 2015)
10.37
 
First Amendment to the Amended and Restated Agreement of Limited Partnership of NorthStar Realty Finance Limited Partnership, dated as of November 1, 2015 (incorporated by reference to Exhibit 10.2 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on November 2, 2015)
10.38
 
Separation Agreement, dated as of October 31, 2015, between NorthStar Realty Finance Corp. and NorthStar Realty Europe Corp.(incorporated by reference to Exhibit 10.3 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on November 2, 2015)
10.39
 
Contribution Agreement, dated as of October 31, 2015, between NorthStar Realty Finance Corp. and NorthStar Realty Europe Corp. (incorporated by reference to Exhibit 10.4 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on November 2, 2015)
10.40
 
Limited Consent and First Amendment to Amended and Restated Credit and Guaranty Agreement, dated as of September 28, 2015, by and among NorthStar Realty Finance Limited Partnership, as borrower, NorthStar Realty Finance Corp., as parent guarantor, and certain subsidiaries of NorthStar Realty Finance Corp., as guarantors, and Deutsche Bank AG New York Branch, as administrative agent, with the consent of the requisite lenders, with reference to that certain Amended and Restated Credit and Guaranty Agreement, dated as of May 5, 2015 (incorporated by reference to Exhibit 10.40 to NorthStar Realty Finance Corp.’s Annual Report on Form 10-K for the year ended December 31, 2015)
10.41
 
Second Amendment to Amended and Restated Credit and Guaranty Agreement, dated as of February 23, 2016, by and among NorthStar Realty Finance Limited Partnership, as borrower, NorthStar Realty Finance Corp., as parent guarantor, and certain subsidiaries of NorthStar Realty Finance Corp., as guarantors, and Deutsche Bank AG New York Branch, as administrative agent, with the consent of the requisite lenders, with reference to that certain Amended and Restated Credit and Guaranty Agreement, dated as of May 5, 2015 (incorporated by reference to Exhibit 10.41 to NorthStar Realty Finance Corp.’s Annual Report on Form 10-K for the year ended December 31, 2015)
10.42
 
Interest Sale Agreement, dated as of May 6, 2016, among RHP Western Portfolio Group, LLC, American Home Portfolio Group, LLC, AMC Portfolio Group, LLC, and MHC Portfolio IV, LLC, and BSREP II MH Holdings LLC, a Delaware limited liability company (incorporated by reference to Exhibit 10.42 to NorthStar Realty Finance Corp.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016)
10.43
+
Executive Letter Agreement, dated June 2, 2016, among Debra Hess, NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on June 8, 2016)
10.44
+
Executive Letter Agreement, dated June 2, 2016, among Daniel Gilbert, NorthStar Asset Management Group Inc., NorthStar Realty Finance Corp., NorthStar Asset Management Group, LTD. and NSAM Bermuda, LTD (incorporated by reference to Exhibit 10.2 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on June 8, 2016)

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Table of Contents

Exhibit
Number
 
Description of Exhibit
10.45
+
Executive Letter Agreement, dated June 2, 2016, among David T. Hamamoto, NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.3 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on June 8, 2016)
10.46
+
Executive Letter Agreement, dated June 2, 2016, among Ronald J. Lieberman, NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.4 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on June 8, 2016)
10.47
+
Executive Letter Agreement, dated June 2, 2016, among Albert Tylis, NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.5 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on June 8, 2016)
10.48
+
Side Letter, dated October 13, 2016, amending Executive Letter Agreement, dated June 2, 2016, among Debra Hess, NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on October 17, 2016)
10.49
+
Side Letter, dated October 13, 2016, amending Executive Letter Agreement, dated June 2, 2016, among Daniel R. Gilbert, NorthStar Asset Management Group Inc., NorthStar Realty Finance Corp., NorthStar Asset Management Group, LTD. and NSAM Bermuda, LTD. (incorporated by reference to Exhibit 10.2 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on October 17, 2016)
10.50
+
Side Letter, dated October 13, 2016, amending Executive Letter Agreement, dated June 2, 2016, among David T. Hamamoto, NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.3 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on October 17, 2016)
10.51
+
Side Letter, dated October 13, 2016, amending Executive Letter Agreement, dated June 2, 2016, among Ronald J. Lieberman, NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.4 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on October 17, 2016)
10.52
+
Side Letter, dated October 13, 2016, amending Executive Letter Agreement, dated June 2, 2016, among Albert Tylis, NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.5 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on October 17, 2016)
12.1
*
Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
31.1
*
Certification by the Chief Executive Officer pursuant to 17 CFR 240.13a-14(a)/15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
*
Certification by the Chief Financial Officer pursuant to 17 CFR 240.13a-14(a)/15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
*
Certification by the Chief Executive Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2
*
Certification by the Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101
*
The following materials from the NorthStar Realty Finance Corp. Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of September 30, 2016 (unaudited) and December 31, 2015; (ii) Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2016 and 2015; (iii) Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three and nine months ended September 30, 2016 and 2015; (iv) Consolidated Statements of Equity for the nine months ended September 30, 2016 (unaudited) and year ended December 31, 2015; (v) Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2016 and 2015; and (vi) Notes to Consolidated Financial Statements (unaudited)
____________________________________________________________
* Filed herewith.
+ Denotes management contract or compensatory plan or arrangement required to be filed as an exhibit hereto.

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Table of Contents

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
NorthStar Realty Finance Corp.
Date:
November 9, 2016
 
 
By:
/s/ JONATHAN A. LANGER
 
 
 
 
 
Jonathan A. Langer
 
 
 
 
 
Chief Executive Officer
 
 
 
 
 
 
 
 
 
 
By:
/s/ DEBRA A. HESS
 
 
 
 
 
Debra A. Hess
 
 
 
 
 
Chief Financial Officer


113