NEW YORK, March 15, 2017
/PRNewswire/ -- NorthStar Realty Europe Corp. (NYSE: NRE)
("NorthStar Realty Europe" or "NRE" ), a European office REIT,
today announced its results for the fourth quarter
ended December 31, 2016.
Highlights
- U.S. GAAP net income to common stockholders of $13.9 million, or $0.24 per diluted share for the fourth quarter
2016 and net loss to common stockholders for the year ended 2016 of
$(61.8) million or $(1.07) per diluted share
- Cash available for distribution ("CAD") of $9.9 million, or $0.17 per share for the quarter and $0.87 per share for the full year
- Cushman & Wakefield LLP1 issued an
independent third party year-end valuation of approximately
$2.0 billion for NRE's real estate
portfolio ("Portfolio Market Value"), in line with the mid-year
valuation
- Continued progress of NRE's capital recycling plan with 19
non-strategic properties sold since January
2016 through March 1, 2017 for
a combined sales price in excess of $445
million, a slight premium to the latest available
independent valuation
- Fully settled $340 million
4.625% senior stock-settable notes in cash
- Fourth quarter 2016 cash dividend of $0.15 per share
- Approximately 27,000 sqm (7% of the portfolio) leased or
renewed in 2016
- On January 10, 2017, NRE's
manager completed a tri-party merger to form Colony NorthStar,
Inc.
Fourth Quarter 2016 Results
NRE reported net income to common stockholders for the fourth
quarter 2016 of $13.9 million, or $0.24 per diluted
share and net loss to common stockholders for the year ended 2016
of $(61.8) million or $(1.07) per diluted share. CAD for the fourth
quarter of 2016 was $9.9 million,
or $0.17 per share and $0.87 per
share for the full year. The fourth quarter 2016 CAD included the following items: (i)
property operating expenses of approximately $(2.2) million, or $(0.03) per share; and (ii) audit and other
corporate G&A expenses of $0.4
million or ($0.01) per diluted
share. The fourth quarter CAD includes an element of non-recurring
expenses that we do not anticipate being the run-rate in the
future. Excluding these non-recurring expenses, CAD per share for
the fourth quarter 2016 would have been approximately $0.21 per share. For more information and a
reconciliation of CAD to net income (loss) attributable to common
stockholders, please refer to the tables on the following
pages.
Mahbod Nia, Chief Executive
Officer, commented, "We are pleased to report a productive year in
which we reshaped our portfolio to focus primarily on high quality
office properties in key cities within Germany, the United
Kingdom and France.
Consistent with this strategy, we sold 19 non-strategic properties
during the year through March 1, 2017
at a collective premium to their independent valuation, reduced
leverage and strengthened our balance sheet. In parallel, through
active management of our properties, we successfully leased or
renewed over 7% of the overall portfolio." Mr. Nia continued,
"Looking ahead, despite the geopolitical uncertainty across
Europe, we remain confident in the
strong macroeconomic fundamentals as well as the quality and
diversity of our portfolio and its income profile."
Property Disposals
- Since January 2016 through
March 1, 2017, NRE sold 19
non-strategic properties for a combined sales price in excess of
$445 million, representing a slight
premium to the latest available independent valuation.
Portfolio Results and Performance Metrics
Below are the portfolio results and performance metrics for the
fourth quarter 2016.
- As of March 1, 2017, NRE owned 30
properties across six countries valued at approximately
$2.0 billion based on the Portfolio
Market Value.
- As of December 31, 2016, adjusted
for sales through March 1, 2017,
NRE's overall portfolio was 84%2 occupied with a 6.2
year weighted average remaining contractual lease term.
- As of December 31, 2016, NRE's
core portfolio3 of predominantly prime office properties
represented 88% of the overall Portfolio Market Value and 83% of
rental income. The core portfolio was 92% occupied with a 6.8 year
weighted average remaining contractual lease term.
- Net income to common stockholders for the fourth quarter 2016
totaled $13.9 million and net
operating income, or NOI, was $23.9
million. For more information and a reconciliation of NOI to
net income attributable to common stockholders, please refer to the
tables on the following pages.
- As of December 31, 2016, total
equity was $600 million (U.S. GAAP
depreciated value), or $10.67 per
diluted share.
- EPRA4 net asset value, or EPRA NAV, of $15.88 per diluted share as of December 31, 2016, based on the Portfolio Market
Value. The change compared to the third quarter of 2016 being
primarily due to foreign exchange translation that was partially
offset by the impact of share repurchases and a slight uplift in
the year-end independent valuation. For more information and a
reconciliation of EPRA NAV to total equity, please refer to the
tables on the following pages.
- We seek to mitigate foreign currency exposure to NRE's cash
flow through FX forward contracts.
Liquidity, Financing and Capital Markets
Highlights
Unrestricted Cash
- Unrestricted cash as of December 31,
2016 was approximately $66.3
million. Unrestricted cash as of March 13, 2017 was approximately $55.7 million.
Corporate Debt
- During the fourth quarter 2016, NRE repaid its outstanding
4.625% senior stock-settable notes in cash, generating
approximately $16 million of interest
savings on an annual basis going forward.
- No borrowings are outstanding under NRE's revolving credit
facility as of March 13, 2017.
Stockholders' Equity
- On November 23, 2015, the board
of directors of NRE authorized the repurchase of up to $100 million of the company's outstanding common
stock. For the year ended December 31,
2016, NRE repurchased 5.7 million shares of its common stock
for approximately $59 million at a
weighted average price of $10.36 per
share. From November 2015 through
December 31, 2016, NRE repurchased
9.3 million shares of its common stock for approximately
$100 million at a weighted average
price of $10.71 per share.
- On November 2, 2016, the board of
directors of NRE authorized the repurchase of up to an additional
$100 million of its outstanding
common stock. The repurchases may occur from time to time in the
open market and/or in privately negotiated transactions. The
authorization will expire on November 2,
2017, unless otherwise extended by NRE's board of
directors.
- As of December 31, 2016, NRE had
56.2 million total common shares outstanding, including LTIPs and
RSUs not subject to performance hurdles.
- On January 10, 2017, NRE's
external manager, NorthStar Asset Manager Group Inc. ("NSAM"),
completed a tri-party merger with NorthStar Realty Finance Corp.
("NorthStar Realty") and Colony Capital, Inc. ("Colony"), under
which the companies combined in an all-stock merger of equals
transaction. Under the terms of the merger agreement, NSAM, Colony
and NorthStar Realty, through a series of transactions, merged with
and into NSAM, which was renamed Colony NorthStar, Inc. (NYSE:
CLNS). Colony NorthStar, Inc. is a leading global equity REIT with
an embedded investment management platform.
Supplemental Disclosure
Please refer to the supplemental presentation that will be
posted on NRE's website, www.nrecorp.com,
which provides additional details regarding NRE's operations
and portfolio.
Earnings Conference Call
NRE will host a conference call to discuss Fourth Quarter and
Fiscal Year 2016 financial and operating results on Wednesday, March 15, 2017 at 9:00 a.m. ET (13:00
GMT). Hosting the call will be Mahbod Nia, Chief Executive Officer,
Scott Berry, Chief Financial Officer
and Trevor Ross, General
Counsel.
The call will also be audiocast live via NorthStar Realty
Europe's website at www.nrecorp.com. The call can be
accessed live over the phone by dialing 1-866-966-5335 (U.S. Toll
Free), or +44 (0) 20 3003 2666 (International) or 0808 109 0700
(United Kingdom), and using
passcode: NorthStar. A replay of the call will be available
approximately two hours after the call through April 14, 2017 by dialing 1-866-583-1035 (U.S.
Toll Free), +44 (0) 20 8196 1998 (International), or 0800 633 8453
(United Kingdom), and using
passcode: 4932170#.
About NRE Corp.
NRE Corp. is a European focused commercial real estate
company with predominately prime office properties within key
cities in Germany, the United
Kingdom and France, organized as a REIT and managed by an
affiliate of Colony NorthStar, Inc. (NYSE: CLNS), a
leading global equity REIT with an embedded investment management
platform. For more information about NorthStar Realty Europe
Corp., please visit www.nrecorp.com.
NorthStar Realty
Europe Corp.
|
|
Consolidated
Statements of Operations
|
|
($ in thousands,
except for per share data)
|
|
(Unaudited)
|
|
|
|
|
Three Months Ended
December 31,
|
|
2016(1)
|
|
2015(1)
|
Revenues
|
|
|
|
Rental
income
|
$
|
25,700
|
|
|
$
|
37,098
|
|
Escalation
income
|
5,347
|
|
|
6,825
|
|
Other
revenue
|
823
|
|
|
200
|
|
Total
revenues
|
31,870
|
|
|
44,123
|
|
Expenses
|
|
|
|
Properties -
operating expenses
|
8,628
|
|
|
9,794
|
|
Interest
expense
|
7,955
|
|
|
14,738
|
|
Transaction
costs
|
(23)
|
|
|
10,358
|
|
Impairment
losses
|
—
|
|
|
1,710
|
|
Management fee,
related party(2)
|
3,520
|
|
|
2,333
|
|
Other
expenses
|
2,797
|
|
|
5,203
|
|
General and
administrative expenses
|
2,900
|
|
|
1,369
|
|
Compensation
expense
|
7,029
|
|
|
850
|
|
Depreciation and
amortization
|
13,715
|
|
|
21,439
|
|
Total
expenses
|
46,521
|
|
|
67,794
|
|
Other income
(loss)
|
|
|
|
Unrealized gain
(loss) on investments and other
|
9,613
|
|
|
2,622
|
|
Realized gain (loss)
on investments and other
|
19,166
|
|
|
1,413
|
|
Income (loss)
before income tax benefit (expense)
|
14,128
|
|
|
(19,636)
|
|
Income tax benefit
(expense)
|
(226)
|
|
|
(14,544)
|
|
Net income
(loss)
|
13,902
|
|
|
(34,180)
|
|
Net (income) loss
attributable to non-controlling interests
|
(43)
|
|
|
231
|
|
Net income (loss)
attributable to NorthStar Realty Europe Corp. common
stockholders
|
$
|
13,859
|
|
|
$
|
(33,949)
|
|
Earnings (loss)
per share:
|
|
|
|
Basic
|
$
|
0.25
|
|
|
$
|
(0.55)
|
|
Diluted
|
$
|
0.24
|
|
|
$
|
(0.55)
|
|
Weighted average
number of shares:
|
|
|
|
Basic
|
54,766,995
|
|
|
62,183,638
|
|
Diluted
|
55,455,164
|
|
|
62,865,124
|
|
|
|
|
|
|
|
|
(1)
|
The consolidated
financial statements for the three months ended December 31,
2016 and for the period from November 1, 2015 to December 31, 2015
represent NRE's results of operations following the spin-off on
October 31, 2015. The consolidated financial statements for the
period from October 1, 2015 to October 31, 2015 represent: (i)
NRE's results of operations of the European real estate business as
if the transferred business was the business for the periods in
which common control was present; and (ii) an allocation of costs
related to NRE. As a result, results of operations for the three
months ended December 31, 2016 may not be comparable to NRE's
results of operations reported for the prior period
presented.
|
(2)
|
NRE began paying fees
on November 1, 2015, in connection with the management agreement
with NRE's manager, which refers to NorthStar
Asset Management Group Inc. for the period prior to the mergers
(between NorthStar Asset Management Group Inc., NorthStar Realty
Finance
Corp. and Colony NorthStar, Inc.) and Colony NorthStar, Inc. for
the period subsequent to the mergers.
|
NorthStar Realty
Europe Corp.
|
|
Consolidated
Statements of Operations
|
|
($ in thousands,
except for per share data)
|
|
(Unaudited)
|
|
|
|
|
Year Ended Ended
December 31,
|
|
2016(1)
|
|
2015(1)
|
Revenues
|
|
|
|
Rental
income
|
$
|
124,321
|
|
|
$
|
101,023
|
|
Escalation
income
|
25,173
|
|
|
18,822
|
|
Other
revenue
|
1,721
|
|
|
694
|
|
Total
revenues
|
151,215
|
|
|
120,539
|
|
Expenses
|
|
|
|
Properties -
operating expenses
|
35,892
|
|
|
26,559
|
|
Interest
expense
|
41,439
|
|
|
36,129
|
|
Transaction
costs
|
2,610
|
|
|
120,101
|
|
Impairment
losses
|
27,468
|
|
|
1,710
|
|
Management fee,
related party(2)
|
14,068
|
|
|
2,333
|
|
Other
expenses
|
12,376
|
|
|
10,535
|
|
General and
administrative expenses
|
8,077
|
|
|
3,502
|
|
Compensation
expense
|
19,257
|
|
|
850
|
|
Depreciation and
amortization
|
64,979
|
|
|
56,283
|
|
Total
expenses
|
226,166
|
|
|
258,002
|
|
Other income
(loss)
|
|
|
|
Unrealized gain
(loss) on investments and other
|
(11,257)
|
|
|
(8,731)
|
|
Realized gain (loss)
on investments and other
|
26,448
|
|
|
1,376
|
|
Income (loss)
before income tax benefit (expense)
|
(59,760)
|
|
|
(144,818)
|
|
Income tax benefit
(expense)
|
(2,742)
|
|
|
675
|
|
Net income
(loss)
|
(62,502)
|
|
|
(144,143)
|
|
Net (income) loss
attributable to non-controlling interests
|
749
|
|
|
1,007
|
|
Net income (loss)
attributable to NorthStar Realty Europe Corp. common
stockholders
|
$
|
(61,753)
|
|
|
$
|
(143,136)
|
|
Earnings (loss)
per share:
|
|
|
|
Basic
|
$
|
(1.07)
|
|
|
$
|
(2.30)
|
|
Diluted
|
$
|
(1.07)
|
|
|
$
|
(2.30)
|
|
Weighted average
number of shares:
|
|
|
|
Basic
|
57,875,479
|
|
|
62,183,638
|
|
Diluted
|
58,564,986
|
|
|
62,865,124
|
|
|
|
|
|
|
|
|
(1)
|
The consolidated
financial statements for the year ended December 31, 2016 and
for the period from November 1, 2015 to December 31, 2015 represent
NRE's results of operations following the spin-off on October 31,
2015. The consolidated financial statements for the period from
January 1, 2015 to October 31, 2015 represent: (i) NRE's results of
operations of the European real estate business as if the
transferred business was the business for the periods in which
common control was present; and (ii) an allocation of costs related
to NRE. As a result, results of operations for the year ended
December 31, 2016 may not be comparable to NRE's results of
operations reported for the prior periods presented.
|
(2)
|
NRE began
paying fees on November 1, 2015, in connection with the management
agreement with NRE's manager, which refers to NorthStar
Asset Management Group Inc. for the period prior to the mergers
(between NorthStar Asset Management Group Inc., NorthStar Realty
Finance
Corp. and Colony NorthStar, Inc.) and Colony NorthStar, Inc. for
the period subsequent to the mergers.
|
NorthStar Realty
Europe Corp.
|
|
Consolidated
Balance Sheets
|
|
($ in
thousands)
|
|
|
|
|
|
|
December
31,
|
|
2016
|
|
2015
|
Assets
|
|
|
|
Operating real
estate, gross
|
$
|
1,614,432
|
|
|
$
|
2,120,460
|
|
Less: accumulated
depreciation
|
(63,585)
|
|
|
(35,303)
|
|
Operating real
estate, net
|
1,550,847
|
|
|
2,085,157
|
|
Cash and cash
equivalents
|
66,308
|
|
|
283,844
|
|
Restricted
cash
|
10,242
|
|
|
20,871
|
|
Receivables, net of
allowance of $553 and $115 as of December 31, 2016 and 2015,
respectively
|
6,015
|
|
|
9,663
|
|
Unbilled rent
receivable
|
—
|
|
|
5,869
|
|
Assets held for
sale
|
28,208
|
|
|
6,094
|
|
Derivative assets, at
fair value
|
13,729
|
|
|
23,792
|
|
Intangible assets,
net
|
148,403
|
|
|
241,519
|
|
Other assets,
net
|
21,640
|
|
|
6,241
|
|
Total
assets
|
$
|
1,845,392
|
|
|
$
|
2,683,050
|
|
Liabilities
|
|
|
|
Mortgage and other
notes payable, net
|
$
|
1,149,119
|
|
|
$
|
1,424,610
|
|
Senior notes,
net
|
—
|
|
|
333,798
|
|
Accounts payable and
accrued expenses
|
28,004
|
|
|
39,964
|
|
Due to related
party
|
4,991
|
|
|
3,995
|
|
Intangible
liabilities, net
|
30,802
|
|
|
40,718
|
|
Liabilities held for
sale
|
2,041
|
|
|
—
|
|
Other
liabilities
|
28,918
|
|
|
42,654
|
|
Total
liabilities
|
1,243,875
|
|
|
1,885,739
|
|
Commitments and
contingencies
|
|
|
|
Redeemable
non-controlling interest
|
1,610
|
|
|
1,569
|
|
Equity
|
|
|
|
NorthStar Realty
Europe Corp. Stockholders' Equity
|
|
|
|
Preferred stock,
$0.01 par value, 200,000,000 shares authorized, no shares issued
and outstanding
as of December 31, 2016 and 2015
|
—
|
|
|
—
|
|
Common stock, $0.01
par value, 1,000,000,000 shares authorized, 55,395,143 and
59,325,730 shares issued and outstanding as of December 31, 2016
and 2015, respectively
|
554
|
|
|
593
|
|
Additional paid-in
capital
|
925,473
|
|
|
968,662
|
|
Retained earnings
(accumulated deficit)
|
(282,769)
|
|
|
(186,246)
|
|
Accumulated other
comprehensive income (loss)
|
(51,424)
|
|
|
2,560
|
|
Total NorthStar
Realty Europe Corp. stockholders' equity
|
591,834
|
|
|
785,569
|
|
Non-controlling
interests
|
8,073
|
|
|
10,173
|
|
Total
equity
|
599,907
|
|
|
795,742
|
|
Total liabilities
and equity
|
$
|
1,845,392
|
|
|
$
|
2,683,050
|
|
Non-GAAP Financial Measures
Included in this press release are Cash Available for
Distribution, or CAD, net operating income, or NOI, EPRA net asset
value, or EPRA NAV, each a "non-GAAP financial measure," which
measures NRE's historical or future financial performance
that is different from measures calculated and presented in
accordance with accounting principles generally accepted
in the United States, or U.S.
GAAP, within the meaning of the applicable Securities and
Exchange Commission, or SEC, rules. NRE believes
these metrics can be a useful measure of its performance which is
further defined below.
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, depreciation and
amortization, equity-based compensation, realized gain (loss) on
investments, asset impairment and non-recurring bad debt
expense). 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, which are
expenses related to specific transactions. 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. The definition of CAD may be
adjusted from time to time for our reporting purposes in our
discretion, acting through our audit committee or otherwise.
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.
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 (excluding
amortization of rent free periods), amortization of above/below
market leases, amortization of deferred financing costs,
amortization of discount on financings and other and equity-based
compensation; unrealized gain (loss) from the change in fair value;
realized gain (loss) on investments and other (excluding
accelerated amortization related to sales of investments);
impairment on depreciable property; non-recurring bad debt expense;
acquisition gains or losses; 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. These items, if applicable,
include any adjustments for unconsolidated ventures.
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 and year ended December 31, 2016 (dollars in thousands,
other than per share data):
|
December 31,
2016
|
|
Three Months
Ended
|
Year
Ended
|
Net income (loss)
attributable to common stockholders
|
13,859
|
|
(61,753)
|
|
Non-controlling
interests
|
43
|
|
(749)
|
|
|
|
|
Adjustments:
|
|
|
Depreciation and
amortization items(1)
|
22,609
|
|
93,913
|
|
Impairment
losses
|
—
|
|
27,468
|
|
Unrealized (gain)
loss from fair value adjustments
|
(9,613)
|
|
11,257
|
|
Realized (gain) loss
on investments(2)
|
(18,858)
|
|
(27,235)
|
|
Transaction costs and
other(3)
|
1,884
|
|
9,217
|
|
CAD(4)
|
$
|
9,924
|
|
$
|
52,118
|
|
|
|
|
CAD per
share(5)
|
$
|
0.17
|
|
$
|
0.87
|
|
|
|
|
|
|
|
|
|
(1)
|
Three months ended
December 31, 2016 represents an adjustment to exclude depreciation
and amortization of $13.7 million, net amortization of above/below
market leases of $0.3 million, amortization of deferred financing
costs of $1.6 million and amortization of equity-based compensation
of $7.0 million. Year ended December 31, 2016 represents an
adjustment to exclude depreciation and amortization of $65.0
million, net amortization of above/below market leases of $2.6
million, amortization of deferred financing costs of $7.1 million
and amortization of equity-based compensation of $19.3
million.
|
(2)
|
Three months ended
December 31, 2016 includes an adjustment to exclude a $15.8 million
realized net gain related to the sale of real estate investment, a
$4.5 million realized net gain related to foreign currency
transactions, a $1.5 million realized loss related to the write-off
of the deferred financing costs associated with the repayment of
our mortgage and other note payables and excludes $0.3 million of
realized gain on the net cash received from derivatives. Year ended
December 31, 2016 includes an adjustment to exclude a $18.6 million
realized net gain related to the sale of real estate investment, a
$16.0 million realized net gain related to foreign currency
transactions, a $7.3 million realized loss related to the write-off
of the deferred financing costs associated with the repayment of
our mortgage and other note payables and excludes a $0.8 million
realized loss on the net cash received from derivatives.
|
(3)
|
Three months ended
December 31, 2016 represents an adjustment to exclude $0.9 million
of bad debt expense and $1.0 million of taxes associated with the
capital gain tax on the sale of real estate investments. Year ended
December 31, 2016 represents an adjustment to exclude $1.3 million
of bad debt expense, $2.6 million of transaction expense and $5.3
million of taxes associated with the capital gain tax on the sale
of real estate investments.
|
(4)
|
CAD for the three
months ended December 31, 2016 included the following items: (i)
property operating expenses of approximately $(2.2) million, or
$(0.03) per share and; (ii) audit and other corporate G&A
expenses of $0.4 million or ($0.01) per diluted share. The fourth
quarter CAD includes an element of non-recurring expenses that we
do not anticipate being the run-rate in the future. Excluding these
non-recurring expenses, CAD per share for the fourth quarter 2016
would have been approximately $0.21 per share.
|
(5)
|
CAD per share for the
three months ending December 31, 2016 based on 57.1 million
shares representing a weighted average number of
shares. CAD per share for the year ended December 31, 2016 based on
a weighted average number of shares of 60.0 million (common
shares outstanding, including LTIPs and RSUs not subject to
performance hurdles) for the year ending December 31,
2016.
|
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
(except with respect to rent free period); (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 the
three months and year ended December 31,
2016 (dollars in thousands):
|
December 31,
2016
|
|
Three Months
Ended
|
|
Year
Ended
|
Rental
income
|
$
|
25,700
|
|
|
$
|
124,321
|
|
Escalation
income
|
5,347
|
|
|
25,173
|
|
Other
revenue
|
823
|
|
|
1,721
|
|
Total property and
other revenues
|
31,870
|
|
|
151,215
|
|
Properties -
operating expenses
|
8,628
|
|
|
35,892
|
|
Adjustments:
|
|
|
|
Amortization and
other items(1)
|
691
|
|
|
3,756
|
|
NOI
|
$
|
23,933
|
|
|
$
|
119,079
|
|
|
|
|
|
|
|
|
|
(1)
|
Three months ended
December 31, 2016 primarily includes $0.9 million bad debt expense,
offset by $0.2 million of amortization of above/below market rent.
Year ended December 31, 2016 primarily includes $1.3 million bad
debt expense and $2.5 million of amortization of above/below market
rent.
|
(2)
|
The following table
presents a reconciliation of NOI of our real estate segment to net
income (loss) for the three months and year
ended December 31, 2016 (dollars in thousands):
|
|
December 31,
2016
|
|
Three Months
Ended
|
Year
Ended
|
NOI
|
$
|
23,933
|
|
$
|
119,079
|
|
Adjustments:
|
|
|
Interest
expense
|
(6,734)
|
|
(30,974)
|
|
Other
expenses
|
(2,770)
|
|
(12,307)
|
|
Depreciation and
amortization
|
(13,716)
|
|
(64,979)
|
|
Unrealized gain
(loss) on investments and other
|
3,675
|
|
(15,040)
|
|
Realized gain (loss)
on investments and other
|
20,616
|
|
32,019
|
|
Income tax benefit
(expense)
|
(227)
|
|
(2,742)
|
|
Other
items
|
(457)
|
|
(31,054)
|
|
Net income (loss)
- Real estate segment
|
$
|
24,320
|
|
$
|
(5,998)
|
|
Remaining
segments(i)
|
(10,461)
|
|
(55,755)
|
|
Net income (loss)
attributable to common stockholders
|
$
|
13,859
|
|
$
|
(61,753)
|
|
|
|
|
|
|
|
|
(i)
|
Represents the net
income (loss) in our corporate segment to reconcile to total net
income (loss).
|
EPRA Net Asset Value (EPRA NAV)
NRE believes that disclosing EPRA NAV, a non-GAAP measure used
by other European real estate companies, helps stockholders compare
NRE's balance sheet to other European real estate companies;
however, EPRA NAV should not be considered as an alternative to net
assets determined in accordance with U.S. GAAP as a measure of
NRE's asset values. As NRE's entire portfolio is based in
Europe, NRE calculates EPRA NAV to
compare its balance sheet to other European real estate companies
and believes that disclosing EPRA NAV provides investors with a
meaningful measure of NRE's net asset value. NRE calculates
EPRA NAV based on the EPRA best practices recommendations. EPRA NAV
makes adjustments to net assets as determined in accordance with
U.S. GAAP in order to provide stockholders a measure of fair value
of the company's assets and liabilities with a long-term investment
strategy. This performance measure excludes assets and liabilities
that are not expected to be realized in normal circumstances. EPRA
NAV includes the revaluation of investment properties and excludes
the fair value of financial instruments that NRE intends to hold to
maturity, deferred tax and goodwill that resulted from deferred
tax. All other assets, including real property and investments
reported at cost are adjusted to fair value based on periodic
appraisals. This measure should not be considered as an alternative
to measuring NRE's net assets in accordance with U.S. GAAP.
The following table presents a reconciliation of EPRA NAV to
total equity as at December 31, 2016
(dollars in thousands, other than per share data):
Total
equity
|
$
|
599,907
|
|
Adjustments
|
|
Operating real estate
and net intangibles
|
(1,697,515)
|
|
Fair value of
properties
|
1,999,491
|
|
IFRS NAV
|
901,883
|
|
|
|
Diluted NAV, after
the exercise of options, convertibles and other equity
interests
|
901,883
|
|
Fair value of
financial instruments
|
(8,659)
|
|
EPRA NAV
|
893,224
|
|
Total equity per
diluted share(1)
|
10.67
|
|
EPRA NAV per
diluted share(1)
|
$
|
15.88
|
|
|
|
|
|
|
|
(1)
|
Based on 56.2 million
total common shares outstanding as of December 31, 2016, including
LTIPs and RSUs not subject to performance
hurdles.
|
Safe Harbor Statement
This press release contains certain "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act
of 1995, Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended.
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," "hypothetical,"
"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, the expected use
of proceeds from the sale of any non-strategic or other properties;
the extent to which NRE's portfolio will be impacted by
geopolitical uncertainty across Europe and whether Europe's macro economic fundamentals will
result in continued expansion in the region; the ability to execute
on NRE's strategy; whether properties currently being evaluated for
sale or under contract will ultimately sell and if any such sales
occur whether they will be consummated at prices expected; NRE's
ability to maintain dividend payments, at current levels, or at
all; NRE's ability to generate stable and recurring income streams
with the potential for capital growth over time; whether NRE will
produce higher CAD per share in the coming quarters, or ever; NRE's
use of leverage, including whether and when NRE may achieve its
target leverage or timing; whether NRE will continue to make
repurchases of its common stock pursuant to the stock repurchase
program or the level of any such repurchases. Forward looking
statements are necessarily speculative in nature, and it can be
expected that some or all of the assumptions underlying any
forward-looking statements will not materialize or will vary
significantly from actual results. Variations of assumptions and
results may be material. Factors that could cause actual results to
differ materially from NRE's expectations include, but
are not limited to, NRE's liquidity and financial
flexibility; NRE's future cash available for
distribution; the pace and result of any asset disposals
contemplated by NRE; NRE's use of leverage; and the
anticipated strength and growth of NRE's business.
Factors that could cause actual results to differ materially from
those in the forward looking statements are specified
in NRE's annual report on Form 10-K for the year ended
December 31, 2016, and its other
filings with the Securities and Exchange Commission. Such
forward looking statements speak only as of the date of this press
release. NRE expressly disclaims any obligation to
release publicly any updates or revisions to any forward looking
statements contained herein to reflect any change in its
expectations with regard thereto or change in events, conditions or
circumstances on which any statement is based.
Disclaimer
As an opinion, appraisals are not a measure of realizable value
and may not reflect the amount that would be received if the
property in question were sold. Real estate valuation is
inherently subjective due to, among other factors, the individual
nature of each property, its location, the expected future rental
revenues from that particular property and the valuation
methodology adopted. Real estate valuations are subject to a large
degree of uncertainty and are made on the basis of assumptions and
methodologies that may not prove to be accurate, particularly in
periods of volatility, low transaction flow or restricted debt
availability in the commercial or residential real estate markets.
For example, in the appraisal, a number of the properties were
valued using the special assumption that such properties would be
purchased through a tax-efficient special purpose vehicle, and is
therefore subject to lower purchaser transaction expenses. If
one or more assumptions are incorrect, the value may be materially
lower than the appraised value.
Endnotes
1.
|
The external
third-party valuation was prepared by Cushman & Wakefield LLP
in accordance with the current U.K. and Global edition of the Royal
Institution of Chartered Surveyors' (RICS) Valuation - Professional
Standards (the "Red Book") on the basis of "Fair Value," which is
widely recognized within Europe as the leading professional
standards for independent valuation professionals. Each property is
classified as an investment and has been valued on the basis of
Fair Value adopted by the International Accounting Standards Board.
This is the equivalent to the Red Book definition of Market Value.
The Red Book defines Market Value as the estimated amount for which
an asset or liability should exchange on the valuation date between
a willing buyer and a willing seller in an arm's-length transaction
after proper marketing where the parties had each acted
knowledgeably, prudently and without compulsion. The Cushman &
Wakefield LLP valuation assumes that certain properties would be
purchased through market accepted structures resulting in lower
purchaser transaction expenses (taxes, duties, and similar costs).
This Cushman & Wakefield LLP valuation is as of December 31,
2016.
|
2.
|
Based on rent roll as
of December 31, 2016. FX rates used as of December 31,
2016: EUR/USD = 1.05155,
GBP/USD = 1.23363.
|
3.
|
Core portfolio
comprises primarily office properties in Germany, the United
Kingdom and France.
|
4.
|
EPRA = European
Public Real Estate Association.
|
To view the original version on PR Newswire,
visit:http://www.prnewswire.com/news-releases/northstar-realty-europe-announces-fourth-quarter-2016-results-300423953.html
SOURCE NorthStar Realty Europe Corp.