NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
1.
|
Formation and Organization
|
NorthStar Realty Europe Corp. (“NorthStar Europe” or the “Company”) (NYSE: NRE), a publicly-traded real estate investment trust (“REIT”), is a European focused commercial real estate company with predominantly prime office properties in key cities within Germany, the United Kingdom and France. The Company commenced operations on November 1, 2015 following the spin-off by NorthStar Realty Finance Corp. (“NorthStar Realty”) of its European real estate business (excluding its European healthcare properties) into a separate publicly-traded company, NorthStar Realty Europe Corp., a Maryland corporation (the “Spin-off”). The Company’s objective is to provide its stockholders with stable and recurring cash flow supplemented by capital growth over time.
The Company is externally managed and advised by an affiliate of the Manager. References to “the Manager” refer to NorthStar Asset Management Group Inc. (“NSAM”) for the period prior to the Mergers (refer below) and Colony NorthStar, Inc. (“Colony NorthStar” or “CLNS”), for the period subsequent to the Mergers. As part of the Mergers, NSAM changed its name to Colony NorthStar, Inc.
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 Europe Limited Partnership, a Delaware limited partnership and the operating partnership of the Company (the “Operating Partnership”). The Company has elected to be taxed, and will continue to conduct its operations so as to continue to qualify, as a REIT for U.S. federal income tax purposes.
All references herein to the Company refer to NorthStar Realty Europe Corp. and its consolidated subsidiaries, including the Operating Partnership, collectively, unless the context otherwise requires.
Merger Agreements among NSAM, NorthStar Realty and Colony Capital, Inc.
On January 10, 2017, the Company’s external manager, NSAM, completed a tri-party merger with NorthStar Realty and Colony Capital, Inc. (“Colony”), pursuant to which the companies combined in an all-stock merger (“the Mergers”) of equals transaction to create a diversified real estate and investment management company. 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 (NYSE: CLNS). Colony NorthStar is a leading global equity REIT with an embedded investment management platform.
Amended and Restated Management Agreement
On November 9, 2017, the Company entered into an amended and restated management agreement (the “Amended and Restated Management Agreement”) with an affiliate of our Manager, effective as of January 1, 2018. Refer to Note 6 “Related Party Arrangements” for a description of the terms of the Amended and Restated Management Agreement.
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2.
|
Summary of Significant Accounting Policies
|
Basis of Accounting
The accompanying 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”).
The consolidated financial statements for the period January 1, 2015 to October 31, 2015 represent the Company’s activity prior to the spin-off by NorthStar Realty of its European real estate business (the “Spin-off”) and reflects the revenues and direct expenses of the Company and include material assets and liabilities of NorthStar Realty that are specifically identifiable to the European real estate business and contributed to the Company upon completion of the Spin-off.
The consolidated financial statements for the period prior to the Spin-off include an allocation of costs and expenses by NorthStar Realty related to the Company (primarily compensation and other general and administrative expense) based on an estimate of expenses as if the Company was managed as an independent entity. This allocation method is principally based on relative headcount and management’s knowledge of the operations of the Company. The amounts allocated in the accompanying consolidated financial statements are not necessarily indicative of the actual amount of such indirect expenses that would have been recorded had the Company been a separate independent entity. The Company believes the assumptions underlying its allocation of indirect expenses are reasonable. In addition, an estimate of management fees to the Manager of
$0.3 million
for the period from January 1, 2015 through the Spin-off are recorded as if the Company was managed as an independent entity and is included in general and administrative expense in the consolidated statements of operations. The Company began paying management fees to the Manager on November 1, 2015 pursuant to the terms of the Company’s management agreement with the Manager (refer to Note 6).
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 will evaluate its investments 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.
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.
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.
Reclassifications
Certain prior period amounts have been reclassified in the consolidated financial statements to conform to current period presentation including the gain (loss) on net cash on derivatives from unrealized gain (loss) on derivatives and other to realized gain (loss) on sales and other on the consolidated statements of operations for the year ended December 31, 2017 (refer to Note 10).
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
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 the foreign currency translation adjustment, net.
Cash and Cash Equivalents
The Company considers all highly-liquid investments with an original maturity date of three months or less and deposits held with third parties that are readily convertible to cash to be cash equivalents. Cash, including amounts restricted at certain banks and financial institutions, may at times exceed insurable amounts. The Company seeks to mitigate credit risk by placing cash and cash equivalents with major financial institutions. To date, the Company has not experienced any losses on cash and cash equivalents. Cash and cash equivalents exclude escrow arrangements entered into for specific warranties in relation to the real estate sales which are recorded in other assets in the consolidated financial statements.
Restricted Cash
Restricted cash primarily consists of amounts related to operating real estate such as escrows for taxes, insurance, capital expenditures, tenant security deposits and payments required under certain lease agreements and amounts related to the Company’s borrowings.
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 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.
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 in-place leases, above/below-market leases and 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.
Operating real estate is depreciated using the straight-line method over the estimated useful lives of the assets, summarized as follows:
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Category:
|
|
Term:
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|
Building
|
|
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
|
|
Tenant improvements
|
|
Lesser of the useful life or remaining term of the lease
|
Minimum rental amounts due under tenant leases are generally subject to scheduled adjustments. The following table presents approximate future minimum rental income under noncancelable operating leases to be received over the next five years and thereafter as of
December 31, 2017
(dollars in thousands):
|
|
|
|
|
|
|
|
|
Years Ending December 31:
(1)
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|
|
|
2018
|
|
$
|
97,703
|
|
|
2019
|
|
100,373
|
|
|
2020
|
|
85,284
|
|
|
2021
|
|
74,694
|
|
|
2022
|
|
66,468
|
|
|
Thereafter
|
|
198,745
|
|
|
Total
|
|
$
|
623,267
|
|
_________________________
(1) Translated to the U.S. dollar using the currency exchange rate as of
December 31, 2017
.
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Preferred Equity Investments
Preferred equity investments are generally intended to be held to maturity and, accordingly, are carried at cost, net of unamortized loan fees, premium, discount and unfunded commitments, if any. Preferred equity investments that are deemed to be impaired are carried at amortized cost less a loan loss reserve, if deemed appropriate, which approximates fair value. Preferred equity investments where the Company does not intend to hold the investment for the foreseeable future or until its expected payoff are classified as held for sale and recorded at the lower of cost or fair value.
Assets and Related Liabilities Held For Sale
Operating real estate 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 net of the intangible assets associated with the asset, with any write-down to fair value less cost to sell recorded as an impairment loss. Once a property is determined to be held for sale, depreciation and amortization is no longer recorded. The Company records a gain or 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 or loss recognition by applying the finance, leasing, profit sharing, deposit, installment or cost recovery method, as appropriate, until the sales criteria are met.
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 into interest expense using the effective interest method or straight-line method depending on the type of financing. Unamortized deferred financing costs are expensed when the associated borrowing is repaid before maturity to realized gain (loss) on sales and other. 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 above or below-market leases is amortized net to rental income, the value of below-market ground leases is amortized into properties - operating expense and in-place leases is amortized into depreciation and amortization expense, respectively, in the consolidated statements of operations on a straight-line basis over the respective remaining lease term.
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.
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table presents identified intangibles as of
December 31, 2017
and
2016
(dollars in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
(1)
|
|
December 31, 2016
(1)
|
|
|
Gross Amount
|
|
Accumulated Amortization
|
|
Net
|
|
Gross Amount
|
|
Accumulated Amortization
|
|
Net
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
In-place lease
|
$
|
64,427
|
|
|
$
|
(24,290
|
)
|
|
$
|
40,137
|
|
|
$
|
80,924
|
|
|
$
|
(25,193
|
)
|
|
$
|
55,731
|
|
|
Above-market lease
|
34,882
|
|
|
(9,919
|
)
|
|
24,963
|
|
|
36,471
|
|
|
(7,965
|
)
|
|
28,506
|
|
|
Below-market ground lease
|
34,497
|
|
|
(1,109
|
)
|
|
33,388
|
|
|
51,876
|
|
|
(1,490
|
)
|
|
50,386
|
|
|
Goodwill
(2)
|
15,697
|
|
|
N/A
|
|
|
15,697
|
|
|
13,780
|
|
|
N/A
|
|
|
13,780
|
|
|
Total
|
$
|
149,503
|
|
|
$
|
(35,318
|
)
|
|
$
|
114,185
|
|
|
$
|
183,051
|
|
|
$
|
(34,648
|
)
|
|
$
|
148,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Below-market lease
|
$
|
32,267
|
|
|
$
|
(8,964
|
)
|
|
$
|
23,303
|
|
|
$
|
34,163
|
|
|
$
|
(8,104
|
)
|
|
$
|
26,059
|
|
|
Above-market ground lease
|
5,513
|
|
|
(184
|
)
|
|
5,329
|
|
|
4,839
|
|
|
(96
|
)
|
|
4,743
|
|
|
Total
|
$
|
37,780
|
|
|
$
|
(9,148
|
)
|
|
$
|
28,632
|
|
|
$
|
39,002
|
|
|
$
|
(8,200
|
)
|
|
$
|
30,802
|
|
_______________________
|
|
|
|
(1)
|
As of December 31, 2017, the weighted average amortization period for above-market leases, below-market leases and in-place leases was
6.4 years
,
9.2 years
and
5.7 years
, respectively. As of
December 31, 2016
, the weighted average amortization period for above-market leases, below-market leases and in-place leases was
7.1 years
,
9.8 years
and
6.1 years
, respectively.
|
|
|
|
|
(2)
|
Represents goodwill associated with certain acquisitions in exchange for shares in the underlying portfolios. The goodwill and a corresponding deferred tax liability was recorded at acquisition based on tax basis differences.
|
The following table presents a rollforward of goodwill for the
year ended
December 31, 2017
(dollars in thousands):
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2015
|
|
$
|
22,852
|
|
|
Disposal of goodwill
(1)
|
|
(8,561
|
)
|
|
Adjustments from foreign currency translation
|
|
(511
|
)
|
|
Balance as of December 31, 2016
|
|
13,780
|
|
|
Adjustments from foreign currency translation
|
|
1,917
|
|
|
Balance as of December 31, 2017
|
|
$
|
15,697
|
|
_______________________
|
|
|
|
(1)
|
Represents goodwill associated with certain disposals structured as share sales.
|
The following table presents amortization of acquired above-market leases, net of acquired below-market leases and below-market ground leases and amortization of other intangible assets for the
years ended
December 31, 2017
,
2016
and
2015
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
Statements of operations location:
|
|
2017
|
|
2016
|
|
2015
|
|
Amortization of above-market leases, net of acquired below-market leases
|
Rental income / properties - operating expenses
|
|
$
|
666
|
|
|
$
|
2,162
|
|
|
$
|
2,335
|
|
|
Amortization of other intangible assets
|
Depreciation and amortization expense
|
|
13,817
|
|
|
19,543
|
|
|
20,468
|
|
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table presents annual amortization of intangible assets and liabilities (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible Assets
|
|
Intangible Liabilities
|
|
Years Ending December 31:
|
|
In-place Leases, Net
|
|
Above-market Leases, Net
|
|
Below-market Ground Lease Value, Net
|
|
Below-market Leases, Net
|
|
Above-market Ground Lease Value, Net
|
|
2018
|
|
$
|
9,272
|
|
|
$
|
4,030
|
|
|
$
|
399
|
|
|
$
|
2,839
|
|
|
$
|
75
|
|
|
2019
|
|
8,801
|
|
|
4,008
|
|
|
399
|
|
|
2,839
|
|
|
75
|
|
|
2020
|
|
7,094
|
|
|
3,860
|
|
|
399
|
|
|
2,805
|
|
|
75
|
|
|
2021
|
|
6,010
|
|
|
3,848
|
|
|
399
|
|
|
2,635
|
|
|
75
|
|
|
2022
|
|
4,169
|
|
|
3,848
|
|
|
399
|
|
|
2,626
|
|
|
75
|
|
|
Thereafter
|
|
4,791
|
|
|
5,369
|
|
|
31,393
|
|
|
9,559
|
|
|
4,954
|
|
|
Total
|
|
$
|
40,137
|
|
|
$
|
24,963
|
|
|
$
|
33,388
|
|
|
$
|
23,303
|
|
|
$
|
5,329
|
|
Other Assets and Other Liabilities
The following tables present a summary of other assets and other liabilities as of
December 31, 2017
and
2016
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2017
|
|
2016
|
|
Other assets:
|
|
|
|
|
Prepaid expenses
|
$
|
1,936
|
|
|
$
|
1,951
|
|
|
Deferred leasing and other costs, net
|
6,019
|
|
|
3,029
|
|
|
Straight-line rent, net
|
10,969
|
|
|
10,182
|
|
|
Escrow receivable
|
3,286
|
|
|
6,168
|
|
|
Other
|
905
|
|
|
310
|
|
|
Total
|
$
|
23,115
|
|
|
$
|
21,640
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2017
|
|
2016
|
|
Other liabilities:
|
|
|
|
|
Deferred tax liabilities
|
$
|
8,548
|
|
|
$
|
8,916
|
|
|
Prepaid rent received and unearned revenue
|
8,406
|
|
|
13,585
|
|
|
Tenant security deposits
|
4,435
|
|
|
4,322
|
|
|
Prepaid escalation and other income
|
3,982
|
|
|
1,560
|
|
|
Other
|
386
|
|
|
535
|
|
|
Total
|
$
|
25,757
|
|
|
$
|
28,918
|
|
Revenue Recognition
Operating Real Estate
Rental and escalation income from operating real estate is derived from leasing of space to various types of tenants. 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, subject to indexation, and expense reimbursements to be paid in quarterly or 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 other assets, net 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 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.
In a situation in which a lease or leases 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 leasing commissions). 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 depreciation and amortization in the consolidated statements of operations.
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Preferred Equity 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 investment is reclassified to held for sale.
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 global macroeconomic factors, 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. For the
years ended
December 31, 2017
and
2015
, the Company did not recognize any impairment losses. For the
year ended
December 31, 2016
, the Company recognized
$27.5 million
of impairment losses.
An allowance for a doubtful account for a tenant receivable is established based on a periodic review of aged receivables resulting from estimated losses due to the inability of a tenant to make required rent and other payments contractually due. Additionally, the Company establishes, on a current basis, an allowance for future tenant credit losses on unbilled rent receivable based on an evaluation of the collectability of such amounts.
Preferred Equity Investments
Preferred equity investments are considered impaired when, based on current information and events, it is probable that the Company will not be able to collect all principal and interest amounts due according to the contractual terms. The Company assesses the credit quality of the portfolio and adequacy of investment loss reserves on an annual 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 investment 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 investment, an investment loss reserve is recorded with a corresponding charge to provision for investment losses. The investment loss reserve for each investment is maintained at a level that is determined to be adequate by management to absorb probable losses.
Income recognition is suspended for an investment 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 investment is in doubt, all payments are applied to principal under the cost recovery method. When the ultimate collectability of the principal of an impaired investment 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 investment becomes contractually current and performance is demonstrated to be resumed. Interest accrued and not collected will be reversed against interest income. An investment is written off when it is no longer realizable and/or legally discharged. As of
December 31, 2017
, the Company did not have any impaired preferred equity investments.
Equity-Based Compensation
The Company accounts for equity-based compensation awards 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
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
Derivatives
The Company seeks to use derivative instruments to manage exposure to interest rate risk and foreign currency exchange rate risk. The change in fair value for a derivative is recorded in unrealized gain (loss) on derivatives and other in the consolidated statements of operations.
The Company’s derivative instruments are recorded on the consolidated balance sheets at fair value and do not qualify as hedges under U.S. GAAP.
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 (“CTA”), net, is recorded as a component of accumulated OCI in the consolidated statements of equity. For the
years ended
December 31, 2017
,
2016
and 2015, the Company reclassified
$(1.4) million
,
$17.7 million
and
$0.3 million
, respectively, of CTA to realized gain (loss) on sales and other in the consolidated statements of operations due to the sale of certain real estate assets (refer to Note 3).
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 derivatives 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 owned by holders other than the Company (“Common Units”) and Common Units which are structured as profits interests (“LTIP Units” collectively referred to as Unit Holders) (refer to Note 8), where such exercise or conversion would result in a lower EPS. The dilutive effect of such RSUs and Unit Holders is calculated assuming all units are converted to common stock.
Income Taxes
The Company has elected to be taxed as a REIT for U.S. federal income tax purposes with the initial filing of its
2015
U.S. federal tax return and will continue to comply with the related provisions of the Internal Revenue Code of 1986, as amended, the (“Internal Revenue 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. Under certain circumstances, federal income and excise taxes may be due on its undistributed taxable income. The Company distributes to its stockholders
100%
of its taxable income and therefore no provision for U.S. federal income taxes has been included in the accompanying consolidated financial statements for the
years ended
December 31, 2017
,
2016
and
2015
. Dividends distributed for the
years ended
December 31, 2017
and
2016
were characterized, for U.S. federal income tax purposes, as return of capital.
Dividends distributed for the year ended December 31,
2015
was characterized, for U.S. federal income tax purposes, as ordinary income.
The Company conducts its business through foreign subsidiaries which may be subject to local level income tax in the European jurisdictions it operates. The Company has also elected taxable REIT subsidiary (“TRS”) status for one of the Company’s foreign subsidiaries. This enables the Company to provide services that would otherwise be considered impermissible for REITs and participate in activities that do not qualify as “rents from real property.” The TRS is not resident in the U.S. and, as such, not
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
subject to U.S. taxation but is subject to foreign income taxes only. As a result, the effective tax rate of less than
6.6%
is due to those foreign taxes. In addition, the REIT will not generally be subject to any additional U.S. taxes on the repatriation of its earnings.
For the year ended December 31, 2017, the Company’s foreign subsidiaries recorded
$0.6 million
of current income tax benefit and
$1.5 million
of a deferred income tax benefit. For the year ended
December 31, 2016
, the Company’s foreign subsidiaries recorded
$7.7 million
of current income tax expense and an offsetting
$5.0 million
of a deferred income tax benefit. For the year ended
December 31, 2015
, the Company’s foreign subsidiaries recorded
$2.3 million
of current income tax expense and an offsetting
$3.0 million
of a deferred income tax benefit. For the Company’s foreign subsidiaries, including the Company’s foreign TRS, deferred tax assets and liabilities are established for temporary differences between the financial reporting basis and the foreign tax basis of assets and liabilities at the enacted tax rates expected to be in effect when the temporary differences reverse. The Company evaluates the realizability of its deferred tax assets (e.g. net operating loss) 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. Due to past and projected losses in certain local jurisdictions where the Company does not have carryback potential and/or cannot sufficiently forecast future taxable income, the Company recognized net cumulative valuation allowances against the Company’s deferred tax assets. The Company will continue to review its deferred tax assets in accordance with U.S. GAAP. The valuation allowance at
December 31, 2017
,
2016
and
2015
of
$22.7 million
,
$26.6 million
and
$21.5 million
, respectively, relates to deferred tax assets in jurisdictions that had not met the “more-likely-than-not” realization threshold criteria. The change to the valuation allowance is primarily due to disposals of operating real estate.
Changes in estimate of deferred tax asset realizability, if any, are included in income tax benefit (expense) in the consolidated statements of operations.
The following tables present a summary of the Company’s deferred
tax
assets and liabilities as of
December 31, 2017
and
2016
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2017
|
|
2016
|
|
Deferred tax asset
|
|
|
|
|
Net operating losses
|
$
|
19,587
|
|
|
$
|
21,608
|
|
|
Interest deferral
|
5,598
|
|
|
4,356
|
|
|
Transaction costs capitalized to operating real estate
|
6,992
|
|
|
6,654
|
|
|
Operating real estate
|
2,852
|
|
|
2,028
|
|
|
Other
|
7,920
|
|
|
7,410
|
|
|
Total deferred tax asset
|
42,949
|
|
|
42,056
|
|
|
Valuation allowance
|
(22,666
|
)
|
|
(26,565
|
)
|
|
Deferred tax assets, net of valuation allowance
|
20,283
|
|
|
15,491
|
|
|
Deferred tax liabilities
|
|
|
|
|
Operating real estate
|
(23,126
|
)
|
|
(20,418
|
)
|
|
Other
|
(5,705
|
)
|
|
(3,989
|
)
|
|
Total deferred tax liabilities
|
(28,831
|
)
|
|
(24,407
|
)
|
|
Net deferred tax liability
|
$
|
(8,548
|
)
|
|
$
|
(8,916
|
)
|
The Company is allowed to carryforward its net operating losses indefinitely in most of the tax jurisdictions it files with some annual restrictions.
The Company has assessed its tax positions for all open tax years, which includes
2015
to
2017
and concluded there were no uncertain tax positions to be recognized. The Company’s accounting policy with respect to interest and penalties is to classify these amounts as a component of income tax expense, where applicable. As of
December 31, 2017
and
2016
, the Company has not recognized any such amounts related to uncertain tax positions, respectively.
Recent Accounting Pronouncements: Accounting Standards Adopted in 2017
In March 2016, the Financial Accounting Standards Board (“FASB”) issued guidance (Accounting Standards Update “ASU” No. 2016-05) 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
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
scope using a modified retrospective transition method as of the date of adoption. The guidance is effective for fiscal years beginning after December 15, 2016 and interim periods within those years. The Company has adopted this guidance and it did not have any material impact on its consolidated financial position, results of operations and financial statement disclosures.
In March 2016, the FASB issued guidance (ASU No. 2016-09) 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, 2016. The Company has adopted this guidance and has made a policy election to account for forfeitures upon occurrence. The adoption did not have a material impact on the Company’s consolidated financial position, results of operations and financial statement disclosures.
Recent Accounting Pronouncements: Future Application of Accounting Standards
Revenue Recognition -
In May 2014, FASB issued an accounting update (ASU No. 2014-09) 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 Company has adopted the standard on its required effective date of January 1, 2018 using the modified retrospective approach and has applied the guidance to contracts not yet completed as of the date of adoption. The new revenue standard specifically excludes revenue streams for which specific guidance is stipulated in other sections of the codification and therefore it will not impact rental income or interest income generated on financial instruments such as preferred equity investments. The Company is the lessor for triple net and gross leases classified as operating leases in which rental income and tenant reimbursements are recorded. The revenue from these leases are scoped out of the new revenue recognition guidance. All leases are accounted for under ASC 840 until the adoption of the new leasing guidance within ASC 842. The Company does not believe that this guidance will have a material impact on its consolidated financial statements and related disclosures.
Leases -
In February 2016, the FASB issued an accounting update (ASU No. 2016-02) which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The update requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The update is expected to result in the recognition of a right-to-use asset and related liability to account for the Company’s future obligations under its ground lease arrangements for which it is the lessee. The update will require that lessees and lessors capitalize, as initial direct costs, only those costs that are incurred due to the execution of a lease. Under this guidance, allocated payroll costs and other costs that are incurred regardless of whether the lease is obtained will no longer be capitalized as initial direct costs and instead will be expensed as incurred. Lessors will continue to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The Company expects to adopt the package of practical expedients under the guidance and the Company will not need to reassess whether any expired or expiring contracts contain leases; will not need to revisit lease classification for any expired or expiring leases; and will not need to reassess initial direct costs for any existing leases. In addition, the Company expects to adopt the practical expedient which allows lessors to consider lease and non-lease components as a single performance obligation to the extent that the timing and pattern of revenue recognition is the same and the lease is classified an operating lease. As of December 31, 2017, the Company has
two
ground lease agreements with annual payments of
$0.7 million
. 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. 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.
Financial Instruments -
In June 2016, the FASB issued guidance (ASU No. 2016-13) that changes the impairment model for most financial instruments by requiring companies to recognize an allowance for expected losses, rather than incurred losses as required currently by the other-than-temporary impairment model. The guidance will apply to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt securities, net investments in leases and off-balance-sheet credit exposures (e.g., loan commitments). The new guidance is effective for reporting periods beginning after December 15, 2019 and will be applied as a cumulative adjustment to retained earnings as of the effective date. The Company continues to assess the potential effect the adoption of this guidance will have on its consolidated financial statements and related disclosures.
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Cash Flow Classification
- In August 2016, the FASB issued guidance (ASU No. 2016-15) that makes eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The new guidance requires adoption on a retrospective basis unless it is impracticable to apply, in which case the Company would be required to apply the amendments prospectively as of the earliest date practicable. The Company does not expect the adoption of this standard to have a material impact on its consolidated statements of cash flows.
Restricted Cash -
In November 2016, the FASB issued guidance (ASU No. 2016-18) which requires entities to show the changes in the total of cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. Entities will no longer be permitted to present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. The guidance is effective for reporting periods beginning after December 15, 2017 and will be applied retrospectively to all periods presented. The Company expects the new guidance will result in a change in presentation of restricted cash on the face of the consolidated statement of cash flows; otherwise this guidance will not have a significant impact on the consolidated statements of cash flows and disclosures.
Business Combination -
In January 2017, the FASB issued guidance (ASU No. 2017-01) to clarify the definition of a business under ASC 805. This new standard clarifies the definition of a business and provides a screen to determine when an integrated set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. The guidance is effective for fiscal years, and interim periods within those years, beginning December 15, 2017. The amendments in this update will be applied on a prospective basis. The Company expects that acquisitions of real estate or in-substance real estate will not meet the revised definition of a business because substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets (i.e. land, buildings, and related intangible assets). A significant difference between the accounting for an asset acquisition and a business combination is that transaction costs are capitalized for an asset acquisition, rather than expensed for a business combination. The Company plans to adopt the standard on its required effective date of January 1, 2018. The Company does not believe that this guidance will have a material impact on its consolidated financial statements and related disclosures.
Goodwill Impairment
- In January 2017, the FASB issued guidance (ASU No. 2017-04) which removes Step 2 from the goodwill impairment test. The guidance is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. 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.
Derecognition and Partial Sales of Nonfinancial Assets
- In February 2017, the FASB issued an accounting update (ASU No. 2017-05) which clarifies the scope of recently established guidance on nonfinancial asset derecognition, which applies to the derecognition of all nonfinancial assets and in-substance nonfinancial assets. In addition, the guidance clarifies the accounting for partial sales of nonfinancial assets and in-substance nonfinancial assets to align with the new revenue recognition standard to be more consistent with the accounting for sale of a business. Specifically, in a partial sale to a noncustomer, when a noncontrolling interest is received or retained, the latter is considered a noncash consideration and measured at fair value, which would result in full gain or loss recognized upon sale. This guidance has the same effective date as the new revenue guidance, which is January 1, 2018, with early adoption permitted beginning January 1, 2017. Both the revenue guidance and this update must be adopted concurrently. While the options for transition are similar to the new revenue guidance, either full retrospective or modified retrospective, the transition approach need not be aligned between both updates. The Company plans to adopt the standard on its required effective date of January 1, 2018 using the modified retrospective approach. The Company does not believe that this guidance will have a material impact on its consolidated financial statements and related disclosures.
Share-based Payments -
In May 2017, the FASB issued guidance (ASU No. 2017-09) clarifying when to account for a change to the terms or conditions of a share-based payment award as a modification. The guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those years. The Company does not believe that this guidance will have a material impact on its consolidated financial statements and related disclosures.
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table presents operating real estate, net as of
December 31, 2017
and
December 31, 2016
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
|
Land
|
|
$
|
393,691
|
|
|
$
|
360,555
|
|
|
Buildings and improvements
|
|
954,314
|
|
|
980,053
|
|
|
Building, leasehold interests and improvements
|
|
195,929
|
|
|
212,864
|
|
|
Furniture, fixtures and equipment
|
|
1,653
|
|
|
1,214
|
|
|
Tenant improvements
|
|
61,303
|
|
|
59,746
|
|
|
Operating real estate, gross
|
|
1,606,890
|
|
|
1,614,432
|
|
|
Less: accumulated depreciation
|
|
(95,356
|
)
|
|
(63,585
|
)
|
|
Operating real estate, net
|
|
$
|
1,511,534
|
|
|
$
|
1,550,847
|
|
For the years ended December 31, 2017, 2016 and 2015 depreciation expense was
$40.2 million
,
$45.2 million
and
$35.8 million
, respectively.
Real Estate Held for Sale
The following table summarizes the Company’s operating real estate held for sale as of
December 31, 2017
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
(1)
|
|
Liabilities
(1)
|
|
Location
|
|
Type
|
|
Properties
|
|
Operating Real Estate, Net
|
|
Intangible Assets, Net
|
|
Other Assets
|
|
Total
(2)
|
|
Intangible Liabilities, Net
|
|
Total
|
|
Lisbon, Portugal
|
|
Office
|
|
1
|
|
$
|
11,910
|
|
|
$
|
62
|
|
|
$
|
23
|
|
|
$
|
11,995
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Rotterdam, Netherlands
|
|
Office
|
|
1
|
|
148,741
|
|
|
5,053
|
|
|
3,293
|
|
|
157,087
|
|
|
648
|
|
|
648
|
|
|
Total
|
|
|
|
2
|
|
$
|
160,651
|
|
|
$
|
5,115
|
|
|
$
|
3,316
|
|
|
$
|
169,082
|
|
|
$
|
648
|
|
|
$
|
648
|
|
___________________
|
|
|
|
(1)
|
The assets and liabilities classified as held for sale are expected to be sold on the open market as asset sales subject to standard industry terms and conditions. The assets contributed
$13.2 million
,
$14.1 million
and
$10.8 million
of revenue and
$(7.5) million
,
$(7.3) million
and
$(18.9) million
of income (loss) before income tax benefit (expense) for the
years ended
December 31, 2017
,
2016
and
2015
, respectively.
|
|
|
|
|
(2)
|
Represents operating real estate and intangible assets, net of accumulated depreciation and amortization of
$18.7 million
prior to being reclassified into held for sale.
|
Real Estate Sales
The following table summarizes the Company’s real estate sales for the years ended
December 31, 2017
,
2016
and
2015
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
(1)
|
|
|
2017
|
|
2016
|
|
2015
|
|
Properties
|
6
|
|
18
|
|
3
|
|
Carrying Value
(2)
|
$
|
109,366
|
|
|
$
|
386,122
|
|
|
$
|
15,226
|
|
|
Sales Price
|
$
|
137,509
|
|
|
$
|
412,107
|
|
|
$
|
21,895
|
|
|
Net Proceeds
(3)
|
$
|
132,538
|
|
|
$
|
406,850
|
|
|
$
|
20,955
|
|
|
Realized Gain
(4)
|
$
|
23,172
|
|
|
$
|
20,728
|
|
|
$
|
5,729
|
|
__________________
|
|
|
|
(1)
|
Years ended
December 31, 2017
,
2016
and
2015
amounts are translated using the average exchange rate for the year ended
December 31, 2017
.
|
|
|
|
|
(2)
|
Includes the assets and liabilities related to share sales.
|
|
|
|
|
(3)
|
Represents proceeds net of sales costs and excludes the associated property debt repayments of
$76.2 million
and
$173.9 million
for the
years ended
December 31, 2017
and
2016
, respectively. There were
no
property debt repayments for the year ended December 31, 2015.
|
|
|
|
|
(4)
|
The Company recorded an additional realized gain for the
year ended
December 31, 2017
of
$2.3 million
related to the release of escrow accounts from prior disposals.
|
As of
December 31, 2017
, there were
$1.8 million
in certain escrow accounts that were not held by the Company which the Company could potentially record as a realized gain.
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
4.
|
Preferred Equity Investments
|
In May 2017, the Company partnered with a property developer in China to acquire 20 Gresham Street, a Class A office building in London, United Kingdom and the Company invested
$35.3 million
(
£26.2 million
) of preferred equity
,
which the Company accounts for as a debt investment.
The following table presents one preferred equity investment as of
December 31, 2017
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
Asset Type
|
|
Principal Amount
|
|
Carrying Value
|
|
Fixed Rate
|
|
Mandatory Redemption
|
|
Preferred equity investment
|
|
$
|
35,347
|
|
|
$
|
35,347
|
|
|
8.00
|
%
|
|
May 2020
|
Credit Quality Monitoring
The Company’s preferred equity investment is secured 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 preferred equity investment at least quarterly and determines the relative credit quality principally based on: (i) whether the borrower is currently paying 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 preferred equity investment for which it expects to receive full payment of contractual principal and interest payments as “performing.” The Company will categorize a weaker credit quality preferred equity investment that is currently performing, but for which it believes future collection of all or some portion of principal and interest is in doubt, into a category called “performing with a loan loss reserve.” The Company will categorize a weaker credit quality preferred equity investment that is not performing, which the Company defines as a loan in maturity default and/or past due on its contractual debt service payments and deemed not to be collectible, as a non-performing loan (“NPL”).
As of
December 31, 2017
, the Company’s preferred equity investment was performing in accordance with the contractual terms of its governing documents, in all material respects, and was categorized as a performing loan. For the
year ended
December 31, 2017
, the preferred equity investment contributed all interest income recorded on the consolidated statement of operations.
The following table presents borrowings as of
December 31, 2017
and
2016
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
|
|
Final
Maturity
|
|
Contractual
Interest Rate
(3)
|
|
Principal
Amount
|
|
Carrying
Value
|
|
Principal
Amount
|
|
Carrying
Value
|
|
Mortgage and other notes payable:
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.K. Complex
(2)
|
|
(2)
|
|
GBP LIBOR + 1.75%
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
50,116
|
|
|
$
|
49,284
|
|
|
U.K. Complex - Mezzanine
(2)
|
|
(2)
|
|
8.325%
|
|
—
|
|
|
—
|
|
|
11,565
|
|
|
11,497
|
|
|
Trias Portfolio 1
(4)(6)
|
|
Apr-20
|
|
EURIBOR + 2.70%
|
|
10,378
|
|
|
10,116
|
|
|
13,724
|
|
|
13,301
|
|
|
Trias Portfolio 2
(4)(6)(8)
|
|
Dec-20
|
|
EURIBOR + 1.55%
|
|
91,577
|
|
|
90,880
|
|
|
78,952
|
|
|
78,708
|
|
|
Trias Portfolio 3
(4)(6)
|
|
Apr-20
|
|
EURIBOR + 1.65%
|
|
44,814
|
|
|
43,684
|
|
|
40,923
|
|
|
39,568
|
|
|
Trias Portfolio 4
(4)(6)
|
|
Apr-20
|
|
GBP LIBOR + 2.70%
|
|
17,326
|
|
|
17,123
|
|
|
15,843
|
|
|
15,446
|
|
|
SEB Portfolio 1
(6)
|
|
Jul-24
(9)
|
|
EURIBOR + 1.55%
(9)
|
|
317,317
|
|
|
313,153
|
|
|
278,539
|
|
|
274,614
|
|
|
SEB Portfolio 2
(6)
|
|
Jul-24
(9)
|
|
GBP LIBOR + 1.55%
(9)
|
|
250,825
|
|
|
247,902
|
|
|
229,353
|
|
|
226,078
|
|
|
SEB Portfolio - Preferred
(5)
|
|
Apr-60
|
|
2.30%
|
|
102,560
|
|
|
102,271
|
|
|
90,033
|
|
|
89,720
|
|
|
Trianon Tower
(4)(6)
|
|
Jul-23
|
|
EURIBOR + 1.30%
|
|
395,294
|
|
|
393,763
|
|
|
347,012
|
|
|
345,422
|
|
|
Other - Preferred
(7)
|
|
Oct-45
|
|
1.00%
|
|
4,551
|
|
|
4,551
|
|
|
6,151
|
|
|
5,481
|
|
|
Total mortgage and other notes payable
|
|
|
|
|
|
$
|
1,234,642
|
|
|
$
|
1,223,443
|
|
|
$
|
1,162,211
|
|
|
$
|
1,149,119
|
|
________________________
|
|
|
|
(1)
|
All mortgage notes and other notes payable are denominated in local currencies, and as such, the principal amount generally increased from 2016 to 2017 due to the change in the Euro or U.K. Pound Sterling compared to the U.S. dollar. All borrowings are non-recourse and are interest-only through maturity, subject to compliance with covenants of the respective borrowing, and denominated in the same currency as the assets securing the borrowing.
|
|
|
|
|
(2)
|
In November 2017, the Company repaid the mortgage notes upon the sale of the associated property.
|
|
|
|
|
(3)
|
All floating rate debt is subject to interest rate caps of
0.5%
for EURIBOR and
2.0%
for GBP LIBOR which are used to manage interest rate exposure.
|
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
(4)
|
Trias Portfolio represents the cross-collateralized borrowings among the IVG Portfolio, Internos Portfolio and Deka Portfolio.
|
|
|
|
|
(5)
|
Represents preferred equity certificates with a contractual interest rate of
2.3%
through May 2019, which can be prepaid at that time without penalty in part or in full, which increases to EURIBOR plus
12.0%
through May 2022 and subsequently to EURIBOR plus
15.0%
through final maturity. Certain prepayments prior to May 2019 are subject to the payment of the unpaid coupon on outstanding principal amount through May 2019.
|
|
|
|
|
(6)
|
Prepayment provisions include a fee based on principal amount ranging from
0.25%
to
1.0%
through December 2019 for the Trias Portfolio borrowings and
1.0%
to
2.0%
through July 2020 for the SEB Portfolio borrowings and
0.60%
through June 30, 2018 and
0.30%
through June 30, 2019 for Trianon Tower borrowings.
|
|
|
|
|
(7)
|
Represents preferred equity certificates each with a fixed contractual interest rate of
1.0%
per annum plus variable interest based on specified income levels associated with the German property companies of the Trias Portfolios which can be prepaid at any time without penalty through final maturity, which is
thirty
years from the issuance date.
|
|
|
|
|
(8)
|
In June 2017, the Company amended and restated the agreement to increase the loan amount by
$5.9 million
and reduce future minimum capital expenditure spending requirements.
|
|
|
|
|
(9)
|
In September 2017, the Company amended and restated the agreement to reduce the margin from
1.80%
to
1.55%
and extended the maturity date from April 1, 2022 to July 20, 2024.
|
The following table presents a reconciliation of principal amount to carrying value of the Company’s mortgage and other notes payable as of
December 31, 2017
and
2016
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2017
|
|
2016
|
|
Principal amount
|
|
$
|
1,234,642
|
|
|
$
|
1,162,211
|
|
|
Deferred financing costs, net
|
|
(11,199
|
)
|
|
(13,092
|
)
|
|
Carrying value
|
|
$
|
1,223,443
|
|
|
$
|
1,149,119
|
|
The following table presents scheduled principal on borrowings, based on final maturity as of
December 31, 2017
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
Mortgage
and Other Notes
Payable
|
|
Years ending December 31:
|
|
|
|
2018
|
|
$
|
—
|
|
|
2019
|
|
—
|
|
|
2020
|
|
164,095
|
|
|
2021
|
|
—
|
|
|
2022
|
|
—
|
|
|
2023 and thereafter
|
|
1,070,547
|
|
|
Total
|
|
$
|
1,234,642
|
|
As of
December 31, 2017
and
2016
, the Company was in compliance with all of its financial covenants.
Senior Notes
In July 2015, the Company issued
$340.0 million
principal amount of
4.625%
senior stock-settlable notes due December 2016 (the “Senior Notes”) for aggregate net proceeds of
$331.0 million
, after deducting the underwriters’ discount and other expenses. The Senior Notes were senior unsubordinated and unsecured obligations of the Company and NorthStar Realty and NorthStar Realty’s operating partnership guaranteed payments on the Senior Notes.
The proceeds from the issuance of the Senior Notes were distributed to subsidiaries of NorthStar Realty, which used such amounts for general corporate purposes, including, among other things, the funding of acquisitions, including the Trianon Tower and the repayment of NorthStar Realty’s borrowings. Such distribution to NorthStar Realty was recorded in equity in net transactions with NorthStar Realty. During 2016, the Company repurchased approximately
$272.3 million
of the Senior Notes, at a slight premium to par value, through privately negotiated transactions and settled the remaining Senior Notes in cash at maturity.
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Credit Facility
In May 2016, the Company entered into a
$75.0 million
corporate revolving credit facility (the “Credit Facility”) with certain commercial bank lenders, with an initial
one
year term. The Credit Facility was secured by collateral relating to a borrowing base at that time and guarantees by certain subsidiaries of the Company. In October 2016, the Company permanently reduced the aggregate commitments under the Credit Facility to
$35.0 million
. In April 2017, the Company amended and restated the Credit Facility with aggregate commitments of
$35.0 million
and an initial
two
year term. The Credit Facility no longer contains a limitation on availability based on a borrowing base and the interest rate remains the same. The Credit Facility has an accordion feature, allowing the total facility to increase to
$70 million
. In March 2018, the Company amended the Credit Facility, increasing the size to
$70 million
and extending the term until April 2020 with
one year
extension option. The Credit Facility includes an accordion feature, providing for the ability to increase the facility to
$105 million
. As of
December 31, 2017
, there is
no
outstanding balance on the Credit Facility.
6. Related Party Arrangements
On November 9, 2017, the Company entered into an Amended and Restated Management Agreement with an affiliate of the Manager, effective as of January 1, 2018. The description of the management agreement included below relates to the original agreement that was entered into in November 2015 and which will be superseded as of January 1, 2018 by the Amended and Restated Management Agreement.
Colony NorthStar, Inc.
Management Agreement
The Company entered into a management agreement with an affiliate of the Manager in November 2015. As asset manager, the Manager is responsible for the Company’s day-to-day operations, subject to supervision and management of the Company’s board of directors (the “Board”). Through its global network of subsidiaries and branch offices, the Manager 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. The management agreement with the Manager provides for a base management fee and incentive fee.
Base Management Fee
For the
years ended
December 31, 2017
,
2016
and
2015
, the Company incurred
$14.4 million
,
$14.1 million
and
$2.3 million
, respectively, related to the base management fee. As of
December 31, 2017
and 2016,
$3.6 million
and
$3.5 million
, respectively, was recorded in due to related party on the consolidated balance sheets. The base management fee to the Manager is calculated as
1.5%
per annum of the sum of:
|
|
|
|
•
|
any equity the Company issues in exchange or conversion of exchangeable or stock-settlable notes;
|
|
|
|
|
•
|
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 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”), if any, of the Company in excess of cumulative distributions paid on common stock, LTIP Units or other equity awards which began with the Company’s fiscal quarter ended March 31, 2016.
|
Incentive Fee
For the
years ended
December 31, 2017
,
2016
and
2015
, the Company did not incur an incentive fee. The incentive fee is calculated and payable quarterly in arrears in cash, equal to:
|
|
|
|
•
|
the product of: (a)
15.0%
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
$0.30
per share and up to
$0.36
per share; plus
|
|
|
|
|
•
|
the product of: (a)
25.0%
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
$0.36
per share;
|
|
|
|
|
•
|
multiplied by the Company’s weighted average shares outstanding for the calendar quarter.
|
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.
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Additional Management Agreement Terms
The Company’s management agreement with the Manager provides that in the event of a change of control of the Manager 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 by the Company or the Manager, 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 the Manager for costs and expenses incurred by the Manager on the Company’s behalf. In addition, the Manager 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 the Manager (the “G&A Allocation”). The Company’s management agreement with the Manager provides that the amount of the G&A Allocation will not exceed the following: (i)
20%
of the total of: (a) the Company’s 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 the Manager under the terms of the applicable management agreement and (4) any allocation of expenses to the Company (“NRE’s G&A”); and (b) the Manager’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 the Manager; less (ii) NRE’s G&A. The G&A Allocation may include the Company’s allocable share of the Manager’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 the Manager for an allocable portion of any severance paid pursuant to any employment, consulting or similar service agreements in effect between the Manager and any of its executives, employees or other service providers.
The Company’s obligation to reimburse the Manager for the G&A Allocation and any severance, at the Manager’s discretion, and the
20%
cap on the G&A Allocation, as described above, applies on an aggregate basis to the Company.
For the
year ended
December 31, 2017
, the Manager did not allocate any general and administrative expenses to the Company. For the
years ended
December 31, 2016
and
2015
, the Manager allocated
$0.2 million
and
$0.4 million
, respectively, to the Company. For the
years ended
December 31, 2017
,
2016
and 2015, the Manager did not allocate any severance to the Company.
In addition, the management agreement provides that the Company and any company spun-off from the Company, shall pay directly or reimburse the Manager for up to
50%
of any long-term bonus or other compensation that the Manager’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 the Managers’ during any year. Subject to this limitation and limitations contained in any applicable management agreement between the Manager and any company spun-off from the Company, the amount paid by the Company and any company spun-off from the Company will be determined by the Manager in its discretion. At the discretion of the Manager’s compensation committee, this compensation may be granted in shares of the Company’s restricted stock, restricted stock units, long-term incentive plan 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 Manager’s 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%
.
The Company does not have employment agreements with its named executive officers, but the Company has generally agreed to pay directly or reimburse the Manager for the portion of any severance paid by the Manager or any of its affiliates to an individual pursuant to the terms of any employment, consulting or similar service agreement, including any employment agreements with Colony NorthStar or its subsidiaries and its named executive officers, that corresponds to or is attributable to: (i) the equity compensation that the Company is required to pay directly or reimburse the Manager pursuant to the management agreement; (ii)
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
any cash and/or equity compensation paid directly by the Company to such individual as an employee or other service provider of the Company; and (iii) any amounts paid to such individual by the Manager or any of its affiliates that the Company is obligated to reimburse the Manager pursuant to the management agreement. With respect to Mahbod Nia only, in lieu of the foregoing severance payment or reimbursement, the Company has agreed to pay directly or reimburse the Manager for
50%
of any cash payments made by the Manager or any of its affiliates in connection with the termination of Mr. Nia’s employment either without cause or upon the non-renewal of Mr. Nia’s term of employment by the employer or by Mr. Nia for good reason; provided that the Board consented to the taking of such action (or, with respect to a termination for good reason, any action taken with the intent to create good reason). Because the Company’s obligation to pay these amounts is owed to the Manager and not directly to the Company’s named executive officers and the Company does not control the terms of the agreements between the Manager or its affiliates and the Company’s named executive officers, the discussion above does not include these amounts or a discussion of any arrangements that the Manager or its affiliates may have with the Company’s named executive officers pursuant to which our obligations to the Manager may arise.
Management Agreement Amendment
On November 9, 2017, the Company entered into an Amended and Restated Management Agreement with CNI NRE Advisors, LLC, a Delaware limited liability company (unless the context requires otherwise, together with its affiliates, the “Asset Manager”), an affiliate of Colony NorthStar, effective as of January 1, 2018.
Under the Amended and Restated Management Agreement, the Asset Manager is generally responsible to manage the Company’s day to day operations, subject to the supervision and management of the Board. The Asset Manager is required to provide the Company with a management team and other appropriate employees and resources necessary to manage the Company.
Term; Renewals
The Amended and Restated Management Agreement provides for an initial term (beginning January 1, 2018) of
five
years (the “Initial Term”), with subsequent automatic renewals for additional
three
year terms, unless either party provides notice to the other party of its intention to decline to renew the agreement at least six months prior to the expiration of the then-current term. During the Initial Term, the Amended and Restated Management Agreement is terminable only for cause (as described in the Amended and Restated Management Agreement).
If the Company elects not to renew the Amended and Restated Management Agreement at the end of a term, it will be obligated to pay the Asset Manager a termination fee (the “Termination Fee”) equal to three times the amount of the base management fees earned by the Asset Manager over the four most recent quarters immediately preceding the non-renewal. In addition, if at any time after the Initial Term, the Company undergoes a “change of control” (as described in the Amended and Restated Management Agreement), the Company may elect to terminate the agreement but upon any such termination it will be obligated to pay the Termination Fee to the Asset Manager.
Assignment
The Amended and Restated Management Agreement provides that in the event of a change of control of the Asset Manager or other event that could be deemed an assignment of the Amended and Restated Management Agreement, the Company will consider such assignment in good faith and not unreasonably withhold, condition or delay the Company’s consent. The Amended and Restated 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 Amended and Restated 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 by the Company or the Asset Manager, directly or indirectly, the surviving entity will succeed to the terms of the Amended and Restated Management Agreement.
Base Management Fee
Pursuant to the Amended and Restated Management Agreement, beginning January 1, 2018, the Company is obligated to pay quarterly, in arrears, in cash, the Asset Manager a base management fee per annum equal to:
|
|
|
|
•
|
1.50%
of the Company’s reported EPRA NAV (as described in the Amended and Restated Management Agreement) for EPRA NAV amounts up to and including
$2.0 billion
; plus
|
|
|
|
|
•
|
1.25%
of the Company’s reported EPRA NAV on any EPRA NAV amount exceeding
$2.0 billion
.
|
EPRA NAV is based on a U.S. GAAP balance sheet adjusted based on the Company’s interpretation of the European Public Real Estate Association (“EPRA”) guidelines, and similar as prior practices, including adjustments such as fair value of operating real estate, straight-line rent and deferred taxes and additional adjustments to be determined by the Company in good faith based on
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
any changes to U.S. GAAP, international accounting standards or EPRA guidelines. In calculating EPRA NAV, the liquidation preference of preferred securities outstanding shall not be included as a liability of the Company and shall not reduce EPRA NAV.
Incentive Fee
In addition to the base management fees, the Company is obligated to pay the Asset Manager an incentive fee, if any (the “Incentive Fee”), with respect to each measurement period equal to twenty percent (
20%
) of: (i) the excess of (a) the Company’s Total Stockholder Return (as defined in the Amended and Restated Management Agreement, which includes stock price appreciation and dividends received and is subject to a high watermark price established when a prior incentive fee is realized) for the relevant measurement period above (b) a
10%
cumulative annual hurdle rate, multiplied by (ii) the Company’s Weighted Average Shares (as defined in the Amended and Restated Management Agreement) during the measurement period. The first measurement period for the incentive fee will begin January 1, 2018 and end on December 31 of the applicable calendar year and subsequent measurement periods will begin on January 1 of the subsequent calendar year. Subject to the conditions set forth in Section 4(d) of the Amended and Restated Management Agreement for common stock payments, the Company may elect to pay the Incentive Fee, if any, in cash or in shares of restricted common stock or shares of unrestricted common stock repurchased by the Company in the open market or a combination thereof. Any shares of common stock delivered by the Company will be subject to lock-up restrictions that will be released in equal one-third increments on each anniversary of the end of the measurement period with respect to which such incentive fee was earned. In calculating the value of the shares of the Company’s common stock paid in satisfaction of the Incentive Fee obligation, the shares of restricted common stock will be valued at the higher of: (i) the volume weighted average trading price per share for the
ten
consecutive trading days (as defined in the Amended and Restated Management Agreement) ending on the trading day prior to the date the payment is due and (ii) the Company’s EPRA NAV per share, based on the Company’s most recently published EPRA NAV and the Weighted Average Shares as of the end of the period with respect to which such EPRA NAV was published.
Costs and Expenses
The Company is responsible to pay (or reimburse the Asset Manager) for all of the Company’s direct, out of pocket costs and expenses of the Company as a stand alone company incurred by or on behalf of the Company and its subsidiaries, all of which must be reasonable, customary and documented. Internalized Service Costs (as defined below) are not intended to be covered costs and expense under this provision and are subject to the limits described in the next paragraph.
In addition to the expenses described in the prior paragraph, for each calendar quarter, beginning with the first quarter of 2018, the Company is obligated to reimburse the Asset Manager for (i) all direct, reasonable, customary and documented costs and expenses incurred by the Asset Manager for salaries, wages, bonuses, payroll taxes and employee benefits for personnel employed by the Asset Manager: (a) who solely provide services to the Company which prior to January 1, 2018 were provided by unaffiliated third parties, including accounting and treasury services or (b) who were hired by the Asset Manager after January 1, 2018 but who solely provide services to the Company in respect of one of the categories of services previously internalized pursuant to clause (a) and who were not hired in connection with any event which otherwise resulted in an increase to the Company’s net asset value (such costs and expenses set forth in clauses (i) and (ii), the “Internalized Service Costs”), plus (ii)
20%
of the amount calculated under clause (i) to cover reasonable overhead charges with respect to such personnel, provided that the Company shall not be obligated to reimburse the Asset Manager for such costs and expenses to the extent they exceed the following quarterly limits:
|
|
|
|
•
|
0.0375%
of the Company’s aggregate gross asset value as of the end of the prior calendar quarter (excluding cash and cash equivalents and certain other exclusions) as calculated for purposes of determining EPRA NAV (“GAV”), for GAV amounts to and including
$2.5 billion
, plus
|
|
|
|
|
•
|
0.0313%
of GAV amounts between
$2.5 billion
and
$5.0 billion
, plus
|
|
|
|
|
•
|
0.025%
of GAV amounts exceeding
$5.0 billion
.
|
If the Asset Manager’s actual Internalized Service Costs during any quarter exceed the quarterly limit described in the preceding paragraph (the cumulative excess amounts, if any, in respect of each quarter during a calendar year, the (“Quarterly Cap Excess Amount”), the Company is obligated to reimburse the Asset Manager on an annual basis for an amount equal to the lesser of (i) the Quarterly Cap Excess Amount and (ii) the sum of the amounts, if any, determined for each quarter within such calendar year by which Internalized Services Costs in respect of such quarter were less than the quarterly limits described in the prior paragraph.
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Equity Based Compensation
In addition, the Company expects to make annual equity compensation grants to management of the Company and other employees of the Asset Manager, provided that the aggregate annual grant amount, type and other terms of such equity compensation must be approved by the Company’s compensation committee. The Asset Manager will have discretion in allocating the aggregate grant among the Company’s management and other employees of the Asset Manager.
Under the Amended and Restated Management Agreement, beginning with the Company’s 2018 annual stockholders’ meeting, the Asset Manager will have the right to nominate one director (who is expected to be one of the Company’s current directors employed by the Asset Manager) to the Company’s board of directors.
Transaction Expenses
The Company agreed to pay for up to
$2.5 million
of fees and expenses payable by the Asset Manager to its external financial advisors in connection with the negotiation and execution of the Amended and Restated Management Agreement.
Colony NorthStar Ownership Waiver and Voting Agreement
In connection with the entry into the Amended and Restated Management Agreement, the Company provided Colony NorthStar with an ownership waiver under the Company’s Articles of Amendment and Restatement, allowing Colony NorthStar to purchase up to
45%
of the Company’s stock. The waiver provides that if the Amended and Restated Management Agreement is terminated, Colony NorthStar may not purchase any shares of the Company’s common stock to the extent Colony NorthStar owns (or would own as a result of such purchase) more than
9.8%
of the Company’s capital stock. In connection with the waiver, Colony NorthStar also agreed that for all matters submitted to a vote of the Company’s stockholders, to the extent Colony NorthStar owns more than
25%
of the Company’s common stock (such shares owned by Colony NorthStar in excess of the
25%
threshold, the “Excess Shares”), it will vote the Excess Shares in the same proportion that the remaining shares of the Company not owned by Colony NorthStar or its affiliates are voted. If the Amended and Restated Management Agreement is terminated, then beginning on the third anniversary of such termination, the threshold described in the prior sentence will be reduced from
25%
to
9.8%
.
Manager Ownership of Common Stock
As of
December 31, 2017
, Colony NorthStar and its subsidiaries owned
5.6 million
shares of the Company’s common stock, or approximately
10.2%
of the total outstanding common stock.
The following summarizes the equity-based compensation for the years ended
December 31, 2017
,
2016
and 2015:
For the
years ended
December 31, 2017
,
2016
and
2015
the Company recorded
$23.8 million
,
$19.3 million
and
$0.9 million
, respectively, of equity-based compensation expense which is recorded in compensation expenses on the consolidated statements of operations. As of
December 31, 2017
, equity-based compensation expense to be recognized over the remaining vesting period through January 2020 is
$6.7 million
, provided there are
no
additional forfeitures.
2015 Omnibus Stock Incentive Plan
Pursuant to the NorthStar Realty Europe Corp. 2015 Omnibus Stock Incentive Plan (the “2015 Plan”), the Company may issue equity awards to directors, officers, employees, co-employees, consultants and advisors of the Company, the Manager or of any parent or subsidiary who provides services to the Company. The number of shares that may be issued under the 2015 Plan equals
10 million
shares of common stock, plus on January 1, 2017 and each January 1 thereafter, an additional
2%
of the number of shares of common stock issued and outstanding on the immediately preceding December 31. In addition, shares of common stock underlying any awards that are forfeited, canceled, held back upon exercise of a stock option or settlement of an award to cover the exercise price or tax withholding, reacquired by the Company prior to vesting, satisfied without the issuance of common stock or otherwise terminated (other than by exercise) will be added back to the shares of common stock available for issuance under the 2015 Plan. As of
December 31, 2017
, under the 2015 Plan, a total of
1.2 million
shares of common stock had been issued (net of forfeitures and shares held back for tax withholding),
1.7 million
shares were reserved for issuance pursuant to outstanding equity awards (including
0.1 million
reserved for issuance upon conversion of outstanding LTIP Units and
1.6 million
reserved for issuance pursuant to the outstanding Absolute RSUs and Relative RSUs) and
8.2 million
otherwise unreserved shares remained available for issuance.
All of the equity awards issued by the Company since the spin-off from NorthStar Realty on November 1, 2015 have been issued under the 2015 Plan. During the
year ended
December 31, 2017
, the Company issued
500,642
restricted shares of common stock under the 2015 Plan to employees of the Manager or its subsidiaries in accordance with the terms of the management agreement described above in Note 6, of which
379,594
vested in connection with the Mergers.
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In March 2016, as contemplated in connection with the Spin-off, the Company granted an aggregate of
995,698
restricted shares of common stock and
1,493,551
restricted stock units (“RSUs”) to employees of the Manager or one of its subsidiaries under the 2015 Plan. The restricted shares of common stock were subject to vesting over the approximately
four
year period ending December 31, 2019, subject to continued employment with the Manager or one of its subsidiaries and the RSUs were market-based awards subject to the achievement of performance-based vesting conditions and continued employment with the Manager or one of its subsidiaries. Approximately one-half of these RSUs are subject to the achievement of performance-based hurdles relating to the Company’s absolute total stockholder return and continued employment with the Manager or one of its subsidiaries over the approximately
four
year period from the grant date through December 31, 2019 (the “Absolute RSUs”). The other approximately one-half of these RSUs are subject to the achievement of performance-based hurdles based on the Company’s total stockholder return relative to the MSCI US REIT Index and continued employment with the Manager or one of its subsidiaries over the approximately
four
year period from the grant date through December 31, 2019 (the “Relative RSUs”). Award recipients may earn up to
100%
of the Absolute RSUs that were granted and up to
125%
of the Relative RSUs that were granted. Upon vesting pursuant to the terms of the Absolute RSUs and Relative RSUs, the RSUs that vest will be settled in shares of common stock and the recipients will be entitled to receive the distributions that would have been paid with respect to a share of common stock (for each share that vests) on or after the date the RSUs were initially granted. In accordance with their terms, all of these restricted shares of common stock that remained outstanding vested in connection with the Mergers. The Absolute and Relative RSUs were not affected by the Mergers and remain outstanding, subject to forfeitures occurring in connection with termination of employment with the Manager or one of its subsidiaries.
Pre-Spin-off NorthStar Realty Equity Awards
In addition to equity awards issued under the 2015 Plan, the Company also had equity subject to outstanding equity-based awards granted by NorthStar Realty prior to the Spin-Off. In connection with the Spin-Off, holders of shares of common stock of NorthStar Realty and LTIP units of NorthStar Realty’s operating partnership subject to outstanding equity awards received one share of the Company’s common stock or one Common Unit in the Operating Partnership, respectively, for every six shares of common stock of NorthStar Realty or LTIP units of NorthStar Realty’s operating partnership held. Other equity and equity-based awards relating to NorthStar Realty’s common stock, such as RSUs, were adjusted to also relate to one-sixth of a share of the Company’s common stock, but otherwise generally remained subject to the same vesting and other terms that applied prior to the Spin-off. Performance-based vesting conditions based on total stockholder return of NorthStar Realty or NorthStar Realty and NSAM were adjusted to refer to combined total stockholder return of NorthStar Realty and the Company or NorthStar Realty, NSAM and the Company, respectively, with respect to periods after the Spin-Off and references to a change of control or similar term in outstanding awards, which referred to a change of control of either NorthStar Realty or NSAM, were adjusted, to the extent such awards relate to common stock of the Company or Common Units in the Operating Partnership, to refer to a change of control of either the Company or NSAM.
Following the Spin-off, NorthStar Realty and the compensation committee of its Board continued to administer all awards granted by NorthStar Realty prior to the Spin-off, but the Company was obligated to issue shares of the Company’s common stock or other equity awards of its subsidiaries or make cash payments in lieu thereof or with respect to dividend or distribution equivalent obligations to the extent required by these awards. These awards continued to be governed by the NorthStar Realty equity plans, as applicable, and shares of the Company’s common stock issued pursuant to these awards were not be issued pursuant to, and did not reduce availability under, the 2015 Plan. In connection with the Mergers, all of these outstanding equity-based awards (other than an RSU relating to
83,333
shares of the Company’s common stock which vested in September 2017 upon a vesting event) vested or were forfeited.
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table presents activity related to the issuance, vesting, conversion and forfeitures of restricted stock and Common Units. The balance as of
December 31, 2017
represents vested Common Units and unvested market-based RSUs (grants in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
|
Restricted Stock
(1)
|
|
Common Units
(3)
|
|
Restricted Stock Units
(4)
|
|
Performance RSUs
(5)
|
|
Total Grants
|
|
Weighted
Average
Grant Price
|
|
December 31, 2016
|
1,139
|
|
|
688
|
|
|
83
|
|
|
1,868
|
|
|
3,778
|
|
|
$
|
11.29
|
|
|
Granted
|
501
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
501
|
|
|
12.69
|
|
|
Converted
|
—
|
|
|
(268
|
)
|
|
—
|
|
|
—
|
|
|
(268
|
)
|
|
21.10
|
|
|
Vested
(2)
|
(1,519
|
)
|
|
—
|
|
|
(83
|
)
|
|
(178
|
)
|
|
(1,780
|
)
|
|
10.35
|
|
|
Forfeited
(6)
|
—
|
|
|
—
|
|
|
—
|
|
|
(237
|
)
|
|
(237
|
)
|
|
4.87
|
|
|
December 31, 2017
|
121
|
|
|
420
|
|
|
—
|
|
|
1,453
|
|
|
1,994
|
|
|
$
|
11.95
|
|
___________________
|
|
|
|
(1)
|
Represents restricted stock included in common stock.
|
|
|
|
|
(2)
|
Vested primarily includes the acceleration of substantially all outstanding equity awards of the Company in connection with the change of control of NSAM as a result of the Mergers.
|
|
|
|
|
(3)
|
Includes vested and unvested Common Units in the Operating Partnership issued in the Spin-off with respect to equity-based awards granted by NorthStar Realty prior to the Spin-off. As of
December 31, 2017
, all of these Common Units in the Operating Partnership were vested.
|
|
|
|
|
(4)
|
Relates to an equity-based award granted by NorthStar Realty prior to the Spin-off and represents a non-employee grant subject to service-based vesting conditions, which was scheduled to vest on January 22, 2019, however, in September 2017, pursuant to the terms of the RSU award, a vesting event occurred and on October 2, 2017, the Company issued
83,333
shares of common stock in settlement of these RSUs. The RSUs were entitled to dividend equivalents prior to vesting and the dividends were settled in cash.
|
|
|
|
|
(5)
|
As of
December 31, 2017
, represented outstanding Absolute and Relative RSUs.
|
|
|
|
|
(6)
|
Includes the forfeiture of performance based RSUs issued to NSAM executives as part of historical bonus plans in connection with the change of control of NSAM.
|
Spin-off
In connection with the Spin-off, NorthStar Realty distributed to its common stockholders all of the common stock of the Company in a pro rata distribution of
one
share of the Company’s common stock for each
six
shares of NorthStar Realty common stock.
Share Repurchase
In November 2015, the Company’s board of directors authorized the repurchase of up to
$100 million
of its outstanding common stock. That authorization expired in November 2016 and at such time the Board authorized an additional repurchase of up to
$100 million
of its outstanding common stock through November 2017. In March 2018, the Company’s board of directors authorized the repurchase of up to
$100 million
of its outstanding common stock. The authorization expires in March 2019, unless otherwise extended by the Company’s board of directors. For the
year ended
December 31, 2017
, the Company did not repurchase any shares of its common stock. For the
year ended
December 31, 2016
, the Company repurchased
5.7 million
shares of its common stock for approximately
$58.6 million
. For the
year ended
December 31, 2015
, the Company repurchased
3.6 million
shares of its common stock for approximately
$41.4 million
. From the original authorization in November 2015 through
December 31, 2017
, the Company repurchased
9.3 million
shares of its common stock for approximately
$100.0 million
.
Director Grants
In July 2016, the Company issued
15,368
shares of restricted common stock with a fair value at the date of grant of
$0.1 million
to one of its board of directors as an initial grant of equity. The stock will generally vest over
three
years.
In November 2016, the Company issued
43,518
shares of common stock with a fair value at the date of grant of
$0.5 million
to its non-employee directors in connection with their re-election to the Company’s board of directors as part of their annual grants. The stock vested immediately.
In August 2017, the Company issued
30,340
shares of common stock with a fair value at the date of grant of
$0.4 million
to its independent directors as an annual grant of equity. The stock fully vested at issuance.
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dividends
The following table presents dividends declared (on a per share basis) with respect to the
years ended
December 31, 2017
,
2016
and
2015
:
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Declaration Date
|
|
Dividend Per Share
|
|
2017
|
|
|
|
March 7
|
|
$
|
0.15
|
|
|
May 1
|
|
$
|
0.15
|
|
|
August 2
|
|
$
|
0.15
|
|
|
November 6
|
|
$
|
0.15
|
|
|
2016
|
|
|
|
March 15
|
|
$
|
0.15
|
|
|
May 10
|
|
$
|
0.15
|
|
|
August 3
|
|
$
|
0.15
|
|
|
November 1
|
|
$
|
0.15
|
|
|
2015
|
|
|
|
November 23
|
|
$
|
0.15
|
|
Earnings Per Share
The following table presents EPS for the
years ended
December 31, 2017
,
2016
and
2015
(dollars and shares in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
|
Numerator:
|
|
|
|
|
|
|
Net income (loss) attributable to NorthStar Realty Europe Corp. common stockholders
|
$
|
(31,125
|
)
|
|
$
|
(61,753
|
)
|
|
$
|
(143,136
|
)
|
|
Net income (loss) attributable to Unit Holders non-controlling interest
|
(372
|
)
|
|
(778
|
)
|
|
(1,052
|
)
|
|
Net income (loss) attributable to common stockholders and Unit Holders
(1)
|
$
|
(31,497
|
)
|
|
$
|
(62,531
|
)
|
|
$
|
(144,188
|
)
|
|
Denominator:
(2)
|
|
|
|
|
|
|
Weighted average shares of common stock
|
55,073
|
|
|
57,875
|
|
|
62,184
|
|
|
Weighted average Unit Holders
(1)
|
526
|
|
|
690
|
|
|
681
|
|
|
Weighted average shares of common stock and Unit Holders
(2)
|
55,599
|
|
|
58,565
|
|
|
62,865
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
Basic
|
$
|
(0.57
|
)
|
|
$
|
(1.07
|
)
|
|
$
|
(2.30
|
)
|
|
Diluted
|
$
|
(0.57
|
)
|
|
$
|
(1.07
|
)
|
|
$
|
(2.30
|
)
|
____________________________________________________________
|
|
|
|
(1)
|
The EPS calculation takes into account Unit Holders, 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 restricted stock and RSUs outstanding that were not dilutive as of
December 31, 2017
. These instruments could potentially impact diluted EPS in future periods, depending on changes in the Company’s stock price and other factors.
|
|
|
|
|
9.
|
Non-controlling Interests
|
Operating Partnership
Non-controlling interests include the aggregate Unit Holders’ interest in the Operating Partnership. Net income (loss) attributable to the 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, Common Units or LTIP Units changes the percentage ownership of both the Unit Holders and the Company. Since a Common Unit or 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 carrying value of such non-controlling interest is reallocated based on the number of Unit Holders in total in proportion
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
to the number of Units Holders plus the number of shares of common stock outstanding. As of December 31, 2017 and 2016, the Company allocated
$1.8 million
and
$2.3 million
, respectively from stockholders’ equity to non-controlling interest on the consolidated balance sheets and consolidated statement of equity.
As of
December 31, 2017
,
420,359
Common Units and LTIP Units were outstanding, representing a
0.8%
ownership and non-controlling interest in the Operating Partnership. Net income (loss) attributable to the Operating Partnership non-controlling interest for the
years ended
December 31, 2017
, 2016 and
2015
was a net loss of
$0.4 million
,
$0.8 million
and
$1.1 million
, respectively.
Redeemable Non-controlling Interest
In connection with the acquisition of the Trianon Tower in July 2015, the Company sold a
5.5%
non-controlling interest in certain subsidiaries that own the Trianon Tower for
$1.5 million
. In conjunction with the sale, the Company entered into a put option whereby the holder may redeem its interest for cash at the greater of fair market value of such non-controlling interest or
€2.1 million
beginning in November 2020 through January 2021. The Company recorded the non-controlling interest at its acquisition date fair value as temporary equity due to the redemption option. The carrying amount of redeemable noncontrolling interests is adjusted to its redemption value at the end of each reporting period, but no less than its initial carrying value, with such adjustments recognized in additional paid-in capital.
|
|
|
|
10.
|
Risk Management and Derivative Activities
|
Derivatives
The Company uses derivative instruments primarily to manage interest rate and currency risk and such derivatives are not considered speculative. These derivative instruments are in the form of interest cap agreements where the primary objective is to minimize interest rate risks associated with investment and financing activities and foreign currency forward agreements where the primary objective is to minimize foreign currency exchange rate risks associated with operating 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
December 31, 2017
and
December 31, 2016
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
(1)
|
|
Notional
Amount
|
|
Fair Value
Asset (Liability)
|
|
Range of
Fixed GBP LIBOR / EURIBOR
|
|
Range of Maturity
|
|
As of December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
Interest rate caps
|
31
|
|
|
$
|
1,193,012
|
|
|
$
|
7,024
|
|
|
(2)
|
|
April 2020 - July 2023
|
|
Foreign currency forwards, net
(3)
|
4
|
|
|
58,647
|
|
|
(5,270
|
)
|
|
N/A
|
|
February 2018 - November 2018
|
|
Total
|
35
|
|
|
$
|
1,251,659
|
|
|
$
|
1,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate caps
|
32
|
|
|
$
|
1,107,400
|
|
|
$
|
8,659
|
|
|
(2)
|
|
January 2020 - July 2023
|
|
Foreign currency forwards
(3)
|
20
|
|
|
72,806
|
|
|
5,070
|
|
|
N/A
|
|
February 2017 - November 2017
|
|
Total
|
52
|
|
|
$
|
1,180,206
|
|
|
$
|
13,729
|
|
|
|
|
|
_____________________________
(1) Represents number of transactions.
(2) Includes a range of interest rate caps of
0.5%
for EURIBOR and
2.0%
for GBP LIBOR.
(3) Includes Euro currency forwards as of December 31, 2017 and Euro and U.K. Pounds Sterling currency forwards as of December 31, 2016.
The following table presents the fair value of derivative instruments, as well as their classification on the consolidated balance sheets, as of
December 31, 2017
and
December 31, 2016
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet
|
|
December 31,
2017
|
|
December 31,
2016
|
|
|
Location
|
|
|
|
Interest rate caps
|
Derivative assets
|
|
$
|
7,024
|
|
|
$
|
8,659
|
|
|
Foreign currency forwards
|
Derivative assets
|
|
$
|
—
|
|
|
$
|
5,070
|
|
|
Foreign currency forwards
|
Derivative liabilities
|
|
$
|
5,270
|
|
|
$
|
—
|
|
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table presents the effect of derivative instruments in the consolidated statements of operations for the
years ended
December 31, 2017
,
2016
and
2015
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Amount of gain (loss) recognized in earnings:
|
Statements of operations location:
|
|
|
|
|
|
|
|
Adjustment to fair value of interest rate caps
|
Unrealized gain (loss) on derivatives and other
(1)
|
|
$
|
(2,726
|
)
|
|
$
|
(14,936
|
)
|
|
$
|
(8,897
|
)
|
|
Adjustment to fair value of foreign currency forwards held at the end of the reporting period
|
Unrealized gain (loss) on derivatives and other
(1)
|
|
(5,270
|
)
|
|
4,872
|
|
|
417
|
|
|
Adjustment to fair value of foreign currency forwards settled during the period
|
Unrealized gain (loss) on derivatives and other
(1)
|
|
(5,070
|
)
|
|
(219
|
)
|
|
—
|
|
|
Net cash receipt (payment) on derivatives
|
Realized gain (loss) on sales and other
|
|
979
|
|
|
(787
|
)
|
|
—
|
|
_____________________________
(1) Excludes the unrealized gain (loss) relating to foreign currency remeasurement adjustments.
The Company’s counterparties held
no
cash margin as collateral against the Company’s derivative contracts as of
December 31, 2017
and
December 31, 2016
. The Company had
no
derivative financial instruments that were designated as hedges in qualifying hedging relationships as of
December 31, 2017
and
December 31, 2016
.
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.
|
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.
Derivative Instruments
Derivative instruments consist of interest rate caps and foreign currency exchange contracts that are traded over-the-counter, and are valued using a third-party service provider. These quotations are not adjusted and are generally based on valuation models with observable inputs such as contractual cash flow, yield curve, foreign currency rates and credit spreads 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.
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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
December 31, 2017
and
2016
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
|
|
Principal/Notional
Amount
|
|
Carrying
Value
|
|
Fair
Value
|
|
Principal/Notional
Amount
|
|
Carrying
Value
|
|
Fair
Value
|
|
Financial assets:
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
$
|
1,193,012
|
|
|
$
|
7,024
|
|
|
$
|
7,024
|
|
|
$
|
1,180,206
|
|
|
$
|
13,729
|
|
|
$
|
13,729
|
|
|
Preferred equity investment
|
35,347
|
|
|
35,347
|
|
|
35,783
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Financial liabilities:
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage and other notes payable, net
|
$
|
1,234,642
|
|
|
$
|
1,223,443
|
|
|
$
|
1,231,321
|
|
|
$
|
1,162,211
|
|
|
$
|
1,149,119
|
|
|
$
|
1,146,134
|
|
|
Derivative liabilities
|
58,647
|
|
|
5,270
|
|
|
5,270
|
|
|
—
|
|
|
—
|
|
|
—
|
|
_____________________________
|
|
|
|
(1)
|
The fair value of other financial instruments not included in this table is estimated to approximate their carrying value.
|
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.
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 rates as of the end of the reporting period or market credit spreads over the rate payable on fixed rate 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.
Preferred Equity Investments
For preferred equity investments, fair value was computed 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. These fair value measurements are generally based on unobservable inputs and, as such, are classified as Level 3 of the fair value hierarchy.
|
|
|
|
12.
|
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.
The Company engages third-party service providers for its portfolio who are remunerated based on either a fixed fee or a percentage of rental income. The contract terms vary by party and are subject to termination options. These costs are recorded in properties - operating expense and other expenses in the consolidated statements of operations.
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As part of the terms of agreements relating to certain assets the Company disposed, as is customary for such transactions in Europe, the Company agreed to provide certain warranties to the buyer.
Obligations Under Ground Leases
The following table presents minimum future rental payments under the Company’s contractual ground lease obligations for certain building leaseholds for the
year ended
December 31, 2017
(dollars in thousands):
|
|
|
|
|
|
|
|
|
Years ending December 31:
|
|
Total
(1)
|
|
2018
|
|
$
|
705
|
|
|
2019
|
|
705
|
|
|
2020
|
|
705
|
|
|
2021
|
|
705
|
|
|
2022
|
|
705
|
|
|
Thereafter
|
|
46,828
|
|
|
Total minimum lease payments
|
|
$
|
50,353
|
|
__________________
|
|
|
|
(1)
|
Represent
two
ground leases with an average expiry of 2095. None of these are paid directly by the tenants.
|
Risk Management
Concentrations of credit risk arise when a number of tenants 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. For the
year ended
December 31, 2017
,
one
tenant, DekaBank Deutsche Girozentrale, accounted for more than 10% of the Company’s total revenue. This tenant has
6.4 years
remaining on its lease. Otherwise, the Company has no other tenant that generates 10% or more of its total revenue. Additionally, for the
year ended
December 31, 2017
, Germany, France and the United Kingdom each accounted for more than 10% of the Company’s total revenue. The Company believes the remainder of its portfolio is well diversified and does not contain any unusual concentrations of credit risks.
|
|
|
|
13.
|
Quarterly Financial Information (Unaudited)
|
The following presents selected quarterly information for the
years ended
December 31, 2017
and
2016
(dollars in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
September 30,
|
|
June 30,
|
|
March 31,
|
|
|
|
2017
|
|
2017
|
|
2017
|
|
2017
|
|
Rental income
|
|
$
|
26,041
|
|
|
$
|
27,747
|
|
|
$
|
26,025
|
|
|
$
|
25,536
|
|
|
Escalation income
|
|
5,265
|
|
|
5,641
|
|
|
5,558
|
|
|
5,161
|
|
|
Interest income
|
|
705
|
|
|
704
|
|
|
297
|
|
|
—
|
|
|
Interest expense
|
|
6,203
|
|
|
6,536
|
|
|
6,722
|
|
|
6,383
|
|
|
Management fee, related party
|
|
3,692
|
|
|
3,585
|
|
|
3,572
|
|
|
3,559
|
|
|
Transaction costs
|
|
4,552
|
|
|
332
|
|
|
973
|
|
|
260
|
|
|
Depreciation and amortization
|
|
14,535
|
|
|
14,396
|
|
|
12,520
|
|
|
12,563
|
|
|
Other, net
(1)
|
|
15,893
|
|
|
13,906
|
|
|
12,720
|
|
|
27,760
|
|
|
Unrealized gain (loss) on derivatives and other
|
|
(795
|
)
|
|
(3,472
|
)
|
|
(7,655
|
)
|
|
(941
|
)
|
|
Realized gain (loss) on sales and other
|
|
13,735
|
|
|
1,681
|
|
|
1,981
|
|
|
4,970
|
|
|
Income (loss) before income tax benefit (expense)
|
|
76
|
|
|
(6,454
|
)
|
|
(10,301
|
)
|
|
(15,799
|
)
|
|
Net income (loss)
|
|
2,537
|
|
|
(6,806
|
)
|
|
(10,538
|
)
|
|
(15,526
|
)
|
|
Net income (loss) attributable to NorthStar Realty Europe Corp. common stockholders
|
|
1,442
|
|
|
(6,770
|
)
|
|
(10,447
|
)
|
|
(15,350
|
)
|
|
Earnings (loss) per share:
(2)
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.02
|
|
|
$
|
(0.12
|
)
|
|
$
|
(0.19
|
)
|
|
$
|
(0.28
|
)
|
|
Diluted
|
|
$
|
0.02
|
|
|
$
|
(0.12
|
)
|
|
$
|
(0.19
|
)
|
|
$
|
(0.28
|
)
|
__________________
|
|
|
|
(1)
|
Primarily relates to properties - operating expenses, general and administrative expense, other expenses and compensation expense offset by other income.
|
|
|
|
|
(2)
|
The total for the year may differ from the sum of the quarters as a result of weighting.
|
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
September 30,
|
|
June 30,
|
|
March 31,
|
|
|
|
2016
|
|
2016
|
|
2016
|
|
2016
|
|
Rental income
|
|
$
|
25,700
|
|
|
$
|
29,798
|
|
|
$
|
33,990
|
|
|
$
|
34,833
|
|
|
Escalation income
|
|
5,347
|
|
|
7,828
|
|
|
5,908
|
|
|
6,090
|
|
|
Interest expense
|
|
7,955
|
|
|
9,301
|
|
|
11,641
|
|
|
12,542
|
|
|
Management fee, related party
|
|
3,520
|
|
|
3,548
|
|
|
3,500
|
|
|
3,500
|
|
|
Transaction costs
|
|
(23
|
)
|
|
150
|
|
|
1,652
|
|
|
831
|
|
|
Depreciation and amortization
|
|
13,715
|
|
|
13,989
|
|
|
18,404
|
|
|
18,871
|
|
|
Other, net
(1)
|
|
20,531
|
|
|
19,585
|
|
|
44,271
|
|
|
16,962
|
|
|
Unrealized gain (loss) on derivatives and other
|
|
8,319
|
|
|
(4,982
|
)
|
|
1,159
|
|
|
(15,753
|
)
|
|
Realized gain (loss) on sales and other
|
|
20,460
|
|
|
3,814
|
|
|
4,622
|
|
|
(2,448
|
)
|
|
Income (loss) before income tax benefit (expense)
|
|
14,128
|
|
|
(10,115
|
)
|
|
(33,789
|
)
|
|
(29,984
|
)
|
|
Net income (loss)
|
|
13,902
|
|
|
(12,770
|
)
|
|
(34,309
|
)
|
|
(29,325
|
)
|
|
Net income (loss) attributable to NorthStar Realty Europe Corp. common stockholders
|
|
13,859
|
|
|
(12,721
|
)
|
|
(33,909
|
)
|
|
(28,982
|
)
|
|
Earnings (loss) per share:
(2)
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.25
|
|
|
$
|
(0.22
|
)
|
|
$
|
(0.57
|
)
|
|
$
|
(0.49
|
)
|
|
Diluted
|
|
$
|
0.24
|
|
|
$
|
(0.22
|
)
|
|
$
|
(0.57
|
)
|
|
$
|
(0.49
|
)
|
__________________
|
|
|
|
(1)
|
Primarily relates to properties - operating expenses, general and administrative expense, impairment loss, other expenses and compensation expense offset by other income.
|
|
|
|
|
(2)
|
The total for the year may differ from the sum of the quarters as a result of weighting.
|
The Company currently conducts its business through the following
three
segments, based on how management reviews and manages its business:
|
|
|
|
•
|
Real Estate Equity-
Focused on European prime office properties located in key cities within Germany, the United Kingdom and France.
|
|
|
|
|
•
|
Preferred Equity
- Represents the Company’s preferred equity investment secured by interest in a European prime office property.
|
|
|
|
|
•
|
Corporate
- The corporate segment significantly includes corporate level interest expense, management fee and general and administrative expenses.
|
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following tables present segment reporting for the
years ended
December 31, 2017
,
2016
and
2015
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
Statement of Operations:
|
Real Estate Equity
|
|
Preferred Equity
|
|
Corporate
|
|
Total
|
|
Revenues
|
|
|
|
|
|
|
|
|
Rental income
|
$
|
105,349
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
105,349
|
|
|
Escalation income
|
21,625
|
|
|
—
|
|
|
—
|
|
|
21,625
|
|
|
Interest income
|
—
|
|
|
1,706
|
|
|
—
|
|
|
1,706
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
Interest expense
(1)
|
24,989
|
|
|
—
|
|
|
855
|
|
|
25,844
|
|
|
Management fee, related party
|
—
|
|
|
—
|
|
|
14,408
|
|
|
14,408
|
|
|
Transaction costs
(4)
|
—
|
|
|
538
|
|
|
5,579
|
|
|
6,117
|
|
|
Depreciation and amortization
|
54,014
|
|
|
—
|
|
|
—
|
|
|
54,014
|
|
|
Other, net
|
20,887
|
|
(2)
|
72
|
|
|
39,816
|
|
(3)
|
60,775
|
|
|
Income (loss) before income tax benefit (expense)
|
27,084
|
|
|
1,096
|
|
|
(60,658
|
)
|
|
(32,478
|
)
|
|
Income tax benefit (expense)
|
2,145
|
|
|
—
|
|
|
—
|
|
|
2,145
|
|
|
Net income (loss)
|
$
|
29,229
|
|
|
$
|
1,096
|
|
|
$
|
(60,658
|
)
|
|
$
|
(30,333
|
)
|
|
Balance Sheets:
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
Total Assets
|
$
|
1,901,282
|
|
|
$
|
37,133
|
|
|
$
|
2,502
|
|
|
$
|
1,940,917
|
|
___________________________________
|
|
|
|
(1)
|
Includes
$2.4 million
and
$0.4 million
of amortization of deferred financing costs in the real estate equity and corporate segments, respectively.
|
|
|
|
|
(2)
|
Primarily relates to properties - operating expenses and unrealized loss on interest rate caps offset by other income and realized gain on sales.
|
|
|
|
|
(3)
|
Primarily relates to general and administrative expense and unrealized loss on foreign currency forwards.
|
|
|
|
|
(4)
|
Transaction costs relates to costs associated with amending the management agreement in our corporate segment and other transaction costs in our preferred equity segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
Statement of Operations:
(1)
|
Real Estate Equity
|
|
Corporate
|
|
Total
|
|
Revenues
|
|
|
|
|
|
|
Rental income
|
$
|
124,321
|
|
|
$
|
—
|
|
|
$
|
124,321
|
|
|
Escalation income
|
25,173
|
|
|
—
|
|
|
25,173
|
|
|
Expenses
|
|
|
|
|
|
|
Interest expense
(2)
|
30,974
|
|
|
10,465
|
|
|
41,439
|
|
|
Management fee, related party
|
—
|
|
|
14,068
|
|
|
14,068
|
|
|
Transaction costs
(5)
|
—
|
|
|
2,610
|
|
|
2,610
|
|
|
Depreciation and amortization
|
64,979
|
|
|
—
|
|
|
64,979
|
|
|
Other, net
|
57,546
|
|
(3)
|
28,612
|
|
(4)
|
86,158
|
|
|
Income (loss) before income tax benefit (expense)
|
(4,005
|
)
|
|
(55,755
|
)
|
|
(59,760
|
)
|
|
Income tax benefit (expense)
|
(2,742
|
)
|
|
—
|
|
|
(2,742
|
)
|
|
Net income (loss)
|
$
|
(6,747
|
)
|
|
$
|
(55,755
|
)
|
|
$
|
(62,502
|
)
|
|
Balance Sheets:
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
Total Assets
|
$
|
1,835,531
|
|
|
$
|
9,861
|
|
|
$
|
1,845,392
|
|
___________________________________
|
|
|
|
(1)
|
The Company did not have a preferred equity segment for the
year ended
December 31, 2016.
|
|
|
|
|
(2)
|
Includes
$3.7 million
and
$3.4 million
of amortization of deferred financing costs in the real estate and corporate segments, respectively.
|
|
|
|
|
(3)
|
Primarily relates to properties - operating expense, realized loss on the sale of real estate and impairment loss on real estate offset by the realized gain on foreign currency translation and other.
|
|
|
|
|
(4)
|
Primarily relates to general and administrative expense and unrealized loss on foreign currency forwards. Includes an allocation of general and administrative expense from the Manager of
$0.2 million
.
|
|
|
|
|
(5)
|
Transaction costs primarily relate to costs associated the Mergers in our corporate segment.
|
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2015
|
|
Statement of Operations:
|
Real Estate Equity
|
|
Corporate
|
|
Total
|
|
Revenues
|
|
|
|
|
|
|
Rental income
|
$
|
101,023
|
|
|
$
|
—
|
|
|
$
|
101,023
|
|
|
Escalation income
|
18,822
|
|
|
—
|
|
|
18,822
|
|
|
Expenses
|
|
|
|
|
|
|
Interest expense
(1)
|
25,365
|
|
|
10,764
|
|
|
36,129
|
|
|
Management fee, related party
|
—
|
|
|
2,333
|
|
|
2,333
|
|
|
Transaction costs
(4)
|
120,101
|
|
|
—
|
|
|
120,101
|
|
|
Depreciation and amortization
|
56,283
|
|
|
—
|
|
|
56,283
|
|
|
Other, net
|
24,237
|
|
(2)
|
25,580
|
|
(3)
|
49,817
|
|
|
Income (loss) before income tax benefit (expense)
|
(106,141
|
)
|
|
(38,677
|
)
|
|
(144,818
|
)
|
|
Income tax benefit (expense)
|
675
|
|
|
—
|
|
|
675
|
|
|
Net income (loss)
|
$
|
(105,466
|
)
|
|
$
|
(38,677
|
)
|
|
$
|
(144,143
|
)
|
|
Balance Sheets:
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
Total Assets
|
$
|
2,544,992
|
|
|
$
|
138,058
|
|
|
$
|
2,683,050
|
|
___________________________________
|
|
|
|
(1)
|
Includes
$2.9 million
and
$3.0 million
of amortization of deferred financing costs in the real estate equity and corporate segments, respectively.
|
|
|
|
|
(2)
|
Primarily relates to properties - operating expense, unrealized loss on interest rate caps and impairment loss on goodwill offset by the realized gain on the sale of real estate and other income.
|
|
|
|
|
(3)
|
Primarily relates to general and administrative expense, compensation expense and unrealized loss on foreign currency forwards.
|
|
|
|
|
(4)
|
Transaction costs primarily represents expenses such as real estate transfer tax and professional fees related to the acquisitions in 2015 in our real estate equity segment.
|
Geography
The following table presents geographic information about the Company's total rental and escalation income for the
years ended
December 31, 2017,
2016
and
2015
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
|
Office
|
|
|
|
|
|
|
Germany
|
$
|
51,241
|
|
|
$
|
53,743
|
|
|
$
|
31,969
|
|
|
United Kingdom
|
36,984
|
|
|
38,483
|
|
|
36,882
|
|
|
France
|
20,051
|
|
|
19,551
|
|
|
13,802
|
|
|
Other
|
14,167
|
|
(1)
|
30,656
|
|
|
31,001
|
|
|
Subtotal
|
122,443
|
|
|
142,433
|
|
|
113,654
|
|
|
Other
|
4,531
|
|
|
7,061
|
|
|
6,191
|
|
|
Total
|
$
|
126,974
|
|
|
$
|
149,494
|
|
|
$
|
119,845
|
|
__________________
|
|
|
|
(1)
|
Includes an asset in Portugal and an asset in the Netherlands which are classified as held-for-sale as of December 31, 2017.
|
Dividends
On
March 7, 2018
, the Company declared a dividend of
$0.15
per share of common stock. The common stock dividend is expected be paid on
March 23, 2018
to stockholders of record as of the close of business on
March 19, 2018
.
Share Repurchase
In March 2018, the Company’s board of directors authorized the repurchase of up to
$100 million
of its outstanding common stock. The authorization expires in March 2019, unless otherwise extended by the Company’s board of directors.
Disposals
In February 2018, the Company agreed a definitive sale and purchase agreement to sell the Maastoren property, the Company’s largest non-core asset, for approximately
$190 million
. The Company expects to release approximately
$60 million
of net equity after repayment of financing (including release premium) and transaction costs.
Credit Facility
In March 2018, the Company amended the Credit Facility, increasing the size to
$70 million
and extending the term until April 2020 with
one year
extension option. The Credit Facility includes an accordion feature, providing for the ability to increase the facility to
$105 million
.
NORTHSTAR REALTY EUROPE AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
As of
December 31, 2017
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Column A
|
Column B
|
|
Column C Initial Cost
|
|
Column D Capitalized Subsequent to Acquisition
|
|
Column E Gross Amount Carried at Close of Period
|
|
Column F
|
|
Column G
|
|
Column H
|
|
Asset
|
|
Location
|
Encumbrances
(1)
|
|
Land
|
|
Building & Improvements
|
|
Land, Buildings & Improvements
|
|
Land
|
|
Building & Improvements
|
|
Total
|
|
Accumulated Depreciation
|
|
Total
(2)(4)
|
|
Date Acquired
|
|
Life on Which Depreciation is Computed
|
|
Germany
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trianon
|
|
Frankfurt
|
$
|
395,293
|
|
|
$
|
89,410
|
|
|
$
|
518,441
|
|
|
$
|
10,388
|
|
|
$
|
89,410
|
|
|
$
|
528,829
|
|
|
$
|
618,239
|
|
|
$
|
(39,122
|
)
|
|
$
|
579,117
|
|
|
7/15/2015
|
|
40 years
|
|
Valentinskamp
|
|
Hamburg
|
34,646
|
|
|
24,609
|
|
|
30,086
|
|
|
4,653
|
|
|
24,609
|
|
|
34,739
|
|
|
59,348
|
|
|
(2,851
|
)
|
|
56,497
|
|
|
4/1/2015
|
|
40 years
|
|
Parexel
|
|
Berlin
|
30,912
|
|
|
8,425
|
|
|
37,703
|
|
|
1
|
|
|
8,425
|
|
|
37,704
|
|
|
46,129
|
|
|
(2,799
|
)
|
|
43,330
|
|
|
4/8/2015
|
|
40 years
|
|
Drehbahn
|
|
Hamburg
|
29,251
|
|
|
27,287
|
|
|
10,628
|
|
|
726
|
|
|
27,287
|
|
|
11,354
|
|
|
38,641
|
|
|
(1,430
|
)
|
|
37,211
|
|
|
4/1/2015
|
|
40 years
|
|
Ludwigstrasse
|
|
Cologne
|
19,696
|
|
|
12,435
|
|
|
20,026
|
|
|
486
|
|
|
12,435
|
|
|
20,512
|
|
|
32,947
|
|
|
(1,736
|
)
|
|
31,211
|
|
|
4/8/2015
|
|
40 years
|
|
Dammtorwall
|
|
Hamburg
|
15,105
|
|
|
7,046
|
|
|
14,082
|
|
|
132
|
|
|
7,046
|
|
|
14,214
|
|
|
21,260
|
|
|
(1,275
|
)
|
|
19,985
|
|
|
4/1/2015
|
|
40 years
|
|
Uhlandstrasse
|
|
Frankfurt
|
12,576
|
|
|
4,504
|
|
|
15,916
|
|
|
1,998
|
|
|
4,504
|
|
|
17,914
|
|
|
22,418
|
|
|
(1,454
|
)
|
|
20,964
|
|
|
4/8/2015
|
|
40 years
|
|
Munster
|
|
Germany
|
5,998
|
|
|
2,811
|
|
|
5,689
|
|
|
1,515
|
|
|
2,811
|
|
|
7,204
|
|
|
10,015
|
|
|
(499
|
)
|
|
9,516
|
|
|
4/8/2015
|
|
40 years
|
|
Subtotal
|
|
|
543,477
|
|
|
176,527
|
|
|
652,571
|
|
|
19,899
|
|
|
176,527
|
|
|
672,470
|
|
|
848,997
|
|
|
(51,166
|
)
|
|
797,831
|
|
|
|
|
|
|
France
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Berges de Seine
|
|
Paris, Issy
|
96,129
|
|
|
100,198
|
|
|
55,317
|
|
|
134
|
|
|
100,198
|
|
|
55,451
|
|
|
155,649
|
|
|
(5,400
|
)
|
|
150,249
|
|
|
4/1/2015
|
|
40 years
|
|
Mac Donald
|
|
Paris, Other
|
54,742
|
|
|
34,505
|
|
|
44,831
|
|
|
7
|
|
|
34,505
|
|
|
44,838
|
|
|
79,343
|
|
|
(4,214
|
)
|
|
75,129
|
|
|
4/1/2015
|
|
40 years
|
|
Marceau
|
|
Paris, CBD
|
26,209
|
|
|
35,505
|
|
|
13,586
|
|
|
1,357
|
|
|
35,505
|
|
|
14,943
|
|
|
50,448
|
|
|
(1,378
|
)
|
|
49,070
|
|
|
4/8/2015
|
|
40 years
|
|
Joubert
|
|
Paris, CBD
|
6,959
|
|
|
10,547
|
|
|
4,353
|
|
|
57
|
|
|
10,547
|
|
|
4,410
|
|
|
14,957
|
|
|
(390
|
)
|
|
14,567
|
|
|
4/8/2015
|
|
40 years
|
|
Subtotal
|
|
|
184,039
|
|
|
180,755
|
|
|
118,087
|
|
|
1,555
|
|
|
180,755
|
|
|
119,642
|
|
|
300,397
|
|
|
(11,382
|
)
|
|
289,015
|
|
|
|
|
|
|
United Kingdom
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portman Square
|
|
London, West End
|
140,144
|
|
|
—
|
|
|
188,366
|
|
|
2,229
|
|
|
—
|
|
|
190,595
|
|
|
190,595
|
|
|
(14,569
|
)
|
|
176,026
|
|
|
4/1/2015
|
|
40 years
|
|
Condor House
|
|
London, City
|
110,682
|
|
|
16,767
|
|
|
126,575
|
|
|
1,582
|
|
|
16,767
|
|
|
128,157
|
|
|
144,924
|
|
|
(10,670
|
)
|
|
134,254
|
|
|
4/1/2015
|
|
40 years
|
|
Glasgow
|
|
Other
|
5,054
|
|
|
2,474
|
|
|
7,043
|
|
|
—
|
|
|
2,474
|
|
|
7,043
|
|
|
9,517
|
|
|
(560
|
)
|
|
8,957
|
|
|
4/8/2015
|
|
40 years
|
|
Chiswick
|
|
Greater London
|
8,385
|
|
|
6,906
|
|
|
6,641
|
|
|
12
|
|
|
6,906
|
|
|
6,653
|
|
|
13,559
|
|
|
(532
|
)
|
|
13,027
|
|
|
4/8/2015
|
|
40 years
|
|
St Albans
|
|
Greater London
|
3,887
|
|
|
2,083
|
|
|
4,830
|
|
|
7
|
|
|
2,083
|
|
|
4,837
|
|
|
6,920
|
|
|
(454
|
)
|
|
6,466
|
|
|
4/8/2015
|
|
40 years
|
|
Subtotal
|
|
|
268,152
|
|
|
28,230
|
|
|
333,455
|
|
|
3,830
|
|
|
28,230
|
|
|
337,285
|
|
|
365,515
|
|
|
(26,785
|
)
|
|
338,730
|
|
|
|
|
|
|
Other
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IC Hotel
|
|
Germany, Berlin
|
12,148
|
|
|
864
|
|
|
22,919
|
|
|
129
|
|
|
864
|
|
|
23,048
|
|
|
23,912
|
|
|
(1,572
|
)
|
|
22,340
|
|
|
4/8/2015
|
|
40 years
|
|
Ibis Berlin
|
|
Germany, Berlin
|
8,432
|
|
|
903
|
|
|
12,474
|
|
|
—
|
|
|
903
|
|
|
12,474
|
|
|
13,377
|
|
|
(853
|
)
|
|
12,524
|
|
|
4/8/2015
|
|
40 years
|
|
Neuermarkt
|
|
Germany, Werl
|
1,815
|
|
|
995
|
|
|
2,748
|
|
|
99
|
|
|
995
|
|
|
2,847
|
|
|
3,842
|
|
|
(240
|
)
|
|
3,602
|
|
|
4/8/2015
|
|
40 years
|
|
Marly
|
|
France, Greater Paris
|
22,024
|
|
|
5,069
|
|
|
44,034
|
|
|
5
|
|
|
5,069
|
|
|
44,039
|
|
|
49,108
|
|
|
(3,094
|
)
|
|
46,014
|
|
|
4/8/2015
|
|
40 years
|
|
Kirchheide
|
|
Germany, Other
|
—
|
|
|
348
|
|
|
1,394
|
|
|
—
|
|
|
348
|
|
|
1,394
|
|
|
1,742
|
|
|
(264
|
)
|
|
1,478
|
|
|
4/8/2015
|
|
40 years
|
|
Subtotal
|
|
|
44,419
|
|
|
8,179
|
|
|
83,569
|
|
|
233
|
|
|
8,179
|
|
|
83,802
|
|
|
91,981
|
|
|
(6,023
|
)
|
|
85,958
|
|
|
|
|
|
|
Grand Total
|
|
|
$
|
1,040,087
|
|
|
$
|
393,691
|
|
|
$
|
1,187,682
|
|
|
$
|
25,517
|
|
|
$
|
393,691
|
|
|
$
|
1,213,199
|
|
|
$
|
1,606,890
|
|
|
$
|
(95,356
|
)
|
|
$
|
1,511,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-for-Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office123
|
|
Portugal
|
$
|
—
|
|
|
$
|
670
|
|
|
$
|
12,000
|
|
|
$
|
114
|
|
|
$
|
670
|
|
|
$
|
12,114
|
|
|
$
|
12,784
|
|
|
$
|
(874
|
)
|
|
$
|
11,910
|
|
|
4/8/2015
|
|
40 years
|
|
Maastoren
|
|
Netherlands
|
87,444
|
|
|
11,441
|
|
|
148,534
|
|
|
561
|
|
|
11,441
|
|
|
149,095
|
|
|
160,536
|
|
|
(11,795
|
)
|
|
148,741
|
|
|
4/1/2015
|
|
40 years
|
|
Grand Total
|
|
|
$
|
87,444
|
|
|
$
|
12,111
|
|
|
$
|
160,534
|
|
|
$
|
675
|
|
|
$
|
12,111
|
|
|
$
|
161,209
|
|
|
$
|
173,320
|
|
|
$
|
(12,669
|
)
|
|
$
|
160,651
|
|
|
|
|
|
______________________
|
|
|
|
(1)
|
Excludes the preferred equity certificates of
$107.1 million
.
|
|
|
|
|
(2)
|
Aggregate cost for federal income tax purposes is
$1.7 billion
as of
December 31, 2017
.
|
|
|
|
|
(3)
|
German office properties comprise
nine
buildings.
|
|
|
|
|
(4)
|
Excludes intangibles.
|
|
|
|
|
(5)
|
Represents retail, industrial and hotel (net lease) assets.
|
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
As of
December 31, 2017
(Dollars in Thousands)
The following table presents changes in the Company’s operating real estate portfolio as of
December 31, 2017
,
2016
and
2015
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Beginning balance
|
|
$
|
1,614,432
|
|
|
$
|
2,120,460
|
|
|
$
|
55,413
|
|
|
Property acquisitions
|
|
—
|
|
|
—
|
|
|
2,080,038
|
|
|
Reclassification
|
|
—
|
|
|
(733
|
)
|
|
—
|
|
|
Transfers to held for sale
|
|
(173,320
|
)
|
|
(23,138
|
)
|
|
(5,330
|
)
|
|
Improvements
|
|
18,033
|
|
|
10,792
|
|
|
3,414
|
|
|
Retirements and disposals
|
|
(60,234
|
)
|
|
(353,883
|
)
|
|
(14,514
|
)
|
|
Foreign currency translation
|
|
207,979
|
|
|
(139,066
|
)
|
|
1,439
|
|
|
Ending balance
|
|
$
|
1,606,890
|
|
|
$
|
1,614,432
|
|
|
$
|
2,120,460
|
|
The following table presents changes in accumulated depreciation as of
December 31, 2017
,
2016
and
2015
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Beginning balance
|
|
$
|
(63,585
|
)
|
|
$
|
(35,303
|
)
|
|
$
|
(517
|
)
|
|
Depreciation expense
|
|
(40,196
|
)
|
|
(45,219
|
)
|
|
(35,842
|
)
|
|
Assets held for sale
|
|
12,669
|
|
|
811
|
|
|
31
|
|
|
Retirements and disposals
|
|
5,722
|
|
|
10,635
|
|
|
213
|
|
|
Foreign currency translation
|
|
(9,966
|
)
|
|
5,491
|
|
|
812
|
|
|
Ending balance
|
|
$
|
(95,356
|
)
|
|
$
|
(63,585
|
)
|
|
$
|
(35,303
|
)
|