NEW YORK, Aug. 7, 2018 /PRNewswire/ -- NorthStar Realty
Europe Corp. (NYSE: NRE) ("NorthStar Realty Europe" or "NRE"),
a European office REIT, today announced its results for the second
quarter ended June 30, 2018.
Second Quarter 2018 Financial Results and Highlights
- U.S. GAAP net income attributable to common stockholders:
$36.0 million, or $0.66 per diluted share for the second quarter
2018. U.S. GAAP total equity was $555.3
million, or $10.88 per share
as of June 30, 2018
- Cash available for distribution ("CAD"): $11.5 million, or $0.22 per share
- Net operating income ("NOI") of $24.4
million and same store NOI of $23.0
million, representing an increase of $1.8 million, or 8.5%, year-over-year
- Over 17% of the portfolio, or 48,000 rentable square meters,
was leased or extended during and subsequent to the second quarter,
increasing portfolio occupancy from 84% to 94%
- $2.1 billion independent mid-year
portfolio valuation by Cushman & Wakefield LLP1,
reflecting an increase of $64 million
during the first half of 2018 and contributing to the increase in
EPRA2 net asset value ("NAV") to $20.95 per share
- Half year 2018 expense savings of $1.6
million in line with guidance of $2-3 million for full year 2018
- From the authorization in March
2018 through August 3, 2018, NRE repurchased 6.0
million shares of common stock for approximately $82 million
- Cash dividend of $0.15 per share declared for the
second quarter 2018
Mahbod Nia, Chief Executive
Officer and President, commented: "We are pleased to report a
highly active period during which we leased, or extended leases on
over 17% of the portfolio, increasing overall occupancy by 10%,
further enhancing the portfolio value and NAV, and generating an
expected $1 million of same store NOI
in the second half of 2018, or $2
million on an annualized basis."
Mahbod Nia continued: "We also
continued to make progress with our expense saving and refinancing
initiatives, further reducing our operational costs and weighted
average cost of debt while simultaneously extending our debt
maturity profile."
For more information and a reconciliation of CAD, NOI and same
store NOI to net income (loss) attributable to common stockholders
and a reconciliation of EPRA NAV to total equity, please refer to
the tables on the following pages.
Portfolio Overview
$2.1
billion portfolio market value ("Portfolio Market Value" or
"Valuation") comprising of a $2.1
billion real estate portfolio value based on the mid-year
2018 independent valuation by Cushman & Wakefield LLP and a
$34.6 million preferred equity
investment.
Real Estate Portfolio Leasing Activity3,4
As of
June 30, 2018, NRE's real estate portfolio comprised of 24
properties located across four European countries with
approximately 286,000 rentable square meters, 94% weighted average
occupancy (compared to 84% as of March 31,
2018) and a 6.3 year weighted average remaining lease term
to expiry ("WALT").
- The office portfolio comprised of 19 properties with 209,000
rentable square meters, had a 96% weighted average occupancy and a
6.3 year WALT as of June 30, 2018.
- The other (non-office) portfolio, which represented 3% of the
second quarter 2018 portfolio NOI, comprised of 5 properties with
77,000 rentable square meters, had an 87% weighted average
occupancy (97% proforma occupancy) and a 6.8 year WALT as of
June 30, 2018.
During and subsequent to the second quarter, NRE signed new
leases or lease extensions relating to 48,000 rentable square
meters (17% of the portfolio). These included a:
- 9 year lease extension for 11,200 sqm with BNP Paribas SA at
Boulevard Macdonald (Paris,
France), increasing the WALT of the asset by over 5 years
and enhancing the asset's Valuation by approximately 20%.
- New 32,800 sqm lease at Marly (Greater Paris, France), increasing occupancy
from 45% to 87% (100% proforma for an expansion option exercised by
the new tenant during the third quarter) and enhancing the asset's
Valuation by approximately 10%.
Same Store Net Operating Income (Currency Adjusted)
Same store sequential quarter-over-quarter rental income and NOI
remained stable compared to the previous quarter.
Same store sequential year-over-year rental income for the three
and six months of 2018 increased by $0.7
million, or 3.1%, and $1.5
million, or 3.1%, respectively, reflecting the commencement
of new leases in the second half of 2017 and in early 2018. Same
store year-over-year NOI for the first three and six months of 2018
increased by $1.8 million, or 8.5%,
and $3.9 million, or 9.1%,
respectively, reflecting the aforementioned leasing activity and
increased recoverability of operating expenses.
Dispositions
On April 30, 2018, NRE completed the
sale of the Maastoren tower, NRE's largest remaining non-core asset
by value, for approximately $188
million (€160 million). NRE released approximately
$65 million of net equity after
repayment of financing (including release premium) and transaction
costs.
As of June 30, 2018, one office property in Portugal was classified as held-for-sale. We
anticipate closing the sale of this asset in the third quarter,
subject to closing conditions being met.
Liquidity and Financing
As of June 30, 2018,
NRE's overall leverage5 was 50% based on the Portfolio
Market Value, compared to 53% as of March
31, 2018. As of August 3, 2018, total liquidity was
$129 million, comprising $59 million of unrestricted cash and $70 million of availability under NRE's revolving
credit facility.
|
$ in
millions
|
Unrestricted
cash
|
$
|
59
|
Revolving credit
facility
|
70
|
Total
liquidity
|
$
|
129
|
During and subsequent to the second quarter of 2018, NRE amended
and restated loan agreements related to $143
million of debt previously maturing in 2020:
- In May 2018, NRE entered into a 5
year extension for an $89 million
loan related to the Trias Germany portfolio, simultaneously
reducing the margin from 1.55% to 1.00%.
- In August 2018, NRE entered into
a 2 year extension for $54 million of
loans related to the Trias France portfolio, increasing the
principal balance to $77 million and
reducing the blended margin from 1.85% to 1.65%.
Stockholder's Equity
NRE had 51.1 million shares
of common stock, operating partnership units and restricted stock
units ("RSUs") not subject to performance hurdles outstanding as of
June 30, 2018. As of August 3, 2018, NRE had 50.2 million
shares of common stock, operating partnership units and restricted
stock units ("RSUs") not subject to performance hurdles
outstanding.
As of June 30, 2018, total equity was $555.3 million (U.S. GAAP depreciated value), or
$10.88 per share. EPRA NAV was
$20.95 per share as of June 30,
2018, compared to $20.50 per
share as of March 31, 2018. For more
information and a reconciliation of EPRA NAV to total equity,
please refer to the tables on the following pages.
Share Repurchase Program
On March 12, 2018, the board of
directors of NRE authorized the repurchase of up to $100 million of NRE's outstanding common
stock.
During the second quarter, NRE repurchased 4.0 million shares of
common stock for approximately $56.2
million at a weighted average price of $14.00 per share. From the authorization in
March 2018 through August 3,
2018, NRE repurchased a total of 6.0 million shares of common stock
for approximately $81.8 million at a
weighted average price of $13.72 per
share.
Second Quarter 2018 Disclosure Supplement
Presentation
A second quarter 2018 disclosure supplement
presentation will be posted on NRE's website,
www.nrecorp.com, which provides additional details
regarding NRE's operations and portfolio.
Second Quarter 2018 Conference Call
NRE will conduct a
conference call to discuss the results on Tuesday, August 7, 2018 at 9:00 a.m. ET. Hosting the call will be
Mahbod Nia, Chief Executive Officer,
Keith Feldman, Chief Financial
Officer and Trevor Ross, General
Counsel.
To participate in the event by telephone, please dial +1 866 966
5335 (U.S. Toll Free), or +44 (0) 20 3003 2666 (International) or
0808 109 0700 (U.K. Toll Free), using passcode: NorthStar.
The call will also be broadcast live over the internet and can
be accessed from NRE's website at www.nrecorp.com. For those unable
to participate during the live call, a replay of the call will be
available approximately two hours after the call through
September 6, 2018 by dialing
+1-866-583-1039 (U.S. Toll Free), or +44(0)20-8196-1998
(International) or 0800-633-8453 (UK Toll Free), using passcode:
1376525.
About NorthStar Realty Europe Corp.
NorthStar
Realty Europe Corp. is a European focused commercial real estate
company with predominately prime office properties within key
cities in Germany, the
United Kingdom and France, organized as a REIT and managed by an
affiliate of Colony Capital, Inc. (NYSE: CLNY), a leading global
equity REIT with an embedded investment management platform. For
more information about NorthStar Realty Europe Corp., please visit
www.nrecorp.com.
NorthStar Realty
Europe Corp. Consolidated Balance Sheets ($ in
thousands, except per share
data) Unaudited
|
|
June 30,
2018
|
|
December 31,
2017
|
Assets
|
|
|
|
Operating real
estate, gross
|
$
|
1,573,789
|
|
|
$
|
1,606,890
|
|
Less: accumulated
depreciation
|
(110,737)
|
|
|
(95,356)
|
|
Operating real
estate, net
|
1,463,052
|
|
|
1,511,534
|
|
Preferred equity
investments
|
34,603
|
|
|
35,347
|
|
Cash and cash
equivalents
|
51,036
|
|
|
64,665
|
|
Restricted
cash
|
6,852
|
|
|
6,917
|
|
Receivables, net of
allowance of $863 and $747 as of June 30, 2018
and December 31, 2017, respectively
|
6,194
|
|
|
9,048
|
|
Assets held for
sale
|
12,470
|
|
|
169,082
|
|
Derivative assets, at
fair value
|
10,063
|
|
|
7,024
|
|
Intangible assets,
net
|
105,054
|
|
|
114,185
|
|
Other assets,
net
|
27,579
|
|
|
23,115
|
|
Total
assets
|
$
|
1,716,903
|
|
|
$
|
1,940,917
|
|
Liabilities
|
|
|
|
Mortgage and other
notes payable, net
|
$
|
1,078,054
|
|
|
$
|
1,223,443
|
|
Accounts payable and
accrued expenses
|
18,126
|
|
|
27,240
|
|
Due to related
party
|
4,550
|
|
|
3,590
|
|
Derivative
liabilities, at fair value
|
1,038
|
|
|
5,270
|
|
Intangible
liabilities, net
|
26,249
|
|
|
28,632
|
|
Liabilities related
to assets held for sale
|
380
|
|
|
648
|
|
Other
liabilities
|
31,307
|
|
|
25,757
|
|
Total
liabilities
|
1,159,704
|
|
|
1,314,580
|
|
Commitments and
contingencies
|
|
|
|
Redeemable
noncontrolling interest
|
1,943
|
|
|
1,992
|
|
Equity
|
|
|
|
NorthStar Realty
Europe Corp. Stockholders' Equity
|
|
|
|
Preferred stock,
$0.01 par value, 200,000,000 shares authorized, no shares
issued and outstanding as of June 30, 2018 and December 31,
2017
|
—
|
|
|
—
|
|
Common stock, $0.01
par value, 1,000,000,000 shares authorized, 50,704,373
and 55,402,259 shares issued and outstanding as of June 30, 2018
and
December 31, 2017, respectively
|
508
|
|
|
555
|
|
Additional paid-in
capital
|
873,709
|
|
|
940,579
|
|
Retained earnings
(accumulated deficit)
|
(328,397)
|
|
|
(347,053)
|
|
Accumulated other
comprehensive income (loss)
|
5,836
|
|
|
25,618
|
|
Total NorthStar
Realty Europe Corp. stockholders' equity
|
551,656
|
|
|
619,699
|
|
Noncontrolling
interests
|
3,600
|
|
|
4,646
|
|
Total
equity
|
555,256
|
|
|
624,345
|
|
Total liabilities,
redeemable noncontrolling interest and equity
|
$
|
1,716,903
|
|
|
$
|
1,940,917
|
|
NorthStar Realty
Europe Corp. Consolidated Statements of
Operations ($ in thousands, except for per share
data) Unaudited
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Revenues
|
|
|
|
|
|
|
|
Rental
income
|
$
|
24,600
|
|
|
$
|
26,025
|
|
|
$
|
51,824
|
|
|
$
|
51,561
|
|
Escalation
income
|
5,561
|
|
|
5,558
|
|
|
10,902
|
|
|
10,719
|
|
Interest
income
|
706
|
|
|
297
|
|
|
1,435
|
|
|
297
|
|
Other
income
|
143
|
|
|
508
|
|
|
421
|
|
|
537
|
|
Total
revenues
|
31,010
|
|
|
32,388
|
|
|
64,582
|
|
|
63,114
|
|
Expenses
|
|
|
|
|
|
|
|
Properties -
operating expenses
|
6,930
|
|
|
7,680
|
|
|
13,732
|
|
|
15,002
|
|
Interest
expense
|
5,855
|
|
|
6,722
|
|
|
11,962
|
|
|
13,105
|
|
Transaction
costs
|
376
|
|
|
973
|
|
|
857
|
|
|
1,233
|
|
Management fee,
related party
|
4,223
|
|
|
3,572
|
|
|
8,380
|
|
|
7,131
|
|
Other
expenses
|
1,273
|
|
|
2,608
|
|
|
2,697
|
|
|
4,608
|
|
General and
administrative expenses
|
1,801
|
|
|
1,555
|
|
|
3,679
|
|
|
4,152
|
|
Compensation expense
(1)
|
2,819
|
|
|
1,385
|
|
|
3,392
|
|
|
17,255
|
|
Depreciation and
amortization
|
11,977
|
|
|
12,520
|
|
|
23,628
|
|
|
25,083
|
|
Total
expenses
|
35,254
|
|
|
37,015
|
|
|
68,327
|
|
|
87,569
|
|
Other income
(loss)
|
|
|
|
|
|
|
|
Unrealized gain
(loss) on derivatives and other
|
5,682
|
|
|
(7,655)
|
|
|
4,493
|
|
|
(8,596)
|
|
Realized gain (loss)
on sales and other
|
34,727
|
|
|
1,981
|
|
|
34,179
|
|
|
6,951
|
|
Income (loss)
before income tax benefit (expense)
|
36,165
|
|
|
(10,301)
|
|
|
34,927
|
|
|
(26,100)
|
|
Income tax benefit
(expense)
|
76
|
|
|
(237)
|
|
|
37
|
|
|
36
|
|
Net income
(loss)
|
36,241
|
|
|
(10,538)
|
|
|
34,964
|
|
|
(26,064)
|
|
Net (income) loss
attributable to noncontrolling interests
|
(217)
|
|
|
91
|
|
|
(221)
|
|
|
267
|
|
Net income (loss)
attributable to NorthStar Realty Europe Corp. common
stockholders
|
$
|
36,024
|
|
|
$
|
(10,447)
|
|
|
$
|
34,743
|
|
|
$
|
(25,797)
|
|
Earnings (loss)
per share:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.69
|
|
|
$
|
(0.19)
|
|
|
$
|
0.64
|
|
|
$
|
(0.47)
|
|
Diluted
|
$
|
0.66
|
|
|
$
|
(0.19)
|
|
|
$
|
0.62
|
|
|
$
|
(0.47)
|
|
Weighted average
number of shares:
|
|
|
|
|
|
|
|
Basic
|
51,858,645
|
|
|
55,023,535
|
|
|
53,455,635
|
|
|
54,928,364
|
|
Diluted
|
54,007,807
|
|
|
55,587,897
|
|
|
55,432,191
|
|
|
55,546,668
|
|
Dividends per
share of common stock
|
$
|
0.15
|
|
|
$
|
0.15
|
|
|
$
|
0.30
|
|
|
$
|
0.30
|
|
|
|
____________________________
|
- Compensation expense for the three and six
months ended June 30, 2018 and 2017 is comprised of equity-based
compensation expenses. For the six months ended June 30, 2017,
compensation expense includes the impact of substantially all time
based and certain performance based awards vesting in connection
with the change of control of NRE's manager ("Mergers").
|
Non-GAAP Financial Measures
Included in this press release are Cash Available for
Distribution, or CAD, net operating income, or NOI, same store net
operating income, or same store NOI, Adjusted Earnings before
Interest, Taxes, Depreciation and Amortization, or Adjusted EBITDA
and EPRA net asset value, or EPRA NAV, each a "non-GAAP financial
measure," which measures NRE's historical or future
financial performance that is different from measures calculated
and presented in accordance with accounting principles generally
accepted in the United
States, or U.S. GAAP, within the meaning of the
applicable Securities and Exchange Commission, or SEC,
rules. NRE believes these metrics can be a useful measure
of its performance which is further defined below.
Cash Available for Distribution
We believe that CAD provides investors and management with a
meaningful indicator of operating performance. We also
believe that CAD is useful because it adjusts for a variety of
items that are consistent with presenting a measure of operating
performance (such as transaction costs, depreciation and
amortization, equity-based compensation, realized gain (loss) on
sales and other, asset impairment and non-recurring bad debt
expense). We adjust for transaction costs because these costs
are not a meaningful indicator of our operating performance.
For instance, these transaction costs include costs such as
professional fees associated with new investments, which are
expenses related to specific transactions. Management also
believes that quarterly distributions are principally based on
operating performance and our board of directors includes CAD as
one of several metrics it reviews to determine quarterly
distributions to stockholders. The definition of CAD may be
adjusted from time to time for our reporting purposes in our
discretion, acting through our audit committee or otherwise.
CAD may fluctuate from period to period based upon a variety of
factors, including, but not limited to, the timing and amount of
investments, new leases, repayments and asset sales, capital
raised, use of leverage, changes in the expected yield of
investments and the overall conditions in commercial real estate
and the economy generally.
We calculate CAD by subtracting from or adding to net income
(loss) attributable to common stockholders, non-controlling
interests and the following items: depreciation and amortization
items including straight-line rental income or expense (excluding
amortization of rent free periods), amortization of above/below
market leases, amortization of deferred financing costs,
amortization of discount on financings and other and equity-based
compensation; unrealized gain (loss) on derivatives and other;
realized gain (loss) on sales and other (excluding any realized
gain (loss) on the settlement on foreign currency derivatives);
impairment on depreciable property; acquisition gains or losses;
transaction costs; foreign currency gains (losses) related to
sales; impairment on goodwill and other intangible assets; the
incentive fee relating to the Amended and Restated Management
Agreement6 and one-time events pursuant to changes in
U.S. GAAP and certain other non-recurring items. These items, if
applicable, include any adjustments for unconsolidated
ventures.
CAD should not be considered as an alternative to net income
(loss) attributable to common stockholders, determined in
accordance with U.S. GAAP, as an indicator of operating
performance. In addition, our methodology for calculating CAD
involves subjective judgment and discretion and may differ from the
methodologies used by other comparable companies, including other
REITs, when calculating the same or similar supplemental financial
measures and may not be comparable with these companies.
The following table presents a reconciliation of net income
(loss) attributable to common stockholders to CAD for the three and
six months ended June 30, 2018 and 2017 (dollars in
thousands):
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net income (loss)
attributable to common stockholders
|
$
|
36,024
|
|
|
$
|
(10,447)
|
|
|
$
|
34,743
|
|
|
$
|
(25,797)
|
|
Non-controlling
interests
|
217
|
|
|
(91)
|
|
|
221
|
|
|
(267)
|
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
Depreciation and
amortization items(1)(2)
|
15,876
|
|
|
14,990
|
|
|
29,036
|
|
|
44,560
|
|
Unrealized (gain)
loss on derivatives and other
|
(5,682)
|
|
|
7,655
|
|
|
(4,493)
|
|
|
8,596
|
|
Realized (gain) loss
on sales and other(3)(4)
|
(35,737)
|
|
|
(1,342)
|
|
|
(36,605)
|
|
|
(5,495)
|
|
Transaction costs and
other(5)(6)
|
847
|
|
|
973
|
|
|
1,328
|
|
|
2,148
|
|
CAD
|
$
|
11,545
|
|
|
$
|
11,738
|
|
|
$
|
24,230
|
|
|
$
|
23,745
|
|
CAD per
share(7)
|
$
|
0.22
|
|
|
$
|
0.21
|
|
|
$
|
0.45
|
|
|
$
|
0.42
|
|
_________________
- Three months ended June 30, 2018
reflects an adjustment to exclude depreciation and amortization of
$12.0 million, amortization expense of capitalized above/below
market leases of $0.2 million, amortization of deferred financing
costs of $0.9 million and amortization of equity-based compensation
of $2.8 million. Three months ended June 30, 2017 reflects an
adjustment to exclude depreciation and amortization of $12.5
million, amortization of above/below market leases of $0.3 million,
amortization of deferred financing costs of $0.8 million and
amortization of equity-based compensation of $1.4 million.
- Six months ended June 30, 2018
reflects an adjustment to exclude depreciation and amortization
of $23.6 million, amortization expense of capitalized
above/below market leases of $0.4 million, amortization of
deferred financing costs of $1.6 million and amortization
of equity-based compensation of $3.4 million. Six months
ended June 30, 2017 reflects an adjustment to
exclude depreciation and amortization of $25.1 million,
amortization expense of capitalized above/below market leases
of $0.5 million, amortization of deferred financing costs
of $1.7 million and amortization of equity-based
compensation of $17.3 million.
- Three months ended June 30, 2018 CAD
includes a $1.0 million net loss related to the settlement of
foreign currency derivatives. Three months ended June 30, 2017 CAD
includes a $0.6 million net gain related to the settlement of
foreign currency derivatives.
- Six months ended June 30, 2018 CAD
includes a $2.4 million net loss related to the settlement of
foreign currency derivatives. Six months ended June 30, 2017 CAD
includes a $1.5 million net gain related to the settlement of
foreign currency derivatives.
- Three months ended June 30, 2018
reflects an adjustment to exclude $0.4 million of transaction costs
and $0.4 million taxes related to sales and other one-time items.
Three months ended June 30, 2017 reflects an
adjustment to exclude $1.0 million of transaction costs.
- Six months ended June 30, 2018 reflects
an adjustment to exclude $0.9 million of transaction costs and $0.4
million taxes related to sales and other one-time items. Six months
ended June 30, 2017 reflects an adjustment to
exclude $1.2 million of transaction costs and $0.9
million of payroll taxes associated with the acceleration of
equity awards due to the Mergers.
- CAD per share is based on 52.6 million and
54.1 million weighted average shares (common shares outstanding
including operating partnership units and RSUs not subject to
performance hurdles) for the three and six months ended
June 30, 2018, respectively. Based on 55.7 million and 56.5
million weighted average shares (common shares outstanding,
including LTIPs and RSUs not subject to performance hurdles) for
the three and six months ended June 30, 2017, respectively. CAD per
share does not take into account any potential dilution from
restricted stock units subject to performance metrics not currently
achieved.
|
|
Net Operating Income
We believe NOI is a useful metric for evaluating the operating
performance of our real estate portfolio in the aggregate.
Portfolio results and performance metrics represent 100% for all
consolidated investments. Net operating income represents
total property and related revenues, adjusted for: (i) amortization
of above/below market leases; (ii) straight-line rent (except with
respect to rent free period); (iii) other items such as adjustments
related to joint ventures and non-recurring bad debt expense and
less property operating expenses. However, the usefulness of
NOI is limited because it excludes general and administrative
costs, interest expense, transaction costs, depreciation and
amortization expense, realized gains (losses) on sales and other
and other items under U.S. GAAP and capital expenditures and
leasing costs, all of which may be significant economic
costs. NOI may fail to capture significant trends in these
components of U.S. GAAP net income (loss) which further limits its
usefulness.
NOI should not be considered as an alternative to net income
(loss), determined in accordance with U.S. GAAP, as an indicator of
operating performance. In addition, our methodology for
calculating NOI involves subjective judgment and discretion and may
differ from the methodologies used by other comparable companies,
including other REITs, when calculating the same or similar
supplemental financial measures and may not be comparable with
these companies.
The following table presents a reconciliation of the NOI of our
real estate equity and preferred equity segments to property and
other related revenues less property operating expenses for the
three and six months ended June 30, 2018 and 2017 (dollars in
thousands):
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Rental
income
|
$
|
24,600
|
|
|
$
|
26,025
|
|
|
$
|
51,824
|
|
|
$
|
51,561
|
|
Escalation
income
|
5,561
|
|
|
5,558
|
|
|
10,902
|
|
|
10,719
|
|
Other
income
|
143
|
|
|
508
|
|
|
421
|
|
|
537
|
|
Total property and
other income
|
30,304
|
|
|
32,091
|
|
|
63,147
|
|
|
62,817
|
|
Properties -
operating expenses
|
6,930
|
|
|
7,680
|
|
|
13,732
|
|
|
15,002
|
|
Adjustments:
|
|
|
|
|
|
|
|
Interest
income
|
706
|
|
|
297
|
|
|
1,435
|
|
|
297
|
|
Amortization and
other items(1)(2)
|
352
|
|
|
253
|
|
|
572
|
|
|
533
|
|
NOI(3)
|
$
|
24,432
|
|
|
$
|
24,961
|
|
|
$
|
51,422
|
|
|
$
|
48,645
|
|
_____________________________
- Three months ended June 30, 2018
primarily excludes $0.2 million of amortization of above/below
market leases and $0.1 million of other one-time items. Three
months ended June 30, 2017 primarily excludes $0.3 million of
amortization of above/below market leases.
- Six months ended June 30, 2018 primarily
excludes $0.4 million of amortization of above/below market leases
and $0.1 million of other one-time items. Six months ended
June 30, 2017 primarily excludes $0.5 million of amortization
of above/below market leases.
- The following table presents a reconciliation
of net income (loss) to NOI of our real estate equity segment for
the three and six months ended June 30, 2018 and 2017 (dollars
in thousands):
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net income
(loss)
|
$
|
36,241
|
|
|
$
|
(10,538)
|
|
|
$
|
34,964
|
|
|
$
|
(26,064)
|
|
Remaining
segments(i)
|
3,986
|
|
|
12,860
|
|
|
13,723
|
|
|
35,703
|
|
Real estate equity
and preferred equity segment adjustments:
|
|
|
|
|
|
|
|
Interest
expense
|
5,601
|
|
|
6,451
|
|
|
11,556
|
|
|
12,571
|
|
Other
expenses
|
1,250
|
|
|
2,415
|
|
|
2,674
|
|
|
4,443
|
|
Depreciation and
amortization
|
11,977
|
|
|
12,520
|
|
|
23,628
|
|
|
25,083
|
|
Unrealized (gain)
loss on derivatives and other
|
1,884
|
|
|
1,293
|
|
|
2,001
|
|
|
960
|
|
Realized (gain) loss
on sales and other
|
(37,236)
|
|
|
(1,336)
|
|
|
(38,450)
|
|
|
(5,491)
|
|
Income tax (benefit)
expense
|
(76)
|
|
|
237
|
|
|
(37)
|
|
|
(36)
|
|
Other
items
|
805
|
|
|
1,059
|
|
|
1,363
|
|
|
1,476
|
|
Total
adjustments
|
(15,795)
|
|
|
22,639
|
|
|
2,735
|
|
|
39,006
|
|
NOI
|
$
|
24,432
|
|
|
$
|
24,961
|
|
|
$
|
51,422
|
|
|
$
|
48,645
|
|
_____________________________
(i)
Represents the net (income) loss in our corporate segment to
reconcile to net operating income.
|
Same store Net Operating Income
We believe same store NOI is a useful metric for evaluating the
operating performance as it reflects the operating performance of
the real estate portfolio and provides a better measure of
operational performance for a quarter-over-quarter comparison. Same
store net operating income is presented for the same store
portfolio, which comprises all properties that were owned by us at
the end of the reporting period. We define same store net operating
income as NOI excluding (i) properties that were acquired or sold
during the period, (ii) impact of foreign currency changes and
(iii) amortization of above/below market leases. We consider same
store NOI to be an appropriate and useful supplemental performance
measure. Same store NOI should not be considered as an alternative
to net income (loss), determined in accordance with U.S. GAAP, as
an indicator of operating performance. In addition, our
methodology for calculating same store net operating income
involves subjective judgment and discretion and may differ from the
methodologies used by other comparable companies, including other
REITs, when calculating the same or similar supplemental financial
measures and may not be comparable with these companies. Same
store portfolio is defined as properties in operation throughout
the full periods presented under the comparison, excluding the
impact of foreign currency changes, and included 24 properties.
The following table presents our same store analysis for the
real estate equity segment which comprises 24 properties (285,961
rentable square meters) adjusted for currency movement and excludes
properties that were acquired or sold at any time during the three
months ended June 30, 2018 and 2017 and March 31, 2018 (dollars in thousands):
|
Three Months Ended
June 30,
|
|
Year-over-year
Delta
|
|
Three Months
Ended
March 31,
2018(1)
|
|
Quarter-over-quarter Delta
|
|
2018
|
|
2017(1)
|
|
Amount
|
|
%
|
|
|
Amount
|
|
%
|
Occupancy (end of
period)
|
94
|
%
|
|
82
|
%
|
|
|
|
|
|
84
|
%
|
|
|
|
|
Same
store
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
income(2)
|
$
|
23,865
|
|
|
$
|
23,150
|
|
|
$
|
715
|
|
|
3.1
|
%
|
|
$
|
24,006
|
|
|
$
|
(141)
|
|
|
(0.6)%
|
|
Escalation
income
|
5,363
|
|
|
4,624
|
|
|
739
|
|
|
|
|
4,612
|
|
|
751
|
|
|
|
Other
income
|
135
|
|
|
255
|
|
|
(120)
|
|
|
|
|
163
|
|
|
(28)
|
|
|
|
Total
revenues
|
29,363
|
|
|
28,029
|
|
|
1,334
|
|
|
4.8
|
%
|
|
28,781
|
|
|
582
|
|
|
2.0
|
%
|
Utilities
|
1,322
|
|
|
1,346
|
|
|
(24)
|
|
|
|
|
1,280
|
|
|
42
|
|
|
|
Real estate taxes and
insurance
|
1,444
|
|
|
1,344
|
|
|
100
|
|
|
|
|
1,253
|
|
|
191
|
|
|
|
Management
fees
|
552
|
|
|
478
|
|
|
74
|
|
|
|
|
474
|
|
|
78
|
|
|
|
Repairs and
maintenance(3)
|
2,262
|
|
|
2,656
|
|
|
(394)
|
|
|
|
|
2,182
|
|
|
80
|
|
|
|
Other(2)(4)
|
821
|
|
|
1,039
|
|
|
(218)
|
|
|
|
|
697
|
|
|
124
|
|
|
|
Properties -
operating expenses
|
6,401
|
|
|
6,863
|
|
|
(462)
|
|
|
(6.7)%
|
|
|
5,886
|
|
|
515
|
|
|
8.7
|
%
|
Same store net
operating income
|
$
|
22,962
|
|
|
$
|
21,166
|
|
|
$
|
1,796
|
|
|
8.5
|
%
|
|
$
|
22,895
|
|
|
$
|
67
|
|
|
0.3
|
%
|
_____________________________
- Three months ended June 30, 2017 and
March 31, 2018 are translated using the average exchange rate for
the three months ended June 30, 2018.
- Adjusted to exclude amortization of
above/below market leases and ground leases.
- Includes non-recoverable VAT.
- Includes bad debt expense, ground rent,
administrative costs and other non-reimbursable expenses.
|
The following table presents a reconciliation from net income
(loss) to same store net operating income for the real estate
equity segment for the three months ended June 30, 2018 and
2017 and March 31, 2018 (dollars in
thousands):
|
Three Months
Ended
June 30,
|
|
Three Months
Ended
March 31, 2018
|
|
2018
|
|
2017
|
|
Net income
(loss)
|
$
|
36,241
|
|
|
$
|
(10,538)
|
|
|
$
|
(1,277)
|
|
Corporate segment net
(income) loss(1)
|
3,986
|
|
|
12,860
|
|
|
(9,737)
|
|
Other (income)
loss(2)
|
(15,795)
|
|
|
22,639
|
|
|
38,004
|
|
Net operating
income
|
24,432
|
|
|
24,961
|
|
|
26,990
|
|
Sale of real estate
investments and other(3)(5)
|
(764)
|
|
|
(3,498)
|
|
|
(3,366)
|
|
Interest
income(4)
|
(706)
|
|
|
(297)
|
|
|
(729)
|
|
Same store net
operating income
|
$
|
22,962
|
|
|
$
|
21,166
|
|
|
$
|
22,895
|
|
_____________________________
- Includes management fees, general and
administrative expense, compensation expense, corporate interest
expense and corporate transaction costs.
- Includes realized gain on sales offset by
depreciation and amortization expense, unrealized loss on interest
rate caps, and other expenses in the real estate equity
segment.
- Primarily reflects the impact of net
operating income of sold assets.
- Reflects interest income earned in the
preferred equity segment.
- Three months ended March 31, 2018 and
June 30, 2017 are translated using the average exchange rate
for the three months ended June 30, 2018.
|
The following table presents our same store analysis for the
real estate equity segment which comprises 24 properties (285,961
square meters) adjusted for currency movement and excludes
properties that were acquired or sold at any time during the six
months ended June 30, 2018 and 2017
(dollars in thousands):
|
Six Months Ended
June 30,
|
|
Increase
(Decrease)
|
|
2018
|
|
2017(1)
|
|
Amount
|
|
%
|
Occupancy (end
of period)
|
94
|
%
|
|
82
|
%
|
|
|
|
|
Same
store
|
|
|
|
|
|
|
|
Rental
income(2)
|
$
|
48,567
|
|
|
$
|
47,102
|
|
|
$
|
1,465
|
|
|
3.1
|
%
|
Escalation
income
|
10,107
|
|
|
8,832
|
|
|
1,275
|
|
|
|
Other
income
|
303
|
|
|
286
|
|
|
17
|
|
|
|
Total
revenues
|
58,977
|
|
|
56,220
|
|
|
2,757
|
|
|
4.9
|
%
|
Utilities
|
2,639
|
|
|
2,870
|
|
|
(231)
|
|
|
|
Real estate taxes and
insurance
|
2,736
|
|
|
2,558
|
|
|
178
|
|
|
|
Management
fees
|
1,040
|
|
|
966
|
|
|
74
|
|
|
|
Repairs and
maintenance(3)
|
4,502
|
|
|
5,214
|
|
|
(712)
|
|
|
|
Other(2)(4)
|
1,532
|
|
|
1,975
|
|
|
(443)
|
|
|
|
Properties -
operating expenses
|
12,449
|
|
|
13,583
|
|
|
(1,134)
|
|
|
(8.4)
|
%
|
Same store net
operating income
|
$
|
46,528
|
|
|
$
|
42,637
|
|
|
$
|
3,891
|
|
|
9.1
|
%
|
_____________________________
- Six months ended June 30, 2017 is
translated using the average exchange rate for the six months ended
June 30, 2018.
- Adjusted to exclude amortization of
above/below market leases and ground leases.
- Includes non-recoverable VAT.
- Includes bad debt expense, ground rent,
administrative costs and other non-reimbursable expenses.
|
The following table presents a reconciliation from net income
(loss) to same store net operating income for the real estate
equity segment for the six months ended June 30, 2018 and 2017
(dollars in thousands):
|
Six Months Ended
June 30,
|
|
2018
|
|
2017
|
Net income
(loss)
|
$
|
34,964
|
|
|
$
|
(26,064)
|
|
Corporate segment net
(income) loss(1)
|
13,723
|
|
|
35,703
|
|
Other (income)
loss(2)
|
2,735
|
|
|
39,006
|
|
Net operating
income
|
51,422
|
|
|
48,645
|
|
Sale of real estate
investments and other(3)(5)
|
(3,459)
|
|
|
(5,711)
|
|
Interest
income(4)
|
(1,435)
|
|
|
(297)
|
|
Same store net
operating income
|
$
|
46,528
|
|
|
$
|
42,637
|
|
_____________________________
|
- Includes management fees, general and
administrative expense, compensation expense, corporate interest
expense and corporate transaction costs.
- Includes realized gain on sales offset by
depreciation and amortization expense, unrealized loss on interest
rate caps, and other expenses in the real estate equity
segment.
- Primarily reflects the impact of net
operating income of sold assets.
- Reflects interest income earned in the
preferred equity segment.
- Six months ended June 30, 2017 is
translated using the average exchange rate for the six months ended
June 30, 2018
|
Adjusted EBITDA
We believe that Adjusted EBITDA provides investors and
management with a meaningful indication of operating performance.
We also believe that Adjusted EBITDA is useful because it adjusts
for a variety of items that are consistent with presenting a
measure of operating performance (such as depreciation and
amortization items, interest expense, income tax benefit (expense),
realized gain (loss) on investments, transaction costs,
equity-based compensation and asset impairment). The definition of
Adjusted EBITDA may be adjusted from time to time for our reporting
purposes in our discretion, acting through our audit committee or
otherwise. Adjusted EBITDA may fluctuate from period to period
based upon a variety of factors, including, but not limited to, the
timing and amount of investments, repayments and asset sales,
capital raised, changes in the expected yield of investments and
the overall conditions in commercial real estate and the economy
generally.
We calculate Adjusted EBITDA by subtracting from or adding to
net income (loss) attributable to common stockholders,
non-controlling interests and the following items: depreciation and
amortization items including straight-line rental income or expense
(excluding amortization of rent free periods), amortization of
above/below market leases and equity-based compensation; interest
expense; income tax (benefit) expense; unrealized gain (loss) on
derivatives and other; realized gain (loss) on investments and
other (excluding any realized gain (loss) on foreign currency
derivatives); impairment on depreciable property; acquisition gains
or losses; transaction costs; foreign currency gains (losses)
related to sales; impairment on goodwill and any other intangible
assets; the incentive fee relating to the Amended and Restated
Management Agreement and one-time events pursuant to changes in
U.S. GAAP and certain other non-recurring items. These items, if
applicable, include any adjustments for unconsolidated
ventures.
Adjusted EBITDA should not be considered as an alternative to
net income (loss) attributable to common stockholders, determined
in accordance with U.S. GAAP, as an indicator of operating
performance. In addition, our methodology for calculating Adjusted
EBITDA involves subjective judgment and discretion and may differ
from the methodologies used by other comparable companies,
including other REITs, when calculating the same or similar
supplemental financial measures and may not be comparable with
these companies.
The following table presents a reconciliation of net income
(loss) attributable to common stockholders to Adjusted EBITDA for
the three months ended June 30, 2018, March 31, 2018 and June
30, 2017 (dollars in thousands):
|
Three Months
Ended
|
|
June 30,
2018
|
|
March 31,
2018
|
|
June 30,
2017
|
Net income (loss)
attributable to common stockholders
|
$
|
36,024
|
|
|
$
|
(1,281)
|
|
|
$
|
(10,447)
|
|
Non-controlling
interests
|
217
|
|
|
4
|
|
|
(91)
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
Depreciation and
amortization items(1)(2)(3)
|
15,000
|
|
|
12,444
|
|
|
14,158
|
|
Income tax (benefit)
expense
|
(76)
|
|
|
39
|
|
|
237
|
|
Interest
expense
|
5,855
|
|
|
6,107
|
|
|
6,722
|
|
Unrealized (gain)
loss on derivatives and other
|
(5,682)
|
|
|
1,189
|
|
|
7,655
|
|
Realized (gain) loss
on sales and other(4)(5)(6)
|
(35,737)
|
|
|
(868)
|
|
|
(1,342)
|
|
Transaction costs and
other(7)(8)(9)
|
645
|
|
|
481
|
|
|
973
|
|
Adjusted
EBITDA
|
$
|
16,246
|
|
|
$
|
18,115
|
|
|
$
|
17,865
|
|
________________
|
- Three months ended June 30, 2018
reflects an adjustment to exclude depreciation and amortization of
$12.0 million, amortization expense of capitalized above/below
market leases of $0.2 million and amortization of equity-based
compensation of $2.8 million.
- Three months ended March 31, 2018
reflects an adjustment to exclude depreciation and amortization of
$11.7 million, amortization expense of capitalized above/below
market leases of $0.2 million and amortization of equity-based
compensation of $0.6 million.
- Three months ended June 30, 2017
reflects an adjustment to exclude depreciation and amortization of
$12.5 million, amortization of above/below market leases of $0.3
million and amortization of equity-based compensation of $1.4
million.
- Three months ended June 30, 2018
Adjusted EBITDA includes a $1.0 million net loss related to the
settlement of foreign currency derivatives.
- Three months ended March 31, 2018
Adjusted EBITDA includes a $1.4 million net loss related to the
settlement of foreign currency derivatives.
- Three months ended June 30, 2017 Adjusted
EBITDA includes a $0.6 million net gain related to the settlement
of foreign currency derivatives.
- Three months ended June 30, 2018
reflects an adjustment to exclude $0.4 million of transaction costs
and $0.2 million related to other one-time items.
- Three months ended March 31, 2018
reflects an adjustment to exclude $0.5 million of transaction
costs.
- Three months ended June 30,
2017 reflects an adjustment to exclude $1.0 million of
transaction costs.
|
EPRA Net Asset Value (EPRA NAV)
As our entire portfolio is based in Europe, our management calculates European
Public Real Estate Association net asset value, or EPRA NAV, a
non-GAAP measure, to compare our balance sheet to other European
real estate companies and believes that disclosing EPRA NAV
provides investors with a meaningful measure of our net asset
value. Our calculation of EPRA NAV is derived from our U.S. GAAP
balance sheet with adjustments reflecting our interpretation of
EPRA's best practices recommendations. Accordingly, our calculation
of EPRA NAV may be different from how other European real estate
companies calculate EPRA NAV, which utilize International Financial
Reporting Standards ("IFRS") to prepare their balance sheet. EPRA
NAV makes adjustments to net assets as determined in accordance
with U.S. GAAP in order to provide our stockholders a measure of
fair value of our assets and liabilities with a long-term
investment strategy. This performance measure excludes assets and
liabilities that are not expected to materialize in normal
circumstances. EPRA NAV includes the revaluation of investment
properties and excludes the fair value of financial instruments
that we intend to hold to maturity, deferred tax and goodwill that
resulted from deferred tax. All other assets, including real
property and investments reported at cost are adjusted to fair
value based upon an independent third party valuation conducted in
December and June of each year. This measure should not be
considered as an alternative to measuring our net assets in
accordance with U.S. GAAP.
The following table presents a reconciliation of total equity to
EPRA NAV as at June 30, 2018 (dollars in thousands, other than
per share data):
|
June 30,
2018
|
Total
Equity
|
$
|
555,256
|
|
Adjustments
|
|
Operating real
estate, net intangibles and other
|
(1,565,191)
|
|
Fair value of
properties
|
2,087,137
|
|
Adjusted
NAV
|
1,077,202
|
|
|
|
Diluted NAV, after
the exercise of options, convertibles and other equity
interests
|
1,077,202
|
|
Fair value of
financial instruments
|
(7,801)
|
|
EPRA
NAV
|
1,069,401
|
|
EPRA NAV per
share(1)
|
$
|
20.95
|
|
______________
- Based on 51.1 million common shares,
operating partnership units and RSUs not subject to performance
hurdles outstanding as of June 30, 2018. EPRA NAV per
share does not take into account any potential dilution from
restricted stock units subject to performance metrics not currently
achieved.
|
Safe Harbor Statement
This press release contains certain "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act
of 1995, Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended.
Forward looking statements are generally identifiable by use of
forward looking terminology such as "may," "will," "should,"
"potential," "intend," "expect," "seek," "anticipate," "estimate,"
"believe," "could," "project," "predict," "hypothetical,"
"continue," "future" or other similar words or expressions. Forward
looking statements are not guarantees of performance and are based
on certain assumptions, discuss future expectations, describe plans
and strategies, contain projections of results of operations or of
financial condition or state other forward looking information.
Such statements include, but are not limited to, the likelihood and
timing of successfully completing sales transactions and the amount
of the net equity released after repayment of financing and
transaction costs; the timing and certainty with respect to new
lease commencements; the expected run rate cost savings as a result
of operational efficiencies, the time required to achieve such run
rate cost savings; the expected impact of recent leasing activity
on same store NOI; the availability of future borrowings under the
revolving credit facility; the ability to execute on NRE's
strategy; NRE's ability to maintain dividend payments, at current
levels, or at all, and the timing of dividend levels declared;
whether NRE will make repurchases of its common stock pursuant to
the stock repurchase program and the level or timing of any such
repurchases. Forward looking statements are necessarily speculative
in nature, and it can be expected that some or all of the
assumptions underlying any forward-looking statements will not
materialize or will vary significantly from actual results.
Variations of assumptions and results may be material. Factors that
could cause actual results to differ materially from NRE's
expectations include, but are not limited to, NRE's liquidity and
financial flexibility; NRE's future cash available for
distribution; the pace and result of any asset disposals
contemplated by NRE; NRE's use of leverage; and the anticipated
strength and growth of NRE's business. Factors that could cause
actual results to differ materially from those in the forward
looking statements are specified in NRE's annual report on Form
10-K for the year ended December 31,
2017, and its other filings with the Securities and Exchange
Commission. Such forward looking statements speak only as of the
date of this press release. NRE expressly disclaims any obligation
to release publicly any updates or revisions to any forward looking
statements contained herein to reflect any change in its
expectations with regard thereto or change in events, conditions or
circumstances on which any statement is based.
Disclaimer
As an opinion, the valuation by Cushman & Wakefield LLP
referenced in this release is not a measure of realizable value and
may not reflect the amount that would be received if the property
in question were sold. Real estate valuation is inherently
subjective due to, among other factors, the individual nature of
each property, its location, the expected future rental revenues
from that particular property and the valuation methodology
adopted. Real estate valuations are subject to a large degree of
uncertainty and are made on the basis of assumptions and
methodologies that may not prove to be accurate, particularly in
periods of volatility, low transaction flow or restricted debt
availability in the commercial or residential real estate markets.
For example, in the appraisal, a number of the properties were
valued using the special assumption that such properties would be
purchased through a tax-efficient special purpose vehicle, and is
therefore subject to lower purchaser transaction expenses. If
one or more assumptions are incorrect, the value may be materially
lower than the appraised value.
Endnotes
- The external third-party valuation was prepared by Cushman
& Wakefield LLP in accordance with the current U.K. and Global
edition of the Royal Institution of Chartered Surveyors' (RICS)
Valuation - Professional Standards (the "Red Book") on the basis of
"Fair Value", which is widely recognized within Europe as the leading professional standards
for independent valuation professionals. Each property is
classified as an investment and has been valued on the basis of
Fair Value adopted by the International Accounting Standards Board.
This is the equivalent to the Red Book definition of Market Value.
The Red Book defines Market Value as the estimated amount for which
an asset or liability should exchange on the valuation date between
a willing buyer and a willing seller in an arm's-length transaction
after proper marketing where the parties had each acted
knowledgeably, prudently and without compulsion. The Cushman &
Wakefield LLP valuation assumes that certain properties would be
purchased through market accepted structures resulting in lower
purchaser transaction expenses (taxes, duties, and similar costs).
This Cushman & Wakefield LLP valuation is as of June 30, 2018. The $2.1
billion Portfolio Market Value comprises $2.1 billion real estate portfolio value based on
the independent valuation by Cushman & Wakefield LLP and
$35 million preferred equity
investment (please refer to Note 11, "Fair Value" in the NRE
Quarterly Report on Form 10-Q for the three months ended
June 30, 2018 included in Part I Item
1. "Financial Statements").
- EPRA = European Public Real Estate Association.
- Excludes the preferred equity investment.
- Occupancy and weighted average remaining contractual lease term
based on rent roll as of June 30, 2018, on a same store basis.
Proforma occupancy based on rent roll as of June 30, 2018, adjusted for new leases signed,
but commencing through remainder 2018.
- Leverage, or loan to value, is calculated as property level
debt plus portfolio level preferred equity divided by the Portfolio
Market Value and unrestricted cash net of any outstanding balance
on the revolving credit facility.
- Please see NRE's Annual Report on Form 10-K for the year ended
December 31, 2017 and the exhibits
thereto for additional details relating to the terms of the amended
and restated management agreement ("Amended and Restated Management
Agreement").
Investor Relations
Gordon Simpson
Finsbury
+1-855-527-8539 or +44(0)207-2513801
nre@finsbury.com
View original
content:http://www.prnewswire.com/news-releases/northstar-realty-europe-announces-second-quarter-2018-results-300693106.html
SOURCE NorthStar Realty Europe Corp.