NEW YORK, March 13, 2018
/PRNewswire/ -- NorthStar Realty Europe Corp. (NYSE: NRE)
("NorthStar Realty Europe" or "NRE"), a European office REIT, today
announced its results for the fourth quarter and full year
ended December 31, 2017.
Fourth Quarter and Full Year 2017 Highlights
- U.S. GAAP net income to common stockholders: $1.4 million, or $0.02 per diluted share for the fourth quarter
2017 and net (loss) to common stockholders for the year
ended December 31, 2017 of
$(31.1) million, or $(0.57) per diluted share. U.S. GAAP total equity
was $624 million, or $11.18 per diluted share as of December 31,
2017
- Cash available for distribution ("CAD"): $13.1 million, or $0.23 per share, for the quarter and $49.5 million, or $0.89 per share for the year ended December 31, 2017
- $2.3 billion independent year-end
portfolio valuation by Cushman & Wakefield
LLP1, reflecting an increase of $122 million during the second half of 2017
- EPRA2 net asset value ("NAV") of $19.85 per share as of December 31, 2017, an
increase of over $2 per share over
the third quarter, driven primarily by leasing activity during the
second half of 2017
- Over 16% of the portfolio, or 50,000 rentable square meters,
was leased or renewed in 2017, which is expected to generate
approximately $3 million per annum of
incremental same store net operating income ("NOI") in
2018, compared to the fourth quarter 2017 annualized NOI
- Definitive agreement signed to sell Maastoren for approximately
$190 million, a 20% premium to the
independent mid-year valuation that preceded the recent lease
extensions
- $100 million share repurchase
program authorized
- Declared a cash dividend of $0.15 per share for the
fourth quarter 2017
Fourth Quarter 2017 Financial Results
During the fourth quarter 2017, U.S. GAAP net income
attributable to common stockholders was $1.4
million, CAD was $13.1
million, NOI was $24.9 million
and same store NOI was $23.8 million.
For more information and a reconciliation of CAD, NOI and same
store NOI to net income (loss) attributable to common stockholders,
please refer to the tables on the following pages.
Mahbod Nia, Chief Executive
Officer and President, commented, "We are pleased to report another
productive year in which we successfully leased or renewed over 16%
of our portfolio and completed a number of value enhancing
initiatives that contributed to an uplift in NAV of over
$2 per share."
Mr. Nia continued: "We have a highly capable team with extensive
knowledge and expertise in the industry as evidenced by our track
record of successfully acquiring, managing and exiting investments
across Europe. This quarter, we
have prepared a supplementary presentation summarizing our
operational achievements to date."
Portfolio Overview
$2.3 billion portfolio market
value3 ("Portfolio Market Value") comprising
$2.3 billion real estate portfolio
value based on the 2017 independent year-end valuation by Cushman
& Wakefield LLP and a $35 million
preferred equity investment.
Real Estate Portfolio Leasing Activity4,5
As of December 31, 2017, NRE's real estate portfolio
included 25 properties located across five European countries with
approximately 323,000 rentable square meters, 86% weighted average
occupancy and a 6.4 year weighted average remaining lease term to
expiry ("WALT").
- The office portfolio is comprised of 20 properties with 246,000
rentable square meters and has a 96% weighted average occupancy and
a 6.4 year WALT as of December 31, 2017.
- The non-office portfolio includes 5 properties representing 4%
of the fourth quarter 2017 portfolio NOI with 77,000 rentable
square meters (including a 59,000 rentable square meters logistics
asset) and has a 55% weighted average occupancy and a 5.6 year WALT
as of December 31, 2017.
Same Store Net Operating Income
In the fourth quarter 2017, same store sequential
quarter-over-quarter rental income increased by $0.7 million, or 2.7%, driven by recent leasing
activity including Deutsche Bundesbank commencing occupation in the
Trianon Tower (full occupation as of January
2018). In the fourth quarter 2017, same store sequential
quarter-over-quarter NOI increased by $0.2
million, or 0.7%. Fourth quarter 2017 same store NOI
included a $0.9 million write-off of
straight-line rent (included in Properties - operating expenses)
related to an early tenant termination at Portman Square in
connection with the expansion of Invesco's occupancy.
Same store portfolio year-over-year rental income for the three
months ended December 31, 2017 increased by $1.3 million, or 5.4%, and same store
year-over-year NOI increased by $1.1
million, or 4.7%, primarily as a result of the 2017 leasing
activity and rent reviews completed during the year, partially
offset by a $0.9 million write-off of
straight-line rent (included in Properties - operating expenses)
related to an early tenant termination at Portman Square.
In 2017, NRE signed 50,000 rentable square meters (16% of the
portfolio) of new leases or lease renewals, which are expected to
add approximately $3 million per year
to same store NOI in 2018 (compared to the fourth quarter 2017) as
the leases commence.
Dispositions
In 2017, NRE sold six properties for $138
million. As of December 31,
2017, two properties, Office 123 located in Portugal and Maastoren located in the Netherlands, were classified as
held-for-sale.
In February 2018, NRE signed a
definitive sale and purchase agreement to sell the Maastoren
property, NRE's largest non-core asset, for approximately
$190 million, slightly above the
independent year-end valuation and at a 20% premium to the
independent mid-year valuation preceding lease extensions completed
in the second half of 2017. NRE expects to release approximately
$60 million of net equity after
repayment of financing (including release premium) and transaction
costs. The closing is subject to customary closing conditions and
is expected to close in the second quarter of 2018.
Cash Expense Savings
Management has commenced implementation of cost saving
initiatives that are expected to result in approximately
$4-5 million per annum ($0.07 - $0.09 per
share) of net run rate savings in other expenses and general and
administrative expenses from the end of 2018, related to the
internalization of certain asset management, accounting and other
services and a reduction of corporate costs. Other expenses and CAD
for the three months ended December 31,
2017 include approximately $0.9
million of one-time termination costs related to certain
service providers.
Liquidity and Financing
As of December 31, 2017, leverage was 52.3% based on the
Portfolio Market Value, down from 56.2% as of December 31, 20166.
In March 2018, NRE amended its
revolving credit facility with Bank of America Merrill Lynch
through a new commitment provided by Deutsche Bank AG New York,
increasing the size to $70 million
and extending the term until April
2020 with a one year extension option. The facility includes
an accordion feature, providing for the ability to increase the
facility to $105 million.
As of March 9, 2018, total
liquidity was $132 million, comprised
of $62 million of unrestricted cash
and $70 million of availability under
NRE's revolving credit facility. The following table presents our
liquidity (dollars in millions):
|
March 9,
2018
|
Unrestricted
cash
|
$
|
62
|
Revolving credit
facility
|
70
|
Total
liquidity
|
$
|
132
|
Expected proceeds
from Maastoren sale
|
60
|
Total potential
liquidity
|
$
|
192
|
Stockholder's Equity
NRE had 55.8 million shares of common stock, operating
partnership units and restricted stock units ("RSUs") not subject
to performance hurdles outstanding as of December 31,
2017.
As of December 31, 2017, total equity was $624 million (U.S. GAAP depreciated value), or
$11.18 per diluted share. EPRA net
asset value, or EPRA NAV, was $19.85
per diluted share as of December 31, 2017, based on the
Portfolio Market Value compared to $17.77 per share as of September 30, 2017. 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 (the "Board") of NRE authorized the repurchase of up to
$100 million of its outstanding
common stock. The repurchases will occur from time to time in the
open market or in privately negotiated transactions as market
conditions permit. The authorization will expire in 12 months,
unless otherwise extended by the Board. The repurchase program will
be utilized at management's discretion and in accordance with the
requirements of the Securities and Exchange Commission. The
timing and actual number of shares repurchased will depend on a
variety of factors including price, corporate requirements and
other conditions.
Fourth Quarter Disclosure Supplement Presentation
A fourth quarter 2017 disclosure supplement presentation and
corporate presentations will be posted on NRE's website,
www.nrecorp.com, which provides additional details
regarding NRE's operations and portfolio.
Fourth Quarter 2017 Conference Call
NRE will conduct a conference call to discuss the results on
Tuesday, March 13, 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 +44(0)808-109-0700 (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
April 11, 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 2901878.
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 NorthStar, Inc. (NYSE: CLNS), a leading global
equity REIT with an embedded investment management platform. For
more information about NorthStar Realty Europe Corp., please visit
www.nrecorp.com.
NorthStar Realty
Europe Corp.
|
Consolidated
Balance Sheet
|
($ in thousands,
except per share data)
|
Unaudited
|
|
|
December 31,
2017
|
|
December 31,
2016
|
Assets
|
|
|
|
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
|
Preferred equity
investments
|
35,347
|
|
—
|
Cash and cash
equivalents
|
64,665
|
|
66,308
|
Restricted
cash
|
6,917
|
|
10,242
|
Receivables, net of
allowance of $747 and $553 as of
December 31, 2017 and December 31, 2016, respectively
|
9,048
|
|
6,015
|
Assets held for
sale
|
169,082
|
|
28,208
|
Derivative assets, at
fair value
|
7,024
|
|
13,729
|
Intangible assets,
net
|
114,185
|
|
148,403
|
Other assets,
net
|
23,115
|
|
21,640
|
Total
assets
|
$
|
1,940,917
|
|
$
|
1,845,392
|
Liabilities
|
|
|
|
Mortgage and other
notes payable, net
|
$
|
1,223,443
|
|
$
|
1,149,119
|
Accounts payable and
accrued expenses
|
27,240
|
|
28,004
|
Due to related
party
|
3,590
|
|
4,991
|
Derivative
liabilities, at fair value
|
5,270
|
|
—
|
Intangible
liabilities, net
|
28,632
|
|
30,802
|
Liabilities related
to assets held for sale
|
648
|
|
2,041
|
Other
liabilities
|
25,757
|
|
28,918
|
Total
liabilities
|
1,314,580
|
|
1,243,875
|
Commitments and
contingencies
|
|
|
|
Redeemable
non-controlling interest
|
1,992
|
|
1,610
|
Equity
|
|
|
|
NorthStar Realty
Europe Corp. Stockholders' Equity
|
|
|
|
Preferred stock,
$0.01 par value, 200,000,000
shares authorized, no shares issued and outstanding
as of December 31, 2017 and December 31, 2016
|
—
|
|
—
|
Common stock, $0.01
par value, 1,000,000,000 shares
authorized, 55,402,259
and 55,395,143 shares
issued and outstanding as of
December 31, 2017 and December 31, 2016, respectively
|
555
|
|
554
|
Additional paid-in
capital
|
940,579
|
|
925,473
|
Retained earnings
(accumulated deficit)
|
(347,053)
|
|
(282,769)
|
Accumulated other
comprehensive income (loss)
|
25,618
|
|
(51,424)
|
Total NorthStar
Realty Europe Corp. stockholders' equity
|
619,699
|
|
591,834
|
Non-controlling
interests
|
4,646
|
|
8,073
|
Total
equity
|
624,345
|
|
599,907
|
Total liabilities,
redeemable non controlling interest and equity
|
$
|
1,940,917
|
|
$
|
1,845,392
|
NorthStar Realty
Europe Corp.
|
Consolidated
Statements of Operations
|
($ in thousands,
except for per share data)
|
Unaudited
|
|
|
Three Months Ended
December 31,
|
Year Ended
December 31,
|
|
2017
|
|
2016
|
|
|
2017
|
|
2016
|
Revenues
|
|
|
|
|
|
|
|
|
Rental
income
|
$
|
26,041
|
|
$
|
25,700
|
|
|
$
|
105,349
|
|
$
|
124,321
|
Escalation
income
|
5,265
|
|
5,347
|
|
|
21,625
|
|
25,173
|
Interest
income
|
705
|
|
—
|
|
|
1,706
|
|
—
|
Other
income
|
535
|
|
823
|
|
|
1,243
|
|
1,721
|
Total
revenues
|
32,546
|
|
31,870
|
|
|
129,923
|
|
151,215
|
Expenses
|
|
|
|
|
|
|
|
|
Properties -
operating expenses
|
8,598
|
|
8,628
|
|
|
31,119
|
|
35,892
|
Interest
expense
|
6,203
|
|
7,955
|
|
|
25,844
|
|
41,439
|
Transaction
costs
|
4,552
|
|
(23)
|
|
|
6,117
|
|
2,610
|
Impairment
Losses
|
—
|
|
—
|
|
|
—
|
|
27,468
|
Management fee,
related party
|
3,692
|
|
3,520
|
|
|
14,408
|
|
14,068
|
Other
expenses
|
2,647
|
|
2,797
|
|
|
9,251
|
|
12,376
|
General and
administrative expenses
|
1,509
|
|
2,900
|
|
|
7,384
|
|
8,077
|
Compensation expense
(1)
|
3,674
|
|
7,029
|
|
|
23,768
|
|
19,257
|
Depreciation and
amortization
|
14,535
|
|
13,715
|
|
|
54,014
|
|
64,979
|
Total
expenses
|
45,410
|
|
46,521
|
|
|
171,905
|
|
226,166
|
Other income
(loss)
|
|
|
|
|
|
|
|
|
Unrealized gain
(loss) on derivatives and other
|
(795)
|
|
8,319
|
|
|
(12,863)
|
|
(11,257)
|
Realized gain (loss)
on sales and other
|
13,735
|
|
20,460
|
|
|
22,367
|
|
26,448
|
Income (loss)
before income tax benefit (expense)
|
76
|
|
14,128
|
|
|
(32,478)
|
|
(59,760)
|
Income tax benefit
(expense)
|
2,461
|
|
(226)
|
|
|
2,145
|
|
(2,742)
|
Net income
(loss)
|
2,537
|
|
13,902
|
|
|
(30,333)
|
|
(62,502)
|
Net (income) loss
attributable to non controlling interests
|
(1,095)
|
|
(43)
|
|
|
(792)
|
|
749
|
Net income (loss)
attributable to NorthStar Realty Europe
Corp. common stockholders
|
$
|
1,442
|
|
$
|
13,859
|
|
|
$
|
(31,125)
|
|
$
|
(61,753)
|
Earnings (loss)
per share:
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.02
|
|
$
|
0.25
|
|
|
$
|
(0.57)
|
|
$
|
(1.07)
|
Diluted
|
$
|
0.02
|
|
$
|
0.24
|
|
|
$
|
(0.57)
|
|
$
|
(1.07)
|
Weighted average
number of shares:
|
|
|
|
|
|
|
|
|
Basic
|
55,276,636
|
|
54,766,995
|
|
|
55,073,383
|
|
57,875,479
|
Diluted
|
55,699,758
|
|
55,455,164
|
|
|
55,599,222
|
|
58,564,986
|
______________________
- Compensation expense for the three months and year ended
December 31, 2017 and 2016 is comprised of equity-based
compensation expenses. For the year ended December 31, 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.
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, 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, 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 foreign currency derivatives); impairment on
depreciable property; non-recurring bad debt expense; acquisition
gains or losses; transaction costs; foreign currency gains
(losses); impairment on goodwill and other intangible assets; and
one-time events pursuant to changes in U.S. GAAP and certain other
non-recurring items. These items, if applicable, include any
adjustments for unconsolidated ventures.
CAD should not be considered as an alternative to net income
(loss) attributable to common stockholders, determined in
accordance with U.S. GAAP, as an indicator of operating
performance. In addition, our methodology for calculating CAD
involves subjective judgment and discretion and may differ from the
methodologies used by other comparable companies, including other
REITs, when calculating the same or similar supplemental financial
measures and may not be comparable with these companies.
The following table presents a reconciliation of CAD to net
income (loss) attributable to common stockholders for the three
months ended December 31, 2017 and
2016 and the years ended December 31, 2017 and 2016 (dollars
in thousands):
|
Three Months Ended
December 31,
|
|
Year Ended
December 31,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net income (loss)
attributable to common
stockholders
|
$
|
1,442
|
|
|
$
|
13,859
|
|
|
$
|
(31,125)
|
|
|
$
|
(61,753)
|
Non-controlling
interests
|
1,095
|
|
|
43
|
|
|
792
|
|
|
(749)
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization items(1)(2)
|
19,612
|
|
|
22,609
|
|
|
81,269
|
|
|
93,913
|
Impairment
losses
|
—
|
|
|
—
|
|
|
—
|
|
|
27,468
|
Unrealized (gain)
loss on derivatives and other
|
795
|
|
|
(8,319)
|
|
|
12,863
|
|
|
11,257
|
Realized (gain) loss
on sales and other(3)(4)
|
(14,444)
|
|
|
(20,152)
|
|
|
(21,388)
|
|
|
(27,235)
|
Transaction costs and
other(5)(6)
|
4,552
|
|
|
1,884
|
|
|
7,138
|
|
|
9,217
|
CAD
|
$
|
13,052
|
|
|
$
|
9,924
|
|
|
$
|
49,549
|
|
|
$
|
52,118
|
CAD per
share(7)
|
$
|
0.23
|
|
|
$
|
0.17
|
|
|
$
|
0.89
|
|
|
$
|
0.87
|
- Three months ended December 31, 2017 represents an
adjustment to exclude depreciation and amortization of $14.5 million, amortization expense of
capitalized above/below market leases of $0.9 million, amortization of
deferred financing costs of $0.5
million and amortization of equity-based compensation of
$3.7 million. Year ended
December 31, 2017 represents an adjustment to exclude
depreciation and amortization of $54.0
million, amortization of above/below market leases of
$0.7 million, amortization of
deferred financing costs of $2.8
million and amortization of equity-based compensation of
$23.8 million.
- Three months December 31, 2016 represents an adjustment to
exclude depreciation and amortization of $13.7 million, amortization of above/below market
leases of $0.3 million, amortization
of deferred financing costs of $1.6
million and amortization of equity-based compensation of
$7.0 million. Year ended
December 31, 2016 represents an adjustment to exclude
depreciation and amortization of $65.0
million, amortization of above/below market leases of
$2.6 million, amortization of
deferred financing costs of $7.1
million and amortization of equity-based compensation of
$19.3 million.
- Three months ended December 31, 2017 CAD includes a $(0.7)
million net loss related to the settlement of foreign
currency derivatives. Year ended December
31, 2017 CAD includes a $1.0
million net gain related to the settlement of foreign
currency derivatives.
- Three months ended December 31,
2016 CAD includes a $0.3
million net gain related to the settlement of foreign
currency derivatives. Year ended December
31, 2016 CAD includes a $(0.8)
million net loss related to the settlement of foreign
currency derivatives.
- Three months ended December 31, 2017 represents an
adjustment to exclude $4.6 million of
transaction costs. Year ended December 31, 2017 represents an
adjustment to exclude $6.1 million of
transaction costs and $1.0 million of
payroll taxes associated with the acceleration of equity awards due
to the tri-party merger completed on January
10, 2017, between NRE's external manager, NorthStar Asset
Management Group Inc., NorthStar Realty Finance Corp. and
Colony Capital, Inc.
- Three months December 31, 2016 represents an adjustment to
exclude $0.9 million of non-recurring
bad debt expense and $1.0 million of
taxes associated with the capital gain tax on the sale of real
estate investments. Year ended December 31, 2016 represents an
adjustment to exclude $2.6 million of
transaction costs, $1.3 million of
non-recurring bad debt expense and $5.3
million of taxes associated with the capital gain tax on the
sale of real estate investments.
- CAD per share is based on 55.8 million and 55.9 million
weighted average shares (common shares outstanding including
operating partnership units and RSUs not subject to performance
hurdles) for the the three months and year ended December 31, 2017, respectively. Based on 57.1
million weighted average shares (common shares outstanding,
including LTIPs and RSUs not subject to performance hurdles) for
the three months ended December 31, 2016 and 60.0 million
weighted average shares (common shares outstanding, including LTIPs
and RSUs not subject to performance hurdles) for the year ended
December 31, 2016. 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 of 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 necessary to
maintain the operating performance of properties, all of which may
be significant economic costs. NOI may fail to capture
significant trends in these components of U.S. GAAP net income
(loss) which further limits its usefulness.
NOI should not be considered as an alternative to net income
(loss), determined in accordance with U.S. GAAP, as an indicator of
operating performance. In addition, our methodology for
calculating NOI involves subjective judgment and discretion and may
differ from the methodologies used by other comparable companies,
including other REITs, when calculating the same or similar
supplemental financial measures and may not be comparable with
these companies.
The following table presents a reconciliation of NOI of our real
estate equity and preferred equity segments to property and other
related revenues less property operating expenses for the three
months ended December 31, 2017 and
2016 and years ended December 31, 2017 and 2016 (dollars in
thousands):
|
Three Months Ended
December 31,
|
|
Year Ended
December 31,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Rental
income
|
$
|
26,041
|
|
|
$
|
25,700
|
|
|
$
|
105,349
|
|
$
|
124,321
|
Escalation
income
|
5,265
|
|
|
5,347
|
|
|
21,625
|
|
25,173
|
Other
income
|
535
|
|
|
823
|
|
|
1,243
|
|
1,721
|
Total property and
other income
|
31,841
|
|
|
31,870
|
|
|
128,217
|
|
|
151,215
|
Properties -
operating expenses
|
8,598
|
|
|
8,628
|
|
|
31,119
|
|
|
35,892
|
Adjustments:
|
|
|
|
|
|
|
|
Interest
income
|
705
|
|
|
—
|
|
|
1,706
|
|
|
—
|
Amortization and
other items(1)(2)
|
922
|
|
|
691
|
|
|
666
|
|
|
3,756
|
NOI
|
$
|
24,870
|
|
|
$
|
23,933
|
|
|
$
|
99,470
|
|
|
$
|
119,079
|
______________________
- Three months ended December 31, 2017 primarily excludes
$0.9 million of amortization of
above/below market leases. Year ended December 31, 2017
primarily includes $0.7 million of
amortization of above/below market leases.
- Three months ended December 31, 2016 primarily excludes
$0.9 million of non-recurring bad
debt expense offset by $(0.2) million
of amortization of above/below market rent. Year ended
December 31, 2016 primarily includes $2.6 million of amortization of above/below
market leases and $1.3 million of
non-recurring bad debt expense.
- The following table presents a reconciliation of net income
(loss) to NOI of our real estate segment for the three months and
years ended December 31, 2017 and 2016 (dollars in
thousands):
|
Three Months Ended
December 31,
|
|
Years Ended
December 31,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net income
(loss)
|
$
|
2,537
|
|
|
$
|
13,859
|
|
|
$
|
(30,333)
|
|
|
$
|
(62,502)
|
Remaining
segments(i)
|
13,917
|
|
|
10,461
|
|
|
60,658
|
|
|
56,504
|
Real estate equity
and preferred equity segment adjustments:
|
|
|
|
|
|
|
|
Interest
expense
|
6,093
|
|
|
6,734
|
|
|
24,989
|
|
|
30,974
|
Other
expenses
|
2,623
|
|
|
2,770
|
|
|
9,012
|
|
|
12,307
|
Depreciation and
amortization
|
14,535
|
|
|
13,716
|
|
|
54,014
|
|
|
64,979
|
Unrealized (gain)
loss on derivatives and other
|
798
|
|
|
(3,675)
|
|
|
2,710
|
|
|
15,040
|
Realized (gain) loss
on sales and other
|
(14,250)
|
|
|
(20,616)
|
|
|
(21,366)
|
|
|
(32,019)
|
Income tax (benefit)
expense
|
(2,461)
|
|
|
227
|
|
|
(2,145)
|
|
|
2,742
|
Impairment
losses
|
—
|
|
|
—
|
|
|
—
|
|
|
27,468
|
Other
items
|
1,078
|
|
|
457
|
|
|
1,931
|
|
|
3,586
|
Total
adjustments
|
8,416
|
|
|
(387)
|
|
|
69,145
|
|
|
125,077
|
NOI
|
$
|
24,870
|
|
|
$
|
23,933
|
|
|
$
|
99,470
|
|
|
$
|
119,079
|
______________________
(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 of the operating
performance as it reflects the operating performance of the real
estate portfolio excluding effects of non-cash adjustments 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 represents 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 25 properties.
The following table presents our same store analysis for the
real estate equity segment which represents 25 properties (323,230
rentable square meters) and excludes properties that were acquired
or sold at any time during the three months ended December 31,
2017 and September 30, 2017 (dollars
in thousands):
|
Three Months
Ended
|
|
Increase
(Decrease)
|
|
December 31,
2017
|
|
September 30,
2017(1)
|
|
Amount
|
Percentage
|
Occupancy (end of
period)
|
86.1
%
|
|
|
84.6
%
|
|
|
|
|
Same
store
|
|
|
|
|
|
|
Rental
income(2)
|
$
|
26,159
|
|
|
$
|
25,473
|
|
|
$
|
686
|
|
2.7 %
|
Escalation
income
|
5,143
|
|
|
4,705
|
|
|
438
|
|
|
Other
income
|
535
|
|
|
177
|
|
|
358
|
|
|
Total
revenues
|
31,837
|
|
|
30,355
|
|
|
1,482
|
|
4.9
%
|
Utilities
|
2,240
|
|
|
1,797
|
|
|
443
|
|
|
Real estate taxes and
insurance
|
1,188
|
|
|
1,330
|
|
|
(142)
|
|
|
Management
fees
|
512
|
|
|
494
|
|
|
18
|
|
|
Repairs and
maintenance
|
2,531
|
|
|
2,148
|
|
|
383
|
|
|
Ground
rent(2)
|
200
|
|
|
194
|
|
|
6
|
|
|
Straight-line rent
write-off
|
850
|
|
|
—
|
|
|
850
|
|
|
Other
|
500
|
|
|
744
|
|
|
(244)
|
|
|
Properties -
operating expenses
|
8,021
|
|
|
6,707
|
|
|
1,314
|
|
19.6 %
|
Same store
NOI
|
$
|
23,816
|
|
|
$
|
23,648
|
|
|
$
|
168
|
|
0.7
%
|
__________________
- Three months ended September 30,
2017 is translated using the average exchange rate for the
three months ended December 31,
2017.
- Adjusted to exclude amortization of above/below market
leases.
The following table presents a reconciliation from net income
(loss) to same store NOI for the real estate equity segment for the
three months ended December 31, 2017
and September 30, 2017 (dollars in
thousands):
|
Same Store
Reconciliation
|
|
Three Months
Ended
|
|
December 31,
2017
|
|
September 30,
2017
|
Net income
(loss)
|
$
|
2,537
|
|
|
$
|
(6,806)
|
|
Corporate segment net
(income) loss(1)
|
13,917
|
|
|
11,023
|
|
Other (income)
loss(2)
|
8,416
|
|
|
21,738
|
|
NOI
|
24,870
|
|
|
25,955
|
|
Sale of real estate
investments and other(3)
|
(349)
|
|
|
(1,603)
|
(5)
|
Interest
income(4)
|
(705)
|
|
|
(704)
|
|
Same store
NOI
|
$
|
23,816
|
|
|
$
|
23,648
|
|
__________________
- Includes management fees, general and administrative expense,
compensation expense, corporate interest expense and corporate
transaction costs.
- Includes depreciation and amortization expense, transaction
costs, unrealized loss on interest rate caps, and other expenses in
the real estate equity segment.
- Represents the impact of assets sold during the period.
- Represents interest income earned in the preferred equity
segment.
- Three months ended September 30,
2017 is translated using the average exchange rate for the
three months ended December 31,
2017.
The following table presents our same store analysis for the
real estate equity segment, which excludes properties that were
acquired or sold at any time during the three months ended
December 31, 2017 and 2016 (dollars in thousands):
|
Three Months Ended
December 31,
|
|
Increase
(Decrease)
|
|
2017
|
|
2016(1)
|
|
Amount
|
|
%
|
Occupancy (end of
period)
|
86.1 %
|
|
83.2 %
|
|
|
|
|
Same
store
|
|
|
|
|
|
|
|
Rental
income(2)
|
$
|
26,159
|
|
$
|
24,825
|
|
$
|
1,334
|
|
5.4 %
|
Escalation
income
|
5,143
|
|
5,223
|
|
(80)
|
|
|
Other
income
|
535
|
|
924
|
|
(389)
|
|
|
Total
revenues
|
31,837
|
|
30,972
|
|
865
|
|
2.8
%
|
Utilities
|
2,240
|
|
1,369
|
|
871
|
|
|
Real estate taxes and
insurance
|
1,188
|
|
1,531
|
|
(343)
|
|
|
Management
fees
|
512
|
|
822
|
|
(310)
|
|
|
Repairs and
maintenance
|
2,531
|
|
3,425
|
|
(894)
|
|
|
Ground
rent(2)
|
200
|
|
182
|
|
18
|
|
|
Straight-line rent
write-off
|
850
|
|
—
|
|
850
|
|
|
Other
|
500
|
|
903
|
|
(403)
|
|
|
Properties -
operating expenses
|
8,021
|
|
8,232
|
|
(211)
|
|
(2.6) %
|
Same store
NOI
|
$
|
23,816
|
|
$
|
22,740
|
|
$
|
1,076
|
|
4.7
%
|
__________________
- Three months ended December 31,
2016 is translated using the average exchange rate for the
three months ended December 31, 2017.
- Adjusted to exclude amortization of above/below market
leases.
The following table presents a reconciliation from net income
(loss) to same store NOI for the real estate equity segment for the
three months ended December 31, 2017 and 2016 (dollars in
thousands):
|
Same Store
Reconciliation
|
|
|
Three Months Ended
December 31,
|
|
|
2017
|
|
2016
|
|
Net income
(loss)
|
$
|
2,537
|
|
|
$
|
13,902
|
|
|
Corporate segment net
(income) loss(1)
|
13,917
|
|
|
10,461
|
|
|
Other (income)
loss(2)
|
8,416
|
|
|
(430)
|
|
|
NOI
|
24,870
|
|
|
23,933
|
|
|
Sale of real estate
investments and other(3)
|
(349)
|
|
|
(1,193)
|
|
(5)
|
Interest
income(4)
|
(705)
|
|
|
—
|
|
|
Same store
NOI
|
$
|
23,816
|
|
|
$
|
22,740
|
|
|
__________________
- Includes management fees, general and administrative expense,
compensation expense, corporate interest expense and corporate
transaction costs.
- Includes depreciation and amortization expense, transaction
costs, unrealized loss on interest rate caps, and other expenses in
the real estate equity segment.
- Represents the impact of assets sold during the period.
- Represents interest income earned in the preferred equity
segment.
- Three months ended December 31,
2016 is translated using the average exchange rate for the
three months ended December 31, 2017.
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 EPRA NAV to
total equity as at December 31, 2017 (dollars in thousands,
other than per share data):
|
December 31,
2017
|
Total
Equity
|
$
|
624,345
|
Adjustments
|
|
Operating real estate
and net intangibles
|
(1,765,521)
|
Fair value of
properties
|
2,258,638
|
Adjusted
NAV
|
1,115,041
|
|
|
Diluted NAV, after
the exercise of options,
convertibles and other equity interests
|
1,115,041
|
Fair value of
financial instruments
|
(7,024)
|
EPRA
NAV
|
1,108,017
|
EPRA NAV per
diluted share(1)
|
$
|
19.85
|
______________
- Based on 55.8 million common shares, operating partnership
units and RSUs not subject to performance hurdles outstanding as of
December 31, 2017. EPRA NAV per diluted 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 expected use of proceeds from the sale of
any properties; 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 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
- Global edition of the Royal Institution of Chartered Surveyors'
(RICS) Valuation - Professional Standards (the "Red Book") on the
basis of "Fair Value", which is widely recognized within
Europe as the leading professional
standards for independent valuation professionals. Each property is
classified as an investment and has been valued on the basis of
Fair Value adopted by the International Accounting Standards Board.
This is the equivalent to the Red Book definition of Market Value.
The Red Book defines Market Value as the estimated amount for which
an asset or liability should exchange on the valuation date between
a willing buyer and a willing seller in an arm's-length transaction
after proper marketing where the parties had each acted
knowledgeably, prudently and without compulsion. The Cushman &
Wakefield LLP valuation assumes that certain properties would be
purchased through market accepted structures resulting in lower
purchaser transaction expenses (taxes, duties, and similar costs).
This Cushman & Wakefield LLP valuation is as of December 31, 2017.
- EPRA = European Public Real Estate Association.
- The $2.3 billion Portfolio Market
Value comprises $2.3 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 Annual Report on Form 10-K for the year
ended December 31, 2017 included in
Part II Item 8. "Financial Statements and Supplementary
Data").
- Excludes the preferred equity investment.
- Occupancy and weighted average remaining contractual lease term
based on rent roll as of December 31, 2017.
- Leverage 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.
Investor Relations
Gordon
Simpson
Finsbury
+1-855-527-8539 or +44-(0)-207-251-3801
nre@finsbury.com
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content:http://www.prnewswire.com/news-releases/northstar-realty-europe-announces-fourth-quarter-and-full-year-2017-results-300613064.html
SOURCE NorthStar Realty Europe