NorthStar Realty Europe Corp. (NYSE:NRE) (“NorthStar Realty
Europe” or “NRE”), a European office REIT, today announced its
results for the third quarter ended September 30,
2018.
Third Quarter 2018 Financial Results and Highlights
- U.S. GAAP net income attributable to
common stockholders: $0.6 million, or $0.01 per diluted share, for
the third quarter 2018. U.S. GAAP total equity was $533 million, or
$10.64 per share, as of September 30, 2018
- Cash available for distribution
(“CAD”): $11.5 million, or $0.23 per share
- Net operating income (“NOI”) of $23.5
million and same store NOI of $23.7 million, representing an
increase of $0.9 million, or 3.7%, quarter-over-quarter and $2.0
million, or 9.2%, year-over-year
- Nine months 2018 expense savings of
$2.1 million, in line with the $2-3 million guidance for the full
year 2018
- EPRA1 net asset value (“NAV”) of $20.85
per share as of September 30, 2018, in line with the second
quarter
- Definitive agreement executed to sell
the Trianon Tower for approximately $762 million, generating above
20% IRR and releasing approximately $360 million of net equity
- Cash dividend of $0.15 per
share declared for the third quarter 2018
Mahbod Nia, Chief Executive Officer and President, commented:
“We are pleased to announce another successful quarter, during
which we increased same store NOI by 3.7% quarter-over-quarter,
benefiting from significant leasing activity during the year. We
also made further progress with our expense saving initiatives and
remain on track to meet our stated 2018 savings target of $2-3
million.”
Mr. Nia continued: “Today, we signed a definitive sale and
purchase agreement to sell the Trianon Tower for $762 million,
allowing us to crystalise the value uplift generated through our
execution of numerous asset management initiatives during our
ownership period and generating a significant return on investment
on behalf of our stockholders.”
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 value2 (“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 adjusted for currency movements and a $34.1
million preferred equity investment.
Real Estate Portfolio Leasing
Activity3,4
As of September 30, 2018, NRE’s real estate portfolio
comprised of 23 properties located across Germany, the U.K. and
France with approximately 282,000 rentable square meters, 97%
weighted average occupancy and a 6.1 year weighted average
remaining lease term to expiry (“WALT”).
- The office portfolio comprised of 18
properties with 204,000 rentable square meters, had a 96% weighted
average occupancy and a 6.1 year WALT as of September 30,
2018.
- The other (non-office) portfolio, which
represented 6% of the third quarter 2018 portfolio NOI, comprised
of 5 properties with 77,000 rentable square meters, had a 97%
weighted average occupancy and a 6.7 year WALT as of
September 30, 2018.
Same Store Net Operating Income (Currency
Adjusted)
Same store sequential quarter-over-quarter rental income and NOI
increased by $0.9 million, or 3.7%, driven by additional rental
income from leases secured in the previous quarter for Marly,
Uhlandstrasse and certain assets in the Trias U.K. portfolio.
Same store sequential year-over-year rental income for the three
and nine months ended September 30, 2018 increased by $1.2 million,
or 5.3%, and $2.6 million, or 3.8%, respectively, reflecting the
commencement of new leases in the second half of 2017 and during
2018. Same store year-over-year NOI for the three and nine months
ended September 30, 2018 increased by $2.0 million, or 9.2%, and
$5.8 million, or 9.1%, respectively, reflecting the aforementioned
leasing activity and increased recoverability of operating
expenses.
Dispositions
On September 24, 2018, NRE completed the sale of Office 123 in
Lisbon, Portugal for $15 million, 6% above the mid-year Valuation,
releasing $15 million of net equity to NRE and resulting in NRE’s
exit from the Portuguese market.
In the nine months ended September 30, 2018, NRE sold two
properties (Office 123 in Lisbon, Portugal and Maastoren in
Rotterdam, the Netherlands) for $203 million, releasing $75 million
of net equity.
On November 6, 2018, NRE executed a definitive sale and purchase
agreement to sell the Trianon Tower in Frankfurt, Germany, NRE’s
largest asset, for €670 million, or approximately $762 million
based on the exchange rate as of November 5, 2018, in line with the
mid-year Valuation. Since acquiring the asset in July 2015, NRE has
completed numerous value enhancing initiatives including a 10 year
lease with Deutsche Bundesbank and obtaining a LEED Platinum
certification following an extensive refurbishment program. NRE
expects to release approximately $360 million of net equity after
repayment of financing and transaction costs and a $6 million
retained interest in the form of preferred equity certificates with
a 7% yield. Completion is subject to customary conditions,
including the purchasers’ closing on a €390 million (or $445
million based on the exchange rate as of November 5, 2018) mortgage
facility and is expected before year end 2018.
Liquidity and Financing
As of September 30, 2018, NRE’s overall leverage5 was 51%
based on the Portfolio Market Value. As of November 2, 2018, total
liquidity was $135 million, comprising $65 million of unrestricted
cash and $70 million of availability under NRE’s revolving credit
facility.
$ in millions Unrestricted cash
$ 65 Revolving credit facility 70
Total liquidity $
135
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 above EURIBOR from 1.85% to 1.65%.
Stockholder’s Equity
NRE had 50.1 million shares of common stock, operating
partnership units and restricted stock units (“RSUs”) not subject
to performance hurdles outstanding as of September 30,
2018.
As of September 30, 2018, total equity was $533 million
(U.S. GAAP depreciated value), or $10.64 per share and EPRA NAV was
$20.85 per share, in line with the second quarter. 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 third quarter, NRE repurchased 1.0 million shares of
common stock for approximately $13.8 million at a weighted average
price of $13.71 per share. Since the authorization in March 2018
through September 30, 2018, NRE repurchased a total of 6.1 million
shares of common stock for approximately $83.4 million at a
weighted average price of $13.73 per share.
Third Quarter 2018 Disclosure Supplement Presentation
A third quarter 2018 disclosure supplement presentation will be
posted on NRE’s website, www.nrecorp.com, which provides additional
details regarding NRE’s operations and portfolio.
Third Quarter 2018 Conference Call
NRE will conduct a conference call to discuss the results on
Tuesday, November 6, 2018 at 9:00 a.m. ET. Hosting the call will be
Mahbod Nia, Chief Executive Officer, Keith Feldman, Chief Financial
Officer and Trevor Ross, General Counsel.
To participate in the event by telephone, please dial +1 866 966
5335 (U.S. Toll Free), or +44 (0) 20 3003 2666 (International) or
0808 109 0700 (U.K. Toll Free), using passcode: NorthStar.
The call will also be broadcast live over the internet and can
be accessed from NRE’s website at www.nrecorp.com. For those unable
to participate during the live call, a replay of the call will be
available approximately two hours after the call through December
5, 2018 by dialing +1 866 583 1039 (U.S. Toll Free), or +44 (0) 20
8196 1998 (International) or 0800 633 8453 (UK Toll Free), using
passcode: 1376525.
About NorthStar Realty Europe Corp.
NorthStar Realty Europe Corp. is a European focused commercial
real estate company with predominately prime office properties
within key cities in Germany, the United Kingdom and France,
organized as a REIT and managed by an affiliate of Colony Capital,
Inc. (NYSE: CLNY), a leading global equity REIT with an embedded
investment management platform. For more information about
NorthStar Realty Europe Corp., please visit www.nrecorp.com.
NorthStar Realty Europe
Corp.Consolidated Balance Sheets($ in thousands,
except per share data)Unaudited
September 30, 2018 December 31,
2017 Assets Operating real estate, gross $ 1,566,505 $
1,606,890 Less: accumulated depreciation (119,133 ) (95,356 )
Operating real estate, net 1,447,372 1,511,534 Preferred equity
investments 34,137 35,347 Cash and cash equivalents 61,869 64,665
Restricted cash 7,097 6,917 Receivables, net of allowance of $691
and $747 as of September 30, 2018 and December 31, 2017,
respectively 8,013 9,048 Assets held for sale — 169,082 Derivative
assets, at fair value 10,941 7,024 Intangible assets, net 100,831
114,185 Other assets, net 28,466 23,115
Total
assets $ 1,698,726 $ 1,940,917
Liabilities
Mortgage and other notes payable, net $ 1,092,708 $ 1,223,443
Accounts payable and accrued expenses 16,954 27,240 Due to
affiliates 4,259 3,590 Derivative liabilities, at fair value 426
5,270 Intangible liabilities, net 25,142 28,632 Liabilities related
to assets held for sale — 648 Other liabilities 24,276
25,757
Total liabilities 1,163,765 1,314,580
Commitments and contingencies Redeemable noncontrolling
interest 1,930 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 September 30, 2018 and December 31, 2017 — — Common stock, $0.01
par value, 1,000,000,000 shares authorized, 49,726,647 and
55,402,259 shares issued and outstanding as of September 30, 2018
and December 31, 2017, respectively 498 555 Additional paid-in
capital 860,853 940,579 Retained earnings (accumulated deficit)
(333,464 ) (347,053 ) Accumulated other comprehensive income (loss)
1,564 25,618
Total NorthStar Realty Europe Corp.
stockholders’ equity 529,451 619,699
Noncontrolling interests 3,580 4,646
Total
equity 533,031 624,345
Total liabilities,
redeemable noncontrolling interest and equity $ 1,698,726
$ 1,940,917
NorthStar Realty Europe
Corp.Consolidated Statements of Operations($ in
thousands, except for per share data)Unaudited
Three Months Ended September 30,
Nine Months Ended September 30, 2018
2017 2018 2017 Revenues Rental
income $ 23,920 $ 27,747 $ 75,744 $ 79,308 Escalation income 4,283
5,641 15,186 16,360 Interest income 708 704 2,143 1,001 Other
income 76 171 497 708 Total revenues
28,987 34,263 93,570 97,377
Expenses Properties - operating expenses 5,690 7,519 19,422
22,521 Interest expense 5,318 6,536 17,280 19,641 Transaction costs
1,129 332 1,986 1,565 Management fee, related party 4,011 3,585
12,391 10,716 Other expenses 1,150 1,996 3,847 6,604 General and
administrative expenses 1,952 1,723 5,631 5,875 Compensation
expense(1) 1,741 2,839 3,292 20,094 Depreciation and amortization
11,013 14,396 34,640 39,479 Total
expenses 32,004 38,926 98,489 126,495
Other income (loss) Other gain (loss), net 627 (3,510 ) (15
) (10,833 ) Realized gain on sales, net 2,706 1,719
42,020 7,397
Income (loss) before income tax
benefit (expense) 316 (6,454 ) 37,086 (32,554 ) Income tax
benefit (expense) 240 (352 ) 277 (316 )
Net income
(loss) 556 (6,806 ) 37,363 (32,870 ) Net (income)
loss attributable to noncontrolling interests (4 ) 36 (225 )
303
Net income (loss) attributable to NorthStar Realty
Europe Corp. common stockholders $ 552 $ (6,770 ) $
37,138 $ (32,567 )
Earnings (loss) per share: Basic $
0.01 $ (0.12 ) $ 0.70 $ (0.59 ) Diluted $ 0.01
$ (0.12 ) $ 0.68 $ (0.59 )
Weighted average number of
shares: Basic 49,991,303 55,155,440 52,125,685
55,004,888 Diluted 51,983,064 55,602,078
53,960,553 55,565,341 (1) For
the nine months ended September 30, 2018, compensation expense
includes the effects of the adoption of the accounting standard
update related to stock compensation accounting (ASU 2018-07).
Compensation expense for the three and nine months ended September
30, 2018 and 2017 is comprised of equity-based compensation
expenses. For the nine months ended September 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 the Manager (the "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 on sales, net, 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, noncontrolling
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; other gain (loss), net (excluding any realized gain
(loss) on the settlement on foreign currency derivatives); realized
gain on sales, net; 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 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.
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
nine months ended September 30, 2018 and 2017 (dollars in
thousands):
Three Months Ended September
30,
Nine Months Ended September
30,
2018 2017 2018 2017 Net
income (loss) attributable to common stockholders $ 552 $ (6,770 )
$ 37,138 $ (32,567 ) Non-controlling interests 4 (36 ) 225 (303 )
Adjustments:
Depreciation and amortization items(1)(2) 13,719 17,096 40,914
61,656 Other (gain) loss, net(3)(4) (1,110 ) 3,742 (2,895 ) 12,521
Realized (gain) on sales, net (2,706 ) (1,719 ) (42,020 ) (7,397 )
Transaction costs and other(5)(6) 1,068 438 2,396
2,480
CAD $ 11,527
$ 12,751 $ 35,758
$ 36,390 CAD per share(7)
$ 0.23 $ 0.23 $
0.68 $ 0.65
_________________ (1) Three months ended September 30, 2018
reflects an adjustment to exclude depreciation and amortization of
$11.0 million, amortization expense of capitalized above/below
market leases of $0.2 million, amortization of deferred financing
costs of $0.8 million and amortization of equity-based compensation
of $1.7 million. Three months ended September 30, 2017 reflects an
adjustment to exclude depreciation and amortization of $14.4
million, amortization of above/below market leases of $(0.8)
million, amortization of deferred financing costs of $0.7 million
and amortization of equity-based compensation of $2.8 million. (2)
Nine months ended September 30, 2018 reflects an adjustment to
exclude depreciation and amortization of $34.6 million,
amortization expense of capitalized above/below market leases of
$0.6 million, amortization of deferred financing costs of $2.4
million and amortization of equity-based compensation of $3.3
million. Nine months ended September 30, 2017 reflects an
adjustment to exclude depreciation and amortization of $39.5
million, amortization expense of capitalized above/below market
leases of $(0.3) million, amortization of deferred financing costs
of $2.3 million and amortization of equity-based compensation of
$20.1 million. (3) Three months ended September 30, 2018 CAD
includes a $0.5 million net loss related to the settlement of
foreign currency derivatives. Three months ended September 30, 2017
CAD includes a $0.2 million net gain related to the settlement of
foreign currency derivatives. (4) Nine months ended September 30,
2018 CAD includes a $2.9 million net loss related to the settlement
of foreign currency derivatives. Nine months ended September 30,
2017 CAD includes a $1.7 million net gain related to the settlement
of foreign currency derivatives. (5) Three months ended September
30, 2018 reflects an adjustment to exclude $1.1 million of
transaction costs. Three months ended September 30, 2017 reflects
an adjustment to exclude $0.4 million of transaction costs. (6)
Nine months ended September 30, 2018 reflects an adjustment to
exclude $2.0 million of transaction costs and $0.4 million taxes
related to sales and other one-time items. Nine months ended
September 30, 2017 reflects an adjustment to exclude $1.6 million
of transaction costs and $0.9 million of payroll taxes associated
with the acceleration of equity awards due to the Mergers. (7) CAD
per share is based on 50.8 million and 52.8 million weighted
average shares (common shares outstanding including operating
partnership units and RSUs not subject to performance hurdles) for
the three and nine months ended September 30, 2018, respectively.
Based on 55.8 million weighted average shares (common shares
outstanding, including LTIPs and RSUs not subject to performance
hurdles) for the three and nine months ended September 30, 2017.
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 results and performance metrics represent 100% for all
consolidated investments. Net operating income reflects 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 gain on sales, net 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 NOI of our real
estate equity and preferred equity segments to property and other
related revenues less property operating expenses for the three and
nine months ended September 30, 2018 and 2017 (dollars in
thousands):
Three Months Ended September 30,
Nine Months Ended September 30, 2018
2017 2018 2017 Rental income $ 23,920 $
27,747 $ 75,744 $ 79,308 Escalation income 4,283 5,641 15,186
16,360 Other income 76 171 497 708
Total property and other income 28,279 33,559 91,427
96,376 Properties - operating expenses 5,690 7,519
19,422 22,521
Adjustments:
Interest income 708 704 2,143 1,001 Amortization and other
items(1)(2) 200 (789 ) 772 (257 )
NOI(3) $ 23,497 $ 25,955 $ 74,920
$ 74,599 _____________________________ (1)
Three months ended September 30, 2018 primarily excludes
$0.2 million of amortization of above/below market leases. Three
months ended September 30, 2017 primarily excludes $(0.8) million
of amortization of above/below market leases. (2) Nine months ended
September 30, 2018 primarily excludes $0.6 million of amortization
of above/below market leases and $0.1 million of other one-time
items. Nine months ended September 30, 2017 primarily excludes
$(0.3) million of amortization of above/below market leases. (3)
The following table presents a reconciliation of net income (loss)
to NOI of our real estate equity segment for the three and nine
months ended September 30, 2018 and 2017 (dollars in thousands):
Three Months Ended September 30,
Nine Months Ended September 30, 2018
2017 2018 2017 Net income (loss)
$ 556 $ (6,806 ) $ 37,363 $ (32,870 ) Remaining segments(i) 7,525
11,023 19,405 46,735
Real estate equity
and preferred equity segment adjustments:
Interest expense 5,055 6,325 16,611 18,896 Other expenses 1,150
1,996 3,847 6,604 Depreciation and amortization 11,013 14,396
34,640 39,479 Other (gain) loss, net 109 1,049 2,994 2,199 Realized
(gain) on sales, net (2,706 ) (1,719 ) (42,020 ) (7,397 ) Income
tax (benefit) expense (240 ) 352 (277 ) 316 Other items 1,035
(661 ) 2,357 637 Total adjustments 15,416
21,738 18,152 60,734
NOI $
23,497 $ 25,955 $ 74,920 $ 74,599
_____________________________ (i) Reflects 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 23 properties and our
preferred equity segment (in case of quarter over quarter and year
over year comparison).
The following table presents our same store analysis for the
real estate equity segment which comprises 23 properties (281,636
rentable square meters) and our preferred equity segment adjusted
for currency movement and excludes properties that were acquired or
sold at any time during the three months ended September 30,
2018 and 2017 and June 30, 2018 (dollars in thousands):
Three Months EndedSeptember
30,
Year-over-yearIncrease
(Decrease)
Three Months EndedJune
30, 2018(1)
Quarter-over-quarterIncrease
(Decrease)
2018 2017(1) Amount
% Amount % Occupancy (end of period) 97
% 83 % 94 %
Same store Rental income(2) $ 23,841 $ 22,645 $
1,196 5.3 % $ 22,961 $ 880 3.8 % Escalation income $ 4,532 $ 4,258
$ 274 5,184 (652 ) Interest Income $ 708 $ 688 $ 20 692 16 Other
income 105 170 (65 ) 127 (22 )
Total revenues 29,186 27,761 1,425 5.1 % 28,964 222 0.8 %
Utilities 1,262 1,192 70 1,264 (2 ) Real estate taxes and insurance
1,280 1,166 114 1,398 (118 ) Management fees 481 438 43 531 (50 )
Repairs and maintenance 1,954 2,195 (241 ) 2,095 (141 ) Other(2)(3)
540 1,094 (554 ) 860 (320 )
Properties - operating expenses 5,517 6,085
(568 ) (9.3 )% 6,148 (631 ) (10.3 )% Same store net
operating income $ 23,669 $ 21,676 $ 1,993
9.2 % $ 22,816 $ 853 3.7 %
_____________________________ (1) Three months ended
September 30, 2017 and June 30, 2018 are translated using the
average exchange rate for the three months ended September 30,
2018. (2) Adjusted to exclude amortization of above/below market
leases and ground leases. (3) Includes non-recoverable VAT, 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 and preferred equity segments for the three months ended
September 30, 2018 and 2017 and June 30, 2018 (dollars in
thousands):
Three Months Ended September 30,
Three MonthsEndedJune,
2018
2018 2017 Net income (loss) $ 556 $ (6,806 ) $
37,875
Corporate segment net (income) loss(1) 7,525 11,023
2,352
Other (income) loss(2) 15,416 21,738 (15,795 ) Net
operating income 23,497 25,955 24,432 Sale of
real estate investments and other(3)(4) 172 (4,279 ) (1,616
) Same store net operating income $ 23,669 $ 21,676 $
22,816 _____________________________ (1)
Includes management fees, general and administrative expense,
compensation expense, corporate interest expense and corporate
transaction costs. (2)
Includes realized gain on sales offset by
depreciation and amortization expense, loss on interest rate caps,
and other expenses in the real estate equity segment.
(3) Primarily reflects the impact of net operating income of sold
assets. (4) Three months ended September 30, 2017 and June 30, 2018
are translated using the average exchange rate for the three months
ended September 30, 2018.
The following table presents our same store analysis for the
real estate equity segment which comprises 23 properties (281,636
square meters) adjusted for currency movement and excludes
properties that were acquired or sold at any time during the nine
months ended September 30, 2018 and 2017 (dollars in
thousands):
Nine Months Ended September 30,
Increase (Decrease) 2018 2017(1)
Amount % Occupancy (end of period) 97 %
83 %
Same store Rental income(2) $ 71,981 $ 69,346 $ 2,635
3.8 % Escalation income 14,548 13,027 1,521 Other income 404
457 (53 ) Total revenues 86,933 82,830 4,103 5.0 %
Utilities 3,872 4,024 (152 ) Real estate taxes and insurance 3,999
3,702 297 Management fees 1,511 1,392 119 Repairs and maintenance
6,204 6,459 (255 ) Other(2)(3) 2,253 3,922 (1,669 )
Properties - operating expenses 17,839 19,499
(1,660 ) (8.5 )% Same store net operating income $ 69,094 $
63,331 $ 5,763 9.1 %
_____________________________ (1) Nine months ended
September 30, 2017 is translated using the average exchange rate
for the nine months ended September 30, 2018. (2) Adjusted to
exclude amortization of above/below market leases and ground
leases. (3) Includes non-recoverable VAT, 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 nine months ended September 30, 2018
and 2017 (dollars in thousands):
Nine Months Ended September 30, 2018
2017 Net income (loss) $ 37,363 $ (32,870 ) Corporate
segment net (income) loss(1) 19,405 46,735 Other (income) loss(2)
18,152 60,734 Net operating income 74,920
74,599 Sale of real estate investments and other(3)(5)
(7,969 ) (12,269 ) Interest income(4) 2,143 1,001
Same store net operating income $ 69,094 $ 63,331
_____________________________ (1) Includes management
fees, general and administrative expense, compensation expense,
corporate interest expense and corporate transaction costs. (2)
Includes realized gain on sales offset by
depreciation and amortization expense, loss on interest rate caps,
and other expenses in the real estate equity segment.
(3) Primarily reflects the impact of net operating income of sold
assets. (4) Reflects interest income earned in the preferred equity
segment. (5) Nine months ended September 30, 2017 is translated
using the average exchange rate for the nine months ended September
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 on sales, net, 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; other gain (loss), net
(excluding any realized gain (loss) on the settlement on foreign
currency derivatives); realized gain on sales, net; 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 September 30, 2018, June 30, 2018 and
September 30, 2017 (dollars in thousands):
Three Months Ended September 30, 2018
June 30, 2018 September 30, 2017 Net
income (loss) attributable to common stockholders $ 552 $ 37,658 $
(6,770 ) Non-controlling interests 4 217 (36 )
Adjustments:
Depreciation and amortization items(1)(2)(3) 12,953 13,366 16,446
Income tax (benefit) expense (240 ) (76 ) 352 Interest expense
5,318 5,855 6,536 Other (gain) loss, net(4)(5)(6) (1,110 ) (3,302 )
3,742 Realized (gain) on sales, net (2,706 ) (38,117 ) (1,719 )
Transaction costs and other(7)(8)(9) 1,129 645 332
Adjusted EBITDA $ 15,900
$ 16,246 $ 18,883
__________________
(1) Three months ended September 30, 2018 reflects an
adjustment to exclude depreciation and amortization of $11.0
million, amortization expense of capitalized above/below market
leases of $0.2 million and amortization of equity-based
compensation of $1.7 million. (2) 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 $1.2 million. (3) Three months ended September 30,
2017 reflects an adjustment to exclude depreciation and
amortization of $14.4 million, amortization of above/below market
leases of $(0.8) million and amortization of equity-based
compensation of $2.8 million. (4) Three months ended September 30,
2018 Adjusted EBITDA includes a $0.5 million net loss related to
the settlement of foreign currency derivatives. (5) Three months
ended June 30, 2018 Adjusted EBITDA includes a $1.0 million net
loss related to the settlement of foreign currency derivatives. (6)
Three months ended September 30, 2017 Adjusted EBITDA includes a
$0.2 million net gain related to the settlement of foreign currency
derivatives. (7) Three months ended September 30, 2018 reflects an
adjustment to exclude $1.1 million of transaction costs. (8) 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. (9) Three months ended September 30, 2017 reflects
an adjustment to exclude $0.3 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 September 30, 2018 and June 30, 2018 (dollars
in thousands, other than per share data):
September 30, 2018 Total Equity
$ 533,031
Adjustments
Operating real estate, net intangibles and other (1,536,108 ) Fair
value of properties 2,055,243 Adjusted NAV 1,052,166
Diluted NAV, after the exercise of options, convertibles and
other equity interests 1,052,166 Fair value of financial
instruments (8,027 )
EPRA NAV 1,044,139
EPRA NAV per share(1) $ 20.85
______________ (1) Based on 50.1 million common
shares, operating partnership units and RSUs not subject to
performance hurdles outstanding as of September 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 expected run rate cost savings as a result
of operational efficiencies, the time required to achieve such run
rate cost savings; 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
1. EPRA = European Public Real Estate Association. 2. 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 adjusted for
currency movements as of September 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 $34 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 September 30, 2018 included in Part I Item
1. “Financial Statements”). 3. Excludes the preferred equity
investment. 4. Occupancy and weighted average remaining contractual
lease term based on rent roll as of September 30, 2018, on a same
store basis. 5. 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.
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version on businesswire.com: https://www.businesswire.com/news/home/20181106005475/en/
Investor RelationsFinsburyGordon Simpson, +1 855 527
8539+44 (0) 207 2513801nre@finsbury.com
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