NEW YORK, Aug. 8, 2017
/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, 2017.
Second Quarter 2017 Highlights
- U.S. GAAP (loss) to common stockholders: $(10.4) million, or $(0.19) per diluted share
- Cash available for distribution ("CAD"): $11.7 million, or $0.21 per share and net operating income ("NOI")
of $25.0 million
- Completed 35,000 square meters of leasing, representing
approximately 10% of the portfolio's rentable area
- Portfolio market value increased to $2.2
billion as of June 30,
20171
- Partnered with China Resources Land Limited to acquire 20
Gresham Street, a 22,557 square meter Class A office building in
London, U.K., investing
approximately $34 million in the form
of preferred equity
- Colony NorthStar, Inc., NRE's manager, increased its ownership
interest in NRE to approximately 9%
- Declared a cash dividend of $0.15 per share for the
second quarter 2017
Second Quarter 2017 Financial Results
During the
second quarter 2017, U.S. GAAP net (loss) attributable to common
stockholders was $(10.4) million, CAD
was $11.7 million and NOI was
$25.0 million.
For more information and a reconciliation of NOI, same store net
operating income and CAD to net income (loss) attributable to
common stockholders, please refer to the tables on the following
pages.
Mahbod Nia, Chief Executive
Officer, commented, "We are pleased to report positive operating
results in the second quarter of 2017 as we continue to execute
important leasing transactions, including leases in Maastoren and
the Trianon Tower, that we anticipate will result in long term
value creation for NRE. We expect to begin realizing the benefits
of these transactions in the upcoming quarters."
Mahbod Nia continued, "During the
second quarter, we also completed a new investment and forged an
important new relationship with China Resources Land, through the
acquisition of 20 Gresham Street."
Real Estate Portfolio Overview
$2.2 billion portfolio market value ("Portfolio
Market Value") comprising $2.1
billion real estate portfolio value based on the independent
valuation by Cushman & Wakefield LLP and the $34 million preferred equity investment.
Real Estate Portfolio Leasing Activity2
As of
June 30, 2017, adjusted for a
property sold in July 2017, NRE's
real estate portfolio included 27 properties located across five
European countries with approximately 352,000 rentable square
meters, 83% weighted average occupancy and a 5.9 year weighted
average remaining lease term to expiry ("WALT"). The core portfolio
consisted of 20 properties with 233,000 rentable square meters, 93%
weighted average occupancy and a 6.5 year WALT as of June 30, 2017.
In the second quarter 2017 through July
2017, NRE signed leases for an additional 35,000 square
meters across the portfolio comprising 11,000 square meters of new
leases and 24,000 square meters of lease renewals, together
representing approximately 10% of the portfolio rentable area.
- Proforma portfolio occupancy of 86% and core portfolio proforma
occupancy of 96%.
- Proforma portfolio WALT of 6.5 years and core portfolio
proforma WALT of 6.6 years.
Leases executed during and subsequent to the second quarter 2017
include:
- Core portfolio
-
- Trianon Tower, Frankfurt,
Germany: 10-year lease with Deutsche Bundesbank to lease
7,000 square meters across five floors, increasing occupancy in the
Trianon Tower to 98% from 87% and increasing its WALT from 7.2
years to 7.4 years. The lease commencement is staggered between
September 2017 and January 2018.
- Uhlandstrasse, Frankfurt,
Germany: 2,850 square meters lease with expected
commencement in August 2017
(currently vacant space) and August
2018 (following expiry of an existing lease), increasing
occupancy of the property to 96%.
- Valentinskamp, Hamburg,
Germany: 15 year lease with Euroeyes to lease 1,640 square
meters commenced in May 2017.
- Other
-
- Maastoren, Rotterdam,
Netherlands: 10-year lease extension with Deloitte Holding B.V. for 22,800 square meters
increasing the property's WALT from 2.5 years to 6.6 years.
Same Store Net Operating Income
In the second quarter 2017, same store sequential
quarter-over-quarter total revenue increased by $0.6 million, or 1.8%, and same store net
operating income increased by $0.4
million, or 1.5%.
Same store portfolio sequential year-over-year total revenue
increased by $1.3 million, or 4.3%,
and same store net operating income decreased by $0.3 million, or 1.0%, due to timing of certain
non-recoverable operating expenses.
Acquisitions, Dispositions and Financing
In May 2017, NRE partnered with China
Resources Land Limited ("CRL") to acquire 20 Gresham Street, a
22,557 square meter Class A office building in London, U.K., 100% occupied with a 6.8 year
WALT as of June 30, 2017. CRL is a
leading property developer in China, listed on the Hong Kong Stock Exchange
(HKSE: 1109), and this investment represents their first real
estate investment in the European market. NRE invested
approximately $34 million in the form
of preferred equity with an expected yield of 8% plus equity
participation rights.
For the three months ended June 30, 2017, NRE sold two
non-core assets for proceeds of $11.7
million, net of sales costs. Subsequent to the second
quarter 2017, NRE sold an additional non-core property located in
Spain for $9 million. Total net equity released to NRE for
the three properties was approximately $14
million.
Liquidity and Financing
In April 2017, NRE amended and restated its
revolving credit facility ("Credit Facility"), with a commitment of
$35 million and an initial two year
term. The Credit Facility no longer contains a limitation on
availability based on a borrowing base and the interest rate
remains the same. There is an accordion feature, allowing the total
facility to be increased to $70
million.
As of August 3, 2017, total
liquidity was $90 million comprising
$63 million of unrestricted cash and
$27 million of availability under the
Credit Facility.
As of June 30, 2017, leverage was
56% based on the Portfolio Market Value, down from 57% as of
March 31, 2017.
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
June 30, 2017.
As of June 30, 2017, total equity was $610 million (U.S. GAAP depreciated value), or
$10.93 per diluted share.
EPRA3 net asset value, or EPRA NAV, of $17.29 per diluted share as of June 30,
2017, based on the Portfolio Market Value compared to $16.04 per share as of March 31, 2017. For more information and a
reconciliation of EPRA NAV to total equity, please refer to the
tables on the following pages.
As of June 30, 2017, Colony
NorthStar, Inc., the external manager of NRE, beneficially owned
approximately 9% of NRE's total outstanding common shares.
Second Quarter Disclosure Supplement Presentation
A
second quarter 2017 disclosure supplement presentation will be
posted on NRE's website, www.nrecorp.com, which provides
additional details regarding NRE's operations and
portfolio.
Second Quarter 2017 Conference Call
NRE will conduct
a conference call to discuss the results on Tuesday, August 8, 2017 at 9:00 a.m. ET. Hosting the call will be
Mahbod Nia, Chief Executive Officer,
Keith Feldman, Chief Financial
Officer and Trevor Ross, General
Counsel.
To participate in the event by telephone, please dial +1 866 966
5335 (U.S. Toll Free), or +44 (0) 20 3003 2666 (International) or
0808 109 0700 (U.K. Toll Free),
using passcode NorthStar.
The call will also be broadcast live over the internet and can
be accessed from NRE's website at www.nrecorp.com. For those
unable to participate during the live call, a replay of the call
will be available approximately two hours after the call through
September 6, 2017 by dialling +1 866
583 1035 (U.S. Toll Free), or +44 (0) 20 8196 1998 or 0800 633 8453
(UK Toll Free), using passcode 3831876.
About NorthStar Realty Europe Corp.
NorthStar
Realty Europe Corp. is a European focused commercial real estate
company with predominately prime office properties within key
cities in Germany, the
United Kingdom and France, organized as a REIT and managed by an
affiliate of Colony NorthStar, Inc. (NYSE: CLNS), a leading global
equity REIT with an embedded investment management platform. For
more information about NorthStar Realty Europe Corp., please visit
www.nrecorp.com.
NorthStar Realty
Europe Corp.
Consolidated
Balance Sheet
($ in thousands,
except per share data)
|
|
|
June 30, 2017
(Unaudited)
|
|
December 31,
2016
|
Assets
|
|
|
|
Operating real
estate, gross
|
$
|
1,738,608
|
|
|
$
|
1,614,432
|
|
Less: accumulated
depreciation
|
(88,242)
|
|
|
(63,585)
|
|
Operating
real estate, net
|
1,650,366
|
|
|
1,550,847
|
|
Preferred equity
investment
|
34,064
|
|
|
—
|
|
Cash and cash
equivalents
|
69,256
|
|
|
66,308
|
|
Restricted
cash
|
10,654
|
|
|
10,242
|
|
Receivables, net of
allowance of $579 and $553 as of June 30, 2017 and December 31,
2016, respectively
|
6,882
|
|
|
6,015
|
|
Assets held for
sale
|
9,427
|
|
|
28,208
|
|
Derivative assets, at
fair value
|
9,839
|
|
|
13,729
|
|
Intangible assets,
net
|
149,352
|
|
|
148,403
|
|
Other assets,
net
|
25,393
|
|
|
21,640
|
|
Total
assets
|
$
|
1,965,233
|
|
|
$
|
1,845,392
|
|
Liabilities
|
|
|
|
Mortgage and other
notes payable, net
|
$
|
1,232,354
|
|
|
$
|
1,149,119
|
|
Credit
facility
|
23,000
|
|
|
—
|
|
Accounts payable and
accrued expenses
|
26,778
|
|
|
28,004
|
|
Due to related
party
|
3,544
|
|
|
4,991
|
|
Derivative
liabilities, at fair value
|
3,666
|
|
|
—
|
|
Intangible
liabilities, net
|
31,010
|
|
|
30,802
|
|
Liabilities held for
sale
|
—
|
|
|
2,041
|
|
Other
liabilities
|
33,349
|
|
|
28,918
|
|
Total
liabilities
|
1,353,701
|
|
|
1,243,875
|
|
Commitments and
contingencies
|
|
|
|
Redeemable
non-controlling interest
|
1,749
|
|
|
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 June 30, 2017 and December 31,
2016
|
—
|
|
|
—
|
|
Common stock, $0.01
par value, 1,000,000,000 shares authorized, 55,258,084 and
55,395,143 shares issued and outstanding as of June 30, 2017 and
December 31, 2016, respectively
|
553
|
|
|
554
|
|
Additional paid-in
capital
|
934,136
|
|
|
925,473
|
|
Retained earnings
(accumulated deficit)
|
(325,158)
|
|
|
(282,769)
|
|
Accumulated other
comprehensive income (loss)
|
(5,276)
|
|
|
(51,424)
|
|
Total NorthStar
Realty Europe Corp. stockholders' equity
|
604,255
|
|
|
591,834
|
|
Non-controlling
interests
|
5,528
|
|
|
8,073
|
|
Total
equity
|
609,783
|
|
|
599,907
|
|
Total liabilities,
redeemable non-controlling interest and equity
|
$
|
1,965,233
|
|
|
$
|
1,845,392
|
|
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,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Revenues
|
|
|
|
|
|
|
|
Rental
income
|
$
|
26,025
|
|
|
$
|
33,990
|
|
|
$
|
51,561
|
|
|
$
|
68,823
|
|
Escalation
income
|
5,558
|
|
|
5,908
|
|
|
10,719
|
|
|
11,998
|
|
Interest
income
|
297
|
|
|
—
|
|
|
297
|
|
|
—
|
|
Other
income
|
508
|
|
|
46
|
|
|
537
|
|
|
749
|
|
Total
revenues
|
32,388
|
|
|
39,944
|
|
|
63,114
|
|
|
81,570
|
|
Expenses
|
|
|
|
|
|
|
|
Properties -
operating expenses
|
7,680
|
|
|
8,540
|
|
|
15,002
|
|
|
17,771
|
|
Interest
expense
|
6,722
|
|
|
11,641
|
|
|
13,105
|
|
|
24,183
|
|
Transaction
costs
|
973
|
|
|
1,652
|
|
|
1,233
|
|
|
2,483
|
|
Impairment
loss
|
—
|
|
|
27,468
|
|
|
—
|
|
|
27,468
|
|
Management fee,
related party
|
3,572
|
|
|
3,500
|
|
|
7,131
|
|
|
7,000
|
|
Other
expenses
|
2,608
|
|
|
3,041
|
|
|
4,608
|
|
|
6,731
|
|
General and
administrative expenses
|
1,555
|
|
|
1,502
|
|
|
4,152
|
|
|
2,978
|
|
Compensation expense
(1)
|
1,385
|
|
|
3,766
|
|
|
17,255
|
|
|
7,034
|
|
Depreciation and
amortization
|
12,520
|
|
|
18,404
|
|
|
25,083
|
|
|
37,275
|
|
Total
expenses
|
37,015
|
|
|
79,514
|
|
|
87,569
|
|
|
132,923
|
|
Other income
(loss)
|
|
|
|
|
|
|
|
Unrealized gain
(loss) on derivatives and other
|
(7,655)
|
|
|
1,159
|
|
|
(8,596)
|
|
|
(14,594)
|
|
Realized gain (loss)
on sales and other
|
1,981
|
|
|
4,622
|
|
|
6,951
|
|
|
2,174
|
|
Income (loss)
before income tax benefit (expense)
|
(10,301)
|
|
|
(33,789)
|
|
|
(26,100)
|
|
|
(63,773)
|
|
Income tax benefit
(expense)
|
(237)
|
|
|
(520)
|
|
|
36
|
|
|
139
|
|
Net income
(loss)
|
(10,538)
|
|
|
(34,309)
|
|
|
(26,064)
|
|
|
(63,634)
|
|
Net (income) loss
attributable to non-controlling interests
|
91
|
|
|
400
|
|
|
267
|
|
|
743
|
|
Net income (loss)
attributable to NorthStar Realty Europe Corp. common
stockholders
|
$
|
(10,447)
|
|
|
$
|
(33,909)
|
|
|
$
|
(25,797)
|
|
|
$
|
(62,891)
|
|
Earnings (loss)
per share:
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.19)
|
|
|
$
|
(0.57)
|
|
|
$
|
(0.47)
|
|
|
$
|
(1.06)
|
|
Diluted
|
$
|
(0.19)
|
|
|
$
|
(0.57)
|
|
|
$
|
(0.47)
|
|
|
$
|
(1.06)
|
|
Weighted average
number of shares:
|
|
|
|
|
|
|
|
Basic
|
55,023,535
|
|
|
59,115,895
|
|
|
54,928,364
|
|
|
59,266,850
|
|
Diluted
|
55,587,897
|
|
|
59,805,545
|
|
|
55,546,668
|
|
|
59,957,559
|
|
Dividends per
share of common stock
|
$0.15
|
|
|
$0.15
|
|
|
$0.30
|
|
|
$0.30
|
|
|
|
|
|
|
|
|
(1)
|
Compensation expense
for the three and six months ended June 30, 2017 and 2016 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
the 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, 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 and
six months ended June 30, 2017 and
2016 (dollars in thousands):
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net income (loss)
attributable to common stockholders
|
$
|
(10,447)
|
|
|
$
|
(33,909)
|
|
|
$
|
(25,797)
|
|
|
$
|
(62,891)
|
|
Non-controlling
interests
|
(91)
|
|
|
(400)
|
|
|
(267)
|
|
|
(743)
|
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
Depreciation and
amortization items(1)(2)
|
14,990
|
|
|
25,134
|
|
|
44,560
|
|
|
50,434
|
|
Impairment
losses
|
—
|
|
|
27,468
|
|
|
—
|
|
|
27,468
|
|
Unrealized (gain)
loss on derivatives and other
|
7,655
|
|
|
(1,159)
|
|
|
8,596
|
|
|
14,594
|
|
Realized (gain) loss
on sales and other(3)(4)
|
(1,342)
|
|
|
(5,398)
|
|
|
(5,495)
|
|
|
(3,368)
|
|
Transaction costs and
other(5)(6)
|
973
|
|
|
1,623
|
|
|
2,148
|
|
|
2,769
|
|
CAD
|
$
|
11,738
|
|
|
$
|
13,359
|
|
|
$
|
23,745
|
|
|
$
|
28,263
|
|
CAD per
Share(7)
|
$
|
0.21
|
|
|
$
|
0.22
|
|
|
$
|
0.42
|
|
|
$
|
0.46
|
|
|
|
|
|
|
|
|
(1)
|
Three months ended
June 30, 2017 represents an adjustment to exclude depreciation
and amortization of $12.5 million, amortization expense of
capitalized 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. Three months ended
June 30, 2016 represents an adjustment to exclude depreciation
and amortization of $18.4 million, amortization of above/below
market leases of $0.9 million, amortization of deferred financing
costs of $2.0 million and amortization of equity-based compensation
of $3.8 million.
|
(2)
|
Six months ended
June 30, 2017 represents 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. Six months ended
June 30, 2016 represents an adjustment to exclude depreciation
and amortization of $37.3 million, amortization expense of
capitalized above/below market leases of $2.3 million, amortization
of deferred financing costs of $3.8 million and amortization of
equity-based compensation of $7.0 million.
|
(3)
|
Three months ended
June 30, 2017 represents an adjustment to exclude a $1.4
million net gain related to the sale of real estate, $0.1 million
loss related to the write-off of the deferred financing costs
associated with the repayment of the mortgage notes and a $0.1
million net gain related to foreign currency. CAD includes a
$0.6 million net gain related to the settlement of foreign currency
derivatives. Three months ended June 30, 2016 represents
an adjustment to exclude an $8.1 million net gain related to the
sale of real estate, $2.4 million loss related to the write-off of
the deferred financing costs associated with the repurchase of the
Senior Notes and a $0.3 million net loss related to foreign
currency. CAD includes a $0.8 million net loss related to the
settlement of foreign currency derivatives.
|
(4)
|
Six months ended June
30, 2017 represents an adjustment to exclude a $6.0 million net
gain related to the sale of real estate investment, $0.2 million
loss related to the write-off of the deferred financing costs
associated with the repayment of the mortgage notes and a $0.3
million net loss related to foreign currency. CAD includes a
$1.5 million net gain related to the settlement of foreign currency
derivatives. Six months ended June 30, 2016 represents
an adjustment to exclude a $7.8 million net gain related to the
sale of real estate, $4.3 million loss related to the write-off of
the deferred financing costs associated with the repurchase of the
Senior Notes and a $0.1 million net loss related to foreign
currency. CAD includes a $1.2 million net loss related to the
settlement of foreign currency derivatives.
|
(5)
|
Three months ended
June 30, 2017 represents an adjustment to exclude $1.0 million
of transaction costs relating to the Mergers and transaction fees
related to our preferred equity investment. Three months
ended June 30, 2016 represents an adjustment to exclude $1.6
million of transaction costs.
|
(6)
|
Six months ended
June 30, 2017 represents an adjustment to exclude $1.2 million
of transaction costs relating to the Mergers and transaction fees
related to our preferred equity investment and $0.9 million of
payroll taxes associated with the acceleration of equity awards due
to the Mergers. Six months ended June 30, 2016
represents an adjustment to exclude $2.4 million of transaction
costs and $0.3 million of other one-time items.
|
(7)
|
CAD per share is
based on 55.7 million and 55.8 million weighted average shares
(common shares outstanding including operating partnership
units and RSUs not subject to performance hurdles) for the the
three and six months ended June 30, 2017, respectively. Based on
61.4 million and 61.1 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,
2016, 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 (NOI)
We believe NOI is a useful metric of the operating performance
of our real estate portfolio in the aggregate. Portfolio
results and performance metrics represent 100% for all consolidated
investments. 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 and
six months ended June 30, 2017 and 2016 (dollars in
thousands):
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Rental
income
|
$
|
26,025
|
|
|
$
|
33,990
|
|
|
$
|
51,561
|
|
|
$
|
68,823
|
|
Escalation
income
|
5,558
|
|
|
5,908
|
|
|
10,719
|
|
|
11,998
|
|
Other
income
|
508
|
|
|
46
|
|
|
537
|
|
|
749
|
|
Total property and
other income
|
32,091
|
|
|
39,944
|
|
|
62,817
|
|
|
81,570
|
|
Properties -
operating expenses
|
7,680
|
|
|
8,540
|
|
|
15,002
|
|
|
17,771
|
|
Adjustments:
|
|
|
|
|
|
|
|
Interest
income
|
297
|
|
|
—
|
|
|
297
|
|
|
—
|
|
Amortization and
other items(1)(2)
|
253
|
|
|
1,220
|
|
|
533
|
|
|
2,651
|
|
NOI(3)
|
$
|
24,961
|
|
|
$
|
32,624
|
|
|
$
|
48,645
|
|
|
$
|
66,450
|
|
|
|
|
|
|
|
|
(1)
|
Three months ended
June 30, 2017 primarily includes $0.3 million of amortization of
above/below market leases. Three months ended June 30, 2016
primarily includes $1.1 million of amortization of above/below
market leases.
|
(2)
|
Six months ended June
30, 2017 primarily includes $0.5 million of amortization of
above/below market leases. Six months ended June 30, 2016
primarily includes $2.3 million of amortization of above/below
market lease and $0.3 million of non-recurring bad debt
expense.
|
(3)
|
The following table
presents a reconciliation of net income (loss) to NOI of our real
estate segment for the three and six months ended June 30,
2017 and 2016 (dollars in thousands):
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net income
(loss)
|
$
|
(10,538)
|
|
|
$
|
(34,309)
|
|
|
$
|
(26,064)
|
|
|
$
|
(63,634)
|
|
Remaining
segments(i)
|
13,109
|
|
|
12,041
|
|
|
35,952
|
|
|
32,229
|
|
Real estate
segment adjustments:
|
|
|
|
|
|
|
|
Interest
expense
|
6,451
|
|
|
8,691
|
|
|
12,571
|
|
|
17,117
|
|
Other
expenses
|
2,415
|
|
|
3,007
|
|
|
4,443
|
|
|
6,697
|
|
Depreciation and
amortization
|
12,520
|
|
|
18,404
|
|
|
25,083
|
|
|
37,275
|
|
Unrealized (gain)
loss on derivatives and other
|
1,293
|
|
|
3,400
|
|
|
960
|
|
|
14,385
|
|
Realized (gain) loss
on sales and other
|
(1,336)
|
|
|
(7,794)
|
|
|
(5,491)
|
|
|
(7,709)
|
|
Income tax (benefit)
expense
|
237
|
|
|
520
|
|
|
(36)
|
|
|
(139)
|
|
Impairment
losses
|
—
|
|
|
27,468
|
|
|
—
|
|
|
27,468
|
|
Other
items
|
810
|
|
|
1,196
|
|
|
1,227
|
|
|
2,761
|
|
Net (income) loss
- Real estate segment
|
22,390
|
|
|
54,892
|
|
|
38,757
|
|
|
97,855
|
|
NOI
|
$
|
24,961
|
|
|
$
|
32,624
|
|
|
$
|
48,645
|
|
|
$
|
66,450
|
|
|
|
|
|
|
|
|
(i)
|
Represents the net
(income) loss in our corporate and preferred equity segments to
reconcile to total net income (loss).
|
Same store net operating income
We believe same store net operating income 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
net operating income to be an appropriate and useful supplemental
performance measure. Same store net operating income 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 28 properties.
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
June 30, 2017 and March 31, 2017
(dollar in thousands):
|
Three Months
Ended
|
|
Increase
(Decrease)
|
|
June 30,
2017
|
|
March 31,
2017(1)
|
|
Amount
|
Percentage
|
Occupancy (end of
period)
|
83.4
|
%
|
|
82.9
|
%
|
|
|
|
Rental
income(2)
|
$
|
25,972
|
|
|
$
|
26,134
|
|
|
$
|
(162)
|
|
|
Escalation
income
|
5,489
|
|
|
5,135
|
|
|
354
|
|
|
Other
income
|
409
|
|
|
26
|
|
|
383
|
|
|
Total
revenues
|
31,870
|
|
|
31,295
|
|
|
575
|
|
1.8
|
%
|
Utilities
|
2,015
|
|
|
2,311
|
|
|
(296)
|
|
|
Real estate taxes and
insurance
|
1,477
|
|
|
1,250
|
|
|
227
|
|
|
Non-recoverable value
added tax (VAT)
|
468
|
|
|
338
|
|
|
130
|
|
|
Management
fees
|
557
|
|
|
578
|
|
|
(21)
|
|
|
Repairs and
maintenance
|
2,446
|
|
|
2,348
|
|
|
98
|
|
|
Ground
rent(2)
|
184
|
|
|
167
|
|
|
17
|
|
|
Other
|
424
|
|
|
362
|
|
|
62
|
|
|
Properties -
operating expenses
|
7,571
|
|
|
7,354
|
|
|
217
|
|
3.0
|
%
|
Same store net
operating income
|
$
|
24,299
|
|
|
$
|
23,941
|
|
|
$
|
358
|
|
1.5
|
%
|
|
|
|
|
|
|
|
(1)
|
Three months ended
March 31, 2017 is translated using the average exchange rate for
the three months ended June 30, 2017.
|
(2)
|
Adjusted to exclude
amortization of above/below market leases.
|
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, 2017 and
March 31, 2017 (dollar in
thousands):
|
Same Store
Reconciliation
|
|
|
Three Months
Ended
|
|
|
June 30,
2017
|
|
March 31,
2017
|
|
Net income
(loss)
|
$
|
(10,538)
|
|
|
$
|
(15,526)
|
|
|
Corporate segment net
(income) loss(1)
|
12,860
|
|
|
22,843
|
|
|
Interest
income(2)
|
(297)
|
|
|
—
|
|
|
Other (income)
loss(3)
|
22,736
|
|
|
17,297
|
|
|
Net operating
income
|
24,761
|
|
|
24,614
|
|
|
Sale of real estate
investments and other(4)
|
(462)
|
|
|
(436)
|
|
(5)
|
Same store net
operating income
|
$
|
24,299
|
|
|
$
|
23,941
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes management
fees, general and administrative expense, compensation expense,
corporate interest expense and corporate transaction
costs.
|
(2)
|
Represents interest
income earned in the preferred equity segment.
|
(3)
|
Includes depreciation
and amortization expense, transaction costs and other expenses in
the real estate equity segment.
|
(4)
|
Represents the impact
of assets sold during the period.
|
(5)
|
Three months ended
March 31, 2017 is translated using the average exchange rate for
the three months ended June 30, 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
June 30, 2017 and 2016 (dollar in thousands):
|
Three Months Ended
June 30,
|
|
Increase
(Decrease)
|
|
2017
|
|
2016(1)
|
|
Amount
|
Percentage
|
Occupancy (end of
period)
|
83.4
|
%
|
|
83.5
|
%
|
|
|
|
Rental
income(2)
|
$
|
25,972
|
|
|
$
|
25,885
|
|
|
$
|
87
|
|
|
Escalation
income
|
5,489
|
|
|
4,633
|
|
|
856
|
|
|
Other
income
|
409
|
|
|
31
|
|
|
378
|
|
|
Total
revenues
|
31,870
|
|
|
30,549
|
|
|
1,321
|
|
4.3
|
%
|
Utilities
|
2,015
|
|
|
1,833
|
|
|
182
|
|
|
Real estate taxes and
insurance
|
1,477
|
|
|
1,211
|
|
|
266
|
|
|
Non-recoverable value
added tax (VAT)
|
468
|
|
|
339
|
|
|
129
|
|
|
Management
fees
|
557
|
|
|
560
|
|
|
(3)
|
|
|
Repairs and
maintenance
|
2,446
|
|
|
1,834
|
|
|
612
|
|
|
Ground
rent(2)
|
184
|
|
|
167
|
|
|
17
|
|
|
Other
|
424
|
|
|
55
|
|
|
369
|
|
|
Properties -
operating expenses
|
7,571
|
|
|
5,999
|
|
|
1,572
|
|
26.2
|
%
|
Same store net
operating income
|
$
|
24,299
|
|
|
$
|
24,550
|
|
|
$
|
(251)
|
|
(1.0)
|
%
|
|
|
|
|
|
|
|
(1)
|
Three months ended
June 30, 2016 is translated using the average exchange rate for the
three months ended June 30, 2017.
|
(2)
|
Adjusted to exclude
amortization of above/below market leases.
|
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, 2017 and
2016 (dollar in thousands):
|
Same Store
Reconciliation
|
|
|
Three Months Ended
June 30,
|
|
|
2017
|
|
2016(1)
|
|
Net income
(loss)
|
$
|
(10,538)
|
|
|
$
|
(34,309)
|
|
|
Corporate segment net
(income) loss(1)
|
12,860
|
|
|
12,041
|
|
|
Interest
income(2)
|
(297)
|
|
|
—
|
|
|
Impairment
losses
|
—
|
|
|
27,468
|
|
|
Other (income)
loss(3)
|
22,736
|
|
|
27,424
|
|
|
Net operating
income
|
24,761
|
|
|
32,624
|
|
|
Sale of real estate
investments and other(4)
|
(462)
|
|
|
(8,074)
|
|
(5)
|
Same store net
operating income
|
$
|
24,299
|
|
|
$
|
24,550
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes management
fees, general and administrative expense, compensation expense,
corporate interest expense and corporate transaction
costs.
|
(2)
|
Represents interest
income earned in the preferred equity segment.
|
(3)
|
Includes depreciation
and amortization expense, transaction costs and other expenses in
the real estate equity segment.
|
(4)
|
Represents the impact
of assets sold during the period.
|
(5)
|
Three months ended
June 30, 2016 is translated using the average exchange rate for the
three months ended June 30, 2017.
|
EPRA Net Asset Value (EPRA NAV)
We believe that disclosing EPRA NAV, a non-GAAP measure used by
other European real estate companies, helps stockholders compare
NRE's balance sheet to other European real estate companies;
however, EPRA NAV should not be considered as an alternative to net
assets determined in accordance with U.S. GAAP as a measure of
NRE's asset values. As NRE's entire portfolio is based in
Europe, NRE calculates EPRA NAV to
compare its balance sheet to other European real estate companies
and believes that disclosing EPRA NAV provides investors with a
meaningful measure of NRE's net asset value. We calculate EPRA
NAV based on the EPRA best practices recommendations. EPRA NAV
makes adjustments to net assets as determined in accordance with
U.S. GAAP in order to provide stockholders a measure of fair value
of the company's assets and liabilities with a long-term investment
strategy. This performance measure excludes assets and liabilities
that are not expected to be realized in normal circumstances. EPRA
NAV includes the revaluation of investment properties and excludes
the fair value of financial instruments that NRE intends to hold to
maturity, deferred tax and goodwill that resulted from deferred
tax. All other assets, including real property and investments
reported at cost are adjusted to fair value based on periodic
appraisals. This measure should not be considered as an alternative
to measuring NRE's net assets in accordance with U.S. GAAP.
The following table presents a reconciliation of EPRA NAV to
total equity as at June 30, 2017 (dollars in thousands, other
than per share data):
Total
equity
|
$
|
609,783
|
|
Adjustments
|
|
Revaluation of real
estate properties
|
363,607
|
|
IFRS NAV
|
973,390
|
|
|
|
Diluted NAV, after
the exercise of options, convertibles
and other equity interests
|
973,390
|
|
Fair value of
financial instruments
|
(8,674)
|
|
EPRA NAV
|
964,715
|
|
Total equity per
diluted share(1)
|
10.93
|
|
EPRA NAV per
diluted share(1)
|
$
|
17.29
|
|
|
|
|
|
|
|
|
(1)
|
Based on 55.8 million
common shares, operating partnership units and RSUs not subject to
performance hurdles outstanding as of June 30, 2017. EPRA NAV
per share and total equity 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 expected use
of proceeds from the sale of any non-strategic or other properties;
the expected yield on preferred equity investment;the expected
impact on valuation as a result of recent leasing activity; the
expected increase in occupancy rates and weighted average lease
term due to recent leases; anticipated rental growth as a result of
expected inflation; anticipated run-rate operating expenses; the
extent to which NRE's portfolio will be impacted by geopolitical
uncertainty across Europe and
whether Europe's macro economic
fundamentals will result in continued expansion in the region; the
ability to execute on NRE's strategy; whether properties currently
being evaluated for sale or under contract will ultimately sell and
if any such sales occur whether they will be consummated at prices
expected; NRE's ability to maintain dividend payments, at current
levels, or at all; and NRE's ability to generate stable and
recurring income streams with the potential for capital growth over
time. Forward looking statements are necessarily speculative in
nature, and it can be expected that some or all of the assumptions
underlying any forward-looking statements will not materialize or
will vary significantly from actual results. Variations of
assumptions and results may be material. Factors that could cause
actual results to differ materially
from NRE's expectations include, but are not limited
to, NRE's liquidity and financial
flexibility; NRE's future cash available for
distribution; the pace and result of any asset disposals
contemplated by NRE; NRE's use of leverage; and the
anticipated strength and growth of NRE's business.
Factors that could cause actual results to differ materially from
those in the forward looking statements are specified
in NRE's annual report on Form 10-K for the year ended
December 31, 2016, and its other
filings with the Securities and Exchange Commission. Such
forward looking statements speak only as of the date of this press
release. NRE expressly disclaims any obligation to
release publicly any updates or revisions to any forward looking
statements contained herein to reflect any change in its
expectations with regard thereto or change in events, conditions or
circumstances on which any statement is based.
Disclaimer
As an opinion, 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 $2.2 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
quarter ended June 30, 2017 included
in Part I Item 1. "Financial Statements".
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, 2017.
- Excludes preferred equity investment.
Occupancy and weighted average remaining contractual lease term
based on rent roll as of June 30,
2017.
FX rates used as of June 30, 2017: EUR/USD = 1.142, GBP/USD =
1.300.
Core portfolio comprises primarily office properties in key cities
within Germany, the United Kingdom and France.
Proforma occupancy and weighted average remaining contractual lease
term based on rent roll as of June 30,
2017, adjusted for new leases signed, but commencing through
remainder of 2017 and early 2018.
- EPRA = European Public Real Estate Association.
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SOURCE NorthStar Realty Europe Corp.