Highlights
- U.S. GAAP net (loss) to common stockholders:
$(6.8) million , or$(0.12) per diluted share - Cash available for distribution ("CAD"):
$12.8 million , or$0.23 per share - Implementation of operational efficiencies underway and expected to result in run rate annual cash expense savings of approximately
$4-5 million by the end of 2018 ($0.07 - $0.09 per share) $1.4 million ($0.03 per share) of annual cash saving from an amendment to a$562 million senior mortgage loan- 47,000 square meters of new leases or lease renewals signed year to date (14% of the portfolio), expected to add approximately
$2.3 million per annum to same store NOI next year - Declared a cash dividend of $0.15 per share for the third quarter 2017
- Amended the terms of NRE's management agreement with an affiliate of
Colony NorthStar, Inc. , effectiveJanuary 1, 2018 , creating further alignment with NRE stockholders by bringing the fee structure, term and termination more in line with customary market standards
Third Quarter 2017 Financial Results
During the third quarter 2017, U.S. GAAP net (loss) attributable to common stockholders was
Real Estate Portfolio Overview
Real Estate Portfolio Leasing Activity2
As of
Year to date, NRE has signed 47,000 square meters (14% of the portfolio) of new leases or lease renewals, of which 35,000 square meters were executed in the third quarter, and are expected to add approximately
- Proforma portfolio occupancy of 88% and core portfolio proforma occupancy of 97%
- Proforma portfolio and core portfolio WALT of 6.6 years
Same Store Net Operating Income
In the third quarter 2017, same store sequential quarter-over-quarter total revenue decreased by
Same store portfolio year-over-year total revenue for the three months ended
Acquisitions and Dispositions
For the three months ended September 30, 2017, NRE sold two non-core properties
Cash Expense Savings
Management has commenced implementation of cost saving initiatives that are expected to result in approximately
Liquidity and Financing
As of
As of
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 September 30, 2017.
As of September 30, 2017, total equity was
Amended and Restated Management Agreement and Ownership Waiver
On
The table below illustrates some of the key terms of the Amended Management Agreement. Please see NRE's Quarterly Report on Form 10-Q and the exhibits thereto for additional details relating to the terms of the Amended Management Agreement and for a copy of the Amended Management Agreement.
Key Terms |
|
Initial Term and Renewal |
· Initial 5-year term and subsequent 3-year term renewals unless terminated by either party |
Termination |
· During the initial 5-year term, only for certain "cause" events. Thereafter, NRE may elect to terminate without cause at the end of each term · Following the initial term, NRE may also terminate at any time upon a Change of Control (as defined) of NRE |
Termination Payment |
· 3.0x LTM Base Management Fee at the end of each term if terminated by NRE or upon a Change of Control |
Base Management Fee |
· 1.5% per annum of EPRA NAV (as defined) amounts up to $2.0 billion plus 1.25% of EPRA NAV amounts above $2.0 billion, based on the prior quarter EPRA NAV · The fee is variable (upwards and downwards) |
Incentive Fee |
· 20% of the excess of the Total Stockholder Return (as defined, and subject to a high water mark established when an incentive is realized) over a cumulative 10% annual hurdle rate · The first measurement period for the incentive fee will begin on January 1, 2018 |
Consideration |
· Base Management is payable quarterly in cash but the Incentive Fee is payable, at NRE's election, in cash, restricted shares of common stock or unrestricted shares of common stock or combination thereof · If payment is made in common stock, shares are valued at the higher of Market Price (as defined) and EPRA NAV per share (as defined), subject to a lock up with staggered releases over a 3 year term (1/3 released each year) |
Expense Reimbursements |
· NRE is responsible for its direct costs. In addition, NRE will reimburse CLNS for costs related to internalization services (as defined) subject to the following caps (per annum): · 0.15% of gross asset value (as defined) amounts up to $2.5 billion, plus · 0.125% of gross asset value amounts between $2.5 billion and $5.0 billion, plus · 0.10% of gross asset value amounts above $5.0 billion |
Equity Based Compensation |
· The aggregate annual grant amount, if any, must be approved by NRE Compensation Committee |
Under the Amended Management Agreement, beginning with NRE's 2018 annual stockholders' meeting, the Manager will have the right to nominate one director (who is expected to be one of NRE's current directors employed by the Manager) to NRE's board of directors.
In addition, NRE provided CLNS with an ownership waiver under NRE's charter, which allows CLNS to purchase up to 45% of NRE's common stock subject to certain voting restrictions. In connection with the waiver, CLNS agreed that for all matters submitted to a vote of NRE's stockholders, to the extent CLNS owns more than 25% of NRE's common stock, it will vote the excess shares in the same proportion that the remaining NRE shares not owned by CLNS are voted. Please see NRE's Quarterly Report on Form 10-Q and the exhibits thereto for additional details relating to the terms of the ownership waiver.
Appointment of Chairman and Election of
On
Additionally, on
Third Quarter Disclosure Supplement Presentation
A third quarter 2017 disclosure supplement presentation will be posted on NRE's website, www.nrecorp.com, which provides additional details regarding NRE's operations and portfolio.
Third Quarter 2017 Conference Call
NRE will conduct a conference call to discuss the results on
To participate in the event by telephone, please dial +1 866 966 5335 (U.S. Toll Free), or +44 (0) 20 3003 2666 (International) or 0808 109 0700 (
The call will also be broadcast live over the internet and can be accessed from NRE's website at www.nrecorp.com. For those unable to participate during the live call, a replay of the call will be available approximately two hours after the call through
About NorthStar Realty Europe Corp.
Investor Relations
Finsbury
+1 855 527 8539 or +44 (0) 207 2513801
nre@finsbury.com
NorthStar Realty Europe Corp. |
|||||||
Consolidated Balance Sheet |
|||||||
($ in thousands, except per share data) |
|||||||
(Unaudited) |
|||||||
September 30, |
December 31, |
||||||
Assets |
|||||||
Operating real estate, gross |
$ |
1,751,141 |
$ |
1,614,432 |
|||
Less: accumulated depreciation |
(96,805) |
(63,585) |
|||||
Operating real estate, net |
1,654,336 |
1,550,847 |
|||||
Preferred equity investments |
49,728 |
— |
|||||
Cash and cash equivalents |
35,086 |
66,308 |
|||||
Restricted cash |
8,516 |
10,242 |
|||||
Receivables, net of allowance of $611 and $553 |
8,114 |
6,015 |
|||||
Assets held for sale |
76,141 |
28,208 |
|||||
Derivative assets, at fair value |
8,054 |
13,729 |
|||||
Intangible assets, net |
123,141 |
148,403 |
|||||
Other assets, net |
26,117 |
21,640 |
|||||
Total assets |
$ |
1,989,233 |
$ |
1,845,392 |
|||
Liabilities |
|||||||
Mortgage and other notes payable, net |
$ |
1,272,758 |
$ |
1,149,119 |
|||
Accounts payable and accrued expenses |
25,318 |
28,004 |
|||||
Due to related party |
3,483 |
4,991 |
|||||
Derivative liabilities, at fair value |
5,547 |
— |
|||||
Intangible liabilities, net |
29,911 |
30,802 |
|||||
Liabilities held for sale |
2,453 |
2,041 |
|||||
Other liabilities |
29,996 |
28,918 |
|||||
Total liabilities |
1,369,466 |
1,243,875 |
|||||
Commitments and contingencies |
|||||||
Redeemable non-controlling interest |
1,809 |
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 September 30, 2017 and December 31, 2016 |
— |
— |
|||||
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 55,313,294 and 55,395,143 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively |
554 |
554 |
|||||
Additional paid-in capital |
937,195 |
925,473 |
|||||
Retained earnings (accumulated deficit) |
(340,198) |
(282,769) |
|||||
Accumulated other comprehensive income (loss) |
15,281 |
(51,424) |
|||||
Total NorthStar Realty Europe Corp. stockholders' equity |
612,832 |
591,834 |
|||||
Non-controlling interests |
5,126 |
8,073 |
|||||
Total equity |
617,958 |
599,907 |
|||||
Total liabilities, redeemable non-controlling interest and equity |
$ |
1,989,233 |
$ |
1,845,392 |
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, |
||||||||||||||
2017 |
2016 |
2017 |
2016 |
||||||||||||
Revenues |
|||||||||||||||
Rental income |
$ |
27,747 |
$ |
29,798 |
$ |
79,308 |
$ |
98,622 |
|||||||
Escalation income |
5,641 |
7,828 |
16,360 |
19,825 |
|||||||||||
Interest income |
704 |
— |
1,001 |
— |
|||||||||||
Other income |
171 |
149 |
708 |
899 |
|||||||||||
Total revenues |
34,263 |
37,775 |
97,377 |
119,346 |
|||||||||||
Expenses |
|||||||||||||||
Properties - operating expenses |
7,519 |
9,493 |
22,521 |
27,263 |
|||||||||||
Interest expense |
6,536 |
9,301 |
19,641 |
33,484 |
|||||||||||
Transaction costs |
332 |
150 |
1,565 |
2,633 |
|||||||||||
Impairment losses |
— |
— |
— |
27,468 |
|||||||||||
Management fee, related party |
3,585 |
3,548 |
10,716 |
10,548 |
|||||||||||
Other expenses |
1,996 |
2,848 |
6,604 |
9,579 |
|||||||||||
General and administrative expenses |
1,723 |
2,199 |
5,875 |
5,181 |
|||||||||||
Compensation expense (1) |
2,839 |
5,194 |
20,094 |
12,225 |
|||||||||||
Depreciation and amortization |
14,396 |
13,989 |
39,479 |
51,264 |
|||||||||||
Total expenses |
38,926 |
46,722 |
126,495 |
179,645 |
|||||||||||
Other income (loss) |
|||||||||||||||
Unrealized gain (loss) on derivatives and other |
(3,472) |
(4,982) |
(12,068) |
(19,775) |
|||||||||||
Realized gain (loss) on sales and other |
1,681 |
3,814 |
8,632 |
6,188 |
|||||||||||
Income (loss) before income tax benefit (expense) |
(6,454) |
(10,115) |
(32,554) |
(73,886) |
|||||||||||
Income tax benefit (expense) |
(352) |
(2,655) |
(316) |
(2,515) |
|||||||||||
Net income (loss) |
(6,806) |
(12,770) |
(32,870) |
(76,401) |
|||||||||||
Net (income) loss attributable to non-controlling interests |
36 |
49 |
303 |
792 |
|||||||||||
Net income (loss) attributable |
$ |
(6,770) |
$ |
(12,721) |
$ |
(32,567) |
$ |
(75,609) |
|||||||
Earnings (loss) per share: |
|||||||||||||||
Basic |
$ |
(0.12) |
$ |
(0.22) |
$ |
(0.59) |
$ |
(1.28) |
|||||||
Diluted |
$ |
(0.12) |
$ |
(0.22) |
$ |
(0.59) |
$ |
(1.28) |
|||||||
Weighted average number of shares: |
|||||||||||||||
Basic |
55,155,440 |
58,239,941 |
55,004,888 |
58,923,027 |
|||||||||||
Diluted |
55,602,078 |
58,928,421 |
55,565,341 |
59,612,985 |
|||||||||||
Dividends per share of common stock |
$0.15 |
$0.15 |
$0.45 |
$0.45 |
|||||||||||
(1) Compensation expense for the three and nine months ended September 30, 2017 and 2016 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 NRE's 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, 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
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 nine months ended September 30, 2017 (dollars in thousands):
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||||
2017 |
2016 |
2017 |
2016 |
||||||||||||
Net income (loss) attributable to common stockholders |
$ |
(6,770) |
$ |
(12,721) |
$ |
(32,567) |
$ |
(75,609) |
|||||||
Non-controlling interests |
(36) |
(49) |
(303) |
(792) |
|||||||||||
Adjustments: |
|||||||||||||||
Depreciation and amortization items(1)(2) |
17,096 |
20,870 |
61,656 |
71,300 |
|||||||||||
Impairment losses |
— |
— |
— |
27,468 |
|||||||||||
Unrealized (gain) loss on derivatives and other |
3,472 |
4,982 |
12,068 |
19,775 |
|||||||||||
Realized (gain) loss on sales and other(3)(4) |
(1,449) |
(3,714) |
(6,944) |
(7,283) |
|||||||||||
Transaction costs and other(5)(6) |
438 |
4,564 |
2,480 |
7,333 |
|||||||||||
CAD |
$ |
12,751 |
$ |
13,932 |
$ |
36,390 |
$ |
42,192 |
|||||||
CAD per Share(7) |
$ |
0.23 |
$ |
0.23 |
$ |
0.65 |
$ |
0.69 |
|||||||
(1) Three months ended September 30, 2017 represents an adjustment to exclude depreciation and amortization of $(14.4) million, amortization expense of capitalized 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. Three months ended September 30, 2016 represents an adjustment to exclude depreciation and amortization of $(14.0) million, amortization of above/below market leases of $0.1 million, amortization of deferred financing costs of $(1.8) million and amortization of equity-based compensation of $(5.2) million. |
|||||||||||||||
(2) Nine months ended September 30, 2017 represents 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. Nine months ended September 30, 2016 represents an adjustment to exclude depreciation and amortization of $(51.3) million, amortization expense of capitalized above/below market leases of $(2.2) million, amortization of deferred financing costs of $(5.5) million and amortization of equity-based compensation of $(12.2) million. |
|||||||||||||||
(3) Three months ended September 30, 2017 CAD includes a $0.2 million net gain related to the settlement of foreign currency derivatives. Three months ended September 30, 2016 CAD includes a $0.1 million net gain related to the settlement of foreign currency derivatives. |
|||||||||||||||
(4) Nine months ended September 30, 2017 CAD includes a $1.7 million net gain related to the settlement of foreign currency derivatives. Nine months ended September 30, 2016 CAD includes a $(1.1) million net loss related to the settlement of foreign currency derivatives. |
|||||||||||||||
(5) Three months ended September 30, 2017 represents an adjustment to exclude $(0.3) million of transaction costs and $(0.1) million of taxes associated with the capital gain tax on the sale of real estate investments. Three months ended September 30, 2016 represents an adjustment to exclude $(0.3) million of transaction costs and $(4.3) million of taxes associated with the capital gain tax on the sale of real estate investments. |
|||||||||||||||
(6) Nine months ended September 30, 2017 represents an adjustment to exclude $(1.6) 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. Nine months ended September 30, 2016 represents an adjustment to exclude $(3.0) million of transaction costs and $(4.3) million of taxes associated with the capital gain tax on the sale of real estate investments. |
|||||||||||||||
(7) CAD per share is based on 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 nine months ended September 30, 2017, respectively. Based on 60.5 million weighted average shares (common shares outstanding, including LTIPs and RSUs not subject to performance hurdles) for the three months ended September 30, 2016 and 61.0 million weighted average shares (common shares outstanding, including LTIPs and RSUs not subject to performance hurdles) for the nine months ended September 30, 2016. |
|||||||||||||||
(8) 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 nine months ended September 30, 2017 and 2016 (dollars in thousands):
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||||
2017 |
2016 |
2017 |
2016 |
||||||||||||
Rental income |
$ |
27,747 |
$ |
29,798 |
$ |
79,308 |
$ |
98,622 |
|||||||
Escalation income |
5,641 |
7,828 |
16,360 |
19,825 |
|||||||||||
Other income |
171 |
149 |
708 |
899 |
|||||||||||
Total property and other income |
33,559 |
37,775 |
96,376 |
119,346 |
|||||||||||
Properties - operating expenses |
7,519 |
9,493 |
22,521 |
27,263 |
|||||||||||
Adjustments: |
|||||||||||||||
Interest income |
704 |
— |
1,001 |
— |
|||||||||||
Amortization and other items(1)(2) |
(789) |
166 |
(257) |
2,815 |
|||||||||||
NOI(3) |
$ |
25,955 |
$ |
28,448 |
$ |
74,599 |
$ |
94,898 |
|||||||
(1) Three months ended September 30, 2017 primarily includes $0.8 million of amortization of above/below market leases. Three months ended September 30, 2016 primarily includes $(0.1) million of amortization of above/below market leases. |
|||||||||||||||
(2) Nine months ended September 30, 2017 primarily includes $0.3 million of amortization of above/below market leases. Nine months ended September 30, 2016 primarily includes $(2.2) million of amortization of above/below market lease and $(0.6) 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 nine months ended September 30, 2017 and 2016 (dollars in thousands): |
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||||
2017 |
2016 |
2017 |
2016 |
||||||||||||
Net income (loss) |
$ |
(6,806) |
$ |
(12,770) |
$ |
(32,870) |
$ |
(76,401) |
|||||||
Remaining segments(i) |
10,319 |
13,935 |
46,272 |
46,174 |
|||||||||||
Real estate segment adjustments: |
|||||||||||||||
Interest expense |
6,325 |
7,132 |
18,896 |
24,249 |
|||||||||||
Other expenses |
1,974 |
2,850 |
6,389 |
9,547 |
|||||||||||
Depreciation and amortization |
14,396 |
13,989 |
39,479 |
51,264 |
|||||||||||
Unrealized (gain) loss on derivatives and other |
951 |
4,330 |
1,912 |
18,715 |
|||||||||||
Realized (gain) loss on sales and other |
(1,621) |
(3,691) |
(7,116) |
(10,841) |
|||||||||||
Income tax (benefit) expense |
352 |
2,655 |
316 |
2,515 |
|||||||||||
Impairment losses |
— |
— |
— |
27,468 |
|||||||||||
Other items |
65 |
18 |
1,321 |
2,208 |
|||||||||||
Net (income) loss - Real estate segment |
22,442 |
27,283 |
61,197 |
125,125 |
|||||||||||
NOI |
$ |
25,955 |
$ |
28,448 |
$ |
74,599 |
$ |
94,898 |
|||||||
(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 26 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
Three Months Ended |
Increase (Decrease) |
||||||||||||
September 30, 2017 |
June 30, 2017(1) |
Amount |
Percentage |
||||||||||
Occupancy (end of period) |
85.5 |
% |
84.7 |
% |
|||||||||
Core Portfolio Occupancy (end of period) |
93.9 |
% |
92.7 |
% |
|||||||||
Rental income(2) |
$ |
26,799 |
$ |
27,231 |
$ |
(432) |
|||||||
Escalation income |
5,526 |
5,728 |
(202) |
||||||||||
Other income |
187 |
423 |
(236) |
||||||||||
Total revenues |
32,512 |
33,382 |
(870) |
(2.6) |
% |
||||||||
Utilities |
1,892 |
2,108 |
(216) |
||||||||||
Real estate taxes and insurance |
1,337 |
1,549 |
(212) |
||||||||||
Non-recoverable value added tax (VAT) |
536 |
499 |
37 |
||||||||||
Management fees |
589 |
580 |
9 |
||||||||||
Repairs and maintenance |
2,446 |
2,543 |
(97) |
||||||||||
Ground rent(2) |
193 |
197 |
(4) |
||||||||||
Other |
332 |
327 |
5 |
||||||||||
Properties - operating expenses |
7,325 |
7,803 |
(478) |
(6.1)% |
|||||||||
Same store net operating income |
$ |
25,187 |
$ |
25,579 |
$ |
(392) |
(1.5)% |
||||||
Core Portfolio Same Store NOI |
$ |
22,235 |
$ |
21,991 |
$ |
244 |
1.1 |
% |
|||||
(1) Three months ended June 30, 2017 is translated using the average exchange rate for the three months ended September 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 September 30, 2017 and
Same Store Reconciliation |
||||||||
Three Months Ended |
||||||||
September 30, 2017 |
June 30, 2017 |
|||||||
Net income (loss) |
$ |
(6,806) |
$ |
(10,538) |
||||
Corporate segment net (income) loss(1) |
11,023 |
12,860 |
||||||
Other (income) loss(3) |
22,442 |
22,936 |
||||||
Net operating income |
25,955 |
24,961 |
||||||
Sale of real estate investments and other(4) |
(64) |
915 |
(5) |
|||||
Interest income(2) |
(704) |
(297) |
||||||
Same store net operating income |
$ |
25,187 |
$ |
25,579 |
||||
(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, 2017 is translated using the average exchange rate for the three months ended September 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 September 30, 2017 and 2016 (dollar in thousands):
Three Months Ended September 30, |
Increase (Decrease) |
||||||||||||
2017 |
2016(1) |
Amount |
Percentage |
||||||||||
Occupancy (end of period) |
85.5 |
% |
86.0 |
% |
|||||||||
Core Portfolio Occupancy (end of period) |
93.9 |
% |
94.7 |
% |
|||||||||
Rental income(2) |
$ |
26,799 |
$ |
27,977 |
$ |
(1,178) |
|||||||
Escalation income |
5,526 |
6,200 |
(674) |
||||||||||
Other income |
187 |
128 |
59 |
||||||||||
Total revenues |
32,512 |
34,305 |
(1,793) |
(5.2)% |
|||||||||
Utilities |
1,892 |
2,063 |
(171) |
||||||||||
Real estate taxes and insurance |
1,337 |
1,236 |
101 |
||||||||||
Non-recoverable value added tax (VAT) |
536 |
478 |
58 |
||||||||||
Management fees |
589 |
435 |
154 |
||||||||||
Repairs and maintenance |
2,446 |
2,735 |
(289) |
||||||||||
Ground rent(2) |
193 |
177 |
16 |
||||||||||
Other |
332 |
313 |
19 |
||||||||||
Properties - operating expenses |
7,325 |
7,437 |
(112) |
(1.5)% |
|||||||||
Same store net operating income |
$ |
25,187 |
$ |
26,868 |
$ |
(1,681) |
(6.3)% |
||||||
Core Portfolio Same Store NOI |
$ |
22,235 |
$ |
23,410 |
$ |
(1,175) |
(5.0)% |
||||||
(1) Three months ended September 30, 2016 is translated using the average exchange rate for the three months ended September 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 September 30, 2017 and 2016 (dollar in thousands):
Same Store Reconciliation |
||||||||
Three Months Ended September 30, |
||||||||
2017 |
2016 |
|||||||
Net income (loss) |
$ |
(6,806) |
$ |
(12,770) |
||||
Corporate segment net (income) loss(1) |
11,023 |
13,935 |
||||||
Other (income) loss(3) |
21,738 |
27,283 |
||||||
Net operating income |
25,955 |
28,448 |
||||||
Sale of real estate investments and other(4) |
(64) |
(1,580) |
(5) |
|||||
Interest income(2) |
(704) |
— |
||||||
Same store net operating income |
$ |
25,187 |
$ |
26,868 |
||||
(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 September 30, 2016 is translated using the average exchange rate for the three months ended September 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. EPRA NAV is derived from NRE's U.S. GAAP balance sheet with adjustments reflecting NRE's interpretation of the EPRA guidance. As NRE's entire portfolio is based in
The following table presents a reconciliation of EPRA NAV to total equity as at September 30, 2017 (dollars in thousands, other than per share data):
September 30, 2017 |
|||
Total Equity |
$ |
617,958 |
|
Adjustments |
|||
Operating real estate and net intangibles |
(1,822,610) |
||
Fair value of properties |
2,204,104 |
||
Adjusted NAV |
999,452 |
||
Diluted NAV, after the exercise of options, convertibles and other equity interests |
999,452 |
||
Fair value of financial instruments |
(7,747) |
||
EPRA NAV |
991,705 |
||
EPRA NAV per diluted share |
$ |
17.77 |
|
(1) Based on 55.8 million common shares, operating partnership units and RSUs not subject to performance hurdles outstanding as of September 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 run rate cost savings as a result of operational efficiencies, the time required to achieve such run rate cost savings; the expected impact on contractual rent and same store NOI as a result of recent leasing activity; the expected increase in occupancy rates and weighted average lease term due to recent leases; expected annual saving a a result of margin reduction in the SEB portfolio senior loan agreement; anticipated run-rate operating expenses; the extent to which NRE's portfolio will be impacted by geopolitical uncertainty across
Disclaimer
As an opinion, the valuation by
Endnotes
- The
$2.2 billion portfolio market value comprises$2.2 billion real estate portfolio value based on the independent valuation byCushman & Wakefield LLP and$35 million preferred equity investment (please refer to Note 11, "Fair Value" in the NRE Quarterly Report on Form 10-Q for the quarter endedSeptember 30, 2017 included in Part I Item 1. "Financial Statements").
The external third-party valuation was prepared byCushman & Wakefield LLP in accordance with the current U.K. and Global edition of theRoyal Institution of Chartered Surveyors' (RICS) Valuation - Professional Standards (the "Red Book") on the basis of "Fair Value", which is widely recognized withinEurope 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 theInternational 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). ThisCushman & Wakefield LLP valuation is as ofJune 30, 2017 , adjusted for FX as ofSeptember 30, 2017 . - Excludes preferred equity investment.
Occupancy and weighted average remaining contractual lease term based on rent roll as ofSeptember 30, 2017 .
FX rates used as of September 30, 2017: EUR/USD = 1.1813, GBP/USD = 1.3391.
Core portfolio comprises primarily office properties in key cities withinGermany , theUnited Kingdom andFrance .
Proforma occupancy and weighted average remaining contractual lease term based on rent roll as ofSeptember 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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