NORTHSTAR REALTY - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004

COMMISSION FILE NUMBER: 001-32330

NORTHSTAR REALTY FINANCE CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)



MARYLAND				11-3707493
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)				(IRS EMPLOYER IDENTIFICATION NUMBER)

527 MADISON AVENUE, NEW YORK, NY				10022
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)				(ZIP CODE)

(212) 319-8801
(REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS) YES [X] NO[ ], AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO[ ].

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS DEFINED IN RULE 12B-2 OF THE EXCHANGE ACT).

YES [ ] NO [X].

THE COMPANY HAS ONE CLASS OF COMMON STOCK, PAR VALUE $.01 PER SHARE, WITH 21,249,736 SHARES OUTSTANDING AS OF DECEMBER 30, 2004.

NORTHSTAR REALTY FINANCE CORP. PREDECESSOR
QUARTERLY REPORT
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004

TABLE OF CONTENTS


INDEX		PAGE
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Combined Balance Sheets as of September 30, 2004 (unaudited) and December 31, 2003	4
	Combined Statements of Operations for the three and nine months ended September 30, 2004 and 2003 (unaudited)	5
	Combined Statements of Cash Flows for the nine months ended September 30, 2004 and 2003 (unaudited)	6
	Notes to the Combined Financial Statements (unaudited)	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	39
Item 4.	Controls and Procedures	41

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	44
Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	44
Item 3.	Defaults Upon Senior Securities	45
Item 4.	Submission of Matters to a Vote of Securities Holders	45
Item 5.	Other Information	45
Item 6.	Exhibits and Reports on Form 8-K	45

SIGNATURES		48

EXPLANATORY NOTE

On October 29, 2004, NorthStar Realty Finance Corp. (the "Company") completed its initial public offering and began operating as a separate company. Simultaneously with the closing of the initial public offering, an initial portfolio of assets was contributed to the Company. The financial statements for the three and nine months ended September 30, 2004 and 2003 and as of September 30, 2004 and December 31 2003 included in this report are for NorthStar Realty Finance Corp. Predecessor, a combination of certain controlling and non-controlling interests in real estate-related entities which represent the initial portfolio of assets contributed to the Company subsequent to September 30, 2004. Management does not believe that the financial statements of the Company's predecessor are necessarily indicative of the Company's future results as a separate operating company after the closing of its initial public offering.

ITEM 1. FINANCIAL STATEMENTS

NORTHSTAR REALTY FINANCE CORP. PREDECESSOR

COMBINED BALANCE SHEETS


	September 30, 2004		December 31, 2003
	(Unaudited)
Assets:
Investments in and advances to uncombined ventures:
ALGM		10,479,000	$	9,786,000
NSF Venture		6,138,000		5,751,000
Total investments in and advances to uncombined ventures		16,617,000		15,537,000
Debt securities available for sale		36,995,000		9,187,000
Collateral held by broker		12,933,000		—
Cash and cash equivalents		2,064,000		1,013,000
Receivable from affiliates		2,056,000		931,000
CDO deposit and warehouse agreements		329,000		5,967,000
Advisory and asset management fees receivable — related party		113,000		157,000
Other assets		400,000		23,000
Total assets	$	71,507,000	$	32,815,000
Liabilities:
Accrued expenses & other liabilities	$	270,000	$	322,000
Loan payable		17,517,000		—
Securities sold, not yet purchased		12,944,000		—
Unearned revenue		120,000		—
Total liabilities		30,851,000		322,000
Combined owners' equity		40,656,000		32,493,000
Total liabilities and owners' equity	$	71,507,000	$	32,815,000

See accompanying notes to combined financial statements.

NORTHSTAR REALTY FINANCE CORP. PREDECESSOR

COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)


	Three Months Ended September 30,					Nine Months Ended September 30,
	2004			2003		2004		2003
Revenues and other income:
Advisory and management fee income	$	57,000		$	28,000	$	165,000	$	28,000
Advisory and management fee income — related parties		952,000			326,000		2,134,000		463,000
Interest income — debt securities		928,000			158,000		1,491,000		158,000
Total revenues		1,937,000			512,000		3,790,000		649,000
Expenses:
Interest expense		201,000			—		201,000		—
General and administrative:
Direct:
Salaries and other compensation		238,000			647,000		838,000		990,000
Other general and administrative		46,000			5,000		147,000		163,000
Total direct expenses		485,000			652,000		1,186,000		1,153,000
Allocated:
Salaries and other compensation		1,520,000			538,000		2,764,000		1,567,000
Insurance		90,000			96,000		285,000		159,000
Other general and administrative		323,000			213,000		845,000		784,000
Total allocated expenses		1,933,000			847,000		3,894,000		2,510,000
Total expenses		2,418,000			1,499,000		5,080,000		3,663,000
Loss from operations		(481,000	)		(987,000