Attached files
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EX-32.2 - EX-32.2 - N1 Liquidating Trust | c21961exv32w2.htm |
EX-31.2 - EX-31.2 - N1 Liquidating Trust | c21961exv31w2.htm |
EX-31.1 - EX-31.1 - N1 Liquidating Trust | c21961exv31w1.htm |
EX-32.1 - EX-32.1 - N1 Liquidating Trust | c21961exv32w1.htm |
EXCEL - IDEA: XBRL DOCUMENT - N1 Liquidating Trust | Financial_Report.xls |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2011
Commission File Number: 333-157688
NORTHSTAR REAL ESTATE INCOME TRUST, INC.
(Exact Name of Registrant as Specified in its Charter)
Maryland | 26-4141646 | |
(State or Other Jurisdiction of | (IRS Employer | |
Incorporation or Organization) | Identification No.) |
399 Park Avenue, 18th Floor New York, NY 10022
(Address of Principal Executive Offices, Including Zip Code)
(Address of Principal Executive Offices, Including Zip Code)
(212) 547-2600
(Registrants Telephone Number, Including Area Code)
(Registrants Telephone Number, Including Area Code)
Indicate by the 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), and (2) has
been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the registrants classes of common stock,
as of the latest practicable date:
The Company has one class of common stock, par value $0.01 per share, 11,537,289 shares
outstanding as of November 8, 2011.
NORTHSTAR REAL ESTATE INCOME TRUST, INC.
QUARTERLY REPORT
For the Three and Nine Months Ended September 30, 2011
QUARTERLY REPORT
For the Three and Nine Months Ended September 30, 2011
TABLE OF CONTENTS
2
Table of Contents
NORTHSTAR REAL ESTATE INCOME TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(Unaudited) | ||||||||
Assets |
||||||||
Cash |
$ | 40,588,178 | $ | 20,404,832 | ||||
Restricted cash |
4,945,802 | | ||||||
Real estate securities, available for sale |
34,255,310 | 31,264,331 | ||||||
Real estate debt investments, net |
29,225,791 | | ||||||
Interest receivable |
273,784 | 128,287 | ||||||
Subscriptions receivable, net |
721,598 | 234,267 | ||||||
Deferred financing costs, net |
38,332 | 46,216 | ||||||
Other assets |
7,375 | | ||||||
Total assets |
$ | 110,056,170 | $ | 52,077,933 | ||||
Liabilities |
||||||||
Borrowings |
$ | 24,061,212 | $ | 24,061,212 | ||||
Accounts payable and accrued expenses |
1,000,300 | 255,874 | ||||||
Escrow deposits payable |
4,945,802 | | ||||||
Distribution payable |
559,507 | 208,594 | ||||||
Total liabilities |
30,566,821 | 24,525,680 | ||||||
Equity |
||||||||
NorthStar Real Estate Income Trust, Inc. Stockholders Equity |
||||||||
Preferred stock, $0.01 par value per share; 50,000,000 shares authorized, no
shares issued and outstanding at September 30, 2011 and December 31,
2010 |
| | ||||||
Common stock, $0.01 par value per share; 400,000,000 shares authorized,
9,349,865 and 3,193,414 shares issued and outstanding at September 30,
2011 and December 31, 2010, respectively |
93,498 | 31,934 | ||||||
Additional paid-in capital |
81,448,420 | 26,775,538 | ||||||
Retained (deficit) earnings |
(2,100,369 | ) | 740,547 | |||||
Accumulated other comprehensive income |
43,527 | | ||||||
Total NorthStar Real Estate Income Trust, Inc. stockholders equity |
79,485,076 | 27,548,019 | ||||||
Non-controlling interests |
4,273 | 4,234 | ||||||
Total equity |
79,489,349 | 27,552,253 | ||||||
Total liabilities and equity |
$ | 110,056,170 | $ | 52,077,933 | ||||
See accompanying notes to consolidated financial statements.
3
Table of Contents
NORTHSTAR REAL ESTATE INCOME TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenues |
||||||||||||||||
Interest income |
$ | 849,522 | $ | 413,107 | $ | 1,902,266 | $ | 1,118,356 | ||||||||
Total revenues |
849,522 | 413,107 | 1,902,266 | 1,118,356 | ||||||||||||
Expenses |
||||||||||||||||
Interest expense |
227,480 | 227,383 | 674,978 | 572,504 | ||||||||||||
Advisory fees related party |
178,296 | 13,938 | 456,912 | 37,011 | ||||||||||||
Auditing and professional fees |
54,789 | 60,227 | 144,254 | 190,650 | ||||||||||||
General and administrative expenses |
97,455 | 274,130 | 584,874 | 550,185 | ||||||||||||
Total expenses |
558,020 | 575,678 | 1,861,018 | 1,350,350 | ||||||||||||
Income (loss) from operations |
291,502 | (162,571 | ) | 41,248 | (231,994 | ) | ||||||||||
Realized gain on investments and other |
| | | 199,604 | ||||||||||||
Unrealized gains (losses) on investments and other |
(278,519 | ) | 1,109,603 | 302,793 | 2,213,850 | |||||||||||
Consolidated net income |
12,983 | 947,032 | 344,041 | 2,181,460 | ||||||||||||
Less: net income attributable to non-controlling interests |
| 132 | 35 | 421 | ||||||||||||
Net income attributable to NorthStar Real Estate Income Trust, Inc. common stockholders |
$ | 12,983 | $ | 946,900 | $ | 344,006 | $ | 2,181,039 | ||||||||
Net income per share of common stock, basic |
$ | 0.00 | $ | 0.32 | $ | 0.06 | $ | 1.33 | ||||||||
Weighted average number of shares of common
stock outstanding, basic |
7,444,451 | 2,991,261 | 5,350,793 | 1,641,038 |
See accompanying notes to consolidated financial statements.
4
Table of Contents
NORTHSTAR REAL ESTATE INCOME TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Consolidated net income |
$ | 12,983 | $ | 947,032 | $ | 344,041 | $ | 2,181,460 | ||||||||
Other comprehensive income: |
||||||||||||||||
Unrealized gain on real estate securities, available for sale |
43,531 | | 43,531 | | ||||||||||||
Total other comprehensive income |
43,531 | | 43,531 | | ||||||||||||
Comprehensive income |
56,514 | 947,032 | 387,572 | 2,181,460 | ||||||||||||
Less: |
||||||||||||||||
Net income attributable to non-controlling interests |
| 132 | 35 | 421 | ||||||||||||
Other comprehensive income attributable to
non-controlling interests |
4 | | 4 | | ||||||||||||
Comprehensive income attributable to NorthStar Real Estate
Income Trust, Inc. |
$ | 56,510 | $ | 946,900 | $ | 387,533 | $ | 2,181,039 | ||||||||
See accompanying notes to consolidated financial statements.
5
Table of Contents
NORTHSTAR REAL ESTATE INCOME TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Accumulated | ||||||||||||||||||||||||||||||||
Other | Total Companys | Total | ||||||||||||||||||||||||||||||
Common Stock | Additional | Comprehensive | Retained | Stockholders | Non-controlling | Stockholders | ||||||||||||||||||||||||||
Shares | Amount | Paid-in Capital | Income | Earnings (Deficit) | Equity | Interests | Equity | |||||||||||||||||||||||||
Balance, December 31, 2009 |
113,828 | $ | 1,138 | $ | 998,862 | $ | | $ | 680,530 | $ | 1,680,530 | $ | 3,361 | $ | 1,683,891 | |||||||||||||||||
Activity prior to the merger: |
||||||||||||||||||||||||||||||||
Proceeds from issuance of
common stock |
3,669,919 | 36,699 | 35,032,407 | | | 35,069,106 | | 35,069,106 | ||||||||||||||||||||||||
Cost of capital |
| | (3,459,410 | ) | | | (3,459,410 | ) | | (3,459,410 | ) | |||||||||||||||||||||
Stock distribution reinvestment |
7,915 | 79 | 74,262 | | | 74,341 | | 74,341 | ||||||||||||||||||||||||
Distributions declared |
| | | | (1,075,268 | ) | (1,075,268 | ) | | (1,075,268 | ) | |||||||||||||||||||||
Shares redeemed for cash |
(893,968 | ) | (8,939 | ) | (8,233,445 | ) | | | (8,242,384 | ) | | (8,242,384 | ) | |||||||||||||||||||
Balance, October 18, 2010 |
2,897,694 | $ | 28,977 | $ | 24,412,676 | $ | | $ | (394,738 | ) | $ | 24,046,915 | $ | 3,361 | $ | 24,050,276 | ||||||||||||||||
Shares of the accounting
acquiree(1) |
39,039 | 390 | 62,326 | | | 62,716 | 545 | 63,261 | ||||||||||||||||||||||||
Proceeds from issuance of
common stock |
250,467 | 2,505 | 2,493,805 | | | 2,496,310 | | 2,496,310 | ||||||||||||||||||||||||
Cost of capital |
| | (260,678 | ) | | | (260,678 | ) | | (260,678 | ) | |||||||||||||||||||||
Stock distribution reinvestment |
6,214 | 62 | 58,970 | | | 59,032 | | 59,032 | ||||||||||||||||||||||||
Distributions declared |
| | | | (494,307 | ) | (494,307 | ) | | (494,307 | ) | |||||||||||||||||||||
Amortization of equity-based
compensation |
| | 8,439 | | | 8,439 | | 8,439 | ||||||||||||||||||||||||
Net income |
| | | | 1,629,592 | 1,629,592 | 328 | 1,629,920 | ||||||||||||||||||||||||
Balance, December 31, 2010 |
3,193,414 | $ | 31,934 | $ | 26,775,538 | $ | | $ | 740,547 | $ | 27,548,019 | $ | 4,234 | $ | 27,552,253 | |||||||||||||||||
Proceeds from issuance of
common stock |
6,082,467 | 60,825 | 60,456,128 | | | 60,516,953 | | 60,516,953 | ||||||||||||||||||||||||
Cost of capital |
| | (6,437,347 | ) | | | (6,437,347 | ) | | (6,437,347 | ) | |||||||||||||||||||||
Shares redeemed for cash |
(14,748 | ) | (148 | ) | (147,332 | ) | | | (147,480 | ) | | (147,480 | ) | |||||||||||||||||||
Stock distribution reinvestment |
81,232 | 812 | 770,895 | | | 771,707 | | 771,707 | ||||||||||||||||||||||||
Distributions declared |
| | | | (3,184,922 | ) | (3,184,922 | ) | | (3,184,922 | ) | |||||||||||||||||||||
Issuance of equity-based
compensation |
7,500 | 75 | | | | 75 | | 75 | ||||||||||||||||||||||||
Amortization of equity-based
compensation |
| | 30,538 | | | 30,538 | | 30,538 | ||||||||||||||||||||||||
Other comprehensive income |
| | | 43,527 | | 43,527 | 4 | 43,531 | ||||||||||||||||||||||||
Net income |
| | | | 344,006 | 344,006 | 35 | 344,041 | ||||||||||||||||||||||||
Balance, September 30, 2011 (Unaudited) |
9,349,865 | $ | 93,498 | $ | 81,448,420 | $ | 43,527 | $ | (2,100,369 | ) | $ | 79,485,076 | $ | 4,273 | $ | 79,489,349 | ||||||||||||||||
(1) | NorthStar Real Estate Income Trust, Inc., the surviving legal entity, issued 24,039
shares for its initial capitalization and 15,000 shares to its Board of Directors prior to the merger with Northstar Income Opportunity REIT I, Inc. |
See accompanying notes to consolidated financial statements.
6
Table of Contents
NORTHSTAR REAL ESTATE INCOME TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30, | ||||||||
2011 | 2010 | |||||||
Cash flows from operating activities: |
||||||||
Consolidated net income |
$ | 344,041 | $ | 2,181,460 | ||||
Adjustments to reconcile net income to
net cash provided by (used in) operating activities: |
||||||||
Amortization of premiums, discounts and fees on investments |
64,454 | 12,147 | ||||||
Amortization of deferred financing costs |
7,884 | 6,471 | ||||||
Realized gain on investments and other |
| (199,604 | ) | |||||
Unrealized (gains) losses on investments and other |
(302,793 | ) | (2,213,850 | ) | ||||
Equity-based compensation |
30,613 | | ||||||
Origination fees on real estate debt investments |
142,500 | | ||||||
Changes in assets and liabilities: |
||||||||
Interest receivable |
(145,497 | ) | (130,951 | ) | ||||
Other assets |
(16,604 | ) | (4,962 | ) | ||||
Accounts payable and accrued expenses |
215,279 | 68,738 | ||||||
Net cash provided by (used in) operating activities |
339,877 | (280,551 | ) | |||||
Cash flows from investing activities: |
||||||||
Origination of real estate debt investments |
(29,357,400 | ) | | |||||
Acquisition of real estate securities |
(2,720,000 | ) | (29,616,265 | ) | ||||
Sale of real estate security |
| 1,852,500 | ||||||
Net cash (used in) investing activities |
(32,077,400 | ) | (27,763,765 | ) | ||||
Cash flows from financing activities: |
||||||||
Proceeds from issuance of common stock |
59,992,506 | 35,068,415 | ||||||
Proceeds from distribution reinvestment plan |
771,707 | 74,341 | ||||||
Redemption of common stock |
(147,480 | ) | | |||||
Cost of capital |
(5,861,855 | ) | (3,459,410 | ) | ||||
Distributions paid on common stock |
(2,834,009 | ) | (353,808 | ) | ||||
Borrowings under secured term loans |
| 24,089,417 | ||||||
Repayment of secured term loans |
| (28,205 | ) | |||||
Payment of deferred financing costs |
| (55,287 | ) | |||||
Net cash provided by financing activities |
51,920,869 | 55,335,463 | ||||||
Net increase in cash |
20,183,346 | 27,291,147 | ||||||
Cash, beginning of period |
20,404,832 | 55,630 | ||||||
Cash, end of period |
$ | 40,588,178 | $ | 27,346,777 | ||||
Supplemental disclosure of cash flow information: |
||||||||
Cash paid for interest |
$ | 669,526 | $ | 526,906 | ||||
Supplemental disclosure of non-cash financing activities: |
||||||||
Distribution payable |
$ | 559,507 | $ | 582,759 | ||||
Accrued cost of capital |
602,549 | | ||||||
Subscriptions receivable, gross |
795,000 | |
See accompanying notes to consolidated financial statements.
7
Table of Contents
NORTHSTAR REAL ESTATE INCOME TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Formation and Organization
NorthStar Real Estate Income Trust, Inc. (the Company) was formed on January 26, 2009, and
elected to qualify as a real estate investment trust (REIT) beginning with the taxable year ended
December 31, 2010. The Company was organized primarily to originate, acquire and manage portfolios
of commercial real estate debt, commercial real estate securities and select commercial real estate
equity investments. Commercial real estate debt investments may include first mortgage loans,
subordinate mortgage and mezzanine loans and participations in such loans. Commercial real estate
securities will primarily consist of commercial mortgage-backed securities (CMBS) and may include
unsecured REIT debt, collateralized debt obligations and other securities. The Company is
externally managed by NS Real Estate Income Trust Advisor, LLC (the Advisor) and has no
employees.
Substantially all of the Companys business is conducted through NorthStar Real Estate Income Trust
Operating Partnership, LP, the Companys operating partnership (the OP). The Company is the sole
general partner of the OP. The initial limited partners of the OP are the Advisor and NorthStar OP
Holdings, LLC (the Special Unit Holder). The Advisor invested $1,000 in the OP in exchange for
common units and the Special Unit Holder invested $1,000 in the OP and has been issued a separate
class of limited partnership units (the Special Units), which are collectively recorded as
non-controlling interests in the consolidated balance sheets as of September 30, 2011 and December
31, 2010. As the Company accepts subscriptions for shares, it will transfer substantially all of
the net proceeds from the continuous public offering to the OP as a capital contribution.
The Companys charter authorizes the issuance of up to 400,000,000 shares of common stock with a
par value of $0.01 per share, and 50,000,000 shares of preferred stock, $0.01 par value per share.
The Companys board of directors is authorized to amend its charter, without the approval of the
stockholders, to increase the aggregate number of authorized shares of capital stock or the number
of shares of any class or series that the Company has authority to issue. On February 19, 2009,
the Company was initially capitalized through the sale of 24,039 shares of common stock to NRFC
Sub-REIT Corp., a wholly-owned subsidiary of NorthStar Realty Finance Corp. (the Sponsor), for
$200,004.
On March 4, 2009, the Company filed a registration statement on Form S-11 with the Securities and
Exchange Commission (the SEC) to offer a minimum of 200,000 shares and a maximum of 110,526,315
shares of common stock in a continuous, public offering (the Offering), of which 10,526,315
shares could be offered pursuant to the Companys distribution reinvestment plan (DRP). The SEC
declared the Companys registration statement effective on July 19, 2010, and the Company retained
NorthStar Realty Securities, LLC (the Dealer Manager), formerly known as NRF Capital Markets,
LLC, and an affiliate of the Company, to serve as the dealer manager of the Offering. The Dealer
Manager is responsible for marketing the Companys shares being offered pursuant to the Offering.
As described above, the Company intends to use substantially all of the net proceeds from the
Offering to invest in a diverse portfolio of commercial real estate debt, commercial real estate
securities and select commercial real estate equity investments.
On October 18, 2010, the Company completed a merger, accounted for as a reverse merger and
recapitalization, with NorthStar Income Opportunity REIT I, Inc., (NSIO REIT) also sponsored by
the Sponsor (the Merger Transaction). The Company was considered the surviving legal entity and
NSIO REIT (the Accounting Acquirer) was considered the accounting acquirer and the surviving
accounting entity. As the surviving accounting entity, NSIO REITs financial information is
presented in these financial statements on a historical carryover basis.
2,828,552 shares of NSIO REIT, par value $0.01 per share, issued and outstanding immediately prior
to the Merger Transaction were converted into 2,897,694 shares of the Companys common stock, par
value $0.01, at a conversion rate of 1.02444444 shares of the Companys stock for every one share
of NSIO REIT stock and 893,968 shares of NSIO REIT, par value $0.01 per share, issued and
outstanding immediately prior to the Merger Transaction were converted into cash, without interest,
in an amount of $9.22 per share. All NSIO REIT stockholders who would otherwise have been entitled
to a fractional share of the Companys shares received cash in an amount equal to such fraction of
the Companys shares based on a conversion price of $9.22. The Company used $8,242,384 of the cash
received from NSIO REIT in connection with the closing of the Merger Transaction to satisfy the
Companys obligation to pay the cash consideration. On the closing date, 411 NSIO REIT
stockholders became stockholders of the Company with each of their shares of NSIO REIT common stock
being converted to unregistered shares of the Companys common stock at the ratio set forth above.
8
Table of Contents
NORTHSTAR REAL ESTATE INCOME TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
In addition, as a result of the Merger Transaction, the Company eliminated the minimum offering
requirement and terminated its escrow agreement with Wells Fargo Bank, N.A.
2. Summary of Significant Accounting Policies
Basis of Quarterly Presentation
The accompanying consolidated financial statements and related notes of the Company have been
prepared in accordance with accounting principles generally accepted in the United States (U.S.
GAAP) for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, certain information and footnote disclosures normally included in
consolidated financial statements prepared under U.S. GAAP have been condensed or omitted. In the
opinion of management, all adjustments considered necessary for a fair presentation of the
Companys financial position, results of operations and cash flows have been included and are of a
normal and recurring nature. The operating results presented for interim periods are not
necessarily indicative of the results that may be expected for any other interim period or for the
entire year. These consolidated financial statements should be read in conjunction with the
Companys consolidated financial statements and notes thereto included in the Companys annual
report on Form 10-K for the year ended December 31, 2010, which was filed with the Securities and
Exchange Commission. Capitalized terms used herein, and not otherwise defined, are defined in the
Companys December 31, 2010 consolidated financial statements included in its annual report on Form
10-K.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries,
which are majority-owned and controlled by the Company. All significant intercompany balances have
been eliminated in consolidation.
Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results could materially differ from those
estimates.
Restricted Cash
Restricted cash consists of escrow deposits for future debt service payments, taxes, insurance,
tenant improvements and other costs collected in connection with first mortgage loan originations.
Real Estate Debt Investments
Real estate debt investments are intended to be held to maturity and, accordingly, are carried at
cost, net of unamortized origination fees, discounts and unfunded commitments unless such loan or
investment is deemed to be impaired. Interest income is recorded on the accrual basis and related
discounts, premiums, origination costs and fees on assets are amortized over the life of the
investment using the effective interest method. The amortization is reflected as an adjustment to
interest income in our consolidated statements of operations.
Real Estate Securities
The
Company classifies its real estate securities as available for sale on the acquisition date.
Available for sale securities are carried at fair value, with any unrealized gains (losses)
reported as a component of accumulated other comprehensive income
(loss) in the Companys consolidated
statements of stockholders equity. However, the Company may elect the fair value option for certain of our
available for sale securities, and as a result, any unrealized gains (losses) on such securities
are recorded in unrealized gains (losses) on investments and
other in the Companys consolidated statements
of operations. The Company recognizes interest income on real estate securities using the effective interest
method and any related premiums or discounts are amortized as an adjustment to interest income in
our consolidated statements of operations.
9
Table of Contents
NORTHSTAR REAL ESTATE INCOME TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Credit Losses and Impairment on Investments
Real Estate Debt Investments
The Company will maintain a provision for losses on its real estate debt investments as
appropriate. A provision is established for loans that are either non-performing or where there are
any indicators of possible impairment. A loan is generally categorized as non-performing if it is
in maturity default or it is past due at least 90 days on its contractual debt service payments.
The Company assesses the credit quality of the portfolio and adequacy of reserves on a quarterly
basis, or more frequently as necessary. Significant judgment of the Company is required in this
analysis. The Company considers the estimated net recoverable value of the loan as well as other
factors, including but not limited to fair value of any collateral, the amount and the status of
any senior debt, the prospects for the borrower and the economic situation of the region where the
borrower does business. Because this determination is based upon projections of future economic
events, which are inherently subjective, the amounts ultimately realized may differ materially from
the carrying value as of the balance sheet date.
Income recognition is suspended for the loans at the earlier of the date at which payments become
90-days past due or when, in the opinion of the Company, a full recovery of income and principal
becomes doubtful. Income recognition is resumed when the suspended loan becomes contractually
current and performance is demonstrated to be resumed. A loan is written off when it is no longer
realizable and legally discharged.
Real Estate Securities
Periodically, the Company assesses unrealized losses on the change in fair value on the real estate
securities to determine if a decline in value is other-than-temporary. As defined under U.S. GAAP,
impairment of a security is considered to be other-than-temporary when: (i) the holder has the
intent to sell the impaired security; (ii) it is more likely than not the holder will be required
to sell the security; or (iii) the holder does not expect to recover the entire amortized cost of
the security. If an other-than-temporary impairment exists, the security is written down to fair
value. The total other-than-temporary impairment is then bifurcated into the credit loss component
and losses relating to other factors. The credit loss component is recognized in the consolidated
statements of operations and the losses relating to other factors are recognized in accumulated
other comprehensive income (loss) in the consolidated statements of stockholders equity.
Real estate securities for which the fair value option was elected are not evaluated for
other-than-temporary impairment as changes in fair value are recorded in the Companys consolidated
statements of operations. Realized losses on such securities are reclassified to the realized
gains (losses) on investments and other as losses occur.
Organization and Offering Costs
The Advisor and certain affiliates of the Advisor are entitled to receive reimbursement for costs
paid on behalf of the Company in connection with the Offering. The Company is obligated to
reimburse the Advisor for organization and offering costs to the extent the aggregate of selling
commissions, dealer manager fees and other organization and offering expenses do not exceed 15% of
gross offering proceeds from the primary offering. The Advisor does not expect reimbursable
organization and offering costs to exceed $15 million, or 1.5% of the total proceeds available to
be raised from the primary offering. The Company records organization and offering costs each
period to the extent primary offering proceeds are raised based upon an allocation determined by
the Companys expectation of total organization and offering costs to be reimbursed. Organization
costs are recorded as an expense in general and administrative expenses in the consolidated
statements of operations and offering costs are recorded as a reduction to stockholders equity.
Comprehensive Income
The Company reports consolidated statements of comprehensive income in separate statements
consecutive to the consolidated statements of operations. Comprehensive income is defined as the
change in stockholders equity resulting from net income (loss) and other comprehensive income
(loss) (OCI). The Companys principal component of OCI is unrealized gain (loss) on real estate
securities for which the fair value option of accounting was not elected.
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NORTHSTAR REAL ESTATE INCOME TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Recently Issued Pronouncements
In May 2011, the Financial Accounting Standards Board (FASB) issued an accounting update to amend
existing guidance concerning fair value measurements and disclosures. The update is intended to
achieve common fair value measurements and disclosure requirements under U.S. GAAP and
International Financial Reporting Standards and is effective for the first interim or annual period
beginning after December 15, 2011. The Company is currently evaluating the impact of this
accounting update and does not expect it will have a material impact on the consolidated financial
statements.
In June 2011, the FASB issued an accounting update concerning the presentation of comprehensive
income. The update requires either a single, continuous statement of comprehensive income be
included on the statement of operations or an additional statement of other comprehensive income
immediately follow the statement of operations. The update does not change the components of other
comprehensive income that must be reported but it eliminates the option to present other
comprehensive income on the statement of stockholders equity. The accounting update is effective
for the Company the first quarter 2012 and should be applied retrospectively to all periods
reported after the effective date. There is no impact as the Company currently complies with this
update.
3. Fair Value Measurements
The Company has categorized its financial instruments in accordance with U.S. GAAP based on the
priority of the inputs to the valuation technique, into a three-level fair value hierarchy. The
fair value hierarchy gives the highest priority to quoted prices in active markets for identical
assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the
inputs used to measure the financial instruments fall within different levels of the hierarchy, the
categorization is based on the lowest level input that is significant to the fair value measurement
of the instrument.
Financial assets and liabilities recorded on the consolidated balance sheets are categorized based
on the inputs to the valuation techniques as follows:
Level 1. Quoted prices for identical assets or liabilities in an active market.
Level 2. Financial assets and liabilities whose values are based on the following:
a) | Quoted prices for similar assets or liabilities in active markets. |
b) | Quoted prices for identical or similar assets or liabilities in non-active markets. |
c) | Pricing models whose inputs are observable for substantially the full term of the
asset or liability. |
d) | Pricing models whose inputs are derived principally from or corroborated by observable
market data for substantially the full term of the asset or liability. |
Level 3. Prices or valuation techniques based on inputs that are both unobservable and
significant to the overall fair value measurement.
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NORTHSTAR REAL ESTATE INCOME TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Determination of Fair Value
The following is a description of the valuation techniques used to measure fair value and the
general classification of these instruments pursuant to the fair value hierarchy.
Real Estate Securities
Real estate securities are generally valued using a third-party pricing service or broker
quotations. These quotations are based on observable inputs that can be validated, and as such,
are classified as Level 2 of the fair value hierarchy. Certain real estate securities that may be
valued based on a single broker quote or an internal pricing model, and have less observable
pricing will be classified as Level 3 of the fair value hierarchy. For real estate securities
using an internal pricing model, inputs include assumptions related to the timing and amount of
expected future cash flows, the discount rate, prepayments and losses.
Fair Value Hierarchy
Financial assets are classified in their entirety based on the lowest level of input that is
significant to the fair value measurement. The following table sets forth the Companys financial
assets that were accounted for at fair value on a recurring basis as of September 30, 2011 and
December 31, 2010 by level within the fair value hierarchy:
September 30, 2011 | December 31, 2010 | |||||||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
Real estate securities
CMBS |
$ | | $ | 34,255,310 | $ | | $ | 34,255,310 | $ | | $ | 31,264,331 | $ | | $ | 31,264,331 |
At September 30, 2011, the Company had no financial assets or liabilities that were accounted
for at fair value on a non-recurring basis.
Fair Value Option
The Company generally will not elect the fair value option of accounting for its financial assets
and liabilities. However, the Company may elect to apply the fair value option of accounting to
certain of its real estate security investments at the time of initial recognition of the
investments. As of September 30, 2011, the fair value option of accounting was elected for two of
the Companys real estate securities.
Changes in fair value for assets and liabilities for which the election is made will be recognized
in income as they occur. The fair value option may be elected on an instrument-by-instrument
basis at initial recognition of an asset or liability or upon an event that gives rise to a new
basis of accounting for that instrument. The following table sets forth fair value of the
Companys financial instruments for which the fair value option was elected and the aggregate
contractual amounts of those real estate securities as of September 30, 2011 and December 31, 2010:
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
Real estate securities(1) |
||||||||
CMBS, at fair value |
$ | 31,470,157 | $ | 31,264,331 | ||||
CMBS, contractual amount due upon maturity |
28,856,000 | 28,856,000 | ||||||
Difference |
$ | 2,614,157 | $ | 2,408,331 | ||||
(1) | As of September 30, 2011, excludes one security with a principal amount of $4.0 million for
which the fair value option was not elected. |
For the three months ended September 30, 2011 and 2010, the Company recognized a net
unrealized gain (loss) of ($278,519) and $1,109,603, respectively, from the change in fair value of
financial assets for which the fair value option was elected. For the nine months ended September
30, 2011 and 2010, the Company recognized a net unrealized gain of $302,793 and $2,213,850,
respectively. These amounts are recorded as unrealized gains (losses) on investments and other in
the Companys consolidated statements of operations.
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NORTHSTAR REAL ESTATE INCOME TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Fair Value of Financial Instruments
In addition to the above disclosures regarding assets or liabilities which are recorded at fair
value, U.S. GAAP requires disclosure of fair value about all financial instruments. The following
disclosures of estimated fair value of financial instruments were determined by the Company using
available market information and appropriate valuation methodologies. Considerable judgment is
necessary to interpret market data and develop estimated fair values. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts the Company could realize on
disposition of the financial instruments. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value amounts.
The following table shows the principal amount, carrying value and fair value of our financial
assets and liabilities at September 30, 2011:
September 30, 2011 | ||||||||||||
Principal | Carrying | Fair | ||||||||||
Amount | Value | Value | ||||||||||
Financial assets: |
||||||||||||
Cash(1) |
$ | 40,588,178 | $ | 40,588,178 | $ | 40,588,178 | ||||||
Restricted cash(1) |
4,945,802 | 4,945,802 | 4,945,802 | |||||||||
Real estate securities, available for sale(2) |
32,856,000 | 34,255,310 | 34,255,310 | |||||||||
Real estate debt investments |
29,357,400 | 29,225,791 | 29,357,400 | |||||||||
Receivables(1) |
273,784 | 273,784 | 273,784 | |||||||||
Financial liabilities: |
||||||||||||
Borrowings |
24,061,212 | 24,061,212 | 25,571,699 | |||||||||
Accounts payable and accrued expenses(1) |
1,000,300 | 1,000,300 | 1,000,300 | |||||||||
Escrow deposits payable(1) |
4,945,802 | 4,945,802 | 4,945,802 | |||||||||
Distribution payable(1) |
559,507 | 559,507 | 559,507 |
(1) | As of September 30, 2011, carrying value approximates fair value due to the
short-term maturities of these items. |
|
(2) | Refer to the Determination of Fair Value above for a
discussion of methodologies used to determine fair value. |
Disclosure about fair value of financial instruments is based on pertinent information
available to management at the time. Although management is not aware of any factors that would
significantly affect the fair value amounts, such amounts have not been comprehensively revalued
for purposes of these financial statements since that date and current estimates of fair value may
differ significantly from the amounts presented herein.
Real Estate Debt Investments
For real estate debt investments, fair value was approximated by comparing yields at which the
investments are held to estimated yields at which loans originated with similar credit risks or
market yields at which a third party might require to purchase the investment by discounting future
cash flows at such market yields. Prices were calculated assuming fully-extended maturities
regardless of structural or economic tests required to achieve such extended maturities.
Borrowings
The estimated fair value is based on interest rates available for issuance of debt with similar
terms and remaining maturities. The estimated fair value of the Companys secured term loans is
not necessarily indicative of the amounts that the Company could realize in a current market
exchange.
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NORTHSTAR REAL ESTATE INCOME TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
4. Real Estate Securities
Real estate securities are comprised of CMBS backed by a pool of commercial real estate loans which
are typically well-diversified by type and geography. The following is a summary of the Companys
real estate securities as of September 30, 2011 and December 31, 2010:
Cumulative | ||||||||||||||||||||||||||||
Unrealized | Weighted | Weighted | ||||||||||||||||||||||||||
Principal | Amortized | Gain (Loss) on | Fair | Average | Average | |||||||||||||||||||||||
CMBS | Number | Amount | Cost | Investments | Value | Coupon | Yield(1) | |||||||||||||||||||||
September 30, 2011 |
3 | $ | 32,856,000 | $ | 32,184,348 | $ | 2,070,962 | $ | 34,255,310 | 5.70% | 9.21% | |||||||||||||||||
December 31, 2010 |
2 | $ | 28,856,000 | $ | 29,539,693 | $ | 1,724,638 | $ | 31,264,331 | 5.55% | 9.62% |
(1) | Represents the weighted average levered yield. |
At September 30, 2011 and December 31, 2010, the contractual maturities of the real estate
securities averaged 34 and 35 years, respectively, with a weighted average expected life of 3.5
years and 4.9 years, respectively.
On June 30, 2010 the Company sold a real estate security for proceeds of $1,852,500. In connection
with the sale, the Company recorded a realized gain on investments and other for $199,604 in its
consolidated statements of operations.
5. Real Estate Debt Investments
The following is a summary of the Companys real estate debt investments, all of which have been
directly originated by the Company, as of September 30, 2011:
Weighted Average | Floating Rate as | |||||||||||||||||||||||||||
Principal | Carrying | Spread over | % of Principal | |||||||||||||||||||||||||
Asset Type: | Number | Amount | Value | LIBOR(1) | Coupon(2) | Yield | Amount | |||||||||||||||||||||
First mortgage loans |
3 | $ | 29,357,400 | $ | 29,225,791 | 4.32% | 8.08% | 8.63% | 100.0% |
(1) | Represents the weighted average spread over one-month LIBOR. |
|
(2) | All loans are subject to a LIBOR floor. |
As of September 30, 2011, all of the Companys real estate debt investments were performing in
accordance with the terms of the loan agreements. The Company did not own any real estate debt
investments as of December 31, 2010.
6. Borrowings
The following is a summary of the Companys Term Asset-Backed Securities Loan Facility (TALF) as
of September 30, 2011:
Final Stated | Contractual | Principal | Carrying | |||||||||||||
Secured term loans: | Type | Maturity | Interest Rate | Amount | Value | |||||||||||
TALF I |
Non-recourse | Jan-15 | 3.73% | $ | 11,629,213 | $ | 11,629,213 | |||||||||
TALF II |
Non-recourse | Feb-15 | 3.69% | 12,431,999 | 12,431,999 | |||||||||||
Weighted Average/Total |
3.71% | $ | 24,061,212 | $ | 24,061,212 | |||||||||||
The TALF borrowings were used to finance two of the Companys CMBS investments with a fair
value of $31,470,157 as of September 30, 2011.
7. Related Party Arrangements
NS Real Estate Income Trust Advisor, LLC
Subject to certain restrictions and limitations, the Advisor, an indirect subsidiary of the
Sponsor, is responsible for managing the Companys affairs on a day-to-day basis and for
identifying, originating, acquiring and asset managing investments on behalf of the Company. For
such services, the Advisor receives fees and compensation from the Company. Below is a summary of
the fees due the Advisor.
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NORTHSTAR REAL ESTATE INCOME TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Organization and Offering Costs
The Advisor and certain affiliates of the Advisor are entitled to receive reimbursement for costs
paid on behalf of the Company in connection with the Offering. The Company is obligated to
reimburse the Advisor for organization and offering costs to the extent the aggregate of selling
commissions, dealer manager fees and other organization and offering expenses do not exceed 15% of
gross offering proceeds from the primary offering. The Advisor does not expect reimbursable
organization and offering costs to exceed $15 million, or 1.5% of the total proceeds available to
be raised from the primary offering. The Company shall not reimburse the Advisor for any
organization and offering costs that the independent directors determine are not fair and
commercially reasonable to the Company.
As of September 30, 2011, the Advisor had unreimbursed organization and offering costs of
$2,836,386 which it has incurred on behalf of the Company. For the nine months ended September 30,
2011, the Company raised gross primary offering proceeds of $60,516,953 and, accordingly, was
obligated to reimburse up to a total of $885,195 of organization and offering costs, which was
allocated $222,599 to organization and $662,596 to offering costs. As of September 30, 2011,
$489,839 of organization and offering costs are recorded in accounts payable and accrued expenses
in the consolidated balance sheets.
Prior to the Merger Transaction, organization and offering costs (other than selling commissions
and the dealer manager fee) of the Accounting Acquirer were being paid by the Advisor or its
affiliates, subject to reimbursement. These fees were reimbursable up to a maximum of $1,000,000,
which is 1.0% of the maximum gross offering proceeds of $100,000,000 or a minimum of $60,000. For
the nine months ended September 30, 2010, the Accounting Acquirer incurred organization and
offering costs of $351,428, which was reimbursed to the Advisor in the third quarter of 2010.
Operating Costs
The Advisor and certain affiliates of the Advisor are entitled to receive reimbursement for
operating costs incurred by the Advisor in connection with services provided to the Company. The
Company will reimburse the Advisor for operating costs (including the asset management fee) at the
end of the four preceding fiscal quarters not to exceed the greater of: (i) 2.0% of its average
invested assets; or (ii) 25% of its net income determined without reduction for any additions to
reserves for depreciation, bad debt or other similar non-cash reserves and excluding any gain from
the sale of the Companys assets for that period. Notwithstanding the above, the Company may
reimburse the Advisor for expenses in excess of this limitation if a majority of the independent
directors determines that such excess expenses are justified based on unusual and non-recurring
factors.
The Company calculates the expense reimbursement quarterly and will true-up the calculation at the
end of the twelve-month period. As of September 30, 2011, the Advisor has incurred unreimbursed
operating expenses of $1,623,727 on behalf of the Company. For the three months ended September
30, 2011, the Company accrued $143,352 of operating costs, which is recorded in accounts payable
and accrued expenses in the consolidated balance sheets. For the three months ended September 30,
2011, operating costs were allocated $54,789 to auditing and professional fees and $88,563 to
general and administrative expenses. For the nine months ended September 30, 2011, operating costs
were allocated $144,254 to auditing and professional fees and $180,848 to general and
administrative expenses.
For the four quarters ended September 30, 2011, the Company incurred $418,000 of operating costs
reimbursable to the Advisor based upon the preliminary expense calculation described above, of
which $274,648 has been reimbursed as of September 30, 2011.
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NORTHSTAR REAL ESTATE INCOME TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Advisory Fees
Asset Management Fee
The Company pays the Advisor a monthly asset management fee equal to one-twelfth of 1.25% of the
sum of the cost of all investments made and of the Companys investments in joint ventures,
including acquisition fees, origination and acquisition expenses and any debt attributable to such
investments, less any principal repaid by borrowers on the Companys debt investments (or the
Companys proportionate share thereof in the case of debt investments made through joint ventures).
For the three and nine months ended September 30, 2011, the Company incurred $84,518 and $164,763
respectively, in asset management fees, which was recorded in advisory fees related party in the
consolidated statements of operations. As of September 30, 2011, a total of $2,913 of asset
management fees are recorded in accounts payable and accrued expenses in the consolidated balance
sheets.
Prior to the Merger Transaction, the Accounting Acquirer paid the Advisor a monthly asset
management fee equal to one-twelfth of 1.0% of the sum of the cost of all investments. For the
three and nine months ended September 30, 2010, the Accounting Acquirer incurred $13,938 and
$37,011 respectively, in asset management fees, which was recorded in advisory fees related party
in the consolidated statements of operations.
Asset Acquisition Fee
The Advisor also receives an acquisition fee equal to 1.0% of the amount funded by the Company to
originate or acquire commercial real estate debt or the amount invested in the case of other real
estate investments including any origination and acquisition expenses and any borrowings
attributable to such investments. For the three and nine months ended September 30, 2011, the
Company incurred $93,778 and $292,149, respectively, in acquisition fees to the Advisor which is
included in advisory fees related party in the consolidated statements of operations. As of
September 30, 2011, a total of $93,778 of asset acquisition fees are recorded in accounts payable
and accrued expenses in the consolidated balance sheets.
Asset Disposition Fee
For substantial assistance in connection with the sale of investments, the Company will pay the
Advisor or its affiliate a disposition fee of 1.0% of the contract sales price of each commercial
real estate debt, commercial real estate security or select commercial real estate equity
investment sold, including mortgage-backed securities or collateralized debt obligations issued by
a subsidiary of the Company as part of a securitization transaction. The Company will not pay a
disposition fee upon the maturity, prepayment, workout modification or extension of a loan or other
debt-related investment unless there is a corresponding fee paid by the borrower, in which case the
disposition fee will be the lesser of: (i) 1.0% of the principal amount of the loan or debt-related
investment prior to such transaction; or (ii) the amount of the fee paid by the borrower in
connection with such transaction. If the Company takes ownership of a property as a result of a
workout or foreclosure of a loan, the Company will pay a disposition fee upon the sale of such
property. The Company has not incurred any asset disposition fees to the Advisor for the nine
months ended September 30, 2011.
NorthStar Realty Securities, LLC
Pursuant to a dealer manager agreement, the Company pays the Dealer Manager, an indirect subsidiary
of the Sponsor, selling commissions of up to 7.0% of gross offering proceeds, all of which are
reallowed by the Dealer Manager to participating broker-dealers. In addition, the Company will pay
the Dealer Manager a dealer manager fee of 3.0% of gross offering proceeds, a portion of which may
be reallowed by the Dealer Manager to participating broker-dealers. No selling commissions or
dealer manager fee will be paid for sales under the distribution reinvestment plan. For the nine
months ended September 30, 2011, the Company incurred $5,774,751 in selling commissions and dealer
manager fees, which are recorded as a cost of capital in the consolidated statements of
stockholders equity. For the nine months ended September 30, 2010, the Company incurred
$2,233,090 in selling commissions and dealer manager fees, which are recorded as a cost of capital
in the consolidated statements of stockholders equity.
8. Stockholders Equity
Common Stock
For the nine months ended September 30, 2011, the Company sold 6,082,467 shares of common stock
pursuant to its Offering, generating gross proceeds of $60,516,953.
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NORTHSTAR REAL ESTATE INCOME TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Sponsor Purchase of Common Stock
The Sponsor has committed to purchase up to $10 million of shares of the Companys common stock
during the two-year period following commencement of the Companys Offering under certain
circumstances to provide additional funds to support distributions to stockholders. For the three
and nine months ended September 30, 2011, the Companys board of directors approved the sale of
79,629 and 181,633 shares, respectively, of the Companys common stock, $0.01 par value per share,
to a subsidiary of the Sponsor, at a price of $9.00 per Share.
Distribution Reinvestment Plan
The Company has adopted a DRP through which common stockholders may elect to reinvest an amount
equal to the distributions declared on their shares in additional shares of the Companys common
stock in lieu of receiving cash distributions. The initial purchase price per share under the DRP
is $9.50. Once the Company establishes an estimated value per share, shares issued pursuant to the
DRP will be priced at the estimated value per share of the Companys common stock, as determined by
the Advisor or another firm chosen for that purpose. The Company expects to establish an estimated
value per share after the completion of its offering stage. The offering stage will be considered
complete when the Company is no longer publicly offering equity securities, whether through the
Offering or follow-on public offerings, and has not done so for 18 months. No selling commissions
or dealer manager fees will be paid on shares sold under the DRP. The board of directors of the
Company may amend or terminate the DRP for any reason upon ten-days notice to participants. For
the nine months ended September 30, 2011, the Company issued 81,232 shares totaling $771,707 of
gross offering proceeds pursuant to the DRP.
Distributions
Distributions to stockholders are approved by the Companys board of directors and are paid based
on a daily amount of $.002191781 per share. The following table summarizes distributions for the
nine months ended September 30, 2011.
Distributions | ||||||||||||||||
Month | Declaration Date | Payment Date | Cash | DRP | Total | |||||||||||
January 2011 |
December 21, 2010 | February 1, 2011 | $ | 172,974 | $ | 47,036 | $ | 220,010 | ||||||||
February 2011 |
December 21, 2010 | March 1, 2011 | 160,892 | 49,112 | 210,004 | |||||||||||
March 2011 |
December 21, 2010 | April 1, 2011 | 193,221 | 65,463 | 258,684 | |||||||||||
April 2011 |
March 23, 2011 | May 2, 2011 | 212,462 | 80,214 | 292,676 | |||||||||||
May 2011 |
March 23, 2011 | June 1, 2011 | 242,179 | 99,560 | 341,739 | |||||||||||
June 2011 |
March 23, 2011 | July 1, 2011 | 262,019 | 106,633 | 368,652 | |||||||||||
July 2011 |
May 12, 2011 | August 1, 2011 | 307,023 | 125,555 | 432,578 | |||||||||||
August 2011 |
May 12, 2011 | September 1, 2011 | 347,260 | 153,811 | 501,071 | |||||||||||
September 2011 |
May 12, 2011 | October 3, 2011 | 380,642 | 178,865 | 559,507 |
Share Repurchase Program
The Company has adopted a share repurchase program that may enable stockholders to sell their
shares to the Company in limited circumstances. Share repurchases will be made at the sole
discretion of the board of directors. During the first quarter 2011, the Company repurchased
14,748 shares for a total of $147,480 or $10 per share. The Company did not repurchase any other
common shares in 2011.
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NORTHSTAR REAL ESTATE INCOME TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
(Unaudited)
9. Equity-Based Compensation
Directors Shares
On July 19, 2010, each of the Companys three independent directors received 5,000 shares of
restricted stock in connection with the commencement of the Offering. On June 7, 2011, each of the
Companys three independent directors were re-elected to the board and received 2,500 shares of
restricted stock in connection with their re-election. The non-vested stock will generally vest
over four years; provided, however, that the non-vested stock will become fully vested on the
earlier occurrence of: (i) the termination of the independent directors service as a director due
to his or her death or disability; or (ii) a change in control of the Company. The total
compensation cost recognized in connection with the granting of the non-vested stock is $202,500,
which will be recorded in income ratably over the four-year vesting period.
For the three and nine months ended September 30, 2011, the Company recognized $12,658 and $30,613
of compensation expense, respectively, related to the issuance of restricted stock, which was
recorded in general and administrative expenses in the consolidated statements of operations.
Long-Term Incentive Plan
The Company adopted a long-term incentive plan, which it uses to attract and retain qualified
directors. The Companys long-term incentive plan offers these individuals an opportunity to
participate in its growth through awards in the form of, or based on, its common stock. The
Company currently intends to issue awards only to its independent directors under its long-term
incentive plan.
The long-term incentive plan authorizes the granting of restricted stock, stock options, stock
appreciation rights, restricted or deferred stock units, performance awards, dividend equivalents,
limited partnership interests in the Companys operating partnership, other stock-based awards and
cash-based awards to directors of the Company. Stock options granted under the long-term incentive
plan will not exceed an amount equal to 10% of the outstanding shares of the Companys common stock
on the date of grant of any such stock options. Any stock options and stock appreciation rights
granted under the long-term incentive plan will have an exercise price or base price that is not
less than the fair market value of the Companys common stock on the date of grant.
The Companys board of directors, or a committee of the board, administers the long-term incentive
plan, with sole authority to determine all of the terms and conditions of the awards, including
whether the grants, vesting or settlement of awards may be subject to the attainment of one or more
performance goals.
The Company accounts for equity-based compensation in accordance with the FASBs fair value
recognition provisions. Under these provisions, equity-based compensation cost is measured at the
grant date based on the fair value of the award and is recognized as expense over the requisite
service period, which is the vesting period. Equity-based compensation is classified within
general and administrative expense in the consolidated statements of operations. Equity-based
compensation expense is recorded based on awards ultimately expected to vest, the amount of expense
is reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised,
if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures
are estimated on experience of other companies in the same industry until entity-specific
information is available.
10. Non-controlling Interests
Operating Partnership
Non-controlling interests represent the aggregate limited partnership interests in the OP held by
limited partners. Income allocated to the non-controlling interests is based on the limited
partners ownership percentage of the OP. Income allocated to the operating partnership
non-controlling interests for the three and nine months ended September 30, 2011 was $0 and $35,
respectively. Income allocated to the operating partnership non-controlling interests for the
three and nine months ended September 30, 2010 was $132 and $421, respectively.
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NORTHSTAR REAL ESTATE INCOME TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
(Unaudited)
11. Segment Reporting
The Company conducts its business through the following segments:
| The real estate debt business is focused on originating, acquiring and asset managing
commercial real estate debt investments including first mortgage loans, subordinate
mortgage and mezzanine loans and participations in such loans. |
| The real estate securities business is focused on investing in and asset managing
commercial real estate securities primarily consisting of CMBS and may include unsecured
REIT debt, collateralized debt obligations and other securities. |
The following summarizes segment reporting for the three and nine months ended September 30, 2011
and 2010:
Real Estate | Real Estate | |||||||||||||||
Three Months Ended September 30, 2011 | Debt | Securities | Unallocated(1) | Total | ||||||||||||
Revenues |
||||||||||||||||
Interest income |
$ | 418,084 | $ | 431,438 | $ | | $ | 849,522 | ||||||||
Total revenues |
418,084 | 431,438 | | 849,522 | ||||||||||||
Expenses |
||||||||||||||||
Interest expense |
| 227,480 | | 227,480 | ||||||||||||
Advisory fees related party |
93,778 | | 84,518 | 178,296 | ||||||||||||
Auditing and professional fees |
| | 54,789 | 54,789 | ||||||||||||
General and administrative expenses |
3,609 | 875 | 92,971 | 97,455 | ||||||||||||
Total expenses |
97,387 | 228,355 | 232,278 | 558,020 | ||||||||||||
Income (loss) from operations |
320,697 | 203,083 | (232,278 | ) | 291,502 | |||||||||||
Unrealized gains (losses) on investments and other |
| (278,519 | ) | | (278,519 | ) | ||||||||||
Consolidated net income (loss) |
320,697 | (75,436 | ) | (232,278 | ) | 12,983 | ||||||||||
Less: net income attributable to non-controlling interests |
| | | | ||||||||||||
Net income (loss) attributable to NorthStar Real
Estate Income Trust, Inc. common stockholders |
$ | 320,697 | $ | (75,436 | ) | $ | (232,278 | ) | $ | 12,983 | ||||||
Total assets as of September 30, 2011 |
$ | 34,830,500 | $ | 34,710,897 | $ | 40,514,773 | $ | 110,056,170 | ||||||||
(1) | Unallocated includes corporate level general and administrative expenses. |
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NORTHSTAR REAL ESTATE INCOME TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Real Estate | Real Estate | |||||||||||||||
Three Months Ended September 30, 2010 | Debt | Securities | Unallocated(1) | Total | ||||||||||||
Revenues |
||||||||||||||||
Interest income |
$ | | $ | 413,107 | $ | | $ | 413,107 | ||||||||
Total revenues |
| 413,107 | | 413,107 | ||||||||||||
Expenses |
||||||||||||||||
Interest expense |
| 227,383 | | 227,383 | ||||||||||||
Advisory fees related party |
| | 13,938 | 13,938 | ||||||||||||
Auditing and professional fees |
| | 60,227 | 60,227 | ||||||||||||
General and administrative expenses |
| 875 | 273,255 | 274,130 | ||||||||||||
Total expenses |
| 228,258 | 347,420 | 575,678 | ||||||||||||
Income (loss) from operations |
| 184,849 | (347,420 | ) | (162,571 | ) | ||||||||||
Unrealized gains (losses) on investments and other |
| 1,109,603 | | 1,109,603 | ||||||||||||
Consolidated net income (loss) |
| 1,294,452 | (347,420 | ) | 947,032 | |||||||||||
Less: net income attributable to non-controlling interests |
| 180 | (48 | ) | 132 | |||||||||||
Net
income (loss) attributable to NorthStar Real
Estate Income Trust, Inc. common stockholders |
$ | | $ | 1,294,272 | $ | (347,372 | ) | $ | 946,900 | |||||||
Total assets as of September 30, 2010 |
$ | | $ | 32,533,381 | $ | 26,787,958 | $ | 59,321,339 | ||||||||
Real Estate | Real Estate | |||||||||||||||
Nine Months Ended September 30, 2011 | Debt | Securities | Unallocated(1) | Total | ||||||||||||
Revenues |
||||||||||||||||
Interest income |
$ | 722,995 | $ | 1,179,271 | $ | | $ | 1,902,266 | ||||||||
Total revenues |
722,995 | 1,179,271 | | 1,902,266 | ||||||||||||
Expenses |
||||||||||||||||
Interest expense |
| 674,978 | | 674,978 | ||||||||||||
Advisory fees related party |
292,149 | | 164,763 | 456,912 | ||||||||||||
Auditing and professional fees |
| | 144,254 | 144,254 | ||||||||||||
General and administrative expenses |
4,641 | 3,442 | 576,791 | 584,874 | ||||||||||||
Total expenses |
296,790 | 678,420 | 885,808 | 1,861,018 | ||||||||||||
Income (loss) from operations |
426,205 | 500,851 | (885,808 | ) | 41,248 | |||||||||||
Unrealized gains (losses) on investments and other |
| 302,793 | | 302,793 | ||||||||||||
Consolidated net income (loss) |
426,205 | 803,644 | (885,808 | ) | 344,041 | |||||||||||
Less: net income attributable to non-controlling interests |
43 | 82 | (90 | ) | 35 | |||||||||||
Net
income (loss) attributable to NorthStar Real
Estate Income Trust, Inc. common stockholders |
$ | 426,162 | $ | 803,562 | $ | (885,718 | ) | $ | 344,006 | |||||||
Total assets as of September 30, 2011 |
$ | 34,830,500 | $ | 34,710,897 | $ | 40,514,773 | $ | 110,056,170 | ||||||||
(1) | Unallocated includes corporate level general and administrative expenses. |
20
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NORTHSTAR REAL ESTATE INCOME TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Real Estate | Real Estate | |||||||||||||||
Nine Months Ended September 30, 2010 | Debt | Securities | Unallocated(1) | Total | ||||||||||||
Revenues |
||||||||||||||||
Interest income |
$ | | $ | 1,118,356 | $ | | $ | 1,118,356 | ||||||||
Total revenues |
| 1,118,356 | | 1,118,356 | ||||||||||||
Expenses |
||||||||||||||||
Interest expense |
| 572,504 | | 572,504 | ||||||||||||
Advisory fees related party |
| | 37,011 | 37,011 | ||||||||||||
Auditing and professional fees |
| | 190,650 | 190,650 | ||||||||||||
General and administrative expenses |
| 55,682 | 494,503 | 550,185 | ||||||||||||
Total expenses |
| 628,186 | 722,164 | 1,350,350 | ||||||||||||
Income (loss) from operations |
| 490,170 | (722,164 | ) | (231,994 | ) | ||||||||||
Realized gain on investments and other |
| 199,604 | | 199,604 | ||||||||||||
Unrealized gains (losses) on investments and other |
| 2,213,850 | | 2,213,850 | ||||||||||||
Consolidated net income (loss) |
| 2,903,624 | (722,164 | ) | 2,181,460 | |||||||||||
Less: net income attributable to non-controlling interests |
| 560 | (139 | ) | 421 | |||||||||||
Net
income (loss) attributable to NorthStar Real Estate Income Trust, Inc. common stockholders |
$ | | $ | 2,903,064 | $ | (722,025 | ) | $ | 2,181,039 | |||||||
Total assets as of September 30, 2010 |
$ | | $ | 32,533,381 | $ | 26,787,958 | $ | 59,321,339 | ||||||||
(1) | Unallocated includes corporate level general and administrative expenses. |
12. Subsequent Events
Offering Proceeds
For
the period from October 1, 2011 to November 8, 2011, the Company sold 2,187,424 common shares
pursuant to its Offering, including DRP shares, generating gross proceeds of $21,828,541.
Distributions
On November 8, 2011, the Companys board of directors approved a daily cash distribution of
$0.002191781 per share of common stock for each of the three months ended March 31, 2012. The
distributions will be paid in cumulative amounts to the stockholders of record entitled to receive
such distributions on February 1, 2012, March 1, 2012 and April 2, 2012.
Sponsor Purchase of Common Stock
The Sponsor has committed to purchase up to $10 million of shares of the Companys common stock
during the two-year period following commencement of the Companys Offering under certain
circumstances to provide additional funds to support distributions to stockholders. On November 8,
2011, the Company and the Sponsor entered into a Second Amended and Restated Distribution Support
Agreement, pursuant to which the Sponsors purchase commitment is based upon modified funds from
operations (MFFO) effective for the three months ended September 30, 2011. On November 8, 2011,
the Companys board of directors approved the sale of 71,569 shares of the Companys common stock,
$0.01 par value per share, to NRFC Sub-REIT Corp., a subsidiary of the Sponsor, at a price of $9.00
per share. In connection with this commitment and including the Sponsors purchase of shares
approved on November 8, 2011, the Sponsor has purchased 253,202 shares for $2.3 million.
Advisory Agreement
On November 8, 2011, the Company and the Sponsor entered into Amendment No. 2 to the Advisory
Agreement which provides procedures for allocating investment opportunities between the Company,
our Sponsor and affiliates of our Sponsor. If, after consideration of the relevant factors, our
Sponsor determines that an investment is equally suitable for the Company, our Sponsor, or another
affiliate of our Sponsor, the investment will be allocated among each of the entities, including
us, on a rotating basis. Currently, investment opportunities are only
allocated to the Company and our Sponsor.
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Item 2. | Managements Discussion and Analysis of Financial Condition and Results of
Operations |
The following discussion should be read in conjunction with our consolidated financial statements
and notes thereto included in Item 1 of this report. References to we, us, or our refer to
NorthStar Real Estate Income Trust, Inc. and its subsidiaries unless context specifically requires
otherwise.
Forward-Looking Statements
Certain items in this report may constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to, among
other things, the operating performance of our investments, financing needs, future market
opportunities, financial condition and disclosure in Item 2. Managements Discussion and Analysis
of Financial Condition and Results of Operations. 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,
continue 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. Our ability to predict results or the actual effect of plans or
strategies is inherently uncertain. Although we believe that the expectations reflected in such
forward-looking statements are based on reasonable assumptions, our actual results and performance
could differ materially from those set forth in the forward-looking statements. These
forward-looking statements involve risks, uncertainties and other factors that may cause our actual
results in future periods to differ materially from those forward looking statements. We are under
no duty to update any of the forward-looking statements after the date of this report to conform
these statements to actual results.
Factors that could have a material adverse effect on our operations and future prospects are
described in our reports filed with the Securities and Exchange Commission, or SEC, including in
Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2010. The factors
set forth in the Risk Factors section and elsewhere in our filings with the SEC could cause our
actual results to differ significantly from those contained in any forward-looking statement
contained in this report.
Introduction
We are an externally managed commercial real estate finance company that was formed in January 2009
to originate, invest in and manage a diversified portfolio of commercial real estate debt,
commercial real estate securities and select commercial real estate equity investments. We
commenced our operations in October 2010. We conduct substantially all of our operations and make
investments through our operating partnership, of which we are the sole general partner. NS Real
Estate Income Trust Advisor, LLC is our external manager, or our Advisor, and is an affiliate of
our sponsor, NorthStar Realty Finance Corp., or our Sponsor. Through our operating partnership we
seek to originate, acquire and asset manage the following:
| commercial real estate debt, including first mortgage loans, subordinate mortgage
and mezzanine loans and participations in such loans. |
| commercial real estate securities, including primarily commercial mortgage-backed
securities (CMBS), and may include unsecured REIT debt, collateralized debt
obligations and other securities. |
| select commercial real estate equity investments. |
We believe that these businesses are complementary to each other due to the overlapping sources of
investment opportunities and common reliance on real estate fundamentals.
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We elected to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code
of 1986, as amended, commencing with our taxable year ended December 31, 2010. If we qualify as a
REIT for federal income tax purposes, we generally will not be subject to federal income tax to the
extent we distribute qualifying dividends to our stockholders. If we fail to qualify as a REIT in
any taxable year after electing REIT status, we will be subject to federal income tax on our
taxable income at regular corporate income tax rates and generally will not be permitted
to qualify for treatment as a REIT for federal income tax purposes for four years following the
year in which our qualification is denied. Such an event could materially and adversely affect our
net income and cash available for distribution. However, we believe that we are organized and
operate in a manner that will enable us to qualify for treatment as a REIT for federal income tax
purposes commencing with our taxable year ended December 31, 2010, and we intend to continue to
operate so as to remain qualified as a REIT for federal income tax purposes thereafter. Further,
we intend to operate our business so our Advisor is not required to register as an investment
advisor under the Investment Advisors Act of 1940, as amended.
We earn interest income from real estate debt investments and our real estate securities.
Profitability and Performance Metrics
We
calculate Funds from Operations (FFO) and Modified
Funds from Operations (MFFO) (see
Non-GAAP Financial MeasuresFunds from Operations and Modified Funds from Operations for a
description of these metrics) to evaluate the profitability and performance of our business.
Outlook and Recent Trends
Our strategy in the current market conditions is a cautious but optimistic approach to investing.
During 2011, the U.S. economy has continued to recover at a slow pace with a potential risk of
sliding back into another recession, due to various factors beyond our control, including high
unemployment, a weak residential housing market and the high levels of sovereign debt, which
resulted in the recent U.S. credit rating downgrade by Standard & Poors and European economic
uncertainty. Despite the current difficult economic conditions, we believe the current environment
for commercial real estate lending and securities investment will allow us to implement our
business plan and generate attractive risk-adjusted returns on our invested capital that will
support our distributions.
The current market conditions combined with our Advisors platform provides opportunities to: (i)
originate loans with attractive current returns and strong structural features directly with
borrowers, thereby taking advantage of the changing market conditions in order to seek attractive
risk-return dynamics for our stockholders; and (ii) purchase commercial real estate debt and
commercial real estate securities from third parties, in many instances at discounts to their face
amount (or principal amount), due to the lack of market liquidity and seller deleveraging.
We believe that the near and intermediate-term market for originations and acquisitions of
commercial real estate debt, commercial real estate securities and select commercial real estate
equity investments is one of the most compelling from a risk-return perspective that the Company or
our Advisor has experienced in recent years. We believe our strategy presents a favorable
alternative to pure equity-oriented investment strategies by offering attractive risk-adjusted
returns and a higher potential for capital preservation should the real estate capital market shift
to a less favorable environment. Given that the U.S. economy is recovering at a slow pace with
some potential risk of sliding back into another recession, we favor an investment strategy
weighted towards targeting debt or securities assets which maximize current income with the added
features of subordinate capital and downside structural protection.
Many investors who acquired real estate assets prior to the recent economic recession are now
having to devote substantial effort to managing their investments and may not have the resources or
capital available to take advantage of current market opportunities. Companies such as ours, with
no legacy asset issues, should have a competitive advantage in the market. For example, our
current originations and acquisitions of commercial real estate debt, commercial real estate
securities and select commercial real estate equity investments reflect valuations that have
already adjusted to post-recession pricing.
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We believe that the following conditions, which are by-products of the recent extended credit
market dislocation and the current, slow economic recovery, should create a favorable investment
environment for us:
| The post-recession market for investing in commercial real estate offers an
opportunity to participate in what we believe are favorable real estate asset
valuations. |
| The scarcity of capital available in the new-issue CMBS market or related
securitized debt market (such as collateralized debt obligations, or CDOs) reduces a
major source of debt capital for commercial property owners. |
| Contraction in the banking system and the high losses experienced by commercial
banks has greatly diminished their capacity to provide commercial real estate debt
capital and credit to property owners. |
| The increasing number of maturing commercial real estate loans over the next five
years should be much greater than the markets capacity to provide refinancing capital. |
| Insurance companies and government sponsored lending programs like Freddie Mac
and Fannie Mae have increased market share through the downturn, but still cannot come
close to fully satisfying demand for commercial real estate debt capital and the
government sponsored agencies are coming under significant scrutiny with many calling
for their reduced role in the future. |
| Capital markets disruption compounded by scrutiny on credit rating agencies offer
attractive investing opportunities in legacy CMBS. |
| The restarting of the CMBS market, which is commonly referred to as CMBS 2.0
(generally seeking to finance only the highest-quality assets based on conservative
underwriting) makes new issue CMBS investing appealing. |
Due to the market conditions described above and our Advisors expertise and industry
relationships, we continue to see a robust pipeline of investment opportunities that have credit
qualities and yield profiles that are consistent with our underwriting standards and that we
believe offer the opportunity to meet or exceed our targeted returns. While we remain optimistic
that we will continue to be able to generate and capitalize on an attractive pipeline, there is no
assurance that will be the case.
Our Target Assets
We intend to invest in both fixed and floating-rate debt and securities. Our fixed-rate assets
have set interest rates that do not fluctuate over time and we receive consistent payments from
these assets. Our floating-rate assets generally have interest rates based on a spread to
one-month London Interbank Offered Rate, or LIBOR, a floating-rate index based on rates that banks
charge each other to borrow. One-month LIBOR as of September 30, 2011 was 0.24%, well below its
2.01% average over the past five years. One-month LIBOR resets every 30 days and the total
interest rate paid to us by our borrowers on our floating-rate assets that are tied to LIBOR will
generally fluctuate as LIBOR rises and falls. Given the current one-month LIBOR rate is at
historically low levels, in order to generate minimum interest rates that are consistent with our
targeted returns many of our LIBOR-based assets have a fixed minimum LIBOR rate, or floor. The
interest rate paid on our floating-rate assets with floors will not increase until the actual
one-month LIBOR rate surpasses the fixed floor rate. Our allocation of fixed and floating-rate
assets may vary significantly over time.
Returns on real estate securities are sensitive to interest rate volatility. For example, if
interest rates increase, the value of our fixed-rate real estate securities may tend to decrease.
On the other hand, if interest rates were to decrease, the value of our fixed-rate real estate
securities may tend to increase.
Our Financing Strategy
We may employ leverage as a part of our investment strategy. Although we have a maximum leverage
level for our portfolio, we do not have a targeted debt-to-equity ratio, as we believe the
appropriate leverage for the particular assets we finance depends on the specific credit
characteristics of those assets. We utilize leverage for the sole purpose of financing our assets
and we do not employ leverage to speculate on changes in interest rates. When we employ leverage
we will generally seek to match fund our assets with respect to interest rate and maturity in order
to reduce the impact of interest rate fluctuation and risk of refinancing our liabilities prior to
the maturity of our assets.
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Table of Contents
In the first half of 2011, liquidity was beginning to return to the commercial real estate finance
markets and corporate capital started to become available to the stronger sponsors. Wall Street
and commercial banks began to more actively provide credit to real estate lenders to originate or
purchase new real estate loans. A proxy of the easing of credit and restarting of the capital
markets for commercial real estate debt is the approximately $22 billion in multi-borrower CMBS
transactions that were completed during the first nine months of 2011. Many industry experts are
predicting $25 to $30 billion total CMBS issuance in 2011 even though actual issuance could fall
below expectations due to more recent volatile market conditions.
Our Risk Management Strategy
Our Advisor uses many methods to actively manage our asset base to preserve our income and capital.
Frequent dialogue with borrowers and inspections of our collateral are an effective process for
identifying issues early and prior to missed debt service and other payments. Some of our loans
may require borrowers to replenish cash reserves for items such as taxes, insurance and future debt
service costs. Late replenishments of cash reserves also may be an early indicator there could be
a problem with the borrower or collateral property.
Our Advisor conducts comprehensive credit reviews that include day-to-day oversight by the
portfolio management team, weekly management meetings and a quarterly credit review process. These
processes are designed to enable management to evaluate and proactively manage asset-specific
credit issues and identify credit trends on a portfolio-wide basis. Nevertheless, we cannot be
certain that our Advisors review will identify all issues within our portfolio due to, among other
things, adverse economic conditions or events adversely affecting specific assets; therefore,
potential future losses may also stem from assets that are not identified by these credit reviews.
During the credit reviews, assets may be put on non-performing status and identified for possible
impairment based upon several factors, including missed or late contractual payments, significant
declines in collateral performance, and other data which may indicate a potential issue in our
ability to recover our capital from the investment.
Each of our assets, while primarily backed by commercial real estate collateral, is unique and
requires customized asset management strategies for dealing with potential credit situations. The
complexity of each situation depends on many factors, including the number of collateral
properties, the type of property, macro and local market conditions impacting the demand, cash flow
and value of the collateral, and the financial condition of our borrowers and their willingness to
support our collateral properties. Our Advisor has an experienced asset management team that
monitors those factors on our behalf.
Critical Accounting Policies
Refer to the section of our Annual Report on Form 10-K for the year ended December 31, 2010
entitled Managements Discussion and Analysis of Financial Condition and Results of
OperationsCritical Accounting policies for a full discussion of our critical accounting
policies.
25
Table of Contents
Results of Operations
The following discussion is based upon the consolidated financial statements of the Company for the
three and nine months ended September 30, 2011 and the historical carryover financial statements of
NorthStar Income Opportunity REIT I, Inc., or NSIO REIT, the Accounting Acquirer, for the three and
nine months ended September 30, 2010.
Comparison of the Three Months Ended September 30, 2011 to the Three Months Ended September 30,
2010
Three Months Ended September 30, | Increase (decrease) | |||||||||||||||
2011 | 2010 | Amount | % | |||||||||||||
Revenues |
||||||||||||||||
Interest income |
$ | 849,522 | $ | 413,107 | $ | 436,415 | 105.6 | % | ||||||||
Total revenues |
849,522 | 413,107 | 436,415 | 105.6 | % | |||||||||||
Expenses |
||||||||||||||||
Interest expense |
227,480 | 227,383 | 97 | 0.0 | % | |||||||||||
Advisory fees related party |
178,296 | 13,938 | 164,358 | 1179.2 | % | |||||||||||
Auditing and professional fees |
54,789 | 60,227 | (5,438 | ) | (9.0 | %) | ||||||||||
General and administrative expenses |
97,455 | 274,130 | (176,675 | ) | (64.4 | %) | ||||||||||
Total expenses |
558,020 | 575,678 | (17,658 | ) | (3.1 | %) | ||||||||||
Income (loss) from operations |
291,502 | (162,571 | ) | 454,073 | (279.3 | %) | ||||||||||
Unrealized gains (losses) on investments and other |
(278,519 | ) | 1,109,603 | (1,388,122 | ) | (125.1 | %) | |||||||||
Consolidated net income |
12,983 | 947,032 | (934,049 | ) | (98.6 | %) | ||||||||||
Less: net income attributable to non-controlling interests |
| 132 | (132 | ) | (100.0 | %) | ||||||||||
Net income attributable to NorthStar Real Estate Income
Trust, Inc. common stockholders |
$ | 12,983 | $ | 946,900 | $ | (933,917 | ) | (98.6 | %) | |||||||
Revenues
Interest Income
Interest income increased $436,415, primarily attributable to interest income on three first
mortgage loans that the Company originated in 2011.
Expenses
Interest Expense
Interest expense remained flat over the prior period as the Company did not utilize any new
financings.
Advisory Fees Related Party
The increase in advisory fees related party was primarily attributable to acquisition fees in
the third quarter of 2011 for the origination of a first mortgage loan and an increase in asset
management fees due to increased capital raising and investment activity.
Auditing and Professional Fees
Auditing and professional fees decreased $5,438, primarily attributable to higher professional fees
incurred in the third quarter 2010 related to the merger of NSIO REIT and the Company.
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Table of Contents
General and Administrative Expenses
General and administrative expenses include director fees, organization and other costs associated
with operating the Company. The decrease was primarily attributable to the allocation of
organization and other costs incurred in the third quarter 2010 in connection with the merger.
Unrealized Gains (Losses) on Investments and Other
The decrease in unrealized gains (losses) on investments and other is primarily related to the
change in fair value on two real estate securities for which the fair value option was elected.
Comparison of the Nine Months Ended September 30, 2011 to the Nine Months Ended September 30, 2010
Nine Months Ended September 30, | Increase (decrease) | |||||||||||||||
2011 | 2010 | Amount | % | |||||||||||||
Revenues |
||||||||||||||||
Interest income |
$ | 1,902,266 | $ | 1,118,356 | $ | 783,910 | 70.1 | % | ||||||||
Total revenues |
1,902,266 | 1,118,356 | 783,910 | 70.1 | % | |||||||||||
Expenses |
||||||||||||||||
Interest expense |
674,978 | 572,504 | 102,474 | 17.9 | % | |||||||||||
Advisory fees related party |
456,912 | 37,011 | 419,901 | 1134.5 | % | |||||||||||
Auditing and professional fees |
144,254 | 190,650 | (46,396 | ) | (24.3 | %) | ||||||||||
General and administrative expenses |
584,874 | 550,185 | 34,689 | 6.3 | % | |||||||||||
Total expenses |
1,861,018 | 1,350,350 | 510,668 | 37.8 | % | |||||||||||
Income (loss) from operations |
41,248 | (231,994 | ) | 273,242 | (117.8 | %) | ||||||||||
Realized gain on investments and other |
| 199,604 | (199,604 | ) | (100.0 | %) | ||||||||||
Unrealized gains (losses) on investments and other |
302,793 | 2,213,850 | (1,911,057 | ) | (86.3 | %) | ||||||||||
Consolidated net income |
344,041 | 2,181,460 | (1,837,419 | ) | (84.2 | %) | ||||||||||
Less: net income attributable to non-controlling interests |
35 | 421 | (386 | ) | (91.7 | %) | ||||||||||
Net income attributable to NorthStar Real Estate Income
Trust, Inc. common stockholders |
$ | 344,006 | $ | 2,181,039 | $ | (1,837,033 | ) | (84.2 | %) | |||||||
Revenues
Interest Income
Interest income increased $783,910, primarily attributable to the origination of three first
mortgage loans and the acquisition of a real estate security in 2011. In 2011, the Company also
benefitted from owning two of its real estate securities acquired in 2010 for the entire period.
The increase was partially offset by the sale of a real estate security on June 30, 2010.
Expenses
Interest Expense
Interest expense increased $102,474, primarily related to a full period of interest expense in 2011
related to borrowings used to finance two real estate securities acquired in January 2010 and
February 2010.
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Table of Contents
Advisory Fees Related Party
The increase in advisory fees related party was primarily attributable to acquisition fees for
the origination of three first mortgage loans in 2011 and an increase in asset management fees due
to increased capital raising and investment activity.
Auditing and Professional Fees
The decrease in auditing and professional fees was primarily attributable to one-time professional
fees incurred during the second quarter of 2010 in connection with the merger of NSIO REIT and the
Company.
General and Administrative Expenses
General and administrative expenses include director fees, organization and other costs associated
with operating the Company. The increase was primarily attributable to increases in director and
officer insurance, equity-based compensation expense and servicer fees, partially offset by a
decrease in organization and other costs and a one-time structure fee incurred in 2010 related to
the TALF borrowings.
Realized Gain on Investments and Other
We had no realized gain on investments and other for the nine months ended September 30, 2011.
Realized gain on investments and other for 2010 was the result of the sale of one real estate
security on June 30, 2010.
Unrealized Gains (Losses) on Investments and Other
The decrease in unrealized gains (losses) on investments and other is primarily related to the
change in fair value on two real estate securities for which the fair value option was elected.
Liquidity and Capital Resources
We are dependent upon the net proceeds from our continuous, public offering to conduct our
operations. We will obtain the capital required to originate and acquire commercial real estate
debt investments, commercial real estate securities and select commercial real estate equity
investments and conduct our operations from the proceeds of our Offering and any future offerings
we may conduct, from secured or unsecured financings from banks and other lenders and from any
undistributed funds from our operations. For the nine months ended September 30, 2011, we sold
6,082,467 shares generating gross proceeds of $60,516,953. As of September 30, 2011, we held
$40,588,178 of unrestricted cash available for investments.
If we are unable to continue to raise funds in the Offering, we will be unable to make new
investments resulting in less diversification in terms of the type, number and size of investments
we make and the value of an investment in us will fluctuate with the performance of the specific
assets we acquire. Further, we have certain fixed operating expenses, including certain expenses
as a publicly-offered REIT, regardless of whether we are able to continue to raise funds in the
Offering. Our inability to continue to raise funds would increase our fixed operating expenses as
a percentage of gross income, reducing our net income and limiting our ability to make
distributions.
Once we have fully invested the proceeds of our Offering, we expect that our financing will not
exceed 50% of the greater of the cost or fair value of our investments, although it may exceed this
level during our offering stage. Our charter limits us from incurring borrowings that would exceed
75% of our tangible assets. We cannot exceed this limit unless any excess in borrowing over such
level is approved by our stockholders. As of September 30, 2011, our leverage was 45.0%, which is
well below the maximum allowed by our charter.
In addition to making investments in accordance with our investment objectives, we expect to use
our capital resources to make certain payments to our Advisor and NorthStar Realty Securities, LLC,
or the Dealer Manager. During our organization and offering stage, these payments will include
payments to the Dealer Manager for selling commissions and the dealer manager fee, and payments to
the Dealer Manager and our Advisor for reimbursement of certain organization and offering expenses.
However, our Advisor has agreed to reimburse us to the extent that selling commissions, the dealer
manager fee and other organization and offering expenses incurred by us exceed 15% of our gross
offering proceeds from the primary offering. During our acquisition and development stage, we expect to make payments to our
Advisor in connection with the selection and origination or acquisition of investments, the
management of our assets and costs incurred by our Advisor in providing services to us. The
advisory agreement has a one-year term but may be renewed for an unlimited number of successive
one-year periods upon the mutual consent of our Advisor and our board of directors.
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We elected to be taxed as a REIT and to operate as a REIT commencing with our taxable year ended
December 31, 2010. To maintain our qualification as a REIT, we will be required to make aggregate
annual distributions to our stockholders of at least 90% of our REIT taxable income (computed
without regard to the dividends paid deduction and excluding net capital gain). Our board of
directors may authorize distributions in excess of those required for us to maintain REIT status
depending on our financial condition and such other factors as our board of directors deems
relevant. Provided we have sufficient available cash flow, we intend to authorize and declare
daily distributions and pay distributions on a monthly basis. We have not established a minimum
distribution level.
Cash Flows
The following discussion is based upon the consolidated financial statements of the Company for the
nine months ended September 30, 2011 and the historical carryover financial statements of NSIO REIT
for the nine months ended September 30, 2010.
Net cash provided by operating
activities was $6,086 and $339,877 for the three and nine months ended September 30, 2011,
respectively, and included net interest income generated from our investments and fees on originated first
mortgage loans offset by fees paid to our Advisor for the acquisition and management of our
investments. Net cash (used in) operating activities was $280,551 for the nine months ended
September 30, 2010 and included net interest income generated from our investments offset by
professional fees paid in connection with the merger with NSIO REIT.
Net cash (used in) investing activities was $32,077,400 for the nine months ended September 30,
2011 and included the origination of three first mortgage loans and the acquisition of a real
estate security. Net cash (used in) investing activities was $27,763,765 for the nine months ended
September 30, 2010 and included the acquisition of two real estate securities offset by the sale of
one real estate security.
Net cash provided by financing activities was $51,920,869 for the nine months ended September 30,
2011 and included the net proceeds from the issuance of common stock through our primary offering
and DRP offset by distributions paid on our common stock and a common
stock share repurchase. Net cash
provided by financing activities was $55,335,463 for the nine months ended September 30, 2010 and
included the net proceeds from the issuance of common stock through our primary offering and DRP
and borrowings incurred under two TALF agreements offset by distributions paid on our common stock.
Contractual Obligations
As of September 30, 2011, we had the following contractual obligations:
Payments Due by Period | ||||||||||||||||||||
Less than | More than | |||||||||||||||||||
Total | 1 year | 2-3 years | 4-5 years | 5 years | ||||||||||||||||
Contractual Obligations: |
||||||||||||||||||||
Borrowings |
$ | 24,061,212 | $ | | $ | | $ | 24,061,212 | $ | | ||||||||||
Total contractual obligations |
$ | 24,061,212 | $ | | $ | | $ | 24,061,212 | $ | | ||||||||||
Recent Developments
Offering Proceeds
For the period from October 1, 2011 to November 8, 2011, the Company sold 2,187,424 common shares pursuant
to its Offering, including DRP shares, generating gross proceeds of $21,828,541.
Distributions
On November 8, 2011, our board of directors approved a daily cash distribution of $0.002191781 per
share of common stock for each of the three months ended March 31, 2012. The distribution will be
paid in cumulative amounts to the stockholders of record entitled to receive such distribution
February 1, 2012, March 1, 2012 and April 2, 2012.
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Sponsor Purchase of Common Stock
The Sponsor has committed to purchase up to $10 million of shares of the Companys common stock
during the two-year period following commencement of the Companys Offering under certain
circumstances to provide additional funds to support distributions to stockholders. On November 8,
2011, the Company and the Sponsor entered into a Second Amended and Restated Distribution Support
Agreement, pursuant to which the Sponsors purchase commitment is based upon MFFO effective for the
three months ended September 30, 2011. On November 8, 2011, the Companys board of directors
approved the sale of 71,569 shares of the Companys common stock, $0.01 par value per share, to
NRFC Sub-REIT Corp., a subsidiary of the Sponsor, at a price of $9.00 per share. In connection
with this commitment and including the Sponsor purchase of shares approved on November 8, 2011, the
Sponsor has purchased 253,202 shares for $2.3 million.
Off Balance Sheet Arrangements
We have no off balance sheet arrangements that are reasonably likely to have a current or future
material effect on our financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources.
Non-GAAP Financial Measures
Funds from Operations and Modified Funds from Operations
Management believes that FFO and MFFO, both of which are non-GAAP measures, are additional
appropriate measures of the operating performance of a REIT and of our company in particular. We
compute FFO in accordance with the standards established by the National Association of Real Estate
Investment Trusts, or NAREIT, as net income or loss (computed in accordance with generally accepted
accounting principles (U.S. GAAP)), excluding gains or losses from sales of depreciable
properties, the cumulative effect of changes in accounting principles, real estate-related
depreciation and amortization, and after adjustments for unconsolidated/uncombined partnerships and
joint ventures. FFO, as defined by NAREIT, is a computation made by analysts and investors to
measure a real estate companys cash flow generated by operations.
We believe MFFO provides a clear and transparent representation of sustainable cash flow from
operations. We compute MFFO in accordance with the definition established by the Investment
Program Association, or IPA. Our computation of MFFO may not be comparable to other REITs that
do not calculate MFFO using the current IPA definition. MFFO excludes from FFO the following
items:
| acquisition fees and expenses; |
| straight-line rent and amortization of above or below intangible lease assets and
liabilities; |
| amortization of discounts and premiums on debt investments; |
| non-recurring impairment of real estate-related investments; |
| realized gains (losses) from the early extinguishment of debt; |
| realized gains (losses) on the extinguishment or sales of hedges, foreign exchange,
securities and other derivative holdings except where the trading of such instruments is a
fundamental attribute of our business; |
| unrealized gains (losses) from fair value adjustments on real estate securities,
including commercial mortgage-backed securities and other securities, interest rate swaps
and other derivatives not deemed hedges and foreign exchange holdings; |
| unrealized gains (losses) from the consolidation from, or deconsolidation to, equity
accounting; |
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| adjustments related to contingent purchase price obligations; and |
| adjustments for consolidated and unconsolidated partnerships and joint ventures
calculated to reflect MFFO on the same basis as above. |
We believe that MFFO is helpful to management and investors in assessing our future operating
performance and the sustainability of our distributions, especially when our acquisition and
offering stage is complete, because it eliminates from net income acquisition fees and expenses
that are incurred as part of our investment activities and non-cash fair value adjustments on our
real estate securities.
Neither FFO nor MFFO is equivalent to net income or cash generated from operating activities
determined in accordance with U.S. GAAP. Furthermore, FFO and MFFO do not represent amounts
available for managements discretionary use because of needed capital replacement or expansion,
debt service obligations or other commitments or uncertainties. Neither FFO nor MFFO should be
considered as an alternative to net income as an indicator of our operating performance or as an
alternative to cash flow from operating activities as a measure of our liquidity.
Set forth below is a reconciliation of FFO and MFFO to net income attributable to NorthStar Real
Estate Income Trust, Inc. common stockholders:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Funds from Operations: |
||||||||||||||||
Net income attributable to NorthStar Real Estate |
||||||||||||||||
Income Trust, Inc. common stockholders |
$ | 12,983 | $ | 946,900 | $ | 344,006 | $ | 2,181,039 | ||||||||
Funds from Operations |
$ | 12,983 | $ | 946,900 | $ | 344,006 | $ | 2,181,039 | ||||||||
Modified Funds from Operations: |
||||||||||||||||
Funds from Operations |
$ | 12,983 | $ | 946,900 | $ | 344,006 | $ | 2,181,039 | ||||||||
Acquisition fees and expenses |
93,778 | | 292,149 | | ||||||||||||
Amortization of premiums, discounts and fees on
investments |
5,520 | 1,460 | 64,454 | 12,147 | ||||||||||||
Unrealized (gains) losses from fair value
adjustments |
278,519 | (1,109,603 | ) | (302,793 | ) | (2,213,850 | ) | |||||||||
Modified Funds from Operations |
$ | 390,800 | $ | (161,243 | ) | $ | 397,816 | $ | (20,664 | ) | ||||||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
We may be exposed to the effects of interest rate changes as a result of borrowings used to
maintain liquidity and to fund the acquisition, expansion and refinancing of our real estate
investment portfolio and operations. Our profitability and the value of our investment portfolio
may be adversely affected during any period as a result of interest rate changes. Our interest
rate risk management objectives are to limit the impact of interest rate changes on income and cash
flows and to lower overall borrowing costs. We may utilize a variety of financial instruments,
including interest rate caps, floors and swap agreements, in order to limit the effects of changes
in interest rates on our operations. When we use these types of derivatives to hedge the risk of
interest-earning assets or interest-bearing liabilities, we may be subject to certain risks,
including the risk that losses on a hedge position will reduce the funds available for payments to
holders of our common stock and that the losses may exceed the amount we invested in the
instruments. We will not enter into derivative or interest rate transactions for speculative
purposes.
Interest Rate Risk
Changes in interest rates affect our net interest income, which is the difference between the
income earned on our assets and the interest expense incurred in connection with our borrowings.
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Our debt and security investments bear interest at either a floating or fixed-rate. The interest
rates on our floating-rate assets typically float at a fixed spread over an index such as LIBOR,
and typically reprice every 30 days based on LIBOR in effect at the time. Currently, all of our
real estate debt investments have a fixed minimum LIBOR rate. Given the frequent and periodic repricing of our floating-rate assets, changes in benchmark
interest rates are unlikely to materially affect the value of our floating-rate portfolio. Changes
in short-term rates will, however, affect income from our investments.
Changes in interest rates could affect the value of our fixed-rate real estate debt and security
investments. For example, increasing interest rates would result in a higher required yield on
investments, which would decrease the value on existing fixed-rate assets in order to adjust their
yields to current market levels.
Credit Spread Risk
The value of our fixed and floating-rate investments also change with market credit spreads. This
means that when market-demanded risk premiums, or credit spreads, increase, the value of our fixed
and floating-rate assets decrease and vice versa. The fixed-rate securities are valued based on a
market credit spread over the rate payable on fixed rate U.S. Treasury of like maturity. This
means that their value is dependent on the yield demanded on such assets by the market, based on
their credit relative to U.S. Treasuries. The floating-rate debt investments are valued based on a
market credit spread over LIBOR. Excessive supply of these investments combined with reduced
demand will generally cause the market to require a higher yield on these investments, resulting in
the use of a higher or wider spread over the benchmark rate (usually the applicable U.S. Treasury
yield) to value these assets. Under these conditions, the value of our portfolio should decrease.
Conversely, if the spread used to value these assets were to decrease or tighten, the value of
these assets should increase.
Credit Risk
Credit risk in our real estate debt and security investments relates to each individuals
borrowers ability to make required interest and principal payments on scheduled due dates. We
seek to manage credit risk through a comprehensive credit analysis prior to making an investment,
actively monitoring our asset portfolio and the underlying credit quality of our holdings and
subordination and diversification of our portfolio. Our analysis is based on a broad range of real
estate, financial, economic and borrower-related factors which we believe are critical to the
evaluation of credit risk inherent in a transaction.
Item 4. | Controls and Procedures |
Disclosure Controls and Procedures
The management of the Company established and maintains disclosure controls and procedures that are
designed to ensure that material information relating to the Company and its subsidiaries required
to be disclosed in the reports that are filed or submitted under the 1934 Act are recorded,
processed, summarized, and reported within the time periods specified in the SECs rules and forms,
and that such information is accumulated and communicated to management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosures.
As of the end of the period covered by this report, the Companys management conducted an
evaluation, under the supervision and with the participation of the Companys Chief Executive
Officer and Chief Financial Officer, of the Companys disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, the
Companys Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the
period covered by this report, the Companys disclosure controls and procedures are effective.
Notwithstanding the foregoing, a control system, no matter how well designed and operated, can
provide only reasonable, not absolute, assurance that it will detect or uncover failures within the
Company to disclose material information otherwise required to be set forth in the Companys
periodic reports.
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PART II. OTHER INFORMATION
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
Use of Proceeds from Registered Securities |
On July 19, 2010, our registration statement on Form S-11 (File No. 333-157688), covering our
Offering of up to 110,526,315 shares of common stock, of which 10,526,315 shares of common stock
would be offered pursuant to our DRP, was declared effective under the Securities Act. We
commenced our Offering on the same date and retained the Dealer Manager, an affiliate of ours, to
serve as the dealer manager of the Offering. We are offering up to 100,000,000 shares of common
stock at an aggregate offering price of up to $1.0 billion, or $10.00 per share, with discounts
available to certain categories of purchasers, and 10,526,315 shares of common stock pursuant to
our DRP at an aggregate offering price of $100 million, or $9.50 per share.
As of September 30, 2011, we sold the following securities in our Offering:
| 6,332,934 shares, equal to $63,013,263 of aggregate gross offering proceeds; and |
| 87,446 shares, equal to $830,739 of aggregate gross offering proceeds, pursuant to the
DRP. |
In the aggregate, as of September 30, 2011, we sold 6,420,380 shares resulting in gross proceeds of
$63,844,002.
For the nine months ended September 30, 2011, we repurchased 14,748 shares for a total of $147,480,
or $10.00 per share.
As of September 30, 2011, we incurred the following costs in connection with the issuance and
distribution of the registered securities:
Type of Cost | Amount | |||
Offering costs to related parties |
$ | 6,698,025 |
From the commencement of the Offering through September 30, 2011, the net offering proceeds to us
from the primary offering component of the Offering, after deducting the total expenses incurred
described above, were $56,315,238. From the commencement of the Offering through September 30,
2011, we used $29,357,400 to originate real estate debt investments, $2,720,000 to purchase a real
estate security and $292,149 was paid to our Advisor as acquisition fees in connection with the
loan originations.
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Item 6. | Exhibits |
(a) Exhibits
Exhibit | ||||
Number | Description | |||
3.1 | Second Articles of Amendment and Restatement of NorthStar
Real Estate Income Trust, Inc. (filed as Exhibit 3.1 to the
Companys Current Report on Form 8-K filed on August 26,
2010 and incorporated herein by reference) |
|||
3.2 | Bylaws of NorthStar Real Estate Income Trust, Inc. (filed
as Exhibit 3.2 to the Companys Registration Statement on
Form S-11 (File No. 333-157688) and incorporated herein by
reference) |
|||
4.1 | Form of Subscription Agreement (filed as Exhibit 4.1 to the
Companys Quarterly Report on Form 10-Q for the quarter
ended June 30, 2011 and incorporated herein by reference) |
|||
4.2 | Amended and Restated Distribution Reinvestment Plan (filed
as Exhibit 4.2 to Post-Effective Amendment No. 2 to the
Companys Registration Statement on Form S-11 (File No.
333-157688) and incorporated herein by reference) |
|||
10.1 | Advisory Agreement dated as of March 17, 2010 by and among
NorthStar Real Estate Income Trust, Inc., NorthStar Real
Estate Income Trust Operating Partnership, LP, NS Real
Estate Income Trust Advisor, LLC and NorthStar Realty
Finance Corp (filed as Exhibit 10.2 to Pre-Effective
Amendment No. 5 to the Companys Registration Statement on
Form S-11 (File No. 333-157688) and incorporated herein by
reference) |
|||
10.2 | Amendment No. 1 to Advisory Agreement, dated February 24,
2011, by and among NorthStar Real Estate Income Trust,
Inc., NorthStar Real Estate Income Trust Operating
Partnership, LP, NS Real Estate Income Trust Advisor, LLC
and NorthStar Realty Finance Corp (filed as Exhibit 10.1 to
the Companys Current Report on Form 8-K filed on March 2,
2011 and incorporated herein by reference) |
|||
10.3 | Amended and Restated Distribution Support Agreement dated
as of August 11, 2011, by and between NorthStar Real Estate
Income Trust, Inc. and NorthStar Realty Finance Corp (filed
as Exhibit 10.7 to Post-Effective Amendment No. 5 to the
Companys Registration Statement on Form S-11 (File No.
333-157688) and incorporated herein by reference) |
|||
31.1 | * | Certification by the Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |
||
31.2 | * | Certification by the Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |
||
32.1 | * | Certification by the Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 |
||
32.2 | * | Certification by the Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 |
||
**101.INS | The following materials from the NorthStar Real Estate
Income Trust, Inc. Quarterly Report on Form 10-Q for the
quarter ended September 30, 2011, formatted in XBRL
(eXtensible Business Reporting Language): (i) Consolidated
Balance Sheets at September 30, 2011 (unaudited) and
December 31, 2010; (ii) Consolidated Statements of
Operations (unaudited) for the three and nine months ended
September 30, 2011 and 2010; (iii) Consolidated Statements
of Stockholders Equity as of September 30, 2011
(unaudited) and December 31, 2010; (iv) Consolidated
Statements of Comprehensive Income (unaudited) for the
three and nine months ended September 30, 2011 and 2010;
(v) Consolidated Statements of Cash Flows (unaudited) for
the three and nine months ended September 30, 2011 and
2010; and (vi) Notes to Consolidated Financial Statements
(unaudited) |
* | Filed herewith |
|
** | Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are
deemed not filed or part of a registration statement or prospectus for purposes of Sections 11
or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section
18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to
liability under those sections. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
NORTHSTAR REAL ESTATE INCOME TRUST, INC. |
||||
Date: November 10, 2011 | By: | /s/ David T. Hamamoto | ||
David T. Hamamoto | ||||
Chief Executive Officer | ||||
By: | /s/ Debra A. HESS | |||
Debra A. Hess | ||||
Chief Financial Officer |
35