NorthStar Asset Management Group Inc. - FORM 10-Q

Attached files

file	filename
EX-32.1 - EXHIBIT 32.1 - NorthStar Asset Management Group Inc.	nsam06302016ex321.htm
EX-32.2 - EXHIBIT 32.2 - NorthStar Asset Management Group Inc.	nsam06302016ex322.htm
EX-31.2 - EXHIBIT 31.2 - NorthStar Asset Management Group Inc.	nsam06302016ex312.htm
EX-31.1 - EXHIBIT 31.1 - NorthStar Asset Management Group Inc.	nsam06302016ex311.htm
EX-12.1 - EXHIBIT 12.1 - NorthStar Asset Management Group Inc.	nsam06302016ex121.htm

UNITED STATES

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

For the quarterly period ended June 30, 2016

Commission File Number: 001-36301

NORTHSTAR ASSET MANAGEMENT GROUP INC.

(Exact Name of Registrant as Specified in its Charter)



Delaware	46-4591526
(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)

(212) 547-2600

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý 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 ý	Accelerated filer o	Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:

The Company has one class of common stock, $0.01 par value per share, 189,001,185 shares outstanding and one class of performance common stock, $0.01 par value per share, 5,210,113 shares outstanding, each as of August 4, 2016.

NORTHSTAR ASSET MANAGEMENT GROUP INC.

FORM 10-Q

TABLE OF CONTENTS



Index		Page
Part I.	Financial Information	5
Item 1.	Financial Statements	5
	Consolidated Balance Sheets as of June 30, 2016 (unaudited) and December 31, 2015	5
	Consolidated Statements of Operations (unaudited) for the three and six months ended June 30, 2016 and 2015	6
	Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three and six months ended June 30, 2016 and 2015	7
	Consolidated Statements of Equity for the six months ended June 30, 2016 (unaudited) and year ended December 31, 2015	8
	Consolidated Statements of Cash Flow (unaudited) for the six months ended June 30, 2016 and 2015	9
	Notes to Consolidated Financial Statements (unaudited)	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	42
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	68
Item 4.	Controls and Procedures	69

Part II.	Other Information	70
Item 1.	Legal Proceedings	70
Item 1A.	Risk Factors	70
Item 6.	Exhibits	74

Signatures		76

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or Exchange Act. 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,” “future” or other similar words or expressions. Forward-looking statements are not guarantees of performance and are based on certain assumptions, discuss future expectations, describe plans and strategies, contain projections of results of operations or of financial condition or state other forward-looking information. Such statements include, but are not limited to, those relating to the effects of our spin-off from NorthStar Realty Finance Corp., or NorthStar Realty, described in this Quarterly Report on Form 10-Q, our ability to effectively grow our business, our liquidity and financing needs, the impact of the merger with NorthStar Realty and Colony Capital, Inc., or Colony, on our business and operations the effects of our current asset management strategy, our management’s track record, our ability to manage credit risk and the assets of our Managed Companies (refer to our Financial Statements in this Form 10-Q), our ability to source additional investment opportunities for our Managed Companies and our ability to obtain new Managed Companies and additional assets to manage. Our ability to predict results or the actual effect of plans or strategies is inherently uncertain, particularly given the economic environment. 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 and you should not unduly rely on these 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. These factors include, but are not limited to:


•	our ability to realize our projected effective income tax rate;


•	adverse domestic or international economic conditions and the impact of developments in the commercial real estate industry on our Managed Companies;


•	whether we will realize the benefits we anticipate, if any, from our acquisition of Townsend Holdings LLC;


•	our ability to consummate the merger with NorthStar Realty and Colony on the contemplated terms or at all, including whether the merger will have the full or any strategic and financial benefits, efficiencies and synergies we expect and whether such benefits will be delayed or materialize at all;


•	our access to debt and equity capital and our liquidity;


•	our ability to grow our business by raising capital for our existing Managed Companies and sponsoring new Managed Companies, as well as our ability to otherwise continue to manage our Managed Companies in the future;


•	our ability to effectively implement the business plans of, and the performance of, our Managed Companies;


•	our ability to enter into, and grow our business through acquisitions, strategic investments and joint ventures;


•	our ability to realize the anticipated benefits of our strategic investments and joint ventures;


•	our use of leverage and our ability to comply with the terms of our borrowing arrangements;


•	the impact of fluctuations in interest rates;


•	the impact of shareholder activism or any proxy contests;


•	changes in domestic or international laws or regulations governing various aspects of our business and our Managed Companies including the potential impact of rules issued by the U.S. Department of Labor regarding fiduciary standards for brokers who are providing investment advice with respect to retirement plan assets and implementation of FINRA Rule 15-02 related to broker account statements;


•	the impact of any conflicts of interest, including with our officers and directors, arising from our asset management activities or otherwise;


•	our ability to manage our costs in line with our expectations and the impact on our cash available for distribution;


•	competition for qualified personnel and our ability to retain key personnel;


•	the competitive nature of the asset management industry;


•	the effectiveness of our portfolio management techniques and strategies;


•	our ability to expand and successfully manage our operations internationally;


•	the impact if we continue to repurchase shares of our common stock and the terms of those repurchases, if any;

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•	our ability to maintain our exclusion from the definition of an “investment company” under the Investment Company Act of 1940, as amended;


•	the potential failure to maintain effective internal controls and disclosure controls and procedures;


•	the effect of regulatory or tax actions, litigation and contractual claims against us, our affiliates or our Managed Companies, including the potential settlement and litigation of such claims, as well as any corresponding distraction and potential damage to our reputation.

The foregoing list of factors is not exhaustive. All forward-looking statements included in this Quarterly Report on Form 10-Q are based on information available to us on the date hereof and 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 set forth in our filings with the United States Securities and Exchange Commission, or the SEC, included in Part I, Item 1A. of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 and in Part II, Item 1A. of this Quarterly Report on Form 10-Q under the heading “Risk Factors.” The risk factors set forth 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.

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PART I. Financial Information

Item 1. Financial Statements

NORTHSTAR ASSET MANAGEMENT GROUP INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands, Except Per Share Data)



	June 30, 2016 (Unaudited)			December 31, 2015
Assets
Cash	$	59,614		$	84,707
Restricted cash	19,623			36,780
Receivables, net (refer to Note 3)	109,012			93,809
Investments in unconsolidated ventures (refer to Note 4)	99,209			88,069
Securities, at fair value (refer to Note 6)	33,297			46,215
Intangible assets, net	198,826			—
Goodwill	251,285			—
Other assets	44,647			25,241
Total assets	$	815,513		$	374,821
Liabilities
Term loan, net	$	468,943		$	—
Credit facility	—			100,000
Accounts payable and accrued expenses	53,841			90,160
Commission payable	1,174			6,988
Other liabilities	25,943			930
Total liabilities	549,901			198,078
Commitments and contingencies
Redeemable non-controlling interests	75,181			—
Equity
NorthStar Asset Management Group Inc. Stockholders’ Equity
Performance common stock, $0.01 par value, 500,000,000 shares authorized, 5,210,113 and 4,213,156 shares issued and outstanding as of June 30, 2016 and December 31, 2015, respectively	52			42
Preferred stock, $0.01 par value, 100,000,000 shares authorized, no shares issued and outstanding as of June 30, 2016 and December 31, 2015	—			—
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 189,039,157 and 185,685,124 shares issued and outstanding as of June 30, 2016 and December 31, 2015, respectively	1,890			1,857
Additional paid-in capital	231,687			208,318
Accumulated other comprehensive income (loss)	(141		)	—
Retained earnings (accumulated deficit)	(44,845		)	(35,152		)
Total NorthStar Asset Management Group Inc. stockholders’ equity	188,643			175,065
Non-controlling interests	1,788			1,678
Total equity	190,431			176,743
Total liabilities and equity	$	815,513		$	374,821

Refer to accompanying notes to consolidated financial statements.

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NORTHSTAR ASSET MANAGEMENT GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in Thousands, Except Per Share and Dividends Data)

(Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Revenues
Asset management and other fees (refer to Note 3)	$	90,081		$	90,358		$	186,361		$	151,737
Selling commission and dealer manager fees (refer to Note 3)	4,888			28,337			11,259			58,260
Other income	2,126			434			5,901			835
Total revenues	97,095			119,129			203,521			210,832
Expenses
Commission expense (refer to Note 3)	4,471			26,338			10,417			54,034
Interest expense	6,922			—			12,086			—
Transaction costs	17,753			73			25,072			375
Other expenses	2,071			213			3,448			469
General and administrative expenses
Compensation expense⁽¹⁾	33,960			32,707			71,131			58,470
Other general and administrative expenses	10,599			9,255			20,922			15,360
Total general and administrative expenses	44,559			41,962			92,053			73,830
Depreciation and amortization	2,536			429			4,445			884
Total expenses	78,312			69,015			147,521			129,592
Unrealized gain (loss) on investments and other	(4,638		)	63			(15,302		)	(285		)
Realized gain (loss) on investments and other	—			—			(874		)	—
Income (loss) before equity in earnings (losses) of unconsolidated ventures and income tax benefit (expense)	14,145			50,177			39,824			80,955
Equity in earnings (losses) of unconsolidated ventures (refer to Note 4)	(852		)	90			(5,282		)	(781		)
Income (loss) before income tax benefit (expense)	13,293			50,267			34,542			80,174
Income tax benefit (expense)	(1,154		)	(12,055		)	(3,623		)	(19,992		)
Net income (loss)	12,139			38,212			30,919			60,182
Net (income) loss attributable to non-controlling interests	(111		)	(188		)	(286		)	(390		)
Net (income) loss attributable to redeemable non-controlling interests	(1,104		)	—			(2,136		)	—
Net income (loss) attributable to NorthStar Asset Management Group Inc. common stockholders	$	10,924		$	38,024		$	28,497		$	59,792
Earnings (loss) per share:
Basic	$	0.06		$	0.19		$	0.15		$	0.30
Diluted	$	0.06		$	0.19		$	0.15		$	0.30
Weighted average number of shares:
Basic	183,324,975			189,599,300			183,176,749			189,574,426
Diluted	185,116,917			193,809,104			184,968,800			193,664,493
Dividends per share of common stock	$	0.10		$	0.10		$	0.20		$	0.20

______________________


(1)	The three months ended June 30, 2016 and 2015 include $13.6 million and $15.0 million, respectively, of equity-based compensation expense. The six months ended June 30, 2016 and 2015 include $30.8 million and $28.6 million, respectively, of equity-based compensation expense. Refer to Note 9 for further disclosure.

Refer to accompanying notes to consolidated financial statements.

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NORTHSTAR ASSET MANAGEMENT GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in Thousands)

(Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Net income (loss)	$	12,139		$	38,212		$	30,919		$	60,182
Other comprehensive income (loss):
Foreign currency translation adjustment, net	(193		)	—			(141		)	—
Total other comprehensive income (loss)	(193		)	—			(141		)	—
Comprehensive income (loss)	11,946			38,212			30,778			60,182
Comprehensive (income) loss attributable to non-controlling interests	(111		)	(188		)	(286		)	(390		)
Comprehensive (income) loss attributable to redeemable non-controlling interests	(1,104		)	—			(2,136		)	—
Comprehensive income (loss) attributable to NorthStar Asset Management Group Inc.	$	10,731		$	38,024		$	28,356		$	59,792

Refer to accompanying notes to consolidated financial statements.

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NORTHSTAR ASSET MANAGEMENT GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(Dollars and Shares in Thousands)



	Performance Common Stock			Common Stock					Additional Paid-in Capital			Accumulated other comprehensive income (loss)			Retained Earnings (Accumulated Deficit)			Total NorthStar Stockholders’ Equity			Non-controlling Interests			Total Equity
	Shares	Amount		Shares		Amount			Additional Paid-in Capital			Accumulated other comprehensive income (loss)			Retained Earnings (Accumulated Deficit)			Total NorthStar Stockholders’ Equity			Non-controlling Interests			Total Equity
Balance as of December 31, 2014	3,738	$	37	192,948		$	1,930		$	276,874		$	—		$	(77,093	)	$	201,748		$	—		$	201,748
Amortization of equity-based compensation	—	—		—		—			53,416			—			—			53,416			4,950			58,366
Issuance of common stock related to transactions (refer to Note 4)	—	—		208		2			4,505			—			—			4,507			—			4,507
Issuance of common stock relating to equity-based compensation, net of forfeitures	—	—		275		3			(3		)	—			—			—			—			—
Conversion of Deferred LTIP Units to LTIP Units and common stock, net	—	—		4		—			(4,400		)	—			—			(4,400		)	4,400			—
Retirement of shares of common stock	—	—		(7,799	)	(78		)	(105,078		)	—			—			(105,156		)	—			(105,156		)
Issuance of performance common stock (refer to Note 10)	475	5		—		—			(5		)	—			—			—			—			—
Settlement of RSUs to common stock, net (refer to Note 9)	—	—		49		—			(7,227		)	—			—			(7,227		)	—			(7,227		)
Dividends on common stock and equity-based awards (refer to Note 9)	—	—		—		—			—			—			(77,853		)	(77,853		)	(538		)	(78,391		)
Excess tax benefit from equity-based compensation	—	—		—		—			(1,068		)	—			—			(1,068		)	—			(1,068		)
Call Spread premium, net	—	—		—		—			(16,783		)	—			—			(16,783		)	—			(16,783		)
Reallocation of non-controlling interests in Operating Partnership (refer to Note 11)	—	—		—		—			8,087			—			—			8,087			(8,087		)	—
Net income (loss)	—	—		—		—			—			—			119,794			119,794			953			120,747
Balance as of December 31, 2015	4,213	$	42	185,685		$	1,857		$	208,318		$	—		$	(35,152	)	$	175,065		$	1,678		$	176,743
Amortization of equity-based compensation	—	—		—		—			28,981			—			—			28,981			1,909			30,890
Issuance of common stock relating to equity-based compensation, net	—	—		2,240		22			(4,583		)	—			—			(4,561		)	—			(4,561		)
Issuance of common stock related to settlement of award (refer to Note 9)				94		1			1,009			—			—			1,010						1,010
Issuance of restricted stock related to Townsend (refer to Note 9)	—	—		658		6			(6		)	—			—			—						—
Issuance of performance common stock (refer to Note 10)	997	10		—		—			(10		)	—			—			—			—			—
Settlement of RSUs to common stock, net (refer to Note 9)	—	—		362		4			(3,156		)	—			—			(3,152		)	—			(3,152		)
Dividends on common stock and equity-based awards (refer to Note 9)	—	—		—		—			—			—			(38,190		)	(38,190		)	(359		)	(38,549		)
Reallocation of non-controlling interests in Operating Partnership (refer to Note 11)	—	—		—		—			1,726			—			—			1,726			(1,726		)	—
Excess tax benefit from equity-based compensation	—	—		—		—			(592		)	—			—			(592		)	—			(592		)
Other comprehensive income (loss)	—	—		—		—			—			(141		)	—			(141		)	—			(141		)
Net income (loss)	—	—		—		—			—			—			28,497			28,497			286			28,783
Balance as of June 30, 2016 (Unaudited)	5,210	$	52	189,039		$	1,890		$	231,687		$	(141	)	$	(44,845	)	$	188,643		$	1,788		$	190,431

Refer to accompanying notes to consolidated financial statements.

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NORTHSTAR ASSET MANAGEMENT GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

(Unaudited)



	Six Months Ended June 30,
	2016			2015
Cash flows from operating activities:
Net income (loss)	$	30,919		$	60,182
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Equity in (earnings) losses of unconsolidated ventures	5,282			781
Impairment on convertible debt	270			—
Depreciation and amortization	4,446			884
Amortization of deferred financing costs	1,922			—
Amortization of equity-based compensation	30,538			28,388
Unrealized (gain) loss on investments and other	15,302			285
Realized (gain) loss on investments and other	874			—
Deferred income tax, net	(4,352		)	4,487
Other income	(1,838		)	—
Distribution from unconsolidated ventures	318			2,108
Straight line rental expense	(348		)	354
Change in assets and liabilities:
Restricted cash	19,588			(8,770		)
Receivables, net	6,029			(12,515		)
Other assets	3,961			(5,339		)
Other liabilities	(1,861		)	408
Accounts payable and accrued expenses	(65,453		)	11,258
Commission payable	(5,637		)	(6,549		)
Net cash provided by (used in) operating activities	39,960			75,962
Cash flows from investing activities:
Acquisition of Townsend, net (refer to Note 1)	(377,355		)	—
Investment in convertible debt	(1,092		)	—
Investments in unconsolidated ventures	(4,313		)	(35,631		)
Settlement of acquisition of securities (Refer to Note 6)	(7,612		)	—
Distribution from unconsolidated ventures	6,867			3,189
Net cash provided by (used in) investing activities	(383,505		)	(32,442		)
Cash flows from financing activities:
Borrowings from term loan	500,000			—
Repayment of term loan	(1,250		)	—
Repayment of credit facility	(100,000		)	—
Payment of financing costs	(31,421		)	—
Repurchase of shares related to equity-based awards and tax withholding	(7,881		)	(12,747		)
Excess tax benefit from equity-based compensation	(592		)	—
Dividends	(38,154		)	(39,035		)
Distributions to redeemable non-controlling interests	(2,482		)	—
Contributions from redeemable non-controlling interests	500			—
Net cash provided by (used in) financing activities	318,720			(51,782		)
Effect of foreign exchange rate changes on cash	(268		)	(285		)
Net increase (decrease) in cash	(25,093		)	(8,547		)
Cash - beginning of period	84,707			109,199
Cash - end of period	$	59,614		$	100,652

Supplemental disclosure of non-cash investing and financing activities:
Reallocation of non-controlling interests in Operating Partnership	$	1,726		$	—
Acquisition of securities (Refer to Note 6)	1,316			—
Contributions from redeemable non-controlling interests	75,202			—
Issuance of common stock related to settlement of award (refer to Note 9)	1,010			—
Dividend payable related to RSUs	398			289
Reclassification related to measurement adjustments/other	4,400			—
Assumption of deferred tax liability	5,517			—
Conversion of Deferred LTIP Units to LTIP Units	—			4,400
Retirement of common shares	—			4,999
Distribution from unconsolidated ventures	—			231

Refer to accompanying notes to consolidated financial statements.

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NORTHSTAR ASSET MANAGEMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


1.	Business and Organization

NorthStar Asset Management Group Inc. (“NSAM” or the “Company”) is a global asset management firm focused on strategically managing real estate and other investment platforms in the United States and internationally. The Company commenced operations on July 1, 2014 upon the spin-off by NorthStar Realty Finance Corp. (“NorthStar Realty”) of its asset management business into a separate publicly-traded company, NSAM, a Delaware corporation (the “NSAM Spin-off”). The NSAM Spin-off was in the form of a tax-free distribution to NorthStar Realty’s common stockholders where each NorthStar Realty common stockholder received shares of the Company’s common stock on a one-for-one basis. At the same time, NorthStar Realty became externally managed by an affiliate of the Company through a management contract with an initial term of 20 years. NorthStar Realty continues to operate its commercial real estate (“CRE”) debt origination business.

NSAM LP, a Delaware limited partnership and the operating partnership of the Company (the “Operating Partnership”) holds substantially all of the Company’s assets and liabilities and the Company conducts its operations, directly or indirectly, through the Operating Partnership. All references herein to the Company refer to NorthStar Asset Management Group Inc. and its consolidated subsidiaries, including the Operating Partnership, collectively, unless the context otherwise requires.

On October 31, 2015, NorthStar Realty completed the spin-off of its European real estate business (the “NRE Spin-off”) into a separate publicly-traded real estate investment trust (“REIT”), NorthStar Realty Europe Corp. (“NorthStar Europe”). The Company manages NorthStar Europe pursuant to a long-term management agreement, on substantially similar terms as the Company’s management agreement with NorthStar Realty. NorthStar Realty and NorthStar Europe are herein collectively referred to as the NorthStar Listed Companies.

The Company has a substantial business raising and managing capital in the retail marketplace accessing a variety of pools of capital and through various vehicles that include REITs, closed-end funds and others that the Company may form in the future. The Company earns various fees from managing this capital and refers to this platform as the Company’s Retail Business. Certain of the Company’s affiliates also manage NorthStar Realty’s previously sponsored non-traded companies which raise capital through the retail market, as well as any new non-traded company and any future sponsored company that raises capital from retail investors (referred to as the “Retail Companies” and together with the NorthStar Listed Companies, referred to as the “Managed Companies”).

The Company is organized to provide asset management and other services to the Managed Companies, or any other companies it may sponsor in the future, both in the United States and internationally. The Managed Companies have historically invested in the CRE industry. The Company seeks to expand the scope of its asset management business beyond real estate into new asset classes and geographies by organically creating and managing additional investment vehicles or through acquisitions, strategic partnerships and joint ventures. Such investments have included the acquisition of an 84% interest in Townsend Holdings LLC (or “Townsend”), a 43% interest in American Healthcare Investors LLC (or the “AHI Interest”) and a 45% interest in Island Hospitality Management Inc. (the “Island Interest”).

On January 29, 2016, the Company acquired an approximate 84% interest in Townsend (the “Townsend Acquisition Date”), a leading global provider of investment management and advisory services focused on real assets. Founded in 1983, Townsend is the manager or advisor to $176.4 billion of real assets as of June 30, 2016. Townsend’s management team owns the remainder of the business and continues to direct day-to-day operations, subject to the oversight and direction of its board of directors which is controlled by the Company.

The Company earns asset management and other fees, directly or indirectly, pursuant to management and other contracts and direct investments. In addition, the Company owns NorthStar Securities, LLC (“NorthStar Securities”), a captive broker-dealer platform registered with the United States Securities and Exchange Commission (“SEC”) which raises capital in the retail market for the Retail Companies.

Merger Agreement with NorthStar Realty and Colony Capital, Inc.

In June 2016, the Company announced that it entered into a merger agreement with NorthStar Realty and Colony Capital, Inc. (“Colony”) under which the companies will combine in an all-stock merger of equals transaction to create an internally-managed, diversified real estate and investment management platform (the “Mergers”). The transaction has been unanimously approved by the Special Committees and board of directors of NorthStar Realty and the Company and the board of directors of Colony.

Under the terms of the merger agreement, the Company will redomesticate to Maryland and elect to be treated as a REIT beginning in 2017 and NorthStar Realty and Colony, through a series of transactions, will merge with and into the redomesticated NSAM, which will be renamed Colony NorthStar, Inc. The Company’s common stockholders will receive one share of Colony NorthStar’s common stock for each share of common stock they own. Upon completion of the transaction, NorthStar Realty stockholders will

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own approximately 33.90%, Colony stockholders will own approximately 33.25% and the Company’s stockholders will own approximately 32.85% of the combined company on a fully diluted basis, excluding the effect of certain equity-based awards issuable in connection with the Mergers. Prior to the closing of the Mergers, the Company expects its board of directors or a duly authorized committee thereof to declare a special cash dividend in the amount of $128 million to common stockholders.

The transaction is expected to close in January 2017, subject to, among other things, regulatory approvals and the receipt of the Company’s, Colony’s and NorthStar Realty’s respective stockholder approvals.


2.	Summary of Significant Accounting Policies

Basis of Quarterly Presentation

The accompanying unaudited 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 note disclosures normally included in the 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 Company’s 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 Company’s consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015, which was filed with the SEC.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, the Operating Partnership and their consolidated subsidiaries. The Company consolidates variable interest entities (“VIE”) where the Company is the primary beneficiary and voting interest entities which are generally majority owned or otherwise controlled by the Company. All significant intercompany balances are eliminated in consolidation.

Variable Interest Entities

A VIE is an entity that lacks one or more of the characteristics of a voting interest entity. A VIE is defined as an entity in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The determination of whether an entity is a VIE includes both a qualitative and quantitative analysis. The Company bases its qualitative analysis on its review of the design of the entity, its organizational structure including decision-making ability and relevant financial agreements and the quantitative analysis on the forecasted cash flow of the entity.

The Company reassesses its initial evaluation of an entity as a VIE upon the occurrence of certain reconsideration events.

A VIE must be consolidated only by its primary beneficiary, which is defined as the party who, along with its affiliates and agents has both the: (i) power to direct the activities that most significantly impact the VIE’s economic performance; and (ii) obligation to absorb the losses of the VIE or the right to receive the benefits from the VIE, which could be significant to the VIE. The Company determines whether it is the primary beneficiary of a VIE by considering qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of its investment; the obligation or likelihood for the Company or other interests to provide financial support; consideration of the VIE’s purpose and design, including the risks the VIE was designed to create and pass through to its variable interest holders and the similarity with and significance to the business activities of the Company and the other interests. The Company reassesses its determination of whether it is the primary beneficiary of a VIE each reporting period. Significant judgments related to these determinations include estimates about the current and future fair value and performance of investments held by these VIEs and general market conditions.

The Company evaluates the Managed Companies, investments in unconsolidated ventures and securitization financing transactions to which the Company is the special servicer to determine whether they are a VIE. The Company analyzes new investments and financings, as well as reconsideration events for existing investments and financings, which vary depending on type of investment or financing.

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Voting Interest Entities

A voting interest entity is an entity in which the total equity investment at risk is sufficient to enable it to finance its activities independently and the equity holders have the power to direct the activities of the entity that most significantly impact its economic performance, the obligation to absorb the losses of the entity and the right to receive the residual returns of the entity. The usual condition for a controlling financial interest in a voting interest entity is ownership of a majority voting interest. If the Company has a majority voting interest in a voting interest entity, the entity will generally be consolidated. The Company does not consolidate a voting interest entity if there are substantive participating rights by other parties and/or kick-out rights by a single party or through a simple majority vote.

The Company performs on-going reassessments of whether entities previously evaluated under the voting interest framework have become VIEs, based on certain events, and therefore subject to the VIE consolidation framework.

Investments in Unconsolidated Ventures

A non-controlling, unconsolidated ownership interest in an entity may be accounted for using the equity method, at fair value or the cost method.

Under the equity method, the investment is adjusted each period for capital contributions and distributions and its share of the entity’s net income (loss). Capital contributions, distributions and net income (loss) of such entities are recorded in accordance with the terms of the governing documents. An allocation of net income (loss) may differ from the stated ownership percentage interest in such entity as a result of a preferred return and allocation formula, if any, as described in such governing documents.

The Company may account for an investment in an unconsolidated entity at fair value by electing the fair value option. The Company may record the change in fair value for its share of the projected future cash flow or may follow the practical expedient of the net asset value of the underlying fund investment based on the most recent available information, which is generally on a one quarter lag. The Company will record the change from one period to another in equity in earnings (losses) from unconsolidated ventures in the consolidated statements of operations. Any change in fair value attributed to market related assumptions is considered unrealized gain (loss).

The Company may account for an investment that does not qualify for equity method accounting or for which the fair value option was not elected using the cost method if the Company determines the investment in the unconsolidated entity is insignificant. Under the cost method, equity in earnings is recorded as dividends are received to the extent they are not considered a return of capital, which is recorded as a reduction of cost of the investment.

The Company reviews its investments in unconsolidated ventures for which the Company did not elect the fair value option on a quarterly basis, or more frequently as necessary, to assess whether there are any indicators that the value may be impaired or that its carrying value may not be recoverable. An investment is considered impaired if the projected net recoverable amount over the expected holding period is less than the carrying value. In conducting this review, the Company considers U.S. and global macroeconomic factors, including real estate sector conditions, together with investment specific and other factors. To the extent an impairment has occurred and is considered to be other than temporary, the loss is measured as the excess of the carrying value of the investment over the estimated fair value and recorded in equity in earnings (losses) of unconsolidated ventures in the consolidated statements of operations.

Non-controlling Interests

A non-controlling interest in a consolidated subsidiary is defined as the portion of the equity (net assets) in a subsidiary not attributable, directly or indirectly, to the Company. A non-controlling interest is required to be presented as a separate component of equity on the consolidated balance sheets and presented separately as net income (loss) and other comprehensive income (loss) (“OCI”) attributable to non-controlling interests. An allocation to a non-controlling interest may differ from the stated ownership percentage interest in such entity as a result of a preferred return and allocation formula, if any, as described in such governing documents.

Redeemable Non-controlling Interests

A redeemable non-controlling interest is the non-controlling interest in a subsidiary in which the holders have the ability to require the Company to repurchase interests in the subsidiary. These interests are presented as redeemable non-controlling interests, outside of permanent equity on the consolidated balance sheets and presented separately as net income (loss) and other comprehensive income (loss) attributable to redeemable non-controlling interests. The Company records the redeemable non-controlling interest at its redemption value and adjusts the carrying amount of such interest to the redemption value at the end of each reporting period, but such amount will not be less than the initial carrying amount. An allocation to a redeemable non-

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controlling interest may differ from the stated ownership percentage interest in such entity as a result of a preferred return and allocation formula, if any, as described in such governing documents.

Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that could affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates and assumptions.

Reclassifications

Certain prior period amounts have been reclassified in the consolidated financial statements to conform to current period presentation.

Cash

The Company considers all highly-liquid investments with an original maturity date of three months or less and deposits held with third parties that are readily convertible to cash to be cash equivalents. Cash, including amounts restricted at certain banks and financial institutions and amounts held outside of the United States, may at times exceed insurable amounts. The Company mitigates credit risk by placing cash with major financial institutions. To date, the Company has not experienced any losses on cash.

Restricted Cash

Restricted cash primarily represents cash held by the Company’s foreign subsidiaries due to certain regulatory capital requirements.

Business Combinations

The Company accounts for purchases of assets that qualify as business combinations using the acquisition method where the purchase price is allocated to tangible and intangible assets acquired based on estimated fair value. The excess of the fair value of purchase consideration over the fair value of these identifiable assets is recorded as goodwill. Such valuation requires management to make significant estimates and assumptions, especially with respect to intangible assets including, but not limited to, customer relationships, acquired technology and trade names. Management’s estimate of fair value is based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ materially from estimates. During the measurement period, which is one year from the acquisition date, the Company may record adjustments to the assets acquired, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded in earnings.

On January 29, 2016, the Company acquired an approximate 84% interest in Townsend for $383.0 million, net of post closing adjustments. The following table presents the initial allocation of the purchase price of the assets acquired and the liabilities assumed upon the closing of Townsend that continues to be subject to refinement upon receipt of all information (dollars in thousands):



Assets:
Cash	$	14,318
Investments in unconsolidated ventures⁽¹⁾	17,738
Intangible assets, net	202,070
Goodwill⁽²⁾⁽³⁾	251,285
Other assets acquired	42,546
Total assets	$	527,957
Liabilities:
Accounts payable and accrued expenses	$	34,312
Other liabilities acquired	26,841
Total liabilities	61,153
Redeemable non-controlling interests	75,202
Total equity⁽⁴⁾	391,602
Total liabilities and equity	$	527,957

_____________________


(1)	Represents Townsend’s interest in real estate private equity funds sponsored by Townsend (“Townsend Funds”) (refer to Note 4).


(2)	The Company expects $171.5 million of goodwill to be deductible for tax purposes.


(3)	Goodwill includes $5.5 million related to a share deal acquisition of the seller’s corporate entity. The deferred tax liability and corresponding goodwill are recorded at acquisition based on differences between book and tax basis.

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(4)	Represents the Company’s investment in Townsend prior to a post closing adjustment of $7.6 million relating to a distribution of excess cash to the Company.

For the three months ended June 30, 2016, the Company recorded revenue of $17.8 million and net income of $6.8 million. From the Townsend Acquisition Date through June 30, 2016, the Company recorded revenue of $29.9 million and net income of $11.3 million.

The following table presents unaudited consolidated pro forma results of operations based on the Company’s historical financial statements and adjusted for the acquisition of Townsend and related borrowing as if it occurred on January 1, 2015. The unaudited pro forma amounts were prepared for comparative purposes only and are not indicative of what actual consolidated results of operations of the Company would have been, nor are they indicative of the consolidated results of operations in the future (dollars in thousands, except per share data):



	Three Months Ended June 30,				Six Months Ended June 30,
	2016⁽¹⁾⁽²⁾		2015		2016⁽¹⁾		2015
Pro forma total revenues	$	97,095	$	134,754	$	207,402	$	240,889
Pro forma net income (loss) attributable to common stockholders	$	10,924	$	36,612	$	34,767	$	55,978
Pro forma EPS - basic	$	0.06	$	0.19	$	0.18	$	0.28
Pro forma EPS - diluted	$	0.06	$	0.18	$	0.18	$	0.28

_____________________


(1)	Excludes non-recurring transaction costs and prior compensation arrangements of Townsend.


(2)	No adjustment to pro forma as the acquisition of Townsend is already reflected for the three months ended June 30, 2016.

Intangible Assets

The Company records acquired identified intangibles, which includes intangible assets (such as goodwill and other intangibles), based on estimated fair value. Other intangible assets are amortized into depreciation and amortization expense on a straight-line basis over the estimated useful life.

Goodwill represents the excess of the purchase price over the fair value of net tangible and intangible assets acquired in a business combination and is not amortized. The Company performs an annual impairment test for goodwill and evaluates the recoverability whenever events or changes in circumstances indicate that the carrying value of goodwill may not be fully recoverable. In making such assessment, qualitative factors are used to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If the estimated fair value of the reporting unit is less than its carrying value, then an impairment loss is recorded.

The following table presents identified intangibles as of June 30, 2016 (dollars in thousands):



	Gross Amount		Estimated Useful Life in Years	Accumulated Amortization			Net
Intangible assets:
Customer relationships	$	188,250	25 to 30 years	$	(2,925	)	$	185,325
Trade names	13,610		20 years	(284		)	13,326
Proprietary technology	210		3 years	(35		)	175
Subtotal intangible assets	202,070			(3,244		)	198,826
Goodwill	251,285			—			251,285
Total	$	453,355		$	(3,244	)	$	450,111

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The following table presents annual amortization of intangible assets (dollars in thousands):



July 1 through December 31, 2016	$	3,893
Years Ending December 31:
2017	7,785
2018	7,750
2019	7,701
2020	7,701
Thereafter	163,996
Total	$	198,826

Other Assets and Liabilities and Accounts Payable and Accrued Expenses

The following tables present a summary of other assets, other liabilities and accounts payable and accrued expenses as of June 30, 2016 and December 31, 2015 (dollars in thousands):



	June 30, 2016 (Unaudited)		December 31, 2015
Other assets:
Deferred tax asset, net	$	15,063	$	10,880
Prepaid expenses	6,411		4,781
Prepaid income taxes	10,238		—
Furniture, fixtures and equipment, net	4,489		4,333
Pending deal costs	3,890		625
Security deposits	2,784		2,380
Convertible debt, net⁽¹⁾	781		—
Due from participating broker-dealers	181		398
Deferred financing costs, net	—		912
Other	810		932
Total	$	44,647	$	25,241



	June 30, 2016 (Unaudited)		December 31, 2015
Other liabilities:
Townsend Funds liability⁽²⁾	$	15,881	$	—
Deferred tax liability, net⁽³⁾	5,892		—
Deposit payable	2,415		—
Deferred incentive fees⁽⁴⁾	1,001		—
Other	754		930
Total	$	25,943	$	930

________________


(1)	Represents a convertible debt investment in Distributed Finance Corporation (“Distributed Finance”). For the three months ended June 30, 2016, the Company recorded $0.3 million of impairment on such investment.


(2)	Represents an obligation to the sellers who are entitled to approximately 84% of the value of the Townsend Funds at the Townsend Acquisition Date, along with any income related to capital contributed prior to acquisition. The Company is obligated to fund contributions and is entitled to any income on such contributions subsequent to the Townsend Acquisition Date (refer to Note 4).


(3)	Primarily represents deferred tax liability related to the Townsend acquisition related to a share deal acquisition of the seller’s corporate entity. The deferred tax liability and corresponding goodwill are recorded at acquisition based on differences between the book and tax basis.


(4)	Represents incentive fees received that are not yet earned related to the Townsend Funds (refer to below) and as a result, represents a contingent obligation.

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	June 30, 2016 (Unaudited)		December 31, 2015
Accounts payable and accrued expenses:
Accrued bonus and related taxes	$	19,294	$	63,935
Incentive fee compensation⁽¹⁾	10,652		—
Accrued operating expenses	11,883		8,771
Accrued payroll	5,272		1,312
Accrued interest payable	3,982		92
Dividends payable related to equity-based awards	759		574
Accrued equity-based compensation awards (refer to Note 9)	683		763
Accrued participating interest buyout⁽²⁾	—		8,110
Share purchase payable⁽³⁾	1,316		6,603
Total	$	53,841	$	90,160

__________________

(1)

Approximately 50% of incentive fees received by the Townsend Funds are due to certain employees of Townsend. Payment is made to such employees when such incentive fee income is earned and approved by executive management of Townsend (refer to below). The Company records the expense in compensation expense in the consolidated statements of operations when payment becomes probable and reasonably estimable but no later than the period in which the underlying income is recognized.


(2)	Represents a one-time buyout in satisfaction of all participating interests related to non-executive incentive interests in the advisor to our first sponsored Retail Company (refer to Note 3).


(3)	Relates to the purchase of NorthStar Realty and NorthStar Europe shares, which were settled in January 2016 and July 2016, respectively (refer to Note 6).

Fair Value Option

The fair value option provides an election that allows a company to irrevocably elect fair value for certain financial assets and liabilities on an instrument-by-instrument basis at initial recognition. The Company may elect to apply the fair value option for certain investments due to the nature of the instrument. Any change in fair value for assets and liabilities for which the election is made is recognized in earnings.

Securities

The Company elected to apply the fair value option for its securities investments because management believes it is a more useful presentation for such investments. Any unrealized gain (loss) from the change in fair value is recorded in unrealized gains (losses) on investments and other in the consolidated statements of operations. Dividend income is recorded in other income in the consolidated statements of operations.

Revenue Recognition

Asset Management and Other Fees

Asset management and other fees include base and incentive fees earned from NorthStar Listed Companies, acquisition, disposition and other fees earned from the Retail Companies and fees earned from clients and limited partners of Townsend. Asset management and other fees are recognized based on contractual terms specified in the underlying governing documents in the periods during which the related services are performed and the amounts have been contractually earned. Incentive fees and payments are recognized subject to the achievement of return hurdles in accordance with the respective terms set forth in the governing documents. Incentive fees that are subject to contingent repayment are not recognized as revenue until all related contingencies have been resolved.

Selling Commission and Dealer Manager Fees and Commission Expense

Selling commission and dealer manager fees represent income earned by the Company for selling equity in the Retail Companies through NorthStar Securities. Selling commission, dealer manager fees and commission expense are accrued on a trade date basis. As of June 30, 2016, commission payable of $1.2 million includes $0.2 million due to NorthStar Securities’ employees.

Allowance for Doubtful Accounts

An allowance for a doubtful account is established when, in the opinion of the Company, a full recovery of a receivable becomes doubtful. A receivable is written off when it is no longer collectible and/or legally discharged. As of June 30, 2016, there was no allowance for doubtful accounts.

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Equity-Based Compensation

The Company accounts for equity-based compensation awards, including awards granted to co-employees (refer to Note 9), using the fair value method, which requires an estimate of the fair value of the award. Awards may be based on a variety of measures such as time, performance, market or a combination thereof. For time-based awards, fair value is determined based on the stock price on the grant date. The Company recognizes compensation expense over the vesting period on a straight-line basis or the attribution method depending if the grant is to an employee or non-employee. For performance-based awards, fair value is determined based on the stock price at the date of grant and an estimate of the probable achievement of such measure. The Company recognizes compensation expense over the requisite service period, net of estimated forfeitures, using the accelerated attribution expense method. For market-based measures, fair value is determined using a Monte Carlo analysis under a risk-neutral premise using a risk-free interest rate. The Company recognizes compensation expense over the requisite service period, net of estimated forfeitures, on a straight-line basis.

For awards with a combination of performance or market measures, the Company estimates the fair value as if it were two separate awards. First, the Company estimates the probability of achieving the performance measure. If it is not probable the performance condition will be met, the Company records the compensation expense based on the fair value of the market measure, as described above. This expense is recorded even if the market-based measure is never met. If the performance-based measure is subsequently estimated to be achieved, the Company records compensation expense based on the performance-based measure. The Company would then record a cumulative catch-up adjustment for any additional compensation expense.

Equity-based compensation issued to non-employees is accounted for using the fair value of the award at the earlier of the performance commitment date or performance completion date. The awards are remeasured every quarter based on the stock price as of the end of the reporting period until such awards vest, if any.

Foreign Currency

Assets and liabilities denominated in a foreign currency for which the functional currency is a foreign currency are translated using the currency exchange rate in effect at the end of the period presented and the results of operations for such entities are translated into U.S. dollars using the average currency exchange rate in effect during the period. The resulting foreign currency translation adjustment is recorded as a component of accumulated OCI in the consolidated statements of equity.

Assets and liabilities denominated in a foreign currency for which the functional currency is the U.S. dollar are remeasured using the currency exchange rate in effect at the end of the period presented and the results of operations for such entities are remeasured into U.S. dollars using the spot currency exchange rate at the time of the transaction. The resulting foreign currency remeasurement adjustment is recorded in unrealized gain (loss) on foreign currency in the consolidated statements of operations.

Comprehensive Income (Loss)

The Company reports consolidated comprehensive income (loss) in a separate statement following the consolidated statements of operations. Comprehensive income (loss) is defined as a change in equity resulting from net income (loss) and OCI. The component of OCI includes an adjustment for foreign currency translation.

Earnings Per Share

The Company’s basic earnings per share (“EPS”) is calculated using the two-class method for each class of common stock and participating security as if all earnings had been distributed by dividing net income (loss) attributable to common stockholders by the weighted average number of common stock outstanding. Diluted EPS reflects the maximum potential dilution that could occur from the Company’s share-based compensation, consisting of unvested restricted stock awards, restricted stock units (“RSUs”), performance common stock or other contracts to issue common stock, assuming performance hurdles have been met, were converted to common stock, including limited partnership interests in the Operating Partnership which are structured as profits interests (“LTIP Units”). Potential dilutive shares are excluded from the calculation if they have an anti-dilutive effect in the period. The Company’s unvested restricted stock awards, certain RSUs and LTIPs Units contain rights to receive non-forfeitable dividends and thus are participating securities. Due to the existence of these participating securities, the two-class method of computing EPS is required, unless another method is determined to be more dilutive.

Under the two-class method, net income is first reduced for distributions declared on all classes of participating securities to arrive at undistributed earnings. Under the two-class method, net loss is reduced for distributions declared on participating securities only if such security has the right to participate in the earnings of the entity and an objectively determinable contractual obligation to share in net losses of the entity.

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Income Taxes

Certain subsidiaries of the Company are subject to taxation by federal, state, local and foreign authorities for the periods presented. On March 13, 2015, the Company restructured forming the Company’s new Operating Partnership, under Delaware law, by converting an existing limited liability company disregarded as separate from the Company for federal income tax purposes to a Delaware limited partnership and admitting as limited partners LTIP Unit holders. The Operating Partnership is taxed as a partnership for federal income tax purposes and consequently, its items of income gain, loss, deduction and credit are passed through to, and included in, the taxable income of each of its partners including the Company. For the period prior to March 13, 2015, the Company and its U.S. subsidiaries will file consolidated federal income tax returns. Income taxes are accounted for by the asset/liability approach in accordance with U.S. GAAP. Deferred taxes, if any, represent the expected future tax consequences when the reported amounts of assets and liabilities are recovered or paid. Such amounts arise from differences between the financial reporting and tax bases of assets and liabilities and are adjusted for changes in tax laws and tax rates in the period which such changes are enacted. A provision for income tax represents the total of income taxes paid or payable for the current period, plus the change in deferred tax assets and liabilities.

Other

Refer to Note 2 of the consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 for further disclosure of the Company’s significant accounting policies.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued an accounting update requiring a company to recognize as revenue the amount of consideration it expects to be entitled to in connection with the transfer of promised goods or services to customers. The accounting standard update will replace most of the existing revenue recognition guidance currently promulgated by U.S. GAAP. In July 2015, the FASB decided to delay the effective date of the new revenue standard by one year. The effective date of the new revenue standard for the Company will be January 1, 2018. The Company is in the process of evaluating the impact, if any, of the update on its consolidated financial position, results of operations and financial statement disclosures.

In February 2015, the FASB issued updated guidance that changes the rules regarding consolidation. The pronouncement eliminates specialized guidance for limited partnerships and similar legal entities and removes the indefinite deferral for certain investment funds. The new guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, with early adoption permitted. The Company adopted this guidance in the first quarter 2016 and determined under the new guidance the Company’s Operating Partnership is considered a VIE. The Company is the primary beneficiary of the VIE, the VIE’s assets can be used for purposes other than the settlement of the VIE’s obligations and the Company’s partnership interest is considered a majority voting interest. As such, this standard did not have a material impact on the consolidated financial position or results of operations.

In May 2015, the FASB issued updated guidance that removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015 and should be applied retrospectively to all periods presented. Early adoption is permitted. In the first quarter 2016, the Company adopted this guidance and, as a result, $21.5 million of Townsend Funds is not included in Level 3 within the fair value hierarchy as of June 30, 2016. The Company did not have any investments measured using net asset value as of December 31, 2015.

In January 2016, the FASB issued an accounting update that addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company is currently assessing the impact of the guidance on the Company’s consolidated financial position, results of operations and financial statement disclosures.

In February 2016, the FASB issued an accounting update that requires lessees to present right-of-use assets and lease liabilities on the balance sheet. The new guidance is to be applied using a modified retrospective approach at the beginning of the earliest comparative period in the financial statements and is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is evaluating the impact that this guidance will have on its consolidated financial position, results of operations and financial statement disclosures.

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(Unaudited)

investor’s previously held interest and adopt the equity method of accounting as of the date the investment become qualified for equity method accounting. The update should be applied prospectively upon their effective date to increases in the level of ownership interests or degree of influence that results in the adoption of the equity method. The guidance is effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. Early adoption is permitted. The Company is evaluating the impact, if any, that this guidance will have on its consolidated financial position, results of operations and financial statement disclosures.

In March 2016, the FASB issued guidance which amends several aspects of the accounting for equity-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statements of cash flows. The guidance is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. The Company is evaluating the impact, if any, that this guidance will have on its consolidated financial position, results of operations and financial statement disclosures.

In June 2016, the FASB issued guidance which changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. Additionally, entities will have to disclose significantly more information, including information used to track credit quality by year of origination, for most financing receivables. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Early adoption is permitted. The Company is evaluating the impact that this guidance will have on its consolidated financial position, results of operations and financial statement disclosures.


3.	Management Agreements

The following table presents asset management and other fees earned from our Managed Companies and Townsend (dollars in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
NorthStar Listed Companies⁽¹⁾	$	50,156	$	51,744	$	100,184	$	99,995
Retail Companies	22,116		38,614		56,263		51,742
Institutional Capital⁽²⁾	17,809		—		29,914		—
Total	$	90,081	$	90,358	$	186,361	$	151,737

_________________


(1)	The Company began earning fees from NorthStar Europe on November 1, 2015.


(2)	Represents fees earned through the Company’s investment in Townsend. The Company began earning fees on the Townsend Acquisition Date. The Company was also entitled to $1.8 million of management and other fees from January 14, 2016 to the Townsend Acquisition Date, which was recorded net of operating expenses in other income.

NorthStar Listed Companies

Management Agreement

Upon completion of the NSAM Spin-off and NRE Spin-off, respectively, the Company entered into a management agreement with each of the NorthStar Listed Companies for an initial term of 20 years, which automatically renews for additional 20-year terms each anniversary thereafter unless earlier terminated.

As asset manager, the Company is responsible for the NorthStar Listed Companies’ day-to-day activities, subject to supervision and management by each of the NorthStar Listed Companies’ board of directors, as applicable. Through its global network of subsidiaries and branch offices, the Company performs services and engages in activities relating to, among other things, investments and financing, portfolio management and other administrative services, such as accounting and investor relations, to the NorthStar Listed Companies and their subsidiaries other than NorthStar Realty’s CRE loan origination business. The management agreements with the NorthStar Listed Companies provides for a base management fee and incentive fee.

The management agreements with NorthStar Realty and NorthStar Europe provide that in the event of a change of control or other event that could be deemed an assignment by the Company of the management agreement, NorthStar Realty and NorthStar Europe, respectively, will consider such assignment in good faith and not unreasonably withhold, condition or delay its consent. The management agreements further provide that NorthStar Realty and NorthStar Europe, respectively, anticipate consent would be granted for an assignment or deemed assignment to a party with expertise in commercial real estate and over $10 billion of assets under management. The management agreements also provide that, notwithstanding anything in the agreement to the contrary, to the maximum extent permitted by applicable law, rules and regulations, in connection with any merger, sale of all or substantially all of the assets, change of control, reorganization, consolidation or any similar transaction of the Company, on the one hand, or

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(Unaudited)

NorthStar Realty or NorthStar Europe, on the other hand, directly or indirectly, the surviving entity will succeed to the terms of the management agreement.

In connection with the NRE Spin-off, the Company’s management agreement with NorthStar Realty was amended and restated to, among other things, adjust the annual base management fee and incentive fee hurdles for the NRE Spin-off.

Upon completion of the Mergers, the management agreement with NorthStar Realty will cease to exist.

Base Management Fee and Incentive Fee

The following table presents a summary of the fee arrangements and amounts earned from the NorthStar Listed Companies:



	NorthStar Realty	NorthStar Europe
Commencement date	July 1, 2014	November 1, 2015
Current in place annual base management fee⁽¹⁾	$186 million	$14 million
Incentive fee hurdle to CAD per share⁽²⁾
15%	Excess of $0.68 and up to $0.78⁽³⁾	Excess of $0.30 and up to $0.36
25%	Excess of $0.78⁽³⁾	Excess of $0.36
Base management fee
Three months ended June 30, 2016	$46.7 million	$3.5 million
Three months ended June 30, 2015⁽⁴⁾	$48.2 million	—
Six months ended June 30, 2016	$93.2 million	$7.0 million
Six months ended June 30, 2015⁽⁴⁾	$93.6 million	—
Incentive fee
Three months ended June 30, 2016	—	—
Three months ended June 30, 2015⁽⁴⁾	$3.5 million	—
Six months ended June 30, 2016	—	—
Six months ended June 30, 2015⁽⁴⁾	$6.4 million	—

__________________

(1)

The base management fee will increase by an amount equal to 1.5% per annum of the sum of: the cumulative net proceeds of all future common equity and preferred equity issued, equity issued in exchange or conversion of exchangeable senior notes or stock-settlable notes based on the stock price at the date of issuance and any other issuances of common equity, preferred equity or other forms of equity, including but not limited to limited partnership interests in the NorthStar Realty or NorthStar Europe operating partnerships, which are structured as profits interests (excluding units issued to the parent company and equity-based compensation, but including issuances related to an acquisition, investment, joint venture or partnership) by the NorthStar Listed Companies and cumulative cash available for distribution (“CAD”) of the NorthStar Listed Companies, in excess of cumulative distributions paid on common stock, LTIP units or other equity awards beginning the first full calendar quarter after the NSAM Spin-off and NRE Spin-off, respectively. In addition, NorthStar Realty’s equity interest in RXR Realty LLC (“RXR Realty”) and Aerium Group is structured so that the Company is entitled to the portion of distributable cash flow from each investment in excess of the $10 million minimum annual base amount.

(2)

The incentive fee is calculated by the product of 15% or 25% and CAD before such incentive fee, divided by the weighted average shares outstanding for the calendar quarter, when such amount is within a certain hurdle multiplied by the weighted average shares outstanding of the NorthStar Listed Companies for the calendar quarter. Weighted average shares represent the number of shares of the NorthStar Listed Companies’ common stock, LTIP Units or other equity-based awards (with some exclusions), outstanding on a daily weighted average basis.


(3)	After giving effect to NorthStar Realty’s reverse stock split in October 2015 and the NRE Spin-off.


(4)	The Company began earnings fees on November 1, 2015 from NorthStar Europe.

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(Unaudited)

Payment of Costs and Expenses and Expense Allocation

The NorthStar Listed Companies are each responsible for all of their direct costs and expenses and will reimburse the Company for costs and expenses incurred by the Company on their behalf. In addition, the Company may allocate indirect costs to the NorthStar Listed Companies related to employees, occupancy and other general and administrative costs and expenses in accordance with the terms of, and subject to the limitations contained in, the applicable NorthStar Listed Company’s management agreements with the Company (the “G&A Allocation”). The Company’s management agreements with the NorthStar Listed Companies each provide that the amount of the G&A Allocation will not exceed the following: (i) 20.0% of the combined total of: (a) the NorthStar Listed Companies’ general and administrative expenses as reported in their consolidated financial statements excluding (1) equity-based compensation expense, (2) non-recurring items, (3) fees payable to the Company under the terms of the applicable management agreement and (4) any allocation of expenses from the Company to the NorthStar Listed Companies (“NorthStar Listed Companies’ G&A”); and (b) the Company’s general and administrative expenses as reported in its consolidated financial statements, excluding equity-based compensation expense and adding back any costs or expenses allocated to any of the Managed Companies; less (ii) the NorthStar Listed Companies’ G&A. The G&A Allocation may include the applicable NorthStar Listed Company’s allocable share of the Company’s compensation and benefit costs associated with dedicated or partially dedicated personnel who spend all or a portion of their time managing such NorthStar Listed Company’s affairs, based upon the percentage of time devoted by such personnel to such NorthStar Listed Company’s affairs. The G&A Allocation may also include rental and occupancy, technology, office supplies, travel and entertainment and other general and administrative costs and expenses which may be allocated based on various methodologies, such as weighted average employee count or the percentage of time devoted by personnel to such NorthStar Listed Companies’ affairs. In addition, each NorthStar Listed Company will pay directly or reimburse the Company for an allocable portion of any severance paid pursuant to any employment, consulting or similar service agreements in effect between the Company and any of its executives, employees or other service providers. Such amounts are recorded net in general and administrative expense in the consolidated statements of operations.

Following the NRE Spin-off, as provided in the Company’s management agreements with each NorthStar Listed Company, such NorthStar Listed Company’s obligations to reimburse the Company for the G&A Allocation and any severance are shared among the NorthStar Listed Companies, at the Company’s discretion, and the 20% cap on the G&A Allocation, as described above, applies on an aggregate basis to the NorthStar Listed Companies. The Company currently determined to allocate these amounts based on total investments.

Pursuant to the management agreements with NorthStar Realty and NorthStar Europe, NorthStar Realty together with NorthStar Europe and any company spun-off from NorthStar Realty or NorthStar Europe, are obligated to pay directly or reimburse the Company for up to 50% of any long-term bonus or other compensation that the Company’s compensation committee determines shall be paid and/or settled in the form of equity and/or equity-based compensation to executives, employees and service providers of the Company during any year. In accordance with these agreements, NorthStar Realty and NorthStar Europe were responsible for paying 50% of the 2015 long-term bonuses earned under the NSAM Bonus Plan.

For the three months ended June 30, 2016 and 2015, the Company allocated $0.2 million and $0.8 million, respectively, of costs to NorthStar Listed Companies. For the six months ended June 30, 2016 and 2015, the Company allocated $0.5 million and $2.8 million, respectively, of costs to NorthStar Listed Companies.

Retail Companies

The following table presents a summary of the fee arrangements with the current Retail Companies, which registration statements have been declared effective: NorthStar Real Estate Income Trust, Inc. (“NorthStar Income”); NorthStar Healthcare Income, Inc. (“NorthStar Healthcare”); NorthStar Real Estate Income II, Inc. (“NorthStar Income II”); NorthStar/RXR New York Metro Real Estate, Inc. (“NorthStar/RXR New York Metro”); NorthStar Corporate Income Fund (“NorthStar Corporate Fund”) and NorthStar Real Estate Capital Income Fund (“NorthStar Capital Fund”):

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

NorthStar

NorthStar/RXR

NorthStar

Income

Healthcare

Income II

New York Metro⁽⁹⁾

Corporate Fund⁽¹²⁾

Capital Fund⁽¹⁷⁾

Offering amount⁽¹⁾

$1.2 billion

$2.1 billion

$1.65 billion

$2.0 billion⁽¹⁰⁾

$3.2 billion⁽¹³⁾

Total capital raised through August 2, 2016⁽²⁾

$1.3 billion

$1.8 billion⁽⁸⁾

$1.1 billion

$2.7 million⁽¹⁰⁾

$2.2 million⁽¹⁴⁾

$2.2 million⁽¹⁷⁾

Total investments as of June 30, 2016

$1.9 billion

$3.4 billion

$1.3 billion

$4.9 million

$1.4 million

N/A

Primary strategy

CRE Debt

Healthcare Equity and Debt

CRE Debt

New York Metro Area CRE Equity and Debt

Middle Market Non-Real Estate Business Loans and Securities

CRE Debt and Equity

Primary offering period

Completed July 2013

Completed January 2016⁽⁸⁾

Ends November 2016

Ends February 2018⁽¹¹⁾

Ends March 2019⁽¹¹⁾

Asset Management and Other Fees:

Asset management fees

1.25% of assets⁽³⁾

1.00% of assets⁽³⁾

1.25% of assets⁽³⁾

2.0% of average gross assets⁽¹⁶⁾

Acquisition fees⁽⁴⁾

1.00% of investments

2.25% for real estate properties
1.00% of other investments

1.00% of investments

2.25% for real estate properties
1.00% of other investments

N/A

Disposition fees⁽⁵⁾

1.00% of sales price

2.00% for real estate properties
1.00% of sales price for debt investments

1.00% of sales price

2.00% for real estate properties

1.00% of sales price for debt investments

N/A

Incentive payments

15.00% of net cash flows after an 8.00% return⁽⁶⁾

15.00% of net cash flows after a 6.75% return⁽⁶⁾⁽⁷⁾

15.00% of net cash flows after a 7.00% return⁽⁶⁾

15.00% of net cash flows after a 6.00% return

(15)

________________


(1)	Represents amount of shares registered to offer pursuant to each Retail Company’s public offering, distribution reinvestment plan and follow-on public offering.


(2)	Includes capital raised through distribution reinvestment plans.


(3)	Assets represent principal amount funded or allocated for debt investments originated or acquired and the cost of all other investments, including expenses and any financing attributable to such investments, less any principal received on debt and securities investments (or the proportionate share thereof in the case of an investment made in a joint venture).


(4)	Calculated based on the amount funded or allocated by the Retail Companies to originate or acquire investments, including acquisition expenses and any financing attributable to such investments (or the proportionate share thereof in the case of an equity investment made through a joint venture).


(5)	Calculated based on contractual sales price of each investment sold.

(6)

The Company is entitled to receive distributions equal to 15% of net cash flow of the respective Retail Company, whether from continuing operations, repayment of loans, disposition of assets or otherwise, but only after stockholders have received, in the aggregate, cumulative distributions equal to their invested capital plus the respective cumulative, non-compounded annual pre-tax return (as noted in the table above) on such invested capital.


(7)	The Healthcare Strategic Partnership is entitled to the incentive fees earned from managing NorthStar Healthcare, of which the Company earns its proportionate interest (refer to Note 6).


(8)	NorthStar Healthcare successfully completed its initial public offering on February 2, 2015 by raising $1.1 billion in capital and its follow-on public offering on January 19, 2016 by raising $0.7 billion in capital.


(9)	Any asset management and other fees incurred by NorthStar/RXR New York Metro will be shared equally between the Company and RXR Realty, as co-sponsors.


(10)	NorthStar/RXR New York Metro’s amended registration statement to offer an additional class of common shares was declared effective by the SEC and the minimum offering amount has been satisfied. NorthStar/RXR New York Metro began raising capital in the second quarter 2016.


(11)	Offering period subject to extension as determined by the board of directors or trustees of each Retail Company.

(12)

NorthStar Corporate Fund engaged OZ Institutional Credit Management LP (“OZ Credit Management”), an affiliate of Och-Ziff Capital Management Group, LLC (“Och-Ziff”), an alternative asset manager, to serve as its sub-advisor to manage investments. Any asset management and other fees paid by NorthStar Corporate Fund will be shared between the Company and OZ Credit Management, as co-sponsors.


(13)	Offering is for two feeder funds in a master feeder structure.


(14)	NorthStar Corporate Fund was declared effective by the SEC and the minimum offering amount has been satisfied. The Company expects to begin raising capital in the second half of 2016.


(15)	Calculated based on 100% of the net investment income before such incentive fee when such hurdle rate exceeds 7.00% but less than 8.75% plus 20% when such amount is equal to or in excess 8.75%.


(16)	Calculated excluding cash and cash equivalents.


(17)	NorthStar Capital Fund was declared effective by the SEC and the minimum offering amount has been satisfied. The Company expects to begin raising capital in the second half of 2016.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The following tables present a summary of asset management and other fees earned by the Company from the current Retail Companies which are effective and investing capital (dollar in thousands):



	Three Months Ended June 30,
	2016												2015
	NorthStar Income		NorthStar Healthcare		NorthStar Income II		NorthStar/RXR New York Metro		NorthStar Corporate Fund		Total		NorthStar Income		NorthStar Healthcare		NorthStar Income II		NorthStar/RXR New York Metro		NorthStar Corporate Fund		Total
	NorthStar Income		NorthStar Healthcare		NorthStar Income II		NorthStar/RXR New York Metro		NorthStar Corporate Fund		Total		NorthStar Income		NorthStar Healthcare		NorthStar Income II		NorthStar/RXR New York Metro		NorthStar Corporate Fund		Total
Asset management fees	$	5,558	$	8,346	$	3,987	$	4	$	2	$	17,897	$	6,032	$	3,653	$	1,998	$	—	$	—	$	11,683
Acquisition fees	744		84		216		28		—		1,072		—		22,234		4,457		—		—		26,691
Disposition fees	1,024		—		2,123		—		—		3,147		220		—		20		—		—		240
Total	$	7,326	$	8,430	$	6,326	$	32	$	2	$	22,116	$	6,251	$	25,887	$	6,475	$	—	$	—	$	38,614



	Six Months Ended June 30,
	2016												2015
	NorthStar Income		NorthStar Healthcare		NorthStar Income II		NorthStar/RXR New York Metro		NorthStar Corporate Fund		Total		NorthStar Income		NorthStar Healthcare		NorthStar Income II		NorthStar/RXR New York Metro		NorthStar Corporate Fund		Total
	NorthStar Income		NorthStar Healthcare		NorthStar Income II		NorthStar/RXR New York Metro		NorthStar Corporate Fund		Total		NorthStar Income		NorthStar Healthcare		NorthStar Income II		NorthStar/RXR New York Metro		NorthStar Corporate Fund		Total
Asset management fees	$	10,908	$	15,810	$	8,607	$	4	$	2	$	35,331	$	12,396	$	6,368	$	3,706	$	—	$	—	$	22,470
Acquisition fees	2,724		12,247		848		28		—		15,847		—		22,485		5,276		—		—		27,761
Disposition fees	2,332		—		2,753		—		—		5,085		1,236		—		275		—		—		1,511
Total	$	15,964	$	28,057	$	12,208	$	32	$	2	$	56,263	$	13,632	$	28,853	$	9,257	$	—	$	—	$	51,742

Pursuant to each of the advisory agreements with the current Retail Companies, the Company may determine, in its sole discretion, to defer or waive, in whole or in part, certain asset management and other fees incurred. In considering whether to defer or waive any such fees, the Company evaluates the specific facts and circumstances surrounding the incurrence of a particular fee and makes the decision on a case by case basis.

In addition to the Retail Companies described above, NorthStar Corporate Investment, Inc. (“NorthStar Corporate Investment”) confidentially submitted an amended registration statement on Form N-2 to the SEC in June 2015. NorthStar Corporate Investment seeks to raise up to $1.0 billion in a public offering of common stock. NorthStar Corporate Investment is structured as a non-diversified, closed-end management investment company that intends to elect to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940. NorthStar Corporate Investment intends to invest in senior and subordinate loans to middle-market companies. NorthStar Corporate Investment intends to engage OZ Credit Management, an affiliate of Och-Ziff, an alternative asset manager, to serve as their sub-advisor to manage investments and oversee operations. Any asset management and other fees paid by NorthStar Corporate Investment will be shared between the Company and OZ Credit Management, as co-sponsors.

Distribution Support

NorthStar Realty committed to invest up to $10.0 million in each of the Retail Companies that are in their offering stage. In addition, pursuant to the management agreement between the Company and NorthStar Realty, NorthStar Realty will commit up to $10.0 million for distribution support in the event that the Retail Companies’ distributions to stockholders exceed certain measures of operating performance, in any Retail Company that the Company may sponsor, up to a total of five new companies per year.

The distribution support agreement related to NorthStar/RXR New York Metro is an obligation of both NorthStar Realty and RXR Realty, where each agreed to purchase up to an aggregate of $10.0 million in Class A common stock during the two-year period following commencement of the offering, with NorthStar Realty and RXR Realty agreeing to purchase 75% and 25% of any shares purchased, respectively. As of March 31, 2016, NorthStar Realty and RXR Realty purchased 0.2 million shares of NorthStar/RXR New York Metro common stock for $2.0 million in the aggregate.

The distribution support agreement related to NorthStar Corporate Fund is an obligation of both NorthStar Realty and Och-Ziff, where each agreed to purchase up to an aggregate of $10.0 million in common stock during the two-year period following commencement of the offering, with NorthStar Realty and Och-Ziff agreeing to equally purchase any shares. As of June 30, 2016, NorthStar Realty and Och-Ziff purchased 0.2 million shares of NorthStar Corporate Fund common stock for $2.0 million in the aggregate.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The distribution support agreement related to NorthStar Capital Fund is an obligation of NorthStar Realty to purchase up to $10.0 million in common stock during the two-year period following commencement of the offering. As of June 30, 2016, NorthStar Realty purchased 0.2 million shares of NorthStar Capital Fund common stock for $2.0 million.

Payment of Costs and Expenses and Expense Allocation

In addition, the Company is entitled to certain expense allocations for costs paid on behalf of its Retail Companies which include: (i) reimbursement for organization and offering costs such as professional fees and other costs associated with the formation and offering of the Retail Company; and (ii) reimbursement for direct and indirect operating costs such as certain salaries, equity-based compensation and professional and other costs such as rental and occupancy, technology, office supplies, travel and entertainment and other general and administrative costs and expenses associated with managing the operations of the Retail Company. Such amounts are recorded net in general and administrative expense in the consolidated statements of operations.

The following table presents a summary of the expense arrangements with the current Retail Companies, which are effective:

NorthStar Income

NorthStar Healthcare

NorthStar Income II

NorthStar/RXR New York Metro

NorthStar Corporate Fund

NorthStar Capital Fund

Organization and offering costs⁽¹⁾

$11.0 million⁽²⁾

$11.9 million⁽²⁾

$15.0 million, or 1.0% of the proceeds expected to be raised from the offering⁽⁴⁾

$30.0 million, or 1.5% of the proceeds expected to be raised from the offering⁽⁴⁾

$29.0 million, or 1.0% of the proceeds expected to be raised from the offering⁽⁴⁾

Operating costs⁽³⁾

Greater of 2.0% of its average invested assets or 25.0% of its net income (net of 1.25% asset management fee)

Greater of 2.0% of its average invested assets or 25.0% of its net income (net of 1.00% asset management fee)

Greater of 2.0% of its average invested assets or 25.0% of its net income (net of 1.25% asset management fee)

Administrative expenses reimbursable, subject to certain restrictions

__________________

(1)

Represents reimbursement for organization and offering costs paid on behalf of the Retail Companies in connection with their respective offerings. The Company is facilitating the payment of organization and offering costs on behalf of the Retail Companies. The Company records these costs in receivables on its consolidated balance sheets until repaid. The Retail Companies record these costs as either advisory fees, related parties on their consolidated statements of operations or as a cost of capital in their consolidated statements of equity.


(2)	Represents the total expense allocation for organization and offering costs through the end of the offering period in July 2013 for NorthStar Income and January 2016 for NorthStar Healthcare.


(3)	Calculated based on the four preceding fiscal quarters not to exceed the greater of: (i) 2.0% of each Retail Company’s average invested assets; or (ii) 25.0% of each Retail Company’s net income determined without reduction for any additions to reserves for depreciation, loan losses or other similar non-cash reserves and excluding any gain from the sale of assets for that period.


(4)	Excludes shares being offered pursuant to distribution reinvestment plans.

For the three months ended June 30, 2016 and 2015, the Company allocated $8.3 million and $9.1 million of expense related to the Retail Companies, respectively. For the six months ended June 30, 2016 and 2015, the Company allocated $17.6 million and $18.3 million of expense related to the Retail Companies, respectively.

Townsend

Townsend generated management, advisory and incentive fees of $17.8 million and $29.9 million for the three months ended June 30, 2016 and from the Townsend Acquisition Date through June 30, 2016, respectively. The Company was also entitled to $1.8 million of management and other fees from January 14, 2016 to the Townsend Acquisition Date, which was recorded net of operating expenses in other income.

Certain contracts contain provisions to reimburse Townsend for expenses incurred on behalf of its clients such as legal due diligence and investment advisory team travel expenses. For the three months ended June 30, 2016 and from the Townsend Acquisition Date through June 30, 2016, the Company recorded $0.3 million and $1.0 million, respectively, in both other income and other expenses related to such reimbursements.

Receivables, net

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The following table presents receivables on the consolidated balance sheets as of June 30, 2016 and December 31, 2015 (dollars in thousands):



	June 30, 2016 (unaudited)		December 31, 2015
NorthStar Listed Companies:
Base management fees	$	50,156	$	49,769
Other receivables	—		4,298
Subtotal NorthStar Listed Companies⁽¹⁾	50,156		54,067
Retail Companies:
Fees	181		446
Other receivables	38,670		39,296
Subtotal Retail Companies⁽²⁾	38,851		39,742
Institutional Capital:
Townsend fees⁽³⁾	20,005		—
Total⁽⁴⁾	$	109,012	$	93,809

_____________________


(1)	The Company began earning fees from NorthStar Europe on November 1, 2015.


(2)	As of June 30, 2016 and December 31, 2015, the Company had unreimbursed costs from the Retail Companies of $27.0 million and $33.7 million, respectively, recorded as receivables, net on the consolidated balance sheets.


(3)	The Company began earning fees on the Townsend Acquisition Date.


(4)	Subsequent to June 30, 2016, the Company received $55.8 million from the Managed Companies and Townsend.

Selling Commission and Dealer Manager Fees and Commission Expense

Selling commission and dealer manager fees represent fees earned for selling equity in the Retail Companies through NorthStar Securities. The Retail Companies offer various share class structures which have a range of selling commissions and dealer manager fees generally as follows:


•	Class A shares: selling commissions of up to 7% of gross offering proceeds raised and dealer manager fee of up to 3% of gross offering proceeds raised.


•	Class T shares: selling commissions of up to 2% of gross offering proceeds raised and dealer manager fee of up to 2.75% of gross offering proceeds raised.

A portion of the dealer manager fees may be reallowed to participating broker-dealers and paid to certain employees of NorthStar Securities. The Company is currently introducing additional share classes to the Retail Companies that will differ from the Class A and Class T shares describe above.

Commission expense represents fees to participating broker-dealers with whom we have selling agreements to raise capital for our Retail Companies and commissions to employees of NorthStar Securities.

The following table summarizes selling commission and dealer manager fees, commission expense and net commission income for the three and six months ended June 30, 2016 and 2015 (dollar in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Selling commission and dealer manager fees	$	4,888	$	28,337	$	11,259	$	58,260
Commission expense⁽¹⁾	4,471		26,338		10,417		54,034
Net commission income⁽²⁾	$	417	$	1,999	$	842	$	4,226

________________________


(1)	Includes selling commission expense to NorthStar Securities employees. For the three months ended June 30, 2016 and 2015, the Company paid $0.7 million and $3.2 million, respectively. For the six months ended June 30, 2016 and 2015, the Company paid $1.6 million and $6.6 million, respectively.


(2)	Excludes direct expenses of NorthStar Securities.

Other

A subsidiary of the Company is a rated special servicer by Standard & Poor’s and Fitch Ratings and receives special servicing fees for services related to certain securitization transactions. For the three months ended June 30, 2016 and 2015, the Company earned $0.7 million and $0.4 million of special servicing fees, respectively. For the six months ended June 30, 2016 and 2015, the Company earned $0.7 million and $0.8 million of special servicing fees, respectively.

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(Unaudited)


4.	Investments in Unconsolidated Ventures

The Company may account for investments in unconsolidated ventures using the equity method, at fair value or the cost method. The following table summarizes the Company’s investments in unconsolidated ventures (dollars in thousands):



	Acquisition Date	Ownership Interest	June 30, 2016		December 31, 2015
Investment	Acquisition Date	Ownership Interest	June 30, 2016		December 31, 2015
AHI Interest⁽¹⁾	Dec-14	43%	$	38,452	$	45,581
Distributed Finance⁽²⁾	Jun-14	50%	—		2,679
Island Interest⁽³⁾	Jan-15	45%	39,302		39,809
Subtotal Indirect Investments			77,754		88,069
Townsend Funds⁽⁴⁾	Various	Various	21,455		—
Total			$	99,209	$	88,069

____________________

(1)

The Company acquired the AHI Interest in AHI Newco, LLC (“AHI Ventures”), a direct wholly-owned subsidiary of American Healthcare Investors LLC (“AHI”) for $57.5 million, consisting of $37.5 million in cash and $20.0 million of the Company’s common stock, subject to certain lock-up and vesting restrictions ($10.0 million of the Company’s common stock vested immediately). The Company’s investment in AHI Ventures is structured as a joint venture between the Company, the principals of AHI and James F. Flaherty III. The members of AHI are entitled to receive certain distributions of operating cash flow and certain promote fees in accordance with the allocations set forth in the joint venture agreement. For the three and six months ended June 30, 2016, the Company received distributions of $1.0 million and $3.5 million related to the AHI Interest, respectively.


(2)	The Company acquired an interest in Distributed Finance, a marketplace finance platform, for $4.0 million. As of June 30, 2016, the investment is fully impaired.

(3)

The Company acquired the Island Interest in Island Hospitality Group Inc. (“Island”) through Island Hospitality Joint Venture, LLC (“Island Ventures”), a subsidiary of Island JV Members Inc. (“Island Members”) for $37.7 million, consisting of $33.2 million in cash and $4.5 million of the Company’s common stock, subject to certain lock-up and vesting restrictions (which vested immediately). The Company’s investment in Island Ventures is structured as a joint venture between the Company and Island Members. The members of Island Ventures are entitled to receive certain distributions of operating cash flow and certain promote fees in accordance with the allocations set forth in the joint venture agreement. The Company’s investment in Island is expected to be sold in connection with the Mergers. For the three and six months ended June 30, 2016, the Company received distributions of $1.5 million and $2.6 million related to the Island Interest, respectively.


(4)	Represents interests in real estate private equity funds sponsored by Townsend (refer to below).

Indirect Investments

The following tables summarize the Company’s equity in earnings (losses) related on investments in unconsolidated ventures which are accounted for using the equity method for the three and six months ended June 30, 2016 and 2015 (dollars in thousands):



	Three Months Ended June 30, 2016									Three Months Ended June 30, 2015
	Operating Income (Loss)		Non-cash Income (Expense)				Equity in Earnings (Loss)			Operating Income (Loss)			Non-cash Income (Expense)				Equity in Earnings (Loss)
Investment	Operating Income (Loss)		Non-cash Income (Expense)				Equity in Earnings (Loss)			Operating Income (Loss)			Non-cash Income (Expense)				Equity in Earnings (Loss)
AHI Interest	$	723	$	(2,497	)	⁽¹⁾	$	(1,774	)	$	1,481		$	(2,806	)	⁽¹⁾	$	(1,325	)
Distributed Finance	—		(500		)	⁽²⁾	(500		)	(319		)	—				(319		)
Island Interest	1,716		(443		)	⁽³⁾	1,273			1,734			—				1,734
Total	$	2,439	$	(3,440	)		$	(1,001	)	$	2,896		$	(2,806	)		$	90



	Six Months Ended June 30, 2016										Six Months Ended June 30, 2015
	Operating Income (Loss)			Non-cash Income (Expense)				Equity in Earnings (Loss)			Operating Income (Loss)				Non-cash Income (Expense)				Equity in Earnings (Loss)
Investment	Operating Income (Loss)			Non-cash Income (Expense)				Equity in Earnings (Loss)			Operating Income (Loss)				Non-cash Income (Expense)				Equity in Earnings (Loss)
AHI Interest	$	944		$	(5,821	)	⁽¹⁾	$	(4,877	)	$	3,090			$	(6,092	)	⁽¹⁾	$	(3,002	)
Distributed Finance	(254		)	(2,370		)	⁽²⁾	(2,624		)	(536		)		—				(536		)
Island Interest	3,014			(886		)	⁽³⁾	2,128			2,757			⁽⁴⁾	—				2,757
Total	$	3,704		$	(9,077	)		$	(5,373	)	$	5,311			$	(6,092	)		$	(781	)

_________________


(1)	Includes equity-based compensation expense and depreciation and amortization.


(2)	Represents an impairment loss. As of June 30, 2016, the maximum exposure to loss is $0.8 million carrying value of the investment on the convertible debt (refer to Note 2).


(3)	Represents depreciation and amortization expense.


(4)	Includes from acquisition date on January 9, 2015 through June 30, 2015.

Townsend Funds

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The following table summarizes the Townsend Funds, which are accounted for at fair value, as of June 30, 2016, for the three months ended June 30, 2016 and for the period from the Townsend Acquisition Date through June 30, 2016 (dollars in thousands):



As of June 30, 2016					Three Months Ended June 30, 2016						Period from the Townsend Acquisition Date through June 30, 2016
Number of Funds⁽¹⁾	Fair Value⁽²⁾		Unfunded Commitments⁽²⁾⁽³⁾		Income⁽⁴⁾		Distributions⁽²⁾		Contributions		Income⁽⁴⁾		Distributions⁽²⁾		Contributions
26	$	21,455	$	10,418	$	444	$	611	$	1,475	$	444	$	1,009	$	4,313

_________________


(1)	Investments in closed-ended funds are not redeemable and investments in open-ended funds have semi-annual redemption options with 120 days advance notice.

(2)

The Company assumed an obligation to the sellers of Townsend, including certain Townsend employees, under which they are entitled to approximately 84% of the value of the Townsend Funds at the Townsend Acquisition Date along with any income related to capital contributed prior to acquisition. The Company is obligated to fund all future contributions and is entitled to any income on such contributions subsequent to the Townsend Acquisition Date. As of June 30, 2016, the carrying amount of such liability is $15.9 million and is recorded in other liabilities. Certain distributions received for the quarter will be paid against the assumed obligation of $15.9 million to the sellers.


(3)	Subsequent to the Townsend Acquisition Date, the Company has commitments to co-invest approximately 1% of the total unfunded commitment in the Townsend Funds.


(4)	The Company’s portion of equity in earnings from the Townsend Funds is $0.2 million for the three months ended June 30, 2016 and for the period from the Townsend Acquisition Date through June 30, 2016.


5.	Borrowings

Corporate Facilities

In January 2016, upon the closing of Townsend, the Company entered into a $500.0 million term loan (the “Term Loan”), less applicable original issue discounts and certain upfront fees, and used the proceeds to repay its outstanding revolving credit agreement of $100.0 million. The Term Loan bears interest at LIBOR, subject to a floor of 0.75%, plus 3.875% per year and matures on January 29, 2023. The Term Loan is guaranteed by the Company and certain domestic subsidiaries of the Company and secured by substantially all of the assets of the Company. In connection with the Term Loan, the Company obtained corporate issuer and issue credit ratings from S&P and Moody’s of BBB- and Ba2, respectively.

The Term Loan related agreements contain representations, warranties, covenants, conditions precedent to funding, events of default and indemnities that are customary for agreements of these types. As of June 30, 2016, the Company was in compliance with all of its financial covenants.


6.	Related Party Arrangements

NorthStar Realty

Investment Opportunities

Under the management agreement, NorthStar Realty agreed to make available to the Company for the benefit of the Managed Companies, including NorthStar Realty, all investment opportunities sourced by NorthStar Realty. The Company agreed to fairly allocate such opportunities among the Managed Companies, including NorthStar Realty, in accordance with an investment allocation policy. Pursuant to the management agreement, NorthStar Realty is entitled to fair and reasonable compensation for its services in connection with any loan origination opportunities sourced by it, which may include first mortgage loans, subordinate mortgage interests, mezzanine loans and preferred equity interests, in each case relating to commercial real estate. For the three and six months ended June 30, 2016, the Company incurred $0.2 million and $0.4 million, respectively, to NorthStar Realty for services in connection with loan origination opportunities.

The Company provides services with regard to such areas as payroll, human resources and employee benefits, financial systems management, treasury and cash management, accounts payable services, telecommunications services, information technology services, property management services, legal and accounting services and various other corporate services to NorthStar Realty as it relates to its loan origination business for CRE debt.

Credit Agreement

In connection with the NSAM Spin-off, the Company entered into a revolving credit agreement with NorthStar Realty pursuant to which NorthStar Realty makes available to the Company, on an “as available basis,” up to $250.0 million of financing with a maturity of June 30, 2019 at LIBOR plus 3.50%. The revolving credit facility is unsecured. The Company expects to use the proceeds for general corporate purposes, including potential future acquisitions. In addition, the Company may use the proceeds to acquire assets on behalf of the Managed Companies that the Company intends to allocate to such Managed Company but for

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(Unaudited)

which such Managed Company may not then have immediately available funds. The terms of the revolving credit facility contain various representations, warranties, covenants and conditions, including the condition that NorthStar Realty’s obligation to advance proceeds to the Company is dependent upon NorthStar Realty and its affiliates having at least $100.0 million of either unrestricted cash and cash equivalents or amounts available under committed lines of credit, after taking into account the amount the Company seeks to draw under the facility. As of June 30, 2016, the Company had no borrowings outstanding under the credit agreement.

NorthStar Listed Companies Shares

The Company purchased 2.7 million and 0.2 million shares of NorthStar Realty and NorthStar Europe, respectively, in the open market for $52.2 million in the aggregate. For the three and six months ended June 30, 2016, the Company recorded an unrealized loss of $4.6 million and $15.2 million, respectively, which is recorded in unrealized gain (loss) on investments and other and $1.1 million and $2.2 million, respectively, of dividend income recorded in other income on the consolidated statements of operations.

Recent Sales or Commitments to Sell to Retail Companies

During 2016, NorthStar Realty entered into agreements to sell certain assets to the Retail Companies. The board of directors of each Retail Company, including all of the independent directors, approved of the respective transactions after considering, among other matters, third party pricing support.

Healthcare Strategic Joint Venture

In January 2014, the Company entered into a long-term strategic partnership with James F. Flaherty III, former Chief Executive Officer of HCP, Inc., focused on expanding the Company’s healthcare business into a preeminent healthcare platform (“Healthcare Strategic Partnership”). In connection with the partnership, Mr. Flaherty oversees both NorthStar Realty’s healthcare real estate portfolio and the portfolio of NorthStar Healthcare. In connection with entering into the partnership, NorthStar Realty granted Mr. Flaherty certain RSUs, half of which became the Company’s RSUs as a result of NorthStar Realty’s reverse stock split and the NSAM Spin-off (refer to Note 9). The Healthcare Strategic Partnership is entitled to incentive fees ranging from 20% to 25% above certain hurdles for new and existing healthcare real estate investments held by NorthStar Realty and NorthStar Healthcare. The partnership will also be entitled to any incentive fees earned from NorthStar Healthcare or any future healthcare retail vehicles sponsored by the Company, NorthStar Realty or any affiliates, as well as future healthcare retail vehicles sponsored by AHI Ventures. For the three and six months ended June 30, 2016 and 2015, the Company did not earn incentive fees related to the Healthcare Strategic Partnership.

On February 2, 2015, in connection with the completion of NorthStar Healthcare’s initial primary offering, the Company issued 20,305 RSUs to Mr. Flaherty. On December 17, 2015, in connection with the completion of NorthStar Healthcare’s follow-on public offering, the Company issued 139,473 RSUs to Mr. Flaherty. On January 19, 2016, the Company issued an additional 527 RSUs to Mr. Flaherty.

AHI Venture

In connection with the AHI Interest, AHI Ventures provides certain asset management, property management and other services to affiliates of the Company assisting in managing the current and future healthcare assets (excluding any joint venture assets) of NorthStar Realty and other Retail Companies, including the assets formerly owned by Griffin-American Healthcare REIT II, Inc. (“Griffin-American”) and its former operating partnership, Griffin-American Healthcare REIT II Holdings, LP (“Griffin-America OP portfolio”) and third party assets, representing $7.5 billion, of which $5.5 billion is owned by NorthStar Realty and NorthStar Healthcare. AHI Ventures receives a base management fee of $0.6 million per year plus 0.50% of the equity invested by NorthStar Realty in future healthcare assets (excluding assets in the Griffin-American OP portfolio and other joint ventures) that AHI Ventures may manage. AHI Ventures may also participate in the incentive fees earned by the Company and its affiliates with respect to new and existing healthcare real estate investments held by NorthStar Realty and NorthStar Healthcare, including the Griffin-American OP portfolio, any future healthcare retail vehicles sponsored by the Company, NorthStar Realty or any affiliates, as well as any future healthcare retail vehicles sponsored by AHI Ventures. AHI Ventures would also be entitled to additional base management fees should it manage assets on behalf of any other Managed Companies. AHI Ventures also intends to directly or indirectly sponsor, co-sponsor, form, register, market, advise, manage and/or operate investment vehicles that are intended to invest primarily in healthcare real estate assets. In addition, Mr. Flaherty acquired a 12.3% interest, as adjusted, in AHI Ventures. For the three and six months ended June 30, 2016, the Company incurred $0.4 million and $0.9 million, respectively, of base management fees to AHI, which is recorded in other expenses in the consolidated statements of operations. Also, AHI provides certain asset management, property management and other services to NorthStar Realty to assist in managing its properties. For the three months ended June 30, 2016 and 2015, NorthStar Realty incurred $0.4 million of property management fees to AHI in each period.

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(Unaudited)

For the six months ended June 30, 2016 and 2015, NorthStar Realty incurred $0.9 million of property management fees to AHI in each period.

In April 2015, Griffin-American Healthcare REIT III, Inc., a vehicle managed by an affiliate of AHI, distributed shares of its common stock to the members of AHI Ventures, of which the Company received 0.2 million shares in connection with the distribution, which is recorded in other assets on the consolidated balance sheets.

Island Venture

Island is a leading, independent select service hotel management company that currently manages 162 hotel properties, representing $3.9 billion, of which 110 hotel properties totaling $2.1 billion, are owned by NorthStar Realty. Island provides certain asset management, property management and other services to NorthStar Realty to assist in managing its hotel properties. Island receives a base management fee of 2.5% to 3.0% of the current monthly revenue of the NorthStar Realty hotel properties it manages for NorthStar Realty. For the three months ended June 30, 2016 and 2015, NorthStar Realty incurred $4.7 million and $3.0 million, respectively, of base property management and other fees to Island. For the six months ended June 30, 2016 and for the period from acquisition date (January 9, 2015) through June 30, 2015, NorthStar Realty incurred $8.8 million and $6.4 million, respectively, of base property management and other fees to Island.

RXR Realty

In December 2013, NorthStar Realty entered into a strategic transaction with RXR Realty, the co-sponsor of NorthStar/RXR New York Metro. The investment in RXR Realty includes an approximate 27% equity interest. NorthStar Realty’s equity interest in RXR Realty is structured so that the Company is entitled to the portion of distributable cash flow from RXR Realty’s investment management business in excess of the $10 million minimum annual base amount set forth in the management agreement (refer to Note 3). For the three and six months ended June 30, 2016 and 2015, the Company was not entitled to any excess.


7.	Fair Value

Fair Value Measurement

The Company follows fair value guidance in accordance with U.S. GAAP to account for its financial instruments. The Company categorizes its financial instruments, 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).

Financial assets and liabilities are recorded at fair value on its consolidated balance sheets and 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.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following is a description of the valuation techniques used to measure fair value of assets and liabilities accounted for at fair value on a recurring basis and the general classification of these instruments pursuant to the fair value hierarchy.

Securities

As of June 30, 2016 and December 31, 2015, the Company’s securities are valued using quoted prices in an active market, and as such, are classified as Level 1 of the fair value hierarchy. As of June 30, 2016 and December 31, 2015, the fair value is $33.3 million and $46.2 million, respectively.

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(Unaudited)

Townsend Funds

The fair value of the Townsend Funds are estimated by the Company’s proportionate share of net asset value provided by the underlying fund investment based on the most recent available information, which is on a one quarter lag. The Company reviews the net asset value provided by the underlying fund investment managers on an ongoing basis and compares these values to the audited financial statements. As of June 30, 2016, the fair value is $21.5 million.

Convertible Debt Investment

As of June 30, 2016, the Company’s convertible debt investment to Distributed Finance is classified as an available-for-sale debt security and is recorded within other assets on the consolidated balance sheets. The debt investment is valued based on unobservable inputs and as such, is classified as Level 3 of the fair value hierarchy. As of June 30, 2016, the fair value is $0.8 million.

Fair Value of Financial Instruments

In addition to the above disclosures regarding financial assets or liabilities which are recorded at fair value, U.S. GAAP requires disclosure of fair value about all financial instruments. The following disclosure of estimated fair value of financial instruments was determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair value. 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 estimated fair value. The fair value of other financial instruments such as receivables and payables is estimated to approximate their carrying value.

Disclosure about fair value of financial instruments is based on pertinent information available to management as of the reporting date. Although management is not aware of any factors that would significantly affect fair value, such amounts have not been comprehensively revalued for purposes of these consolidated financial statements since that date and current estimates of fair value may differ significantly from the amounts presented herein.

Term Loan

The Company uses term to maturity and LIBOR rates to estimate fair value. This fair value measurement is based on observable inputs and as such, is classified as Level 2 of the fair value hierarchy. As of June 30, 2016, the carrying value of the Term Loan is $468.9 million, which approximates fair value.


8.	Commitments and Contingencies

Litigation

The Company may be involved in various litigation matters arising in the ordinary course of its business. Although the Company is unable to predict with certainty the eventual outcome of any litigation, in the opinion of management, the legal proceedings are not expected to have a material adverse effect on the Company’s financial position or results of operations.

Merger Related Arrangements and Other Costs

The Company entered into fee arrangements with service providers and advisors pursuant to which certain fees incurred by the Company in connection with the Mergers will become payable only if the Company consummates the Mergers. The Company has and will incur other professional fees related to the Mergers. In addition, the Company will incur cash compensation expenses to executives and employees related to severance, retention and related costs. There can be no assurances that the Company will complete this or any other transaction. For the three months ended June 30, 2016, the Company recorded an aggregate of $17.8 million in transaction costs in the consolidated statements of operations. To the extent the Mergers are consummated, the Company anticipates incurring a significant amount of additional costs, which with respect to advisors could be up to approximately $30 million.

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(Unaudited)


9.	Compensation Expense

Summary

The following table presents a summary of compensation expense for the three and six months ended June 30, 2016 and 2015 (dollars in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Salaries and related expenses	$	20,323	$	17,705	$	40,361	$	29,850
Equity-based compensation expense	13,637		15,002		30,770		28,620
Total	$	33,960	$	32,707	$	71,131	$	58,470

Impact of the Spin-offs

NorthStar Realty issued equity-based awards to directors, officers, employees, consultants and advisors pursuant to the NorthStar Realty Finance Corp. 2004 Omnibus Stock Incentive Plan, as amended and restated (the “NorthStar Realty Stock Plan”), and the NorthStar Realty Executive Incentive Bonus Plan, as amended (the “NorthStar Realty Plan” and collectively the “NorthStar Realty Equity Plans”). In addition, the Company issued equity-based awards to directors, officers, employees, consultants and advisors pursuant to the NorthStar Asset Management Group Inc. 2014 Omnibus Stock Incentive Plan (the “NSAM Stock Plan”) and the NorthStar Asset Management Group Inc. Executive Incentive Bonus Plan (the “NSAM Bonus Plan” and collectively, with the NSAM Stock Plan, the “NSAM Plans”).

All of the vested and unvested equity-based awards granted by NorthStar Realty prior to the NSAM Spin-off remained outstanding following the NSAM Spin-off. Appropriate adjustments were made to all awards to reflect the impact of NorthStar Realty’s reverse stock split and the NSAM Spin-off, as described below.

NorthStar Realty’s equity awards outstanding at the time of the NSAM Spin-off, including LTIP Units converted to common shares in connection with NorthStar Realty’s internal corporate reorganization, were adjusted to relate to an equal number of shares of the Company’s common stock or Deferred LTIP Units, as described below, but generally continue to remain subject to the same vesting and other terms that applied prior to the NSAM Spin-off. Vesting conditions for outstanding awards were adjusted to reflect the impact of the NSAM Spin-off with respect to employment conditions for service-based awards and total stockholder return for performance-based awards. The shares of the Company’s common stock (representing LTIP Units previously issued by NorthStar Realty’s operating partnership prior to the NSAM Spin-off) that remain subject to vesting after the NSAM Spin-off, as well as grants of shares of the Company’s common stock subject to time-based vesting issued by the Company since the time of the NSAM Spin-off, are herein referred to as restricted stock.

Deferred LTIP Units outstanding immediately prior to the NSAM Spin-off were equity awards issued by NorthStar Realty which represented the right to receive LTIP Units in NorthStar Realty’s successor operating partnership or shares of NorthStar Realty common stock (subject to the same vesting conditions). On March 13, 2015, such Deferred LTIP Units were settled in LTIP Units in the Operating Partnership, or shares of restricted stock, which remain subject to the same vesting conditions that applied to the Deferred LTIP Units.

Following the NSAM Spin-off, NorthStar Realty and the compensation committee of its board of directors (the “NorthStar Realty Compensation Committee”) continue to administer all awards issued under the NorthStar Realty Equity Plans but the Company is obligated to issue shares of the Company’s common stock or other equity awards of its subsidiaries or make cash payments in lieu thereof and the Company is obligated to make cash payments with respect to dividend or distribution equivalent obligations relating to such shares to the extent required by such awards previously issued under the NorthStar Realty Equity Plans. These awards will continue to be governed by the NorthStar Realty Equity Plans, as applicable, and shares of the Company’s common stock issued pursuant to these awards will not be issued pursuant to, or reduce availability, under the NorthStar Realty Equity Plans.

In connection with the NSAM Spin-off, most of NorthStar Realty’s employees at the time of the NSAM Spin-off became employees of the Company except for executive officers, employees engaged in NorthStar Realty’s loan origination business at the time of the NSAM Spin-off and certain other employees that became co-employees of both the Company and NorthStar Realty.

The following summarizes the equity-based compensation plans and related expenses.

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(Unaudited)

NorthStar Asset Management Plans

NSAM Stock Plan

In March 2014, the NorthStar Realty Compensation Committee approved the NSAM Stock Plan, which was subsequently adopted by the Company’s board of directors and approved by its sole stockholder at the time. The NSAM Stock Plan was administered by the NorthStar Realty Compensation Committee prior to the NSAM Spin-off and is administered by the Company’s compensation committee following the NSAM Spin-off. The NSAM Stock Plan provides flexibility to use various equity-based and cash incentive awards as compensation tools to motivate the Company’s workforce.

In anticipation of the NSAM Spin-off, on April 3, 2014, the Company granted an aggregate of 6,230,529 RSUs to its executive officers pursuant to the NSAM Stock Plan. The RSUs vest over four years and are subject to the achievement of performance-based vesting conditions and continued employment. 40% of these RSUs are performance-based awards and were subject to the achievement of performance-based hurdles relating to CAD of the Company and NorthStar Realty and capital raising of the Retail Companies, as well as continued employment through December 31, 2017 (“Performance RSUs”). 30% of these RSUs are market-based awards and are subject to the achievement of performance-based hurdles relating to the Company’s absolute total stockholder return and continued employment over a four-year period ended April 2, 2018 (“Absolute RSUs”). The remaining 30% of these RSUs are market-based awards and are subject to the achievement of performance-based hurdles based on the Company’s total stockholder return relative to the Russell 2000 Index and continued employment over a four-year period ended April 2, 2018 (“Relative RSUs”). With respect to these grants, the grant date fair value for the Performance RSUs, Absolute RSUs and Relative RSUs was $17.01, $10.22 and $16.21 per RSU, respectively. The grant date fair value was determined using a risk-free interest rate of 1.48%. In May 2014, the Company also granted an aggregate of 1,289,602 of the Performance RSUs, Absolute RSUs and Relative RSUs (net of forfeitures occurring prior to June 30, 2016) with substantially similar terms as the RSUs granted to executives in April 2014 to certain employees pursuant to the NSAM Stock Plan. With respect to these grants, the grant date fair value for the Performance RSUs, Absolute RSUs and Relative RSUs was $16.80, $9.95 and $16.29 per RSU, respectively. The grant date fair value of the Absolute RSUs and Relative RSUs was determined using a risk-free interest rate of 1.29%. In December 2014, the Company determined that the performance hurdles relating to the Performance RSUs were met. On December 31, 2014, the Performance RSUs were settled in shares of the Company’s common stock, of which 25% were vested and the remainder (in the form of restricted stock) were subject to vesting in equal installments on December 31, 2015, 2016 and 2017, subject to continued employment. In connection with the vesting of these shares, on December 31, 2015 and 2014, the Company retired 370,943 and 392,157, respectively, of the vested shares of common stock to satisfy the minimum statutory tax withholding requirements. The common stock retired to satisfy the withholding amounts was recorded as a reduction to additional paid-in capital with an offsetting payable recorded in accounts payable and accrued expenses. On December 31, 2014, the Absolute RSUs and Relative RSUs related to the executives were settled in shares of performance common stock. Upon vesting pursuant to the terms of the Absolute RSUs and Relative RSUs, shares of performance common stock will automatically convert into shares of common stock and the executive will be entitled to receive the distributions that would have been paid with respect to a share of common stock (for each share of performance common stock that vests) on or after the date the shares of performance common stock were initially issued.

NSAM Bonus Plan

In March 2014, the NorthStar Realty Compensation Committee approved the NSAM Bonus Plan, which was subsequently adopted by the Company’s board of directors and approved by its sole stockholder. The NSAM Bonus Plan establishes the general parameters of the Company’s incentive bonus program for its executive officers. Pursuant to the NSAM Bonus Plan, for each plan year, the administrator will establish two bonus pools (an annual cash bonus pool and a long-term bonus pool), award a bonus pool percentage(s) to each participant with respect to such bonus pools and establish performance goals, vesting requirements and other terms and conditions applicable to such bonuses. The NSAM Bonus Plan was administered by the NorthStar Realty Compensation Committee prior to the NSAM Spin-off and is administered by the Company’s compensation committee following the NSAM Spin-off. Prior to the NSAM Spin-off, the NorthStar Realty Compensation Committee established bonus pools, awarded bonus pool percentages and established the performance goals, vesting requirements and other terms and conditions applicable to bonuses for 2014 under the NSAM Bonus Plan.

Long-term bonuses for 2014 were paid in both Company and NorthStar Realty equity-based awards, subject to performance-based and time-based vesting conditions over the four-year performance period from January 1, 2014 through December 31, 2017. Approximately 31.65% of these long-term bonuses were subject to the achievement of performance-based hurdles relating to CAD of the Company and NorthStar Realty and capital raising of the Retail Companies in 2014 and were paid in shares of the Company’s common stock that were subject to vesting in equal installments on each of December 31, 2014, 2015, 2016 and 2017, subject to continued employment. 18.35% of these long-term bonuses are performance-based awards that were paid in shares of performance common stock that are subject to vesting based on the achievement of performance-based hurdles relating to the Company’s

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absolute total stockholder return and continued employment over a four-year period. The remaining approximately 50% of long-term bonuses are being paid by NorthStar Realty.

In connection with the long-term bonuses for 2014, the Company determined that the performance hurdles for the approximately 31.65% of the long-term bonuses to be paid in shares of the Company’s common stock were met. On December 31, 2014, the Company paid this portion of the long-term bonus by issuing 795,107 shares of common stock, of which 25% vested immediately and the remainder (in the form of restricted stock) was subject to vesting in equal installments on December 31, 2015, 2016 and 2017, subject to continued employment. In connection with the vesting of these shares, on December 31, 2015 and 2014, the Company retired 100,455 and 108,198, respectively, of the vested shares of common stock to satisfy the minimum statutory withholding requirements. In connection with the remainder of the long-term bonus to be paid by the Company, in February 2015, the Company issued an aggregate of 474,842 shares of performance common stock to executives, which are subject to vesting based on the Company’s absolute total stockholder return and continued employment over the four-year period ending December 31, 2017. With respect to these grants, the grant date fair value was $21.16 per share, which was determined using a risk-free interest rate of 1.00%. Upon vesting, these shares of performance common stock will automatically convert into shares of common stock and the executives will be entitled to receive the distributions that would have been paid with respect to a share of common stock (for each share of performance common stock that vests) on or after January 1, 2015. In February 2015, the Company also granted 606,486 shares of common stock, net of forfeitures occurring prior to June 30, 2016, to certain non-executive employees, subject to time based vesting conditions through January 29, 2018.

In the first quarter 2015, the Company’s compensation committee established bonus pools, awarded bonus pool percentages and established the performance goals, vesting requirements and other terms and conditions applicable to bonuses for 2015 under the NSAM Bonus Plan. Long-term bonuses for 2015 were paid in equity-based awards of the Company, NorthStar Realty and NorthStar Europe, subject to performance-based and time-based vesting conditions over the four-year performance period from January 1, 2015 through December 31, 2018. In February 2016, 31.65% of these long-term bonuses were paid by the Company by issuing 1,719,545 restricted shares of common stock to the Company’s executive officers, of which 25% were vested upon grant and the remainder is subject to vesting in equal installments on December 31, 2016, 2017 and 2018, subject to the recipient’s continued employment through the applicable vesting dates. The issuance of these restricted shares was subject to the achievement of performance-based hurdles relating to CAD of the Company, NorthStar Realty and NorthStar Europe or capital raising of the Retail Companies in 2015. In connection with the issuance of these shares, in February 2016, the Company retired 226,745 of the vested shares of common stock to satisfy the minimum statutory withholding requirements. In addition, in February 2016, 18.35% of these long-term bonuses are performance-based awards that were paid by the Company by issuing 996,957 shares of performance common stock to the Company’s executive officers, which are subject to vesting based on the Company’s absolute total stockholder return, CAD and continued employment over the four-year period ending December 31, 2018. With respect to these grants, the grant date fair value was $3.43 per share, which was determined using a risk-free interest rate of 0.88%. Upon vesting, these shares of performance common stock will automatically convert into shares of common stock and the executives will be entitled to receive the distributions that would have been paid with respect to a share of common stock (for each share of performance common stock that vests) on or after January 1, 2015. In February 2016, the Company granted 828,722 (net of forfeitures occurring prior to June 30, 2016) restricted shares of common stock to certain of its non-executive employees, with substantially similar terms to the executive awards subject to time-based vesting conditions. The remaining approximately 50% of long-term bonuses paid to executives and non-executive employees are being paid by NorthStar Realty and NorthStar Europe.

NorthStar Realty Equity Plans

In connection with the NSAM Spin-off, the Company issued the following related to the NorthStar Realty Equity Plans that remain outstanding as of June 30, 2016: 249 shares of restricted stock, net of forfeitures, which remain subject to vesting; 1,124,984 LTIP Units, net of forfeitures and conversions, of which 280,567 remain subject to vesting; and 500,371 RSUs related to executives only, which remain subject to vesting based on performance and continued employment. On December 31, 2014, the performance hurdle for an incremental 762,898 of RSUs was met pursuant to NorthStar Realty’s bonus plan for 2011. To settle these RSUs, on January 1, 2015 the Company issued 49,149 shares of common stock, net of the minimum statutory tax withholding requirements and the Company issued 665,747 Deferred LTIP Units, which subsequently settled to LTIP Units with the creation of the Operating Partnership on March 13, 2015.

On December 31, 2015, the performance hurdle for an incremental 704,839 of RSUs was met pursuant to NorthStar Realty’s bonus plan for 2012. To settle these RSUs, on January 4, 2016 the Company issued 362,006 shares of common stock, net of the minimum statutory tax withholding requirements.

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Other Issuances

Healthcare Strategic Joint Venture

In connection with entering into the Healthcare Strategic Partnership, NorthStar Realty granted Mr. Flaherty 500,000 RSUs on January 22, 2014, adjusted to reflect NorthStar Realty’s reverse stock split in 2014, which vest on January 22, 2019, unless certain conditions are met. In connection with the NSAM Spin-off, the RSUs granted to Mr. Flaherty were adjusted to also relate to an equal number of shares of the Company’s common stock. The RSUs are entitled to dividend equivalents prior to vesting and may be settled either in shares of common stock of the Company or in cash at the option of the Company. Mr. Flaherty is also entitled to incremental grants of the Company’s common stock subject to certain conditions being met pursuant to a separate contractual arrangement entered into in connection with the Healthcare Strategic Partnership. On February 2, 2015, in connection with the completion of NorthStar Healthcare’s initial public offering and the services Mr. Flaherty provides to the Healthcare Strategic Partnership, the Company issued 20,305 incremental RSUs to Mr. Flaherty, which vest on the third anniversary of the grant date, unless certain conditions are met.

In December 2015 and January 2016, in connection with the completion of the follow-on public offering by NorthStar Healthcare and the services Mr. Flaherty provides to the Healthcare Strategic Partnership, the Company issued an aggregate of 140,000 incremental RSUs to Mr. Flaherty, of which 139,473 vest on December 17, 2018 and 527 vest on January 19, 2019, unless certain conditions are met.

AHI

On December 8, 2014, the Company acquired an interest in AHI for $37.5 million in cash and $20.0 million of common stock, representing 956,462 shares. In connection with this acquisition, the Company required the seller to subject one-half of these shares to forfeiture conditions that lapse based on the continued service to AHI of its three principals, with forfeiture conditions with respect to 50% of these shares lapsing two years after the closing date of the Company’s acquisition and the remaining 50% lapsing five years after the closing date. As a result of this vesting arrangement, $10.0 million of common stock (or 478,231 shares) subject to this arrangement is treated as a contingent consideration arrangement tied to continued employment of the AHI principals as an incentive to remain as employees of AHI. As such, this contingent consideration arrangement is accounted for separately as a compensatory arrangement with amortization of such equity award being recorded by the Company through equity in earnings. The AHI principals are also entitled to incremental grants of the Company’s common stock subject to certain conditions being met pursuant to a separate contractual arrangement entered into in connection with the Company’s AHI investment. For the three and six months ended June 30, 2016, no incremental awards were issued.

In March 2016, the Company issued approximately 94,000 shares to employees of AHI in settlement of the commitment to contribute $1.0 million in shares related to equity incentives and will contribute $1.0 million in shares in March 2017 related to the year ended 2016.

Townsend

Subsequent to the Company’s acquisition of its interest in Townsend, in February 2016, the Company granted 658,330 shares of common stock to certain members of Townsend’s management team who own the remaining interest in Townsend. The grant was based on the Company’s stock price on such date and is related to future services to be rendered and subject to time-based vesting conditions through December 31, 2020. Such shares were not part of the acquisition cost.

Equity-based Compensation Summary

As of June 30, 2016, an aggregate of 30,072,659 shares of the Company’s common stock were reserved for the issuance of awards under the 2014 NSAM Plan, subject to equitable adjustment upon the occurrence of certain corporate events, provided that this number automatically increases each January 1st by 2% of the outstanding number of shares of the Company’s common stock on the immediately preceding December 31st.

Equity-based compensation expense for the three and six months ended June 30, 2016 and 2015 represents the Company’s equity-based compensation expense following the NSAM Spin-off.

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The following tables present equity-based compensation expense for the three and six months ended June 30, 2016 and 2015 (dollars in thousands):



	Time-Based Awards				Performance-Based Awards				Total
	Three Months Ended June 30,				Three Months Ended June 30,				Three Months Ended June 30,
	2016		2015		2016		2015		2016		2015
NSAM spin grants⁽¹⁾	$	2,000	$	3,868	$	3,653	$	3,736	$	5,653	$	7,604
NSAM bonus plan	4,725		3,294		1,177		878		5,902		4,172
NorthStar Realty bonus plan⁽²⁾	1,017		2,159		591		967		1,608		3,126
Townsend grants	367		—		—		—		367		—
Dividends to non-employees	107		100		—		—		107		100
Total	$	8,216	$	9,421	$	5,421	$	5,581	$	13,637	$	15,002

__________________


(1)	Represents equity-based compensation expense for one-time grants issued related to the NSAM Spin-off. Certain awards had performance-based conditions which were met upon issuance, and accordingly, are included in time-based awards as they are only currently subject to continued employment conditions.


(2)	Represents equity-based compensation expense related to annual grants issued by NorthStar Realty prior to the NSAM Spin-off.



	Time-Based Awards				Performance-Based Awards				Total
	Six Months Ended June 30,				Six Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015		2016		2015
NSAM spin grants⁽¹⁾	$	4,022	$	7,677	$	7,367	$	7,415	$	11,389	$	15,092
NSAM bonus plan	12,893		5,029		2,176		1,216		15,069		6,245
NorthStar Realty bonus plan⁽²⁾	2,295		5,129		1,183		1,923		3,478		7,052
Townsend grants	601		—		—		—		601		—
Dividends to non-employees	233		231		—		—		233		231
Total	$	20,044	$	18,066	$	10,726	$	10,554	$	30,770	$	28,620

__________________


(1)	Represents equity-based compensation expense for one-time grants issued related to the NSAM Spin-off. Certain awards had performance-based conditions which were met upon issuance, and accordingly, are included in time-based awards as they are only currently subject to continued employment conditions.


(2)	Represents equity-based compensation expense related to annual grants issued by NorthStar Realty prior to the NSAM Spin-off.

The following table presents activity related to the issuance, vesting and forfeitures of restricted stock and LTIP Units. The balance as of June 30, 2016 represents LTIP Units whether vested or not that are outstanding and unvested shares of restricted stock (grants in thousands):



	Six Months Ended June 30, 2016
	Restricted Stock⁽¹⁾			LTIP Units		Total Grants		Weighted Average Grant Price
December 31, 2015	3,268			1,792		5,060		$	22.02
New grants	2,577			—		2,577		10.85
Townsend grants	658			—		658		11.00
Vesting	(771	)	⁽²⁾	—		(771	)	13.87
Forfeited or canceled grants	(36	)		(1	)	(37	)	18.67
June 30, 2016	5,696			1,791		7,487		$	18.06

___________________


(1)	Represents restricted stock included in common stock.


(2)	Includes 0.5 million shares of restricted stock that vested and 0.3 million shares of restricted stock that were retired to satisfy minimum statutory withholding requirements.

As of June 30, 2016, equity-based compensation expense to be recognized over the remaining vesting period through December 2020 is $96.6 million, provided there are no forfeitures.

In connection with the Mergers, substantially all outstanding time-based equity awards issued to executives and non-executive employees will vest in accordance with their terms. In addition, all or a portion of the outstanding NSAM performance-based awards issued to executives and non-executives will vest in accordance with their terms, subject to forfeiture and reduction.

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10.	Stockholders’ Equity

Performance Common Stock

The Company is currently authorized to issue 1.6 billion shares of capital stock, of which 500 million shares are designated as performance common stock, par value $.01 per share. In connection with the performance-based component of the 2014 long-term bonus to be paid by the Company, in February 2015, the Company issued an aggregate of 474,842 shares of performance common stock to executives. In connection with the performance-based component of the 2015 long-term bonus paid by the Company, in February 2016, the Company issued an aggregate of 996,957 shares of performance common stock to executives.

Share Repurchase

In April 2015, the Company’s board of directors authorized the repurchase of up to $400 million of its outstanding common stock. In May 2016, the Company’s board of directors extended the authorization for an additional year. The authorization expires in April 2017, unless otherwise extended by the Company’s board of directors. From April 2015 through December 31, 2015, the Company repurchased 7.8 million shares of its common stock for approximately $105.2 million. For the six months ended June 30, 2016, the Company did not repurchase any shares of its common stock.

Call Spread

In September 2015, the Company entered into a call spread transaction (the “Call Spread”) with a third-party counterparty related to its share repurchase program. In connection with the Call Spread, certain subsidiaries of the Company purchased and sold a call option on the Company’s common stock with a notional amount of $100.0 million with various expiration dates beginning in December 2018 and a final maturity date in February 2019. The obligation to the counterparty under the sold call option are guaranteed by the Company. In October 2015, the Company paid a net premium of $16.0 million, which is recorded as a reduction in paid-in capital.

At its election, the Company can exercise the purchased call option on a cash basis, share basis or a net share basis. Upon exercise, the net value of the consideration is identical and can range from zero to approximately $40.0 million, depending upon the market price per share of the Company’s common stock at the time. In the event there is an early unwind of one or more components of the Call Spread, the amount of cash to be received by the Company will depend upon the Company’s market price of the Company’s common stock and the remaining term of the Call Spread. The number of shares and the strike prices are subject to customary adjustments.

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Earnings Per Share

Basic and diluted earnings per share and the average number of common shares outstanding were calculated using the number of common stock outstanding. The Company presents common shares issued in connection with the NSAM Spin-off as if it had been outstanding for all periods presented, similar to a stock split. The following table presents EPS for the three and six months ended June 30, 2016 and 2015 (dollars and shares in thousands, except per share data):



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Numerator:
Net income (loss) attributable to NorthStar Asset Management Group Inc. common stockholders	$	10,924		$	38,024		$	28,497		$	59,792
Less: Earnings (loss) allocated to unvested participating securities	(805		)	(1,315		)	(1,868		)	(2,226		)
Numerator for basic income (loss) per share	10,119			36,709			26,629			57,566
Add: Undistributed earnings allocated to participating nonvested shares	—			682			—			822
Less: Undistributed earnings reallocated to participating nonvested shares	—			(457		)	—			(705		)
Net income (loss) attributable to LTIP Units non-controlling interests	111			188			286			390
Numerator for diluted income (loss) per share	$	10,230		$	37,122		$	26,915		$	58,073

Denominator:
Weighted average number of shares of common stock	183,325			189,599			183,177			189,574
Incremental diluted shares	1,792			4,210			1,792			4,090
Weighted average number of diluted shares⁽¹⁾	185,117			193,809			184,969			193,664
Earnings (loss) per share:
Basic	$	0.06		$	0.19		$	0.15		$	0.30
Diluted	$	0.06		$	0.19		$	0.15		$	0.30

_______________________


(1)	Diluted EPS excludes the effect of equity-based awards issued that were not dilutive for the periods presented. These instruments could potentially impact diluted EPS in future periods, depending on changes in the Company’s stock price and other factors.


11.	Non-controlling Interests

Operating Partnership

Non-controlling interests include the aggregate LTIP Units held by limited partners (the “Unit Holders”) in the Operating Partnership. Net income (loss) attributable to the non-controlling interest is based on the weighted average Unit Holders’ ownership percentage of the Operating Partnership for the respective period. The issuance of additional common stock or LTIP Units changes the percentage ownership of both the Unit Holders and the Company. Since an LTIP Unit is generally redeemable for cash or common stock at the option of the Company, it is deemed to be equivalent to common stock. Therefore, such transactions are treated as capital transactions and result in an allocation between stockholders’ equity and non-controlling interests on the accompanying consolidated balance sheets to account for the change in the ownership of the underlying equity in the Operating Partnership. On a quarterly basis, the carrying value of such non-controlling interest is allocated based on the number of LTIP Units held by Unit Holders in total in proportion to the number of LTIP Units in total plus the number of shares of common stock. In connection with the formation of the Operating Partnership, the Company recorded a non-controlling interest of $4.4 million related to LTIP Units. As of June 30, 2016, 1,790,730 LTIP units were outstanding, representing a 1.0% ownership and non-controlling interest in the Operating Partnership. Income attributable to the Operating Partnership non-controlling interest for the three and six months ended June 30, 2016 was $0.1 million and $0.3 million, respectively.

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(Unaudited)

Redeemable Non-Controlling Interests

Townsend is a consolidated majority-owned subsidiary of the Company. Certain members of Townsend management own interests in Townsend in the form of Class B units where the holders have the ability to require the Company to purchase a certain percentage of such units annually beginning December 31, 2016 through December 31, 2020 with settlement in: (i) cash; (ii) the Company’s common stock; or (iii) a combination of cash and the Company’s common stock, subject to certain conditions. Such interest is considered redeemable non-controlling interest and net income (loss) attributable to such interest is based on the member’s ownership percentage of Townsend for the respective period.

The following table presents a summary of changes in the redeemable non-controlling interests from the Townsend Acquisition Date through June 30, 2016 (dollars in thousands):



Beginning balance	$	—
Contributions	75,703
Distributions	(2,482		)
Net income (loss)	2,136
Currency translation adjustment and other	(176		)
Ending balance	$	75,181


12.	Income Taxes

Subsequent to the NSAM Spin-off, the Company became subject to both domestic and international income tax, as such, there was no income tax benefit (expense) for the six months ended June 30, 2014. On March 13, 2015, the Company restructured by converting, under Delaware law, an existing limited liability company disregarded as separate from the Company for federal income tax purposes to a Delaware limited partnership and admitting as limited partners LTIP Unit holders, forming the Company’s new Operating Partnership. The Operating Partnership is treated as a partnership for federal income tax purposes and consequently, its items of income gain, loss, deduction and credit are passed through to, and included in, the taxable income of each of its partners including the Company.

For the three months ended June 30, 2016 and 2015, the Company incurred $1.2 million and $12.1 million of income tax expense, respectively. For the six months ended June 30, 2016 and 2015, the Company incurred $3.6 million and $20.0 million of income tax expense, respectively, which is based on a full year estimated effective tax rate of approximately 11.3% and 25.0%, respectively. The Company operates internationally and domestically through multiple operating subsidiaries. Each of the jurisdictions in which the Company operates has its own tax law and tax rate and the tax rate outside the United States may be lower than the U.S. federal statutory income tax rate.


13.	Segment Reporting

The Company conducts its business through the following five segments, which are based on how management reviews and manages NSAM:


•	NorthStar Listed Companies - Provides asset management and other services on a fee basis by managing the day-to-day activities of the NorthStar Listed Companies. The Company began earning fees from NorthStar Realty on July 1, 2014 and NorthStar Europe on November 1, 2015.


•	Retail Companies - Provides asset management and other services on a fee basis by managing the day-to-day activities of the Retail Companies.


•	Broker-dealer - Raises capital in the retail market through NorthStar Securities and earn dealer manager fees from the Retail Companies.

•

Direct Investments - Invests in strategic partnerships and joint ventures with third-parties, either consolidated or unconsolidated, with expertise in commercial real estate or other sectors and markets, where the Company benefits from the fee stream and potential incentive fee. Direct investments currently represent the Company’s investment in Townsend which focuses on institutional capital and unconsolidated interests such as AHI and Island.


•	Corporate/Other - Includes corporate level general and administrative expenses, as well as special servicing on a fee basis in connection with certain securitization transactions. In addition, includes opportunistic investments, such as the Company’s recent purchase of NorthStar Listed Companies common stock.

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The Company began earning fees from NorthStar Europe on November 1, 2015 and from Townsend on the Townsend Acquisition Date. The following tables present segment reporting for the three and six months ended June 30, 2016 and 2015 (dollars in thousands):



Statement of Operations:
Three Months Ended June 30, 2016	NorthStar Listed Companies		Retail Companies		Broker Dealer⁽¹⁾			Direct Investments			Corporate/Other				Total
Asset management and other fees	$	50,157	$	22,115	$	—		$	17,809		$	—			$	90,081
Selling commission and dealer manager fees, related parties	—		—		4,888			—			—				4,888
Commission expense	—		—		4,471			—			—				4,471
Interest expense	—		—		—			—			6,922				6,922
Compensation expense	—		—		2,317			7,328			24,315				33,960
Other general and administrative expenses	—		—		2,074			1,502			7,023				10,599
Equity in earnings (losses) of unconsolidated ventures⁽²⁾	—		—		—			(852		)	—				(852		)
Income tax benefit (expense)	—		—		—						(1,154		)		(1,154		)
Net income (loss)	50,157		22,115		(4,001		)	5,896			(62,028		)	⁽³⁾	12,139

_______________


(1)	Direct general and administrative expenses incurred by the broker dealer.


(2)	For the three months ended June 30, 2016, the Company recognized in equity in earnings (losses), operating income of $2.4 million, which excludes $0.5 million impairment loss, $2.9 million of equity-based compensation expense and depreciation and amortization expense and $0.2 million related to the Townsend Funds.


(3)	Includes general and administrative expenses including equity-based compensation of $13.0 million, transaction costs of $17.8 million and unrealized loss of $4.6 million.

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(Unaudited)



Statement of Operations:
Three Months Ended June 30, 2015	NorthStar Listed Companies⁽¹⁾		Retail Companies⁽¹⁾		Broker Dealer⁽²⁾			Direct Investments		Corporate/Other⁽¹⁾			Total
Asset management and other fees	$	51,744	$	38,614	$	—		$	—	$	—		$	90,358
Selling commission and dealer manager fees, related parties	—		—		28,337			—		—			28,337
Commission expense	—		—		26,338			—		—			26,338
Compensation expense	—		—		1,705			—		31,002			32,707
Other general and administrative expenses	—		—		2,848			—		6,407			9,255
Equity in earnings (losses) of unconsolidated ventures⁽³⁾	—		—		—			90		—			90
Income tax benefit (expense)	—		—		—			—		(12,055		)	(12,055		)
Net income (loss)	51,744		38,614		(2,583		)	90		(49,653		)	38,212

_______________

(1)

In the fourth quarter of 2014, the Company refined its segments to conform with its management of such businesses. Accordingly, certain fees that previously eliminated in consolidation between these segments are recorded within the Corporate segment. In consolidation, the intercompany fees continue to be eliminated. The Company has reclassified the prior period segment financial results to conform to the current presentation.


(2)	Direct general and administrative expenses incurred by the broker dealer.


(3)	For the three months ended June 30, 2015, the Company recognized in equity in earnings (losses), operating income of $2.9 million, which excludes $2.8 million of equity-based compensation expense and depreciation and amortization expense.



Statement of Operations:
Six Months Ended June 30, 2016	NorthStar Listed Companies		Retail Companies		Broker Dealer⁽¹⁾			Direct Investments			Corporate/Other				Total
Asset management and other fees	$	100,184	$	56,263	$	—		$	29,914		$	—			$	186,361
Selling commission and dealer manager fees, related parties	—		—		11,259			—			—				11,259
Commission expense	—		—		10,417			—			—				10,417
Interest expense	—		—		—			—			12,086				12,086
Compensation expense	—		—		4,895			12,418			53,818				71,131
Other general and administrative expenses	—		—		4,192			2,397			14,333				20,922
Equity in earnings (losses) of unconsolidated ventures⁽²⁾	—		—		—			(5,282		)	—				(5,282		)
Income tax benefit (expense)	—		—		—						(3,623		)		(3,623		)
Net income (loss)	100,184		56,263		(8,295		)	7,837			(125,070		)	⁽³⁾	30,919

__________________


(1)	Direct general and administrative expenses incurred by the broker dealer.


(2)	For the six months ended June 30, 2016, the Company recognized in equity in earnings (losses), operating income of $3.7 million, which excludes $2.4 million impairment loss, $6.7 million of equity-based compensation expense and depreciation and amortization expense and $0.2 million related to the Townsend Funds.


(3)	Includes general and administrative expenses including equity-based compensation of $29.5 million, transaction costs of $25.1 million and unrealized loss of $15.3 million.



Statement of Operations:
Six Months Ended June 30, 2015	NorthStar Listed Companies⁽¹⁾		Retail Companies⁽¹⁾		Broker Dealer⁽²⁾			Direct Investments			Corporate/Other⁽¹⁾			Total
Asset management and other fees	$	99,995	$	51,742	$	—		$	—		$	—		$	151,737
Selling commission and dealer manager fees, related parties	—		—		58,260			—			—			58,260
Commission expense	—		—		54,034			—			—			54,034
Compensation expense	—		—		3,940			—			54,530			58,470
Other general and administrative expenses	—		—		4,765			—			10,595			15,360
Equity in earnings (losses) of unconsolidated ventures⁽³⁾	—		—		—			(781		)	—			(781		)
Income tax benefit (expense)	—		—		—			—			(19,992		)	(19,992		)
Net income (loss)	99,995		51,742		(4,549		)	(781		)	(86,225		)	60,182

_______________

(1)


(2)	Direct general and administrative expenses incurred by the broker dealer.

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NORTHSTAR ASSET MANAGEMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)


(3)	For the six months ended June 30, 2015, the Company recognized in equity in losses, operating income of $5.3 million, which excludes $6.1 million of equity-based compensation expense and depreciation and amortization expense.



Total Assets	NorthStar Listed Companies⁽¹⁾		Retail Companies⁽¹⁾		Broker Dealer		Direct Investments		Corporate/Other		Total
June 30, 2016	$	53,334	$	58,759	$	6,543	$	578,400	$	118,477	$	815,513
December 31, 2015	50,924		66,246		16,470		88,069		153,112		374,821

_______________


(1)	Primarily represents receivables from related parties as of June 30, 2016. Subsequent to June 30, 2016, the Company received $55.8 million of reimbursements from the Managed Companies and Townsend.


14.	Subsequent Events

Dividends

On August 2, 2016, the Company declared a dividend of $0.10 per share of common stock. The common stock dividend will be paid on August 19, 2016 to stockholders of record as of the close of business on August 15, 2016.

Colony NorthStar Registration Statement

On July 28, 2016, Colony NorthStar, a Maryland subsidiary of NSAM that will be the surviving parent company of the combined company, filed with the SEC a registration statement on Form S-4 that includes a joint proxy statement of the Company, Colony and NorthStar Realty and that also constitutes a prospectus of Colony NorthStar.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our unaudited consolidated financial statements and notes thereto included in Item 1. “Financial Statements” of this report. References to “NSAM,” the “Company,” “we,” “us” or “our” refer to NorthStar Asset Management Group Inc. and its subsidiaries unless the context specifically requires otherwise.

Introduction

We are a global asset management firm focused on strategically managing real estate and other investment platforms in the United States and internationally. We commenced operations on July 1, 2014 upon the spin-off by NorthStar Realty Finance Corp., or NorthStar Realty, of its asset management business into a separate publicly-traded company, NorthStar Asset Management Group Inc. (NYSE:NSAM), a Delaware corporation, or the NSAM Spin-off. The NSAM Spin-off was in the form of a tax-free distribution to NorthStar Realty’s common stockholders where each NorthStar Realty common stockholder received shares of our common stock on a one-for-one basis. At the same time, NorthStar Realty became externally managed by our affiliate through a management contract with an initial term of 20 years. NorthStar Realty continues to operate its commercial real estate, or CRE, debt origination business. Most of NorthStar Realty’s employees at the time of the NSAM Spin-off became our employees.

On October 31, 2015, NorthStar Realty completed the spin-off of its European real estate business, or the NRE Spin-off, into a separate publicly-traded real estate investment trust, or REIT, NorthStar Realty Europe Corp., or NorthStar Europe. We manage NorthStar Europe pursuant to a long-term management agreement, on substantially similar terms as our management agreement with NorthStar Realty.

NorthStar Realty and NorthStar Europe are herein collectively referred to as our NorthStar Listed Companies.

We have a substantial business raising and managing capital in the retail marketplace accessing a variety of pools of capital and through various vehicles that include REITs, closed-end funds and others that we may form in the future. We earn various fees from managing this capital and we refer to this platform as our Retail Business. Certain of our affiliates also manage NorthStar Realty’s previously sponsored non-traded companies which raise capital through the retail market, as well as any new non-traded company and any future sponsored company that raises capital from retail investors, referred to as our Retail Companies and together with the NorthStar Listed Companies, referred to as our Managed Companies.

We are organized to provide asset management and other services to our Managed Companies, or any other companies we may sponsor in the future, both in the United States and internationally. Our Managed Companies have historically invested in the CRE industry. We seek to expand the scope of our asset management business beyond real estate into new asset classes and geographies by organically creating and managing additional investment vehicles or through acquisitions, strategic partnerships and joint ventures.

On January 29, 2016, we acquired an approximate 84% interest in Townsend Holdings LLC, or Townsend, or the Townsend Acquisition Date, a leading global provider of investment management and advisory services focused on real assets. Founded in 1983, Townsend is the manager or advisor to $176 billion of real assets as of June 30, 2016. Townsend’s management team owns the remainder of the business and continues to direct day-to-day operations, subject to the oversight and direction of its board of directors which is controlled by NSAM. We acquired the interest in Townsend for approximately $383 million, net of post-closing adjustments. In connection with the acquisition, we obtained a $500 million term loan, which was used to fund the transaction, repay in full the amount outstanding under our revolving credit agreement and for general corporate purposes, including repurchases of our common stock.

We earn asset management and other fees, directly or indirectly, pursuant to management and other contracts and direct investments. In addition, we own NorthStar Securities, LLC, or NorthStar Securities, a captive broker-dealer platform registered with the United States Securities and Exchange Commission, or SEC, which raises capital in the retail market for our Retail Companies.

As of June 30, 2016, adjusted for sales, acquisitions and commitments to sell or acquire investments by our Managed Companies and Townsend, through August 2, 2016, we had $40 billion of assets under management. In addition, inception to date, we invested $483 million in direct investments in entities that manage $26 billion, including assets held by our Managed Companies, across a variety of asset classes. We may also make opportunistic investments that take advantage of market dynamics.

Merger Agreement with NorthStar Realty and Colony Capital, Inc.

In June 2016, we announced that we entered into a merger agreement with NorthStar Realty and Colony Capital, Inc., or Colony, under which the companies will combine in an all-stock merger of equals transaction to create an internally-managed, diversified real estate and investment management platform, or the Mergers. The transaction has been unanimously approved by our and NorthStar Realty’s Special Committee and board of directors and the board of directors of Colony.

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Under the terms of the merger agreement, we will redomesticate to Maryland and elect to be treated as a REIT beginning in 2017, and NorthStar Realty and Colony, through a series of transactions, will merge with and into the redomesticated NSAM, which will be renamed Colony NorthStar, Inc. Our common stockholders will receive one share of Colony NorthStar's common stock for each share of common stock they own. Upon completion of the transaction, NorthStar Realty stockholders will own approximately 33.90%, Colony stockholders will own approximately 33.25% and our stockholders will own approximately 32.85% of the combined company on a fully diluted basis, excluding the effect of certain equity-based awards issuable in connection with the Mergers. Prior to the closing of the Mergers, we expect our board of directors or a duly authorized committee thereof to declare a special cash dividend in the amount of $128 million to our common stockholders.

The transaction is expected to close in January 2017, subject to, among other things, regulatory approvals and the receipt of NSAM’s, Colony’s and NorthStar Realty’s respective stockholder approvals.

Summary of Business

Our primary business lines are as follows:


•	NorthStar Listed Companies - Provides asset management and other services on a fee basis by managing the day-to-day activities of our NorthStar Listed Companies. We began earning fees from NorthStar Realty on July 1, 2014 and NorthStar Europe on November 1, 2015.


•	Retail Companies - Provides asset management and other services on a fee basis by managing the day-to-day activities of our Retail Companies.


•	Broker-dealer - Raises capital in the retail market through NorthStar Securities and earn dealer manager fees from our Retail Companies.

•

Direct Investments - Invests in strategic partnerships and joint ventures with third-parties, either consolidated or unconsolidated, with expertise in commercial real estate or other sectors and markets, where we benefit from the fee stream and potential incentive fee. Direct investments currently represents our investment in Townsend which focuses on institutional capital and unconsolidated interests such as in American Healthcare Investors LLC, or AHI and Island Hospitality Group Inc., or Island.


•	Corporate/Other - Includes corporate level general and administrative expenses, as well as special servicing on a fee basis in connection with certain securitization transactions. In addition, includes opportunistic investments, such as our recent purchase of NorthStar Listed company’s common stock.

Our Business

Our primary business objective is to provide asset management and other services by managing our NorthStar Listed Companies and our Retail Companies, both in the United States and internationally. We earn asset management and other fees pursuant to management and other contracts and through our direct and indirect investments in strategic partnerships and joint ventures. Our growth will depend upon the ability of our NorthStar Listed Companies and our Retail Companies to grow by raising capital, which in turn is driven by their investment activities and overall performance. In addition, growth in our assets under management from our Retail Companies is impacted by the ability to raise capital in the retail market through NorthStar Securities. Our Managed Companies have historically invested in the CRE industry and have demonstrated the ability to invest and create value through multiple real estate cycles and changing market conditions. We expanded the scope of our asset management business beyond real estate by creating and managing additional types of investment vehicles that we expect will appeal to a broader retail investor base.

As we grow our business and expand into new asset classes and geographies, we have entered into strategic partnerships and joint ventures with third parties with expertise in commercial real estate or other sectors and markets to augment our business operations, while at the same time benefiting from fee streams generated by such strategic partnerships and joint ventures, including our investment in AHI and Island and our acquisition of Townsend.

Our management team, located in the United States and internationally, has a proven track record in managing and growing our Managed Companies. We believe our in-place, long-duration fees, substantial growth prospects and scalable operating platform position us as an industry leading asset manager. We have the ability to maintain a competitive advantage through a combination of our deep industry relationships and access to market leading credit underwriting and capital markets expertise which enables us to manage credit risk, implement effective portfolio management strategies, as well as to structure and finance the assets of our Managed Companies efficiently. Our ability to identify opportunities across a broad spectrum of potential investments for our Managed Companies will continue to create complementary and overlapping sources of investment opportunities based on a common reliance on market fundamentals and application of similar underwriting and asset management skills as we seek to maximize stockholder value.

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Assets of our Managed Companies grew significantly over the past several years driven by our ability to raise capital for NorthStar Realty and our Retail Companies and in turn effectively deploy such capital. In addition, our assets under management have increased due to our recent acquisition of Townsend. Recently, our NorthStar Listed Companies have been constrained by their inability to access the capital markets due to current market conditions.

The following table presents the investments of our Managed Companies, Townsend and assets under management of our current and pending consolidated direct investments as of June 30, 2016, adjusted for sales, acquisitions and commitments to sell or acquire investments by our Managed Companies and Townsend through August 2, 2016 (dollars in thousands):



	June 30, 2016
	Amount⁽¹⁾		Percentage
NorthStar Listed Companies
NorthStar Realty	$	17,418,734	43.2	%
NorthStar Europe	2,056,702		5.1	%
Subtotal NorthStar Listed Companies	19,475,436		48.3	%
Retail Companies
NorthStar Income	1,783,729		4.4	%
NorthStar Healthcare	2,769,661		6.9	%
NorthStar Income II	1,752,034		4.3	%
NorthStar/RXR New York Metro	4,893		—
NorthStar Corporate Fund	1,370		—
Subtotal Retail Companies	6,311,687		15.6	%
Subtotal Managed Companies	25,787,123		63.9	%
Institutional Capital
Townsend⁽²⁾	14,542,099		36.1	%
Total	$	40,329,222	100.0	%

__________________


(1)	Based on investments reported by each Managed Company, except for NorthStar Healthcare which excludes its proportionate interest in certain healthcare joint ventures with NorthStar Realty and includes pro forma adjusted for sales and commitments to sell certain assets subsequent to the period presented.


(2)	As of June 30, 2016, Townsend is the advisor to approximately $161.9 billion of real assets.

We have also invested in indirect investments through strategic partnerships and joint ventures. The following table presents the assets under management of our investments in unconsolidated ventures as of June 30, 2016 (dollars in millions):



	Assets Under Management⁽¹⁾		Primary Business	Ownership Interest
AHI⁽²⁾	$	2,326	Healthcare real estate management	43%
Island⁽³⁾	1,840		Select service hotels management	45%
Total	$	4,166

_________________


(1)	Excludes NorthStar Realty and NorthStar Healthcare’s proportionate interest in assets managed by such partner.


(2)	In December 2014, we acquired an interest in AHI for $58 million, consisting of $38 million in cash and $20 million of our common stock, or the AHI Interest.


(3)	In January 2015, we acquired an interest in Island for $38 million, consisting of $33 million in cash and $5 million of our common stock, or the Island Interest. Our investment in Island is expected to be sold in connection with the Mergers.

In connection with these investments, we earn fees and may be entitled to certain incentive fees. In addition, AHI and Island provide certain asset management, property management and other services to our Managed Companies, either directly or indirectly through us, to assist in managing the current and future assets of our Managed Companies.

The following table presents asset management and other fees earned from our Managed Companies and Townsend (dollars in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
NorthStar Listed Companies⁽¹⁾	$	50,156	$	51,744	$	100,184	$	99,995
Retail Companies	22,116		38,614		56,263		51,742
Institutional Capital⁽²⁾	17,809		—		29,914		—
Total	$	90,081	$	90,358	$	186,361	$	151,737

_________________


(1)	We began earning fees from NorthStar Europe on November 1, 2015.


(2)	Represents fees earned through our investment in Townsend. We began earning fees on the Townsend Acquisition Date. We were also entitled to $1.8 million of management and other fees from January 14, 2016 to the Townsend Acquisition Date, which was recorded net of operating expenses in other income.

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NorthStar Listed Companies

We provide asset management and other services on a fee basis to our NorthStar Listed Companies.

•

NorthStar Realty - NorthStar Realty is a diversified commercial real estate company with 91% of its total assets invested directly or indirectly in real estate, including healthcare, hotel, manufactured housing, net lease, multifamily and multi-tenant office properties. NorthStar Realty invests in multiple asset classes across CRE that it expects will generate attractive risk-adjusted returns and may take the form of acquiring real estate, originating or acquiring senior or subordinate loans, as well as pursuing opportunistic CRE investments.


•	NorthStar Europe - On October 31, 2015, NorthStar Realty completed the NRE Spin-off. NorthStar Europe is a newly-formed European focused commercial real estate company with predominately prime office properties in key cities within Germany, the United Kingdom and France. NorthStar Europe seeks to provide stockholders with stable and recurring cash flow supplemented by capital growth over time.

Recently, our NorthStar Listed Companies have been constrained by their inability to access the capital markets.

Management Agreements

In connection with the NRE Spin-off, we entered into a management agreement with NorthStar Europe on terms substantially consistent with the terms of our management agreement with NorthStar Realty. Our management agreement with NorthStar Realty was amended and restated in connection with the NRE Spin-off to, among other things, adjust the annual base management fee and incentive fee hurdles for the NRE Spin-off.

The management agreements with each of our NorthStar Listed Companies are for initial terms of 20 years, which automatically renew for additional 20-year terms each anniversary thereafter unless earlier terminated and provide for a base management fee and incentive fee.

The following table presents a summary of the fee arrangements and amounts earned from our NorthStar Listed Companies:



	NorthStar Realty	NorthStar Europe
Commencement date	July 1, 2014	November 1, 2015
Current in place annual base management fee⁽¹⁾	$186 million	$14 million
Incentive fee hurdle to CAD per share⁽²⁾
15%	Excess of $0.68 and up to $0.78⁽³⁾	Excess of $0.30 and up to $0.36
25%	Excess of $0.78⁽³⁾	Excess of $0.36
Base management fee
Three months ended June 30, 2016	$46.7 million	$3.5 million
Three months ended June 30, 2015⁽⁴⁾	$48.2 million	—
Six months ended June 30, 2016	$93.2 million	$7.0 million
Six months ended June 30, 2015⁽⁴⁾	$93.6 million	—
Incentive fee
Three months ended June 30, 2016	—	—
Three months ended June 30, 2015⁽⁴⁾	$3.5 million	—
Six months ended June 30, 2016	—	—
Six months ended June 30, 2015⁽⁴⁾	$6.4 million	—

_________________

(1)

The base management fee will increase by an amount equal to 1.5% per annum of the sum of: the cumulative net proceeds of all future common equity and preferred equity issued, equity issued in exchange or conversion of exchangeable senior notes or stock-settlable notes based on the stock price at the date of issuance and any other issuances of common equity, preferred equity or other forms of equity, including but not limited to limited partnership interests in the NorthStar Realty or NorthStar Europe operating partnerships, which are structured as profits interests, or LTIP Units (excluding units issued to the parent company equity-based compensation, but including issuances related to an acquisition, investment, joint venture or partnership) by our NorthStar Listed Companies and cumulative cash available for distribution, or CAD, of our NorthStar Listed Companies, in excess of cumulative distributions paid on common stock, LTIP units or other equity awards beginning the first full calendar quarter after the NSAM Spin-off and NRE Spin-off, respectively. In addition, NorthStar Realty’s equity interest in RXR Realty LLC, or RXR Realty, and Aerium Group is structured so that we are entitled to the portion of distributable cash flow from each investment in excess of the $10 million minimum annual base amount.

(2)

The incentive fee is calculated by the product of 15% or 25% and CAD before such incentive fee, divided by the weighted average shares outstanding for the calendar quarter, when such amount is within a certain hurdle multiplied by the weighted average shares outstanding of our NorthStar Listed Companies for the calendar quarter. Weighted average shares represent the number of shares of our NorthStar Listed Companies’ common stock, LTIP Units or other equity-based awards (with some exclusions), outstanding on a daily weighted average basis.

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(3)	After giving effect to NorthStar Realty’s reverse stock split in October 2015 and the NRE Spin-off.


(4)	We began earning fees from NorthStar Europe on November 1, 2015.

Additional NorthStar Listed Companies’ Management Agreement Terms


•	20-year initial term, which automatically renews for additional 20-year terms each anniversary thereafter unless earlier terminated for “cause.”

•

If NorthStar Realty or NorthStar Europe were to spin-off any asset or business in the future, such entity would be managed by us on terms substantially similar to those set forth in the management agreements between us and our NorthStar Listed Companies, respectively. The management agreements further provide that the aggregate base management fee in place immediately after any future spin-off will not be less than the aggregate base management fee in place at NorthStar Realty or NorthStar Europe, as the case may be, immediately prior to such spin-off.

•

Our management agreements with NorthStar Realty and NorthStar Europe provide that in the event of a change of control or other event that could be deemed an assignment by us of the management agreement, NorthStar Realty and NorthStar Europe, respectively, will consider such assignment in good faith and not unreasonably withhold, condition or delay its consent. The management agreements further provide that NorthStar Realty and NorthStar Europe, respectively, anticipate consent would be granted for an assignment or deemed assignment to a party with expertise in commercial real estate and over $10 billion of assets under management. The management agreements also provide that, notwithstanding anything in the agreement to the contrary, to the maximum extent permitted by applicable law, rules and regulations, in connection with any merger, sale of all or substantially all of the assets, change of control, reorganization, consolidation or any similar transaction of us, on the one hand, or NorthStar Realty or NorthStar Europe, on the other hand, directly or indirectly, the surviving entity will succeed to the terms of the management agreement. Upon completion of the Mergers, the management agreement with NorthStar Realty will cease to exist.

Payment of Costs and Expenses and Expense Allocation

Our NorthStar Listed Companies are each responsible for all of their direct costs and expenses and will reimburse us for costs and expenses incurred by us on their behalf. In addition, we may allocate indirect costs to our NorthStar Listed Companies related to employees, occupancy and other general and administrative costs and expenses in accordance with the terms of, and subject to the limitations contained in, our applicable NorthStar Listed Company’s management agreements with us, or the G&A Allocation. Our management agreements with our NorthStar Listed Companies each provide that the amount of the G&A Allocation will not exceed the following: (i) 20% of the combined total of: (a) our NorthStar Listed Companies’ general and administrative expenses as reported in their consolidated financial statements excluding (1) equity-based compensation expense, (2) non-recurring items, (3) fees payable to us under the terms of the applicable management agreement and (4) any allocation of expenses from us to our NorthStar Listed Companies, or our NorthStar Listed Companies’ G&A; and (b) our general and administrative expenses as reported in our consolidated financial statements, excluding equity-based compensation expense and adding back any costs or expenses allocated to any of our Managed Companies; less (ii) our NorthStar Listed Companies’ G&A. The G&A Allocation may include our applicable NorthStar Listed Company’s allocable share of our compensation and benefit costs associated with dedicated or partially dedicated personnel who spend all or a portion of their time managing such NorthStar Listed Company’s affairs, based upon the percentage of time devoted by such personnel to such NorthStar Listed Company’s affairs. The G&A Allocation may also include rental and occupancy, technology, office supplies, travel and entertainment and other general and administrative costs and expenses which may be allocated based on various methodologies, such as weighted average employee count or the percentage of time devoted by personnel to such NorthStar Listed Companies’ affairs. In addition, each NorthStar Listed Company will pay directly or reimburse us for an allocable portion of any severance paid pursuant to any employment, consulting or similar service agreements in effect between us and any of our executives, employees or other service providers. For the three and six months ended June 30, 2016, we allocated $0.2 million and $0.5 million, respectively, of costs to NorthStar Listed Companies. Such amount is recorded net of general and administrative expense in the consolidated statements of operations.

Following the NRE Spin-off, as provided in our management agreements with each NorthStar Listed Company, such NorthStar Listed Company’s obligations to reimburse us for the G&A Allocation and any severance are shared among our NorthStar Listed Companies, at our discretion, and the 20% cap on the G&A Allocation, as described above, applies on an aggregate basis to our NorthStar Listed Companies. We currently determined to allocate these amounts based on total investments.

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Retail Companies

We raise or seek to raise capital for our Retail Companies through NorthStar Securities. The following table presents a summary of the fee arrangements with our current Retail Companies, which are effective:

NorthStar

NorthStar/RXR

NorthStar

Income

Healthcare

Income II

New York Metro⁽⁹⁾

Corporate Fund⁽¹²⁾

Capital Fund⁽¹⁷⁾

Offering amount⁽¹⁾

$1.2 billion

$2.1 billion

$1.65 billion

$2.0 billion⁽¹⁰⁾

$3.2 billion⁽¹³⁾

Total capital raised through August 2, 2016⁽²⁾

$1.3 billion

$1.8 billion⁽⁸⁾

$1.1 billion

$2.7 million⁽¹⁰⁾

$2.2 million⁽¹⁴⁾

$2.2 million⁽¹⁷⁾

Total investments as of June 30, 2016

$1.9 billion

$3.4 billion

$1.3 billion

$4.9 million

$1.4 million

N/A

Primary strategy

CRE Debt

Healthcare Equity and Debt

CRE Debt

New York Metro Area CRE Equity and Debt

Middle Market Non-Real Estate Business Loans and Securities

CRE Debt and Equity

Primary offering period

Completed July 2013

Completed January 2016⁽⁸⁾

Ends November 2016

Ends February 2018⁽¹¹⁾

Ends March 2019⁽¹¹⁾

Asset Management and Other Fees:

Asset management fees

1.25% of assets⁽³⁾

1.00% of assets⁽³⁾

1.25% of assets⁽³⁾

2.0% of average gross assets⁽¹⁶⁾

Acquisition fees⁽⁴⁾

1.00% of investments

2.25% for real estate properties
1.00% of other investments

1.00% of investments

2.25% for real estate properties
1.00% of other investments

N/A

Disposition fees⁽⁵⁾

1.00% of sales price

2.00% for real estate properties
1.00% of sales price for debt investments

1.00% of sales price

2.00% for real estate properties

1.00% of sales price for debt investments

N/A

Incentive payments

15.00% of net cash flows after an 8.00% return⁽⁶⁾

15.00% of net cash flows after a 6.75% return⁽⁶⁾⁽⁷⁾

15.00% of net cash flows after a 7.00% return⁽⁶⁾

15.00% of net cash flows after a 6.00% return

(15)

________________


(1)	Represents amount of shares registered to offer pursuant to each Retail Company’s public offering, distribution reinvestment plan and follow-on public offering.


(2)	Includes capital raised through distribution reinvestment plans.


(3)	Assets represent principal amount funded or allocated for debt investments originated or acquired and the cost of all other investments, including expenses and any financing attributable to such investments, less any principal received on debt and securities investments (or the proportionate share thereof in the case of an investment made in a joint venture).


(4)	Calculated based on the amount funded or allocated by the Retail Companies to originate or acquire investments, including acquisition expenses and any financing attributable to such investments (or the proportionate share thereof in the case of an equity investment made through a joint venture).


(5)	Calculated based on contractual sales price of each investment sold.

(6)

We are entitled to receive distributions equal to 15% of net cash flow of the respective Retail Company, whether from continuing operations, repayment of loans, disposition of assets or otherwise, but only after stockholders have received, in the aggregate, cumulative distributions equal to their invested capital plus the respective cumulative, non-compounded annual pre-tax return (as noted in the table above) on such invested capital.


(7)	The Healthcare Strategic Partnership is entitled to the incentive fees earned from managing NorthStar Healthcare, of which we earn our proportionate interest.


(8)	NorthStar Healthcare successfully completed its initial public offering on February 2, 2015 by raising $1.1 billion in capital and its follow-on public offering on January 19, 2016 by raising $0.7 billion in capital.


(9)	Any asset management and other fees incurred by NorthStar/RXR New York Metro will be shared equally between us and RXR Realty, as co-sponsors.


(10)	NorthStar/RXR New York Metro’s amended registration statement to offer an additional class of common shares was declared effective by the SEC and the minimum offering amount has been satisfied. NorthStar/RXR New York Metro began raising capital in the second quarter 2016.


(11)	Offering period subject to extension as determined by the board of directors or trustees of each Retail Company.


(12)	NorthStar Corporate Fund engaged OZ Institutional Credit Management LP, or OZ Credit Management, an affiliate of Och-Ziff Capital Management Group, LLC, or Och-Ziff, an alternative asset manager, to serve as its sub-advisor to manage investments. Any asset management and other fees paid by NorthStar Corporate Fund will be shared between the Company and OZ Credit Management, as co-sponsors.


(13)	Offering is for two feeder funds in a master feeder structure.


(14)	NorthStar Corporate Fund was declared effective by the SEC and the minimum offering amount has been satisfied. We expect to begin raising capital in the second half of 2016.


(15)	Calculated based on 100% of the net investment income before such incentive fee when such hurdle rate exceeds 7.00% but less than 8.75% plus 20% when such amount is equal to or in excess 8.75%.


(16)	Calculated excluding cash and cash equivalents.


(17)	NorthStar Capital Fund was declared effective by the SEC and the minimum offering amount has been satisfied. We expect to begin raising capital in the second half of 2016.

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The following tables present a summary of asset management and other fees we earned from our current Retail Companies which are effective and investing capital (dollar in thousands):



	Three Months Ended June 30, 2016
	NorthStar Income		NorthStar Healthcare		NorthStar Income II		NorthStar/RXR New York Metro		NorthStar Corporate Fund		Total
	NorthStar Income		NorthStar Healthcare		NorthStar Income II		NorthStar/RXR New York Metro		NorthStar Corporate Fund		Total
Asset management fees	$	5,558	$	8,346	$	3,987	$	4	$	2	$	17,897
Acquisition fees	744		84		216		28		—		1,072
Disposition fees	1,024		—		2,123		—		—		3,147
Total	$	7,326	$	8,430	$	6,326	$	32	$	2	$	22,116



	Six Months Ended June 30, 2016
	NorthStar Income		NorthStar Healthcare		NorthStar Income II		NorthStar/RXR New York Metro		NorthStar Corporate Fund		Total
	NorthStar Income		NorthStar Healthcare		NorthStar Income II		NorthStar/RXR New York Metro		NorthStar Corporate Fund		Total
Asset management fees	$	10,908	$	15,810	$	8,607	$	4	$	2	$	35,331
Acquisition fees	2,724		12,247		848		28		—		15,847
Disposition fees	2,332		—		2,753		—		—		5,085
Total	$	15,964	$	28,057	$	12,208	$	32	$	2	$	56,263

The following table presents a summary of our current Retail Companies which are effective and their capital raising activity for the six months ended June 30, 2016, year ended December 31, 2015 and from inception through August 2, 2016:

Capital Raised (in thousands)⁽²⁾

Six Months Ended

Year Ended

Inception through

Primary Strategy

Offering Amount⁽¹⁾

Offering Period

June 30, 2016

December 31, 2015

August 2, 2016

NorthStar Income

CRE Debt

$1.2 billion

Completed July 2013

22,048

43,783

1,269,458

NorthStar Healthcare

Healthcare Equity and Debt

$2.1 billion

Completed January 2016

34,571

824,265

1,846,692

NorthStar Income II

CRE Debt

$1.65 billion

Ends November 2016

172,712

553,300

1,058,810

NorthStar/RXR New York Metro

New York Metro Area CRE Equity and Debt

$2.0 billion

Ends February 2018⁽³⁾

476

⁽⁴⁾

2,200

2,737

NorthStar Corporate Fund

Middle Market Non-real Estate Business Loans and Securities

$3.2 billion

Ends March 2019⁽³⁾

2,200

⁽⁵⁾

2,200

NorthStar Capital Fund

CRE Debt and Equity

$3.2 billion

Ends March 2019⁽³⁾

2,200

⁽⁶⁾

2,200

Total

234,207

1,423,548

4,182,097

__________________


(1)	Represents amount of shares registered to offer pursuant to each Retail Company’s public offering, distribution reinvestment plan and follow-on public offering.


(2)	Includes capital raised through distribution reinvestment plans.


(3)	Offering period subject to extension as determined by the board of directors or trustees of each company.


(4)	NorthStar/RXR New York Metro’s amended registration statement to offer an additional class of common shares was declared effective by the SEC and the minimum offering amount has been satisfied. NorthStar/RXR New York Metro began raising capital in the second quarter 2016.


(5)	NorthStar Corporate Fund was declared effective by the SEC and the minimum offering amount has been satisfied. The Company expects to begin raising capital in the second half of 2016.


(6)	NorthStar Capital Fund was declared effective by the SEC and the minimum offering amount has been satisfied. The Company expects to begin raising capital in the second half of 2016.

In addition to the Retail Companies described above, NorthStar Corporate Investment, Inc., or NorthStar Corporate Investment, confidentially submitted an amended registration statement on Form N-2 to the SEC in June 2015. NorthStar Corporate Investment seeks to raise up to $1 billion in a public offering of common stock. NorthStar Corporate Investment is structured as a non-diversified, closed-end management investment company that intends to elect to be regulated as a business development company, or BDC, under the Investment Company Act of 1940. NorthStar Corporate Investment intends to invest in senior and subordinate loans to middle-market companies. NorthStar Corporate Investment intends to engage OZ Credit Management, an affiliate of Och-Ziff, an alternative asset manager, to serve as its sub-advisor to manage investments and oversee operations. Any asset

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management and other fees paid by NorthStar Corporate Investment will be shared between us and OZ Credit Management, as co-sponsors.

Distribution Support

NorthStar Realty committed to invest up to $10 million in each of our Retail Companies that are in their offering stage. In addition, pursuant to the management agreement between us and NorthStar Realty, NorthStar Realty will commit up to $10 million for distribution support in the event that the Retail Companies’ distributions to stockholders exceed certain measures of operating performance, in any Retail Company that we may sponsor, up to a total of five new companies per year.

The distribution support agreement related to NorthStar/RXR New York Metro is an obligation of both NorthStar Realty and RXR Realty, where each agreed to purchase up to an aggregate of $10 million in Class A common stock during the two-year period following commencement of the offering, with NorthStar Realty and RXR Realty agreeing to purchase 75% and 25% of any shares purchased, respectively. For the year ended December 31, 2015, NorthStar Realty and RXR Realty purchased 0.2 million shares of NorthStar/RXR New York Metro common stock for $2 million in the aggregate.

The distribution support agreement related to NorthStar Corporate Fund is an obligation of both NorthStar Realty and Och-Ziff, where each agreed to purchase up to an aggregate of $10 million in common stock, of which $1 million was contributed by each as seed capital, during the two-year period following commencement of the offering, with NorthStar Realty and Och-Ziff agreeing to equally purchase any shares. As of June 30, 2016, NorthStar Realty and Och-Ziff purchased 0.2 million shares of NorthStar Corporate Fund common stock for $2 million in the aggregate.

The distribution support agreement related to NorthStar Capital Fund is an obligation of NorthStar Realty to purchase up to $10 million in common stock during the two-year period following commencement of the offering. As of June 30, 2016, NorthStar Realty purchased 0.2 million shares of NorthStar Capital Fund common stock for $2 million.

Payment of Costs and Expenses and Expense Allocation

In addition, we are entitled to certain expense allocations for costs paid on behalf of our Retail Companies which include: (i) reimbursement for organization and offering costs such as professional fees and other costs associated with the formation and offering of the Retail Company; and (ii) reimbursement for direct and indirect operating costs such as certain salaries, equity-based compensation and professional and other costs such as rental and occupancy, technology, office supplies, travel and entertainment and other general and administrative costs and expenses associated with managing the operations of the Retail Company. For the three and six months ended June 30, 2016, we allocated $8.3 million and $17.6 million of expense related to the Retail Companies. Such amount is recorded net of general and administrative expense in the consolidated statements of operations.

The following table presents a summary of the expense arrangements with our current Retail Companies, which are effective:

NorthStar Income

NorthStar Healthcare

NorthStar Income II

NorthStar/RXR New York Metro

NorthStar Corporate Fund

NorthStar Capital Fund

Organization and offering costs⁽¹⁾

$11.0 million⁽²⁾

$11.9 million⁽²⁾

$15.0 million, or 1.0% of the proceeds expected to be raised from the offering⁽⁴⁾

$30.0 million, or 1.5% of the proceeds expected to be raised from the offering⁽⁴⁾

$29.0 million, or 1.0% of the proceeds expected to be raised from the offering⁽⁴⁾

Operating costs⁽³⁾

Greater of 2.0% of its average invested assets or 25.0% of its net income (net of 1.25% asset management fee)

Greater of 2.0% of its average invested assets or 25.0% of its net income (net of 1.00% asset management fee)

Greater of 2.0% of its average invested assets or 25.0% of its net income (net of 1.25% asset management fee)

Administrative expenses reimbursable subject to certain restrictions

__________________


(1)	Represents reimbursement for organization and offering costs paid on behalf of our Retail Companies in connection with their respective offerings. We are facilitating the payment of organization and offering costs on behalf of our Retail Companies.


(2)	Represents the total expense allocation for organization and offering costs through the end of the offering period in July 2013 for NorthStar Income and January 2016 for NorthStar Healthcare.


(3)	Calculated based on the four preceding fiscal quarters not to exceed the greater of: (i) 2.0% of each Retail Company’s average invested assets; or (ii) 25.0% of each Retail Company’s net income determined without reduction for any additions to reserves for depreciation, loan losses or other similar non-cash reserves and excluding any gain from the sale of assets for that period.


(4)	Excludes shares being offered pursuant to distribution reinvestment plans.

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Institutional Capital - Townsend

Townsend generated management, advisory and incentive fees of $17.8 million and $29.9 million for the three months ended June 30, 2016 and from the Townsend Acquisition Date through June 30, 2016, respectively. We were also entitled to $1.8 million of management and other fees from January 14, 2016 to the Townsend Acquisition Date, which was recorded net of operating expenses in other income.

Certain contracts contain provisions to reimburse Townsend for expenses incurred on behalf of its clients such as legal due diligence and investment advisory team travel expenses. For the three months ended June 30, 2016 and for the period from the Townsend Acquisition Date through June 30, 2016, we recorded $0.3 million and $1.0 million, respectively, in both other income and other expenses related to such reimbursements.

Sources of Operating Revenues and Cash Flows

We primarily generate revenue from asset management and other fee income pursuant to contractual arrangements with our Managed Companies and effective January 29, 2016, we began generating revenue from asset management and other fee income from Townsend. We also generate revenue from commission income from selling equity in our Retail Companies. Additionally, we record equity in earnings and receive distributions from our investments in unconsolidated ventures.

Profitability and Performance Metrics

We calculate certain metrics to evaluate the profitability and performance of our business.


•	CAD is a non-GAAP measure that provides investors and management with a meaningful indicator of operating performance (refer to “Non-GAAP Financial Measure” for a description of this metric); and


•	Our ability to raise capital for our Managed Companies, which in turn grows the assets of our Managed Companies, is a driver of our ability to grow our fee income.


•	The ability of Townsend to expand its advisory client base and fund management business, which in turn grows our assets under management, is a driver of our ability to grow our fee income.

Outlook and Recent Trends

We and the assets of our Managed Companies are impacted by global, domestic, regional and local market and economic conditions. Historically, we have principally focused on domestic real estate investment platforms and companies and have expanded internationally and may in the future expand the breadth of our business beyond this asset class. The interconnected nature of today’s economy exposes our business to global markets and economic conditions and changes in these areas, although not directly related to our business, may have a significant impact.

The U.S. economy demonstrated improvement in 2015, which prompted the Federal Reserve in December 2015 to raise the Federal Funds Rate for the first time in nine years. The U.S. economy continues to show strength through the first half of 2016 with less than 5% unemployment and improvement in the housing market. Despite this, concerns still remain regarding low inflation in the United States, a stronger U.S. dollar, oil price instability, slow global growth and increasing international market volatility. Many other global central banks have been easing monetary policy to combat low inflation and stagnant growth and it is unclear when or if the Federal Reserve will further adjust the Federal Funds Rate, especially in light of certain global events described below.

In June 2016, a non-binding referendum was passed in the United Kingdom supporting the exit from the European Union which in turn resulted in considerable instability to global markets and currencies, especially European markets, the U.K.’s economy and the British Pound Sterling. In addition, dramatic political change in the United Kingdom has resulted including the election of a new Prime Minister in July 2016. Much uncertainty remains as to the process for “Brexit” and the long-term impacts to the global, European and British economies. All of the major European banks have been actively easing monetary policy resulting in a very low, and in some cases negative, interest rate environment. This includes The Bank of England which remains poised for further monetary and financial policy action should the U.K.’s economy enter a downturn. Despite the unexpected result of the referendum, markets have generally continued to function properly and in some cases recovered from the initial shock (e.g., U.S. equity markets). The potential for ongoing volatility and uncertainty resulting from “Brexit” may have a significant impact on the overall global economic environment.

Given market conditions at the end of 2015 and into 2016, our NorthStar Listed Companies have been constrained by their inability to access the capital markets. Following the NSAM Spin-off, our assets under management grew substantially in part because of the significant capital raising activity at NorthStar Realty. Sustained volatility in the capital markets has diminished our NorthStar Listed Companies’ capital raising activity and this environment could continue for an extended period of time.

CRE fundamentals remain relatively healthy across U.S. property types. Investor demand in 2015 for commercial real estate increased transaction activity and prices as rent and vacancy fundamentals improved across most property sectors. Private capital

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investment remained aggressive throughout 2015 and, although public markets slowed at the beginning of 2016, continued to remain aggressive in the first half of 2016, leading to continued appreciation in real estate values. However, property price appreciation has slowed and there is speculation that the markets may be entering the late stage of the current real estate cycle and, in certain markets, rent growth and capitalization rate compression has started to slow. In addition, one of the factors that may contribute to periodic volatility in the commercial real estate market is the large amount of maturing commercial real estate debt that may have difficulties being refinanced. Approximately $1.4 trillion of commercial real estate debt in the United States is scheduled to mature through 2018. While there appears to be a supply of available liquidity to satisfy many of these maturities, April and June 2016 were the two lowest private-label CMBS origination months in four years and industry experts estimate a projected total origination volume of approximately $65 billion for 2016 versus volume of $95 billion in 2015. This trend is potentially one symptom that could point to difficulties in the ability of the market to refinance the large amount of maturing real estate debt and may have a negative impact on the overall real estate market.

As an active asset manager of capital raised in the retail market, historically focusing on the non-traded sector, we are continually monitoring retail market fundamentals and trends and use the non-traded REIT market as a proxy for our overall retail business. Non-traded REIT capital raising was down year over year by 20% in 2014 (with approximately $16 billion in equity raised) and 2015 sales were down 36% year over year compared to 2014. Despite this declining industry trend, we continued to gain market share with our non-traded REITs having a 7% market share in 2014 increasing to 13% in 2015 despite the overall decline in this market. In April of 2016, the retail industry experienced the implementation of FINRA 15-02 related to disclosure on broker-dealer account statements and the final ruling of the U.S. Department of Labor’s “fiduciary” standard for retirement accounts. Although the final fiduciary rule was more favorable to both sponsors and broker-dealers in the retail industry than initial proposals, the impact of both of these events has been a sharp decline in capital raising in the retail market as evidenced by the overall non-traded REIT capital raising being down 57% through June 2016 compared to the first half of 2015. We anticipate the market improving as it adapts to these changes and we expect to continue to gain market share as our institutional-quality sponsorship, rapidly broadening product line and innovative structures create opportunities to differentiate our platform from other sponsors in the retail industry.

Due to our expertise, track record 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 Managed Companies targeted risk/return profiles thereby increasing our assets under management and fee income. We also believe the opportunity exists to accelerate our growth through accretive investments in third party asset managers. Additionally, we will take advantage of opportunities to optimize the portfolios of our Managed Companies and seek to lock in value through opportunistic dispositions and/or selling minority interests in certain assets/portfolios while redeploying realized capital in accretive transactions. While we remain optimistic that we will continue to be able to generate and capitalize on attractive acquisition and disposition opportunities, there is no assurance that will be the case.

Financing Strategy

Our organizational documents do not limit our capacity to use leverage or the amount we may use. Our financing objective is to manage our capital structure effectively in order to provide sufficient capital to execute our business strategies and in turn create value for stockholders. We seek to access a wide range of secured and unsecured debt and public and private equity capital sources to fund our investment activities, including repurchases of our common stock. In November 2015, in connection with the Townsend acquisition, we simultaneously obtained a commitment for a $500 million term loan and entered into a $100 million revolving credit agreement, both of which were used to fund the transaction and for general corporate purposes, including repurchases of our common stock. Upon the closing of Townsend, we entered into the $500 million term loan and used the proceeds to repay the revolving credit agreement and for general corporate purposes. In connection with the term loan, we obtained corporate issuer and issue credit ratings from Standard & Poor’s Rating Services, or S&P, and Moody’s Investor Service, or Moody’s, of BBB- and Ba2, respectively. We may, from time to time, use derivative instruments primarily to manage interest rate risk. We do not intend to use derivatives to speculate.

Portfolio Management

Credit risk management is our ability to manage our investments and investments of our Managed Companies in a manner that preserves capital and income and minimizes losses that would decrease income. Upon commencement of operations, we perform portfolio management on behalf of our Managed Companies. We maintain a comprehensive portfolio management process that generally includes day-to-day oversight by the portfolio management and servicing team, regular management meetings and an exhaustive quarterly credit review process. These processes are designed to enable management to evaluate and proactively identify asset-specific credit issues and trends on a portfolio-wide basis. Nevertheless, we cannot be certain that such review will identify all issues within the portfolios of our Managed Companies due to, among other things, adverse economic conditions or events adversely affecting specific assets; therefore, potential future losses at our Managed Companies may also stem from investments that are not identified during these credit reviews. We use many methods to actively manage the assets of our Managed Companies such as frequent re-underwriting, dialogue with borrowers/tenants/operators/partners and regular inspections of our Managed Companies’ collateral, modification to debt terms, taking title to collateral or selling assets when we can obtain a price

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that is attractive relative to its risk. In addition, we seek to utilize services of certain strategic partnerships and joint ventures with third parties with expertise in commercial real estate or other sectors and markets to assist our portfolio management of our Managed Companies. The portfolio management team, under the direction of the Investment Committee, uses many methods to actively manage our asset base to preserve our income and capital.

Critical Accounting Policies

Principles of Consolidation

Our consolidated financial statements include the accounts of NorthStar Asset Management Group Inc., NorthStar Asset Management Group Limited Partnership, or our Operating Partnership, and their consolidated subsidiaries. We consolidate variable interest entities, or VIEs, where we are the primary beneficiary and voting interest entities which are generally majority owned or otherwise controlled by us. All significant intercompany balances are eliminated in consolidation.

Variable Interest Entities

A VIE, is an entity that lacks one or more of the characteristics of a voting interest entity. A VIE is defined as an entity in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The determination of whether an entity is a VIE includes both a qualitative and quantitative analysis. We base the qualitative analysis on our review of the design of the entity, its organizational structure including decision-making ability and relevant financial agreements and the quantitative analysis on the forecasted cash flow of the entity.

We reassess the initial evaluation of an entity as a VIE upon the occurrence of certain reconsideration events.

A VIE must be consolidated only by its primary beneficiary, which is defined as the party who, along with its affiliates and agents has both the: (i) power to direct the activities that most significantly impact the VIE’s economic performance; and (ii) obligation to absorb the losses of the VIE or the right to receive the benefits from the VIE, which could be significant to the VIE. We determine whether we are the primary beneficiary of a VIE by considering qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of its investment; the obligation or likelihood for us or other interests to provide financial support; consideration of the VIE’s purpose and design, including the risks the VIE was designed to create and pass through to its variable interest holders and the similarity with and significance to our business activities and the other interests. We reassess the determination of whether we are the primary beneficiary of a VIE each reporting period. Significant judgments related to these determinations include estimates about the current and future fair value and performance of investments held by these VIEs and general market conditions.

We evaluate our Managed Companies, investments in unconsolidated ventures and securitization financing transactions to which we are the special servicer to determine whether they are a VIE. We analyze new investments and financings, as well as reconsideration events for existing investments and financings, which vary depending on type of investment or financing.

Voting Interest Entities

A voting interest entity is an entity in which the total equity investment at risk is sufficient to enable it to finance its activities independently and the equity holders have the power to direct the activities of the entity that most significantly impact its economic performance, the obligation to absorb the losses of the entity and the right to receive the residual returns of the entity. The usual condition for a controlling financial interest in a voting interest entity is ownership of a majority voting interest. If we have a majority voting interest in a voting interest entity, the entity will generally be consolidated. We do not consolidate a voting interest entity if there are substantive participating rights by other parties and/or kick-out rights by a single party or through a simple majority vote.

We perform on-going reassessments of whether entities previously evaluated under the voting interest framework have become VIEs, based on certain events, and therefore subject to the VIE consolidation framework.

Investments in Unconsolidated Ventures

A non-controlling, unconsolidated ownership interest in an entity may be accounted for using the equity method, at fair value or the cost method.

We may account for an investment in an unconsolidated entity at fair value by electing the fair value option. We may record the change in fair value for our share of the projected future cash flow or may follow the practical expedient of the net asset value of the underlying fund investment based on the most recent available information, which is generally on a one quarter lag. We will

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record the change from one period to another in equity in earnings (losses) from unconsolidated ventures in the consolidated statements of operations. Any change in fair value attributed to market related assumptions is considered unrealized gain (loss).

We may account for an investment that does not qualify for equity method accounting or for which the fair value option was not elected using the cost method if we determine the investment in the unconsolidated entity is insignificant. Under the cost method, equity in earnings is recorded as dividends are received to the extent they are not considered a return of capital, which is recorded as a reduction of cost of the investment.

We review our investments in unconsolidated ventures for which we did not elect the fair value option on a quarterly basis, or more frequently as necessary, to assess whether there are any indicators that the value may be impaired or that its carrying value may not be recoverable. An investment is considered impaired if the projected net recoverable amount over the expected holding period is less than the carrying value. In conducting this review, we consider U.S. and global macroeconomic factors, including real estate sector conditions, together with investment specific and other factors. To the extent an impairment has occurred and is considered to be other than temporary, the loss is measured as the excess of the carrying value of the investment over the estimated fair value and recorded in equity in earnings (losses) of unconsolidated ventures in the consolidated statements of operations.

Estimates

Business Combinations

The Company accounts for purchases of assets that qualify as business combinations using the acquisition method where the purchase price is allocated to tangible and intangible assets acquired based on estimated fair value. The excess of the fair value of purchase consideration over the fair value of these identifiable assets is recorded as goodwill. Such valuation requires management to make significant estimates and assumptions, especially with respect to intangible assets including, but not limited to, customer relationships, acquired technology and trade names. Management’s estimate of fair value is based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ materially from estimates. During the measurement period, which is one year from the acquisition date, we may record adjustments to the assets acquired, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded in earnings.

Intangible Assets

We record acquired identified intangibles, which includes intangible assets (such as goodwill and other intangibles), based on estimated fair value. Other intangible assets are amortized into depreciation and amortization expense on a straight-line basis over the estimated useful life.

Goodwill represents the excess of the purchase price over the fair value of net tangible and intangible assets acquired in a business combination and is not amortized. We perform an annual impairment test for goodwill and evaluates the recoverability whenever events or changes in circumstances indicate that the carrying value of goodwill may not be fully recoverable. In making such assessment, qualitative factors are used to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If the estimated fair value of the reporting unit is less than its carrying value, then an impairment loss is recorded.

Revenue Recognition

Asset Management and Other Fees

Selling Commission and Dealer Manager Fees and Commission Expense

Selling commission and dealer manager fees represent income earned by us for selling equity in our Retail Companies through NorthStar Securities. Selling commission and dealer manager fees and commission expense are accrued on a trade date basis.

Fair Value Measurement

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We follow fair value guidance in accordance with U.S. GAAP to account for our financial instruments. We categorize our financial instruments, 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).

Financial assets and liabilities are recorded at fair value on our consolidated balance sheets and 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.

Financial assets and liabilities recorded at fair value on a recurring basis are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Management determines the prices are representative of fair value through a review of available data, including observable inputs, recent transactions as well as our knowledge and experience of the market.

Securities

We elected to apply the fair value option for our securities investments. Any unrealized gain (loss) from the change in fair value is recorded in unrealized gains (losses) on investments and other in the consolidated statements of operations. Dividend income is recorded in other income in the consolidated statements of operations.

Equity-Based Compensation

We account for equity-based compensation awards, including awards granted to co-employees, using the fair value method, which requires an estimate of the fair value of the award. Awards may be based on a variety of measures such as time, performance, market or a combination thereof. For time-based awards, fair value is determined based on the stock price on the grant date. We recognize compensation expense over the vesting period on a straight-line basis or the attribution method depending if the grant is to an employee or non-employee. For performance-based awards, fair value is determined based on the stock price at the date of grant and an estimate of the probable achievement of such measure. We recognize compensation expense over the requisite service period, net of estimated forfeitures, using the accelerated attribution expense method. For market-based measures, fair value is determined using a Monte Carlo analysis under a risk-neutral premise using a risk-free interest rate. We recognize compensation expense over the requisite service period, net of estimated forfeitures, on a straight-line basis.

For awards with a combination of performance or market measures, we estimate the fair value as if it were two separate awards. First, we estimate the probability of achieving the performance measure. If it is not probable the performance condition will be met, we recognize the compensation expense based on the fair value of the market measure, as described above. This expense is recorded even if the market-based measure is never met. If the performance-based measure is subsequently estimated to be achieved, we record compensation expense based on the performance-based measure. We would then record a cumulative catch-up adjustment for any additional compensation expense.

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Foreign Currency

Comprehensive Income (Loss)

We report consolidated comprehensive income (loss) in a separate statement following the consolidated statements of operations. Comprehensive income (loss) is defined as a change in equity resulting from net income (loss) and OCI. The component of OCI includes an adjustment for foreign currency translation.

Income Taxes

Certain of our subsidiaries are subject to taxation by federal, state, local and foreign authorities for the periods presented. On March 13, 2015, we restructured forming our new operating partnership, or Operating Partnership, under Delaware law, by converting an existing limited liability company disregarded as separate from us for federal income tax purposes to a Delaware limited partnership and admitting as limited partners LTIP Unit holders. The Operating Partnership is taxed as a partnership for federal income tax purposes and consequently, its items of income gain, loss, deduction and credit are passed through to, and included in, the taxable income of each of its partners including us. For the period prior to March 13, 2015, we and our U.S. subsidiaries will file consolidated federal income tax returns. Income taxes are accounted for by the asset/liability approach in accordance with U.S. GAAP. Deferred taxes, if any, represent the expected future tax consequences when the reported amounts of assets and liabilities are recovered or paid. Such amounts arise from differences between the financial reporting and tax bases of assets and liabilities and are adjusted for changes in tax laws and tax rates in the period which such changes are enacted. A provision for income tax represents the total of income taxes paid or payable for the current period, plus the change in deferred tax assets and liabilities.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board, or FASB, issued an accounting update requiring a company to recognize as revenue the amount of consideration it expects to be entitled to in connection with the transfer of promised goods or services to customers. The accounting standard update will replace most of the existing revenue recognition guidance currently promulgated by U.S. GAAP. In July 2015, the FASB decided to delay the effective date of the new revenue standard by one year. The effective date of the new revenue standard for us will be January 1, 2018. We are in the process of evaluating the impact, if any, of the update on our consolidated financial position, results of operations and financial statement disclosures.

In February 2015, the FASB issued updated guidance that changes the rules regarding consolidation. The pronouncement eliminates specialized guidance for limited partnerships and similar legal entities and removes the indefinite deferral for certain investment funds. The new guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, with early adoption permitted. We adopted this guidance in the first quarter 2016 and determined our Operating Partnership is considered a VIE. We are the primary beneficiary of the VIE, the VIE’s assets can be used for purposes other than the settlement of the VIE’s obligations and our partnership interest is considered a majority voting interest. As such, this standard did not have a material impact on the consolidated financial position or results of operations.

In May 2015, the FASB issued updated guidance that removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015 and should be applied retrospectively to all periods presented. Early adoption is permitted. In the first quarter 2016, we adopted this guidance and, as a result, $21.5 million of Townsend Funds is not included in Level 3 within the fair value hierarchy as of June 30, 2016. We did not have any investments measured using net asset value as of December 31, 2015.

In January 2016, the FASB issued an accounting update that addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. We are currently assessing the impact of the guidance on our consolidated financial position, results of operations and financial statement disclosures.

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interim periods within those fiscal years. Early adoption is permitted. We are evaluating the impact that this guidance will have on its consolidated financial position, results of operations and financial statement disclosures.

In March 2016, the FASB issued guidance which eliminates the requirement for an investor to retroactively apply the equity method when its increase in ownership interest (or degree of influence) in an investee triggers equity method accounting. The update requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment become qualified for equity method accounting. The update should be applied prospectively upon their effective date to increases in the level of ownership interests or degree of influence that results in the adoption of the equity method. The guidance is effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. Early adoption is permitted. We are evaluating the impact, if any, that this guidance will have on our consolidated financial position, results of operations and financial statement disclosures.

In March 2016, the FASB issued guidance which amends several aspects of the accounting for equity-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statements of cash flows. The guidance is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. We are evaluating the impact, if any, that this guidance will have on our consolidated financial position, results of operations and financial statement disclosures.

In June 2016, the FASB issued guidance which changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. Additionally, entities will have to disclose significantly more information including information used to track credit quality by year of origination for most financing receivables. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Early adoption is permitted. We are evaluating the impact that this guidance will have on its consolidated financial position, results of operations and financial statement disclosures.

Results of Operations

Comparison of the Three Months Ended June 30, 2016 to June 30, 2015 (dollars in thousands):

The following table represents our results of operations for the three months ended June 30, 2016 and 2015 (dollars in thousands):



	Three Months Ended June 30,						Increase (Decrease)
	2016			2015			Amount			%
Revenues
Asset management and other fees	$	90,081		$	90,358		$	(277	)	(0.3	)%
Selling commission and dealer manager fees, related parties	4,888			28,337			(23,449		)	(82.8	)%
Other income	2,126			434			1,692			389.9	%
Total revenues	97,095			119,129			(22,034		)	(18.5	)%
Expenses
Commission expense	4,471			26,338			(21,867		)	(83.0	)%
Interest expense	6,922			—			6,922			100.0	%
Transaction costs	17,753			73			17,680			24,219.2	%
Other expenses	2,071			213			1,858			872.3	%
General and administrative expenses
Compensation expense	33,960			32,707			1,253			3.8	%
Other general and administrative expenses	10,599			9,255			1,344			14.5	%
Total general and administrative expenses	44,559			41,962			2,597			6.2	%
Depreciation and amortization	2,536			429			2,107			491.1	%
Total expenses	78,312			69,015			9,297			13.5	%
Unrealized gain (loss) on investments and other	(4,638		)	63			(4,701		)	(7,461.9	)%
Income (loss) before equity in earnings (losses) of unconsolidated ventures and income tax benefit (expense)	14,145			50,177			(36,032		)	(71.8	)%
Equity in earnings (losses) of unconsolidated ventures	(852		)	90			(942		)	(1,046.7	)%
Income (loss) before income tax benefit (expense)	13,293			50,267			(36,974		)	(73.6	)%
Income tax benefit (expense)	(1,154		)	(12,055		)	10,901			(90.4	)%
Net income (loss)	$	12,139		$	38,212		$	(26,073	)	(68.2	)%

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Asset Management and Other Fees

The following table presents asset management and other fees earned from our Managed Companies and Townsend (dollars in thousands):



	Three Months Ended June 30,				Increase (Decrease)
	2016		2015		Increase (Decrease)
NorthStar Listed Companies:
Base fee	$	50,156	$	48,244	$	1,912
Incentive fee	—		3,500		(3,500		)
Subtotal NorthStar Listed Companies⁽¹⁾	50,156		51,744		(1,588		)
Retail Companies:
Asset management fees	17,897		11,682		6,215			⁽²⁾
Acquisition fees	1,072		26,691		(25,619		)	⁽³⁾
Disposition fees	3,147		241		2,906			⁽⁴⁾
Subtotal Retail Companies	22,116		38,614		(16,498		)
Institutional Capital
Townsend	17,809		—		17,809			⁽⁵⁾
Total	$	90,081	$	90,358	$	(277	)

__________________


(1)	We began earning fees from NorthStar Europe on November 1, 2015.


(2)	The increase was driven by the growth in assets of our Retail Companies. As of June 30, 2016 and 2015, our Retail Companies held total investments of $6.6 billion and $5.2 billion, respectively.


(3)	The decrease was due to less investment activity of our Retail Companies in the second quarter 2016 as compared to the same period in 2015, with investment activity of $64.8 million at NorthStar Income and $65.7 million at NorthStar Income II.


(4)	The increase was driven by repayments of debt investments at our Retail Companies for the second quarter 2016 as compared to the same period in 2015.


(5)	We began earning fees on the Townsend Acquisition Date.

Selling Commission and Dealer Manager Fees

We earn net commission income through NorthStar Securities for selling equity in our Retail Companies.

Selling commission and dealer manager fees represent fees earned for selling equity in our Retail Companies through NorthStar Securities. Our Retail Companies offer various share class structures which have a range of selling commissions and deal manager fees generally as follows:


•	Class A shares: selling commissions of up to 7% of gross offering proceeds raised and dealer manager fee of up to 3% of gross offering proceeds raised.


•	Class T shares: selling commissions of up to 2% of gross offering proceeds raised and dealer manager fee of up to 2.75% of gross offering proceeds raised.

A portion of the dealer manager fees may be reallowed to participating broker-dealers and paid to certain employees of NorthStar Securities. We are currently introducing additional share classes to our Retail Companies that will differ from the Class A and Class T shares describe above.

Selling commission and dealer manager fees decreased for the three months ended June 30, 2016 as compared to the same period in 2015 mostly due to: (i) lower capital raising activity as NorthStar Healthcare completed its follow-on offering in January 2016; and (ii) raising capital from the sale of Class T shares which has lower selling commissions and dealer manager fee than Class A shares.

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The following table presents equity raised by our Retail Companies for the periods presented (dollars in thousands):



	Three Months Ended June 30,⁽¹⁾
	2016		2015
NorthStar Income	$	11,029	$	10,966
NorthStar Healthcare	17,041		141,874		⁽²⁾
NorthStar Income II	78,601		164,365		⁽³⁾
NorthStar/RXR New York Metro	476		—		⁽⁴⁾
Total	$	107,147	$	317,205

_________________


(1)	Includes capital raised through distribution reinvestment plans of $36.0 million and $26.1 million for the three months ended June 30, 2016 and 2015, respectively, for which NorthStar Securities did not earn commission income.


(2)	NorthStar Healthcare successfully completed its follow-on public offering on January 19, 2016. Equity raised during the second quarter 2016 represents proceeds from NorthStar Healthcare’s distribution reinvestment plan.

(3)

For the three months ended June 30, 2016, we raised gross offering proceeds of $27.3 million from the sale of Class A shares, $43.4 million from the sale of Class T shares and $7.9 million from shares issued as part of distribution reinvestment plans. For the three months ended June 30, 2015, we raised gross offering proceeds of $160.1 million from the sale of Class A shares and $4.3 million from shares issued as part of distribution reinvestment plans.


(4)	In December 2015, NorthStar Realty and RXR Realty satisfied NorthStar/RXR New York Metro’s minimum offering amount and began raising capital during the second quarter 2016. We expect the capital raise to accelerate in the short-term.

Other Income

Other income includes $1.1 million of dividend income earned from the NorthStar Realty Shares and $0.3 million of reimbursable expenses related to Townsend.

Expenses

Commission Expense

Commission expense represents fees to participating broker-dealers with whom we have selling agreements to raise capital for our Retail Companies and commissions to employees of NorthStar Securities. For the three months ended June 30, 2016 and 2015, we paid $0.7 million and $3.2 million, respectively, to NorthStar Securities employees. Selling commission and dealer manager fees decreased for the three months ended June 30, 2016 as compared to the same period in 2015 mostly due to: (i) lower capital raising activity as NorthStar Healthcare completed its follow-on offering in January 2016; and (ii) raising capital from the sale of Class T shares which has lower selling commissions and dealer manager fee than Class A shares.

Interest Expense

Interest expense relates to our term loan that we entered into in January 2016 in our corporate segment.

Transaction Costs

Transaction costs represent costs such as professional fees associated with new investments, merger related costs, dead deal costs and restructuring costs which are related to specific transactions. For the three months ended June 30, 2016, transaction costs of $17.8 million primarily related to the Mergers. For the three months ended June 30, 2015, transaction costs was an immaterial amount.

Other Expenses

Other expenses increased $1.9 million primarily due to $0.3 million of reimbursable expenses related to Townsend and $0.4 million of base management fees we pay to AHI, all in our corporate segment.

General and Administrative Expenses

General and administrative expenses are principally incurred at the corporate level except as it relates to direct compensation expenses and other costs incurred at our broker-dealer, which is part of our broker-dealer segment and Townsend, which is part of our direct investments segment. In addition, the amount of general and administrative expenses reflects an offset from an allocation of costs of $8.3 million to our Retail Companies and $0.2 million to our NorthStar Listed Companies for the three months ended June 30, 2016. General and administrative expenses increased $2.6 million primarily attributable to the following:

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The following table presents compensation expense for the three months ended June 30, 2016 and 2015 (dollars in thousands):



	Three Months Ended June 30,				Increase (Decrease)
	2016		2015		Increase (Decrease)
Salaries and related expenses	$	20,323	$	17,705	$	2,618
Equity-based compensation expense	13,637		15,002		(1,365		)
Total	$	33,960	$	32,707	$	1,253

Compensation expense increased $1.3 million primarily due to the acquisition of Townsend and hiring additional employees for increased activity at our Managed Companies and a net decrease in equity-based compensation related to NSAM spin-off grants and grants issued prior to the NSAM spin-off, partially offset by new grants issued in 2016.

Equity-based compensation expense is comprised of (dollars in thousands):



	Time-Based Awards				Performance-Based Awards				Total
	Three Months Ended June 30,				Three Months Ended June 30,				Three Months Ended June 30,
	2016		2015		2016		2015		2016		2015
NSAM spin grants⁽¹⁾	$	2,000	$	3,868	$	3,653	$	3,736	$	5,653	$	7,604
NSAM bonus plan	4,725		3,294		1,177		878		5,902		4,172
NorthStar Realty bonus plan⁽²⁾	1,017		2,159		591		967		1,608		3,126
Townsend grants	367		—		—		—		367		—
Grants to non-employees	107		100		—		—		107		100
Total	$	8,216	$	9,421	$	5,421	$	5,581	$	13,637	$	15,002

__________________


(1)	Represents equity-based compensation expense for one-time grants issued related to the NSAM Spin-off. Certain awards had performance-based conditions which were met upon issuance, and accordingly, are included in time-based awards as they are only currently subject to continued employment conditions.


(2)	Represents equity-based compensation expense related to annual grants issued by NorthStar Realty prior to the NSAM Spin-off.

Other general and administrative expenses increased $1.3 million primarily due to the acquisition of Townsend and increased professional fees.

Unrealized Gain (Loss) on Investments and Other

Unrealized gain (loss) on investments and other is primarily related to the non-cash change in fair value for our investment in the NorthStar Listed Companies common stock.

Equity in earnings (losses) of unconsolidated ventures

The following table presents equity in earnings (losses) of unconsolidated ventures for the three months ended June 30, 2016 and 2015 (dollars in thousands):



		Three Months Ended June 30,
		2016										2015
	Acquisition Date	Operating Income (Loss)		Non-cash Income (Expense)				Equity in Earnings (Loss)				Operating Income (Loss)			Non-cash Income (Expense)				Equity in Earnings (Loss)
Investment	Acquisition Date	Operating Income (Loss)		Non-cash Income (Expense)				Equity in Earnings (Loss)				Operating Income (Loss)			Non-cash Income (Expense)				Equity in Earnings (Loss)
AHI Interest	Dec-14	$	723	$	(2,497	)	⁽¹⁾	$	(1,774	)		$	1,481		$	(2,806	)	⁽¹⁾	$	(1,325	)
Distributed Finance	Jun-14	—		(500		)	⁽²⁾	(500		)		(319		)	—				(319		)
Island Interest	Jan-15	1,716		(443		)	⁽³⁾	1,273				1,734			—				1,734
Total		$	2,439	$	(3,440	)		$	(1,001	)	⁽⁴⁾	$	2,896		$	(2,806	)		$	90

__________________


(1)	Includes equity-based compensation expense and depreciation and amortization.


(2)	Represents an impairment loss.


(3)	Represents depreciation and amortization.


(4)	Excludes our portion of equity in earnings from the Townsend Funds of $0.2 million.

Income Tax Benefit (Expense)

The change for the three months ended June 30, 2016 as compared to the same period in 2015 is primarily due to the distribution of earnings between tax jurisdictions, interest expense on the Term Loan and additional deductions related to the acquisition of Townsend.

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Comparison of the Six Months Ended June 30, 2016 to June 30, 2015 (dollars in thousands):

The following table represents our results of operations for the six months ended June 30, 2016 and 2015 (dollars in thousands):



	Six Months Ended June 30,						Increase (Decrease)
	2016			2015			Amount			%
Revenues
Asset management and other fees	$	186,361		$	151,737		$	34,624		22.8	%
Selling commission and dealer manager fees, related parties	11,259			58,260			(47,001		)	(80.7	)%
Other income	5,901			835			5,066			606.7	%
Total revenues	203,521			210,832			(7,311		)	(3.5	)%
Expenses
Commission expense	10,417			54,034			(43,617		)	(80.7	)%
Interest expense	12,086			—			12,086			100.0	%
Transaction costs	25,072			375			24,697			6,585.9	%
Other expenses	3,448			469			2,979			635.2	%
General and administrative expenses
Compensation expense	71,131			58,470			12,661			21.7	%
Other general and administrative expenses	20,922			15,360			5,562			36.2	%
Total general and administrative expenses	92,053			73,830			18,223			24.7	%
Depreciation and amortization	4,445			884			3,561			402.8	%
Total expenses	147,521			129,592			17,929			13.8	%
Unrealized gain (loss) on investments and other	(15,302		)	(285		)	(15,017		)	5,269.1	%
Realized gain (loss) on investments and other	(874		)	—			(874		)	100.0	%
Income (loss) before equity in earnings (losses) of unconsolidated ventures and income tax benefit (expense)	39,824			80,955			(41,131		)	(50.8	)%
Equity in earnings (losses) of unconsolidated ventures	(5,282		)	(781		)	(4,501		)	576.3	%
Income (loss) before income tax benefit (expense)	34,542			80,174			(45,632		)	(56.9	)%
Income tax benefit (expense)	(3,623		)	(19,992		)	16,369			(81.9	)%
Net income (loss)	$	30,919		$	60,182		$	(29,263	)	(48.6	)%

Asset Management and Other Fees

The following table presents asset management and other fees earned from our Managed Companies and Townsend (dollars in thousands):



	Six Months Ended June 30,				Increase (Decrease)
	2016		2015		Increase (Decrease)
NorthStar Listed Companies:
Base fee	$	100,184	$	93,552	$	6,632
Incentive fee	—		6,443		(6,443		)
Subtotal NorthStar Listed Companies	100,184		99,995		189			⁽¹⁾
Retail Companies:
Asset management fees	35,331		22,470		12,861			⁽²⁾
Acquisition fees	15,847		27,761		(11,914		)	⁽³⁾
Disposition fees	5,085		1,511		3,574			⁽⁴⁾
Subtotal Retail Companies	56,263		51,742		4,521
Institutional Capital
Townsend	29,914		—		29,914			⁽⁵⁾
Total	$	186,361	$	151,737	$	34,624

__________________


(1)	We began earning fees from NorthStar Europe on November 1, 2015.


(2)	The increase was driven by the growth in assets of our Retail Companies. As of June 30, 2016 and 2015, our Retail Companies held total investments of $6.6 billion and $5.2 billion, respectively.


(3)	The decrease was due to less investment activity of our Retail Companies for the six months ended June 30, 2016 as compared to the same period in 2015, with investment activity of $595.9 million at NorthStar Healthcare, $304.6 million at NorthStar Income and $180.1 million at NorthStar Income II.


(4)	The increase was driven by repayments of debt investments at our Retail Companies for the six months ended June 30, 2016 as compared to the same period in 2015.


(5)	We began earning fees on the Townsend Acquisition Date. We were also entitled to $2 million of management and other fees from January 14, 2016 to the Townsend Acquisition Date, which was recorded net of operating expenses in other income.

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Selling Commission and Dealer Manager Fees

We earn net commission income through NorthStar Securities for selling equity in our Retail Companies.


•	Class A shares: selling commissions of up to 7% of gross offering proceeds raised and dealer manager fee of up to 3% of gross offering proceeds raised.


•	Class T shares: selling commissions of up to 2% of gross offering proceeds raised and dealer manager fee of up to 2.75% of gross offering proceeds raised.

Selling commission and dealer manager fees decreased for the six months ended June 30, 2016 as compared to the same period in 2015 mostly due to: (i) lower capital raising activity as NorthStar Healthcare completed its follow-on offering in January 2016; and (ii) raising capital from the sale of Class T shares which has lower selling commissions and dealer manager fee than Class A shares.

The following table presents equity raised by our Retail Companies for the periods presented (dollars in thousands):



	Six Months Ended June 30,⁽¹⁾
	2016		2015
NorthStar Income	$	22,048	$	21,713
NorthStar Healthcare	34,571		280,381		⁽²⁾
NorthStar Income II	172,712		343,828		⁽³⁾
NorthStar/RXR New York Metro	476		—		⁽⁴⁾
NorthStar Corporate Fund	2,200		—		⁽⁵⁾
NorthStar Capital Fund	2,200		—		⁽⁵⁾
Total	$	234,207	$	645,922

_________________


(1)	Includes capital raised through distribution reinvestment plans of $70.9 million and $48.7 million for the six months ended June 30, 2016 and 2015, respectively, for which NorthStar Securities did not earn commission income.


(2)	NorthStar Healthcare successfully completed its follow-on public offering on January 19, 2016. Equity raised for the six months ended June 30, 2016 primarily represents proceeds from NorthStar Healthcare’s distribution reinvestment plan.

(3)

For the six months ended June 30, 2016, we raised gross offering proceeds of $71.5 million from the sale of Class A shares, $86.1 million from the sale of Class T shares and $15.1 million from shares issued as part of distribution reinvestment plans. For the six months ended June 30, 2015, we raised gross offering proceeds of $336.9 million from the sale of Class A shares and $6.9 million from shares issued as part of distribution reinvestment plans.


(4)	NorthStar/RXR New York Metro’s amended registration statement to offer an additional class of common shares was declared effective by the SEC and the minimum offering amount has been satisfied. We expect the capital raise to accelerate in the short-term.


(5)	NorthStar Corporate Fund and NorthStar Capital Fund were declared effective by the SEC and the minimum offering amount has been satisfied. We expect to begin raising capital in the second half of 2016.

Other Income

Other income includes $2.2 million of dividend income earned from the NorthStar Realty Shares, $3.5 million of gross management and other fees that we were entitled to from January 14, 2016 to the Townsend Acquisition Date, which is recorded net of operating expenses of $1.8 million and $1.0 million of reimbursable expenses related to Townsend.

Expenses

Commission Expense

Commission expense represents fees to participating broker-dealers with whom we have selling agreements to raise capital for our Retail Companies and commissions to employees of NorthStar Securities. For the six months ended June 30, 2016 and 2015, we paid $1.6 million and $6.6 million, respectively, to NorthStar Securities employees. Selling commission and dealer manager fees decreased for the six months ended June 30, 2016 as compared to the same period in 2015 mostly due to: (i) lower capital raising activity as NorthStar Healthcare completed its follow-on offering in January 2016; and (ii) raising capital from the sale of Class T shares which has lower selling commissions and dealer manager fee than Class A shares.

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Interest Expense

Interest expense relates to our revolving credit agreement that we entered into in November 2015 which was repaid in January 2016 and our term loan that we entered into in January 2016, in our corporate segment.

Transaction Costs

Transaction costs represent costs such as professional fees associated with new investments, merger related costs, dead deal costs and restructuring costs which are related to specific transactions. For the six months ended June 30, 2016, transaction costs of $25.1 million primarily related to the Mergers and the Townsend acquisition in our direct investments segment. For the six months ended June 30, 2015, transaction costs represent costs associated with the restructure of our holding company to include an operating partnership.

Other Expenses

Other expenses increased primarily due to $1.0 million of reimbursable expenses and $0.2 million of placement agency fees related to Townsend and $0.8 million of base management fees we pay to AHI, all in our corporate segment.

General and Administrative Expenses

General and administrative expenses are principally incurred at the corporate level except as it relates to direct compensation expenses and other costs incurred at our broker-dealer, which is part of our broker-dealer segment and Townsend, which is part of our direct investments segment. In addition, the amount of general and administrative expenses reflects an offset from an allocation of costs of $17.6 million to our Retail Companies and $0.5 million to our NorthStar Listed Companies for the six months ended June 30, 2016. General and administrative expenses increased $18.2 million primarily attributable to the following:

The following table presents compensation expense for the six months ended June 30, 2016 and 2015 (dollars in thousands):



	Six Months Ended June 30,				Increase (Decrease)
	2016		2015		Increase (Decrease)
Salaries and related expenses	$	40,361	$	29,850	$	10,511
Equity-based compensation expense	30,770		28,620		2,150
Total	$	71,131	$	58,470	$	12,661

Compensation expense increased $13 million primarily due to the acquisition of Townsend and hiring additional employees for increased activity at our Managed Companies and a net increase in equity-based compensation related to new grants issued in 2016, partially offset by the decrease related to NSAM spin-off grants and grants issued prior to the spin-off of NSAM.

Equity-based compensation expense is comprised of (dollars in thousands):



	Time-Based Awards				Performance-Based Awards				Total
	Six Months Ended June 30,				Six Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015		2016		2015
NSAM spin grants⁽¹⁾	$	4,022	$	7,677	$	7,367	$	7,415	$	11,389	$	15,092
NSAM bonus plan	12,893		5,029		2,176		1,216		15,069		6,245
NorthStar Realty bonus plan⁽²⁾	2,295		5,129		1,183		1,923		3,478		7,052
Townsend grants	601		—		—		—		601		—
Grants to non-employees	233		231		—		—		233		231
Total	$	20,044	$	18,066	$	10,726	$	10,554	$	30,770	$	28,620

__________________


(1)	Represents equity-based compensation expense for one-time grants issued related to the NSAM Spin-off. Certain awards had performance-based conditions which were met upon issuance, and accordingly, are included in time-based awards as they are only currently subject to continued employment conditions.


(2)	Represents equity-based compensation expense related to annual grants issued by NorthStar Realty prior to the NSAM Spin-off.

Other general and administrative expenses increased $5.6 million primarily due to the acquisition of Townsend and increased professional fees.

Unrealized Gain (Loss) on Investments and Other

Unrealized gain (loss) on investments and other is primarily related to the non-cash change in fair value for our investment in the NorthStar Listed Companies common stock.

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Realized Gain (Loss) on Investments and Other

Realized gain (loss) on investments and other is primarily related to the write-off of deferred financing costs associated with the repayment of the revolving credit agreement.

Equity in earnings (losses) of unconsolidated ventures

The following table presents equity in earnings (losses) of unconsolidated ventures for the six months ended June 30, 2016 and 2015 (dollars in thousands):



		Six Months Ended June 30,
		2016											2015
	Acquisition Date	Operating Income (Loss)			Non-cash Income (Expense)				Equity in Earnings (Loss)				Operating Income (Loss)			Non-cash Income (Expense)				Equity in Earnings (Loss)
Investment	Acquisition Date	Operating Income (Loss)			Non-cash Income (Expense)				Equity in Earnings (Loss)				Operating Income (Loss)			Non-cash Income (Expense)				Equity in Earnings (Loss)
AHI Interest	Dec-14	$	944		$	(5,821	)	⁽¹⁾	$	(4,877	)		$	3,090		$	(6,092	)	⁽¹⁾	$	(3,002	)
Distributed Finance	Jun-14	(254		)	(2,370		)	⁽²⁾	(2,624		)		(536		)	—				(536		)
Island Interest	Jan-15	3,014			(886		)	⁽³⁾	2,128				2,757			—				2,757
Total		$	3,704		$	(9,077	)		$	(5,373	)	⁽⁴⁾	$	5,311		$	(6,092	)		$	(781	)

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(1)	Includes equity-based compensation expense and depreciation and amortization.


(2)	Represents an impairment loss.


(3)	Represents depreciation and amortization


(4)	Excludes our portion of equity in earnings from the Townsend Funds of $0.2 million for the period from the Townsend Acquisition Date through June 30, 2016.

Income Tax Benefit (Expense)

The change for the six months ended June 30, 2016 as compared to the same period in 2015 is primarily due to the distribution of earnings between tax jurisdictions, interest expense on the Term Loan and additional deductions related to the acquisition of Townsend.

Liquidity and Capital Resources

Our capital sources may include cash flow provided from operating activities, primarily from management and other fee income paid to us from our Managed Companies and Townsend, as well as borrowings and the issuance of common stock. In connection with the NSAM Spin-off, we have available under a revolving credit agreement with NorthStar Realty up to $250 million of financing to us subject to certain conditions (refer to Related Party Arrangements). In January 2016, in connection with the Townsend acquisition, we entered into a $500 million term loan and used the proceeds to fund the transaction, repay the revolving credit agreement and for general corporate purposes. In connection with the term loan, we obtained corporate issuer and issue credit ratings from S&P and Moody’s of BBB- and Ba2, respectively. Our primary uses of liquidity include operating expenses, dividends, acquisitions of direct investments and repurchase of our common stock. On a quarterly basis, our board of directors determines an appropriate common stock dividend based upon numerous factors, including CAD, availability of existing cash balances, general economic conditions and economic conditions that more specifically impact our business or prospects. Future dividend levels are subject to adjustment based upon our evaluation of the factors described above, as well as other factors that our board of directors may, from time-to-time, deem relevant to consider when determining an appropriate common stock dividend.

In addition, in April 2015, our board of directors authorized the repurchase of up to $400 million of our outstanding common stock. In May 2016, our board of directors extended the authorization for an additional year. The authorization expires in April 2017, unless otherwise extended by our board of directors. From April 2015 through December 31, 2015, we repurchased $7.8 million shares of its common stock for approximately $105.2 million. For the six months ended June 30, 2016, we did not repurchase any shares of our common stock.

We expect that our cash flow from operating activities and available financing will be sufficient to satisfy our liquidity needs. As of June 30, 2016, we had a receivable primarily from our Managed Companies and Townsend of $109 million, of which we received $56 million subsequent to June 30, 2016.

We currently believe that our existing sources of funds should be adequate for purposes of meeting our short-term liquidity needs. Unrestricted cash as of August 2, 2016, was approximately $84 million, including $9 million in the United States and $75 million outside the United States.

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Cash Flows

The following presents a summary of our consolidated statements of cash flows for the six months ended June 30, 2016 and 2015 (dollars in thousands):



	Six Month Ended June 30,
Cash flow provided by (used in):	2016			2015
Operating activities	$	39,960		$	75,962
Investing activities	(383,505		)	(32,442		)
Financing activities	318,720			(51,782		)
Effect of foreign exchange rate changes on cash	(268		)	(285		)
Net increase (decrease) in cash	$	(25,093	)	$	(8,547	)

Six Months Ended June 30, 2016 Compared to June 30, 2015

Net cash provided by operating activities was $40 million for the six months ended June 30, 2016 compared to $76 million for the six months ended June 30, 2015. The decrease was primarily due to the payment of transaction costs related to the Mergers and acquisition of Townsend and less acquisition fees from the Retail Companies.

Net cash used in investing activities was $384 million for the six months ended June 30, 2016 compared to $32 million for the six months ended June 30, 2015. The increase was due to the acquisition of Townsend in January 2016.

Net cash provided by financing activities was $319 million for the six months ended June 30, 2016 compared to $52 million used in financing activities for the six months ended June 30, 2015. Cash flow provided from financing activities for the six months ended June 30, 2016 was due to entering into the Term Loan, partially offset by the repayment of the credit facility of $100 million and $39 million for the payment of dividends. Cash flow used for financing activities for the six months ended June 30, 2015 was due to net cash payment on repurchase of shares related equity-based awards and tax withholding and $39 million for the payment of dividends.

Contractual Obligations and Commitments

As of June 30, 2016, we continue to be subject to the material contractual obligations and commitments referred to in our annual report Form 10-K for the year ended December 31, 2015, with the exception of the corporate Term Loan entered into in January 2016 and unfunded commitments to co-invest approximately 1% of the total unfunded commitment in the Townsend Funds, both in connection with the acquisition of Townsend. Refer to Note 5. “Borrowings” in Item 1. “Financial Statements” for a further discussion.

We entered into fee arrangements with service providers and advisors pursuant to which certain fees incurred by us in connection with the Mergers will become payable only if we consummate the Mergers. We have and will incur other professional fees related to the Mergers. In addition, we will incur cash compensation expenses to executives and employees related to severance, retention and related costs. There can be no assurances that we will complete this or any other transaction. For the three months ended June 30, 2016, we recorded an aggregate of $17.8 million in transaction costs in the consolidated statements of operations. To the extent the Mergers are consummated, the Company anticipates incurring a significant amount of additional costs, which with respect to advisors could be up to approximately $30 million.

Off-Balance Sheet Arrangements

We have certain arrangements which do not meet the definition of off-balance sheet arrangements, but do have some of the characteristics of off-balance sheet arrangements such as our investments in asset management businesses. Refer to Note 4. “Investments in Unconsolidated Ventures” in Item 1. “Financial Statements” for a discussion of such unconsolidated ventures in our consolidated financial statements. Our exposure to loss is limited to the carrying value of our investment.

Related Party Arrangements

NorthStar Realty

Investment Opportunities

Under the management agreement, NorthStar Realty agreed to make available to us for the benefit of our Managed Companies, including NorthStar Realty, all investment opportunities sourced by NorthStar Realty. We agreed to fairly allocate such opportunities among our Managed Companies, including NorthStar Realty, in accordance with our investment allocation policy. Pursuant to the management agreement, NorthStar Realty is entitled to fair and reasonable compensation for its services in connection with any loan origination opportunities sourced by it, which may include first mortgage loans, subordinate mortgage interests, mezzanine loans and preferred equity interests, in each case relating to commercial real estate.

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We provide services with regard to such areas as payroll, human resources and employee benefits, financial systems management, treasury and cash management, accounts payable services, telecommunications services, information technology services, property management services, legal and accounting services and various other corporate services to NorthStar Realty as it relates to its loan origination business for CRE debt.

Credit Agreement

In connection with the NSAM Spin-off, we entered into a revolving credit agreement with NorthStar Realty pursuant to which NorthStar Realty makes available to us, on an “as available basis,” up to $250 million of financing with a maturity of June 30, 2019 at LIBOR plus 3.50%. The revolving credit facility is unsecured. We expect to use the proceeds for general corporate purposes, including potential future acquisitions. In addition, we may use the proceeds to acquire assets on behalf of our Managed Companies that we intend to allocate to such Managed Company but for which such Managed Company may not then have immediately available funds. The terms of the revolving credit facility contain various representations, warranties, covenants and conditions, including the condition that NorthStar Realty’s obligation to advance proceeds to us is dependent upon NorthStar Realty and its affiliates having at least $100 million of either unrestricted cash and cash equivalents or amounts available under committed lines of credit, after taking into account the amount we seek to draw under the facility. As of June 30, 2016, we had no borrowings outstanding under the credit agreement.

NorthStar Listed Companies Shares

The Company purchased 2.7 million and 0.2 million shares of NorthStar Realty and NorthStar Europe, respectively, in the open market for $52 million in the aggregate. For the three and six months ended June 30, 2016, the Company recorded an unrealized loss of $5 million and $15 million, respectively, which is recorded in unrealized gain (loss) on investments and other and $1 million and $2 million, respectively, of dividend income recorded in other income on the consolidated statements of operations.

Recent Sales or Commitments to Sell to Retail Companies

During 2016, NorthStar Realty entered into agreements to sell certain assets to our Retail Companies. The board of directors of each Retail Company, including all of the independent directors, approved of the respective transactions after considering, among other matters, third party pricing support.

Healthcare Strategic Joint Venture

In January 2014, we entered into a long-term strategic partnership with James F. Flaherty III, former Chief Executive Officer of HCP, Inc., focused on expanding our healthcare business into a preeminent healthcare platform, or the Healthcare Strategic Partnership. In connection with the partnership, Mr. Flaherty oversees both NorthStar Realty’s healthcare real estate portfolio and the portfolio of NorthStar Healthcare. In connection with entering into the partnership, NorthStar Realty granted Mr. Flaherty certain restricted stock units, or RSUs, half of which became our RSUs as a result of NorthStar Realty’s reverse stock split and the NSAM Spin-off. The Healthcare Strategic Partnership is entitled to incentive fees ranging from 20% to 25% above certain hurdles for new and existing healthcare real estate investments held by NorthStar Realty and NorthStar Healthcare. The partnership will also be entitled to any incentive fees earned from NorthStar Healthcare or any future healthcare retail vehicles sponsored by us, NorthStar Realty or any affiliates, as well as future healthcare retail vehicles sponsored by AHI Ventures. For the three and six months ended June 30, 2016 and 2015, we did not earn incentive fees related to the Healthcare Strategic Partnership.

On February 2, 2015, in connection with the completion of NorthStar Healthcare’s initial primary offering, we issued 20,305 RSUs to Mr. Flaherty. On December 17, 2015, in connection with the completion of NorthStar Healthcare’s follow-on public offering, we issued 139,473 RSUs to Mr. Flaherty. On January 19, 2016, the Company issued an additional 527 RSUs to Mr. Flaherty.

AHI Venture

In connection with our 43% interest in AHI, or AHI Interest, AHI Newco, LLC, or AHI Ventures, a direct wholly-owned subsidiary of AHI, provides certain asset management, property management and other services to our affiliates assisting in managing the current and future healthcare assets (excluding any joint venture assets) of NorthStar Realty and other Retail Companies, including the assets formerly owned by Griffin-American, and its former operating partnership, Griffin-American Healthcare REIT II Holdings, LP, or Griffin-America OP portfolio, and third party assets, representing $8 billion, of which $5 billion is owned by NorthStar Realty and NorthStar Healthcare. AHI Ventures receives a base management fee of $0.6 million per year plus 0.50% of the equity invested by NorthStar Realty in future healthcare assets (excluding assets in the Griffin-American OP portfolio and other joint ventures) that AHI Ventures may manage. AHI Ventures may also participate in the incentive fees earned by us and our affiliates with respect to new and existing healthcare real estate investments held by NorthStar Realty and NorthStar Healthcare, including the Griffin-American OP portfolio, any future healthcare retail vehicles sponsored by us, NorthStar Realty or any affiliates, as well as any future healthcare retail vehicles sponsored by AHI Ventures. AHI Ventures would also be entitled to additional base management fees should it manage assets on behalf of any other Managed Companies. AHI Ventures also intends to directly or indirectly sponsor, co-sponsor, form, register, market, advise, manage and/or operate investment vehicles that are intended to invest primarily in healthcare real estate assets. In addition, Mr. Flaherty acquired a 12% interest, as adjusted, in AHI

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Ventures. For the three and six months ended June 30, 2016, we incurred $0.4 million and $1 million, respectively, of base management fees to AHI. Also, AHI provides certain asset management, property management and other services to NorthStar Realty to assist in managing its properties. For the three months ended June 30, 2016 and 2015, NorthStar Realty incurred $0.4 million of property management fees to AHI in each period. For the six months ended June 30, 2016 and 2015, NorthStar Realty incurred $1 million of property management fees to AHI in each period.

In April 2015, Griffin-American Healthcare REIT III, Inc., a vehicle managed by an affiliate of AHI, distributed shares of its common stock to the members of AHI Ventures, of which we received 0.2 million shares in connection with the distribution.

Island Venture

Island is a leading, independent select service hotel management company that currently manages 162 hotel properties, representing $4 billion, of which 110 hotel properties totaling $2 billion, are owned by NorthStar Realty. Island provides certain asset management, property management and other services to NorthStar Realty to assist in managing its hotel properties. Island receives a base management fee of 2.5% to 3.0% of the current monthly revenue of the NorthStar Realty hotel properties it manages for NorthStar Realty. For the three months ended June 30, 2016 and 2015, NorthStar Realty incurred $5 million and $3 million, respectively, of base property management and other fees to Island. For the six months ended June 30, 2016 and for the period from acquisition date (January 9, 2015) through June 30, 2015, NorthStar Realty incurred $9 million and $6 million, respectively, of base property management and other fees to Island.

RXR Realty

In December 2013, NorthStar Realty entered into a strategic transaction with RXR Realty, the co-sponsor of NorthStar/RXR New York Metro. The investment in RXR Realty includes an approximate 27% equity interest. NorthStar Realty’s equity interest in RXR Realty is structured so that we are entitled to the portion of distributable cash flow from RXR Realty’s investment management business in excess of the $10 million minimum annual base amount set forth in the management agreement (refer to Note 3). For the three and six months ended June 30, 2016 and 2015, we were not entitled to any excess.

Recent Developments

Dividends

Colony NorthStar Registration Statement

On July 28, 2016, Colony NorthStar, a Maryland subsidiary of NSAM that will be the surviving parent company of the combined company, filed with the SEC a registration statement on Form S-4 that includes a joint proxy statement of NSAM, Colony and NorthStar Realty and that also constitutes a prospectus of Colony NorthStar.

Non-GAAP Financial Measure

We believe that CAD provides investors and management with a meaningful indicator of operating performance. Management also uses CAD, among other measures, to evaluate profitability. In addition, the incentive fees to which we are entitled pursuant to our management agreements with each of our NorthStar Listed Companies are determined using such NorthStar Listed Company’s CAD as a performance metric. We believe that CAD is useful because it adjusts for a variety of items that are consistent with presenting a measure of operating performance (such as transaction costs, depreciation and amortization, equity-based compensation, unrealized gain (loss) on investments and other, realized gain (loss) on investments and other and asset impairment). We adjust for transaction costs because these costs are not a meaningful indicator of our operating performance. For instance, these transaction costs include costs such as professional fees associated with new investments or restructuring of investments, which are expenses related to specific transactions.

We calculate CAD by subtracting from or adding to net income (loss) attributable to common stockholders, non-controlling interests attributable to the Operating Partnership and the following items: equity-based compensation, depreciation and amortization related items, amortization of deferred financing costs, foreign currency gains (losses), impairment on goodwill and other intangible assets, straight-line rent, adjustments for joint ventures and investment funds, unrealized (gain) loss from fair value adjustments, realized gain (loss) on investments, adjustments for contingent revenue and the related compensation expense and transaction and other costs. In future periods, such adjustments may include other one-time events pursuant to changes in U.S. GAAP and certain other non-recurring items. These items, if applicable, include any adjustments for unconsolidated ventures. Management also believes that quarterly distributions are principally based on operating performance and our board of directors includes CAD as one of several metrics it reviews to determine quarterly distributions to stockholders.

CAD should not be considered as an alternative to net income (loss) attributable to common stockholders, determined in accordance with U.S. GAAP, as an indicator of operating performance. In addition, our methodology for calculating CAD involves subjective

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judgment and discretion and may differ from the methodologies used by other comparable companies when calculating the same or similar supplemental financial measures and may not be comparable with these companies.

The following table presents a reconciliation of CAD to net income (loss) attributable to common stockholders for the three months ended June 30, 2016 (dollars in thousands):



Net income (loss) attributable to common stockholders	$	10,924
Non-controlling interests attributable to the Operating Partnership	111
Adjustments:
Equity-based compensation	13,637
Adjustment related to joint ventures⁽¹⁾	3,258
Unrealized (gain) loss from fair value adjustments⁽²⁾	4,638
Transaction costs and other⁽³⁾	17,864
Depreciation and amortization items	3,536
CAD	$	53,968

_______________


(1)	Includes an adjustment to add $0.2 million of equity-based compensation expense, $0.5 million impairment on our investment in an unconsolidated venture, $2.7 million of depreciation and amortization expense related to unconsolidated ventures and a reduction of $0.2 million related to net unrealized and realized gains (losses) on the Townsend Funds.


(2)	Primarily represents the change in fair value for our investment in NorthStar Realty’s common stock.


(3)	Includes an adjustment to add back $17.8 million of transaction costs primarily related to the Mergers and $0.3 million impairment on the convertible debt.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our exposure to market risk is primarily related to our role providing asset management and other services to our Managed Companies, both in the United States and internationally, and its effect on the asset management and other fees we earn. Our exposure to market risk will increase as we expand into new asset classes and geographies, and as a result, we will seek to enter into strategic partnerships and joint ventures with third parties with expertise in commercial real estate or other sectors and markets to augment our business operations while at the same time benefiting from the fee streams generated by such strategic partnerships and joint ventures. Our asset management and other fees are primarily driven by the ability of our Managed Companies to grow by raising capital, which will in turn be driven by their investment activities, overall performance and various factors beyond our control, including but not limited to, monetary and fiscal policies, domestic and international economic conditions and political considerations. The effect of such risks on our asset management and other fee agreements vary based on the management contract with the respective Managed Company.

Our NorthStar Listed Companies’ management agreements consist of a base management fee which increases as equity is raised and an incentive fee which is based on the performance of our NorthStar Listed Companies using CAD as an operating metric. The base management fee currently represents the majority of the fee. The ability of our NorthStar Listed Companies to grow is dependent on access to the capital markets to raise equity and/or debt capital. To the extent that general capital markets activity slows down or comes to a halt (as is currently the case), our NorthStar Listed Companies may have difficulty growing. This risk is based on micro and macro-economic market factors including but not limited to disruptions in the equity and debt capital markets and institutional lending market, including the lack of access to capital or prohibitively high costs of obtaining or replacing capital. Despite improvements in 2015, the markets could suffer another severe downturn and another liquidity crisis could emerge. Recent volatility in the equity markets may diminish our NorthStar Listed Companies’ capital raising activity.

Our Retail Companies’ ability to sell equity is highly dependent upon the market and the efforts of our broker-dealer, NorthStar Securities. The retail business has experienced rapid growth, is highly competitive and has faced increased scrutiny in recent years. The number of entrants in the retail market space has grown significantly over the last several years and as a result, we are subject to significant competition from these and other companies seeking to raise capital in this market. Additionally, as a result of increased scrutiny and accompanying media attention and a rapidly changing regulatory environment, our retail businesses may face increased difficulties in raising capital in their offerings due to market perception. These factors may affect our ability to raise capital for our retail businesses and make investments on their behalf, both of which could materially adversely affect our asset management and other fee income and the net commission income generated by our broker-dealer.

To a lesser extent, we are indirectly exposed to credit risk through the performance of our Managed Companies and direct investments. Credit risk relates to the ability of our Managed Companies to operate successfully as well as the individual investments to perform, for instance the ability for the borrowers’ underlying debt or securities investments 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 portfolio and the underlying credit quality, including 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.

Interest Rate Risk

Interest rate risk relates to the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Interest rate risk is highly sensitive to many factors, including governmental, monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control. Fluctuations in LIBOR may affect the amount of interest expense we incur on our term loan. As of June 30, 2016, a hypothetical 100 basis point increase in three-month LIBOR would result in a decrease in net income of approximately $5 million annually.

Foreign Currency Exchange Rate Risk

We are subject to risks related to changes in foreign currency exchange rates as a result of our international operations. As a result, changes in exchange rates may either positively or negatively affect our consolidated revenues and expenses (as expressed in U.S. dollars). We may use several strategies to mitigate our exposure through a combination of foreign currency derivative instruments and use non-U.S. denominated borrowings, where appropriate.

Non-U.S. Operations

We conduct business internationally, with a current focus on Europe. We currently have foreign offices in the United Kingdom, Luxembourg, Bermuda and Hong Kong. We are subject to various risks, including, social instability, changes in governmental policies or policies of central banks, tax laws and policies, expropriation, nationalization, unfavorable political and diplomatic developments and changes in legislation relating to non-U.S. ownership. As we continue to expand internationally, we will continue to focus on monitoring and managing these risk factors as they relate to specific international investments.

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Item 4. Controls and Procedures

As of the end of the period covered by this report, management conducted an evaluation as required under Rules 13a-15(b) and 15d-15(b) under the Exchange Act under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act).

Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s 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 to disclose material information otherwise required to be set forth in the Company’s periodic reports.

Internal Control over Financial Reporting

Changes in internal control over financial reporting.

Except as set forth below, there have not been any changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

The Company acquired Townsend Holdings LLC during the quarter ended March 31, 2016, and therefore, the scope of our assessment of the effectiveness of certain controls and procedures does not include such acquisition. This exclusion is in accordance with the SEC’s general guidance that an assessment of a recently acquired business may be omitted from our scope in the year of acquisition.

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PART II: Other Information

Item 1. Legal Proceedings

We may be involved in various litigation matters arising in the ordinary course of our business. Although we are unable to predict with certainty the eventual outcome of any litigation, in the opinion of management, any current legal proceedings are not expected to have a material adverse effect on our financial position or results of operations. Refer to Note 8. “Commitments and Contingencies” in Item 1. “Financial Statements” for further disclosure regarding legal proceedings.

Item 1A. Risk Factors

Completion of the Mergers is subject to many conditions and if these conditions are not satisfied or waived, the Mergers will not be completed.

Completion of the Mergers is subject to many conditions which must be satisfied or waived under the merger agreement in order for the Mergers to be completed including, among others, receipt of each of NorthStar Realty’s stockholder approval, Colony’s stockholder approval and the Company’s stockholder approval.

In addition, the Company, Colony and NorthStar Realty each may terminate the merger agreement under certain circumstances, including, among other reasons, if the Mergers are not completed by the outside date. If the Mergers are not consummated, the market price of the Company’s common stock may decline.

There can be no assurance that the conditions to the closing of the Mergers will be satisfied or waived. For example, Colony NorthStar’s ability to qualify as a REIT depends on its acquisition of Colony’s and the Company’s qualifying REIT assets in the Mergers. Accordingly, in order for counsel to Colony NorthStar to deliver the REIT qualification opinion that is a condition to the closing of the Mergers, the Mergers must be completed sufficiently early in 2017 to allow Colony NorthStar to project, and its counsel to reasonably assume, that Colony NorthStar will satisfy the REIT income and asset tests for the entire taxable year of the Mergers. The date by which the Mergers must be completed for these purposes may be significantly earlier than the outside date as set forth in the merger agreement. A delay in the closing of the Mergers could therefore preclude Colony NorthStar from being able to satisfy the REIT requirements for the year of the closing and from obtaining the REIT qualification opinion that is a condition to closing.

Accordingly, there can be no assurance that the Mergers will be completed.

If the Mergers do not occur, we may incur payment obligations to NorthStar Realty and Colony.

If the merger agreement is terminated under certain circumstances, the Company may be required to pay NorthStar Realty and Colony a total termination fee of $92 million or transaction expenses of up to $20 million (depending on the specific circumstances).

If Colony’s financing for the refinancing of certain existing borrowings of NorthStar Realty, Colony and the Company becomes unavailable or is insufficient, the Mergers may not be completed.

Colony has obtained financing commitments to fund the refinancing of certain specified borrowings of NorthStar Realty, Colony and the Company and their affiliates in connection with the consummation of the Mergers. The financing commitments are subject to certain conditions, which may or may not be satisfied. In addition, even if these conditions are satisfied, the amount of financing under those financing commitments may be reduced or the cost of obtaining such financing may be increased if certain conditions are not satisfied. In the event that the financing contemplated by those financing commitments is not available or is available in less than the expected amount, other necessary financing may not be available on acceptable terms, in a timely manner or at all. If alternative financing is available, it could be more costly than that reflected in the financing commitments, which would have a negative impact on Colony NorthStar’s results of operations following the Mergers. The merger agreement provides that no party will be required to consummate the Mergers if, subject to certain conditions, financing is unavailable and following the Mergers, Colony NorthStar will not have sufficient unrestricted cash to repay certain specified borrowings and all transaction expenses. As a result, if the financing provided for in the financing commitments obtained by Colony is not available, is insufficient and/or the NorthStar Realty, Colony and the Company are unable to secure additional funds through alternative sources, the Mergers may not be completed.

The Company will be subject to business uncertainties and certain operation restrictions until consummation of the Mergers.

Uncertainty about the effect of the Mergers on employees and clients may have an adverse effect on the Company or Colony NorthStar following the Mergers. These uncertainties could disrupt the business of the Company and impair their ability to attract, retain and motivate key personnel until the Mergers are completed, and cause clients and others that deal with the Companies to seek to change existing business relationships, cease doing business with the Company or cause potential new clients to delay doing business with the Company until the Mergers have been completed successfully. Retention and motivation of certain employees may be challenging during the pendency of the Mergers due to uncertainty about their future roles and difficulty of integration. If key employees depart because of issues related to the uncertainty and difficulty of integration or a desire not to remain with the combined company, Colony NorthStar’s business following the Mergers could be negatively impacted. In addition,

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the merger agreement restricts the parties thereto from making certain acquisitions and investments and taking other specified actions until the Mergers occur without the consent of the other parties. These restrictions may prevent the Company from pursuing attractive business opportunities that may arise prior to the completion of the Mergers.

The pendency of the Mergers could adversely affect the business and operations of the Company.

Due to the operating covenants in the merger agreement, the Company may be unable, during the pendency of the Mergers, to take certain actions without the consent of NorthStar Realty or Colony, even if such actions would otherwise prove beneficial to the Company’s stockholders. Those operating covenants will continue to apply until the Mergers occur, which will take place no earlier than January 4, 2017 even if the conditions to the closing of the Mergers would have been satisfied prior to that time, unless otherwise agreed by the Company, NorthStar Realty and Colony.

The Company prior to the closing, and Colony NorthStar following the closing of the Mergers, expects to incur significant costs in connection with the consummation of the Mergers and the integration of the companies.

The Company prior to the closing, and Colony NorthStar following the closing, expects to incur significant costs in connection with consummating the Mergers and integrating the portfolios of NorthStar Realty, Colony and the Company into Colony NorthStar, including unanticipated costs and the assumption of known and unknown liabilities. While each of the companies and Colony NorthStar have assumed that a certain level of transaction and integration expenses will be incurred, there are factors beyond each of the companies and Colony NorthStar’s control that could affect the total amount or the timing of its integration expenses. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time. Although the Company expects that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the three businesses, should allow Colony NorthStar to offset these incremental expenses over time, the net benefit may not be achieved in the near term, or at all.

The merger agreement includes restrictions on the ability of each of the Companies to make distributions to its stockholders, even if it would otherwise have net income and net cash available to make such distributions.

Pursuant to the merger agreement, the Company is permitted to make distributions to its common stockholders of up to $0.10 per share of the Company’s common stock in each quarter of 2016 and a pro rata portion of the $0.10 per share dividend for any partial period of the first calendar quarter of 2017 and prior to the closing of the Mergers. The Company’s board is also permitted to declare a special dividend in cash in respect of the Company’s common stock in an aggregate amount of $128 million to be paid in 2017 prior to the closing of the Mergers.

Although the Company generally has agreed to use its reasonable best efforts to close the Mergers as promptly as practicable in accordance with the merger agreement, certain factors, which include obtaining NorthStar Realty’s stockholder approval, Colony stockholder approval and the Company’s stockholder approval, could delay the closing. Therefore, even if NorthStar Realty, Colony or the Company has available net income or net cash to make distributions to its common stockholders and satisfies any other conditions to make such distributions, the terms of the merger agreement could prohibit such action.

The Company’s common stockholders cannot be sure of the market price of Colony NorthStar class A common stock they will receive as consideration.

Upon completion of the Mergers, common stockholders of the Company will receive shares of Colony NorthStar class A common stock. Prior to the Mergers, there has not been and will not be established public trading for Colony NorthStar common stock. The market price of Colony NorthStar class A common stock following the Mergers will be unknown until the commencement of trading following completion of the Mergers.

The exchange ratios are fixed and generally will not be adjusted for changes affecting the Company.

The NSAM exchange ratio of its common stock into Colony NorthStar class A common stock is fixed and may be adjusted only under certain limited circumstances as set forth in the merger agreement and will not be adjusted to reflect any changes in the trading prices of the Company’s common stock on the NYSE between the signing of the merger agreement and the closing of the Mergers.

The Company’s common stockholders will hold a significantly smaller share of Colony NorthStar following the closing of the Mergers, than they do as stockholders of the Company currently.

Following the Mergers, former stockholders of the Company are expected to hold approximately 32.85% of Colony NorthStar immediately after the completion of the Mergers, on a fully diluted basis, excluding the effect of certain equity-based awards issuable in connection with the Mergers. Consequently, the Company’s common stockholders will exercise less influence over the management and policies of Colony NorthStar after the completion of the Mergers than they currently exercise over the management and policies of the Company.

In addition, unlike the Company’s current structure, Colony NorthStar will have Colony NorthStar class B common stock outstanding with voting rights equal to 36.5 votes per share of Colony NorthStar class B common stock. Following the Mergers,

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former stockholders of the Company are expected to hold approximately 34% of the voting power of Colony NorthStar common stock upon the completion of the Mergers.

If any of the Mergers do not qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code, or the Code, stockholders participating in such merger may be required to pay substantial U.S. federal income taxes.

Although the parties intend that each of the Mergers will qualify as a “reorganization” within the meaning of Section 368(a) of the Code, it is possible that the Internal Revenue Service, referred to as the IRS, could assert that one or more of the Mergers fails to so qualify. If the IRS were to be successful in any such contention, or if for any other reason any such merger were to fail to qualify as a “reorganization,” each U.S. holder participating in any such merger would recognize gain or loss with respect to all such U.S. holder’s shares of stock based on the difference between: (i) that U.S. holder’s tax basis in the relevant shares; and (ii) the aggregate cash and the fair market value of the shares of stock received in the applicable merger.

Colony NorthStar may incur adverse tax consequences if Colony or NorthStar Realty were to fail to qualify as a REIT for U.S. federal income tax purposes prior to the Mergers.

It is a condition to the closing of the Mergers that each of Colony and NorthStar Realty receive an opinion of counsel to the effect that it has qualified as a REIT for U.S. federal income tax purposes under the Code through the time of the Mergers. Neither Colony nor NorthStar Realty, however, has requested or plans to request a ruling from the IRS that it qualifies as a REIT. Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. The complexity of these provisions and of the applicable Treasury regulations that have been promulgated under the Code is greater in the case of a REIT that holds its assets through a partnership (such as Colony and NorthStar Realty). The determination of various factual matters and circumstances not entirely within the control of Colony or NorthStar Realty may have affected its ability to qualify as a REIT.

If, notwithstanding the opinions described above, Colony’s or NorthStar Realty’s REIT status prior to the Mergers were successfully challenged, Colony NorthStar would face serious tax consequences that would substantially reduce its core funds from operations, referred to as Core FFO, and CAD, including cash available to pay dividends to its stockholders, because:


•	Colony or NorthStar Realty, as applicable, would be subject to U.S. federal, state and local income tax on its net income at regular corporate rates for the years it did not qualify as a REIT (and, for such years, would not be allowed a deduction for dividends paid to stockholders in computing its taxable income) and Colony NorthStar would succeed to the liability for such taxes;


•	if Colony NorthStar were considered to be a “successor” of such entity, it would not be eligible to elect REIT status until the fifth taxable year following the year during which such entity was disqualified, unless it is entitled to relief under applicable statutory provisions;


•	Colony NorthStar, even if eligible to elect REIT status, would be subject to tax (at the highest corporate rate in effect at the date of the sale) on the built-in gain on each asset of Colony or NorthStar Realty, as applicable, existing at the time of the Mergers if Colony NorthStar were to dispose of such asset for up to ten years following the Mergers; and

•

Colony NorthStar would succeed to any earnings and profits accumulated by Colony or NorthStar Realty, as applicable, for tax periods that such entity did not qualify as a REIT and Colony NorthStar would have to pay a special dividend and/or employ applicable deficiency dividend procedures (including interest payments to the IRS) to eliminate such earnings and profits to maintain its REIT qualification.

If there is an adjustment to Colony’s or NorthStar Realty’s taxable income or dividends paid deductions, Colony NorthStar could elect to use the deficiency dividend procedure to maintain Colony’s or NorthStar Realty’s, as applicable, REIT status. That deficiency dividend procedure could require Colony NorthStar to make significant distributions to its stockholders and to pay significant interest to the IRS.

As a result of these factors, Colony’s or NorthStar Realty’s failure to qualify as a REIT prior to the Mergers could impair Colony NorthStar’s ability after the Mergers to expand its business and raise capital and could materially adversely affect the value of Colony NorthStar’s stock.

REITs are subject to a range of complex organizational and operational requirements.

To qualify as a REIT, Colony NorthStar must distribute with respect to each taxable year at least 90% of its net income (excluding capital gains) to its stockholders. A REIT must also meet certain other requirements, including with respect to the nature of its income and assets and the ownership of its stock. For any taxable year that Colony NorthStar fails to qualify as a REIT, it will not be allowed a deduction for dividends paid to its stockholders in computing its net taxable income and thus would become subject to federal, state and local income tax as if it were a regular taxable corporation. In such an event, Colony NorthStar could be subject to potentially significant tax liabilities. Unless entitled to relief under certain statutory provisions, Colony NorthStar would also be disqualified from treatment as a REIT for the four taxable years following the year in which it lost its qualification.

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If Colony NorthStar were to fail to qualify as a REIT, the market price of its common stock could decline, and Colony NorthStar could need to reduce substantially the amount of distributions to its stockholders as a result of any increased tax liability.

We may not realize the anticipated benefits of the Mergers.

The Company entered into the merger agreement because it believes that the Mergers will be beneficial to the Company and the Company’s stockholders and that combining the businesses of NorthStar Realty, Colony and the Company will produce benefits and cost savings. If the combined company is not able to combine successfully the businesses of NorthStar Realty, Colony and the Company in an efficient and effective manner, the anticipated benefits and cost savings of the Mergers may not be realized fully, or at all, or may take longer to realize than expected, and the value of Colony NorthStar common stock may be adversely affected.

An inability to realize the full extent of the anticipated benefits of the Mergers and related transactions contemplated by the merger agreement, as well as any delays encountered in the integration process, could have an adverse effect upon the revenues, level of expenses and operating results of the combined company, which may adversely affect the value of Colony NorthStar common stock following the Mergers.

The management of the combined company will have to dedicate substantial effort to integrating the businesses of NorthStar Realty, Colony and the Company during the integration process. These efforts may divert management’s focus and resources from the combined company’s business, corporate initiatives or strategic opportunities. In addition, the actual integration may result in additional and unforeseen expenses and the anticipated benefits of the integration may not be realized. Actual growth and cost savings, if achieved, may be lower than what the combined company expects and may take longer to achieve than anticipated. Difficulties associated with managing Colony NorthStar’s larger and more complex portfolio could prevent Colony NorthStar from realizing the anticipated benefits of the Mergers and have a material adverse effect on its business. If Colony NorthStar is not able to address integration challenges adequately, the combined company may be unable to integrate successfully the operations of NorthStar Realty, Colony and the Company or to realize the anticipated benefits of the integration of the three companies.

The senior management of the Company is expected to change. The changes in senior management could negatively impact the results of operations of Colony NorthStar.

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Item 6. Exhibits



Exhibit Number		Description of Exhibit
2.1		Agreement and Plans of Merger, dated as of June 2, 2016, among NorthStar Realty Finance Corp., Colony Capital, Inc., NorthStar Asset Management Group Inc., New Polaris Inc., New Sirius Inc., NorthStar Realty Finance Limited Partnership, Sirius Merger Sub-T, LLC and New Sirius Merger Sub, LLC (incorporated by reference to Exhibit 2.1 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed on June 8, 2016)
2.2		Agreement, dated as of June 2, 2016, among NorthStar Realty Finance Corp., Colony Capital, Inc. and NSAM J-NRF Ltd (incorporated by reference to Exhibit 2.2 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed on June 8, 2016)
3.1		Amended and Restated Certificate of Incorporation of NorthStar Asset Management Group Inc. (incorporated by reference to Exhibit 4.1 to NorthStar Asset Management Group Inc.’s Registration Statement on Form S-8 (File No. 333-197104))
3.2		Amended and Restated Bylaws of NorthStar Asset Management Group Inc. (incorporated by reference to Exhibit 4.2 to NorthStar Asset Management Group Inc.’s Registration Statement on Form S-8 (File No. 333-197104))
10.1		Amended and Restated Asset Management Agreement, dated as of October 31, 2015, between NSAM J-NRF Ltd and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.2 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed on November 3, 2015)
10.2		Separation Agreement, dated as of June 30, 2014, between NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.2 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed on July 1, 2014)
10.3		Contribution Agreement, dated as of June 30, 2014, between NorthStar Asset Management Group Inc. and NRFC Sub-REIT Corp. (incorporated by reference to Exhibit 10.3 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed on July 1, 2014)
10.4		Loan Origination Services Agreement, dated as of June 30, 2014, between NSAM US LLC and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.4 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed on July 1, 2014)
10.5		Tax Disaffiliation Agreement, dated as of June 30, 2014, between NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.5 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed on July 1, 2014)
10.6		Employee Matters Agreement, dated as of June 30, 2014, between NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.6 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed on July 1, 2014)
10.7		Advisory Agreement, dated as of June 30, 2014, by and among NSAM J-NSI Ltd, NorthStar Real Estate Income Trust, Inc., NorthStar Real Estate Income Trust Operating Partnership, LP and NorthStar Asset Management Group Inc. (incorporated by reference to Exhibit 10.7 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed on July 1, 2014)
10.8		Advisory Agreement, dated as of June 30, 2014, by and among NSAM J-NSHC Ltd, NorthStar Healthcare Income, Inc., NorthStar Healthcare Income Operating Partnership, LP and NorthStar Asset Management Group Inc. (incorporated by reference to Exhibit 10.8 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed on July 1, 2014)
10.9		Advisory Agreement, dated as of June 30, 2014, by and among NSAM J- NSII Ltd, NorthStar Real Estate Income II, Inc., NorthStar Real Estate Income Operating Partnership II, LP and NorthStar Asset Management Group Inc. (incorporated by reference to Exhibit 10.9 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed on July 1, 2014)
10.10		Credit Agreement, dated as of June 30, 2014, by and between NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.10 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed on July 1, 2014)
10.11†		Amended and Restated Executive Employment Agreement, dated as of August 5, 2015, by and between NorthStar Asset Management Group Inc. and David T. Hamamoto (incorporated by reference to Exhibit 10.11 to NorthStar Asset Management Group Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015)
10.12†		Executive Employment Agreement and Agreement with Foreign Executive Officer, dated as of June 30, 2014, by and between NorthStar Asset Management Group, Ltd and Daniel R. Gilbert (incorporated by reference to Exhibit 10.12 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed on July 1, 2014)
10.13†		Amended and Restated Executive Employment Agreement, dated as of August 5, 2015, by and between NorthStar Asset Management Group Inc. and Albert Tylis (incorporated by reference to Exhibit 10.13 to NorthStar Asset Management Group Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015)
10.14†		Executive Employment Agreement, dated as of June 30, 2014, by and between NorthStar Asset Management Group Inc. and Debra A. Hess (incorporated by reference to Exhibit 10.14 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed on July 1, 2014)
10.15†		Executive Employment Agreement, dated as of June 30, 2014, by and between NorthStar Asset Management Group Inc. and Ronald J. Lieberman (incorporated by reference to Exhibit 10.15 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed on July 1, 2014)
10.16†		NorthStar Asset Management Group Inc. 2014 Omnibus Stock Incentive Plan. (incorporated by reference to Exhibit 10.12 to Amendment No. 1 to NorthStar Asset Management Group Inc.’s Registration Statement on Form 10 (File No. 001-36301))
10.17†		NorthStar Asset Management Group Inc. Executive Incentive Bonus Plan. (incorporated by reference to Exhibit 10.13 to Amendment No. 1 to NorthStar Asset Management Group Inc.’s Registration Statement on Form 10 (File No. 001-36301))
10.18†		Form of Indemnification Agreement between NorthStar Asset Management Group Inc. and its directors and officers (incorporated by reference to Exhibit 10.20 to Amendment No. 3 to NorthStar Asset Management Group Inc.’s Registration Statement on Form 10 (File No. 001-36301))
10.19		Unit Purchase Agreement, dated as of November 5, 2014, by and among American Healthcare Investors LLC, HC AHI Holding Company, LLC, AHI Newco, LLC, Platform HealthCare Investor T-II, LLC, NorthStar Asset Management Group Inc. and Jeffrey T. Hanson, Danny Prosky and Mathieu B. Streiff (incorporated by reference to Exhibit 10.19 to NorthStar Asset Management Group Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014)
10.20		Amended and Restated Limited Liability Company Agreement of AHI Newco, LLC, dated as of December 8, 2014, by and among Platform Healthcare Investor T-II, LLC, American Healthcare Investors LLC, Flaherty Trust, NorthStar Asset Management Group Inc. and Jeffrey T. Hanson, Danny Prosky and Mathieu B. Streiff (incorporated by reference to Exhibit 10.20 to NorthStar Asset Management Group Inc.’s Annual Report on Form 10-K for the year ended December 31, 2014)

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Exhibit Number		Description of Exhibit
10.21		Unit Purchase Agreement, dated as of January 9, 2015, by and between Platform Hospitality Investor T-II, LLC and Island JV Member Inc. (incorporated by reference to Exhibit 10.1 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed on January 15, 2015)
10.22		Limited Liability Company Agreement of Island Hospitality Joint Venture, LLC, dated as of January 9, 2015, by and between Platform Hospitality Investor T-II, LLC and Island JV Member Inc. (incorporated by reference to Exhibit 10.2 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed on January 15, 2015)
10.23		Agreement of Limited Partnership of NSAM LP, dated as of March 13, 2015, by and among NorthStar Asset Management Group Inc., as the General Partner and Limited Partner and the limited partners party thereto from time to time (incorporated by reference to Exhibit 10.1 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed on March 19, 2015)
10.24		Securities Purchase Agreement, dated as of October 15, 2015, by and among Townsend Holdings LLC, NorthStar Asset Management Group Inc., Sinclair Group, Inc., GTCR Partners X/B LP, GTCR Fund X/C LP, the individuals listed on Schedule A of the Securities Purchase Agreement, Townsend Acquisition LLC and GTCR/AAM Blocker Corp. (incorporated by reference to Exhibit 10.1 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed on October 21, 2015)
10.25		Amendment to Securities Purchase Agreement, dated January 15, 2016, by and among Townsend Holdings LLC, NorthStar Asset Management Group Inc., and Townsend Acquisition LLC, as representative (incorporated by reference to Exhibit 10.25 to NorthStar Asset Management Group Inc.’s Annual Report on Form 10-K for the year ended December 31, 2015)
10.26		Asset Management Agreement, dated as of October 31, 2015, between NSAM J-NRE Ltd and NorthStar Realty Europe Corp. (incorporated by reference to Exhibit 10.1 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed on November 3, 2015)
10.27		Revolving Bridge Credit Agreement, dated as of November 16, 2015, among NorthStar Asset Management Group Inc., as Parent, NSAM LP, as Borrower, the lenders party thereto from time to time and Morgan Stanley Senior Funding, Inc., as Administrative Agent (incorporated by reference to Exhibit 10.1 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed on November 19, 2015)
10.28		Master Guarantee Agreement, dated as of November 16, 2015, among NorthStar Asset Management Group Inc., the other Guarantors party thereto from time to time and Morgan Stanley Senior Funding, Inc., as Administrative Agent (incorporated by reference to Exhibit 10.2 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed on November 19, 2015)
10.29		Third Amended and Restated Limited Liability Company Agreement of Townsend Holdings LLC, dated as of January 14, 2016 and effective as of January 29, 2016, among Townsend Holdings LLC, NSAM and the other unitholders named therein (incorporated by reference to Exhibit 10.1 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed on February 2, 2016)
10.30		Term Loan Credit Agreement, dated as of January 29, 2016, among NSAM, NSAM LP, Morgan Stanley Senior Funding, Inc. as arranger and administrative agent and certain lenders named therein (incorporated by reference to Exhibit 10.2 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed on February 2, 2016)
10.31		Master Guarantee Agreement, dated as of January 29, 2016, among NSAM, the other guarantors party thereto and Morgan Stanley Senior Funding, Inc. as arranger and administrative agent (incorporated by reference to Exhibit 10.3 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed on February 2, 2016)
10.32†		Executive Letter Agreement, dated June 2, 2016, among Debra Hess, NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.1 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed on June 8, 2016)
10.33†		Executive Letter Agreement, dated June 2, 2016, among Daniel Gilbert, NorthStar Asset Management Group Inc., NorthStar Realty Finance Corp., NorthStar Asset Management Group, LTD. and NSAM Bermuda, LTD (incorporated by reference to Exhibit 10.2 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed on June 8, 2016)
10.34†		Executive Letter Agreement, dated June 2, 2016, among David T. Hamamoto, NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.3 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed on June 8, 2016)
10.35†		Executive Letter Agreement, dated June 2, 2016, among Ronald J. Lieberman, NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.4 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed on June 8, 2016)
10.36†		Executive Letter Agreement, dated June 2, 2016, among Albert Tylis, NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.5 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed on June 8, 2016)
12.1*		Ratio of Earnings to Combined Fixed Charges
31.1*		Certification by the Chief Executive Officer pursuant to 17 CFR 240.13a-14(a)/15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*		Certification by the Chief Financial Officer pursuant to 17 CFR 240.13a-14(a)/15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*		Certification by the Chief Executive Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*		Certification by the Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101*		The following materials from the NorthStar Asset Management Group Inc. Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of June 30, 2016 (unaudited) and December 31, 2015; (ii) Consolidated Statements of Operations (unaudited) for the three and six months ended June 30, 2016 and 2015; (iii) Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three months and six months ended June 30, 2016 and 2015; (iv) Consolidated Statements of Equity for the six months ended June 30, 2016 (unaudited) and year ended December 31, 2015, (v) Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2016 and 2015; and (vi) Notes to Consolidated Financial Statements (unaudited)


†	Denotes a management contract or compensatory plan or arrangement.


*	Filed herewith.

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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 ASSET MANAGEMENT GROUP INC.

Date:	August 8, 2016	By:	/s/ ALBERT TYLIS
				Albert Tylis
				Chief Executive Officer and President

		By:	/s/ DEBRA A. HESS
				Debra A. Hess
				Chief Financial Officer

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