UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
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|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2011
Commission File Number: 333-157688
NORTHSTAR REAL ESTATE INCOME TRUST, INC.
(Exact Name of Registrant as Specified in its Charter)
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|
|
Maryland
(State or Other Jurisdiction of
Incorporation or Organization)
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26-4141646
(IRS Employer
Identification No.) |
399 Park Avenue, 18th Floor New York, NY 10022
(Address of Principal Executive Offices, Including Zip Code)
(212) 547-2600
(Registrants Telephone Number, Including Area Code)
Indicate by the check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o 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):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yeso No þ
Indicate the number of shares outstanding of each of the registrants classes of common stock,
as of the latest practicable date:
The Company has one class of common stock, par value $0.01 per share, 4,946,964 shares
outstanding as of May 11, 2011.
NORTHSTAR REAL ESTATE INCOME TRUST, INC.
QUARTERLY REPORT
For the Three Months Ended March 31, 2011
TABLE OF CONTENTS
2
NORTHSTAR REAL ESTATE INCOME TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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March 31, |
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December 31, |
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2011 |
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2010 |
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(unaudited) |
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ASSETS: |
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Cash |
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$ |
24,048,789 |
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$ |
20,404,832 |
|
Available for sale securities, at fair value |
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31,228,000 |
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|
31,264,331 |
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Real estate debt investment |
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4,702,500 |
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|
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Receivables |
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131,214 |
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128,287 |
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Deferred financing costs, net |
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43,569 |
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46,216 |
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Other assets |
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105,604 |
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234,267 |
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Total Assets |
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$ |
60,259,676 |
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$ |
52,077,933 |
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LIABILITIES: |
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Secured term loans |
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24,061,212 |
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24,061,212 |
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Accounts payable and accrued expenses |
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109,915 |
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93,799 |
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Distribution payable |
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258,684 |
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|
208,594 |
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Related party payable |
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274,270 |
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162,075 |
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Other liabilities |
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92,786 |
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Total Liabilities |
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24,796,867 |
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24,525,680 |
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EQUITY: |
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NorthStar Real Estate Income Trust, Inc. Stockholders Equity |
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Preferred stock, $0.01 par value per share; 50,000,000 shares
authorized, no shares issued and outstanding at March 31, 2011 and
December 31, 2010 |
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Common stock, $0.01 par value per share; 400,000,000 shares
authorized, 4,169,529 and 3,193,414 shares issued and outstanding
at March 31, 2011 and December 31, 2010, respectively |
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41,695 |
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31,934 |
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Additional paid-in capital |
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35,515,286 |
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26,775,538 |
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Retained earnings |
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(98,383 |
) |
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740,547 |
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Total NorthStar Real Estate Income Trust, Inc. stockholders equity |
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35,458,598 |
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27,548,019 |
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Non-controlling Interest |
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4,211 |
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4,234 |
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Total equity |
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35,462,809 |
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27,552,253 |
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Total liabilities and equity |
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$ |
60,259,676 |
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$ |
52,077,933 |
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|
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|
|
|
|
|
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|
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See accompanying notes to condensed consolidated financial statements.
3
NORTHSTAR REAL ESTATE INCOME TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended |
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Three Months Ended |
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March 31, 2011 |
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March 31, 2010 |
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Revenues and other income: |
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Interest income |
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$ |
373,466 |
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$ |
278,254 |
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Total revenues |
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373,466 |
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278,254 |
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Expenses: |
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Interest expense |
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222,569 |
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120,204 |
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Advisory fees related party |
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64,879 |
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6,634 |
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Auditing and professional fees |
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46,763 |
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General and administrative expenses |
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185,103 |
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119,243 |
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Total expenses |
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519,314 |
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246,081 |
|
(Loss) income from operations |
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|
(145,848 |
) |
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32,173 |
|
Unrealized (loss) gain on investments |
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(4,407 |
) |
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|
246,859 |
|
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Consolidated net (loss) income |
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(150,255 |
) |
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|
279,032 |
|
Net (loss) income attributable to the non-controlling interests |
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|
(23 |
) |
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|
110 |
|
|
|
|
|
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|
Net (loss) income attributable to NorthStar Real Estate Income
Trust, Inc. common stockholders |
|
$ |
(150,232 |
) |
|
$ |
278,922 |
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Net (loss) income per share of common stock, basic / diluted |
|
$ |
(0.04 |
) |
|
$ |
0.47 |
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Weighted-average number of shares of common stock outstanding,
basic / diluted |
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|
3,494,499 |
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|
596,631 |
|
See accompanying notes to condensed consolidated financial statements.
4
NORTHSTAR REAL ESTATE INCOME TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
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Common Stock |
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Total Companys |
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Additional Paid-in |
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Retained |
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Stockholders' |
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Non-Controlling |
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Total Stockholders' |
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Shares |
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Amount |
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Capital |
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Earnings |
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Equity |
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Interest |
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Equity |
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|
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Balance, December 31, 2009 |
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113,828 |
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$ |
1,138 |
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|
$ |
998,862 |
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$ |
680,530 |
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$ |
1,680,530 |
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$ |
3,361 |
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|
$ |
1,683,891 |
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Activity prior to the merger: |
|
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|
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|
|
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|
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|
|
|
|
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|
Proceeds from issuance of common stock |
|
|
3,669,919 |
|
|
|
36,699 |
|
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|
35,032,407 |
|
|
|
|
|
|
|
35,069,106 |
|
|
|
|
|
|
|
35,069,106 |
|
Cost of capital |
|
|
|
|
|
|
|
|
|
|
(3,459,410 |
) |
|
|
|
|
|
|
(3,459,410 |
) |
|
|
|
|
|
|
(3,459,410 |
) |
Stock distribution reinvestment |
|
|
7,915 |
|
|
|
79 |
|
|
|
74,262 |
|
|
|
|
|
|
|
74,341 |
|
|
|
|
|
|
|
74,341 |
|
Distribution paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,075,268 |
) |
|
|
(1,075,268 |
) |
|
|
|
|
|
|
(1,075,268 |
) |
Shares redeemed for cash |
|
|
(893,968 |
) |
|
|
(8,939 |
) |
|
|
(8,233,445 |
) |
|
|
|
|
|
|
(8,242,384 |
) |
|
|
|
|
|
|
(8,242,384 |
) |
|
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|
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|
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|
|
|
|
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|
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|
|
|
|
|
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|
Balance as of October 18, 2010 |
|
|
2,897,694 |
|
|
$ |
28,977 |
|
|
$ |
24,412,676 |
|
|
$ |
(394,738 |
) |
|
$ |
24,046,915 |
|
|
$ |
3,361 |
|
|
$ |
24,050,276 |
|
|
|
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|
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|
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Shares of the accounting acquiree* |
|
|
39,039 |
|
|
|
390 |
|
|
|
62,326 |
|
|
|
|
|
|
|
62,716 |
|
|
|
545 |
|
|
|
63,261 |
|
Proceeds from issuance of common stock |
|
|
250,467 |
|
|
|
2,505 |
|
|
|
2,493,805 |
|
|
|
|
|
|
|
2,496,310 |
|
|
|
|
|
|
|
2,496,310 |
|
Cost of capital |
|
|
|
|
|
|
|
|
|
|
(260,678 |
) |
|
|
|
|
|
|
(260,678 |
) |
|
|
|
|
|
|
(260,678 |
) |
Stock distribution reinvestment |
|
|
6,214 |
|
|
|
62 |
|
|
|
58,970 |
|
|
|
|
|
|
|
59,032 |
|
|
|
|
|
|
|
59,032 |
|
Distribution paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(285,713 |
) |
|
|
(285,713 |
) |
|
|
|
|
|
|
(285,713 |
) |
Distribution declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(208,594 |
) |
|
|
(208,594 |
) |
|
|
|
|
|
|
(208,594 |
) |
Amortization of equity based compensation |
|
|
|
|
|
|
|
|
|
|
8,439 |
|
|
|
|
|
|
|
8,439 |
|
|
|
|
|
|
|
8,439 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,629,592 |
|
|
|
1,629,592 |
|
|
|
328 |
|
|
|
1,629,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Balance, December 31, 2010 |
|
|
3,193,414 |
|
|
$ |
31,934 |
|
|
$ |
26,775,538 |
|
|
$ |
740,547 |
|
|
$ |
27,548,019 |
|
|
$ |
4,234 |
|
|
$ |
27,552,253 |
|
|
|
|
|
|
|
|
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|
|
|
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|
|
|
|
|
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|
|
|
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|
Proceeds from issuance of common stock |
|
|
976,077 |
|
|
|
9,761 |
|
|
|
9,692,699 |
|
|
|
|
|
|
|
9,702,460 |
|
|
|
|
|
|
|
9,702,460 |
|
Cost of capital |
|
|
|
|
|
|
|
|
|
|
(954,380 |
) |
|
|
|
|
|
|
(954,380 |
) |
|
|
|
|
|
|
(954,380 |
) |
Shares
repurchased |
|
|
(14,748 |
) |
|
|
(148 |
) |
|
|
(147,332 |
) |
|
|
|
|
|
|
(147,480 |
) |
|
|
|
|
|
|
(147,480 |
) |
Stock distribution reinvestment |
|
|
14,786 |
|
|
|
148 |
|
|
|
140,322 |
|
|
|
|
|
|
|
140,470 |
|
|
|
|
|
|
|
140,470 |
|
Distribution paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(430,014 |
) |
|
|
(430,014 |
) |
|
|
|
|
|
|
(430,014 |
) |
Distribution declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(258,684 |
) |
|
|
(258,684 |
) |
|
|
|
|
|
|
(258,684 |
) |
Amortization of equity based compensation |
|
|
|
|
|
|
|
|
|
|
8,439 |
|
|
|
|
|
|
|
8,439 |
|
|
|
|
|
|
|
8,439 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(150,232 |
) |
|
|
(150,232 |
) |
|
|
(23 |
) |
|
|
(150,255 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2011 (unaudited) |
|
|
4,169,529 |
|
|
$ |
41,695 |
|
|
$ |
35,515,286 |
|
|
$ |
(98,383 |
) |
|
$ |
35,458,598 |
|
|
$ |
4,211 |
|
|
$ |
35,462,809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
* |
|
Northstar Real Estate Income Trust, Inc., the surviving legal entity, issued 24,039 shares for
its initial capitalization and 15,000 shares to its Board of Directors prior to the merger with
NorthStar Income Opportunity REIT I, Inc. |
See accompanying notes to condensed consolidated financial statements.
5
NORTHSTAR REAL ESTATE INCOME TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months |
|
|
|
March 31, 2011 |
|
|
Ended March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net cash provided by operating activities: |
|
$ |
207,379 |
|
|
$ |
42,326 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Origination of real estate debt investment |
|
|
(4,750,000 |
) |
|
|
|
|
Origination fees received |
|
|
47,500 |
|
|
|
|
|
Acquisition of available for sale securities |
|
|
|
|
|
|
(29,616,265 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(4,702,500 |
) |
|
|
(29,616,265 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock |
|
|
9,702,460 |
|
|
|
7,607,306 |
|
Cost of capital |
|
|
(917,764 |
) |
|
|
(784,159 |
) |
Distributions paid on common stock |
|
|
(638,608 |
) |
|
|
|
|
Proceeds from dividend reinvestment plan |
|
|
140,470 |
|
|
|
|
|
Redemption of common stock |
|
|
(147,480 |
) |
|
|
|
|
Financing of secured term debt |
|
|
|
|
|
|
24,089,417 |
|
Repayment of secured term debt |
|
|
|
|
|
|
(28,205 |
) |
Payment of deferred financing costs |
|
|
|
|
|
|
(55,287 |
) |
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
8,139,078 |
|
|
|
30,829,072 |
|
|
|
|
|
|
|
|
|
|
Net increase in cash |
|
|
3,643,957 |
|
|
|
1,255,133 |
|
Cash, beginning of period |
|
|
20,404,832 |
|
|
|
55,630 |
|
|
|
|
|
|
|
|
Cash, end of period |
|
$ |
24,048,789 |
|
|
$ |
1,310,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
219,917 |
|
|
$ |
77,297 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash financing activities: |
|
|
|
|
|
|
|
|
Distributions payable |
|
$ |
258,684 |
|
|
$ |
81,445 |
|
Accrued cost of capital |
|
$ |
36,617 |
|
|
$ |
|
|
See accompanying notes to condensed consolidated financial statements
6
NORTHSTAR REAL ESTATE INCOME TRUST, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Formation and Organization
NorthStar Real Estate Income Trust, Inc. (the Company) was formed on January 26, 2009, and intends to qualify as a real estate investment trust (REIT) beginning
with the taxable year ending December 31, 2010. The Company was organized primarily to acquire
commercial real estate loans, commercial real estate-related debt securities and select commercial
real estate equity investments. The Company is externally managed by NS Real Estate Income Trust
Advisor, LLC (the Advisor), and has no employees.
Substantially all of the Companys business is conducted through NorthStar Real Estate Income
Trust Operating Partnership, LP, the Companys operating partnership (the OP). The Company is the
sole general partner of the OP. The initial limited partners of the OP are the Advisor and
NorthStar OP Holdings, LLC, (the Special Unit Holder). The
Advisor invested $1,000 in the OP in exchange for common units and the Special Unit Holder has
invested $1,000 in the OP and has been issued a separate class of limited partnership units (the
Special Units), which is recorded as non-controlling interest in the condensed consolidated
balance sheet as of March 31, 2011 and December 31, 2010. As the Company accepts subscriptions for
shares, it will transfer substantially all of the net proceeds from the continuous public offering
to the OP as a capital contribution.
The Companys charter authorizes the issuance of up to 400,000,000 shares of common stock
with a par value $0.01 per share, and 50,000,000 shares of preferred stock, $0.01 par value per
share. The Companys board of directors is authorized to amend its charter, without the approval of
the stockholders, to increase the aggregate number of authorized shares of capital stock or the
number of shares of any class or series that the Company has authority to issue. On February 19,
2009, the Company was initially capitalized through the sale 24,039 shares of common stock to NRFC
Sub-REIT Corp., a wholly-owned subsidiary of NorthStar Realty Finance Corp. (the Sponsor), for
$200,004.
On March 4, 2009, the Company filed a registration statement on Form S-11 with the Securities
and Exchange Commission (the SEC) to offer a minimum of 200,000 shares and a maximum of 110,526,315 shares of common stock in a continuous, public offering (the
Offering), of which 10,526,315 shares would be offered pursuant to the Companys distribution
reinvestment plan (DRP). The SEC declared the Companys registration statement effective on July 19,
2010, and the Company retained NRF Capital Markets, LLC (the Dealer Manager), an affiliate of the
Company, to serve as the dealer manager of the Offering. The Dealer Manager is responsible for
marketing the Companys shares being offered pursuant to the Offering. As described above, the
Company intends to use substantially all of the net proceeds from the Offering to invest in a
diverse portfolio of commercial real estate loans, commercial real estate-related debt securities
and select commercial real estate equity investments.
On October 18, 2010, the Company completed a merger, accounted for as a reverse merger and
recapitalization, with NorthStar Income Opportunity REIT I, Inc., (NSIO
REIT) also sponsored by the Sponsor (the Merger Transaction). The Company was considered the
surviving legal entity and NSIO REIT was considered the accounting acquirer and the surviving
accounting entity. As the surviving accounting entity, NSIO REITs financial information is
presented in these financial statements on a historical carryover basis.
2,828,552 shares of NSIO REIT, par value $0.01 per share, issued and outstanding immediately
prior to the Merger Transaction were converted into 2,897,694 shares of the Companys common stock,
par value $0.01, at a conversion rate of 1.02444444 shares of the Companys stock for every one
share of NSIO REIT stock and 893,968 shares of NSIO REIT, par value $0.01 per share, issued and
outstanding immediately prior to the Merger Transaction were converted into cash, without interest,
in an amount of $9.22 per share. All NSIO REIT stockholders who would otherwise have been entitled
to a fractional share of the Companys shares received cash in an amount equal to such fraction of
the Companys shares based on a conversion price of $9.22. The Company used $8,242,385 of the cash
received from NSIO REIT in connection with the closing of the Merger Transaction to satisfy the
Companys obligation to pay the cash consideration and intends to use the remaining cash after
payment of transaction expenses for general corporate purposes, including investments consistent
with the Companys investment strategy. On the closing date, 411 NSIO REIT stockholders became
stockholders of the Company with each of their shares of NSIO REIT common stock being converted to
unregistered shares of the Companys common stock at the ratio set forth above.
7
NORTHSTAR REAL ESTATE INCOME TRUST, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
In addition, as a result of the Merger Transaction, the Company eliminated the minimum
offering requirement and terminated its escrow agreement with Wells Fargo Bank, N.A.
2. Summary of Significant Accounting Policies
Basis of Quarterly Presentation
The accompanying condensed consolidated financial statements and related notes of the Company
have been prepared in accordance with accounting principles generally accepted in the United States
for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, certain information and footnote disclosures normally included in financial statements
prepared under accounting principles generally accepted in the United States have been condensed or
omitted. In the opinion of management, all adjustments considered necessary for a fair presentation
of the Companys financial position, results of operations and cash flows have been included and
are of a normal and recurring nature. The operating results presented for interim periods are not
necessarily indicative of the results that may be expected for any other interim period or for the
entire year. These financial statements should be read in conjunction with the Companys
condensed consolidated financial statements and notes thereto included in the Companys annual report on Form
10-K for the year ended December 31, 2010, which was filed with the Securities and Exchange
Commission. Capitalized terms used herein, and not otherwise defined, are defined in the Companys
December 31, 2010 consolidated financial statements included in its annual report on Form 10-K.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company, and its
majority owned subsidiaries, which are controlled by the Company. All significant intercompany
balances have been eliminated in consolidation.
Estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the amounts reported in the
condensed consolidated financial statements and accompanying notes. Actual results could materially
differ from those estimates.
Real Estate Debt Investments
Real estate debt
investments are intended to be held to maturity and, accordingly, are carried at cost, net of
unamortized loan origination fees, discounts, and unfunded commitments unless such loan or
investment is deemed to be impaired. Discounts and premiums on purchased assets are amortized
over the life of the investment using the effective interest method. The origination cost and fees
are deferred and amortized using the effective interest method over the life of the related loan
investment. The amortization is reflected as an adjustment to interest income.
Credit Losses on Real Estate Debt Investments
Allowances are
established based upon a periodic review of the real estate debt investments. Income recognition
is suspended for loans at the earlier of the date at which payments become 90 days past due or
when, in the opinion of management, a full recovery of income and principal becomes doubtful.
Income recognition is resumed when the suspended loan becomes contractually current and
performance is demonstrated to be resumed. In performing this review, management considers the
estimated net recoverable value of the loan as well as other factors, including the fair market
value of any collateral, the amount and the status of any senior debt, the prospects for the
borrower and the economic situation of the region where the borrower does business. Because this
determination is based upon projections of future economic events, which are inherently
subjective, the amounts ultimately realized from the loan investments may differ materially from
the carrying value at the balance sheet date.
3. Fair Value of Financial Instruments
Fair Value Measurements
Fair Value Hierarchy
The Company has categorized 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). If the inputs used to measure the
financial instruments fall within different levels of the hierarchy, the categorization is based on
the lowest level input that is significant to the fair value measurement of the instrument.
Financial assets and liabilities recorded on the condensed consolidated balance sheets are categorized
based on the inputs to the valuation techniques as follows:
|
Level 1. Financial assets and liabilities whose values are based on unadjusted quoted prices for
identical assets or liabilities in an active market (examples include active exchange-traded equity
securities, listed derivatives, most U.S. government and agency securities, and certain other
sovereign government obligations). |
8
NORTHSTAR REAL ESTATE INCOME TRUST, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
|
|
Level 2. Financial assets and liabilities whose values are based on the following: |
|
a) |
|
Quoted prices for similar assets or liabilities in active markets (for example, restricted
stock); |
|
b) |
|
Quoted prices for identical or similar assets or liabilities in non-active markets
(examples include corporate and municipal bonds, which trade infrequently); |
|
c) |
|
Pricing models whose inputs are observable for substantially the full term of the asset or
liability (examples include most over-the-counter derivatives, including interest rate and currency
swaps); and |
|
d) |
|
Pricing models whose inputs are derived principally from or corroborated by observable
market data through correlation or other means for substantially the full term of the asset or
liability (for example, certain mortgage loans). |
|
|
Level 3. Financial assets and liabilities whose values are based on prices or valuation techniques
that require inputs that are both unobservable and significant to the overall fair value
measurement. These inputs reflect managements own assumptions about the assumptions a market
participant would use in pricing the asset or liability (examples include private equity
investments, beneficial interest in securitizations and long-dated or complex derivatives,
including certain foreign exchange options and long-dated options on
gas and power). |
Determination of Fair Value
The Company may use valuation techniques consistent with the market and income approaches to
measure the fair value of its assets and liabilities. The Companys market approach uses prices and
other relevant information generated by market transactions involving identical or comparable
assets or liabilities. The Companys income approach uses valuation techniques to convert future
projected cash flows to a single discounted present value amount. When applying either approach,
the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs.
The Company reviews the fair values determined by the third-party pricing models and dealer quotes
and compares the results to internally generated pricing models on each asset or liability to
validate reasonableness.
The following is a description of the valuation techniques used to measure fair value and the
general classification of these instruments pursuant to the fair value hierarchy.
Available for sale securities
When available, the
fair value of available for sale securities is based on quoted prices
in active markets. If quoted prices are not available, fair values are obtained from
nationally-recognized pricing services, broker quotes, or other model-based valuation techniques.
The fair value of Level 2 securities is based on a market approach with prices obtained from
nationally-recognized pricing services. Observable inputs used to value these securities can
include: reported trades, benchmark yields, issuer spreads and broker/dealer quotes. The fair value
of Level 3 securities is typically based on a single broker quote or the Companys discounted cash
flow analysis.
Financial assets are classified in their entirety based on the lowest level of input that is
significant to the fair value measurement. The following table sets forth the Companys financial
assets that were accounted for at fair value on a recurring basis as of March 31, 2011 by level
within the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
Level 2 |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
Available for sale securities |
|
$ |
31,228,000 |
|
|
$ |
31,228,000 |
|
At March 31, 2011, the Company had no financial assets or liabilities that were accounted for
at fair value on a non-recurring basis.
Fair Value Option
The Company has elected to apply the fair value option of accounting for available for sale
securities for the purpose of enhancing the transparency of its financial condition.
9
NORTHSTAR REAL ESTATE INCOME TRUST, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Changes in fair value for assets and liabilities for which the election is made will be
recognized in earnings as they occur. The fair value option may be elected on an instrument by
instrument basis at initial recognition of an asset or liability or upon an event that gives rise
to a new basis of accounting for that instrument.
The following table sets forth the Companys financial instruments for which the fair value
option was elected:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
Financial Instruments, at Fair Value |
|
2011 |
|
|
2010 |
|
Assets: |
|
|
|
|
|
|
|
|
Available for sale securities |
|
$ |
31,228,000 |
|
|
$ |
31,264,331 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
31,228,000 |
|
|
$ |
31,264,331 |
|
|
|
|
|
|
|
|
The following table presents the difference between fair values and the aggregate contractual
amounts of available for sale securities and liabilities, for which the fair value option has been
elected:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount |
|
|
|
|
|
|
Fair Value at |
|
|
Due Upon |
|
|
|
|
|
|
March 31, 2011 |
|
|
Maturity |
|
|
Difference |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities |
|
$ |
31,228,000 |
|
|
$ |
28,856,000 |
|
|
$ |
2,372,000 |
|
For the three months ended March 31, 2011 and 2010, the Company recognized a net loss of
$4,407 and net gain of $246,859, respectively, as the result of the change in fair value of
financial assets for which the fair value option was elected, which is recorded as unrealized
(loss)/gain on investments in the Companys condensed consolidated statement of operations.
4. Real Estate Debt Investments
On March 30, 2011, the Company originated and funded a 36-month, floating rate senior mortgage
loan in the amount of $4,750,000, the proceeds of which were used to acquire a multifamily property
in San Marcos, Texas. The interest rate is LIBOR + 4.00% with a 4% LIBOR floor.
5. Term Asset-Backed Loan Facilities
On January 28, 2010, the Company entered into a non-recourse Term Asset-Backed Securities Loan
Facility (TALF) agreement with the Federal Reserve Bank of New York in the amount of $11,639,417,
bearing interest at a fixed rate of 3.73%. Interest is payable monthly and principal is due at
maturity on January 28, 2015. The proceeds were used to finance a AAA-rated Commercial Mortgage
Back Security (CMBS) in the amount of $14,093,609 and a face value of $13,856,000. At March 31,
2011 and December 31, 2010, the balance of this TALF agreement was $11,629,213 for both periods.
On February 25, 2010, the Company entered into a non-recourse TALF agreement with the Federal
Reserve Bank of New York in the amount of $12,450,000, bearing interest at a fixed rate of 3.69%.
Interest is payable monthly and principal is due at maturity on February 25, 2015. The proceeds
were used to finance a AAA-rated CMBS in the amount of $15,522,656 and a face value of $15,000,000.
At March 31, 2011 and December 31, 2010, the balance of this TALF agreement was $12,431,999 for both
periods.
10
NORTHSTAR REAL ESTATE INCOME TRUST, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
6. Related Party Arrangements
NS Real Estate Income Trust Advisor, LLC
Subject to certain restrictions and limitations, the Advisor is responsible for managing the
Companys affairs on a day-to-day basis and for identifying and making acquisitions and investments
on behalf of the Company.
The Advisor and certain affiliates of the Advisor receive fees and compensation in connection
with the Companys Offering, and the acquisition, management and sale of the Companys real estate
investments.
For the three months
ended March 31, 2010, organization and offering costs (other than selling commissions and the
dealer manager fee) of the accounting acquirer were being paid by the Advisor or its affiliates,
subject to reimbursement. These fees were reimbursable up to a maximum of $1,000,000, which is 1.0%
of the maximum gross offering proceeds of $100,000,000 or a minimum of $60,000. The accounting
acquirer reimbursed $60,000 of these costs to the Advisor for three months ended March 31, 2010.
Upon completion of
the merger transaction on October 18, 2010, the Company reimburses the
Advisor for organization and offering costs up to a maximum of $15,000,000, which is 1.5% of the
maximum gross offering proceeds of $1,000,000,000. The Advisor is
responsible for the payment of organization and offering expenses to the extent that selling commissions,
the dealer manager fee and other organization and offering expenses exceed 15% of gross offering proceeds, without
recourse against or reimbursement by the Company.
As of March 31, 2011, the Advisor has incurred organization and offering costs of $2,946,959
on behalf of the Company of which $60,000 has been reimbursed in prior periods. For the three months ended March 31, 2011, the Company accrued an additional $122,977
of organization and offering cost to be reimbursed to the Advisor based upon the gross offering proceeds of $9,702,460 raised in the quarter. The $122,977 payable
to the Advisor is recorded in due to related parties in the condensed consolidated
balance sheet, of which $86,361 is included in general and administrative expenses in the
condensed consolidated statement of operations and $36,616 of which is recorded as a reduction of
stockholders equity in the Companys condensed consolidated statement of stockholders equity as of
March 31, 2011. Additional organization and offering costs will only become a liability of the
Company to the extent selling commissions, the dealer manager fee and other organization and
offering costs do not exceed 15% of the gross proceeds of the Offering.
The Advisor also receives an acquisition fee equal to 1% of the amount funded by the Company
to acquire or originate commercial real estate loans or the amount invested in the case of other
real estate investments including any acquisition and origination expenses and any debt
attributable to such investments. For the three months ended March 31, 2011, the Company incurred
$47,297 in acquisition fees payable to the Advisor which is included in advisory fees-related party
in the condensed consolidated statement of operations.
The Company will pay the Advisor a monthly asset management fee equal to one-twelfth of 1.25%
of the sum of the cost of all investments made and of the Companys investments in joint ventures,
including acquisition fees, acquisition and origination expenses and any debt attributable to such
investments, less any principal repaid by borrowers on the Companys debt investments (or the
Companys proportionate share thereof in the case of debt investments made through joint ventures).
For substantial assistance in connection with the sale of investments, the Company will pay the
Advisor or its affiliate a disposition fee of 1% of the contract sales price of each commercial
real estate loan, commercial real estate-related debt security or select commercial real estate
equity investment sold, including mortgage-backed securities or collateralized debt obligations
issued by a subsidiary of the Company as part of a securitization transaction. The Company will not
pay a disposition fee upon the maturity, prepayment, workout modification or extension of a loan or
other debt-related investment unless there is a corresponding fee paid by the borrower, in which
case the disposition fee will be the lesser of (i) 1% of the principal amount of the loan or
debt-related investment prior to such transaction or (ii) the amount of the fee paid by the
borrower in connection with such transaction. If the Company takes ownership of a property as a
result of a workout or foreclosure of a loan, the Company will pay a disposition fee upon the sale
of such property. For the three months ended March 31, 2011 and 2010, the Company incurred $17,582
and $6,634 respectively, in asset management fees, which was recorded in advisory fees-related
party in the condensed consolidated statement of operations.
11
NORTHSTAR REAL ESTATE INCOME TRUST, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The Company will reimburse the Advisor for all expenses paid or incurred by the Advisor in
connection with the services provided to the Company, subject to the limitation that the Company
will not reimburse the Advisor for any amount by which its operating expenses (including the asset
management fee) at the end of the four preceding fiscal quarters exceeds the greater of: (i) 2% of
its average invested assets or (ii) 25% of its net income determined without reduction for any
additions to reserves for depreciation, bad debts or other similar non-cash reserves and excluding
any gain from the sale of the Companys assets for that period. Notwithstanding the above, the
Company may reimburse the Advisor for expenses in excess of this limitation if a majority of the
independent directors determines that such excess expenses are justified based on unusual and
non-recurring factors. The Company calculates the expense reimbursement quarterly and will true-up
the calculation at the end of the twelve month period. As of March 31, 2011, the Advisor has
incurred operating expenses of $848,803 on behalf of the Company. Based upon the quarterly
calculation the Company has accrued $79,130 of these costs as due to related parties in the
condensed consolidated balance sheet and which are included in audit and professional fees and
other general and administrative expenses in the condensed consolidated statement of operations in
the Companys condensed consolidated financial statements as of and for the three months ended
March 31, 2011. From the effective date October 18, 2010, through March 31, 2011, the Company has
reimbursed the Advisor $92,898 based upon the preliminary expense calculation.
NRF Capital Markets, LLC
Pursuant to a dealer manager agreement, the Company will pay the Dealer Manager selling
commissions of up to 7% of gross offering proceeds. In addition, the Company will pay the Dealer
Manager a dealer manager fee of 3% of gross offering proceeds, a portion of which may be reallowed
to participating broker-dealers. No selling commissions or dealer manager fee will be paid for
sales under the distribution reinvestment plan. For three months ended March 31, 2011, the Company
incurred $917,764 in selling commissions and dealer manager fees, which are recorded as a cost of
capital in the condensed consolidated statements of stockholders equity.
7. Stockholders Equity
Common Stock
The holders of shares of the Companys common stock are entitled to one vote per share on all
matters voted on by stockholders, including election of the Companys directors. The Companys
charter does not provide for cumulative voting in the election of directors. Therefore, the holders
of a majority of the outstanding shares of the Companys common stock can elect its entire board of
directors. Subject to any preferential rights of any outstanding series of preferred stock, the
holders of shares of the Companys common stock are entitled to such distributions as may be
authorized from time to time by its board of directors out of legally available funds and declared
by the Company and, upon liquidation, are entitled to receive all assets available for distribution
to stockholders. All shares of the Companys common stock issued in the Offering will be fully paid
and nonassessable shares of common stock. Holders of shares of the Companys common stock will not
have preemptive rights, which means that stockholders will not have an automatic option to purchase
any new shares of common stock that the Company issues, or have appraisal rights, unless the
Companys board of directors determines that appraisal rights apply, with respect to all or any
classes or series of its common stock, to one or more transactions occurring after the date of such
determination in connection with which stockholders would otherwise be entitled to exercise such
rights.
For the three months ended March 31, 2011, the Company sold 976,077 shares of common stock
generating net proceeds of $8,784,696, excluding 14,786 shares issued pursuant to the Companys
distribution reinvestment plan.
The Sponsor has committed to purchase up to $10,000,000 of shares of the Companys common
stock during the two-year period following commencement of the Companys Offering under
certain circumstances in which the Companys distributions exceed its adjusted funds from operations
(AFFO) in order to provide
additional funds to support distributions to stockholders. On March 23, 2011, the Companys board
of directors approved the sale of 43,439 shares of the Companys common stock, $0.01 par value per
share, to NRFC Sub-REIT Corp., a subsidiary of the Sponsor, at a price
of $9.00 per Share.
The Company had 4,169,529 and 3,193,414 shares of common stock outstanding as of March 31,
2011 and December 31, 2010, respectively.
12
NORTHSTAR REAL ESTATE INCOME TRUST, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Distributions
On December 21, 2010, the Companys board of directors approved a daily cash distribution of
$0.002191781 per share of common stock, for each of the three months
ended March 31, 2011. The January and February distributions
were paid in cumulative amounts on February 1, 2011 and March 1, 2011, respectively, and totaled
$333,866. At March 31, 2011, the Company recorded a distribution
payable of $193,221, related to the approved
March cash distribution which was paid on April 1, 2011.
On March 23, 2011, the Companys board of directors approved a daily cash distribution of
$0.002191781 per share of common stock, for each of the three months
ended June 30, 2011. The April, May and June
distributions were, or will be paid, in cumulative amounts to the stockholders of record who are entitled to receive such distributions
on May 1, 2011, June 1, 2011 and July 1, 2011, respectively.
Distribution Reinvestment Plan
The Company has adopted a distribution reinvestment plan (the DRP) through which
common stockholders may elect to reinvest an amount equal to the distributions declared on their
shares in additional shares of the Companys common stock in lieu of receiving cash distributions.
The initial purchase price per share under the DRP is $9.50. Once the Company establishes an
estimated value per share, shares issued pursuant to the distribution reinvestment plan will be
priced at the estimated value per share of the Companys common stock, as determined by the Advisor
or another firm chosen for that purpose. The Company expects to establish an estimated value per
share after the completion of its offering stage. The offering stage will be considered complete
when the Company is no longer publicly offering equity securitieswhether through the Offering or
follow-on public offeringsand has not done so for 18 months. No selling commissions or dealer
manager fees will be paid on shares sold under the DRP. The board of directors of the Company may
amend or terminate the DRP for any reason upon 10 days notice to participants. For the three
months ended March 31, 2011, the Company issued 14,786 shares totaling $140,470 of gross offering
proceeds pursuant to the DRP. At March 31, 2011, the Company
recorded a distribution payable of $65,463
related to the approved March cash distribution which was reinvested pursuant to the DRP in April
2011. At December 31, 2010, the Company recorded a distribution
payable of $44,321 related to the approved
December cash distribution which was reinvested pursuant to the DRP in January 2011.
Preferred Shares
The Companys charter authorizes its board of directors to classify and reclassify any
unissued shares of its common stock and preferred stock into other classes or series of stock.
Prior to issuance of shares of each class or series, the board of directors is required by the
Companys charter to set, subject to the charter restrictions on transfer of its stock, the terms,
preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends
or other distributions, qualifications and terms or conditions of redemption for each class or
series. Thus, the board of directors could authorize the issuance of shares of common stock or
preferred stock with terms and conditions which could have the effect of delaying, deferring or
preventing a transaction or change in control that might involve a premium price for holders of the
Companys common stock or otherwise be in their best interest. The Companys board of directors has
no present plans to issue preferred stock, but may do so at any time in the future without
stockholder approval. The issuance of preferred stock must be approved by a majority of the
Companys independent directors not otherwise interested in the transaction.
Share Repurchase Program
The Company has adopted a share repurchase program that may enable stockholders to sell their
shares to the Company in limited circumstances. Share repurchases will be made at the sole
discretion of the board of directors. During the quarter, the Company
repurchased 14,748 shares for a total of $147,480 or $10 per share.
8. Equity-Based Compensation
Directors Shares
On
July 19, 2010,
each of the Companys three independent directors received 5,000
shares of restricted stock in connection with the commencement of the Offering. The non-vested
stock will generally vest over four years; provided, however, that the non-vested stock will become
fully vested on the earlier occurrence of (i) the termination of the independent directors service
as a director due to his or her death or disability, or (ii) a change in control of the Company.
The total compensation cost recognized in connection with the granting of the non-vested stock is
$135,000, which will be recorded in earnings ratably over the four year vesting period. For the
three months ended March 31, 2011, the Company recognized $8,439 of compensation expense related to
the 5,000 shares of restricted stock, which was recorded in general and administrative expenses in
the condensed consolidated statement of operations.
13
NORTHSTAR REAL ESTATE INCOME TRUST, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Long-Term Incentive Plan
The Company has adopted a long-term incentive plan, which it uses to attract and retain
qualified directors. The Companys long-term incentive plan offers these individuals an opportunity
to participate in its growth through awards in the form of, or based on, its common stock. The
Company currently intends to issue awards only to its independent directors under its long-term
incentive plan.
The long-term incentive plan authorizes the granting of restricted stock, stock options, stock
appreciation rights, restricted or deferred stock units, performance awards, dividend equivalents,
limited partnership interests in the Companys operating partnership, other stock-based awards and
cash-based awards to directors of the Company. Stock options granted under the long-term incentive
plan will not exceed an amount equal to 10% of the outstanding shares of the Companys common stock
on the date of grant of any such stock options. Any stock options and stock appreciation rights
granted under the long-term incentive plan will have an exercise price or base price that is not
less than the fair market value of the Companys common stock on the date of grant.
The Companys board of directors, or a committee of the board, administers the long-term
incentive plan, with sole authority to determine all of the terms and conditions of the awards,
including whether the grant, vesting or settlement of awards may be subject to the attainment of
one or more performance goals.
The Company accounts for stock-based compensation in accordance with the FASB fair value
recognition provisions. Under these provisions, stock-based compensation cost is measured at the
grant date based on the fair value of the award and is recognized as expense over the requisite
service period, which is the vesting period. Stock-based compensation is classified within general
and administrative expense in the condensed consolidated statements of operations. As stock- based
compensation expense recognized in the condensed consolidated statement of operations is based on
awards ultimately expected to vest, the amount of expense is reduced for estimated forfeitures.
Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if
actual forfeitures differ from those estimates. Forfeitures are estimated on experience of other
companies in the same industry until entity-specific information is available.
9. Commitments and Contingencies
Advisor and Dealer Manager Services
The Company is dependent on the Advisor and the Dealer Manager for certain services that are
essential to the Company, including the sale of the Companys shares of common and preferred stock
available for issue; the identification, evaluation, negotiation, origination, acquisition and
disposition of investments; management of the daily operations of the Companys investment
portfolio; and other general and administrative responsibilities. In the event that these companies
are unable to provide the respective services, the Company will be required to obtain such services
from other sources.
10. Fair Value of Financial Instruments
The following disclosures of estimated fair value were determined by the Company, using
available market information and appropriate valuation methodologies. Considerable judgment is
necessary to interpret market data and develop estimated fair values. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts the Company could realize on
disposition of the financial instruments. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
As of March 31, 2011 and December 31, 2010, accounts receivable and accounts payable
reasonably approximate their fair values due to the short-term maturities of these items. The
available for sale securities are carried on the balance sheet at their estimated fair value.
As of March 31, 2011 and December 31, 2010, the estimated fair value of the Companys TALF agreements was approximately $24,767,000 and $24,976,000, respectively. The estimated fair value is based on
interest rates available at March 31, 2011 and December 31, 2010, respectively, for issuance of
debt with similar terms and remaining maturities. The estimated fair value of the Companys TALF agreements
is not necessarily indicative of the amounts that the Company could realize in a current market
exchange.
14
NORTHSTAR REAL ESTATE INCOME TRUST, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
For the real estate debt
investment, the fair value
was approximated by comparing yields at which the investment is held to estimated yields at which
loans originated with similar credit risks or market yields at which a third party might require to
purchase the investment by discounting future cash flows at such market yields. Prices were
calculated assuming fully extended maturities regardless of whether structural or economic tests are required to achieve such extended maturities. At March 31, 2011, the fair market value was
$4,750,000 with a gross principal amount of $4,750,000.
11. Non-controlling Interest
Operating Partnership
Non-controlling interest represents the aggregate limited partnership interests in
the Operating Partnership held by limited partners. Income allocated
to the non-controlling interest is based on the limited partners ownership percentage of the
Operating Partnership. The ownership percentage is determined by dividing the numbers of limited partnership interests
held by the limited partners by the total number of dilutive shares. The issuance of additional
shares of beneficial interest (the Common Shares or Share) changes the percentage
ownership of both the limited partners and the Company. Income /(loss) allocated to the operating partnership non-controlling
interest for the three months ended March 31, 2011 and 2010 was a
loss of $23 and income of $110, respectively.
12. Subsequent Events
Offering
Proceeds
For the period from April 1, 2011 to May 11, 2011, the Company sold 762,100 common shares pursuant
to its Offering, generating gross proceeds of $7,599,929.
Distributions
On May 12, 2011, the Companys
board of directors approved a daily cash distribution of $0.002191781 per share of common stock for
each of the three months ended September 30, 2011. The distribution will be paid in cumulative amounts
to the stockholders of record entitled to receive such distribution on August 1, 2011,
September 1, 2011 and October 1, 2011.
New
Investments
On May 2, 2011, the Company originated and funded a 36-month, floating rate senior mortgage
loan in the amount of $15,107,400, the proceeds of which were used to acquire an office property in
San Mateo, California. The interest rate is LIBOR + 4.00% with a 4% LIBOR floor.
Sponsor Purchase of Common Stock
The Sponsor has
committed to purchase up to $10 million of shares of the Companys common stock during the
two-year period following commencement of its Offering under certain circumstances in which the
Companys distributions exceed its AFFO in order to provide additional funds to support
distributions to stockholders. On May 12, 2011, the Companys board of directors approved the
sale of 58,565 shares of the Companys common stock, $0.01 par value per share, to NRFC Sub-REIT
Corp., a subsidiary of the Sponsor, at a price of $9.00 per Share.
15
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Item 2. |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion should be read in conjunction with our condensed consolidated financial
statements and notes thereto included in Item 1 of this report.
Forward-Looking Statements
Certain items in
this report may constitute forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such
forward-looking statements relate to, among other things, the operating performance of our
investments, financing needs, future market opportunities, financial condition and disclosure in Item 2. of
this report-Managements Discussion and Analysis of Financial Condition and Results of
operations. Forward-looking statements are generally identifiable by use of
forward-looking terminology such as may, will, should, potential, intend, expect,
seek, anticipate, estimate, believe, could, project, predict, continue or other
similar words or expressions. Forward-looking statements are not guarantees of performance and are
based on certain assumptions, discuss future expectations, describe plans and strategies, contain
projections of results of operations or of financial condition or state other forward-looking
information. Our ability to predict results or the actual effect of plans or strategies is
inherently uncertain. Although we believe that the expectations reflected in such forward-looking
statements are based on reasonable assumptions, our actual results and performance could differ
materially from those set forth in the forward-looking statements. These forward-looking statements
involve risks, uncertainties and other factors that may cause our actual results in future periods
to differ materially from those forward looking statements. We are under no duty to update any of
the forward- looking statements after the date of this report to conform these statements to actual
results.
Factors that could have a material adverse effect on our operations and future prospects are
described in our reports filed with the Securities and Exchange Commission, or SEC, including in Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2010.
The factors set forth in the Risk Factors section and elsewhere in our filings with the SEC could cause our actual results to
differ significantly from those contained in any forward-looking statement contained in this
report.
Organization and Overview
We are an externally managed commercial real estate finance company that was formed in January
2009 to invest in and manage a diversified portfolio of commercial real estate loans, commercial
real estate-related debt securities and select commercial real estate equity investments. We
commenced our operations in October 2010. We conduct substantially all of our operations and
make investments through our operating partnership, of which we are the sole general partner.
NS Real Estate Income Trust Advisor, LLC is our external manager, which we sometimes refer to
as our Advisor, and is an affiliate of our sponsor, NorthStar Realty Finance Corp. Through our
operating partnership we seek to originate, acquire and asset manage;
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commercial real estate loans, including senior mortgage loans,
subordinate mortgage loans (or B-Notes), mezzanine loans, and participations in
such loans; |
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commercial real estate-related debt securities; and |
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select commercial real estate equity investments. |
We believe that these businesses are complementary to each other due to the overlapping
sources of investment opportunities and common reliance on real estate fundamentals.
We intend to make an
election to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986,
as amended, commencing with our taxable year ending December 31, 2010. If we qualify as a REIT for
federal income tax purposes, we generally will not be subject to federal income tax to the extent
we distribute qualifying dividends to our stockholders. If we fail to qualify as a REIT in any
taxable year after electing REIT status, we will be subject to federal income tax on our taxable
income at regular corporate income tax rates and generally will not be permitted to qualify for
treatment as a REIT for federal income tax purposes for four years following the year in which our
qualification is denied. Such an event could materially and adversely affect our net income and
cash available for distribution. However, we believe that we will be organized and will operate in
a manner that will enable us to qualify for treatment as a REIT for federal income tax purposes
commencing with our taxable year ending December 31, 2010, and we intend to continue to operate so
as to remain qualified as a REIT for federal income tax purposes thereafter.
16
Sources of Operating Revenues
We earn interest income from real estate fixed income securities. We may seek to minimize the
impact of floating interest rates by funding floating rate assets with floating rate debt or by
hedging fixed rate assets funded with floating rate debt.
We also derive revenues from interest income on the real estate debt investments that we
originate with borrowers.
Profitability and Performance Metrics
We calculate Adjusted Funds from Operations (AFFO) (see Non-GAAP Financial MeasuresFunds
from Operations and Adjusted Funds from Operations for a description of this metric) to evaluate
the profitability and performance of our business.
Outlook and Recent Trends
After being negatively
impacted by an extended recessionary period, we believe the current dynamics in
the commercial real estate industry are positive and should continue to be
positive for the remainder of 2011. We further believe that the current
environment will allow us to effectively implement our business plan and
realize attractive risk-adjusted returns on our invested capital that will
support our dividend.
Virtually all
commercial real estate property types were adversely impacted by the recent
economic recession, including core property types such as hotel, retail,
office, industrial and multi-family properties with non-core property types
such as land being more severely impacted. Economic conditions remained weak
during 2010, but despite some recent adverse conditions (such as rising
commodity prices and uncertainty overseas), we have observed that investor
interest has begun returning to many segments of commercial real estate. During
the remainder of 2011, we believe macro-economic factors affecting commercial
real estate will support continued slow growth and recovery providing us with a
favorable investment environment.
We believe that the
near and intermediate-term market for originations and acquisitions of
commercial real estate loans, commercial real estate-related debt securities
and select commercial real estate equity investments is one of the most
compelling from a risk-return perspective that or our Advisor has experienced. We believe our strategy presents a
favorable alternative to pure “equity-oriented” investment
strategies by offering attractive risk-adjusted returns and a higher potential
for capital preservation, particularly if the market shifts to a less favorable
environment. Given the prospect of a continued slow recovery for the economy,
we favor an investment strategy weighted towards targeting debt or securities
assets which maximize current income, with significant subordinate capital and
downside structural protection.
Many investors who
acquired real estate assets prior to this recent economic recession are
devoting substantial effort to managing their investments and may not have the
resources or capital to take advantage of current market opportunities.
Companies such as ours, with no legacy asset issues, should have a competitive
advantage in the market. For example, our current originations and acquisitions
of commercial real estate loans, commercial real estate-related debt securities
and select commercial real estate equity investments reflect valuations that
have already adjusted to post-recession pricing.
Our strategy, the
current market conditions and our Advisors platform, provide
opportunities to: i) originate loans with attractive current returns and strong
structural features directly with borrowers, thereby taking advantage of the
changing market conditions in order to seek attractive risk-return dynamics for
our stockholders; and ii) purchase commercial real estate loans and commercial
real estate-related debt securities from third parties, in many instances at
discounts to their face amounts (or par value), due to the lack of market
liquidity and seller deleveraging.
We believe that the
following conditions, which are by-products of the recent extended credit
market dislocation and the current economic recovery, should create a favorable
investment environment for us:
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The post-recession market for investing in commercial real estate offers
an opportunity to participate in what we believe are favorable real estate
asset valuations; |
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The scarcity of capital available in the new issue commercial
mortgage-backed securities, or CMBS, market or related securitized debt market
(such as collateralized debt obligations, or CDOs) reduces a major source of
debt capital for commercial property owners; |
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Contraction in the banking system and the high losses experienced by
commercial banks has greatly diminished their capacity to provide commercial
real estate debt capital and credit to property owners; |
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The increasing number of maturing commercial real estate loans over the
next five years should be much greater than the market’s capacity to
provide refinancing capital; |
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Insurance companies and government sponsored lending programs like
Freddie Mac and Fannie Mae have increased market share through the downturn,
but still cannot come close to fully satisfying demand for commercial real
estate debt capital and the government sponsored agencies are coming under
significant scrutiny with many calling for their reduced role in the
future; |
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Capital markets disruption compounded by scrutiny on credit rating
agencies offer attractive investing opportunities in legacy CMBS; and |
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The restarting of the CMBS market, which is commonly referred to as CMBS
2.0 (generally seeking to finance only the highest quality assets based on
conservative underwriting) makes new issue CMBS investing appealing. |
Due to the market
conditions described above and our Advisor’s expertise and
industry relationships, we continue to see a robust pipeline of investment
opportunities that have credit qualities and yield profiles that are consistent
with our underwriting standards and that we believe offer the opportunity to
meet or exceed our targeted returns. While we remain optimistic that we will
continue to be able to generate and capitalize on an attractive pipeline, there
is no assurance that will be the case.
Our Target Assets
We intend to invest in
both fixed and floating-rate loans and securities. Our fixed-rate assets have
set interest rates that do not fluctuate over time and we receive consistent
payments from these assets. Our floating-rate assets generally have interest
rates based on a spread to one-month London Interbank Offered Rate, or LIBOR, a
floating rate index based on rates that banks charge each other to borrow.
LIBOR as of March 31, 2011, was 0.24%, well below its 2.93% average over
the past five years. One-month LIBOR resets every 30 days and the total
interest rate paid to us by our borrowers on our floating-rate assets that are
tied to LIBOR will generally fluctuate as LIBOR rises and falls. Given the
current one-month LIBOR rate is at historically low levels and the positive
trend in overall economy, we would expect that the one-month LIBOR rate will
move in an upward direction over the next few years. This in turn will increase
the interest rate that our borrowers are required to pay us and income
generated by our floating-rate investments that are not subject to minimum
LIBOR rates that are already in excess of market rates. In order to generate
minimum interest rates that are consistent with our targeted returns given the
current one-month LIBOR rate, many of our LIBOR-based assets have a fixed
minimum LIBOR rates, or “floor”. The interest rate paid on our
floating rate assets with floors will not increase until the actual one-month
LIBOR rate surpasses the fixed floor rate. Our allocation of fixed and
floating-rate assets may vary significantly over time.
Returns on real estate securities are
sensitive to interest rate volatility. For example, if interest rates increase, the value of our
fixed rate real estate securities would tend to decrease. On the other hand, if interest rates
were to decrease, the value of our fixed rate real estate securities would tend to increase.
Our Financing Strategy
We may employ leverage
as a part of our investment strategy. Although we have a maximum leverage level
for our portfolio, we do not have a targeted debt to equity ratio as we believe
the appropriate leverage for the particular assets we finance depends on the
specific credit characteristics of those assets. We utilize leverage for the
sole purpose of financing our assets and we do not employ leverage to speculate
on changes in interest rates. When we employ leverage we will generally seek to
match fund our assets with respect to interest rate and maturity in order to
reduce the impact of interest rate fluctuation and risk of refinancing our
liabilities prior to the maturity of our assets.
We believe that
liquidity is returning to the commercial real estate finance markets and banks
have begun to more actively provide credit to experienced real estate lenders
with strong track records to originate or purchase new real estate debt
investments. We expect that credit availability will continue to improve during
the remainder of 2011, increasing opportunities for us to access attractive
capital to finance our assets.
Our Risk Management Strategy
Our Advisor uses many
methods to actively manage our asset base to preserve our income and capital.
Frequent dialogue with borrowers and inspections of our collateral are an
effective process for identifying issues early and prior to missed debt service
and other payments. Some of our loans may require borrowers to replenish cash
reserves for items such as taxes, insurance and future debt service costs. Late
replenishments of cash reserves also may be an early indicator there could be a
problem with the borrower or collateral
property.
Our Advisor conducts a
quarterly comprehensive credit review which is designed to enable us to
evaluate and proactively manage asset-specific credit issues and identify
credit trends on a portfolio-wide basis as an “early warning
system.” Nevertheless, we cannot be certain that our Advisor’s
review will identify all issues within our portfolio due to, among other things,
adverse economic conditions or events adversely affecting specific assets;
therefore, potential future losses may also stem from assets that are not
identified by these credit reviews. During the quarterly reviews, assets are
put on non-performing status and identified for possible impairment based upon
several factors, including missed or late contractual payments, significant
declines in collateral performance, and other data which may indicate a
potential issue in our ability to recover our capital from the investment.
Each of our assets,
while primarily backed by commercial real estate collateral, is unique and
requires customized asset management strategies for dealing with potential
credit situations. The complexity of each situation depends on many factors,
including the number of collateral properties, the type of property, macro and
local market conditions impacting the demand, cash flow and value of the
collateral, and the financial condition of our borrowers and their willingness
to support our collateral properties. Our Advisor has an experienced asset
management team that monitors those factors on our behalf.
Critical Accounting Policies
Refer to the section of our Annual Report on Form 10-K for the year ended December 31, 2010
entitled Managements Discussion and Analysis of Financial Condition and Results of
OperationsCritical Accounting policies for a full discussion of our critical accounting
policies.
Basis of Presentation
The following discussion
is based upon the historical carryover financial statements of NorthStar Income Opportunity REIT I, Inc., or NSIO
REIT, the accounting acquirer, for the periods from January 1, 2010 to March 31, 2010 and the
financial statements of ours from January 1, 2011 to March 31, 2011.
17
RESULTS OF OPERATIONS
Comparison of the Three Months Ended March 31, 2011 to the Three Months Ended March 31, 2010.
Revenues
Interest Income
Interest income for the three months ended
March 31, 2011 totaled $373,466, representing an
increase of $95,212 or 34% compared to $278,254 for the three
months ended March 31, 2010. The
increase in interest income was primarily attributable to: (i) the
full quarter benefit in 2011 of the acquisition of two
available for sale securities, one on January 28, 2010 and the second
on February 25, 2010, resulting in additional income of $93,101;
and (ii) on March 30,
2011, we originated a $4,750,000 senior mortgage, resulting in $2,111
of additional interest income.
Expenses
Interest Expense
Interest expense for the three months ended March 31, 2011 totaled $222,569, representing an
increase of $102,365 or 85% compared to $120,204 for the three months ended March 31, 2010. For
the three months ended March 31, 2011, the $102,365 increase in interest expense was primarily
related to interest expense on two Term Asset-Backed Securities Loan Facility agreements, or TALF
agreements, secured in January 2010 and February 2010, respectively, which were used to
finance the acquisition of two available for sale securities.
Advisory Fees Related Party
Advisory fees related parties for the three months ended March 31, 2011 totaled $64,879,
representing an increase of $58,245 compared to $6,634 for the three months ended March 31,
2010. For the three months ended March 31, 2011, the $58,245 increase in advisory fees related
party was primarily attributable to i) the 1% acquisition fee to our
Advisor for the origination of a $4,750,000 senior mortgage loan in
March 2011, and ii) a full quarter of asset management fees for
the securities acquired during the first quarter of 2010.
Audit and Professional Fees
Audit and professional fees for the three months ended March 31, 2011 totaled $46,763
and represented audit and tax, legal and consulting fees related to our registration statements,
our periodic reporting, and insurance consulting. We had no such audit and professional fees
for the three months ended March 31, 2010.
General and Administrative
General and administrative expenses for the three months ended March 31, 2011 totaled $185,103,
representing an increase of $65,860 or 55% compared to $119,243 for the three months ended March
31, 2010. For the three months ended March 31, 2011, the $65,860 increase in general and
administrative expense was primarily related to increases in director and officer insurance, public
company expenses, stock based compensation expense, and servicer fees, partially
offset by structure fees incurred in 2010 related to the TALF agreements and corresponding CMBS
purchases.
Unrealized (Loss)/Gain on Investments
Unrealized (loss)/gain on investments for the three months ended March 31, 2011 totaled a loss
of $4,407, representing a decrease of $251,266 or 102%, compared to a gain of $246,859 for the three
months ended March 31, 2010. The unrealized loss on investments for the three months ended March
31, 2011 and the unrealized gain for the three months March 31,
2010 consisted of fair value mark-to-market adjustments recorded on the
available for sale securities.
Liquidity and Capital Resources
We are dependent upon
the net proceeds from our continuous, public offering of up to a maximum of 110,526,315 shares of common stock,
or our Offering, of which 10,526,315 shares will be offered pursuant to our distribution reinvestment plan, or DRP, to conduct our operations. We will
obtain the capital required to purchase and originate real estate-related investments and conduct
our operations from the proceeds of our Offering and any future offerings we may conduct, from
secured or unsecured financings from banks and other lenders and from any undistributed funds from
our operations. As of March 31, 2011, we had $24,048,789 of unrestricted cash.
If we are unable to continue to raise
funds in the Offering, we will be unable to make new investments resulting in less diversification in terms of the type,
number and size of investments we make and the value of an investment in us will fluctuate with the
performance of the specific assets we acquire. Further, we have certain fixed operating
expenses, including certain expenses as a publicly offered REIT, regardless of whether we are able
to continue to raise funds in the Offering. Our inability to continue to raise funds would
increase our fixed operating expenses as a percentage of gross income, reducing our net income and
limiting our ability to make distributions.
Once we have fully invested the proceeds of our Offering, we expect that our debt financing
will not exceed 50% of the greater of the cost or fair market value of our investments, although it
may exceed this level during our offering stage. Our charter does not limit us from incurring debt
until our borrowings would exceed 75% of our tangible assets. We cannot exceed this limit unless
any excess in borrowing over such level is approved by our stockholders. As of
March 31, 2011, our leverage limit was 72%,
which is in accordance with the maximum allowed by our charter.
18
In addition to making
investments in accordance with our investment objectives, we expect to
use our capital resources to make certain payments to our Advisor and NRF
Capital Markets, LLC, or the Dealer Manager. During
our organization and offering stage, these payments will include payments to the Dealer Manager for
selling commissions and the dealer manager fee and payments to the Dealer Manager and our Advisor
for reimbursement of certain organization and offering expenses. However, our Advisor has agreed to
reimburse us to the extent that selling commissions, the dealer manager fee and other organization
and offering expenses incurred by us exceed 15% of our gross offering proceeds. During our
acquisition and development stage, we expect to make payments to our Advisor in connection with the
selection and origination or purchase of investments, the management of our assets and costs
incurred by our Advisor in providing services to us. The advisory agreement has a one-year term but
may be renewed for an unlimited number of successive one-year periods upon the mutual consent of
our Advisor and our board of directors.
We intend to elect to be taxed as a REIT and to operate as a REIT commencing with our taxable
year ending December 31, 2010. To maintain our qualification as a REIT, we will be required to make
aggregate annual distributions to our stockholders of at least 90% of our REIT taxable income
(computed without regard to the dividends paid deduction and excluding net capital gain). Our board
of directors may authorize distributions in excess of those required for us to maintain REIT status
depending on our financial condition and such other factors as our board of directors deems
relevant. Provided we have sufficient available cash flow, we intend to authorize and declare daily
distributions and pay distributions on a monthly basis. We have not established a minimum
distribution level.
Cash Flow Analysis
The following discussion is based upon the historical carryover financial statements of NSIO
REIT, the accounting acquirer, for the periods from January 1, 2010 to March 31, 2010 and the
financial statements of ours from January 1, 2011 to March 31, 2011.
Net cash flow provided by operating activities was $207,379 for the three months ended March
31, 2011 compared to net cash provided by operating activities of $42,326 for the three months
ended March 31, 2010. The principal source of cash for the three months ended March 31, 2011 was
the full quarter benefit of income generated from existing
investment activity and the origination of a real estate debt
investment on March 30, 2011. The principal source of cash for the three months
ended March 31, 2010 was new investment activity which generated income.
Net cash flow used in investing activities was $4,702,500 for the three months ended March 31,
2011 compared to net cash used in investing activities of $29,616,265 for the three months ended
March 31, 2010. The principal use of cash for the three months ended March 31, 2011 was the
origination of one real estate debt investment on March 30, 2011. The principal use of cash for the three months
ended March 31, 2010 was the purchase of two securities.
Net cash flow provided by financing activities was $8,139,078 for the three months ended March
31, 2011 compared to net cash provided by financing activities of $30,829,072 for the three months
ended March 31, 2010. The principal sources of cash for the three months ended March 31, 2011 were
proceeds from the issuance of common stock. The principal sources of cash for the three months
ended March 31, 2010 were proceeds from the issuance of common stock and proceeds from two
TALF agreements.
Recent Developments
Offering Proceeds
For the period from April 1, 2011 to May 11, 2011, we sold 762,100 common shares pursuant to our
Offering, generating gross proceeds of $7,599,929.
Distributions
On May 12, 2011, our
board of directors approved a daily cash distribution of $0.002191781
per share of common stock for
each of the three months ended September 30, 2011. The distribution
will be paid in cumulative amounts
to the stockholders of record entitled to receive such distribution on
August 1, 2011,
September 1, 2011 and October 1, 2011.
New Investments
On May 2, 2011, we originated and funded a 36-month, floating rate senior mortgage
loan in the amount of $15,107,400, the proceeds of which were used to acquire an office property in
San Mateo, California. The interest rate is LIBOR + 4.00% with a 4% LIBOR floor.
Sponsor Purchase of Common Stock
The Sponsor has
committed to purchase up to $10 million of shares of our common stock during the two-year period
following commencement of our Offering under certain circumstances in which our distributions
exceed our AFFO in order to provide additional funds to support distributions to stockholders.
On May 12, 2011, our board of directors approved the sale of 58,565 shares of our common stock,
$0.01 par value per share, to NRFC Sub-REIT Corp., a subsidiary of the Sponsor, at a price of
$9.00 per Share.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that are reasonably likely to have a current or
future material effect on our financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures, or capital resources.
19
Non-GAAP Financial Measures
Funds from Operations and Adjusted Funds from Operations
Management believes that funds from operations, or FFO, and adjusted funds from operations, or
AFFO, each of which are non-GAAP measures, are additional appropriate measures of the operating
performance of a REIT and of our company in particular. We compute FFO in accordance with the
standards established by the National Association of Real Estate Investment Trusts, or NAREIT, as
net income or loss (computed in accordance with GAAP), excluding gains or losses from sales of
depreciable properties, the cumulative effect of changes in accounting principles, real
estate-related depreciation and amortization, and after adjustments for unconsolidated/uncombined
partnerships and joint ventures. FFO, as defined by NAREIT, is a computation made by analysts and
investors to measure a real estate companys cash flow generated by operations.
We calculate AFFO by subtracting from (or adding) FFO:
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the amortization or accrual of various deferred costs including equity based
compensation; and |
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an adjustment to reverse the effects of unrealized gains/(losses). |
Our calculation of AFFO differs from the methodology used for calculating AFFO by certain
other REITs and, accordingly, our AFFO may not be comparable to AFFO reported by other REITs. Our
management utilizes FFO and AFFO as measures of our operating performance, and believes they are
also useful to investors, because they facilitate an understanding of our operating performance
after adjustment for certain non-cash expenses. Additionally, FFO and AFFO serve as measures of
our operating performance because they facilitate evaluation of our company without the effects of
selected items required in accordance with GAAP that may not necessarily be indicative of current
operating performance and that may not accurately compare our operating performance between
periods. Furthermore, although FFO, AFFO and other supplemental performance measures are defined in
various ways throughout the REIT industry, we also believe that FFO and AFFO may provide us and our
investors with an additional useful measure to compare our financial performance to certain other
REITs.
Neither FFO nor AFFO is equivalent to net income or cash generated from operating activities
determined in accordance with U.S. GAAP. Furthermore, FFO and AFFO do not represent amounts
available for managements discretionary use because of needed capital replacement or expansion,
debt service obligations or other commitments or uncertainties. Neither FFO nor AFFO should be
considered as an alternative to net income as an indicator of our operating performance or as an
alternative to cash flow from operating activities as a measure of our liquidity.
Set forth below is a reconciliation of FFO and AFFO to net income from continuing operations
before non-controlling interest:
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Three Months Ended |
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Three Months Ended |
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March 31, 2011 |
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March 31, 2010 |
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Funds from Operations: |
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Consolidated net income (loss) income |
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$ |
(150,255 |
) |
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$ |
279,032 |
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Funds from Operations |
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$ |
(150,255 |
) |
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$ |
279,032 |
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Adjusted Funds from Operations: |
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Funds from Operations |
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(150,255 |
) |
|
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279,032 |
|
Amortization of equity-based compensation |
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8,439 |
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Unrealized losses/(gains) from mark-to-market
adjustments |
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4,407 |
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(246,859 |
) |
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Adjusted Funds from Operations |
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$ |
(137,409 |
) |
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$ |
32,173 |
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20
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Item 3. |
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Quantitative and Qualitative Disclosures About Market Risk |
We may be exposed to the effects of interest rate changes as a result of borrowings used to
maintain liquidity and to fund the acquisition, expansion and refinancing of our real estate
investment portfolio and operations. Our profitability and the value of our investment portfolio
may be adversely affected during any period as a result of interest rate changes. Our interest rate
risk management objectives are to limit the impact of interest rate changes on earnings and cash
flows and to lower overall borrowing costs. We may utilize a variety of financial instruments,
including interest rate caps, floors, and swap agreements, in order to limit the effects of changes
in interest rates on our operations. When we use these types of derivatives to hedge the risk of
interest-earning assets or interest-bearing liabilities, we may be subject to certain risks,
including the risk that losses on a hedge position will reduce the funds available for payments to
holders of our common stock and that the losses may exceed the amount we invested in the
instruments. We will not enter into derivative or interest rate transactions for speculative
purposes.
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Item 4. |
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Controls and Procedures |
Disclosure Controls and Procedures
The management of the Company established and maintains disclosure controls and procedures
that are designed to ensure that material information relating to the Company and its subsidiaries
required to be disclosed in the reports that are filed or submitted under the 1934 Act are
recorded, processed, summarized, and reported within the time periods specified in the SECs rules
and forms, and that such information is accumulated and communicated to management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosures.
As of the end of the period covered by this report, the Companys management conducted an
evaluation, under the supervision and with the participation of the Companys Chief Executive
Officer and Chief Financial Officer, of the Companys disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, the
Companys Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the
period covered by this report, the Companys disclosure controls and procedures are effective.
Notwithstanding the foregoing, a control system, no matter how well designed and operated, can
provide only reasonable, not absolute, assurance that it will detect or uncover failures within the
Company to disclose material information otherwise required to be set forth in the Companys
periodic reports.
21
PART II. OTHER INFORMATION
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Item 2. |
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Unregistered Sales of Equity Securities and Use of Proceeds |
Recent Sales of Unregistered Securities
None
Use of Proceeds from Registered Securities
On July 19, 2010, our registration statement on Form S-11 (File No. 333-157688), covering our
Offering of up to 110,526,315 shares of common stock, of which 10,526,315 shares
of common stock would be offered pursuant to our DRP, was declared effective under the
Securities Act and we retained the Dealer Manager, an affiliate of ours, to serve as the dealer
manager of the Offering. We are offering up to 100,000,000 shares of common stock at an aggregate offering price of up to $1.0 billion, or $10.00 per share, with discounts available
to certain categories of purchasers, and 10,526,315 shares of common stock pursuant to our DRP at an aggregate offering price of $100 million, or
$9.50 per share.
As of March 31, 2011, we had sold the following securities in our Offering at the following
aggregate offering prices:
1,250,583 shares, equal to $12,399,501 in aggregate gross offering proceeds; and
21,000 shares, equal to $199,502 in aggregate gross offering proceeds, pursuant to the DRP.
In the aggregate, as of March 31, 2011, we had sold 1,247,544 shares resulting in gross
proceeds of $12,398,999, excluding the 24,039 shares purchased by NRFC Sub-REIT Corp preceding the
commencement of our Offering.
As of March 31, 2011, we have incurred the following costs in connection with the
issuance and distribution of the registered securities:
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Amount
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Offering costs to related
parties
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$954,380 |
For the three months
ended March 31, 2011, we repurchased 14,748 shares for a total of $147,480, or $10.00 per share.
22
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Exhibit |
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Number |
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Description |
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3.1 |
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Second Articles of Amendment and Restatement of NorthStar Real Estate Income Trust, Inc. (filed as
Exhibit 3.1 to the Companys Current Report on Form 8-K filed on August 26, 2010 and incorporated
herein by reference) |
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3.2 |
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Bylaws of NorthStar Real Estate Income Trust, Inc. (filed as Exhibit 3.2 to the Companys
Registration Statement on Form S-11 (File No. 333-157688) and incorporated herein by reference) |
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4.1 |
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|
Form of Subscription Agreement (filed as Exhibit 4.1 to Pre-Effective Amendment No. 6 to the
Companys Registration Statement on Form S-11 (File No. 333-157688) and incorporated herein by
reference) |
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4.2 |
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Form of Distribution Reinvestment Plan (filed as Exhibit 4.2 to Pre-Effective Amendment No. 6 to the
Companys Registration Statement on Form S-11 (File No. 333-157688) and incorporated herein by
reference) |
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10.1 |
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Escrow Agreement (filed as Exhibit 10.1 to Pre-Effective Amendment No. 6 to the Companys
Registration Statement on Form S-11 (File No. 333-157688) and incorporated herein by reference) |
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10.2 |
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Advisory Agreement (filed as Exhibit 10.2 to Pre-Effective Amendment No. 5 to the Companys
Registration Statement on Form S-11 (File No. 333-157688) and incorporated herein by reference) |
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10.3 |
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Limited Partnership Agreement of NorthStar Real Estate Income Trust Operating Partnership, LP (filed
as Exhibit 10.3 to Pre-Effective Amendment No. 5 to the Companys Registration Statement on Form S-11
(File No. 333-157688) and incorporated herein by reference) |
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10.4 |
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NorthStar Real Estate Income Trust, Inc. Long-Term Incentive Plan (filed as Exhibit 10.4 to
Pre-Effective Amendment No. 5 to the Companys Registration Statement on Form S-11 (File No.
333-157688) and incorporated herein by reference) |
|
10.5 |
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NorthStar Real Estate Income Trust, Inc. Independent Directors Compensation Plan (filed as Exhibit
10.5 to Pre-Effective Amendment No. 5 to the Companys Registration Statement on Form S-11 (File No.
333-157688) and incorporated herein by reference) |
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10.6 |
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Amendment to the NorthStar Real Estate Income Trust, Inc. Independent Directors Compensation Plan
(filed as Exhibit 10.6 to the Companys Quarterly Report on Form 10-Q filed on August 26, 2010 and
incorporated herein by reference) |
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10.7 |
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Distribution Support Agreement (filed as Exhibit 10.6 to Pre-Effective Amendment No. 5 to the
Companys Registration Statement on Form S-11 (File No. 333-157688) and incorporated herein by
reference) |
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10.8 |
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Form of Indemnification Agreement (filed as Exhibit 10.7 to Pre-Effective Amendment No. 3 to the
Companys Registration Statement on Form S-11 (File No. 333-157688) and incorporated herein by
reference) |
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10.9 |
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Form of Restricted Stock Award Certificate (filed as Exhibit 10.8 to Pre-Effective Amendment No. 5 to the
Companys Registration Statement on Form S-11 (File No. 333-157688) and incorporated herein by
reference) |
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10.10 |
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Amendment No. 1 to Advisory Agreement dated
February 24, 2011 (filed as Exhibit 10.1 to the Companys Current Report on Form 8-K filed on
March 2, 2011 and incorporated herein by reference) |
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31.1* |
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Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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31.2* |
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Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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32.1* |
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Certification by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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32.2* |
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Certification by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
23
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.
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NORTHSTAR REAL ESTATE INCOME TRUST, INC.
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Date: May 13, 2011 |
By: |
/s/ David T. Hamamoto
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David T. Hamamoto |
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Chief Executive Officer |
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By: |
/s/ Lisa Meyer
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|
Lisa Meyer |
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Chief Financial Officer |
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24