NORTHSTAR REALTY FINANCE CORP. - FORM 8-K - EX-99.3 - EXHIBIT - September 26, 2014

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8-K - 8-K - NORTHSTAR REALTY FINANCE CORP.nrf8-k92614.htm
EX-99.2 - EXHIBIT - NORTHSTAR REALTY FINANCE CORP.exhibit-992.htm
EX-23.1 - EXHIBIT - NORTHSTAR REALTY FINANCE CORP.ex231-nrf8xkpwcconsentinnk.htm
EX-99.1 - EXHIBIT - NORTHSTAR REALTY FINANCE CORP.exhibit-991.htm
Exhibit - 99.3

INDEX TO PRO FORMA FINANCIAL STATEMENTS























1


NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

The following unaudited pro forma condensed consolidated statements of operations are presented as if NorthStar Realty Finance Corp. (the “Company”) acquired a 89.77% interest in a $1.1 billion hotel portfolio in June 2014, consisting of 47 upscale extended stay hotels and premium branded select service hotels with approximately 6,100 rooms (“Innkeepers Portfolio”). The Innkeepers Portfolio is a geographically diverse, bi-coastal portfolio located primarily in major metropolitan markets, with the largest concentration of net operating income from hotels in California (the “Properties”). The Innkeepers Portfolio was part of a 51 hotel portfolio initially owned by a joint venture between Cerberus Capital Management (“Cerberus”) and Chatham Lodging Trust (“Chatham”) (the “Initial Joint Venture”). 47 of the hotels were acquired through the 89.77% interest in a joint venture between the Company and Chatham (the “JV Properties”) with the remaining four hotels being acquired by Chatham (the “Silicon Valley Portfolio”) in connection with the transaction.
The following unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2013 and the six months ended June 30, 2014 are presented as if the Company acquired the investment in the Innkeepers Portfolio on January 1, 2013 and include a pro forma adjustment to exclude the operations of the four hotels acquired by Chatham.
There is no accompanying unaudited pro forma condensed consolidated balance sheet as the acquisition is included in the Company’s historical balance sheet as of June 30, 2014.
The allocation of the purchase price reflected in these unaudited pro forma condensed consolidated financial statements has been based upon preliminary estimates of the fair value of assets acquired.  A final determination of the fair value of the acquired assets will be based on the valuation of the tangible and intangible assets and liabilities of the Properties that exist as of the date of completion of the acquisition.  Consequently, the preliminary amounts allocated to tangible assets could change significantly from those used in the pro forma condensed consolidated financial statements presented and could result in a material change in depreciation and amortization of tangible assets. The fair value is a preliminary estimate and may be adjusted within one year of the acquisition in accordance with accounting principles generally accepted in the United States, or U.S. GAAP.
This unaudited pro forma condensed consolidated financial information should be read in conjunction with the historical consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 and the Company’s Quarterly Report on Form 10-Q for the three and six month periods ended June 30, 2014 and are not necessarily indicative of what the actual financial position or results of operations would have been had the Company completed the transaction as of the beginning of the period presented, nor is it necessarily indicative of future results.  In the opinion of the Company’s management, the pro forma condensed consolidated financial statements include all significant necessary adjustments that can be factually supported to reflect the effects of the acquisition.











2



NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2014
(In Thousands, Except Per Share Data)

 
 
Historical (1)
 
Properties(2)              51 Hotels
 
Disposition(3) Adjustments 4 Hotels
 
Pro Forma
Adjustments
 
Pro Forma
Net interest income
 
 
 
 
 
 
 
 
 
 
Interest income
 
$
154,546

 
$
—

 
$
—

 
$
—

 
$
154,546

Interest expense on debt and securities
 
6,389

 
—

 
—

 
—

 
6,389

Net interest income on debt and securities
 
148,157

 
—

 
—

 
—

 
148,157

Other revenues
 
 
 
 
 
 
 
 
 
 
Rental and escalation income
 
147,201

 
—

 
—

 
—

 
147,201

Resident fee and hotel income
 
37,586

 
115,504

 
(18,060
)
 
—

 
135,030

Other revenue
 
5,479

 
—

 
—

 
—

 
5,479

    Total other revenues
 
190,266

 
115,504

 
(18,060
)
 
—

 
287,710

Expenses
 
 
 
 
 
 
 
 
 
 
Other interest expense
 
83,913

 
23,930

 
(5,437
)
 
(2,602
)
(4) 
99,804

Real estate properties – operating expenses
 
73,629

 
72,439

 
(7,933
)
 
—

 
138,135

Other expenses
 
930

 
—

 
—

 
—

 
930

Transaction costs
 
39,760

 
—

 
—

 
(19,706
)
(5) 
20,054

Provision for loan losses, net
 
2,719

 
—

 
—

 
—

 
2,719

General and administrative expenses
 
 
 
 
 
 
 
 
 

Salaries and equity-based compensation
 
32,504

 
—

 
—

 
—

 
32,504

Other general and administrative expenses
 
8,102

 
 
 
 
 
—

 
8,102

    Total general and administrative expenses
 
40,606

 
—

 
—

 
—

 
40,606

Depreciation and amortization
 
60,721

 
23,621

 
(4,690
)
 
(133
)
(6) 
79,519

    Total expenses
 
302,278

 
119,990

 
(18,060
)
 
(22,441
)
 
381,767

Income (loss) from operations
 
36,145

 
(4,486
)
 
—

 
22,441

 
54,100

Equity in earnings (losses) of unconsolidated ventures
 
63,172

 
—

 
—

 
—

 
63,172

Unrealized gain (loss) on investments and other
 
(198,945
)
 
(749
)
 
—

 
—

 
(199,694
)
Realized gain (loss) on investments and other
 
(45,832
)
 
—

 
—

 
—

 
(45,832
)
Gain (loss) from deconsolidation of N-Star CDOs
 
(31,423
)
 
—

 
—

 
—

 
(31,423
)
Income (loss) from continuing operations
 
(176,883
)
 
(5,235
)
 
—

 
22,441

 
(159,677
)
Income (loss) from discontinued operations
 
(6,711
)
 
—

 
—

 
—

 
(6,711
)
Net income (loss)
 
(183,594
)
 
(5,235
)
 
—

 
22,441

 
(166,388
)
Net (income) loss attributable to non-controlling interests
 
6,248

 
—

 
—

 
(2,142
)
(7) 
4,106

Preferred stock dividends
 
(31,181
)
 
—

 
—

 
—

 
(31,181
)
Net income (loss) attributable to NorthStar Realty Finance Corp. common stockholders
 
$
(208,527
)
 
$
(5,235
)
 
$
—

 
$
20,299

 
$
(193,463
)
Net income (loss) per common share attributable to NorthStar Realty Finance Corp. common stockholders (basic/diluted)
 
$
(1.25
)
 
 
 
 
 
 
 
$
(1.15
)



See accompanying notes to unaudited pro forma condensed consolidated statements of operations.

3



NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2013
(In Thousands, Except Per Share Data)


 
 
Historical(1)
 
Properties(2)              51 Hotels
 
Disposition(3) Adjustments 4 Hotels
 
Pro Forma
Adjustments
 
Pro Forma
Net interest income
 
 
 
 
 
 
 
 
 
 
Interest income
 
$
303,989

 
$
233

 
$
(62
)
 
$
—

 
$
304,160

Interest expense on debt and securities
 
38,152

 
—

 
—

 
—

 
38,152

Net interest income on debt and securities
 
265,837

 
233

 
(62
)
 
—

 
266,008

Other revenues
 
 
 
 
 
 
 
 
 
 
Rental and escalation income
 
235,492

 
—

 
—

 
—

 
235,492

Resident fee and hotel income
 
—

 
264,198

 
(41,268
)
 
—

 
222,930

Selling commissions and dealer manager fees, related parties
 
62,572

 
—

 
—

 
—

 
62,572

Asset management and other fees, related parties
 
27,301

 
—

 
—

 
—

 
27,301

Other revenue
 
5,420

 
—

 
—

 
—

 
5,420

    Total other revenues
 
330,785

 
264,198

 
(41,268
)
 
—

 
553,715

Expenses
 
 
 
 
 
 
 
 
 
 
Other interest expense
 
140,507

 
55,672

 
(9,918
)
 
(9,276
)
(4) 
176,985

Real estate properties – operating expenses
 
73,668

 
165,588

 
(18,638
)
 
—

 
220,618

Commission expense
 
57,325

 
 
 
—

 
—

 
57,325

Other expenses
 
4,703

 
—

 
—

 
—

 
4,703

Transaction costs
 
12,464

 
24

 
—

 
—

 
12,488

Provision for loan losses, net
 
(8,786
)
 
—

 
—

 
—

 
(8,786
)
General and administrative expenses
 
 
 
 
 
 
 
 
 
 
Salaries and equity-based compensation
 
64,726

 
—

 
—

 
—

 
64,726

Other general and administrative expenses
 
22,511

 
 
 
 
 
—

 
22,511

    Total general and administrative expenses
 
87,237

 
—

 
—

 
—

 
87,237

Depreciation and amortization
 
93,470

 
50,127

 
(10,912
)
 
3,938

(6) 
136,623

    Total expenses
 
460,588

 
271,411

 
(39,468
)
 
(5,338
)
 
687,193

Income (loss) from operations
 
136,034

 
(6,980
)
 
(1,862
)
 
5,338

 
132,530

Equity in earnings (losses) of unconsolidated ventures
 
85,477

 
—

 
—

 
—

 
85,477

Other income (loss)
 
38

 
—

 
—

 
—

 
38

Unrealized gain (loss) on investments and other
 
(34,977
)
 
—

 
—

 
—

 
(34,977
)
Realized gain (loss) on investments and other
 
33,676

 
(8,863
)
 
—

 
—

 
24,813

Gain (loss) from deconsolidation of N-Star CDOs
 
(299,802
)
 
—

 
—

 
—

 
(299,802
)
Income (loss) from continuing operations
 
(79,554
)
 
(15,843
)
 
(1,862
)
 
5,338

 
(91,921
)
Income (loss) from discontinued operations
 
(8,356
)
 
(2,730
)
 
—

 
—

 
(11,086
)
Net income (loss)
 
(87,910
)
 
(18,573
)
 
(1,862
)
 
5,338

 
(103,007
)
Net (income) loss attributable to non-controlling interests
 
5,973

 
—

 
—

 
2,114

(7) 
8,087

Preferred stock dividends
 
(55,516
)
 
—

 
—

 
—

 
(55,516
)
Net income (loss) attributable to NorthStar Realty Finance Corp. common stockholders
 
$
(137,453
)
 
$
(18,573
)
 
$
(1,862
)
 
$
7,452

 
$
(150,436
)
Net income (loss) per common share attributable to NorthStar Realty Finance Corp. common stockholders (basic/diluted)
 
$
(0.65
)
 
 
 
 
 
 
 
$
(0.71
)


See accompanying notes to unaudited pro forma condensed consolidated financial statements of operations.

4

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(1)
Represents the Company’s condensed consolidated statement of operations for the six months ended June 30, 2014 and year ended December 31, 2013.
(2)
Amounts were derived from the audited financial statements of INK Acquisition, LLC & Affiliates for the year ended December 31, 2013 and the interim financial information of INK Acquisition, LLC & Affiliates for the period from January 1, 2014 to June 8, 2014, the period prior to the acquisition of the JV Properties on June 9, 2014. Certain balances previously reported in the audited financial statements have been reclassified to conform to the Company’s presentation.
(3)
Amounts were derived from the audited financial statements of the Silicon Valley Portfolio for the year ended December 31, 2013 included in the Current Report on Form 8-K, dated May 27, 2014, filed by Chatham Lodging Trust with the SEC on May 28, 2014 and interim financial information of the Silicon Valley Portfolio for the period from January 1, 2014 to June 8, 2014, the period prior to the acquisition of the JV Properties on June 9, 2014. Certain balances previously reported in the audited financial statements have been reclassified to conform to the Company’s presentation.
(4)
Represents the impact of a net decrease of $2.6 million and $9.3 million in interest expense for the six months ended June 30, 2014 and year ended December 31, 2013, respectively, related to the reduction of the interest rate on new borrowings in connection with the acquisition of the JV Properties and the amortization of related deferred financing costs.
(5)
Represents an adjustment to exclude transaction costs incurred in connection with the acquisition of the JV Properties.
(6)
Represents the impact on depreciation and amortization expense based on the preliminary purchase price allocation of the JV Properties. The purchase price allocation is a preliminary estimate and may be adjusted within one year of the acquisition in accordance with U.S. GAAP.
(7)
Represents the Company’s non-controlling interest allocated to its operating partnership based on weighted average shares outstanding and an allocation to the joint venture partners based on the terms of the joint venture agreement of $(2.1) million and $2.1 million for the six months ended June 30, 2014 and year ended December 31, 2013, respectively.



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