NEW YORK, Nov. 5 /PRNewswire-FirstCall/ -- NorthStar Realty Finance Corp. today announced its results for the third quarter ended September 30, 2009.

NorthStar reported adjusted funds from operations ("AFFO") for the third quarter 2009 of $0.25 per share compared with $0.37 per share for the third quarter 2008. AFFO for the third quarter 2009 was $19.5 million, compared with $25.8 million for the third quarter 2008. Net loss to common stockholders for the third quarter 2009 was ($66.5) million, or ($0.95) per share, compared to net income of $218.3 million, or $3.47 per share for the third quarter 2008. Third quarter 2009 net loss includes ($85.0) million of unrealized losses relating to non-cash mark-to-market adjustments, compared to $236.4 million of unrealized gains in the third quarter 2008, relating to non-cash mark-to-market adjustments. The non-cash mark-to-market gains and losses are excluded from AFFO.

At September 30, 2009, diluted GAAP book value per common share was $15.93. For the quarter ended September 30, 2009, NorthStar generated a 9.1% return on average common book equity, excluding general and administrative expenses, and 5.9% inclusive of these corporate costs. For a reconciliation of net income to AFFO and calculations of return on average common book equity and diluted book value per common share, please refer to the tables on the following pages.

David T. Hamamoto, chairman and chief executive officer, commented, "The recently announced three-year extension of the Wells Fargo debt represents the final significant milestone in managing our contractual liquidity needs over the next several years. Last quarter we reduced unrestricted cash needs for our non-discretionary future funding obligations which are currently just $21 million, and now our next corporate debt maturity is approximately $68 million of corporate notes in June 2012. Our liquidity position remains strong, with NorthStar having over $100 million of unrestricted cash after completion of the debt extension."

Mr. Hamamoto continued, "We believe that commercial real estate market challenges will continue well into 2010 and will lag the eventual U.S. economic recovery. Nevertheless, these conditions should eventually present outstanding investment opportunities resulting from distressed sellers. Experienced real estate investors have been raising capital in the private and public markets to take advantage of these conditions. We are continuing our proactive efforts to access the registered non-listed REIT equity market which should enable NorthStar to benefit from its broad investment platform to generate management fee income for our shareholders."

Investment Summary

During the third quarter 2009, NorthStar repurchased $10 million face amount of its 7.25% exchangeable notes for approximately $5 million and $19 million face amount of its 11.50% exchangeable notes for approximately $10 million. These repurchases represents 52% and 47% discounts to par for the 7.25% and 11.5% notes, respectively. During the third quarter 2009 NorthStar funded $20 million relating to prior period loan commitments, received $10 million of partial loan repayments, and no full loan payoffs. NorthStar acquired for $82 million, securities having a par amount of $253 million and having an average BBB+/Baa1 credit rating, and received $65 million of proceeds from securities sales. No net lease properties were acquired during the third quarter 2009.

NorthStar had approximately $6.7 billion of assets under management at September 30, 2009.

Financing

Total available liquidity at September 30, 2009 was approximately $251 million, including $108 million of unrestricted cash and cash equivalents, and $143 million of uninvested and available cash in NorthStar's secured term financings. During the third quarter 2009, NorthStar fully repaid the total outstanding $12 million balance on the JP Morgan credit facility. At September 30, 2009, NorthStar had $405 million outstanding under its secured term facilities and the average cost of NorthStar's on-balance sheet debt was 3.10%. As of September 30, 2009, NorthStar had repurchased a total of $104 million face of its 7.25% exchangeable notes for approximately $45 million cash, and $19 million face of its 11.50% exchangeable notes for approximately $10 million cash.

On October 28, 2009, NorthStar announced the renewal and extension of its Wells Fargo bank debt having an original final maturity of November 2010. The new debt extends the maturity date to October 28, 2012, increases the interest rate spread over LIBOR by approximately 1.5%, eliminates all margin call provisions as long as semi-annual amortization hurdles are met, except for defaulted assets which would be credited to the semi-annual amortization hurdles, and eliminates corporate fixed charge and recourse debt covenants. The new facility requires $15 million of semi-annual reductions over the three-year term, and NorthStar repaid approximately $52.5 million of the facility and guaranteed the remaining amount outstanding. There are no limitations on NorthStar's ability to pay dividends so long as the semi-annual reductions to the credit facility are met. NorthStar issued the lender one million warrants at an $8.59 weighted average strike price having expirations ranging from 2019 through 2021. The new debt also provides for $300 million of additional borrowing capacity as the amount outstanding is reduced below $300 million, on a dollar-for-dollar basis.

Risk Management

During the third quarter, NorthStar added a $10 million junior participation in a first mortgage secured by two retail properties in New York to non-performing loan ("NPL") status due to a maturity default. The collateral properties securing this loan have a cash flow yield in excess of 10% to NorthStar's basis and the borrower is currently working with the special servicer of the mortgage to restructure and extend the final maturity. As of September 30, 2009, NorthStar had five non-performing loans totaling $83 million. NorthStar designates a loan as non-performing at such time as the loan becomes 90 days delinquent on contractual debt service payments or the loan has a maturity default. NorthStar recorded $24 million of credit loss provisions relating to 10 loans during the third quarter 2009, increasing total credit loss reserves to $74 million on 15 loans at September 30, 2009. In October 2009, NorthStar was foreclosed out of the $9 million mezzanine multi-family loan in NPL status. NorthStar had fully reserved for this asset in prior periods so there was no third quarter earnings impact related to this foreclosure.

NorthStar's NPLs, exclusive of the $9 million foreclosed loan, consist of a first mortgage with an outstanding balance of $21 million secured by a condo/hotel development site in New York City, a first mortgage with an outstanding balance of $14 million secured by a seven-unit condominium/multi-family development site in New York City, a junior participation in a first mortgage with an outstanding balance of $29 million secured by a master planned community located in Orlando, Florida, and the junior participation in a first mortgage with an outstanding balance of $10 million previously discussed. All of these NPLs have maturity defaults and NorthStar has reserves totaling $25 million for these assets.

The weighted average first and last dollar loan-to-value ratios of NorthStar's real estate loans were 25.7% and 81.3%, respectively, at September 30, 2009. NorthStar generally uses original loan-to-cost statistics in its reported loan-to-value ratios, except when there are asset-specific events which would indicate revaluation of the collateral is necessary, such as for loans where a credit loss reserve is deemed appropriate and for non-performing loans.

NorthStar's securities portfolio had one upgrade representing $5 million and 86 downgrades representing $583 million of securities during the third quarter 2009. NorthStar reports all current rating actions issued by each agency independently of actions issued during prior quarters. The average credit rating of NorthStar's real estate securities was BB+/Ba1, which was the same as the prior quarter, with approximately 65% having a vintage prior to 2006. During the third quarter 2009, S&P, Moody's, and Fitch did not issue any rating actions on notes issued by NorthStar commercial real estate term financings. Rating agency actions associated with NorthStar's issued secured term debt notes have no impact on the payment terms of such debt.

NorthStar's net lease portfolio was 92% leased and net lease assets have an 8.0 year weighted average remaining lease term as of September 30, 2009. For more information regarding the core net lease assets, please refer to the tables on the following pages.

Andrew C. Richardson, chief financial officer and treasurer, stated, "Credit risk management remains very challenging. Traditional providers of debt capital to real estate owners, such as banks, life companies and the CMBS markets essentially remain closed. Macroeconomic conditions also continue to pressure underlying real estate cash flows making it more difficult for borrowers to service their debt. NorthStar remains focused on pro-actively and aggressively identifying and dealing with potential credit problems in order to maximize recovery for our shareholders. Over the past two years, our discounted repurchases of CDO and corporate debt have created an approximately $189 million cushion to our equity for credit issues."

Mr. Richardson continued, "We have been pro-active in managing liquidity and extending debt maturities, with no significant corporate debt maturing before June 2012. In addition, NorthStar's CDO financings remain in compliance with all of their overcollateralization and interest coverage tests as of September 30, 2009."

Stockholder's Equity and Dividends

At September 30, 2009, NorthStar had 81,380,597 total shares and operating partnership units outstanding, and $101.3 million of minority interest relating to its operating partnership. During the third quarter 2009, NorthStar issued approximately 5.3 million common shares at a weighted average net price of $3.60 per share. Book value per diluted common share was $15.93 at September 30, 2009. Exclusive of all unrealized mark-to-market adjustments and accumulated depreciation, book value at September 30, 2009 would be $7.54 per diluted common share. For a calculation of book value per diluted common share, please refer to the table on the following pages.

On October 20, 2009, NorthStar announced that its Board of Directors declared a dividend of $0.10 per share of common stock, payable with respect to the quarter ended September 30, 2009. The dividend is expected to be paid on November 16, 2009 to shareholders of record as of the close of business on November 6, 2009.

Earnings Conference Call

NorthStar will hold a conference call to discuss third quarter 2009 financial results on Thursday November 5, 2009, at 10:00 AM Eastern time. Hosting the call will be David Hamamoto, chairman, president and chief executive officer, and Andrew Richardson, chief financial officer and treasurer. The Company will post on its website, www.nrfc.com, a September 30, 2009 update to its corporate presentation.

The call will be webcast live over the Internet from NorthStar's website, www.nrfc.com, and will be archived on the Company's website. The call can also be accessed live over the phone by dialing 877-941-0844, or for international callers, by dialing 480-629-9645.

A replay of the call will be available one hour after the call through Thursday November 12, 2009 by dialing 800-406-7325 or 303-590-3030 for international callers, using pass code 4173151.

About NorthStar Realty Finance Corp.

NorthStar Realty Finance Corp. is a finance REIT that primarily originates and invests in commercial real estate debt, real estate securities and net lease properties. For more information about NorthStar Realty Finance Corp., please visit www.nrfc.com.

NorthStar Realty Finance Corp. Consolidated Statements of Operations (Amounts in thousands) Three Months Ended Nine Months Ended September 30, September 30, ------------------ ----------------- 2009 2008 2009 2008 ---- ---- ---- ---- (unaudited) (unaudited) (unaudited) (unaudited) Revenues and other income: Interest income $34,305 $49,783 $106,838 $163,373 Interest income - related parties 4,179 3,424 13,129 10,767 Rental and escalation income 28,000 29,028 79,649 87,005 Advisory and management fee income - related parties 1,924 1,812 5,423 10,688 Other revenue 206 9,493 552 14,452 --- ----- --- ------ Total revenues 68,614 93,540 205,591 286,285 Expenses: Interest expense 29,345 46,311 95,378 148,291 Real estate properties - operating expenses 4,148 1,938 9,081 6,023 Asset management fees - related parties 848 853 2,555 3,892 Provision for loan losses 24,229 2,450 62,691 5,700 General and administrative: Salaries and equity based compensation (1) 10,960 9,429 33,805 31,084 Auditing and professional fees 2,001 963 6,538 4,638 Other general and administrative 2,760 3,333 9,806 10,748 ----- ----- ----- ------ Total general and administrative 15,721 13,725 50,149 46,470 Depreciation and amortization 3,712 13,566 35,908 33,481 ----- ------ ------ ------ Total expenses 78,003 78,843 255,762 243,857 Income (loss) from operations (9,389) 14,697 (50,171) 42,428 Equity in earnings/(loss) of unconsolidated ventures 2,737 772 (1,522) (4,846) Unrealized (loss) gain on investments and other (88,336) 229,139 1,709 398,827 Realized gain on investments and other 29,215 6,973 89,411 14,057 ------ ----- ------ ------ Consolidated net income (loss) (65,773) 251,581 39,427 450,466 Net income (loss) attributable to the non-controlling interests 4,539 (28,040) (9,816) (47,717) (5,231) (5,231) (15,694) (15,693) ------ ------ ------- ------- Net income (loss) attributable to NorthStar Realty Finance Corp. common stockholders ($66,465) $218,310 $13,917 387,056 ======== ======== ======= ======== Net income (loss) attributable to NorthStar Realty Finance Corp. common stockholders (basic/ diluted) ($0.95) $3.47 $0.21 $6.17 ====== ===== ===== ===== Weighted average number of shares of common stock: Basic 69,896,439 62,825,383 67,445,995 62,772,013 Diluted 77,356,187 70,229,958 74,905,800 69,998,215 (1) The three months ended September 30, 2009 and 2008 include $5,007 and $5,439 of equity based compensation expense, respectively. The nine months ended September 30, 2009 and 2008 include $15,471 and $18,396 of equity based compensation expense, respectively. NorthStar Realty Finance Corp. Condensed Consolidated Balance Sheets September 30, December 31, (Amounts in thousands) 2009 2008 ---- ---- (unaudited) ASSETS: Cash and cash equivalents $108,423 $134,039 Restricted cash 177,507 163,157 Operating real estate - net 1,060,236 1,127,000 Available for sale securities, at fair value 306,662 221,143 Real estate debt investments, net 1,994,121 1,976,864 Real estate debt investments, held-for-sale - 70,606 Investments in and advances to unconsolidated ventures 43,670 101,507 Receivables, net of allowance of $0 in 2009 and 2008 18,830 24,806 Unbilled rents receivable 9,718 7,993 Derivative instruments, at fair value 1,080 9,318 Deferred costs and intangible assets, net 58,299 79,633 Other assets 22,692 27,660 ------ ------ Total assets $3,801,238 $3,943,726 ========== ========== LIABILITIES: Mortgage notes and loans payable 852,839 910,620 Exchangeable senior notes 125,780 233,273 Bonds payable, at fair value 482,666 468,638 Credit facilities - 44,881 Secured term loans 405,414 403,907 Liability to subsidiary trusts issuing preferred securities, at fair value 111,943 69,617 Obligations under capital leases 3,534 3,555 Accounts payable and accrued expenses 25,479 27,478 Escrow deposits payable 46,891 46,353 Derivative liability, at fair value 78,179 87,220 Other liabilities 31,031 34,424 ------ ------ Total liabilities 2,163,756 2,329,966 EQUITY: NorthStar Realty Finance Corp. Stockholders' Equity: 8.75% Series A preferred stock, $0.01 par value, $25 liquidation preference per share, 2,400,000 shares issued and outstanding at September 30, 2009 and December 31, 2008, respectively 57,867 57,867 8.25% Series B preferred stock, $0.01 par value, $25 liquidation preference per share, 7,600,000 shares issued and outstanding at September 30, 2009 and December 31, 2008, respectively 183,505 183,505 Common stock, $0.01 par value, 500,000,000 shares authorized, 73,920,905, and 62,906,693 shares issued and outstanding at September 30, 2009 and December 31, 2008, respectively 739 634 Additional paid-in capital 658,067 620,028 Treasury stock, 0 and 475,051 shares held at September 30, 2009 and December 31, 2008, respectively - (1,384) Retained earnings 633,508 648,860 Accumulated other comprehensive loss (97,656) (94,343) ------- ------- Total NorthStar Realty Finance Corp. Stockholders' Equity 1,436,030 1,415,167 Non-controlling interest 201,452 198,593 ------- ------- Total equity 1,637,482 1,613,760 --------- --------- Total liabilities and stockholders' equity $3,801,238 $3,943,726 ========== ========== Three Months Ended Nine Months Ended September 30, September 30, ------------- ------------- 2009 2008 2009 2008 ---- ---- ---- ---- Funds from Operations: Consolidated net income (loss) ($65,773) $251,581 $39,427 $450,466 Non-controlling interest in joint ventures (2,555) (2,300) (6,995) (2,097) ------ ------ ------ ------ Consolidated net income (loss) before non- controlling interest in operating partnership (68,328) 249,281 32,432 448,369 Adjustments: Preferred stock dividends (5,231) (5,231) (15,694) (15,693) Depreciation and amortization 3,712 13,566 35,908 33,481 Real estate depreciation and amortization - unconsolidated ventures 247 247 741 742 --- --- --- --- Funds from Operations ($69,600) $257,863 $53,387 $466,899 -------- -------- ------- -------- Adjusted Funds from Operations: Funds from Operations ($69,600) $257,863 $53,387 $466,899 Straight-line rental income, net (562) (344) (1,733) (1,817) Straight-line rental income and fair value lease revenue, unconsolidated ventures (22) (39) (79) (125) Amortization of equity-based compensation 5,007 5,439 15,471 18,396 Fair value lease revenue (304) (809) (466) (1,420) Unrealized (gains)/losses from mark-to-market adjustments 83,351 (233,064) (15,059) (409,659) Unrealized (gains)/losses from mark-to-market adjustments, unconsolidated ventures 1,652 (3,291) 10,145 6,356 ----- ------ ------ ----- Adjusted Funds from Operations $19,522 $25,755 $61,666 $78,630 ======= ======= ======= ======= FFO per share of Common Stock ($0.90) $3.67 $0.71 $6.67 AFFO per share of Common Stock $0.25 $0.37 $0.82 $1.12

Non-GAAP Financial Measures

Included in this press release are certain "non-GAAP financial measures," which are measures of NorthStar's historical or future financial performance that are different from measures calculated and presented in accordance with accounting principles generally accepted in the United States, or U.S. GAAP, within the meaning of applicable SEC rules. These include: (i) Funds From Operations; (ii) Adjusted Funds From Operations; (iii) Return on Average Common Book Equity; and (iv) Return on Average Common Book Equity by business line. The following discussion defines these terms, which NorthStar believes can be useful measures of its performance.

Funds from Operations (FFO) and Adjusted Funds from Operations (AFFO)

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 NorthStar in particular. We compute FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts (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 estaterelated depreciation and amortization, and after adjustments for unconsolidated/uncombined partnerships and joint ventures. AFFO, as defined by NAREIT, is a computation made by analysts and investors to measure a real estate company's cash flow generated by operations.

NorthStar calculates AFFO by subtracting from or adding to FFO:

    --  normalized recurring expenditures that are capitalized by NorthStar and
        then amortized, but which are necessary to maintain NorthStar's
        properties and revenue stream, e.g., leasing commissions and tenant
        improvement allowances;
    --  an adjustment to reverse the effects of the straightlining of rents and
        fair value lease revenue;
    --  the amortization or accrual of various deferred costs including
        intangible assets and equity based compensation; and
    --  an adjustment to reverse the effects of non-cash unrealized
        gains/(losses).

NorthStar's 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.

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 management's 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 NorthStar's operating performance or as an alternative to cash flow from operating activities as a measure of NorthStar's liquidity.

Return on Average Common Book Equity

NorthStar calculates return on average common book equity ("ROE") on a consolidated basis and for each of NorthStar's major business lines. NorthStar believes that ROE provides investors and management with a good indication of the performance of the Company and its business lines because it provides the best approximation of cash returns on common equity invested. Management also uses ROE, among other factors, to evaluate profitability and efficiency of equity capital employed, and as a guide in determining where to allocate capital within its business. ROEs may fluctuate from quarter to quarter based upon a variety of factors, including the timing and amount of investment fundings, repayments and asset sales, capital raised and leverage used, and the yield on investments funded.

NorthStar urges investors to carefully review the GAAP financial information included as part of the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and quarterly earnings releases.

Return on Average Common Book Equity (including and excluding G&A) ($ in thousands) Three Months Ended September 30, 2009 Annualized (2) ------------------ -------------- Adjusted Funds from Operations (AFFO) $19,522 $78,088 (A) Plus: General & Administrative Expenses 15,721 Less: Equity-Based Compensation included in G&A 5,007 ----- AFFO, excluding G&A 30,236 120,944 (B) Average Common Book Equity & Operating Partnership Non-Controlling Interest (1) $1,322,541 (C) Return on Average Common Book Equity (including G&A) 5.9% (A)/(C) Return on Average Common Book Equity (excluding G&A) 9.1% (B)/(C) (1) Average Common Book Equity & Operating Partnership Non-Controlling Interest computed using beginning and ending of period balances. ROE will be impacted by the timing of new investment closings and repayments during the quarter. (2) Annualized numbers are calculated by taking the current quarter amounts and multiplying by 4. Return on Average Common Book Equity by Business Segment (Pre-G&A) Including and Excluding Mark-to-Market Adjustments and Accumulated Depreciation and Amortization ($ in thousands) Healthcare Core Net Corporate Lending Securities Net Lease Lease /Other Total -------- --------- --------- --------- -------- --------- AFFO, Pre-G&A ($14,606) $25,538 $2,398 $2,257 $14,649 $30,236 Annualized (A) (58,424) 102,152 9,592 9,028 58,596 120,944 Average Common Book Equity and Operating Partnership Non- Controlling Interest (B) (1) 945,646 116,296 58,459 49,958 152,182 1,322,541 Allocated Cumulative Mark-To- Market Adjustments for Assets, Liabilities and Interest Rate Swaps (659,209) (41,741) (47,878) (44,329) (28,992)(822,148) Accumulated Depreciation and Amortization - - 53,891 56,334 - 110,225 -------- --------- --------- --------- -------- --------- Average Common Book Equity and Operating Partnership Non- Controlling Interest Excluding Mark-to- Market Adjustments and Accumulated Depreciation and Amortization (C) (1) $286,437 $74,555 $64,472 $61,963 $123,191 $610,618 ROE, Net (A/B) NM 87.8% 16.4% 18.1% 38.5% 9.1% ROE, Gross (A/C) NM 137.0% 14.9% 14.6% 47.6% 19.8% (1) Average Common Book Equity & Operating Partnership Non-Controlling Interest computed using beginning and ending of period balances. ROE will be impacted by the timing of new investment closings and repayments during the quarter. Management Fees From Secured Term Debt Financings at September 30, 2009 ($ in thousands) Annual Management Fee % Annualized Fee - Based ----------------------- Management Fee Assets Senior Subordinate Total Revenue ------ ------ ----------- ----- ------- N-Star I $284,621 0.15% 0.20% 0.35% $996 N-Star II 300,412 0.15% 0.20% 0.35% 1,051 N-Star III 408,336 0.15% 0.20% 0.35% 1,429 N-Star IV 397,498 0.15% 0.20% 0.35% 1,391 N-Star V 545,118 0.15% 0.20% 0.35% 1,908 N-Star VI 454,768 0.15% 0.25% 0.40% 1,819 N-Star VII 703,845 0.15% 0.20% 0.35% 2,463 N-Star VIII 875,781 0.15% 0.25% 0.40% 3,503 N-Star IX(1) 869,005 0.15% 0.25% 0.40% 3,476 ---------- ------- Total $4,839,384 $18,036 ========== ======= (1) N-Star IX is owned by the NorthStar Real Estate Securities Opportunity Fund. NorthStar directly receives 31% of the management fees related to N-Star IX. Term Debt Financing Cash Distributions and Coverage Test Summary ($ in thousands) Cash Distributions Quarterly (1) Interest -------------- Coverage Overcollateral- Cushion (2) ization Cushion Primary Quarter Ended ----------- ------------------ Collateral Sept. 30, Sept. 30, Sept. 30, At Type 2009 2009 2009 Offering ---- ---- ---- ---- -------- N-Star I CMBS $376 $283 $6,251 $8,687 N-Star II CMBS 106 319 8,086 10,944 N-Star III CMBS 1,076 1,224 23,407 13,610 N-Star IV Loans 2,622 2,778 32,136 19,808 N-Star V CMBS 1,672 1,123 80,037 12,940 N-Star VI Loans 2,353 4,611 33,288 17,412 N-Star VII CMBS 2,999 2,950 121,946 13,966 N-Star VIII Loans 4,718 4,383 31,814 42,193 N-Star IX(3) CMBS 1,971 2,498 104,736 24,516 Cash distributions to the retained income notes. Interest coverage and overcollateralization coverage to the most constrained class. (1) Cash distributions are exclusive of senior management fees which are not subject to the coverage tests. (2) Quarterly interest cushion and overcollateralization cushion from remittance report issued on date nearest to September 30th. (3) NorthStar indirectly owns approximately 31% of N-Star IX income notes through its interest in the Securities Fund. ` CMBS Vintages Under Management ($ in thousands) $ % Cumulative - - ---------- 1996 $499 0.1% 0.1% 1997 42,582 2.2% 2.3% 1998 99,535 5.2% 7.5% 1999 37,191 1.9% 9.4% 2000 125,862 6.5% 15.9% 2001 95,877 5.0% 20.9% 2002 70,000 3.6% 24.5% 2003 123,291 6.4% 30.9% 2004 226,361 11.8% 42.7% 2005 421,019 22.0% 64.7% 2006 362,476 18.9% 83.6% 2007 235,820 12.3% 95.9% 2008 26,540 1.4% 97.3% 2009 51,000 2.7% 100.0% ------ --- Total $1,918,053 100.0% Securities Fund 633,454 ------- Total CMBS $2,551,507 ========== Credit Ratings Distribution of Securities Under Management ($ in thousands) $ % - - AAA $74,256 3.0% AA 70,490 2.9% A 250,987 10.2% BBB 849,486 34.4% BB 648,278 26.3% B 285,026 11.5% CCC 173,239 7.0% CC 97,805 3.9% C 19,833 0.8% ------ --- Total $2,469,400 100.0% Securities Fund 858,035 ------- Total Securities $3,327,435 ========== Assets Under Management at September 30, 2009 ($ in thousands) $ % ---------- ---------- Investment grade securities $1,471,316 22.0% First mortgage (1) 1,378,439 20.6% Non-investment grade securities 1,856,119 27.7% Mezzanine and other subordinate loans (2) 752,252 11.2% Non-investment grade net lease (3) 1,029,041 15.4% Investment grade net lease (3) 206,223 3.1% ------- ---------- Total $6,693,390 100.0% ========== ========== (1) Includes $235 million of junior participations in first mortgages. (2) Includes $88 million of equity investments primarily related to real estate and corporate loans. (3) Net lease amounts prior to accumulated depreciation and impact of purchase price allocations. Third Quarter Funded Securities Investment Statistics ($ in thousands) Amount Invested (1) ------------ CMBS $66,418 REIT Debt 14,816 CDO Debt 273 --- Total Securities $81,507 ======= (1) Par amount was $253 million. Book Value Rollforward ($ in thousands, except per share data) $ Per Share --------- --------- Common book value at June 30, 2009 (diluted) $1,349,077 $17.74 Net income to common shareholders and non- controlling interest, excluding non-cash 11,444 0.15 mark to market items included in net income Mark to market adjustments included in net income: Securities fund (1,652) (0.02) Secured debt liabilities (86,130) (1.13) Trust preferred debt (16,196) (0.21) Securities and Investments held at market value 42,735 0.56 Swaps and other hedges (23,760) (0.31) Mark to market adjustments in other comprehensive income and non-controlling interest: Effective hedges 550 0.01 Available for sale securities 4,657 0.06 Equity component of exchangeable senior notes repurchased (1,091) (0.01) Common dividends (7,607) (0.10) Accretion/(dilution) from additional shares issued during quarter (1) 23,976 (0.81) ------ ----- Total net increases/(decreases) (53,074) (1.81) Common book value at September 30, 2009 (diluted) (2) $1,296,003 $15.93 ========== ====== (1) Relates to amortization of LTIP shares and issuance of common shares from DRIP, DSPP, and EPP plan. Per share dilution as a result of common shares issued. (2) Cumulative net mark-to-market adjustments total a positive $795.7 million ($9.78 per diluted share) and accumulated real estate depreciation and amortization total a negative $113.2 million ($1.39 per diluted share) as of September 30, 2009. Excluding all mark-to- market adjustments and accumulated depreciation and amortization would result in a $7.54 diluted book value per common share at September 30, 2009. NRFC NNN Holdings, LLC Portfolio Summary ($ in thousands) Acqui- Years sition Tenant or Net Acqui- Cost Date Guarantor Square Lease sition Existing less Acquired of Tenant Location/MSA Feet (1) Cost(2) Debt Debt -------------------------------------------------------------------------- Oct-2004 ALGM Portfolio Three - Various (3) properties 1.7- in New 35,965 7.8 $10,355(4) $0 $10,355 York, NY Nov-2007 Alliance Data Columbus, OH Systems Corp. 199,112 8.2 33,826 23,587 10,239 Mar-2007 Citigroup, Fort Mill, Inc. SC / 165,000 11.1 34,303 30,506 3,797 Charlotte Jun-2007 Vacant Reading, PA 609,000 N/A 28,473 18,968 9,505 Jun-2006 Covance, Inc. Indianapolis, IN 333,600 16.3 34,519 28,227 6,292 Feb-2007 Credence Milpitas, Systems Corp. CA/ 178,213 7.4 30,144 22,220 7,924 San Jose Sep-2006 Dick's 9 properties Sporting Goods, Inc. / PetSmart, 6.3- Inc.(3) 467,971 14.9 64,503 48,744 15,759 Sep-2005 Electronic Data 2 in MI / Systems Corp. 1 in CA / 1 in PA 387,842 6.0 62,718 47,163 15,555 Dec-2005 General Springdale, Electric Co. & OH/ Cincom Cincinnati 0.3- Systems, Inc. 486,963 12.3 69,341 52,704 16,637 Aug-2005 GSA - U.S. Salt Lake Department of City, UT Agriculture 117,553 2.6 22,424 15,572 6,852 Jul-2006 Northrop Aurora, Grumman Space CO/Denver & Mission Systems Corp. (5) 183,529 5.8 43,625 34,193 9,432 Mar-2006 Party City Rockaway, Corp. (Amscan) NJ/ / Lerner Northern Enterprises, NJ 5.7- Inc. 121,038 7.8 21,955 17,176 4,779 Feb-2006 Quantum Colorado Corporation Springs, 0.2- (6) CO 406,207 11.4 27,635 18,261 9,374 Jan-2005 Vacant (7) Chatsworth, CA/ Los Angeles -------------------------------------------------------------------------- Total NRFC NNN Holdings, LLC Portfolio 3,691,993 7.9 $483,821 $357,321 $126,500 ========================================================================== (1) Remaining lease terms as of September 30, 2009. Total represents weighted average based on acquisition cost. (2) Acquisition cost does not include purchase price allocations. (3) The three ALGM portfolio properties, and six of ten Dick's Sporting Goods, Inc. / PetSmart, Inc. properties are ground lease interests. (4) The three ALGM properties were owned by NorthStar's predecessor prior to NorthStar's initial public offering. The value in acquisition cost column reflects the undepreciated book value when the properties were transferred to a subsidiary of NRFC NNN Holdings, LLC at the time of NorthStar's initial public offering (10/29/04). (5) The Northrop Grumman Space & Mission Systems Corp. property is financed with a $33.1 first mortgage with a third party and a $1.1 million mezzanine loan held by a consolidated NorthStar entity. (6) Dollar amounts shown are 50% of total values, representing NRFC NNN Holding's, LLC subsidiary's 50% interest in a joint venture with an institutional investor. (7) The special servicer of the first mortgage loan began foreclosure proceedings in September 2009. The property is no longer considered held in NorthStar's NNN portfolio. Portfolio Cash Flow and Tenant Credit Profile ($ in thousands) Three Months Ended September 30, 2009 Primary Tenant ---------------------------------- ------------------ Tenant or NOI Less Actual Guarantor of Base Debt Debt Market Credit Tenant Rent NOI Service Service Cap (1) Rating ---- --- -------- -------- ------- ------- ALGM Portfolio - Various $590 $566 - $566 mixed tenants Alliance Data not Systems Corp. 582 580 (455) 125 $3,277 rated Citigroup, Inc. 525 524 (501) 23 110,661 A/A3 Vacant - (233) (333) (566) N/A N/A Covance, Inc. 608 607 (518) 89 3,461 not rated (2) Credence not Systems Corp. 661 659 (447) 212 210 rated Dick's Sporting Goods, Inc. / PetSmart, not Inc. 1,277 1,243 (974) 269 2,521 rated (3) Electronic Data Systems Corp. 1,371 1,369 (825) 544 13,900 NR/A2 General Electric Co. & Cincom AA+/ Systems, Inc. 1,359 1,361 (862) 499 174,493 Aa2 (4) GSA - U.S. Department of implied Agriculture 579 473 (303) 170 N/A AAA Northrop Grumman Space & Mission BBB+ Systems Corp. 776 777 (658) 119 16,516 Baa1 Party City Corp. (Amscan) / Lerner Enterprises, Inc. 437 431 (304) 127 362(5) B/B2 (6) Quantum Corporation (50%) 605 603 (322) 281 265 B-/B3 Vacant - (180) - (180) N/A N/A ------ ------ ------ ------ Total $9,370 $8,780 (6,502) $2,278 ====== ====== ====== ====== (1) Based on information from FactSet at close of market on September 30, 2009. (2) Covance has a $1.0 billion net worth and no long-term debt. (3) PetSmart, Inc. is rated BB. (4) Cincom Systems, Inc. is not rated. (5) In December 2005, Amscan Holdings, Inc. (controlled by Berkshire Partners and Weston Presidio) purchased Party City for $362 million. (6) The Party City Corp. lease is guaranteed by Amscan Holdings, Inc. which has a B/B2 credit rating by S&P and Moody's, respectively.

Safe Harbor Statement

Certain items in this press release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and beliefs and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements; NorthStar Realty can give no assurance that its expectations will be attained. Factors that could cause actual results to differ materially from NorthStar Realty's expectations include, but are not limited to changes in economic conditions generally and the real estate and bond markets specifically, legislative or regulatory changes (including changes to laws governing the taxation of REITs), availability of capital, interest rates and interest rate spreads, policies and rules applicable to REITs, the continued service of key management personnel, the effect of competition in the real estate finance industry, the costs associated with compliance and corporate governance, including the Sarbanes-Oxley Act and related regulations and requirements, and other risks detailed from time to time in NorthStar Realty's SEC reports. Factors that could cause actual results to differ materially from those in the forward-looking statements will be specified in the Company's Annual Report on Form 10-K for the year ended December 31, 2008. Such forward-looking statements speak only as of the date of this press release. NorthStar Realty expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in its expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.

NorthStar Realty Finance Corp.

CONTACT: Investor Relations, Joe Calabrese, +1-212-827-3772