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4-Traders Homepage  >  Equities  >  Nyse  >  Northstar Realty Europe Corp    NRE

NORTHSTAR REALTY EUROPE CORP (NRE)
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NORTHSTAR REALTY EUROPE : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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05/10/2018 | 02:22pm CEST
The following discussion should be read in conjunction with our consolidated
financial statements and notes thereto included in Item 1. "Financial
Statements" of this report. References to "NorthStar Europe," "we," "us" or
"our" refer to NorthStar Realty Europe Corp. and its subsidiaries unless the
context specifically requires otherwise. References to "our Manager" refer to
NorthStar Asset Management Group Inc., or NSAM, for the period prior to the
Mergers (refer below) and Colony NorthStar, Inc., for the period subsequent to
the Mergers. As part of the Mergers, NSAM changed its name to Colony NorthStar,
Inc.
NorthStar Realty Europe Corp., a publicly-traded real estate investment trust,
or REIT, (NYSE: NRE) is a European focused commercial real estate company with
predominantly prime office properties in key cities within Germany, the United
Kingdom and France. We commenced operations on November 1, 2015 following the
spin-off by NorthStar Realty Finance Corp., or NorthStar Realty, of its European
real estate business (excluding its European healthcare properties) into a
separate publicly-traded company, NorthStar Realty Europe Corp., a Maryland
corporation, or the Spin-off. Our objective is to provide our stockholders with
stable and recurring cash flow supplemented by capital growth over time.
We are externally managed and advised by an affiliate of our Manager.
Substantially all of our assets, directly or indirectly, are held by, and we
conduct our operations, directly or indirectly, through NorthStar Realty Europe
Limited Partnership, a Delaware limited partnership and our operating
partnership, or our Operating Partnership. We have elected to be taxed and will
continue to conduct our operations so as to continue to qualify as a REIT for
U.S. federal income tax purposes.
Significant Developments
Merger Agreement among NSAM, NorthStar Realty and Colony Capital, Inc.
On January 10, 2017, our external manager, NSAM completed a tri-party merger
with NorthStar Realty and Colony Capital, Inc., or Colony, pursuant to which the
companies combined in an all-stock merger, or the Mergers, of equals transaction
to create a diversified real estate and investment management company. Under the
terms of the merger agreement, NSAM, Colony and NorthStar Realty, through a
series of transactions, merged with and into NSAM, which was renamed Colony
NorthStar. Colony NorthStar is a leading global real estate and investment
management firm.
Amended and Restated Management Agreement
On November 9, 2017, we entered into an amended and restated management
agreement, or the Amended and Restated Management Agreement with an affiliate of
our Manager, effective as of January 1, 2018. Refer to Note 6 "Related Party
Arrangements" in our accompanying consolidated financial statements included in
Part I "Financial Statements" for a description of the terms of the Amended and
Restated Management Agreement.
Repurchases
In March 2018, the Company's board of directors authorized the repurchase of up
to $100 million of its outstanding common stock. The authorization expires in
March 2019, unless otherwise extended by the Company's board of directors. From
the authorization in March 2018 through May 7, 2018, the Company repurchased 3.4
million shares of its common stock for approximately $46.3 million.
Our Investments
Our primary business line is investing in European real estate. We are
predominantly focused on real estate equity and preferred equity, refer to Note
13, "Segment Reporting" in Part I, Item 1. "Financial Statements" for further
disclosure.
Real Estate Equity
Overview
Our real estate equity investment strategy is focused on European prime office
properties located in key cities within Germany, the United Kingdom and France.

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Our Portfolio
The following presents a summary of our portfolio as of March 31, 2018:
                                                            Portfolio by 

Geographic Location

                                                 March 31, 2018(5)                     March 31, 2017(5)
Gross Book Value(1)     $1.9 billion
Number of properties         25
Number of countries          5
Total square meters(2)    323,458
Weighted average
occupancy                   85%
Weighted average                       [[Image Removed: piechartq118a01.jpg]] [[Image Removed: piechartq117.jpg]]
occupancy - Office          95%
Weighted average lease
term                     6.2 years
In-place rental
income:(3)
Office portfolio            96%
Other(4)                     4%

_____________________________

(1) Represents gross operating real estate and intangibles as of March 31, 2018

and includes gross assets held-for-sale.

(2) Based on contractual rentable area, located in many key European markets,

including Frankfurt, Hamburg, Berlin, London and Paris.

(3) In-place rental income represents contractual rent adjusted for vacancies

based on the rent roll as of March 31, 2018 and is translated using exchange

rates as of March 31, 2018.

(4) Other represents retail, industrial and hotel (net lease) assets.

(5) Based on rental income for 25 assets owned as of March 31, 2018.

The following table presents significant tenants in our portfolio, based on in-place rental income as of March 31, 2018:

                                                                  Percentage   Weighted
                                                                      of        Average
                                                                   In-Place      Lease
                                                       Square       Rental     Term (in
Significant tenants:         Asset (Location)         Meters(1)     Income      years)
DekaBank Deutsche
Girozentrale           Trianon (Frankfurt, Germany)    36,524       20.4%         6.2
                       Berges de Seine (Paris,
BNP PARIBAS RE         France)                         15,406        9.1%         1.8

Deutsche Bundesbank Trianon (Frankfurt, Germany) 22,303 8.2%

8.8

Deloitte Holding       Maastoren (Rotterdam,
B.V.                   Netherlands)                    23,548        5.5%   

9.1

Invesco UK Limited Portman Square (London, UK) 4,406 5.3%

9.4

BNP PARIBAS SA Mac Donald (Paris, France) 11,235 5.1%

3.1

Cushman & Wakefield
LLP                    Portman Square (London, UK)      5,150        4.9%         7.0
Morgan Lewis &
Bockius LLP            Condor House (London, UK)        4,848        3.8%         7.5
PAREXEL

International GmbH Parexel (Berlin, Germany) 18,254 3.2%

16.2

Moelis & Co UK LLP Condor House (London, UK) 3,366 2.6%

      7.0
                                                       145,040      68.1%         6.8

_____________________________

(1) Based on contractual rentable area.

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The following table presents gross book value, percentage of net operating
income, or NOI, square meters and weighted average lease term concentration by
country and type for our portfolio as of March 31, 2018 (dollars in millions):
                                                                                                Weighted
                                                                                                 Average
                           Number of      Gross Book                               Square      Lease Term
        Country            Properties      Value(1)      Percentage of NOI(2)     Meters(3)    (in years)
Office
Germany                        9        $    914,105                  48 %         143,357         7.0
United Kingdom                 5             420,980                  22 %          28,893         7.3
France                         4             324,210                  17 %          32,075         3.0
Other office(4)                2             189,048                  11 %          42,078         6.7
Subtotal                       20          1,848,343                  98 %         246,403         6.3
Other Property Types
France/Germany(5)              5              99,149                   2 %          77,055         5.4
Total                          25       $  1,947,492                 100 %         323,458         6.2

_____________________________

(1) Represents gross operating real estate and intangibles as of March 31, 2018

and includes gross assets held-for-sale.

(2) Based on annualized NOI, for the quarter ended March 31, 2018 (refer to

"Non-GAAP Financial Measures" for a description of this metric).

(3) Based on contractual rentable area.

(4) Includes an asset in Portugal and an asset in the Netherlands which are both

classified as held-for-sale as of March 31, 2018.

(5) Represents retail, industrial and hotel (net lease) assets.


Preferred Equity
In May 2017, we partnered with a leading property developer in China to acquire
a Class A office building in London United Kingdom with 22,557 square meters,
100% occupancy and a 6.0 year weighted average lease term to expiry. We invested
approximately $36.8 million (£26.2 million) of preferred equity with a base
yield of 8% plus equity participation rights.
Sources of Operating Revenues and Cash Flows
We primarily generate revenue from rental and other operating income from our
properties and interest income from our preferred equity investment. Our income
is primarily derived through the difference between the revenue and the
operating and financing expenses of our investments. We may also continue to
acquire investments that generate attractive returns without any leverage.
Profitability and Performance Metrics
We calculate cash available for distribution, or CAD, and NOI, as metrics to
evaluate the profitability and performance of our business (refer to "Non-GAAP
Financial Measures" for a description of these metrics).
Outlook and Recent Trends
Having posted another year of robust economic performance in 2017, the European
economy slowed somewhat during the first quarter of 2018, with Gross Domestic
Product, or GDP, in the European Union, or EU, and the Euro Area growing by 0.4%
during the quarter compared to 0.7% during the fourth quarter of 2017. While
there is no consensus opinion on the reason behind the slowdown, fears of a
trade war with the U.S., the unusually cold weather In May 2018, the European
Commission, or EC, published its 2018 GDP forecast of 2.3% for the Euro Area
citing sound underlying fundamentals and improving labor markets. Unemployment
in the EU continued to fall, reaching 7.1% in March 2018, down from 7.9% a year
earlier and the lowest level recorded since September 2008. The EC projects that
Euro Area inflation, which stood at 1.2% in April 2018, will increase at a
gradual pace remaining at 1.5% and 1.6% in 2018 and 2019, respectively, below
the European Central Bank's target of 2%.
The European Central Bank, or ECB, continues to remain confident in the
prospects for the Eurozone economy. The 19 country bloc has posted twenty
consecutive quarters of economic expansion and, despite a slowdown in the pace
of growth during the first quarter of 2018, the ECB expects growth to remain
"solid and broad based." Consequently, the ECB recently signaled its intention
to begin tapering its asset purchase program while citing that, any tightening
of monetary policy is likely to be gradual and subject to ongoing review based
on the future economic performance and inflation outlook of the region. On April
26, 2018, the ECB confirmed its intention to maintain interest rates at zero
percent and continue with its asset purchase program of €30 billion per month
through September 2018, and beyond if necessary.
The U.K. has made some progress in the highly complex ongoing Brexit
negotiations including agreement on a transitional period it's beyond March 29,
2019, the country's scheduled date of departure from the EU; however, many key
issues remain subject to negotiation ranging from legal sovereignty to citizen's
rights and farming and fishing rights. The U.K. economy experienced a sharp
slowdown in growth during the first quarter of 2017 posting a mere 0.1% growth,
the lowest level since the fourth quarter of 2012. While adverse weather
conditions was largely blamed for the slowdown, general Brexit uncertainty
combined with elevated levels of inflation have also been cited as contributing
factors. The EC forecasts 1.5% growth for the U.K. economy in 2018.

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Having increased the base interest rate increase from 0.25% to 0.50% in November
2017, the Bank of England has signaled that any further increases are likely to
be at a gradual pace and limited in number. This cautious tone is reflective of
the outlook for the U.K. economy, which remains uncertain and likely to be
dependent on the duration and perceived outcome of ongoing Brexit negotiations.
European commercial real estate investment volume totaled €57 billion in the
first quarter of 2018, slightly below the first quarter 2017. Office remained
the most sought after asset class, representing approximately 40% of first
quarter 2018 transaction volume. Prime property yields in most asset classes and
markets were stable during the quarter and continue to remain at a significant
premium to sovereign yields.
European office take-up grew 5% year over year in the first quarter of 2018,
underlining the strength of European occupier market. Robust office take-up
coupled with limited new supply continues to apply pressure on vacancy rates and
rent levels in major European cities. During the first quarter of 2018, rental
growth in the European office markets reached its highest point since the
beginning of 2012.
German real estate investment reached €12.1 billion in the first quarter of
2018, in line with the same period last year, driven by strong demand for office
properties, which represented more than 55% of the total transaction volume (23%
year over year increase). As new supply remains subdued, vacancy across the top
six German cities reduced below 5% during the first quarter of 2018, the lowest
level since 2003.
Total U.K. investment volume reached £12.7 billion in the first quarter of 2018,
11% below the same period last year due to lack of available stock. Central
London office investment volume totaled £2.4 billion in the first quarter of
2018. Take-up in Central London slowed down in the beginning of 2018, however,
the amount of space under offer rose and was 14% above the 10 year average.
Central London rents remained stable during the first quarter of 2018.
Following record investment activity in the fourth quarter of 2017, French
investment volume was €3.3 billion in the first quarter of 2018 (13% below the
same period last year). Office investment volume represented 85% of total
investments. The Paris occupational market continues to be robust with vacancy
in Central Paris dropping to 2.5%, the lowest level since 2001.
Investing Strategy
We seek to provide our stockholders with a stable and recurring cash flow for
distribution supplemented by capital growth over time. Our business is
predominantly focused on prime office properties in key cities within Germany,
the United Kingdom and France which are not only the largest economies in
Europe, but are the most established, liquid and among the most stable office
markets in Europe. We seek to utilize our established local networks to source
suitable investment opportunities. We have a long term investment approach and
expect to make equity investments, directly or indirectly through joint
ventures.
Financing Strategy
We pursue a variety of financing arrangements such as mortgage notes and bank
loans available from the commercial mortgage-backed securities market, finance
companies and banks. However, we generally seek to limit our reliance on
recourse borrowings. We target overall leverage of 40% to 50% over time,
although there is no assurance that this will be the case. Borrowing levels for
our investments may be dependent upon the nature of the investments and the
related financing that is available.
Attractive long-term, non-recourse, non-mark-to-market, financing continues to
be available in the European markets. We predominately use floating rate
financing and we seek to mitigate the risk of interest rates rising through
hedging arrangements including interest rate caps.
In addition, we may use corporate level financing such as credit facilities. In
April 2017, we amended and restated our revolving credit facility, or Credit
Facility, with a commitment of $35 million and with an initial two year term.
The Credit Facility no longer contains a limitation on availability based on a
borrowing base and the interest rate remains the same.
In March 2018, we amended the Credit Facility, increasing the size to $70
million and extending the term until April 2020 with one year extension option.
The Credit Facility includes an accordion feature, providing for the ability to
increase the facility to $105 million.
Risk Management
Risk management is a significant component of our strategy to deliver consistent
risk-adjusted returns to our stockholders. Given our need to maintain our
qualification as a REIT for U.S. federal income tax purposes, we closely monitor
our portfolio and actively seek to manage risks associated with, among other
things, our assets, interest rates and foreign exchange rates. In addition, the
audit committee of our board of directors, or the Board, in consultation with
management, will periodically review our policies with respect to risk
assessment and risk management, including key risks to which we are subject,
such as credit risk, liquidity risk, financing risk, foreign currency risk and
market risk, and the steps that management has taken to monitor and control such
risks. The audit committee of the Board maintains oversight of financial
reporting risk matters.

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Underwriting

Prior to making any equity investments, our underwriting team, in conjunction
with third-party providers, undertakes a rigorous asset-level due diligence
process, involving intensive data collection and analysis, to seek to ensure
that we understand fully the state of the market and the risk-reward profile of
the asset. In addition, we evaluate material accounting, legal, financial and
business matters in connection with such investment. These issues and risks are
built into the valuation of an asset and ultimate pricing of an investment.
During the underwriting process, we review the following data, including, but
not limited to: property financial data including historic and budgeted
financial statements, liquidity and capital expenditure plans, property
operating metrics (including occupancy, leasing activity, lease expirations,
sales information, tenant credit review, tenant delinquency reports, operating
expense efficiency and property management efficiency) and local real estate
market conditions including vacancy rates, absorption, new supply, rent levels
and comparable sale transactions, as applicable.
In addition to evaluating the merits of any proposed investment, we evaluate the
diversification of our portfolio of assets. Prior to making a final investment
decision, we determine whether a target asset will cause our portfolio of assets
to be too heavily concentrated with, or cause too much exposure to, any one real
estate sector, geographic region, source of cash flow such as tenants or
borrowers, or other geopolitical issues. If we determine that a proposed
investment presents excessive concentration risk, we may decide not to pursue an
otherwise attractive investment.
Portfolio Management
Our Manager performs portfolio management services on our behalf. In addition,
we rely on the services of local third-party service providers. The
comprehensive portfolio management process includes day-to-day oversight by the
portfolio management team, regular management meetings and a quarterly
investment review process. These processes are designed to enable management to
evaluate and proactively identify investment-specific matters and trends on a
portfolio-wide basis. Nevertheless, we cannot be certain that such review will
identify all potential issues within our portfolio due to, among other things,
adverse economic conditions or events adversely affecting specific investments;
therefore, potential future losses may also stem from investments that are not
identified during these investment reviews.
Our Manager uses many methods to actively manage our risks to seek to preserve
income and capital, which includes our ability to manage our investments and our
tenants in a manner that preserves cost and income and minimizes credit losses
that could decrease income and portfolio value. Frequent re-underwriting,
dialogue with tenants/property managers and regular inspections of our
properties have proven to be an effective process for identifying issues early.
Monitoring tenant creditworthiness is an important component of our portfolio
management process, which may include, to the extent available, a review of
financial statements and operating statistics, delinquencies, third party
ratings and market data. During the quarterly portfolio review, or more
frequently if necessary, investments may be put on highly-monitored status and
identified for possible asset impairment based upon several factors, including
missed or late contractual payments, tenant rating downgrades (where applicable)
and other data that may indicate a potential issue in our ability to recover our
invested capital from an investment.
We may need to make unplanned capital expenditures in connection with changes in
laws and governmental regulations in relation to real estate. Where properties
are being repositioned or refurbished, we may also be exposed to unforeseen
changes in scope and timing of capital expenditures.
Given our need to maintain our qualification as a REIT for U.S. federal income
tax purposes, and in order to maximize returns and manage portfolio risk, we may
dispose of an asset earlier than anticipated or hold an asset longer than
anticipated if we determine it to be appropriate depending upon prevailing
market conditions or factors regarding a particular asset. We can provide no
assurances, however, that we will be successful in identifying or managing all
of the risks associated with acquiring, holding or disposing of a particular
investment or that we will not realize losses on certain dispositions.
Interest Rate and Foreign Currency Hedging
Subject to maintaining our qualification as a REIT for U.S. federal income tax
purposes, we may mitigate the risk of interest rate volatility through the use
of hedging instruments, such as interest rate swap agreements and interest rate
cap agreements. The goal of our interest rate management strategy is to minimize
or eliminate the effects of interest rate changes on the value of our assets, to
improve risk-adjusted returns and, where possible, to lock in, on a long-term
basis, a favorable spread between the yield on our assets and the cost of
financing such assets.
In addition, because we are exposed to foreign currency exchange rate
fluctuations, we employ foreign currency risk management strategies, including
the use of, among others, currency hedges, and matched currency financing.
We can provide no assurances, however, that our efforts to manage interest rate
and foreign currency exchange rate volatility will successfully mitigate the
risks of such volatility on our portfolio.

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Critical Accounting Policies
Our consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States, or U.S. GAAP, which requires
the use of estimates and assumptions that involve the exercise of judgment and
that affect the reported amounts of assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Our significant accounting policies are
described in Note 2, "Summary of Significant Accounting Policies" in our
accompanying consolidated financial statements included in Part I Item 1.
"Financial Statements."
Recent Accounting Pronouncements
For recent accounting pronouncements that may potentially impact our business,
refer to Note 2, "Summary of Significant Accounting Policies" in our
accompanying consolidated financial statements included in Item 1. "Financial
Statements."


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Results of Operations
Comparison of the Three Months Ended March 31, 2018 to March 31, 2017 (dollars
in thousands):
                                            Three Months Ended March 31,           Increase (Decrease)
                                              2018                2017            Amount            %
Revenues
Rental income                           $      27,224       $       25,536     $     1,688          6.6  %
Escalation income                               5,341                5,161             180          3.5  %
Interest income                                   729                    -             729        100.0  %
Other income                                      278                   29             249        858.6  %
Total revenues                                 33,572               30,726           2,846          9.3  %
Expenses
Properties - operating expenses                 6,802                7,322            (520 )       (7.1 )%
Interest expense                                6,107                6,383            (276 )       (4.3 )%
Transaction costs                                 481                  260             221         85.0  %
Management fee, related party                   4,157                3,559             598         16.8  %
Other expenses                                  1,424                2,000            (576 )      (28.8 )%
General and administrative expenses             1,878                2,597            (719 )      (27.7 )%
Compensation expense                              573               15,870         (15,297 )      (96.4 )%
Depreciation and amortization                  11,651               12,563            (912 )       (7.3 )%
Total expenses                                 33,073               50,554         (17,481 )      (34.6 )%
Other income (loss)
Unrealized gain (loss) on derivatives
and other                                      (1,189 )               (941 )          (248 )       26.4  %
Realized gain (loss) on sales and other          (548 )              4,970          (5,518 )     (111.0 )%
Income (loss) before income tax benefit
(expense)                                      (1,238 )            (15,799 )        14,561        (92.2 )%
Income tax benefit (expense)                      (39 )                273            (312 )     (114.3 )%
Net income (loss)                       $      (1,277 )     $      (15,526 )   $    14,249        (91.8 )%


Revenues
Rental Income
Rental income consists of rental revenue in our real estate equity segment.
Rental income increased $1.7 million, primarily due to leasing activity such as
the completion of the Deutsche Bundesbank lease in the Trianon Tower and the
strengthening of the Euro and U.K. Pounds Sterling against the dollar offset by
the disposal of six properties during 2017 and by the first quarter of 2017
preceded the value enhancing lease extensions in the Maastoren property.
Escalation Income
Escalation income consists of tenant recoveries in our real estate equity
segment. Escalation income increased $0.2 million, due to increased
recoverability in connection with higher occupancy and the timing of certain
recoverable expenses.
Interest Income
Interest income relates to our preferred equity investment originated in the
second quarter 2017 in our preferred equity segment.
Other Income
Other income is principally related to lease surrender premiums, insurance
refunds and termination fees in our real estate equity segment. Other income for
the three months ended March 31, 2018 predominantly represents lease surrender
premium payments.
Expenses
Properties - Operating Expenses
Properties - operating expenses decreased $0.5 million due to due to timing of
certain non-recoverable operating expenses and by the disposal of six properties
during 2017 in our real estate equity segment. A majority of these costs are
recovered from our tenants.
Interest Expense
Interest expense decreased $0.3 million due to the disposal of six properties
during 2017 and corresponding repayments of certain mortgage notes and due to
the refinancing of certain mortgage notes in our real estate equity segment in
the third quarter 2017.

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Transaction Costs
Transaction costs for the three months ended March 31, 2018 were primarily
related to costs associated with the strategic review committee which was
established in 2017 in our corporate segment. Transaction costs for the three
months ended March 31, 2017 were primarily related to the Mergers in our
corporate segment.
Management Fee, Related Party
Management fee, related party relates to the management fee incurred to our
Manager in our corporate segment (refer to "Related Party Arrangements" below
for more information).
Other Expenses
Other expenses primarily represent third-party service provider fees such as
asset management, accounting, tax, legal fees and other compliance related fees
related to portfolio management of our real estate equity segment. The decrease
of $0.6 million is due to our Manager's internalization of certain third-party
accounting, tax and asset management services.
General and Administrative Expenses
General and administrative expenses including external and internal audit, legal
fees and other corporate expenses are incurred in our corporate segment. The
decrease for the three months ended March 31, 2018 is due to the one-time
payroll tax associated with the acceleration of substantially all of our equity
awards due to the Mergers in the first quarter 2017. For the three months ended
March 31, 2018, our Manager allocated $0.3 million of Internalized Service Costs
to us.
Compensation Expense
Compensation expense is comprised of non-cash amortization of time-based,
market-based and performance-based awards in our corporate segment. The decrease
for the three months ended March 31, 2018, is mainly due to the acceleration of
a material portion of our time-based equity awards due to the Mergers which
occurred in the first quarter of 2017. Refer to Note 7 "Compensation Expense"
and Note 8 "Stockholders' Equity" in our accompanying consolidated financial
statements included in Part I Item 1. "Financial Statements" for further
information.
Depreciation and Amortization
Depreciation and amortization expense decreased due to the disposal of six
properties during 2017 in our real estate equity segment.
Other Income (Loss)
Unrealized Gain (Loss) on Derivatives and Other
Unrealized gain (loss) on derivatives and other is primarily related to the
non-cash change in fair value of derivative instruments. The loss related to
foreign currency forwards used to hedge projected net property level cash flows
in our corporate segment was primarily due to the strengthened Euro against the
U.S. dollar. The decrease in the loss related to the interest rate caps in our
real estate equity segment is due to the movement in European interest rate in
2018 compared to 2017.
The following table presents a summary of unrealized gain (loss) on derivatives
and other for the three months ended March 31, 2018 and 2017 (dollars in
thousands):
                                                              Three Months Ended March 31,
                                                     2018                                       2017
                                    Real Estate                                Real Estate
                                      Equity        Corporate      Total         Equity        Corporate      Total
Change in fair value of:
Derivatives, at fair value
Interest rate caps                 $    (119 )     $       -     $   (119 )   $       319     $       -     $    319
Foreign currency forwards                  -          (1,072 )     (1,072 )             -        (1,264 )     (1,264 )
Foreign currency remeasurement
and other                                  2               -            2              12            (8 )          4
Total unrealized gain (loss) on
derivatives and other              $    (117 )     $  (1,072 )   $ (1,189 )   $       331     $  (1,272 )   $   (941 )



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Realized Gain (Loss) on Sales and Other
The following table presents a summary of realized gain (loss) on sales and
other for the three months ended March 31, 2018 and 2017 (dollars in thousands):
                                                          Three Months Ended March 31,
                                                2018                                       2017
                              Real Estate                                 Real Estate
                                 Equity       Corporate       Total          Equity        Corporate      Total
Sale of real estate
investments(1)                $        -     $       -     $       -     $    3,390       $       -     $  3,390
Foreign currency
transactions(2)                      322           (22 )         300           (409 )            (3 )       (412 )
Other(3)                             892             -           892          1,175               -        1,175
Net cash payments
(receipts) on derivatives              -        (1,740 )      (1,740 )            -             817          817
Total realized gain (loss)
on sales and other            $    1,214     $  (1,762 )   $    (548 )   $  

4,156 $ 814 $ 4,970

_____________________________

(1) Excludes subsequent sale costs relating to 2017 and 2016 sales, respectively,

and escrow arrangements entered into for specific indemnification obligations

in relation to the sales.

(2) Includes $0.3 million and ($0.4 million) for the three months ended March 31,

2018 and 2017, respectively, relating to the reclassification of the currency

translation adjustment from a component of accumulated other comprehensive

income, or OCI, to realized gain (loss) due to the sale of certain real

estate assets.

(3) Includes the release of certain escrow arrangements for specific

indemnification obligations in relation to the 2017 and 2016 sales,

respectively, offset by subsequent costs relating to 2017 and 2016 sales,

    respectively.


Income Tax Benefit (Expense)
The income tax expense for the three months ended March 31, 2018 represents a
net expense of $0.1 million related to our real estate equity segment. The
income tax expense for the three months ended March 31, 2017 represents a net
benefit of $0.3 million primarily related to deferred tax benefits for our
assets in our real estate equity segment.

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Same Store Analysis
The following table presents our same store analysis for the real estate equity
segment which represents 25 properties (323,458 square meters) adjusted for
currency movement and excludes properties that were acquired or sold at any time
during the three months ended March 31, 2018 and 2017 (dollars in thousands):
                                              Same Store(4)
                                      Three Months Ended March 31,             Increase (Decrease)
                                        2018                2017(1)           Amount            %
Occupancy (end of period)                   85.5 %                83.2 %
Same store
Rental income(2)                 $        27,360       $        27,197     $      163
Escalation income                          5,243                 4,838            405
Other income                                 242                    29            213
Total revenues                            32,845                32,064            781           2.4  %
Utilities                                  1,467                 1,675           (208 )
Real estate taxes and insurance            1,317                 1,327            (10 )
Management fees                              534                   534              -
Repairs and maintenance                    2,454                 2,532            (78 )
Other(2)(3)                                  943                 1,415           (472 )
Properties - operating expenses            6,715                 7,483      

(768 ) (10.3 )% Same store net operating income $ 26,130 $ 24,581 $ 1,549

           6.3  %


_____________________________

(1) Three months ended March 31, 2017 is translated using the average exchange

rate for the three months ended March 31, 2018.

(2) Adjusted to exclude amortization of above/below market leases and ground

leases.

(3) Includes bad debt expense, ground rent, administrative costs and other

non-reimbursable expenses.

(4) We believe same store net operating income, a non-GAAP metric, is a useful

metric for evaluating the operating performance as it reflects the operating

performance of the real estate portfolio excluding the effects of non-cash

adjustments and provides a better measure of operational performance for a

quarter-over-quarter comparison. Same store net operating income is presented

for the same store portfolio, which represents all properties that were owned

by us in the end of the reporting period. We define same store net operating

income as NOI excluding (i) properties that were acquired or sold during the

period, (ii) impact of foreign currency changes and (iii) amortization of

above/below market leases. We consider same store net operating income to be

an appropriate and useful supplemental performance measure. Same store net

operating income should not be considered as an alternative to net income

(loss), determined in accordance with U.S. GAAP, as an indicator of operating

performance. In addition, our methodology for calculating same store net

operating income involves subjective judgment and discretion and may differ

from the methodologies used by other comparable companies, including other

REITs, when calculating the same or similar supplemental financial measures

and may not be comparable with these companies. Refer below for a

reconciliation of same store NOI to net income (loss) attributable to common

stockholders calculated in accordance with U.S. GAAP.


Same Store Revenue
Same store rental income increased driven primarily due to 2017 leasing activity
and rent reviews completed during the year offset by the first quarter of 2017
preceded value enhancing lease extensions in the Maastoren property.
Same Store Expense
Same store properties - operating expenses decreased due to timing of certain
non-recoverable operating expenses.

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Table of Contents

Reconciliation of Net Income to Same Store
The following table presents a reconciliation from net income (loss) to same
store net operating income for the real estate equity segment for the three
months ended March 31, 2018 and 2017 (dollars in thousands):
                                                 Same Store Reconciliation
                                                Three Months Ended March 31,
                                                    2018               2017
Net income (loss)                            $        (1,277 )     $  (15,526 )
Corporate segment net (income) loss(1)                 9,737           22,844
Other (income) loss(2)                                18,530           16,366
Net operating income                                  26,990           23,684
Sale of real estate investments and other(3)            (131 )            897   (5)
Interest income(4)                                      (729 )              -
Same store net operating income              $        26,130       $   

24,581

_____________________________

(1) Includes management fees, general and administrative expense, compensation

expense, corporate interest expense and corporate transaction costs.

(2) Includes depreciation and amortization expense, unrealized loss on interest

rate caps, and other expenses in the real estate equity segment.

(3) Represents the impact of sold assets.

(4) Represents interest income earned in the preferred equity segment.

(5) Three months ended March 31, 2017 is translated using the average exchange

rate for the three months ended March 31, 2018.


Liquidity and Capital Resources
Our financing strategy is to employ investment-level financing to prudently
leverage our investments and deliver attractive risk-adjusted returns to our
stockholders through a wide range of secured and unsecured debt and public and
private equity capital sources to fund our investment activities. In addition to
investment-specific financings, we may use and have used credit facilities and
repaid facilities on a shorter term basis and public and private, secured and
unsecured debt issuances on a longer term basis.
Our current primary liquidity needs are to fund:
• our operating expenses and investment activities;


• acquisitions of our target assets and related ongoing commitments;

• capital improvements

• distributions to our stockholders;

• principal and interest payments on our borrowings; and

• income tax liabilities of taxable REIT subsidiaries and we are subject to

limitations as a REIT.

Our current primary sources of liquidity are: • cash flow generated from our investments, both from operations and return

of capital

• net proceeds from asset disposals;

•      financings secured by our assets such as mortgage notes, longer term
       senior and subordinate corporate capital such as revolving credit
       facilities; and


• cash on hand.


We seek to meet our long-term liquidity requirements, including the repayment of
borrowings and our investment funding needs, through existing cash resources,
issuance of debt or equity capital, return of capital from investments and the
liquidation or refinancing of assets. Nonetheless, our ability to meet a
long-term (beyond one year) liquidity requirement may be subject to obtaining
additional debt and equity financing. Any decision by our lenders and investors
to provide us with financing will depend upon a number of factors, such as our
compliance with the terms of our existing credit arrangements, our financial
performance, industry or market trends, the general availability of and rates
applicable to financing transactions, such lenders' and investors' resources and
policies concerning the terms under which they make capital commitments and the
relative attractiveness of alternative investment or lending opportunities.
As a REIT, we are required to distribute at least 90% of our annual REIT taxable
income to our stockholders, including taxable income where we do not receive
corresponding cash, and we intend to distribute all or substantially all of our
REIT taxable income in order to comply with the REIT distribution requirements
of the Internal Revenue Code and to avoid federal income tax and the

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non-deductible excise tax. On a quarterly basis, our Board determines an
appropriate common stock dividend based upon numerous factors, including CAD,
REIT qualification requirements, availability of existing cash balances,
borrowing capacity under existing credit agreements, access to cash in the
capital markets and other financing sources, our view of our ability to realize
gains in the future through appreciation in the value of our assets, general
economic conditions and economic conditions that more specifically impact our
business or prospects. Future dividend levels are subject to adjustment based
upon our evaluation of the factors described above, as well as other factors
that our Board may, from time-to-time, deem relevant to consider when
determining an appropriate common stock dividend.
In November 2015, our Board authorized the repurchase of up to $100 million of
our outstanding common stock. That authorization expired in November 2016 and at
such time the Board authorized an additional repurchase of up to $100 million of
our outstanding common stock through November 2017. In March 2018, our board of
directors authorized the repurchase of up to $100 million of our outstanding
common stock. The authorization expires in March 2019, unless otherwise extended
by our board of directors. For the three months ended March 31, 2018, the
Company repurchased 1.1 million shares of its common stock for approximately
$13.3 million. For the three months ended March 31, 2017, the Company did not
repurchase any of its shares of its common stock. From the authorization in
March 2018 through May 7, 2018, the Company repurchased 3.4 million shares of
its common stock for approximately $46.3 million.
In March 2018, we amended the Credit Facility, increasing the size to $70
million and extending the term until April 2020 with one year extension option.
The Credit Facility includes an accordion feature, providing for the ability to
increase the facility to $105 million.
We believe that our existing sources of funds should be adequate for purposes of
meeting our short-term liquidity needs. We expect our contractual rental income
to be sufficient to meet our expected capital expenditures, interest expense,
property operating and general and administrative expenses as well as common
dividends declared by us. We may seek to raise additional capital in order to
finance new acquisitions. As of May 7, 2018, total liquidity was $150 million,
comprised of $80 million of unrestricted cash and $70 million of availability
under our Credit Facility.
Cash Flows
The following presents a summary of our activity for the three months ended
March 31, 2018 and 2017:

© Edgar Online, source Glimpses

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Financials ($)
Sales 2018 131 M
EBIT 2018 -
Net income 2018 -
Debt 2018 -
Yield 2018 4,11%
P/E ratio 2018 -
P/E ratio 2019
Capi. / Sales 2018 5,83x
Capi. / Sales 2019 5,88x
Capitalization 761 M
Chart NORTHSTAR REALTY EUROPE CO
Duration : Period :
Northstar Realty Europe Co Technical Analysis Chart | NRE | US66706L1017 | 4-Traders
Technical analysis trends NORTHSTAR REALTY EUROPE CO
Short TermMid-TermLong Term
TrendsNeutralBullishBullish
Income Statement Evolution
Consensus
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Mean consensus OUTPERFORM
Number of Analysts 2
Average target price 16,8 $
Spread / Average Target 15%
Managers
NameTitle
Mahbod Nia President, Chief Executive Officer & Director
Richard Brett Saltzman Chairman
Keith A. Feldman CFO, Principal Accounting Officer & Treasurer
Mario Chisholm Independent Director
Judith A. Hannaway Independent Director
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