NorthStar Realty Europe Corp. (NYSE: NRE) (“NorthStar
Realty Europe” or “NRE”), a European office REIT, today announced
its results for the first quarter ended March 31,
2019.
First Quarter 2019 Financial Results and Highlights
- U.S. GAAP net income attributable to
common stockholders: $11.1 million, or $0.22 per diluted share for
the first quarter 2019
- Cash available for distribution
(“CAD”): $7.4 million, or $0.15 per share for the quarter despite
significant sale activity in 2018 and lower corporate loan to value
(“LTV”)1
- During the first quarter, NRE sold
three assets for a total consideration of $44 million, releasing
$23 million of net equity and crystallizing an approximate 14% IRR2
and an aggregate 17% IRR over the last twelve months
- $2.6 million of first quarter 2019
annualized cash expense savings compared to full year 2018, ahead
of the $2 million stated target for 2019 and the overall target of
$5 million
- In April 2019, NRE repaid $81 million
Cale Street preferred equity reducing overall LTV to 36%
- Cash dividend of $0.15 per
share declared for the first quarter 2019
Mahbod Nia, Chief Executive Officer and President, commented: “I
am pleased to announce that during the quarter, we completed the
sale of three assets, realizing an approximate 14% IRR. During the
past year we have sold ten assets, crystallizing an aggregate 17%
IRR for stockholders.”
Mr. Nia added: “We also further reduced our leverage and
continued to make progress with our expense saving initiatives that
we anticipate being ahead of our stated targets.”
For more information and a reconciliation of CAD, net operating
income (“NOI”) and same store NOI to net income (loss) attributable
to common stockholders, please refer to the tables on the following
pages.
Portfolio Overview
$1.3 billion portfolio market value3 based on the year-end 2018
independent portfolio valuation by Cushman & Wakefield LLP
adjusted for currency movements (“Portfolio Market Value” or
“Valuation”) comprising of primarily the real estate portfolio and
$40 million across two preferred equity investments.
Real Estate Portfolio4,5
As of March 31, 2019, NRE’s real estate portfolio comprised
of 15 properties located across Germany, the U.K. and France with
approximately 193,000 rentable square meters, 84% weighted average
occupancy and a 6.2 year weighted average remaining lease term to
expiry (“WALT”).
- The office portfolio comprised of 12
properties with 122,000 rentable square meters, had a 96% weighted
average occupancy and a 5.9 year WALT as of March 31,
2019.
- The other (non-office) portfolio, which
represented 7% of the Q1 2019 portfolio NOI, comprised of three
properties with 71,000 rentable square meters (including a 59,000
square meters logistics asset, Marly), had a 63% weighted average
occupancy (100% excluding Marly) and a 8.8 year WALT as of
March 31, 2019.
Asset Sales
In 2019, NRE sold three properties for approximately $44 million
releasing approximately $23 million of net equity to stockholders
after repayment of financing and transactions costs, crystallizing
an approximate 14% IRR.
- On February 14, 2019, NRE completed the
sale of a retail asset in Werl, Germany for $2.9 million. On March
1, 2019, NRE completed the sale of Kirchheide, a retail asset in
Bremen, Germany for $1.1 million.
- On March 1, 2019, NRE completed the
sale of Uhlandstrasse, an office property in Frankfurt, Germany,
for $40 million, representing a 65% premium to the allocated
purchase price including funded capital expenditures, releasing
approximately $22 million of net equity after repayment of
financing and transaction costs.
- Marly, NRE’s only logistics asset, was
held for sale as of March 31, 2019.
Same Store Net Operating Income (Currency
Adjusted; Excluding Held for Sale)
Same store sequential quarter-over-quarter rental income
increased by $0.1 million, or 0.9%, due to indexation uplifts
offset by partial vacancy in Dammtorwall (fully let from March
2019) and Marceau. Same store quarter-over-quarter NOI decreased by
$0.2 million, or (1.5%), due to the timing of certain
non-recoverable repairs and maintenance expenses specifically in IC
Hotel (Berlin) and Ludwigstrasse (Cologne) incurred in the first
quarter 2019. The remainder of the increase in operating expenses
were reimbursed by the tenants and therefore did not result in a
decrease in NOI.
Same store year-over-year rental income for the three months
ended March 31, 2019 decreased by $0.1 million, or (0.7)%,
driven by partial vacancy mentioned above and as the first quarter
of 2018 preceded the execution of certain value enhancing
leases, including a 9 year lease extension with BNP Paribas SA at
Boulevard Macdonald and a 10 year lease extension with Baker Tilly
at Valentinskamp. Same store year-over-year NOI for the three
months ended March 31, 2019 decreased by $0.3 million, or
(1.8%), driven by the non-recoverable expenses mentioned above.
Expense Saving Initiatives
In addition to the $3 million of savings in other expenses and
general and administrative expenses realized in 2018, NRE remains
on track to achieve an additional $2-3 million of savings during
2019, exceeding the overall expense saving target of $5
million.
Liquidity and Financing
As of March 31, 2019, NRE’s overall leverage was 39% based
on the Portfolio Market Value. On April 5, 2019, NRE fully repaid
the $81 million preferred equity debt related to the SEB portfolio,
reducing leverage to 36%.
As of April 24, 2019, total liquidity was $433 million,
comprising of $363 million of unrestricted cash, of which $196
million was held in US Dollars, and $70 million of availability
under NRE’s revolving credit facility.
$ in millions Unrestricted cash $ 363
Revolving credit facility 70
Total liquidity $
433
Amended and Restated Management Agreement
On April 23, 2019, NRE entered into Amendment No. 2 to the
amended and restated management agreement (the “Amended and
Restated Management Agreement”) dated November 9, 2017, with an
affiliate of Colony Capital, Inc., extending the date used in the
definition of Triggering Date (as defined in the Amended and
Restated Management Agreement) from April 30, 2019 to June 30, 2019
to accommodate the ongoing strategic review process.
Stockholder’s Equity
NRE had 50.1 million shares of common stock, operating
partnership units and restricted stock units (“RSUs”) not subject
to performance hurdles outstanding as of March 31, 2019.
As of March 31, 2019, total equity was $682 million (U.S.
GAAP depreciated value), or $13.62 per share and EPRA NAV6 was
$20.48 per share. For more information and a reconciliation of EPRA
NAV to total equity, please refer to the tables on the following
pages.
First Quarter 2019 Disclosure Supplement Presentation
First Quarter 2019 disclosure supplement presentation will be
posted on NRE’s website, www.nrecorp.com, which provides additional
details regarding NRE’s operations and portfolio.
First Quarter 2019 Conference Call
NRE will conduct a conference call to discuss the results on May
8, 2019 at 9:00 a.m. ET. Hosting the call will be Mahbod Nia, Chief
Executive Officer, Keith Feldman, Chief Financial Officer and
Trevor Ross, General Counsel.
To participate in the event by telephone, please dial +1 866 966
5335 (U.S. Toll Free), or +44 (0) 20 3003 2666 (International) or
0808 109 0700 (U.K. Toll Free), using passcode: NorthStar.
The call will also be broadcast live over the internet and can
be accessed from NRE’s website at www.nrecorp.com. For those unable
to participate during the live call, a replay of the call will be
available approximately two hours after the call through May 15,
2019 by dialing +1 866 583 1039 (U.S. Toll Free), or +44 (0) 20
8196 1998 (International) or 0800 633 8453 (UK Toll Free), using
passcode: 3902609.
About NorthStar Realty Europe Corp.
NorthStar Realty Europe Corp. is a European focused commercial
real estate company with predominately prime office properties
within key cities in Germany, the United Kingdom and France,
organized as a REIT and managed by an affiliate of Colony Capital,
Inc. (NYSE: CLNY), a leading global equity REIT with an embedded
investment management platform. For more information about
NorthStar Realty Europe Corp., please visit www.nrecorp.com.
NorthStar Realty Europe Corp.
Consolidated Balance Sheets
($ in thousands, except per share
data)
Unaudited
March 31, 2019 December 31, 2018
Assets Operating real estate, gross $ 843,212
$ 844,809 Less: accumulated depreciation
(68,143)
(64,187)
Operating real estate, net 775,069 780,622 Preferred equity
investments 39,754 39,090 Cash and cash equivalents 453,373 438,931
Restricted cash 5,093 5,592
Receivables, net of allowance of $232 and
$236 as of March 31, 2019 andDecember 31, 2018, respectively
8,097 8,989 Assets held for sale 45,891 73,345 Derivative assets,
at fair value 5,255 6,440 Intangible assets, net and goodwill
25,390 58,173 Other assets, net 47,805 14,317
Total assets $ 1,405,727 $
1,425,499
Liabilities Mortgage and
other notes payable, net $ 663,214 $ 682,912 Accounts payable and
accrued expenses 21,935 22,367 Due to affiliates 10,227 9,630
Intangible liabilities, net 9,492 9,722 Liabilities related to
assets held for sale 2,007 1,498 Other liabilities 16,473
21,267
Total liabilities 723,348
747,396 Commitments and contingencies
Equity NorthStar Realty Europe Corp. Stockholders’
Equity
Preferred stock, $0.01 par value,
200,000,000 shares authorized, no sharesissued and outstanding as
of March 31, 2019 and December 31, 2018
— —
Common stock, $0.01 par value,
1,000,000,000 shares authorized, 49,783,016and 49,807,448 shares
issued and outstanding as of March 31, 2019 andDecember 31, 2018,
respectively
497 498 Additional paid-in capital 863,112 862,240 Retained
earnings (accumulated deficit)
(167,063)
(170,669)
Accumulated other comprehensive income (loss)
(18,322)
(18,424)
Total NorthStar Realty Europe Corp.
stockholders’ equity
678,224 673,645 Noncontrolling
interests 4,155 4,458
Total
equity 682,379 678,103
Total
liabilities, redeemable noncontrolling interest and equity $
1,405,727 $ 1,425,499
NorthStar Realty Europe Corp.
Consolidated Statements of
Operations
($ in thousands, except for per share
data)
Unaudited
Three Months Ended March 31, 2019 2018
Revenues Lease income $ 17,084 $ 32,565
Interest income 1,611 729 Other income 475
278 Total revenues 19,170
33,572
Expenses Properties - operating
expenses 2,906 6,802 Interest expense 3,680 6,107 Transaction costs
762 481 Management fee, related party 3,888 4,157 Other expenses
737 1,424 General and administrative expenses 1,736 1,878
Compensation expense 1,287 365 Depreciation and amortization 5,913
11,651 Total expenses 20,909 32,865
Other income (loss) Other gain (loss), net
(2,517)
(3,002)
Extinguishment of debt
(194)
— Gain on sales, net 17,725
1,266
Income (loss) before income tax benefit
(expense) 13,275
(1,029)
Income tax benefit (expense)
(2,152)
(39)
Net income (loss) 11,123
(1,068)
Net (income) loss attributable to
noncontrolling interests
(62)
(4)
Net income (loss) attributable to
NorthStar Realty Europe Corp. common stockholders
$ 11,061 $
(1,072)
Earnings (loss) per share: Basic $ 0.22
$
(0.02)
Diluted $ 0.22 $
(0.02)
Weighted average number of shares: Basic 49,314,342
55,192,762 Diluted 50,670,072
55,603,500
Non-GAAP Financial
Measures
Included in this press release are Cash Available for
Distribution, or CAD, net operating income, or NOI, same store net
operating income, or same store NOI, Adjusted Earnings before
Interest, Taxes, Depreciation and Amortization, or Adjusted EBITDA
and EPRA net asset value, or EPRA NAV, each a “non-GAAP financial
measure,” which measures NRE’s historical or future
financial performance that is 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 the applicable Securities and Exchange Commission,
or SEC, rules. NRE believes these metrics can be a
useful measure of its performance which is further defined
below.
Cash Available for Distribution
We believe that CAD provides investors and management with a
meaningful indicator of operating performance. We also believe that
CAD is useful because it adjusts for a variety of items that are
consistent with presenting a measure of operating performance (such
as transaction costs, depreciation and amortization, equity-based
compensation, gain on sales, net, asset impairment and
non-recurring bad debt expense). We adjust for transaction costs
because these costs are not a meaningful indicator of our operating
performance. For instance, these transaction costs include costs
such as professional fees associated with new investments, which
are expenses related to specific transactions. Management also
believes that quarterly distributions are principally based on
operating performance and our board of directors includes CAD as
one of several metrics it reviews to determine quarterly
distributions to stockholders. The definition of CAD may be
adjusted from time to time for our reporting purposes in our
discretion, acting through our audit committee or otherwise. CAD
may fluctuate from period to period based upon a variety of
factors, including, but not limited to, the timing and amount of
investments, new leases, repayments and asset sales, capital
raised, use of leverage, changes in the expected yield of
investments and the overall conditions in commercial real estate
and the economy generally.
We calculate CAD by subtracting from or adding to net income
(loss) attributable to common stockholders, noncontrolling
interests and the following items: depreciation and amortization
items including straight-line rental income or expense (excluding
amortization of rent free periods), amortization of above/below
market leases, amortization of deferred financing costs,
amortization of discount on financings and other and equity-based
compensation; other gain (loss), net (excluding any realized gain
(loss) on the settlement on foreign currency derivatives); gain on
sales, net; impairment on depreciable property; extinguishment of
debt; acquisition gains or losses; transaction costs; foreign
currency gains (losses) related to sales; goodwill impairment
following the sale of operating real estate and other intangible
assets; the incentive fee relating to the Amended and Restated
Management Agreement and one-time events pursuant to changes in
U.S. GAAP and certain other non-recurring items. These items, if
applicable, include any adjustments for unconsolidated
ventures.
CAD should not be considered as an alternative to net income
(loss) attributable to common stockholders, determined in
accordance with U.S. GAAP, as an indicator of operating
performance. In addition, our methodology for calculating CAD
involves subjective 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.
The following table presents a reconciliation of net income
(loss) attributable to common stockholders to CAD for the three
months ended March 31, 2019 and 2018 (dollars in
thousands):
Three Months Ended March 31, 2019
2018
Net income (loss) attributable to
common stockholders
$ 11,061 $
(1,072)
Noncontrolling interests 62 4
Adjustments:
Depreciation and amortization items(1) 7,418 12,952 Other (gain)
loss, net(2) 3,663 1,586 (Gain) on sales, net
(17,725)
(1,266)
Transaction costs and other(3) 2,926 481
CAD
$ 7,405 $ 12,685
CAD per share(4) $ 0.15
$ 0.23
_________________
(1) Three months ended March 31, 2019 reflects an
adjustment to exclude depreciation and amortization of $5.9
million, amortization expense of capitalized above/below market
leases of $(0.3) million, amortization of deferred financing
costs of $0.5 million and amortization of equity-based compensation
of $1.3 million. Three months ended March 31, 2018
reflects an adjustment to exclude depreciation and amortization
of $11.7 million, amortization expense of capitalized
above/below market leases of $0.2 million, amortization of
deferred financing costs of $0.7 million and amortization
of equity-based compensation of $0.4 million.
(2) Three months ended March 31, 2019 CAD includes a $1.1
million net gain related to the settlement of foreign currency
derivatives. Three months ended March 31, 2018 CAD includes a
$1.4 million net loss related to the settlement of foreign currency
derivatives.
(3) Three months ended March 31, 2019 reflects an adjustment to
exclude $0.8 million of transaction costs, $0.2 million related to
extinguishment of debt and $2.0 million of taxes related to sales.
Three months ended March 31, 2018 reflects an adjustment to
exclude $0.5 million of transaction costs and other one-time
items.
(4) CAD per share is based on 50.1 million and 55.8 million
weighted average shares (common shares outstanding including
operating partnership units and RSUs not subject to performance
hurdles) for the three months ended March 31, 2019 and 2018,
respectively. CAD per share does not take into account any
potential dilution from restricted stock units subject to
performance metrics not currently achieved.
Net Operating Income
We believe NOI is a useful metric for evaluating the operating
performance of our real estate portfolio in the aggregate.
Portfolio results and performance metrics represent 100% for all
consolidated investments. Net operating income reflects total
property and related revenues, adjusted for: (i) amortization of
above/below market leases; (ii) straight-line rent (except with
respect to rent free period); (iii) other items such as adjustments
related to joint ventures and non-recurring bad debt expense and
less property operating expenses. However, the usefulness of NOI is
limited because it excludes general and administrative costs,
interest expense, transaction costs, depreciation and amortization
expense, gains on sales, net and other items under U.S. GAAP and
capital expenditures and leasing costs, all of which may be
significant economic costs. NOI may fail to capture significant
trends in these components of U.S. GAAP net income (loss) which
further limits its usefulness.
NOI 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
NOI 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.
The following table presents a reconciliation of NOI of our real
estate equity and preferred equity segments to property and other
related revenues less property operating expenses for the three
months ended March 31, 2019 and 2018 (dollars in
thousands):
Three Months Ended March 31, 2019
2018 Lease income $ 17,084 $ 32,565
Other income 475 278 Total property and other income
17,559 32,843 Properties - operating expenses 2,906
6,802
Adjustments:
Interest income 777 729 Amortization and other items(1)
(252)
220
NOI(2) $ 15,178
$ 26,990
_____________________________
(1) Three months ended March 31, 2019 primarily excludes
$(0.3) million of amortization of above/below market leases. Three
months ended March 31, 2018 primarily excludes $0.2 million of
amortization of above/below market leases and $0.1 million of other
one-time items.
(2) The following table presents a reconciliation of net income
(loss) to NOI of our real estate equity and preferred equity
segment for the three months ended March 31, 2019 and 2018
(dollars in thousands):
Three Months Ended March 31, 2019
2018 Net income (loss) $ 11,123
$
(1,068)
Remaining segments(i) 9,276 9,528
Real estate equity
and preferred equity segment adjustments:
Interest expense 3,454 5,955 Other expenses 737 1,424 Depreciation
and amortization 5,913 11,651 Other (gain) loss, net 331 168
Extinguishment of debt 194 — Gain on sales, net
(17,725)
(1,266)
Income tax (benefit) expense 2,152 39 Other items
(277)
559 Total adjustments
(5,221)
18,530
NOI $ 15,178
$ 26,990
_____________________________
(i) Reflects the net (income) loss in our corporate segment to
reconcile to net operating income.
Same Store Net Operating Income
We believe same store NOI is a useful metric for evaluating the
operating performance as it reflects the operating performance of
the real estate portfolio and provides a better measure of
operational performance for quarter-over-quarter and year-over-year
comparison. Same store net operating income is presented for the
same store portfolio, which comprises all properties that were
owned by us at 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 NOI to be an appropriate and useful
supplemental performance measure. Same store NOI 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. Same store portfolio is
defined as properties in operation throughout the full periods
presented under the comparison, excluding the impact of foreign
currency changes, and included 14 properties (excluding an asset
held for sale) and our preferred equity segment (in case of
quarter-over-quarter and year-over-year comparison).
The following table presents our same store analysis for the
Gresham Street preferred equity and real estate equity segment
which comprises 14 properties (134,047 square meters) adjusted for
currency movement and to exclude the held for sale asset as of
March 31, 2019 and properties that were acquired or sold at any
time during the three months ended March 31, 2019 and 2018 and
December 31, 2018 (dollars in thousands):
Three Months Ended March31,
Year-over-year Increase
(Decrease)
Three Months Ended
December
31, 2018(1)
Quarter-over-quarter Increase
(Decrease)
2019 2018(1) Amount
% Amount % Same Store Occupancy (end of
period)
96%
97%
96%
Same store Rental income(2) $ 13,357 $ 13,453 $
(96)
(0.7%)
$
13,242
$
115
0.9%
Escalation income
$ 2,569 $ 2,187 382 2,592
(23)
Lease income
15,926
15,640
286
1.8%
15,834
92
0.6%
Interest income $ 681 $ 674 7 688
(7)
Other income 63 136
(73)
74
(11)
Total revenues 16,670 16,450 220
1.3%
16,596 74
0.4%
Utilities 689 526 163 549 140 Real estate taxes and insurance 708
571 137 660 48 Management fees 129 209
(80)
222
(93)
Repairs and maintenance 1,095 839 256 845 250 Other(2)(3) 203
204
(1)
268 (65 ) Properties - operating expenses
2,824 2,349 475
20.2%
2,544 280
11.0%
Same store net operating income $ 13,846
$ 14,101 $
(255)
(1.8%)
$ 14,052 $
(206)
(1.5%)
_____________________________
(1) Three months ended December 31, 2018 and March 31, 2018 are
translated using the average exchange rate for the three months
ended March 31, 2019.
(2) Adjusted to exclude amortization of above/below market
leases and ground leases.
(3) Includes non-recoverable value-added tax, or VAT,
administrative costs and other non-reimbursable expenses.
The following table presents a reconciliation from net income
(loss) to same store net operating income for the real estate
equity and preferred equity segments for the three months ended
March 31, 2019 and 2018 and December 31, 2018 (dollars in
thousands):
Three Months Ended March 31,
Three MonthsEndedDecember
31, 2018
2019 2018 Net income (loss) $ 11,123 $
(1,068)
$ 171,466 Corporate segment net (income) loss(1) 9,276 9,528 13,305
(Gain) on sales, net
(17,725)
(1,266)
(198,767)
Other (income) loss(2) 12,504 19,796 36,351
Net operating income 15,178 26,990 22,355 Sale
of real estate investments and other(3)
(1,332)
(12,889)
(8,303)
Same store net operating income $ 13,846 $ 14,101 $
14,052
_____________________________
(1) Includes management fees, general and administrative
expense, compensation expense, corporate interest expense and
corporate transaction costs offset by the net gain on foreign
currency derivatives.
(2) Includes depreciation and amortization expense, loss on
interest rate caps and other expenses in the real estate equity
segment.
(3) Primarily reflects the impact of net operating income of
sold assets, interest income on the Trianon preferred equity
investment and the foreign currency effect relating to the
translation of the March 31, 2018 and December 31, 2018 balances to
the March 31, 2019 exchange rate.
Adjusted EBITDA
We believe that Adjusted EBITDA provides investors and
management with a meaningful indicator of operating performance. We
also believe that Adjusted EBITDA is useful because it adjusts for
a variety of items that are consistent with presenting a measure of
operating performance (such as depreciation and amortization,
interest expense, income tax benefit (expense), gain on sales, net,
transaction costs, equity-based compensation and asset impairment).
The definition of Adjusted EBITDA may be adjusted from time to time
for our reporting purposes in our discretion, acting through our
audit committee or otherwise. Adjusted EBITDA may fluctuate from
period to period based upon a variety of factors, including, but
not limited to, the timing and amount of investments, new leases,
repayments and asset sales, capital raised, changes in the expected
yield of investments and the overall conditions in commercial real
estate and the economy generally.
We calculate Adjusted EBITDA by subtracting from or adding to
net income (loss) attributable to common stockholders,
noncontrolling interests and the following items: depreciation and
amortization items including straight-line rental income or expense
(excluding amortization of rent free periods), amortization of
above/below market leases and equity-based compensation; interest
expense; income tax (benefit) expense; other gain (loss), net
(excluding any realized gain (loss) on the settlement on foreign
currency derivatives); gain on sales, net; impairment on
depreciable property; extinguishment of debt; acquisition gains or
losses; transaction costs; foreign currency gains (losses) related
to sales; goodwill impairment following the sale of operating real
estate and other intangible assets; the incentive fee relating to
the Amended and Restated Management Agreement and one-time events
pursuant to changes in U.S. GAAP and certain other non-recurring
items. These items, if applicable, include any adjustments for
unconsolidated ventures.
Adjusted EBITDA should not be considered as an alternative to
net income (loss) attributable to common stockholders, determined
in accordance with U.S. GAAP, as an indicator of operating
performance. In addition, our methodology for calculating Adjusted
EBITDA 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.
The following table presents a reconciliation of net income
(loss) attributable to common stockholders to Adjusted EBITDA for
the three months ended March 31, 2019, December 31, 2018 and
March 31, 2018 (dollars in thousands):
Three Months Ended March 31, 2019 December
31, 2018 March 31, 2018
Net income (loss) attributable to
commonstockholders
$ 11,061 $ 170,271 $
(1,072)
Noncontrolling interests 62 1,195 4
Adjustments:
Depreciation and amortization items(1) 6,948 12,157 12,236
Impairments(2) — 8,889
— Incentive fee — 5,445 — Income tax (benefit) expense 2,152 949 39
Interest expense 3,680 4,663 6,107 Other (gain) loss, net(3) 3,663
(351)
1,586 (Gain) on sales, net
(17,725)
(198,767)
(1,266)
Transaction costs and other(4) 956 11,067 481
Adjusted EBITDA $ 10,797 $
15,518 $ 18,115
_____________________________
(1) Three months ended March 31, 2019 reflects an
adjustment to exclude depreciation and amortization of $5.9
million, amortization expense of capitalized above/below market
leases of $(0.3) million and amortization of equity-based
compensation of $1.3 million. Three months ended December 31,
2018 reflects an adjustment to exclude depreciation and
amortization of $10.9 million and amortization of equity-based
compensation of $1.3 million. Three months
ended March 31, 2018 reflects an adjustment to exclude
depreciation and amortization of $11.7 million, amortization
expense of capitalized above/below market leases of $0.2
million and amortization of equity-based compensation
of $0.4 million.
(2) Three months ended December 31, 2018 reflects an
adjustment to exclude a goodwill impairment following the sale of
operating real estate of $8.1 million and an impairment loss
related to assets held-for-sale of $0.8 million.
(3) Three months ended March 31, 2019 Adjusted EBITDA
includes a $1.1 million net gain related to the settlement of
foreign currency derivatives. Three months ended December 31,
2018 Adjusted EBITDA includes a $0.1 million net gain related to
the settlement of foreign currency derivatives. Three months ended
March 31, 2018 Adjusted EBITDA includes a $1.4 million net
loss related to the settlement of foreign currency derivatives.
(4) Three months ended March 31, 2019 reflects an adjustment to
exclude $0.8 million of transaction costs and $0.2 million related
to extinguishment of debt. Three months ended December 31, 2018
reflects an adjustment to exclude $8.3 million of transaction costs
and $2.8 million related to extinguishment of debt. Three months
ended March 31, 2018 reflects an adjustment to exclude $0.5
million of transaction costs and other one-time items.
EPRA Net Asset Value (EPRA NAV)
As our entire portfolio is based in Europe, our management
calculates European Public Real Estate Association net asset value,
or EPRA NAV, a non-GAAP measure, to compare our balance sheet to
other European real estate companies and believes that disclosing
EPRA NAV provides investors with a meaningful measure of our net
asset value. Our calculation of EPRA NAV is derived from our U.S.
GAAP balance sheet with adjustments reflecting our interpretation
of EPRA’s best practices recommendations. Accordingly, our
calculation of EPRA NAV may be different from how other European
real estate companies calculate EPRA NAV, which utilize
International Financial Reporting Standards (“IFRS”) to prepare
their balance sheet. EPRA NAV makes adjustments to net assets as
determined in accordance with U.S. GAAP in order to provide our
stockholders a measure of fair value of our assets and liabilities
with a long-term investment strategy. This performance measure
excludes assets and liabilities that are not expected to
materialize in normal circumstances. EPRA NAV includes the
revaluation of investment properties and excludes the fair value of
financial instruments that we intend to hold to maturity, deferred
tax and goodwill that resulted from deferred tax. All other assets,
including real property and investments reported at cost are
adjusted to fair value based upon an independent third party
valuation conducted in December and June of each year. This measure
should not be considered as an alternative to measuring our net
assets in accordance with U.S. GAAP.
The following table presents a reconciliation of total equity to
EPRA NAV as at March 31, 2019 (dollars in thousands, other
than per share data):
March 31, 2019 Total Equity $
682,379
Adjustments
Operating real estate, net intangibles and other
(871,448)
Fair value of properties 1,216,000 Adjusted NAV 1,026,931
Diluted NAV, after the exercise of options,
convertibles and other equity interests 1,026,931 Fair value of
financial instruments
(901)
EPRA NAV 1,026,030 EPRA NAV per
share(1) $ 20.48
______________
(1) Based on 50.1 million common shares, operating partnership
units and RSUs not subject to performance hurdles outstanding as of
March 31, 2019. EPRA NAV per share does not take into account
any potential dilution from restricted stock units subject to
performance metrics not currently achieved.
Safe Harbor Statement
This press release contains certain “forward looking statements”
within the meaning of the Private Securities Litigation Reform Act
of 1995, Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended.
Forward looking statements are generally identifiable by use of
forward looking terminology such as “may,” “will,” “should,”
“potential,” “intend,” “expect,” “seek,” “anticipate,” “estimate,”
“believe,” “could,” “project,” “predict,” “hypothetical,”
“continue,” “future” or other similar words or expressions. Forward
looking statements are not guarantees of performance and are based
on certain assumptions, discuss future expectations, describe plans
and strategies, contain projections of results of operations or of
financial condition or state other forward looking information.
Such statements include, but are not limited to, the likelihood and
timing of successfully completing sales transactions and the amount
of the net equity released after repayment of financing and
transaction costs; the expected cost savings as a result of
operational efficiencies, the time required to achieve such run
rate cost savings; the availability of future borrowings under the
revolving credit facility; the ability to execute on NRE’s
strategy; NRE’s ability to maintain dividend payments, at current
levels, or at all, and the timing of dividend levels declared.
Forward looking statements are necessarily speculative in nature,
and it can be expected that some or all of the assumptions
underlying any forward-looking statements will not materialize or
will vary significantly from actual results. Variations of
assumptions and results may be material. Factors that could cause
actual results to differ materially from NRE’s expectations
include, but are not limited to, NRE’s liquidity and financial
flexibility; NRE’s future cash available for distribution; the pace
and result of any asset disposals contemplated by NRE; NRE’s use of
leverage; the result of the ongoing review of the strategic
alternatives for the company; and the anticipated strength and
growth of NRE’s business. Factors that could cause actual results
to differ materially from those in the forward looking statements
are specified in NRE’s annual report on Form 10-K for the year
ended December 31, 2018, and its other filings with the Securities
and Exchange Commission. Such forward looking statements speak only
as of the date of this press release. NRE 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.
Disclaimer
As an opinion, the valuation by Cushman & Wakefield LLP
referenced in this release is not a measure of realizable value and
may not reflect the amount that would be received if the property
in question were sold. Real estate valuation is inherently
subjective due to, among other factors, the individual nature of
each property, its location, the expected future rental revenues
from that particular property and the valuation methodology
adopted. Real estate valuations are subject to a large degree of
uncertainty and are made on the basis of assumptions and
methodologies that may not prove to be accurate, particularly in
periods of volatility, low transaction flow or restricted debt
availability in the commercial or residential real estate markets.
For example, in the appraisal, a number of the properties were
valued using the special assumption that such properties would be
purchased through a tax-efficient special purpose vehicle, and is
therefore subject to lower purchaser transaction expenses. If
one or more assumptions are incorrect, the value may be materially
lower than the appraised value.
Endnotes
1. Leverage, or loan to value, is calculated as property level
debt plus portfolio level preferred equity divided by the Portfolio
Market Value and unrestricted cash net of any outstanding balance
on the revolving credit facility.
2. IRR = Internal Rate of Return.
3. The external third-party valuation was prepared by Cushman
& Wakefield LLP in accordance with the current U.K. and Global
edition of the Royal Institution of Chartered Surveyors' (RICS)
Valuation - Professional Standards (the "Red Book") on the basis of
"Fair Value", which is widely recognized within Europe as the
leading professional standards for independent valuation
professionals. Each property is classified as an investment and has
been valued on the basis of Fair Value adopted by the International
Accounting Standards Board. This is the equivalent to the Red Book
definition of Market Value. The Red Book defines Market Value as
the estimated amount for which an asset or liability should
exchange on the valuation date between a willing buyer and a
willing seller in an arm's-length transaction after proper
marketing where the parties had each acted knowledgeably, prudently
and without compulsion. The Cushman & Wakefield LLP valuation
assumes that certain properties would be purchased through market
accepted structures resulting in lower purchaser transaction
expenses (taxes, duties, and similar costs). This Cushman &
Wakefield LLP valuation is as of December 31, 2018, adjusted for
currency movements as of March 31, 2019.
The $1.3 billion Portfolio Market Value comprises $1.2 billion
real estate portfolio value based on the independent valuation by
Cushman & Wakefield LLP and $40 million across two preferred
equity investments (please refer to Note 11, “Fair Value” in the
NRE Quarterly Report on Form 10-Q for the three months ended March
31, 2019 included in Part I Item 1. “Financial Statements”).
4. Excludes the preferred equity investment.
5. Occupancy and weighted average remaining contractual lease
term based on rent roll as of March 31, 2019, on a same store
basis.
6. EPRA = European Public Real Estate. EPRA Net Asset Value
(“EPRA NAV”).
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version on businesswire.com: https://www.businesswire.com/news/home/20190508005393/en/
Investor RelationsGordon SimpsonFinsbury+1 855 527 8539
or +44 (0) 207 2513801nre@finsbury.com
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