NorthStar Realty Europe Announces First Quarter 2019 Results

NEW YORK–(BUSINESS WIRE)–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 Portfolio^4,5

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.

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.

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):

_________________

(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):

_____________________________

(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):

_____________________________

(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):

Contacts

Investor Relations
Gordon Simpson
Finsbury
+1 855
527 8539 or +44 (0) 207 2513801
[email protected]

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