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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017
Commission File Number: 001-37597
NORTHSTAR REALTY EUROPE CORP.
(Exact Name of Registrant as Specified in its Charter)
Maryland
(State or Other Jurisdiction of
Incorporation or
Organization)
32-0468861
(IRS Employer
Identification No.)
399 Park Avenue, 18th Floor, New York, NY 10022
(Address of Principal Executive Offices, Including Zip Code)
(212) 547-2600
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes  x     No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x     No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o
 
Accelerated filer x
 
Non-accelerated filer o
  (Do not check if a
smaller reporting company)
 
Smaller reporting company o

Emerging growth company x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o     No  x
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:
The Company has one class of common stock, $0.01 par value per share, 55,396,627 shares outstanding as of November 6, 2017 .
 


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NORTHSTAR REALTY EUROPE CORP.
FORM 10-Q
TABLE OF CONTENTS

Index
 
Page
 
 
 
 
 
 
 
 
 
 






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FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form  10-Q 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, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or Exchange Act. 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,” “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, those relating to the operating performance of our investments, our liquidity and financing needs, the effects of our current strategies and investment activities, our ability to grow our business, our expected leverage, our expected cost of capital, our ability to divest non-strategic properties, our management’s track record and our ability to raise and effectively deploy capital. Our ability to predict results or the actual effect of plans or strategies is inherently uncertain, particularly given the economic environment. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements and you should not unduly rely on these statements. These forward-looking statements involve risks, uncertainties and other factors that may cause our actual results in future periods to differ materially from those forward-looking statements. These factors include, but are not limited to:
•
the effect of economic conditions, particularly in Europe, on the valuation of our investments and on the tenants of the real property that we own;
•
the effect of the Mergers (as defined in Note 1) on our business;
•
the ability of Colony NorthStar Inc., or CLNS, to scale its operations in Europe to effectively manage our company;
•
the unknown impact of the exit of the United Kingdom, or Brexit, or one or more other countries from the European Union, or EU, or the potential default of one or more countries in the EU or the potential break-up of the EU;
•
our ability to qualify and remain qualified as a real estate investment trust, or REIT;
•
adverse domestic or international economic geopolitical conditions and the impact on the commercial real estate industry;
•
volatility, disruption or uncertainty in the financial markets;
•
access to debt and equity capital and our liquidity;
•
our substantial use of leverage and our ability to comply with the terms of our borrowing arrangements;
•
our ability to monetize our assets on favorable terms or at all;
•
our ability to obtain mortgage financing on our real estate portfolio on favorable terms or at all;
•
our ability to acquire attractive investment opportunities and the impact of competition for attractive investment opportunities;
•
the effect of an increased amount of activist stockholders owning our stock and stockholder activism generally;
•
the effects of being an externally-managed company, including our reliance on CLNS and its affiliates and sub-advisors/co-venturers in providing management services to us, the payment of substantial base management and incentive fees to our manager, the allocation of investments by CLNS among us and CLNS’s other sponsored or managed companies and strategic vehicles and various conflicts of interest in our relationship with CLNS;
•
performance of our investments relative to our expectations and the impact on our actual return on invested equity, as well as the cash provided by these investments and available for distribution;
•
restrictions on our ability to engage in certain activities and the requirement that we may be required to access capital at inopportune times as a result of our borrowings;
•
our ability to make borrowings under our credit facility;
•
the impact of adverse conditions affecting office properties;
•
illiquidity of properties in our portfolio;
•
our ability to realize current and expected return over the life of our investments;
•
tenant defaults or bankruptcy;

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•
any failure in our due diligence to identify all relevant facts in our underwriting process or otherwise;
•
the impact of terrorism or hostilities involving Europe;
•
our ability to manage our costs in line with our expectations and the impact on our cash available for distribution, or CAD, and net operating income, or NOI, of our properties;
•
our ability to satisfy and manage our capital requirements;
•
environmental and regulatory requirements, compliance costs and liabilities relating to owning and operating properties in our portfolio and to our business in general;
•
effect of regulatory actions, litigation and contractual claims against us and our affiliates, including the potential settlement and litigation of such claims;
•
changes in European, international and domestic laws or regulations governing various aspects of our business;
•
future changes in foreign, federal, state and local tax law that may have an adverse impact on the cash flow and value of our investments;
•
the impact that a rise in future interest rates may have on our floating rate financing;
•
potential devaluation of foreign currencies, predominately the Euro and U.K. Pound Sterling, relative to the U.S. dollar due to quantitative easing in Europe, Brexit and/or other factors which could cause the U.S. dollar value of our investments to decline;
•
general foreign exchange risk associated with properties located in European countries located outside of the Euro Area, including the United Kingdom;
•
the loss of our exemption from the definition of an “investment company” under the Investment Company Act of 1940, as amended;
•
CLNS’ ability to hire and retain qualified personnel and potential changes to key personnel providing management services to us;
•
the lack of historical financial statements for properties we have acquired and may acquire in compliance with U.S. Securities and Exchange Commission, or SEC, requirements and U.S. generally accepted accounting principles, or U.S. GAAP, as well as the lack of familiarity of our tenants and third-party service providers with such requirements;
•
the potential failure to maintain effective internal controls and disclosure controls and procedures;
•
our status as an emerging growth company; and
•
compliance with the rules governing REITs.
The foregoing list of factors is not exhaustive. All forward-looking statements included in this Quarterly Report on Form 10-Q are based on information available to us on the date hereof and we are under no duty to update any of the forward-looking statements after the date of this report to conform these statements to actual results.
Factors that could have a material adverse effect on our operations and future prospects are set forth in our filings with the SEC included in Part I, Item 1A. of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and in Part II, Item 1A. of this Form 10-Q , each under “Risk Factors.” The risk factors set forth in our filings with the SEC could cause our actual results to differ significantly from those contained in any forward-looking statement contained in this report.



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PART I
Item 1.    Financial Statements
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
    
 
September 30, 2017
 
December 31,
2016
Assets

 
 
Operating real estate, gross
$
1,751,141

 
$
1,614,432

Less: accumulated depreciation
(96,805
)
 
(63,585
)
Operating real estate, net
1,654,336

 
1,550,847

Preferred equity investments
35,086

 
—

Cash and cash equivalents
49,728

 
66,308

Restricted cash
8,516

 
10,242

Receivables, net of allowance of $611 and $553 as of September 30, 2017 and December 31, 2016, respectively
8,114

 
6,015

Assets held for sale
76,141

 
28,208

Derivative assets, at fair value
8,054

 
13,729

Intangible assets, net
123,141

 
148,403

Other assets, net
26,117

 
21,640

Total assets
$
1,989,233

 
$
1,845,392

Liabilities

 
 
Mortgage and other notes payable, net
$
1,272,758

 
$
1,149,119

Accounts payable and accrued expenses
25,318

 
28,004

Due to related party (refer to Note 6)
3,483

 
4,991

Derivative liabilities, at fair value
5,547

 
—

Intangible liabilities, net
29,911

 
30,802

Liabilities held for sale
2,453

 
2,041

Other liabilities
29,996

 
28,918

Total liabilities
1,369,466

 
1,243,875

Commitments and contingencies

 

Redeemable non-controlling interest (refer to Note 9)
1,809

 
1,610

Equity
 
 
 
NorthStar Realty Europe Corp. Stockholders’ Equity
 
 
 
Preferred stock, $0.01 par value, 200,000,000 shares authorized, no shares issued and outstanding as of September 30, 2017 and December 31, 2016
—

 
—

Common stock, $0.01 par value, 1,000,000,000 shares authorized, 55,313,294 and 55,395,143 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively
554

 
554

Additional paid-in capital
937,195

 
925,473

Retained earnings (accumulated deficit)
(340,198
)
 
(282,769
)
Accumulated other comprehensive income (loss)
15,281

 
(51,424
)
Total NorthStar Realty Europe Corp. stockholders’ equity
612,832

 
591,834

Non-controlling interests
5,126

 
8,073

Total equity
617,958

 
599,907

Total liabilities, redeemable non-controlling interest and equity
$
1,989,233

 
$
1,845,392

    


Refer to accompanying notes to consolidated financial statements.

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NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,

2017
 
2016
 
2017

2016
Revenues







Rental income
$
27,747


$
29,798


$
79,308


$
98,622

Escalation income
5,641


7,828


16,360


19,825

Interest income
704


—


1,001


—

Other income
171


149


708


899

Total revenues
34,263


37,775


97,377


119,346

Expenses







Properties - operating expenses
7,519


9,493


22,521


27,263

Interest expense
6,536


9,301


19,641


33,484

Transaction costs
332


150


1,565


2,633

Impairment losses
—


—


—


27,468

Management fee, related party
3,585


3,548


10,716


10,548

Other expenses
1,996


2,848


6,604


9,579

General and administrative expenses
1,723


2,199


5,875


5,181

Compensation expense (1)
2,839


5,194


20,094


12,225

Depreciation and amortization
14,396


13,989


39,479


51,264

Total expenses
38,926


46,722


126,495


179,645

Other income (loss)











Unrealized gain (loss) on derivatives and other (refer to Note 10)
(3,472
)

(4,982
)

(12,068
)

(19,775
)
Realized gain (loss) on sales and other
1,681


3,814


8,632


6,188

Income (loss) before income tax benefit (expense)
(6,454
)

(10,115
)

(32,554
)

(73,886
)
Income tax benefit (expense)
(352
)

(2,655
)

(316
)

(2,515
)
Net income (loss)
(6,806
)

(12,770
)

(32,870
)

(76,401
)
Net (income) loss attributable to non-controlling interests
36


49


303


792

Net income (loss) attributable to NorthStar Realty Europe Corp. common stockholders
$
(6,770
)

$
(12,721
)

$
(32,567
)

$
(75,609
)
Earnings (loss) per share:











Basic
$
(0.12
)
 
$
(0.22
)
 
$
(0.59
)
 
$
(1.28
)
Diluted
$
(0.12
)
 
$
(0.22
)
 
$
(0.59
)
 
$
(1.28
)
Weighted average number of shares:
 
 
 
 
 
 
 
Basic
55,155,440

 
58,239,941

 
55,004,888

 
58,923,027

Diluted
55,602,078

 
58,928,421

 
55,565,341

 
59,612,985

Dividends per share of common stock
$0.15

$0.15

$0.45

$0.45
____________________
(1)
Compensation expense for the three and nine months ended September 30, 2017 and 2016 is comprised of equity-based compensation expenses. For the nine months ended September 30, 2017 , compensation expense includes the impact of substantially all time based and certain performance based awards vesting in connection with the change of control of the Manager (refer to Note 7).










Refer to accompanying notes to consolidated financial statements.

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NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollars in Thousands)
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Net income (loss)
$
(6,806
)
 
$
(12,770
)
 
$
(32,870
)
 
$
(76,401
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustment, net
20,532

 
(4,964
)
 
67,005

 
(10,753
)
Total other comprehensive income (loss)
20,532


(4,964
)
 
67,005

 
(10,753
)
Comprehensive income (loss)
13,726


(17,734
)

34,135

 
(87,154
)
Comprehensive (income) loss attributable to non-controlling interests
61

 
(278
)
 
3

 
739

Comprehensive income (loss) attributable to NorthStar Realty Europe Corp. common stockholders
$
13,787


$
(18,012
)

$
34,138

 
$
(86,415
)






















Refer to accompanying notes to consolidated financial statements.

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NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(Dollars and Shares in Thousands)
 
Common Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
(Accumulated
Deficit)
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total NorthStar Stockholders’ Equity
 
Non-controlling
Interests
 
Total
Equity
 
 
Shares
 
Amount
 
Balance as of December 31, 2015
59,326


$
593


$
968,662


$
(186,246
)

$
2,560


$
785,569


$
10,173


$
795,742

Reallocation of interest in Operating Partnership (refer to Note 9)
—

 
—

 
2,252

 
—

 
—

 
2,252

 
(2,252
)
 
—

Amortization of equity-based compensation
—

 
—

 
15,682

 
—

 
—

 
15,682

 
2,557

 
18,239

Issuance and vesting of restricted stock, net of tax withholding
1,731

 
17

 
(17
)
 
—

 
—

 
—

 
—

 
—

Tax withholding related to vesting of equity-based compensation
—

 
—

 
(2,546
)
 
—

 
—

 
(2,546
)
 
—

 
(2,546
)
Retirement of shares of common stock
(5,662
)
 
(56
)
 
(58,560
)
 
—

 
—

 
(58,616
)
 
—

 
(58,616
)
Other comprehensive income (loss)
—

 
—

 
—

 
—

 
(53,984
)
 
(53,984
)
 
(1,242
)
 
(55,226
)
Dividends on common stock and equity-based compensation
—

 
—

 
—

 
(34,770
)
 
—

 
(34,770
)
 
(414
)
 
(35,184
)
Net income (loss)
—

 
—

 
—

 
(61,753
)
 
—

 
(61,753
)
 
(749
)
 
(62,502
)
Balance as of December 31, 2016
55,395


554


925,473


(282,769
)

(51,424
)

591,834


8,073


599,907

Reallocation of interest in Operating Partnership (refer to Note 9)
—

 
—

 
1,817

 
—

 
—

 
1,817

 
(1,817
)
 
—

Conversion of Common Units to common stock (refer to Note 9)
263

 
3

 
3,054

 
—

 
—

 
3,057

 
(3,057
)
 
—

Amortization of equity-based compensation (refer to Note 7)
—

 
—

 
17,842

 
—

 
—

 
17,842

 
2,174

 
20,016

Issuance and vesting of restricted stock, net of tax withholding
516

 
6

 
(6
)
 
—

 
—

 
—

 
—

 
—

Tax withholding related to vesting of equity-based compensation
(861
)
 
(9
)
 
(10,985
)
 
—

 
—

 
(10,994
)
 
—

 
(10,994
)
Other comprehensive income (loss)
—

 
—

 
—

 
—

 
66,705

 
66,705

 
300

 
67,005

Dividends on common stock and equity-based compensation
—

 
—

 
—

 
(24,862
)
 
—

 
(24,862
)
 
(244
)
 
(25,106
)
Net income (loss)
—

 
—

 
—

 
(32,567
)
 
—

 
(32,567
)
 
(303
)
 
(32,870
)
Balance as of September 30, 2017 (unaudited)
55,313


$
554


$
937,195


$
(340,198
)

$
15,281


$
612,832


$
5,126


$
617,958






























Refer to accompanying notes to consolidated financial statements.

8

NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
 
Nine Months Ended September 30,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(32,870
)
 
$
(76,401
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization
39,479

 
51,264

Amortization of deferred financing costs
2,340

 
5,570

Amortization of equity-based compensation
20,016

 
11,456

Allowance for uncollectible accounts
403

 
425

Unrealized (gain) loss on derivatives and other
12,068

 
19,775

Realized (gain) loss on sales and other
(8,632
)
 
(6,188
)
Impairment losses
—

 
27,468

Amortization of capitalized above/below market leases
(256
)
 
2,615

Straight line rental income
(3,864
)
 
(6,049
)
Deferred income taxes, net
(141
)
 
(2,189
)
Changes in assets and liabilities:
 
 
 
Restricted cash
1,971

 
(1,696
)
Receivables
(1,380
)
 
154

Other assets
(579
)
 
2,669

Accounts payable and accrued expenses
(6,412
)
 
(9,191
)
Due to related party
(1,507
)
 
(340
)
Other liabilities
875

 
275

Net cash provided by (used in) operating activities
21,511


19,617

Cash flows from investing activities:
 
 
 
Improvements of operating real estate
(10,143
)
 
(7,858
)
Origination of preferred equity investments
(35,086
)
 
—

Proceeds from sale of operating real estate
48,622

 
364,771

Other assets
(3,813
)
 
(8,320
)
Changes in restricted cash
—

 
10,026

Net cash provided by (used in) investing activities
(420
)

358,619

Cash flows from financing activities:
 
 
 
Repayment of mortgage and other notes payable
(12,888
)
 
(190,693
)
Borrowings from credit facility
35,000

 
65,000

Borrowings from mortgage and other notes payable
5,567

 
11,770

Repayment of credit facility
(35,000
)
 
(65,000
)
Repurchase of Senior Notes
—

 
(273,359
)
Payment of financing costs
(1,888
)
 
(3,946
)
Purchase of derivative instruments
—

 
(380
)
Settlement of derivatives
1,688

 
(1,095
)
Retirement of shares of common stock
—

 
(29,132
)
Tax withholding related to vesting of equity-based compensation
(10,994
)
 
(195
)
Dividends
(25,106
)
 
(26,859
)
Distributions to non-controlling interest
—

 
(133
)
Net cash provided by (used in) financing activities
(43,621
)

(514,022
)
Effect of foreign currency translation on cash and cash equivalents
5,950

 
1,108

Net increase (decrease) in cash and cash equivalents
(16,580
)

(134,678
)
Cash and cash equivalents—beginning of period
66,308

 
283,844

Cash and cash equivalents—end of period
$
49,728


$
149,166

Refer to accompanying notes to consolidated financial statements.

9

NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands) (Continued)
(Unaudited)
 
Nine Months Ended September 30,
 
2017
 
2016
Supplemental disclosure of non-cash investing and financing activities:
 
 
 
Reclassification of operating real estate to assets held for sale
$
45,224

 
$
44,324

Conversion of Common Units to common stock
3,057

 
—

Reclassification of intangibles to assets and liabilities held for sale
25,608

 
2,958

Reclassification of other assets and liabilities to assets held for sale
2,856

 
—

Reclassification related to measurement adjustments/other
—

 
5,587

Retirement of shares of common stock
—

 
1,753

Reallocation of interest in Operating Partnership
1,817

 
2,548

Accrued capital expenditures and deferred assets
689

 
—





































Refer to accompanying notes to consolidated financial statements.

10

NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
Formation and Organization
NorthStar Realty Europe Corp. (“NorthStar Europe” or the “Company”) (NYSE: NRE), a publicly-traded real estate investment trust (“REIT”), is a European focused commercial real estate company with predominantly prime office properties in key cities within Germany, the United Kingdom and France (the “Core Portfolio”). The Company’s objective is to provide its stockholders with stable and recurring cash flow supplemented by capital growth over time.
The Company is externally managed and advised by an affiliate of the Manager. References to “the Manager” refer to NorthStar Asset Management Group Inc. (“NSAM”) for the period prior to the Mergers (refer below) and Colony NorthStar, Inc. (“Colony NorthStar” or “CLNS”), for the period subsequent to the Mergers. As part of the Mergers, NSAM changed its name to Colony NorthStar, Inc.
Substantially all of the Company’s assets, directly or indirectly, are held by, and the Company conducts its operations, directly or indirectly, through NorthStar Realty Europe Limited Partnership, a Delaware limited partnership and the operating partnership of the Company (the “Operating Partnership”). The Company has elected to be taxed, and will continue to conduct its operations so as to continue to qualify, as a REIT for U.S. federal income tax purposes.
All references herein to the Company refer to NorthStar Realty Europe Corp. and its consolidated subsidiaries, including the Operating Partnership, collectively, unless the context otherwise requires.
Merger Agreements among NSAM, NorthStar Realty and Colony Capital, Inc.
On January 10, 2017, the Company’s external manager, NSAM, completed a tri-party merger with NorthStar Realty Finance Corp. (“NorthStar Realty”) and Colony Capital, Inc. (“Colony”), pursuant to which the companies combined in an all-stock merger (“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 (NYSE: CLNS). Colony NorthStar is a leading global equity REIT with an embedded investment management platform.
Amended and Restated Management Agreement
On November 9, 2017, the Company entered into an amended and restated management agreement (the “Amended and Restated Management Agreement”) with an affiliate of our Manager, effective as of January 1, 2018. Refer to Note 14 “Subsequent Events” for a description of the terms of the Amended and Restated Management Agreement.
2.
Summary of Significant Accounting Policies
Basis of Quarterly Presentation
The accompanying unaudited consolidated financial statements and related notes of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and note disclosures normally included in the consolidated financial statements prepared under U.S. GAAP have been condensed or omitted. In the opinion of management, all adjustments considered necessary for a fair statement of the Company’s financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 , which was filed with the U.S. Securities and Exchange Commission (the “SEC”).
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, the Operating Partnership and their consolidated subsidiaries. The Company consolidates variable interest entities (“VIE”) where the Company is the primary beneficiary and voting interest entities which are generally majority owned or otherwise controlled by the Company. All significant intercompany balances are eliminated in consolidation.
Variable Interest Entities
A VIE is an entity that lacks one or more of the characteristics of a voting interest entity. A VIE is defined as an entity in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The determination of whether

11
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

an entity is a VIE includes both a qualitative and quantitative analysis. The Company bases its qualitative analysis on its review of the design of the entity, its organizational structure including decision-making ability and relevant financial agreements and the quantitative analysis on the forecasted cash flow of the entity. The Company reassesses its initial evaluation of an entity as a VIE upon the occurrence of certain reconsideration events.
A VIE must be consolidated only by its primary beneficiary, which is defined as the party who, along with its affiliates and agents has both the: (i) power to direct the activities that most significantly impact the VIE’s economic performance; and (ii) obligation to absorb the losses of the VIE or the right to receive the benefits from the VIE, which could be significant to the VIE. The Company determines whether it is the primary beneficiary of a VIE by considering qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of its investment; the obligation or likelihood for the Company or other interests to provide financial support; consideration of the VIE’s purpose and design, including the risks the VIE was designed to create and pass through to its variable interest holders and the similarity with and significance to the business activities of the Company and the other interests. The Company reassesses its determination of whether it is the primary beneficiary of a VIE each reporting period. Significant judgments related to these determinations include estimates about the current and future fair value and performance of investments held by these VIEs and general market conditions.
The Company will evaluate its investments to determine whether they are a VIE. The Company analyzes new investments and financings, as well as reconsideration events for existing investments and financings, which vary depending on type of investment or financing.
Voting Interest Entities
A voting interest entity is an entity in which the total equity investment at risk is sufficient to enable it to finance its activities independently and the equity holders have the power to direct the activities of the entity that most significantly impact its economic performance, the obligation to absorb the losses of the entity and the right to receive the residual returns of the entity. The usual condition for a controlling financial interest in a voting interest entity is ownership of a majority voting interest. If the Company has a majority voting interest in a voting interest entity, the entity will generally be consolidated. The Company does not consolidate a voting interest entity if there are substantive participating rights by other parties and/or kick-out rights by a single party or through a simple majority vote.
The Company performs on-going reassessments of whether entities previously evaluated under the voting interest framework have become VIEs, based on certain events, and therefore subject to the VIE consolidation framework.
Non-controlling Interests
A non-controlling interest in a consolidated subsidiary is defined as the portion of the equity (net assets) in a subsidiary not attributable, directly or indirectly, to the Company. A non-controlling interest is required to be presented as a separate component of equity on the consolidated balance sheets and presented separately as net income (loss) and other comprehensive income (loss) (“OCI”) attributable to non-controlling interests. An allocation to a non-controlling interest may differ from the stated ownership percentage interest in such entity as a result of a preferred return and allocation formula, if any, as described in such governing documents.
Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that could affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates and assumptions.
Reclassifications
Certain prior period amounts have been reclassified in the consolidated financial statements to conform to current period presentation including the gain (loss) on net cash on derivatives from unrealized gain (loss) to realized gain (loss) on the consolidated statements of operations for the three and nine months ended September 30, 2016 (refer to Note 10).
Comprehensive Income (Loss)
The Company reports consolidated comprehensive income (loss) in separate statements following the consolidated statements of operations. Comprehensive income (loss) is defined as the change in equity resulting from net income (loss) and OCI. The components of OCI principally include the foreign currency translation adjustment, net.

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NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Restricted Cash
Restricted cash primarily consists of amounts related to operating real estate such as escrows for taxes, insurance, capital expenditures, tenant security deposits and payments required under certain lease agreements and amounts related to the Company’s borrowings.
Operating Real Estate
Operating real estate is carried at historical cost less accumulated depreciation. Ordinary repairs and maintenance are expensed as incurred. Major replacements and improvements which extend the life of the asset are capitalized and depreciated over their useful life. Operating real estate is depreciated using the straight-line method over the estimated useful lives of the assets.
The Company accounts for purchases of operating real estate that qualify as business combinations using the acquisition method, where the purchase price is allocated to tangible assets such as land, building, tenant and land improvements and other identified intangibles, such as in-place leases, above/below-market leases and goodwill. Costs directly related to an acquisition deemed to be a business combination are expensed and included in transaction costs in the consolidated statements of operations.
Operating real estate is depreciated using the straight-line method over the estimated useful lives of the assets, summarized as follows:
Category:
 
Term:
Building
 
40 years
Building improvements
 
Lesser of the useful life or remaining life of the building
Building leasehold interests
 
Lesser of 40 years or remaining term of the lease
Tenant improvements
 
Lesser of the useful life or remaining term of the lease
Preferred Equity Investments
Preferred equity investments are generally intended to be held to maturity and, accordingly, are carried at cost, net of unamortized loan fees, premium, discount and unfunded commitments, if any. Preferred equity investments that are deemed to be impaired are carried at amortized cost less a loan loss reserve, if deemed appropriate, which approximates fair value. Preferred equity investments where the Company does not have the intent to hold the investment for the foreseeable future or until its expected payoff are classified as held for sale and recorded at the lower of cost or fair value.
Assets and Liabilities Held For Sale
Operating real estate which has met the criteria to be classified as held for sale is separately presented on the consolidated balance sheets. Such operating real estate is recorded at the lower of its carrying value or its estimated fair value less the cost to sell net of the intangible assets associated with the asset, with any write-down to fair value less cost to sell recorded as an impairment loss. Once a property is determined to be held for sale, depreciation is no longer recorded. The Company records a gain or loss on sale of real estate when title is conveyed to the buyer and the Company has no substantial economic involvement with the property. If the sales criteria for the full accrual method are not met, the Company defers some or all of the gain or loss recognition by applying the finance, leasing, profit sharing, deposit, installment or cost recovery method, as appropriate, until the sales criteria are met.
Deferred Costs
Deferred costs primarily include deferred financing costs and deferred lease costs. Deferred financing costs represent commitment fees, legal and other third-party costs associated with obtaining financing. Costs related to revolving credit facilities are recorded in other assets and are amortized to interest expense using the straight-line basis over the term of the facility. Costs related to other borrowings are recorded net against the carrying value of such borrowings and are amortized into interest expense using the effective interest method or straight-line method depending on the type of financing. Unamortized deferred financing costs are expensed when the associated borrowing is repaid before maturity to realized gain (loss) on sales and other. Costs incurred in seeking financing transactions, which do not close, are expensed in the period in which it is determined that the financing will not occur. Deferred lease costs consist of fees incurred to initiate and renew operating leases, which are amortized on a straight-line basis over the remaining lease term and are recorded to depreciation and amortization in the consolidated statements of operations.
Intangible Assets and Intangible Liabilities
The Company records acquired identified intangibles, which includes intangible assets (such as value of the above-market leases, in-place leases, below-market ground leases, goodwill and other intangibles) and intangible liabilities (such as the value of below-market leases), based on estimated fair value. The value allocated to the above or below-market leases is amortized net to rental income, the value of below-market ground leases is amortized into properties - operating expense and in-place leases is amortized

13
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

into depreciation and amortization expense, respectively, in the consolidated statements of operations on a straight-line basis over the respective remaining lease term.
Goodwill represents the excess of the purchase price over the fair value of net tangible and intangible assets acquired in a business combination and is not amortized. The Company analyzes goodwill for impairment on an annual basis and whenever events or changes in circumstances indicate that the carrying value of goodwill may not be fully recoverable. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit, related to such goodwill, is less than the carrying amount as a basis to determine whether the two-step impairment test is necessary. The first step in the impairment test compares the fair value of the reporting unit with its carrying amount. If the carrying amount exceeds fair value, the second step is required to determine the amount of the impairment loss, if any, by comparing the implied fair value of the reporting unit goodwill with the carrying amount of such goodwill. The implied fair value of goodwill is derived by performing a hypothetical purchase price allocation for the reporting unit as of the measurement date, allocating the reporting unit’s estimated fair value to its net assets and identifiable intangible assets. The residual amount represents the implied fair value of goodwill. To the extent this amount is below the carrying value of goodwill, an impairment loss is recorded in the consolidated statements of operations.
The following table presents identified intangibles as of September 30, 2017 and December 31, 2016 (dollars in thousands):
 
September 30, 2017
 
December 31, 2016
 
Gross Amount
 
Accumulated Amortization
 
Net
 
Gross Amount
 
Accumulated Amortization
 
Net
Intangible assets:
 
 
 
 
 
 
 
 
 
 
 
In-place lease
$
85,507

 
$
(37,932
)
 
$
47,575

 
$
84,743

 
$
(29,012
)
 
$
55,731

Above-market lease
37,961

 
(11,117
)
 
26,844

 
36,704

 
(8,198
)
 
28,506

Below-market ground lease
34,242

 
(1,000
)
 
33,242

 
51,218

 
(832
)
 
50,386

Goodwill (1)
15,480

 
N/A

 
15,480

 
13,780

 
 N/A

 
13,780

Total
$
173,190


$
(50,049
)

$
123,141


$
186,445


$
(38,042
)
 
$
148,403

 
 
 
 
 
 
 
 
 
 
 
 
Intangible liabilities:
 
 
 
 
 
 
 
 
 
 
 
Below-market lease
$
37,554

 
$
(12,917
)
 
$
24,637

 
$
34,163

 
$
(8,104
)
 
$
26,059

Above-market ground lease
5,437

 
(163
)
 
5,274

 
4,839

 
(96
)
 
4,743

Total
$
42,991

 
$
(13,080
)
 
$
29,911

 
$
39,002

 
$
(8,200
)
 
$
30,802

_______________________
(1)
Represents goodwill associated with certain acquisitions in exchange for shares in the underlying portfolios. The goodwill and a corresponding deferred tax liability was recorded at acquisition based on tax basis differences.

14
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Other Assets and Other Liabilities
The following tables present a summary of other assets and other liabilities as of September 30, 2017 and December 31, 2016 (dollars in thousands):
 
September 30, 2017
 
December 31, 2016
Other assets:
 
 
 
Prepaid expenses
$
3,025

 
$
1,951

Deferred leasing and other costs, net
6,547

 
3,029

Deferred tax assets, net
32

 
—

Straight-line rent, net
12,502

 
10,182

Escrow receivable
3,242

 
6,168

Other
769

 
310

Total
$
26,117

 
$
21,640

 
 
 
 
 
September 30, 2017
 
December 31, 2016
Other liabilities:

 
 
Deferred tax liabilities
$
10,284

 
$
8,916

Prepaid rent received and unearned revenue
9,942

 
13,585

Tenant security deposits
4,322

 
4,322

Prepaid escalation and other income
5,163

 
1,560

Other
285

 
535

Total
$
29,996

 
$
28,918


Revenue Recognition
Operating Real Estate
Rental and escalation income from operating real estate is derived from leasing of space to various types of tenants. Rental revenue recognition commences when the tenant takes possession of the leased space and the leased space is substantially ready for its intended use. The leases are for fixed terms of varying length and generally provide for annual rentals, subject to indexation, and expense reimbursements to be paid in quarterly or monthly installments. Rental income from leases is recognized on a straight-line basis over the term of the respective leases. The excess of rents recognized over amounts contractually due pursuant to the underlying leases are included in other assets, net on the consolidated balance sheets. The Company amortizes any tenant inducements as a reduction of revenue utilizing the straight-line method over the term of the lease. Escalation income represents revenue from tenant leases which provide for the recovery of all or a portion of the operating expenses and real estate taxes paid by the Company on behalf of the respective property. This revenue is accrued in the same period as the expenses are incurred.
In a situation in which a lease or leases associated with a significant tenant have been, or are expected to be, terminated early, the Company evaluates the remaining useful life of depreciable or amortizable assets in the asset group related to the lease that will be terminated (i.e., tenant improvements, above and below market lease intangibles, in-place lease value and leasing commissions). Based upon consideration of the facts and circumstances surrounding the termination, the Company may write-off or accelerate the depreciation and amortization associated with the asset group. Such amounts are included within depreciation and amortization in the consolidated statements of operations.
Preferred Equity Investments
Interest income is recognized on an accrual basis and any related premium, discount, origination costs and fees are amortized over the life of the investment using the effective interest method. The amortization is reflected as an adjustment to interest income in the consolidated statements of operations. The amortization of a premium or accretion of a discount is discontinued if such investment is reclassified to held for sale.

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NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Impairment on Investments
Operating Real Estate
The Company’s real estate portfolio is reviewed on a quarterly basis, or more frequently as necessary, to assess whether there are any indicators that the value of its operating real estate may be impaired or that its carrying value may not be recoverable. A property’s value is considered impaired if the Company’s estimate of the aggregate expected future undiscounted cash flow to be generated by the property is less than the carrying value of the property. In conducting this review, the Company considers global macroeconomic factors, real estate sector conditions, together with investment specific and other factors. To the extent an impairment has occurred, the loss is measured as the excess of the carrying value of the property over the estimated fair value of the property and recorded in impairment losses in the consolidated statements of operations. For the three and nine months ended September 30, 2017 and the three months ended September 30, 2016, the Company did not recognize any impairment losses. For the nine months ended September 30, 2016 , the Company recognized $27.5 million of impairment losses.
An allowance for a doubtful account for a tenant receivable is established based on a periodic review of aged receivables resulting from estimated losses due to the inability of a tenant to make required rent and other payments contractually due. Additionally, the Company establishes, on a current basis, an allowance for future tenant credit losses on unbilled rent receivable based on an evaluation of the collectability of such amounts.
Preferred Equity Investments
Preferred equity investments are considered impaired when, based on current information and events, it is probable that the Company will not be able to collect all principal and interest amounts due according to the contractual terms. The Company assesses the credit quality of the portfolio and adequacy of investment loss reserves on a quarterly basis or more frequently as necessary. Significant judgment of the Company is required in this analysis. The Company considers the estimated net recoverable value of the investment as well as other factors, including but not limited to the fair value of any collateral, the amount and the status of any senior debt, the quality and financial condition of the borrower and the competitive situation of the area where the underlying collateral is located. Because this determination is based on projections of future economic events, which are inherently subjective, the amount ultimately realized may differ materially from the carrying value as of the balance sheet date. If upon completion of the assessment, the estimated fair value of the underlying collateral is less than the net carrying value of the investment, an investment loss reserve is recorded with a corresponding charge to provision for investment losses. The investment loss reserve for each investment is maintained at a level that is determined to be adequate by management to absorb probable losses.
Income recognition is suspended for an investment at the earlier of the date at which payments become 90-days past due or when, in the opinion of the Company, a full recovery of income and principal becomes doubtful. When the ultimate collectability of the principal of an impaired investment is in doubt, all payments are applied to principal under the cost recovery method. When the ultimate collectability of the principal of an impaired investment is not in doubt, contractual interest is recorded as interest income when received, under the cash basis method until an accrual is resumed when the investment becomes contractually current and performance is demonstrated to be resumed. Interest accrued and not collected will be reversed against interest income. An investment is written off when it is no longer realizable and/or legally discharged. As of September 30, 2017 , the Company did not have any impaired preferred equity investments.
Equity-Based Compensation
The Company accounts for equity-based compensation awards using the fair value method, which requires an estimate of fair value of the award. Awards may be based on a variety of measures such as time, performance, market or a combination thereof. For time-based awards, fair value is determined based on the stock price on the grant date. The Company recognizes compensation expense over the vesting period on a straight-line basis or the attribution method depending if the grant is to an employee or non-employee. For performance-based awards, fair value is determined based on the stock price at the date of grant and an estimate of the probable achievement of such measure. The Company recognizes compensation expense over the requisite service period, net of estimated forfeitures, using the accelerated attribution expense method. For market-based measures, fair value is determined using a Monte Carlo analysis under a risk-neutral premise using a risk-free interest rate. The Company recognizes compensation expense, over the requisite service period, net of estimated forfeitures, on a straight-line basis. For awards with a combination of performance or market measures, the Company estimates the fair value as if it were two separate awards. First, the Company estimates the probability of achieving the performance measure. If it is not probable the performance condition will be met, the Company records the compensation expense based on the fair value of the market measure, as described above. This expense is recorded even if the market-based measure is never met. If the performance-based measure is subsequently estimated to be achieved, the Company records compensation expense based on the performance-based measure. The Company would then record a cumulative catch-up adjustment for any additional compensation expense.

16
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Equity-based compensation issued to non-employees is accounted for using the fair value of the award at the earlier of the performance commitment date or performance completion date. Time-based awards are remeasured every quarter based on the stock price as of the end of the reporting period until such awards vest, if any.
Derivatives
The Company seeks to use derivative instruments to manage exposure to interest rate risk and foreign currency exchange rate risk. The change in fair value for a derivative is recorded in unrealized gain (loss) on derivatives and other in the consolidated statements of operations.
The Company’s derivative instruments are recorded on the consolidated balance sheets at fair value and do not qualify as hedges under U.S. GAAP.
Foreign Currency
Assets and liabilities denominated in a foreign currency for which the functional currency is a foreign currency are translated using the currency exchange rate in effect at the end of the period presented and the results of operations for such entities are translated into U.S. dollars using the average currency exchange rate in effect during the period. The resulting foreign currency translation adjustment (“CTA”), net, is recorded as a component of accumulated OCI in the consolidated statements of equity. For the three months ended September 30, 2017 and 2016 , the Company reclassified $0.1 million and $11.5 million , respectively, of CTA to realized gain (loss) on sales and other in the consolidated statements of operations due to the sale of certain real estate assets. For the nine months ended September 30, 2017 and 2016 , the Company reclassified $(0.3) million and $11.9 million , respectively, of CTA to realized gain (loss) on sales and other in the consolidated statements of operations due to the sale of certain real estate assets (refer to Note 3).
Assets and liabilities denominated in a foreign currency for which the functional currency is the U.S. dollar are remeasured using the currency exchange rate in effect at the end of the period presented and the results of operations for such entities are remeasured into U.S. dollars using the average currency exchange rate in effect during the period. The resulting foreign currency remeasurement adjustment is recorded in unrealized gain (loss) on derivatives and other in the consolidated statements of operations.
Earnings Per Share
The Company’s basic earnings per share (“EPS”) is calculated by dividing net income (loss) attributable to common stockholders by the weighted average number of common stock outstanding. Diluted EPS includes restricted stock and the potential dilution that could occur if outstanding restricted stock units (“RSUs”) or other contracts to issue common stock, assuming performance hurdles have been met, were converted to common stock (including limited partnership interests in the Operating Partnership owned by holders other than the Company (“Common Units”) and Common Units which are structured as profits interests (“LTIP Units” collectively referred to as Unit Holders) (refer to Note 7), where such exercise or conversion would result in a lower EPS. The dilutive effect of such RSUs and Unit Holders is calculated assuming all units are converted to common stock.
Income Taxes
The Company has elected to be taxed as a REIT for U.S. federal income tax purposes and will continue to comply with the related provisions of the Internal Revenue Code of 1986, as amended, the (“Internal Revenue Code”). Accordingly, the Company generally will not be subject to U.S. federal income tax to the extent of its distributions to stockholders and as long as certain asset, income and share ownership tests are met. To maintain its qualification as a REIT, the Company must annually distribute at least 90% of its REIT taxable income to its stockholders and meet certain other requirements. Under certain circumstances, federal income and excise taxes may be due on its undistributed taxable income. The Company distributes to its stockholders 100% of its taxable income and therefore no provision for U.S. federal income taxes has been included in the accompanying consolidated financial statements for the three and nine months ended September 30, 2017 and 2016 .
The Company conducts its business through foreign subsidiaries which may be subject to local level income tax in the European jurisdictions it operates. The Company has also elected taxable REIT subsidiary (“TRS”) status for one of the Company’s foreign subsidiaries. This enables the Company to provide services that would otherwise be considered impermissible for REITs and participate in activities that do not qualify as “rents from real property.” The TRS is not resident in the U.S. and, as such, not subject to U.S. taxation but is subject to foreign income taxes only. In addition, the REIT will not generally be subject to any additional U.S. taxes on the repatriation of its earnings.
For the Company’s foreign subsidiaries, including the Company’s foreign TRS, deferred tax assets and liabilities are established for temporary differences between the financial reporting basis and the foreign tax basis of assets and liabilities at the enacted tax rates expected to be in effect when the temporary differences reverse. The Company evaluates the realizability of its deferred tax assets (e.g. net operating loss) and recognizes a valuation allowance if, based on the available evidence, it is more likely than not

17
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

that some portion or all of its deferred tax assets will not be realized. When evaluating the realizability of its deferred tax assets, the Company considers estimates of expected future taxable income, existing and projected book/tax differences, tax planning strategies available and the general and industry specific economic outlook. This realizability analysis is inherently subjective, as it requires the Company to forecast its business and general economic environment in future periods. Due to past and projected losses in certain local jurisdictions where the Company does not have carryback potential and/or cannot sufficiently forecast future taxable income, the Company recognized net cumulative valuation allowances against the Company’s deferred tax assets. The Company will continue to review its deferred tax assets in accordance with U.S. GAAP.
The Company recorded an income tax expense for the three months ended September 30, 2017 and 2016 of $0.4 million and $2.7 million , respectively. The Company recorded an income tax expense for the nine months ended September 30, 2017 and 2016 of $0.3 million and $2.5 million , respectively.
Other
Refer to Note 2 of the consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 for further disclosure of the Company’s significant accounting policies.
Recent Accounting Pronouncements: Accounting Standards Adopted in 2017
In March 2016, the Financial Accounting Standards Board (“FASB”) issued guidance (Accounting Standards Update “ASU” No. 2016-05) clarifying that an assessment of whether an embedded contingent put or call option is clearly and closely related to a borrowing requires only an analysis of the four-step decision sequence. Additionally, entities are not required to separately assess whether the contingency itself is clearly and closely related. Entities are required to apply the guidance to existing instruments in scope using a modified retrospective transition method as of the period of adoption. The guidance is effective for fiscal years beginning after December 15, 2016 and interim periods within those years. The Company has adopted this guidance and it did not have any material impact on its consolidated financial position, results of operations and financial statement disclosures.
In March 2016, the FASB issued guidance (ASU No. 2016-09) which amends several aspects of the accounting for equity-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statements of cash flows. The guidance is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2016. The Company has adopted this guidance and has made a policy election to account for forfeitures upon occurrence. The adoption did not have a material impact on the Company’s consolidated financial position, results of operations and financial statement disclosures.
Recent Accounting Pronouncements: Future Application of Accounting Standards
In May 2014, FASB issued an accounting update (ASU No. 2014-09) requiring a company to recognize as revenue the amount of consideration it expects to be entitled to in connection with the transfer of promised goods or services to customers. The accounting standard update will replace most of the existing revenue recognition guidance currently promulgated by U.S. GAAP. In July 2015, the FASB decided to delay the effective date of the new revenue standard by one year. The effective date of the new revenue standard for the Company will be January 1, 2018. The Company has commenced the process of adopting the new revenue standard; including forming a project team and compiling an inventory of the sources of revenue the Company expects will be impacted by the adoption of this standard. The Company plans to adopt the standard on its required effective date of January 1, 2018 using the modified retrospective approach.  The new revenue standard specifically excludes revenue streams for which specific guidance is stipulated in other sections of the codification, therefore it will not impact rental income or interest income generated on financial instruments such as preferred equity investments. Rental revenue from lease contracts represents a significant portion of our total revenues and is a specific scope exception provided by this guidance. However, common area maintenance and other tenant reimbursable expenses provided to the lessee are considered a non-lease component and will be required to be separated from rental revenue and recorded on a separate financial statement line item upon adoption of the new accounting guidance on leases discussed below. The Company expects to apply the revenue recognition guidance related to its non-lease components within leases on January 1, 2019, upon its adoption of the lease accounting update. While this revenue stream is subject to the application of the new revenue recognition standard, the Company believes that the pattern and timing of recognition of income will be consistent with the current accounting model.
In February 2016, the FASB issued an accounting update (ASU No. 2016-02) that sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The update requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their

18
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The update is expected to result in the recognition of a right-to-use asset and related liability to account for the Company’s future obligations under its ground lease arrangements for which it is the lessee. As of September 30, 2017 , the Company has three ground lease agreements with annual payments of $0.8 million . Additionally, the new update will require that lessees and lessors capitalize, as initial direct costs, only those costs that are incurred due to the execution of a lease. Under this guidance, allocated payroll costs and other costs that are incurred regardless of whether the lease is obtained will no longer be capitalized as initial direct costs and instead will be expensed as incurred. Lessors will continue to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The new guidance is to be applied using a modified retrospective approach at the beginning of the earliest comparative period in the financial statements and is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is evaluating the impact, if any, that this guidance will have on its consolidated financial position, results of operations and financial statement disclosures.
In June 2016, the FASB issued guidance (ASU No. 2016-13) that changes the impairment model for most financial instruments by requiring companies to recognize an allowance for expected losses, rather than incurred losses as required currently by the other-than-temporary impairment model. The guidance will apply to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt securities, net investments in leases and off-balance-sheet credit exposures (e.g., loan commitments). The new guidance is effective for reporting periods beginning after December 15, 2019 and will be applied as a cumulative adjustment to retained earnings as of the effective date. The Company is evaluating the impact, if any, that this guidance will have on its consolidated financial position, results of operations and financial statement disclosures.
In August 2016, the FASB issued guidance (ASU No. 2016-15) that makes eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The new guidance requires adoption on a retrospective basis unless it is impracticable to apply, in which case the Company would be required to apply the amendments prospectively as of the earliest date practicable. The Company does not expect the adoption of this standard to have a material impact on its consolidated statements of cash flows.
In November 2016, the FASB issued guidance (ASU No. 2016-18) which requires entities to show the changes in the total of cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. Entities will no longer be permitted to present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. The guidance is effective for reporting periods beginning after December 15, 2017 and will be applied retrospectively to all periods presented. The Company does not expect the adoption of this standard to have a material impact on its consolidated statement of cash flows.
In January 2017, the FASB issued guidance (ASU No. 2017-01) to clarify the definition of a business under ASC 805. This new standard clarifies the definition of a business and provides a screen to determine when an integrated set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. The guidance is effective for fiscal years, and interim periods within those years, beginning December 15, 2017. The amendments in this update will be applied on a prospective basis. The Company expects that acquisitions of real estate or in-substance real estate will not meet the revised definition of a business because substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets (i.e. land, buildings, and related intangible assets). The Company is evaluating the impact, if any, that this guidance will have on its consolidated financial position, results of operations and financial statement disclosures.
In January 2017, the FASB issued guidance (ASU No. 2017-04) which removes Step 2 from the goodwill impairment test. The guidance is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019.  The Company is evaluating the impact, if any, that this guidance will have on its consolidated financial position, results of operations and financial statement disclosures.
In February 2017, the FASB issued an accounting update (ASU No. 2017-05) which clarifies the scope of recently established guidance on nonfinancial asset derecognition, which applies to the derecognition of all nonfinancial assets and in-substance nonfinancial assets.  In addition, the guidance clarifies the accounting for partial sales of nonfinancial assets and in-substance nonfinancial assets to align with the new revenue recognition standard to be more consistent with the accounting for sale of a business. Specifically, in a partial sale to a noncustomer, when a noncontrolling interest is received or retained, the latter is considered a noncash consideration and measured at fair value, which would result in full gain or loss recognized upon sale. This guidance has the same effective date as the new revenue guidance, which is January 1, 2018, with early adoption permitted beginning

19
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

January 1, 2017.  Both the revenue guidance and this update must be adopted concurrently.  While the options for transition are similar to the new revenue guidance, either full retrospective or modified retrospective, the transition approach need not be aligned between both updates. The Company is evaluating the impact, if any, that this guidance will have on its consolidated financial position, results of operations and financial statement disclosures.
In May 2017, the FASB issued guidance (ASU No. 2017-09) clarifying when to account for a change to the terms or conditions of a share-based payment award as a modification.  The guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those years.  The Company is evaluating the impact, if any, that this guidance will have on its consolidated financial position, results of operations and financial statement disclosures.
3.
Operating Real Estate
The following table presents operating real estate, net as of September 30, 2017 and December 31, 2016 (dollars in thousands):
 
 
September 30, 2017
 
December 31, 2016
Land
 
$
400,366

 
$
360,555

Buildings and improvements
 
1,095,858

 
980,053

Building, leasehold interests and improvements
 
189,873

 
212,864

Furniture, fixtures and equipment
 
854

 
1,214

Tenant improvements
 
64,190

 
59,746

Operating real estate, gross
 
1,751,141

 
1,614,432

Less: accumulated depreciation
 
(96,805
)
 
(63,585
)
Operating real estate, net
 
$
1,654,336

 
$
1,550,847


Real Estate Held for Sale
The following table summarizes the Company’s operating real estate held for sale as of September 30, 2017 (dollars in thousands):
 
 
 
 
 
 
Assets (1)
 
Liabilities (1)
Location
 
Type
 
Properties
 
Operating Real Estate, Net
 
Intangible Assets, Net
 
Other Assets
 
Total (2)
 
Intangible Liabilities, Net
 
Other Liabilities
 
Total (2)
Woking, United Kingdom
 
Office
 
1
 
$
45,224

 
$
26,211

 
$
4,706

 
$
76,141

 
$
603

 
$
1,850

 
$
2,453

Total
 
 
 
1

$
45,224


$
26,211

 
$
4,706


$
76,141

 
$
603

 
$
1,850

 
$
2,453

___________________
(1)
The assets and liabilities classified as held for sale are expected to be sold on the open market as a share sale subject to standard industry terms and conditions. The asset contributed $2.3 million and $2.2 million of revenue and income before income tax benefit (expense) of $0.7 million and $0.3 million for the three months ended September 30, 2017 and 2016 , respectively. The asset contributed $7.0 million and $6.6 million of revenue and income before income tax benefit (expense) of $2.3 million and $0.3 million for the nine months ended September 30, 2017 and 2016 , respectively.
(2)
Represents operating real estate and intangible assets, net of accumulated depreciation and amortization of $8.9 million prior to being reclassified into held for sale.
Real Estate Sales
The following table summarizes the Company’s real estate sales for the three and nine months ended September 30, 2017 (dollars in thousands):
 
Three Months Ended September 30, (1)
 
Nine Months Ended September 30, (1)
 
2017
 
2016
 
2017
 
2016
Properties
2
 
8
 
5
 
14
Carrying Value (2)
$
9,686

 
$
243,455

 
$
36,874

 
$
282,841

Sales Price
$
11,259

 
$
242,195

 
$
44,918

 
$
293,511

Net Proceeds (3)
$
10,772

 
$
237,743

 
$
43,782

 
$
284,679

Realized Gain (Loss)
$
1,086

 
$
(5,713
)
 
$
6,909

 
$
1,840

__________________
(1)
Nine months ended September 30, 2017 and 2016 amounts are translated using the average exchange rate for the nine months ended September 30, 2017. Three months ended September 30, 2017 and 2016 amounts are translated using the average exchange rate for the three months ended September 30, 2017.

20
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

(2)
Includes the assets and liabilities related to share sales.
(3)
Represents proceeds net of sales costs and excludes the associated property debt repayments of $2.1 million and $10.2 million for the three and nine months ended September 30, 2017, respectively.
As of September 30, 2017 , there were $1.8 million in certain escrow accounts that were not held by the Company which the Company could potentially record as a realized gain. The Company also recorded an additional realized gain for the three and nine months ended September 30, 2017 related to the release of escrow accounts from prior disposals of $0.8 million and $2.7 million , respectively.
4.
Preferred Equity Investments
In May 2017, the Company partnered with a property developer in China to acquire 20 Gresham Street, a Class A office building in London, United Kingdom and the Company invested $35.1 million ( £26.2 million ) of preferred equity , which the Company accounts for as a debt investment.
The following table presents one preferred equity investment as of September 30, 2017 (dollars in thousands):
 
 
September 30, 2017
 
 
 
 
Asset Type
 
Principal Amount
 
Carrying Value
 
Fixed Rate
 
Mandatory Redemption
Preferred equity investment
 
$
35,086

 
$
35,086

 
8.00
%
 
May 2020
Credit Quality Monitoring
The Company’s preferred equity investment is secured by interests in entities that directly own real estate properties, which serve as the primary source of cash for the payment of principal and interest. The Company evaluates its preferred equity investment at least quarterly and determines the relative credit quality principally based on: (i) whether the borrower is currently paying debt service in accordance with its contractual terms; and (ii) whether the Company believes the borrower will be able to perform under its contractual terms in the future, as well as the Company’s expectations as to the ultimate recovery of principal at maturity. The Company categorizes a preferred equity investment for which it expects to receive full payment of contractual principal and interest payments as “performing.” The Company will categorize a weaker credit quality preferred equity investment that is currently performing, but for which it believes future collection of all or some portion of principal and interest is in doubt, into a category called “performing with a loan loss reserve.” The Company will categorize a weaker credit quality preferred equity investment that is not performing, which the Company defines as a loan in maturity default and/or past due at least 90 days on its contractual debt service payments, as a non-performing loan (“NPL”).
As of September 30, 2017 , the Company’s preferred equity investment was performing in accordance with the contractual terms of its governing documents, in all material respects, and was categorized as a performing loan. For the three and nine months ended September 30, 2017 , the preferred equity investment contributed all interest income recorded on the consolidated statement of operations.

21
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

5.
Borrowings
The following table presents borrowings as of September 30, 2017 and December 31, 2016 (dollars in thousands):
 
 
 
 
 
 
September 30, 2017
 
December 31, 2016
 
 
Final
Maturity
 
Contractual
Interest Rate (3)
 
Principal
Amount
 
Carrying
Value
 
Principal
Amount
 
Carrying
Value
Mortgage and other notes payable: (1)
 
 
 
 
 
 
 
 
 
 
 
 
U.K. Complex (2)
 
Jan-20
 
GBP LIBOR + 1.75%
 
$
54,404

 
$
53,720

 
$
50,116

 
$
49,284

U.K. Complex - Mezzanine (2)
 
Jan-20
 
8.325%
 
12,555

 
12,496

 
11,565

 
11,497

Trias Portfolio 1 (4)(6)
 
Apr-20
 
EURIBOR + 2.70%
 
10,234

 
10,018

 
9,477

 
13,301

Trias Portfolio 2 (4)(6)(8)
 
Dec-20
 
EURIBOR + 1.55%
 
90,309

 
89,423

 
78,952

 
78,708

Trias Portfolio 3 (4)(6)
 
Apr-20
 
EURIBOR + 1.65%
 
44,193

 
42,972

 
45,170

 
39,568

Trias Portfolio 4 (4)(6)
 
Apr-20
 
GBP LIBOR + 2.70%
 
17,198

 
16,839

 
15,843

 
15,446

SEB Portfolio 1 (6)
 
Jul-24 (9)
 
EURIBOR + 1.55% (9)
 
312,924

 
308,412

 
278,539

 
274,614

SEB Portfolio 2 (6)
 
Jul-24 (9)
 
GBP LIBOR + 1.55% (9)
 
248,975

 
245,310

 
229,353

 
226,078

SEB Portfolio - Preferred (5)
 
Apr-60
 
2.30%  
 
101,140

 
100,838

 
90,033

 
89,720

Trianon Tower (4)
 
Jul-23
 
EURIBOR + 1.30%
 
389,822

 
388,243

 
347,012

 
345,422

Other - Preferred (7)
 
Oct-45
 
1.00%
 
4,488

 
4,487

 
6,151

 
5,481

Total mortgage and other notes payable
 
 
 
 
 
$
1,286,242


$
1,272,758


$
1,162,211


$
1,149,119

________________________
(1)
All mortgage notes and other notes payable are denominated in local currencies, as such, the principal amount generally increased due to the change in the Euro or U.K. Pound Sterling compared to the U.S. dollar. All borrowings are non-recourse and are interest-only through maturity, subject to compliance with covenants of the respective borrowing, and denominated in the same currency as the assets securing the borrowing.
(2)
Includes mortgage note borrowings associated with an asset held for sale with an aggregate principal balance of $67.0 million .
(3)
All floating rate debt is subject to interest caps of 0.5% for EURIBOR and 2.0% for GBP LIBOR which are used to manage interest rate exposure.
(4)
Trias Portfolio represents the cross-collateralized borrowings among the IVG Portfolio, Internos Portfolio and Deka Portfolio. Such three portfolios were not under common control or management at the time of acquisition.
(5)
Represents preferred equity certificates with a contractual interest rate of 2.3% through May 2019, which can be prepaid at that time without penalty in part or in full, which increases to EURIBOR plus 12.0% through May 2022 and subsequently to EURIBOR plus 15.0% through final maturity. Certain prepayments prior to May 2019 are subject to the payment of the unpaid coupon on outstanding principal amount through May 2019.
(6)
Prepayment provisions include a fee based on principal amount ranging from 0.25% to 1.0% through December 2019 for the Trias Portfolio borrowings and 1.0% to 2.0% through July 2020 for the SEB Portfolio borrowings and 0.60% through June 30, 2018 and 0.30% through June 30, 2019 for Trianon Tower.
(7)
Represents preferred equity certificates each with a fixed contractual interest rate of 1.0% per annum plus variable interest based on specified income levels associated with the German property companies of the Trias Portfolios which can be prepaid at any time without penalty through final maturity, which is thirty years from the issuance date.
(8)
In June 2017, the Company amended and restated the agreement to increase the loan amount by $5.9 million and reduce future minimum capital expenditure spending requirements.
(9)
In September 2017, the Company amended and restated the agreement to reduce the margin from 1.80% to 1.55% and extended the maturity date from April 1, 2022 to July 20, 2024.
The following table presents a reconciliation of principal amount to carrying value of the Company’s mortgage and other notes payable as of September 30, 2017 and December 31, 2016 (dollars in thousands):
 
 
September 30, 2017
 
December 31, 2016
Principal amount
 
$
1,286,242

 
$
1,162,211

Deferred financing costs, net
 
(13,484
)
 
(13,092
)
Carrying value
 
$
1,272,758

 
$
1,149,119


22
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

The following table presents scheduled principal on borrowings, based on final maturity as of September 30, 2017 (dollars in thousands):
 
 
Mortgage
and Other Notes
Payable
October 1 to December 31, 2017
 
$
—

Years ending December 31:
 
 
2018
 
—

2019
 
—

2020
 
228,893

2021
 
—

2022 and thereafter
 
1,057,349

Total
 
$
1,286,242

As of September 30, 2017 and December 31, 2016 , the Company was in compliance with all of its financial covenants.
Senior Notes
In July 2015, the Company issued $340.0 million principal amount of 4.625% senior stock-settlable notes due December 2016 (the “Senior Notes”) for aggregate net proceeds of $331.0 million , after deducting the underwriters’ discount and other expenses. The Senior Notes were senior unsubordinated and unsecured obligations of the Company and NorthStar Realty and NorthStar Realty’s operating partnership guaranteed payments on the Senior Notes.
The proceeds from the issuance of the Senior Notes were distributed to subsidiaries of NorthStar Realty, which used such amounts for general corporate purposes, including, among other things, the funding of acquisitions, including the Trianon Tower and the repayment of NorthStar Realty’s borrowings. Such distribution to NorthStar Realty was recorded in equity in net transactions with NorthStar Realty. During 2016, the Company repurchased approximately $272.3 million of the Senior Notes, at a slight premium to par value, through privately negotiated transactions and settled the remaining Senior Notes in cash at maturity.
Credit Facility
In May 2016, the Company entered into a $75.0 million corporate revolving credit facility (the “Credit Facility”) with certain commercial bank lenders, with an initial one year term. The Credit Facility was secured by collateral relating to a borrowing base at that time and guarantees by certain subsidiaries of the Company. In October 2016, the Company permanently reduced the aggregate commitments under the Credit Facility to $35.0 million . In April 2017, the Company amended and restated the Credit Facility with aggregate commitments of $35 million and 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. The Credit Facility has an accordion feature, allowing the total facility to increase to $70 million . As of September 30, 2017, there is no outstanding balance on the Credit Facility.
6.    Related Party Arrangements
On November 9, 2017, the Company entered into an Amended and Restated Management Agreement with an affiliate of the Manager, effective as of January 1, 2018. The description of the management agreement included in this Note 6 relates to the original agreement that was entered into in November 2015 and which will be superseded as of January 1, 2018 by the Amended and Restated Management Agreement. Refer to Note 14 “Subsequent Events” for a description of the terms of the Amended and Restated Management Agreement.
Colony NorthStar, Inc.
Management Agreement
The Company entered into a management agreement with an affiliate of the Manager in November 2015. As asset manager, the Manager is responsible for the Company’s day-to-day operations, subject to supervision and management of the Company’s board of directors (the “Board”). Through its global network of subsidiaries and branch offices, the Manager performs services and engages in activities relating to, among other things, investments and financing, portfolio management and other administrative services, such as accounting and investor relations, to the Company and its subsidiaries. The management agreement with the Manager provides for a base management fee and incentive fee.

23
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Base Management Fee
For the three months ended September 30, 2017 and 2016 , the Company incurred $3.6 million and $3.5 million , respectively, related to the base management fee. For the nine months ended September 30, 2017 and 2016 , the Company incurred $10.7 million and $10.5 million , respectively, related to the base management fee. As of September 30, 2017 , $3.5 million is recorded in due to related party on the consolidated balance sheets. The base management fee to the Manager could increase subsequent to September 30, 2017 by an amount equal to 1.5% per annum of the sum of:
•
any equity the Company issues in exchange or conversion of exchangeable or stock-settlable notes;
•
any other issuances by the Company of common equity, preferred equity or other forms of equity, including but not limited to LTIP Units in the Operating Partnership (excluding units issued to the Company and equity-based compensation, but including issuances related to an acquisition, investment, joint venture or partnership); and
•
cumulative cash available for distribution (“CAD”), if any, of the Company in excess of cumulative distributions paid on common stock, LTIP Units or other equity awards which began with the Company’s fiscal quarter ended March 31, 2016.
Incentive Fee
For the three and nine months ended September 30, 2017 and 2016 , the Company did not incur an incentive fee. The incentive fee is calculated and payable quarterly in arrears in cash, equal to:
•
the product of: (a) 15.0% and (b) the Company’s CAD before such incentive fee, divided by the weighted average shares outstanding for the calendar quarter, of any amount in excess of $0.30 per share and up to $0.36 per share; plus
•
the product of: (a) 25.0% and (b) the Company’s CAD before such incentive fee, divided by the weighted average shares outstanding for the calendar quarter, of any amount in excess of $0.36 per share;
•
multiplied by the Company’s weighted average shares outstanding for the calendar quarter.
Weighted average shares represents the number of shares of the Company’s common stock, LTIP Units or other equity-based awards (with some exclusions), outstanding on a daily weighted average basis. With respect to the base management fee, all equity issuances are allocated on a daily weighted average basis during the fiscal quarter of issuance. With respect to the incentive fee, such amounts will be appropriately adjusted from time to time to take into account the effect of any stock split, reverse stock split, stock dividend, reclassification, recapitalization or other similar transaction.
Additional Management Agreement Terms
The Company’s management agreement with the Manager provides that in the event of a change of control of the Manager or other event that could be deemed an assignment of the management agreement, the Company will consider such assignment in good faith and not unreasonably withhold, condition or delay the Company’s consent. The management agreement further provides that the Company anticipates consent would be granted for an assignment or deemed assignment to a party with expertise in commercial real estate and over $ 10 billion of assets under management. The management agreement also provides that, notwithstanding anything in the agreement to the contrary, to the maximum extent permitted by applicable law, rules and regulations, in connection with any merger, sale of all or substantially all of the assets, change of control, reorganization, consolidation or any similar transaction by the Company or the Manager, directly or indirectly, the surviving entity will succeed to the terms of the management agreement.
Payment of Costs and Expenses and Expense Allocation
The Company is responsible for all of its direct costs and expenses and reimburses the Manager for costs and expenses incurred by the Manager on the Company’s behalf. In addition, the Manager may allocate indirect costs to the Company related to employees, occupancy and other general and administrative costs and expenses in accordance with the terms of, and subject to the limitations contained in, the Company’s management agreement with the Manager (the “G&A Allocation”). The Company’s management agreement with the Manager provides that the amount of the G&A Allocation will not exceed the following: (i) 20% of the total of: (a) the Company’s general and administrative expenses as reported in their consolidated financial statements excluding: (1) equity-based compensation expense, (2) non-recurring items, (3) fees payable to the Manager under the terms of the applicable management agreement and (4) any allocation of expenses to the Company’s (“NRE’s G&A”); and (b) the Manager’s general and administrative expenses as reported in its consolidated financial statements, excluding equity-based compensation expense and adding back any costs or expenses allocated to any managed company of the Manager; less (ii) NRE’s G&A. The G&A Allocation may include the Company’s allocable share of the Manager’s compensation and benefit costs associated with dedicated or partially dedicated personnel who spend all or a portion of their time managing the Company’s affairs, based upon the percentage of time devoted by such personnel to the Company’s affairs. The G&A Allocation may also include rental and occupancy, technology,

24
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

office supplies, travel and entertainment and other general and administrative costs and expenses, which may be allocated based on various methodologies, such as weighted average employee count or the percentage of time devoted by personnel to such the Company affairs. In addition, the Company will pay directly or reimburse the Manager for an allocable portion of any severance paid pursuant to any employment, consulting or similar service agreements in effect between the Manager and any of its executives, employees or other service providers.
The Company’s obligation to reimburse the Manager for the G&A Allocation and any severance, at the Manager’s discretion, and the 20% cap on the G&A Allocation, as described above, applies on an aggregate basis to the Company.
For the three and nine months ended September 30, 2017 and three months ended September 30, 2016 the Manager did not allocate any general and administrative expenses to the Company. For the nine months ended September 30, 2016 , the Manager allocated $0.1 million to the Company. For the three and nine months ended September 30, 2017 and 2016 , the Manager did not allocate any severance to the Company.
In addition, the management agreement provides that the Company and any company spun-off from the Company, shall pay directly or reimburse the Manager for up to 50% of any long-term bonus or other compensation that the Manager’s compensation committee determines shall be paid and/or settled in the form of equity and/or equity-based compensation to executives, employees and service providers of the Managers’ during any year. Subject to this limitation and limitations contained in any applicable management agreement between the Manager and any company spun-off from the Company, the amount paid by the Company and any company spun-off from the Company will be determined by the Manager in its discretion. At the discretion of the Manager’s compensation committee, this compensation may be granted in shares of the Company’s restricted stock, restricted stock units, long-term incentive plan units or other forms of equity compensation or stock-based awards; provided that if at any time a sufficient number of shares of the Company’s common stock are not available for issuance under the Company’s equity compensation plan, such compensation shall be paid in the form of RSUs, LTIP Units or other securities that may be settled in cash. The Company’s equity compensation for each year may be allocated on an individual-by-individual basis at the discretion of the Manager’s compensation committee and, as long as the aggregate amount of the equity compensation for such year does not exceed the limits set forth in the management agreement, the proportion of any particular individual’s equity compensation may be greater or less than 50% .
The Company does not have employment agreements with its named executive officers, but the Company has generally agreed to pay directly or reimburse the Manager for the portion of any severance paid by the Manager or any of its affiliates to an individual pursuant to the terms of any employment, consulting or similar service agreement, including any employment agreements with Colony NorthStar or its subsidiaries and its named executive officers, that corresponds to or is attributable to: (i) the equity compensation that the Company is required to pay directly or reimburse the Manager pursuant to the management agreement; (ii) any cash and/or equity compensation paid directly by the Company to such individual as an employee or other service provider of the Company; and (iii) any amounts paid to such individual by the Manager or any of its affiliates that the Company is obligated to reimburse the Manager pursuant to the management agreement. With respect to Mahbod Nia only, in lieu of the foregoing severance payment or reimbursement, the Company has agreed to pay directly or reimburse the Manager for 50% of any cash payments made by the Manager or any of its affiliates in connection with the termination of Mr. Nia’s employment either without cause or upon the non-renewal of Mr. Nia’s term of employment by the employer or by Mr. Nia for good reason; provided that the Board consented to the taking of such action (or, with respect to a termination for good reason, any action taken with the intent to create good reason). Because the Company’s obligation to pay these amounts is owed to the Manager and not directly to the Company’s named executive officers and the Company does not control the terms of the agreements between the Manager or its affiliates and the Company’s named executive officers, the discussion above does not include these amounts or a discussion of any arrangements that the Manager or its affiliates may have with the Company’s named executive officers pursuant to which our obligations to the Manager may arise.
Manager Ownership of Common Stock
As of September 30, 2017 , Colony NorthStar and its subsidiaries owned 4.9 million shares of the Company’s common stock, or approximately 9.0% of the total outstanding common stock.
7.
Compensation Expense
The following summarizes the equity-based compensation for the three and nine months ended September 30, 2017 and 2016 :
For the three months ended September 30, 2017 and 2016 , the Company recorded $2.8 million and $5.2 million , respectively, of equity-based compensation expense which is recorded in compensation expenses on the consolidated statements of operations. For the nine months ended September 30, 2017 and 2016 , the Company recorded $20.1 million and $12.2 million , respectively, of equity-based compensation expense which is recorded in compensation expenses on the consolidated statements of operations.

25
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

In connection with the change of control of NSAM as a result of the Mergers, substantially all outstanding equity awards of the Company that were subject to vesting based solely on continued employment or services and a portion of the outstanding equity awards of the Company that were subject to vesting based on the achievement of additional performance-based criteria vested. As of September 30, 2017 , equity-based compensation expense to be recognized over the remaining vesting period through January 2020 is $8.2 million , provided there are no additional forfeitures.
2015 Omnibus Stock Incentive Plan
Pursuant to the NorthStar Realty Europe Corp. 2015 Omnibus Stock Incentive Plan (the “2015 Plan”), the Company may issue equity awards to directors, officers, employees, co-employees, consultants and advisors of the Company, the Manager or of any parent or subsidiary who provides services to the Company. The number of shares that may be issued under the 2015 Plan equals 10 million shares of common stock, plus on January 1, 2017 and each January 1 thereafter, an additional 2% of the number of shares of common stock issued and outstanding on the immediately preceding December 31. In addition, shares of common stock underlying any awards that are forfeited, canceled, held back upon exercise of a stock option or settlement of an award to cover the exercise price or tax withholding, reacquired by the Company prior to vesting, satisfied without the issuance of common stock or otherwise terminated (other than by exercise) will be added back to the shares of common stock available for issuance under the 2015 Plan. As of September 30, 2017 , under the 2015 Plan, a total of 1.2 million shares of common stock had been issued (net of forfeitures and shares held back for tax withholding), 1.7 million shares were reserved for issuance pursuant to outstanding equity awards (including 0.1 million reserved for issuance upon conversion of outstanding LTIP Units and 1.6 million reserved for issuance pursuant to the outstanding Absolute RSUs and Relative RSUs) and 8.2 million otherwise unreserved shares remained available for issuance.
All of the equity awards issued by the Company since the spin-off from NorthStar Realty on November 1, 2015 (the “Spin-off”) have been issued under the 2015 Plan. During the nine months ended September 30, 2017 , the Company issued 500,642 restricted shares of common stock under the 2015 Plan to employees of the Manager or its subsidiaries in accordance with the terms of the management agreement described above in Note 6, of which 379,594 vested in connection with the Mergers.
In March 2016, as contemplated in connection with the Spin-off, the Company granted an aggregate of 995,698 restricted shares of common stock and 1,493,551 restricted stock units (“RSUs”) to employees of the Manager or one of its subsidiaries under the 2015 Plan. The restricted shares of common stock were subject to vesting over the approximately four year period ending December 31, 2019, subject to continued employment with the Manager or one of its subsidiaries and the RSUs were market-based awards subject to the achievement of performance-based vesting conditions and continued employment with the Manager or one of its subsidiaries. Approximately one-half of these RSUs are subject to the achievement of performance-based hurdles relating to the Company’s absolute total stockholder return and continued employment with the Manager or one of its subsidiaries over the approximately four year period from the grant date through December 31, 2019 (the “Absolute RSUs”). The other approximately one-half of these RSUs are subject to the achievement of performance-based hurdles based on the Company’s total stockholder return relative to the MSCI US REIT Index and continued employment with the Manager or one of its subsidiaries over the approximately four year period from the grant date through December 31, 2019 (the “Relative RSUs”). Award recipients may earn up to 100% of the Absolute RSUs that were granted and up to 125% of the Relative RSUs that were granted. Upon vesting pursuant to the terms of the Absolute RSUs and Relative RSUs, the RSUs that vest will be settled in shares of common stock and the recipients will be entitled to receive the distributions that would have been paid with respect to a share of common stock (for each share that vests) on or after the date the RSUs were initially granted. In accordance with their terms, all of these restricted shares of common stock that remained outstanding vested in connection with the Mergers. The Absolute and Relative RSUs were not affected by the Mergers and remain outstanding, subject to forfeitures occurring in connection with termination of employment with the Manager or one of its subsidiaries.
Pre-Spin-Off NorthStar Realty Equity Awards
In addition to equity awards issued under the 2015 Plan, the Company also had equity subject to outstanding equity-based awards granted by NorthStar Realty prior to the Spin-Off. In connection with the Spin-Off, holders of shares of common stock of NorthStar Realty and LTIP units of NorthStar Realty’s operating partnership subject to outstanding equity awards received one share of the Company’s common stock or one Common Unit in the Operating Partnership, respectively, for every six shares of common stock of NorthStar Realty or LTIP units of NorthStar Realty’s operating partnership held. Other equity and equity-based awards relating to NorthStar Realty’s common stock, such as RSUs, were adjusted to also relate to one-sixth of a share of the Company’s common stock, but otherwise generally remained subject to the same vesting and other terms that applied prior to the Spin-off. Performance-based vesting conditions based on total stockholder return of NorthStar Realty or NorthStar Realty and NSAM were adjusted to refer to combined total stockholder return of NorthStar Realty and the Company or NorthStar Realty, NSAM and the Company, respectively, with respect to periods after the Spin-Off and references to a change of control or similar term in outstanding awards, which referred to a change of control of either NorthStar Realty or NSAM, were adjusted, to the extent such awards relate to

26
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

common stock of the Company or Common Units in the Operating Partnership, to refer to a change of control of either the Company or NSAM.
Following the Spin-off, NorthStar Realty and the compensation committee of its Board continued to administer all awards granted by NorthStar Realty prior to the Spin-Off, but the Company was obligated to issue shares of the Company’s common stock or other equity awards of its subsidiaries or make cash payments in lieu thereof or with respect to dividend or distribution equivalent obligations to the extent required by these awards. These awards continued to be governed by the NorthStar Realty equity plans, as applicable, and shares of the Company’s common stock issued pursuant to these awards were not be issued pursuant to, and did not reduce availability under, the 2015 Plan. In connection with the Mergers, all of these outstanding equity-based awards (other than an RSU relating to 83,333 shares of the Company’s common stock) vested or were forfeited.
The following table presents activity related to the issuance, vesting, conversion and forfeitures of restricted stock and Common Units. The balance as of September 30, 2017 represents vested Common Units and unvested market-based RSUs (grants in thousands):
 
Nine Months Ended September 30, 2017
 
Restricted Stock (1)
 
Common Units (3)
 
Restricted Stock Units (4)
 
Performance RSUs (5)
 
Total Grants
 
Weighted
Average
Grant Price
December 31, 2016
1,139

 
688

 
83

 
1,868

 
3,778

 
$
11.29

Granted
516

 
—

 
—

 
—

 
516

 
12.69

Converted
—

 
(263
)
 
—

 
—

 
(263
)
 
21.10

Vested (2)
(1,534
)
 
—

 
—

 
(178
)
 
(1,712
)
 
10.22

Forfeited (6)
—

 
—

 
—

 
(237
)
 
(237
)
 
4.87

September 30, 2017
121

 
425

 
83

 
1,453

 
2,082

 
$
11.99

___________________
(1)
Represents restricted stock included in common stock.
(2)
Vested primarily includes the acceleration of substantially all outstanding equity awards of the Company in connection with the change of control of NSAM as a result of the Mergers.
(3)
Includes vested and unvested Common Units in the Operating Partnership issued in the Spin-Off with respect to equity-based awards granted by NorthStar Realty prior to the Spin-Off. As of September 30, 2017 , all of these Common Units in the Operating Partnership were vested.
(4)
Relates to an equity-based award granted by NorthStar Realty prior to the Spin-Off and represents a non-employee grant subject to service-based vesting conditions, which was scheduled to vest on January 22, 2019, however, in September 2017, pursuant to the terms of the RSU award, a vesting event occurred and on October 2, 2017, the Company issued 83,333 shares of common stock in settlement of these RSUs. The RSUs were entitled to dividend equivalents prior to vesting and were settled in cash.
(5)
As of September 30, 2017 , represented outstanding Absolute and Relative RSUs.
(6)
Includes the forfeiture of performance based RSUs issued to NSAM executives as part of historical bonus plans in connection with the change of control of NSAM.
8.
Stockholders’ Equity
Share Repurchase
In November 2015, the Company’s board of directors authorized the repurchase of up to $100 million of its 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 its outstanding common stock through November 2017. For the nine months ended September 30, 2017 , the Company did not repurchase any shares of its common stock. For the nine months ended September 30, 2016 , the Company repurchased 3.0 million shares of its common stock for approximately $30.9 million . From the original authorization in November 2015 through September 30, 2017 , the Company repurchased 9.3 million shares of its common stock for approximately $100.0 million .
Director Grants
In August 2017, the Company issued 30,340 shares of common stock with a fair value at the date of grant of $0.4 million to its independent directors as an annual grant of equity. The stock fully vested at issuance.

27
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Dividends
The following table presents dividends declared (on a per share basis) with respect to the nine months ended September 30, 2017 and 2016 :
Common Stock
Declaration Date
 
Dividend Per Share
2017
 
 
May 1
 
$
0.15

August 2
 
$
0.15

November 6
 
$
0.15

2016
 
 
May 10
 
$
0.15

August 3
 
$
0.15

November 2
 
$
0.15

Earnings Per Share
The following table presents EPS for the three and nine months ended September 30, 2017 and 2016 (dollars and shares in thousands, except per share data):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Numerator:
 
 
 
 
 
 
 
Net income (loss) attributable to NorthStar Realty Europe Corp. common stockholders
$
(6,770
)
 
$
(12,721
)
 
$
(32,567
)
 
$
(75,609
)
Net income (loss) attributable to Unit Holders non-controlling interest
(62
)
 
(151
)
 
(372
)
 
(851
)
Net income (loss) attributable to common stockholders and Unit Holders (1)
$
(6,832
)
 
$
(12,872
)
 
$
(32,939
)
 
$
(76,460
)
Denominator: (2)
 
 
 
 
 
 
 
Weighted average shares of common stock
55,155

 
58,240

 
55,005

 
58,923

Weighted average Unit Holders (1)
447

 
688

 
560

 
690

Weighted average shares of common stock and Unit Holders (2)
55,602

 
58,928

 
55,565

 
59,613

Earnings (loss) per share:
 
 
 
 
 
 
 
Basic
$
(0.12
)
 
$
(0.22
)
 
$
(0.59
)
 
$
(1.28
)
Diluted
$
(0.12
)
 
$
(0.22
)
 
$
(0.59
)
 
$
(1.28
)
____________________________________________________________
(1)
The EPS calculation takes into account Unit Holders, which receive non-forfeitable dividends from the date of grant, share equally in the Company’s net income (loss) and convert on a one -for-one basis into common stock.
(2)
Excludes the effect of restricted stock and RSUs outstanding that were not dilutive as of September 30, 2017 . These instruments could potentially impact diluted EPS in future periods, depending on changes in the Company’s stock price and other factors.
9.
Non-controlling Interests
Operating Partnership
Non-controlling interests include the aggregate Units Holders’ interest in the Operating Partnership. Net income (loss) attributable to the non-controlling interest is based on the weighted average Unit Holders’ ownership percentage of the Operating Partnership for the respective period. The issuance of additional common stock, Common Units or LTIP Units changes the percentage ownership of both the Unit Holders and the Company. Since a Common Unit or LTIP Unit is generally redeemable for cash or common stock at the option of the Company, it is deemed to be equivalent to common stock. Therefore, such transactions are treated as capital transactions and result in an allocation between stockholders’ equity and non-controlling interests on the accompanying consolidated balance sheets to account for the change in the ownership of the underlying equity in the Operating Partnership. On a quarterly basis, the carrying value of such non-controlling interest is allocated based on the number of Unit Holders in total in proportion to the number of Units Holders plus the number of shares of common stock outstanding. As of September 30, 2017 , 425,991 Common Units and LTIP Units were outstanding, representing a 0.8% ownership and non-controlling interest in the Operating Partnership. Net income (loss) attributable to the Operating Partnership non-controlling interest for the three months ended

28
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

September 30, 2017 and 2016 was a net loss of $0.1 million and $0.2 million , respectively. Net income (loss) attributable to the Operating Partnership non-controlling interest for the nine months ended September 30, 2017 and 2016 was a net loss of $0.4 million and $ 0.9 million , respectively.
Redeemable Non-controlling Interest
In connection with the acquisition of the Trianon Tower in July 2015, the Company sold a 5.5% non-controlling interest in certain subsidiaries that own the Trianon Tower for $1.5 million . In conjunction with the sale, the Company entered into a put option whereby the holder may redeem its interest for cash at the greater of fair market value of such non-controlling interest or €2.1 million beginning in November 2020 through January 2021. The Company recorded the non-controlling interest at its acquisition date fair value as temporary equity due to the redemption option. The carrying amount of redeemable noncontrolling interests is adjusted to its redemption value at the end of each reporting period, but no less than its initial carrying value, with such adjustments recognized in additional paid-in capital.
10.
Risk Management and Derivative Activities
Derivatives
The Company uses derivative instruments primarily to manage interest rate and currency risk and such derivatives are not considered speculative. These derivative instruments are in the form of interest cap agreements where the primary objective is to minimize interest rate risks associated with investment and financing activities and foreign currency forward agreements where the primary objective is to minimize foreign currency exchange rate risks associated with operating activities. The counterparties of these arrangements are major financial institutions with which the Company may also have other financial relationships. The Company is exposed to credit risk in the event of non-performance by these counterparties and it monitors their financial condition; however, the Company currently does not anticipate that any of the counterparties will fail to meet their obligations.
The following tables present derivative instruments that were not designated as hedges under U.S. GAAP as of September 30, 2017 and December 31, 2016 (dollars in thousands):

Number

Notional
Amount

Fair Value
Asset (Liability)

Range of
Fixed GBP LIBOR / EURIBOR

Range of Maturity
As of September 30, 2017:
 
 
 
 
 
 
 
 
 
Interest rate caps
32

 
$
1,232,671

 
$
7,747

 
(1)  
 
January 2020 - July 2023
Foreign currency forwards, net (2)
9

 
79,232

 
(5,240
)
 
N/A
 
November 2017 - November 2018
Total
41

 
$
1,311,903

 
$
2,507

 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2016:


 


 


 
 
 
 
Interest rate caps
32

 
$
1,107,400

 
$
8,659

 
(1)  
 
January 2020 - July 2023
Foreign currency forwards (2)
20

 
72,806

 
5,070

 
N/A
 
February 2017 - November 2017
Total
52

 
$
1,180,206

 
$
13,729

 
 
 
 
_____________________________
(1)    Includes a range of interest rate caps of 0.5% for EURIBOR and 2.0% for GBP LIBOR.
(2)    Includes Euro and U.K. Pounds Sterling currency forwards.
The following table presents the fair value of derivative instruments, as well as their classification on the consolidated balance sheets, as of September 30, 2017 and December 31, 2016 (dollars in thousands):
 
Balance Sheet
 
September 30,
2017
 
December 31,
2016

Location
 
 
Interest rate caps
Derivative assets
 
$
7,747

 
$
8,659

Foreign currency forwards
Derivative assets
 
$
307

 
$
5,070

Foreign currency forwards
Derivative liabilities
 
$
5,547

 
$
—


29
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

The following table presents the effect of derivative instruments in the consolidated statements of operations for the three and nine months ended September 30, 2017 and 2016 (dollars in thousands):
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,

 

2017
 
2016
 
2017
 
2016
Amount of gain (loss) recognized in earnings:
Statements of operations location:

 
 
 
 
 
 
 
Adjustment to fair value of interest rate caps
Unrealized gain (loss) on derivatives and other (1)

$
(1,235
)
 
$
(4,309
)
 
$
(1,949
)
 
$
(18,483
)
Adjustment to fair value of foreign currency forwards
Unrealized gain (loss) on derivatives and other  (1)
 
(2,737
)
 
(581
)
 
(10,309
)
 
(374
)
Net cash receipt (payment) on derivatives
Realized gain (loss) on sales and other
 
232

 
100

 
1,688

 
(1,095
)
_____________________________
(1)    Excludes the unrealized gain (loss) relating to foreign currency remeasurement adjustments.
The Company’s counterparties held no cash margin as collateral against the Company’s derivative contracts as of September 30, 2017 and December 31, 2016 . The Company had no derivative financial instruments that were designated as hedges in qualifying hedging relationships as of September 30, 2017 and December 31, 2016 .
11.
Fair Value
Fair Value Measurement
The fair value of financial instruments is categorized based on the priority of the inputs to the valuation technique and categorized into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
Financial assets and liabilities are recorded at fair value on the consolidated balance sheets and are categorized based on the inputs to the valuation techniques as follows:
Level 1.
Quoted prices for identical assets or liabilities in an active market.
Level 2.
Financial assets and liabilities whose values are based on the following:
(a)
Quoted prices for similar assets or liabilities in active markets.
(b)
Quoted prices for identical or similar assets or liabilities in non-active markets.
(c)
Pricing models whose inputs are observable for substantially the full term of the asset or liability.
(d)
Pricing models whose inputs are derived principally from or corroborated by observable market data for substantially the full term of the asset or liability.
Level 3.
Prices or valuation techniques based on inputs that are both unobservable and significant to the overall fair value measurement.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following is a description of the valuation techniques used to measure fair value of assets and liabilities accounted for at fair value on a recurring basis and the general classification of these instruments pursuant to the fair value hierarchy.
Derivative Instruments
Derivative instruments consist of interest rate contracts and foreign exchange contracts that are traded over-the-counter, and are valued using a third-party service provider. These quotations are not adjusted and are generally based on valuation models with observable inputs such as contractual cash flow, yield curve, foreign currency rates and credit spreads and as such, are classified as Level 2 of the fair value hierarchy. Derivative instruments are also assessed for credit valuation adjustments due to the risk of non-performance by the Company and derivative counterparties.

30
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Fair Value of Financial Instruments
In addition to the above disclosures regarding financial assets or liabilities which are recorded at fair value, U.S. GAAP requires disclosure of fair value about all financial instruments. The following disclosure of estimated fair value of financial instruments was determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on estimated fair value.
The following table presents the principal amount, carrying value and fair value of certain financial assets and liabilities as of September 30, 2017 and December 31, 2016 (dollars in thousands):
 
September 30, 2017
 
December 31, 2016
 
Principal/Notional
Amount
 
Carrying
Value
 
Fair
Value
 
Principal/Notional
Amount
 
Carrying
Value
 
Fair
Value
Financial assets: (1)
 
 
 
 
 
 
 
 
 
 
 
Derivative assets
$
1,236,496

 
$
8,054

 
$
8,054

 
$
1,180,206

 
$
13,729

 
$
13,729

Preferred equity investment
35,086

 
35,086

 
35,086

 
—

 
—

 
—

Financial liabilities: (1)
 
 
 
 
 
 
 
 
 
 
 
Mortgage and other notes payable, net
$
1,286,242

 
$
1,272,758

 
$
1,268,464

 
$
1,162,211

 
$
1,149,119

 
$
1,146,134

Derivative liabilities
75,407

 
5,547

 
5,547

 
—

 
—

 
—

_____________________________
(1)
The fair value of other financial instruments not included in this table is estimated to approximate their carrying value.
Disclosure about fair value of financial instruments is based on pertinent information available to management as of the reporting date. Although management is not aware of any factors that would significantly affect fair value, such amounts have not been comprehensively revalued for purposes of these consolidated financial statements since that date and current estimates of fair value may differ significantly from the amounts presented herein.
Mortgage and Other Notes Payable
For mortgage and other notes payable, the Company primarily uses rates currently available with similar terms and remaining maturities to estimate fair value. These measurements are determined using rates as of the end of the reporting period or market credit spreads over the rate payable on fixed rate of like maturities. These fair value measurements are based on observable inputs, and as such, are classified as Level 2 of the fair value hierarchy.
Preferred Equity Investments
For preferred equity investments, fair value was computed by comparing the current yield to the estimated yield for newly originated loans with similar credit risk or the market yield at which a third party might expect to purchase such investment. Fair value was determined assuming fully-extended maturities regardless of structural or economic tests required to achieve such extended maturities. These fair value measurements are generally based on unobservable inputs and, as such, are classified as Level 3 of the fair value hierarchy.
12.
Commitments and Contingencies
The Company is involved in various litigation matters arising in the ordinary course of its business. Although the Company is unable to predict with certainty the eventual outcome of any litigation, in the opinion of management, the current legal proceedings are not expected to have a material adverse effect on the Company’s financial position or results of operations.
The Company engages third-party service providers for its portfolio who are remunerated based on either a fixed fee or a percentage of rental income. The contract terms vary by party and are subject to termination options. These costs are recorded in properties - operating expense and other expenses in the consolidated statements of operations.
As part of the terms of agreements relating to certain assets the Company disposed, as is customary for such transactions in Europe, the Company agreed to provide certain warranties to the buyer.
Risk Management
Concentrations of credit risk arise when a number of tenants related to the Company’s investments are engaged in similar business activities or located in the same geographic region to be similarly affected by changes in economic conditions. The Company

31
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

monitors its portfolios to identify potential concentrations of credit risks. For the three and nine months ended September 30, 2017 , one tenant, DekaBank Deutsche Girozentrale, accounted for more than 10% of the Company’s total revenue. This tenant has 6.7 years remaining on its lease. Otherwise, the Company has no other tenant that generates 10% or more of its total revenue. Additionally, for the three and nine months ended September 30, 2017 , Germany, France, the United Kingdom and the Netherlands each accounted for more than 10% of the Company’s total revenue. The Company believes the remainder of its portfolio is well diversified and does not contain any unusual concentrations of credit risks.
13.
Segment Reporting
The Company currently conducts its business through the following three segments, based on how management reviews and manages its business:
•
Real Estate Equity- Focused on European prime office properties located in key cities within Germany, the United Kingdom and France.
•
Preferred Equity - Represents the Company’s preferred equity investment secured by interest in an European prime office property.
•
Corporate - The corporate segment includes corporate level interest expense, management fee and general and administrative expenses.

32
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

The following tables present segment reporting for the three and nine months ended September 30, 2017 and 2016 (dollars in thousands):
 
Three Months Ended September 30, 2017
Statement of Operations:
Real Estate Equity
 
Preferred Equity
 
Corporate

Total
Rental income
$
27,747

 
$
—

 
$
—

 
$
27,747

Escalation income
5,641

 
—

 
—

 
5,641

Interest income
—

 
704

 
—

 
704

Interest expense (1)
6,325

 
—

 
211

 
6,536

Management fee, related party
—

 
—

 
3,585

 
3,585

Transaction costs
—

 
—

 
332

 
332

Depreciation and amortization
14,396

 
—

 
—

 
14,396

Other, net
8,802

(2)  
—

 
6,895

(3)  
15,697

Income (loss) before income tax benefit (expense)
3,865


704


(11,023
)
 
(6,454
)
Income tax benefit (expense)
(352
)
 
—

 
—

 
(352
)
Net income (loss)
$
3,513


$
704


$
(11,023
)
 
$
(6,806
)
___________________________________
(1)
Includes $0.6 million and $0.1 million of amortization of deferred financing costs in the real estate equity and corporate segments, respectively.
(2)
Primarily relates to properties - operating expenses and unrealized loss on interest rate caps offset by other income.
(3)
Primarily relates to general and administrative expense and unrealized loss on foreign currency forwards.
 
Three Months Ended September 30, 2016
Statement of Operations: (1)
Real Estate Equity
 
Corporate
 
Total
Rental income
$
29,798


$
—

 
$
29,798

Escalation income
7,828


—

 
7,828

Interest expense (2)
7,132

 
2,169

 
9,301

Management fee, related party
—

 
3,548

 
3,548

Transaction costs
—

 
150

 
150

Depreciation and amortization
13,989

 
—

 
13,989

Other, net
12,694

(3)  
8,059

(4)  
20,753

Income (loss) before income tax benefit (expense)
3,820

 
(13,935
)
 
(10,115
)
Income tax benefit (expense)
(2,655
)
 
—

 
(2,655
)
Net income (loss)
$
1,165


$
(13,935
)
 
$
(12,770
)
___________________________________
(1)
The Company did not have a preferred equity segment for the three months ended September 30, 2016.
(2)
Includes $0.9 million of amortization of deferred financing costs in both the real estate and corporate segments.
(3)
Primarily relates to properties - operating expense and realized loss on the sale of real estate offset by the realized gain on foreign currency translation and other.
(4)
Primarily relates to general and administrative expense and unrealized loss on foreign currency forwards.


33
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

 
Nine Months Ended September 30, 2017
Statement of Operations:
Real Estate Equity
 
Preferred Equity
 
Corporate
 
Total
Rental income
$
79,308

 
$
—

 
$
—

 
$
79,308

Escalation income
16,360

 
—

 
—

 
16,360

Interest income
—

 
1,001

 
—

 
1,001

Interest expense (1)
18,896

 
—

 
745

 
19,641

Management fee, related party
—

 
—

 
10,716

 
10,716

Transaction costs
—

 
538

 
1,027

 
1,565

Depreciation and amortization
39,479

 
—

 
—

 
39,479

Other, net
23,575

(2)  
(6
)
 
34,253

(3)  
57,822

Income (loss) before income tax benefit (expense)
13,718


469


(46,741
)
 
(32,554
)
Income tax benefit (expense)
(316
)
 
—

 
—

 
(316
)
Net income (loss)
$
13,402

 
$
469

 
$
(46,741
)
 
$
(32,870
)
___________________________________
(1)
Includes $2.0 million and $0.3 million of amortization of deferred financing costs in the real estate equity and corporate segments, respectively.
(2)
Primarily relates to properties - operating expense and unrealized loss on interest rate caps offset by the realized gain on the sale of real estate and other income.
(3)
Primarily relates to general and administrative expense, compensation expense and unrealized loss on foreign currency forwards.
 
Nine Months Ended September 30, 2016
Statement of Operations: (1)
Real Estate Equity
 
Corporate
 
Total
Rental income
$
98,622

 
$
—

 
$
98,622

Escalation income
19,825

 
—

 
19,825

Interest expense (2)
24,249

 
9,235

 
33,484

Management fee, related party
—

 
10,548

 
10,548

Transaction costs
—

 
2,633

 
2,633

Depreciation and amortization
51,264

 
—

 
51,264

Other, net
70,646

(3)  
23,758

(4)  
94,404

Income (loss) before income tax benefit (expense)
(27,712
)

(46,174
)
 
(73,886
)
Income tax benefit (expense)
(2,515
)
 
—

 
(2,515
)
Net income (loss)
$
(30,227
)
 
$
(46,174
)
 
$
(76,401
)
___________________________________
(1)
The Company did not have a preferred equity segment for the nine months ended September 30, 2016.
(2)
Includes $2.6 million and $2.9 million of amortization of deferred financing costs in the real estate equity and corporate segment, respectively.
(3)
Primarily relates to properties - operating expense, unrealized loss on derivatives and impairment loss of $27.5 million offset by the realized gain on the sale of real estate and other income.
(4)
Primarily relates to general and administrative expense, compensation expense, realized loss related to the write-off of the deferred financing costs associated with the repurchase of the Senior Notes and includes an allocation of general and administrative expenses from the Manager of $0.1 million .
The following table presents total assets by segment as of September 30, 2017 and December 31, 2016 (dollars in thousands):
Total Assets
Real Estate Equity
 
Preferred Equity
 
Corporate
 
Total
September 30, 2017
$
1,949,289

 
$
36,385

(1)  
$
3,559

 
$
1,989,233

December 31, 2016
$
1,835,531

 
$
—

 
$
9,861

 
$
1,845,392

___________________________________
(1)
Represents the preferred equity investment and accrued interest income.






34
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Geography
The following table presents geographic information about the Company's total rental and escalation income (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016 (1)
 
2017
 
2016 (1)
Germany
$
13,878

 
$
15,716

 
$
39,612

 
$
44,968

United Kingdom
10,663

 
10,365

 
28,152

 
30,349

France
5,837

 
5,685

 
16,632

 
16,554

Netherlands
2,774

 
3,576

 
10,023

 
13,359

Other
236

 
2,284

 
1,249

 
13,217

Total
$
33,388

 
$
37,626

 
$
95,668

 
$
118,447

___________________________________
(1)
Amount represented for the three and nine months ended September 30, 2016 are translated using the average exchange rate for the three and nine months ended September 30, 2017, respectively.
14.
Subsequent Events
Dividends
On November 6, 2017 , the Company declared a dividend of $0.15 per share of common stock. The common stock dividend is expected be paid on November 24, 2017 to stockholders of record as of the close of business on November 20, 2017 .
Amended and Restated Management Agreement
On November 9, 2017, the Company entered into an Amended and Restated Management Agreement with CNI NRE Advisors, LLC, a Delaware limited liability company (unless the context requires otherwise, together with its affiliates, the “Asset Manager”), an affiliate of Colony NorthStar, effective as of January 1, 2018.
Under the Amended and Restated Management Agreement, the Asset Manager is generally responsible to manage the Company’s day to day operations, subject to the supervision and management of the Board. The Asset Manager is required to provide the Company with a management team and other appropriate employees and resources necessary to manage the Company.
Term; Renewals
The Amended and Restated Management Agreement provides for an initial term (beginning January 1, 2018) of five years (the “Initial Term”), with subsequent automatic renewals for additional three -year terms, unless either party provides notice to the other party of its intention to decline to renew the agreement at least six months prior to the expiration of the then-current term.
During the Initial Term, the Company can only terminate the Amended and Restated Management Agreement for certain specified events (as described in the Amended and Restated Management Agreement) which include: (i) certain acts of fraud, misappropriation, embezzlement, uncured gross negligence or uncured bad faith breaches of the Amended and Restated Management Agreement, in each case, by the Asset Manager which result in a material adverse effect on the Company, (ii) commencement of bankruptcy or insolvency proceedings relating to the Asset Manager that are not dismissed within 60 days, (iii) dissolution of Asset Manager, (iv) a final determination by a court or the Internal Revenue Service that a provision of the Amended and Restated Agreement caused or will cause the Company to fail to qualify as a REIT and Asset Manager refuses to amend the Amended and Restated Agreement within 60 days to amend the agreement in a manner that would allow the Company to qualify as a REIT. As used in this paragraph, “Asset Manager” refers to CNI NRE Advisors, LLC.
If the Company elects not to renew the Amended and Restated Management Agreement at the end of a term, it will be obligated to pay the Asset Manager a termination fee (the “Termination Fee”) equal to three times the amount of the base management fees earned by the Asset Manager over the four recent quarters immediately preceding the non-renewal. In addition, if at any time after the Initial Term, the Company undergoes a “change of control” (as defined in the Amended and Restated Management Agreement), the Company may elect to terminate the agreement but upon any such termination it will be obligated to pay the Termination Fee to the Asset Manager.
Assignment
The Amended and Restated Management Agreement provides that in the event of a change of control of the Asset Manager or other event that could be deemed an assignment of the Amended and Restated Management Agreement, the Company will consider

35
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

such assignment in good faith and not unreasonably withhold, condition or delay the Company’s consent. The Amended and Restated Management Agreement further provides that the Company anticipates consent would be granted for an assignment or deemed assignment to a party with expertise in commercial real estate and over $ 10 billion of assets under management. The Amended and Restated Management Agreement also provides that, notwithstanding anything in the agreement to the contrary, to the maximum extent permitted by applicable law, rules and regulations, in connection with any merger, sale of all or substantially all of the assets, change of control, reorganization, consolidation or any similar transaction by the Company or the Asset Manager, directly or indirectly, the surviving entity will succeed to the terms of the Amended and Restated Management Agreement.
Base Management Fee
Pursuant to the Amended and Restated Management Agreement, beginning January 1, 2018, the Company is obligated to pay the Asset Manager a base management fee per annum equal to:
•
1.50% of the Company’s EPRA NAV (as defined in the Amended and Restated Management Agreement) for EPRA NAV amounts up to and including $2.0 billion ; plus
•
1.25% of the Company’s EPRA NAV on any EPRA NAV amount exceeding $2.0 billion .
The base management fee is payable, quarterly in arrears, in cash.
Incentive Fee
In addition to the base management fees, the Company is obligated to pay the Asset Manager an incentive fee, if any (the “Incentive Fee”), with respect to each measurement period equal to twenty percent ( 20% ) of: (i) the excess of (a) the Company’s Total Stockholder Return (as defined in the Amended and Restated Management Agreement, which includes stock price appreciation and dividends received and is subject to a high watermark price established when a prior incentive fee is realized) for the relevant measurement period above (b) a 10% cumulative annual hurdle rate, multiplied by (ii) the Company’s Weighted Average Shares (as defined in the Amended and Restated Management Agreement) during the measurement period. The first measurement period for the incentive fee will begin January 1, 2018 and end on December 31 of the applicable calendar year and subsequent measurement periods will begin on January 1 of the subsequent calendar year. Subject to the conditions set forth in Section 4(d) of the Amended and Restated Management Agreement for common stock payments, the Company may elect to pay the Incentive Fee, if any, in cash or in shares of restricted common stock or shares of unrestricted common stock repurchased by the Company in the open market or a combination thereof. Any shares of common stock delivered by the Company will be subject to lock-up restrictions that will be released in equal 1/3 increments on each anniversary of the end of the measurement period with respect to which such incentive fee was earned. In calculating the value of the shares of the Company’s common stock paid in satisfaction of the Incentive Fee obligation, the shares of restricted common stock will be valued at the higher of: (i) the volume weighted average trading price per share for the ten consecutive trading days (as defined in the Amended and Restated Management Agreement) ending on the trading day prior to the date the payment is due and (ii) the Company’s EPRA NAV per share, based on the Company’s most recently published EPRA NAV and the Weighted Average Shares as of the end of the period with respect to which such EPRA NAV was published.
Costs and Expenses
The Company is responsible to pay (or reimburse the Asset Manager) for all of the Company’s direct, out of pocket costs and expenses of the Company as a stand alone company incurred by or on behalf of the Company and its subsidiaries, all of which must be reasonable, customary and documented. Internalized Service Costs (as defined below) are not intended to be covered costs and expense under this provision and are subject to the limits described in the next paragraph.
In addition to the expenses described in the prior paragraph, for each calendar quarter, beginning with the first quarter of 2018, the Company is obligated to reimburse the Asset Manager for (i) all direct, reasonable, customary and documented costs and expenses incurred by the Asset Manager for salaries, wages, bonuses, payroll taxes and employee benefits for personnel employed by the Asset Manager: (a) who solely provide services to the Company which prior to January 1, 2018 were provided by unaffiliated third parties, including accounting and treasury services or (b) who were hired by the Asset Manager after January 1, 2018 but who solely provide services to the Company in respect of one of the categories of services previously internalized pursuant to clause (a) and who were not hired in connection with any event which otherwise resulted in an increase to the Company’s net asset value (such costs and expenses set forth in clauses (i) and (ii), the “Internalized Service Costs”), plus (ii) 20% of the amount calculated under clause (i) to cover reasonable overhead charges with respect to such personnel, provided that the Company shall not be obligated to reimburse the Asset Manager for such costs and expenses to the extent they exceed the following quarterly limits:


36
NORTHSTAR REALTY EUROPE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

•
0.0375% of the Company’s aggregate gross asset value as of the end of the prior calendar quarter (excluding cash and cash equivalents and certain other exclusions) as calculated for purposes of determining EPRA NAV (“GAV”), for GAV amounts to and including $2.5 billion , plus
•
0.0313% of GAV amounts between $2.5 billion and $5.0 billion , plus
•
0.025% of GAV amounts exceeding $5.0 billion .
If the Asset Manager’s actual Internalized Service Costs during any quarter exceed the quarterly limit described in the preceding paragraph (the cumulative excess amounts, if any, in respect of each quarter during a calendar year, the (“Quarterly Cap Excess Amount”), the Company is obligated to reimburse the Asset Manager on an annual basis for an amount equal to the lesser of (i) the Quarterly Cap Excess Amount and (ii) the sum of the amounts, if any, determined for each quarter within such calendar year by which Internalized Services Costs in respect of such quarter were less than the quarterly limits described in the prior paragraph.
Equity Based Compensation
In addition, the Company expects to make annual equity compensation grants to management of the Company and other employees of the Asset Manager, provided that the aggregate annual grant amount, type and other terms of such equity compensation must by approved the Company’s Compensation Committee. The Asset Manager will have discretion in allocating the aggregate grant among the Company’s management and other employees of the Asset Manager.
Under the Amended and Restated Management Agreement, beginning with the Company’s 2018 annual stockholders’ meeting, the Asset Manager will have the right to nominate one director (who is expected to be one of the Company’s current directors employed by the Asset Manager) to the Company’s board of directors.
Transaction Expenses
The Company agreed to pay for up to $2.5 million of fees and expenses payable by the Asset Manager to its external financial advisors in connection with the negotiation and execution of the Amended and Restated Management Agreement.
Colony NorthStar Ownership Waiver and Voting Agreement
In connection with the entry into the Amended and Restated Management Agreement, the Company provided Colony NorthStar with an ownership waiver under the Company’s Articles of Amendment and Restatement, allowing Colony NorthStar to purchase up to 45% of the Company’s stock. The waiver provides that if the Amended and Restated Management Agreement is terminated, Colony NorthStar may not purchase any shares of the Company’s common stock to the extent Colony NorthStar owns (or would own as a result of such purchase) more than 9.8% of the Company’s capital stock. In connection with the waiver, Colony NorthStar also agreed that for all matters submitted to a vote of the Company’s stockholders, to the extent Colony NorthStar owns more than 25% of the Company’s common stock (such shares owned by Colony NorthStar in excess of the 25% threshold, the “Excess Shares”), it will vote the Excess Shares in the same proportion that the remaining shares of the Company not owned by Colony NorthStar or its affiliates are voted. If the Amended and Restated Management Agreement is terminated, then beginning on the third anniversary of such termination, the threshold described in the prior sentence will be reduced from 25% to 9.8% .





37

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our unaudited 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.
Introduction
NorthStar Realty Europe Corp., a publicly-traded 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, or the Core Portfolio. 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 are 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
Mergers 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 Finance Corp., or NorthStar Realty, and Colony Capital, Inc., or Colony, pursuant to which the companies combined in an all-stock merger 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 equity REIT with an embedded investment management platform.
Investments
In May 2017, we partnered with a leading property developer in China to acquire 20 Gresham Street, a Class A office building in London, United Kingdom with 22,557 square meters, 100% occupancy and a 6.8 year weighted average lease term to expiry. We invested approximately $35 million ( £26 million ) of preferred equity with a base yield of 8% plus equity participation rights.
Sales
During the three months ended September 30, 2017 we sold two properties, exiting Spain and further reducing our presence in the Netherlands.
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 14 “Subsequent Events” in our accompanying consolidated financial statements included in Part I Item 1. “Financial Statements” for a description of the terms of the Amended and Restated Management Agreement.
Summary of Business
Our primary business line is investing in European real estate. We are predominantly focused on the Core Portfolio.

38
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Our Investments
Our portfolio as of September 30, 2017 includes the following (dollars in millions):
Investment Type
 
Primary Location(s)
 
Property Type
 
Cost (1)
 
Count
 
Ownership Interest
 
Real estate equity
 
 
 
 
 
 
 
 
 
 
 
U.K. Complex
 
United Kingdom
 
Multi-tenant office
 
$
77

 
1
(4)  
93%
 
SEB Portfolio
 
Germany, United Kingdom, France
 
Multi-tenant office
 
1,016

 
7
 
95%
(2)  
Trias Portfolio (3)
 
Germany, United Kingdom, France
 
Office/Hotel/Industrial/Retail
 
360

 
15
 
95%
(2)  
Trianon Tower
 
Germany
 
Multi-tenant office
 
690

 
3
 
95%
(2)  
Total real estate equity
 
 
 
 
 
2,143

 
26
 
 
 
Preferred Equity
 
 
 
 
 
 
 
 
 
 
 
Preferred equity investment
 
 
 
 
 
35

 
1
 
 
 
Total preferred equity
 
 
 
 
 
35

 
1
 
 
 
Total investments
 
 
 
 
 
$
2,178

 
27
 
 
 
__________________
(1)
Amount includes transaction costs incurred, deferred financing costs and other assets assumed and is translated using exchange rates as of September 30, 2017 .
(2)
We are entitled to 100%  of the economic benefits and incur 100% of the economic losses in accordance with the applicable governing documents.
(3)
Trias Portfolio represents the IVG Portfolio, Internos Portfolio and Deka Portfolio. Such three portfolios were not under common control or management at the time of acquisition.
(4)
Includes one asset held for sale.
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.
Our Portfolio
The following presents a summary of our portfolio as of September 30, 2017 :
 
 
 
Portfolio by Geographic Location
 
 
September 30, 2017 (4)
December 31, 2016 (4)
Total portfolio, at cost (1)
$2.1 billion
PIECHARTA04.JPG
PIECHART2016A01.JPG
Number of properties
26
Number of countries
5
Total square meters (2)
343,960
Weighted average occupancy
86%
Weighted average lease term
6.4 years
In-place rental income: (3)
 
Core Portfolio
86%
Other markets
14%
___________________________________
(1)
Amount includes transaction costs incurred, deferred financing costs and other assets assumed and is translated using exchange rates as of September 30, 2017 .
(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 gross rent adjusted for vacancies based on the rent roll as of September 30, 2017 and is translated using exchange rates as of September 30, 2017 .
(4)
Other represents assets in Portugal as of September 30, 2017 and Spain, Portugal and Italy as of December 31, 2016.

39
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The following table presents significant tenants in our portfolio, based on in-place rental income as of September 30, 2017 :
Significant tenants:
 
Asset (Location)
 
Industry
 
Square Meters (1)
 
Percentage of In-Place Rental Income
 
Weighted Average Lease Term (in years)
DekaBank Deutsche Girozentrale
 
Trianon (Frankfurt, Germany)
 
Finance
 
36,524
 
19%
 
6.7
BNP PARIBAS RE
 
Mac Donald (Paris, France)
 
Finance
 
15,406
 
9%
 
2.3
Deutsche Bundesbank
 
Trianon (Frankfurt, Germany)
 
Finance
 
15,304
 
5%
 
9.2
Deloitte Holding B.V.
 
Maastoren (Rotterdam, Netherlands)
 
Legal, Tax & Management Consultancy
 
23,547
 
5%
 
9.6
BNP PARIBAS SA
 
Berges de Seine (Paris, France)
 
Finance
 
11,235
 
5%
 
3.6
Cushman & Wakefield LLP
 
Portman Square (London, UK)
 
Legal, Tax & Management Consultancy
 
5,150
 
5%
 
7.5
Morgan Lewis & Bockius LLP
 
Condor House (London, UK)
 
Legal, Tax & Management Consultancy
 
4,848
 
4%
 
8.0
Invesco UK Limited
 
Portman Square (London, UK)
 
Finance
 
3,126
 
4%
 
9.9
PAREXEL International GmbH
 
Parexel (Berlin, Germany)
 
Legal, Tax & Management Consultancy
 
18,254
 
3%
 
16.7
Moelis & Co UK LLP
 
Condor House (London, UK)
 
Other
 
3,366
 
3%
 
7.5
 
 
 
 
 
 
136,760

61%
 
7.2
__________________
(1)
Based on contractual rentable area.
The following table presents NOI, square meters and weighted average lease term concentration by country for our portfolio as of September 30, 2017 :
Country
 
Number of Properties
 
Percentage of NOI
 
Square Meters (1)
 
Weighted Average Lease Term (in years)
Germany
 
11
 
42
%
 
153,463

 
7.2
United Kingdom
 
5
 
28
%
 
46,520

 
7.1
France
 
4
 
18
%
 
32,075

 
3.5
Other (2)
 
6
 
12
%
 
111,902

 
6.2
Total
 
26
 
100
%
 
343,960

 
6.4
__________________
(1)
Based on contractual rentable area.
(2)
Includes assets in Portugal, Netherlands and assets outside our Core Portfolio in Germany, the United Kingdom and France.
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 6.8 year weighted average lease term to expiry. We invested approximately $35.1 million ( £26 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. 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 net operating income, or 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
The European economy posted another solid quarter of economic growth. During the third quarter of 2017, Gross Domestic Product in the European Union, or EU, grew by 2.5% year on year reflecting the strongest annual growth since 2011. Unemployment in the EU continued to fall, reaching 7.5% in September 2017 (down from 8.4% a year earlier), the lowest level recorded since November 2008. The U.K. economy began to slow in 2017, posting 0.4% growth during the third quarter (or 1.5% year-on-year), as elevated levels of inflation due to a weaker U.K. Pound Sterling eroded real incomes and hampered consumer demand, while general uncertainty associated with Brexit weighed on business sentiment and investment. On November 2, 2017 the Bank of

40
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England, or BOE, raised the U.K. base interest rate from 0.25% to 0.5%, the first interest rate rise in a decade, in an effort to contain inflation which was 3% in the year to September (in excess of the BOE’s stated target of 2.0%). The BOE signaled that any further increases would likely be at a gradual pace and limited in number. The BOE’s cautious tone is reflective of the outlook for the U.K. economy which remains uncertain and likely to be highly dependent on the duration and perceived outcome of ongoing Brexit negotiations.
The Eurozone economy remains buoyant achieving 2.5% year on year GDP growth in the third quarter. In October 2017, the International Monetary Fund, or IMF, upgraded its 2017 GDP forecast for the Euro Area up to 1.9% reflecting an acceleration in exports and continued strength in consumer demand. Unemployment fell to 8.9%, its lowest level since January 2009. This stronger than anticipated economic recovery resulted in the European Central Bank, or ECB, signaling its intention to begin reducing the level of economic stimulus it provides. On October 26, 2017, the ECB announced its decision to maintain interest rates at zero percent and signaled its intention to halve its bond purchase program from €60 billion to €30 billion per month from January 2018 through September 2018, while signaling its commitment to further extend the program, increase its size, or both, should the outlook for inflation in the Eurozone deteriorate. Inflation stood at 1.4% in the year to October, below the ECB’s target of just under 2%. We continue to believe that any unwinding of stimulus is likely to be gradual and subject to ongoing review based on the future economic performance and inflation outlook of the region, which is consistent with the ECB’s recent commentary.
European commercial real estate investment volume totaled €66 billion in the third quarter of 2017, and €197 billion in the first nine months of 2017, 16% above the same period in 2016. The office sector represented approximately 49% of total third quarter investment volume. Prime property yields in most asset classes and markets were stable during the third quarter and continue to remain at a significant premium to sovereign yields.
Driven by strong demand for office and industrial properties including a number of large transactions in these sectors, German transaction volume reached €39.1 billion during the first nine months of 2017 (20% above the same period last year), the highest level in the first nine months since 2007.
Total U.K. investment volume reached £17.1 billion in the third quarter, more than double the volume during the same period last year. London office investment transactions totaled £4.8 billion in the third quarter 2017, representing a quarterly increase of 51% and a significant increase on the same period last year when investment volume stood at £3.2 billion and £1.7 billion, respectively. For the first nine months of 2017, London investment volume reached £13 billion, equaling the investment volume for the full year 2016.
Total French investment volume was €15.1 billion in the first nine months of 2017 (13% below the same period in 2016), driven by weaker appetite in the run up to the recent general election and a shortage of larger transactions.
The new supply pipeline remains subdued across all major European office markets. Improving occupier demand coupled with low supply continues to place downward pressure on vacancy rates and gradual upward pressure on rents across major European office markets, which may be further exacerbated by rising inflation levels as many leases across Europe are structured with inflation linked uplifts.
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 our Core Portfolio. Our Core Portfolio is 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. In addition, we may use corporate-level financing such as credit facilities and other term borrowings. We generally seek to limit our reliance on recourse borrowings. 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 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.

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In June 2017, we amended and restated the Trias mortgage note agreement to increase the loan amount by $6 million and reduce future minimum capital expenditure spending requirements. In September 2017, we amended and restated the financing terms for $562 million of the SEB mortgage note agreement to reduce the margin from 1.80% to 1.55% and extended the maturity date from April 1, 2022 to July 20, 2024.
Refer to Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” for discussion of liquidity requirements and sources of capital resources.
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.
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/partners 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 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

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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.
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. There have been no material changes to our critical accounting policies since the filing of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 .
Recent Accounting Pronouncements
For recent accounting pronouncements, refer to Note 2, “Significant Accounting Policies” in our accompanying consolidated financial statements included in Part I Item 1. “Financial Statements.”


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Results of Operations
The following presents a summary of our activity for the three and nine months ended September 30, 2017 and 2016 :
Comparison of the Three Months Ended September 30, 2017 to September 30, 2016 (dollars in thousands):
 
Three Months Ended September 30,
 
Increase (Decrease)
 
2017
 
2016
 
Amount
 
%
Revenues
 
 
 
 
 
 
 
Rental income
$
27,747

 
$
29,798

 
$
(2,051
)
 
(7
)%
Escalation income
5,641

 
7,828

 
(2,187
)
 
(28
)%
Interest income
704

 
—

 
704

 
100
 %
Other income
171

 
149

 
22

 
15
 %
Total revenues
34,263

 
37,775

 
(3,512
)
 
(9
)%
Expenses
 
 
 
 
 
 

Properties - operating expenses
7,519

 
9,493

 
(1,974
)
 
(21
)%
Interest expense
6,536

 
9,301

 
(2,765
)
 
(30
)%
Transaction costs
332

 
150

 
182

 
121
 %
Management fee, related party
3,585

 
3,548

 
37

 
1
 %
Other expenses
1,996

 
2,848

 
(852
)
 
(30
)%
General and administrative expenses
1,723

 
2,199

 
(476
)
 
(22
)%
Compensation expense
2,839

 
5,194

 
(2,355
)
 
(45
)%
Depreciation and amortization
14,396

 
13,989

 
407

 
3
 %
Total expenses
38,926

 
46,722

 
(7,796
)
 
(17
)%
Other income (loss)
 
 
 
 
 
 


Unrealized gain (loss) on derivatives and other
(3,472
)
 
(4,982
)
 
1,510

 
(30
)%
Realized gain (loss) on sales and other
1,681

 
3,814

 
(2,133
)
 
(56
)%
Income (loss) before income tax benefit (expense)
(6,454
)
 
(10,115
)
 
3,661

 
(36
)%
Income tax benefit (expense)
(352
)
 
(2,655
)
 
2,303

 
(87
)%
Net income (loss)
$
(6,806
)
 
$
(12,770
)
 
$
5,964

 
(47
)%
Revenues
Rental Income
Rental income consists of rental revenue in our real estate equity segment. Rental income decreased $2.1 million , primarily due to lease extensions signed at the Maastoren property ( $0.7 million down in the third quarter 2017) and a vacancy in the Trianon property, which has now been re-let ( $0.7 million per quarter contractual rent) and the disposal of 18 properties during 2016.
Escalation Income
Escalation income consists of tenant recoveries in our real estate equity segment. Escalation income decreased $2.2 million , primarily due to the disposal of 18 properties during 2016 and the timing of certain recoverable expenses offset by an increase in recoverable operating expenses. There is a corresponding decrease in properties - operating expenses and a majority of these costs are recovered from our tenants.
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 increased for the three months ended September 30, 2017 due to a one-time insurance refund relating to a repair in the third quarter of 2017.
Expenses
Properties - Operating Expenses
Properties - operating expenses decreased $2.0 million due to the disposal of 18 properties during 2016 and the timing of certain recoverable expenses offset by an increase in recoverable repairs and maintenance during 2017 in our real estate equity segment. There is a corresponding decrease in escalation income and a majority of these costs are recovered from our tenants.

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Table of Contents

Interest Expense
Interest expense decreased $2.8 million due to the disposal of 18 properties during 2016, the refinancing of certain mortgage notes and repayments of certain mortgage notes in our real estate equity segment in the third quarter 2017 and the repayment of our senior stock-settlable notes in our corporate segment in 2016.
Transaction Costs
Transaction costs for the three months ended September 30, 2017 primarily relates to costs associated with amending the management agreement in our corporate segment. Transaction costs for the three months ended September 30, 2016 primarily relates to costs associated with exploring potential transactions 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 Parties Arrangements” below for more information).
Other Expenses
Other expenses primarily represent third-party service provider fees such as audit and legal fees and other compliance related fees related to portfolio management of our real estate equity segment. The decrease of $0.7 million is due to the disposal of 18 properties during 2016.
General and Administrative Expenses
General and administrative expenses are incurred in our corporate segment. For the three months ended September 30, 2017 , our Manager did not allocate any general and administrative expenses to us. For the three months ended September 30, 2016 , our Manager allocated $0.1 million .
Compensation Expense
Compensation expense is comprised of time-based and performance equity-based based awards in our corporate segment. The decrease for the three months ended September 30, 2017 , is due to the acceleration of a material portion of our equity awards due to the Mergers which occurred in the first quarter of 2017 offset by the issuance of board grants which fully vested at issuance in the third quarter 2017. Refer to Note 7 to the Notes to Consolidated Financial Statements (unaudited) for further information.
Depreciation and Amortization
Depreciation and amortization expense increased due to the write-off of intangibles due to lease terminations in the third quarter 2017 offset by the disposal of 18 properties during 2016 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 due to the strengthened the U.K. Pound Sterling and the Euro against the U.S. dollar. The decrease in the loss related to the interest rate caps in our real estate equity segment relates to the movement in interest rate spreads and time value across Europe.
The following table presents a summary of unrealized gain (loss) on derivatives and other for the three months ended September 30, 2017 and 2016 (dollars in thousands):
 
 
Three Months Ended September 30,
 
 
2017
 
2016
 
 
Real Estate Equity
 
Corporate
 
Total
 
Real Estate Equity
 
Corporate
 
Total
Change in fair value of:
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives, at fair value
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate caps
 
$
(1,235
)
 
$
—

 
$
(1,235
)
 
$
(4,309
)
 
$
—

 
$
(4,309
)
Foreign currency forwards
 
—

 
(2,737
)
 
(2,737
)
 
—

 
(581
)
 
(581
)
Foreign currency remeasurement and other
 
284

 
216

 
500

 
(21
)
 
(71
)
 
(92
)
Total unrealized gain (loss) on derivatives and other
 
$
(951
)

$
(2,521
)

$
(3,472
)

$
(4,330
)

$
(652
)

$
(4,982
)
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 September 30, 2017 and 2016 (dollars in thousands):

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Table of Contents

 
 
Three Months Ended September 30,
 
 
2017
 
2016
 
 
Real Estate Equity
 
Corporate
 
Total
 
Real Estate Equity
 
Corporate
 
Total
Sale of real estate investments (1)
 
$
1,086

 
$
—

 
$
1,086

 
$
(5,713
)
 
$
—

 
$
(5,713
)
Foreign currency transactions (2)
 
81

 
(172
)
 
(91
)
 
12,204

 
23

 
12,227

Other (3)
 
454

 
—

 
454

 
(2,800
)
 
—

 
(2,800
)
Net cash payments (receipts) on derivatives
 
—

 
232

 
232

 
—

 
100

 
100

Total realized gain (loss) on sales and other
 
$
1,621


$
60


$
1,681


$
3,691


$
123


$
3,814

_____________
(1)
Excludes escrow arrangements entered into for specific indemnification obligations in relation to the sales.
(2)
Includes, for the three months ended September 30, 2017 and 2016, $0.1 million and $11.5 million, respectively, relating to the reclassification of the currency translation adjustment from a component of accumulated other comprehensive income, or OCI, to realized gain 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 sales offset by the write-off of deferred financing costs due to the repayment of certain mortgage and other notes payable.
Income Tax Benefit (Expense)
The income tax expense for the three months ended September 30, 2017 represents a net expense of $0.4 million related to our real estate equity segment. The income tax expense for the three months ended September 30, 2016 represents a net expense of $2.7 million related to our real estate equity segment.
Same Store Analysis
The following table presents our same store analysis for the real estate equity segment which excludes properties that were acquired or sold at any time during the three months ended September 30, 2017 and 2016 (dollars in thousands):
 
Same Store (3)
 
 
 
 
 
Three Months Ended September 30,
 
Increase (Decrease)
 
2017
 
2016 (1)
 
Amount
 
%
Occupancy (end of period)
85.5
%
 
86.0
%
 
 
 
 
Same store
 
 
 
 
 
 
 
Rental income (2)
$
26,799

 
$
27,977

 
$
(1,178
)
 
 
Escalation income
5,526

 
6,200

 
(674
)
 
 
Other income
187

 
128

 
59

 
 
Total revenues
32,512

 
34,305

 
(1,793
)
 
(5.2
)%
Utilities
1,892

 
2,063

 
(171
)
 


Real estate taxes and insurance
1,337

 
1,236

 
101

 


Non-recoverable value added tax (VAT)
536

 
478

 
58

 


Management fees
589

 
435

 
154

 


Repairs and maintenance
2,446

 
2,735

 
(289
)
 


Ground rent (2)
193

 
177

 
16

 


Other
332

 
313

 
19

 


Properties - operating expenses
7,325

 
7,437

 
(112
)
 
(1.5
)%
Same store net operating income
$
25,187

 
$
26,868

 
$
(1,681
)
 
(6.3
)%
 
 
 
 
 
 
 
 
Same store net operating income - Core (4)
$
22,235

 
$
23,410

 
$
(1,175
)
 
(5.0
)%
__________________
(1)
Three months ended September 30, 2016 is translated using the average exchange rate for the three months ended September 30, 2017.
(2)
Adjusted to exclude amortization of above/below market leases.
(3)
We believe same store net operating income, a non-GAAP metric, is a useful metric of the operating performance as it reflects the operating performance of the real estate portfolio excluding 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. 
(4)
Core represents prime office properties in key cities within Germany, the United Kingdom and France.

46
Table of Contents

Same Store Revenue
Same store rental income decreased as a result of lease extensions signed at the Maastoren property ( $0.7 million down in the third quarter 2017) and a vacancy in the Trianon property, which has now been re-let ( $0.7 million per quarter contractual rent). Same store escalation income decreased due to decreased operating expenses, of which, a majority of these costs are recovered from our tenants. Same store other income increased due to one-time insurance refund in the third quarter of 2017.
Same Store Expense
Same store properties - operating expenses decreased due to the timing of certain recoverable expenses.
Reconciliation 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 September 30, 2017 and 2016 (dollars in thousands):
 
Same Store Reconciliation
 
 
Three Months Ended September 30,
 
 
2017
 
2016
 
Net income (loss)
$
(6,806
)
 
$
(12,770
)
 
Corporate segment net (income) loss (1)
11,023

 
13,935

 
Other (income) loss (3)
21,738

 
27,283

 
Net operating income
25,955

 
28,448

 
Sale of real estate investments and other (4)
(64
)
 
(1,580
)
(5)  
Interest income (2)
(704
)
 
—

 
Same store net operating income
$
25,187

 
$
26,868

 
__________________
(1)
Includes management fees, general and administrative expense, compensation expense, corporate interest expense and corporate transaction costs.
(2)
Represents interest income earned in the preferred equity segment.
(3)
Includes depreciation and amortization expense, transaction costs and other expenses in the real estate equity segment.
(4)
Represents the impact of assets sold during the period.
(5)
Three months ended September 30, 2016 is translated using the average exchange rate for the three months ended September 30, 2017.

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Table of Contents

Comparison of the Nine Months Ended September 30, 2017 to September 30, 2016 (dollars in thousands):
 
Nine Months Ended 
 September 30,
 
Increase (Decrease)
 
2017
 
2016
 
Amount
 
%
Revenues
 
 
 
 
 
 
 
Rental income
$
79,308

 
$
98,622

 
$
(19,314
)
 
(20
)%
Escalation income
16,360

 
19,825

 
(3,465
)
 
(17
)%
Interest income
1,001

 
—

 
1,001

 
100
 %
Other income
708

 
899

 
(191
)
 
(21
)%
Total revenues
97,377

 
119,346

 
(21,969
)
 
(18
)%
Expenses
 
 
 
 

 

Properties - operating expenses
22,521

 
27,263

 
(4,742
)
 
(17
)%
Interest expense
19,641

 
33,484

 
(13,843
)
 
(41
)%
Transaction costs
1,565

 
2,633

 
(1,068
)
 
(41
)%
Impairment losses
—

 
27,468

 
(27,468
)
 
(100
)%
Management fee, related party
10,716

 
10,548

 
168

 
2
 %
Other expenses
6,604

 
9,579

 
(2,975
)
 
(31
)%
General and administrative expenses
5,875

 
5,181

 
694

 
13
 %
Compensation expense
20,094

 
12,225

 
7,869

 
64
 %
Depreciation and amortization
39,479

 
51,264

 
(11,785
)
 
(23
)%
Total expenses
126,495

 
179,645

 
(53,150
)
 
(30
)%
Other income (loss)
 
 
 
 


 


Unrealized gain (loss) on derivatives and other
(12,068
)
 
(19,775
)
 
7,707

 
(39
)%
Realized gain (loss) on sales and other
8,632

 
6,188

 
2,444

 
39
 %
Income (loss) before income tax benefit (expense)
(32,554
)
 
(73,886
)
 
41,332

 
(56
)%
Income tax benefit (expense)
(316
)
 
(2,515
)
 
2,199

 
(87
)%
Net income (loss)
$
(32,870
)
 
$
(76,401
)
 
$
43,531

 
(57
)%
Revenues
Rental Income
Rental income consists of rental revenue in our real estate equity segment. Rental income decreased $19.3 million , primarily due to the disposal of 18 properties during 2016.
Escalation Income
Escalation income consists of tenant recoveries in our real estate equity segment. Escalation income decreased $3.5 million , primarily due to the disposal of 18 properties during 2016 and the timing of certain recoverable expenses offset by an increase in recoverable operating expenses. There is a corresponding decrease in properties - operating expenses and a majority of these costs are recovered from our tenants.
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 and termination fees in our real estate equity segment. Other income decreased for the nine months ended September 30, 2017 due to a significant lease surrender premium in the first quarter of 2016.
Expenses
Properties - Operating Expenses
Properties - operating expenses decreased $4.7 million due to the disposal of 18 properties during 2016 and the timing of certain recoverable expenses offset by an increase in recoverable repairs and maintenance during 2017 in our real estate equity segment. There is a corresponding decrease in escalation income and a majority of these costs are recovered from our tenants.

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Table of Contents

Interest Expense
Interest expense decreased $13.8 million due to the disposal of 18 properties during 2016, the refinancing of certain mortgage notes in our real estate equity segment in the third quarter of 2017 and the repayment of our senior stock-settlable notes in our corporate segment in 2016.
Transaction Costs
Transaction costs for the nine months ended September 30, 2017 primarily relate to costs related to the Mergers in our corporate segment, costs associated with amending the management agreement in our corporate segment and other transaction costs in our preferred equity segment. A transaction fee was paid to a third party and reimbursed in total by the entity that originated our preferred equity investment resulting in no impact to transaction costs. Transaction costs for the nine months ended September 30, 2016 primarily represented expenses such as real estate transfer tax and professional fees related to the acquisition of the assets in our real estate equity segment and the spin-off from NorthStar Realty 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 Parties Arrangements” below for more information).
Other Expenses
Other expenses primarily represent third-party service provider fees such as audit and legal fees and other compliance related fees related to portfolio management of our real estate equity segment.
General and Administrative Expenses
General and administrative expenses are incurred in our corporate segment. The increase is due to payroll taxes associated with the acceleration of equity awards due to the Mergers in the first quarter 2017. For the nine months ended September 30, 2017 , our Manager did not allocate any general and administrative expenses to us. For the nine months ended September 30, 2016, our Manager allocated $0.1 million.
Compensation Expense
Compensation expense is comprised of time-based and performance equity-based based awards in our corporate segment. The increase for the nine months ended September 30, 2017 , is due to the acceleration of a material portion of our equity awards due to the Mergers offset by the issuance of board grants which fully vested at issuance in the third quarter 2017. Refer to Note 6 to the Notes to Consolidated Financial Statements (unaudited) for further information.
Depreciation and Amortization
Depreciation and amortization expense decreased due to the disposal of 18 properties during 2016 and assets being reclassified into held for sale offset by the write-off of intangibles due to lease terminations in our real estate equity segment in the first and second quarter 2017.
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 the foreign currency forwards used to hedge projected net property level cash flows in our corporate segment was due to the strengthened U.K. Pound Sterling and the Euro against the U.S. dollar. The decreased loss in the interest rate caps in our real estate equity segment relates to the movement in interest rate spreads and time value across Europe.
The following table presents a summary of unrealized gain (loss) on derivatives and other for the nine months ended September 30, 2017 and 2016 (dollars in thousands):
 
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
 
Real Estate Equity
 
Corporate
 
Total
 
Real Estate Equity
 
Corporate
 
Total
Change in fair value of:
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives, at fair value
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate caps
 
$
(1,949
)
 
$
—

 
$
(1,949
)
 
$
(18,483
)
 
$
—

 
$
(18,483
)
Foreign currency forwards
 
—

 
(10,309
)
 
(10,309
)
 
—

 
(374
)
 
(374
)
Foreign currency remeasurement and other
 
37

 
153

 
190

 
(232
)
 
(686
)
 
(918
)
Total unrealized gain (loss) on derivatives and other
 
$
(1,912
)

$
(10,156
)

$
(12,068
)

$
(18,715
)

$
(1,060
)

$
(19,775
)

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Table of Contents

Realized Gain (Loss) on Sales and Other
The following table presents a summary of realized gain (loss) on sales and other for the nine months ended September 30, 2017 and 2016 (dollars in thousands):
 
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
 
Real Estate Equity
 
Corporate
 
Preferred Equity
 
Total
 
Real Estate Equity
 
Corporate
 
Total
Sale of real estate investments (1)
 
$
6,909

 
$
—

 
$
—

 
$
6,909

 
$
1,840

 
$
—

 
$
1,840

Foreign currency transactions (2)
 
(242
)
 
(166
)
 
(6
)
 
(414
)
 
12,380

 
—

 
12,380

Other (3)
 
449

 
—

 
—

 
449

 
(3,379
)
 
(3,558
)
 
(6,937
)
Net cash payments (receipts) on derivatives
 
 
 
1,688

 
—

 
1,688

 
—

 
(1,095
)
 
(1,095
)
Total realized gain (loss) on sales and other
 
$
7,116


$
1,522


$
(6
)
 
$
8,632


$
10,841


$
(4,653
)

$
6,188

_____________
(1)
Excludes escrow arrangements entered into for specific indemnification obligations in relation to the sales.
(2)
Includes, for the nine months ended September 30, 2017 and 2016, $(0.3) million and $11.9 million relating to the reclassification of the currency translation adjustment from a component of accumulated OCI to realized gains (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 sales offset by the write-off of deferred financing costs due to the repayment of certain mortgage and other notes payable.
Income Tax Benefit (Expense)
The income tax expense for the nine months ended September 30, 2017 represents a net tax expense of $0.3 million in our real estate equity segment. The income tax benefit for the nine months ended September 30, 2016 represents a net tax expense of $2.5 million primarily related to sales in our real estate equity segment.
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, including the repurchase of our common stock;
•
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:
•
net proceeds from asset disposals;
•
financings secured by our assets such as mortgage notes, long-term senior and subordinate corporate capital such as revolving credit facilities, senior term loans, senior notes, senior exchangeable notes and perpetual preferred stock and common stock;
•
cash on hand; and
•
cash flow generated from our investments, both from operations and return of capital.
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.

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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 non-deductible excise tax. On a quarterly basis, the 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 the Board may, from time-to-time, deem relevant to consider when determining an appropriate common stock dividend.
In November 2015, the 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 its outstanding common stock through November 2017. For the nine months ended September 30, 2017 , we did not repurchase any shares of our common stock.
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 is 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. Unrestricted cash as of October 31, 2017 was approximately $46 million and $35 million of availability under the Credit Facility.
Cash Flows
The following presents a summary of our consolidated statements of cash flows for the nine September 30, 2017 and 2016 (dollars in thousands).
 
 
Nine Months Ended September 30,
Cash flow provided by (used in):
 
2017
 
2016
Operating activities
 
$
21,511

 
$
19,617

Investing activities
 
(420
)
 
358,619

Financing activities
 
(43,621
)
 
(514,022
)
Effect of foreign currency translation on cash and cash equivalents
 
5,950

 
1,108

Net increase (decrease) in cash and cash equivalents
 
$
(16,580
)
 
$
(134,678
)
Nine Months Ended September 30, 2017 Compared to September 30, 2016
Net cash provided by operating activities was $21.5 million for the nine months ended September 30, 2017 compared to $19.6 million for the nine months ended September 30, 2016 . The increase was primarily due to an increase in the change in operating assets and liabilities due to the timing of payments and collection of receivables, offset by a decrease of net cash provided by operating activities before changes in operating assets and liabilities related to the disposal of 18 properties.
Net cash used in investing activities was $0.4 million for the nine months ended September 30, 2017 compared to net cash provided by $358.6 million for the nine months ended September 30, 2016 . Cash flow used in investing activities for the nine months ended September 30, 2017 was primarily due to proceeds from the sale of real estate of $48.6 million which includes $43.8 million relating to 2017 sales and $4.8 million relating to 2016 sales, offset by the origination of our preferred equity investment, improvements of our operating real estate and changes in other assets which includes leasing costs of $3.0 million and escrow receivables of $0.7 million. Cash flow provided by the nine months ended September 30, 2016 was primarily due to proceeds from the sale of operating real estate offset by improvements of our operating real estate.
Net cash used in financing activities was $43.6 million nine months ended September 30, 2017 compared to $514.0 million for the nine months ended September 30, 2016 . Cash flow used in financing activities for the nine months ended September 30, 2017 was primarily due to the net cash payment on tax withholding of $11.0 million, repayments of mortgage notes and other notes payable of $13.2 million and dividend payments of $25.1 million offset by borrowings from mortgage note and other notes payable of $5.9 million and net cash received from the settlement of the foreign currency forwards of $1.7 million. Net cash flow used in financing activities for the nine months ended September 30, 2016 was primarily due to $273.4 million from the repurchase of Senior Notes, the repayment of mortgage notes and other notes payable of $190.7 million, repayment of the credit facility of $65.0 million, retirement of shares of common stock of $29.1 million and dividend payments of $26.9 million offset by $65.0 million from the borrowing under the credit facility.

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Off-Balance Sheet Arrangements
We currently do not have any off-balance sheet arrangements.
Related Party Arrangements
Colony NorthStar, Inc.
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. The description of the management agreement included below relates to the original agreement that was entered into in November 2015 and which will be superseded as of January 1, 2018 by the Amended and Restated Management Agreement. See Note 14 “Subsequent Events” in our accompanying consolidated financial statements included in Part I Item 1. “Financial Statements” for a description of the terms of the Amended and Restated Management Agreement.
Base Management Fee
For the three months ended September 30, 2017 and 2016 , we incurred $3.6 million and $3.5 million , respectively, related to the base management fee. For the nine months ended September 30, 2017 and 2016 , we incurred $10.7 million and $10.5 million respectively, related to the base management fee. The base management fee to our Manager could increase subsequent to September 30, 2017 by an amount equal to 1.5% per annum of the sum of:
•
any equity we issue in exchange or conversion of exchangeable or stock-settlable notes;
•
any other issuances by us of common equity, preferred equity or other forms of equity, including but not limited to limited partnership interests in the Operating Partnership, which are structured as profits interests, or LTIP units (excluding units issued to us and equity-based compensation, but including issuances related to an acquisition, investment, joint venture or partnership); and
•
cumulative CAD, if any, in excess of cumulative distributions paid on common stock, LTIP Units or other equity awards which began with our fiscal quarter ended March 31, 2016.
Incentive Fee
For the three and nine months ended September 30, 2017 and 2016 , we did not incur an incentive fee. The incentive fee is calculated and payable quarterly in arrears in cash, equal to:
•
the product of: (a) 15% and (b) our CAD before such incentive fee, divided by the weighted average shares outstanding for the calendar quarter, of any amount in excess of $0.30 per share and up to $0.36 per share; plus
•
the product of: (a) 25% and (b) our CAD before such incentive fee, divided by the weighted average shares outstanding for the calendar quarter, of any amount in excess of $0.36 per share;
•
multiplied by our weighted average shares outstanding for the calendar quarter.
Weighted average shares represents the number of shares of our common stock, LTIP Units or other equity-based awards (with some exclusions), outstanding on a daily weighted average basis. With respect to the base management fee, all equity issuances are allocated on a daily weighted average basis during the fiscal quarter of issuance. With respect to the incentive fee, such amounts will be appropriately adjusted from time to time to take into account the effect of any stock split, reverse stock split, stock dividend, reclassification, recapitalization or other similar transaction.
Additional Management Agreement Terms
Our management agreement with our Manager provides that in the event of a change of control of our Manager or other event that could be deemed an assignment of the management agreement, we will consider such assignment in good faith and not unreasonably withhold, condition or delay our consent. The management agreement further provides that we anticipate consent would be granted for an assignment or deemed assignment to a party with expertise in commercial real estate and over $10 billion of assets under management. The management agreement also provides that, notwithstanding anything in the agreement to the contrary, to the maximum extent permitted by applicable law, rules and regulations, in connection with any merger, sale of all or substantially all of the assets, change of control, reorganization, consolidation or any similar transaction of us or our Manager, directly or indirectly, the surviving entity will succeed to the terms of the management agreement.
Payment of Costs and Expenses and Expense Allocation
We are responsible for all of our direct costs and expenses and reimburse our Manager for costs and expenses incurred by our Manager on our behalf. In addition, our Manager may allocate indirect costs to us related to employees, occupancy and other general and administrative costs and expenses in accordance with the terms of, and subject to the limitations contained in, our management agreement with our Manager, or the G&A Allocation. Our management agreement with our Manager provides that

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the amount of the G&A Allocation will not exceed the following: (i) 20% of the total of: (a) our general and administrative expenses as reported in our consolidated financial statements excluding (1) equity-based compensation expense, (2) non-recurring items, (3) fees payable to our Manager under the terms of the applicable management agreement and (4) any allocation of expenses to us, or NRE’s G&A; and (b) our Manager’s general and administrative expenses as reported in its consolidated financial statements, excluding equity-based compensation expense and adding back any costs or expenses allocated to any managed company of our Manager; less (ii) NRE’s G&A. The G&A Allocation may include our allocable share of our Manager’s compensation and benefit costs associated with dedicated or partially dedicated personnel who spend all or a portion of their time managing our affairs, based upon the percentage of time devoted by such personnel to our affairs. The G&A Allocation may also include rental and occupancy, technology, office supplies, travel and entertainment and other general and administrative costs and expenses, which may be allocated based on various methodologies, such as weighted average employee count or the percentage of time devoted by personnel to our affairs. In addition, we will pay directly or reimburse our Manager for an allocable portion of any severance paid pursuant to any employment, consulting or similar service agreements in effect between our Manager and any of its executives, employees or other service providers.
Our obligation to reimburse our Manager for the G&A Allocation and any severance, at our Manager’s discretion, and the 20% cap on the G&A Allocation, as described above, applies on an aggregate basis to us.
For the three and nine months ended September 30, 2017 and the nine September 30, 2016 our Manager did not allocate any general and administrative expenses to us. For the nine September 30, 2016 , our Manager allocated $0.1 million to us. For the three and nine months ended September 30, 2017 and 2016 , our Manager did not allocate any severance to us.
In addition, the management agreement provides that, we, together with any company spun-off from us shall pay directly or reimburse our Manager for up to 50% of any long-term bonus or other compensation that our Manager’s compensation committee determines shall be paid and/or settled in the form of equity and/or equity-based compensation to executives, employees and service providers of our Manager during any year. Subject to this limitation and limitations contained in any applicable management agreement between our Manager and any company spun-off from us, the amount paid by us and any company spun-off from us will be determined by our Manager in its discretion. At the discretion of our Manager’s compensation committee, this compensation may be granted in shares of our restricted stock, restricted stock units, LTIP Units or other forms of equity compensation or stock-based awards; provided that if at any time a sufficient number of shares of our common stock are not available for issuance under our equity compensation plan, such compensation shall be paid in the form of RSUs, LTIP Units or other securities that may be settled in cash. Our equity compensation for each year may be allocated on an individual-by-individual basis at the discretion of our Manager compensation committee and, as long as the aggregate amount of the equity compensation for such year does not exceed the limits set forth in the management agreement, the proportion of any particular individual’s equity compensation may be greater or less than 50%.
We do not have employment agreements with our named executive officers, but we have generally agreed to pay directly or reimburse our Manager for the portion of any severance paid by our Manager or any of its affiliates to an individual pursuant to the terms of any employment, consulting or similar service agreement, including any employment agreements with Colony NorthStar or its subsidiaries and our named executive officers, that corresponds to or is attributable to: (i) the equity compensation that we are required to pay directly or reimburse our Manager pursuant to the management agreement; (ii) any cash and/or equity compensation paid directly by us to such individual as an employee or our other service providers; and (iii) any amounts paid to such individual by our Manager or any of its affiliates that we are obligated to reimburse our Manager pursuant to the management agreement. With respect to Mahbod Nia, in lieu of the foregoing severance payment or reimbursement, we have agreed to pay directly or reimburse our Manager for 50% of any cash payments made by our Manager or any of its affiliates in connection with the termination of Mr. Nia’s employment either without cause or upon the non-renewal of the named executive officer’s term of employment by his employer or by Mr. Nia for good reason; provided that the Board consented to the taking of such action (or, with respect to a termination for good reason, any action taken with the intent to create good reason). Because our obligation to pay these amounts is owed to our Manager and not directly to our named executive officers and we do not control the terms of the agreements between our Manager or its affiliates and our named executive officers, the discussion above does not include these amounts or a discussion of any arrangements that our Manager or its affiliates may have with our named executive officers pursuant to which our obligations to our Manager may arise.
Manager Ownership of Common Stock
As of September 30, 2017 , Colony NorthStar and its subsidiaries owned 4.9 million shares of our common stock, or 9.0% of the total outstanding common stock.

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Recent Developments
Dividends
On November 6, 2017 , we declared a dividend of $0.15 per share of common stock. The common stock dividend will be paid on November 24, 2017 to stockholders of record as of the close of business on November 20, 2017 .
Amended and Restated Management Agreement
On November 9, 2017, we entered into the Amended and Restated Management Agreement with an affiliate of our Manager, effective as of January 1, 2018. Refer to Note 14 “Subsequent Events” in our accompanying consolidated financial statements included in Part I Item 1. “Financial Statements” for a description of the terms of the Amended and Restated Management Agreement.
Inflation
Virtually all of our assets and liabilities are interest rate and foreign currency exchange rate sensitive in nature. As a result, interest rates, foreign currency exchange rates and other factors influence our performance significantly more than inflation does. A change in interest rates and foreign currency exchange rates may correlate with inflation rates. With the exception of the United Kingdom, rent is generally adjusted annually based on local consumer price indices. In the United Kingdom, rent is typically subject to an upward only rent review usually every three to five years.
Refer to Item 3. “Quantitative and Qualitative Disclosures About Market Risk” for additional details.
Non-GAAP Financial Measures
We use CAD and NOI, each a non-GAAP measure, to evaluate our profitability.
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, realized gain (loss) on sales and other, 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, 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, non-controlling 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; unrealized gain (loss) on derivatives and other; realized gain (loss) on sales and other (excluding any realized gain (loss) on foreign currency derivatives); impairment on depreciable property; non-recurring bad debt expense; acquisition gains or losses; transaction costs; foreign currency gains (losses); impairment on goodwill and other intangible assets; 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.

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The following table presents a reconciliation of CAD to net income (loss) attributable to common stockholders for the three and nine months ended September 30, 2017 (dollars in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 

2016
Net income (loss) attributable to common stockholders
$
(6,770
)
 
$
(12,721
)
 
$
(32,567
)
 
$
(75,609
)
Non-controlling interests
(36
)
 
(49
)
 
(303
)
 
(792
)
 
 
 
 
 
 
 
 
Adjustments:
 
 
 
 
 
 
 
Depreciation and amortization items (1)(2)
17,096

 
20,870

 
61,656

 
71,300

Impairment losses
—

 
—

 
—

 
27,468

Unrealized (gain) loss on derivatives and other
3,472

 
4,982

 
12,068

 
19,775

Realized (gain) loss on sales and other (3)(4)
(1,449
)
 
(3,714
)
 
(6,944
)
 
(7,283
)
Transaction costs and other (5)(6)
438

 
4,564

 
2,480

 
7,333

CAD
$
12,751

 
$
13,932

 
$
36,390

 
$
42,192

__________________
(1)
Three months ended September 30, 2017 represents an adjustment to exclude depreciation and amortization of $(14.4) million , amortization expense of capitalized above/below market leases of $0.8 million , amortization of deferred financing costs of $(0.7) million and amortization of equity-based compensation of $(2.8) million . Three months ended September 30, 2016 represents an adjustment to exclude depreciation and amortization of $(14.0) million , amortization of above/below market leases of $0.1 million , amortization of deferred financing costs of $(1.8) million and amortization of equity-based compensation of $(5.2) million .
(2)
Nine months ended September 30, 2017 represents an adjustment to exclude depreciation and amortization of $(39.5) million , amortization expense of capitalized above/below market leases of $0.3 million , amortization of deferred financing costs of $(2.3) million and amortization of equity-based compensation of $(20.1) million . Nine months ended September 30, 2016 represents an adjustment to exclude depreciation and amortization of $(51.3) million , amortization expense of capitalized above/below market leases of $(2.2) million , amortization of deferred financing costs of $(5.5) million and amortization of equity-based compensation of $(12.2) million .
(3)
Three months ended September 30, 2017 CAD includes a $0.2 million net gain related to the settlement of foreign currency derivatives. Three months ended September 30, 2016 CAD includes a $0.1 million net gain related to the settlement of foreign currency derivatives.
(4)
Nine months ended September 30, 2017 CAD includes a $1.7 million net gain related to the settlement of foreign currency derivatives. Nine months ended September 30, 2016 CAD includes a $(1.1) million net loss related to the settlement of foreign currency derivatives.
(5)
Three months ended September 30, 2017 represents an adjustment to exclude $(0.3) million of transaction costs and $(0.1) million of taxes associated with the capital gain tax on the sale of real estate investments. Three months ended September 30, 2016 represents an adjustment to exclude $(0.3) million of transaction costs and $(4.3) million of taxes associated with the capital gain tax on the sale of real estate investments.
(6)
Nine months ended September 30, 2017 represents an adjustment to exclude $(1.6) million of transaction costs relating to the Mergers and transaction fees related to our preferred equity investment and $(0.9) million of payroll taxes associated with the acceleration of equity awards due to the Mergers. Nine months ended September 30, 2016 represents an adjustment to exclude $(3.0) million of transaction costs and $(4.3) million of taxes associated with the capital gain tax on the sale of real estate investments.

Net Operating Income (NOI)
We believe NOI is a useful metric of 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 represents 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, realized gains (losses) on sales and other and other items under U.S. GAAP and capital expenditures and leasing costs necessary to maintain the operating performance of properties, 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.

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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 and nine months ended September 30, 2017 and 2016 (dollars in thousands):
    
 
Three Months Ended September30,
 
Nine Months Ended September30,
 
2017
 
2016
 
2017
 
2016
Rental income
$
27,747

 
$
29,798

 
$
79,308

 
$
98,622

Escalation income
5,641

 
7,828

 
16,360

 
19,825

Other income
171

 
149

 
708

 
899

Total property and other income
33,559


37,775


96,376


119,346

Properties - operating expenses
7,519

 
9,493

 
22,521

 
27,263

Adjustments:
 
 
 
 
 
 
 
Interest income
704

 
—

 
1,001

 
—

Amortization and other items (1)(2)
(789
)
 
166

 
(257
)
 
2,815

NOI (3)
$
25,955


$
28,448


$
74,599


$
94,898

___________________
(1)
Three months ended September 30, 2017 primarily includes $0.8 million of amortization of above/below market leases. Three months ended September 30, 2016 primarily includes $(0.1) million of amortization of above/below market leases.
(2)
Nine months ended September 30, 2017 primarily includes $0.3 million of amortization of above/below market leases. Nine months ended September 30, 2016 primarily includes $(2.2) million of amortization of above/below market lease and $(0.6) million of non-recurring bad debt expense.
(3)
The following table presents a reconciliation of net income (loss) to NOI of our real estate segment for the three and nine months ended September 30, 2017 and 2016 (dollars in thousands):
    
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Net income (loss)
$
(6,806
)
 
$
(12,770
)
 
$
(32,870
)
 
$
(76,401
)
Remaining segments (i)
10,319

 
13,935

 
46,272

 
46,174

Real estate segment adjustments:
 
 
 
 
 
 
 
Interest expense
6,325

 
7,132

 
18,896

 
24,249

Other expenses
1,974

 
2,850

 
6,389

 
9,547

Depreciation and amortization
14,396

 
13,989

 
39,479

 
51,264

Unrealized (gain) loss on derivatives and other
951

 
4,330

 
1,912

 
18,715

Realized (gain) loss on sales and other
(1,621
)
 
(3,691
)
 
(7,116
)
 
(10,841
)
Income tax (benefit) expense
352

 
2,655

 
316

 
2,515

Impairment losses
—

 
—

 
—

 
27,468

Other items
65

 
18

 
1,321

 
2,208

Net (income) loss - Real estate segment
22,442


27,283


61,197


125,125

NOI
$
25,955


$
28,448


$
74,599


$
94,898

______________________
(i)
Represents the net (income) loss in our corporate and preferred equity segments to reconcile to net operating income.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are primarily subject to interest rate risk, credit risk and foreign currency exchange rate risk. These risks are dependent on various factors beyond our control, including monetary and fiscal policies, domestic and international economic conditions and political considerations. Our market risk sensitive assets, liabilities and related derivative positions are held for investment and not for trading purposes.
Interest Rate Risk
Changes in interest rates affect our net income primarily related to the impact to interest expense incurred in connection with our borrowings and derivatives.
Substantially all of our investments are financed with non-recourse mortgage notes. We predominately use floating rate financing and we seek to generally mitigate the risk of interest rates rising through derivative instruments including interest rate caps. As of September 30, 2017 , a hypothetical 100 basis point increase in the interest rate applied to our liabilities would result in a decrease in net income of approximately $7.4 million annually, respectively.
A change in interest rates could affect the value of our properties, which may be influenced by changes in interest rates and credit spreads (as discussed below) because value is typically derived by discounting expected future cash flow generated by the property using interest rates plus a risk premium based on the property type and creditworthiness of the tenants. A lower risk-free rate generally results in a lower discount rate and, therefore, a higher valuation, and vice versa; however, an increase in the risk-free rate would not impact our net income.
We use derivative instruments to manage interest rate exposure. These derivatives are typically in the form of interest rate cap agreements and the primary objective is to minimize interest rate risks associated with our investments and financing activities. The counterparties of these arrangements are major financial institutions with which we may also have other financial relationships. We are exposed to credit risk in the event of non-performance by these counterparties and we monitor their financial condition.
As of September 30, 2017 , none of our derivatives qualified for hedge accounting treatment, therefore, gains (losses) resulting from their fair value measurement at the end of each reporting period are recognized as an increase or decrease in unrealized gain (loss) on derivatives and other in our consolidated statements of operations. In addition, we are, and may in the future be, subject to additional expense based on the notional amount of the derivative and a specified spread over the applicable index. Because the fair value of these instruments can vary significantly between periods, we may experience significant fluctuations in the amount of our unrealized gain (loss) in any given period.
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.
We can provide no assurances, however, that our efforts to manage interest rate volatility will successfully mitigate the risks of such volatility on our portfolio.
Credit Risk
We are subject to the credit risk of the tenants of our properties. We seek to undertake a credit evaluation of each tenant prior to acquiring properties. This analysis includes due diligence of each tenant’s business as well as an assessment of the strategic importance of the underlying real estate to the tenant’s core business operations. Where appropriate, we may seek to augment the tenant’s commitment to the property by structuring various credit enhancement mechanisms into the underlying leases. These mechanisms could include security deposit requirements, letters of credit or guarantees from entities we deem creditworthy. Additionally, we perform ongoing monitoring of creditworthiness of our tenants which is an important component of our portfolio management process. Such monitoring may include, to the extent available, a review of financial statements and operating statistics, delinquencies, third party ratings and market data. In addition, our preferred equity investment is subject to credit risk through our borrower’s ability to make required interest payments on scheduled due dates. We seek to manage credit risk through our Advisor’s comprehensive credit analysis prior to making an investment, actively monitoring our investment and the underlying credit quality, including subordination and diversification of our investment. Our analysis is based on a broad range of real estate, financial, economic and borrower-related factors, which we believe are critical to the evaluation of credit risk inherent in a transaction. For the nine months ended September 30, 2017 , our preferred equity investment contributed all of our interest income.
We are subject to the credit risk of the borrower when we originate preferred equity investments. We seek to undertake a rigorous credit evaluation of our borrower prior to making an investment. This analysis includes an extensive due diligence investigation of the borrower’s creditworthiness and business as well as an assessment of the strategic importance of the underlying real estate to the borrower’s core business operations.

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Foreign Currency Exchange Rate Risk
We are subject to risks related to changes in foreign currency exchange rates as a result of our ownership of, or commitments to acquire, properties within Europe, predominantly the U.S. dollar/Euro and U.S. dollar/U.K. Pounds Sterling exchange rate. As a result, changes in exchange rate fluctuations may positively or negatively affect our consolidated revenues and expenses (as expressed in U.S. dollars) from our business. We may use several strategies to mitigate our exposure to exchange rate risk to hedge our equity and/or net income, including using local currency denominated financing and entering into forward or option foreign currency purchase contracts.
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.
The following chart represents the change in the U.S. dollar/Euro and U.S. dollar/U.K. Pounds Sterling exchange rate during the nine months ended September 30, 2017 and 2016 :
FXLINECHARTA08.JPG
Source: Oanda
Our properties and the rent payments under our leases for these properties are denominated predominantly in Euro and U.K. Pounds Sterling and we expect substantially all of our future leases for properties we may acquire in Europe to be denominated in the local currency of the country in which the underlying property is located. Additionally, our non-recourse mortgage borrowings are denominated in the same currency as the assets securing the borrowing. A majority portion of our operating expenses and borrowings with respect to such European properties are also transacted in local currency, however we do have corporate expenses, such as our dividend, that are paid in U.S. dollar. We report our results of operations and consolidated financial information in the U.S. dollars. Consequently, our results of operations as reported in U.S. dollars are impacted by fluctuations in the value of the local currencies in which we conduct our European business.
In an effort to mitigate the risk of fluctuations in foreign currency exchange rates, we, and our Operating Partnership, seek to actively manage our revenues and expenses so that we incur a significant portion of our expenses, including our operating costs and borrowings, in the same local currencies in which we receive our revenues. In addition, subject to satisfying the requirements for qualification as a REIT, we engage in various hedging strategies, which may include currency futures, swaps, forwards and options. We expect that these strategies and instruments may allow us to reduce, but not eliminate, the risk of fluctuations in foreign currency exchange rates. The counterparties to these arrangements are major financial institutions with which we may also have other financial relationships. As of September 30, 2017 , we have entered into foreign currency forwards with respect to the project net property level cash flows which are hedged for 14 months.
Based on our portfolio, a hypothetical 10% appreciation or depreciation in the applicable exchange rate to the U.S dollar applied to our assets and liabilities and related derivatives would result in an increase or decrease of stockholders’ equity of approximately $66.7 million , respectively. Such amount would be recorded in OCI. In addition, we enter into derivative instruments to manage foreign currency exposure of our operating income. A hypothetical 10% increase or decrease in applicable exchange rate to the U.S dollar applied to our assets and liabilities and related derivatives would result in an increase or decrease of net operating income adjusted for interest and other expenses of approximately $2.5 million annually, respectively.
We can provide no assurances, however, that our efforts to manage foreign currency exchange rate volatility will successfully mitigate the risks of such volatility on our portfolio.


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Item 4.  Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this report, management conducted an evaluation as required under Rules 13a-15(b) and 15d-15(b) under the Securities Exchange Act of 1934, as amended, or Exchange Act, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act).
Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures to disclose material information otherwise required to be set forth in the Company’s periodic reports.
Internal Control over Financial Reporting
(a) Changes in internal control over financial reporting.
As a result of the Merger, our Manager is in the process of integrating the systems, processes and internal controls of Colony, NSAM and NRF, and we expect the integration to be sufficiently completed at the end of the current fiscal year. The Company leverages these systems, processes and internal controls to conduct it operations. We will continue to review our internal control practices, in conjunction with our Manager, in consideration of future integration and post merger activities.
Except as described above in the preceding paragraph, during the quarter ended September 30, 2017, there was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


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PART II Other Information
Item 1. Legal Proceedings
We are involved in various litigation matters arising in the ordinary course of our business. Although we are unable to predict with certainty the eventual outcome of any litigation, in the opinion of management, our current legal proceedings are not expected to have a material adverse effect on our financial position or results of operations. Refer to Note 12, “Commitments and Contingencies” in Part I, Item 1. “Financial Statements” for further disclosure regarding legal proceedings.
Item 1A. Risk Factors
There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 .
You should carefully consider all information contained in this interim report on Form 10-Q, including our interim consolidated financial statements and the related notes thereto before making a decision to purchase our securities. The risks and uncertainties described are not the only ones facing us. Additional risks and uncertainties not presently known to us, or not presently deemed material by us, may also impair our operations and performance.
If any of the following risks actually occur, our business, financial condition or results of operations could be materially adversely affected. If that happens, the trading price of our securities could decline, and you may lose all or part of your investment.



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Item 4. Mine Safety Disclosures
None.

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Item 5. Other Information
Amended and Restated Management Agreement and Ownership Waiver
Refer to Note 14 “Subsequent Events” in our accompanying consolidated financial statements included in Part I Item 1. “Financial Statements” for a description of the the Amended and Restated Management Agreement and Ownership Waiver ended into on November 9, 2017 between the Company and the Asset Manager. Such description does no purport to describe all of the terms of such agreements and is qualified by reference to the Amended and Restated Management Agreement and Ownership Waiver, which are filed as Exhibit 10.2 and Exhibit 10.3., respectively, to this Quarterly Report on Form 10-Q and are incorporated herein by reference.
Resignation of Director
On November 7, 2017, David T. Hamamoto, the chairman of the board of directors (the “Board”) of the Company, announced his intention to resign from the Board, effective as of January 11, 2018.  The decision by Mr. Hamamoto was not a result of any disagreement with the Company on any matter relating to the Company’s operations, polices or practices.
Additionally, on November 6, 2017, the Nominating and Corporate Governance Committee of the Company recommended, and the Board approved, effective January 11, 2018 (i) the appointment of Richard B. Saltzman as the Chairman of the Board and (ii) the election of Mahbod Nia, the Company’s Chief Executive Officer and President, to fill the vacancy created by Mr. Hamamoto’s resignation.  Mr. Nia will serve as a director until the next annual meeting of the stockholders of the Company and until his successor has been elected and qualified or until his earlier death, resignation or removal. Mr. Nia will not receive any compensation in connection with his service on the Board.
There are no arrangements or understandings between Mr. Nia and any other person pursuant to which he was elected as a director of the Company.  As described elsewhere in this Quarterly Report on Form 10-Q, the Company is party to a management agreement with an affiliate of the Manager, pursuant to which such affiliate of the Manager manages the Company’s operations and the Company is obligated to pay certain base and incentive management fees to its manager in accordance with and subject to the terms of such management agreement.
Item 6.   Exhibits
Exhibit
Number
 
Description of Exhibit
10.1

*
10.2

*
31.1

*
31.2

*
32.1

*
32.2

*
101.0

*
The following materials from the NorthStar Realty Europe Corp. Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of September 30, 2017 (unaudited) and December 31, 2016; (ii) Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2017 and 2016; (iii) Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three and nine months ended September 30, 2017 and 2016; (iv) Consolidated Statements of Equity for the nine months ended September 30, 2017 (unaudited) and year ended December 31, 2016; (v) Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2017 and 2016; and (vi) Notes to Consolidated Financial Statements (unaudited)
____________________________________________________________
* Filed herewith.
+ Denotes management contract or compensatory plan or arrangement required to be filed as an exhibit hereto.


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
NorthStar Realty Europe Corp.
Date:
November 9, 2017
 
 
By:
/s/ MAHBOD NIA
 
 
 
 
 
Mahbod Nia
 
 
 
 
 
Chief Executive Officer
 
 
 
 
 
 
 
 
 
 
By:
/s/ KEITH A. FELDMAN
 
 
 
 
 
Keith A. Feldman
 
 
 
 
 
Chief Financial Officer and Treasurer




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Exhibit 10.1

THIS AMENDED AND RESTATED ASSET MANAGEMENT AGREEMENT (the “ Agreement ”), dated as of November 9, 2017, is entered into by and between NORTHSTAR REALTY EUROPE CORP., a Maryland corporation (“ NRE ”), and CNI NRE ADVISORS, LLC, a Delaware limited liability company (“ Asset Manager ”). Each capitalized term used in this Agreement shall have the meaning ascribed to such term in Schedule A .

RECITALS
WHEREAS, NRE and Asset Manager entered into an Asset Management Agreement, dated October 31, 2015 (the “ Original Agreement ”), pursuant to which Asset Manager agreed to perform certain management services identified in the Original Agreement, on behalf of, and subject to the supervision of, the board of directors of NRE, in exchange for the compensation set forth therein;
WHEREAS, On March 23, 2017, the Board of Directors (defined below) established a Strategic Review Committee (“ SRC ”) consisting solely of independent directors of NRE to, among other things, review, evaluate, negotiate and approve any modifications or amendments to the Original Agreement, with the assistance of financial and legal advisors engaged by the SRC.
WHEREAS, with the assistance of its financial and legal advisors, the SRC negotiated with the parent company of the Asset Manager amendments to the Original Agreement;
WHEREAS, NRE (with the approval of the SRC) and Asset Manager desire to amend and restate the Original Agreement in its entirety as set forth herein.
NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereby agree to amend and restate the Original Agreement as follows effective as of the Effective Date and abide by the terms of the Original Agreement until such Effective Date:
1. Duties of Asset Manager .
(a)      NRE hereby reappoints Asset Manager as of the Effective Date to act as its asset manager and attorney-in-fact under the terms of this Agreement. Asset Manager shall provide, either directly or through its Affiliates (“ Affiliated Entities ”) or, to the extent permitted under this Agreement through third parties, acquisition, disposition, financing, portfolio management, property management, construction, development, stockholder services, communication, offering, corporate governance, overhead and other administrative services, such as accounting and investor relations, to NRE and its subsidiaries and other similar services as may be agreed to from time to time by the parties in writing (the services to be provided, collectively referred to as the “ Services ”), including those described on Exhibit A annexed hereto, subject to, in all cases and in every respect, the supervision and management of the board of directors of NRE (the “ Board of Directors ”) for the period and upon the terms herein set forth, and, without limitation, in accordance with (i) the investment objectives, policies and restrictions from time to time set forth by the Board of Directors and (ii) all applicable federal, state and local laws, rules and regulations. Asset Manager shall perform the Services during the term and subject to the provisions of this Agreement,




either directly or by engaging Affiliated Entities, including but not limited to United States-based Affiliates. Notwithstanding anything to the contrary contained herein, Asset Manager may not delegate to an unaffiliated third party the responsibility for providing any Services without the prior consent of the Board of Directors, not to be unreasonably withheld; provided that consent shall not be required for the Asset Manager to hire third parties to perform the services expressly reimbursable pursuant to Section 3(a). Asset Manager shall be responsible for overseeing the Services which it is permitted to delegate hereunder. The parties understand and agree that it is anticipated that NRE may, in its discretion, enter into joint venture and partnership arrangements with third parties pursuant to which the joint venturer or partner would perform various Services to NRE or the joint venture or partnership and receive certain fees in connection therewith, with any such arrangements being consented to by Asset Manager, in its sole discretion.
(b)      Asset Manager hereby accepts such appointment and agrees, during the term hereof, to render the Services described herein for the compensation provided herein.
(c)      Asset Manager shall for all purposes herein be deemed to be an independent contractor and, except as expressly authorized herein or expressly provided for in investment guidelines approved by the Board of Directors or otherwise approved by the Board of Directors, Asset Manager shall have no authority to act for or represent NRE or any subsidiary in any way or otherwise be deemed an agent of NRE or any subsidiary.
(d)      Asset Manager shall keep and preserve for the period required by NRE (unless otherwise required or appropriate under applicable law, rule or regulation) any books and records relevant to the provision of its Services to NRE; shall maintain all books and records with respect to NRE’s and any subsidiary’s transactions; and shall render to NRE such periodic and special reports as NRE may reasonably request. Asset Manager agrees that all records that it maintains for NRE and any subsidiary are the property of NRE and/or such subsidiary and will surrender promptly to NRE any such records upon NRE’s request, provided that Asset Manager may retain a copy of such records.
2.      Devotion of Time; Additional Activities .
(a)      Asset Manager and its Affiliated Entities may in their sole discretion contract with or be engaged by other parties to provide the same or substantially similar services as set forth herein without notice to or consent of NRE.
(b)      Asset Manager and its Affiliated Entities will provide NRE with appropriate personnel and will provide NRE with executive management team members upon request. Neither Asset Manager nor any of its Affiliated Entities is obligated to dedicate any of its personnel exclusively to NRE, nor is Asset Manager or any of its Affiliated Entities or any of their personnel obligated to dedicate any specific portion of its or their time to NRE.

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3.      Payment and Reimbursement of Costs and Expenses .
(a)     In addition to the compensation paid to Asset Manager pursuant to Section 4 below , NRE shall pay for all of its own direct, out-of-pocket costs and expenses as a standalone company. Internalized Services Costs are not intended to be considered costs and expenses that are covered in this Section 3(a). Subject to the last paragraph of this Section 3(a) and the provisions of Section 3(b), Section 3(c) and Section 3(d) below, NRE shall pay or, if applicable, reimburse Asset Manager or its Affiliated Entities, and retain all responsibility for direct, out-of-pocket costs and expenses of NRE as a standalone company incurred by or on behalf of NRE and its subsidiaries, all of which shall be reasonable, customary and documented (even if paid or incurred by Asset Manager or its Affiliated Entities) including, among other things:
(i) costs and expenses of maintaining the organization and corporate governance of NRE;
(ii) legal, auditing, accounting, underwriting, brokerage, listing, reporting, registration and other fees and expenses, and printing, engraving and other expenses and taxes incurred in connection with the issuance, distribution, transfer, trading, registration and listing of NRE’s securities on any securities exchange, including transfer agent’s, registrar’s and indenture trustee’s fees and charges;
(iii) fees, costs and expenses relating to capital raising or other financing arrangements, corporate govenernance and structuring matters;
(iv) fees, costs and expenses paid to, and travel and other expenses paid to or on behalf of, directors of NRE (other than directors of NRE who are also officers or employees of the Asset Manager or any of its Affiliated Entities);
(v)     fees, costs and expenses of third party vendors, including lawyers, accountants, financial advisors, consultants and advisors, retained by the directors of NRE (other than directors of NRE who are also officers or employees of the Asset Manager or any of its Affiliated Entities) in connection with their service as directors of NRE;
(vi)     costs and expenses of obtaining and maintaining director liability insurance;
(vii)     costs and expenses connected with payments of dividends or interest to holders of securities of NRE;
(viii)     legal, accounting, and other fees and expenses costs and expenses of preparing and filing NRE’s reports or other documents required by the SEC or any other securities regulator or any other cost and expense of compliance with federal, state or foreign securities laws, rules and regulations and rules and regulations of self-regulatory organizations;

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(ix)     costs and expenses of preparing and filing reports or other documents required by the SEC or any other regulator or any other cost and expense of compliance with federal, state or foreign securities laws, or any other applicable law, rule or regulation;
(x)     costs and expenses of any of NRE’s reports, proxy statements or other communications to holders of securities of NRE, including printing costs and expenses;
(xi)    fees and expenses of NRE’s auditors;
(xii) costs and expenses associated with the establishment and maintenance of any of NRE’s credit facilities, other financing arrangements, or other indebtedness of NRE, including expenses reasonably necessary to establish any hedge with respect to such facilities, arrangements or indebtedness;
(xiii) federal, state, local and foreign taxes on income of NRE and its subsidiaries and taxes and assessments on the Real Estate Assets and personal property, if any, of NRE and its subsidiaries;
(xiv) costs and expenses of obtaining and maintaining insurance for the Real Estate Assets and personal property, if any, of NRE and its subsidiaries;
(xv) expenses directly connected with the investigation, acquisition, disposition or ownership of Real Estate Assets, joint ventures or other property (including third party property diligence costs, appraisal reporting, the costs of foreclosure, insurance premiums, legal services, brokerage and sales commissions, maintenance, repair, improvement and local management of property); and
(xvi) all other costs, fees and expenses incurred with the consent of the Board of Directors (including a majority of the Independent Directors), not to be unreasonably withheld.
Except as expressly set forth in Section 3(b) , Section 3(c) and Section 3(d) below, NRE shall not be obligated to pay, or reimburse the Asset Manager or its Affiliated Entities for: (a) the Asset Manager’s or its Affiliated Entities’ general overhead, including the costs and expenses relating to salaries, wages, bonuses, personal insurance, payroll taxes, employee benefits or separate professional indemnity insurance policies, (b) fees paid to, and travel and other expenses paid to or on behalf of, directors, officers and employees of Asset Manager or any of its Affiliated Entities; (c) rent, telephone, utilities, office furniture, equipment and machinery and other office expenses of Asset Manager or any of its Affiliated Entities, or (d) any fees, costs or expenses relating to the organization and operation of the Asset Manager (or any of its Affiliated Entities).
(b)    In addition to the direct out-of-pocket NRE costs and expenses described in Section 3(a) above, for each calendar quarter beginning on or after the Effective Date, NRE shall reimburse Asset Manager for all Internalized Services Costs incurred by the Asset

4


Manager and its Affiliated Entities during such quarter, up to an amount not to exceed the following amount determined based on the Gross Asset Value as of the end of the calendar quarter ended immediately prior to such quarter (the “ Cap ”).
Gross Asset Value
Cap
If less than or equal to $2.5 billion
o     0.0375% times  the Gross Asset Value
If greater than $2.5 billion but less than or equal to $5 billion
o     0.0375% times  $2.5 billion, plus
o     0.0313% times (Gross Asset Value minus  $2.5 billion)
If greater than $5 billion
o     0.0375% times  $2.5 billion, plus
o     0.0313% times $2.5 billion, plus
o     0.025% times (Gross Asset Value minus  $5 billion)

If Asset Manager’s actual Internalized Services Costs for any quarter during any calendar year exceeds the amount that is permitted to be reimbursed to the Asset Manager under the Cap for such quarter (the cumulative excess amount, if any, in respect of each quarter during such calendar year being referred to as the “ Quarterly Cap Excess Amount ”), NRE shall also reimburse Asset Manager for an amount (the “ Annual Adjustment Amount ”), not to exceed the lesser of the Quarterly Cap Excess Amount and the Quarterly Cap Shortfall Amount (as herein defined). For this purpose, the “ Quarterly Cap Shortfall Amount ” shall equal the sum of the amounts, if any, determined for each quarter solely during such calendar year by which Internalized Services Costs in respect of such quarter is less than the Cap in place for such quarter. If the Agreement expires or is terminated other than on December 31 of any year, the Annual Adjustment Amount in respect of the final calendar year in which this Agreement is in effect shall be calculated through the end of the last full calendar quarter ending prior to such expiration or termination.
(c)    For each year beginning on or after the Effective Date, the Compensation Committee of the Board of Directors of NRE (the “ NRE Compensation Committee ”) shall, in its sole discretion, determine the aggregate amount, type and the terms of an equity compensation pool (which may include shares of NRE restricted stock, restricted stock units (“ RSUs ”), long-term incentive plan (“ LTIP ”) units or other applicable forms of equity or other stock-based awards in NRE) to be allocated among members of management of NRE and other employees of Asset Manager and its Affiliated Entities (with respect to each year, the “ Annual Equity Compensation Pool ”). Asset Manager shall have discretion to allocate the Annual Equity Compensation Pool for each year among the members of management of NRE and other employees of Asset Manager and its Affiliated Entities.
(d)    Nothing in this Agreement shall limit, restrict or supersede NRE’s obligations under the Reimbursement Agreement, dated as of June 30, 2017, between the Asset Manager and NRE or otherwise relieve NRE from its obligations to make the payments, reimbursements or issuances required of it pursuant to the terms of such Reimbursement Agreement.

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(e)    With respect to all costs and expenses reimbursable by NRE pursuant to this Section 3 with respect to each calendar quarter, Asset Manager shall prepare a statement documenting the relevant costs and expenses and shall deliver such statement to NRE within thirty (30) days after the end of the applicable quarter, or as soon as practical thereafter. NRE shall reimburse the Asset Manager promptly (but in any event within ten (10) Business Days) after Asset Manager’s delivery of such statement to NRE. With respect to any payment of the Annual Adjustment Amount, Asset Manager shall prepare a statement documenting the calculation of the Annual Adjustment Amount and shall deliver such statement to NRE within thirty (30) days after the end of the applicable calendar year, or as soon as practical thereafter. NRE shall reimburse the Asset Manager promptly (but in any event within ten (10) Business Days) after Asset Manager’s delivery to NRE of the statement relating to the Annual Adjustment Amount.
(f)    NRE may, in its sole discretion, have the right to review any amounts paid pursuant to this Section 3 . Asset Manager shall cooperate with all reasonable requests of NRE for information or documentation related to such payment that is under review. In the event that a review by NRE reflects an overpayment to Asset Manager, a corrective payment shall be made to NRE, within ten (10) Business Days following the results of such review. In the event that a review by NRE reflects an underpayment to Asset Manager, a corrective payment shall be made to Asset Manager, within ten (10) Business Days following the results of such review.
4.      Compensation of Asset Manager .
(a)      Beginning as of the Effective Date, NRE agrees to pay, and Asset Manager agrees to accept, the following fees as compensation for the Services provided by Asset Manager hereunder, whether directly, or through Affiliated Entities:
(i)    with respect to each calendar quarter beginning on or after the Effective Date, the Base Management Fee for such quarter payable in cash; and
(ii)    with respect to each Measurement Period (“ Incentive Fee ”) the greater of $0.00 and an amount equal to (a) 20% multiplied by (b) the Outperformance Amount multiplied by (c) the Weighted Average Shares. An illustration of how the Incentive Fee is calculated is included on Exhibit C attached hereto.
“ Outperformance Amount ” means, with respect to any Measurement Period, Total Stockholder Return with respect to such Measurement Period, minus the Cumulative Hurdle.
“ Total Stockholder Return ” means, with respect to any Measurement Period, an amount equal to (i) the Final Share Price, plus (ii) all dividends with respect to a share of Common Stock paid since the beginning of such Measurement Period (whether paid in cash, as spun-off equity or a distribution in kind), minus (iii) the High Water Price.

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“ Cumulative Hurdle ” means an amount equal to a 10% cumulative return (compounded on an annual basis) on the High Water Price beginning on the last trading day immediately prior to the beginning of the Measurement Period.
“ Final Share Price ” means with respect to any Measurement Period, the volume weighted average trading price for a share of Common Stock on the Stock Exchange over the ten (10) consecutive trading days ending on the last trading day of such Measurement Period.
“ High Water Price ” means, with respect to any Measurement Period, the volume weighted average trading price for a share of Common Stock on the Stock Exchange over the ten (10) consecutive trading days ending on the last trading day immediately prior to the beginning of such Measurement Period.
“ Market Share Price ” means, at any time, the volume weighted average trading price for a share of Common Stock on the Stock Exchange over the ten (10) consecutive trading days ending on the trading day immediately prior to the calculation of such price.
“ Measurement Period ” means each period beginning on January 1 after the last Measurement Period with respect to which an Incentive Fee shall have been payable (or January 1, 2018 with respect to the first Measurement Period) and ending on December 31 of the applicable calendar year; provided that if this Agreement expires or is terminated other than on December 31, the last Measurement Period shall end on the last complete trading day for the Common Stock on the Stock Exchange prior to such termination or expiration, except, that if this Agreement is terminated in connection with an NRE Change of Control, the last Measurement Period shall end on the last complete trading day for the Common Stock on the Stock Exchange prior to the consummation of such NRE Change of Control.
“ Stock Exchange ” means the securities exchange on which the Common Stock is principally traded.
“ Weighted Average Shares ” means the weighted average fully diluted number of shares of Common Stock issued and outstanding during the Measurement Period, calculated in accordance with NRE’s calculation of cash available for distribution (“ CAD ”) per share for the applicable period, regardless of whether NRE publicly reports CAD. In the event NRE replaces CAD with a different primary non-GAAP metric per share, Weighted Average Shares shall thereafter be based on the weighted average fully diluted number of shares of Common Stock issued and outstanding calculated in accordance with NRE’s per share calculation of such replacement metric for the applicable period, regardless of whether NRE publicly reports such replacement metric. In the event NRE ceases to calculate CAD per share or a replacement non-GAAP metric per share, Weighted Average Shares shall thereafter be based on the weighted average fully diluted number of shares of Common Stock issued and outstanding in accordance with NRE’s calculation of net income per share in accordance with GAAP for the applicable period.

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(b)      If at any time there shall occur a share split, stock dividend, subdivision, combination, consolidation, reverse stock split or recapitalization with respect to the Common Stock, the calculation of the Incentive Fee shall be adjusted to take into account such change. For the avoidance of doubt trading prices of the Common Stock shall be the trading prices reported by Bloomberg L.P.
(c)      The Base Management Fees shall be payable in arrears in cash, in quarterly installments commencing with the quarter in which this Agreement is executed. If applicable, the initial and final installments of the Base Management Fee shall be pro-rated based on the number of days during the initial and final quarter, respectively, that this Agreement is in effect. Asset Manager shall calculate each quarterly installment of the Base Management Fee, and deliver such calculation to NRE, as soon as practicable but not earlier than five (5) Business Days prior and not later than twenty (20) days following the last day of each calendar quarter. The foregoing calculation by Asset Manager may be an estimated amount, provided that any differences between such estimated amount and the actual amount due are trued-up no later than (i) with respect to each calendar quarter, forty-five (45) days after the last day of such calendar quarter or (ii) the date on which NRE’s quarterly or annual financial statements are filed with the SEC, whichever is later. NRE shall pay Asset Manager each installment of the Base Management Fee within three (3) Business Days after the date of delivery of such computations to NRE.
(d)      As promptly as practicable after the end of each Measurement Period, Asset Manager shall prepare a statement setting forth its calculation of any Incentive Fee payable to the Asset Manager with respect to such Measurement Period as a cash figure (the “ Cash Equivalent Amount ”) and shall deliver such statement to NRE. Within ten (10) Business Days after receipt of Asset Manager’s statement setting forth its calculation of the Cash Equivalent Amount, NRE (acting at the direction of a majority of the Independent Directors), shall elect, in its sole discretion (other than compliance with the conditions set forth below in this Section 4(d)), whether to deliver the Cash Equivalent Amount in (i) cash, (ii) shares of newly issued restricted Common Stock (“ Restricted Shares ”) and/or, if the EPRA NAV Per Share at that time exceeds the Market Share Price at that time, shares of Common Stock purchased by NRE on the open market (“ Open Market Shares ”) or (iii) a combination of cash, Restricted Shares and/or Open Market Shares. To the extent that NRE elects to deliver the Cash Equivalent Amount in the form of cash and/or Restricted Shares, such cash and/or Restricted Shares shall be paid or delivered by NRE to the Asset Manager promptly (but in any event within fifteen (15) Business Days) after the later of the delivery to NRE of Asset Manager’s statement setting forth its calculation of the Cash Equivalent Amount, but in any event no sooner than NRE’s filing with the SEC of NRE’s annual report or quarter report for the annual or quarterly period ending as of the end of the applicable Measurement Period (the " Incentive Fee Payment Due Date "). Any Restricted Shares or Open Market Shares paid in respect of all or a portion of the Incentive Fee (a “ Common Stock Payment ”) shall be subject to a lockup on resale that will be released in equal one-third installments on each anniversary of the end of the Measurement Period applicable to such Common Stock Payment. As a condition to each Common Stock Payment, the Asset Manager will enter into a lockup letter with NRE in the form attached hereto as Exhibit B . Notwithstanding

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the foregoing, NRE’s right to deliver the Cash Equivalent Amount through a Common Stock Payment shall, unless otherwise agreed to by Asset Manager, be conditioned upon (i) such shares delivered in such Common Stock Payment being made in compliance with the rules of the Stock Exchange and being approved for listing on the Stock Exchange, (ii) such Common Stock Payment otherwise being made in compliance with applicable securities laws, and (iii) such Common Stock Payment not causing Asset Manager or its Affiliates to be in violation of the NRE ownership limit. If any of the above conditions would not be satisfied in respect of any proposed Common Stock Payment, the Cash Equivalent Amount shall be made exclusively in cash. The Asset Manager and NRE intend and agree to work together in good faith so that Asset Manager may become a party to a customary registration rights agreement with NRE covering the resale of any shares of Common Stock delivered as part of any Common Stock Payment.
(e)      The Asset Manager shall be entitled to receive all dividends and other distributions paid in respect of all shares underlying a Common Stock Payment whether or not such shares are then subject to the restriction contained in the lockup letter.
(f)      The value of any Restricted Shares or Open Market Shares delivered to Asset Manager as a Common Stock Payment with respect to the Incentive Fee for any Measurement Period will be determined as follows:
(i)      If the Market Share Price is equal to or greater than the EPRA NAV Per Share, then the value of each share of Common Stock included in the Common Stock Payment shall be such Market Share Price on the Incentive Fee Payment Due Date of such share and an amount equal to the product of (x) the number of shares of Common Stock included in the Common Stock Payment and (y) the Market Share Price, shall be credited towards the Cash Equivalent Amount.
(ii)      If the EPRA NAV Per Share is greater than such Market Share Price on the Incentive Fee Payment Due Date, then the value of each share of Common Stock included in the Common Stock Payment shall be the EPRA NAV Per Share and an amount equal to the product of (x) the number of shares of Common Stock included in the Common Stock Payment and (y) the EPRA NAV Per Share, shall be credited towards the Cash Equivalent Amount.
(g)      NRE may, in its sole discretion, have the right to review any amounts paid pursuant to this Section 4 . Asset Manager shall cooperate with all reasonable requests of NRE for information or documentation related to such payment that is under review. In the event that a review by NRE reflects an overpayment to Asset Manager, a corrective payment shall be made to NRE, within ten (10) Business Days following the results of such review. In the event that a review by NRE reflects an underpayment to Asset Manager, a corrective payment shall be made to Asset Manager, within ten (10) Business Days following the results of such review.
(h)      If the Base Management Fee for any calendar quarter is calculated and paid based on an EPRA NAV as of the end of any calendar quarter and the EPRA NAV as of the

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end of such calendar quarter is subsequently reduced, due to material non-compliance with any financial reporting requirements under the securities laws or otherwise, the Base Management Fee for such calendar quarter shall be promptly recalculated based on such reduced EPRA NAV and the Asset Manager, shall, within three (3) Business Days of such recalculation, pay to NRE an amount in cash equal to the amount by which the Base Management Fee previously paid to the Asset Manager with respect to such calendar quarter exceeds the recalculated Base Management Fee for such calendar quarter.
(i)      If NRE’s financial statements are restated due to material non-compliance with any financial reporting requirements under the securities for all or a portion of any Measurement Period in respect of which the Asset Manager received or is entitled to receive an Incentive Fee, the Incentive Fee payable with respect to such Measurement Period shall be adjusted in such manner as the a majority of the Independent Directors shall determine in good faith to be fair and equitable in light of such restatement and the Asset Manager, shall promptly, and in no event later than ten (10) Business Days, pay to NRE an amount equal to the value in excess of that which the Asset Manager would have received based upon the Incentive Fee as recalculated. Such payment shall be made by Asset Manager in cash, provided that if the such Incentive Fee was paid to the Asset Manager through a Common Stock Payment, such amount shall be delivered through the return of shares of Common Stock that were included in such Common Stock Payment.
5.      Limited Power of Attorney
(a)      NRE does hereby constitute and appoint Asset Manager, in performing its duties under this Agreement, and its successors and assigns, and the officers of the foregoing, as NRE’s true and lawful attorney-in-fact, with full power of substitution, in NRE’s name, place and stead, to (i) negotiate, make, execute, sign, acknowledge, swear to, deliver, record and file any agreements, documents or instruments which may be considered necessary or desirable by Asset Manager to carry out fully the provisions of this Agreement and (ii) to perform all other acts contemplated by this Agreement or necessary, advisable or convenient to the day-to-day operations of NRE (subject at all times, however, to each and all of the limitations and stipulations set forth herein).
(b)      Because this limited power of attorney shall be deemed to be coupled with an interest, it shall be irrevocable and survive and not be affected by NRE’s insolvency or dissolution. However, this limited power of attorney will become revocable upon the expiration of such interest and, therefore, this limited power of attorney will terminate upon termination of this Agreement in accordance with Section 12 of this Agreement.
(c)      Nothing herein is meant or shall be claimed, by either party, to confer upon Asset Manager custody, possession or control of or over any of NRE’s assets.
6.      Regulatory Matters . Asset Manager agrees that at all times it will use commercially reasonable efforts to be in compliance in all material respects with all applicable federal, state, foreign, local and territorial laws governing its operations and investments.

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7.      Additional Undertakings; Exclusivity .
(a)      Asset Manager and its Affiliated Entities may engage in any other business or render similar or different services to others including, without limitation, the direct or indirect sponsorship or management of other investment based accounts or commingled pools of capital, however structured, having investment objectives the same, similar or dissimilar to those of NRE or its subsidiaries, and nothing in this Agreement shall limit or restrict the right of any director, officer, employee, partner, manager or member of Asset Manager or of its Affiliated Entities to engage in any other business or to devote his or her time and attention in part to any other business, whether of a similar or dissimilar nature, or to receive any fees or compensation in connection therewith. Asset Manager assumes no responsibility under this Agreement other than to provide or cause to be provided the Services called for hereunder. It is understood that directors, officers, employees, partners, managers, members and shareholders of NRE or any of its subsidiaries are or may become interested in Asset Manager and its Affiliates, as directors, officers, employees, partners, managers, members, stockholders, or otherwise, and that Asset Manager and directors, officers, employees, partners, managers, members and stockholders of Asset Manager and its Affiliates are or may become similarly interested in NRE or any of its subsidiaries as directors, officers, employees, partners, managers, members, shareholders or otherwise, and persons shall be permitted to hold positions with both NRE, Asset Manager and/or Affiliates of either or both.
(b)      During the term of this Agreement, (i) Asset Manager and its Affiliated Entities shall be the exclusive provider of Services to NRE and its subsidiaries, other than services provided to NRE and/or its subsidiaries by (x) any partner or joint venture approved by NRE, on the one hand, and Asset Manager or its Affiliated Entities, on the other hand, in every case in the sole discretion of Asset Manager and its Affiliated Entities, (y) any third parties that are providing such services as of the date hereof and (z) any third party or Affiliated Entity delegates of Asset Manager as Asset Manager may appoint from time to time in accordance with the terms of this Agreement and (ii) NRE and its subsidiaries shall not employ or contract with any other third party to provide the same or substantially similar services as provided by Asset Manager and its Affiliated Entities without the prior written consent of Asset Manager, which may be withheld by Asset Manager in its sole discretion.
(c)      If NRE spins-off any assets or entities in the future, NRE agrees to cause the resulting entity or entities to enter into a substantially similar asset management agreement with Asset Manager or an Affiliated Entity providing for both a Base Management Fee and an Incentive Fee, in each case as determined in Asset Manager’s discretion taking into account the nature of the assets involved, the primary services of Asset Manager expected to be utilized by the new company and the expenses associated with managing the new company on a standalone basis. The parties understand and agree that the aggregate Base Management Fee in place immediately after any such spin-off will not be less than the aggregate Base Management Fee in place at NRE immediately prior to such spin-off. Furthermore, the Incentive Fee shall be adjusted for NRE and established for the newly

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created entity at the discretion of Asset Manager in a manner reasonably consistent with the Incentive Fee description provided herein, with consideration of the factors described above.
(d)      To the extent NRE engages in crowd funding activities on its own behalf or on behalf of others, it will negotiate in good faith with Asset Manager to utilize the services of Asset Manager and its Affiliated Entities and to pay Asset Manager competitive compensation for its services, as may be mutually agreed to by the parties.
8.      Limitation of Liability of Asset Manager; Indemnification .
(a)      Asset Manager, its Affiliated Entities and their directors, officers, employees, partners, managers, members, controlling persons, and any other person affiliated with Asset Manager and/or its Affiliated Entities (each of whom shall be deemed a third party beneficiary hereof) (collectively, the “ Manager Indemnified Parties ”) shall not be liable to NRE, its directors, officers, employees, partners, managers, members, controlling persons and any other person or entity affiliated with NRE (collectively, “ NRE Parties ”) for any action taken or omitted to be taken by the Manager Indemnified Parties in connection with the performance of the Services and of any of Asset Manager’s duties or obligations under this Agreement or otherwise as an asset manager of NRE or any of its subsidiaries, with respect to the receipt of compensation for Services, and NRE shall indemnify, defend and protect the Manager Indemnified Parties and hold them harmless from and against all damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) incurred by the Manager Indemnified Parties in or by reason of any pending, threatened or completed action, suit, investigation or other proceeding (including an action or suit by or in the right of NRE, its shareholders or its subsidiaries) arising out of, in connection with or otherwise based upon the performance of any of Asset Manager’s duties or obligations under this Agreement or otherwise as an asset manager of NRE or any of its subsidiaries. Notwithstanding the preceding sentence, nothing contained herein shall protect or be deemed to protect the Manager Indemnified Parties against, or entitle or be deemed to entitle the Manager Indemnified Parties to indemnification in respect of any liability to NRE, its shareholders or the NRE Parties, to which the Manager Indemnified Parties would otherwise be subject by reason of gross negligence, willful misfeasance or bad faith in the performance of their duties.
(b)      NRE, its subsidiaries and their directors and officers, (each of whom shall be deemed a third party beneficiary hereof) (collectively, the “ NRE Indemnified Parties ”) shall not be liable to Asset Manager, its Affiliated Entities and their directors, officers, employees, partners, managers, members, controlling persons, and any other person affiliated with Asset Manager and/or its Affiliated Entities (other than the NRE Indemnified Parties, collectively, “ Manager Parties ”) for any action taken or omitted to be taken by the Manager Parties in connection with the performance of the Services or any of Asset Manager’s duties or obligations under this Agreement or otherwise as an asset manager of NRE or any of its subsidiaries, which are found by a court of competent jurisdiction to constitute gross negligence, willful misfeasance or bad faith in the performance of such duties, and Asset Manager shall indemnify, defend and protect NRE Indemnified Parties

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and hold them harmless from and against all damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) incurred by the NRE Indemnified Parties in or by reason of any pending, threatened or completed action, suit, investigation or other proceeding arising out of, in connection with or otherwise based upon any of the foregoing.
(c)      In the event that any of the NRE Indemnified Parties or the Manager Indemnified Parties (together, the “ Indemnified Parties ” and each an “ Indemnified Party ”) receives notice of commencement of any suit, action, proceeding or investigation in connection with any matter arising out of or in connection with such Indemnified Party’s duties hereunder (or under the Affiliated Agreements, as the case may be), such Indemnified Party will promptly notify the indemnifying party of the commencement thereof; provided, however, that failure to give such notice shall not relieve an indemnifying party of its obligations under this Section 8, except to the extent it shall have been materially prejudiced by such failure and then only to the extent of such prejudice. In case any such action is brought against any Indemnified Party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to, to the extent it may wish, jointly with any of the Persons similarly notified, to participate in the defense thereof, with separate counsel. Such participation shall not relieve the indemnifying party of the obligation to reimburse the Indemnified Party for reasonable legal and other costs and expenses incurred by such Indemnified Party in defending itself. The indemnifying party shall not be liable to any such Indemnified Party on account of any settlement of any claim or action effected without the consent of the indemnifying party. The indemnifying party may not unreasonably withhold or deny its consent to any settlement of any claim, suit, action, proceeding or investigation which may be covered hereunder.
(d)      In the event that any Indemnified Party becomes involved in any capacity in any suit, action, proceeding or investigation in connection with any matter arising out of or in connection with its duties hereunder (or under the Affiliated Agreements, as the case may be), the indemnifying party will periodically reimburse such Indemnified Party for its reasonable legal and other costs and expenses (including the cost and expense of any investigation and preparation) incurred in connection therewith, no later than 30 days after receiving evidence of such costs and expenses; provided, however, that prior to any such advancement of costs and expenses (i) such Indemnified Party shall provide the indemnifying party with an undertaking to promptly repay the indemnifying party the amount of any such costs and expenses paid to it if it shall ultimately be determined that such Indemnified Party is not entitled to be indemnified by the indemnifying party as herein provided in connection with such suit, action, proceeding or investigation, and (ii) the Indemnified Party shall provide the indemnifying party with a written affirmation that such Indemnified Party in good faith believes that it has met the standard of conduct necessary for indemnification hereunder.
9.      Duties With Respect to Investment Opportunities .

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(a)      NRE shall be obligated, as part of the consideration for the Services being provided by Asset Manager and its Affiliated Entities, to make available to Asset Manager (for allocation among the Colony NorthStar Managers and Affiliated Entities) all investment opportunities for the acquisition or origination of Real Estate Assets (“ Investment Opportunities ”) that are presented to, or sourced by, employees of NRE or its subsidiaries, if any, or of which any employee of NRE or its subsidiaries becomes aware.
(b)      Asset Manager shall form an allocation committee (the “ Allocation Committee ”) that shall review the Investment Opportunities and use its commercially reasonable efforts to fairly allocate such Investment Opportunities among Affiliated Entities and among the Colony NorthStar Managers, including Asset Manager, for the benefit of Managed Entities, including NRE. The Allocation Committee will allocate Investment Opportunities in accordance with an allocation policy, a copy of which has been provided to NRE, established by Asset Manager and adopted by each of the Colony NorthStar Managers. Changes to the allocation policy that could adversely impact the allocation of Investment Opportunities to NRE in any material respect may be proposed by Asset Manager and is subject to the prior approval of the Board of Directors.
(c)      It is further acknowledged by NRE that the decision of how any potential Investment Opportunities should be allocated may in many cases be a matter of highly subjective judgment which will be made by the Allocation Committee in its sole discretion. Asset Manager may from time to time increase or decrease the number of members of the Allocation Committee, or replace members of the Allocation Committee, in its sole discretion. It is further acknowledged by NRE that certain types of Investment Opportunities may not enter the allocation process because of special or unique circumstances related to the Real Estate Asset or the seller of the Real Estate Asset, among other things, that in the judgment of the Allocation Committee do not fall within the investment objectives or mandate of any particular Managed Entity, including NRE or another Affiliated Entity. In these cases, the investment may be made by another Managed Entity or by Asset Manager or one of its Affiliated Entities without NRE having an opportunity to make such investment.
10.      No Joint Venture . Nothing in this Agreement shall be construed to make NRE and Asset Manager or any of its Affiliated Entities partners or joint venturers or impose any liability as such on any of them.
11.      Term.
(a)      Subject to this Section 11 and to Section 12 , this Agreement shall be in effect from the Effective Date until the fifth (5 th ) anniversary of the Effective Date (the “ Initial Term ”) and shall be automatically renewed for successive three-year renewal terms thereafter (each, a “ Renewal Term ”) unless (i) the Board of Directors (acting by a vote of a majority of the Independent Directors) or the Asset Manager elect not to renew this Agreement in accordance with Section 11(b) , or (ii) this Agreement is terminated earlier pursuant to the terms of this Agreement.

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(b)      No later than six (6) months prior to the expiration of the Initial Term or the then current Renewal Term, (i) the Board of Directors (acting by a vote of a majority of the Independent Directors) may deliver a written notice to the Asset Manager or (ii) the Asset Manager may deliver written notice to NRE, of its intention to decline to renew this Agreement, whereupon this Agreement shall not be renewed in accordance with Section 11(a) and this Agreement shall thereupon terminate effective upon the end of the Initial Term or such Renewal Term, as the case may be. In the event that, in accordance with the preceding sentence, the Board of Directors declines to renew this Agreement at the end of the Initial Term or a Renewal Term, NRE shall pay the Asset Manager on the expiration date of this Agreement an amount, in cash (the “ Termination Fee ”), equal to three (3) times the LTM Base Management Fee.
(c)      In addition, NRE may at any time upon or following an NRE Change of Control occurring after the Initial Term immediately terminate this Agreement by providing thirty (30) Business Days’ prior written notice to the Asset Manager. In the event that, in accordance with the preceding sentence, NRE elects to terminate this Agreement upon or following an NRE Change of Control, NRE shall pay the Asset Manager the Termination Fee on the termination date of this Agreement.
(d)      In the event of a termination or non-renewal of this Agreement, the Asset Manager shall reasonably cooperate, at NRE’s expense, with NRE in executing an orderly transition of the management of NRE and its subsidiaries to a new manager.
12.      Termination for Cause .
(a)      NRE may terminate this Agreement, effective upon 60 days’ prior written notice of termination from the Board of Directors to Asset Manager if (i) Asset Manager engages in any act of fraud, misappropriation of funds, or embezzlement against NRE or any of its subsidiaries; (ii) Asset Manager breaches, in bad faith, any provision of this Agreement or there is an event of gross negligence on the part of Asset Manager in the performance of its duties under this Agreement and, in each case, if it has a Material Adverse Effect on NRE and, with respect to a breach in bad faith or gross negligence, if the effects of such breach in bad faith or gross negligence can be reversed, such effects are not reversed within a period of 60 days of Asset Manager’s receipt of the written notice (or 90 days if Asset Manager takes steps to reverse such effects within 30 days of written notice); (iii) there is a commencement of any proceeding relating to Asset Manager’s bankruptcy or insolvency, including an order for relief in an involuntary bankruptcy case or Asset Manager authorizing or filing a voluntary bankruptcy petition that is not dismissed in 60 days; (iv) there is a dissolution of Asset Manager; or (v) unless the Board of Directors determines that qualification for taxation as a REIT under the U.S. federal income tax laws is no longer desirable, there is a determination by a court of competent jurisdiction, in a non-appealable binding order, or the Internal Revenue Service, in a closing agreement made under section 7121 of the Code, that a provision of this Agreement caused or will cause NRE to fail to satisfy a requirement for qualification as a REIT and, within 60 days of such determination, Asset Manager has not agreed to amend or modify this Agreement in a manner that would

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allow NRE to qualify as a REIT. Notwithstanding the foregoing, if Asset Manager assigns the Agreement to an Affiliate or a permitted assignee, the events in (iii) and (iv) with respect to such assignee shall not constitute grounds for termination by NRE.
(b)      Asset Manager may terminate this Agreement effective upon 60 days’ prior written notice of termination to NRE in the event that NRE shall default in the performance or observance of any material term, condition or covenant contained in this Agreement and such default shall continue for a period of 60 days (or 90 days if NRE takes steps to cure such breach within 30 days of the written notice) after written notice thereof is received by NRE specifying such default and requesting that the same be remedied in such 60-day period. In the event that this Agreement is terminated pursuant to this Section 12(b) , Asset Manager shall be entitled to any and all damages and legal remedies arising from or in connection with such default including, but not limited to, direct, indirect, special, consequential, speculative and punitive damages, as well as lost future profits and business in the future.
13.      Action Upon Termination . From and after the effective date of termination of this Agreement, pursuant to Section 11 or Section 12 of this Agreement, Asset Manager shall not be entitled to compensation for further services under this Agreement, but shall be paid all compensation accruing to the date of termination. Upon such termination, Asset Manager shall deliver to the Board of Directors all property and documents of NRE and its subsidiaries then in the custody of Asset Manager and Asset Manager shall cooperate with NRE, at NRE’s cost and expense, to provide an orderly transition of its advisory and asset management functions.
14.      Bank Accounts . Asset Manager may establish and maintain one or more bank accounts in the name of NRE or its subsidiaries and may collect and deposit into any such account or accounts, and disburse from any such account or accounts, any money on behalf of NRE or its subsidiaries, under such terms and conditions as the Board of Directors may approve, provided that no funds shall be commingled with the funds of Asset Manager. Asset Manager shall from time to time render appropriate accountings of such collections and payments to the Board of Directors and the independent auditors of NRE. Any such bank shall be a “qualified custodian” as defined in Rule 206(4)-2 under the Advisers Act.
15.      Other Services . If (i) NRE requests that Asset Manager or any officer or employee thereof render services for NRE other than as set forth in this Agreement; or (ii) there are changes to the regulatory environment in which Asset Manager or NRE operates that would increase significantly the level of services performed such that the costs and expenses borne by Asset Manager for which Asset Manager is not entitled to separate reimbursement for personnel and related employment direct costs and expenses and overhead under Section 3 of this Agreement would increase significantly, such services shall be separately compensated at such rates and in such amounts as are reasonably agreed by Asset Manager and NRE.
16.      Assignment .
(a)      The Agreement may not be assigned (within the meaning of the Investment Advisers Act of 1940, as amended (the “ Advisers Act ”)) without the consent of the parties hereto.

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(b)      Notwithstanding the foregoing, to the extent either party proposes, or any action is taken by either party that could be deemed an assignment of this Agreement as defined under the Advisers Act (an “ Advisers Act Assignment ”), both parties agree to consider such assignment in good faith and to not unreasonably withhold, condition or delay such consent. The parties would anticipate that consent would be granted in the event of a proposed Advisers Act Assignment to a party with expertise in commercial real estate and, together with its Affiliates, over $10 billion of assets under management. Both parties acknowledge that time is of the essence with respect to the consideration of any Advisers Act Assignment and each party shall: (a) respond to the party seeking consent of such assignment within 10 days of notification of an Advisers Act Assignment (the “ Notification Period ”) by the party seeking consent thereto; and (b) provide such consent or set forth the reasons why such consent shall not be given. To the extent the party whose consent is sought with respect to any Advisers Act Assignment fails to respond to the party seeking consent for said Advisers Act Assignment within the Notification Period, the consent of the party failing to respond shall be deemed to have been granted. The parties understand and agree that the terms of this Section 16(b) are material terms hereof and the Asset Manager would not have entered into this Agreement but for the benefit of such provisions.
(c)      Asset Manager may, at no additional cost or expense to NRE, obtain information and assistance for the account of NRE, without NRE’s consent. Such assistance may include the hiring of one or more entities, including Affiliated Entities, to provide sub-advisory services. A sub-adviser shall have all of the rights and powers of Asset Manager set forth in this Agreement, and Asset Manager shall be as fully responsible to NRE’s accounts for the acts and omissions of the sub-adviser as it is for its own acts and omissions.
(d)      Notwithstanding the foregoing or anything else contained herein to the contrary, to the maximum extent permitted by applicable law, rules and regulations, in connection with any merger, sale of all or substantially all of the assets, change of control, reorganization, consolidation or any similar transaction of either party hereto, directly or indirectly, the surviving entity will succeed to the terms of this Agreement.
17.      Representations and Warranties .
(a)      NRE hereby makes the following representations and warranties to Asset Manager, all of which shall survive the execution and delivery of this Agreement:
(i)      NRE is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland. NRE has all power and authority required to execute and deliver this Agreement and to perform all its duties and obligations hereunder;
(ii)      The execution, delivery, and performance of this Agreement by NRE have been duly authorized by all necessary action on the part of NRE;
(iii)      This Agreement constitutes a legal, valid, and binding agreement of NRE enforceable against NRE in accordance with its terms, except as limited by

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bankruptcy, insolvency, receivership and similar laws from time to time in effect and general principles of equity, including, without limitation, those relating to the availability of specific performance; and
(iv)      NRE is entering into this Agreement with the approval of the SRC and the Board of Directors, and with full knowledge and understanding of the consequences of its execution and believes that it is receiving full and valuable consideration hereunder and that it is in its best interests to enter into this Agreement.
(b)      Asset Manager hereby makes the following representations and warranties to NRE, all of which shall survive the execution and delivery of this Agreement:
(i)      Asset Manager is a limited company duly organized, validly existing and in good standing under the laws of Jersey. Asset Manager has all power and authority required to execute and deliver this Agreement and to perform all its duties and obligations hereunder, subject only to its qualifying to do business and obtaining all requisite permits and licenses required as a result of or relating to the nature or location of any of the assets or properties of NRE (which it shall do promptly after being required to do so);
(ii)      The execution, delivery, and performance of this Agreement by Asset Manager have been duly authorized by all necessary action on the part of Asset Manager; and
(iii)      This Agreement constitutes a legal, valid, and binding agreement of Asset Manager enforceable against Asset Manager in accordance with its terms, except as limited by bankruptcy, insolvency, receivership and similar laws from time to time in effect and general principles of equity, including, without limitation, those relating to the availability of specific performance.
(c)      Each party will promptly inform the other party if any of the representations herein ceases to be true.
18.      Additional Covenants of Asset Manager .

(a)      Asset Manager agrees to provide the Services hereunder in such a manner as to seek to avoid causing NRE to fail to qualify for taxation as a REIT under the U.S. federal income tax laws, unless the Board of Directors determines that such qualification is no longer desirable. In the event that the provision of Services hereunder would cause NRE to fail to qualify for taxation as a REIT, such Services shall be modified to the extent reasonably practical and only to the minimum extent necessary to preserve provision of the Services and qualification as a REIT, in all cases, unless the Board of Directors determine that such qualification is no longer necessary.

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(b)      Asset Manager agrees to provide the services hereunder in such a manner as to seek to avoid causing NRE to be required to register as an investment company under the Investment Company Act of 1940, as amended.
(c)      Asset Manager agrees and acknowledges that it is providing the Services hereunder subject to the direction, supervision, oversight and control of the Board of Directors.
(d)      Asset Manager agrees and acknowledges neither it nor its Affiliated Entities shall, except as approved by the Board of Directors, make open market purchases of NRE shares other than in compliance with the provisions of Rule 10b-18 of the Exchange Act during the last ten (10) consecutive trading days of any Measurement Period.
19.      Additional Covenants of NRE .
(a)      NRE hereby agrees that, in consideration of the Services to be provided hereunder, for so long as this Agreement is in effect, Asset Manager or one of its Affiliates (including Colony NorthStar) shall have the right to (a) nominate, in connection with each annual meeting commencing with NRE's 2018 Stockholder's meeting, one (1) individual to be included in the slate of nominees nominated by the Board of Directors for election at the Stockholder's meeting (such individual to be subject to the approval, not to be unreasonably withheld, of the nominating committee of the Board of Directors) (the “ Designated Director ”) and (b) nominate a successor to such Designated Director (such individual to be subject to the approval, not to be unreasonably withheld, of the nominating committee of the Board of Directors) in the event that the current Designated Director resigns. The Asset Manager shall be entitled to, at any time, forefeit its rights under this Section 19(a).
(b)      NRE hereby further agrees that it will not directly or indirectly enter into a merger, sale of all or substantially all of its assets, change of control, reorganization, consolidation or any similar transaction, unless the party assuming control or otherwise entering into the transaction with NRE or its Affiliates agrees in writing, in a form reasonably satisfactory to the Asset Manager, to succeed to this Agreement and otherwise assume the obligations and liabilities under this Agreement.
(c)      NRE shall take all actions necessary to present to its stockholders at the 2018 annual stockholders meeting a proposal approving the making of future Common Stock Payments to the Asset Manager in respect of the Incentive Fee pursuant to Section 4(e) of this Agreement. Subject to its fiduciary duties under applicable law, the Board of Directors, including the Independent Directors, shall recommend that the stockholders of NRE vote to approve such proposal.
(d)      Asset Manager shall use reasonable efforts to address the recommendations of Institutional Shareholder Services (as are in place as of the date of this Agreement or any recommendations adopted in the future that are substantially similar to the recommendations in place as of the date of this Agreement) relating to disclosure of executive compensation

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matters with the objective of obtaining a favorable say-on-pay recommendation from Institutional Shareholder Services.
20.      Confidentiality . Each party, on behalf of itself and its Affiliates, shall keep confidential any and all information obtained by it in connection with this Agreement and provision of the Services and shall not disclose any such information (or use the same except in furtherance of its duties and obligations under this Agreement) to unaffiliated third parties, except: (i) with the prior written consent of the board of directors of the applicable party; (ii) to legal counsel, accountants and other professional advisors; (iii) to appraisers, financing sources and others in the ordinary course of business; (iv) to third parties who agree to keep such information confidential by contract or by professional or ethical duty and who need to know such information to perform services or to evaluate a prospective transaction; (v) to governmental officials having jurisdiction over the applicable party; (vi) in connection with any governmental or regulatory filings of the applicable party, or disclosure or presentations to such party’s investors; (vii) as required by law or legal process to which a party or any person to whom disclosure is permitted hereunder is subject; or (viii) to the extent such information is otherwise publicly available through the actions of a person other than the party not resulting from the party’s violation of this Section 20 . The provisions of this Section 20 shall survive the expiration or earlier termination of this Agreement for a period of one year.
21.      Use of Name . NRE agrees that Asset Manager and its Affiliated Entities may identify NRE by name in its or their current client list. Such list may be disclosed to third parties.
22.      Notices . Any notice under this Agreement shall be given in writing, addressed and delivered or mailed, postage prepaid, to the addresses set forth herein (or such other address as a party may identify to the other party from time to time). All notices shall be effective upon receipt.
If to NRE:
NorthStar Realty Europe Corp.
399 Park Avenue, 18th Floor
New York, New York 10022
Attention: General Counsel

If to Asset Manager:
Colony NorthStar, Inc.
712 Fifth Avenue, 35th Floor
New York, New York 10019
Attention: Chief Legal Officer

23.      Amendments . This Agreement may be amended or modified only by mutual consent of the parties in writing.
24.      Entire Agreement; Governing Law . This Agreement contains the entire agreement of the parties and supersedes all prior agreements, understandings and arrangements with respect to the subject matter hereof. This Agreement shall be construed in accordance with the laws of the State of New York.
25.      Severability . Each provision of this Agreement shall be considered separate from the others and, if for any reason, any provision or its application is determined by a court of competent

20


jurisdiction to be invalid, illegal or unenforceable, then such invalid, illegal or unenforceable provision shall not impair the operation of or affect any other provisions of this Agreement, and either (a) such invalid, illegal or unenforceable provision shall be construed and enforced to the maximum extent legally permissible or (b) the parties shall substitute for the invalid, illegal or unenforceable provision a valid, legal and enforceable provision with a substantially similar effect and intent.
26.      Force Majeure . No party to this Agreement will be responsible for nonperformance resulting from acts beyond the reasonable control of such party; provided that such party uses commercially reasonable efforts to avoid or remove such causes of nonperformance and continues performance under this Agreement with reasonable dispatch as soon as such causes are removed.
27.      Waiver . Neither the failure nor any delay on the part of a party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver.
28.      Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories.
29.      Headings . The section headings contained in this Agreement are inserted for convenience only, and shall not affect in any way, the meaning or interpretation of this Agreement.
30.      Binding Effect; Benefit . This Agreement and all terms, provisions and conditions hereof shall be binding upon the parties hereto, and shall inure to the benefit of the parties hereto and to their respective successors and assigns.
31.      Expenses . Each of the Asset Manager and NRE agree to pay their own fees and expenses associated in connection with the negotiation, amendment, restatement and execution of this Agreement; provided that NRE hereby agrees to reimburse Asset Manager for up to $2.5 million of fees and expenses payable by Colony NorthStar to its external financial advisors in connection with the negotiation, amendment, restatement and execution of this Agreement.
32.      Miscellaneous . It is understood that certain provisions of this Agreement may serve to limit the potential liability of Asset Manager. NRE has had the opportunity to consult with Asset Manager as well as, if desired, its professional advisors and legal counsel as to the effect of these provisions. It is further understood that certain applicable laws including, but not limited to, the Advisers Act may impose liability or allow for legal remedies even where Asset Manager has acted in good faith and that the rights under those laws may be non-waivable. Nothing in this Agreement

21


shall, in any way, constitute a waiver or limitation of any rights which may not be limited or waived in accordance with applicable law.
33.      Arbitration . Notwithstanding anything herein to the contrary, including the parties’ submission to jurisdiction of the courts of the State of New York pursuant to Section 33 , any dispute, claim or controversy arising out of or relating to this Agreement or the breach, termination, enforcement, interpretation or validity thereof, including the determination of the scope or applicability of this agreement to arbitrate, shall be determined by arbitration in the New York offices of the American Arbitration Association (“ AAA ”) before three (3) qualified arbitrators, one (1) selected by each party and one (1) selected by both parties. The arbitration shall be administered by AAA under its Commercial Arbitration Rules and Mediation Procedures (the “ Rules ”) in accordance with the expedited procedures in those Rules. Judgment on the arbitration award may be entered in any state or federal court sitting in New York, New York or in any other applicable court. This Section 32 shall not preclude the parties from seeking provisional remedies in aid of arbitration from a court of appropriate jurisdiction. In the event that this Agreement is terminated pursuant to this Section 32 , Asset Manager shall be entitled to any and all damages and legal remedies arising from or in connection with such default including, but not limited to, direct, indirect, special, consequential, speculative and punitive damages, as well as lost profits and business in the future.
(a)      Any arbitration arising out of or related to this Agreement shall be conducted in accordance with the expedited procedures set forth in the Rules as those Rules exist at the Effective Date.
(b)      The parties agree that they will give conclusive effect to the arbitrators’ determination and award and that judgment thereon may be entered in any court having jurisdiction.
(c)      The arbitrators may issue awards for all damages and legal remedies arising from or in connection with such default including, but not limited to, direct, indirect, special, consequential, speculative and punitive damages, as well as lost profits and business in the future.
(d)      Any party may, without inconsistency with this arbitration provision, apply to any state or federal court sitting in New York, New York and seek interim provisional, injunctive or other equitable relief until the arbitration award is rendered or the controversy is otherwise resolved.
(e)      The arbitration will be conducted in the English language. The arbitrators shall decide the dispute in accordance with the law of New York. The arbitration provisions contained herein are self-executing and will remain in full force and effect after expiration or termination of this Agreement.
(f)      The costs and expenses of the arbitration shall be funded fifty percent (50%) by the claimant and the remaining fifty percent (50%) shall be split equally among the respondent(s). All parties shall bear their own attorneys’ fees during the arbitration. The prevailing party on substantially all of its claims shall be repaid all of such costs and expenses

22


by the non-prevailing party within ten (10) days after receiving notice of the arbitrator’s decision.
34.      Submission to Jurisdiction; Consent to Service of Process . Subject to Section 32 hereof, the parties hereto hereby irrevocably submit to the exclusive jurisdiction of and consent to service of process and venue in the state and federal courts in the County of New York, State of New York in any dispute, claim, controversy, action, suit or proceeding between the parties arising out of this Agreement which are permitted to be filed or determined in such court. Subject to Section 32 hereof, the parties hereby irrevocably waive, to the fullest extent permitted by applicable law, any objection which they may now or hereafter have to the laying of venue of any such dispute brought in such court or any defense of inconvenient forum for the maintenance of such dispute. The parties agree that process may be served in any action, suit or proceeding by mailing copies thereof by registered or certified mail (or its equivalent) postage prepaid, to the party’s address set forth in Section 22 of this Agreement or to such other address to which the party shall have given written notice to the other party. The parties agree that such service shall be deemed in every respect effective service of process upon such party in any such action, suit or proceeding and shall, to the fullest extent permitted by law, be taken and held to be valid personal service upon and personal delivery to such party. Nothing in this Section 33 shall affect the right of the parties to serve process in any manner permitted by law.
35.      Restricted Shares ; Open Market Shares .     The following shall apply with respect to any Restricted Shares or Open Market Shares paid in respect of all or a portion of the Incentive Fee:
(a)      No Public Sale or Distribution . Asset Manager, to the extent it is paid any Restricted Shares or Open Market Shares, will acquire all such Restricted Shares or Open Market Shares issued to it for its own account and not with a view towards, or for resale in connection with, the public sale or distribution thereof, except pursuant to sales registered under the Securities Act or under an exemption from such registration and in compliance with applicable federal and state securities laws, and the Asset Manager does not have a present arrangement to effect any distribution of any Restricted Shares or Open Market Shares to or through any person or entity.
(b)      Asset Manager Status . At the time the Asset Manager is paid the Restricted Shares or Open Market Shares it will be, and at the date hereof it is, either (A) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act or (B) an “accredited investor” as such term is defined in Rule 501 promulgated under Regulation D of the Securities Act.
(c)      General Solicitation . The Asset Manager is not acquiring any Restricted Shares or Open Market Shares as a result of any advertisement, article, notice or other communication regarding the Restricted Shares or Open Market Shares published in any newspaper, magazine or similar media, broadcast over television or radio, disseminated over the Internet or presented at any seminar or any other general solicitation or general advertisement.

23


(d)      Access to Information . The Asset Manager acknowledges that it has reviewed the Disclosure Materials, and all other materials the Asset Manager deemed necessary for the purpose of making the decision by which part of the Incentive Fee may be paid to it in the form of Restricted Shares or Open Market Shares and has been afforded: (a) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of NRE concerning NRE’s business, management and financial affairs and terms and conditions of the Restricted Shares and Open Market Shares and the merits and risks of accepting the Restricted Shares and Open Market Shares as payment for a portion of the Incentive Fee; (b) access to information (including material non-public information) about NRE and its subsidiaries and their respective financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; and (c) the opportunity to obtain such additional information that NRE possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment. The Asset Manager has evaluated the risks associated with being paid the Restricted Shares or Open Market Shares, understands there are substantial risks of loss incidental to the investment and has determined that it is a suitable investment for it.
(e)      No Government Review . The Asset Manager understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Restricted Shares or Open Market Shares the fairness or suitability of the investment in the Restricted Shares or Open Market Shares nor have such authorities passed upon or endorsed the merits of the Restricted Shares or Open Market Shares to be paid to the Asset Manager (if any) in payment of some or all of the Incentive Fee.
(f)      Restricted Securities . The Asset Manager understands that the Restricted Shares and Open Market Shares, characterized as “restricted securities” under the U.S. federal securities laws inasmuch as they are being acquired from NRE in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under Securities Act only in certain limited circumstances.
(g)      No Legal, Tax or Investment Advice . The Asset Manager understands that nothing in this Agreement or any other materials presented by or on behalf of NRE to the Asset Manager in connection with the purchase of the Restricted Shares or Open Market Shares constitutes legal, tax or investment advice. The Asset Manager has consulted such legal, tax and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with its being paid the Restricted Shares or Open Market Shares.
(h)      Restrictive Legends . Any certificate or other document issued in respect of any Restricted Shares or Open Market Shares paid to the Asset Manager shall be endorsed with the legend set forth below, as appropriate:
(i)          “THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS

24


AMENDED (THE “SECURITIES ACT”), OR REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED (1) ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER THE SECURITIES ACT, (2) ABSENT AN OPINION OF COUNSEL, WHICH OPINION IS REASONABLY SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY AND ITS COUNSEL, TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OR THE SECURITIES LAWS OF ANY STATE OR THAT SUCH TRANSACTION COMPLIES WITH THE RULES PROMULGATED BY THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OR THE SECURITIES LAWS OF ANY STATE, OR (3) EXCEPT IN A TRANSACTION IN COMPLIANCE WITH RULE 144 UNDER THE SECURITIES ACT;” and
 
(ii)         Any legend required by any applicable state securities law.
 
NRE shall maintain a copy of this Agreement and any amendments thereto on file in its principal offices, and will make such copy available during normal business hours for inspection to any party hereto or will provide such copy to each party or any transferee upon its or their request.


[The remainder of this page intentionally left blank]


25





IN WITNESS WHEREOF , the parties have caused this Agreement to be executed as of the date first written above by their duly authorized representatives.

 
NORTHSTAR REALTY EUROPE CORP.



By: /s/ Trevor K Ross
            Name: Trevor K. Ross
            Title: General Counsel and Secretary
 


CNI NRE ADVISORS, LLC  





By:   /s/ Richard B. Saltzman
            Name: Richard B. Saltzman
            Title: Chief Executive Officer


















    



EXHIBIT 10.2

EXECUTION VERSION

Colony NorthStar, Inc.
515 S. Flower Street, 44th Floor
Los Angeles, CA 90071


November 9, 2017


NorthStar Realty Europe Corp.
399 Park Avenue, 18th Floor
New York, NY 10022
Ladies and Gentlemen:

Reference is made to the Articles of Amendment and Restatement, as amended from time to time (the “ Charter ”), of NorthStar Realty Europe Corp., a Maryland corporation (the “ Company ”) and to certain limitations on stock ownership as contained in Article VII of the Charter, which are designed to facilitate the Company’s qualification as a real estate investment trust (a “ REIT ”) for U.S. federal income tax purposes and generally limit ownership of (1) the Company’s Common Stock by a Person to not more than 9.8% in value or in number of shares, whichever is more restrictive, of the aggregate outstanding shares of Common Stock of the Company (the “ Common Stock Ownership Limit ”), and (2) the Company’s Capital Stock by a Person to not more than 9.8% in value of the aggregate of the outstanding shares of Capital Stock of the Company (the “ Aggregate Stock Ownership Limit ,” and, together with the Common Stock Ownership Limit, the “ Ownership Limits ”). Terms used herein but not otherwise defined shall have the meanings provided in the Charter.
Colony NorthStar, Inc., a Maryland corporation, together with its subsidiaries (collectively, “ Colony NorthStar ”) is a global real estate and investment management firm that operates so as to qualify as a REIT for U.S. federal income tax purposes.
    Since the spin-off of the Company on October 31, 2015, CNI NRE Advisors, LLC (f/k/a NSAM J-NRE Ltd.) (the “ Manager ”), currently a wholly owned subsidiary of Colony NorthStar, has performed certain management services for the Company subject to the supervision of the Board of Directors (the “ Board ”) of the Company, pursuant to an Asset Management Agreement, dated as of October 31, 2015, by and between the Company and the Manager (the “ Original Management Agreement ”).

On March 23, 2017, the Board established a Strategic Review Committee (“ SRC ”) consisting solely of independent directors of the Company to, among other things, review, evaluate, negotiate and approve any modifications or amendments to the Original Management Agreement with the assistance of financial and legal advisors. With the assistance of its financial and legal advisors, SRC negotiated with Colony NorthStar the terms of an Amended and Restated Asset Management


Agreement (the “ Amended Management Agreement ”), which has been unanimously approved by the SRC, and is being entered into by the Manager and the Company as of the date hereof.

In connection with the negotiation of the Amended Management Agreement, Colony NorthStar sought, pursuant to Section 7.2.7 of the Charter, an exemption from the Ownership Limits to allow it to acquire Common Stock of the Company in excess of the Ownership Limits. Colony NorthStar believes that such Common Stock ownership will not adversely affect the Company’s qualification as a REIT for U.S. federal income tax purposes.
With the assistance of its financial and legal advisors, and in connection with the negotiation of the Amended Management Agreement, the SRC negotiated with Colony North Star, and recommended to the Board, which has approved, pursuant to Section 7.2.7 of the Charter, (1) an exemption from the Ownership Limits, subject to the terms and conditions set forth herein, and (2) an Excepted Holder Limit for Colony NorthStar which would allow Colony NorthStar to own up to 45% of the Company’s Common Stock (together, the “ Exemption ”).
The initial and continuing effectiveness of the Exemption is expressly conditioned upon the following conditions being met at all times:
1.
Colony NorthStar does not actually own or Constructively Own (as determined pursuant to Article VII of the Charter), more than a 9.9% interest in any current tenant of the Company (or any tenants of any entity owned or controlled by the Company). So long as Colony NorthStar owns more than 9.8% of the outstanding Common Stock of the Company, without the express written consent of the Company, Colony NorthStar will not acquire any interest in any then-tenant of the Company (or any tenants of any entity owned or controlled by the Company) if Colony NorthStar would thereafter hold, actually or Constructively, more than a 9.9% interest in any then-tenant of the Company (or any tenants of any entity owned or controlled by the Company).
2.
Colony NorthStar and its Affiliates and Associates (both as defined under Rule 405 promulgated under the Securities Act of 1933, as amended) may not at any time Beneficially Own or Constructively Own (as determined pursuant to Article VII of the Charter), in the aggregate, more than 45% of the then outstanding Common Stock of the Company.
3.
At any meeting of stockholders of the Company, any matter that is submitted to a vote of the stockholders of the Company (or if action is taken with respect to any matter by written consent of stockholders of the Company in lieu of a meeting), Colony NorthStar shall vote or cause to be voted (including by voting for or against, abstaining or withholding votes or, if applicable, consenting in respect of) all shares of Capital Stock of the Company Beneficially Owned by Colony NorthStar and its Affiliates and Associates in excess of the Voting Percentage Limit (as defined below) in the same proportion as the remaining shares of Capital Stock of the Company not Beneficially Owned by Colony NorthStar and its Affiliates and Associates are voted (or, if applicable, consented) for or against, or abstain or withhold, with respect to such matter. For the avoidance of doubt, in calculating the voting requirements of Colony NorthStar, all broker non-votes and all shares of Capital Stock of the Company that are not present or represented at the applicable stockholder meeting shall

2

not be considered voted. For purposes here, “Voting Percentage Limit” means, with respect to any matter to be voted on at a meeting of stockholders of the Company (or with respect to any matter with respect to which action is to be taken by written consent), 25% of the votes entitled to be cast by all holders of shares of Capital Stock of the Company with respect to such matter.
4.
If Colony NorthStar fails to promptly take any actions required to be taken by it pursuant to Section 3 above, Colony NorthStar hereby irrevocably appoints any independent director of the Company, and each independent director individually, as Colony NorthStar’s proxy and attorney-in-fact, with full power of substitution and resubstitution, to vote or execute consents, with respect to the shares of Capital Stock of the Company Beneficially Owned by Colony NorthStar and its Affiliates and Associates as of the applicable record date, in the manner specified in Section 3 above. This proxy is given to secure the performance of the duties of Colony NorthStar under Section 3. Colony NorthStar shall not, and shall cause its Affiliates and Associates not to, directly or indirectly, grant any person any proxy (revocable or irrevocable), power of attorney or other authorization with respect to shares of Capital Stock of the Company Beneficially Owned by Colony NorthStar or its Affiliates or Associates that is inconsistent with Section 3. The proxy and power of attorney granted pursuant to this Section 4 by Colony NorthStar shall be irrevocable, shall be deemed to be coupled with an interest sufficient in law to support an irrevocable proxy. The power of attorney granted by Colony NorthStar is a durable power of attorney and shall survive the bankruptcy or dissolution of Colony NorthStar or any of its Affiliates or Associates.  
5.
No “individual” (within the meaning of Section 542(a)(2) of the Code and taking into account Section 856(h)(3)(A) of the Code) may Beneficially Own or Constructively Own (as determined pursuant to Article VII of the Charter), as a result of Colony NorthStar’s ownership of the Common Stock, more than 9.8% of the outstanding Common Stock of the Company at any time.
6.
Colony NorthStar understands and agrees that the Exemption will be automatically revoked to the extent that any of the conditions or provisions listed in the preceding paragraphs is breached; provided that, if at the time of such revocation, Colony NorthStar and its Affiliates and Associates Beneficially Own or Constructively Own a percentage of the outstanding Common Stock of the Company exceeding 9.8%, the Exemption shall remain in effect for 180 days thereafter (or such longer period as shall be determined by the Board) (an “ Extension Period ”) to allow Colony NorthStar and its Associates and Affiliates to dispose of shares of Common Stock Beneficially Owned or Constructively Owned by Colony NorthStar; provided, further, that, Colony NorthStar and its Affiliates and Associates may not acquire Beneficial Ownership or Constructive Ownership of any shares of Common Stock during the Extension Period (x) if Colony NorthStar and its Affiliates and Associates at that time own Common Stock of the Company or Capital Stock of the Company in excess of the Ownership Limits, or (y) to the extent that such acquisition would result in Colony NorthStar and its Affiliates and Associates owning Common Stock of the Company or Capital Stock of the Company in excess of the Ownership Limits. Colony NorthStar further understands and agrees that, in the event that prior to the expiration of the Initial Term or

3

the then current Renewal Term (both as defined in the Amended Management Agreement), the Board or the Manager notifies the other pursuant to Section 11(b) of the Amended Management Agreement of its intention to decline to renew the Amended Management Agreement upon expiration of the Initial Term or the then current Renewal Term, as applicable, or in the event the Amended Management Agreement terminates, then (i) Colony NorthStar and its Affiliates and Associates may not, without the consent of the Board, acquire Beneficial Ownership or Constructive Ownership of any shares of Common Stock (x) if Colony NorthStar and its Affiliates and Associates at that time own Common Stock of the Company or Capital Stock of the Company in excess of the Ownership Limits, or (y) to the extent that such acquisition would result in Colony NorthStar and its Affiliates and Associates owning Common Stock of the Company or Capital Stock of the Company in excess of the Ownership Limits, and (ii) on the third anniversary of the termination of the Amended Management Agreement, the definition of Voting Percentage Limit shall be amended to substitute 9.8% for 25%. Nothing in the foregoing shall in any way limit or restrict Colony NorthStar and its Affiliates and Associates from making a tender offer for the entire Company and acquiring additional shares of Common Stock in any business combination transaction approved by the Board. For the avoidance of doubt, if Colony NorthStar and its Affiliates and Associates’ Beneficial Ownership and Constructive Ownership of the shares of Common Stock is reduced to or below 9.8% after termination of the Amended Management Agreement, the Exemption shall automatically terminate for all purposes as of such time.
7.
Colony NorthStar understands that the Board retains the right to revoke or modify the Exemption in order to prevent disqualification of the Company as a REIT for U.S. federal income tax purposes to the extent such disqualification is a result solely of Colony NorthStar’s ownership of Common Stock in excess of the Ownership Limits, but in such case would notify Colony NorthStar as soon as possible prior to any such revocation or modification.
8.
At the request of the Company, Colony NorthStar shall provide the Company with information regarding the number of shares of Common Stock or other Capital Stock owned by the Colony NorthStar or the ownership of the Colony NorthStar, to the extent known by Colony NorthStar, in the future.
9.
Colony NorthStar understands that the Company and the Board will rely on the truth and accuracy of the statements contained in this letter in granting the Exemption.
In addition, on June 18, 2015, in connection with the organization of the Company, the Board adopted resolutions (the “ Business Combination Resolutions ”) that, among other things, resolved that, pursuant to Section 3-603(c) of the Maryland General Corporation Law (the “ MGCL ”), any business combination between the Company and (i) Colony NorthStar, its affiliates and any of its sponsored or managed companies and (ii) any other person, which business combination is first approved by the Board (including by a majority of the directors who are not affiliates or associates of such person) will be exempted from the provisions of Section 3-602 of the MGLC. In connection with the negotiation of the Amended Management

4

Agreement, and the approval of this Exemption, the Company hereby agrees, that it will not revoke the Business Combination Resolutions.



Written notices or inquiries to the Company should be directed to:
Trevor K. Ross, Esq.
General Counsel & Secretary
NorthStar Realty Europe Corp.
399 Park Avenue, 18th Floor
New York, New York 10022
(212) 547-2600
tross@clns.com

Written notices or inquiries to Colony NorthStar should be directed to:
Ronald M. Sanders, Esq.
Chief Legal Officer & Secretary
Colony NorthStar, Inc.
712 Fifth Avenue, 35th Floor
New York, New York 10019
(212) 230-3300
rsanders@clns.com


[Signature Page Follows]


5



    


            
                         
Very truly yours,
 
 
Colony NorthStar, Inc.
 
 
By:
/s/ Ronald M. Sanders, Esq.
Name:
Ronald M. Sanders, Esq.
Its:
Chief Legal Officer & Secretary

                        




Accepted and agreed to as of the date first written above:



NorthStar Realty Europe Corp.
 
 
By:
/s/ Trevor K. Ross, Esq.
Name:
Trevor K. Ross, Esq.
Its:
General Counsel & Secretary




6


EXHIBIT 31.1

CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER PURSUANT TO
17 CFR 240.13a-14(a)/15(d)-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Mahbod Nia, certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q of NorthStar Realty Europe Corp.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 
Date:
November 9, 2017
By:
/s/ MAHBOD NIA
 
 
 
 
Mahbod Nia
 
 
 
 
Chief Executive Officer and President





EXHIBIT 31.2

CERTIFICATION BY THE CHIEF FINANCIAL OFFICER PURSUANT TO
17 CFR 240.13a-14(a)/15(d)-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Keith A. Feldman, certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q of NorthStar Realty Europe Corp.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and;
(c)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 
Date:
November 9, 2017
By:
/s/ KEITH A. FELDMAN
 
 
 
 
Keith A. Feldman
 
 
 
 
Chief Financial Officer






EXHIBIT 32.1

CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

       In connection with the Quarterly Report on Form 10-Q of NorthStar Realty Europe Corp. (the “Company”) for the quarterly period ended September 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mahbod Nia, as Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

(1)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
Date:
November 9, 2017
By:
/s/ MAHBOD NIA
 
 
 
 
Mahbod Nia
 
 
 
 
Chief Executive Officer and President

        This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
  
      A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.







EXHIBIT 32.2

CERTIFICATION BY THE CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Quarterly Report on Form 10-Q of NorthStar Realty Europe Corp. (the “Company”) for the quarterly period ended September 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Keith A. Feldman, as Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

(1)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
Date:
November 9, 2017
By:
/s/ KEITH A. FELDMAN
 
 
 
 
Keith A. Feldman
 
 
 
 
Chief Financial Officer

        This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
  
      A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.