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 June 30, 2016

Commission File Number: 001-32330

NORTHSTAR REALTY FINANCE CORP.

(Exact Name of Registrant as Specified in its Charter)

Maryland (State or Other Jurisdiction of Incorporation or Organization) 02-0732285 (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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x Accelerated filer o Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company o

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, 180,725,689 shares outstanding as of August 4, 2016.

NORTHSTAR REALTY FINANCE CORP.

FORM 10-Q

TABLE OF CONTENTS

Index		Page
Part I.	Financial Information	5
Item 1.	Financial Statements	5
	Consolidated Balance Sheets as of June 30, 2016 (unaudited) and December 31, 2015	5
	Consolidated Statements of Operations (unaudited) for the three and six months ended June 30, 2016 and 2015	6
	Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three and six months ended June 30, 2016 and 2015	7
	Consolidated Statements of Equity for the six months ended June 30, 2016 (unaudited) and the year ended December 31, 2015	8
	Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2016 and 2015	9
	Notes to Consolidated Financial Statements (unaudited)	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	62
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	103
Item 4.	Controls and Procedures	105
Part II.		106
Item 1.	Legal Proceedings	106
Item 1A.	Risk Factors	106
Item 6.	Exhibits	110
Signatures		115

2

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 impact of the pending merger with NorthStar Asset Management Group Inc., or NSAM, and Colony Capital, Inc., or Colony, on our business and operations, the effects of our current strategies and investment activities, our ability to manage our portfolio in accordance with the long-term management contract with an affiliate of NSAM, until the merger is completed, 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:

• adverse domestic or international economic conditions and the impact on the commercial real estate industry;

• the effect of economic conditions on the valuation of our investments;

• 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 consummate the merger with NSAM and Colony on the contemplated terms or at all, including whether the merger will have the full or any strategic and financial benefits, efficiencies and synergies we expect and whether such benefits will be delayed or materialize at all;

• illiquidity of properties in our portfolio;

• the effects of being an externally-managed company, including our reliance on NSAM 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 NSAM among us and the manager’s other sponsored or managed companies and strategic vehicles and various conflicts of interest in our relationship with NSAM;

• a change in the ownership, board or management of NSAM;

• the effectiveness of NSAM’s portfolio management techniques and strategies;

• the spin-off of NorthStar Realty Europe Corp. may not have the full or any strategic and financial benefits that we expect;

• whether we determine to undergo future restructurings, including internalization of our management company and/or spin-offs of additional assets and businesses in the future, our ability to complete such transactions and the impact of such transactions on our business and financial condition;

• risks associated with joint ventures, including our reliance on joint venture partners, lack of sole decision making authority and the financial condition of our joint venture partners;

• our ability to successfully integrate assets or companies acquired into our business and operations, maintain consistent standards and controls and realize the anticipated benefits of the acquisitions;

• 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;

• the impact of adverse conditions affecting a specific asset class in which we have investments, such as healthcare, hotel, manufactured housing, multi-tenant office and limited partnership interests in real estate private equity funds;

3

• the impact of economic conditions on the tenants/operators/residents/guests of the real property that we own as well as on the borrowers of the commercial real estate debt we originate and acquire and the commercial mortgage loans underlying the commercial mortgage-backed securities in which we invest;

• the ability and willingness of our tenants/operators/managers and other third parties to satisfy their respective obligations to us, including in some cases their obligation to indemnify us from and against various claims and liabilities;

• any failure in our due diligence to identify all relevant facts in our underwriting process or otherwise;

• the financial weakness of tenants/operators/managers or borrowers, including defaults or bankruptcy;

• our ability to manage our costs in line with our expectations and the impact on our cash available for distribution;

• our ability to satisfy and manage our capital requirements;

• the impact if we continue to repurchase shares of our common stock and the terms of those repurchases, if any;

• our ability to obtain mortgage financing on our real estate portfolio on favorable terms or at all;

• the impact of fluctuations in interest rates;

• our ability to comply with, as well as the impact of changes in, laws or regulations governing various aspects of our business, including in particular potential reforms in labor regulation and healthcare regulation, such as changes in reimbursement policies, rates and procedures;

• the impact of shareholder activism, if any;

• 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;

• the possibility that the net asset value of interests in certain real estate private equity funds we acquired do not necessarily reflect the fair value of such fund interests or that the actual amount of our future capital commitments underlying such fund interests varies materially from our expectations;

• the loss of our exemption from the definition of an “investment company” under the Investment Company Act of 1940, as amended;

• NSAM’s ability to hire and retain qualified personnel and potential changes to key personnel providing management services to us;

• our ability to grow and profit from our commercial real estate origination activities;

• the impact of damage to our brand and reputation resulting from internal or external causes;

• the potential failure to maintain effective internal controls and disclosure controls and procedures; and

• compliance with the rules governing real estate investment trusts.

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 United States Securities and Exchange Commission, or the SEC, included in Part I, Item 1A. of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 and in Part II, Item 1A. of this Quarterly Report on Form 10-Q under the heading “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.

4

PART I. Financial Information

Item 1.    Financial Statements

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands, Except Per Share Data)

	June 30, 2016 (Unaudited)			December 31, 2015
Assets
Cash and cash equivalents	$	540,974		$	224,101
Restricted cash	190,321			299,288
Operating real estate, net	8,238,870			8,702,259
Real estate debt investments, net (refer to Note 4)	360,964			501,474
Real estate debt investments, held for sale (refer to Note 4)	—			224,677
Investments in private equity funds, at fair value (refer to Note 5)	838,863			1,101,650
Investments in unconsolidated ventures (refer to Note 6)	155,199			155,737
Real estate securities, available for sale (refer to Note 7)	545,463			702,110
Receivables, net of allowance of $4,385 and $4,318 as of June 30, 2016 and December 31, 2015, respectively	62,790			66,197
Receivables, related parties	1,455			2,850
Intangible assets, net	423,409			527,277
Assets of properties held for sale (refer to Note 3)	2,270,190			2,742,635
Other assets	278,852			154,146
Total assets(1)	$	13,907,350		$	15,404,401
Liabilities
Mortgage and other notes payable	$	6,927,095		$	7,164,576
Credit facilities and term borrowings	419,259			654,060
CDO bonds payable, at fair value	277,657			307,601
Exchangeable senior notes	28,280			29,038
Junior subordinated notes, at fair value	184,259			183,893
Accounts payable and accrued expenses	141,831			170,120
Due to related party (refer to Note 9)	47,167			50,903
Derivative liabilities, at fair value	289,160			103,293
Intangible liabilities, net	136,906			149,642
Liabilities of properties held for sale (refer to Note 3)	1,740,594			2,209,689
Other liabilities	129,080			165,856
Total liabilities(1)	10,321,288			11,188,671
Commitments and contingencies
Equity
NorthStar Realty Finance Corp. Stockholders’ Equity
Preferred stock, $986,640 aggregate liquidation preference as of June 30, 2016 and December 31, 2015	939,118			939,118
Common stock, $0.01 par value, 500,000,000 shares authorized, 180,577,119 and 183,239,708 shares issued and outstanding as of June 30, 2016 and December 31, 2015, respectively	1,806			1,832
Additional paid-in capital	5,109,953			5,149,349
Retained earnings (accumulated deficit)	(2,718,349		)	(2,309,564		)
Accumulated other comprehensive income (loss)	(48,405		)	18,485
Total NorthStar Realty Finance Corp. stockholders’ equity	3,284,123			3,799,220
Non-controlling interests	301,939			416,510
Total equity	3,586,062			4,215,730
Total liabilities and equity	$	13,907,350		$	15,404,401

_______________________

(1) Represents the consolidated assets and liabilities of NorthStar Realty Finance Limited Partnership (the “Operating Partnership”). The Operating Partnership is a consolidated variable interest entity (“VIE”), of which the Company is the sole general partner and owns approximately 99%. As of June 30, 2016, the assets and liabilities of the Operating Partnership include $10.4 billion and $7.7 billion of assets and liabilities, respectively, of certain VIEs that are consolidated by the Operating Partnership. Refer to Note 16 for further disclosure.

Refer to accompanying notes to consolidated financial statements.

5

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in Thousands, Except Per Share Data)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2016(1)			2015(1)			2016(1)			2015(1)
Property and other revenues
Rental and escalation income	$	170,758		$	179,982		$	362,192		$	345,024
Hotel related income	221,962			206,130			415,705			374,857
Resident fee income	73,428			65,833			146,205			129,206
Other revenue	4,269			3,736			9,709			7,219
Total property and other revenues	470,417			455,681			933,811			856,306
Net interest income
Interest income (refer to Note 9)	37,515			59,509			80,448			125,146
Interest expense on debt and securities	1,535			1,979			3,695			3,956
Net interest income on debt and securities	35,980			57,530			76,753			121,190
Expenses
Management fee, related party (refer to Note 9)	46,656			51,744			93,184			99,975
Interest expense—mortgage and corporate borrowings	117,945			120,175			242,447			233,184
Real estate properties—operating expenses	233,532			222,824			471,942			422,708
Other expenses	7,445			7,890			14,461			13,619
Transaction costs	8,776			16,550			11,991			22,136
Impairment losses	—			—			5,073			—
Provision for (reversal of) loan losses, net	(1,160		)	284			6,082			767
General and administrative expenses
Compensation expense(2)	7,483			9,384			15,767			23,341
Other general and administrative expenses	4,139			4,864			9,123			8,110
Total general and administrative expenses	11,622			14,248			24,890			31,451
Depreciation and amortization	87,558			112,376			175,561			221,359
Total expenses	512,374			546,091			1,045,631			1,045,199
Other income (loss)
Unrealized gain (loss) on investments and other	(106,923		)	(14,708		)	(242,404		)	(45,282		)
Realized gain (loss) on investments and other	(13,084		)	(607		)	(12,707		)	12,395
Income (loss) before equity in earnings (losses) of unconsolidated ventures and income tax benefit (expense)	(125,984		)	(48,195		)	(290,178		)	(100,590		)
Equity in earnings (losses) of unconsolidated ventures	31,129			57,736			75,784			111,379
Income tax benefit (expense)	(919		)	(10,088		)	(8,762		)	(11,752		)
Income (loss) from continuing operations	(95,774		)	(547		)	(223,156		)	(963		)
Income (loss) from discontinued operations (refer to Note 3)	—			(83,795		)	—			(97,655		)
Net income (loss)	(95,774		)	(84,342		)	(223,156		)	(98,618		)
Net (income) loss attributable to non-controlling interests	1,277			7,900			4,454			11,633
Preferred stock dividends	(21,060		)	(21,060		)	(42,119		)	(42,119		)
Net income (loss) attributable to NorthStar Realty Finance Corp. common stockholders	$	(115,557	)	$	(97,502	)	$	(260,821	)	$	(129,104	)
Earnings (loss) per share:(3)
Income (loss) per share from continuing operations	$	(0.64	)	$	(0.08	)	$	(1.44	)	$	(0.19	)
Income (loss) per share from discontinued operations	—			(0.47		)	—			(0.59		)
Basic	$	(0.64	)	$	(0.55	)	$	(1.44	)	$	(0.78	)
Diluted	$	(0.64	)	$	(0.55	)	$	(1.44	)	$	(0.78	)
Weighted average number of shares:(3)
Basic	179,722,415			176,492,950			181,264,279			165,441,986
Diluted	181,582,239			177,588,566			183,127,305			166,522,411
Dividends per share of common stock(3)	$	0.40		$	0.80		$	0.80		$	1.60

____________________

(1) The consolidated financial statements for the three and six months endedJune 30, 2016 represent the Company’s results of operations following the NRE Spin-off on October 31, 2015. The three and six months endedJune 30, 2015 include a carve-out of revenues and expenses attributable to NorthStar Europe recorded in discontinued operations.

(2) The three months ended June 30, 2016 and 2015 includes $5.6 million and $7.7 million of equity-based compensation expense, respectively. The six months ended June 30, 2016 and 2015 includes $11.9 million and $18.5 million of equity-based compensation expense, respectively. Refer to Note 10 for further disclosure.

(3) The three and six months endedJune 30, 2015 is adjusted for the one-for-two reverse stock split completed on November 1, 2015. Refer to Note 11. “Stockholders’ Equity” for additional disclosure.

Refer to accompanying notes to consolidated financial statements.

6

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in Thousands)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Net income (loss)	$	(95,774	)	$	(84,342	)	$	(223,156	)	$	(98,618	)
Other comprehensive income (loss):
Unrealized gain (loss) on real estate securities, available for sale, net	(31,846		)	(2,321		)	(64,978		)	(20,867		)
Amortization of swap (gain) loss into interest expense—mortgage and corporate borrowings (refer to Note 14)	223			223			446			488
Foreign currency translation adjustment, net	(2,383		)	(113		)	(3,563		)	(2,469		)
Total other comprehensive income (loss)	(34,006		)	(2,211		)	(68,095		)	(22,848		)
Comprehensive income (loss)	(129,780		)	(86,553		)	(291,251		)	(121,466		)
Comprehensive (income) loss attributable to non-controlling interests	1,972			8,121			5,659			12,185
Comprehensive income (loss) attributable to NorthStar Realty Finance Corp.	$	(127,808	)	$	(78,432	)	$	(285,592	)	$	(109,281	)

Refer to accompanying notes to consolidated financial statements.

7

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(Dollars and Shares in Thousands)

	Preferred Stock			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		Shares		Amount
Balance as of December 31, 2014	39,466	$	939,118	150,842		$	1,508		$	4,828,928		$	(1,422,399	)	$	49,540		$	4,396,695		$	316,961		$	4,713,656
Net proceeds from offering of common stock	—	—		38,000		380			1,325,860			—			—			1,326,240			—			1,326,240
Non-controlling interests—contributions	—	—		—		—			—			—			—			—			126,484			126,484
Non-controlling interests—distributions	—	—		—		—			—			—			—			—			(36,661		)	(36,661		)
Non-controlling interests—reallocation of interest in Operating Partnership (refer to Note 12)	—	—		—		—			(14,548		)	—			—			(14,548		)	14,548			—
Dividend reinvestment plan	—	—		7		—			194			—			—			194			—			194
Amortization of equity-based compensation	—	—		—		—			13,757			—			—			13,757			11,935			25,692
Conversion of exchangeable senior notes	—	—		829		8			13,582			—			—			13,590			—			13,590
Other comprehensive income (loss)	—	—		—		—			—			—			(16,713		)	(16,713		)	(529		)	(17,242		)
Conversion of Deferred LTIP Units to LTIP Units	—	—		—		—			(18,730		)	—			—			(18,730		)	18,730			—
Retirement of shares of common stock	—	—		(6,470	)	(64		)	(117,983		)	—			—			(118,047		)	—			(118,047		)
Issuance of restricted stock, net of tax withholding	—	—		32		—			(3,602		)	—			—			(3,602		)	—			(3,602		)
Spin-off of NorthStar Europe (refer to Note 3)	—	—		—		—			(878,109		)	—			(14,342		)	(892,451		)	(7,450		)	(899,901		)
Dividends on common stock and equity-based awards (refer to Note 10)	—	—		—		—			—			(559,668		)	—			(559,668		)	(3,500		)	(563,168		)
Dividends on preferred stock	—	—		—		—			—			(84,238		)	—			(84,238		)	—			(84,238		)
Net income (loss)	—	—		—		—			—			(243,259		)	—			(243,259		)	(24,008		)	(267,267		)
Balance as of December 31, 2015	39,466	$	939,118	183,240		$	1,832		$	5,149,349		$	(2,309,564	)	$	18,485		$	3,799,220		$	416,510		$	4,215,730
Non-controlling interests—contributions	—	—		—		—			—			—			—			—			1,126			1,126
Non-controlling interests—distributions	—	—		—		—			—			—			—			—			(19,711		)	(19,711		)
Non-controlling interest – sale of subsidiary	—	—		—		—			—			—			—			—			(88,604		)	(88,604		)
Non-controlling interests—reallocation of interest in Operating Partnership (refer to Note 12)	—	—		—		—			3,880			—			—			3,880			(3,880		)	—
Dividend reinvestment plan	—	—		8		—			98			—			—			98			—			98
Amortization of equity-based compensation	—	—		—		—			7,789			—			—			7,789			3,433			11,222
Conversion of exchangeable senior notes	—	—		73		1			839			—			—			840			—			840
Other comprehensive income (loss)	—	—		—		—			—			—			(66,890		)	(66,890		)	(1,205		)	(68,095		)
Retirement of shares of common stock	—	—		(3,890	)	(39		)	(49,994		)	—			—			(50,033		)	—			(50,033		)
Issuance of restricted stock, net of tax withholding	—	—		1,146		12			(2,008		)	—			—			(1,996		)	—			(1,996		)
Dividends on common stock and equity-based awards (refer to Note 10)	—	—		—		—			—			(147,964		)	—			(147,964		)	(1,276		)	(149,240		)
Dividends on preferred stock	—	—		—		—			—			(42,119		)	—			(42,119		)	—			(42,119		)
Net income (loss)	—	—		—		—			—			(218,702		)	—			(218,702		)	(4,454		)	(223,156		)
Balance as of June 30, 2016 (unaudited)	39,466	$	939,118	180,577		$	1,806		$	5,109,953		$	(2,718,349	)	$	(48,405	)	$	3,284,123		$	301,939		$	3,586,062

Refer to accompanying notes to consolidated financial statements.

8

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

(Unaudited)

	Six Months Ended June 30,
	2016			2015
Cash flows from operating activities:
Net income (loss)	$	(223,156	)	$	(98,618	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Equity in (earnings) losses of PE Investments	(61,214		)	(100,581		)
Equity in (earnings) losses of unconsolidated ventures	(14,570		)	(10,798		)
Depreciation and amortization	175,561			237,534
Amortization of premium/accretion of discount on investments	(28,320		)	(30,197		)
Interest accretion on investments	(552		)	(8,860		)
Amortization of deferred financing costs	28,445			27,476
Amortization of equity-based compensation	11,222			17,484
Unrealized (gain) loss on investments and other	237,438			48,410
Realized (gain) loss on investments and other	12,707			(12,203		)
Impairment losses	5,073			—
Distributions from PE Investments (refer to Note 5)	56,577			100,581
Distributions from unconsolidated ventures	4,183			2,088
Distributions from equity investments	6,955			12,869
Amortization of capitalized above/below market leases	3,663			5,861
Straight line rental income, net	(14,145		)	(17,131		)
Deferred income taxes, net	2,009			(10,130		)
Provision for (reversal of) loan losses, net	6,082			767
Allowance for uncollectible accounts	2,352			1,042
Other	—			817
Changes in assets and liabilities:
Restricted cash	(5,884		)	(22,109		)
Receivables	(3,253		)	9,445
Receivables, related parties	1,395			(3,889		)
Other assets	(12,539		)	3,553
Accounts payable and accrued expenses	(26,741		)	(15,551		)
Due to related party	(3,736		)	5,258
Other liabilities	(1,245		)	22,025
Net cash provided by (used in) operating activities	158,307			165,143
Cash flows from investing activities:
Acquisition of operating real estate	—			(2,776,674		)
Acquisition of manufactured homes, held for sale	(6,512		)	(2,441		)
Improvements of real estate	(81,430		)	(49,346		)
Improvements of real estate, held for sale	(6,740		)	(2,775		)
Proceeds from sale of real estate	189,863			17,031
Origination of or fundings for real estate debt investments	(17,343		)	(24,506		)
Proceeds from sale of real estate debt investments	312,585			—
Repayment of real estate debt investments	57,551			298,639
Investment in PE Investments (refer to Note 5)	(2,549		)	(500,068		)
Distributions from PE Investments (refer to Note 5)	76,392			219,608
Proceeds from sale of PE Investment (refer to Note 5)	184,076			—
Investment in unconsolidated ventures	(3,237		)	(1,809		)
Distributions from unconsolidated ventures	3,462			9,221
Acquisition of real estate securities, available for sale	(1,150		)	(11,571		)
Proceeds from the sale of real estate securities, available for sale	53,886			80,746
Repayment of real estate securities, available for sale	27,226			12,498
Change in restricted cash	64,491			12,254
Payment of leasing costs	(2,079		)	(893		)
Investment deposits and pending deal costs	(461		)	(34,760		)
Other assets	(1,822		)	(6,497		)
Net cash provided by (used in) investing activities	846,209			(2,761,343		)

Refer to accompanying notes to consolidated financial statements.

9

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Dollars in Thousands)

(Unaudited)

	Six Months Ended June 30,
	2016			2015
Cash flows from financing activities:
Borrowings from mortgage and other notes payable	$	72,586		$	1,788,812
Repayment of mortgage and other notes payable	(84,318		)	(32,707		)
Repayment of CDO bonds	(28,958		)	(22,172		)
Repayment of securitization bonds payable	—			(41,831		)
Borrowings from credit facilities	—			495,000
Repayment of credit facilities	(237,053		)	(376,877		)
Payment of financing costs	(2,117		)	(94,591		)
Purchase of derivative instruments	—			(7,896		)
Payment of cash collateral on derivatives	(147,366		)	—
Change in restricted cash	6,750			(9,261		)
Net proceeds from common stock offering	—			1,086,332
Repurchase of common stock	(52,034		)	—
Proceeds from dividend reinvestment plan	98			85
Dividends	(190,898		)	(311,773		)
Repurchase of shares related to equity-based awards and tax withholding	(5,637		)	—
Contributions from non-controlling interests	1,126			116,225
Distributions to non-controlling interests	(19,711		)	(19,842		)
Net cash provided by (used in) financing activities	(687,532		)	2,569,504
Effect of foreign currency translation on cash and cash equivalents	(111		)	4,796
Net increase (decrease) in cash and cash equivalents	316,873			(21,900		)
Cash and cash equivalents—beginning of period	224,101			296,964
Cash and cash equivalents—end of period	$	540,974		$	275,064

Refer to accompanying notes to consolidated financial statements.

10

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Business and Organization

NorthStar Realty Finance Corp. is a diversified commercial real estate company (the “Company” or “NorthStar Realty”).  The Company invests in multiple asset classes across commercial real estate (“CRE”) that it expects will generate attractive risk-adjusted returns and may take the form of acquiring real estate, originating or acquiring senior or subordinate loans, as well as pursuing opportunistic CRE investments. The Company is a Maryland corporation and completed its initial public offering in October 2004. The Company conducts its operations so as to continue to qualify as a real estate investment trust (“REIT”) for U.S. federal income tax purposes. The Company is externally managed and advised by an affiliate of NorthStar Asset Management Group Inc. (NYSE: NSAM), which together with its affiliates is referred to as NSAM.

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 Finance Limited Partnership, a Delaware limited partnership and the operating partnership of the Company (the “Operating Partnership”). All references herein to the Company refer to NorthStar Realty Finance Corp. and its consolidated subsidiaries, including the Operating Partnership, collectively, unless the context otherwise requires.

Merger Agreement with NSAM and Colony Capital, Inc.

In June 2016, the Company announced that it entered into a merger agreement with NSAM and Colony Capital, Inc. (“Colony”) under which the companies will combine in an all-stock merger of equals transaction to create an internally-managed, diversified real estate and investment management platform (the “Mergers”). The transaction has been unanimously approved by the special committees and board of directors of NSAM and the Company and the board of directors of Colony.

Under the terms of the merger agreement, NSAM will redomesticate to Maryland and elect to be treated as a REIT beginning in 2017 and the Company and Colony, through a series of transactions, will merge with and into the redomesticated NSAM, which will be renamed Colony NorthStar, Inc. The Company’s common stockholders will receive 1.0996 shares of Colony NorthStar’s common stock for each share of common stock they own. Holders of preferred stock will receive shares of preferred stock of Colony NorthStar that are substantially similar to the preferred stock held prior to the closing of the transaction. Upon completion of the transaction, NSAM stockholders will own approximately 32.85%, Colony stockholders will own approximately 33.25% and the Company’s stockholders will own approximately 33.90% of the combined company on a fully diluted basis, excluding the effect of certain equity-based awards issuable in connection with the Mergers.

The transaction is expected to close in January 2017, subject to, among other things, regulatory approvals and the receipt of the Company’s, Colony’s and NSAM’s respective stockholder approvals.

Sales Initiatives

The Company continues to execute a series of sales initiatives including: (i) sales of all or portions of certain real estate assets; (ii) sales of all or a portion of the Company’s limited partnership interests in real estate private equity funds (“PE Investments”); and (iii) sales and/or accelerated repayments of the Company’s CRE debt and securities investments.

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 presentation 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, 2015, which was filed with the United States Securities and Exchange Commission (the “SEC”).

The three and six months endedJune 30, 2016 represent the Company’s results of operations following the spin-off of its European real estate business (the “NRE Spin-off”) into a separate publicly-traded REIT, NorthStar Realty Europe Corp. (“NorthStar Europe”). The three and six months endedJune 30, 2015 include a carve-out of revenues and expenses attributable to NorthStar Europe recorded in discontinued operations. As a result, the three and six months endedJune 30, 2016 may not be comparable to the prior periods presented. Expenses also included an allocation of indirect expenses of the Company to NorthStar Europe,

11

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

including salaries and other general and administrative expenses (primarily occupancy and other cost) based on an estimate had the European real estate business been run as an independent entity. This allocation method was principally based on relative headcount and management’s knowledge of the Company’s operations.

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 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 evaluates its CRE debt and securities, investments in unconsolidated ventures and securitization financing transactions, such as its collateralized debt obligations (“CDOs”) and its liabilities to subsidiary trusts issuing preferred securities (“junior subordinated notes”) 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.

Investments in Unconsolidated Ventures

A non-controlling, unconsolidated ownership interest in an entity may be accounted for using the equity method, at fair value or the cost method.

Under the equity method, the investment is adjusted each period for capital contributions and distributions and its share of the entity’s net income (loss). Capital contributions, distributions and net income (loss) of such entities are recorded in accordance with the terms of the governing documents. An allocation of net income (loss) 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.

12

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The Company may account for an investment in an unconsolidated entity at fair value by electing the fair value option. The Company elected the fair value option for its investments (directly or indirectly in joint ventures) that own PE Investments and certain investments in unconsolidated ventures (refer to Note 6). The Company records the change in fair value for its share of the projected future cash flow of such investments from one period to another in equity in earnings (losses) from unconsolidated ventures in the consolidated statements of operations. Any change in fair value attributed to market related assumptions is considered unrealized gain (loss).

The Company may account for an investment that does not qualify for equity method accounting or for which the fair value option was not elected using the cost method if the Company determines the investment in the unconsolidated entity is insignificant. Under the cost method, equity in earnings is recorded as dividends are received to the extent they are not considered a return of capital, which is recorded as a reduction of cost of the investment.

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 amounts related to discontinued operations (refer to Note 3).

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: (i) unrealized gain (loss) on real estate securities available for sale for which the fair value option is not elected; (ii) the reclassification of unrealized gain (loss) on real estate securities available for sale for which the fair value option was not elected to realized gain (loss) upon sale or realized event; (iii) the reclassification of unrealized gain (loss) to interest expense on derivative instruments that are or were deemed to be effective hedges; (iv) foreign currency translation adjustment; and (v) reclassification of foreign currency translation into realized gain (loss) on investments and other upon realized event.

13

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The following tables present the components of accumulated OCI for the three and six months ended June 30, 2016 and 2015 (dollars in thousands):

Three months ended June 30, 2016	Unrealized Gain (Loss) on Available for Sale Securities			Interest Rate Swap Gain (Loss)			Foreign Currency Translation			Total
Balance as of March 31, 2016 (Unaudited)	$	(11,785	)	$	(546	)	$	(2,763	)	$	(15,094	)
Unrealized gain (loss) on real estate securities, available for sale	(31,846		)	—			—			(31,846		)
Amortization of swap (gain) loss into interest expense—mortgage and corporate borrowings (refer to Note 14)	—			223			—			223
Foreign currency translation adjustment	—			—			(2,383		)	(2,383		)
Non-controlling interests	328			(3		)	370			695
Balance as of June 30, 2016 (Unaudited)	$	(43,303	)	$	(326	)	$	(4,776	)	$	(48,405	)
Six months ended June 30, 2016
Balance as of December 31, 2015	$	21,016		$	(767	)	$	(1,764	)	$	18,485
Unrealized gain (loss) on real estate securities, available for sale	(65,570		)	—			—			(65,570		)
Unrealized (gain) loss on real estate securities, available for sale recorded to realized gain (loss) on investments and other	592			—			—			592
Amortization of swap (gain) loss into interest expense—mortgage and corporate borrowings (refer to Note 14)	—			446			—			446
Foreign currency translation adjustment	—			—			(3,563		)	(3,563		)
Non-controlling interests	659			(5		)	551			1,205
Balance as of June 30, 2016 (Unaudited)	$	(43,303	)	$	(326	)	$	(4,776	)	$	(48,405	)

Three months ended June 30, 2015	Unrealized Gain (Loss) on Available for Sale Securities			Interest Rate Swap Gain (Loss)			Foreign Currency Translation			Total
Balance as of March 31, 2015 (Unaudited)	$	37,526		$	(1,429	)	$	(6,863	)	$	29,234
Unrealized gain (loss) on real estate securities, available for sale	(134		)	—			—			(134		)
Reclassification of unrealized (gain) loss on real estate securities, available for sale into realized gain (loss) on investments and other	(2,187		)	—			—			(2,187		)
Amortization of swap (gain) loss into interest expense—mortgage and corporate borrowings (refer to Note 14)	—			223			—			223
Foreign currency translation adjustment	—			—			(113		)	(113		)
Non-controlling interests	23			(2		)	200			221
Balance as of June 30, 2015 (Unaudited)	$	35,228		$	(1,208	)	$	(6,776	)	$	27,244
Six months ended June 30, 2015
Balance as of December 31, 2014	$	56,072		$	(1,694	)	$	(4,838	)	$	49,540
Unrealized gain (loss) on real estate securities, available for sale	(7,257		)	—			—			(7,257		)
Unrealized (gain) loss on real estate securities, available for sale recorded to realized gain (loss) on investments and other	(13,610		)	—			—			(13,610		)
Amortization of swap (gain) loss into interest expense—mortgage and corporate borrowings (refer to Note 14)	—			488			—			488
Foreign currency translation adjustment	—			—			(2,469		)	(2,469		)
Non-controlling interests	23			(2		)	531			552
Balance as of June 30, 2015 (Unaudited)	$	35,228		$	(1,208	)	$	(6,776	)	$	27,244

14

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Restricted Cash

Restricted cash primarily consists of amounts related to operating real estate and CRE debt investments. The following table presents a summary of restricted cash as of June 30, 2016 and December 31, 2015 (dollars in thousands):

	June 30, 2016 (Unaudited)		December 31, 2015
Capital expenditures reserves(1)	$	118,675	$	196,421
Operating real estate escrow reserves(2)	59,310		82,690
CRE debt escrow deposits	1,195		8,815
Cash in N-Star CDOs(3)	11,141		11,362
Total	$	190,321	$	299,288

__________________________________________________

(1) Primarily represents capital improvements, furniture, fixtures and equipment, tenant improvements, lease renewal and replacement reserves related to operating real estate.

(2) Primarily represents insurance, real estate tax, repair and maintenance, tenant security deposits and other escrows related to operating real estate.

(3) Represents proceeds from repayments and/or sales pending distribution in consolidated N-Star CDOs.

Fair Value Option

The fair value option provides an election that allows a company to irrevocably elect to record certain financial assets and liabilities at fair value on an instrument-by-instrument basis at initial recognition. The Company may elect to apply the fair value option for certain investments due to the nature of the instrument. Any change in fair value for assets and liabilities for which the election is made is recognized in earnings.

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 improve or 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, summarized as follows:

Category:	Term:
Building (fee interest)	15 to 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
Land improvements	10 to 30 years
Tenant improvements	Lesser of the useful life or remaining term of the lease

The Company follows the purchase method for an acquisition of operating real estate, where the purchase price is allocated to tangible assets such as land, building, tenant and land improvements and other identified intangibles, such as 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. The Company evaluates whether real estate acquired in connection with a foreclosure, UCC/deed in lieu of foreclosure or a consentual modification of a loan (herein collectively referred to as taking title to collateral) (“REO”) constitutes a business and whether business combination accounting is appropriate. Any excess upon taking title to collateral between the carrying value of a loan over the estimated fair value of the property is charged to provision for loan losses.

Operating real estate, including REO, 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. Once a property is determined to be held for sale, depreciation is no longer recorded. The Company records a gain (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 (loss) recognition by applying the finance, leasing, profit sharing, deposit, installment or cost recovery method, as appropriate, until the sales criteria are met.

Real Estate Debt Investments

CRE debt investments are generally intended to be held to maturity and, accordingly, are carried at cost, net of unamortized loan fees, premium and discount. CRE debt investments that are deemed to be impaired are carried at amortized cost less a loan loss reserve, if deemed appropriate, which approximates fair value. CRE debt investments where the Company does not have the intent

15

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

to hold the loan for the foreseeable future or until its expected payoff are classified as held for sale and recorded at the lower of cost or estimated value.

The Company may syndicate a portion of the CRE debt investments that it originates or sell the CRE debt investments individually. When a transaction meets the criteria for sale accounting, the Company will derecognize the CRE debt investment sold and recognize gain or loss based on the difference between the sales price and the carrying value of the CRE debt investment sold.

Any related unamortized deferred origination fee, original issue discount, loan origination costs, discount or premium at the time of sale are recognized as an adjustment to the gain (loss) on sale, which is included in interest income on the consolidated statement of operations. Any fees received at the time of sale or syndication are recognized as part of interest income.

Real Estate Securities

The Company classifies its CRE securities investments as available for sale on the acquisition date, which are carried at fair value. The Company historically elected to apply the fair value option for its CRE securities investments. For those CRE securities for which the fair value option was elected, any unrealized gains (losses) from the change in fair value is recorded in unrealized gains (losses) on investments and other in the consolidated statements of operations.

The Company may decide to not elect the fair value option for certain CRE securities due to the nature of the particular instrument. For those CRE securities for which the fair value option was not elected, any unrealized gain (loss) from the change in fair value is recorded as a component of accumulated OCI in the consolidated statements of equity, to the extent impairment losses are considered temporary.

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 to interest expense using the effective interest method. Unamortized deferred financing costs are expensed when the associated facility is repaid before maturity. 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 identified intangibles are amortized over the remaining lease term. Above/below-market leases are amortized into rental income, below-market ground leases are amortized into real estate properties-operating expense and in-place leases are amortized into depreciation and amortization expense.

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. For the six months ended June 30, 2016, there were no triggering events that required a test of impairment of goodwill.

16

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Summary

The following table presents identified intangibles as of June 30, 2016 and December 31, 2015 (dollars in thousands):

	June 30, 2016 (Unaudited)							December 31, 2015
	Gross Amount		Accumulated Amortization			Net		Gross Amount		Accumulated Amortization			Net
Intangible assets:
In-place leases	$	226,515	$	(73,217	)	$	153,298	$	289,124	$	(82,089	)	$	207,035
Above-market leases	223,782		(37,219		)	186,563		268,426		(35,940		)	232,486
Goodwill(1)	45,655		NA			45,655		48,635		NA			48,635
Other	40,769		(2,876		)	37,893		41,149		(2,028		)	39,121
Total	$	536,721	$	(113,312	)	$	423,409	$	647,334	$	(120,057	)	$	527,277
Intangible liabilities:
Below-market leases	$	169,534	$	(34,780	)	$	134,754	$	177,931	$	(30,462	)	$	147,469
Other(2)	2,236		(84		)	2,152		2,236		(63		)	2,173
Total	$	171,770	$	(34,864	)	$	136,906	$	180,167	$	(30,525	)	$	149,642

_______________________

(1) Represents goodwill associated with two acquisitions of healthcare portfolios that operate through the REIT Investment Diversification and Empowerment Act of 2007 (“RIDEA”) structures. For the year ended December 31, 2015, the Company recorded an estimated goodwill impairment of $25.5 million related to a healthcare portfolio acquired in 2014, which was finalized during the three months ended March 31, 2016. The change in goodwill for the six months ended June 30, 2016 relates to foreign currency translation associated with a healthcare portfolio in the United Kingdom.

(2) Represents the value associated with a ground lease related to a hotel property.

Other Assets and Other Liabilities

The following tables present a summary of other assets and other liabilities as of June 30, 2016 and December 31, 2015 (dollars in thousands):

	June 30, 2016 (Unaudited)		December 31, 2015
Other assets:
Cash collateral held by derivative counterparty (refer to Note 14)	$	147,366	$	—
Unbilled rent receivable, net of allowance of $116 as of June 30, 2016 and December 31, 2015	51,599		46,262
Investment-related reserves	24,047		47,380
Prepaid expenses	21,399		22,573
Deferred tax assets, net	15,450		24,435
Deferred costs	10,019		9,461
Investment deposits and pending deal costs	6,704		568
Derivative assets (refer to Note 14)	24		116
Other	2,244		3,351
Total	$	278,852	$	154,146
	June 30, 2016 (Unaudited)		December 31, 2015
Other liabilities:
Deferred tax liabilities	$	46,696	$	50,341
PE Investment XIV deferred purchase price (refer to Note 5)(1)	45,497		44,212
Prepaid rent and unearned revenue	18,396		24,697
Tenant security deposits	11,713		30,327
Escrow deposits payable	5,316		11,753
Other	1,462		4,526
Total	$	129,080	$	165,856

_______________________

(1) Includes $39.2 million of deferred purchase price that is expected to be assumed as part of a sale of a portfolio of PE Investments. Refer to Note 5 for further disclosure.

17

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Revenue Recognition

Operating Real Estate

Rental and escalation income from operating real estate is derived from leasing of space to various types of tenants and healthcare operators. 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 and expense reimbursements to be paid in 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 unbilled rent receivable in other assets 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/operator 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.

The Company generates operating income from healthcare and hotel properties permitted by RIDEA. Revenue related to healthcare properties includes resident room and care charges and other resident charges. Revenue related to operating hotel properties primarily consists of room and food and beverage sales. Revenue is recognized when such services are provided, generally defined as the date upon which a resident or guest occupies a room or uses the healthcare property or hotel services and is recorded in resident fee income for healthcare properties and hotel related income for hotel properties in the consolidated statements of operations.

In a situation in which a lease(s) 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 deferred leasing costs). 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.

Real Estate Debt 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 loan is reclassified to held for sale.

Real Estate Securities

Interest income is recognized using the effective interest method with any premium or discount amortized or accreted through earnings based on expected cash flow through the expected maturity date of the security. Changes to expected cash flow may result in a change to the yield which is then applied retrospectively for high-credit quality securities that cannot be prepaid or otherwise settled in such a way that the holder would not recover substantially all of the investment or prospectively for all other securities to recognize interest income.

Credit Losses and 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 U.S. and global macroeconomic factors and 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.

An allowance for a doubtful account for a receivable is established based on a periodic review of aged receivables resulting from estimated losses due to the inability of such tenant/operator/resident/guest to make required rent and other payments contractually due. Additionally, the Company establishes, on a current basis, an allowance for future lessee credit losses on unbilled rent receivable based on an evaluation of the collectability of such amounts.

18

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Real Estate Debt Investments

Loans are considered impaired when based on current information and events, it is probable that the Company will not be able to collect principal and interest amounts due according to the contractual terms. The Company assesses the credit quality of the portfolio and adequacy of loan 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 loan 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 loan, a loan loss reserve is recorded with a corresponding charge to provision for loan losses. The loan loss reserve for each loan is maintained at a level that is determined to be adequate by management to absorb probable losses.

Income recognition is suspended for a loan 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 loan is in doubt, all payments are applied to principal under the cost recovery method. When the ultimate collectability of the principal of an impaired loan 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 loan becomes contractually current and performance is demonstrated to be resumed. A loan is written off when it is no longer realizable and/or legally discharged.

Investments in Unconsolidated Ventures

The Company reviews its investments in unconsolidated ventures for which the Company did not elect the fair value option on a quarterly basis, or more frequently as necessary, to assess whether there are any indicators that the value may be impaired or that its carrying value may not be recoverable. An investment is considered impaired if the projected net recoverable amount over the expected holding period is less than the carrying value. In conducting this review, the Company considers U.S. and global macroeconomic factors, including real estate sector conditions, together with investment specific and other factors. To the extent an impairment has occurred and is considered to be other than temporary, the loss is measured as the excess of the carrying value of the investment over the estimated fair value and recorded in provision for loss on equity investment in the consolidated statements of operations.

Real Estate Securities

CRE securities for which the fair value option is elected are not evaluated for other-than-temporary impairment (“OTTI”) as any change in fair value is recorded in the consolidated statements of operations. Realized losses on such securities are reclassified to realized gain (loss) on investments and other as losses occur.

CRE securities for which the fair value option is not elected are evaluated for OTTI quarterly. Impairment of a security is considered to be other-than-temporary when: (i) the holder has the intent to sell the impaired security; (ii) it is more likely than not the holder will be required to sell the security; or (iii) the holder does not expect to recover the entire amortized cost of the security. When a CRE security has been deemed to be other-than-temporarily impaired due to (i) or (ii), the security is written down to its fair value and an OTTI is recognized in the consolidated statements of operations. In the case of (iii), the security is written down to its fair value and the amount of OTTI is then bifurcated into: (a) the amount related to expected credit losses; and (b) the amount related to fair value adjustments in excess of expected credit losses. The portion of OTTI related to expected credit losses is recognized in the consolidated statements of operations. The remaining OTTI related to the valuation adjustment is recognized as a component of accumulated OCI in the consolidated statements of equity. The portion of OTTI recognized through earnings is accreted back to the amortized cost basis of the security through interest income, while amounts recognized through OCI are amortized over the life of the security with no impact on earnings. CRE securities which are not high-credit quality are considered to have an OTTI if the security has an unrealized loss and there has been an adverse change in expected cash flow. The amount of OTTI is then bifurcated as discussed above.

Troubled Debt Restructuring

CRE debt investments modified in a troubled debt restructuring (“TDR”) are modifications granting a concession to a borrower experiencing financial difficulties where a lender agrees to terms that are more favorable to the borrower than is otherwise available in the current market. Management judgment is necessary to determine whether a loan modification is considered a TDR. Troubled debt that is fully satisfied via taking title to collateral, repossession or other transfers of assets is generally included in the definition of TDR. Loans acquired as a pool with deteriorated credit quality that have been modified are not considered a TDR.

19

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Equity-Based Compensation

The Company accounts for equity-based compensation awards, including awards granted to co-employees, 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.

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.

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 is recorded as a component of accumulated OCI in the consolidated statements of equity.

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 investments 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 which are structured as profits interests (“LTIP Units”) (refer to Note 10), where such exercise or conversion would result in a lower EPS. The dilutive effect of such RSUs and LTIP Units is calculated assuming all units are converted to common stock.

Discontinued Operations

Subsequent to the early adoption of the accounting standards update on the presentation of discontinued operations beginning in April 2014, the Company presents spin-offs of businesses and portfolios of properties that are sold or classified as held for sale as discontinued operations provided that the disposal represents a strategic shift that has (or will have) a major effect on the Company’s operations and financial results.

Income Taxes

The Company has elected to be taxed as a REIT and to comply with the related provisions of the Internal Revenue Code of 1986, as amended, the (“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. The Company may also be subject to certain state, local and franchise taxes. Under certain circumstances, federal income and excise taxes may be due on its undistributed taxable income. If the Company were to fail to meet these requirements, it would be subject to U.S. federal income tax, which could have a material adverse impact on its results of operations

20

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

and amounts available for distributions to its stockholders. The Company believes that all of the criteria to maintain the Company’s REIT qualification have been met for the applicable periods, but there can be no assurance that these criteria will continue to be met in subsequent periods.

The Company may invest through a taxable REIT subsidiary (“TRS”) which can be subject to U.S. federal, state and local income taxes and foreign taxes. In general, a TRS of the Company may perform non-customary services for tenants, hold assets that the REIT cannot hold directly and may engage in real estate or non-real estate-related business. The Company has established several TRSs in jurisdictions for which no taxes are assessed on corporate earnings. The Company generally must include in earnings the income from these TRSs even if it has received no cash distributions. Additionally, the Company has invested in certain real estate assets in Europe, for which local country level taxes will be due on earnings (or other measure) and in some cases withholding taxes for the repatriation of earnings back to the REIT. The REIT will not generally be subject to any additional U.S. taxes on the repatriation of its earnings.

Current and deferred taxes are recorded on the portion of earnings (losses) recognized by the Company with respect to its interest in TRSs and taxable foreign subsidiaries. Deferred income tax assets and liabilities are calculated based on temporary differences between the Company’s U.S. GAAP consolidated financial statements and the federal, state, local and foreign tax basis of assets and liabilities as of the consolidated balance sheet date. The Company evaluates the realizability of its deferred tax assets (e.g., net operating loss and capital loss carryforwards) and recognizes a valuation allowance if, based on the available evidence, it is more likely than not 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. Changes in estimate of deferred tax asset realizability, if any, are included in provision for income tax expense included in income tax benefit (expense) in the consolidated statements of operations.

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, 2015 for further disclosure of the Company’s significant accounting policies.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued an accounting update 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 is in the process of evaluating the impact, if any, of the update on its consolidated financial position, results of operations and financial statement disclosures.

In February 2015, the FASB issued updated guidance that changes the rules regarding consolidation. The pronouncement eliminates specialized guidance for limited partnerships and similar legal entities and removes the indefinite deferral for certain investment funds. The new guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, with early adoption permitted. The Company adopted this guidance in the first quarter 2016 and determined the Company’s Operating Partnership is considered a VIE. The Company is the primary beneficiary of the VIE, the VIE’s assets can be used for purposes other than the settlement of the VIE’s obligations and the Company’s partnership interest is considered a majority voting interest. As such, this standard resulted in the identification of additional VIEs, however it did not have a material impact on the Company’s consolidated financial position or results of operations. Refer to Note 16 for further disclosure.

In January 2016, the FASB issued an accounting update that addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company is currently assessing the impact of the guidance on the Company’s consolidated financial position, results of operations and financial statement disclosures.

In February 2016, the FASB issued an accounting update that requires lessees to present right-of-use assets and lease liabilities on the balance sheet. 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. Early adoption is permitted. The Company is evaluating the impact that this guidance will have on its consolidated financial position, results of operations and financial statement disclosures.

21

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

In March 2016, the FASB issued guidance 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. Early adoption is permitted. 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 March 2016, the FASB issued guidance which eliminates the requirement for an investor to retroactively apply the equity method when its increase in ownership interest (or degree of influence) in an investee triggers equity method accounting. The update requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment become qualified for equity method accounting. The update should be applied prospectively upon their effective date to increases in the level of ownership interests or degree of influence that results in the adoption of the equity method. The guidance is effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. Early adoption is permitted. 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 March 2016, the FASB issued guidance 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, 2017. 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 which changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. Additionally, entities will have to disclose significantly more information, including information used to track credit quality by year of origination, for most financing receivables. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Early adoption is permitted. The Company is evaluating the impact 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 June 30, 2016 and December 31, 2015 (dollars in thousands):

	June 30, 2016 (Unaudited)			December 31, 2015
Land and improvements	$	1,102,548		$	1,195,915
Buildings and improvements	6,465,486			6,728,957
Building leasehold interests and improvements	723,185			723,573
Furniture, fixtures and equipment	369,374			346,628
Tenant improvements	157,663			165,539
Construction in progress	72,644			57,663
Subtotal	8,890,900			9,218,275
Less: Accumulated depreciation	(647,127		)	(511,113		)
Less: Allowance for operating real estate impairment	(4,903		)	(4,903		)
Operating real estate, net	$	8,238,870		$	8,702,259

22

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Real Estate Held for Sale

The following table summarizes the Company’s operating real estate held for sale as of June 30, 2016 (dollars in thousands):

		Assets								Liabilities
Description	Properties	Operating Real Estate, Net		Intangible Assets, Net		Other Assets		Total(1)		Mortgage and Other Notes Payable, Net		Intangible Liabilities, Net		Other Liabilities		Total		WA Ownership Interest
Manufactured housing communities(2)	135	$	1,438,040	$	23,983	$	123,578	$	1,585,601	$	1,258,775	$	—	$	23,308	$	1,282,083	94	%
Multifamily(3)	7	199,182		—		—		199,182		161,412		—		—		161,412		90	%
Industrial portfolio(4)	39	326,165		60,340		25,963		412,468		223,582		3,630		14,382		241,594		40	%
Other	5	70,400		2,539		—		72,939		41,226		14,279		—		55,505		NA
Total	186	$	2,033,787	$	86,862	$	149,541	$	2,270,190	$	1,684,995	$	17,909	$	37,690	$	1,740,594

______________________________________

(1) Represents operating real estate and intangible assets, net of depreciation and amortization of $227.5 million.

(2) In May 2016, the Company entered into an agreement to sell its manufactured housing portfolio for $2.0 billion with $1.3 billion of related mortgage financing expected to be assumed as part of the transaction. The Company expects to receive $614.8 million of net proceeds, including a $50.0 million deposit made by the buyer. The Company expects the transaction to close in the first quarter 2017.

(3) The Company entered into agreements to sell ten multifamily properties for $307 million with $210 million of mortgage financing expected to be assumed as part of the transaction. In June 2016, the Company sold four multifamily properties for $33 million of net proceeds and expects to sell the remaining six properties in the third quarter 2016 for $53 million of net proceeds. In connection with the sales in the second quarter 2016, the Company recorded a $16.9 million realized gain in the Company’s consolidated statements of operations. The Company continues to explore the sale of the remaining two properties, including one multifamily property accounted for as an investment in unconsolidated venture (refer to Note 6).

(4) The Company is in the process of redeeming its interests in a net lease industrial real estate portfolio (“Industrial Portfolio”) for $169 million of net proceeds. The Company expects the transaction to close in the third quarter 2016; however, there is no assurance the Company will enter into a definitive agreement for the transaction on the contemplated terms, if at all.

In March 2016, the Company sold its 60% interest in the $898.7 million independent living facility portfolio (“Senior Housing Portfolio”) for $534.5 million. The Company received $149.4 million of proceeds, net of sales costs. In connection with the sale, the Company recorded a $16.7 million realized gain in the Company’s consolidated statements of operations. Refer to Note 9. Related Party Arrangements for further disclosure.

Spin-off of European Real Estate Business

On October 31, 2015, the Company completed the NRE Spin-off into a separate publicly-traded REIT, NorthStar Europe, in the form of a taxable distribution. In connection with the NRE Spin-off, each of the Company’s common stockholders received shares of NorthStar Europe’s common stock on a one-for-six basis, before giving effect to a one-for-two reverse stock split of the Company’s common stock (the “Reverse Split”). The Company contributed to NorthStar Europe approximately $2.6 billion of European real estate, at cost (excluding the Company’s European healthcare properties), comprised of 52 properties spanning across some of Europe’s top markets and $250 million of cash. In connection with the NRE Spin-off, $2.8 billion of assets were transferred and $1.9 billion of liabilities were assumed by NorthStar Europe.

For the three months endedJune 30, 2015, the Company recorded a $83.8 million net loss included in discontinued operations in the Company’s consolidated statements of operations associated with NorthStar Europe which represented a carve-out of revenues of $32.2 million and expenses of $116.0 million, primarily related to transaction costs. For the six months ended June 30, 2015, the Company recorded a $97.7 million net loss included in discontinued operations in the Company’s consolidated statements of operations associated with NorthStar Europe which represented a carve-out of revenues of $33.9 million and expenses of $131.6 million, primarily related to transaction costs.

23

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

4. Real Estate Debt Investments

The following table presents CRE debt investments as of June 30, 2016 (dollars in thousands):

								Weighted Average						Floating Rate as % of Principal Amount(3)
	Number	Principal Amount		Carrying Value		Allocation by Investment Type(3)		Fixed Rate		Spread Over LIBOR(4)		Yield(5)
Asset Type:
First mortgage loans(1)	6	$	147,000	$	119,893	35.4	%	6.98	%	8.61	%	4.60	%	43.3	%
Mezzanine loans	6	22,480		18,653		5.4	%	9.08	%	2.72	%	7.09	%	49.8	%
Subordinate interests	4	170,651		169,476		41.1	%	12.67	%	5.69	%	8.63	%	58.6	%
Corporate loans	4	35,555		31,070		8.6	%	12.92	%	—	%	14.79	%	—	%
Subtotal/Weighted average(2)(6)	20	375,686		339,092		90.5	%	12.40	%	9.73	%	7.69	%	46.6	%
CRE debt in N-Star CDOs
First mortgage loans	2	26,957		9,320		6.5	%	—	%	1.27	%	3.66	%	100.0	%
Mezzanine loans	1	11,000		10,833		2.6	%	8.00	%	—	%	8.12	%	—	%
Corporate loans	6	1,719		1,719		0.4	%	6.74	%	—	%	6.74	%	—	%
Subtotal/Weighted average	9	39,676		21,872		9.5	%	7.83	%	1.27	%	6.11	%	67.9	%
Total	29	$	415,362	$	360,964	100.0	%	11.95	%	8.60	%	7.59	%	48.6	%

____________________________________________________________

(1) Includes three loans that pursuant to certain terms and conditions which may or may not be satisfied, where the Company has an option to purchase the properties securing these loans. One of these three loans is a Sterling denominated loan of £66.7 million, of which £23.2 million is available to be funded as of June 30, 2016. This loan has various maturity dates depending upon the timing of advances; however, will be no later than March 2022.

(2) Assuming that all loans that have future fundings meet the terms to qualify for such funding, the Company’s cash requirement on future fundings would be $7.8 million.

(3) Based on principal amount.

(4) $63.7 million principal amount (excluding CRE debt in N-Star CDOs) has a weighted average LIBOR floor of 0.95%.

(5) Based on initial maturity and for floating-rate debt, calculated using one-month LIBOR as of June 30, 2016 and for CRE debt with a LIBOR floor greater than LIBOR, using such floor.

(6) All CRE debt investments are unleveraged.

In 2016, the Company sold or received repayment for 13 CRE debt investments and a REO with a total principal amount of $383.0 million and used $72.1 million of proceeds to pay down the Company’s loan facility in full, resulting in $307.5 million of net proceeds.

The following table presents CRE debt investments as of December 31, 2015 (dollars in thousands):

								Weighted Average						Floating Rate as % of Principal Amount(3)
	Number	Principal Amount		Carrying Value		Allocation by Investment Type(3)		Fixed Rate		Spread Over LIBOR(4)		Yield(5)
Asset Type:
First mortgage loans(1)	11	$	286,628	$	260,237	51.6	%	7.09	%	4.95	%	3.80	%	55.8	%
Mezzanine loans	6	22,361		18,630		4.0	%	9.04	%	4.00	%	7.10	%	39.9	%
Subordinate interests	4	171,044		169,781		30.8	%	13.04	%	5.65	%	8.72	%	59.0	%
Corporate loans	4	35,215		30,681		6.3	%	12.93	%	—	%	14.84	%	—	%
Subtotal/Weighted average(2)	25	515,248		479,329		92.7	%	10.51	%	5.26	%	6.38	%	52.5	%
CRE debt in N-Star CDOs
First mortgage loans	2	26,957		9,321		4.9	%	—	%	1.27	%	3.78	%	100.0	%
Mezzanine loans	1	11,000		10,675		2.0	%	8.00	%	—	%	8.24	%	—	%
Corporate loans	6	2,149		2,149		0.4	%	6.74	%	—	%	6.74	%	—	%
Subtotal/Weighted average	9	40,106		22,145		7.3	%	7.79	%	1.27	%	6.22	%	67.2	%
Total	34	$	555,354	$	501,474	100.0	%	10.33	%	4.79	%	6.37	%	53.5	%
Real estate debt, held for sale(6)	7	$	225,037	$	224,677	NA		13.65	%	7.41	%	10.89	%	52.5	%

____________________________________________________________

(1) Includes three loans that pursuant to certain terms and conditions which may or may not be satisfied, where the Company has an option to purchase the properties securing these loans. One is a Sterling denominated loan of £66.7 million. This loan has various maturity dates depending upon the timing of advances; however, will be no later than March 2022.

(2) Certain CRE debt investments serve as collateral for financing transactions including carrying value of $38.6 million for the Company’s loan facility. The remainder is unleveraged.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(3) Based on principal amount.

(4) $63.9 million principal amount (excluding CRE debt in N-Star CDOs) has a weighted average LIBOR floor of 0.95%. Includes one first mortgage loan with a principal amount of $5.8 million with a spread over the prime rate.

(5) Based on initial maturity and for floating-rate debt, calculated using one-month LIBOR as of December 31, 2015 and for CRE debt with a LIBOR floor, using such floor.

(6) In the first quarter 2016, the Company sold these seven loans and used $46.9 million of proceeds to pay down the Company’s loan facility, resulting in net proceeds of $178.2 million.

The following table presents maturities of CRE debt investments based on principal amount as of June 30, 2016 (dollars in thousands):

	Initial Maturity		Maturity Including Extensions(1)
July 1 to December 31, 2016	$	100,721	$	95,165
Years ending December 31:
2017	188		188
2018	1,531		1,531
2019	—		—
2020	—		—
Thereafter	268,218		273,774
Total(2)	$	370,658	$	370,658

____________________________________________________________

(1) Assumes that all debt with extension options will qualify for extension at such maturity according to the conditions stipulated in the governing documents.

(2) Excludes three non-performing loans (“NPLs”) with an aggregate principal amount of $44.7 million as of June 30, 2016 due to maturity defaults.

As of June 30, 2016, the weighted average maturity, including extensions, of CRE debt investments was 6.1 years.

Actual maturities may differ from contractual maturities as certain borrowers may have the right to prepay with or without prepayment penalty. The Company may also extend certain contractual maturities in connection with loan modifications.

The principal amount of CRE debt investments differs from the carrying value primarily due to unamortized origination fees and costs, unamortized premium and discount and loan loss reserves recorded as part of the carrying value of the investment. As of June 30, 2016, the Company had $39.5 million of net unamortized discount and $1.3 million of net unamortized origination fees and costs.

Provision for Loan Losses

The following table presents activity in loan loss reserves on CRE debt investments for the three and six months ended June 30, 2016 and 2015 (dollars in thousands):

	Three Months Ended June 30,					Six Months Ended June 30,
	2016			2015		2016			2015
Beginning balance	$	12,098		$	5,799	$	7,839		$	5,599
Provision for (reversal of) loan losses, net(1)	(1,258		)	—		3,001		(2)	200
Ending balance	$	10,840		$	5,799	$	10,840		$	5,799

____________________________________________________________

(1) Excludes $0.1 million and $0.2 million provision for loan losses for the three and six months endedJune 30, 2016, respectively, relating to manufactured housing notes receivables recorded in assets of properties held for sale as of June 30, 2016 and $0.3 million and $0.6 million for the three and six months endedJune 30, 2015, respectively, recorded in other assets as of June 30, 2015.

(2) Excludes $2.9 million of provision for loan losses primarily relating to exit fees on real estate debt, held for sale.

Credit Quality Monitoring

CRE debt investments are typically loans secured by direct senior priority liens on real estate properties or 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 debt investments at least quarterly and differentiates the relative credit quality principally based on: (i) whether the borrower is currently paying contractual 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 debt investment for which it expects to receive full payment of contractual principal and interest payments as a “loan with no loan loss reserve.” The Company categorizes a debt investment as an NPL if it is in maturity default and/or past due at least 90 days on its contractual debt service payments. The Company considers the remaining debt investments

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

to be of weaker credit quality and categorizes such loans as “other loans with a loan loss reserve/non-accrual status.” These loans are not considered NPLs because such loans are performing in accordance with contractual terms but the loans have a loan loss reserve and/or are on non-accrual status. Even if a borrower is currently paying contractual debt service or debt service is not due in accordance with its contractual terms, the Company may still determine that the borrower may not be able to perform under its contractual terms in the future and make full payment upon maturity. The Company’s definition of an NPL may differ from that of other companies that track NPLs.

The following table presents the carrying value of CRE debt investments, by credit quality indicator, as of each applicable balance sheet date (dollars in thousands):

	June 30, 2016		December 31, 2015
Credit Quality Indicator:
Loans with no loan loss reserve:
First mortgage loans	$	85,334	$	168,978
Mezzanine loans	29,486		29,305
Subordinate interests	169,476		169,781
Corporate loans	32,789		32,830
Subtotal	317,085		400,894
Other loans with a loan loss reserve/non-accrual status:
First mortgage loans(1)	3,637		4,137
Mezzanine loans(2)	—		—
Subtotal	3,637		4,137
Non-performing loans	40,242		96,443
Total	$	360,964	$	501,474

____________________________________________________________

(1) Excludes one first mortgage loan acquired with deteriorated credit quality with a carrying value of $3.0 million and $3.1 million as of June 30, 2016 and December 31, 2015, respectively.

(2) Includes one mezzanine loan with a 100% loan loss reserve with a principal amount of $3.8 million as of June 30, 2016 and December 31, 2015. Such loan is not considered a NPL as debt service is currently being received.

Impaired Loans

The Company considers impaired loans to generally include NPLs, loans with a loan loss reserve, loans on non-accrual status (excluding loans acquired with deteriorated credit quality) and TDRs. The following table presents impaired loans as of June 30, 2016 and December 31, 2015 (dollars in thousands):

	June 30, 2016							December 31, 2015
	Number	Principal Amount(1)		Carrying Value(1)		Loan Loss Reserve		Number	Principal Amount(1)		Carrying Value(1)		Loan Loss Reserve
Class of Debt:
First mortgage loans(2)	4	$	65,977	$	43,880	$	7,074	5	$	119,677	$	100,580	$	4,073
Mezzanine loans	1	3,766		—		3,766		1	3,766		—		3,766
Total	5	$	69,743	$	43,880	$	10,840	6	$	123,443	$	100,580	$	7,839

____________________________________________________________

(1) Principal amount differs from carrying value primarily due to unamortized origination fees and costs, unamortized premium or discount and loan loss reserves included in the carrying value of the investment. Excludes one first mortgage loan acquired with deteriorated credit quality with a carrying value of $3.0 million and $3.1 million as of June 30, 2016 and December 31, 2015, respectively.

(2) Includes one loan with a carrying value of $35.6 million for which the Company entered into a discounted payoff in the second quarter 2016. Such loan is considered a TDR as of June 30, 2016.

The following table presents average carrying value of impaired loans by type and the income recorded on such loans subsequent to them being deemed impaired for the three months ended June 30, 2016 and 2015 (dollars in thousands):

	June 30, 2016					June 30, 2015
	Number	Average Carrying Value		Quarter Ended Income		Number	Average Carrying Value		Quarter Ended Income
Class of Debt:
First mortgage loans	5	$	69,441	$	200	3	$	24,061	$	971
Mezzanine loans	1	—		—		1	—		2
Total/weighted average	6	$	69,441	$	200	4	$	24,061	$	973

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The following table presents average carrying value of impaired loans by type and the income recorded on such loans subsequent to them being deemed impaired for the six months ended June 30, 2016 and 2015 (dollars in thousands):

	June 30, 2016					June 30, 2015
	Number	Average Carrying Value		Six Months Ended Income		Number	Average Carrying Value		Six Months Ended Income
Class of Debt:
First mortgage loans	5	$	79,820	$	2,300	3	$	16,274	$	2,453
Mezzanine loans	1	—		—		1	—		3
Total/weighted average	6	$	79,820	$	2,300	4	$	16,274	$	2,456

As of June 30, 2016, the Company had three loans past due greater than 90 days. As of December 31, 2015, the Company had two loans past due greater than 90 days.

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

5. Investments in Private Equity Funds

The following is a description of investments in private equity funds that own PE Investments either through unconsolidated ventures (“PE Investment I” and “PE Investment II”) or consolidated ventures and direct investments (“PE Investment III to XIV,” collectively “Direct PE Investments”) which are recorded as investments in private equity funds at fair value on the consolidated balance sheets. The Company elected the fair value option for PE Investments, of which certain are cost method investments and the remainder are equity method investments. As a result, the Company records equity in earnings (losses) based on the change in fair value for its share of the projected future cash flow from one period to another. All PE Investments are considered variable interest entities, except for PE Investment I and II (refer to Note 16). PE Investment I and II are considered voting interest entities and are not consolidated by the Company due to the substantive participating rights of the partners in joint ventures that own the interests in the real estate private equity funds. The Company does not consolidate any of the underlying real estate private equity funds owned in Direct PE Investments as it does not own a majority voting interest in any such funds or is not the primary beneficiary of such funds.

The following tables summarize the Company’s PE Investments as of June 30, 2016 (dollars in millions):

			Carrying Value				Three Months Ended June 30, 2016						Three Months Ended June 30, 2015
PE Investment	Number of Funds		June 30, 2016		December 31, 2015		Income(2)		Distributions		Contributions		Income(2)		Distributions		Contributions
PE Investment I(3)	49		$	111.9	$	154.0	$	6.1	$	14.5	$	0.6	$	12.3	$	32.6	$	0.6
PE Investment II(4)	24		2.1		186.2		0.1		0.5		0.5		13.7		52.3		42.9
PE Investment III	8		29.5		26.8		2.4		1.4		—		0.5		4.4		0.1
PE Investment IV	1		7.0		7.6		0.2		—		—		0.3		—		—
PE Investment V	3		6.8		7.7		0.2		—		—		0.5		1.5		—
PE Investment VI	14		54.4		62.0		1.3		7.8		—		2.6		1.2		—
PE Investment VII	10		22.4		21.0		0.9		0.2		0.1		1.5		5.5		—
PE Investment IX	6		45.5		44.7		2.0		2.7		0.2		6.1		13.1		0.1
PE Investment X	8		58.8		68.2		3.4		9.4		—		3.5		8.1		—
PE Investment XII	1		2.5		2.6		—		0.1		—		0.2		3.6		0.1
PE Investment XIII	5		175.4		177.7		6.5		11.0		—		3.9		69.5		—
PE Investment XIV(5)	3		2.8		5.6		0.6		3.1		0.2		—		—		—
Subtotal(1)(8)	132		519.1		764.1		23.7		50.7		1.6		45.1		191.8		43.8
PE Investment Sale(6)	41		319.8		337.6		—		—		—		7.3		39.7		2.9
Total	173	(7)	$	838.9	$	1,101.7	$	23.7	$	50.7	$	1.6	$	52.4	$	231.5	$	46.7

_____________________________________________

(1) Includes an estimated $6 million of expected future contributions to funds and $6 million of deferred purchase price as of June 30, 2016. The actual amount of future contributions underlying the fund interests that may be called and funded by the Company could vary materially from the Company’s expectations.

(2) Recorded in equity in earnings in the consolidated statements of operations.

(3) The Company recorded an unrealized loss of $4.4 million for the three months ended June 30, 2016, which represented an unwind of an unrealized gain of $32.6 million recorded for the year ended December 31, 2014.

(4) In February 2016, the Company sold substantially all of its interest in PE Investment II for proceeds of $184.1 million. In connection with the sale, the buyers assumed substantially all of the Company’s $243 million portion of the deferred purchase price obligation of the PE Investment II joint venture. The purchase price represents 1% of the original purchase price. Refer to Note 9. Related Party Arrangements for further disclosure.

(5) PE Investment XIV will pay the remaining deferred purchase price of $6.3 million to the original seller in September 2016 and 2017. Such amount is included in other liabilities on the consolidated balance sheets.

(6) In August 2016, the Company entered into an agreement to sell a portfolio of PE Investments for a gross sales price of $317.6 million with $44.4 million of deferred purchase price expected to be assumed as part of the transaction. The Company expects to receive $247.0 million of net proceeds in the fourth quarter 2016. For the three months ended June 30, 2016, the Company recorded an unrealized loss of $0.8 million in connection with this agreement. There is no assurance the Company will consummate the transaction on the contemplated terms, if at all. Refer to Note 9. Related Party Arrangements for further disclosure.

(7) The total number of funds includes 28 funds held across multiple PE Investments.

(8) As of June 30, 2016, cash flow is expected through June 30, 2024, with a weighted average expected remaining life of 1.3 years.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

	Six Months Ended June 30, 2016						Six Months Ended June 30, 2015
PE Investment	Income(1)		Distributions		Contributions		Income(1)		Distributions		Contributions
PE Investment I(2)	$	13.7	$	48.3	$	0.6	$	26.2	$	50.3	$	1.2
PE Investment II(3)	0.2		0.7		0.5		27.7		73.9		42.9
PE Investment III	4.7		2.0		—		1.2		5.9		0.1
PE Investment IV	0.5		1.1		—		0.6		—		—
PE Investment V	0.5		1.4		—		1.0		1.5		—
PE Investment VI	2.7		10.3		—		5.7		8.2		—
PE Investment VII	1.8		0.5		0.1		3.1		7.3		—
PE Investment IX	5.2		4.6		0.2		9.5		22.5		0.2
PE Investment X	6.8		16.2		—		7.7		20.3		0.2
PE Investment XII	0.1		0.2		—		0.2		3.6		0.1
PE Investment XIII	13.7		16.4		0.4		3.9		69.5		—
PE Investment XIV	0.5		3.1		0.2		—		—		—
Subtotal	50.4		104.8		2.0		86.8		263.0		44.7
PE Investment Sale	10.8		28.7		0.5		13.8		51.6		3.1
Total	$	61.2	$	133.5	$	2.5	$	100.6	$	314.6	$	47.8

____________________________________________________________

(1) Recorded in equity in earnings in the consolidated statements of operations.

(2) The Company recorded an unrealized loss of $8.1 million for the six months endedJune 30, 2016, which represented an unwind of an unrealized gain of $32.6 million recorded for the year ended December 31, 2014.

(3) The distributions received for the six months ended June 30, 2016 excludes proceeds of $184.1 million in connection with the sale of substantially all of the Company’s interest in PE Investment II.

Unconsolidated PE Investments

PE Investment I

In February 2013, the Company completed the initial closing (“PE I Initial Closing”) of PE Investment I which owns a portfolio of limited partnership interests in real estate private equity funds managed by institutional-quality sponsors. Pursuant to the terms of the agreement, at the PE I Initial Closing, the full purchase price was funded, excluding future capital commitments. Accordingly, the Company funded $282.1 million and NorthStar Real Estate Income Trust, Inc. (“NorthStar Income”) (together with the Company, the “NorthStar Entities”) funded $118.0 million. The NorthStar Entities have an aggregate ownership interest in PE Investment I of 51%, of which the Company owns 70.5%. The Company assigned its rights to the remaining 29.5% to a subsidiary of NorthStar Income. Teachers Insurance and Annuity Association of America (the “Class B Partner”) contributed its interests in 49 funds subject to the transaction in exchange for all of the Class B partnership interests in PE Investment I.

PE Investment I provides for all cash distributions on a priority basis to the NorthStar Entities as follows: (i) first, 85% to the NorthStar Entities and 15% to the Class B Partner until the NorthStar Entities receive a 1.5x multiple on all of their invested capital, including amounts funded in connection with future capital commitments; (ii) second, 15% to the NorthStar Entities and 85% to the Class B Partner until the Class B Partner receives a return of its then remaining June 30, 2012 capital; and (iii) third, 51% to the NorthStar Entities and 49% to the Class B Partner. All amounts paid to and received by the NorthStar Entities are based on each partner’s proportionate interest.

The Company guaranteed all of its funding obligations that may be due and owed under PE Investment I agreements directly to PE Investment I entities. The Company and NorthStar Income each agreed to indemnify the other proportionately for any losses that may arise in connection with the funding and other obligations as set forth in the governing documents in the case of a joint default by the Company and NorthStar Income. The Company and NorthStar Income further agreed to indemnify each other for all of the losses that may arise as a result of a default that is solely caused by the Company or NorthStar Income, as the case may be.

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

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(Unaudited)

PE Investment II

In June 2013, the Company, NorthStar Income and funds managed by Goldman Sachs Asset Management (each a “Partner”) formed joint ventures and entered into an agreement with Common Pension Fund E, a common trust fund created under New Jersey law, to acquire a portfolio of limited partnership interests in 24 real estate private equity funds managed by institutional-quality sponsors. The aggregate reported net asset value (“NAV”) acquired was $910.0 million as of September 30, 2012. In February 2016, the Company sold substantially all of its interest in PE Investment II to the other Partners for proceeds of $184.1 million. In connection with the sale, the buyers, Goldman Sachs Asset Management and NorthStar Income, each assumed substantially all of the Company’s $243 million portion of the deferred purchase price obligation of the PE Investment II joint venture.

6. Investments in Unconsolidated Ventures

The following is a description of investments in unconsolidated ventures. The investments in RXR Realty LLC (“RXR Realty”), Aerium Group (“Aerium”) and SteelWave, LLC (formerly known as Legacy Partners Commercial, LLC) (“SteelWave”) are accounted for at fair value due to the election of the fair value option (refer to Note 13). The investments in the NSAM Retail Companies (as defined below) were accounted for under the equity method prior to the spin-off of the Company’s historical asset management business (“NSAM Spin-off”) and are accounted for under the cost method subsequent to the NSAM Spin-off. All other investments in unconsolidated ventures are accounted for under the equity method.

The following table summarizes the Company’s investments in unconsolidated ventures as of June 30, 2016 and December 31, 2015 and for the three and six months endedJune 30, 2016 and 2015 (dollars in millions):

		Carrying Value				Equity in Earnings (Losses)
	Ownership	June 30, 2016 (Unaudited)		December 31, 2015		Three Months Ended June 30,					Six Months Ended June 30,
Investment	Interest					2016			2015		2016			2015
RXR Realty(1)	27%	$	98.0	$	89.3	$	6.4		$	4.2	$	12.5		$	7.7
NSAM Retail Companies(2)	Various	14.6		14.0		(0.1		)	0.1		0.1			0.2
Office Joint Venture(3)	10%	8.5		8.5		—			—		—			—
LandCap(4)	49%	7.8		7.7		0.1			0.2		0.1			0.6
SteelWave(5)	40%	8.3		6.8		0.9			0.4		1.5			0.8
Aerium(6)	15%	2.8		16.5		—			0.2		—			1.3
CS/Federal(7)	50%	5.6		5.7		(0.1		)	0.1		(0.1		)	0.1
Multifamily Joint Venture(8)	90%	4.0		3.5		0.2			0.1		0.5			0.1
NorthStar Realty Finance Trusts(9)	N/A	3.7		3.7		—			—		—			—
Other	0.3%	1.9		—		—			—		—			—
Total		$	155.2	$	155.7	$	7.4		$	5.3	$	14.6		$	10.8

___________________________________________________________

(1) In December 2013, the Company entered into a strategic transaction with RXR Realty, a leading real estate owner, developer and investment management company focused on high-quality real estate in the New York Tri-State area. The Company’s equity interest in RXR Realty is structured so that NSAM is entitled to certain fees in connection with RXR Realty’s investment management business. Refer to Note 9. “Related Party Arrangements - NorthStar Asset Management Group - Management Agreement” for further disclosure.

(2) Affiliates of NSAM manage: NorthStar Income, NorthStar Healthcare Income Inc. (“NorthStar Healthcare”), NorthStar Real Estate Income II, Inc. (“NorthStar Income II”) and NorthStar Corporate Income Fund (“NorthStar Corporate Fund”). The Company refers to NorthStar Healthcare, NorthStar Income II, NorthStar/RXR New York Metro Real Estate, Inc. (“NorthStar/RXR New York Metro”), NorthStar Corporate Fund, NorthStar Real Estate Capital Income Fund (“NorthStar Capital Fund”) and together with any new retail company sponsored by NSAM (herein collectively referred to as the “NSAM Retail Companies”).

(3) In June 2013, in connection with the restructuring of an existing mezzanine loan, the Company acquired a 9.99% equity interest for $8.5 million in a joint venture that owns two office buildings in Chicago.

(4) In October 2007, the Company entered into a joint venture with Whitehall Street Global Real Estate Limited Partnership 2007 (“Whitehall”) to form LandCap Partners and LandCap LoanCo. (collectively referred to as “LandCap”). The joint venture is managed by a third-party management group. The Company and Whitehall agreed to no longer provide additional new investment capital in the LandCap joint venture.

(5) In September 2014, the Company entered into an investment with SteelWave, a real estate investment manager, owner and operator with a portfolio of commercial assets focused in key markets in the western United States.

(6) Aerium is a pan-European real estate investment manager specializing in commercial real estate properties. The Company recorded an unrealized loss on its interest in Aerium of $11.9 million for the six months ended June 30, 2016. The Company’s equity interest in Aerium is structured so that NSAM is entitled to certain fees in connection with Aerium’s asset management business. Refer to Note 9. “Related Party Arrangements - NorthStar Asset Management Group - Management Agreement” for further disclosure.

(7) CS Federal Drive, LLC (“CS/Federal”) owns three adjacent class A office/flex buildings in Colorado. The properties were acquired for $54.3 million and were financed with two separate non-recourse mortgages totaling $38.0 million and the remainder in cash. The mortgages matured on February 11, 2016 and the Company is currently in negotiations with the lender.

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(Unaudited)

(8) In July 2013, the Company through a joint venture with a private investor, acquired a multifamily property with 498 units, located in Philadelphia, Pennsylvania for an aggregate purchase price of $41.0 million, including all costs, escrows and reserves. The property was financed with a non-recourse mortgage note of $29.5 million and the remainder in cash. In April 2015, the property obtained additional non-recourse financing of $7.0 million. Both financings mature on July 1, 2023 and have a weighted average fixed interest rate of 3.87%. The joint venture is exploring the sale of the property.

(9) The Company owns all of the common stock of NorthStar Realty Finance Trusts I through VIII (collectively, the “Trusts”). The Trusts were formed to issue trust preferred securities. Refer to Note 16 for further disclosure.

NSAM Retail Companies

The Company committed to purchase up to $10 million in shares of each of NSAM’s Retail Companies’ common stock during the period from when each offering was declared effective through the end of their respective offering period, in the event that NSAM Retail Companies’ distributions to its stockholders, on a quarterly basis, exceed certain measures of operating performance.

In addition, pursuant to the management agreement with NSAM, the Company committed up to $10 million to invest as distribution support consistent with past practice in each future public non-traded NSAM Retail Company, up to a total of five new companies per year. The following table summarizes the Company’s total shares purchased of each NSAM Retail Company as part of its obligation under the distribution support agreement and the remaining obligations as of June 30, 2016 (dollars in millions):

	Term of	Ownership	Amount		Remaining
NSAM Retail Company	Commitment	Interest	Purchased		Commitment
NorthStar Income	Completed	0.5%	$	5.8	$	—
NorthStar Healthcare	Completed	0.3%	5.5		—
NorthStar Income II	May 2013 - November 2016	0.5%	4.0		6.0
NorthStar/RXR New York Metro(1)(4)	February 2015 - February 2017	58.1%	1.5		6.0
NorthStar Corporate Fund(2)	February 2016 - February 2018	50.0%	1.0		4.0
NorthStar Capital Fund(3)(4)	May 2016 - May 2018	100.0%	2.0		8.0
Total			$	19.8	$	24.0

___________________________________________________________

(1) NorthStar/RXR New York Metro’s registration statement filed with the SEC seeks to offer up to $2 billion in a public offering of multiple classes of common stock. In December 2015, the Company and RXR Realty satisfied NorthStar/RXR New York Metro’s minimum offering amount as a result of the purchase of 0.2 million shares of its common stock for an aggregate $2.0 million, of which $1.5 million was invested by the Company. The Company is responsible for 75% of the distribution support commitment to NorthStar/RXR New York Metro, with RXR Realty responsible for the remaining 25%. NSAM began raising capital for NorthStar/RXR New York Metro in the second quarter 2016.

(2) NorthStar Corporate Fund’s registration statement on Form N-2 filed with the SEC seeks to raise up to $3 billion in a public offering of common stock. In January 2016, the Company and an affiliate of Och-Ziff Capital Management Group (“OZ Corporate Investors”) invested $2.0 million of seed capital into NorthStar Corporate Fund, of which $1.0 million was invested by the Company. The Company is responsible for 50% of the distribution support commitment to NorthStar Corporate Fund, with OZ Corporate Investors responsible for the remaining 50%. In February 2016, NorthStar Corporate Fund was declared effective by the SEC and expects to begin raising capital in 2016.

(3) NorthStar Capital Fund’s registration statement on Form N-2 filed with the SEC seeks to raise up to $3 billion in a public offering of common stock. In March 2016, the Company invested $2.0 million of seed capital into NorthStar Capital Fund. In May 2016, NorthStar Capital Fund was declared effective by the SEC and expects to begin raising capital in 2016.

(4) The Company currently consolidates the company based on its majority voting interest in the entity.

7. Real Estate Securities, Available for Sale

The following table presents CRE securities as of June 30, 2016 (dollars in thousands):

						Cumulative Unrealized							Allocation by		Weighted		Weighted
	Number	Principal  Amount(3)		Amortized Cost		Gains		(Losses)			Fair Value		Investment Type(3)		Average Coupon		Average Yield(4)
Asset Type:
N-Star CDO bonds(1)(8)	24	$	371,434	$	169,300	$	11,719	$	(55,047	)	$	125,972	32.1	%	2.36	%	25.79	%
N-Star CDO equity(5)(8)	4	63,931		63,931		1,038		(29,948		)	35,021		5.5	%	NA		14.22	%
CMBS and other securities(6)	12	63,025		44,588		118		(22,542		)	22,164		5.4	%	0.65	%	1.19	%
Subtotal(2)	40	498,390		277,819		12,875		(107,537		)	183,157		43.0	%	2.11	%	19.18	%
CRE securities in N-Star CDOs(5)(7)
CMBS	116	507,393		384,611		18,462		(106,748		)	296,325		43.8	%	3.32	%	9.16	%
Third-party CDO notes	6	50,589		49,391		—		(43,571		)	5,820		4.4	%	—	%	—	%
Agency debentures	8	87,172		32,501		13,246		—			45,747		7.5	%	—	%	4.57	%
Unsecured REIT debt	1	8,000		8,228		599		—			8,827		0.7	%	7.50	%	5.88	%
Trust preferred securities	2	7,225		7,225		—		(1,638		)	5,587		0.6	%	2.25	%	2.25	%
Subtotal	133	660,379		481,956		32,307		(151,957		)	362,306		57.0	%	2.67	%	7.75	%
Total	173	$	1,158,769	$	759,775	$	45,182	$	(259,494	)	$	545,463	100.0	%	2.45	%	12.12	%

____________________________________________________________

(1) Excludes $142.0 million principal amount of N-Star CDO bonds payable that are eliminated in consolidation and includes $2.3 million of N-Star CDO bonds owned in N-Star CDO IX.

(2) All securities are unleveraged.

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(3) Based on amortized cost for N-Star CDO equity and principal amount for remaining securities.

(4) Based on expected maturity and for floating-rate securities, calculated using the applicable LIBOR as of June 30, 2016.

(5) The fair value option was elected for these securities (refer to Note 13).

(6) The fair value option was elected for $16.4 million carrying value of these securities (refer to Note 13).

(7) Investments in the same securitization tranche held in separate CDO financing transactions are reported as separate investments.

(8) As of June 30, 2016, the weighted average remaining life of the N-Star CDO bonds and N-Star CDO equity is 1.5 years and 2.5 years, respectively.

The Company sponsored nine CDOs, three of which were primarily collateralized by CRE debt and six of which were primarily collateralized by CRE securities. The Company acquired equity interests of two CRE debt focused CDOs, the CSE RE 2006-A CDO (“CSE CDO”) and the CapLease 2005-1 CDO (“CapLease CDO”) sponsored by third parties. These CDOs are collectively referred to as the N-Star CDOs and their assets are referred to as legacy investments. All N-Star CDOs are considered VIEs (refer to Note 16). At the time of issuance of the sponsored CDOs, the Company retained the below investment grade bonds, which are referred to as subordinate bonds, and preferred shares and equity notes, which are referred to as equity interests. In addition, the Company repurchased CDO bonds originally issued to third parties at discounts to par. These repurchased CDO bonds and retained subordinate bonds are herein collectively referred to as N-Star CDO bonds.

As of June 30, 2016, the Company’s CRE securities portfolio is comprised of N-Star CDO bonds and N-Star CDO equity and other securities which are predominantly conduit commercial mortgage-backed securities (“CMBS”), meaning each asset is a pool backed by a large number of commercial real estate loans. As a result, this portfolio is typically well-diversified by collateral type and geography. As of June 30, 2016, contractual maturities of CRE securities investments ranged from three months to 37 years, with a weighted average expected maturity of 3.2 years.

The following table presents CRE securities as of December 31, 2015 (dollars in thousands):

						Cumulative Unrealized							Allocation by		Weighted		Weighted
	Number	Principal Amount(3)		Amortized Cost		Gains		Losses			Fair Value		Investment Type(3)		Average Coupon		Average Yield(4)
Asset Type:
N-Star CDO bonds(1)	26	$	401,848	$	194,908	$	24,332	$	(2,513	)	$	216,727	31.3	%	1.98	%	22.01	%
N-Star CDO equity(5)	4	71,003		71,003		1,290		(27,388		)	44,905		5.5	%	NA		12.41	%
CMBS and other securities(6)	15	116,681		61,520		15,340		(21,295		)	55,565		9.1	%	2.15	%	5.52	%
Subtotal(2)	45	589,532		327,431		40,962		(51,196		)	317,197		45.9	%	2.01	%	16.83	%
CRE securities in N-Star CDOs(5)(7)
CMBS	123	538,205		398,343		31,244		(103,076		)	326,511		41.9	%	3.48	%	10.13	%
Third-party CDO notes	8	55,509		50,047		—		(43,362		)	6,685		4.3	%	0.01	%	—	%
Agency debentures	8	87,172		31,774		6,384		(842		)	37,316		6.8	%	—		4.57	%
Unsecured REIT debt	1	8,000		8,285		691		—			8,976		0.6	%	7.50	%	5.88	%
Trust preferred securities	2	7,225		7,225		—		(1,800		)	5,425		0.5	%	2.25	%	2.32	%
Subtotal	142	696,111		495,674		38,319		(149,080		)	384,913		54.1	%	2.80	%	8.56	%
Total	187	$	1,285,643	$	823,105	$	79,281	$	(200,276	)	$	702,110	100.0	%	2.46	%	11.85	%

_________________________________________________________

(1) Excludes $142.9 million principal amount of N-Star CDO bonds payable that are eliminated in consolidation.

(2) All securities are unleveraged.

(3) Based on amortized cost for N-Star CDO equity and principal amount for remaining securities.

(4) Based on expected maturity and for floating-rate securities, calculated using the applicable LIBOR as of December 31, 2015.

(5) The fair value option was elected for these securities (refer to Note 13).

(6) The fair value option was elected for $48.7 million carrying value of these securities (refer to Note 13).

(7) Investments in the same securitization tranche held in separate CDO financing transactions are reported as separate investments.

There were no sales of CRE securities for the three months ended June 30, 2016. For the six months ended June 30, 2016, proceeds from the sale of CRE securities was $53.9 million and resulting in a net realized loss of $5.6 million. The Company recognized a $9.7 million net cash gain related to acceleration of discount in connection with these sales. For the three and six months ended June 30, 2015, proceeds from the sale of CRE securities were $19.8 million and $80.7 million resulting in a net realized gain of $7.3 million and $11.8 million, respectively.

CRE securities investments, not held in N-Star CDOs, include 25 securities for which the fair value option was not elected. As of June 30, 2016, the aggregate carrying value of these securities was $131.8 million, representing $43.2 million of accumulated net unrealized losses included in OCI. As of June 30, 2016, the Company held 18 securities with an aggregate carrying value of $82.2 million with an unrealized loss of $55.0 million, two of which were in an unrealized loss position for a period of greater than 12 months. Based on management’s quarterly evaluation, the Company recorded OTTI of $5.1 million and $12.1 million for the three and six months ended June 30, 2016, respectively, which was recorded in realized gain (loss) on investments and other in the consolidated statements of operations. As of June 30, 2016, the Company does not intend to sell these securities and it is

32

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

more likely than not that the Company will not be required to sell these securities prior to recovery of its amortized cost basis, which may be at maturity.

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

8. Borrowings

The following table presents borrowings as of June 30, 2016 and December 31, 2015 (dollars in thousands):

				June 30, 2016				December 31, 2015
	Recourse vs. Non-Recourse	Final Maturity	Contractual Interest Rate(1)(2)	Principal Amount		Carrying Value(3)		Principal Amount		Carrying Value(3)
Mortgage and other notes payable:(4)
Healthcare
East Arlington, TX	Non-recourse	May-17	5.89%	$	3,087	$	3,083	$	3,101	$	3,097
SLC Portfolio (5)	Non-recourse	Jan-19	LIBOR + 3.00%	171,902		171,185		176,553		175,674
Formation Portfolio(6)	Non-recourse	May-19(7)/Jan-25/Feb-26	LIBOR + 4.25%(8)/4.54%/4.59%	705,344		698,300		701,819		695,060
Minnesota Portfolio	Non-recourse	Nov-19	LIBOR + 3.50%	37,800		37,258		37,800		37,171
Griffin-American - U.K.(6)	Non-recourse	Dec-19(7)	LIBOR + 4.84%(8)	295,088		291,691		327,890		322,415
Griffin-American - U.S. - Fixed(6)	Non-recourse	Dec-19(7)/ Jun-25	4.90%	1,763,019		1,701,143		1,763,036		1,692,098
Griffin-American - U.S. - Floating(6)	Non-recourse	Dec-19(7)	LIBOR + 3.49%(8)	854,565		824,573		854,565		820,180
Wakefield Portfolio	Non-recourse	April-20	LIBOR + 4.00%	54,576		54,171		54,694		54,228
Healthcare Preferred(9)	Non-recourse	Jul-21	LIBOR + 7.75%	75,000		75,000		75,000		75,000
Indiana Portfolio(9)	Non-recourse	Sept-21	LIBOR + 4.50%	121,130		121,130		121,130		121,130
Subtotal Healthcare/weighted average			4.28%(8)	4,081,511		3,977,534		4,115,588		3,996,053
Hotel
Innkeepers Portfolio(6)	Non-recourse	Jun-19(7)	LIBOR + 3.39%(8)	840,000		839,992		840,000		837,137
K Partners Portfolio(6)	Non-recourse	Aug-19(7)	LIBOR + 3.25%(8)	211,681		211,501		211,681		210,660
Courtyard Portfolio(6)	Non-recourse	Oct-19(7)	LIBOR + 3.05%(8)	512,000		511,191		512,000		509,554
Inland Portfolio(6)	Non-recourse	Nov-19(7)	LIBOR + 3.60%(8)	817,000		814,650		817,000		811,927
NE Portfolio(6)	Non-recourse	Jun-20(7)	LIBOR + 3.85%(8)	132,250		131,317		132,250		130,824
Miami Hotel Portfolio(6)	Non-recourse	Jul-20(7)	LIBOR + 3.90%(8)	115,500		114,353		115,500		113,833
Subtotal Hotel/weighted average			3.39%(8)	2,628,431		2,623,004		2,628,431		2,613,935
Net lease
DSG Portfolio	Non-recourse	Oct-16	6.17%	30,314		30,294		30,481		30,428
Indianapolis, IN	Non-recourse	Feb-17	6.06%	25,426		25,420		25,674		25,663
Milpitas, CA	Non-recourse	Mar-17	5.95%	18,498		18,487		18,827		18,807
Fort Mill, SC	Non-recourse	Apr-17	5.63%	27,700		27,686		27,700		27,675
Fort Mill, SC - Mezzanine	Non-recourse	Apr-17	6.21%	422		422		663		663
Industrial Portfolio(6)	Non-recourse	Jul-17/Dec-17	4.21%(8)	—		—		221,125		224,635
Salt Lake City, UT	Non-recourse	Sept-17	5.16%	12,368		12,304		12,646		12,555
Green Pond, NJ	Non-recourse	Jun-21	4.00%	13,260		12,986		15,486		15,481
South Portland, ME	Non-recourse	Jul-23	LIBOR + 2.15%(8)	3,059		3,014		3,241		3,190
Aurora, CO(5)	Non-recourse	Aug-26	4.08%	29,891		29,888		30,175		30,169
Subtotal Net lease/weighted average			4.91%(8)	160,938		160,501		386,018		389,266
Multi-tenant Office
Legacy Properties(6)	Non-recourse	Nov-19/Feb-20(7)	LIBOR + 2.15%(8)	113,804		112,461		112,988		111,266
Subtotal Multi-tenant Office				113,804		112,461		112,988		111,266
Other
Secured borrowing	Non-recourse	May-23	LIBOR + 1.60%	53,595		53,595		54,056		54,056
Subtotal Other				53,595		53,595		54,056		54,056
Subtotal Mortgage and other notes payable				7,038,279		6,927,095		7,297,081		7,164,576
Credit facilities and term borrowings:
Corporate Revolver(11)	Recourse	Aug-17	LIBOR + 3.50%(8)	—		—		165,000		165,000
Corporate Term Borrowing	Recourse	Sept-17	4.60% / 4.55%(12)	425,000		419,259		425,000		417,039
Loan Facility	Partial Recourse(13)	Mar-18(7)	2.95%(8)	—		—		72,053		72,021
Subtotal Credit facilities and term borrowings				425,000		419,259		662,053		654,060
CDO bonds payable:
N-Star I	Non-recourse	Aug-38	7.01%	9,295		9,249		10,869		10,814
N-Star IX	Non-recourse	Aug-52	LIBOR + 0.50%(8)	398,237		268,408		425,622		296,787
Subtotal CDO bonds payable				407,532		277,657		436,491		307,601

34

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

				June 30, 2016				December 31, 2015
	Recourse vs. Non-Recourse	Final Maturity	Contractual Interest Rate(1)(2)	Principal Amount		Carrying Value(3)		Principal Amount		Carrying Value(3)
Exchangeable senior notes:
7.25% Notes	Recourse	Jun-27	7.25%	12,955		12,955		12,955		12,955
8.875% Notes(14)	Recourse	Jun-32	8.875%	1,000		969		1,000		967
5.375% Notes	Recourse	Jun-33	5.375%	16,405		14,356		17,405		15,116
Subtotal Exchangeable senior notes				30,360		28,280		31,360		29,038
Junior subordinated notes:
Trust I	Recourse	Mar-35	LIBOR + 3.25%(8)	41,240		29,255		41,240		29,033
Trust II	Recourse	Jun-35	LIBOR + 3.25%(8)	25,780		18,292		25,780		18,152
Trust III	Recourse	Jan-36	LIBOR + 2.83%(8)	41,238		27,102		41,238		27,003
Trust IV	Recourse	Jun-36	LIBOR + 2.80%(8)	50,100		32,571		50,100		33,446
Trust V	Recourse	Sept-36	LIBOR + 2.70%(8)	30,100		19,171		30,100		18,978
Trust VI	Recourse	Dec-36	LIBOR + 2.90%(8)	25,100		16,496		25,100		16,348
Trust VII	Recourse	Apr-37	LIBOR + 2.50%(8)	31,459		19,171		31,459		18,960
Trust VIII	Recourse	Jul-37	LIBOR + 2.70%(8)	35,100		22,201		35,100		21,973
Subtotal Junior subordinated notes				280,117		184,259		280,117		183,893
Subtotal				8,181,288		7,836,550		8,707,102		8,339,168
Borrowings of properties, held for sale:(4)
EDS Portfolio(10)	Non-recourse	Oct-15	5.37%	41,226		41,226		41,742		41,742
Industrial Portfolio	Non-recourse	Jul-17/Dec-17	4.21%(8)	221,125		223,582		—		—
Manufactured Housing Communities	Non-recourse	Dec-21 - Dec-25	4.32%(8)	1,269,988		1,258,775		1,274,643		1,262,726
Multifamily	Non-recourse	Apr-23 - Jul-23	4.09%(8)	162,810		161,412		249,709		247,019
Senior Housing Portfolio	—	—	—	—		—		648,211		644,486
Subtotal Borrowings of properties held for sale				1,695,149		1,684,995		2,214,305		2,195,973
Grand Total				$	9,876,437	$	9,521,545	$	10,921,407	$	10,535,141

____________________________________________________________

(1) Refer to Note 14 for further disclosure regarding derivative instruments which are used to manage interest rate exposure.

(2) For borrowings with a contractual interest rate based on LIBOR, represents three-month LIBOR for the SLC and Wakefield Portfolio and one-month LIBOR for the other borrowings.

(3) Carrying value represents fair value with respect to CDO bonds payable and junior subordinated notes due to the election of the fair value option (refer to Note 13) and amortized cost, net of deferred financing costs for the other borrowings.

(4) Mortgage and other notes payable are subject to customary non-recourse carveouts.

(5) In July 2016, the Company refinanced the Aurora, CO borrowing and restructured the financing related to the Ohio Portfolio, Lancaster, Wilkinson and Tuscola/Harrisburg into the SLC Portfolio. The final maturity and contractual interest rate disclosed represents the updated terms based on the refinancing.

(6) An aggregate principal amount of $6.4 billion is comprised of 20 senior mortgage notes totaling $4.9 billion and 16 mezzanine mortgage notes totaling $1.5 billion.

(7) Represents final maturity taking into consideration the Company’s extension options.

(8) Contractual interest rate represents a weighted average. For borrowings with variable interest rates, the weighted average includes the current LIBOR as of June 30, 2016.

(9) Represents borrowings in unconsolidated N-Star CDOs.

(10) In October 2015, the mortgage matured for the EDS Portfolio and the Company is currently in negotiations with the lender. In April 2016, the Company conveyed three properties back to the lender and is expected to convey the remaining property back to the lender in the third quarter 2016.

(11) Secured by collateral relating to a borrowing base comprised primarily of unlevered CRE debt, net lease and securities investments with a carrying value of $413 million as of June 30, 2016.

(12) Represents the respective fixed rate applicable to each borrowing under the Corporate Term Borrowing.

(13) Recourse solely with respect to certain types of loans as defined in the governing documents.

(14) In July 2016, holders exchanged the remaining $1.0 million of principal outstanding and the Company issued 126,915 shares of common stock in exchange.

35

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The following table presents a reconciliation of principal amount to carrying value of the Company’s mortgage and other notes payable by asset class as of June 30, 2016 and December 31, 2015 (dollars in thousands):

	June 30, 2016										December 31, 2015
Asset Class:	Principal Amount		Discount (Premium), Net			Deferred Financing Costs, Net			Carrying Value		Principal Amount		Discount (Premium), Net			Deferred Financing Costs, Net			Carrying Value
Healthcare	$	4,081,511	$	(48,370	)	$	(55,607	)	$	3,977,534	$	4,115,588	$	(55,441	)	$	(64,094	)	$	3,996,053
Hotel	2,628,431		—			(5,427		)	2,623,004		2,628,431		—			(14,496		)	2,613,935
Net lease	160,938		—			(437		)	160,501		386,018		4,389			(1,141		)	389,266
Multi-tenant office	113,804		—			(1,343		)	112,461		112,988		—			(1,722		)	111,266
Other	53,595		—			—			53,595		54,056		—			—			54,056
Total	$	7,038,279	$	(48,370	)	$	(62,814	)	$	6,927,095	$	7,297,081	$	(51,052	)	$	(81,453	)	$	7,164,576

The following table presents scheduled principal on borrowings, based on final maturity as of June 30, 2016 (dollars in thousands):

	Total		Mortgage and Other Notes Payable		Credit Facilities and Term Borrowings		CDO Bonds Payable		Exchangeable Senior Notes(1)			Junior Subordinated Notes		Borrowings of Properties, Held for Sale
July 1 to December 31, 2016	$	113,857	$	64,259	$	—	$	—	$	—		$	—	$	49,598
Years ending December 31:
2017	770,598		94,192		425,000		—		12,955			—		238,451
2018	32,637		11,022		—		—		—			—		21,615
2019	5,704,380		5,679,683		—		—		1,000		(2)	—		23,697
2020	380,671		355,672		—		—		—			—		24,999
Thereafter	2,874,294		833,451		—		407,532		16,405			280,117		1,336,789
Total	$	9,876,437	$	7,038,279	$	425,000	$	407,532	$	30,360		$	280,117	$	1,695,149

____________________________________________________________

(1) The 7.25% Notes, 8.875% Notes and 5.375% Notes have a final maturity date of June 15, 2027, June 15, 2032 and June 15, 2033, respectively. The above table reflects the holders’ repurchase rights which may require the Company to repurchase the 7.25% Notes, 8.875% Notes and 5.375% Notes on June 15, 2017, June 15, 2019 and June 15, 2023, respectively.

(2) In July 2016, holders exchanged the remaining $1.0 million of principal outstanding and the Company issued 126,915 shares of common stock in exchange.

As of June 30, 2016, the Company was in compliance with all of its financial covenants.

Credit Facilities and Term Borrowings

Corporate Borrowings

In August 2014, the Company obtained a corporate revolving credit facility (as amended, the “Corporate Revolver”) with certain commercial bank lenders, with a three-year term. The Corporate Revolver is secured by collateral relating to a borrowing base and guarantees by certain subsidiaries of the Company. In May 2015, the Company amended and restated the Corporate Revolver to substitute the Operating Partnership as the borrower, with the Company becoming a guarantor. In February 2016, the Company amended the agreement and decreased the aggregate amount of the revolving commitment to $250.0 million, subject to certain conditions. In February 2016, the Corporate Revolver was repaid and there is currently no outstanding balance.

In September 2014, the Company entered into a corporate term borrowing agreement (as amended, the “Corporate Term Borrowing”) with a commercial bank lender to establish term borrowings. In March 2015, the Company amended and restated the Corporate Term Borrowing to substitute the Operating Partnership as the borrower, with the Company becoming a guarantor. Borrowings may be prepaid at any time subject to customary breakage costs. In September and December 2014, the Company entered into a credit agreement providing for a term borrowing under the Corporate Term Borrowing in a principal amount of $275.0 million and $150.0 million, respectively, with a fixed interest rate of 4.60% and 4.55%, respectively, with each maturing on September 19, 2017. There is no available financing remaining under the Corporate Term Borrowing.

The Corporate Revolver and the Corporate Term Borrowing and related agreements contain representations, warranties, covenants, conditions precedent to funding, events of default and indemnities that are customary for agreements of these types.

Loan Facility

In March 2013, a subsidiary of the Company entered into a master repurchase agreement (“Loan Facility”) of $200.0 million to finance first mortgage loans and senior interests secured by commercial real estate. In connection with Loan Facility, the Company entered into a guaranty agreement under which the Company guaranteed certain of the obligations under Loan Facility. Loan Facility and related agreements contain representations, warranties, covenants, conditions precedent to funding, events of default

36

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

and indemnities that are customary for agreements of these types. In addition, the Company has agreed to guarantee certain customary obligations under Loan Facility if the Company or an affiliate of the Company engage in certain customary bad acts. In April 2016, Loan Facility was repaid in full.

9. Related Party Arrangements

NorthStar Asset Management Group

Management Agreement

Upon completion of the NSAM Spin-off, the Company entered into a management agreement with an affiliate of NSAM for an initial term of 20 years, which automatically renews for additional 20-year terms each anniversary thereafter unless earlier terminated. As asset manager, NSAM is responsible for the Company’s day-to-day operations, subject to supervision and management of the Company’s board of directors. Through its global network of subsidiaries and branch offices, NSAM 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 other than the Company’s CRE loan origination business. The management agreement with NSAM provides for a base management fee and incentive fee.

In connection with the NRE Spin-off, NorthStar Europe entered into a management agreement with NSAM with an initial term of 20 years on terms substantially consistent with the terms of the Company’s management agreement with NSAM. The Company’s management agreement with NSAM was amended and restated in connection with the NRE Spin-off to, among other things, adjust the annual base management fee and incentive fee hurdles for the NRE Spin-off. Upon completion of the Mergers, the management agreement with NSAM will cease to exist.

Base Management Fee

For the three months ended June 30, 2016 and 2015, the Company incurred $46.7 million and $48.2 million, respectively, related to the base management fee. For the six months ended June 30, 2016 and 2015, the Company incurred $93.2 million and $93.6 million, respectively, related to the base management fee. As of June 30, 2016, $46.7 million is recorded in due to related party on the consolidated balance sheets. The base management fee to NSAM could increase subsequent to June 30, 2016 by an amount equal to 1.5% per annum of the sum of:

• cumulative net proceeds of all future common equity and preferred equity issued by the Company;

• equity issued by the Company in exchange or conversion of exchangeable notes based on the stock price at the date of issuance;

• 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 Company’s 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”) of the Company in excess of cumulative distributions paid on common stock, LTIP units or other equity awards beginning the first full calendar quarter after the NSAM Spin-off.

Additionally, the Company’s equity interest in RXR Realty and Aerium is structured so that NSAM is entitled to the portion of distributable cash flow from each investment in excess of the $10 million minimum annual base amount.

Incentive Fee

For the three and six months ended June 30, 2016, the Company did not incur an incentive fee. For the three and six months ended June 30, 2015, the Company incurred $3.5 million and $6.4 million related to the incentive fee, respectively. The incentive fee is calculated and payable quarterly in arrears in cash, equal to:

• the product of: (a) 15% 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 $0.68 per share and up to $0.78 per share, after giving effect to the Reverse Split and the NRE Spin-off (“15% Hurdle”); plus

• the product of: (a) 25% 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 $0.78 per share, after giving effect to the Reverse Split and the NRE Spin-off (“25% Hurdle”);

• multiplied by the Company’s weighted average shares outstanding for the calendar quarter.

In addition, NSAM may also earn an incentive fee from the Company’s healthcare investments in connection with NSAM’s Healthcare Strategic Partnership (refer to below).

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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

If the Company were to spin-off any asset or business in the future, such entity would be managed by NSAM on terms substantially similar to those set forth in the management agreement between the Company and NSAM. The management agreement further provides that the aggregate base management fee in place immediately after any future spin-off will not be less than the aggregate base management fee in place at the Company immediately prior to such spin-off.

The Company’s management agreement with NSAM provides that in the event of a change of control of NSAM 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 of us or NSAM, 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 NSAM for costs and expenses incurred by NSAM on the Company’s behalf. In addition, NSAM 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 NSAM (the “G&A Allocation”). The Company’s management agreement with NSAM provides that the amount of the G&A Allocation will not exceed the following: (i) 20% of the combined total of: (a) the Company’s and NorthStar Europe’s (the “NorthStar Listed Companies”) 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 NSAM under the terms of the applicable management agreement and (4) any allocation of expenses to the NorthStar Listed Companies (“NorthStar Listed Companies’ G&A”); and (b) NSAM’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 NSAM; less (ii) the NorthStar Listed Companies’ G&A. The G&A Allocation may include the Company’s allocable share of NSAM’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, 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 the Company’s affairs. In addition, the Company will pay directly or reimburse NSAM for an allocable portion of any severance paid pursuant to any employment, consulting or similar service agreements in effect between NSAM and any of its executives, employees or other service providers.

In connection with the NRE Spin-off and the related agreements, the NorthStar Listed Companies’ obligations to reimburse NSAM for the G&A Allocation and any severance are shared among the NorthStar Listed Companies, at NSAM’s discretion, and the 20% cap on the G&A Allocation, as described above, applies on an aggregate basis to the NorthStar Listed Companies. NSAM currently determined to allocate these amounts based on assets under management.

For the three months endedJune 30, 2016 and 2015, NSAM allocated $0.2 million and $0.8 million, respectively, to the Company. Included in the three months ended June 30, 2015 is $0.3 million recorded in discontinued operations related to NorthStar Europe. For the six months endedJune 30, 2016 and 2015, NSAM allocated $0.4 million and $2.8 million, respectively, to the Company. Included in the six months ended June 30, 2015 is $1.1 million recorded in discontinued operations related to NorthStar Europe. As of June 30, 2016, $0.2 million is recorded in due to related party on the consolidated balance sheets.

In addition, the Company, together with NorthStar Europe and any company spun-off from the Company or NorthStar Europe, will pay directly or reimburse NSAM for up to 50% of any long-term bonus or other compensation that NSAM’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 NSAM during any year. Subject to this limitation and limitations contained in any applicable management

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agreement between NSAM and NorthStar Europe or any company spun-off from the Company or NorthStar Europe, the amount paid by the Company, NorthStar Europe and any company spun-off from the Company or NorthStar Europe will be determined by NSAM in its discretion. At the discretion of NSAM’s compensation committee, this compensation may be granted in shares of the Company’s 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 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 NSAM 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%.

In connection with the above obligation, the Company was responsible for paying approximately 50% of the 2015 and 2014 long-term bonuses earned under the NorthStar Asset Management Group Inc. Executive Incentive Bonus Plan (“NSAM Bonus Plan”). Long-term bonuses were paid to executives in the form of equity-based awards of both the Company and NSAM, subject to performance-based and time-based vesting conditions over the four-year performance period from January 1, 2014 through December 31, 2017. The long-term bonuses paid in the form of equity-based awards of the Company were adjusted for the NRE Spin-off and Reverse Split in the same manner as all other equity-based awards of the Company.

Investment Opportunities

Under the management agreement, the Company agreed to make available to NSAM for the benefit of NSAM and its managed companies, including the Company, all investment opportunities sourced by the Company. NSAM agreed to fairly allocate such opportunities among NSAM’s managed companies, including the Company and NSAM in accordance with an investment allocation policy. Pursuant to the management agreement, the Company is entitled to fair and reasonable compensation for its services in connection with any loan origination opportunities sourced by the Company, which may include first mortgage loans, subordinate mortgage interests, mezzanine loans and preferred equity interests, in each case relating to commercial real estate. For the three and six months ended June 30, 2016, the Company earned $0.2 million and $0.4 million from NSAM, recorded in other revenue, for services in connection with loan origination opportunities.

NSAM provides services with regard to such areas as payroll, human resources and employee benefits, financial systems management, treasury and cash management, accounts payable services, telecommunications services, information technology services, property management services, legal and accounting services and various other corporate services to the Company as it relates to its loan origination business for CRE debt.

Credit Agreement

In connection with the NSAM Spin-off, the Company entered into a revolving credit agreement with NSAM pursuant to which the Company makes available to NSAM, on an “as available basis,” up to $250 million of financing with a maturity of June 30, 2019 at LIBOR plus 3.50%. The revolving credit facility is unsecured. NSAM expects to use the proceeds for general corporate purposes, including potential future acquisitions. In addition, NSAM may use the proceeds to acquire assets on behalf of its managed companies, including the Company, that it intends to allocate to such managed company but for which such managed company may not then have immediately available funds. The terms of the revolving credit facility contain various representations, warranties, covenants and conditions, including the condition that the Company’s obligation to advance proceeds to NSAM is dependent upon the Company and its affiliates having at least $100 million of either unrestricted cash and cash equivalents or amounts available under committed lines of credit, after taking into account the amount NSAM seeks to draw under the facility. As of June 30, 2016, the Company has not funded any amounts to NSAM in connection with this agreement.

Healthcare Strategic Joint Venture

In January 2014, NSAM entered into a long-term strategic partnership with James F. Flaherty III, former Chief Executive Officer of HCP, Inc., focused on expanding the Company’s healthcare business into a preeminent healthcare platform (“Healthcare Strategic Partnership”). In connection with the partnership, Mr. Flaherty oversees both the Company’s healthcare real estate portfolio and the portfolio of NorthStar Healthcare. In connection with entering into the partnership, the Company granted Mr. Flaherty certain RSUs (refer to Note 10). The Healthcare Strategic Partnership is entitled to incentive fees ranging from 20% to 25% above certain hurdles for new and existing healthcare real estate investments held by the Company. For the three and six months ended June 30, 2016 and 2015, the Company did not incur any incentive fees related to the Healthcare Strategic Partnership.

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(Unaudited)

N-Star CDOs

The Company earns certain collateral management fees from the N-Star CDOs primarily for administrative services. Such fees are recorded in other revenue in the consolidated statements of operations. For the three months ended June 30, 2016 and 2015, the Company earned $0.3 million and $1.4 million in fee income, respectively, of which $0.2 million and $0.3 million were eliminated in consolidation. For the six months ended June 30, 2016 and 2015, the Company earned $1.3 million and $2.8 million in fee income, respectively, of which $0.3 million and $1.2 million, respectively, were eliminated in consolidation.

Additionally, the Company earns interest income from the N-Star CDO bonds and N-Star CDO equity in deconsolidated N-Star CDOs. For the three months ended June 30, 2016 and 2015, the Company earned $11.6 million and $13.6 million, respectively, of interest income from such investments related to deconsolidated N-Star CDOs. For the six months ended June 30, 2016 and 2015, the Company earned $22.8 million and $30.0 million, respectively, of interest income from such investments in deconsolidated N-Star CDOs. Refer to Note 7 and Note 16 for additional disclosure regarding the N-Star CDOs.

American Healthcare Investors

In December 2014, NSAM acquired a 43% interest in American Healthcare Investors LLC (“AHI”) and James F. Flaherty III, a strategic partner of NSAM, acquired a 12% interest in AHI. AHI is a healthcare-focused real estate investment management firm that co-sponsored and advised Griffin-American Healthcare REIT II, Inc. until it was acquired by the Company and NorthStar Healthcare. In connection with this acquisition, AHI provides certain management and related services, including property management, to NSAM, NorthStar Healthcare and the Company in order to assist NSAM in managing the current and future healthcare assets (excluding any joint venture assets) acquired by the Company and, subject to certain conditions, other NSAM managed companies. For the three months ended June 30, 2016 and 2015, the Company incurred $0.4 million of property management fees to AHI. For the six months ended June 30, 2016 and 2015, the Company incurred $0.9 million of property management fees to AHI. These fees are recorded in real estate properties - operating expenses in the consolidated statements of operations.

Island Hospitality Management

In January 2015, NSAM acquired a 45% interest in Island Hospitality Management Inc. (“Island”). Island is a leading, independent select service hotel management company that currently manages 162 hotel properties, representing $3.9 billion of assets, of which 110 hotel properties are owned by the Company. Island provides certain asset management, property management and other services to the Company to assist in managing the Company’s hotel properties. Island receives a base management fee of 2.5% to 3.0% of the current monthly revenue of the hotel properties it manages for the Company. For the three months ended June 30, 2016 and 2015, the Company incurred $4.7 million and $3.0 million, respectively, of base property management and other fees to Island, which are recorded in real estate properties—operating expenses in the consolidated statements of operations. For the six months ended June 30, 2016 and 2015, the Company incurred $8.8 million and $6.4 million, respectively, of base property management and other fees to Island, which are recorded in real estate properties—operating expenses in the consolidated statements of operations. NSAM’s investment in Island is expected to be sold in connection with the merger with the Company and Colony.

NSAM purchase of common stock

In 2015, NSAM purchased 2.7 million shares of the Company’s common stock in the open market for $49.9 million.

Recent Sales or Commitments to Sell to NSAM Retail Companies

The Company sold or entered into agreements to sell certain assets to NSAM Retail Companies:

• In February 2016, the Company sold substantially all of its 70% interest in PE Investment II to the existing owners of the remaining 30% interest, one a third party which purchased approximately 80% of the interest sold and the other NorthStar Income which purchased the other approximate 20% of the interest sold. NorthStar Income paid $37.3 million for its respective interest. As part of the transaction, both buyers assumed the deferred purchase price obligation, on a pro rata basis, of the PE Investment II joint venture.

• In February 2016, the Company sold a 49% interest in one loan with a total principal amount of $40.3 million to a third party, at par, with the remaining 51% interest sold to NorthStar Income II, also at par.

• In February 2016, the Company sold one CRE security with a carrying value of $12.5 million to NorthStar Income II.

• In March 2016, the Company sold its 60% interest in the Senior Housing Portfolio to NorthStar Healthcare, which owned the remaining 40% interest, for $534.5 million. NorthStar Healthcare assumed the Company’s portion of the $648.2

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

million of mortgage borrowing as part of the transaction and the Company received approximately $149.4 million of net proceeds.

• In August 2016, the Company entered into an agreement to sell a portfolio of PE Investments to NorthStar Income II for a gross sales price of $317.6 million with $44.4 million of deferred purchase price expected to be assumed as part of the transaction. The Company expects to receive $247.0 million of net proceeds in the fourth quarter 2016. There is no assurance the Company will consummate the transaction on the contemplated terms, if at all.

The board of directors of each NSAM Retail Company, including all of the independent directors, approved each of the respective transactions after considering, among other matters, third-party pricing support.

10. Compensation Expense

Summary

The following table presents a summary of compensation expense for the three and six months endedJune 30, 2016 and 2015 (dollars in thousands):

	Three Months Ended   June 30,				Six Months Ended   June 30,
	2016		2015		2016		2015
Salaries and related expenses	$	1,879	$	1,680	$	3,879	$	4,806
Equity-based compensation expense	5,604		7,704		11,888		18,535
Total	$	7,483	$	9,384	$	15,767	$	23,341

Equity-Based Compensation

The Company has issued equity-based awards to directors, officers, employees, consultants and advisors pursuant to the NorthStar Realty Finance Corp. 2004 Omnibus Stock Incentive Plan (the “Stock Plan”) and the NorthStar Realty Executive Incentive Bonus Plan, as amended (the “Plan” and collectively the “NorthStar Realty Equity Plans”).

Prior to the NSAM Spin-off, the Company conducted substantially all of its operations and made its investments through an operating partnership which issued LTIP Units as equity-based compensation. Additionally, prior to the NSAM Spin-off, the Company completed an internal corporate reorganization whereby the Company collapsed its three tier holding company structure, including such operating partnership, into a single tier (the “Reorganization”). All of the vested and unvested equity-based awards granted by the Company prior to the NSAM Spin-off remain outstanding following the Reorganization and the NSAM Spin-off. Appropriate adjustments were made to all awards to reflect the Reorganization, the Reverse Split and the NSAM Spin-off and NRE Spin-off, collectively referred to as the Spin-offs. Pursuant to the Reorganization, such LTIP Units were converted into an equal number of shares of common stock of the Company (refer to Note 12), which are referred to as restricted stock, and holders of such shares received an equal number of shares of NSAM’s common stock in connection with the NSAM Spin-off, all of which generally remain subject to the same vesting and other terms that applied prior to the NSAM Spin-off. In connection with the NSAM Spin-off, equity and equity-based awards relating to the Company’s common stock, such as RSUs and Deferred LTIP Units, were adjusted to also relate to an equal number of shares of NSAM’s common stock, but otherwise generally remain subject to the same vesting and other terms that applied prior to the NSAM Spin-off. Vesting conditions for outstanding awards have been adjusted to reflect the impact of NSAM in terms of employment for service based on awards and total stockholder return for performance-based awards with respect to periods after the NSAM Spin-off.

In connection with the formation of the Operating Partnership, the Operating Partnership issued LTIP Units to each holder of the Company’s outstanding Deferred LTIP Units, which were equity awards representing the right to receive either LTIP units in the Company’s successor operating partnership or, if such LTIP units were not available upon settlement of the award, shares of common stock of the Company, in settlement of such Deferred LTIP Units on a one for one basis in accordance with the terms of the outstanding Deferred LTIP Units. Conditioned upon minimum allocations to the capital account of the LTIP Unit for federal income tax purposes, each LTIP Unit will be convertible, at the election of the holder, into one common unit of limited partnership interest in the Operating Partnership (“OP Unit”). Each of the OP Units underlying these LTIP Units will be redeemable at the election of the OP Unit holder for: (i) cash equal to the then fair market value of one share of the Company’s common stock; or (ii) at the option of the Company in its capacity as general partner of the Operating Partnership, one share of the Company’s common stock. LTIP Units issued remain subject to the same vesting terms as the Deferred LTIP Units.

In connection with the NRE Spin-off, equity and equity-based awards relating to the Company’s common stock, such as RSUs, were adjusted to also relate to one share of NorthStar Europe common stock for each six shares of the Company’s common stock,

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but otherwise generally remain subject to the same vesting and other terms that applied prior to the NRE Spin-off. Appropriate adjustments were also made to all awards to reflect the Reverse Split.

Following the Spin-offs, the Company and the compensation committee of its board of directors (the “Committee”) continues to administer all awards issued under the NorthStar Realty Equity Plans but NSAM and NorthStar Europe are obligated to issue shares of their common stock or other equity awards of their subsidiaries or make cash payments in lieu thereof with respect to dividend or distribution equivalent obligations to the extent required by such awards previously issued under the NorthStar Realty Equity Plans. These awards will continue to be governed by the NorthStar Realty Equity Plans, as applicable, and shares of NSAM’s common stock or NorthStar Europe’s common stock issued pursuant to these awards will not be issued pursuant to, or reduce availability, under the NorthStar Realty Equity Plans.

All of the adjustments made in connection with the Reorganization, the Spin-offs and the Reverse Splits were deemed to be equitable adjustments pursuant to anti-dilution provisions in accordance with the terms of the NorthStar Realty Equity Plans. As a result, there was no incremental value attributed to these adjustments and these adjustments do not impact the amount recorded for equity-based compensation expense for the three and six months endedJune 30, 2016 and 2015.

The following summarizes the equity-based compensation plans and related expenses.

All share amounts and related information disclosed below have been retrospectively adjusted to reflect the Reverse Split.

NorthStar Realty Equity Plans

Omnibus Stock Incentive Plan

In September 2004, the board of directors of the Company adopted the Stock Plan, and such plan, as amended and restated, was further adopted by the board of directors of the Company on April 27, 2016 and approved by the stockholders on June 20, 2016. The Stock Plan provides for the issuance of stock-based incentive awards, including incentive stock options, non-qualified stock options, stock appreciation rights, shares of common stock of the Company, in the form of restricted stock and other equity-based awards such as LTIP Units or any combination of the foregoing. The eligible participants in the Stock Plan include directors, officers, employees, consultants and advisors of the Company.

As of June 30, 2016, 4,094 unvested shares of restricted stock issued under the Stock Plan were outstanding and 4,234,920 shares of common stock remained available for issuance pursuant to the Stock Plan, which includes shares reserved for issuance upon settlement of outstanding LTIP Units and RSUs. Holders of shares of restricted stock or LTIP Units are entitled to receive dividends or distributions with respect to the Company’s shares of restricted stock and vested and unvested LTIP Units for as long as such shares and LTIP Units remain outstanding.

Incentive Compensation Plan

In July 2009, the Committee approved the material terms of the Plan for the Company’s executive officers and other employees. Pursuant to the Plan, an incentive pool was established each calendar year through 2013. The size of the incentive pool was calculated as the sum of: (a) 1.75% of the Company’s “adjusted equity capital” for the year; and (b) 25% of the Company’s adjusted funds from operations, as adjusted, above a 9% return hurdle on adjusted equity capital. Payout from the incentive pool is or was subject to achievement of additional performance and/or time-based goals summarized below.

The portion of the incentive pool for the executive officers was divided into the following three separate incentive compensation components: (a) an annual cash bonus, tied to annual performance of the Company and paid prior to or shortly after completion of the year-end audit (“Annual Bonus”); (b) a deferred bonus, determined based on the same year’s performance, but paid 50% following the close of each of the first and second years after such incentive pool is determined, subject to the participant’s continued employment through each payment date (“Deferred Bonus”); and (c) a long-term incentive in the form of RSUs, LTIP Units and/or Deferred LTIP Units. RSUs are subject to the Company achieving cumulative performance hurdles and/or total stockholder return hurdles established by the Committee for a three- or four-year period, subject to the participant’s continued employment through the payment date. Upon the conclusion of the applicable performance period, each executive officer will receive a payout, if any, equal to the value of one share of common stock at the time of such payout, including the dividends paid with respect to a share of common stock following the first year of the applicable performance period, for each RSU actually earned (the “Long-Term Amount Value”). The Long-Term Amount Value, if any, other than the portion related to dividends paid, will be paid in the form of shares of common stock of the Company or LTIP Units in the Operating Partnership, to the extent available under the NorthStar Realty Equity Plans, or in cash to the extent shares of common stock of the Company or LTIP Units in the Operating Partnership are unavailable under the NorthStar Realty Equity Plans, and, pursuant to adjustments made in connection with the NSAM Spin-off and the NRE Spin-off, shares of NSAM’s common stock or LTIP Units in NSAM’s operating partnership and shares of NorthStar Europe’s common stock or LTIP Units in NorthStar Europe’s operating partnership (the “Long-Term Amount

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(Unaudited)

Payout”). These performance-based RSUs were adjusted to refer to combined total stockholder return of the Company and NSAM with respect to periods after the NSAM Spin-off. These performance-based RSUs were again adjusted to refer to combined total stockholder return of the Company, NorthStar Europe and NSAM after the NRE Spin-off. Restricted stock or LTIP Units granted as a portion of the long-term incentive are subject to vesting based on continued employment during the performance period, but are not subject to performance-based vesting hurdles.

Under the Plan, for 2011, the Company issued 381,449 RSUs to executive officers which were subject to vesting based on continued employment and achieving total stockholder return hurdles for the four-year period ended December 31, 2014. The grant date fair value was $4.32 per RSU determined using a risk-free interest rate of 0.42%. As of December 31, 2014, the Company determined the performance hurdle was met which resulted in all of these RSUs vesting. To settle these RSUs, the Company issued 24,575 shares of common stock, net of the minimum statutory tax withholding requirements, on January 1, 2015 and the Operating Partnership issued 334,871 LTIP Units. Under the Plan, for 2011, the Company also granted 381,449 LTIP Units to executive officers which were subject to vesting in four annual installments ending on January 29, 2015, subject to the executive officer’s continued employment through the applicable vesting date, and were converted into shares of restricted stock pursuant to the Reorganization. The Company also granted 151,340 shares of restricted stock (net of forfeitures occurring through June 30, 2016) to certain non-executive employees, which were subject to vesting quarterly over three years beginning April 2012, subject to continued employment through the applicable vesting date.

Under the Plan, for 2012, the Company issued 352,418 RSUs to executive officers which are subject to vesting based on continued employment and achieving total stockholder return hurdles for the four-year period ending December 31, 2015. The grant date fair value was $9.86 per RSU determined using a risk-free interest rate of 0.44%. As of December 31, 2015, the Company determined the performance hurdle was met which resulted in all of these RSUs vesting. To settle these RSUs, the Company issued 158,191 shares of common stock, net of the minimum statutory tax withholding requirements, on January 4, 2016. Under the Plan, for 2012, the Company also granted 352,418 LTIP Units to executive officers which were subject to vesting in four annual installments beginning on January 29, 2013, subject to the executive officer’s continued employment through the applicable vesting date, and were converted into shares of restricted stock pursuant to the Reorganization. The Company also granted 144,883 LTIP Units (net of forfeitures occurring through June 30, 2016) to certain non-executive employees which are subject to vesting quarterly over three years beginning April 2013, subject to continued employment through the applicable vesting date, and were converted into shares of restricted stock pursuant to the Reorganization.

Under the Plan, for 2013, the Company issued 250,184 RSUs to executive officers which are subject to vesting based on continued employment and achieving total stockholder return hurdles for the four-year period ending December 31, 2016. The grant date fair value was $21.57 per RSU determined using a risk-free interest rate of 0.63%. Under the Plan, for 2013, the Company also granted 250,184 Deferred LTIP Units to executive officers which are subject to vesting in four annual installments beginning on January 29, 2014, subject to the executive officer’s continued employment through the applicable vesting date and 130,787 Deferred LTIP Units which were subject to vesting based on continued employment through December 31, 2015. The Company also granted 136,604 Deferred LTIP Units (net of forfeitures occurring through June 30, 2016) to certain non-executive employees which were subject to vesting quarterly over three years beginning April 2014, subject to continued employment through the applicable vesting date. Such Deferred LTIP Units were subsequently settled as LTIP Units in the Operating Partnership or shares of restricted stock, which remain subject to the same vesting terms that applied to the Deferred LTIP Units.

NSAM Bonus Plan

In connection with the NSAM Bonus Plan, for 2014, approximately 31.65% of the long-term bonus was paid in Deferred LTIP Units and approximately 18.35% of the long-term bonus was paid by the Company by issuing RSUs. In connection with the long-term bonuses to be paid by the Company, in February 2015, the Company granted 519,115 Deferred LTIP Units to executive officers of which 25% were vested upon grant and the remainder was subject to vesting in three equal annual installments beginning on December 31, 2015, subject to the executive officer’s continued employment through the applicable vesting dates. The Company also granted 292,438 RSUs to NSAM’s executive officers subject to vesting based on continued employment and achieving total stockholder return hurdles for the four-year period ending December 31, 2017. The grant date fair value of such RSUs was $18.64 per RSU determined using a risk-free interest rate of 1.00%. After the NRE Spin-off, these performance-based RSUs were adjusted to refer to combined total stockholder return of the Company and NorthStar Europe. In the first quarter 2015, the Company also granted 330,241 Deferred LTIP Units (net of forfeitures occurring through June 30, 2016) to certain of NSAM’s non-executive employees, with substantially similar terms to the executive awards subject to time based vesting conditions. Such Deferred LTIP Units were settled as LTIP Units in the Operating Partnership or shares of restricted stock, which remain subject to the same vesting terms that applied to the Deferred LTIP Units.

43

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

In connection with the NSAM Bonus Plan, for 2015, a portion of the long-term bonus was paid in restricted shares of common stock and a portion of the long-term bonus was paid by the Company by issuing RSUs. In connection with the 2015 long-term bonuses paid by the Company, in February 2016, the Company granted 1,006,006 restricted shares of common stock to NSAM’s executive officers, of which 25% were vested upon grant and the remainder is subject to vesting in equal installments on December 31, 2016, 2017 and 2018, subject to the recipient’s continued employment through the applicable vesting dates. In connection with the issuance of these shares, in February 2016, the Company retired 132,654 of the vested shares of common stock to satisfy the minimum statutory withholding requirements. In addition, in February 2016, the Company granted 583,261 RSUs to NSAM’s executive officers, which are subject to vesting based on the Company’s absolute total stockholder return, CAD and continued employment over the four-year period ending December 31, 2018. The grant date fair value of such RSUs was $1.70 per RSU determined using a risk-free interest rate of 0.88%. Following the determination of the number of these performance-based RSUs that vest, the Company will settle the vested RSUs by issuing an equal number shares of common stock (or, if shares are not then available, paying cash in an amount equal to the value of such shares) and the NSAM executives will be entitled to receive the distributions that would have been paid with respect to a share of common stock (for each RSU that vests) on or after January 1, 2015. In February 2016, the Company also granted 515,637 restricted shares (net of forfeitures occurring through June 30, 2016) of common stock and/or RSUs to its Chief Executive Officer and certain of the Company’s and NSAM’s non-executive employees, with substantially similar terms to the executive awards subject to time-based vesting conditions.

Other Issuances

Healthcare Strategic Joint Venture

In connection with entering into the Healthcare Strategic Partnership, the Company granted Mr. Flaherty 250,000 RSUs on January 22, 2014 which vest on January 22, 2019, unless certain conditions are met. In connection with the Spin-offs, the RSUs granted to Mr. Flaherty were adjusted to also relate to shares of NSAM’s common stock and NorthStar Europe’s common stock. The RSUs are entitled to dividend equivalents prior to vesting and may be settled either in shares of common stock of the Company, NSAM and NorthStar Europe or in cash at the option of the Company.

Equity-based Compensation Summary

The following table presents a summary of equity-based awards outstanding. The balance as of June 30, 2016 represents unvested shares of restricted stock, LTIP Units and restricted stock units outstanding, whether vested or not (grants in thousands):

	Six Months Ended June 30, 2016
	Restricted Stock		LTIP Units		Restricted Stock Units(1)		Total Grants		Weighted Average Grant Price
December 31, 2015	81		1,868		250		2,199		$	33.44
Granted	1,040		—		505		1,545		10.73
Converted	—		—		(41	)	(41	)	10.73
Forfeited	—		(11	)	(11	)	(22	)	20.63
Vesting	(329	)	—		—		(329	)	11.28
June 30, 2016	792		1,857		703		3,352		$	25.51

____________________________________________________________

(1) Represents employee and non-employee grants subject to time-based vesting conditions.

As of June 30, 2016, equity-based compensation expense to be recognized over the remaining vesting period through August 2019 is $28.5 million, provided there are no forfeitures.

In connection with the Mergers, substantially all outstanding time-based equity awards issued to executives and non-executive employees will vest in accordance with their terms. In addition, all or a portion of the outstanding performance-based awards issued to executives will vest in accordance with their terms subject to forfeiture and reduction.

11. Stockholders’ Equity

Reverse Split

On November 1, 2015, the Company effected a Reverse Split of its common stock with any fractional shares settled in cash. As a result of the Reverse Split, common stock was reduced by dividing the par value prior to the Reverse Split by two (including retrospective adjustment of prior periods) with a corresponding increase to additional paid-in capital. The par value per share of common stock remained unchanged.

44

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Share and per share amounts disclosed in the Company’s consolidated financial statements and the accompanying notes have been retrospectively adjusted to reflect the Reverse Split, including common stock outstanding, earnings per share and shares or units outstanding related to equity-based compensation, where applicable (refer to Note 10).

Share Repurchase

In September 2015, the Company’s board of directors authorized the repurchase of up to $500.0 million of its outstanding common stock. The authorization expires in September 2016, unless otherwise extended by the Company’s board of directors. For the six months endedJune 30, 2016, the Company repurchased 3.9 million shares of its common stock for $50.0 million. From September 2015 through June 30, 2016, the Company repurchased 10.4 million shares for $168.0 million, with $332.0 million remaining under the stock repurchase plan.

Dividend Reinvestment Plan

In April 2007, as amended effective January 1, 2012, the Company implemented a Dividend Reinvestment Plan (the “DRP”), pursuant to which it registered with the SEC and reserved for issuance 3,569,962 shares of its common stock, after giving effect to the Reverse Split. Pursuant to the amended terms of the DRP, stockholders are able to automatically reinvest all or a portion of their dividends for additional shares of the Company’s common stock. The Company expects to use the proceeds from the DRP for general corporate purposes. For the six months endedJune 30, 2016, the Company issued 7,603 shares of its common stock pursuant to the DRP for an immaterial amount of proceeds.

Dividends

The following table presents dividends declared (on a per share basis) for the six months endedJune 30, 2016:

Common Stock			Preferred Stock
				Dividend Per Share
Declaration Date	Dividend Per Share		Declaration Date	Series A		Series B		Series C		Series D		Series E
February 25	$	0.40	January 28	$	0.54688	$	0.51563	$	0.55469	$	0.53125	$	0.54688
May 4	$	0.40	April 27	$	0.54688	$	0.51563	$	0.55469	$	0.53125	$	0.54688

Earnings Per Share

The following table presents EPS for the three and six months ended and June 30, 2016 and 2015 (dollars and shares in thousands, except per share data):

	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Numerator:
Net income (loss) attributable to NorthStar Realty Finance Corp. common stockholders	$	(115,557	)	$	(97,502	)	$	(260,821	)	$	(129,104	)
Net income (loss) attributable to LTIP Units non-controlling interests	(1,066		)	(1,068		)	(2,503		)	(1,068		)
Net income (loss) attributable to common stockholders and LTIP Units(1)	$	(116,623	)	$	(98,570	)	$	(263,324	)	$	(130,172	)
Denominator:(2)(3)
Weighted average shares of common stock	179,722			176,493			181,264			165,442
Weighted average LTIP Units(1)	1,860			1,096			1,863			1,080
Weighted average shares of common stock and LTIP Units(2)	181,582			177,589			183,127			166,522
Earnings (loss) per share:(3)
Basic	$	(0.64	)	$	(0.55	)	$	(1.44	)	$	(0.78	)
Diluted	$	(0.64	)	$	(0.55	)	$	(1.44	)	$	(0.78	)

____________________________________________________________

(1) The EPS calculation takes into account LTIP Units, 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 exchangeable senior notes, restricted stock and RSUs outstanding that were not dilutive as of June 30, 2016. These instruments could potentially impact diluted EPS in future periods, depending on changes in the Company’s stock price and other factors.

(3) The three and six months ended June 30, 2015 is adjusted for the Reverse Split effected on November 1, 2015.

12. Non-controlling Interests

Operating Partnership

Non-controlling interests include the aggregate LTIP Units held by limited partners (the “Unit Holders”) in the Operating Partnership. Net income (loss) attributable to this 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 or LTIP Units changes the percentage ownership of both the Unit Holders and the Company. Since an 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 carry value of such non-controlling interest is allocated based on the number of LTIP Units held by Unit Holders in total in proportion to the number of LTIP Units in total plus the number of shares of common stock. As of June 30, 2016, LTIP Units of 1,856,738 were outstanding representing a 1.0% 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 June 30, 2016 and 2015 was a net loss of $1.1 million and $1.1 million, respectively. Net income (loss) attributable to the Operating Partnership non-controlling interest for the six months ended June 30, 2016 and 2015 was a net loss of $2.5 million and $1.1 million, respectively. In connection with the Mergers, the Operating Partnership will merge with and into NorthStar Realty and each LTIP Unit outstanding as of immediately prior to such effective time will convert into one share of common stock.

Other

Other non-controlling interests represent third-party equity interests in ventures that are consolidated with the Company’s financial statements. Net income (loss) attributable to the other non-controlling interests for the three months ended June 30, 2016 and 2015 was a net loss of $0.2 million and $6.8 million, respectively. Net income (loss) attributable to the other non-controlling interests for the six months ended June 30, 2016 and 2015 was a net loss of $2.0 million and $10.5 million, respectively.

The following table presents net income (loss) attributable to the Company’s common stockholders for the three and six months endedJune 30, 2016 and 2015 (dollars in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Income (loss) from continuing operations	$	(115,557	)	$	(14,211	)	$	(260,821	)	$	(31,994	)
Income (loss) from discontinued operations	—			(83,291		)	—			(97,110		)
Net income (loss) attributable to NorthStar Realty Finance Corp. common stockholders	$	(115,557	)	$	(97,502	)	$	(260,821	)	$	(129,104	)

13. 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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.

PE Investments

The Company accounts for PE Investments at fair value which is determined based on a valuation model using assumptions for the timing and amount of expected future cash flow for income and realization events for the underlying assets in the funds and discount rate. This fair value measurement is generally based on unobservable inputs and, as such, is classified as Level 3 of the fair value hierarchy. The Company is not using the NAV (practical expedient) of the underlying funds for purposes of determining fair value.

Investments in Unconsolidated Ventures

The Company accounts for certain investments in unconsolidated ventures at fair value determined based on a valuation model using assumptions for the timing and amount of expected future cash flow for income and realization events for the underlying assets, discount rate and foreign currency exchange rates. Additionally, the Company accounts for a CRE debt investment made in connection with an investment in unconsolidated venture at fair value, which is determined based on comparing the current yield to the estimated yield for newly originated loans with similar credit risk. These fair value measurements are generally based on unobservable inputs and, as such, are classified as Level 3 of the fair value hierarchy.

Real Estate Securities

N-Star CDO Bonds

The fair value of N-Star CDO bonds is determined using quotations from nationally recognized financial institutions that generally acted as underwriter for the transactions. These quotations are not adjusted and are generally based on a valuation model with observable inputs such as interest rate and other unobservable inputs for assumptions related to the timing and amount of expected future cash flow, discount rate, estimated prepayments and projected losses. The fair value of subordinate N-Star CDO bonds is determined using an internal price interpolated based on third-party prices of the more senior N-Star CDO bonds of the respective CDO. All N-Star CDO bonds are classified as Level 3 of the fair value hierarchy.

N-Star CDO Equity

The fair value of N-Star CDO equity is determined based on a valuation model using assumptions for the timing and amount of expected future cash flow for income and realization events for the underlying collateral of these CDOs and discount rate. This fair value measurement is generally based on unobservable inputs and, as such, is classified as Level 3 of the fair value hierarchy.

Other CRE Securities

Other CRE securities are generally valued using a third-party pricing service or broker quotations. These quotations are not adjusted and are based on observable inputs that can be validated, and as such, are classified as Level 2 of the fair value hierarchy. Certain CRE securities may be valued based on a single broker quote or an internal price which may have less observable pricing, and as such, would be classified as Level 3 of the fair value hierarchy. Management determines the prices are representative of fair value through a review of available data, including observable inputs, recent transactions as well as its knowledge of and experience in the market.

Derivative Instruments

Derivative instruments are valued using a third-party pricing service. These quotations are not adjusted and are generally based on valuation models with observable inputs such as interest rates and contractual cash flow, 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. If a credit valuation adjustment is applied to a derivative asset or liability, such fair value measurement is classified as Level 3 of the fair value hierarchy. For derivatives held in non-recourse CDO financing structures where, by design, the derivative contracts are senior to all the CDO bonds payable, there is no material impact of a credit valuation adjustment.

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

CDO Bonds Payable

CDO bonds payable are valued using quotations from nationally recognized financial institutions that generally acted as underwriter for the transactions. These quotations are not adjusted and are generally based on a valuation model with observable inputs such as interest rate and other unobservable inputs for assumptions related to the timing and amount of expected future cash flow, discount rate, estimated prepayments and projected losses. CDO bonds payable are classified as Level 3 of the fair value hierarchy.

Junior Subordinated Notes

Junior subordinated notes may be valued using quotations from nationally recognized financial institutions or an internal model. A quotation from a financial institution is not adjusted. The fair value is generally based on a valuation model with observable inputs such as interest rate and other unobservable inputs for assumptions related to the implied credit spread of the Company’s other borrowings and the timing and amount of expected future cash flow. Junior subordinated notes are classified as Level 3 of the fair value hierarchy.

Financial assets and liabilities recorded at fair value on a recurring basis are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following tables present financial assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2016 and December 31, 2015 by level within the fair value hierarchy (dollars in thousands):

	June 30, 2016
	Level 1		Level 2		Level 3			Total
Assets:
PE Investments	$	—	$	—	$	838,863		$	838,863
Investments in unconsolidated ventures(1)	—		—		118,814			118,814
Real estate securities, available for sale:
N-Star CDO bonds	—		—		125,972			125,972
N-Star CDO equity	—		—		35,021			35,021
CMBS and other securities	—		8,154		14,010			22,164
CRE securities in N-Star CDOs
CMBS	—		247,011		49,314			296,325
Third-party CDO notes	—		—		5,820			5,820
Agency debentures	—		45,747		—			45,747
Unsecured REIT debt	—		8,827		—			8,827
Trust preferred securities	—		—		5,587			5,587
Subtotal CRE securities in N-Star CDOs	—		301,585		60,721			362,306
Subtotal real estate securities, available for sale	—		309,739		235,724			545,463
Derivative assets	—		24		—			24
Total assets	$	—	$	309,763	$	1,193,401		$	1,503,164
Liabilities:
CDO bonds payable	$	—	$	—	$	277,657		$	277,657
Junior subordinated notes	—		—		184,259			184,259
Derivative liabilities	—		2,892		286,268		(2)	289,160
Total liabilities	$	—	$	2,892	$	748,184		$	751,076

_____________________________________________________________________

(1) Includes CRE debt investments made in connection with an investment in unconsolidated venture, for which the fair value option was elected.

(2) Represents an interest rate swap in the corporate segment and includes a credit valuation adjustment.

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

	December 31, 2015
	Level 1		Level 2		Level 3			Total
Assets:
PE Investments	$	—	$	—	$	1,101,650		$	1,101,650
Investments in unconsolidated ventures(1)	—		—		120,392			120,392
Real estate securities, available for sale:
N-Star CDO bonds	—		—		216,727			216,727
N-Star CDO equity	—		—		44,905			44,905
CMBS and other securities	—		12,318		43,247			55,565
CRE securities in N-Star CDOs
CMBS	—		261,552		64,959			326,511
Third-party CDO notes	—		—		6,685			6,685
Agency debentures	—		37,316		—			37,316
Unsecured REIT debt	—		8,976		—			8,976
Trust preferred securities	—		—		5,425			5,425
Subtotal CRE securities in N-Star CDOs	—		307,844		77,069			384,913
Subtotal real estate securities, available for sale	—		320,162		381,948			702,110
Derivative assets	—		116		—			116
Total assets	$	—	$	320,278	$	1,603,990		$	1,924,268
Liabilities:
CDO bonds payable	$	—	$	—	$	307,601		$	307,601
Junior subordinated notes	—		—		183,893			183,893
Derivative liabilities	—		7,385		95,908		(2)	103,293
Total liabilities	$	—	$	7,385	$	587,402		$	594,787

_____________________________________________________________________

(1) Includes CRE debt investments made in connection with certain investments in unconsolidated ventures, for which the fair value option was elected.

(2) Represents an interest rate swap in the corporate segment and includes a credit valuation adjustment.

The following table presents the changes in fair value of financial assets and liabilities which are measured at fair value on a recurring basis using Level 3 inputs to determine fair value for the six months ended June 30, 2016 (dollars in thousands):

	Six Months Ended June 30, 2016
	Assets									Liabilities(3)
	PE Investments			Investments in Unconsolidated Ventures(1)			CRE Securities			CDO Bonds Payable			Junior Subordinated Notes
January 1, 2016	$	1,101,650		$	120,392		$	381,948		$	307,601		$	183,893
Transfers into Level 3(2)	—			—			9,380			—			—
Transfers out of Level 3(2)	—			—			(7,928		)	—			—
Purchases / borrowings / amortization / contributions	2,549			1,931			22,028			—			—
Sales	(184,076		)	—			(53,886		)	—			—
Paydowns / distributions	(133,524		)	(6,764		)	(27,605		)	(28,958		)	—
Gains:
Equity in earnings of unconsolidated ventures	61,214			13,960			—			—			—
Unrealized gains included in earnings	—			1,196			9,232			(2,533		)	—
Realized gains included in earnings	—			—			444			—			—
Unrealized gain on real estate securities, available for sale included in OCI	—			—			2,071			—			—
Losses:
Unrealized losses included in earnings	(8,950		)	(11,901		)	(14,026		)	1,547			366
Realized losses included in earnings	—			—			(13,381		)	—			—
Unrealized loss on real estate securities, available for sale included in OCI	—			—			(72,553		)	—			—
June 30, 2016	$	838,863		$	118,814		$	235,724		$	277,657		$	184,259
Gains (losses) included in earnings attributable to the change in unrealized gains (losses) relating to assets or liabilities still held	$	(8,950	)	$	(10,705	)	$	(4,794	)	$	986		$	(366	)

____________________________________________________________

(1) Includes CRE debt investments made in connection with an investment in unconsolidated venture, for which the fair value option was elected.

(2) Transfers between Level 2 and Level 3 represent a fair value measurement from a third-party pricing service or broker quotations that have become more or less observable during the period. Transfers are assumed to occur at the beginning of the year.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(3) Excludes one derivative instrument, which for the six months ended June 30, 2016, an unrealized loss of $190.4 million was recorded, of which $7.2 million related to a credit valuation adjustment.

The following table presents the changes in fair value of financial assets and liabilities which are measured at fair value on a recurring basis using Level 3 inputs to determine fair value for the year ended December 31, 2015 (dollars in thousands):

	Year Ended December 31, 2015
	Assets									Liabilities(3)
	PE Investments			Investments in Unconsolidated Ventures(1)			CRE Securities			CDO Bonds Payable			Junior Subordinated Notes
January 1, 2015	$	962,038		$	276,437		$	481,576		$	390,068		$	215,172
Transfers into Level 3(2)	—			—			24,170			—			—
Transfers out of Level 3(2)	—			—			(3,052		)	—			—
Purchases / borrowings / amortization / contributions	614,578			(4,053		)	93,477			(25,531		)	—
Sales	—			—			(77,230		)	—			—
Paydowns / distributions	(639,884		)	(125,285		)	(124,480		)	(90,070		)	—
Gains:
Equity in earnings of unconsolidated ventures	198,159			19,177			—			—			—
Unrealized gains included in earnings	—			—			81,532			—			(31,279		)
Realized gains included in earnings	—			—			22,418			—			—
Unrealized gain on real estate securities, available for sale included in OCI	—			—			1,213			—			—
Losses:
Unrealized losses included in earnings	(33,241		)	(45,884		)	(75,523		)	29,275			—
Realized losses included in earnings	—			—			(5,886		)	3,859			—
Unrealized loss on real estate securities, available for sale included in OCI	—			—			(36,267		)	—			—
December 31, 2015	$	1,101,650		$	120,392		$	381,948		$	307,601		$	183,893
Gains (losses) included in earnings attributable to the change in unrealized gains (losses) relating to assets or liabilities still held	$	(33,241	)	$	(45,884	)	$	6,009		$	(29,275	)	$	31,279

____________________________________________________________

(1) Includes CRE debt investments made in connection with certain investments in unconsolidated ventures, for which the fair value option was elected.

(2) Transfers between Level 2 and Level 3 represent a fair value measurement from a third-party pricing service or broker quotations that have become more or less observable during the period. Transfers are assumed to occur at the beginning of the year.

(3) Excludes one derivative instrument, which for the year ended December 31, 2015, an unrealized loss of $95.9 million was recorded. Such amount is net of an unrealized gain of $23.1 million related to a credit valuation adjustment.

There were no transfers, other than those identified in the tables above, during the periods ended June 30, 2016 and December 31, 2015.

The Company relies on the third-party pricing exception with respect to the requirement to provide quantitative disclosures about significant Level 3 inputs being used to determine fair value measurements related to CRE securities (including N-Star CDO bonds), junior subordinated notes and CDO bonds payable. The Company believes such pricing service or broker quotation for such items may be based on a market transaction of comparable securities, inputs including forecasted market rates, contractual terms, observable discount rates for similar securities and credit (such as credit support and delinquency rates).

For the six months ended June 30, 2016, quantitative information about the Company’s remaining Level 3 fair value measurements on a recurring basis are as follows (dollars in thousands):

	Fair Value		Valuation Technique	Key Unobservable Inputs(2)	Weighted Average
PE Investments	$	838,863	Discounted Cash Flow Model	Discount Rate	14%
Investments in unconsolidated ventures(1)	$	118,814	Discounted Cash Flow Model/Credit Spread	Discount Rate/Credit Spread	26%
N-Star CDO equity	$	35,021	Discounted Cash Flow Model	Discount Rate	18%

_________________________________________

(1) Includes CRE debt investments made in connection with an investment in unconsolidated venture, for which the fair value option was elected.

(2) Includes timing and amount of expected future cash flow.

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Significant increases (decreases) in any one of the inputs described above in isolation may result in a significantly different fair value for the financial assets and liabilities using such Level 3 inputs.

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis

Non-financial assets and liabilities measured at fair value on a non-recurring basis in the consolidated financial statements consist of real estate held for sale or assets for which an impairment has been recorded, such as goodwill. Such fair value measurements are generally considered to be Level 3 within the valuation hierarchy, where applicable, based on estimated sales price, adjusted for closing costs and expenses, determined by discounted cash flow analysis, direct capitalization analyses or a sales comparison approach if no contracts had been consummated. The discounted cash flow and direct capitalization analyses include all estimated cash inflows and outflows over a specific holding period and, where applicable, any estimated debt premiums. This cash flow is comprised of unobservable inputs which included forecasted rental revenues and expenses based upon existing in-place leases, market conditions and expectations for growth. Capitalization rate and discount rate used in these analyses are based upon observable rates that the Company believes to be within a reasonable range of current market rates for the respective properties.

Valuations are prepared using internally-developed valuation models. These valuations are reviewed and approved, during each reporting period, by management, as deemed necessary, including personnel from the accounting, finance and operations and the valuations are updated as appropriate. In addition, the Company may engage third-party valuation experts to assist with the preparation of certain of its valuations.

Fair Value Option

The Company has historically elected to apply the fair value option for the following financial assets and liabilities existing at the time of adoption or at the time the Company recognizes the eligible item for the purpose of consistent accounting application: CRE securities financed in N-Star CDOs; CDO bonds payable; and junior subordinated notes. Given past market volatility the Company had observed that the impact of electing the fair value option would generally result in additional variability to the Company’s consolidated statements of operations which management believes is not a useful presentation for such financial assets and liabilities. Therefore, the Company more recently has not elected the fair value option for new investments in CRE securities and securitization financing transactions. The Company may elect the fair value option for certain of its financial assets or liabilities due to the nature of the instrument. In the case of PE Investments, certain investments in unconsolidated ventures (refer to Note 6) and N-Star CDO equity, the Company elected the fair value option because management believes it is a more useful presentation for such investments. The Company determined recording such investments based on the change in fair value of projected future cash flow from one period to another better represents the underlying economics of the respective investment.

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The following table presents the fair value of financial instruments for which the fair value option was elected as of June 30, 2016 and December 31, 2015 (dollars in thousands):

	June 30, 2016		December 31, 2015
Assets:
PE Investments	$	838,863	$	1,101,650
Investments in unconsolidated ventures(1)	118,814		120,392
Real estate securities, available for sale:(2)
N-Star CDO equity	35,021		44,905
CMBS and other securities	16,405		48,711
CRE securities in N-Star CDOs
CMBS	296,325		326,511
Third-party CDO notes	5,820		6,685
Agency debentures	45,747		37,316
Unsecured REIT debt	8,827		8,976
Trust preferred securities	5,587		5,425
Subtotal CRE securities in N-Star CDOs	362,306		384,913
Subtotal real estate securities, available for sale	413,732		478,529
Total assets	$	1,371,409	$	1,700,571
Liabilities:
CDO bonds payable	$	277,657	$	307,601
Junior subordinated notes	184,259		183,893
Total liabilities	$	461,916	$	491,494

___________________________________________________________

(1) Includes CRE debt investments made in connection with certain investments in unconsolidated ventures, for which the fair value option was elected.

(2) June 30, 2016 excludes 25 CRE securities including $126.0 million of N-Star CDO bonds and $5.8 million of CRE securities, for which the fair value option was not elected. December 31, 2015 excludes 28 CRE securities including $216.7 million of N-Star CDO bonds and $6.9 million of CRE securities, for which the fair value option was not elected.

The Company attributes the change in the fair value of floating-rate liabilities to changes in instrument-specific credit spreads. For fixed-rate liabilities, the Company attributes the change in fair value to interest rate-related and instrument-specific credit spread changes.

Change in Fair Value Recorded in the Statements of Operations

The following table presents unrealized gains (losses) on investments and other related to the change in fair value of financial assets and liabilities in the consolidated statements of operations for the three and six months ended June 30, 2016 and 2015 (dollars in thousands):

	Three Months Ended   June 30,						Six Months Ended   June 30,
	2016			2015			2016			2015
Assets:
Real estate securities, available for sale(1)	$	(3,872	)	$	17,545		$	(14,026	)	$	22,057
PE Investments(1)	(5,176		)	(8,917		)	(8,950		)	(13,350		)
Investments in unconsolidated ventures(1)	(1,070		)	(9,343		)	(11,901		)	(9,343		)
Foreign currency remeasurement(2)	(13,256		)	11,802			(17,075		)	(5,739		)
Liabilities:
CDO bonds payable(1)	(1,540		)	(4,387		)	986			(13,575		)
Junior subordinated notes(1)	(9,129		)	9,927			(366		)	7,917
Subtotal unrealized gain (loss), excluding derivatives	(34,043		)	16,627			(51,332		)	(12,033		)
Derivatives	(70,458		)	(28,324		)	(186,106		)	(27,190		)
Subtotal unrealized gain (loss)	(104,501		)	(11,697		)	(237,438		)	(39,223		)
Net cash payments on derivatives (refer to Note 14)	(2,422		)	(3,011		)	(4,966		)	(6,059		)
Total	$	(106,923	)	$	(14,708	)	$	(242,404	)	$	(45,282	)

____________________________________________________________

(1) Represents financial assets and liabilities for which the fair value option was elected.

(2) Represents foreign currency remeasurement on investments, cash and deposits primarily denominated in British Pounds.

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NORTHSTAR REALTY FINANCE 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 June 30, 2016 and December 31, 2015 (dollars in thousands):

	June 30, 2016						December 31, 2015
	Principal / Notional Amount		Carrying Value		Fair Value		Principal / Notional Amount		Carrying Value		Fair Value
Financial assets:(1)
Real estate debt investments, net	$	415,362	$	360,964	$	361,002	$	555,354	$	501,474	$	594,698
Real estate debt investments, held for sale	—		—		—		225,037		224,677		224,677
Real estate securities, available for sale(2)	1,158,769		545,463		545,463		1,285,643		702,110		702,110
Derivative assets(2)(3)	3,893,397		24		24		4,173,872		116		116
Financial liabilities:(1)
Mortgage and other notes payable	$	7,038,279	$	6,927,095	$	7,191,644	$	7,297,081	$	7,164,576	$	7,175,374
Credit facilities and term borrowings	425,000		419,259		419,259		662,053		654,060		654,060
CDO bonds payable(2)(4)	407,532		277,657		277,657		436,491		307,601		307,601
Exchangeable senior notes	30,360		28,280		47,513		31,360		29,038		50,121
Junior subordinated notes(2)(4)	280,117		184,259		184,259		280,117		183,893		183,893
Derivative liabilities(2)(3)	2,193,919		289,160		289,160		2,225,750		103,293		103,293
Borrowings of properties held for sale	1,695,149		1,684,995		1,686,835		2,214,305		2,195,973		2,200,686

____________________________________________________________

(1) The fair value of other financial instruments not included in this table is estimated to approximate their carrying value.

(2) Refer to “Determination of Fair Value” above for disclosures of methodologies used to determine fair value.

(3) Derivative assets and liabilities exclude timing swaps with an aggregate notional amount of $28.0 million as of June 30, 2016 and December 31, 2015.

(4) The fair value option has been elected for these liabilities.

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.

Real Estate Debt Investments

For CRE debt investments, fair value was approximated 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. For any CRE debt investments that are deemed impaired, carrying value approximates fair value. The fair value of CRE debt investments held for sale is determined based on the expected sales price. Fair value measurements related to CRE debt are generally based on unobservable inputs and, as such, are classified as Level 3 of the fair value hierarchy.

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 comparable U.S. Treasury rates as of the end of the reporting period or market credit spreads over the rate payable on fixed rate U.S. Treasury 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. For the borrowings of properties held for sale, the Company uses available market information, which includes quoted market prices or recent transactions, if available, to estimate their fair value and are, therefore, based on observable inputs, and as such, are classified as Level 2 of the fair value hierarchy.

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Credit Facilities and Term Borrowings

As of the reporting date, the Company believes the carrying value of its credit facilities and term borrowings approximate fair value. These fair value measurements are based on observable inputs, and as such, are classified as Level 2 of the fair value hierarchy.

Exchangeable Senior Notes

For the exchangeable senior notes, the Company uses available market information, which includes quoted market prices or recent transactions, if available, to estimate their fair value and are, therefore, based on observable inputs, and as such, are classified as Level 2 of the fair value hierarchy.

14. Risk Management and Derivative Activities

Derivatives

The Company uses derivative instruments primarily to manage interest rate risk and such derivatives are not considered speculative. These derivative instruments are typically in the form of interest rate swap and cap agreements and the primary objective is to minimize interest rate risks associated with investment and financing 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 June 30, 2016 and December 31, 2015 (dollars in thousands):

	Number	Notional Amount(1)		Fair Value Net Asset (Liability)				Range of Fixed LIBOR / Forward Rate	Range of Maturity
As of June 30, 2016:
Interest rate caps	11	$	3,893,397	$	24			2.50% - 5.00%	August 2016 - June 2018
Interest rate swaps - N-Star CDOs	9	190,861		(5,119		)	(2)	5.02% - 5.25%	January 2017 - July 2018
Interest rate swaps - other	2	2,003,058		(284,041		)		3.39% - 4.17%	July 2023 - December 2029
Total	22	$	6,087,316	$	(289,136	)
As of December 31, 2015:
Interest rate caps	14	$	4,173,872	$	116			2.50% - 5.00%	January 2016 - December 2017
Interest rate swaps - N-Star CDOs	9	222,510		(7,321		)	(2)	5.02% - 5.25%	January 2017 - July 2018
Interest rate swaps - other	2	2,003,240		(95,972		)		3.39% - 4.17%	July 2023 - December 2029
Total	25	$	6,399,622	$	(103,177	)

____________________________________________________________

(1) Excludes timing swaps with a notional amount of $28.0 million as of June 30, 2016 and December 31, 2015.

(2) Interest rate swaps in consolidated N-Star CDOs are liabilities and are only subject to the credit risks of the respective CDO transaction. As the interest rate swaps are senior to all the liabilities of the respective CDO and the fair value of each of the CDO’s investments exceeded the fair value of the CDO’s derivative liabilities, a credit valuation adjustment was not recorded.

The change in number and notional amount of derivative instruments from December 31, 2015 relates to contractual notional amortization and the maturity of interest rate caps in the Company’s healthcare portfolio. The Company had no derivative financial instruments that were designated as hedges in qualifying hedging relationships as of June 30, 2016 and December 31, 2015.

The following table presents the fair value of derivative instruments, as well as their classification on the consolidated balance sheets, as of June 30, 2016 and December 31, 2015 (dollars in thousands):

	Balance Sheet	June 30, 2016		December 31, 2015
	Location
Interest rate caps	Other assets	$	24	$	116
Interest rate swaps	Derivative liabilities	$	289,160	$	103,293

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NORTHSTAR REALTY FINANCE 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 six months ended June 30, 2016 and 2015 (dollars in thousands):

		Three Months Ended   June 30,						Six Months Ended   June 30,
	Statements of Operations Location	2016			2015			2016			2015
Amount of gain (loss) recognized in earnings (loss):
Adjustment to fair value of interest rate swaps and caps	Unrealized gain (loss) on investments and other	$	(70,458	)	$	(28,324	)	$	(186,106	)	$	(27,190	)
Net cash payment on derivatives	Unrealized gain (loss) on investments and other	(2,422		)	(3,011		)	(4,966		)	(6,059		)
Amount of swap gain (loss) amortization from OCI into earnings	Interest expense—mortgage and corporate borrowings	(223		)	(223		)	(446		)	(488		)

The counterparty for the corporate interest rate swap held $147.4 million of cash margin as collateral against the derivative contract as of June 30, 2016. The Company’s counterparties did not hold any cash margin as collateral against the Company’s derivative contracts as of December 31, 2015.

Risk Management

Concentrations of credit risk arise when a number of tenants, operators or issuers 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 monitors its portfolios to identify potential concentrations of credit risks. With respect to the Company’s healthcare portfolio, for the three and six months endedJune 30, 2016, Senior Lifestyle Holding Company, LLC was the healthcare operator as it related to 71.0% and 72.7% of the Company’s resident fee income, respectively, and 10.3% and 10.5% of the Company’s total revenue, respectively. Otherwise, the Company has no other tenant or operator that generates 10% or more of its total revenue. The Company believes the remainder of its portfolios are reasonably well diversified and do not contain any unusual concentrations of credit risks.

15. 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.

Merger Related Arrangements and Other Costs

The Company entered into fee arrangements with service providers and advisors pursuant to which certain fees incurred by the Company in connection with the Mergers will become payable only if the Company consummates the Mergers. The Company has and will incur other professional fees related to the Mergers.  There can be no assurances that the Company will complete this or any other transaction. For the three months ended June 30, 2016, the Company recorded an aggregate of $7.0 million in transaction costs in the consolidated statements of operations. To the extent the Mergers are consummated, the Company anticipates incurring a significant amount of additional costs.

Guaranty Agreements

In connection with certain hotel acquisitions, the Company entered into guaranty agreements with various hotel franchisors, pursuant to which the Company guaranteed the franchisees’ obligations, including payments of franchise fees and marketing fees, for the term of the agreements, which expires from 2029 to 2034. As of June 30, 2016, the aggregate amount under these guarantees is $3.0 million.

In connection with the NRE Spin-off, the 4.635% senior stock-settlable notes issued by NorthStar Europe and due in December 2016 are senior unsubordinated and unsecured primary obligations of NorthStar Europe and the Company continues to guarantee payments subsequent to the NRE Spin-off. Subject to certain conditions, NorthStar Europe may elect to settle all or part of the principal amount of the senior notes in its common stock in lieu of cash. As of June 30, 2016, principal amount outstanding of such senior notes was $109.5 million.

16. Variable Interest Entities

As of June 30, 2016, the Company has identified certain consolidated and unconsolidated VIEs. Assets of each of the VIEs, other than the Operating Partnership, may only be used to settle obligations of the respective VIE. Creditors of each of the VIEs have

54

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

no recourse to the general credit of the Company. The Company identified several VIEs which were originally consolidated under the voting interest model prior to changes in the consolidation rules under U.S. GAAP (refer to Note 2).

Consolidated VIEs

The Company’s most significant newly identified consolidated VIEs are its Operating Partnership and certain properties that have non-controlling interests. These entities are VIEs because the non-controlling interests do not have substantive kick-out or participating rights and the Company is the primary beneficiary. The Operating Partnership consolidates certain properties that have non-controlling interests. Included in operating real estate, net on the Company’s consolidated balance sheets as of June 30, 2016 is $6.9 billion related to such consolidated VIEs. Included in mortgage and other notes payable on the Company’s consolidated balance sheets as of June 30, 2016 is $5.7 billion collateralized by the real estate assets of the related consolidated VIEs. Included in assets held for sale on the Company’s consolidated balance sheets as of June 30, 2016 is $2.1 billion related to such consolidated VIEs. Included in liabilities related to assets held for sale on the Company’s consolidated balance sheets as of June 30, 2016 is $1.5 billion collateralized by the real estate assets of the related consolidated VIEs. These balances are separate from the assets and liabilities related to the N-Star CDOs. Included in real estate securities, available for sale on the Company’s consolidated balance sheets as of June 30, 2016 is $0.4 billion related to the N-Star CDOs. Included in CDO bonds payable, at fair value on the Company’s consolidated balance sheets as of June 30, 2016 is $0.3 billion collateralized by the real estate securities of the related N-Star CDOs.

N-Star CDOs

As of June 30, 2016, the Company serves as collateral manager and/or special servicer for N-Star CDOs I and IX which are primarily collateralized by CRE securities. The Company consolidates these entities as the Company has the power to direct the activities that most significantly impact the economic performance of these CDOs, and therefore, continues to be the primary beneficiary.

The Company is not contractually required to provide financial support to any of the consolidated N-Star CDOs, however, the Company, in its capacity as collateral manager and/or special servicer, may in its sole discretion provide support such as protective and other advances it deems appropriate. The Company did not provide any other financial support to any of the consolidated N-Star CDOs for the six months endedJune 30, 2016 and 2015.

Unconsolidated VIEs

N-Star CDOs

The Company delegated the collateral management rights for N-Star CDOs IV, VI and VIII and the CapLease CDO on September 30, 2013 and the CSE CDO on December 31, 2013 to a third-party collateral manager/collateral manager delegate who is entitled to a percentage of the senior and subordinate collateral management fees. The Company continues to receive fees as named collateral manager or collateral manager delegate and retained administrative responsibilities. The Company evaluated the fees paid to the third-party collateral manager/collateral manager delegate and concluded that such fees represented a variable interest in the deconsolidated loan CDOs and that the third party was functioning as a principal. The Company determined that the delegation of the Company’s collateral management power in the CDOs was a VIE reconsideration event and concluded that these CDOs were still VIEs as the equity investors do not have the characteristics of a controlling financial interest. The Company then reconsidered if it was the primary beneficiary of such VIEs and determined that it no longer has the power to direct the activities that most significantly impact the economic performance of these CDOs, which includes but is not limited to selling collateral, and therefore is no longer the primary beneficiary of such CDOs. As a result, the Company does not consolidate the assets and liabilities for N-Star CDOs IV, VI and VIII, CSE CDO and the CapLease CDO. In September 2015, N-Star CDO IV was liquidated.

In March 2014, the Company determined it no longer had the power to direct the activities that most significantly impact the economic performance of N-Star CDO V due to the ability of a single party to remove the Company as collateral manager as a result of an existing event of default. The Company was no longer the primary beneficiary of N-Star CDO V, and as a result, in the first quarter 2014, the Company deconsolidated the assets and liabilities of this CDO.

In May 2014, the Company determined it no longer had the power to direct the activities that most significantly impact the economic performance of N-Star CDO III due to the ability of a single party to remove the Company as collateral manager as a result of an existing event of default. The Company was no longer the primary beneficiary of N-Star CDO III, and as a result, in the second quarter 2014, the Company deconsolidated the assets and liabilities of this CDO.

Similar events of default in the future, if they occur, could cause the Company to deconsolidate its remaining consolidated N-Star CDO financing transactions.

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Other Unconsolidated VIEs

Based on management’s analysis, the Company is not the primary beneficiary of the VIEs summarized below and as such, these VIEs are not consolidated into the Company’s financial statements as of June 30, 2016. These unconsolidated VIEs are summarized as follows:

Real Estate Debt Investments

The Company identified one CRE debt investment with a carrying value of $7.0 million as a variable interest in a VIE. The Company determined that it is not the primary beneficiary of such VIE, and as such, the VIE is not consolidated in the Company’s financial statements. For all other CRE debt investments, the Company determined that these investments are not VIEs and, as such, the Company continues to account for all CRE debt investments as loans.

Real Estate Securities

The Company identified CMBS and other securities (excluding CRE securities in consolidated N-Star CDOs and unconsolidated N-Star CDO bonds and equity) with a fair value of $183.2 million as variable interests in VIEs. The Company determined that either it was not the controlling class of such securitization or was the controlling class and the Company determined at that time and continues to believe that it does not currently or potentially hold a significant interest in such securitizations and, therefore, is not the primary beneficiary.

NorthStar Realty Finance Trusts

The Company owns all of the common stock of the Trusts. The Trusts were formed to issue trust preferred securities. The Company determined that the holders of the trust preferred securities were the primary beneficiaries of the Trusts. As a result, the Company did not consolidate the Trusts and has accounted for the investment in the common stock of the Trusts under the equity method. As of June 30, 2016, the Company’s carrying value and maximum exposure to loss related to its investment in the Trusts is $3.7 million and is recorded in investments in unconsolidated ventures on the consolidated balance sheets.

PE Investments

The Company determined all PE Investments are VIEs, with the exception of PE Investment I and II, as the non-controlling interests do not have substantive kick-out or participating rights. As of June 30, 2016, the Company’s investment in these entities is $724.8 million and the amount of expected future contributions is $54.8 million, of which $46.9 million is expected to be assumed as part of a sale of a portfolio of PE Investments.

Summary of Unconsolidated VIEs

The following table presents the classification, carrying value and maximum exposure of unconsolidated VIEs as of June 30, 2016 (dollars in thousands):

	Junior Subordinated Notes, at Fair Value			Real Estate Debt Investments, Net		Real Estate Securities, Available for Sale		PE Investments		Total		Maximum Exposure to Loss(1)
Real estate debt investments, net	$	—		$	6,966	$	—	$	—	$	6,966	$	6,966
Investments in unconsolidated ventures	3,742			—		—		—		3,742		3,742
Investments in private equity funds, at fair value	—			—		—		724,839		724,839		724,839
Real estate securities, available for sale:
N-Star CDO bonds	—			—		125,972		—		125,972		125,972
N-Star CDO equity	—			—		35,021		—		35,021		35,021
CMBS	—			—		22,164		—		22,164		22,164
Subtotal real estate securities, available for sale	—			—		183,157		—		183,157		183,157
Total assets	3,742			6,966		183,157		724,839		918,704		918,704
Junior subordinated notes, at fair value	184,259			—		—		—		184,259		NA
Total liabilities	184,259			—		—		—		184,259		NA
Net	$	(180,517	)	$	6,966	$	183,157	$	724,839	$	734,445	$	918,704

____________________________________________________________

(1) The Company’s maximum exposure to loss as of June 30, 2016 would not exceed the carrying value of its investment.

Other than described above as it relates to expected future fundings on PE Investments, the Company is not contractually required to provide financial support to any of its unconsolidated VIEs during the six months endedJune 30, 2016 and 2015 however, the Company, in its capacity as collateral manager/collateral manager delegate and/or special servicer of the deconsolidated N-Star

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

CDOs, may in its sole discretion provide support such as protective and other advances it deems appropriate. As of June 30, 2016, there were no explicit arrangements or implicit variable interests that could require the Company to provide financial support to any of its unconsolidated VIEs.

17. Segment Reporting

The Company currently conducts its business through the following five segments (excluding the European real estate business which the Company spun off on October 31, 2015, which is no longer a separate operating segment), based on how management reviews and manages its business:

• Real Estate - The real estate business pursues various types of investments in commercial real estate located throughout the United States that includes healthcare, hotel, net lease and multi-tenant office properties. In addition, it includes certain healthcare properties located outside of the United States and PE Investments diversified by property type and geography. In addition, the Company is also invested in manufactured housing communities and multifamily properties, which the Company has recently entered into agreements to sell.

• Healthcare - The healthcare properties are comprised of a diverse portfolio of medical office buildings, senior housing, skilled nursing and other healthcare properties. The majority of the healthcare properties are medical office buildings and properties structured under a net lease to healthcare operators. In addition, the Company owns senior operating facilities, which include healthcare properties that operate through management agreements with independent third-party operators, predominantly through structures permitted by RIDEA that permit the Company, through a TRS, to have direct exposure to resident fee income and incur customary related operating expenses. In March 2016, the Company sold its 60% interest in a $899 million Senior Housing Portfolio for $534.5 million. The buyer assumed the Company’s portion of the $648.2 million of related mortgage financing and the Company received approximately $149.4 million of proceeds, net of sales costs.

• Hotel - The hotel portfolio is a geographically diverse portfolio primarily comprised of extended stay hotels and premium branded select service hotels primarily located in major metropolitan markets with the majority affiliated with top hotel brands.

• Manufactured Housing - The manufactured housing portfolio consists of communities that lease pad rental sites for placement of factory built homes located throughout the United States. In addition, the portfolio includes manufactured homes and receivables related to the financing of homes sold to residents. In May 2016, the Company entered into an agreement to sell its manufactured housing portfolio for $2.0 billion with $1.3 billion of related mortgage financing expected to be assumed as part of the transaction. The Company expects to receive $614.8 million of net proceeds. The Company expects the transaction to close in the first quarter 2017. Such assets and related liabilities are classified as held for sale on the Company’s consolidated balance sheet.

• Net Lease - The net lease properties are primarily industrial, office and retail properties typically under net leases to corporate tenants. The Company is in the process of redeeming its interests in the Industrial Portfolio for $169 million of net proceeds. The Company expects the transaction to close in the third quarter 2016.

• Multifamily - The multifamily portfolio primarily focuses on properties located in suburban markets that are well suited to capture the formation of new households. The Company entered into agreements to sell ten multifamily properties for $307 million with $210 million of mortgage financing expected to be assumed as part of the transaction. In June 2016, the Company sold four multifamily properties for $32.8 million of net proceeds and expects to sell the remaining six properties in the third quarter 2016 for $53.4 million of net proceeds. The Company continues to explore the sale of the remaining two properties, including one accounted for as an investment in unconsolidated venture. Such assets and related liabilities are classified as held for sale on the Company’s consolidated balance sheet.

• Multi-tenant Office - The Company pursues the acquisition of multi-tenant office properties currently focused on the western United States.

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

• PE Investments - The real estate business also includes investments (directly or indirectly in joint ventures) owning PE Investments managed by institutional quality sponsors and diversified by property type and geography. In February 2016, the Company sold substantially all of its interest in PE Investment II for $184.1 million of proceeds. In August 2016, the Company entered into an agreement to sell a portfolio of PE Investments for a gross sales price of $317.6 million with $44.4 million of deferred purchase price expected to be assumed as part of the transaction. The Company expects to receive $247.0 million of net proceeds in the fourth quarter 2016. There is no assurance the Company will consummate the transaction on the contemplated terms, if at all. Refer to Note 9. Related Party Arrangements for further disclosure.

• Commercial Real Estate Debt - The CRE debt business is focused on originating, acquiring and asset managing senior and subordinate debt investments secured primarily by commercial real estate and includes first mortgage loans, subordinate mortgage and mezzanine loans and participations in such loans and preferred equity interests. The Company may from time to time take title to collateral in connection with a CRE debt investment as REO which would be included in the CRE debt business. In 2016, the Company sold and received repayment for 13 debt investments and a REO with a total principal amount of $383.0 million and used $72.1 million of proceeds to pay down the Company’s loan facility in full, resulting in $307.5 million of net proceeds.

• Commercial Real Estate Securities - The CRE securities business is predominately comprised of N-Star CDO bonds and N-Star CDO equity of deconsolidated N-Star CDOs and includes other securities, mostly CMBS meaning each asset is a pool backed by a large number of commercial real estate loans. The Company also invests in opportunistic CRE securities such as an investment in a “B-piece” CMBS. In 2016, the Company sold certain CRE securities for $53.9 million of net proceeds.

• N-Star CDOs -The Company historically originated or acquired CRE debt and securities investments that were predominantly financed through permanent, non-recourse CDOs. The Company’s remaining consolidated CDOs are past the reinvestment period and given the nature of these transactions, these CDOs are amortizing over time as the underlying assets pay down or are sold. The Company has been winding down its legacy CDO business and investing in a broad and diverse range of CRE assets. As a result, this distinct business is a significantly smaller portion of its business today than in the past. As of June 30, 2016, only N-Star securities CDOs I and IX continue to be consolidated. Refer to Note 16 for further disclosure regarding deconsolidated N-Star CDOs. The Company continues to receive collateral management fees related to administrative responsibilities for deconsolidated N-Star CDO financing transactions, which are recorded in other revenue and included in the N-Star CDOs segment.

• Corporate - The corporate segment includes NSAM management fees incurred, corporate level interest income and interest expense and general and administrative expenses.

The Company primarily generates revenue from rental income from its real estate properties, operating income from healthcare and hotel properties permitted by the RIDEA and net interest income on the CRE debt and securities portfolios. Additionally, the Company records equity in earnings of unconsolidated ventures, including from PE Investments. The Company’s income is primarily derived through the difference between revenue and the cost at which the Company is able to finance its investments. The Company may also acquire investments which generate attractive returns without any leverage.

The following tables present segment reporting for the three and six months endedJune 30, 2016 and 2015 (dollars in thousands):

Statement of Operations:										N-Star CDOs(2)
Three months ended June 30, 2016	Real Estate(1)				CRE Debt			CRE Securities		CRE Securities			Corporate				Consolidated Total
Rental and escalation income	$	170,758			$	—		$	—	$	—		$	—			$	170,758
Hotel related income	221,962				—			—		—			—				221,962
Resident fee income	73,428				—			—		—			—				73,428
Net interest income on debt and securities	3,083			(3)	10,983			11,740		4,260		(4)	5,914			(4)	35,980
Interest expense—mortgage and corporate borrowings	107,703				—			—		—			10,242				117,945
Income (loss) before equity in earnings (losses) and income tax benefit (expense)	11,580			(5)	11,548			4,520		905			(154,537		)	(6)	(125,984		)
Equity in earnings (losses) of unconsolidated ventures	31,184				—			—		—			(55		)		31,129
Income tax benefit (expense)	(735		)		(184		)	—		—			—				(919		)
Income (loss) from continuing operations	42,029				11,364			4,520		905			(154,592		)		(95,774		)
Net income (loss)	42,029				11,364			4,520		905			(154,592		)		(95,774		)

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

___________________________________

(1) Includes $9.0 million of rental and escalation income and $0.2 million of net income from a portfolio of healthcare assets located in the United Kingdom.

(2) Based on CDO financing transactions that were primarily collateralized by CRE securities and may include other types of investments. $0.3 million of collateral management fees were earned from CDO financing transactions, of which $0.2 million was eliminated in consolidation. The eliminated amounts are recorded as other revenue in the Corporate segment and as an expense in the N-Star CDO segment.

(3) Primarily represents interest income earned from notes receivable on manufactured homes and interest income on loans in the Company’s healthcare portfolio.

(4) Represents income earned from N-Star CDO bonds repurchased at a discount, recognized using the effective interest method, that is eliminated in consolidation. The corresponding interest expense is recorded in net interest income in the N-Star CDOs segment.

(5) Primarily relates to depreciation and amortization of $87.4 million.

(6) Includes management fees to NSAM of $46.7 million and an unrealized loss on a derivative instrument of $73.1 million.

Statement of Operations:											N-Star CDOs(1)
Three months ended June 30, 2015:	Real Estate				CRE Debt			CRE Securities			CRE Securities			Corporate				European Real Estate(2)				Consolidated Total
Rental and escalation income	$	179,975			$	—		$	—		$	7		$	—			$	—			$	179,982
Hotel related income	206,130				—			—			—			—				—				206,130
Resident fee income	65,833				—			—			—			—				—				65,833
Net interest income on debt and securities	1,490			(3)	25,345			14,915			12,816		(4)	2,964			(4)	—				57,530
Interest expense—mortgage and corporate borrowings	105,416				—			—			—			14,759				—				120,175
Income (loss) before equity in earnings (losses) and income tax benefit (expense)	(13,706		)	(5)	24,949			38,364			2,851			(100,653		)	(6)	—				(48,195		)
Equity in earnings (losses) of unconsolidated ventures	57,736				—			—			—			—				—				57,736
Income tax benefit (expense)	(9,845		)		(206		)	(37		)	—			—				—				(10,088		)
Income (loss) from continuing operations	34,185				24,743			38,327			2,851			(100,653		)		—				(547		)
Income (loss) from discontinued operations	—				—			—			—			—				(83,795		)	(7)	(83,795		)
Net income (loss)	34,185				24,743			38,327			2,851			(100,653		)		(83,795		)		(84,342		)

___________________________________

(1) Based on CDO financing transactions that were primarily collateralized by either CRE debt or securities and may include other types of investments. $1.4 million of collateral management fees were earned from CDO financing transactions, of which $0.3 million were eliminated in consolidation. The eliminated amounts are recorded as other revenue in the Corporate segment and as an expense in the N-Star CDO segment.

(2) Prior to the NRE Spin-off, the Company generated rental and escalation income from its European properties. The European real estate segment represents the consolidated results of operations and balance sheet of such European real estate business which was transferred to NorthStar Europe in connection with the NRE Spin-off. Amounts related to the European real estate business are reported in discontinued operations. Represents the consolidated statements of operations of NRE reported in discontinued operations and includes an allocation of indirect expenses from the Company (refer to Note 3).

(3) Primarily represents interest income earned from notes receivable on manufactured homes and interest income on loans in the Company’s healthcare portfolio.

(4) Represents income earned from N-Star CDO bonds repurchased at a discount, recognized using the effective interest method, that is eliminated in consolidation. The corresponding interest expense is recorded in net interest income in the N-Star CDO segments.

(5) Primarily relates to transaction costs of $14.8 million and depreciation and amortization of $112.0 million.

(6) Includes management fees to NSAM of $51.7 million.

(7) Primarily relates to transaction costs of $94.7 million and depreciation and amortization of $15.4 million.

Statement of Operations:										N-Star CDOs(2)
Six months ended June 30, 2016	Real Estate(1)				CRE Debt			CRE Securities		CRE Securities			Corporate				Consolidated Total
Rental and escalation income	$	362,192			$	—		$	—	$	—		$	—			$	362,192
Hotel related income	415,705				—			—		—			—				415,705
Resident fee income	146,205				—			—		—			—				146,205
Net interest income on debt and securities	5,667			(3)	24,015			23,230		12,724		(4)	11,117			(4)	76,753
Interest expense—mortgage and corporate borrowings	220,680				—			—		—			21,767				242,447
Income (loss) before equity in earnings (losses) and income tax benefit (expense)	19,958			(5)	18,127			915		3,736			(332,914		)	(6)	(290,178		)
Equity in earnings (losses) of unconsolidated ventures	75,760				—			—		—			24				75,784
Income tax benefit (expense)	(8,451		)		(311		)	—		—			—				(8,762		)
Income (loss) from continuing operations	87,267				17,816			915		3,736			(332,890		)		(223,156		)
Net income (loss)	87,267				17,816			915		3,736			(332,890		)		(223,156		)

___________________________________

(1) Includes $17.9 million of rental and escalation income and $0.7 million of net income from a portfolio of healthcare assets located in the United Kingdom.

(2) Based on CDO financing transactions that were primarily collateralized by CRE securities and may include other types of investments. $1.3 million of collateral management fees were earned from CDO financing transactions, of which $0.3 million was eliminated in consolidation. The eliminated amounts are recorded as other revenue in the Corporate segment and as an expense in the N-Star CDO segment.

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(3) Primarily represents interest income earned from notes receivable on manufactured homes and interest income on loans in the Company’s healthcare portfolio.

(4) Represents income earned from N-Star CDO bonds repurchased at a discount, recognized using the effective interest method, that is eliminated in consolidation. The corresponding interest expense is recorded in net interest income in the N-Star CDOs segment.

(5) Primarily relates to depreciation and amortization of $175.2 million.

(6) Includes management fees to NSAM of $93.2 million and an unrealized loss on a derivative instrument of $183.2 million.

Statement of Operations:											N-Star CDOs(1)
Six months ended June 30, 2015:	Real Estate				CRE Debt			CRE Securities			CRE Securities		Corporate				European Real Estate(2)				Consolidated Total
Rental and escalation income	$	344,722			$	—		$	—		$	302	$	—			$	—			$	345,024
Hotel related income	374,857				—			—			—		—				—				374,857
Resident fee income	129,206				—			—			—		—				—				129,206
Net interest income on debt and securities	3,381			(3)	56,869			31,998			23,317		5,625			(4)	—				121,190
Interest expense—mortgage and corporate borrowings	205,553				—			—			—		27,631				—				233,184
Income (loss) before equity in earnings (losses) and income tax benefit (expense)	(50,835		)	(5)	55,781			72,362			4,337		(182,235		)	(6)	—				(100,590		)
Equity in earnings (losses) of unconsolidated ventures	111,379				—			—			—		—				—				111,379
Income tax benefit (expense)	(11,487		)		(228		)	(37		)	—		—				—				(11,752		)
Income (loss) from continuing operations	49,057				55,553			72,325			4,337		(182,235		)		—				(963		)
Income (loss) from discontinued operations	—				—			—			—		—				(97,655		)	(7)	(97,655		)
Net income (loss)	49,057				55,553			72,325			4,337		(182,235		)		(97,655		)		(98,618		)

___________________________________

(1) Based on CDO financing transactions that were primarily collateralized by CRE securities and may include other types of investments. $2.8 million of collateral management fees were earned from CDO financing transactions, of which $1.2 million were eliminated in consolidation. The eliminated amounts are recorded as other revenue in the Corporate segment and as an expense in the N-Star CDO segment.

(2) Prior to the NRE Spin-off, the Company generated rental and escalation income from its European properties. The European real estate segment represents the consolidated results of operations and balance sheet of such European real estate business which was transferred to NorthStar Europe in connection with the NRE Spin-off. Amounts related to the European real estate business are reported in discontinued operations. Represents the consolidated statements of operations of NRE reported in discontinued operations and includes an allocation of indirect expenses from the Company (refer to Note 3).

(3) Primarily represents interest income earned from notes receivable on manufactured homes.

(4) Represents income earned from CDO bonds repurchased at a discount, recognized using the effective interest method, that is eliminated in consolidation. The corresponding interest expense is recorded in net interest income in the N-Star CDOs segment.

(5) Primarily relates to transaction costs of $19.2 million and depreciation and amortization of $220.5 million.

(6) Includes management fees to NSAM of $100.0 million.

(7) Primarily relates to transaction costs of $107.0 million and depreciation and amortization of $16.2 million.

The following table presents total assets by segment as of June 30, 2016 and December 31, 2015 (dollars in thousands):

							N-Star CDOs(1)
Total Assets	Real Estate		CRE Debt		CRE Securities		CRE Securities		Corporate		Consolidated Total
June 30, 2016	$	12,416,481	$	269,833	$	188,228	$	399,327	$	633,481	$	13,907,350
December 31, 2015	$	13,871,796	$	661,348	$	319,937	$	422,953	$	128,367	$	15,404,401

______________________________________

(1) Based on CDO financing transactions that are primarily collateralized by CRE securities and may include other types of investments.

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

18. Supplemental Disclosures of Non-cash Investing and Financing Activities

The following table presents non-cash investing and financing activities for the six months endedJune 30, 2016 and 2015 (dollars in thousands):

	Six Months Ended June 30,
	2016		2015
Assignment of mortgage note payable upon sale of real estate	$	648,211	$	—
Reclassification of operating real estate, net to assets held for sale	355,374		18,169
Reclassification of mortgage note payable to liabilities held for sale	223,582		12,290
Non-controlling interest – sale of subsidiary	88,604		—
Reclassification of intangible assets to assets held for sale	62,199		—
Reclassification of other assets to assets held for sale	42,692		—
Reclassification of restricted cash to assets held for sale	22,941		—
Escrow deposit payable related to CRE debt investments	7,620		38,823
Non-controlling interests—reallocation of interest in Operating Partnership	3,880		—
Amounts payable relating to improvements of operating real estate	2,253		—
Amounts payable relating to real estate related pending deal costs	2,087		—
Dividends payable related to RSUs	1,939		3,002
Conversion of exchangeable senior notes	856		11,228
Non-cash related to PE Investments	97		30,826
Reclassification of operating real estate to intangible assets	—		165,784
Reduction of assets and liabilities held for sale via taking title	—		28,962
Reclassification of other assets to operating real estate	—		25,577
Acquired assets and liabilities in connection with European real estate	—		19,178
Conversion of Deferred LTIP Units to LTIP Units	—		18,730

19. Subsequent Events

Dividends

On August 2, 2016, the Company declared a dividend of $0.40 per share of common stock. The common stock dividend will be paid on August 19, 2016 to stockholders of record as of the close of business on August 15, 2016. On July 28, 2016, the Company declared a dividend of $0.54688 per share of Series A preferred stock, $0.51563 per share of Series B preferred stock, $0.55469 per share of Series C preferred stock, $0.53125 per share of Series D Preferred Stock and $0.54688 per share of Series E Preferred Stock. Dividends will be paid on all series of preferred stock on August 15, 2016 to stockholders of record as of the close of business on August 8, 2016.

Colony NorthStar Registration Statement

On July 29, 2016, Colony NorthStar, a Maryland subsidiary of NSAM that will be the surviving parent company of the combined company, filed with the SEC a registration statement on Form S-4 that includes a joint proxy statement of NSAM, Colony and the Company and that also constitutes a prospectus of Colony NorthStar.

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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 “N-Star,” “NorthStar Realty,” the “Company,” “we,” “us” or “our” refer to NorthStar Realty Finance Corp. and its subsidiaries unless the context specifically requires otherwise.

Introduction

We are a diversified commercial real estate company, with 91% of our total assets invested directly or indirectly in real estate. We generated 92% of our revenue from our real estate portfolio for the six months endedJune 30, 2016. We invest in multiple asset classes across commercial real estate, or CRE, that we expect will generate attractive risk-adjusted returns and may take the form of acquiring real estate, originating or acquiring senior or subordinate loans, as well as pursuing opportunistic CRE investments. We seek to generate stable cash flow for distribution to our stockholders through our diversified portfolio of commercial real estate assets and in turn build long-term franchise value. However, given recent market conditions, we are currently focused on exploring sales to generate liquidity.

We are a Maryland corporation and completed our initial public offering in October 2004. We conduct our operations so as to continue to qualify as a real estate investment trust, or REIT, for U.S. federal income tax purposes. We are externally managed and advised by an affiliate of NorthStar Asset Management Group Inc. (NYSE: NSAM), which together with its affiliates is referred to as NSAM.

Significant Developments

Merger Agreement with NSAM and Colony Capital, Inc.

In June 2016, we announced that we entered into a merger agreement with NSAM and Colony Capital, Inc., or Colony, under which the companies will combine in an all-stock merger of equals transaction to create an internally-managed, diversified real estate and investment management platform, or Mergers. The transaction has been unanimously approved by our and NSAM’s special committee and board of directors and the board of directors of Colony.

Under the terms of the merger agreement, NSAM will redomesticate to Maryland and elect to be treated as a REIT beginning in 2017 and us and Colony, through a series of transactions, will merge with and into the redomesticated NSAM, which will be renamed Colony NorthStar, Inc. Our common stockholders will receive 1.0996 shares of Colony NorthStar’s common stock for each share of common stock they own. Holders of preferred stock will receive shares of preferred stock of Colony NorthStar that are substantially similar to the preferred stock held prior to the closing of the transaction. Upon completion of the transaction, NSAM stockholders will own approximately 32.85%, Colony stockholders will own approximately 33.25% and our stockholders will own approximately 33.90% of the combined company on a fully diluted basis, excluding the effect of certain equity-based awards issuable in connection with the Mergers.

The transaction is expected to close in January 2017, subject to, among other things, regulatory approvals and the receipt of NorthStar Realty’s, Colony’s and NSAM’s respective stockholder approvals.

Sales Initiatives

We continue to execute a series of sales initiatives including: (i) sales of all or portions of certain real estate assets; (ii) sales of all or a portion of our limited partnership interests in real estate private equity funds, or PE Investments; and (iii) sales and/or accelerated repayments of our CRE debt and securities investments.

Since the beginning of the fourth quarter 2015 through August 2016, assets sold or committed to sell totaled $4.5 billion, of which net proceeds to us received or expected to be received totaled approximately $1.9 billion.

Summary of Business

Our primary business lines are as follows:

• Real Estate - Our real estate business pursues various types of investments in commercial real estate located throughout the United States that includes healthcare, hotel, net lease and multi-tenant office properties. In addition, it includes certain healthcare properties located outside of the United States and PE Investments, diversified by property type and geography. In addition, we are also invested in manufactured housing communities and multifamily properties, which we have recently entered into agreements to sell.

• Healthcare - Our healthcare properties are comprised of a diverse portfolio of medical office buildings, senior housing, skilled nursing and other healthcare properties. The majority of our healthcare properties are medical office buildings and properties structured under a net lease to healthcare operators. In addition, we own senior operating facilities, which include healthcare properties that operate through management agreements with independent third-party operators, predominantly through structures permitted by the REIT Investment Diversification and Empowerment Act

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of 2007, or RIDEA, that permit us, through a taxable REIT subsidiary, or TRS, to have direct exposure to resident fee income and incur customary related operating expenses. In March 2016, we sold our 60% interest in a $899 million portfolio of independent living facilities, or Senior Housing Portfolio, for $535 million. The buyer assumed our portion of the $648 million of related mortgage financing and we received approximately $150 million of proceeds, net of sales costs.

• Hotel - Our hotel portfolio is a geographically diverse portfolio primarily comprised of extended stay hotels and premium branded select service hotels primarily located in major metropolitan markets with the majority affiliated with top hotel brands.

• Manufactured Housing - Our manufactured housing portfolio consists of communities that lease pad rental sites for placement of factory built homes located throughout the United States. In addition, the portfolio includes manufactured homes and receivables related to the financing of homes sold to residents. In May 2016, we entered into an agreement to sell our manufactured housing portfolio for $2.0 billion with $1.3 billion of related mortgage financing expected to be assumed as part of the transaction. We expect to receive $615 million of net proceeds. We expect the transaction to close in the first quarter 2017. Such assets and related liabilities are classified as held for sale on our consolidated balance sheet.

• Net Lease - Our net lease properties are primarily industrial, office and retail properties typically under net leases to corporate tenants. We are in the process of redeeming our interests in a net lease industrial real estate portfolio, or Industrial Portfolio, for $169 million of net proceeds. We expect the transaction to close in the third quarter 2016; however, there is no assurance we will enter into a definitive agreement for the transaction on the contemplated terms, if at all.

• Multifamily - Our multifamily portfolio primarily focuses on properties located in suburban markets that are well suited to capture the formation of new households. We entered into agreements to sell ten multifamily properties for $307 million with $210 million of mortgage financing expected to be assumed as part of the transaction. In June 2016, we sold four multifamily properties for $33 million of net proceeds and expect to sell the remaining six properties in the third quarter 2016 for $53 million of net proceeds. We continue to explore the sale of the remaining two properties, including one accounted for as an investment in unconsolidated venture. Such assets and related liabilities are classified as held for sale on our consolidated balance sheet.

• Multi-tenant Office - We pursue the acquisition of multi-tenant office properties currently focused on the western United States.

• PE Investments - Our real estate business also includes investments (directly or indirectly in joint ventures) owning PE Investments managed by institutional quality sponsors and diversified by property type and geography. In February 2016, we sold substantially all of our interest in PE Investment II for $184 million of proceeds. In August 2016, we entered into an agreement to sell a portfolio of PE Investments for a gross sales price of $318 million with $44 million of deferred purchase price expected to be assumed as part of the transaction. We expect to receive $247 million of net proceeds in the fourth quarter 2016. There is no assurance we will consummate the transaction on the contemplated terms, if at all.

• Commercial Real Estate Debt - Our CRE debt business is focused on originating, acquiring and asset managing senior and subordinate debt investments secured primarily by commercial real estate and includes first mortgage loans, subordinate mortgage and mezzanine loans and participations in such loans and preferred equity interests. We may from time to time take title to collateral in connection with a CRE debt investment as real estate owned, or REO, which would be included in our CRE debt business. In 2016, we sold and received repayment for 13 debt investments and a REO with a total principal amount of $383 million and used $72 million of proceeds to pay down our loan facility in full, resulting in $308 million of net proceeds.

• Commercial Real Estate Securities - Our CRE securities business is predominately comprised of N-Star CDO bonds and N-Star CDO equity of deconsolidated N-Star CDOs and includes other securities, mostly conduit commercial mortgage-backed securities, or CMBS, meaning each asset is a pool backed by a large number of commercial real estate loans. We also invest in opportunistic CRE securities such as an investment in a “B-piece” CMBS. In 2016, we sold certain CRE securities for $54 million of net proceeds.

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We have the ability to invest in a broad spectrum of commercial real estate assets and seek to provide attractive risk-adjusted returns. Our ability to invest across the CRE market creates complementary and overlapping sources of investment opportunities based upon common reliance on real estate fundamentals and application of similar portfolio management skills to maximize value and to protect capital. Additionally, we have pursued opportunistic investments across all our business lines including CRE equity and debt investments. Examples of opportunistic investments have included PE Investments, strategic joint ventures and repurchasing our CDO bonds at a discount to their principal amount.

We have not been actively raising capital due to current market conditions. However, in 2015, we issued aggregate capital of $1.3 billion from the issuance of common equity.

We predominantly use investment-level financing as part of our strategy to prudently leverage our investments and deliver attractive risk-adjusted returns to our stockholders. We pursue a variety of financing arrangements such as mortgage notes from the CMBS market, government-sponsored agencies, finance companies, banks and securitization financing transactions. In addition, we 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 CRE investments may be dependent upon the nature of the assets and the related financing that is available.

The availability of attractive long-term, non-recourse, non mark-to-market, assignable financing through the CMBS and agency financing markets bolstered opportunities to acquire real estate in the past few years. For longer duration, stable investment cash flow such as those derived from net lease assets, we tend to use fixed rate financing. For investment cash flow with greater growth potential such as hotels and healthcare under a RIDEA structure, we tend to use floating rate financing which provides prepayment flexibility and may provide a better match between underlying cash flow and potential increases in interest rates.

Our financing strategy for debt investments is to obtain match-funded borrowing at rates that provide a positive net spread. In late 2011, we began using secured term credit facilities provided by major financial institutions to partially finance CRE debt which currently provide for an aggregate of up to $200 million. Additionally, we have historically demonstrated the ability to securitize our CRE debt investments and expect to continue to pursue similar transactions to finance our newly-originated debt investments that might initially be financed on our credit facilities. In November 2012 and August 2013, we, and on behalf of NorthStar Income entered into securitization financing transactions with an aggregate $610 million of principal amount of bonds issued providing permanent, non-recourse, non-mark-to-market financing for newly-originated CRE debt investments of ours and NorthStar Income. We will continue to seek to use the capital markets to finance any new debt investments. In January 2015, Securitization 2012-1 with $228 million principal amount of original bonds issued was repaid in full.

With respect to corporate-level financing, in August 2014, we entered into a corporate revolving credit facility, or Corporate Revolver, with certain commercial bank lenders, with a total current commitment amount of $250 million for a three-year term. In September 2014, we entered into a corporate term borrowing with a commercial bank lender with respect to the establishment of term borrowings. In February 2016, our Corporate Revolver was repaid and we expect our remaining corporate recourse borrowings to be repaid from proceeds from sales initiatives. Refer to Liquidity and Capital Resources for further discussion.

We believe that we maintain a competitive advantage through a combination of deep industry relationships and access to market leading CRE credit underwriting and capital markets expertise which enables us to manage credit risk across our business lines as well as to structure and finance our assets efficiently. Our ability to invest across the spectrum of commercial real estate investments allows us to take advantage of complementary and overlapping sources of investment opportunities based on a common reliance on CRE fundamentals and application of similar underwriting and asset management skills as we seek to maximize stockholder value and to protect our capital. However, we are currently focused on exploring sales to generate liquidity.

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Our Investments

The following table presents our investments as of June 30, 2016 and pro forma for sales and commitments to sell through August 2, 2016 (refer to the below for further discussion) (dollars in thousands):

					Pro Forma
	Amount(1)		%		Amount			%
Real Estate
Healthcare(2)	$	5,769,880	29.3	%	$	5,738,186	(3)	32.9	%
Hotel	3,438,474		17.4	%	3,438,474			19.7	%
Manufactured housing communities (held for sale)	1,769,326		9.0	%	—		(4)	—	%
Net lease(5)	752,299		3.8	%	752,299			4.3	%
Multifamily (held for sale)	262,298		1.3	%	93,468		(6)	0.5	%
Multi-tenant office	177,002		0.9	%	177,002			1.0	%
Subtotal	12,169,279		61.7	%	10,199,429			58.4	%
Private equity fund investments	841,816		4.3	%	521,968		(7)	3.0	%
Corporate investments(8)	109,058		0.6	%	109,058			0.6	%
Total real estate	13,120,153		66.6	%	10,830,455			62.0	%
CRE Debt
CRE debt	375,686		1.9	%	375,686			2.2	%
CRE debt of consolidated N-Star CDOs	39,676		0.2	%	39,676			0.2	%
Other	16,529		0.1	%	16,529			0.1	%
Total CRE debt	431,891		2.2	%	431,891			2.5	%
CRE Securities
N-Star CDO bonds(9)	511,122		2.6	%	511,122			2.9	%
N-Star CDO equity	63,931		0.3	%	63,931			0.4	%
Other securities	63,025		0.3	%	63,025			0.4	%
Total CRE securities	638,078		3.2	%	638,078			3.7	%
Subtotal	14,190,122		72.0	%	11,900,424			68.2	%
Assets underlying RXR Realty(10)	3,871,036		19.6	%	3,871,036			22.2	%
Assets underlying SteelWave(11)	970,661		4.9	%	970,661			5.6	%
Assets underlying deconsolidated CRE Debt CDOs(12)	676,612		3.5	%	676,612			4.0	%
Grand total	$	19,708,431	100.0	%	$	17,418,733		100.0	%

____________________________________________________________

(1) Based on cost for real estate investments which includes net purchase price allocation related to net intangibles, deferred costs and other assets, if any, fair value for PE Investments and includes the deferred purchase price for PE Investment II, carrying value for our corporate investments, principal amount for our CRE debt and securities investments and amortized cost for N-Star CDO equity. Represents 100% of all real estate assets in consolidated joint ventures.

(2) Includes $438 million of Sterling denominated real estate in the United Kingdom owned in connection with the acquisition of Griffin-American Healthcare REIT II, Inc., or Griffin-American or the Griffin-American Portfolio.

(3) In April 2016, a purchase option on one of our healthcare properties was exercised by the tenant.

(4) In May 2016, we entered into an agreement to sell our manufactured housing portfolio for $2.0 billion with $1.3 billion of related mortgage financing expected to be assumed as part of the transaction. We expect to receive $615 million of net proceeds, including a $50 million deposit made by the buyer. We expect the transaction to close in the first quarter 2017.

(5) We are in the process of redeeming our interests in our Industrial Portfolio for $169 million of net proceeds. We expect the transaction to close in the third quarter 2016; however, there is no assurance we will enter into a definitive agreement for the transaction on the contemplated terms, if at all.

(6) We entered into agreements to sell ten multifamily properties for $307 million with $210 million of mortgage financing expected to be assumed as part of the transaction. In June 2016, we sold four multifamily properties for $33 million of net proceeds and expect to sell the remaining six properties in the third quarter 2016 for $53 million of net proceeds. We continue to explore the sale of the remaining two properties.

(7) In August 2016, we entered into an agreement to sell a portfolio of PE Investments for a gross sales price of $318 million with $44 million of deferred purchase price expected to be assumed as part of the transaction. We expect to receive $247 million of net proceeds in the fourth quarter 2016. There is no assurance we will consummate the transaction on the contemplated terms, if at all. Refer to Related Party Arrangements for further disclosure.

(8) Represents our investments in RXR Realty LLC, or RXR Realty, Aerium Group, or Aerium, and SteelWave, LLC (formerly known as Legacy Partners Commercial LLC), or SteelWave.

(9) Includes N-Star CDO bonds with a principal amount of $140 million related to CRE securities CDOs that are eliminated in consolidation.

(10) Represents our proportionate interest in RXR Realty’s total assets under management, as of June 30, 2016, comprised of primarily Class-A real estate investments in the New York Tri-State area, less our corporate investment in RXR Realty.

(11) Represents our proportionate interest in SteelWave’s total assets under management, as of December 31, 2015, less our corporate investment in SteelWave.

(12) Represents assets of deconsolidated N-Star CDOs and is based on the respective remittance report issued on the date nearest to June 30, 2016. This amount excludes $435 million of aggregate principal amount of N-Star CDO bonds and amortized cost of N-Star CDO equity of such deconsolidated N-Star CDOs included in CRE securities.

We have the ability to invest in a broad spectrum of commercial real estate assets and seek to provide attractive risk-adjusted returns to our stockholders. As a result, we pursue opportunistic investments across all our business lines including CRE equity and debt investments.

For financial information regarding our reportable segments, refer to Note 17. “Segment Reporting” in our accompanying consolidated financial statements included in Part I, Item 1. “Financial Statements.”

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Real Estate

Overview

As part of our real estate strategy, we explore a variety of real estate investments, both directly and through joint ventures. Opportunities to purchase real estate have been bolstered by attractive long-term, non-recourse, non mark-to-market financing available through CMBS and agency financing markets. Our portfolio is primarily comprised of healthcare, hotel, manufactured housing communities, net lease and multifamily properties. We also invest in other opportunistic real estate investments such as indirect interests in real estate through PE Investments. Our hotel and certain healthcare properties acquired operate through RIDEA structures where we participate directly in the operational cash flow of a property. Our real estate equity investments that operate under the RIDEA structure generate resident and hotel guest related income from short-term residential agreements and incur customary related operating expenses.

Recently, we sold or are pursuing the sale of certain real estate assets and are exploring other sales or joint ventures to further monetize certain of our real estate assets. There is no assurance we will enter into any transactions on favorable terms, or at all. Refer to the below for further discussion.

Our Portfolio

As of June 30, 2016, $18.0 billion, or 91%, of our assets were invested directly in real estate properties, indirectly through our PE Investments, corporate interests and our proportionate interest in the assets under management of RXR Realty and SteelWave. The following table presents our direct investments in real estate properties as of June 30, 2016 (refer to the below for further discussion) (dollars in thousands):

Type	Number of Properties	Amount(1)		% of Portfolio		Capacity		Primary Locations
Healthcare
Medical office buildings (MOB)	149	$	2,121,695	17.4	%	6.0 million	square feet	IN, TX, GA, CO, IL
Net lease
Skilled nursing facilities (SNF)(2)	107	1,344,115		11.0	%	12,550	beds	FL, PA, IL, IN, VA
Assisted living facilities (ALF)	82	853,581		7.0	%	4,300	units	UK, NC, OR, MN, IN
Hospital (HOS)	14	259,488		2.1	%	800	beds	CA, MO, TX
Senior housing-operating
Assisted living facilities - RIDEA (ALF-RIDEA)	109	1,191,001		9.8	%	6,300	units	IL, OR, OH, TX, MA, WA
Subtotal	461	5,769,880		47.3	%
Hotel	167	3,438,474		28.3	%	22,091	rooms	TX, FL, NJ, CA, VA
Manufactured housing communities (held for sale)(3)	135	1,769,326		14.5	%	32,256	pad sites	CO, UT, FL, TX, WY, NY
Net lease
Industrial (held for sale)(4)	35	380,097		3.1	%	6.1 million	square feet	CA, IL, FL, GA, MI
Office(5)	16	307,982		2.5	%	2.1 million	square feet	CA, FL, NJ, UT
Retail	10	64,220		0.5	%	467,971	square feet	NH, MA, ME
Subtotal	61	752,299		6.1	%
Multifamily (held for sale)(5)(6)	8	262,298		2.2	%	3,292	units	TN, GA, FL
Multi-tenant office	13	177,002		1.6	%	1.0 million	square feet	CO, TX, CA
Total	845	$	12,169,279	100.0	%

___________________________________________________________

(1) Represents cost, which includes net purchase price allocation of $624 million related to net intangibles. Additionally, includes $62 million of notes receivable and $240 million of escrows and other assets.

(2) Includes three properties with a cost of $14 million owned pursuant to a RIDEA structure.

(3) In May 2016, we entered into an agreement to sell our manufactured housing portfolio for $2.0 billion with $1.3 billion of related mortgage financing expected to be assumed as part of the transaction. We expect to receive $615 million of net proceeds. We expect the transaction to close in the first quarter 2017.

(4) We are in the process of redeeming our interests in our Industrial Portfolio for $169 million of net proceeds. We expect the transaction to close in the third quarter 2016; however, there is no assurance we will enter into a definitive agreement for the transaction on the contemplated terms, if at all.

(5) Includes our interest in joint ventures that own a net lease property and multifamily property of $27 million and $40 million, respectively.

(6) We entered into agreements to sell ten multifamily properties for $307 million with $210 million of mortgage financing expected to be assumed as part of the transaction. In June 2016, we sold four multifamily properties for $33 million of net proceeds and expect to sell the remaining six properties in the third quarter 2016 for $53 million of net proceeds. We continue to explore the sale of the remaining two properties.

Healthcare Properties

Our healthcare properties are comprised of a diverse portfolio of medical office buildings, senior housing, skilled nursing and other healthcare properties. The majority of our healthcare properties are medical office buildings and properties structured under a net lease to healthcare operators. In addition, we own senior operating facilities properties that operate through management agreements with independent third-party operators, predominantly through RIDEA structures that permit us, through a TRS, to have direct exposure to resident fee income and incur customary related operating expenses. In March 2016, we sold our 60%

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interest in the Senior Housing Portfolio for $535 million. The buyer assumed our portion of the $648 million mortgage borrowing and we received approximately $150 million of proceeds, net of sales costs.

As of June 30, 2016, $5.8 billion, or 29.3%, of our assets were invested in healthcare properties. The following presents a summary of our healthcare portfolio and diversity across property type based on net cash flow:

			Healthcare by Property Type
Total Healthcare Portfolio	$5.8 billion
Number of facilities	461
Number of units/beds(1)	23,950
Weighted average occupancy(2)	86	%
Weighted average lease coverage	1.7x
Weighted average lease term	8.5 years
Net cash flow related to:
Medical office buildings	27	%
Net lease	51	%
Senior operating facilities - RIDEA	22	%

___________________________________

(1) Represents number of units for ALF property types and number of beds for SNF property types.

(2) Represents weighted average occupancy for ALF, SNF, and hospital property types based on number of units/beds. Percentage excludes medical office buildings, which has a weighted average occupancy of 90%, based on square footage.

Hotel Portfolio

Our hotel portfolio is a geographically diverse portfolio primarily comprised of extended stay hotels and premium branded select service hotels primarily located in major metropolitan markets with the majority affiliated with top hotel brands. As of June 30, 2016, $3.4 billion, or 17.4%, of our assets were invested in hotel properties.

The following presents a summary of our hotel portfolio and diversity across geographic location based on number of rooms:

			Hotel by Geographic Location
Total Hotel Portfolio	$3.4 billion
Number of hotels	167
Number of rooms	22,091
Weighted average occupancy	79	%
Rooms by brand:
Marriott	75	%
Hilton	16	%
Starwood	4	%
Hyatt	4	%
Intercontinental	1	%

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Manufactured Housing Communities

Our manufactured housing portfolio consists of communities that lease pad rental sites for placement of factory built homes located throughout the United States. The manufactured housing industry has traditionally demonstrated low cash flow volatility and steady annual rent increases, although there is no assurance that will continue to be the case. In May 2016, we entered into an agreement to sell our manufactured housing portfolio for $2.0 billion with $1.3 billion of related mortgage financing expected to be assumed as part of the transaction. We expect to receive $615 million of net proceeds. We expect the transaction to close in the first quarter 2017.

As of June 30, 2016, $1.8 billion, or 9.0%, of our assets were invested in manufactured housing communities. The following presents a summary of our manufactured housing communities portfolio and diversity across geographic location based on net cash flow:

			Manufactured Housing Communities by Geographic Location
Total Manufactured Housing Portfolio	$1.8 billion
Number of communities	135
Number of pad rental sites	32,256
Number of manufactured homes	4,124
Number of states	13
Weighted average occupancy	86	%
Net cash flow related to:
Pad rental sites	92	%
Other	8	%

Net Lease Properties

Our real estate that is net leased to corporate tenants is primarily comprised of industrial, office and retail properties. These net lease properties are typically leased to a single tenant who agrees to pay basic rent, plus all taxes, insurance, capital and operating expenses arising from the use of the leased property generally leaving us, as owner, with minimal ongoing operational or expense obligations. We may also invest in properties that are leased to tenants for which we are responsible for some of the operating expenses and capital costs. At the end of the lease term, the tenant typically has a right to renew the lease at market rates or to vacate the property with no further ongoing obligation.

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As of June 30, 2016, $752 million, or 3.8%, of our assets were invested in net lease properties, including one property owned through an unconsolidated joint venture. We are in the process of redeeming our interests in our Industrial Portfolio for $169 million of net proceeds. We expect the transaction to close in the third quarter 2016; however, there is no assurance we will enter into a definitive agreement for the transaction on the contemplated terms, if at all.

The following presents a summary of our net lease portfolio and diversity across geographic location based on number of properties:

			Net Lease by Geographic Location
Total Net Lease Portfolio	$752 million
Number of properties	61
Number of states	23
Total square feet	8.7 million
Weighted average occupancy	96	%
Weighted average lease term	9 years
Net cash flow related to:
Industrial	57	%
Office	36	%
Retail	7	%

Multifamily Properties

Our multifamily portfolio primarily focuses on properties located in suburban markets that we believe are well suited to capture the formation of new households. We entered into agreements to sell ten multifamily properties for $307 million with $210 million of mortgage financing expected to be assumed as part of the transaction. In June 2016, we sold four multifamily properties for $33 million of net proceeds and expect to sell the remaining six properties in the third quarter 2016 for $53 million of net proceeds. We continue to explore the sale of the remaining two properties. There is no assurance we will enter into any transactions on favorable terms, if at all.

As of June 30, 2016, $262 million, or 1.3%, of our assets were invested in multifamily properties, including one property owned through an unconsolidated joint venture. The following presents a summary of our multifamily portfolio and diversity across geographic location based on net cash flow:

			Multifamily by Geographic Location
Total Multifamily Portfolio	$262 million
Number of properties	8
Number of states	5
Number of units	3,292
Weighted average occupancy	96	%

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Multi-tenant Office

We, through a joint venture with SteelWave, acquired multi-tenant office properties in the western United States. As of June 30, 2016, $177 million, or 0.9%, of our assets were invested in multi-tenant office properties. The following presents a summary of our multi-tenant office portfolio and diversity across geographic location based on cost:

			Multi-tenant Office by Geographic Location
Total Multi-tenant Office Portfolio	$177 million
Number of properties	13
Number of states	3
Total square feet	1,021,400
Weighted average occupancy	86	%

PE Investments

Our PE Investments own limited partnership interests in real estate private equity funds acquired in the secondary market and are managed by institutional-quality sponsors, which we refer to as fund interests. In February 2016, we sold substantially all of our interest in PE Investment II for proceeds of $184 million. In August 2016, we entered into an agreement to sell a portfolio of PE Investments for a gross sales price of $318 million with $44 million of deferred purchase expected to be assumed as part of the transaction. We expect to receive $247 million of net proceeds in the fourth quarter 2016. There is no assurance we will consummate the transaction on the contemplated terms, if at all. Refer to Related Party Arrangements for further disclosure. As of June 30, 2016, $842 million, or 4.3%, of our assets were invested in PE Investments through unconsolidated ventures or direct investments. The following tables present a summary of our PE Investments (dollars in millions):

								Underlying Fund Interests
PE Investment(1)	Initial Closing Date	Amount		Number of Funds		Number of General Partners		Assets, at Cost		Implied Leverage(3)
PE Investment I(4)	February 15, 2013	$	111.9	49		26		$	16,000	43.7	%
PE Investment II(5)	July 3, 2013	5.0		24		15		18,300		36.5	%
PE Investment III	December 31, 2013	29.5		8		4		1,800		47.7	%
PE Investment IV	May 30, 2014	7.0		1		1		600		43.7	%
PE Investment V	July 1, 2014	6.8		3		1		400		50.2	%
PE Investment VI	July 30, 2014	54.4		14		10		4,700		48.2	%
PE Investment VII	August 15, 2014	22.4		10		9		500		38.3	%
PE Investment IX	October 2, 2014	45.5		6		6		3,900		17.4	%
PE Investment X	December 4, 2014	58.8		8		4		1,300		58.7	%
PE Investment XII	May 5, 2015	2.5		1		1		700		28.1	%
PE Investment XIII	May 22, 2015	175.4		5		3		1,000		52.3	%
PE Investment XIV	September 9, 2015	2.8		3		3		1,200		83.2	%
Subtotal(2)		522.0		132		83		50,400
PE Investment Sale(6)		319.8		41		15		28,200		34.2	%
Total		$	841.8	173	(7)	98	(7)	$	78,600

____________________________________________________________

(1) Based on financial data reported by the underlying funds as of March 31, 2016, which is the most recent financial information from the underlying funds, except as otherwise noted.

(2) Includes an estimated $6 million of expected future contributions to funds and $6 million of deferred purchase price as of June 30, 2016. The actual amount of future contributions underlying the fund interests that may be called and funded by us could vary materially from our expectations.

(3) Represents implied leverage for funds with investment-level financing, calculated as the underlying borrowing divided by assets at fair value.

(4) We, together with NorthStar Real Estate Income Trust, Inc., or NorthStar Income, have an ownership interest in PE Investment I of 51%, of which we own 70.5% and NorthStar Income owns 29.5%.

(5) In February 2016, we sold substantially all of our interest in PE Investment II for proceeds of $184 million. In connection with the sale, the buyers assumed substantially all of our $243 million portion of the deferred purchase price obligation of the joint venture.

(6) In August 2016, we entered into an agreement to sell a portfolio of PE Investments for a gross sales price of $318 million with $44 million of deferred purchase price expected to be assumed as part of the transaction. We expect to receive $247 million of net proceeds in the fourth quarter 2016. There is no assurance we will consummate the transaction on the contemplated terms, if at all. Refer to Related Party Arrangements for further disclosure.

(7) Includes 28 funds and 21 general partners held across multiple PE Investments.

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	Our Proportionate Share of PE Investments
	June 30, 2016
	Three Months Ended		Six Months Ended		Inception to Date(2)
Income(1)	$	23.7	$	61.2	$	475.9
Return of capital	27.0		72.3		881.2
Total distributions(3)	50.7		133.5		1,357.1
Contributions	1.6		2.5		108.3
Net	$	49.1	$	131.0	$	1,248.8

__________________________________________________

(1) Recorded in equity in earnings in the consolidated statements of operations. We did not record any equity in earnings for the three months ended June 30, 2016 for the portfolio of PE Investments that we entered into an agreement to sell. For the three months ended June 30, 2016, we recorded an unrealized loss of $0.8 million in connection with this agreement.

(2) Represents activity from the respective initial closing date through June 30, 2016.

(3) Excludes proceeds of $184 million in connection with the sale of substantially all of our interest in PE Investment II.

The following presents the underlying fund interests in our PE Investments by investment type and geographic location based on NAV as of March 31, 2016:

PE Investments by Underlying Investment Type(1)	PE Investments by Underlying Geographic Location(1)

____________________________________________________________

(1) Based on individual fund financial statements.

Corporate Investments

RXR Realty

In December 2013, we entered into a strategic transaction with RXR Realty, a leading real estate owner, developer and investment management company focused on Class-A real estate investments in the New York Tri-State area. The investment includes an approximate 27% equity interest in RXR Realty, which represented a carrying value of $98 million as of June 30, 2016. As of June 30, 2016, our proportionate interest in RXR Realty’s assets under management totals $3.9 billion.

SteelWave

In September 2014, we entered into a debt and equity investment with SteelWave, comprised of a 40% interest in the common equity of certain entities affiliated with SteelWave. SteelWave is a leading real estate investment manager, owner and operator with a portfolio of commercial assets focused in key markets in the western United States. The investment in SteelWave represented a carrying value of $8 million as of June 30, 2016. As of December 31, 2015, our proportionate interest in SteelWave’s assets under management totals $971 million.

Commercial Real Estate Debt

Overview

Our CRE debt investment strategy is focused on originating, acquiring and asset managing CRE debt investments, including first mortgage loans, subordinate mortgage and mezzanine loans and participations in such loans and preferred equity interests.

We emphasize direct origination of our debt investments as this allows us a greater degree of control over how they are underwritten and structured and it provides us the opportunity to syndicate senior or subordinate interests in the loan to maximize returns, if desired. Further, it facilitates a more direct relationship with our borrowers which helps us maintain a robust pipeline, provides

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an opportunity for us to earn origination and other fees and offers us an important advantage when considering any potential future modifications or restructurings.

The supply/demand imbalance driven by the large amount of maturing CRE loans could create an opportunity for us. Even with some increased supply by lenders, demand for debt financing is allowing investors with capital and real estate expertise, such as us, the opportunity to make investments with attractive risk/return profiles. We are currently focused on monetizing many of our CRE debt investments through sales.

We believe we have built a franchise with a reputation for providing capital to high-quality real estate owners who want a responsive and flexible balance sheet lender. Given that we are a lender who generally retains control of the loans we originate, we are able to maintain flexibility in how we structure loans to meet the needs of our borrowers. Typical CMBS and other capital markets driven lenders generally cannot provide these types of loans due to constraints within their funding structures and because of their requirement to sell the entire loan to third parties and relinquish all control. Even when we finance our investments through securitizations, we maintain a significant capital investment in our loans. Our centralized investment organization has enabled senior management to review potential new loans early in the origination process which, unlike many large institutional lenders with several levels of approval required to commit to a loan, allows us to respond quickly and provide a high degree of certainty to our borrowers that we would close a loan on terms substantially similar to those initially proposed. We believe that this level of service has enhanced our reputation in the marketplace. In addition, we believe the early and active role of senior management in our portfolio management process has been key to maximizing recoveries of invested capital from our investments and our ability to be responsive to changing market conditions.

Our Portfolio

As of June 30, 2016, $376 million, or 1.9%, of assets were invested in CRE debt, excluding CRE debt financed in consolidated N-Star CDOs, consisting of 20 loans with an average investment size of $19 million and weighted average extended maturity of 6.5 years. We directly originated approximately 91% of our current portfolio of CRE debt investments (excluding debt investments acquired in connection with Griffin-American).

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The following table presents a summary of our CRE debt investments as of June 30, 2016 (dollars in thousands):

								Weighted Average						Floating Rate as % of Principal Amount(2)
	Number	Principal Amount		Carrying Value		Allocation by Investment Type(2)		Fixed Rate		Spread Over LIBOR(3)		Yield
Asset Type:
First mortgage loans	6	$	147,000	$	119,893	39.1	%	6.98	%	8.61	%	4.60	%	43.3	%
Mezzanine loans	6	22,480		18,653		6.0	%	9.08	%	2.72	%	7.09	%	49.8	%
Subordinate interests	4	170,651		169,476		45.4	%	12.67	%	5.69	%	8.63	%	58.6	%
Corporate loans	4	35,555		31,070		9.5	%	12.92	%	—		14.79	%	—
Total/Weighted average(1)	20	$	375,686	$	339,092	100.0	%	12.40	%	9.73	%	7.69	%	46.6	%

____________________________________________________________

(1) Excludes amounts underlying our N-Star CDOs.

(2) Based on principal amount.

(3) Based on initial maturity and for floating-rate debt, calculated using one-month LIBOR as of June 30, 2016 and for CRE debt with a LIBOR floor greater than LIBOR, using such floor.

(4) Assuming that all loans that have future fundings meet the terms to qualify for such funding, our cash requirement on future fundings would be $7.8 million.

The following presents our $376 million CRE debt portfolio’s diversity across property type and geographic location based on principal amount.

Debt Investments by Property Type	Debt Investments by Geographic Location

Commercial Real Estate Securities

We historically originated or acquired CRE debt and securities investments that were predominately financed through permanent, non-recourse CDOs. We sponsored nine CDOs, three of which were primarily collateralized by CRE debt and six of which were primarily collateralized by CRE securities. In addition, we acquired the equity interests of two CRE debt focused CDOs, CSE RE 2006-A CDO, or CSE CDO, and CapLease 2005-1 CDO, or CapLease CDO. We refer to those CRE debt and securities investments that serve as collateral for N-Star CDO financing transactions as legacy CRE debt and securities, respectively. At the time of issuance of the N-Star CDOs, we retained the below investment grade bonds, which are referred to as subordinate bonds, and preferred shares and equity notes, which are referred to as equity interests. In addition, since the initial issuance of the N-Star CDOs, we repurchased CDO bonds originally issued to third parties at discounts to par. These repurchased CDO bonds and retained subordinate bonds are herein collectively referred to as N-Star CDO bonds. We own the equity interests in all of our N-Star CDO financing transactions whether or not we consolidate these transactions on our balance sheet. Substantially all of our N-Star CDO equity is invested in our CRE debt CDOs. In fact, our CRE debt CDOs have distributed regular cash flow since their inception. We do not, however, own undivided interests in any of the assets within our N-Star CDOs and all senior and junior bondholders of the CDOs have economic interests that are senior to our equity interests. In September 2015, N-Star CDO IV was liquidated and the third-party senior bondholders of N-Star CDO IV were repaid in full.

We historically consolidated these CDO financing transactions under accounting principles generally accepted in the United States, or U.S. GAAP. Our legacy CDO business is winding down, resulting in liquidation and deconsolidation of certain of our N-Star CDOs. Repurchased N-Star CDO bonds that are consolidated are not presented as an investment but rather are eliminated in our consolidated financial statements and, as a result, the interest and realization of any discount will generally not be recorded as income in our consolidated statements of operations under U.S. GAAP. All of our CRE debt CDOs were deconsolidated in 2013 and currently only N-Star securities CDOs I and IX continue to be consolidated. All N-Star CDOs are past their reinvestment period and given the nature of these transactions, these CDOs are amortizing over time as the underlying assets pay down or are sold.

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Our CRE securities portfolio is predominately comprised of N-Star CDO bonds and N-Star CDO equity of our deconsolidated N-Star CDOs and includes other securities, mostly conduit CMBS, meaning each asset is a pool backed by a large number of commercial real estate loans. We have also invested in opportunistic CRE securities such as an investment in a “B-piece” CMBS. More recently, we are pursuing the sale of certain of our CRE securities. In 2016, we sold five CRE securities for $54 million of net proceeds.

The following table presents our interest in the N-Star CDOs as of June 30, 2016 (dollars in thousands):

	Number	Amount(1)
N-Star CDO bonds(2)(3)
AAA	2	$	108,900
AA through BBB	18	241,776
Below investment grade	10	160,446
	30	511,122
N-Star CDO equity(4)	4	63,931
Total	34	$	575,053

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(1) Based on principal amount for N-Star CDO bonds and amortized cost for N-Star CDO equity.

(2) Based on original credit rating. Includes N-Star CDO bonds with a principal amount of $140 million related to our securities CDOs that are eliminated in consolidation.

(3) Unencumbered N-Star CDO bonds are owned by us, of which $377 million of principal amount were repurchased at a discount to par at a weighted average original credit rating of A / A2 and a weighted average purchase price of 37%.

(4) Represents our equity interests in the deconsolidated CRE debt N-Star CDOs.

The following table presents a summary of our deconsolidated N-Star CRE debt CDOs as of June 30, 2016 (dollars in thousands):

Issue/Acquisition Date	N-Star VI Mar-06		N-Star VIII Dec-06		CapLease Aug-11			CSE Jul-10				Total
Balance sheet as of June 30, 2016(1)
Assets, principal amount	$	196,452	$	567,149	$	119,898		$	444,750			$	1,328,249
CDO bonds, principal amount(2)	127,866		395,314		103,678			374,867				1,001,725
Net assets	$	68,586	$	171,835	$	16,220		$	69,883			$	326,524
CDO quarterly cash distributions and coverage tests(3)
Equity notes and subordinate bonds	$	288	$	3,726	$	569		$	435			$	5,018
Collateral management and other fees(4)	228		646		58			192				1,124
Interest coverage cushion at June 30, 2016 (IC)(1)	859		6,779		410			1,160
Overcollateralization cushion (OC)
At June 30, 2016(1)	57,547		153,897		9,880			74,453
At offering	17,412		42,193		5,987		(5)	(151,595		)	(6)

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(1) Based on remittance report issued on date nearest to June 30, 2016.

(2) Includes all outstanding CDO bonds payable to third parties and all CDO bonds owned by us.

(3) IC and OC coverage to the most constrained class.

(4) Based on cash receipts.

(5) Based on trustee report as of August 31, 2011, closest to the date of acquisition.

(6) Based on trustee report as of June 24, 2010, closest to the date of acquisition.

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The following presents the diversity across property type and geographic location of the CRE debt in our deconsolidated N-Star CDOs, based on principal amount, as of June 30, 2016:

Assets of N-Star Debt CDOs by Property Type	Assets of N-Star Debt CDOs by Geographic Location

Sources of Operating Revenues and Cash Flows

We primarily generate revenue from rental and other operating income from our real estate properties and net interest income on our CRE debt and securities portfolios. Additionally, we record equity in earnings of unconsolidated ventures, including from PE Investments. Our income is primarily derived through the difference between revenue and the cost at which we are able to finance our investments. We may also acquire investments which generate attractive returns without any leverage.

Operations of our hotel portfolio are affected by seasonal patterns resulting from overall economic cycles, geographic locations, weather and customer mix at the hotels. Generally, we expect our hotel portfolio to have higher revenue, operating income and cash flow in the second and third quarters of each year and lower revenue, operating income and cash flow in the first and fourth quarters of each year.

Profitability and Performance Metrics

We calculate CAD and NOI as metrics to evaluate the profitability and performance of our business (refer to “Non-GAAP Financial Measures” for a description of these metrics).

Outlook and Recent Trends

The U.S. economy demonstrated improvement in 2015, which prompted the Federal Reserve in December 2015 to raise the Federal Funds Rate for the first time in nine years. The U.S. economy continues to show strength through the first half of 2016 with less than 5% unemployment and improvement in the housing market. Despite this, concerns still remain regarding low inflation in the United States, a stronger U.S. dollar, oil price instability, slow global growth and increasing international market volatility. Many other global central banks have been easing monetary policy to combat low inflation and stagnant growth and it is unclear when or if the Federal Reserve will further adjust the Federal Funds Rate, especially in light of certain global events described below.

Our business and operations are dependent on the commercial real estate industry generally, which in turn is dependent upon broad economic conditions in the United States, Europe, China and elsewhere. Recently, concerns over the U.S. mortgage market and sustainability of continued growth in the real estate market in the United States have contributed to increased domestic economic uncertainty and the potential for a recessionary environment.

In June 2016, a non-binding referendum was passed in the United Kingdom supporting the exit from the European Union which in turn resulted in considerable instability to global markets and currencies especially European markets, the U.K.’s economy and the British Pound Sterling. In addition, dramatic political change in the United Kingdom has resulted including the election of a new Prime Minister in July 2016. Much uncertainty remains as to the process for “Brexit” and the long-term impacts to the global, European and British economies. All of the major European banks have been actively easing monetary policy resulting in a very low, and in some cases negative, interest rate environment. This includes The Bank of England which remains poised for further monetary and financial policy action should the U.K.’s economy enter a downturn. Despite the unexpected result of the referendum, markets have generally continued to function properly and in some cases recovered from the initial shock (e.g., U.S. equity markets). The potential for ongoing volatility and uncertainty resulting from “Brexit” may have a significant impact on the overall global economic environment.

CRE fundamentals remain relatively healthy across U.S. property types. Investor demand in 2015 for commercial real estate increased transaction activity and prices as rent and vacancy fundamentals improved across most property sectors. Private capital investment remained aggressive throughout 2015 and, although public markets slowed at the beginning of 2016, continued to remain aggressive in the first half of 2016, leading to continued appreciation in real estate values. However, property price appreciation has slowed and there is speculation that the markets may be entering the late stage of the current real estate cycle and, in certain markets, rent growth and capitalization rate compression has started to slow. In addition, one of the factors that may contribute to periodic volatility in the commercial real estate market is the large amount of maturing commercial real estate debt that may have difficulties being refinanced.

Approximately $1.4 trillion of commercial real estate debt in the United States is scheduled to mature through 2018. While there appears to be a supply of available liquidity to satisfy many of these maturities, April and June 2016 were the two lowest private-label CMBS origination months in four years and industry experts estimate a projected total origination volume of approximately $65 billion for 2016 versus volume of $95 billion in 2015. This trend is potentially one symptom that could point to difficulties in the ability of the market to refinance the large amount of maturing real estate debt and may have a negative impact on the overall real estate market.

The recent volatility in the equity market has and may continue to diminish our capital raising activity. A return to weak economic conditions in the future, such as those of the credit crisis of 2008, could reduce a tenant’s/operator’s/resident’s/guest’s ability to make payments in accordance with the contractual terms and could weaken demand for companies to lease or occupy new space. To the extent that market rental and occupancy rates weaken, property-level cash flow could be negatively affected, and therefore, reduce our ability to make distributions to stockholders.

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Our Strategy

Our primary business objectives are to invest in commercial real estate property and other real estate assets that we expect will generate attractive risk-adjusted returns and in turn will generate stable cash flow for distribution to our stockholders. Until recently, our investment activity and uses of available cash liquidity was focused on acquiring real estate, originating or acquiring loans, as well as pursuing opportunistic CRE investments across our businesses. Opportunistic investments have included investing in real estate private equity funds, strategic joint ventures and repurchasing our N-Star CDO bonds at discounts to par.

Availability and cost of capital impacts our profitability and earnings since we would be required to raise new capital to fund a majority of this growth. Given recent market conditions, we are currently focused on exploring sales to generate liquidity to reduce our corporate recourse borrowings and prudently manage our portfolio so it is well positioned.

We have not been actively raising capital due to current market conditions. However, in 2015, we issued aggregate capital of $1.3 billion. Further, we have access to other forms of corporate-level financing. In August 2014, we entered into a Corporate Revolver with certain commercial bank lenders, with a total current commitment amount of $250 million for a three-year term, subject to certain conditions. In September 2014, we entered into a corporate term borrowing with a commercial bank lender. In February 2016, our Corporate Revolver was repaid and we expect our remaining corporate recourse borrowings to be repaid from proceeds from sales initiatives.

In addition, we have a loan facility of $200 million to finance the origination of CRE first mortgage loans. In April 2016, our loan facility was repaid. Additionally, we have historically demonstrated the ability to securitize our CRE debt investments and expect to continue to pursue similar transactions to finance our newly-originated debt investments that might initially be financed on our credit facilities. In November 2012 and August 2013, we, and on behalf of NorthStar Income, entered into securitization financing transactions with an aggregate $610 million of principal amount of bonds issued to finance debt investments on a permanent, non-recourse, non-mark-to-market basis that were previously financed on credit facilities. In January 2015, Securitization 2012-1 with $228 million principal amount of original bonds issued was repaid in full.

Financing Strategy

We seek to access a wide range of secured and unsecured debt and public and private equity capital sources to fund our investment activities and asset growth.

We predominantly use investment-level financing as part of our strategy to prudently leverage our investments and deliver attractive risk-adjusted returns to our stockholders. We pursue a variety of financing arrangements such as mortgage notes from the CMBS market, government-sponsored agencies, finance companies, banks and securitization financing transactions. In addition, we 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 CRE investments may be dependent upon the nature of the assets and the related financing that is available.

The availability of attractive long-term, non-recourse, non mark-to-market assignable financing through the CMBS and agency financing markets bolstered opportunities to acquire real estate in the past few years. For longer duration, stable investment cash flow such as those derived from net lease assets, we tend to use fixed rate financing. For investment cash flow with greater growth potential such as hotels and healthcare under a RIDEA structure, we tend to use floating rate financing which provides prepayment flexibility and may provide a better match between underlying cash flow and potential increases in interest rates.

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Our financing strategy for debt investments is to obtain match-funded borrowing at rates that provide a positive net spread. In late 2011, we began using secured term credit facilities provided by major financial institutions to partially finance CRE debt, which currently provide for up to $200 million. Additionally, we have historically demonstrated the ability to securitize our CRE debt investments and expect to continue to pursue similar transactions to finance our newly-originated debt investments that might initially be financed on our credit facilities. In November 2012 and August 2013, we, and on behalf of NorthStar Income, entered into securitized financing transactions (Securitization 2012-1 and Securitization 2013-1) with an aggregate $610 million of principal amount of bonds issued providing permanent, non-recourse, non-mark-to-market financing for newly-originated CRE debt investments of ours and NorthStar Income. In January 2015, Securitization 2012-1 with $228 million principal amount of original bonds issued was repaid in full. We will continue to seek to use the capital markets to finance any new debt investments. In April 2016, our loan facility was repaid.

With respect to corporate-level financing, in August 2014, we entered into a Corporate Revolver with certain commercial bank lenders, with a total current commitment of $250 million. In September 2014, we entered into a corporate term borrowing with a commercial bank lender with respect to the establishment of term borrowings. However, given recent market conditions, we are currently focused on exploring sales to generate liquidity. In February 2016, our Corporate Revolver was repaid and we expect our remaining corporate recourse borrowings to be repaid from proceeds from sales initiatives. Refer to Liquidity and Capital Resources for further discussion.

Historically, we used CDOs to finance legacy CRE debt and securities investments. Our legacy CDO business is winding down as we invest in a broader, more diverse range of CRE assets. As a result, such legacy business is a significantly smaller portion of our business today than in the past.

Portfolio Management

NSAM performs portfolio management services on our behalf. The comprehensive portfolio management process that generally includes day-to-day oversight by the portfolio management and servicing team, regular management meetings and an exhaustive quarterly credit review process. These processes are designed to enable management to evaluate and proactively identify asset-specific credit issues and trends on a portfolio-wide basis. Nevertheless, we cannot be certain that such review will identify all issues within our portfolio due to, among other things, adverse economic conditions or events adversely affecting specific assets; therefore, potential future losses may also stem from investments that are not identified during these credit reviews. NSAM uses many methods to actively manage our credit risk to preserve our income and capital, which includes our ability to manage our assets in a manner that minimizes credit losses that could decrease income and portfolio value. For CRE equity and debt investments, frequent re-underwriting and dialogue with borrowers/tenants/operators/partners and regular inspections of our collateral and owned properties have proven to be an effective process for identifying issues early. With respect to our healthcare properties, we consider the impact of regulatory changes on operator performance and property values. During the quarterly credit review, or more frequently as necessary, investments are put on highly-monitored status and identified for possible asset impairment/loan loss reserves, as appropriate, based upon several factors, including missed or late contractual payments, significant declines in collateral performance and other data which may indicate a potential issue in our ability to recover our invested capital from an investment. The portfolio management process related to CRE debt and securities underlying our deconsolidated CDOs is limited to monitoring the CDO bonds and equity interests in such CDO financing transactions.

Critical Accounting Policies

Principles of Consolidation

Our consolidated financial statements include the accounts of NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership, or our Operating Partnership, and their consolidated subsidiaries. We consolidate variable interest entities, or VIEs, where we are the primary beneficiary and voting interest entities which are generally majority owned or otherwise controlled by us. 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 an entity is a VIE includes both a qualitative and quantitative analysis. We base the qualitative analysis on our 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. We reassess the 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. We determine whether we are 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 us 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 our business activities and the other interests. We reassess the determination of whether we are 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.

We evaluate our CRE debt and securities, investments in unconsolidated ventures and securitization financing transactions, such as our CDOs and our liabilities to subsidiary trusts issuing preferred securities to determine whether they are a VIE. We analyze 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 we have a majority voting interest in a voting interest entity, the entity will generally be consolidated. We do 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.

We perform 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.

Investments in Unconsolidated Ventures

A non-controlling, unconsolidated ownership interest in an entity may be accounted for using the equity method, at fair value or the cost method.

Under the equity method, the investment is adjusted each period for capital contributions and distributions and its share of the entity’s net income (loss). Capital contributions, distributions and net income (loss) of such entities are recorded in accordance with the terms of the governing documents. An allocation of net income (loss) 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.

We may account for an investment in an unconsolidated entity at fair value by electing the fair value option. We elected the fair value option for PE Investments and certain investments in unconsolidated ventures. PE Investments are recorded as investments in private equity funds, at fair value. We record the change in fair value for our share of the projected future cash flow of such investments from one period to another in equity in earnings (losses) from unconsolidated ventures in the consolidated statements of operations. Any change in fair value attributed to market related assumptions is considered unrealized gain (loss).

We may account for an investment that does not qualify for equity method accounting or for which the fair value option was not elected using the cost method if we determine the investment in the unconsolidated entity is insignificant. Under the cost method,

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equity in earnings is recorded as dividends are received to the extent they are not considered a return of capital, which is recorded as a reduction of cost of the investment.

Fair Value Option

The fair value option provides an election that allows a company to irrevocably elect to record certain financial assets and liabilities at fair value on an instrument-by-instrument basis at initial recognition. We may elect to apply the fair value option for certain investments due to the nature of the instrument. Any change in fair value for assets and liabilities for which the election is made is recognized in earnings.

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 improve or 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.

We follow the purchase method for an acquisition of operating real estate, where the purchase price is allocated to tangible assets such as land, building, tenant and land improvements and other identified intangibles, such as goodwill. Costs directly related to an acquisition deemed to be a business combination are expensed and included in transaction costs in our consolidated statements of operations. We evaluate whether REO constitutes a business and whether business combination accounting is appropriate. Any excess upon taking title to collateral between the carrying value of a loan over the estimated fair value of the property is charged to provision for loan losses.

Operating real estate, including REO, 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. Once a property is determined to be held for sale, depreciation is no longer recorded. We record a gain (loss) on sale of real estate when title is conveyed to the buyer and we have no substantial economic involvement with the property. If the sales criteria for the full accrual method are not met, we defer some or all of the gain (loss) recognition by applying the finance, leasing, profit sharing, deposit, installment or cost recovery method, as appropriate, until the sales criteria are met.

Real Estate Debt Investments

CRE debt investments are generally intended to be held to maturity and, accordingly, are carried at cost, net of unamortized loan fees, premium and discount. CRE debt investments that are deemed to be impaired are carried at amortized cost less a loan loss reserve, if deemed appropriate, which approximates fair value. CRE debt investments where we do not have the intent to hold the loan for the foreseeable future or until its expected payoff are classified as held for sale and recorded at the lower of cost or estimated value.

We may syndicate a portion of the CRE debt investments that we originate or sell the CRE debt investments individually. When

a transaction meets the criteria for sale accounting, we will derecognize the CRE debt investment sold and recognize gain or loss based on the difference between the sales price and the carrying value of the CRE debt investment sold. Any related unamortized deferred origination fee, original issue discount, loan origination costs, discount or premium at the time of sale are recognized as an adjustment to the gain (loss) on sale, which is included in interest income on the consolidated statement of operations. Any fees received at the time of sale or syndication are recognized as part of interest income.

Real Estate Securities

We classify our CRE securities investments as available for sale on the acquisition date, which are carried at fair value. We have historically elected to apply the fair value option for our CRE securities investments. For those CRE securities for which the fair value option was elected, any unrealized gains (losses) from the change in fair value is recorded in unrealized gains (losses) on investments and other in the consolidated statements of operations.

We may decide to not elect the fair value option for certain CRE securities due to the nature of the particular instrument. For those CRE securities for which the fair value option was not elected, any unrealized gain (loss) from the change in fair value is recorded as a component of accumulated other comprehensive income, or OCI, in the consolidated statements of equity, to the extent impairment losses are considered temporary.

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 to interest expense using the effective interest method. Unamortized deferred financing costs are expensed when the associated facility is repaid before maturity. Costs incurred in seeking financing transactions, which do not close, are expensed in the period in which it is determined that the

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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

We record 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 identified intangibles are amortized over the remaining lease term. Above/below-market leases are amortized into rental income, below-market ground leases are amortized into real estate properties-operating expense and in-place leases are amortized into depreciation and amortization expense.

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. We analyze 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. We first assess 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. For the six months ended June 30, 2016, there were no triggering events that required a test of impairment of goodwill.

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 our 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

Financial assets and liabilities recorded at fair value on a recurring basis are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Management determines the prices are representative of fair value through a review of available data, including observable inputs, recent transactions as well as our knowledge and experience of the market.

With respect to valuation for CRE securities, we generally obtain at least one quote from a pricing service or broker. Furthermore, we may use internal pricing models to establish arm’s length prices. Generally, the quote from the pricing service is used to determine fair value for the securities. The quotes are not adjusted. The pricing service uses market-based measurements based on valuation techniques that reflect market participants’ assumptions and maximize the use of relevant observable inputs including prices for similar assets, benchmark yield curves and market corroborated inputs such as contractual terms, discount rates for similar securities and credit (such as credit support and delinquency rates). We believe such broker quote is generally based on a market transaction of comparable securities.

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To determine the fair value of CRE securities, we maintain a comprehensive quarterly process that includes a valuation committee comprised of senior members of the investment and accounting teams that is designed to enable management to ensure the prices used are representative of fair value and the instruments are properly classified pursuant to the fair value hierarchy.

Initially, a member of the investment team on the valuation committee reviews the prices at quarter end to ensure current market conditions are fairly presented. The investment team is able to assess these values because they are actively engaged in the market, reviewing bid lists, recent sales and frequently have discussions with various banks and other financial institutions regarding the state of the market. We then perform a variety of analyses to ensure the quotes are in a range which we believe to be representative of fair value and to validate the quotes obtained and used in determining the ultimate value used in the financial statements. At the portfolio level, we evaluate the overall change in fair value versus the overall change in the market. We review significant changes in fair value for individual instruments, both positive and negative, from the prior period. We perform back testing on any securities sold to validate the quotes used for the prior quarter. Where multiple quotes are available, we evaluate any large variance between the high and low price. We obtain any available market data that provides insight into the price through recent or comparable security trades, multiple broker bids and other pertinent information. This data may be available through the pricing service or based on data directly available to us. If as part of any of these processes, we are aware of data which we believe better supports the fair value, we challenge the quote provided by either the pricing service or broker. Any discrepancy identified from our processes are reviewed and resolved. The valuation committee approves the final prices. We believe these procedures are designed to enable us to estimate fair value.

Once we determine fair value of CRE securities, we review to ensure the instrument is properly classified pursuant to the fair value hierarchy consistent with U.S. GAAP through our understanding of the valuation methodologies used by the pricing service via discussion with representatives of the pricing service and review of any documentation describing its valuation methodology.

Generally, when fair value is based on the pricing service or multiple broker quotes, we believe, based on our analysis, such quotes are based on observable inputs and are therefore classified as Level 2. Where the price is based on either a single broker quote or an internal pricing model, we generally consider such price to be based on less observable data and therefore classify such instruments as Level 3.

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis

Non-financial assets and liabilities measured at fair value in the consolidated financial statements consist of real estate held for sale or assets for which an impairment has been recorded, such as goodwill. Such fair value measurements are generally considered to be Level 3 within the valuation hierarchy, where applicable, based on estimated sales price, adjusted for closing costs and expenses, determined by discounted cash flow analysis, direct capitalization analyses or a sales comparison approach if no contracts had been consummated. The discounted cash flow and direct capitalization analyses include all estimated cash inflows and outflows over a specific holding period and, where applicable, any estimated debt premiums. This cash flow is comprised of unobservable inputs which included forecasted rental revenues and expenses based upon existing in-place leases, market conditions and expectations for growth. Capitalization rate and discount rate used in these analyses are based upon observable rates that we believe to be within a reasonable range of current market rates for the respective properties.

Valuations are prepared using internally-developed valuation models. These valuations are reviewed and approved, during each reporting period, by management, as deemed necessary, including personnel from the accounting, finance and operations and the valuations are updated as appropriate. In addition, we may engage third-party valuation experts to assist with the preparation of certain of its valuations.

Revenue Recognition

Operating Real Estate

Rental and escalation income from operating real estate is derived from leasing of space to various types of tenants and healthcare operators. 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 and expense reimbursements to be paid in 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 unbilled rent receivable in other assets on our consolidated balance sheets. We amortize 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/operator leases which provide for the recovery of all or a portion of the operating expenses and real estate taxes paid by us on behalf of the respective property. This revenue is accrued in the same period as the expenses are incurred.

We generate operating income from healthcare and hotel properties permitted by RIDEA. Revenue related to healthcare properties includes resident room and care charges and other resident charges. Revenue related to operating hotel properties primarily consists of room and food and beverage sales. Revenue is recognized when such services are provided, generally defined as the date upon which a resident or guest occupies a room or uses the healthcare property or hotel services and is recorded in resident fee income for healthcare properties and hotel related income for hotel properties in the consolidated statements of operations.

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In a situation in which a lease(s) associated with a significant tenant have been, or are expected to be, terminated early, we evaluate 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 deferred leasing costs). Based upon consideration of the facts and circumstances surrounding the termination, we 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.

Real Estate Debt 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 our consolidated statements of operations. The amortization of a premium or accretion of a discount is discontinued if such loan is reclassified to held for sale.

Real Estate Securities

Interest income is recognized using the effective interest method with any premium or discount amortized or accreted through earnings based on expected cash flow through the expected maturity date of the security. Changes to expected cash flow may result in a change to the yield which is then applied retrospectively for high-credit quality securities that cannot be prepaid or otherwise settled in such a way that the holder would not recover substantially all of the investment or prospectively for all other securities to recognize interest income.

Credit Losses and Impairment on Investments

Operating Real Estate

Our 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 our operating real estate may be impaired or that its carrying value may not be recoverable. A property’s value is considered impaired if management’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, management considers U.S. and global macroeconomic factors and 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 our consolidated statements of operations.

An allowance for a doubtful account for a receivable is established based on a periodic review of aged receivables resulting from estimated losses due to the inability of such tenant/operator/resident/guest to make required rent and other payments contractually due. Additionally, we establish, on a current basis, an allowance for future lessee credit losses on unbilled rent receivable based on an evaluation of the collectability of such amounts.

Real Estate Debt Investments

Loans are considered impaired when based on current information and events, it is probable that we will not be able to collect principal and interest amounts due according to the contractual terms. We assess the credit quality of the portfolio and adequacy of loan loss reserves on a quarterly basis or more frequently as necessary. Significant judgment of management is required in this analysis. We consider the estimated net recoverable value of the loan 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 loan, a loan loss reserve is recorded with a corresponding charge to provision for loan losses. The loan loss reserve for each loan is maintained at a level that is determined to be adequate by management to absorb probable losses.

Income recognition is suspended for a loan at the earlier of the date at which payments become 90-days past due or when, in the opinion of management, a full recovery of income and principal becomes doubtful. When the ultimate collectability of the principal of an impaired loan is in doubt, all payments are applied to principal under the cost recovery method. When the ultimate collectability of the principal of an impaired loan 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 loan becomes contractually current and performance is demonstrated to be resumed. A loan is written off when it is no longer realizable and/or legally discharged.

Investments in Unconsolidated Ventures

We review our investments in unconsolidated ventures for which we did not elect the fair value option on a quarterly basis, or more frequently as necessary, to assess whether there are any indicators that the value may be impaired or that its carrying value may not be recoverable. An investment is considered impaired if the projected net recoverable amount over the expected holding

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period is less than the carrying value. In conducting this review, we consider U.S. and global macroeconomic factors, including real estate sector conditions, together with investment specific and other factors. To the extent an impairment has occurred and is considered to be other than temporary, the loss is measured as the excess of the carrying value of the investment over the estimated fair value and recorded in provision for loss on equity investment in our consolidated statements of operations.

Real Estate Securities

CRE securities for which the fair value option is elected are not evaluated for other-than-temporary impairment, or OTTI, as any change in fair value is recorded in our consolidated statements of operations. Realized losses on such securities are reclassified to realized gain (loss) on investments and other as losses occur.

CRE securities for which the fair value option is not elected are evaluated for OTTI quarterly. Impairment of a security is considered to be other-than-temporary when: (i) the holder has the intent to sell the impaired security; (ii) it is more likely than not the holder will be required to sell the security; or (iii) the holder does not expect to recover the entire amortized cost of the security. When a CRE security has been deemed to be other-than-temporarily impaired due to (i) or (ii), the security is written down to its fair value and an OTTI is recognized in the consolidated statements of operations. In the case of (iii), the security is written down to its fair value and the amount of OTTI is then bifurcated into: (a) the amount related to expected credit losses; and (b) the amount related to fair value adjustments in excess of expected credit losses. The portion of OTTI related to expected credit losses is recognized in our consolidated statements of operations. The remaining OTTI related to the valuation adjustment is recognized as a component of accumulated OCI in our consolidated statements of equity. The portion of OTTI recognized through earnings is accreted back to the amortized cost basis of the security through interest income, while amounts recognized through OCI are amortized over the life of the security with no impact on earnings. CRE securities which are not high-credit quality are considered to have an OTTI if the security has an unrealized loss and there has been an adverse change in expected cash flow. The amount of OTTI is then bifurcated as discussed above.

Other

Refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 for a complete discussion of our critical accounting policies.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board, or FASB, issued an accounting update 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 us will be January 1, 2018. We are in the process of evaluating the impact, if any, of the update on our consolidated financial position, results of operations and financial statement disclosures.

In February 2015, the FASB issued updated guidance that changes the rules regarding consolidation. The pronouncement eliminates specialized guidance for limited partnerships and similar legal entities and removes the indefinite deferral for certain investment funds. The new guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, with early adoption permitted. We adopted this guidance in the first quarter 2016 and determined our Operating Partnership is considered a VIE. We are the primary beneficiary of the VIE, the VIE’s assets can be used for purposes other than the settlement of the VIE’s obligations and our partnership interest is considered a majority voting interest. As such, this standard resulted in the identification of additional VIEs, however it did not have a material impact on our consolidated financial position or results of operations.

In January 2016, the FASB issued an accounting update that addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. We are currently assessing the impact of the guidance on our consolidated financial position, results of operations and financial statement disclosures.

In February 2016, the FASB issued an accounting update that requires lessees to present right-of-use assets and lease liabilities on the balance sheet. 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. Early adoption is permitted. We are evaluating the impact that this guidance will have on its consolidated financial position, results of operations and financial statement disclosures.

In March 2016, the FASB issued guidance 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. Early adoption

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is permitted. We are evaluating the impact, if any, that this guidance will have on our consolidated financial position, results of operations and financial statement disclosures.

In March 2016, the FASB issued guidance which eliminates the requirement for an investor to retroactively apply the equity method when its increase in ownership interest (or degree of influence) in an investee triggers equity method accounting. The update requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment become qualified for equity method accounting. The update should be applied prospectively upon their effective date to increases in the level of ownership interests or degree of influence that results in the adoption of the equity method. The guidance is effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. Early adoption is permitted. We are evaluating the impact, if any, that this guidance will have on our consolidated financial position, results of operations and financial statement disclosures.

In March 2016, the FASB issued guidance 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, 2017. We are evaluating the impact, if any, that this guidance will have on our consolidated financial position, results of operations and financial statement disclosures.

In June 2016, the FASB issued guidance which changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. Additionally, entities will have to disclose significantly more information, including information used to track credit quality by year of origination, for most financing receivables. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Early adoption is permitted. We are evaluating the impact that this guidance will have on our consolidated financial position, results of operations and financial statement disclosures.

Results of Operations

Comparison of the Three Months Ended June 30, 2016 to June 30, 2015 (dollars in thousands):

The following table represents our results of operations for the three months ended June 30, 2016 and 2015 (dollars in thousands).

The consolidated financial statements for the three months ended June 30, 2016 represent our results of operations following the NRE Spin-off on October 31, 2015. The three months ended June 30, 2015 include a carve-out of revenues and expenses attributable to NorthStar Europe recorded in discontinued operations.

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	Three Months Ended June 30,						Increase (Decrease)
	2016			2015			Amount			%
Property and other revenues
Rental and escalation income	$	170,758		$	179,982		$	(9,224	)	(5.1	)%
Hotel related income	221,962			206,130			15,832			7.7	%
Resident fee income	73,428			65,833			7,595			11.5	%
Other revenue	4,269			3,736			533			14.3	%
Total property and other revenues	470,417			455,681			14,736			3.2	%
Net interest income
Interest income	37,515			59,509			(21,994		)	(37.0	)%
Interest expense on debt and securities	1,535			1,979			(444		)	(22.4	)%
Net interest income on debt and securities	35,980			57,530			(21,550		)	(37.5	)%
Expenses
Management fee, related party	46,656			51,744			(5,088		)	(9.8	)%
Interest expense—mortgage and corporate borrowings	117,945			120,175			(2,230		)	(1.9	)%
Real estate properties—operating expenses	233,532			222,824			10,708			4.8	%
Other expenses	7,445			7,890			(445		)	(5.6	)%
Transaction costs	8,776			16,550			(7,774		)	(47.0	)%
Provision for (reversal of) loan losses, net	(1,160		)	284			(1,444		)	(508.5	)%
General and administrative expenses
Compensation expense	7,483			9,384			(1,901		)	(20.3	)%
Other general and administrative expenses	4,139			4,864			(725		)	(14.9	)%
Total general and administrative expenses	11,622			14,248			(2,626		)	(18.4	)%
Depreciation and amortization	87,558			112,376			(24,818		)	(22.1	)%
Total expenses	512,374			546,091			(33,717		)	(6.2	)%
Other income (loss)
Unrealized gain (loss) on investments and other	(106,923		)	(14,708		)	(92,215		)	627.0	%
Realized gain (loss) on investments and other	(13,084		)	(607		)	(12,477		)	2,055.5	%
Income (loss) before equity in earnings (losses) of unconsolidated ventures and income tax benefit (expense)	(125,984		)	(48,195		)	(77,789		)	161.4	%
Equity in earnings (losses) of unconsolidated ventures	31,129			57,736			(26,607		)	(46.1	)%
Income tax benefit (expense)	(919		)	(10,088		)	9,169			(90.9	)%
Income (loss) from continuing operations	(95,774		)	(547		)	(95,227		)	17,409.0	%
Income (loss) from discontinued operations	—			(83,795		)	83,795			(100.0	)%
Net income (loss)	$	(95,774	)	$	(84,342	)	$	(11,432	)	13.6	%

Property and Other Revenues

Rental and Escalation Income

Rental and escalation income decreased$9.2 million, primarily attributable to the loss of income due to the sale of our Senior Housing Portfolio in March 2016 ($13.5 million), lower income from our healthcare properties which transitioned to a RIDEA structure in 2015 ($1.2 million) and lower income from our net lease and remaining healthcare properties ($0.2 million), offset by increased income from our manufactured housing portfolio ($5.9 million), all in our real estate segment.

Hotel Related Income

Hotel related income increased$15.8 million primarily related to two hotel acquisitions in 2015 in our real estate segment.

Resident Fee Income

Resident fee income increased$7.6 million, primarily related to our healthcare properties which transitioned to a RIDEA structure in 2015 ($6.5 million), in our real estate segment.

Other Revenue

Other revenue increased $0.5 million primarily due to an increase in real estate related fees in our real estate segment.

Net Interest Income

Net interest income is generated on our interest-earning assets less related interest-bearing liabilities and is primarily related to our CRE debt, securities and N-Star CDO segments and includes certain CRE debt and notes receivable investments included as part of our real estate segment. For assets financed in a CDO, also referred to as legacy investments, the N-Star CDO segments are based on the primary collateral of the CDO financing transaction and as such may include other types of investments.

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The following table presents the average balance of interest-earning assets less related interest-bearing liabilities, associated interest income and expense and corresponding yield earned and incurred for the three months ended June 30, 2016 and 2015. Amounts presented have been impacted by the timing of new investments, sales and repayments during the periods (dollars in thousands):

	Three Months Ended June 30,
	2016							2015
	Average Carrying Value(1)		Interest Income/ Expense(2)		WA Yield/ Financing Cost(3)			Average Carrying Value(1)		Interest Income/ Expense(2)		WA Yield/ Financing Cost(3)
Interest-earning assets:
CRE debt investments(4)	$	446,038	$	14,913	13.37	%		$	925,031	$	28,326	12.25	%
CRE securities investments	764,768		22,602		11.82	%		924,749		31,183		13.49	%
	$	1,210,806	37,515		12.39	%		$	1,849,780	59,509		12.87	%
Interest-bearing liabilities:
CDO bonds payable	$	414,143	$	1,110	3.41	%	(5)	$	541,801	$	1,308	3.19	%	(5)
Loan facilities	25,188		322		5.11	%		65,903		671		5.42	%
Secured borrowing	53,595		103		0.76	%		—		—		—
	$	492,926	1,535		3.21	%		$	607,704	1,979		3.47	%
Net interest income			$	35,980						$	57,530

____________________________________________________________

(1) Based on amortized cost for CRE debt and securities investments, principal amount for CDO bonds payable, loan facilities and secured borrowing. All amounts are calculated based on quarterly averages with the exception of the loan facility amount in 2016 which represents the final balance upon payoff. Additionally, amounts include manufactured housing notes receivables recorded in other assets based on carrying value.

(2) Includes the effect of amortization of premium or accretion of discount and deferred fees.

(3) Calculated as interest income or expense divided by average carrying value.

(4) Includes $1.5 million and $1.4 million of interest income related to manufactured housing notes receivables recorded in other assets and included in our real estate segment for the three months endedJune 30, 2016 and 2015, respectively.

(5) We use interest rate swaps in CDO financing transactions to manage interest rate risk. Weighted average financing cost includes $2.4 million and $3.0 million of net cash payments on interest rate swaps in our consolidated N-Star CDOs recorded in unrealized gain (loss) in our consolidated statements of operations for the three months endedJune 30, 2016 and 2015, respectively.

Interest income decreased$22.0 million, primarily attributable to decreased income on debt investments due to payoffs and sales ($13.6 million) in our CRE debt segment, decreased income on investments in our consolidated CDOs ($6.4 million) in our N-Star CDOs - CRE securities segment and decreased income on investments in deconsolidated N-Star CDO bonds and equity notes ($2.0 million), in our CRE securities segment.

Interest expense decreased$0.4 million, primarily attributable to lower interest expense on our loan facility ($0.6 million) which was paid off in April 2016, offset by increased interest expense related to a secured borrowing ($0.1 million), both in our CRE debt segment.

Expenses

Management Fee, Related Party

Management fee, related party decreased $5.1 million primarily related to the spin-off of NorthStar Europe, in our corporate segment.

Interest Expense—Mortgage and Corporate Borrowings

Interest expense on mortgage and corporate borrowings decreased$2.2 million, primarily attributable to lower interest expense on our corporate borrowings ($4.5 million) in our corporate segment and the sale of our Senior Housing Portfolio in March 2016 ($3.2 million), offset by increased interest expense related to new mortgage and other notes payable associated with new property acquisitions in 2015 ($5.5 million), both in our real estate segment.

Real Estate Properties—Operating Expenses

Real estate operating expenses primarily relate to utilities, real estate taxes, insurance and repair and maintenance expense and with respect to RIDEA properties, salaries, food and beverage and resident services. Real estate properties operating expenses increased$10.7 million, primarily attributable to hotel acquisitions in 2015 ($13.2 million) and our healthcare properties which transitioned to a RIDEA structure in 2015 ($4.2 million), offset by the sale of our Senior Housing Portfolio in March 2016 ($7.5 million), all in our real estate segment.

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Other Expenses

Other expenses primarily represents third-party asset management, audit and legal fees and other administrative related fees related to portfolio management of our real estate segment and other expenses such as legal and consulting fees for loan modifications and restructurings and other expenses associated with managing the N-Star CDOs. Other expenses decreased$0.4 million primarily related to sales in our real estate segment.

Transaction Costs

Transaction costs represent costs such as professional fees associated with new investments, merger related costs, dead deal costs and restructuring costs which are related to specific transactions. For the three months ended June 30, 2016, transaction costs of $8.8 million primarily related to costs incurred in connection with the merger agreement with NSAM and Colony, in our corporate segment. For the three months ended June 30, 2015, transaction costs of $16.6 million primarily related to real estate acquisitions and restructurings, which includes transaction costs related to the acquisitions and restructurings related to our healthcare portfolios ($13.0 million) and our hotel acquisitions ($3.3 million), both in our real estate segment.

Provision for (Reversal of) Loan Losses, Net

For the three months ended June 30, 2016, reversal of loan losses, net of $1.2 million related to two loans ($1.3 million) in our CRE debt segment, offset by notes receivable related to our manufactured housing portfolio ($0.1 million) in our real estate segment. For the three months ended June 30, 2015, provision for loan losses, net primarily related to a provision for loan loss relating to manufactured housing notes receivable in our real estate segment.

General and Administrative Expenses

General and administrative expenses are principally incurred at the corporate level. General and administrative expenses decreased$2.6 million primarily attributable to the following:

The following table presents compensation expense for the three months endedJune 30, 2016 and 2015 (dollars in thousands):

	Three Months Ended   June 30,
	2016		2015		Increase (Decrease)
Salaries and related expenses	$	1,879	$	1,680	$	199
Equity-based compensation expense	5,604		7,704		(2,100		)
Total	$	7,483	$	9,384	$	(1,901	)

Compensation expense decreased$1.9 million primarily due to equity-based compensation expense related to lower grants issued subsequent to the spin-off of NSAM.

Other general and administrative expenses decreased$0.7 million related to lower corporate expenses.

Depreciation and Amortization

Depreciation and amortization expense decreased$24.8 million, primarily related to our manufactured housing and multifamily properties which were classified as held for sale in 2015 ($19.1 million) and the sale of our Senior Housing Portfolio in March 2016 ($4.7 million), all in our real estate segment.

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Other Income (Loss)

Unrealized Gain (Loss) on Investments and Other

Unrealized gain (loss) on investments and other is primarily related to the non-cash change in fair value adjustments and the remaining amount is related to net cash payments on interest rate swaps. The following tables present a summary of unrealized gain (loss) on investments and other by operating segment for the three months ended June 30, 2016 and 2015 (dollars in thousands):

	Three Months Ended June 30, 2016
							N-Star CDOs
	Real Estate			CRE Securities			CRE Securities			Corporate				Total
Change in fair value of:
Real estate securities, available for sale(1)	$	—		$	(2,004	)	$	(1,868	)	$	—			$	(3,872	)
PE Investments(1)(2)	(5,176		)	—			—			—				(5,176		)
CDO bonds payable, at fair value(1)	—			—			(1,540		)	—				(1,540		)
Junior subordinated notes, at fair value(1)	—			—			—			(9,129		)		(9,129		)
Derivatives, at fair value	(170		)	—			2,312			(72,600		)	(3)	(70,458		)
Foreign currency remeasurement(4)	(13,249		)	—			—			(7		)		(13,256		)
Investments in unconsolidated ventures(1)	(1,070		)	—			—			—				(1,070		)
Subtotal unrealized gain (loss)	(19,665		)	(2,004		)	(1,096		)	(81,736		)		(104,501		)
Net cash payments on derivatives	(12		)	—			(2,410		)	—				(2,422		)
Total unrealized gain (loss) on investments and other	$	(19,677	)	$	(2,004	)	$	(3,506	)	$	(81,736	)		$	(106,923	)

__________________________________________________________

(1) Represents financial assets and liabilities for which the fair value option was elected.

(2) Includes a $4.4 million unrealized loss which represented an unwind of an unrealized gain of $32.6 million recorded for the year ended December 31, 2014 and a $0.8 million unrealized loss related to an agreement to sell a portfolio of PE Investments.

(3) Includes an unrealized loss on a derivative instrument of $73.1 million.

(4) Represents foreign currency remeasurement on investments, cash and deposits primarily denominated in British Pounds.

	Three Months Ended June 30, 2015
						N-Star CDOs
	Real Estate			CRE Securities		CRE Securities			Corporate			Total
Change in fair value of:
Real estate securities, available for sale(1)	$	—		$	22,645	$	(5,100	)	$	—		$	17,545
PE Investments(1)	(8,917		)	—		—			—			(8,917		)
CDO bonds payable, at fair value(1)	—			—		(4,387		)	—			(4,387		)
Junior subordinated notes, at fair value(1)	—			—		—			9,927			9,927
Derivatives, at fair value	(270		)	—		2,680			(30,734		)	(28,324		)
Foreign currency remeasurement(2)	10,793			—		—			1,009			11,802
Investments in unconsolidated ventures	(9,343		)	—		—			—			(9,343		)
Subtotal unrealized gain (loss)	(7,737		)	22,645		(6,807		)	(19,798		)	(11,697		)
Net cash payments on derivatives	(85		)	—		(2,926		)	—			(3,011		)
Total unrealized gain (loss) on investments and other	$	(7,822	)	$	22,645	$	(9,733	)	$	(19,798	)	$	(14,708	)

__________________________________________________________

(1) Represents financial assets and liabilities for which the fair value option was elected.

(2) Primarily represents foreign currency remeasurement on an investment denominated in British Pounds.

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Realized Gain (Loss) on Investments and Other

The following table presents a summary of realized gain (loss) on investments and other by segment for the three months ended June 30, 2016 and 2015 (dollars in thousands):

		Three Months Ended June 30,
Description	Segment	2016			2015
Sale of real estate investments	Real Estate	$	10,063		$	—
Sale of CRE debt	CRE Debt	385			(84		)
Foreclosure of real estate(1)	Real Estate	(16,091		)	—
Other-than-temporary impairment	CRE Securities	(5,088		)	(1,421		)
Sale of manufactured homes	Real Estate	(1,088		)	(710		)
Sales/repayments from N-Star CDO bonds and securities(2)	CRE Securities	—			1,577
Other	Various	(1,265		)	31
Total		$	(13,084	)	$	(607	)

_________________________________________________________

(1) Represents three properties conveyed back to the lender with an additional property with a carrying value of $16.4 million that we expect to convey in the third quarter 2016. At such time, we expect to record a realized gain of $41.2 million upon extinguishment related to such borrowing.

(2) Represents accelerated amortization on N-Star CDO bonds.

Equity in Earnings (Losses) of Unconsolidated Ventures and Income Tax Benefit (Expense)

Equity in Earnings (Losses) of Unconsolidated Ventures

The following table presents a summary of our equity in earnings (losses) of unconsolidated ventures, substantially all of which is generated from investments in our real estate segment, for the three months ended June 30, 2016 and 2015 (dollars in thousands):

	Three Months Ended June 30,
	2016		2015		Increase (Decrease)
PE Investments	$	23,652	$	52,396	$	(28,744	)
Investment in RXR Realty	6,355		4,183		2,172
Other unconsolidated ventures	1,122		1,157		(35		)
Total	$	31,129	$	57,736	$	(26,607	)

Income Tax Benefit (Expense)

Income tax expense for the three months endedJune 30, 2016 represents a net expense of $0.9 million primarily related to a provision for income tax for our hotel properties and our corporate interest in RXR Realty, offset by an income tax benefit related to our PE Investments, all in our real estate segment. Income tax expense for the three months ended June 30, 2015 represents a net expense of $10.1 million primarily related to a provision for income tax for our PE Investments, our corporate interest in RXR Realty, our hotel properties and our healthcare properties, all in our real estate segment.

Discontinued Operations

Income (Loss) from Discontinued Operations

For the three months endedJune 30, 2015, we recorded a $83.8 million loss included in discontinued operations associated with NorthStar Europe which represented a carve-out revenues of $32.2 million and expenses of $116.0 million, primarily related to transaction costs.

Comparison of the Six Months Ended June 30, 2016 to June 30, 2015 (dollars in thousands):

The following table represents our results of operations for the six months ended June 30, 2016 and 2015 (dollars in thousands).

The consolidated financial statements for the six months ended June 30, 2016 represent our results of operations following the NRE Spin-off on October 31, 2015. The six months ended June 30, 2015 include a carve-out of revenues and expenses attributable to NorthStar Europe recorded in discontinued operations.

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	Six Months Ended June 30,						Increase (Decrease)
	2016			2015			Amount			%
Property and other revenues
Rental and escalation income	$	362,192		$	345,024		$	17,168		5.0	%
Hotel related income	415,705			374,857			40,848			10.9	%
Resident fee income	146,205			129,206			16,999			13.2	%
Other revenue	9,709			7,219			2,490			34.5	%
Total property and other revenues	933,811			856,306			77,505			9.1	%
Net interest income
Interest income	80,448			125,146			(44,698		)	(35.7	)%
Interest expense on debt and securities	3,695			3,956			(261		)	(6.6	)%
Net interest income on debt and securities	76,753			121,190			(44,437		)	(36.7	)%
Expenses
Management fee, related party	93,184			99,975			(6,791		)	(6.8	)%
Interest expense—mortgage and corporate borrowings	242,447			233,184			9,263			4.0	%
Real estate properties—operating expenses	471,942			422,708			49,234			11.6	%
Other expenses	14,461			13,619			842			6.2	%
Transaction costs	11,991			22,136			(10,145		)	(45.8	)%
Impairment losses	5,073			—			5,073			NA
Provision for (reversal of) loan losses, net	6,082			767			5,315			693.0	%
General and administrative expenses
Compensation expense	15,767			23,341			(7,574		)	(32.4	)%
Other general and administrative expenses	9,123			8,110			1,013			12.5	%
Total general and administrative expenses	24,890			31,451			(6,561		)	(20.9	)%
Depreciation and amortization	175,561			221,359			(45,798		)	(20.7	)%
Total expenses	1,045,631			1,045,199			432			—	%
Other income (loss)
Unrealized gain (loss) on investments and other	(242,404		)	(45,282		)	(197,122		)	435.3	%
Realized gain (loss) on investments and other	(12,707		)	12,395			(25,102		)	(202.5	)%
Income (loss) before equity in earnings (losses) of unconsolidated ventures and income tax benefit (expense)	(290,178		)	(100,590		)	(189,588		)	188.5	%
Equity in earnings (losses) of unconsolidated ventures	75,784			111,379			(35,595		)	(32.0	)%
Income tax benefit (expense)	(8,762		)	(11,752		)	2,990			(25.4	)%
Income (loss) from continuing operations	(223,156		)	(963		)	(222,193		)	23,073.0	%
Income (loss) from discontinued operations	—			(97,655		)	97,655			(100.0	)%
Net income (loss)	$	(223,156	)	$	(98,618	)	$	(124,538	)	126.3	%

Property and Other Revenues

Rental and Escalation Income

Rental and escalation income increased$17.2 million, primarily attributable to new acquisitions in 2015 including healthcare, manufactured housing and multi-tenant office investments ($16.7 million) and increased income from our manufactured housing and multifamily investments ($3.1 million), offset by lower income from our healthcare properties which transitioned to a RIDEA structure in 2015 ($2.7 million), all in our real estate segment.

Hotel Related Income

Hotel related income increased$40.8 million primarily related to two hotel acquisitions in 2015 in our real estate segment.

Resident Fee Income

Resident fee income increased$17.0 million, primarily related to our healthcare properties which transitioned to a RIDEA structure in 2015 ($16.4 million), in our real estate segment.

Other Revenue

Other revenue increased$2.5 million primarily due to an increase in real estate related fees in our real estate segment.

Net Interest Income

Net interest income is generated on our interest-earning assets less related interest-bearing liabilities and is primarily related to our CRE debt, securities and N-Star CDO segments and includes certain CRE debt and notes receivable investments included as part of our real estate segment. For assets financed in a CDO, also referred to as legacy investments, the N-Star CDO segments are based on the primary collateral of the CDO financing transaction and as such may include other types of investments.

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The following table presents the average balance of interest-earning assets less related interest-bearing liabilities, associated interest income and expense and corresponding yield earned and incurred for the six months ended June 30, 2016 and 2015. Amounts presented have been impacted by the timing of new investments, sales and repayments during the periods (dollars in thousands):

	Six Months Ended June 30,
	2016							2015
	Average Carrying Value(1)		Interest Income/ Expense(2)		WA Yield/ Financing Cost(3)			Average Carrying Value(1)		Interest Income/ Expense(2)		WA Yield/ Financing Cost(3)
Interest-earning assets:
CRE debt investments(4)	$	483,625	$	31,990	13.23	%		$	972,576	$	64,910	13.25	%
CRE securities investments	784,214		48,458		12.36	%		943,239		60,236		12.77	%
	$	1,267,839	80,448		12.69	%		$	1,915,815	125,146		13.06	%
Interest-bearing liabilities:
CDO bonds payable	$	421,592	$	2,234	3.42	%	(5)	$	548,187	$	2,625	3.17	%	(5)
Securitization bonds payable	—		—		—	%		27,447		151		1.10	%
Loan facilities	39,935		910		4.56	%		67,281		1,180		4.83	%
Secured borrowing	53,749		551		2.05	%		—		—		—
	$	515,276	3,695		3.36	%		$	642,915	3,956		3.25	%
Net interest income			$	76,753						$	121,190

____________________________________________________________

(1) Based on amortized cost for CRE debt and securities investments, principal amount for CDO bonds payable, securitization bonds payable, loan facilities and secured borrowing. All amounts are calculated based on quarterly averages. Additionally, amounts include manufactured housing notes receivables recorded in other assets based on carrying value.

(2) Includes the effect of amortization of premium or accretion of discount and deferred fees.

(3) Calculated as interest income or expense divided by average carrying value.

(4) Includes $2.8 million and $3.3 million of interest income related to manufactured housing notes receivables recorded in other assets and included in our real estate segment for the six months endedJune 30, 2016 and 2015, respectively.

(5) We use interest rate swaps in CDO financing transactions to manage interest rate risk. Weighted average financing cost includes $5.0 million and $6.1 million of net cash payments on interest rate swaps in our consolidated N-Star CDOs recorded in unrealized gain (loss) in our consolidated statements of operations for the six months endedJune 30, 2016 and 2015, respectively.

Interest income decreased$44.7 million, primarily attributable to decreased income on debt investments due to payoffs and sales ($31.4 million) in our CRE debt segment, decreased income on investments in our consolidated CDOs ($6.4 million) in our N-Star CDOs - CRE securities segment and decreased income on investments in deconsolidated N-Star CDO bonds and equity notes ($6.8 million), in our CRE securities segment.

Interest expense decreased$0.3 million, primarily attributable to lower interest expense on our loan facility ($0.9 million) which was paid off in April 2016, offset by increased interest expense related to a secured borrowing ($0.6 million), both in our CRE debt segment.

Expenses

Management Fee, Related Party

Management fee, related party decreased $6.8 million primarily related to the spin-off of NorthStar Europe, in our corporate segment.

Interest Expense—Mortgage and Corporate Borrowings

Interest expense on mortgage and corporate borrowings increased$9.3 million, primarily attributable to increased interest expense related to new mortgage and other notes payable associated with property acquisitions in 2015 ($15.9 million), all in our real estate segment, offset by lower interest expense on our corporate borrowings ($5.9 million), in our corporate segment.

Real Estate Properties—Operating Expenses

Real estate operating expenses primarily relate to utilities, real estate taxes, insurance and repair and maintenance expense and with respect to RIDEA properties, salaries, food and beverage and resident services. Real estate properties operating expenses increased$49.2 million, primarily attributable to acquisitions in 2015 comprised of healthcare, hotel, manufactured housing and multi-tenant office investments and healthcare properties transitioned to a RIDEA structure in 2015, all in our real estate segment ($46.9 million).

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Other Expenses

Other expenses primarily represents third-party asset management, audit and legal fees and other administrative related fees related to portfolio management of our real estate segment and other expenses such as legal and consulting fees for loan modifications and restructurings and other expenses associated with managing the N-Star CDOs. Other expenses increased$0.8 million primarily related to acquisitions in 2015 in our real estate segment.

Transaction Costs

Transaction costs represent costs such as professional fees associated with new investments, merger related costs, dead deal costs and restructuring costs which are related to specific transactions. For the six months ended June 30, 2016, transaction costs of $12.0 million primarily related to costs incurred in connection with the merger agreement with NSAM and Colony, in our corporate segment. For the six months ended June 30, 2015, transaction costs of $22.1 million primarily related to real estate acquisitions and restructurings, which includes transaction costs related to the acquisitions and restructurings related to our healthcare portfolios ($16.6 million), our multi-tenant office acquisitions ($0.7 million) and our hotel acquisitions ($3.3 million), all in our real estate segment.

Impairment Losses

Impairment losses of $5.1 million related to impairment on a medical office building in our healthcare portfolio where the tenant exercised its purchase option, in our real estate segment.

Provision for (Reversal of) Loan Losses, Net

For the six months ended June 30, 2016, provision for loan losses, net of $6.1 million related to one loan ($3.0 million) and exit fees on one loan sold in April 2016 ($2.9 million), both in our CRE debt segment and notes receivable related to our manufactured housing portfolio ($0.2 million) in our real estate segment. For the six months ended June 30, 2015, provision for loan losses, net primarily related to a provision for loan loss relating to manufactured housing notes receivable in our real estate segment.

General and Administrative Expenses

General and administrative expenses are principally incurred at the corporate level. General and administrative expenses decreased$6.6 million primarily attributable to the following:

The following table presents compensation expense for the six months ended June 30, 2016 and 2015 (dollars in thousands):

	Six Months Ended   June 30,
	2016		2015		Increase (Decrease)
Salaries and related expenses	$	3,879	$	4,806	$	(927	)
Equity-based compensation expense	11,888		18,535		(6,647		)
Total	$	15,767	$	23,341	$	(7,574	)

Compensation expense decreased$7.6 million primarily due to equity-based compensation expense related to lower grants issued subsequent to the spin-off of NSAM.

Other general and administrative expenses increased$1.0 million related to higher corporate expenses.

Depreciation and Amortization

Depreciation and amortization expense decreased$45.8 million, primarily related to our manufactured housing and multifamily properties which were classified as held for sale in 2015 ($40.1 million) and the sale of our Senior Housing Portfolio in March 2016 ($4.7 million), all in our real estate segment.

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Other Income (Loss)

Unrealized Gain (Loss) on Investments and Other

Unrealized gain (loss) on investments and other is primarily related to the non-cash change in fair value adjustments and the remaining amount is related to net cash payments on interest rate swaps. The following tables present a summary of unrealized gain (loss) on investments and other by operating segment for the six months ended June 30, 2016 and 2015 (dollars in thousands):

	Six Months Ended June 30, 2016
							N-Star CDOs
	Real Estate			CRE Securities			CRE Securities			Corporate				Total
Change in fair value of:
Real estate securities, available for sale(1)	$	—		$	(4,525	)	$	(9,501	)	$	—			$	(14,026	)
PE Investments(1)(2)	(8,950		)	—			—			—				(8,950		)
CDO bonds payable, at fair value(1)	—			—			986			—				986
Junior subordinated notes, at fair value(1)	—			—			—			(366		)		(366		)
Derivatives, at fair value	(310		)	—			4,564			(190,360		)	(3)	(186,106		)
Foreign currency remeasurement(4)	(17,067		)	—			—			(8		)		(17,075		)
Investments in unconsolidated ventures(1)	(11,901		)	—			—			—				(11,901		)
Subtotal unrealized gain (loss)	(38,228		)	(4,525		)	(3,951		)	(190,734		)		(237,438		)
Net cash payments on derivatives	(25		)	—			(4,941		)	—				(4,966		)
Total unrealized gain (loss) on investments and other	$	(38,253	)	$	(4,525	)	$	(8,892	)	$	(190,734	)		$	(242,404	)

__________________________________________________________

(1) Represents financial assets and liabilities for which the fair value option was elected.

(2) Includes a $8.1 million unrealized loss which represented an unwind of an unrealized gain of $32.6 million recorded for the year ended December 31, 2014 and a $0.8 million unrealized loss related to an agreement to sell a portfolio of PE Investments.

(3) Includes an unrealized loss on a derivative instrument of $183.2 million.

(4) Represents foreign currency remeasurement on investments, cash and deposits primarily denominated in British Pounds.

	Six Months Ended June 30, 2015
						N-Star CDOs
	Real Estate			CRE Securities		CRE Securities			Corporate			Total
Change in fair value of:
Real estate securities, available for sale(1)	$	—		$	28,248	$	(6,191	)	$	—		$	22,057
PE Investments(1)	(13,350		)	—		—			—			(13,350		)
CDO bonds payable, at fair value(1)	—			—		(13,575		)	—			(13,575		)
Junior subordinated notes, at fair value(1)	—			—		—			7,917			7,917
Derivatives, at fair value	(1,341		)	—		4,886			(30,735		)	(27,190		)
Foreign currency remeasurement(2)	(3,632		)	—		—			(2,107		)	(5,739		)
Investments in unconsolidated ventures	(9,343		)	—		—			—			(9,343		)
Subtotal unrealized gain (loss)	(27,666		)	28,248		(14,880		)	(24,925		)	(39,223		)
Net cash payments on derivatives	(174		)	—		(5,885		)	—			(6,059		)
Total unrealized gain (loss) on investments and other	$	(27,840	)	$	28,248	$	(20,765	)	$	(24,925	)	$	(45,282	)

__________________________________________________________

(1) Represents financial assets and liabilities for which the fair value option was elected.

(2) Primarily represents foreign currency remeasurement on an investment denominated in British Pounds.

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Realized Gain (Loss) on Investments and Other

The following table presents a summary of realized gain (loss) on investments and other by segment for the six months ended June 30, 2016 and 2015 (dollars in thousands):

		Six Months Ended June 30,
Description	Segment	2016			2015
Sale of real estate investments(1)	Real Estate	$	26,883		$	—
Sale of REO	CRE Debt	1,101			2,980
Conversion of exchangeable senior notes	Corporate	31			(1,147		)
Foreclosure of real estate(2)	Real Estate	(16,959		)	—
Sale of CRE debt	CRE Debt	(621		)	(843		)
Other-than-temporary impairment	CRE Securities	(12,073		)	(1,421		)
Sale of manufactured homes	Real Estate	(2,327		)	(885		)
Sales/repayments from N-Star CDO bonds and securities(3)	CRE Securities	(5,614		)	11,494
Mortgage payoff of a net lease property	Real Estate	—			2,074
Other	Various	(3,128		)	143
Total		$	(12,707	)	$	12,395

_________________________________________________________

(1) In March 2016, we sold our 60% interest in the Senior Housing Portfolio for $535 million and in June 2016, we sold four multifamily properties for $126 million.

(2) Represents three properties conveyed back to the lender with an additional property with a carrying value of $16.4 million that we expect to convey in the third quarter 2016. At such time, we expect to record a realized gain of $41.2 million upon extinguishment related to such borrowing.

(3) Represents accelerated amortization on N-Star CDO bonds.

Equity in Earnings (Losses) of Unconsolidated Ventures and Income Tax Benefit (Expense)

Equity in Earnings (Losses) of Unconsolidated Ventures

The following table presents a summary of our equity in earnings (losses) of unconsolidated ventures, substantially all of which is generated from investments in our real estate segment, for the six months ended June 30, 2016 and 2015 (dollars in thousands):

	Six Months Ended June 30,
	2016		2015		Increase (Decrease)
PE Investments	$	61,214	$	100,581	$	(39,367	)
Investment in RXR Realty	12,471		7,716		4,755
Other unconsolidated ventures	2,099		3,082		(983		)
Total	$	75,784	$	111,379	$	(35,595	)

Income Tax Benefit (Expense)

Income tax expense for the six months ended June 30, 2016 represents a net expense of $8.8 million primarily related to a provision for income tax for our corporate interest in RXR Realty and our PE Investments, both in our real estate segment. Income tax expense for the six months ended June 30, 2015 represents a net expense of $11.8 million primarily related to a provision for income tax for our PE Investments and our corporate interest in RXR Realty, both in our real estate segment.

Discontinued Operations

Income (Loss) from Discontinued Operations

For the six months endedJune 30, 2015, we recorded a $97.7 million loss included in discontinued operations associated with NorthStar Europe which represented a carve-out revenues of $33.9 million and expenses of $131.6 million, primarily related to transaction costs.

Liquidity and Capital Resources

We require capital to fund our operating expenses and investment activities. Our capital sources may include cash flow from operations, net proceeds from asset repayments and sales, borrowings under credit facilities, financings secured by our assets such as mortgage notes, securitization financing transactions, long-term senior and subordinate corporate capital such as revolving credit facilities, senior term loans, senior notes, senior exchangeable notes, trust preferred securities, perpetual preferred stock and common stock. For instance, we are currently exploring the sale of certain real estate, CRE debt and securities, and since the beginning of the fourth quarter 2015 through August 2016, assets sold or committed to sell totaled $4.5 billion to generate liquidity.

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In addition, in connection with the NSAM Spin-off, we entered into a revolving credit agreement with NSAM pursuant to which we make available, on an “as available basis,” up to $250 million of financing to NSAM subject to certain conditions (refer to Related Party Arrangements). The terms of the NSAM revolving credit facility contain various representations, warranties, covenants and conditions, including the condition that our obligation to advance proceeds to NSAM is dependent upon us and our affiliates having at least $100 million of either unrestricted cash and cash equivalents or amounts available under committed lines of credit, after taking into account the amount NSAM seeks to draw under the facility. In addition, in connection with the NRE Spin-off, we provided NorthStar Europe with an initial capitalization of $250 million.

We seek to meet our long-term liquidity requirements, including the repayment of borrowings and our investment funding needs, through existing cash resources, issuance of debt or equity capital, return of capital from investments and the liquidation or refinancing of assets. Nonetheless, our ability to meet a long-term (beyond one year) liquidity requirement may be subject to obtaining additional debt and equity financing. Any decision by our lenders and investors to provide us with financing will depend upon a number of factors, such as our compliance with the terms of our existing credit arrangements, our financial performance, industry or market trends, the general availability of and rates applicable to financing transactions, such lenders’ and investors’ resources and policies concerning the terms under which they make capital commitments and the relative attractiveness of alternative investment or lending opportunities.

As a REIT, we are required to distribute at least 90% of our annual REIT taxable income to our stockholders, including taxable income where we do not receive corresponding cash, and we intend to distribute all or substantially all of our REIT taxable income in order to comply with the REIT distribution requirements of the Internal Revenue Code and to avoid federal income tax and the non-deductible excise tax. On a quarterly basis, our board of directors determines an appropriate common stock dividend based upon numerous factors, including CAD, REIT qualification requirements, availability of existing cash balances, borrowing capacity under existing credit agreements, access to cash in the capital markets and other financing sources, our view of our ability to realize gains in the future through appreciation in the value of our assets, general economic conditions and economic conditions that more specifically impact our business or prospects. Future dividend levels are subject to adjustment based upon our evaluation of the factors described above, as well as other factors that our board of directors may, from time-to-time, deem relevant to consider when determining an appropriate common stock dividend.

We currently believe that our existing sources of funds should be adequate for purposes of meeting our short-term liquidity needs. Unrestricted cash as of August 2, 2016 was approximately $592 million.

Capital Raise

In 2015, we issued aggregate capital of $1.3 billion from the issuance of common equity.

Securitization Financing Transactions

We have historically demonstrated the ability to securitize our CRE debt investments and expect to continue to pursue similar transactions to finance our newly-originated debt investments that might initially be financed on our credit facilities. In 2012 and 2013 we, and on behalf of NorthStar Income, entered into two securitization financing transactions with an aggregate $610 million of principal amount of bonds issued providing permanent, non-recourse, non-mark-to-market financing for CRE debt investments of ours and NorthStar Income’s. In January 2015, Securitization 2012-1 with $228 million principal amount of original bonds issued was repaid in full.

Corporate Borrowings

In August 2014, we entered into our Corporate Revolver with certain commercial bank lenders, with a total current amount of $250 million for a three year term. Additionally, in September 2014, we entered into a corporate term arrangement with respect to the establishment of term borrowings. In February 2016, our Corporate Revolver was repaid and we expect our remaining corporate recourse borrowings to be repaid from proceeds from sales initiatives.

Loan Facility

With respect to investment-level financing, we maintain a loan facility that provides up to $200 million to finance the origination of first mortgage loans and senior loan participations secured by commercial real estate. The interest rate and advance rate depend on asset type and characteristic. In March 2016, the maturity date for the facility was extended for one year with final maturity in March 2018. In April 2016, our loan facility was repaid.

Our loan facility contains representations, warranties, covenants, conditions precedent to funding, events of default and indemnities that are customary for agreements of this type. We are currently in compliance with all of our financial covenants under our loan facility.

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Exchangeable Senior Notes

For the six months endedJune 30, 2016, we issued 0.1 million shares of our common stockholders related to the conversion of exchangeable senior notes. As of August 2, 2016, we had $29 million in principal amount of exchangeable senior notes outstanding.

Cash Flows

The following presents a summary of our consolidated statements of cash flows for the six months endedJune 30, 2016 and 2015 (dollars in thousands).

The consolidated cash flows for the six months endedJune 30, 2016 represents our cash flow following the NRE Spin-off on October 31, 2015. The consolidated cash flows for the six months endedJune 30, 2015 includes cash flow attributable to revenues and expenses of NorthStar Europe recorded in discontinued operations.

As a result, cash flows for the six months endedJune 30, 2016 may not be comparative to our cash flows reported for the prior period presented.

	Six Months Ended June 30,
Cash flow provided by (used in):	2016			2015
Operating activities	$	158,307		$	165,143
Investing activities	846,209			(2,761,343		)
Financing activities	(687,532		)	2,569,504
Effect of foreign currency translation on cash and cash equivalents	(111		)	4,796
Net increase (decrease) in cash and cash equivalents	$	316,873		$	(21,900	)

Six Months EndedJune 30, 2016 Compared to June 30, 2015

Net cash provided by operating activities was $158 million for the six months endedJune 30, 2016 compared to $165 million for the six months endedJune 30, 2015. The decrease was primarily related to sales and repayments of investments in 2016.

Net cash provided by investing activities was $846 million for the six months endedJune 30, 2016 compared to net cash used in investing activities of $2.8 billion for the six months endedJune 30, 2015. The primary investing activities for the six months endedJune 30, 2016 related to proceeds of sales and repayment of real estate, certain loans and securities and a PE Investment. The six months ended June 30, 2015 primarily includes deposits for European real estate acquired and subsequently spun off as part of the NRE Spin-off.

Net cash used in financing activities was $688 million for the six months endedJune 30, 2016 compared to net cash provided by financing activities of $2.6 billion for the six months endedJune 30, 2015. The primary cash outflows for the six months endedJune 30, 2016 was $249 million for the repayment of our credit facilities and borrowings, $191 million for the payment of dividends, $147 million for the payment of cash collateral on derivatives, $52 million for the repurchase of our common stock and $29 million for net repurchase/repayment of CDO bonds. The primary cash inflows for the six months endedJune 30, 2015 was $1.1 billion of net new capital, $1.9 billion of net new borrowings and $96 million of net contributions from non-controlling interests, offset by $312 million for the payment of dividends, $94 million for the payment of financing costs and $22 million for net repurchase/repayment of CDO bonds.

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Contractual Obligations and Commitments

As of June 30, 2016, we continue to be subject to the material contractual obligations and commitments referred to in our annual report on Form 10-K for the year ended December 31, 2015, with the exception of certain borrowings that have been repaid or future funding obligations disclosed in Note 5. “Investments in Private Equity Funds” and Note 8. “Borrowings” in Item 1. “Financial Statements.”

Merger Related Arrangements and Other Costs

We entered into fee arrangements with service providers and advisors pursuant to which certain fees incurred by us in connection with the Mergers will become payable only if we consummate the Mergers. We have and will incur other professional fees related to the Mergers. There can be no assurances that we will complete this or any other transaction. For the three months ended June 30, 2016, we recorded an aggregate of $7 million in transaction costs in the consolidated statements of operations. To the extent the Mergers are consummated, we anticipate incurring a significant amount of additional costs.

Off-Balance Sheet Arrangements

As of June 30, 2016, we had off-balance sheet arrangements with respect to retained interests in certain deconsolidated N-Star CDOs. Refer to Note 16. “Variable Interest Entities” in Item 1. “Financial Statements” for a discussion of such retained interests in such N-Star CDOs in our consolidated financial statements. In each case, our exposure to loss is limited to the carrying value of our investment.

Additionally, we have certain arrangements which do not meet the definition of off-balance sheet arrangements, but do have some of the characteristics of off-balance sheet arrangements, including certain investments in unconsolidated ventures. Refer to Note 5. “Investments in Private Equity Funds” and Note 6. “Investments in Unconsolidated Ventures” in Item 1. “Financial Statements” for a discussion of such unconsolidated ventures in our consolidated financial statements. In each case, our exposure to loss is limited to the carrying value of our investment.

Related Party Arrangements

NorthStar Asset Management Group

Management Agreement

Upon completion of the NSAM Spin-off, we entered into a management agreement with an affiliate of NSAM for an initial term of 20 years, which automatically renews for additional 20-year terms each anniversary thereafter unless earlier terminated. As asset manager, NSAM is responsible for our day-to-day operations, subject to supervision and management of our board of directors. Through its global network of subsidiaries and branch offices, NSAM 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 us and our subsidiaries other than our CRE loan origination business. The management agreement with NSAM provides for a base management fee and incentive fee.

In connection with the NRE Spin-off, NorthStar Europe entered into a management agreement with NSAM with an initial term of 20 years on terms substantially consistent with the terms of our management agreement with NSAM. Our management agreement with NSAM was amended and restated in connection with the NRE Spin-off to, among other things, adjust the annual base management fee and incentive fee hurdles for the NRE Spin-off. Upon completion of the Mergers, the management agreement with NSAM will cease to exist.

Base Management Fee

For the three and six months endedJune 30, 2016, we incurred $47 million and $93 million, respectively, related to the base management fee. The base management fee to NSAM could increase subsequent to June 30, 2016 by an amount equal to 1.5% per annum of the sum of:

• cumulative net proceeds of all future common equity and preferred equity issued by us;

• equity issued by us in exchange or conversion of exchangeable notes based on the stock price at the date of issuance;

• any other issuances by us of common equity, preferred equity or other forms of equity, including but not limited to limited partnership interests, or LTIP Units, in our Operating Partnership (excluding units issued to us and equity-based compensation, but including issuances related to an acquisition, investment, joint venture or partnership); and

• cumulative CAD in excess of cumulative distributions paid on common stock, LTIP units or other equity awards beginning the first full calendar quarter after the NSAM Spin-off.

Additionally, our equity interest in RXR Realty and Aerium is structured so that NSAM is entitled to the portion of distributable cash flow from each investment in excess of the $10 million minimum annual base amount.

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Incentive Fee

For the three and six months endedJune 30, 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 $0.68 per share and up to $0.78 per share, after giving effect to the Reverse Split and the NRE Spin-off, or the 15% Hurdle; 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 $0.78 per share, after giving effect to the Reverse Split and the NRE Spin-off, or the 25% Hurdle;

• multiplied by our weighted average shares outstanding for the calendar quarter.

In addition, NSAM may also earn an incentive fee from our healthcare investments in connection with NSAM’s Healthcare Strategic Partnership (refer to below).

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

If we were to spin-off any asset or business in the future, such entity would be managed by NSAM on terms substantially similar to those set forth in the management agreement between us and NSAM. The management agreement further provides that the aggregate base management fee in place immediately after any future spin-off will not be less than our aggregate base management fee in place immediately prior to such spin-off.

Our management agreement with NSAM provides that in the event of a change of control of NSAM 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 NSAM, 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 NSAM for costs and expenses incurred by NSAM on our behalf. In addition, NSAM 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 NSAM, or the G&A Allocation. Our management agreement with NSAM provides that the amount of the G&A Allocation will not exceed the following: (i) 20% of the combined total of: (a) our and NorthStar Europe’s, or the NorthStar Listed Companies’, 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 NSAM under the terms of the applicable management agreement and (4) any allocation of expenses to the NorthStar Listed Companies, or NorthStar Listed Companies’ G&A; and (b) NSAM’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 NSAM; less (ii) the NorthStar Listed Companies’ G&A. The G&A Allocation may include our allocable share of NSAM’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 NSAM for an allocable portion of any severance paid pursuant to any employment, consulting or similar service agreements in effect between NSAM and any of its executives, employees or other service providers.

In connection with the NRE Spin-off and the related agreements, the NorthStar Listed Companies’ obligations to reimburse NSAM for the G&A Allocation and any severance are shared among the NorthStar Listed Companies, at NSAM’s discretion, and the 20% cap on the G&A Allocation, as described above, applies on an aggregate basis to the NorthStar Listed Companies. NSAM currently determined to allocate these amounts based on assets under management.

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For the three and six months endedJune 30, 2016, NSAM allocated $0.2 million and $0.4 million to us.

In addition, we, together with NorthStar Europe and any company spun-off from us or NorthStar Europe, will pay directly or reimburse NSAM for up to 50% of any long-term bonus or other compensation that NSAM’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 NSAM during any year. Subject to this limitation and limitations contained in any applicable management agreement between NSAM and NorthStar Europe or any company spun-off from us or NorthStar Europe, the amount paid by us, NorthStar Europe and any company spun-off from us or NorthStar Europe will be determined by NSAM in its discretion. At the discretion of NSAM’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 restricted stock units, or 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 the NSAM 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%.

In connection with the above obligation, we were responsible for paying approximately 50% of the 2015 and 2014 long-term bonuses earned under the NorthStar Asset Management Group Inc. Executive Incentive Bonus Plan, or NSAM Bonus Plan. Long-term bonuses were paid to executives in the form of equity-based awards of both us and NSAM, subject to performance-based and time-based vesting conditions over the four-year performance period from January 1, 2014 through December 31, 2017. The long-term bonuses paid in the form of equity-based awards of ours were adjusted for the NRE Spin-off and Reverse Split in the same manner as all other equity-based awards of ours.

Investment Opportunities

Under the management agreement, we agreed to make available to NSAM for the benefit of NSAM and its managed companies, including us, all investment opportunities that we source. NSAM agreed to fairly allocate such opportunities among NSAM’s managed companies, including us, and NSAM in accordance with an investment allocation policy. Pursuant to the management agreement, we are entitled to fair and reasonable compensation for our services in connection with any loan origination opportunities sourced by us, which may include first mortgage loans, subordinate mortgage interests, mezzanine loans and preferred equity interests, in each case relating to commercial real estate. For the three and six months endedJune 30, 2016, we earned $0.2 million and $0.4 million from NSAM for services in connection with loan origination opportunities.

NSAM provides services with regard to such areas as payroll, human resources and employee benefits, financial systems management, treasury and cash management, accounts payable services, telecommunications services, information technology services, property management services, legal and accounting services and various other corporate services to us as it relates to our loan origination business for CRE debt.

Credit Agreement

In connection with the NSAM Spin-off, we entered into a revolving credit agreement with NSAM pursuant to which we make available to NSAM, on an “as available basis,” up to $250 million of financing with a maturity of June 30, 2019 at LIBOR plus 3.50%. The revolving credit facility is unsecured. NSAM expects to use the proceeds for general corporate purposes, including potential future acquisitions. In addition, NSAM may use the proceeds to acquire assets on behalf of its managed companies, including us, that it intends to allocate to such managed company but for which such managed company may not then have immediately available funds. The terms of the revolving credit facility contain various representations, warranties, covenants and conditions, including the condition that our obligation to advance proceeds to NSAM is dependent upon us and its affiliates having at least $100 million of either unrestricted cash and cash equivalents or amounts available under committed lines of credit, after taking into account the amount NSAM seeks to draw under the facility. As of June 30, 2016, we have not funded any amounts to NSAM in connection with this agreement.

Healthcare Strategic Joint Venture

In January 2014, NSAM entered into a long-term strategic partnership with James F. Flaherty III, former Chief Executive Officer of HCP, Inc., focused on expanding our healthcare business into a preeminent healthcare platform, or the Healthcare Strategic Partnership. In connection with the partnership, Mr. Flaherty oversees both our healthcare real estate portfolio and the portfolio of NorthStar Healthcare. In connection with entering into the partnership, we granted Mr. Flaherty certain RSUs (refer to Note 10. “Equity-Based Compensation” in Item 1. “Financial Statements”). The Healthcare Strategic Partnership is entitled to incentive fees ranging from 20% to 25% above certain hurdles for new and existing healthcare real estate investments held by us. For the three and six months endedJune 30, 2016, we did not incur any incentive fees related to the Healthcare Strategic Partnership.

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NSAM Retail Companies

We committed to purchase up to $10 million in shares of each of NSAM’s Retail Companies’ common stock during the period from when each offering was declared effective through the end of their respective offering period, in the event that NSAM Retail Companies’ distributions to its stockholders, on a quarterly basis, exceed certain measures of operating performance.

In addition, pursuant to the management agreement with NSAM, we committed up to $10 million to invest as distribution support consistent with past practice in each future public non-traded NSAM Retail Company, up to a total of five new companies per year. The following table summarizes our total shares purchased of each NSAM Retail Company as part of our obligation under the distribution support agreement and our remaining obligations as of June 30, 2016 (dollars in millions):

	Term of	Ownership		Amount		Remaining
NSAM Retail Company	Commitment	Interest		Purchased		Commitment
NorthStar Income	Completed	0.5	%	$	5.8	$	—
NorthStar Healthcare	Completed	0.3	%	5.5		—
NorthStar Income II	May 2013 - November 2016	0.5	%	4.0		6.0
NorthStar/RXR New York Metro(1)(4)	February 2015 - February 2017	58.1	%	1.5		6.0
NorthStar Corporate Fund(2)	February 2016 - February 2018	50.0	%	1.0		4.0
NorthStar Capital Fund(3)(4)	May 2016 - May 2018	100.0	%	2.0		8.0
Total				$	19.8	$	24.0

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(1) NorthStar/RXR New York Metro Real Estate, Inc., or NorthStar/RXR New York Metro’s registration statement filed with the United States Securities and Exchange Commission, or the SEC, seeks to offer up to $2 billion in a public offering of multiple classes of common stock. In December 2015, we and RXR Realty satisfied NorthStar/RXR New York Metro’s minimum offering amount as a result of the purchase of 0.2 million shares of its common stock for an aggregate $2.0 million, of which $1.5 million was invested by us. NSAM began raising capital for NorthStar/RXR New York Metro in the second quarter 2016.

(2) NorthStar Corporate Income Fund’s, or NorthStar Corporate Fund, registration statement on Form N-2 filed with the SEC seeks to raise up to $3 billion in a public offering of common stock. In January 2016, an affiliate of Och-Ziff Capital Management Group and us invested $2 million of seed capital into NorthStar Corporate Fund, of which $1 million was invested by us. In February 2016, NorthStar Corporate Fund was declared effective by the SEC and expects to begin raising capital in 2016.

(3) NorthStar Real Estate Capital Income Fund’s registration statement on Form N-2 filed with the SEC seeks to raise up to $3 billion in a public offering of common stock. In March 2016, we invested $2 million of seed capital into NorthStar Capital Fund. In May 2016, NorthStar Capital Fund was declared effective by the SEC and expects to begin raising capital in 2016.

(4) We currently consolidate the company based on our majority voting interest in the entity.

N-Star CDOs

We earn certain collateral management fees from the N-Star CDOs primarily for administrative services. For the three and six months endedJune 30, 2016, we earned $0.3 million and $1.3 million in fee income, respectively, of which $0.2 million and $0.3 million, respectively, were eliminated in consolidation.

Additionally, we earn interest income from the N-Star CDO bonds and N-Star CDO equity in deconsolidated N-Star CDOs. For the three and six months endedJune 30, 2016, we earned $12 million and $23 million, respectively, of interest income from such investments related to deconsolidated N-Star CDOs.

American Healthcare Investors

In December 2014, NSAM acquired a 43% interest in American Healthcare Investors LLC, or AHI, and James F. Flaherty III, a strategic partner of NSAM, acquired a 12% interest in AHI. AHI is a healthcare-focused real estate investment management firm that co-sponsored and advised Griffin-American, until Griffin-American was acquired by us and NorthStar Healthcare. In connection with this acquisition, AHI provides certain management and related services, including property management, to NSAM, NorthStar Healthcare and us in order to assist NSAM in managing the current and future healthcare assets (excluding any joint venture assets) acquired by us and, subject to certain conditions, other NSAM managed companies. For the three and six months endedJune 30, 2016, we incurred $0.4 million and $1 million, respectively, of property management fees to AHI.

Island Hospitality Management

In January 2015, NSAM acquired a 45% interest in Island Hospitality Management Inc., or Island. Island is a leading, independent select service hotel management company that currently manages 162 hotel properties, representing $4 billion of assets, of which 110 hotel properties are owned by us. Island provides certain asset management, property management and other services to us to assist in managing our hotel properties. Island receives a base management fee of 2.5% to 3.0% of the current monthly revenue of our hotel properties it manages for us. For the three and six months endedJune 30, 2016 we incurred $5 million and $9 million, respectively, of base property management and other fees to Island. NSAM’s investment in Island is expected to be sold in connection with the merger with us and Colony.

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NSAM purchase of common stock

In 2015, NSAM purchased 2.7 million shares of our common stock in the open market for $50 million.

Recent Sales or Commitments to Sell to NSAM Retail Companies

We sold or entered into agreements to sell certain assets to NSAM Retail Companies:

• In February 2016, we sold substantially all of our 70% interest in PE Investment II to the existing owners of the remaining 30% interest, one a third party which purchased approximately 80% of the interest sold and the other NorthStar Income which purchased the other approximate 20% of the interest sold. NorthStar Income paid $37 million for its respective interest. As part of the transaction, both buyers assumed the deferred purchase price obligation, on a pro rata basis, of the PE Investment II joint venture.

• In February 2016, we sold a 49% interest in one loan with a total principal amount of $40 million to a third party, at par, with the remaining 51% interest sold to NorthStar Income II, also at par.

• In February 2016, we sold one CRE security with a carrying value of $13 million to NorthStar Income II.

• In March 2016, we sold our 60% interest in the Senior Housing Portfolio to NorthStar Healthcare, which owned the remaining 40% interest, for $535 million. NorthStar Healthcare assumed our portion of the $648 million of mortgage borrowing as part of the transaction and we received approximately $150 million of net proceeds.

• In August 2016, we entered into an agreement to sell a portfolio of PE Investments to NorthStar Income II for a gross sales price of $318 million with $44 million of deferred purchase price expected to be assumed as part of the transaction. We expect to receive $247 million of net proceeds in the fourth quarter 2016. There is no assurance we will consummate the transaction on the contemplated terms, if at all.

The board of directors of each NSAM Retail Company, including all of the independent directors, approved each of the respective transactions after considering, among other matters, third-party pricing support.

Recent Developments

Dividends

On August 2, 2016, we declared a dividend of $0.40 per share of common stock. The common stock dividend will be paid on August 19, 2016 to stockholders of record as of the close of business on August 15, 2016. On July 28, 2016, we declared a dividend of $0.54688 per share of Series A preferred stock, $0.51563 per share of Series B preferred stock, $0.55469 per share of Series C preferred stock, $0.53125 per share of Series D Preferred Stock and $0.54688 per share of Series E Preferred Stock. Dividends will be paid on all series of preferred stock on August 15, 2016 to stockholders of record as of the close of business on August 8, 2016.

Colony NorthStar Registration Statement

On July 29, 2016, Colony NorthStar, a Maryland subsidiary of NSAM that will be the surviving parent company of the combined company, filed with the SEC a registration statement on Form S-4 that includes a joint proxy statement of NSAM, Colony and NorthStar Realty and that also constitutes a prospectus of Colony NorthStar.

Inflation

Virtually all of our assets and liabilities are interest rate sensitive in nature. As a result, interest rates and other factors influence our performance significantly more than inflation does. A change in interest rates may correlate with inflation rates. Substantially all of the leases at our manufactured housing communities and multifamily properties allow for monthly or annual rent increases which provide us with the opportunity to achieve increases, where justified by the market, as each lease matures. Such types of leases generally minimize the risks of inflation on our manufactured housing communities and multifamily properties. 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, N-Star CDO equity interests, depreciation and amortization, equity-based compensation, realized gain (loss) on investments, provision for loan losses, asset impairment, non-recurring bad debt expense and certain interest income and expense items). 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 or restructuring of investments, which are expenses related to specific transactions. We adjust for N-Star CDO equity interests to represent the net economic interest generated from the N-Star CDO equity interests. This adjustment is a component of our ongoing return on such investments, and therefore, is adjusted in CAD as it provides investors and management with a meaningful indicator of our operating performance. Furthermore, CAD adjusts N-Star CDO bond discounts to record such investments on an effective yield basis over the expected weighted average life of the investment. N-Star CDO bond discounts relates to repurchased CDO bonds of consolidated CDO financing transactions at a discount to par. These CDO bonds typically have a low interest rate and the majority of the return is generated from repurchasing the CDO bonds at a discount to expected recovery value. Because the return generated through the accretion of the discount is a meaningful contributor to our operating performance, such accretion is adjusted in CAD. The computation for the accretion of the discount under U.S. GAAP and CAD is the same. However, for CDO financing transactions that are consolidated under U.S. GAAP, the CDO bonds are not presented as an investment but rather are eliminated in our consolidated financial statements. In addition, we adjust for distributions and adjustments to joint venture partners, which represent the net return generated from our investments allocated to our non-controlling interests. For our owned hotels, our CAD calculation does not make an adjustment for furniture, fixtures and equipment (FF&E) reserves. 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. 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.

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, amortization of above/below market leases, amortization of deferred financing costs, amortization of discount on financings and other and equity-based compensation; net economic interest generated from N-Star CDO equity interests; accretion of consolidated N-Star CDO bond discounts; net interest income in consolidated N-Star CDOs; unrealized gain (loss) from the change in fair value; realized gain (loss) on investments and other, excluding accelerated amortization related to sales of CDO bonds or other investments; provision for loan losses, net; impairment on depreciable property; non-recurring bad debt expense; acquisition gains or losses;

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distributions and adjustments related to joint venture partners; 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.

CAD should not be considered as an alternative to net income (loss) attributable to common stockholders, determined in accordance with U.S. GAAP, as an indicator of operating performance. In addition, our methodology for calculating CAD involves subjective judgment and discretion and may differ from the methodologies used by other comparable companies, including other REITs, when calculating the same or similar supplemental financial measures and may not be comparable with these companies.

The following table presents a reconciliation of CAD to net income (loss) attributable to common stockholders for the three months ended June 30, 2016 (dollars in thousands):

Net income (loss) attributable to common stockholders	$	(115,557	)
Non-controlling interests	(1,277		)
Adjustments:
Depreciation and amortization items(1)	102,704
N-Star CDO bond discounts(2)	5,914
Net interest income in consolidated N-Star CDOs	(7,726		)
Unrealized (gain) loss from fair value adjustments / Provision for (reversal of) loan losses, net	103,353
Realized (gain) loss on investments(3)	12,695
Distributions / adjustments to joint venture partners	(10,408		)
Transaction costs and other(4)	13,096
CAD	$	102,794

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(1) Represents an adjustment to exclude depreciation and amortization of $87.8 million (including $0.2 million related to unconsolidated ventures), straight-line rental income of $(7.3) million, amortization of above/below market leases of $2.2 million, amortization of deferred financing costs of $14.0 million, amortization of discount on financings and other of $0.4 million and amortization of equity-based compensation of $5.6 million.

(2) For CAD, discounts expected to be realized on N-Star CDO bonds for consolidated CDOs are accreted on an effective yield basis based on expected maturity. For deconsolidated N-Star CDOs, N-Star CDO bond accretion is already included in net income attributable to common stockholders.

(3) Represents an adjustment to exclude a $10.4 million net gain related to the sale of real estate investments, a $(16.1) million loss related to the foreclosure of real estate, $(5.5) million non-cash loss related to securities in our consolidated CDOs, $(1.1) million loss related to the sale of manufactured homes and includes a $(0.4) million loss related to the sale of REO.

(4) Represents an adjustment to exclude $8.8 million of transaction costs and include $4.2 million related to N-Star CDO equity interests.

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 and represent our ownership percentage for unconsolidated joint ventures. Net operating income represents total property and related revenues, adjusted for: (i) amortization of above/below market rent; (ii) straight line rent; (iii) other items such as adjustments related to joint ventures and non-recurring bad debt expense; and (iv) 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) from the sale of properties 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 to property and other related revenues less property operating expenses for our property types in our real estate segment for the three months ended June 30, 2016 (dollars in thousands):

										Manufactured							Multi-tenant
	Total			Healthcare(5)			Hotel			Housing(6)		Net Lease			Multifamily(6)		Office
Property and other revenues
Rental and escalation income	$	170,758		$	88,754		$	—		$	49,023	$	17,630		$	9,806	$	5,545
Hotel related income	221,962			—			221,962			—		—			—		—
Resident fee income	73,428			73,428			—			—		—			—		—
Other revenue(1)	2,176			264			—			1,234		—			521		157
Total property and other revenues	468,324			162,446			221,962			50,257		17,630			10,327		5,702
Real estate properties—operating expenses	233,532			66,141			138,849			18,759		3,061			4,524		2,198
Adjustments:
Interest income(2)	3,076			1,515			11			1,549		1			—		—
Equity in earnings(3)	196			—			—			—		(76		)	272		—
Amortization and other items(4)	(4,113		)	(3,271		)	(12		)	—		(949		)	399		(280		)
NOI(7)	$	233,951		$	94,549		$	83,112		$	33,047	$	13,545		$	6,474	$	3,224

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(1) Certain other revenue earned is not included as part of NOI, including collateral management fees for administrative services in our N-Star CDOs, that are not part of our real estate segment.

(2) Primarily represents interest income earned from notes receivable on manufactured homes and loans in our healthcare portfolio.

(3) Includes an adjustment related to our interest in an unconsolidated joint venture in a net lease and multifamily property.

(4) Primarily includes amortization of straight-line rental income, amortization of above/below market leases and non-recurring bad debt.

(5) The following table presents NOI by asset class within our healthcare property type for the three months ended June 30, 2016 (dollars in thousands):

	Total			Medical			Senior Housing					Skilled
	Healthcare			Office			Operating		Net Lease			Nursing			Hospitals
Property and other revenues
Rental and escalation income	$	88,754		$	39,085		$	—	$	14,795		$	28,760		$	6,114
Resident fee income	73,428			—			67,893		—			5,535			—
Other revenue	264			263			—		—			—			1
Total property and other revenues	162,446			39,348			67,893		14,795			34,295			6,115
Real estate properties—operating expenses	66,141			12,193			47,615		256			5,440			637
Adjustments:
Interest income	1,515			7			1		1,129			76			302
Amortization and other items	(3,271		)	(1,463		)	234		(845		)	(412		)	(785		)
NOI	$	94,549		$	25,699		$	20,513	$	14,823		$	28,519		$	4,995

(6) During 2016, we entered into definitive agreements to sell certain of our real estate portfolios, including ten multifamily properties, of which four properties were sold as of June 30, 2016 and our manufactured housing portfolio.

(7) The following table presents a reconciliation of NOI of our real estate segment to net income (loss) for the three months ended June 30, 2016 (dollars in thousands):

NOI	$	233,951
Adjustments:
Straight-line rental revenue and amortization of above/below-market leases	5,259
Interest expense—mortgage and corporate borrowings	(107,703		)
Other expenses	(6,420		)
Depreciation and amortization	(87,369		)
Unrealized gain (loss) on investments and other	(18,850		)
Realized gain (loss) on investments and other	(5,966		)
Equity in earnings (losses) of unconsolidated ventures	30,988
Income tax benefit (expense)	(735		)
Other items	(1,126		)
Net income (loss) - Real estate segment	$	42,029
Remaining segments(i)	(137,803		)
Net income (loss)	$	(95,774	)

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(i) Represents the net income (loss) of our remaining segments to reconcile to total net income (loss).

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are primarily subject to interest rate risk and credit 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, which is the difference between the income earned on our investments and the interest expense incurred in connection with our borrowings and derivatives.

Our general financing strategy has focused on the use of “match-funded” structures. This means that we seek to align the maturities of our liabilities with the maturities on our assets as closely as possible in order to manage the risks of being forced to refinance our liabilities prior to the maturities of our assets. Substantially all of our investments are financed with non-recourse mortgage notes. In addition, we seek to match the interest rate on our assets with like-kind borrowings, so fixed-rate investments are financed with fixed-rate borrowings and floating-rate assets are financed with floating-rate borrowings, directly or indirectly, through the use of interest rate swaps, caps and other financial instruments or through a combination of these strategies. For longer duration, relatively stable investment real estate cash flows such as those derived from net lease assets, we tend to use fixed rate financing. For real estate cash flows with greater growth potential such as hotels and healthcare under a RIDEA structure, we tend to use floating rate financing which provides prepayment flexibility and may provide a better match between underlying cash flow projections and potential increases in interest rates.

Our CRE debt and securities investments bear interest at either a floating or fixed rate. The interest rate on our floating-rate assets is a fixed spread over an index such as LIBOR and typically reprices every 30 days based on LIBOR in effect at the time. Given the frequent and periodic repricing of our floating-rate assets, changes in benchmark interest rates are unlikely to materially affect the value of our floating-rate portfolio. Changes in short-term rates will, however, affect income from these investments. However, some of our non-legacy CRE debt originations have LIBOR floors that are in excess of current LIBOR. We will not benefit from an increase in LIBOR until it is in excess of the floors.

As of June 30, 2016, a hypothetical 100 basis point increase in one-month LIBOR or the applicable index applied to our floating-rate assets and liabilities (and related derivatives) would result in a decrease in net income of approximately $44 million annually, of which $30 million of the change is attributable to floating rate financing of hotel and healthcare operating real estate and does not reflect the potential increase in cash flow associated with economic growth that may be typical in a rising interest rate environment.

A change in interest rates could affect the value of our fixed-rate CRE debt and securities investments and our real estate investments. For example, increasing interest rates could result in a higher required yield on investments, which could decrease the value on existing fixed-rate investments in order to adjust their yields to current market levels. In addition, the value of our real estate properties 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 (such as the 10-year U.S. Treasury Note yield) plus a risk premium based on the property type and creditworthiness of the tenants/operators. 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.

A change in the interest rate and credit spread may also impact our net book value as CRE securities are marked-to-market each quarter with any change in fair value reflected in unrealized gains (losses) or OCI. Generally, as interest rates increase, the value of fixed-rate securities within our CDO financing transaction, such as CMBS, decreases and as interest rates decrease, the value of these securities will increase. A change in unrealized gains (losses) do not directly affect our operating cash flow or our ability to pay a dividend to stockholders.

We use derivative instruments to manage interest rate exposure. These derivatives are typically in the form of interest rate swap or 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. For example, in June 2015 we entered into a $2 billion notional 10-year fixed interest rate swap in order to seek to hedge against future refinancing costs of certain of our mortgage borrowings. This swap is currently materially out of the money and we have posted $144 million of margin as of August 3, 2016 for the benefit of our counterparty and may be subject to future margin calls. If an early termination event occurs now with respect to this swap, which could be triggered by a change of control or similar merger transaction, in addition to losing the margin we have posted we would currently be required to pay approximately $160 million to our counterparty. As of June 30, 2016, our counterparties do not hold any cash margin as collateral against our remaining derivative contracts. As of June 30, 2016, none of our derivatives qualify 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 investments and other in our consolidated statements of operations. In addition, we are, and

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may in the future be, subject to additional expense based on the notional amount of the derivative and a specified spread over the applicable LIBOR. 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. As of June 30, 2016, a hypothetical 100 basis point increase (decrease) in the 10-year treasury forward curve applied to our interest rate swap would result in an unrealized gain (loss) of approximately $172 million.

Credit Spread Risk

The value of our fixed and floating-rate investments also changes with market credit spreads. This means that when market-demanded risk premium, or credit spread, increases, the value of our fixed- and floating-rate assets decrease and vice versa. Fixed-rate assets are valued based on a market credit spread over the rate payable on fixed rate U.S. Treasury of like maturity. This means that their value is dependent on the yield demanded on such assets by the market, based on their credit relative to U.S. Treasuries. Floating-rate CRE debt and securities investments are valued based on a market credit spread over the applicable LIBOR. Demand for a higher yield on investments results in higher or “wider” spread over the benchmark rate (usually the applicable U.S. Treasury yield) to value these assets. Under these conditions, the value of our portfolio should decrease. Conversely, if the spread used to value these assets were to decrease or “tighten,” the value of these assets should increase.

Credit Risk

We are subject to the credit risk of the tenant/operators of our properties. We seek to undertake a rigorous credit evaluation of each tenant and healthcare operator prior to acquiring properties. This analysis includes an extensive due diligence investigation of the tenant/operator’s business as well as an assessment of the strategic importance of the underlying real estate to the tenant/operator’s core business operations. Where appropriate, we may seek to augment the tenant/operator’s commitment to the facility by structuring various credit enhancement mechanisms into the underlying leases. These mechanisms could include security deposit requirements or guarantees from entities we deem creditworthy. In addition, we actively monitor lease coverage at each facility within our healthcare portfolio.

Credit risk in our CRE debt and securities investments relates to each individual borrower’s ability to make required interest and principal payments on scheduled due dates. We seek to manage credit risk through a comprehensive credit analysis prior to making an investment, actively monitoring our portfolio and the underlying credit quality, including subordination and diversification of our portfolio. 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.

Our CRE debt investments are collateral dependent, meaning the principal source of repayment is from a sale or refinancing of the collateral securing our debt. In the event that a borrower cannot repay our debt, we may exercise our remedies under the debt agreements, which may include taking title to collateral. We describe many of the options available to us in this situation in the “Portfolio Management” section in Part I, Item 1. “Business.” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015. To the extent the value of the collateral underlying a CRE debt investment exceeds the carrying value of the investment (including all debt senior to us) and the expense we incur in collecting the debt, we would collect 100% of our investment. To the extent the carrying value of our CRE debt investment plus all senior debt to our position exceeds the realizable value to our collateral (net of expenses), then we would incur a loss. CMBS investments are generally junior in right of payment of interest and principal to one or more senior classes but benefit from the support of one or more subordinate classes of securities or other form of credit support within a securitization transaction.

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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

Changes in internal control over financial reporting.

There have not been any changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II

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 15. “Commitments and Contingencies” in Part I, Item 1. “Financial Statements” for further disclosure regarding legal proceedings.

Item 1A. Risk Factors

Completion of the Mergers is subject to many conditions and if these conditions are not satisfied or waived, the Mergers will not be completed.

Completion of the Mergers is subject to many conditions which must be satisfied or waived under the merger agreement in order for the Mergers to be completed including, among others, receipt of each of NSAM’s stockholder approval, Colony’s stockholder approval and the Company’s stockholder approval.

In addition, NSAM, Colony and the Company each may terminate the merger agreement under certain circumstances, including, among other reasons, if the Mergers are not completed by the outside date. If the Mergers are not consummated, the market price of the Company’s common stock may decline.

There can be no assurance that the conditions to the closing of the Mergers will be satisfied or waived. For example, Colony NorthStar’s ability to qualify as a REIT depends on its acquisition of Colony’s and the Company’s qualifying REIT assets in the Mergers. Accordingly, in order for counsel to Colony NorthStar to deliver the REIT qualification opinion that is a condition to the closing of the Mergers, the Mergers must be completed sufficiently early in 2017 to allow Colony NorthStar to project, and its counsel to reasonably assume, that Colony NorthStar will satisfy the REIT income and asset tests for the entire taxable year of the Mergers. The date by which the Mergers must be completed for these purposes may be significantly earlier than the outside date as set forth in the merger agreement. A delay in the closing of the Mergers could therefore preclude Colony NorthStar from being able to satisfy the REIT requirements for the year of the closing and from obtaining the REIT qualification opinion that is a condition to closing.

Accordingly, there can be no assurance that the Mergers will be completed.

If the Mergers do not occur, we may incur payment obligations to NSAM and Colony.

If the merger agreement is terminated under certain circumstances, the Company may be required to pay a total termination fee of up to $46 million to Colony, a total termination fee of up to $3 million to NSAM or transaction expenses of up to $20 million (depending on the specific circumstances).

If Colony’s financing for the refinancing of certain existing borrowings of NSAM, Colony and the Company becomes unavailable or is insufficient, the Mergers may not be completed.

Colony has obtained financing commitments to fund the refinancing of certain specified borrowings of NSAM, Colony and the Company and their affiliates in connection with the consummation of the Mergers. The financing commitments are subject to certain conditions, which may or may not be satisfied. In addition, even if these conditions are satisfied, the amount of financing under those financing commitments may be reduced or the cost of obtaining such financing may be increased if certain conditions are not satisfied. In the event that the financing contemplated by those financing commitments is not available or is available in less than the expected amount, other necessary financing may not be available on acceptable terms, in a timely manner or at all. If alternative financing is available, it could be more costly than that reflected in the financing commitments, which would have a negative impact on Colony NorthStar’s results of operations following the Mergers. The merger agreement provides that no party will be required to consummate the Mergers if, subject to certain conditions, financing is unavailable and following the Mergers, Colony NorthStar will not have sufficient unrestricted cash to repay certain specified borrowings and all transaction expenses. As a result, if the financing provided for in the financing commitments obtained by Colony is not available, is insufficient and/or the NSAM, Colony and the Company are unable to secure additional funds through alternative sources, the Mergers may not be completed.

The Company will be subject to business uncertainties and certain operation restrictions until consummation of the Mergers.

Uncertainty about the effect of the Mergers on employees of the Company, employees of NSAM as manager of the Company and clients may have an adverse effect on the Company or Colony NorthStar following the Mergers. These uncertainties could disrupt the business of the Company and impair their ability to attract, retain and motivate key personnel until the Mergers are completed, and cause clients and others that deal with the Companies to seek to change existing business relationships, cease doing business with the Company or cause potential new clients to delay doing business with the Company until the Mergers have been completed successfully. Retention and motivation of certain employees may be challenging during the pendency of the Mergers due to uncertainty about their future roles and difficulty of integration. If key employees depart because of issues related to the uncertainty

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and difficulty of integration or a desire not to remain with the combined company, Colony NorthStar’s business following the Mergers could be negatively impacted. In addition, the merger agreement restricts the parties thereto from making certain acquisitions and investments and taking other specified actions until the Mergers occur without the consent of the other parties. These restrictions may prevent the Company from pursuing attractive business opportunities that may arise prior to the completion of the Mergers.

The pendency of the Mergers could adversely affect the business and operations of the Company.

Due to the operating covenants in the merger agreement, the Company may be unable, during the pendency of the Mergers, to take certain actions without the consent of NSAM or Colony, even if such actions would otherwise prove beneficial to the Company’s stockholders. Those operating covenants will continue to apply until the Mergers occur, which will take place no earlier than January 4, 2017 even if the conditions to the closing of the Mergers would have been satisfied prior to that time, unless otherwise agreed by the Company, NSAM and Colony.

The Company prior to the closing, and Colony NorthStar following the closing of the Mergers, expects to incur significant costs in connection with the consummation of the Mergers and the integration of the companies.

The Company prior to the closing, and Colony NorthStar following the closing, expects to incur significant costs in connection with consummating the Mergers and integrating the portfolios of NSAM, Colony and the Company into Colony NorthStar, including unanticipated costs and the assumption of known and unknown liabilities. While each of the companies and Colony NorthStar have assumed that a certain level of transaction and integration expenses will be incurred, there are factors beyond each of the companies and Colony NorthStar’s control that could affect the total amount or the timing of its integration expenses. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time. Although the Company expects that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the three businesses, should allow Colony NorthStar to offset these incremental expenses over time, the net benefit may not be achieved in the near term, or at all.

The merger agreement includes restrictions on the ability of each of the Company to make distributions to its stockholders, even if it would otherwise have net income and net cash available to make such distributions.

Pursuant to the merger agreement, the Company is permitted to make distributions to its common stockholders of up to $0.40 per share of the Company’s common stock in each quarter of 2016 and a pro rata portion of the $0.40 per share dividend for any partial period of the first calendar quarter of 2017 and prior to the closing of the Mergers.

Given its status as a REIT, the Company may need to (and is permitted to under the merger agreement) make certain minimum distributions in excess of the above limits. In the event the amounts of permitted dividends described above are exceeded, pursuant to a distribution necessary for the Company to qualify as a REIT or to avoid the incurrence of any income or excise tax, the Company’s exchange ratio in the mergers will be adjusted.

Although the Company generally has agreed to use its reasonable best efforts to close the Mergers as promptly as practicable in accordance with the merger agreement, certain factors, which include obtaining NSAM stockholder approval, Colony stockholder approval and the Company’s stockholder approval, could delay the closing. Therefore, even if NSAM, Colony or the Company has available net income or net cash to make distributions to its common stockholders and satisfies any other conditions to make such distributions, the terms of the merger agreement could prohibit such action.

The Company’s common stockholders cannot be sure of the market price of Colony NorthStar class A common stock they will receive as consideration.

Upon completion of the Mergers, common stockholders of the Company will receive shares of Colony NorthStar class A common stock. Prior to the Mergers, there has not been and will not be established public trading for Colony NorthStar common stock. The market price of Colony NorthStar class A common stock following the Mergers will be unknown until the commencement of trading following completion of the Mergers.

The exchange ratios are fixed and generally will not be adjusted for changes affecting the Company.

The Company’s exchange ratio of its common stock into Colony NorthStar class A common stock is fixed and may be adjusted only under certain limited circumstances as set forth in the merger agreement and will not be adjusted to reflect any changes in the trading prices of the Company’s common stock on the NYSE between the signing of the merger agreement and the closing of the Mergers.

The Company’s common stockholders will hold a significantly smaller share of Colony NorthStar following the closing of the Mergers, than they do as stockholders of the Company currently.

Following the Mergers, former stockholders of the Company areexpected to hold approximately 33.90% of Colony NorthStar immediately after thecompletion of the Mergers, on a fully diluted basis, excluding the effect of certain equity-based awards issuable in connectionwith the Mergers. Consequently, the Company’s common stockholders will exercise lessinfluence over

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the management and policies of Colony NorthStar after the completion of the Mergers than they currentlyexercise over the management and policies of the Company.

In addition, unlike the Company’s current structure, Colony NorthStar will have Colony NorthStar class B common stock outstanding with voting rights equal to 36.5 votes per share of Colony NorthStar class B common stock. Following the Mergers, former stockholders of the Company are expected to hold approximately 33% of the voting power of Colony NorthStar common stock upon the completion of the Mergers.

If any of the Mergers do not qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code, or the Code, stockholders participating in such merger may be required to pay substantial U.S. federal income taxes.

Although the parties intend that each of the Mergers will qualify as a “reorganization” within the meaning of Section 368(a) of the Code, it is possible that the Internal Revenue Service, referred to as the IRS, could assert that one or more of the Mergers fails to so qualify. If the IRS were to be successful in any such contention, or if for any other reason any such merger were to fail to qualify as a “reorganization,” each U.S. holder participating in any such merger would recognize gain or loss with respect to all such U.S. holder’s shares of stock based on the difference between: (i) that U.S. holder’s tax basis in the relevant shares; and (ii) the aggregate cash and the fair market value of the shares of stock received in the applicable merger.

Colony NorthStar may incur adverse tax consequences if Colony or the Company were to fail to qualify as a REIT for U.S. federal income tax purposes prior to the Mergers.

It is a condition to the closing of the Mergers that each of Colony and the Company receive an opinion of counsel to the effect that it has qualified as a REIT for U.S. federal income tax purposes under the Code through the time of the Mergers. Neither Colony nor the Company, however, has requested or plans to request a ruling from the IRS that it qualifies as a REIT. Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. The complexity of these provisions and of the applicable Treasury regulations that have been promulgated under the Code is greater in the case of a REIT that holds its assets through a partnership (such as Colony and the Company). The determination of various factual matters and circumstances not entirely within the control of Colony or the Company may have affected its ability to qualify as a REIT.

If, notwithstanding the opinions described above, Colony’s or the Company’s REIT status prior to the Mergers were successfully challenged, Colony NorthStar would face serious tax consequences that would substantially reduce its core funds from operations, referred to as Core FFO, and CAD, including cash available to pay dividends to its stockholders, because:

• Colony or the Company, as applicable, would be subject to U.S. federal, state and local income tax on its net income at regular corporate rates for the years it did not qualify as a REIT (and, for such years, would not be allowed a deduction for dividends paid to stockholders in computing its taxable income) and Colony NorthStar would succeed to the liability for such taxes;

• if Colony NorthStar were considered to be a “successor” of such entity, it would not be eligible to elect REIT status until the fifth taxable year following the year during which such entity was disqualified, unless it is entitled to relief under applicable statutory provisions;

• Colony NorthStar, even if eligible to elect REIT status, would be subject to tax (at the highest corporate rate in effect at the date of the sale) on the built-in gain on each asset of Colony or the Company, as applicable, existing at the time of the Mergers if Colony NorthStar were to dispose of such asset for up to ten years following the Mergers; and

• Colony NorthStar would succeed to any earnings and profits accumulated by Colony or the Company, as applicable, for tax periods that such entity did not qualify as a REIT and Colony NorthStar would have to pay a special dividend and/or employ applicable deficiency dividend procedures (including interest payments to the IRS) to eliminate such earnings and profits to maintain its REIT qualification.

If there is an adjustment to Colony’s or the Company’s taxable income or dividends paid deductions, Colony NorthStar could elect to use the deficiency dividend procedure to maintain Colony’s or the Company’s, as applicable, REIT status. That deficiency dividend procedure could require Colony NorthStar to make significant distributions to its stockholders and to pay significant interest to the IRS.

As a result of these factors, Colony’s or the Company’s failure to qualify as a REIT prior to the Mergers could impair Colony NorthStar’s ability after the Mergers to expand its business and raise capital and could materially adversely affect the value of Colony NorthStar’s stock.

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REITs are subject to a range of complex organizational and operational requirements.

To qualify as a REIT, Colony NorthStar must distribute with respect to each taxable year at least 90% of its net income (excluding capital gains) to its stockholders. A REIT must also meet certain other requirements, including with respect to the nature of its income and assets and the ownership of its stock. For any taxable year that Colony NorthStar fails to qualify as a REIT, it will not be allowed a deduction for dividends paid to its stockholders in computing its net taxable income and thus would become subject to federal, state and local income tax as if it were a regular taxable corporation. In such an event, Colony NorthStar could be subject to potentially significant tax liabilities. Unless entitled to relief under certain statutory provisions, Colony NorthStar would also be disqualified from treatment as a REIT for the four taxable years following the year in which it lost its qualification. If Colony NorthStar were to fail to qualify as a REIT, the market price of its common stock could decline, and Colony NorthStar could need to reduce substantially the amount of distributions to its stockholders as a result of any increased tax liability.

We may not realize the anticipated benefits of the Mergers.

The Company entered into the merger agreement because it believes that the Mergers will be beneficial to the Company and the Company’s stockholders and that combining the businesses of NSAM, Colony and the Company will produce benefits and cost savings. If the combined company is not able to combine successfully the businesses of NSAM, Colony and the Company in an efficient and effective manner, the anticipated benefits and cost savings of the Mergers may not be realized fully, or at all, or may take longer to realize than expected, and the value of Colony NorthStar common stock may be adversely affected.

An inability to realize the full extent of the anticipated benefits of the Mergers and related transactions contemplated by the merger agreement, as well as any delays encountered in the integration process, could have an adverse effect upon the revenues, level of expenses and operating results of the combined company, which may adversely affect the value of Colony NorthStar common stock following the Mergers.

The management of the combined company will have to dedicate substantial effort to integrating the businesses of NSAM, Colony and the Company during the integration process. These efforts may divert management’s focus and resources from the combined company’s business, corporate initiatives or strategic opportunities. In addition, the actual integration may result in additional and unforeseen expenses and the anticipated benefits of the integration may not be realized. Actual growth and cost savings, if achieved, may be lower than what the combined company expects and may take longer to achieve than anticipated. Difficulties associated with managing Colony NorthStar’s larger and more complex portfolio could prevent Colony NorthStar from realizing the anticipated benefits of the Mergers and have a material adverse effect on its business. If Colony NorthStar is not able to address integration challenges adequately, the combined company may be unable to integrate successfully the operations of NSAM, Colony and the Company or to realize the anticipated benefits of the integration of the three companies.

The senior management of the Company is expected to change. The changes in senior management could negatively impact the results of operations of Colony NorthStar.

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Item 6. Exhibits

Exhibit Number	Description of Exhibit
2.1	Agreement and Plan of Merger, dated as of August 5, 2014, by and among NorthStar Realty Finance Corp., NRF Healthcare Subsidiary, LLC, NRF OP Healthcare Subsidiary, LLC, Griffin-American Healthcare REIT II Holdings, LP and Griffin-American Healthcare REIT II, Inc. (incorporated by reference to Exhibit 2.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on August 5, 2014).
2.2	Agreement and Plans of Merger, dated as of June 2, 2016, among NorthStar Realty Finance Corp., Colony Capital, Inc., NorthStar Asset Management Group Inc., New Polaris Inc., New Sirius Inc., NorthStar Realty Finance Limited Partnership, Sirius Merger Sub-T, LLC and New Sirius Merger Sub, LLC (incorporated by reference to Exhibit 2.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on June 8, 2016)
2.3	Agreement, dated as of June 2, 2016, among NorthStar Realty Finance Corp., Colony Capital, Inc. and NSAM J-NRF Ltd (incorporated by reference to Exhibit 2.2 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on June 8, 2016)
3.1	Articles of Restatement of NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 3.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on August 7, 2014)
3.2	Articles of Amendment to the Charter of NorthStar Realty Finance Corp., dated October 30, 2015 and effective November 1, 2015(incorporated by reference to Exhibit 3.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on November 2, 2015)
3.3	Articles of Amendment to the Charter of NorthStar Realty Finance Corp., dated October 30, 2015 and effective November 1, 2015(incorporated by reference to Exhibit 3.2 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on November 2, 2015)
3.4	Amended and Restated Bylaws of NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 3.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on June 3, 2016)
4.1	Registration Rights Agreement relating to the 7.25% Exchangeable Senior Notes due 2027 of NorthStar Realty Finance Limited Partnership, dated June 18, 2007 (incorporated by reference to Exhibit 4.2 to NorthStar Realty Finance Corp.’s Registration Statement on Form S-3 (File No. 333-146679))
4.2	Indenture dated as of June 18, 2007, among NorthStar Realty Finance Limited Partnership, as Issuer, NorthStar Realty Finance Corp., as Guarantor, and Wilmington Trust Company, as Trustee (incorporated by reference to Exhibit 4.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on June 22, 2007)
4.3	Supplemental Indenture dated as of June 30, 2014, relating to the 7.25% Exchangeable Senior Notes, by and among NorthStar Realty Finance Corp., NRFC Sub-REIT Corp. (renamed NorthStar Realty Finance Corp.) and Wilmington Trust, National Association (incorporated by reference to Exhibit 4.9 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2014)
4.4	Second Supplemental Indenture, relating to the 7.25% Exchangeable Senior Notes, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and Wilmington Trust Company, further supplementing the Indenture, dated as of June 18, 2007 and supplemented by the first Supplemental Indenture thereto dated June 30, 2014, by and among NorthStar Realty Finance Corp. and Wilmington Trust Company (incorporated by reference to Exhibit 4.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.5	Registration Rights Agreement relating to the 8.875% Exchangeable Senior Notes due 2032 of NorthStar Realty Finance Limited Partnership, dated as of June 12, 2012 (incorporated by reference to Exhibit 4.4 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed June 12, 2012)
4.6	Indenture dated as of June 12, 2012, among NorthStar Realty Finance Limited Partnership, as Issuer, NorthStar Realty Finance Corp. and NRFC Sub-REIT Corp., as Guarantors, and Wilmington Trust, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed June 12, 2012)
4.7	Supplemental Indenture, relating to the 8.875% Exchangeable Senior Notes, dated as of June 30, 2014, by and among NorthStar Realty Finance Corp., NRFC Sub-REIT Corp. (renamed NorthStar Realty Finance Corp.) and Wilmington Trust, National Association (incorporated by reference to Exhibit 4.6 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2014)
4.8	Second Supplemental Indenture, relating to the 8.875% Exchangeable Senior Notes, dated as of March 13, 2015 and supplemented on June 30, 2014, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and Wilmington Trust, National Association, further supplementing the Indenture, dated as of June 12, 2012 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, by and among NorthStar Realty Finance Corp. and Wilmington Trust, National Association (incorporated by reference to Exhibit 4.2 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.9	Registration Rights Agreement relating to the 5.375% Exchangeable Senior Notes due 2033 of NorthStar Realty Finance Limited Partnership, dated as of June 19, 2013 (incorporated by reference to Exhibit 4.4 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed June 19, 2013)
4.10	Indenture, dated as of June 19, 2013, among NorthStar Realty Finance Limited Partnership, as Issuer, NorthStar Realty Finance Corp. and NRFC Sub-REIT Corp., as Guarantors, and Wilmington Trust, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed June 19, 2013)
4.11	Supplemental Indenture dated as of June 30, 2014, relating to the 5.375% Exchangeable Senior Notes, by and among NorthStar Realty Finance Corp., NRFC Sub-REIT Corp. (renamed NorthStar Realty Finance Corp.) and Wilmington Trust, National Association (incorporated by referent to Exhibit 4.3 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2014)
4.12	Second Supplemental Indenture, relating to the 5.375% Exchangeable Senior Notes, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and Wilmington Trust, National Association, further supplementing the Indenture, dated as of June 19, 2013 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, by and among NorthStar Realty Finance Corp. and Wilmington Trust, National Association (incorporated by reference to Exhibit 4.3 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.13	Indenture, dated as of March 31, 2014, between NorthStar Realty Finance Corp. and Wilmington Trust, National Association, as Trustee (including the Form of Security) (incorporated by reference to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed March 31, 2014)

110

Exhibit Number		Description of Exhibit
4.14		Second Supplemental Indenture, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and The Bank of New York Mellon Trust Company, N.A., further supplementing the Indenture, dated as of April 12, 2005 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, between NorthStar Realty Finance Corp. and The Bank of New York Mellon Trust Company, N.A. (as successor trustee to JPMorgan Chase Bank, National Association) (incorporated by reference to Exhibit 4.4 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.15		Second Supplemental Indenture, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and The Bank of New York Mellon Trust Company, N.A., further supplementing the Indenture, dated as of May 25, 2005 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, between NorthStar Realty Finance Corp. and The Bank of New York Mellon Trust Company, N.A. (as successor trustee to JPMorgan Chase Bank, National Association) (incorporated by reference to Exhibit 4.5 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.16		Second Supplemental Indenture, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and The Bank of New York Mellon Trust Company, N.A., further supplementing the Indenture, dated as of November 22, 2005 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, between NorthStar Realty Finance Corp. and The Bank of New York Mellon Trust Company, N.A. (as successor trustee to JPMorgan Chase Bank, National Association) (incorporated by reference to Exhibit 4.6 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.17		Second Supplemental Indenture, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and Wilmington Trust Company, further supplementing the Indenture, dated as of March 10, 2006 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, between NorthStar Realty Finance Corp. and Wilmington Trust Company (incorporated by reference to Exhibit 4.7 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.18		Second Supplemental Indenture, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and Wilmington Trust Company, further supplementing the Indenture, dated as of August 1, 2006 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, between NorthStar Realty Finance Corp. and Wilmington Trust Company (incorporated by reference to Exhibit 4.8 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.19		Second Supplemental Indenture, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and Wilmington Trust Company, further supplementing the Indenture, dated as of October 6, 2006 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, between NorthStar Realty Finance Corp. and Wilmington Trust Company (incorporated by reference to Exhibit 4.9 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.20		Second Supplemental Indenture, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and Wilmington Trust Company, further supplementing the Indenture, dated as of March 30, 2007 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, between NorthStar Realty Finance Corp. and Wilmington Trust Company (incorporated by reference to Exhibit 4.10 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.21		Second Supplemental Indenture, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and Wilmington Trust Company, further supplementing the Indenture, dated as of June 7, 2007 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, between NorthStar Realty Finance Corp. and Wilmington Trust Company (incorporated by reference to Exhibit 4.11 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.22		Indenture, dated as of July 1, 2015, by and among NorthStar Realty Europe Corp., NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and Wilmington Trust, National Association (incorporated by reference to Exhibit 4.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2015)
4.23		Form of Note of NorthStar Realty Europe Corp. (incorporated by reference to Exhibit 4.2, which is included in Exhibit 4.1, to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2015)
4.24		Form of Guarantee of NorthStar Realty Finance Corp. and NorthStar Realty Finance Limited Partnership (incorporated by reference to Exhibit 4.3, which is included in Exhibit 4.1, to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2015)
		Certain Instruments defining the rights of holders of long-term debt securities of the Registrant and its subsidiaries are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K. The Registrant hereby undertakes to furnish to the SEC, upon request, copies of any such instruments.
10.1	+	NorthStar Realty Finance Corp. Executive Incentive Bonus Plan (incorporated by reference to Exhibit 10.31 to NorthStar Realty Finance Corp.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009)
10.2	+	Amendment to the NorthStar Realty Finance Corp. Executive Incentive Bonus Plan (incorporated by reference to Exhibit 10.26 to NorthStar Realty Finance Corp.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011)
10.3	+	Form of Amended and Restated Indemnification Agreement for directors and officers of NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.25 to NorthStar Realty Finance Corp.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011)
10.4		Subscription Agreement dated as of December 10, 2012, by and among NRFC PE Fund Investor LLC, NRFC Inception, LP, Inception GP, LLC, Teachers Insurance and Annuity Association of America and NRFC PE Fund GP, LLC, portions of which have been omitted pursuant to a request for confidential treatment (incorporated by reference to Exhibit 10.23 to Amendment No. 1 to NorthStar Realty Finance Corp.’s Annual Report on Form 10-K/A for the year ended December 31, 2013)
10.5	+	Amendment to the NorthStar Realty Finance Corp. Executive Incentive Bonus Plan (incorporated by reference to Exhibit 10.30 to NorthStar Realty Finance Corp.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013)
10.6		Purchase and Sale Agreement, effective as of February 15, 2013 among NRFC MH II Holdings, LLC. ARC Real Estate Holdings, LLC and certain of its affiliates (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K/A filed May 6, 2013)
10.7		Amendment to Purchase and Sale Agreement, made as of March 27, 2013 among NRFC MH II Holdings, LLC, ARC Real Estate Holdings, LLC and certain of its affiliates (incorporated by reference to Exhibit 10.2 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K/A filed May 6, 2013)

111

Exhibit Number		Description of Exhibit
10.8		Master Repurchase Agreement, dated as of March 11, 2013, by and among NRFC DB Loan, LLC, as master seller, and Deutsche Bank AG, Cayman Islands Branch, as buyer (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed March 12, 2013)
10.9		Limited Guaranty, dated as of March 11, 2013, executed and delivered by NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and NRFC Sub-REIT Corp. to Deutsche Bank AG, Cayman Islands Branch (incorporated by reference to Exhibit 10.2 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed March 12, 2013)
10.10	+	Third Amended and Restated 2004 Omnibus Stock Incentive Plan of NorthStar Realty Finance Corp. (incorporated by reference to Appendix A to NorthStar Realty Finance Corp.’s Definitive Proxy Statement on Schedule 14A filed May 13, 2016)
10.11		Agreement of Purchase and Sale, dated as of June 12, 2013, by and between Project Shore JV I, LLC and Project Shore JV II, LLC, as Buyers, and Common Pensions Fund E, as Seller (incorporated by reference to Exhibit 10.36 to NorthStar Realty Finance Corp.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013)
10.12		Portfolio Acquisition Agreement and Interest Purchase and Sale Agreement dated as of March 14, 2014, by and among Seller (as defined therein) Eclipse Health Holdings-T, LLC, as Purchaser, Formation Capital Asset Management III LLC and Safanad, Inc., as Stakeholder Representatives and Madison Title Agency, LLC, as Escrow Agent (solely for the purposes of Sections 4(b), 11(l) and 34(c)) (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed March 17, 2014)
10.13		Limited Liability Company Agreement of Eclipse Investment, LLC, dated as of May 7, 2014, by and between FC Eclipse Investment, LLC and Eclipse Health Holdings-T, LLC (incorporated by reference to Exhibit A to the Portfolio Acquisition Agreement and Interest Purchase and Sale Agreement filed as Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed March 17, 2014)
10.14		Separation Agreement, dated June 30, 2014, between NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2014)
10.15		Amended and Restated Asset Management Agreement, dated as of October 31, 2015, between NSAM J-NRF Ltd and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on November 2, 2015)
10.16		Loan Origination Services Agreement, dated June 30, 2014, between NSAM US LLC and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.3 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2014)
10.17		Tax Disaffiliation Agreement, dated June 30, 2014, between NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.4 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2014)
10.18		Employee Matters Agreement, dated June 30, 2014, between NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.5 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2014)
10.19		Contribution Agreement, dated June 30, 2014, between NorthStar Asset Management Group Inc. and NRFC Sub-REIT Corp. (renamed NorthStar Realty Finance Corp.) (incorporated by reference to Exhibit 10.6 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2014)
10.20		Credit Agreement, dated June 30, 2014, between NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.7 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2014)
10.21		Amended and Restated Agreement of Limited Partnership of NorthStar Realty Finance Limited Partnership (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
10.22		Debt Commitment Letter, dated as of August 5, 2014, by and among NorthStar Realty Finance Corp., Citigroup Global Markets Inc., JPMorgan Chase Bank, National Association, Barclays Bank plc, and Column Financial, Inc. (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on August 5, 2014)
10.23		Confirmation of Registered Forward Transaction, dated September 3, 2014, by and among NorthStar Realty Finance Corp., Deutsche Bank Securities Inc. and Deutsche Bank AG, London Branch, including the First Amendment thereto dated September 4, 2014(incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on September 9, 2014)
10.24		Asset Purchase Agreement, dated as of September 17, 2014, by and among Inland American Real Estate Trust, Inc., as Parent, IHP I Owner JV, LLC, as Buyer I, IHP West Homestead (PA) Owner LLC, as Buyer II, and NorthStar Realty Finance Corp., as Buyer Parent (solely for the purposes of Article V, Section 10.11 and Article X as it relates to Article V and Section 10.11) (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on September 23, 2014)
10.25		Amended and Restated Facility Agreement, dated as of March 13, 2015, by and among NorthStar Realty Finance Limited Partnership, NorthStar Realty Finance Corp. and UBS AG Stamford Branch (incorporated by reference to Exhibit 10.2 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
10.26		Form of Credit Agreement, by and among NorthStar Realty Finance Limited Partnership, as borrower, NorthStar Realty Finance Corp., as guarantor, the various lenders party thereto from time to time and UBS AG Stamford Branch, as administrative agent (incorporated by reference to Exhibit 10.3 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
10.27		Loan Agreement dated as of December 3, 2014, among the Borrowers party thereto, as borrowers, and Citigroup Global Markets Realty Corp., JPMorgan Chase Bank, National Association, Barclays Bank PLC and Column Financial, Inc., as lenders (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on December 9, 2014)
10.28		Facility Agreement, dated as of December 3, 2014, among GA HC REIT II CH U.K. Senior Housing Portfolio Limited (as Original Borrower upon its accession in accordance with the terms thereof), the Original Borrower and certain of its subsidiaries (as Original Guarantors upon their accession in accordance with the terms thereof), NorthStar Realty Healthcare, LLC (as Indemnitor) and arranged by Credit Suisse AG, London Branch (as Mandated Lead Arranger and Original Lender), with Elavon Financial Services Limited as Agent, and U.S. Bank Trustees Limited as Security Agent (incorporated by reference to Exhibit 10.2 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on December 9, 2014)
10.29		Mezzanine A Loan Agreement dated as of December 3, 2014, among HC Mezz 1-T, LLC, Glenwood Owner MB1-T, LLC, Glenwood Ops MB2-T, LLC, MA Owner MB1-T, LLC, MA Ops MB2-T, LLC, CCRC Owner MB1-T, LLC and CCRC Ops MB2-T, LLC, as borrowers, and Citigroup Global Markets Realty Corp., JPMorgan Chase Bank, National Association, Barclays Bank PLC and Column Financial, Inc., as lenders (incorporated by reference to Exhibit 10.3 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on December 9, 2014)

112

Exhibit Number		Description of Exhibit
10.30		Mezzanine B Loan Agreement dated as of December 3, 2014, among HC Mezz 2-T, LLC, Glenwood Owner MB2-T, LLC, Glenwood Ops MB3-T, LLC, MA Owner MB2-T, LLC, MA Ops MB3-T, LLC, CCRC Owner MB2-T, LLC and CCRC Ops MB3-T, LLC, as borrowers, and Citigroup Global Markets Realty Corp., JPMorgan Chase Bank, National Association, Barclays Bank PLC and Column Financial, Inc., as lenders (incorporated by reference to Exhibit 10.4 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on December 9, 2014)
10.31		Mezzanine C Loan Agreement dated as of December 3, 2014, among HC Mezz 3-T, LLC, Glenwood Owner MB3-T, LLC, Glenwood Ops MB4-T, LLC, MA Owner MB3-T, LLC, MA Ops MB4-T, LLC, CCRC Owner MB3-T, LLC and CCRC Ops MB4-T, LLC, as borrowers, and Citigroup Global Markets Realty Corp., JPMorgan Chase Bank, National Association, Barclays Bank PLC and Column Financial, Inc., as lenders (incorporated by reference to Exhibit 10.5 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on December 9, 2014)
10.32		Umbrella Agreement, dated December 22, 2014, by and among Prime Holdco C-T, S.à r.l., Prime GER Drehbahn - T S.à r.l., Prime GER Valentinskamp - T S.à r.l. and Trias Pool II A - T S.à r.l., as Buyers, and SEB Investment GmbH (“SEB”), SEB Investment GmbH, Filiale di Milano, SEB Investment GmbH, French Branch SEB Investment GmbH, Altair Issy S.A.S. and Balni bvba (SPRL), as Sellers (incorporated by reference to Exhibit 10.32 to NorthStar Realty Finance Corp.’s Annual Report on Form 10-K for the year ended December 31, 2014)
10.33		Umbrella Sale and Purchase Agreement, dated as of February 16, 2015, between SEB Investment GmbH, SEB Investment GmbH, Filiale di Milano, SEB Investment GmbH, French Branch SEB Investment GmbH, Altair Issy S.A.S. and Balni bvba (SPRL), collectively as the Sellers, and certain subsidiaries of the Company listed therein, as Buyers (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on February 20, 2015)
10.34		Confirmation of Registered Forward Transaction, dated March 2, 2015, by and among the Company, the Forward Seller and the Forward Counterparty, including the First Amendment thereto dated March 3, 2015 (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 6, 2015)
10.35		Amended and Restated Credit and Guaranty Agreement, dated as of May 5, 2015, by and among NorthStar Realty Finance Limited Partnership, as borrower, NorthStar Realty Finance Corp., as parent guarantor, certain subsidiaries of parent guarantor, as guarantors, the various lenders party thereto from time to time, Deutsche Bank AG New York Branch, as administrative agent and collateral agent, and Deutsche Bank Securities Inc., as sole lead arranger and sole bookrunner (incorporated by reference to Exhibit 10.34 to NorthStar Realty Finance Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015)
10.36		Second Amendment to Registered Forward Transaction, dated August 31, 2015, by and among the Company, the Forward Seller and the Forward Counterparty (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on September 1, 2015)
10.37		First Amendment to the Amended and Restated Agreement of Limited Partnership of NorthStar Realty Finance Limited Partnership, dated as of November 1, 2015 (incorporated by reference to Exhibit 10.2 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on November 2, 2015)
10.38		Separation Agreement, dated as of October 31, 2015, between NorthStar Realty Finance Corp. and NorthStar Realty Europe Corp.(incorporated by reference to Exhibit 10.3 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on November 2, 2015)
10.39		Contribution Agreement, dated as of October 31, 2015, between NorthStar Realty Finance Corp. and NorthStar Realty Europe Corp. (incorporated by reference to Exhibit 10.4 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on November 2, 2015)
10.40		Limited Consent and First Amendment to Amended and Restated Credit and Guaranty Agreement, dated as of September 28, 2015, by and among NorthStar Realty Finance Limited Partnership, as borrower, NorthStar Realty Finance Corp., as parent guarantor, and certain subsidiaries of NorthStar Realty Finance Corp., as guarantors, and Deutsche Bank AG New York Branch, as administrative agent, with the consent of the requisite lenders, with reference to that certain Amended and Restated Credit and Guaranty Agreement, dated as of May 5, 2015 (incorporated by reference to Exhibit 10.40 to NorthStar Realty Finance Corp.’s Annual Report on Form 10-K for the year ended December 31, 2015)
10.41		Second Amendment to Amended and Restated Credit and Guaranty Agreement, dated as of February 23, 2016, by and among NorthStar Realty Finance Limited Partnership, as borrower, NorthStar Realty Finance Corp., as parent guarantor, and certain subsidiaries of NorthStar Realty Finance Corp., as guarantors, and Deutsche Bank AG New York Branch, as administrative agent, with the consent of the requisite lenders, with reference to that certain Amended and Restated Credit and Guaranty Agreement, dated as of May 5, 2015 (incorporated by reference to Exhibit 10.41 to NorthStar Realty Finance Corp.’s Annual Report on Form 10-K for the year ended December 31, 2015)
10.42		Interest Sale Agreement, dated as of May 6, 2016, among RHP Western Portfolio Group, LLC, American Home Portfolio Group, LLC, AMC Portfolio Group, LLC, and MHC Portfolio IV, LLC, and BSREP II MH Holdings LLC, a Delaware limited liability company (incorporated by reference to Exhibit 10.42 to NorthStar Realty Finance Corp.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016)
10.43	+	Executive Letter Agreement, dated June 2, 2016, among Debra Hess, NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on June 8, 2016)
10.44	+	Executive Letter Agreement, dated June 2, 2016, among Daniel Gilbert, NorthStar Asset Management Group Inc., NorthStar Realty Finance Corp., NorthStar Asset Management Group, LTD. and NSAM Bermuda, LTD (incorporated by reference to Exhibit 10.2 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on June 8, 2016)
10.45	+	Executive Letter Agreement, dated June 2, 2016, among David T. Hamamoto, NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.3 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on June 8, 2016)
10.46	+	Executive Letter Agreement, dated June 2, 2016, among Ronald J. Lieberman, NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.4 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on June 8, 2016)
10.47	+	Executive Letter Agreement, dated June 2, 2016, among Albert Tylis, NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.5 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on June 8, 2016)
12.1	*	Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends

113

Exhibit Number		Description of 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
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
32.1	*	Certification by the Chief Executive Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	*	Certification by the Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101	*	The following materials from the NorthStar Realty Finance Corp. Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of June 30, 2016 (unaudited) and December 31, 2015; (ii) Consolidated Statements of Operations (unaudited) for the three and six months ended June 30, 2016 and 2015; (iii) Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three and six months ended June 30, 2016 and 2015; (iv) Consolidated Statements of Equity for the six months ended June 30, 2016 (unaudited) and year ended December 31, 2015; (v) Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2016 and 2015; 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.

114

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 Finance Corp.
Date:	August 8, 2016		By:	/s/ JONATHAN A. LANGER
				Jonathan A. Langer
				Chief Executive Officer
			By:	/s/ DEBRA A. HESS
				Debra A. Hess
				Chief Financial Officer

115