DEFM14A 1 d499830ddefm14a.htm DEFM14A DEFM14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

(RULE 14a-101)

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

 

Filed by the Registrant  ☑

Filed by a Party other than the Registrant  ☐

Check the appropriate box:

 

  Preliminary Proxy Statement
  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  Definitive Proxy Statement
  Definitive Additional Materials
  Soliciting Material Pursuant to §240.14a-12

NORTHSTAR REAL ESTATE INCOME II, INC.

(Name of Registrant as Specified in Its Charter)

[N/A]

(Name of Person(s) Filing Proxy Statement if other than Registrant)

Payment of Filing Fee (Check the appropriate box):

  No fee required.
  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
  (1)   Title of each class of securities to which transaction applies:
  (2)   Aggregate number of securities to which transaction applies:
  (3)   Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
  (4)   Proposed maximum aggregate value of transaction:
  (5)   Total fee paid:
  Fee paid previously with preliminary materials.
  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.
  (1)   Amount Previously Paid:
  (2)   Form, Schedule or Registration Statement No.:
  (3)   Filing Party:
  (4)   Date Filed:

 

 

 


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JOINT PROXY STATEMENT / PROSPECTUS

 

LOGO    LOGO

MERGERS PROPOSED—YOUR VOTE IS VERY IMPORTANT

Dear Stockholders:

On August 25, 2017, NorthStar Real Estate Income Trust, Inc., which we refer to as NorthStar I, and NorthStar Real Estate Income II, Inc., which we refer to as NorthStar II, and the operating partnerships of NorthStar I and NorthStar II entered into a master combination agreement with certain subsidiaries of Colony NorthStar, Inc., which we refer to as CLNS, and Colony NorthStar Credit Real Estate, Inc., which we refer to as the Company, and certain other parties, which agreement, as amended and restated on November 20, 2017, and as further amended and/or restated from time to time, we refer to as the combination agreement, pursuant to which (i) subsidiaries of CLNS will contribute a select portfolio of assets and liabilities to the Company and its operating company, and (ii) NorthStar I and NorthStar II will merge in all-stock mergers into the Company, resulting in a combined company with a stabilized and well-diversified income oriented portfolio. We refer to the contributions and the mergers contemplated by the combination agreement collectively as the Combination and the NorthStar I and NorthStar II mergers contemplated by the combination agreement as the Mergers.

It is currently expected that CLNS and its affiliates will receive approximately 37%, NorthStar I stockholders will receive approximately 32% and NorthStar II stockholders will receive approximately 31% of the total consideration issued in the Combination on a fully diluted basis, subject to certain adjustments as set forth in the combination agreement.

In the event of a listing (without an initial public offering) of the shares of Company class A common stock, stockholders of NorthStar I will receive 0.3532 shares of Company class A common stock for each share of NorthStar I common stock they own, and stockholders of NorthStar II (both class A and class T) will receive 0.3511 shares of Company class A common stock for each share of NorthStar II common stock they own. In the event of an initial public offering of the Company, stockholders of NorthStar I will receive 0.0530 shares of Company class B-1 common stock and 0.3002 shares of Company class B-2 common stock for each share of NorthStar I common stock they own, and stockholders of NorthStar II (both class A and class T) will receive 0.0527 shares of Company class B-1 common stock and 0.2984 shares of Company class B-2 common stock for each share of NorthStar II common stock they own. No fractional shares will be issued in connection with the Mergers and the applicable stockholders will receive cash in lieu of fractional shares. In the event of an initial public offering of the Company, each share of Company class B-1 common stock will convert into one share of Company class A common stock upon the close of trading on the date that is 30 days following the closing date of an initial public offering of the Company on a national securities exchange, which we refer to as the IPO Date, and each share of Company class B-2 common stock will convert into one share of Company class A common stock upon the close of trading on the date that is 180 days following the IPO Date. The Company intends to apply to list the shares of Company class A common stock on a national securities exchange under the trading symbol “CLNC.”

The receipt of shares of Company class A common stock or Company class B common stock, as the case may be, as consideration in the Mergers is generally expected to be tax-free to the stockholders of NorthStar I and NorthStar II, except with respect to any cash received for fractional shares.

NorthStar I currently holds a loan, which we refer to as the NorthStar I excluded asset, that will be excluded from the NorthStar I merger, with at least a portion of the NorthStar I excluded asset to be sold prior to the completion of the NorthStar I merger. The residual interest in the NorthStar I excluded asset, if any, which we refer to as the NorthStar I retained asset, will be contributed to a liquidating trust, which we refer to as the


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liquidating trust, prior to the completion of the NorthStar I merger. It is anticipated that stockholders of NorthStar I will receive a distribution of one unit of beneficial interest in the liquidating trust, which we refer to as a liquidating trust unit, for each share of NorthStar I common stock held at the time of such distribution. Assuming that (i) the unpaid principal balance (including a 1% exit fee) of the NorthStar I excluded asset remains approximately $151.65 million and (ii) a senior interest in the NorthStar I excluded asset having a $65.0 million principal balance is sold for $65.0 million, then the NorthStar I retained asset would consist of a junior interest in the NorthStar I excluded asset having an approximately $86.65 million principal balance, or approximately $0.73 attributable to each outstanding share of NorthStar I common stock. In addition, assuming that all contractual interest and fees are paid by the borrower group with respect to the NorthStar I excluded asset, it is expected that such payments will generate sufficient cash to pay interest and fees to which the senior interest will be entitled and certain administrative expenses and other costs associated with the liquidating trust, with any remaining interest and fees distributed to holders of liquidating trust units from time to time. There can be no assurance (i) as to the future value of each liquidating trust unit and (ii) that the liquidating trust will be able to collect significant payments with respect to, or sell, transfer or otherwise dispose of, the NorthStar I retained asset for value in order to enable the liquidating trust to make distributions to holders of liquidating trust units.

Upon the closing of the Combination, the board of directors of the Company will consist of seven members, including four independent directors. Kevin P. Traenkle is expected to be Chief Executive Officer and Sujan S. Patel is expected to be Chief Financial Officer of the Company.

NorthStar I and NorthStar II will each hold a special meeting of stockholders in connection with the Mergers. NorthStar I stockholders and NorthStar II stockholders will each be asked to vote on proposals to approve the applicable Merger, which we refer to collectively as the merger proposals, as well as approve other related matters, as described in this joint proxy statement/prospectus. Adoption of the applicable merger proposals described in this joint proxy statement/prospectus requires the affirmative vote of the holders of a majority of the outstanding shares of each of NorthStar I common stock and NorthStar II common stock entitled to vote on each respective Merger. In addition to the NorthStar I merger, stockholders of NorthStar I will also be asked to approve (i) an amendment to NorthStar I’s charter to permit distributions in kind of beneficial interests in a liquidating trust that is established to own and liquidate the NorthStar I retained asset prior to the completion of a merger of NorthStar I that is approved by its stockholders in accordance with its charter, which we refer to as the NorthStar I first charter amendment proposal, and (ii) an amendment to NorthStar I’s charter to remove certain provisions that would provide NorthStar I stockholders the right, in certain merger and business combination transactions, to retain their equity ownership in NorthStar I or elect to receive in cash their pro rata share of the appraised value of their pro rata interest in NorthStar I’s assets, which we refer to as the NorthStar I second charter amendment proposal. In addition to the NorthStar II merger, stockholders of NorthStar II will also be asked to approve an amendment to NorthStar II’s charter to remove certain provisions that would provide NorthStar II stockholders the right, in certain merger and business combination transactions, to retain their equity ownership in NorthStar II or elect to receive in cash their pro rata share of the appraised value of their pro rata interest in NorthStar II’s assets, which we refer to as the NorthStar II charter amendment proposal. Stockholders of NorthStar I and NorthStar II will also be asked to approve one or more adjournments of their company’s special meeting, if necessary or appropriate, as determined by each of NorthStar I and NorthStar II, respectively, including adjournments to permit further solicitation of proxies in favor of the applicable merger proposal and charter amendment proposal(s), which we refer to as the adjournment proposals.

As discussed in this joint proxy statement/prospectus, NorthStar I stockholders and NorthStar II stockholders are not entitled to appraisal rights in connection with the Mergers or the charter amendment proposals.

The special meeting of NorthStar I stockholders will be held on January 18, 2018 at the offices of J.P. Morgan, 270 Park Avenue, 11th Floor, New York, New York 10017, at 9:00 a.m. (Eastern Time). The special meeting of


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NorthStar II stockholders will be held on January 18, 2018 at the offices of J.P. Morgan, 270 Park Avenue, 11th Floor, New York, New York 10017, at 10:00 a.m. (Eastern Time).

The board of directors of NorthStar I, following the unanimous recommendation of a special committee of the board of directors of NorthStar I, unanimously recommends that NorthStar I stockholders vote “FOR” the NorthStar I merger proposal, “FOR” the NorthStar I first charter amendment proposal, “FOR” the NorthStar I second charter amendment proposal and “FOR” the NorthStar I adjournment proposal, if necessary or appropriate.

The board of directors of NorthStar II, following the unanimous recommendation of a special committee of the board of directors of NorthStar II, unanimously recommends that NorthStar II stockholders vote “FOR” the NorthStar II merger proposal, “FOR” the NorthStar II charter amendment proposal and “FOR” the NorthStar II adjournment proposal, if necessary or appropriate.

This joint proxy statement/prospectus describes the special meetings of stockholders of each of NorthStar I and NorthStar II, the combination agreement and transactions contemplated thereby, the documents related to the Combination and other related matters. Please read carefully the entire joint proxy statement/prospectus, including “Risk Factors” beginning on page 57 of this joint proxy statement/prospectus, for a discussion of the risks relating to the Combination. You also can obtain information about NorthStar I and NorthStar II from documents that each has filed with the U.S. Securities and Exchange Commission.

Your vote is very important. Regardless of whether you plan to attend the special meeting of stockholders of NorthStar I or NorthStar II, as applicable, please vote as soon as possible. Please note that the failure to vote your shares of NorthStar I common stock or NorthStar II common stock, as applicable, is the equivalent of a vote against the applicable merger proposal and charter amendment proposal(s).

We enthusiastically support this combination of our companies and join with our boards of directors in recommending you vote “FOR” the approval of the proposals described in this joint proxy statement/prospectus.

 

Sincerely,   

LOGO

Daniel R. Gilbert

Chairman, Chief Executive Officer and President

NorthStar Real Estate Income Trust, Inc.

  

LOGO

Daniel R. Gilbert

Chairman, Chief Executive Officer and President

NorthStar Real Estate Income II, Inc.

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued in connection with the Combination or passed upon the adequacy or accuracy of this joint proxy statement/prospectus. Any representation to the contrary is a criminal offense.

The date of this joint proxy statement/prospectus is December 6, 2017, and it is first being mailed or otherwise delivered to the stockholders of NorthStar I and NorthStar II on or about December 6, 2017.


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LOGO

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To Be Held on January 18, 2018

To the Stockholders of NorthStar Real Estate Income Trust, Inc.:

NorthStar Real Estate Income Trust, Inc., a Maryland corporation, which we refer to as NorthStar I, will hold a special meeting of the stockholders of NorthStar I, commencing at 9:00 a.m. (Eastern Time), on January 18, 2018 at the offices of J.P. Morgan, located at 270 Park Avenue, 11th Floor, New York, New York 10017, which we refer to as the NorthStar I special meeting, to consider and vote on the following matters:

 

1.   a proposal to approve the merger of NorthStar I with and into Colony NorthStar Credit Real Estate, Inc., which we refer to as the Company, with the Company surviving the merger (we refer to the foregoing merger as the NorthStar I merger), pursuant to the Master Combination Agreement, dated as of August 25, 2017, as amended and restated on November 20, 2017, and as further amended and/or restated from time to time, which we refer to as the combination agreement, by and among (i) Colony Capital Operating Company, LLC, (ii) NRF RED REIT Corp., (iii) NorthStar I, (iv) NorthStar Real Estate Income Trust Operating Partnership, LP, (v) NorthStar Real Estate Income II, Inc., which we refer to as NorthStar II, (vi) NorthStar Real Estate Income Operating Partnership II, LP, the operating partnership of NorthStar II, (vii) the Company, and (viii) Credit RE Operating Company, LLC (we refer to the foregoing proposal as the NorthStar I merger proposal);

 

2.   a proposal to approve an amendment to NorthStar I’s charter, which we refer to as the NorthStar I first charter amendment, to permit distributions in kind of beneficial interests in a liquidating trust that is established to own and liquidate the remaining assets of NorthStar I in connection with a merger of NorthStar I approved by NorthStar I’s stockholders in accordance with NorthStar I’s charter (we refer to the foregoing proposal as the NorthStar I first charter amendment proposal);

 

3.   a proposal to approve an amendment to NorthStar I’s charter, which we refer to as the NorthStar I second charter amendment, to delete certain provisions regarding roll-up transactions (we refer to the foregoing proposal as the NorthStar I second charter amendment proposal); and

 

4.   a proposal to adjourn the NorthStar I special meeting, if necessary or appropriate, as determined in the sole discretion of the chairperson of the NorthStar I special meeting, to solicit additional proxies in favor of the NorthStar I merger proposal, the NorthStar I first charter amendment proposal and the NorthStar I second charter amendment proposal, which we refer to as the NorthStar I adjournment proposal.

We have fixed the close of business on November 28, 2017 as the record date for the NorthStar I special meeting. Only NorthStar I stockholders of record at that time are entitled to notice of, and to vote at, the NorthStar I special meeting, or any adjournment or postponement of the NorthStar I special meeting. As described in the enclosed joint proxy statement/prospectus, we cannot complete the NorthStar I merger described above or the other transactions contemplated by the combination agreement unless holders of a majority of NorthStar I common stock entitled to vote at the NorthStar I special meeting vote to approve ALL of the NorthStar I merger proposal, the NorthStar I first charter amendment proposal and the NorthStar I second charter amendment proposal.

Your proxy is being solicited by the board of directors of NorthStar I, which we refer to as the NorthStar I board of directors. The NorthStar I board of directors, following the unanimous recommendation of a special committee of the NorthStar I board of directors, comprised entirely of independent directors who are unaffiliated with Colony NorthStar, Inc. and NorthStar II, which we refer to as the NorthStar I special committee, has unanimously: (i) determined that the combination agreement, the NorthStar I merger, the NorthStar I first


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charter amendment, the NorthStar I second charter amendment and the other transactions contemplated by the combination agreement are fair, reasonable, advisable and in the best interests of NorthStar I and its stockholders; (ii) authorized, approved, adopted and declared advisable the combination agreement, the NorthStar I merger, the NorthStar I first charter amendment, the NorthStar I second charter amendment and the other transactions contemplated by the combination agreement; (iii) directed that the NorthStar I merger, the NorthStar I first charter amendment and the NorthStar I second charter amendment be submitted for consideration at a special meeting of NorthStar I stockholders; and (iv) resolved to recommend to NorthStar I stockholders that they vote in favor of the adoption or approval of the NorthStar I merger, the NorthStar I first charter amendment and the NorthStar I second charter amendment. Accordingly, the NorthStar I board of directors, following the unanimous recommendation of the NorthStar I special committee, unanimously recommends that you vote “FOR” the NorthStar I merger proposal, “FOR” the NorthStar I first charter amendment proposal, “FOR” the NorthStar I second charter amendment proposal and “FOR” the NorthStar I adjournment proposal.

YOUR VOTE IS VERY IMPORTANT. REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE NORTHSTAR I SPECIAL MEETING, PLEASE VOTE AS SOON AS POSSIBLE. IF YOU HOLD STOCK IN YOUR NAME AS A STOCKHOLDER OF RECORD OF NORTHSTAR I, PLEASE COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE OR AUTHORIZE YOUR PROXY BY ONE OF THE OTHER METHODS SPECIFIED IN THE ENCLOSED JOINT PROXY STATEMENT/PROSPECTUS. IF YOU HOLD YOUR STOCK IN “STREET NAME” THROUGH A BROKER OR OTHER NOMINEE, PLEASE FOLLOW THE INSTRUCTIONS ON THE VOTING INSTRUCTION CARD FURNISHED BY SUCH FIRM.

The enclosed joint proxy statement/prospectus provides a detailed description of the NorthStar I special meeting, the NorthStar I merger and the other transactions contemplated by the combination agreement, the documents related to the NorthStar I merger and such other transactions and other related matters. We urge you to read the joint proxy statement/prospectus, including any documents incorporated in the joint proxy statement/prospectus by reference, and its annexes carefully and in their entirety.

If you have any questions regarding the enclosed joint proxy statement/prospectus, you may contact D.F. King & Co., Inc., NorthStar I’s proxy solicitor, by calling toll-free (800) 967-0261.

 

BY ORDER OF THE BOARD OF DIRECTORS,

LOGO

Jenny B. Neslin

General Counsel and Secretary

NorthStar Real Estate Income Trust, Inc.


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LOGO

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To Be Held on January 18, 2018

To the Stockholders of NorthStar Real Estate Income II, Inc.:

NorthStar Real Estate Income II, Inc., a Maryland corporation, which we refer to as NorthStar II, will hold a special meeting of the stockholders of NorthStar II, commencing at 10:00 a.m. (Eastern Time), on January 18, 2018 at the offices of J.P. Morgan, located at 270 Park Avenue, 11th Floor, New York, New York 10017, which we refer to as the NorthStar II special meeting, to consider and vote on the following matters:

 

1.   a proposal to approve the merger of NorthStar II with and into Colony NorthStar Credit Real Estate, Inc., which we refer to as the Company, with the Company surviving the merger (we refer to the foregoing merger as the NorthStar II merger), pursuant to the Master Combination Agreement, dated as of August 25, 2017, as amended and restated on November 20, 2017, and as further amended and/or restated from time to time, which we refer to as the combination agreement, by and among (i) Colony Capital Operating Company, LLC, (ii) NRF RED REIT Corp., (iii) NorthStar Real Estate Income Trust, Inc., which we refer to as NorthStar I, (iv) NorthStar Real Estate Income Trust Operating Partnership, LP, (v) NorthStar II, (vi) NorthStar Real Estate Income Operating Partnership II, LP, the operating partnership of NorthStar II, which we refer to as NorthStar II OP, (vii) the Company, and (viii) Credit RE Operating Company, LLC (we refer to the foregoing proposal as the NorthStar II merger proposal);

 

2.   a proposal to approve an amendment to NorthStar II’s charter, which we refer to as the NorthStar II charter amendment, to delete certain provisions regarding roll-up transactions (we refer to the foregoing proposal as the NorthStar II charter amendment proposal); and

 

3.   a proposal to adjourn the NorthStar II special meeting, if necessary or appropriate, as determined in the sole discretion of the chairperson of the NorthStar II special meeting, to solicit additional proxies in favor of the NorthStar II merger proposal and the NorthStar II charter amendment proposal, which we refer to as the NorthStar II adjournment proposal.

We have fixed the close of business on November 28, 2017 as the record date for the NorthStar II special meeting. Only NorthStar II stockholders of record at that time are entitled to notice of, and to vote at, the NorthStar II special meeting, or any adjournment or postponement of the NorthStar II special meeting. As described in the enclosed joint proxy statement/prospectus, we cannot complete the NorthStar II merger or the other transactions contemplated by the combination agreement unless holders of a majority of NorthStar II common stock entitled to vote at the NorthStar II special meeting vote to approve BOTH the NorthStar II merger proposal and the NorthStar II charter amendment proposal.

Your proxy is being solicited by the board of directors of NorthStar II, which we refer to as the NorthStar II board of directors. The NorthStar II board of directors, following the unanimous recommendation of a special committee of the NorthStar II board of directors, comprised entirely of independent directors who are unaffiliated with Colony NorthStar, Inc. and NorthStar I, which we refer to as the NorthStar II special committee, has unanimously: (i) determined that the combination agreement, the NorthStar II merger, the NorthStar II charter amendment and the other transactions contemplated by the combination agreement as described in the enclosed joint proxy statement/prospectus, to the extent such other transactions are applicable to NorthStar II and NorthStar II OP (which we refer to as the NorthStar II Transactions), are fair and reasonable to NorthStar II and are advisable and in the best interests of NorthStar II and its stockholders; (ii) authorized and approved the combination agreement, the NorthStar II merger, the NorthStar II charter amendment and the other NorthStar II Transactions; (iii) directed that the NorthStar II merger and the NorthStar II charter


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amendment be submitted for consideration at a special meeting of NorthStar II stockholders; and (iv) recommended that NorthStar II stockholders approve the NorthStar II merger and the NorthStar II charter amendment. Accordingly, the NorthStar II board of directors, following the unanimous recommendation of the NorthStar II special committee, unanimously recommends that you vote “FOR” the NorthStar II merger proposal, “FOR” the NorthStar II charter amendment proposal and “FOR” the NorthStar II adjournment proposal.

YOUR VOTE IS VERY IMPORTANT. REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE NORTHSTAR II SPECIAL MEETING, PLEASE VOTE AS SOON AS POSSIBLE. IF YOU HOLD STOCK IN YOUR NAME AS A STOCKHOLDER OF RECORD OF NORTHSTAR II, PLEASE COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE OR AUTHORIZE YOUR PROXY BY ONE OF THE OTHER METHODS SPECIFIED IN THE ENCLOSED JOINT PROXY STATEMENT/PROSPECTUS. IF YOU HOLD YOUR STOCK IN “STREET NAME” THROUGH A BROKER OR OTHER NOMINEE, PLEASE FOLLOW THE INSTRUCTIONS ON THE VOTING INSTRUCTION CARD FURNISHED BY SUCH FIRM.

The enclosed joint proxy statement/prospectus provides a detailed description of the NorthStar II special meeting, the NorthStar II merger and the other transactions contemplated by the combination agreement, the documents related to the NorthStar II merger and such other transactions and other related matters. We urge you to read the joint proxy statement/prospectus, including any documents incorporated in the joint proxy statement/prospectus by reference, and its annexes carefully and in their entirety.

If you have any questions regarding the enclosed joint proxy statement/prospectus, you may contact D.F. King & Co., Inc., NorthStar II’s proxy solicitor, by calling toll-free (800) 755-7250.

 

BY ORDER OF THE BOARD OF DIRECTORS,

LOGO

Jenny B. Neslin

General Counsel and Secretary

NorthStar Real Estate Income II, Inc.


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ADDITIONAL INFORMATION

This joint proxy statement/prospectus incorporates important business and financial information about NorthStar I and NorthStar II from other documents that are not included in or delivered with this joint proxy statement/prospectus. You can obtain any of the documents filed with or furnished to the SEC by NorthStar I or NorthStar II at no cost from the SEC’s website at http://www.sec.gov or at the SEC’s public reference room located at 100 F Street, N.E. Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for additional information on the Public Reference Room. You may request copies of these documents at no cost by contacting the appropriate company at the following addresses, telephone numbers or websites:

 

NorthStar Real Estate Income Trust, Inc.

590 Madison Avenue, 34th Floor

New York, New York 10022

Attention: General Counsel

Telephone: (212) 547-2600

www.northstarsecurities.com/income

  

NorthStar Real Estate Income II, Inc.

590 Madison Avenue, 34th Floor

New York, New York 10022

Attention: General Counsel

Telephone: (212) 547-2600

www.northstarsecurities.com/income2

NorthStar I stockholders can also contact D.F. King & Co., Inc., NorthStar I’s proxy solicitor and NorthStar II stockholders can also contact D.F. King & Co., Inc., NorthStar II’s proxy solicitor, at the following addresses and telephone numbers:

 

NorthStar I    NorthStar II

D.F. King & Co., Inc.

48 Wall Street, 22nd Floor

New York, New York 10005

(NorthStar I stockholders only)

  

D.F. King & Co., Inc.

48 Wall Street, 22nd Floor

New York, New York 10005

(NorthStar II stockholders only)

Banks and Brokers Call Collect: (212) 269-5550

To Vote Toll Free,

NorthStar I Stockholders May Call: (800) 967-0261; and

NorthStar II Stockholders May Call: (800) 755-7250.

You will not be charged for any of the documents that you request.

To obtain timely delivery of these documents, you must request them no later than five business days before the date of your company’s special meeting. This means that if you wish to request documents, you must do so by January 11, 2018, in order to receive them before your company’s special meeting.

Investors may also consult NorthStar I’s or NorthStar II’s website for additional information about NorthStar I or NorthStar II, respectively. NorthStar I’s website is http://www.northstarsecurities.com/income and NorthStar II’s website is http://www.northstarsecurities.com/income2. The public filings of NorthStar I, NorthStar II and the Company are also available at http://www.sec.gov. Information included on these websites is not incorporated by reference into, and does not form a part of, this joint proxy statement/prospectus.

Refer to the section entitled “Where You Can Find More Information” beginning on page 358 of this joint proxy statement/prospectus for more details.

 

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ABOUT THIS JOINT PROXY STATEMENT/PROSPECTUS

This joint proxy statement/prospectus, which forms part of a registration statement on Form S-4 filed by the Company with the SEC, constitutes a prospectus of the Company for purposes of the Securities Act of 1933, as amended, which we refer to as the Securities Act, with respect to the shares of Company common stock to be issued to CLNS OP (as defined herein), NorthStar I stockholders and NorthStar II stockholders in connection with the Combination. This joint proxy statement/prospectus also constitutes a proxy statement for each of NorthStar I and NorthStar II for solicitation of proxies in connection with its special meeting for purposes of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act. In addition, it constitutes a notice of meeting with respect to each of the NorthStar I special meeting and the NorthStar II special meeting.

You should rely only on the information contained in, or incorporated by reference into, this joint proxy statement/prospectus. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this joint proxy statement/prospectus. This joint proxy statement/prospectus is dated December 6, 2017. You should not assume that the information contained in this joint proxy statement/prospectus is accurate as of any other date. You should not assume that the information incorporated by reference into this joint proxy statement/prospectus is accurate as of any date other than the date of such incorporated document. Neither the mailing of this joint proxy statement/prospectus to NorthStar I stockholders or NorthStar II stockholders nor the issuance of shares of Company common stock to NorthStar I stockholders or NorthStar II stockholders pursuant to the combination agreement will create any implication to the contrary.

This joint proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities or the solicitation of a proxy in any jurisdiction in which, or from any person with respect to whom, it is unlawful to make any such offer or solicitation in such jurisdiction. Information contained in this joint proxy statement/prospectus regarding the CLNS parties (as defined herein), any Contributed Entity (as defined herein) or the Company or its subsidiaries has been provided by CLNS OP, information contained in this joint proxy statement/prospectus regarding NorthStar I has been provided by NorthStar I and information contained in this joint proxy statement/prospectus regarding NorthStar II has been provided by NorthStar II.

 

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SELECTED DEFINITIONS

Unless otherwise indicated or as the context otherwise requires, a reference in this joint proxy statement/prospectus to:

 

  “CLNS” refers to Colony NorthStar, Inc., a Maryland corporation;

 

  “CLNS Investment Entities” refers to the investment entities (i) in which the CLNS OP Contributed Entities or the RED REIT Contributed Entities own interests ranging from 38% to 100% and (ii) that own a select portfolio of assets and liabilities, as well as certain intercompany balances between those entities and CLNS OP or its subsidiaries.

 

  “CLNS OP” refers to Colony Capital Operating Company, LLC, a Delaware limited liability company and the operating company of CLNS;

 

  “CLNS OP Contributed Entities” refers to the entities that (i) are contributed to the Company pursuant to the CLNS OP Contribution and (ii) own interests in certain CLNS Investment Entities;

 

  “CLNS OP Contribution” refers to the contribution of the CLNS OP Contributed Entities to the Company in exchange for shares of Company class A common stock in the event of an initial public offering of the Company, or, in the event of a listing (without an initial public offering) of the Company class A common stock on a national securities exchange, shares of Company class B-3 common stock;

 

  “CLNS parties” refers to CLNS OP and RED REIT;

 

  “Combination” refers to, collectively, the CLNS OP Contribution, the RED REIT Contribution and the Mergers;

 

  “combination agreement” refers to the Master Combination Agreement, dated as of August 25, 2017, by and among (i) CLNS OP, (ii) RED REIT, (iii) NorthStar I, (iv) NorthStar I OP, (v) NorthStar II, (vi) NorthStar II OP, (vii) the Company, and (viii) Company OP, as amended and restated on November 20, 2017, and as further amended and/or restated from time to time;

 

  “Company” refers to Colony NorthStar Credit Real Estate, Inc., a Maryland corporation;

 

  “Company bylaws” refers to the Amended and Restated Bylaws of Colony NorthStar Credit Real Estate, Inc., a form of which is attached as Annex C to this joint proxy statement/prospectus;

 

  “Company charter” refers to the Articles of Amendment and Restatement of Colony NorthStar Credit Real Estate, Inc., a form of which is attached as Annex B to this joint proxy statement/prospectus;

 

  “Company class A common stock” refers to class A common stock, par value $0.01 per share, of the Company;

 

  “Company class B common stock” refers to (i) in the event of a listing (without an initial public offering) of the Company, the Company class B-3 common stock, and (ii) in the event of an initial public offering of the Company, the Company class B-1 common stock and Company class B-2 common stock, collectively;

 

  “Company class B-1 common stock” refers to class B-1 common stock, par value $0.01 per share, of the Company;

 

  “Company class B-2 common stock” refers to class B-2 common stock, par value $0.01 per share, of the Company;

 

  “Company class B-3 common stock” refers to class B-3 common stock, par value $0.01 per share, of the Company;

 

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  “Company common stock” refers to, collectively, Company class A common stock and Company class B common stock;

 

  “Company Contribution” refers to the contribution of the CLNS OP Contributed Entities, NorthStar I OP and NorthStar II OP to the Company OP in exchange for Company OP Units;

 

  “Company OP” refers to Credit RE Operating Company, LLC, a Delaware limited liability company and wholly owned subsidiary of the Company;

 

  “Company OP Units” refers to the common membership units of Company OP;

 

  “Company parties” refers to the Company and the Company OP;

 

  “Contributed Entities” refers to, collectively, the CLNS OP Contributed Entities and the RED REIT Contributed Entities;

 

  “Mergers” refers to, collectively, the NorthStar I merger and the NorthStar II merger;

 

  “national securities exchange” refers to either the New York Stock Exchange or the Nasdaq Stock Market;

 

  “NorthStar Companies” refers to, collectively, NorthStar I and NorthStar II;

 

  “NorthStar Company” refers, as the context requires, to either NorthStar I or NorthStar II;

 

  “NorthStar I” refers to NorthStar Real Estate Income Trust, Inc., a Maryland corporation;

 

  “NorthStar I common stock” refers to common stock, par value $0.01 per share, of NorthStar I;

 

  “NorthStar I merger” refers to the merger of NorthStar I with and into the Company, with the Company surviving the merger;

 

  “NorthStar I OP” refers to NorthStar Real Estate Income Trust Operating Partnership, LP, a Delaware limited partnership and the operating partnership of NorthStar I;

 

  “NorthStar I parties” refers to NorthStar I and NorthStar I OP;

 

  “NorthStar I stockholder approval” refers to the receipt at the NorthStar I special meeting of the affirmative vote of the holders of a majority of the outstanding shares of NorthStar I common stock entitled to vote on the NorthStar I merger proposal, the NorthStar I first charter amendment proposal and the NorthStar I second charter amendment proposal;

 

  “NorthStar II” refers to NorthStar Real Estate Income II, Inc., a Maryland corporation;

 

  “NorthStar II common stock” refers to, collectively, class A common stock, par value $0.01 per share, and class T common stock, par value $0.01 per share, of NorthStar II;

 

  “NorthStar II merger” refers to the merger of NorthStar II with and into the Company, with the Company surviving the merger;

 

  “NorthStar II OP” refers to NorthStar Real Estate Income Operating Partnership II, LP, a Delaware limited partnership and the operating partnership of NorthStar II;

 

  “NorthStar II parties” refers to NorthStar II and NorthStar II OP;

 

  “NorthStar II stockholder approval” refers to the receipt at the NorthStar II special meeting of the affirmative vote of the holders of a majority of the outstanding shares of NorthStar II common stock entitled to vote on the NorthStar II merger proposal and the NorthStar II charter amendment proposal;

 

  “RED REIT” refers to NRF RED REIT Corp., a Maryland corporation and an indirect subsidiary of CLNS OP;

 

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  “RED REIT Contributed Entities” refers to the entities that (i) are contributed to the Company OP pursuant to the RED REIT Contribution and (ii) own interests in certain CLNS Investment Entities; and

 

  “RED REIT Contribution” refers to the contribution of the RED REIT Contributed Entities by RED REIT to the Company OP in exchange for Company OP Units.

 

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TABLE OF CONTENTS

 

Index    Page  

QUESTIONS AND ANSWERS

     1  

SUMMARY

     21  

Parties to the Combination Agreement

     21  

The Combination and Related Transactions

     23  

Company Contribution

     25  

Treatment of Restricted Common Stock

     27  

Post-Closing Ownership

     28  

The NorthStar I Excluded Asset and the Liquidating Trust

     28  

Amendment and Restatement of the Company Charter and the Company Bylaws and the REIT Election

     29  

Governance of the Company Following the Combination

     30  

The NorthStar I Special Meeting

     30  

Recommendation of the NorthStar I Special Committee and the NorthStar I Board of Directors

     31  

The NorthStar II Special Meeting

     32  

Recommendation of the NorthStar II Special Committee and the NorthStar II Board of Directors

     33  

Opinion of the NorthStar I Special Committee’s Financial Advisor

     33  

Opinion of the NorthStar II Special Committee’s Financial Advisor

     33  

Stock Ownership and Voting of Directors and Executive Officers of NorthStar I

     34  

Stock Ownership and Voting of Directors and Executive Officers of NorthStar II

     34  

Interests of NorthStar I’s Directors and Executive Officers in the Combination

     35  

Interests of NorthStar II’s Directors and Executive Officers in the Combination

     35  

Listing of Shares of the Company

     36  

No Stockholder Appraisal Rights in the Mergers or the Charter Amendments

     37  

Conditions to Completion of the Combination

     37  

Regulatory Approvals in Connection with the Combination

     39  

No Solicitation or Negotiation of Acquisition Proposals

     40  

No Change of Recommendation or Alternative Acquisition

     41  

Termination

     42  

Termination Fees and Transaction Expenses

     44  

Specific Performance

     45  

U.S. Federal Income Tax Consequences

     45  

Accounting Treatment of the Combination

     46  

Comparison of Rights of Stockholders of NorthStar I and NorthStar II with the Rights of Stockholders of the Company

     47  

SELECTED HISTORICAL FINANCIAL INFORMATION OF NORTHSTAR I

     48  

SELECTED HISTORICAL FINANCIAL INFORMATION OF NORTHSTAR II

     50  

 

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Index    Page  

SELECTED HISTORICAL FINANCIAL INFORMATION OF THE CLNS INVESTMENT ENTITIES

     52  

SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA

     54  

UNAUDITED COMPARATIVE PER SHARE DATA

     56  

RISK FACTORS

     57  

Risks Relating to the Combination

     57  

Risks Relating to an Investment in the Company Following the Combination

     65  

Risks Relating to Regulatory Matters

     83  

Tax Risks Relating to the Combination

     86  

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

     88  

PARTIES TO THE COMBINATION AGREEMENT

     90  

CLNS Parties

     90  

NorthStar I Parties

     90  

NorthStar II Parties

     91  

The Company Parties

     92  

THE NORTHSTAR I SPECIAL MEETING

     94  

Date, Time, Place and Purpose of the NorthStar I Special Meeting

     94  

Recommendation of the NorthStar I Board of Directors

     94  

Record Date; Who Can Vote at the NorthStar I Special Meeting

     95  

Stockholders of Record and Beneficial Owners

     95  

Quorum

     96  

Attendance

     96  

Vote Required for Approval; Effect of Failure to Vote, Broker Non-Votes and Abstention

     96  

How to Vote Your Shares

     97  

Revocation of Proxies or Voting Instructions

     98  

Adjournment

     98  

Tabulation of the Votes

     98  

Solicitation of Proxies

     99  

PROPOSALS SUBMITTED TO NORTHSTAR I STOCKHOLDERS

     100  

Proposal 1—The NorthStar I Merger Proposal

     100  

Proposal 2—The NorthStar I First Charter Amendment Proposal

     100  

Proposal 3—The NorthStar I Second Charter Amendment Proposal

     101  

Proposal 4—The NorthStar I Adjournment Proposal

     102  

THE NORTHSTAR II SPECIAL MEETING

     104  

Date, Time, Place and Purpose of the NorthStar II Special Meeting

     104  

 

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Index    Page  

Recommendation of the NorthStar II Board of Directors

     104  

Record Date; Who Can Vote at the NorthStar II Special Meeting

     104  

Stockholders of Record and Beneficial Owners

     105  

Quorum

     105  

Attendance

     106  

Vote Required for Approval; Effect of Failure to Vote, Broker Non-Votes and Abstention

     106  

How to Vote Your Shares

     106  

Revocation of Proxies or Voting Instructions

     107  

Adjournment

     108  

Solicitation of Proxies

     108  

PROPOSALS SUBMITTED TO NORTHSTAR II STOCKHOLDERS

     109  

Proposal 1—The NorthStar II Merger Proposal

     109  

Proposal 2—The NorthStar II Charter Amendment Proposal

     109  

Proposal 3—The NorthStar II Adjournment Proposal

     110  

THE COMBINATION AND RELATED TRANSACTIONS

     112  

General

     112  

Background of the Combination

     112  

Reasons for the NorthStar I Merger and Recommendation of the NorthStar I Board of Directors

     132  

Reasons for the NorthStar II Merger and Recommendation of the NorthStar II Board of Directors

     138  

Reasons for the Contribution by CLNS of the CLNS Investment Entities

     143  

Opinion of the NorthStar I Special Committee’s Financial Advisor

     146  

Certain Unaudited Prospective Financial Information of NorthStar I

     156  

Opinion of the NorthStar II Special Committee’s Financial Advisor

     158  

Certain Unaudited Prospective Financial Information of NorthStar II

     171  

Certain Unaudited Prospective Financial Information of the Contributed Entities

     173  

Allocation of Consideration

     175  

Interests of NorthStar I’s Directors and Executive Officers in the Combination

     180  

Interests of NorthStar II’s Directors and Executive Officers in the Combination

     182  

Regulatory Approvals in Connection with the Combination

     184  

Accounting Treatment of the Combination

     184  

Dividends Pursuant to the Combination Agreement

     185  

Listing of the Company Stock

     185  

Deregistration of NorthStar I and NorthStar II Common Stock

     185  

Restrictions on Sales of Shares of the Company Common Stock Received in the Combination

     186  

Directors and Management of the Company After the Combination

     186  

Director Independence

     188  

Transactions with Related Persons

     189  

 

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Index    Page  

DESCRIPTION OF THE COMPANY

     199  

The Company

     199  

Relationship with the Manager and CLNS

     199  

Competitive Strengths

     200  

Investment Strategy

     202  

Target Assets

     202  

Initial Portfolio

     203  

Financing Strategy

     204  

Investment Guidelines

     206  

Investment Committee

     207  

Conflicts of Interest

     207  

Allocation of Investment Opportunities

     209  

Share Repurchase Program

     210  

Tax Status

     210  

Restrictions on Ownership of the Company Common Stock

     212  

Competition

     212  

Employees

     213  

Legal Proceedings

     213  

Implications of Being an Emerging Growth Company

     213  

EXECUTIVE COMPENSATION

     214  

NorthStar I

     214  

NorthStar II

     216  

The Company

     218  

SIGNIFICANT PROPERTIES

     221  

U.S. FEDERAL INCOME TAX CONSEQUENCES

     223  

U.S. Federal Income Tax Consequences of the Mergers and the Special Distributions

     224  

Ownership of Units in the Liquidating Trust

     228  

Taxation of the Company

     231  

Taxation of Taxable U.S. Stockholders of the Company

     254  

Taxation of Tax-Exempt Stockholders

     257  

Taxation of Non-U.S. Stockholders

     257  

Information Reporting Requirements and Backup Withholding; Shares Held Offshore

     261  

Other Tax Consequences

     262  

Legislative or Other Actions Affecting REITs

     265  

State, Local and Foreign Taxes

     265  

THE COMBINATION AGREEMENT

     266  

The Combination and Related Transactions

     266  

The Closing of the Combination

     269  

 

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Index    Page  

Exchange of Shares

     269  

Representations and Warranties

     271  

Conditions to Completion of the Combination

     273  

Covenants and Agreements

     279  

Termination of the Combination Agreement

     292  

Miscellaneous Provisions

     297  

THE LIQUIDATING TRUST

     298  

Background

     298  

The Liquidating Trust Agreement

     300  

Comparison of Rights of NorthStar I Stockholders and Holders of Units of Beneficial Interest in the Liquidating Trust

     304  

OTHER RELATED AGREEMENTS

     307  

Management Agreement

     307  

Stockholders Agreement

     311  

Registration Rights Agreement

     311  

DESCRIPTION OF THE COMPANY CAPITAL STOCK

     313  

General

     313  

Voting Rights of Common Stock

     313  

Dividends, Liquidation and Other Rights of Common Stock

     313  

Power to Reclassify Unissued Shares of the Company Capital Stock

     314  

Power to Increase or Decrease Authorized Shares of the Company Capital Stock and Issue Additional Shares of the Company Capital Stock

     314  

Conversion of the Company Class B Common Stock

     315  

Transfer Restrictions

     315  

Transfer Agent and Registrar

     318  

Listing

     318  

CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE COMPANY CHARTER AND THE COMPANY BYLAWS

     319  

The Company Board of Directors

     319  

Removal of Directors

     319  

Special Meetings of Stockholders

     319  

Business Combinations

     320  

Control Share Acquisitions

     321  

Amendments to the Company Charter

     322  

Dissolution

     322  

Subtitle 8

     322  

 

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Index    Page  

Advance Notice of Director Nominations and New Business

     322  

Anti-Takeover Effect of Certain Provisions of Maryland Law and of the Company Charter and the Company Bylaws

     323  

Indemnification for Liabilities of the Company’s Directors, Officers and Controlling Persons

     323  

Exclusive Forum

     325  

COMPARISON OF RIGHTS OF STOCKHOLDERS OF NORTHSTAR I AND NORTHSTAR II WITH THE RIGHTS OF STOCKHOLDERS OF THE COMPANY

     326  

CERTAIN BENEFICIAL OWNERSHIP OF NORTHSTAR I COMMON STOCK

     351  

CERTAIN BENEFICIAL OWNERSHIP OF NORTHSTAR II COMMON STOCK

     352  

NO APPRAISAL RIGHTS

     353  

STOCKHOLDER PROPOSALS

     354  

NorthStar I

     354  

NorthStar II

     354  

LEGAL MATTERS

     356  

EXPERTS

     357  

NorthStar I

     357  

NorthStar II

     357  

The Contributed Entities

     357  

WHERE YOU CAN FIND MORE INFORMATION

     358  

INDEX TO FINANCIAL STATEMENTS

     F-1  

Colony NorthStar Credit Real Estate, Inc.

     F-3  

Colony NorthStar Credit Real Estate, Inc.—Unaudited Pro Forma Condensed Combined Financial Statements

     F-6  

Annex A—Amended and Restated Master Combination Agreement

     A-1  

Annex B—Form of Articles of Amendment and Restatement of Colony NorthStar Credit Real Estate, Inc.

     B-1  

Annex C—Form of Amended and Restated Bylaws of Colony NorthStar Credit Real Estate, Inc.

     C-1  

Annex D—Opinion, dated August  25, 2017, of Credit Suisse Securities (USA) LLC

     D-1  

Annex E—Opinion of Moelis & Company, LLC

     E-1  

Annex F-1—NorthStar I’s Annual Report on Form 10-K for the year ended December 31, 2016

     F-1-1  

Annex F-2—NorthStar I’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017

     F-2-1  

Annex G-1—NorthStar II’s Annual Report on Form 10-K for the year ended December 31, 2016

     G-1-1  

Annex G-2—NorthStar II’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017

     G-2-1  

Annex H-1—CLNS Investment Entities’ Audited Combined Financial Statements for the years ended December 31, 2016 and 2015 and Unaudited Combined Financial Statements for the nine months ended September 30, 2017

     H-1-1  

Annex H-2—Management’s Discussion and Analysis of Financial Condition and Results of Operations of the CLNS Investment Entities

     H-2-1  

Annex I—Form of Liquidating Trust Agreement and Declaration of Trust

     I-1  

 

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QUESTIONS AND ANSWERS

The following are some questions that you may have regarding the proposals being considered at the NorthStar I special meeting and the NorthStar II special meeting and brief answers to those questions. The NorthStar Companies urge you to read carefully this entire joint proxy statement/prospectus, including the Annexes and the other documents to which this joint proxy statement/prospectus refers or which it incorporates by reference because the information in this section may not provide all the information that is important to you.

 

Q:   What are the proposed transactions?

 

A:   NorthStar I, NorthStar II, the Company and certain other parties have entered into the combination agreement pursuant to which:

 

    A select portfolio of CLNS assets and liabilities will be contributed to the Company;
    NorthStar I will merge with and into the Company, with the Company surviving the merger; and
    NorthStar II will merge with and into the Company, with the Company surviving the merger.

 

Q:   Why do the NorthStar Companies want to engage in the Combination?

 

A:   The NorthStar I board of directors and the NorthStar II board of directors are recommending that the NorthStar I stockholders and the NorthStar II stockholders, respectively, approve the Combination for several reasons, including:

 

    the fact that no public trading market currently exists for the NorthStar I common stock or NorthStar II common stock and that NorthStar I stockholders and NorthStar II stockholders will benefit from the liquidity of owning shares of a significantly larger company, the shares of which will be listed on a national securities exchange;

 

    the proposed Combination will result in the creation of a publicly traded REIT with a larger, more diversified portfolio than either NorthStar I and NorthStar II and the expectation of a lower cost of capital on a go-forward basis, which may result in improved return on equity and the ability to utilize additional leverage capacity;

 

    the expectation that NorthStar I stockholders and NorthStar II stockholders will benefit from better dividend distribution coverage as a result of a lower overall cost structure;

 

    the Company will be managed pursuant to a management agreement with terms similar to market terms for publicly traded commercial mortgage REITs, certain terms of which are more advantageous than those contained in NorthStar I’s and NorthStar II’s existing advisory agreements, including lower management fees, the elimination of certain fees payable to the manager in connection with the acquisition and disposition of assets, and lower reimbursements of personnel costs;

 

    the state of the prevailing equity and debt capital markets, which currently indicate favorable valuation, cost of capital and initial public offering conditions for companies similar to the Company, and which conditions may not continue going forward;

 

    the observation that the shares of certain publicly traded commercial mortgage REITs with market capitalizations over $1.0 billion currently trade at a premium to book value; and

 

    the potential for the Company to benefit from enhanced management focus on its investment strategy following the consolidation of NorthStar I and NorthStar II, which currently compete for similar investment opportunities.

 

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To review reasons for the Mergers in more detail, refer to the sections entitled “The Combination and Related Transactions—Reasons for the NorthStar I Merger and Recommendation of the NorthStar I Board of Directors” beginning on page 132 of this joint proxy statement/prospectus and “The Combination and Related Transactions—Reasons for the NorthStar II Merger and Recommendation of the NorthStar II Board of Directors” beginning on page 138 of this joint proxy statement/prospectus.

 

Q:   Why am I receiving this joint proxy statement/prospectus?

 

A:   The NorthStar I board of directors and the NorthStar II board of directors are using this joint proxy statement/prospectus to solicit proxies from the stockholders of each of NorthStar I and NorthStar II in connection with the Mergers.

In order to complete the Combination, the stockholders of each of NorthStar I and NorthStar II must approve the NorthStar I merger and the NorthStar II merger, respectively. Stockholders are also being asked to approve certain related proposals, including the NorthStar I first charter amendment proposal, the NorthStar I second charter amendment proposal, the NorthStar II charter amendment proposal and the adjournment proposals, as applicable. For additional information regarding the proposals to be presented to NorthStar I stockholders and NorthStar II stockholders, refer to the sections entitled “Proposals Submitted to NorthStar I Stockholders” beginning on page 100 of this joint proxy statement/prospectus and “Proposals Submitted to NorthStar II Stockholders” beginning on page 109 of this joint proxy statement/prospectus.

NorthStar I and NorthStar II will each hold separate special meetings of their respective stockholders to consider and vote on these proposals. This joint proxy statement/prospectus contains important information about the Combination and the special meetings of the stockholders of each of NorthStar I and NorthStar II, and you should read it carefully and in its entirety. The enclosed voting materials allow you to vote your shares of NorthStar I common stock and/or NorthStar II common stock, as applicable, without attending the applicable special meeting in person.

We encourage you to submit a proxy to vote your shares of the applicable NorthStar Company’s common stock as promptly as possible so that your shares may be represented and voted at the NorthStar I special meeting and/or the NorthStar II special meeting, as applicable.

This joint proxy statement/prospectus is also a prospectus with respect to the offering of shares of the Company class A common stock and the Company class B common stock to be issued in connection with the Combination.

 

Q:   How does the NorthStar I board of directors recommend that NorthStar I stockholders vote?

 

A:   The NorthStar I board of directors, following the unanimous recommendation of the NorthStar I special committee, has unanimously: (i) determined that each of the combination agreement and the transactions contemplated by the combination agreement, including the NorthStar I merger, the NorthStar I first charter amendment and the NorthStar I second charter amendment, are fair and reasonable to NorthStar I and are advisable and in the best interests of NorthStar I and its stockholders; and (ii) recommended that the stockholders of NorthStar I vote in favor of the approval of the NorthStar I merger proposal, the NorthStar I first charter amendment proposal and the NorthStar I second charter amendment proposal.

Accordingly, the NorthStar I board of directors, following the unanimous recommendation of the NorthStar I special committee, unanimously recommends that you vote “FOR” the NorthStar I merger proposal, “FOR” the NorthStar I first charter amendment proposal, “FOR” the NorthStar I second

 

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charter amendment proposal and “FOR” the NorthStar I adjournment proposal. For a more complete description of the recommendation of the NorthStar I board of directors, refer to the section entitled “The Combination and Related Transactions—Reasons for the NorthStar I Merger and Recommendation of the NorthStar I Board of Directors” beginning on page 132 of this joint proxy statement/prospectus.

 

Q:   How does the NorthStar II board of directors recommend that NorthStar II stockholders vote?

 

A:   The NorthStar II board of directors, following the unanimous recommendation of the NorthStar II special committee, has unanimously: (i) determined that each of the combination agreement and the transactions contemplated by the combination agreement, including the NorthStar II merger, the NorthStar II charter amendment and the other related matters and agreements described in this joint proxy statement/prospectus, are fair and reasonable to NorthStar II and are advisable and in the best interests of NorthStar II and its stockholders; and (ii) recommended that the stockholders of NorthStar II vote in favor of the approval of the NorthStar II merger proposal and the NorthStar II charter amendment proposal.

Accordingly, the NorthStar II board of directors, following the unanimous recommendation of the NorthStar II special committee, unanimously recommends that you vote “FOR” the NorthStar II merger proposal, “FOR” the NorthStar II charter amendment proposal and “FOR” the NorthStar II adjournment proposal. For a more complete description of the recommendation of the NorthStar II board of directors, refer to the section entitled “The Combination and Related Transactions—Reasons for the NorthStar II Merger and Recommendation of the NorthStar II Board of Directors” beginning on page 138 of this joint proxy statement/prospectus.

 

Q:   What will NorthStar I stockholders and NorthStar II stockholders receive in the Mergers if they are completed?

 

A:   It is currently expected that CLNS and its affiliates will receive approximately 37%, NorthStar I stockholders will receive approximately 32% and NorthStar II stockholders will receive approximately 31% of the total consideration issued in the Combination on a fully diluted basis, subject to certain adjustments as set forth in the combination agreement.

The relative percentage interests of CLNS, NorthStar I and NorthStar II were based on the agreed-upon estimated value of each party’s contributed equity as of the date of the combination agreement. The estimated contribution values and associated exchange ratios were approved by the respective special committees and boards of directors of NorthStar I and NorthStar II and by the board of directors of CLNS, and were established by the parties through a valuation process that included, among other things, a review of valuation ranges provided by Duff & Phelps, LLC, a nationally recognized third-party independent valuation and consulting firm, for the assets and certain liabilities of the parties to the Combination as of March 31, 2017, as adjusted by the parties for subsequent earnings, distribution activity and share redemptions, as applicable. The valuation methodologies were consistently applied across all parties. The estimated value of NorthStar I’s contributed equity was approximately 32% of the total equity contributed by the parties to the Combination, and the estimated value of NorthStar II’s contributed equity was approximately 31% of the total equity contributed by the parties to the Combination. Please refer to the section entitled “The Combination and Related Transactions—Allocation of Consideration” beginning on page 175 of this joint proxy statement/prospectus for a more detailed description of the valuation methodologies. As discussed below in “What is the estimated value of what NorthStar I and NorthStar II stockholders are receiving as consideration in the Combination?”, the ultimate value received by NorthStar I stockholders and NorthStar II stockholders will depend on a number of factors, including market conditions at the time of closing and the price at which Company class A common stock trades following a listing.

 

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If the Mergers are completed, and assuming the exchange ratios are not adjusted pursuant to the terms of the combination agreement, (i) each outstanding share of NorthStar I common stock will be converted into the right to receive 0.3532 (which we refer to as the NorthStar I exchange ratio) shares of (x) in the event of a listing (without an initial public offering) of the shares of Company class A common stock on a national securities exchange, which we refer to as a Listing, Company class A common stock, or (y) in the event of an initial public offering of the Company on a national securities exchange, which we refer to as an IPO, Company class B common stock, and (ii) each outstanding share of NorthStar II common stock will be converted into the right to receive 0.3511 (which we refer to as the NorthStar II exchange ratio) shares of (x) in the event of a Listing, Company class A common stock, and (y) in the event of an IPO, Company class B common stock. In the event of an IPO, the Company class B common stock received as consideration in the Mergers will be classified as follows: (A) 15% as shares of Company class B-1 common stock, and (B) 85% as Company class B-2 common stock.

The exchange ratios described above generally are fixed, but may be adjusted under certain limited circumstances as set forth in the combination agreement, including if NorthStar I or NorthStar II, as the case may be, declares or pays dividends in excess of amounts specified in the combination agreement.

 

Q:   What are the short-term liquidity restrictions on shares of the Company common stock that NorthStar I and NorthStar II stockholders are receiving?

 

A:   Only the Company class A common stock is expected to be listed on a national securities exchange. In the event of a Listing, stockholders of NorthStar I and NorthStar II will receive shares of Company class A common stock, and therefore will not be subject to any liquidity restrictions. However, in the event of an IPO, in order to facilitate an orderly and successful IPO, and as discussed above, stockholders of NorthStar I and NorthStar II will receive shares of Company class B common stock, which will not be listed for trading on a national securities exchange but will convert into shares of Company class A common stock on a one-for-one basis, as follows:

 

    15% as shares of Company class B-1 common stock, which will convert to Company class A common stock upon the close of trading on the date that is 30 days following the closing date of an IPO, which we refer to as the IPO Date; and

 

    85% as shares of Company class B-2 common stock, which will convert to Company class A common stock upon the close of trading on the date that is 180 days following the IPO Date.

In addition, CLNS and its affiliates will be subject to certain limitations on their ability to sell their shares of Company common stock for one year following the closing of the Combination.

 

Q:   What is the rationale for placing short-term liquidity restrictions on shares of Company common stock that NorthStar I and NorthStar II stockholders are receiving in the event of an IPO?

 

A:  

As is common for transactions of this nature, and based on advice of CLNS’s financial advisors, in order to facilitate an orderly and successful IPO, not all of the shares to be received by NorthStar I and NorthStar II stockholders will be immediately tradable on a national securities exchange. In the event of an IPO, NorthStar I and NorthStar II stockholders will be restricted from publicly trading on a national securities exchange 15% of their shares of Company common stock for 30 days and 85% of their shares of Company common stock for 180 days, after which such shares will convert to Company class A common stock in accordance with the terms of the Company charter. In addition, CLNS and its affiliates will be subject to certain limitations on their ability to sell their shares of Company common stock for one year following the closing of the Combination. These restrictions seek to achieve the goal of balancing liquidity for each party

 

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while serving to ensure that, once an IPO is completed, shares of Company common stock have pricing support by mitigating the potential negative impact associated with unlimited initial liquidity.

 

Q:   What is the estimated dollar value of what NorthStar I and NorthStar II stockholders are receiving as consideration in the Combination?

 

A:   In the event of a Listing, the dollar value of the consideration that NorthStar I and NorthStar II stockholders receive will depend on the per share value of the Company class A common stock on the closing date of the Combination. In the event of an IPO, because holders of NorthStar I common stock and NorthStar II common stock will receive Company class B common stock as consideration in the Mergers, the dollar value of the consideration that NorthStar I and NorthStar II stockholders receive will depend on the per share value of the Company class A common stock at the time of conversion of the applicable class of Company class B common stock. Prior to the Combination, there has not been and will not be an established public market for Company common stock. The price of Company class A common stock following the Combination will be unknown until the commencement of trading of Company class A common stock upon the consummation of the Combination. The shares of Company class B common stock received by NorthStar I and NorthStar II stockholders in the event of an IPO will convert to shares of Company class A common stock as described above in “What are the short-term liquidity restrictions on shares of the Company common stock that NorthStar I and NorthStar II stockholders are receiving?” Holders of NorthStar I common stock will also receive the value of the NorthStar I retained asset in the form of units of beneficial interest of a liquidating trust as described in “What will NorthStar I stockholders potentially receive from the liquidating trust and the sale of the NorthStar I retained asset?”

 

Q:   How were the assets and liabilities to be contributed by CLNS selected?

 

A:   CLNS selected the assets and liabilities to be contributed by first establishing parameters to be applied in its review of the investments within CLNS’s Other Equity and Debt business line. The parameters established by CLNS were intended to help identify investments that would align with the Company’s stated investment objectives and diversified strategy, and would be suitable for an income-oriented, publicly traded company balance sheet and accounted for any pre-existing co-investment or other joint venture arrangements with the other parties to the Combination or unrelated third parties, all with the goal of optimizing the market’s reception and valuation of shares of the Company common stock.

The parameters included: (i) that loans must be secured by assets or entities in the United States (with one exception for a loan secured by assets in Mexico); (ii) loans must be performing such that the loan is expected to repay at par; (iii) assets must not be distressed or otherwise present an undue potential credit risk as of the date of the combination agreement; and (iv) with respect to single tenant assets, the leases must be long term and structured on a triple net lease basis. CLNS applied these parameters and reviewed each investment within CLNS’s Other Equity and Debt business line. If an investment satisfied the criteria, it was selected to be contributed by CLNS to the Company. CLNS determined that it would exclude from contribution all investment interests made through its latest distressed credit fund, which is still in the investment phase. In addition, CLNS determined to contribute its secondary private equity interests that were within CLNS’s Other Equity and Debt business line because this asset type would also be contributed by NorthStar I and NorthStar II, and NorthStar I was contributing its secondary private equity interests in which CLNS co-invested and thereby the contribution would result in the ownership of these interests being combined in the Company.

Following the identification of the pool of contributed assets, the NorthStar I special committee and the NorthStar II special committee diligenced and reviewed the contributed assets in the pool and

 

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acknowledged that such contributed assets represented the final pool of assets to be contributed by CLNS and its affiliates in the Combination.

 

Q:   Will any assets of NorthStar I or NorthStar II be excluded from the Combination?

 

A:   Yes, one asset of NorthStar I will not be acquired by the Company in the NorthStar I merger. Pursuant to the combination agreement, NorthStar I will not be transferring to the Company in connection with the NorthStar I merger a loan, which we refer to as the NorthStar I excluded asset (as described in the section entitled “The Liquidating Trust—Background” beginning on page 298 of this joint proxy statement/prospectus). Prior to the closing of the Combination, (i) NorthStar I may sell the NorthStar I excluded asset to a third party and will distribute any net cash proceeds from such sale in excess of $65 million to the holders of NorthStar I common stock, and (ii) NorthStar I will transfer any unsold portion of the NorthStar I excluded asset to a liquidating trust, which we refer to as the liquidating trust, the beneficial interests of which will be distributed pro rata to NorthStar I stockholders (which beneficial interests are referred to as liquidating trust units). If NorthStar I does not sell the NorthStar I excluded asset to a third party prior to the closing of the Combination, CLNS has committed to purchase a senior interest in the NorthStar I excluded asset at closing for $65 million; and NorthStar I will transfer the junior interest in the NorthStar I excluded asset to the liquidating trust and the liquidating trust units will be distributed pro rata to NorthStar I stockholders. Any portion of the NorthStar I excluded asset transferred to a liquidating trust is referred to as the NorthStar I retained asset. Refer to the section entitled “The Liquidating Trust” beginning on page 298 of this joint proxy statement/prospectus for additional information.

 

Q:   What is the liquidating trust?

 

A:   Prior to the completion of the NorthStar I merger, NorthStar I will transfer the NorthStar I retained asset (as described in the section entitled “The Liquidating Trust—Background” beginning on page 298 of this joint proxy statement/prospectus) to a newly formed Delaware limited liability company (which we refer to as Holdco). NorthStar I will then contribute all of the membership interests in Holdco to the liquidating trust, which will be a trust formed under Maryland law for the benefit of NorthStar I stockholders as beneficiaries. It is anticipated that, prior to the NorthStar I merger, NorthStar I will make a special distribution to NorthStar I stockholders of one non-transferable liquidating trust unit for each share of NorthStar I common stock that they hold. Holdco will hold the NorthStar I retained asset, and will endeavor to sell, transfer or otherwise dispose of the NorthStar I retained asset. Holdco will distribute to the liquidating trust, and the liquidating trust will distribute to holders of liquidating trust units, the net proceeds received with respect to the NorthStar I retained asset, including net proceeds from any sale, transfer or other disposition of the NorthStar I retained asset, all after the payment of certain administrative expenses and other costs.

 

Q:   Who will manage and oversee the liquidating trust?

 

A:   The liquidating trust will be governed by a board of trustees. It is anticipated that the board of trustees will consist of one or more trustee(s), all of whom will be independent. The liquidating trust will enter into a management services agreement with an advisor, which advisor will be an affiliate of CLNS, to service and assist in the sale, transfer or other disposition of the NorthStar I retained asset, and to provide administrative services to the liquidating trust and its subsidiaries (including Holdco). It is expected that the compensation payable to the advisor under a management services agreement will be equal to an annual management fee of 1.25% of the liquidating trust’s net assets.

 

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Q:   What will NorthStar I stockholders potentially receive from the liquidating trust with respect to the NorthStar I retained asset?

 

A:   NorthStar I stockholders will receive the value of the NorthStar I retained asset in the form of liquidating trust units. NorthStar I expects that the liquidating trust will make distributions to unitholders of the liquidating trust of interest and principal payments on the NorthStar I retained asset and net proceeds from any sale, transfer or other disposition of the NorthStar I retained asset, all after the payment of certain administrative expenses and other costs. Assuming that (i) the unpaid principal balance (including a 1% exit fee) of the NorthStar I excluded asset remains approximately $151.65 million and (ii) a senior interest in the NorthStar I excluded asset having a $65.0 million principal balance is sold for $65.0 million, then the NorthStar I retained asset would consist of a junior interest in the NorthStar I excluded asset having an approximately $86.65 million principal balance, or approximately $0.73 attributable to each outstanding share of NorthStar I common stock. In addition, assuming that all contractual interest and fees are paid by the borrower group with respect to the NorthStar I excluded asset, it is expected that such payments will generate sufficient cash to pay interest and fees to which the senior interest will be entitled and certain administrative expenses and other costs associated with the liquidating trust, with any remaining interest and fees distributed to holders of liquidating trust units from time to time. Notwithstanding the foregoing, the NorthStar I special committee has not obtained any third-party valuation of the NorthStar I retained asset, the estimated amount or value of future distributions to unitholders of the liquidating trust of interest and principal payments on the NorthStar I retained asset, or the estimated amount of net proceeds from any sale, transfer or other disposition of the NorthStar I retained asset (excluding in each case certain administrative expenses and other costs associated with the liquidating trust). The actual amounts of any distributions made to unitholders of the liquidating trust are subject to various and significant uncertainties, many of which are beyond the control of NorthStar I, the liquidating trust or the trustee(s), and which could cause actual results to differ materially from current expectations. Statements about the value of, or distributions to be received by holders of, liquidating trust units involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the liquidating trust to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements, including the actual amounts potentially to be received from the liquidating trust, if any, the timing of such distributions and the market price for the NorthStar I retained asset at the time of any sale, transfer or other disposition by the liquidating trust, including costs related thereto. The holders of NorthStar I common stock may receive less than expected or nothing from the liquidating trust, and should consider this risk in evaluating the NorthStar I merger. If the borrower group under the NorthStar I retained asset defaults, the liquidating trust may not be able to recover the full principal amount of the NorthStar I retained asset and interest thereon and it may incur costs of collection, property protection costs, or costs associated with a conversion of the NorthStar I retained asset to equity. In addition, the liquidating trust will incur management fees and other administrative costs that will be payable from payments of principal and interest under the NorthStar I retained asset before the proceeds of the NorthStar I retained asset can be distributed to holders of liquidating trust units.

 

Q:   What are the principal U.S. federal income tax consequences of the Mergers and related transactions to U.S. holders of NorthStar I and NorthStar II common stock?

 

A:  

The parties intend for each of (i) the NorthStar I merger and (ii) the NorthStar II merger, to qualify as a reorganization under Section 368(a)(1) of the Internal Revenue Code of 1986, as amended, or the Code. It is a condition to the closing of the Combination that: (a) Alston & Bird LLP, which we refer to as Alston & Bird, or other counsel reasonably acceptable to the parties, deliver to NorthStar I an opinion that the NorthStar I merger will qualify as a reorganization under Section 368(a)(1) of the Code; and (b) Greenberg Traurig,

 

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LLP, which we refer to as Greenberg Traurig, or other counsel reasonably acceptable to the parties, deliver to NorthStar II an opinion that the NorthStar II merger will qualify as a reorganization under Section 368(a)(1) of the Code. On the basis of the foregoing opinions, a U.S. holder (as defined on page 224 of this joint proxy statement/prospectus) of NorthStar I common stock or NorthStar II common stock will generally not recognize any gain or loss for U.S. federal income tax purposes as a result of the Mergers, except with respect to cash received in lieu of fractional shares in connection with the Mergers.

As described above in “Will any assets of NorthStar I or NorthStar II be excluded from the Combination?”, NorthStar I will transfer any unsold portion of the NorthStar I excluded asset to a liquidating trust, the beneficial interests of which will be distributed pro rata to NorthStar I stockholders prior to the NorthStar I merger. Holders of liquidating trust units will be subject to tax on their share of the income or gain of the liquidating trust without regard to the amount, if any, of distributions they receive from the liquidating trust.

Stockholders of NorthStar I and NorthStar II may be subject to tax on any special distributions prior to the Mergers, which may include cash or, in the case of NorthStar I stockholders, units representing beneficial interests in the liquidating trust. The tax consequences of the stockholders’ receipt of the special distributions will depend on, among other things, the amount of the paying corporation’s current and accumulated earnings and profits.

The particular consequences of the Mergers and related transactions to each stockholder depend on such holder’s particular facts and circumstances. Stockholders are urged to consult their tax advisors to understand fully the consequences to them of the Mergers and related transactions in their specific circumstances. A more detailed discussion of the U.S. federal income tax considerations relevant to the Mergers and liquidating trust can be found in the section entitled “U.S. Federal Income Tax Consequences—U.S. Federal Income Tax Consequences of the Mergers and the Special Distribution” and “U.S. Federal Income Tax Consequences—Ownership of Units in the Liquidating Trust” beginning on page 228 of this joint proxy statement/prospectus.

 

Q:   How will my rights as a stockholder of the Company following the Combination differ from my current rights as a stockholder of NorthStar I and/or NorthStar II?

 

A:   Prior to the completion of the Combination, the Company will file with the State Department of Assessments and Taxation of Maryland, the Articles of Amendment and Restatement of Colony NorthStar Credit Real Estate, Inc., a form of which is attached as Annex B to this joint proxy statement/prospectus, which we refer to as the Company charter. Concurrently with the acceptance for record by the State Department of Assessments and Taxation of Maryland of the Company charter, the Amended and Restated Bylaws of Colony NorthStar Credit Real Estate, Inc., a form of which is attached as Annex C to this joint proxy statement/prospectus, which we refer to as the Company bylaws, will become effective.

Following completion of the Combination, the rights of stockholders of NorthStar I and NorthStar II who become stockholders of the Company in the Mergers will be governed by the laws of the State of Maryland and the Company charter and the Company bylaws. Refer to the section entitled “Comparison of Rights of Stockholders of NorthStar I and NorthStar II with the Rights of Stockholders of the Company” beginning on page 326 of this joint proxy statement/prospectus for additional information.

 

Q:   What do I need to do now?

 

A:  

After you have carefully read this joint proxy statement/prospectus, please respond by completing, signing and dating your proxy card or voting instruction card and returning it in the enclosed postage-paid return envelope or, if available, by authorizing your proxy by one of the other methods specified in your proxy

 

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card or voting instruction card as promptly as possible so that your shares of NorthStar I common stock and/or NorthStar II common stock will be represented and voted at the NorthStar I special meeting or the NorthStar II special meeting, as applicable.

Refer to your proxy card or voting instruction card forwarded by your broker or other nominee to see which voting options are available to you.

The method by which you submit a proxy will in no way limit your right to vote at the NorthStar I special meeting and/or the NorthStar II special meeting if you later decide to attend the meeting in person. However, if your shares of NorthStar I common stock and/or NorthStar II common stock are held in the name of a broker or other nominee, you must obtain a “legal proxy,” executed in your favor, from your broker or other nominee, to be able to vote in person at the NorthStar I special meeting and/or the NorthStar II special meeting, as applicable. Obtaining a legal proxy may take several days and must be obtained prior to your attending the applicable NorthStar Company’s special meeting in order to vote your shares at that meeting.

 

Q:   How do I vote?

 

A:   If you are a holder of record of NorthStar I common stock and/or NorthStar II common stock, you may have your shares of NorthStar I common stock and/or NorthStar II common stock voted on matters presented at the applicable NorthStar Company’s special meeting by proxy (through the internet, by telephone or by signing, dating and returning the accompanying proxy card in the enclosed postage-paid return envelope) or in person. You do not need to attend your NorthStar Company’s special meeting in order to vote your shares. If you are a beneficial owner of NorthStar I common stock and/or NorthStar II common stock, you should receive instructions from your broker or other nominee that you must follow in order to have your shares of common stock voted.

For additional information regarding how to vote your shares of common stock, refer to the sections entitled “The NorthStar I Special Meeting—How to Vote Your Shares” beginning on page 97 of this joint proxy statement/prospectus and/or “The NorthStar II Special Meeting—How to Vote Your Shares” beginning on page 106 of this joint proxy statement/prospectus.

 

Q:   When and where is the NorthStar I special meeting?

 

A:   The NorthStar I special meeting will be held at the offices of J.P. Morgan, located at 270 Park Avenue, 11th Floor, New York, New York 10017 on January 18, 2018, commencing at 9:00 a.m. (Eastern Time).

 

Q:   When and where is the NorthStar II special meeting?

 

A:   The NorthStar II special meeting will be held at the offices of J.P. Morgan, located at 270 Park Avenue, 11th Floor, New York, New York 10017 on January 18, 2018, commencing at 10:00 a.m. (Eastern Time).

 

Q:   Who can vote at the NorthStar I special meeting?

 

A:  

All NorthStar I stockholders of record as of the close of business on November 28, 2017, the record date for the NorthStar I special meeting, are entitled to receive notice of and to vote at the NorthStar I special meeting, except for those not entitled to vote on the NorthStar I merger pursuant to the NorthStar I charter. The NorthStar I charter provides that, with respect to shares of NorthStar I common stock owned by NorthStar I’s advisor, any director of NorthStar I or any of their respective affiliates, none of NorthStar I’s advisor, the directors of NorthStar I or their respective affiliates (including NorthStar II, CLNS and any of

 

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the directors of NorthStar II) may vote or consent on matters submitted to the NorthStar I stockholders regarding any transaction between NorthStar I and any of them. Thus, such persons are not entitled to vote on the NorthStar I merger. As of the record date, there were 119,333,203.167 shares of NorthStar I common stock outstanding and entitled to vote at the NorthStar I special meeting, held by approximately 23,157 holders of record. Each holder of NorthStar I common stock is entitled to one vote on each proposal presented at the NorthStar I special meeting for each share of NorthStar I common stock that such holder owned on the record date for the NorthStar I special meeting.

 

Q:   Who can vote at the NorthStar II special meeting?

 

A:   All NorthStar II stockholders of record as of the close of business on November 28, 2017, the record date for the NorthStar II special meeting, are entitled to receive notice of and to vote at the NorthStar II special meeting, except for those not entitled to vote on the NorthStar II merger pursuant to the NorthStar II charter. The NorthStar II charter provides that, with respect to shares of NorthStar II common stock owned by NorthStar II’s advisor, any director of NorthStar II or any of their respective affiliates, none of NorthStar II’s advisor, the directors of NorthStar II or their respective affiliates (including NorthStar I, CLNS and any of the directors of NorthStar I) may vote or consent on matters submitted to the NorthStar II stockholders regarding any transaction between NorthStar II and any of them. Thus, such persons are not entitled to vote on the NorthStar II merger. As of the record date, there were 114,942,838.318 shares of NorthStar II common stock outstanding and entitled to vote at the NorthStar II special meeting, held by approximately 23,265 holders of record. Each holder of NorthStar II common stock is entitled to one vote on each proposal presented at the NorthStar II special meeting for each share of NorthStar II common stock that such holder owned on the record date for the NorthStar II special meeting.

 

Q:   What constitutes a quorum for purposes of the NorthStar I special meeting?

 

A:   The holders of 50% of the outstanding shares of NorthStar I common stock entitled to vote on a matter at the NorthStar I special meeting, present in person or represented by proxy, will constitute a quorum at the NorthStar I special meeting. All shares of NorthStar I common stock, represented in person or by proxy, including abstentions and broker non-votes, will be treated as present for purposes of determining the presence or absence of a quorum for all matters voted on at the NorthStar I special meeting. The NorthStar I adjournment proposal may be approved without a quorum being present.

For a more detailed description of what constitutes a quorum for purposes of the NorthStar I special meeting, refer to the section entitled “The NorthStar I Special Meeting” beginning on page 94 of this joint proxy statement/prospectus.

 

Q:   What constitutes a quorum for purposes of the NorthStar II special meeting?

 

A:   The holders of 50% of the outstanding shares of NorthStar II common stock entitled to vote on a matter at the NorthStar II special meeting, present in person or represented by proxy, will constitute a quorum at the NorthStar II special meeting. All shares of NorthStar II common stock, represented in person or by proxy, including abstentions and broker non-votes, will be treated as present for purposes of determining the presence or absence of a quorum for all matters voted on at the NorthStar II special meeting. The NorthStar II adjournment proposal may be approved without a quorum being present.

For a more detailed description of what constitutes a quorum for purposes of the NorthStar II special meeting, refer to the section entitled “The NorthStar II Special Meeting” beginning on page 104 of this joint proxy statement/prospectus.

 

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Q:   What vote is required to approve the proposals at the NorthStar I special meeting?

 

A:   Approval of the NorthStar I merger proposal, the NorthStar I first charter amendment proposal and the NorthStar I second charter amendment proposal requires the affirmative vote of the holders of a majority of the outstanding shares of NorthStar I common stock entitled to vote on such proposals. If you abstain or fail to vote your shares, including shares held by a broker or other nominee, in favor of the NorthStar I merger proposal, the NorthStar I first charter amendment proposal and the NorthStar I second charter amendment proposal, this will have the same effect as a vote “AGAINST” such proposals. The Combination may not be completed unless each of the NorthStar I merger proposal, the NorthStar I first charter amendment proposal and the NorthStar I second charter amendment proposal are so approved.

Approval of the NorthStar I adjournment proposal requires the affirmative vote of a majority of the votes cast on such proposal. Abstentions will have no effect on the approval of this proposal regardless of whether a quorum is present. Failures to vote and broker non-votes will have no effect on the approval of this proposal if a quorum is present. The NorthStar I adjournment proposal also may be approved without a quorum being present by the affirmative vote of the holders of a majority of the shares of NorthStar I common stock present or represented by proxy at the NorthStar I special meeting. Under NorthStar I’s bylaws, in the event that a quorum is not present or represented by proxy at the NorthStar I special meeting, in addition to an adjournment pursuant to the NorthStar I adjournment proposal, the chairperson of the NorthStar I special meeting has the power to adjourn or recess the meeting to a date not more than 120 days after the original record date without notice other than announcement at the special meeting.

Your vote is important. We encourage you to submit a proxy to vote your shares of NorthStar I common stock as promptly as possible so that your shares may be represented and voted at the NorthStar I special meeting.

 

Q:   What vote is required to approve the proposals at the NorthStar II special meeting?

 

A:   Approval of the NorthStar II merger proposal and the NorthStar II charter amendment proposal requires the affirmative vote of the holders of a majority of the outstanding shares of NorthStar II common stock entitled to vote on such proposals. If you abstain or fail to vote your shares, including shares held by a broker or other nominee, in favor of the NorthStar II merger proposal and the NorthStar II charter amendment proposal, this will have the same effect as a vote “AGAINST” such proposals. The Combination may not be completed unless each of the NorthStar II merger proposal and the NorthStar II charter amendment proposal are so approved.

Approval of the NorthStar II adjournment proposal requires the affirmative vote of a majority of the votes cast on such proposal. Abstentions will have no effect on the approval of this proposal regardless of whether a quorum is present. Failures to vote and broker non-votes will have no effect on the approval of this proposal if a quorum is present. The NorthStar II adjournment proposal also may be approved without a quorum being present by the affirmative vote of the holders of a majority of the shares of NorthStar II common stock present or represented by proxy at the NorthStar II special meeting. Under NorthStar II’s bylaws, in the event that a quorum is not present or represented by proxy at the NorthStar II special meeting, in addition to an adjournment pursuant to the NorthStar II adjournment proposal, the chairperson of the NorthStar II special meeting has the power to adjourn or recess the meeting to a date not more than 120 days after the original record date without notice other than announcement at the special meeting.

Your vote is important. We encourage you to submit a proxy to vote your shares of NorthStar II common stock as promptly as possible so that your shares may be represented and voted at the NorthStar II special meeting.

 

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Q:   What is the difference between holding shares as a stockholder of record and as a beneficial owner?

 

A:   If your shares are registered directly in your name with DST Systems, Inc., the transfer agent of NorthStar I and NorthStar II, you are considered the stockholder of record with respect to those shares. As the stockholder of record, you have the right to vote by granting your voting rights directly to NorthStar I or NorthStar II, as applicable, or to a third party or by voting in person at the NorthStar I special meeting or the NorthStar II special meeting, as applicable.

If your shares are held by a broker or other nominee, you are considered the beneficial owner of shares held in “street name,” and your broker or other nominee is considered the stockholder of record with respect to those shares. Your broker or other nominee should send you, as the beneficial owner, a package describing the procedure for voting your shares. You should follow the instructions provided by them to vote your shares. You are invited to attend the NorthStar I special meeting or the NorthStar II special meeting, as applicable; however, you may not vote these shares in person at your NorthStar Company’s special meeting unless you obtain a “legal proxy” from your broker or other nominee that holds your shares, giving you the right to vote the shares at the meeting. Obtaining a legal proxy may take several days and must be obtained prior to your attending your NorthStar Company’s special meeting in order to vote your shares at that meeting.

Refer to the sections entitled “The NorthStar I Special Meeting—Stockholders of Record and Beneficial Owners” beginning on page 95 of this joint proxy statement/prospectus and/or “The NorthStar II Special Meeting—Stockholders of Record and Beneficial Owners” beginning on page 105 of this joint proxy statement/prospectus.

 

Q:   If my shares of NorthStar I common stock or NorthStar II common stock are held in “street name” by my broker or other nominee, will my broker or other nominee vote my shares of common stock for me?

 

A:   Unless you instruct your broker or other nominee how to vote your shares of NorthStar I common stock and NorthStar II common stock held in “street name,” your shares will NOT be voted.

If your shares are held by a broker or other nominee, you must provide your broker or other nominee with instructions on how to vote your shares. Please follow the voting instructions provided by your broker or other nominee. You should also be aware that you may not vote shares of NorthStar I common stock or NorthStar II common stock held in “street name” by returning a proxy card directly to NorthStar I or NorthStar II or by voting in person at the NorthStar I special meeting or the NorthStar II special meeting unless you provide a “legal proxy,” which you must obtain from your broker or other nominee.

A broker non-vote occurs when a broker or other nominee holds shares for a beneficial owner but cannot vote on a proposal because the broker or other nominee does not have the discretionary power to do so and has not received instructions from the beneficial owner. Broker non-votes will be counted in determining the presence of a quorum at your NorthStar Company’s special meeting but will not be voted at that special meeting.

Consequently:

 

    broker non-votes will have the same effect as votes “AGAINST” the NorthStar I merger proposal, the NorthStar I first charter amendment proposal and the NorthStar I second charter amendment proposal, but will have no effect on the NorthStar I adjournment proposal; and

 

    broker non-votes will have the same effect as votes “AGAINST” the NorthStar II merger proposal and the NorthStar II charter amendment proposal, but will have no effect on the NorthStar II adjournment proposal.

 

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Q:   What happens if I abstain or fail to vote?

 

A:   For purposes of each of the NorthStar I special meeting and the NorthStar II special meeting, an abstention occurs when a stockholder attends the applicable special meeting in person and does not vote or returns a proxy with an “ABSTAIN” vote, or if you hold your shares through a broker or other nominee, you instruct your broker or other nominee to abstain from voting your shares. If you:

 

    abstain or fail to vote with respect to any of the merger proposals or the charter amendment proposals, it will have the same effect as a vote “AGAINST” the applicable merger proposal or charter amendment proposal and, consequently, the Combination; and

 

    abstain or fail to vote with respect to the NorthStar I and NorthStar II adjournment proposals, regardless of whether a quorum is present, it will have no effect on the approval of the applicable adjournment proposal.

 

Q:   When is the Combination expected to close?

 

A:   Subject to the satisfaction or waiver of the closing conditions described under the section entitled “The Combination Agreement—Conditions to Completion of the Combination” beginning on page 273 of this joint proxy statement/prospectus, including the approval of the merger proposals and charter amendment proposals by the stockholders of NorthStar I and NorthStar II, the transaction is expected to close in the first quarter of 2018. However, it is possible that factors outside the control of the NorthStar Companies could result in the Combination being completed at a later time or not at all. There may be a substantial amount of time between the respective special meetings and the completion of the Combination.

 

Q:   What are the conditions to the completion of the Combination?

 

A:   In addition to the stockholder approval of the NorthStar I merger proposal, the NorthStar II merger proposal, the NorthStar I first charter amendment proposal, the NorthStar I second charter amendment proposal and the NorthStar II charter amendment proposal described above, completion of the Combination is subject to the satisfaction or waiver of a number of other conditions, including:

 

    approval for listing of Company class A common stock on a national securities exchange in connection with either an IPO or a Listing;

 

    receipt of required regulatory approvals;

 

    the absence of any governmental authority of competent jurisdiction enacting any law or similar decree or taking any action to prevent or prohibit the consummation of the Combination;

 

    effectiveness of the registration statement on Form S-4, of which this joint proxy statement/prospectus is a part, and the absence of any stop order or proceeding seeking a stop order, in each case with respect to the Mergers;

 

    receipt by NorthStar I, NorthStar II and CLNS OP of opinions of counsel regarding certain tax matters (including REIT qualification matters);

 

    accuracy of representations and warranties under the combination agreement (subject to certain materiality exceptions);

 

    performance in all material respects by NorthStar I, NorthStar II, CLNS OP, the Company and the other signatories to the combination agreement of their respective obligations under the combination agreement;

 

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    the absence of a material adverse effect on NorthStar I, NorthStar II and the Contributed Entities;

 

    the execution of a registration rights agreement;

 

    the execution of a stockholders agreement; and

 

    the execution of an ownership waiver letter for CLNS OP.

For a more complete summary of the conditions that must be satisfied or waived prior to the completion of the Mergers, refer to the section entitled “The Combination Agreement—Conditions to Completion of the Combination” beginning on page 273 of this joint proxy statement/prospectus.

 

Q:   What will happen to outstanding NorthStar I restricted common stock in the Mergers?

 

A:   At the effective time of the NorthStar I merger, each outstanding share of NorthStar I restricted common stock granted under the Long Term Incentive Plan of NorthStar I or otherwise denominated in shares of NorthStar I restricted common stock will vest in connection with the consummation of the NorthStar I merger, and the holder thereof will be entitled to receive the number of shares of the Company common stock represented by such vested number of shares of NorthStar I restricted common stock multiplied by the NorthStar I exchange ratio, classified as follows: (i) in the event of a Listing, 100% as shares of Company class A common stock, and (ii) in the event of an IPO, (x) 15% as shares of Company class B-1 common stock, and (y) 85% as shares of Company class B-2 common stock. No fractional shares of the Company will be issued, rather such fractional shares will be paid in cash in lieu of the issuance of fractional shares. Refer to the section entitled “The Combination Agreement—The Combination and Related Transactions—Treatment of NorthStar I Restricted Common Stock” beginning on page 268 of this joint proxy statement/prospectus.

For additional information regarding the treatment of NorthStar I restricted common stock held by NorthStar I’s directors and executive officers, refer to the section entitled “The Combination and Related Transactions—Interests of NorthStar I’s Directors and Executive Officers in the Combination” beginning on page 180 of this joint proxy statement/prospectus.

 

Q:   What will happen to outstanding NorthStar II restricted common stock in the Mergers?

 

A:   At the effective time of the NorthStar II merger, each outstanding share of NorthStar II restricted common stock granted under the Long Term Incentive Plan of NorthStar II or otherwise denominated in shares of NorthStar II restricted common stock will vest in connection with the consummation of the NorthStar II merger, and the holder thereof will be entitled to receive the number of shares of the Company common stock represented by such vested number of shares of NorthStar II restricted common stock multiplied by the NorthStar II exchange ratio, classified as follows: (i) in the event of a Listing, 100% as shares of Company class A common stock, and (ii) in the event of an IPO, (x) 15% as shares of Company class B-1 common stock, and (y) 85% as shares of Company class B-2 common stock. No fractional shares of the Company will be issued, rather such fractional shares will be paid in cash in lieu of the issuance of fractional shares. Refer to the section entitled “The Combination Agreement—The Combination and Related Transactions—Treatment of NorthStar II Restricted Common Stock” beginning on page 269 of this joint proxy statement/prospectus.

For additional information regarding the treatment of NorthStar II restricted common stock held by NorthStar II’s directors and executive officers, refer to the section entitled “The Combination and Related Transactions—Interests of NorthStar II’s Directors and Executive Officers in the Combination” beginning on page 182 of this joint proxy statement/prospectus.

 

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Q:   Where will my shares of Company common stock be publicly traded?

 

A:   NorthStar I, NorthStar II and CLNS anticipate that the Company class A common stock will be listed on a national securities exchange upon the consummation of the Combination under the symbol “CLNC.” However, in the event of an IPO, NorthStar I stockholders and NorthStar II stockholders will receive shares of Company class B common stock in the Mergers, which Company class B common stock will not be listed on a national securities exchange but will convert to Company class A common stock in accordance with the terms of the Company class B common stock.

 

Q:   Why is a listing potentially beneficial for NorthStar I and NorthStar II stockholders?

 

A:   NorthStar I, NorthStar II and CLNS believe that the public markets value mortgage REITs favorably today. Given the current market dynamics that support the core investment strategy of NorthStar I and NorthStar II, moving toward a publicly traded vehicle with scale and diversification should allow the Company to be well-positioned to capitalize on the attractive backdrop for commercial real estate, which we refer to as CRE, lending. In addition, NorthStar I and NorthStar II stockholders will benefit from transparent, market-driven pricing for the shares of the Company common stock and, in the event of a Listing, immediately will benefit from, and in the event of an IPO, upon conversion of Company class B common stock received by NorthStar I and NorthStar II stockholders in the Mergers, will benefit from, enhanced liquidity for their holdings, as well as a more efficient, market-driven fee structure, with no acquisition or disposition fees.

 

Q:   Who will serve on the Company board of directors following the Combination?

 

A:   Following the consummation of the Combination, the Company board of directors will consist of seven members, including four independent directors. The identity of these directors will be identified prior to the closing of the Combination.

 

Q:   Where will the Company be located and who will serve in senior leadership roles following the Mergers?

 

A:   Following the Mergers, the Company will maintain a significant presence in Los Angeles, California and New York, New York.

Currently, the following individuals have been identified as senior executives of the Company:

 

    Kevin P. Traenkle—Chief Executive Officer and President; and
    Sujan S. Patel—Chief Financial Officer and Treasurer.

Additional executive officers of the Company, if any, will be identified at a later date.

 

Q:   Are NorthStar I stockholders entitled to appraisal rights?

 

A:   NorthStar I stockholders are not entitled to exercise appraisal rights in connection with the NorthStar I merger or the other proposals to be considered at the meeting.

Because the consummation of the Combination is conditioned on the approval of the NorthStar I second charter amendment proposal, NorthStar I stockholders who vote “no” with respect to the NorthStar I merger will not be entitled to receive cash in an amount equal to the stockholder’s pro rata share of the appraised value of NorthStar I’s net assets. NorthStar I believes that it would not be practical to complete the Combination if it were required to comply with the provisions of its charter applicable to Roll-Up Transactions.

 

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Refer to the section entitled “No Appraisal Rights” beginning on page 353 of this joint proxy statement/prospectus.

 

Q:   Are NorthStar II stockholders entitled to appraisal rights?

 

A:   NorthStar II stockholders are not entitled to exercise appraisal rights in connection with the NorthStar II merger or the other proposals to be considered at the meeting.

Because the consummation of the Combination is conditioned on the approval of the NorthStar II charter amendment proposal, NorthStar II stockholders who vote “no” with respect to the NorthStar II merger will not be entitled to receive cash in an amount equal to the stockholder’s pro rata share of the appraised value of NorthStar II’s net assets. NorthStar II believes that it would not be practical to complete the Combination if it were required to comply with the provisions of its charter applicable to Roll-Up Transactions.

Refer to the section entitled “No Appraisal Rights” beginning on page 353 of this joint proxy statement/prospectus.

 

Q:   Do any of NorthStar I’s directors or executive officers have interests in the Combination that may differ from those of NorthStar I stockholders?

 

A:   Certain NorthStar I directors and executive officers have interests in the Combination that are different from, or in addition to, their interests as NorthStar I stockholders. The NorthStar I special committee, comprised entirely of independent directors who are not also directors of NorthStar II, was aware of and considered these interests, among other matters, in evaluating the combination agreement and the Combination, including the NorthStar I merger, and recommended unanimously that the NorthStar I board of directors recommend that the NorthStar I stockholders vote “FOR” the NorthStar I merger proposal, “FOR” the NorthStar I first charter amendment proposal, “FOR” the NorthStar I second charter amendment proposal and “FOR” the NorthStar I adjournment proposal. For a description of these interests, refer to the section entitled “The Combination and Related Transactions—Interests of NorthStar I’s Directors and Executive Officers in the Combination” beginning on page 180 of this joint proxy statement/prospectus.

 

Q:   Do any of NorthStar II’s directors or executive officers have interests in the Combination that may differ from those of NorthStar II stockholders?

 

A:   Certain NorthStar II directors and executive officers have interests in the Combination that are different from, or in addition to, their interests as NorthStar II stockholders. The NorthStar II special committee, comprised entirely of independent directors who are not also directors of NorthStar I, was aware of and considered these interests, among other matters, in evaluating the combination agreement and the Combination, including the NorthStar II merger, and recommended unanimously that the NorthStar II board of directors recommend that the NorthStar II stockholders vote “FOR” the NorthStar II merger proposal, “FOR” the NorthStar II charter amendment proposal and “FOR” the NorthStar II adjournment proposal. For a description of these interests, refer to the section entitled “The Combination and Related Transactions—Interests of NorthStar II’s Directors and Executive Officers in the Combination” beginning on page 182 of this joint proxy statement/prospectus.

 

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Q:   Where can I find the voting results of the NorthStar I special meeting and the NorthStar II special meeting?

 

A:   The preliminary voting results at the NorthStar I special meeting and the NorthStar II special meeting will be announced at each of the NorthStar I special meeting and the NorthStar II special meeting, respectively. In addition, within four business days following certification of the final voting results, NorthStar I and NorthStar II each intends to file its final voting results with the U.S. Securities and Exchange Commission, which we refer to as the SEC, on a Current Report on Form 8-K.

 

Q:   Do I need to do anything in respect of my shares now?

 

A:   No. Promptly after the closing of the Mergers, NorthStar I and NorthStar II stockholders will receive a letter of transmittal from the Company’s exchange agent and instructions for how to effectuate the exchange of shares of NorthStar I common stock and NorthStar II common stock for the applicable Merger consideration.

 

Q:   If I give a proxy, how will my proxy be voted?

 

A:   All shares of NorthStar I common stock entitled to vote and represented by properly completed proxies received prior to the NorthStar I special meeting, and not revoked, will be voted at the NorthStar I special meeting as instructed on the proxies. You may vote “FOR,” “AGAINST” or “ABSTAIN” with respect to any proposal. If you are a stockholder of record and you properly sign, date and return a proxy card but do not indicate how your shares of NorthStar I common stock should be voted on a matter, the shares of NorthStar I common stock represented by your proxy will be voted as the NorthStar I board of directors recommends and therefore “FOR” the NorthStar I merger proposal, “FOR” the NorthStar I first charter amendment proposal, “FOR” the NorthStar I second charter amendment proposal and “FOR” the NorthStar I adjournment proposal.

All shares of NorthStar II common stock entitled to vote and represented by properly completed proxies received prior to the NorthStar II special meeting, and not revoked, will be voted at the NorthStar II special meeting as instructed on the proxies. You may vote “FOR,” “AGAINST” or “ABSTAIN” with respect to any proposal. If you are a stockholder of record and you properly sign, date and return a proxy card but do not indicate how your shares of NorthStar II common stock should be voted on a matter, the shares of NorthStar II common stock represented by your proxy will be voted as the NorthStar II board of directors recommends and therefore “FOR” the NorthStar II merger proposal, “FOR” the NorthStar II charter amendment proposal and “FOR” the NorthStar II adjournment proposal.

 

Q:   Can I revoke my proxy or change my vote after I have delivered my proxy?

 

A:   Yes. You can revoke your proxy or change your vote before your proxy votes your shares in any of the three following ways:

 

    by sending a written notice to the Secretary of NorthStar I or the Secretary of NorthStar II, as applicable, at the address for NorthStar I or NorthStar II, as applicable, set forth below, which notice must be received by NorthStar I’s Secretary by 11:59 p.m. (Eastern Time) on the business day prior to the date of the NorthStar I special meeting or by NorthStar II’s Secretary by 11:59 p.m. (Eastern Time) on the business day prior to the date of the NorthStar II special meeting, as applicable, stating that you would like to revoke your proxy;

 

   

by completing, signing and dating another proxy card and returning it by mail in time to be received before the NorthStar I special meeting or the NorthStar II special meeting, as applicable, or by

 

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authorizing a later dated proxy by the Internet or telephone, if applicable, in which case your later-authorized proxy will be recorded and your earlier proxy revoked; or

 

    by attending the NorthStar I special meeting and/or the NorthStar II special meeting, as applicable, and voting in person. Simply attending the NorthStar I special meeting and/or the NorthStar II special meeting without voting will not revoke your proxy or change your vote.

If your shares of NorthStar I common stock and/or NorthStar II common stock are held in an account at a broker or other nominee and you desire to change your vote or vote in person, you should contact your broker or other nominee for instructions on how to do so.

 

Q:   What should I do if I receive more than one set of voting materials for the NorthStar I special meeting and/or the NorthStar II special meeting?

 

A:   Please complete, sign, date and return each proxy card and voting instruction card that you receive or, if available, please submit your proxy by telephone or over the Internet. You may receive more than one set of voting materials for the NorthStar I special meeting and/or the NorthStar II special meeting, including multiple copies of this joint proxy statement/prospectus and multiple proxy cards or voting instruction cards. For example, if you hold your shares of NorthStar I common stock and/or NorthStar II common stock in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares of NorthStar I common stock and/or NorthStar II common stock. If you are a holder of record and your shares of NorthStar I common stock and/or NorthStar II common stock are registered in more than one name, you may receive more than one proxy card.

 

Q:   What happens if I am a stockholder of more than one of the NorthStar Companies?

 

A:   You will receive separate proxy cards for each of NorthStar I and NorthStar II, and you must complete, sign and date each proxy card and return each proxy card in the appropriate postage-paid return envelope or, if available, by authorizing a proxy by one of the other methods specified in your proxy card or voting instruction card for each of NorthStar I and NorthStar II.

 

Q:   What happens if I transfer my shares of NorthStar I common stock before the NorthStar I special meeting?

 

A:   The record date for the NorthStar I special meeting is earlier than both the date of the NorthStar I special meeting and the effective time of the NorthStar I merger. If you transfer your shares of NorthStar I common stock after the record date of the NorthStar I special meeting, you will, unless the transferee requests a proxy from you, retain your right to vote at the NorthStar I special meeting but will transfer the right to receive the merger consideration to the person to whom you transfer your shares. In order to become entitled to receive the merger consideration, you must hold your shares of NorthStar I common stock through the effective time of the NorthStar I merger, which NorthStar I, NorthStar II and CLNS expect will occur in the first quarter of 2018.

 

Q:   What happens if I transfer my shares of NorthStar II common stock before the NorthStar II special meeting?

 

A:  

The record date for the NorthStar II special meeting is earlier than both the date of the NorthStar II special meeting and the effective time of the NorthStar II merger. If you transfer your shares of NorthStar II common stock after the record date of the NorthStar II special meeting, you will, unless the transferee requests a proxy from you, retain your right to vote at the NorthStar II special meeting but will transfer the

 

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right to receive the merger consideration to the person to whom you transfer your shares. In order to become entitled to receive the merger consideration, you must hold your shares of NorthStar II common stock through the effective time of the NorthStar II merger, which NorthStar I, NorthStar II and CLNS expect will occur in the first quarter of 2018.

 

Q:   Will NorthStar I and NorthStar II continue to pay distributions prior to the closing of the Mergers?

 

A:   Yes, each of NorthStar I and NorthStar II expects to continue to pay its regular daily dividends of US$0.001917808 per share (in the case of shares of NorthStar II class T common stock, less the distribution fees that are payable with respect to such shares) in respect of any record date prior to the effective time of the Mergers.

In addition, the combination agreement contemplates that, immediately prior to the closing of the Combination, the Company will calculate the amount by which distributions by NorthStar I and NorthStar II from July 1, 2017 through the day immediately preceding the closing date (excluding the dividend payment made on July 1, 2017) have exceeded such company’s funds from operations. Prior to the closing of the Combination, a special dividend will be declared by whichever of the NorthStar companies has generated the least amount of cash leakage in excess of funds from operations in order to true up the agreed contribution values of NorthStar I and NorthStar II in relation to each other. In addition, following the CLNS OP Contribution and the RED REIT Contribution, but prior to the effective time of the Mergers, the Company will, if necessary, declare a special distribution to CLNS OP in an amount that is intended to true up CLNS OP for the difference between (i) the sum of (a) the loss in value of NorthStar I and NorthStar II as a result of the distributions made by NorthStar I and NorthStar II in excess of funds from operations from July 1, 2017 through the day immediately preceding the closing date (excluding the dividend payment made on July 1, 2017), (b) funds from operations for the Contributed Entities from July 1, 2017 through the day immediately preceding the closing date, (c) cash contributions or contributions of certain intercompany receivables made to the Contributed Entities from July 1, 2017 through the day immediately preceding the closing date and (d) the expected present value of certain unreimbursed operating expenses of NorthStar I and NorthStar II paid on each NorthStar company’s behalf by their respective advisors and (ii) cash distributions made by the Contributed Entities from July 1, 2017 through the day immediately preceding the closing date, excluding that certain distribution made by the Contributed Entities in July 2017 relating to the partial repayment of a certain investment, which we refer to as the Goodwill Distribution. Assuming a closing date of December 31, 2017, the Company does not expect the special distribution to CLNS as contemplated by the combination agreement to exceed $20 million.

 

Q:   What is the status of NorthStar I’s and NorthStar II’s DRP and SRP programs?

 

A:   In line with industry standard practices for transactions of this type and to ensure a stable share count through closing, in connection with the announcement of the Combination, each of NorthStar I and NorthStar II announced the suspension of both the distribution reinvestment plan, which we refer to as the DRP, and the share repurchase program, which we refer to as the SRP, until further notice. The suspension for the SRP was effective as of September 7, 2017 for each of NorthStar I and NorthStar II and as a result, no further share repurchases will be processed. The suspension for the DRP went into effect prior to the monthly distributions to be paid on or about October 1, 2017 for each of NorthStar I and NorthStar II and as a result, after the distribution on September 1, 2017, all NorthStar I stockholders and NorthStar II stockholders entitled to distributions will receive cash distributions until the completion of the Combination.

 

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Q:   What happens if the Combination is not completed?

 

A:   If the Combination is not completed, the Mergers will not occur and stockholders of NorthStar I and NorthStar II will not receive any consideration in connection with the Mergers. Instead, NorthStar I and NorthStar II will each remain an independent company.

 

Q:   Who can answer my questions?

 

A:   If you have any questions about the Combination or how to submit your proxy, or need additional copies of this joint proxy statement/prospectus, the enclosed proxy card or voting instructions, you should contact:

 

NorthStar Real Estate Income Trust, Inc.

590 Madison Avenue, 34th Floor

New York, New York 10022

Attention: General Counsel

Telephone: (212) 547-2600

www.northstarsecurities.com/income

  

NorthStar Real Estate Income II, Inc.

590 Madison Avenue, 34th Floor

New York, New York 10022

Attention: General Counsel

Telephone: (212) 547-2600

www.northstarsecurities.com/income2

You can also contact the proxy solicitors hired by NorthStar I and NorthStar II as follows:

 

NorthStar I    NorthStar II

D.F. King & Co., Inc.

48 Wall Street, 22nd Floor

New York, New York 10005

(NorthStar I stockholders only)

  

D.F. King & Co., Inc.

48 Wall Street, 22nd Floor

New York, New York 10005

(NorthStar II stockholders only)

Banks and Brokers Call Collect: (212) 269-5550

To Vote Toll Free,

NorthStar I Stockholders May Call: (800) 967-0261; and

NorthStar II Stockholders May Call: (800) 755-7250.

NorthStar I has engaged D.F. King & Co., Inc. to assist in the solicitation of proxies for the NorthStar I special meeting. NorthStar I estimates it will pay D.F. King & Co., Inc. a fee of up to approximately $25,000 for the services to be performed. NorthStar I has also agreed to reimburse D.F. King & Co., Inc. for reasonable out-of-pocket expenses and disbursements incurred in connection with the proxy solicitation and to indemnify D.F. King & Co., Inc. against certain losses, costs and expenses. In addition to mailing the proxy solicitation material, NorthStar I directors and executive officers may also solicit proxies in person, by telephone or by any other electronic means of communication deemed appropriate. No additional compensation will be paid to NorthStar I’s directors and executive officers for such services.

NorthStar II has engaged D.F. King & Co., Inc. to assist in the solicitation of proxies for the NorthStar II special meeting. NorthStar II estimates it will pay D.F. King & Co., Inc. a fee of up to approximately $25,000 for the services to be performed. NorthStar II has also agreed to reimburse D.F. King & Co., Inc. for reasonable out-of-pocket expenses and disbursements incurred in connection with the proxy solicitation and to indemnify D.F. King & Co., Inc. against certain losses, costs and expenses. In addition to mailing the proxy solicitation material, NorthStar II directors and executive officers may also solicit proxies in person, by telephone or by any other electronic means of communication deemed appropriate. No additional compensation will be paid to NorthStar II’s directors and executive officers for such services.

 

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SUMMARY

The following summary highlights some of the information contained in this joint proxy statement/prospectus. This summary may not contain all of the information that is important to you. For a more complete description of the combination agreement, the Combination, including the Mergers, and the related transactions we are proposing, NorthStar I, NorthStar II and the Company encourage you to read carefully this entire joint proxy statement/prospectus, including the attached Annexes and the other documents referred to herein. Each item in this summary includes a page reference directing you to a more complete discussion of that topic.

Parties to the Combination Agreement (Page 90)

CLNS Parties

Colony Capital Operating Company, LLC

CLNS OP, a Delaware limited liability company, is the operating company of CLNS. CLNS is a leading global real estate and investment management firm. CLNS has significant property holdings in the healthcare, industrial and hospitality sectors, other equity and debt investments, as well as an embedded institutional and retail investment management business. CLNS manages capital on behalf of its stockholders, as well as institutional and retail investors in private funds, non-traded and traded real estate investment trusts (“REITs”) and registered investment companies. CLNS also owns NorthStar Securities, LLC, a captive broker-dealer platform that raises capital in the retail market.

CLNS is organized as a Maryland corporation, was incorporated in May 2016, and intends to elect to be taxed as a REIT under the Code for U.S. federal income tax purposes beginning with its taxable year ending December 31, 2017.

CLNS conducts all of its activities and holds substantially all of its assets and liabilities through its operating subsidiary, CLNS OP. As of September 30, 2017, CLNS owned approximately 94.4% of CLNS OP, as its sole managing member. The remaining approximate 5.6% is owned primarily by certain employees of CLNS as noncontrolling interests.

NRF RED REIT Corp.

RED REIT, a Maryland corporation, is an indirect wholly owned subsidiary of CLNS OP.

NorthStar I Parties

NorthStar Real Estate Income Trust, Inc.

NorthStar I originates, acquires and asset manages a diversified portfolio of CRE debt, select equity and securities investments, predominantly in the United States. NorthStar I may also invest in CRE investments internationally. NorthStar I’s CRE debt investments include first mortgage loans, subordinate mortgage and mezzanine loans and participations in such loans and preferred equity interests. NorthStar I’s real estate equity investments include direct ownership in properties, which may be structurally senior to a third-party partner’s equity, as well as indirect interests in real estate through real estate private equity funds. NorthStar I’s CRE securities primarily consist of commercial mortgage-backed securities and may in the future include unsecured REIT debt, collateralized debt obligation notes and other securities. In addition, NorthStar I may own investments through joint ventures. NorthStar I was formed in January 2009 as a Maryland corporation and commenced operations in October 2010. It elected to be taxed as a REIT commencing with the taxable year ended December 31, 2010.

 

 

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NorthStar I is externally managed by CNI NSI Advisors, LLC (formerly NSAM J-NSI Ltd), a subsidiary of CLNS, pursuant to an advisory agreement, and has no employees.

Substantially all of NorthStar I’s assets, directly or indirectly, are held by NorthStar I OP, a Delaware limited partnership and the operating partnership of NorthStar I. NorthStar I conducts its operations, directly or indirectly, through NorthStar I OP.

NorthStar Real Estate Income Trust Operating Partnership, LP

NorthStar I OP, a Delaware limited partnership, is the operating partnership of NorthStar I. NorthStar I OP holds, directly or indirectly, substantially all of NorthStar I’s assets.

NorthStar II Parties

NorthStar Real Estate Income II, Inc.

NorthStar II originates, acquires and asset manages a diversified portfolio of CRE debt, select equity and securities investments, predominantly in the United States. NorthStar II may also invest in CRE investments internationally. NorthStar II’s CRE debt investments include first mortgage loans, subordinate mortgage and mezzanine loans and participations in such loans and preferred equity interests. NorthStar II’s real estate equity investments include direct ownership in properties, which may be structurally senior to a third-party partner’s equity, as well as indirect interests in real estate through real estate private equity funds. NorthStar II’s CRE securities primarily consist of commercial mortgage-backed securities and may in the future include unsecured REIT debt, collateralized debt obligation notes and other securities. In addition, NorthStar II owns investments through joint ventures. NorthStar II was formed in December 2012 as a Maryland corporation and commenced operations in September 2013. It elected to be taxed as a REIT commencing with the taxable year ended December 31, 2013.

NorthStar II is externally managed by CNI NSII Advisors, LLC (formerly NSAM J-NSII Ltd), a subsidiary of CLNS, pursuant to an advisory agreement, and has no employees.

Substantially all of NorthStar II’s assets, directly or indirectly, are held by NorthStar II OP, a Delaware limited partnership and the operating partnership of NorthStar II. NorthStar II conducts its operations, directly or indirectly, through NorthStar II OP.

NorthStar Real Estate Income Operating Partnership II, LP

NorthStar II OP, a Delaware limited partnership, is the operating partnership of NorthStar II. NorthStar II OP holds, directly or indirectly, substantially all of NorthStar II’s assets.

The Company Parties

Colony NorthStar Credit Real Estate, Inc.

The Company, a Maryland corporation and a wholly owned subsidiary of CLNS, was formed in August 2017 solely for the purpose of facilitating the Combination and related transactions contemplated by the combination agreement. The Company intends to elect and qualify to be taxed as a REIT and will be externally managed and advised by a subsidiary of CLNS. The Company has not carried on any activities or operations to date, except for those activities incidental to its formation and undertaken in connection with the transactions contemplated by the combination agreement. The Company will be the publicly traded entity for the combined company upon completion of the Combination.

 

 

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Credit RE Operating Company, LLC

Company OP, a Delaware limited liability company, is the operating company of the Company and a wholly owned subsidiary of the Company.

The Combination and Related Transactions (Page 112)

The terms and conditions of the Combination and certain other transactions are contained in the combination agreement, a copy of which is attached to this joint proxy statement/prospectus as Annex A. In connection with the transactions contemplated under the combination agreement, the parties to the combination agreement agreed to a form of the Company charter and the Company bylaws, which are attached as Annexes B and C, respectively, to this joint proxy statement/prospectus. We encourage you to read the combination agreement carefully and in its entirety, as it is the principal document that governs the Combination, including the Mergers, and related transactions contemplated by the combination agreement.

The Contributions (Page 266)

Prior to the effective time of the Mergers, certain subsidiaries of CLNS will engage in certain contribution transactions, which are described below.

The CLNS OP Contribution (Page 266)

Pursuant to the combination agreement, immediately prior to the Mergers, CLNS OP and its applicable subsidiaries will contribute and convey to the Company, and the Company will accept from CLNS OP and its applicable subsidiaries, certain entities owning a select portfolio of assets and liabilities in exchange for 44,399,444 shares of Company class A common stock in the event of an IPO, or, in the event of a Listing, 44,399,444 shares of Company class B-3 common stock.

The RED REIT Contribution (Page 267)

Pursuant to the combination agreement, immediately following the CLNS OP Contribution, RED REIT and its applicable subsidiaries will contribute and convey to the Company OP, and the Company OP will accept from RED REIT and its applicable subsidiaries, certain entities that own a select portfolio of assets and liabilities in exchange for 3,075,623 Company OP Units.

The NorthStar I and NorthStar II Mergers (Page 267)

Immediately following the contributions described above, the NorthStar I merger and NorthStar II merger will occur simultaneously. Pursuant to the combination agreement, each such merger and related transactions contemplated by the combination agreement to be completed at closing will occur only if all of such transactions are completed at closing.

The NorthStar I Merger (Page 267)

Pursuant to the combination agreement, immediately following the contributions described above, NorthStar I will merge with and into the Company, in accordance with the Maryland General Corporation Law, which we refer to as the MGCL, with the Company surviving the merger.

 

 

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At the effective time of the NorthStar I merger, each share of NorthStar I common stock will be converted into the right to receive 0.3532, which we refer to as the NorthStar I exchange ratio, shares of Company common stock classified as follows, and cash in lieu of fractional shares:

 

  in the event of a Listing, 0.3532 shares of Company class A common stock; and
  in the event of an IPO:
    0.0530 shares of Company class B-1 common stock; and
    0.3002 shares of Company class B-2 common stock.

In the event of an IPO, the Company class B-1 common stock and Company class B-2 common stock are convertible on a one-for-one basis into Company class A common stock as described in, and in accordance with, the Company charter.

As described in more detail in the section entitled “The Combination Agreement—The Combination and Related Transactions—The NorthStar I Merger and the NorthStar II Merger—The NorthStar I Merger” beginning on page 267 of this joint proxy statement/prospectus, the NorthStar I exchange ratio may be subject to adjustment only under certain limited circumstances as set forth in the combination agreement.

The NorthStar II Merger (Page 267)

Pursuant to the combination agreement, immediately following the contributions described above, NorthStar II will merge with and into the Company, in accordance with the MGCL, with the Company surviving the merger.

At the effective time of the NorthStar II merger, each share of NorthStar II common stock will be converted into the right to receive 0.3511, which we refer to as the NorthStar II exchange ratio, shares of Company common stock classified as follows, and cash in lieu of fractional shares:

 

  in the event of a Listing, 0.3511 shares of Company class A common stock; and
  in the event of an IPO:
    0.0527 shares of Company class B-1 common stock; and
    0.2984 shares of Company class B-2 common stock.

In the event of an IPO, the Company class B-1 common stock and Company class B-2 common stock are convertible on a one-for-one basis into Company class A common stock as described in, and in accordance with, the Company charter.

As described in more detail in the section entitled “The Combination Agreement—The Combination and Related Transactions—The NorthStar I Merger and the NorthStar II Merger—The NorthStar II Merger” beginning on page 267 of this joint proxy statement/prospectus, the NorthStar II exchange ratio may be subject to adjustment only under certain limited circumstances as set forth in the combination agreement.

OP Unit Cancellations and Redemptions (Page 268)

The NorthStar I OP Unit Cancellation and Redemption (Page 268)

NorthStar OP Holdings, LLC owns 100 special partnership units in NorthStar I OP. The special partnership units were structured at the inception of NorthStar I and entitle NorthStar OP Holdings, LLC to certain distributions, including upon redemption of the special partnership units in connection with a listing or merger or other advisory agreement termination event related to NorthStar I, provided that certain other conditions are satisfied. Immediately prior to the liquidating trust distribution, if any, and the Company Contribution described below, each special partnership unit of NorthStar I OP will be cancelled.

 

 

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NS Real Estate Income Trust Advisor, LLC, an affiliate of CLNS, owns 100 partnership units in NorthStar I OP. Immediately prior to the liquidating trust distribution, if any, and the Company Contribution described below, each partnership unit of NorthStar I OP owned by NS Real Estate Income Trust Advisor, LLC will be redeemed by NorthStar I OP for $9.10 in cash. The total value that NS Real Estate Income Trust Advisor, LLC will receive as a result of the redemption is approximately $910.

The NorthStar II OP Unit Cancellation and Redemption (Page 268)

NorthStar OP Holdings II, LLC owns 100 special partnership units in NorthStar II OP. The special partnership units were structured at the inception of NorthStar II and entitle NorthStar OP Holdings II, LLC to certain distributions, including upon redemption of the special partnership units in connection with a listing or merger or other advisory agreement termination event related to NorthStar II, provided that certain other conditions are satisfied. Immediately prior to the Company Contribution described below, each special partnership unit of NorthStar II OP will be cancelled.

NorthStar Real Estate Income Advisor II, LLC, an affiliate of CLNS, owns 100 partnership units in NorthStar I OP. Immediately prior to the Company Contribution described below, each partnership unit of NorthStar II OP owned by NorthStar Real Estate Income Advisor II, LLC will be redeemed by NorthStar II OP for $9.04 in cash. The total value that NorthStar Real Estate Income Advisor II, LLC will receive as a result of the redemption is approximately $904.

Company Contribution (Page 268)

Pursuant to the combination agreement, immediately following the Mergers, the Company will contribute and convey to the Company OP, and the Company OP will accept from the Company, the CLNS OP Contributed Entities in exchange for 44,399,444 Company OP Units. In addition, the Company will contribute and convey to the Company OP, and the Company OP will accept from the Company, NorthStar I OP and NorthStar II OP (both of which will be converted into limited liability companies) in exchange for an aggregate number of Company OP Units equal to the sum of (i) the aggregate number of shares of Company common stock issued in respect of the issued and outstanding shares of NorthStar I common stock in connection with the NorthStar I merger, and (ii) the aggregate number of shares of Company common stock issued in respect of the issued and outstanding shares of NorthStar II common stock in connection with the NorthStar II merger.

 

 

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The following illustration shows the basic structure of NorthStar I, NorthStar II and the Contributed Entities before the Combination.

 

 

LOGO

 

 

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The following illustration shows the basic structure of the Company immediately after the Combination and the Company Contribution.

 

 

LOGO

Treatment of Restricted Common Stock

Treatment of NorthStar I Restricted Common Stock (Page 268)

The NorthStar I restricted common stock, all of which is held by independent and non-management NorthStar I directors, will automatically vest in connection with the NorthStar I merger and the holders will be entitled to receive the same equity exchange as the other holders of NorthStar I common stock.

 

 

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Treatment of NorthStar II Restricted Common Stock (Page 269)

The NorthStar II restricted common stock, all of which is held by independent and non-management NorthStar II directors, will automatically vest in connection with the NorthStar II merger and the holders will be entitled to receive the same equity exchange as the other holders of NorthStar II common stock.

Post-Closing Ownership (Page 175)

After giving effect to the Combination, it is currently expected that CLNS and its affiliates will receive approximately 37%, NorthStar I stockholders will receive approximately 32% and NorthStar II stockholders will receive approximately 31% of the total consideration issued in the Combination on a fully diluted basis, subject to certain adjustments as set forth in the combination agreement. In addition, as noted above, the exchange ratios may be adjusted only under certain limited circumstances as set forth in the combination agreement, which would adjust these percentages. The completion of the Combination is conditioned on, among other things, the approval for listing on a national securities exchange of shares of the Company class A common stock in connection with either an IPO or a Listing. An IPO will result in the foregoing ownership percentages of CLNS and its affiliates, the NorthStar I stockholders and the NorthStar II stockholders being diluted. In the event the Company pursues an IPO, the amount of such dilution will be dependent on the terms of the IPO, including the price per share and the amount of the offering. For every $100 million of equity raised in such IPO, assuming an IPO price of $25.00, the Company currently estimates that the approximate ownership of each of CLNS and its affiliates, NorthStar I stockholders and NorthStar II stockholders of the Company would be reduced by approximately 1% on a fully diluted basis.

The NorthStar I Excluded Asset and the Liquidating Trust (Page 298)

Pursuant to the combination agreement, prior to the closing of the Combination, NorthStar I is permitted to dispose of the NorthStar I excluded asset (as described in the section entitled “The Liquidating Trust— Background” beginning on page 298 of this joint proxy statement/prospectus). NorthStar I may sell all or any portion of the NorthStar I excluded asset to a third party, so long as the net cash proceeds from any such third party sale are not less than $65 million, and any excess net cash proceeds are distributed to the holders of NorthStar I common stock prior to the effective time of the NorthStar I merger. NorthStar I will transfer any non-cash proceeds from such third party sale to the liquidating trust, together with any remaining portion of the NorthStar I excluded asset that is not sold in such third party sale (which, together, we refer to as the NorthStar I retained asset), and will distribute the interests in the liquidating trust to the holders of NorthStar I common stock prior to the effective time of the NorthStar I merger.

If NorthStar I does not sell the NorthStar I excluded asset to a third party prior to the closing of the Combination, then NorthStar I will sell a senior participation interest (which we refer to as the Senior Interest) to an affiliate of CLNS for $65 million, which will be the principal amount of the Senior Interest. NorthStar I will contribute the portion of the NorthStar I excluded asset remaining after sale of the Senior Interest (which we also refer to as the NorthStar I retained asset) to the liquidating trust, and distribute the liquidating trust units to the holders of NorthStar I common stock prior to the effective time of the NorthStar I merger. CLNS or one of its affiliates will also commit to loan the liquidating trust up to $10 million to fund certain expenses, including building improvements, tenant improvements, leasing commissions and administrative costs of conversion to equity, to the extent necessary, with respect to the NorthStar I retained asset. Refer to the section entitled “The Liquidating Trust” beginning on page 298 of this joint proxy statement/prospectus for additional information.

 

 

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It is intended that, for federal, state and local tax purposes, the liquidating trust will be treated as a liquidating trust under the applicable federal regulations and any analogous provision of state or local law. It is further intended that, under the Code and any analogous provision of state or local law, the liquidating trust will be treated as a grantor trust and the beneficiaries of the liquidating trust will be treated as owners of undivided proportionate interests in the assets of the liquidating trust and will be taxed on their respective share of the liquidating trust’s taxable income (including both ordinary income and capital gains), whether or not the liquidating trust makes distributions.

NorthStar I expects that the liquidating trust will make distributions to holders of liquidating trust units of interest and principal payments on the NorthStar I retained asset and net proceeds from any sale, transfer or other disposition of the NorthStar I retained asset, all after the payment of certain administrative expenses and other costs. The liquidating trust will be governed by a trust agreement, which will be substantially in the form attached to this joint proxy statement/prospectus as Annex I.

Amendment and Restatement of the Company Charter and the Company Bylaws and the REIT Election (Page 313)

Pursuant to the combination agreement, prior to the effective time of the Mergers, the Company charter and the Company bylaws will be amended and restated to, among other things, include certain provisions similar to those in NorthStar I’s and NorthStar II’s charters and bylaws that will help enable the Company to qualify as a REIT. Forms of the Company charter and the Company bylaws are attached as Annex B and Annex C, respectively, to this joint proxy statement/prospectus. Refer to the sections entitled “Certain Provisions of Maryland Law and of the Company Charter and the Company Bylaws” beginning on page 319 of this joint proxy statement/prospectus and “Comparison of Rights of Stockholders of NorthStar I and NorthStar II with the Rights of Stockholders of the Company” beginning on page 326 of this joint proxy statement/prospectus.

Following the Combination, the Company intends to elect to be taxed as a REIT, commencing with its taxable year ending December 31 of the year in which the Mergers occur. A company that qualifies and elects to be taxed as a REIT generally will not be subject to U.S. federal income tax on its REIT taxable income that it distributes to its stockholders. A company’s qualification as a REIT under the Code depends on its ability to meet, on a continuing basis, through actual investment and operating results, various highly technical and complex requirements under the Code relating to, among other things, the sources of its gross income, the composition and value of its assets, its distribution levels and the diversity of ownership of its shares. NorthStar I, NorthStar II and CLNS believe that the Company will be organized in conformity with the requirements for qualification and taxation as a REIT commencing with its taxable year ending December 31 of the year in which the Mergers occur. Even if the Company qualifies as a REIT under the Code, it may be subject to some U.S. federal, state and local and foreign taxes on its income and property. Given the complex and highly technical nature of the Code requirements that the Company must satisfy in order to qualify as a REIT, the ongoing importance of factual determinations and the possibility of future changes in the Company’s circumstances and the laws and regulations applicable to an entity that seeks to qualify as a REIT under the Code, there is no assurance that the Company will qualify as a REIT under the Code for any particular taxable year. Refer to the section entitled “U.S. Federal Income Tax Consequences” beginning on page 223 of this joint proxy statement/prospectus.

 

 

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Governance of the Company Following the Combination (Page 186)

Location

Following the Combination, the Company will maintain a significant presence in Los Angeles, California and New York, New York.

Board of Directors

It is currently expected that the Company will be governed by a board of directors comprised of seven directors, including four independent directors. The identity of the directors who will serve on the Company board of directors will be identified prior to the closing of the Combination.

As further discussed below, a subsidiary of CLNS will serve as external manager of the Company pursuant to a management agreement with terms similar to market terms for publicly traded commercial mortgage REITs.

Management

The senior executive management team of the Company is expected to be as set forth below:

 

Name and Title(s) at CLNS   

Expected Position at

the Company

Kevin P. Traenkle

Executive Vice President and Chief Investment Officer of CLNS

   Chief Executive Officer

Sujan S. Patel

 

Managing Director and Co-Head of U.S. Investment Management of CLNS

   Chief Financial Officer

 

Additional executive officers of the Company, if any, will be identified at a later date.

The NorthStar I Special Meeting (Page 94)

The NorthStar I special meeting will be held at the offices of J.P. Morgan, located at 270 Park Avenue, 11th Floor, New York, New York 10017 on January 18, 2018, commencing at 9:00 a.m. (Eastern Time). The NorthStar I special meeting is being held in order for NorthStar I stockholders to consider and vote on:

 

  the NorthStar I merger proposal;
  the NorthStar I first charter amendment proposal;
  the NorthStar I second charter amendment proposal; and
  the NorthStar I adjournment proposal.

The NorthStar I board of directors has fixed the close of business on November 28, 2017 as the record date for determination of NorthStar I stockholders entitled to receive notice of, and to vote at, the NorthStar I special meeting and any postponements or adjournments of the NorthStar I special meeting. Only holders of record of NorthStar I common stock at the close of business on the record date are entitled to receive notice of, and to vote at, the NorthStar I special meeting. Each share of NorthStar I common stock is entitled to one vote on each of the NorthStar I merger proposal, the NorthStar I first charter amendment proposal, the NorthStar I second charter amendment proposal and the NorthStar I adjournment proposal.

 

 

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Quorum

The holders of 50% of the outstanding shares of NorthStar I common stock entitled to vote on a matter at the NorthStar I special meeting, present in person or represented by proxy, will constitute a quorum at the NorthStar I special meeting. All shares of NorthStar I common stock, represented in person or by proxy, including abstentions and broker non-votes, will be treated as present for purposes of determining the presence or absence of a quorum for all matters voted on at the NorthStar I special meeting. The NorthStar I adjournment proposal may be approved without a quorum being present.

Vote Required

Approval of the NorthStar I merger proposal, the NorthStar I first charter amendment proposal and the NorthStar I second charter amendment proposal requires the affirmative vote of the holders of a majority of the outstanding shares of NorthStar I common stock entitled to vote on such proposals. Pursuant to the NorthStar I charter, shares of NorthStar I common stock owned by NorthStar I’s advisor, any director of NorthStar I or any of their respective affiliates are not entitled to vote on the NorthStar I merger. If you abstain or fail to vote your shares, including shares held by a broker or other nominee, in favor of the NorthStar I merger proposal, NorthStar I first charter amendment proposal and the NorthStar I second charter amendment proposal, this will have the same effect as a vote “AGAINST” such proposal. The Combination may not be completed unless each of the NorthStar I merger proposal, the NorthStar I first charter amendment proposal and the NorthStar I second charter amendment proposal is so approved.

Approval of the NorthStar I adjournment proposal requires the affirmative vote of a majority of the votes cast on such proposal. Abstentions will have no effect on the approval of this proposal regardless of whether a quorum is present. Failures to vote and broker non-votes will have no effect on the approval of this proposal if a quorum is present. The NorthStar I adjournment proposal also may be approved without a quorum being present by the affirmative vote of the holders of a majority of the shares of NorthStar I common stock present or represented by proxy at the NorthStar I special meeting. Under NorthStar I’s bylaws, in the event that a quorum is not present or represented by proxy at the NorthStar I special meeting, in addition to an adjournment pursuant to the NorthStar I adjournment proposal, the chairperson of the NorthStar I special meeting has the power to adjourn the meeting to a date not more than 120 days after the original record date without notice other than announcement at the special meeting.

Recommendation of the NorthStar I Special Committee and the NorthStar I Board of Directors (Page 94)

The NorthStar I board of directors, following the unanimous recommendation of the NorthStar I special committee, has unanimously: (i) determined that each of the combination agreement and the transactions contemplated by the combination agreement, including the North Star I merger, the NorthStar I first charter amendment and the NorthStar I second charter amendment, are fair and reasonable to NorthStar I and are advisable and in the best interests of NorthStar I and its stockholders; and (ii) recommended that the stockholders of NorthStar I vote in favor of the approval the NorthStar I merger proposal, the NorthStar I first charter amendment proposal and the NorthStar I second charter amendment proposal.

Accordingly, the NorthStar I board of directors, following the unanimous recommendation of the NorthStar I special committee, unanimously recommends that you vote “FOR” the NorthStar I merger proposal, “FOR” the NorthStar I first charter amendment proposal, “FOR” the NorthStar I second charter amendment proposal and “FOR” the NorthStar I adjournment proposal.

 

 

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The NorthStar II Special Meeting (Page 104)

The NorthStar II special meeting will be held at the offices of J.P. Morgan, located at 270 Park Avenue, 11th Floor, New York, New York 10017 on January 18, 2018, commencing at 10:00 a.m. (Eastern Time). The NorthStar II special meeting is being held in order for NorthStar I stockholders to consider and vote on:

 

  the NorthStar II merger proposal;
  the NorthStar II charter amendment proposal; and
  the NorthStar II adjournment proposal.

The NorthStar II board of directors has fixed the close of business on November 28, 2017 as the record date for determination of NorthStar II stockholders entitled to receive notice of, and to vote at, the NorthStar II special meeting and any postponements or adjournments of the NorthStar II special meeting. Only holders of record of NorthStar II common stock at the close of business on the record date are entitled to receive notice of, and to vote at, the NorthStar II special meeting. Each share of NorthStar II common stock is entitled to one vote on each of the NorthStar II merger proposal, the NorthStar II charter amendment proposal and the NorthStar II adjournment proposal.

Quorum

The holders of 50% of the outstanding shares of NorthStar II common stock entitled to vote on a matter at the NorthStar II special meeting, present in person or represented by proxy, will constitute a quorum at the NorthStar II special meeting. All shares of NorthStar II common stock, represented in person or by proxy, including abstentions and broker non-votes, will be treated as present for purposes of determining the presence or absence of a quorum for all matters voted on at the NorthStar II special meeting. The NorthStar II adjournment proposal may be approved without a quorum being present.

Vote Required

Approval of the NorthStar II merger proposal and the NorthStar II charter amendment proposal requires the affirmative vote of the holders of a majority of the outstanding shares of NorthStar II common stock entitled to vote on such proposals. Pursuant to the NorthStar II charter, shares of NorthStar II common stock owned by NorthStar II’s advisor, any director of NorthStar II or any of their respective affiliates are not entitled to vote on the NorthStar II merger. If you abstain or fail to vote your shares, including shares held by a broker or other nominee, in favor of the NorthStar II merger proposal and NorthStar II charter amendment proposal, this will have the same effect as a vote “AGAINST” such proposal. The Combination may not be completed unless each of the NorthStar II merger proposal and the NorthStar II charter amendment proposal is so approved.

Approval of the NorthStar II adjournment proposal requires the affirmative vote of a majority of the votes cast on such proposal. Abstentions will have no effect on the approval of this proposal regardless of whether a quorum is present. Failures to vote and broker non-votes will have no effect on the approval of this proposal if a quorum is present. The NorthStar II adjournment proposal also may be approved without a quorum being present by the affirmative vote of the holders of a majority of the shares of NorthStar II common stock present or represented by proxy at the NorthStar II special meeting. Under NorthStar II’s bylaws, in the event that a quorum is not present or represented by proxy at the NorthStar II special meeting, in addition to an adjournment pursuant to the NorthStar II adjournment proposal, the chairperson of the NorthStar II special meeting has the power to adjourn or recess the meeting to a date not more than 120 days after the original record date without notice other than announcement at the special meeting.

 

 

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Recommendation of the NorthStar II Special Committee and the NorthStar II Board of Directors (Page 104)

The NorthStar II board of directors, following the unanimous recommendation of the NorthStar II special committee, has unanimously: (i) determined that each of the combination agreement and the transactions contemplated by the combination agreement, including the NorthStar II merger, the NorthStar II charter amendment and the other related matters and agreements described in this joint proxy statement/prospectus, are fair and reasonable to NorthStar II and are advisable and in the best interests of NorthStar II and its stockholders; and (ii) recommended that the stockholders of NorthStar II vote in favor of the approval of the NorthStar II merger proposal and the NorthStar II charter amendment proposal.

Accordingly, the NorthStar II board of directors, following the unanimous recommendation of the NorthStar II special committee, unanimously recommends that you vote “FOR” the NorthStar II merger proposal, “FOR” the NorthStar II charter amendment proposal and “FOR” the NorthStar II adjournment proposal.

Opinion of the NorthStar I Special Committee’s Financial Advisor (Page 146 and Annex D)

In connection with the NorthStar I merger, the NorthStar I special committee’s financial advisor, Credit Suisse Securities (USA) LLC, which we refer to as Credit Suisse, delivered an opinion, dated August 25, 2017, to the NorthStar I special committee as to the fairness, from a financial point of view and as of the date of such opinion, to holders of NorthStar I common stock (other than CLNS and its affiliates) of the NorthStar I exchange ratio provided for in the NorthStar I merger. The full text of Credit Suisse’s written opinion, dated August 25, 2017, is attached to this joint proxy statement/prospectus as Annex D and sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken by Credit Suisse in connection with such opinion. The description of Credit Suisses opinion set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of Credit Suisses opinion. Credit Suisses opinion was provided to the NorthStar I special committee (in its capacity as such) for its information in connection with its evaluation of the NorthStar I exchange ratio from a financial point of view and did not address any related transactions or any other terms, aspects or implications of the proposed NorthStar I merger or related transactions, including the relative merits of the NorthStar I merger or any related transactions as compared to alternative transactions or strategies that might be available to NorthStar I or the underlying business decision of NorthStar I to proceed with the NorthStar I merger and related transactions. Credit Suisses opinion does not constitute advice or a recommendation to any stockholder as to how such stockholder should vote or act on any matter relating to the proposed NorthStar I merger, any related transactions or otherwise.

For further information, refer to the section of this joint proxy statement/prospectus entitled “Opinion of the NorthStar I Special Committee’s Financial Advisor” beginning on page 146 of this joint proxy statement/prospectus and Annex D.

Opinion of the NorthStar II Special Committee’s Financial Advisor (Page 158 and Annex E)

At a meeting of the NorthStar II special committee on August 25, 2017 to evaluate the Combination, Moelis & Company, LLC, which we refer to as Moelis, delivered to the NorthStar II special committee an oral opinion, which was confirmed by delivery of a written opinion, dated August 25, 2017, addressed to the NorthStar II special committee to the effect that, as of the date of the opinion and based upon and subject to the conditions and limitations set forth in the written opinion, the 0.0351 shares of Company class B-1 common stock, 0.1580 shares of Company class B-2 common stock, and 0.1580 shares of Company class B-3 common stock (collectively, the “NorthStar II merger consideration”) to be received for each share of NorthStar II common

 

 

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stock held by the holders of shares of NorthStar II common stock in the NorthStar II merger was fair, from a financial point of view, to such holders (other than CLNS and its affiliates).

The full text of Moelis’ written opinion dated August 25, 2017, which sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex E to this joint proxy statement/prospectus and is incorporated herein by reference. Moelis’ opinion was provided for the use and benefit of the NorthStar II special committee (solely in its capacity as such) in its evaluation of the Combination. Moelis’ opinion is limited solely to the fairness, from a financial point of view, to the holders of shares of NorthStar II common stock, other than CLNS and its affiliates, of the NorthStar II merger consideration to be received by the holders of shares of NorthStar II common stock in the NorthStar II merger, and does not address NorthStar II’s underlying business decision to effect the Combination or the relative merits of the Combination as compared to any alternative business strategies or transactions that might be available to NorthStar II. Moelis’ opinion does not constitute a recommendation as to how any holder of securities should vote or act with respect to any of the Combination or any other matter. Moelis’ opinion was approved by a Moelis fairness opinion committee.

For further information, refer to the section of this joint proxy statement/prospectus entitled “Opinion of the NorthStar II Special Committee’s Financial Advisor” beginning on page 158 of this joint proxy statement/prospectus and Annex E.

Stock Ownership and Voting of NorthStar I’s Directors and Executive Officers (Page 351)

As of the close of business on the record date for the NorthStar I special meeting, there were 119,333,203.167 shares of NorthStar I common stock outstanding and entitled to vote. As of the same date, the directors and executive officers of NorthStar I and their affiliates held and were entitled to vote 99,374 shares of NorthStar I common stock, collectively representing less than 1% of the shares of NorthStar I common stock outstanding and entitled to vote on that date. Approval of the NorthStar I merger proposal, the NorthStar I first charter amendment proposal and the NorthStar I second charter amendment proposal requires the affirmative vote of the holders of a majority of the outstanding shares of NorthStar I common stock entitled to vote on such proposal. The directors and executive officers of NorthStar I are not entitled to vote on the NorthStar I merger proposal, but have each indicated that they expect to vote FOR the NorthStar I first charter amendment proposal, FOR the NorthStar I second charter amendment proposal and FOR the NorthStar I adjournment proposal. Refer to the section entitled “Certain Beneficial Ownership of NorthStar I Common Stock—Ownership of Equity Securities of NorthStar I by Directors and Executive Officers” beginning on page 351 of this joint proxy statement/prospectus.

Stock Ownership and Voting of NorthStar II’s Directors and Executive Officers (Page 352)

As of the close of business on the record date for the NorthStar II special meeting, there were 114,942,838.318 shares of NorthStar II common stock outstanding and entitled to vote. As of the same date, the directors and executive officers of NorthStar II and their affiliates held and were entitled to vote 66,943 shares of NorthStar II common stock, collectively representing less than 1% of the shares of NorthStar II common stock outstanding and entitled to vote on that date. Approval of the NorthStar II merger proposal and the NorthStar II charter amendment proposal requires the affirmative vote of the holders of a majority of the outstanding shares of NorthStar II common stock entitled to vote on such proposal. The directors and executive officers of NorthStar II are not entitled to vote on the NorthStar II merger proposal, but have each indicated that they expect to vote “FOR” the NorthStar II charter amendment proposal and “FOR” the NorthStar II adjournment proposal. Refer to the section entitled “Certain Beneficial

 

 

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Ownership of NorthStar II Common Stock—Ownership of Equity Securities of NorthStar II by Directors and Executive Officers” beginning on page 352 of this joint proxy statement/prospectus.

Interests of NorthStar I’s Directors and Executive Officers in the Combination (Page 180)

In considering the recommendation of the NorthStar I special committee and the NorthStar I board of directors with respect to the proposed Combination, you should be aware that directors and executive officers of NorthStar I may have certain interests in the Combination that may be different from, or in addition to, the interests of NorthStar I stockholders generally. The NorthStar I special committee and the NorthStar I board of directors were aware of and considered these interests, among other matters, in evaluating and, in the case of the NorthStar I special committee, negotiating the combination agreement and the Combination and in recommending that the NorthStar I merger proposal and related proposals be adopted by the stockholders of NorthStar I. These interests include, but are not limited to, the following:

 

  CLNS (and its affiliates), as the NorthStar I sponsor, have certain conflicts in connection with the Combination;

 

  in the NorthStar I merger, any shares of NorthStar I common stock owned by directors of NorthStar I and by CLNS and their respective affiliates will be converted into the right to receive, in the event of a Listing, shares of Company class A common stock (and cash in lieu of fractional shares), and in the event of an IPO, shares of Company class B common stock (and cash in lieu of fractional shares), in either case on the same terms and conditions as the other NorthStar I stockholders;

 

  also, in connection with the NorthStar I merger, all outstanding unvested restricted stock awards granted under the Long Term Incentive Plan of NorthStar I will fully vest, entitling the holder thereof to receive, in the event of a Listing, the same number of shares of Company class A common stock (and cash in lieu of fractional shares), and in the event of an IPO, the same number of shares of Company class B common stock (and cash in lieu of fractional shares), in either case as other holders of NorthStar I common stock;

 

  pursuant to the combination agreement, immediately prior to the liquidating trust distribution, if any, and the Company Contribution, each special partnership unit of NorthStar I OP (all of which are held by NorthStar OP Holdings, LLC, a subsidiary of CLNS), will be cancelled, and each partnership unit of NorthStar I OP owned by NS Real Estate Income Trust Advisor, LLC, which is also a subsidiary of CLNS and the prior advisor of NorthStar I, will be redeemed by NorthStar I OP for $9.10 in cash (and the total value that NS Real Estate Income Trust Advisor, LLC will receive as a result of the redemption is approximately $910); and

 

  pursuant to the combination agreement, following the CLNS OP Contribution and the RED REIT Contribution, but prior to the effective time of the Mergers, the Company will, if necessary, declare a special distribution to CLNS OP in an amount that is intended to true up CLNS OP for, among other things, the expected present value of certain unreimbursed operating expenses of NorthStar I paid on NorthStar I’s behalf by its advisor, CNI NSI Advisors, LLC (formerly NSAM J-NSI Ltd), a subsidiary of CLNS.

Interests of NorthStar II’s Directors and Executive Officers in the Combination (Page 182)

In considering the recommendation of the NorthStar II special committee and the NorthStar II board of directors with respect to the proposed Combination, you should be aware that directors and executive officers of NorthStar II may have certain interests in the Combination that may be different from, or in addition to, the interests of NorthStar II stockholders generally. The NorthStar II special committee and the NorthStar II board

 

 

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of directors were aware of and considered these interests, among other matters, in evaluating and, in the case of the NorthStar II special committee, negotiating the combination agreement and the Combination and in recommending that the NorthStar II merger proposal and related proposals be adopted by the stockholders of NorthStar II. These interests include, but are not limited to, the following:

 

  CLNS (and its affiliates), as the NorthStar II sponsor, have certain conflicts in connection with the Combination;

 

  in the NorthStar II merger, any shares of NorthStar II common stock owned by directors of NorthStar II and by CLNS and their respective affiliates will be converted into the right to receive, in the event of a Listing, shares of Company class A common stock (and cash in lieu of fractional shares), and in the event of an IPO, shares of Company class B common stock (and cash in lieu of fractional shares), in either case on the same terms and conditions as the other NorthStar II stockholders;

 

  also, in connection with the NorthStar II merger, all outstanding unvested restricted stock awards granted under the Long Term Incentive Plan of NorthStar II will fully vest, entitling the holder thereof to receive, in the event of a Listing, the same number of shares of Company class A common stock (and cash in lieu of fractional shares), and in the event of an IPO, the same number of shares of Company class B common stock (and cash in lieu of fractional shares), in either case as other holders of NorthStar II common stock;

 

  pursuant to the combination agreement, immediately prior to the Company Contribution, each special partnership unit of NorthStar II OP (all of which are held by NorthStar OP Holdings II, LLC, a subsidiary of CLNS), will be cancelled, and each partnership unit of NorthStar II OP owned by NorthStar Real Estate Income Advisor II, LLC, which is also a subsidiary of CLNS and the prior advisor of NorthStar II, will be redeemed by NorthStar II OP for $9.04 in cash (and the total value that NorthStar Real Estate Income Advisor II, LLC will receive as a result of the redemption is approximately $904); and

 

  pursuant to the combination agreement, following the CLNS OP Contribution and the RED REIT Contribution, but prior to the effective time of the Mergers, the Company will, if necessary, declare a special distribution to CLNS OP in an amount that is intended to true up CLNS OP for, among other things, the expected present value of certain unreimbursed operating expenses of NorthStar II paid on NorthStar II’s behalf by its advisor, CNI NSII Advisors, LLC (formerly NSAM J-NSII Ltd), a subsidiary of CLNS.

Listing of Shares of the Company (Pages 185 and 318)

Approval of the listing on a national securities exchange of the Company class A common stock to be issued in the Combination pursuant to the combination agreement, in connection with either an IPO or a Listing, is a condition to each of NorthStar I’s, NorthStar II’s and CLNS OP’s obligations to complete the Combination, subject to official notice of issuance prior to the closing. It is expected that the Company class A common stock will trade on a national securities exchange under the symbol “CLNC.” If the Combination is completed, shares of NorthStar I common stock and NorthStar II common stock will be deregistered under the Exchange Act. An IPO will result in the ownership percentages of CLNS and its affiliates, the NorthStar I stockholders and the NorthStar II stockholders being diluted.

Unless the approval of the NorthStar I special committee and the NorthStar II special committee is obtained, any such IPO or listing of the Company class A common stock must be consummated within six months after the receipt of the NorthStar I stockholder approval and the NorthStar II stockholder approval and must be within the IPO/Listing Parameters (as defined in the combination agreement) agreed among the NorthStar Companies and CLNS OP. CLNS OP has the discretion to determine whether to proceed with an IPO or, if it determines that

 

 

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market conditions are not favorable for an IPO, a listing (without an IPO) of the shares of Company class A common stock on a national securities exchange, although CLNS OP is under no obligation to cause the Company to effect an IPO or a listing if it determines that market conditions are not favorable to effect either.

No Stockholder Appraisal Rights in the Mergers or the Charter Amendments (Page 353)

NorthStar I stockholders and NorthStar II stockholders are not entitled to exercise appraisal rights in connection with the Mergers or the charter amendments.

Since the consummation of the Combination is conditioned on the approval of the NorthStar I second charter amendment proposal and the NorthStar II charter amendment proposal, NorthStar I and NorthStar II stockholders who vote “no” with respect to the Mergers will not be entitled to exercise their rights under the NorthStar I charter and the NorthStar II charter, respectively, to elect to retain their equity interest in NorthStar I or NorthStar II, as applicable, or to receive cash in an amount equal to the stockholder’s pro rata share of the appraised value of NorthStar I’s or NorthStar II’s, as applicable, net assets.

Conditions to Completion of the Combination (Page 273)

The obligation of each of the NorthStar I parties, the NorthStar II parties, the CLNS parties and the Company parties to effect the Combination is subject to the satisfaction or waiver of the following conditions at or prior to the closing:

 

  receipt of the NorthStar I stockholder approval;

 

  receipt of the NorthStar II stockholder approval;

 

  receipt of all requisite regulatory approvals;

 

  the absence of any statute, rule, regulation, judgment, decree, injunction or other order by a governmental authority preventing, enjoining, prohibiting or making illegal the consummation of the Combination;

 

  effectiveness of the registration statement of which this joint proxy statement/prospectus forms a part and no stop order suspending the effectiveness of the registration statement having been issued or proceeding for that purpose having been initiated or threatened by the SEC; and

 

  the shares of Company class A common stock have been approved for listing on a national securities exchange, in connection with either an IPO or a Listing.

In addition, NorthStar I’s obligation to effect the Combination is subject to the satisfaction or waiver at or prior to the closing of each of the following conditions:

 

  the representations and warranties of the NorthStar II parties being true and correct to the extent required and subject to the applicable materiality standards set forth in the combination agreement; the NorthStar II parties having complied with and performed in all material respects all covenants and other agreements required to be performed by them under the combination agreement on or before the closing; and the receipt by NorthStar I of a certificate executed on behalf of the NorthStar II parties by an appropriate officer certifying the satisfaction of the foregoing;

 

 

the representations and warranties of the CLNS parties being true and correct to the extent required and subject to the applicable materiality standards set forth in the combination agreement; the CLNS parties

 

 

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having complied with and performed in all material respects all covenants and other agreements required to be performed by them under the combination agreement on or before the closing; and the receipt by NorthStar I of a certificate executed on behalf of the CLNS parties by an appropriate officer certifying the satisfaction of the foregoing;

 

  the representations and warranties of the Company parties being true and correct to the extent required and subject to the applicable materiality standards set forth in the combination agreement; the Company parties having complied with and performed in all material respects all covenants and other agreements required to be performed by them under the combination agreement on or before the closing; and the receipt by NorthStar I of a certificate executed on behalf of the Company parties by an appropriate officer certifying the satisfaction of the foregoing;

 

  the execution of a stockholders agreement by CLNS OP and the Company;

 

  the receipt by NorthStar I of legal opinions that (i) each of the Company, commencing with its taxable year that includes the effective time of the NorthStar I merger (and any prior taxable year as to which the Company has elected to be taxed as a REIT), and NorthStar II, commencing with its taxable year ended December 31, 2013 through the effective time of the NorthStar I merger, has met or will meet the requirements for qualification and taxation as a REIT under the Code, and (ii) the NorthStar I merger will qualify as a reorganization within the meaning of Section 368(a)(1) of the Code; and

 

  the absence of a material adverse effect with respect to NorthStar II and the Contributed Entities.

In addition, NorthStar II’s obligation to effect the Combination is subject to the satisfaction or waiver at or prior to the closing of each of the following conditions:

 

  the representations and warranties of the NorthStar I parties being true and correct to the extent required and subject to the applicable materiality standards set forth in the combination agreement; the NorthStar I parties having complied with and performed in all material respects all covenants and other agreements required to be performed by them under the combination agreement on or before the closing; and the receipt by NorthStar II of a certificate executed on behalf of the NorthStar I parties by an appropriate officer certifying the satisfaction of the foregoing;

 

  the representations and warranties of the CLNS parties being true and correct to the extent required and subject to the applicable materiality standards set forth in the combination agreement; the CLNS parties having complied with and performed in all material respects all covenants and other agreements required to be performed by them under the combination agreement on or before the closing; and the receipt by NorthStar II of a certificate executed on behalf of the CLNS parties by an appropriate officer certifying the satisfaction of the foregoing;

 

  the representations and warranties of the Company parties being true and correct to the extent required and subject to the applicable materiality standards set forth in the combination agreement; the Company parties having complied with and performed in all material respects all covenants and other agreements required to be performed by them under the combination agreement on or before the closing; and the receipt by NorthStar II of a certificate executed on behalf of the Company parties by an appropriate officer certifying the satisfaction of the foregoing;

 

  the execution of a stockholders agreement by CLNS OP and the Company;

 

 

the receipt by NorthStar II of legal opinions that (i) each of the Company, commencing with its taxable year that includes the effective time of the NorthStar II merger (and any prior taxable year as to which the

 

 

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Company has elected to be taxed as a REIT), and NorthStar I, commencing with its taxable year ended December 31, 2010 through the effective time of the NorthStar II merger, has met or will meet the requirements for qualification and taxation as a REIT under the Code, and (ii) the NorthStar II merger will qualify as a reorganization within the meaning of Section 368(a)(1) of the Code; and

 

  the absence of a material adverse effect with respect to NorthStar I and the Contributed Entities.

In addition, CLNS OP’s, the Company’s and RED REIT’s obligation to effect the Combination is subject to the satisfaction or waiver at or prior to the closing of each of the following conditions:

 

  the representations and warranties of the NorthStar I parties being true and correct to the extent required and subject to the applicable materiality standards set forth in the combination agreement; the NorthStar I parties having complied with and performed in all material respects all covenants and other agreements required to be performed by them under the combination agreement on or before the closing; and the receipt by CLNS OP and the Company of a certificate executed on behalf of the NorthStar I parties by an appropriate officer certifying the satisfaction of the foregoing;

 

  the representations and warranties of the NorthStar II parties being true and correct to the extent required and subject to the applicable materiality standards set forth in the combination agreement; the NorthStar II parties having complied with and performed in all material respects all covenants and other agreements required to be performed by them under the combination agreement on or before the closing; and the receipt by CLNS OP of a certificate executed on behalf of the NorthStar II parties by an appropriate officer certifying the satisfaction of the foregoing;

 

  the receipt by CLNS OP of legal opinions that (i) each of NorthStar I, commencing with its taxable year ended December 31, 2010 through the effective time of the NorthStar I merger, and NorthStar II, commencing with its taxable year ended December 31, 2013 through the effective time of the NorthStar II merger, has met or will meet the requirements for qualification and taxation as a REIT under the Code, and (ii) the CLNS OP Contribution should qualify as a tax-free transaction under Section 351 of the Code;

 

  the absence of a material adverse effect with respect to NorthStar I and NorthStar II;

 

  the execution of a registration rights agreement by CLNS OP and the Company;

 

  the execution of a stockholders agreement by CLNS OP and the Company; and

 

  the execution of an ownership waiver letter by CLNS OP and the Company.

None of NorthStar I, NorthStar II or the Company can give any assurance as to when or if all of the conditions to the consummation of the Combination or any other transactions contemplated by the combination agreement will be satisfied or waived or that the Combination will occur.

For additional information regarding the conditions to the consummation of the Combination and a complete list of such conditions, refer to the sections entitled “The Combination Agreement—Conditions to Completion of the Combination” beginning on page 273 of this joint proxy statement/prospectus and “Risk Factors—Risks Relating to the Combination” beginning on page 57 of this joint proxy statement/prospectus.

Regulatory Approvals in Connection with the Combination (Page 184)

As noted above, completion of the Combination is subject to the receipt of any required regulatory approvals; however, no regulatory approvals are anticipated to be required.

 

 

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No Solicitation or Negotiation of Acquisition Proposals (Page 286)

Go-Shop (Page 285)

Pursuant to the terms of the combination agreement, for 30 days after the date of the first public announcement of the combination agreement, NorthStar I and NorthStar II had a “go-shop” right that allowed them to, directly or indirectly, initiate, solicit, encourage or facilities any inquiries or making of an acquisition proposal from third parties. This “go-shop” period expired on September 27, 2017.

Pursuant to the go-shop provisions of the combination agreement, at the direction of the NorthStar I special committee, on August 28, 2017, Credit Suisse commenced NorthStar I’s go-shop process. In the go-shop process, 25 prospective buyers were contacted regarding each such party’s potential interest in exploring a transaction with NorthStar I. During the go-shop period, eight parties negotiated and entered into confidentiality agreements with NorthStar I and were provided with non-public information relating to NorthStar I. None of the parties contacted during the go-shop process, including the eight parties that entered into confidentiality agreements with NorthStar I, submitted a NorthStar I acquisition proposal to NorthStar I or its representatives prior to the September 27, 2017 go-shop period end time.

From August 28, 2017 through September 27, 2017, in connection with the “go-shop” process provided for under the combination agreement, at the direction of the NorthStar II special committee, Moelis contacted approximately 44 parties to solicit their interest in a possible alternative transaction with NorthStar II. Seven parties entered into confidentiality agreements with NorthStar II. No NorthStar II acquisition proposals were received prior to the September 27, 2017 go-shop period end time.

No Solicitation (Page 286)

From and after the expiration of the “go-shop” period, and except with respect to “go-shop” bidders, each of NorthStar I and NorthStar II has agreed that it will not, and it will cause each of its subsidiaries and its and their respective representatives not to:

 

  solicit, initiate knowingly encourage or facilitate any inquires, proposals or offers for, or engage in any negotiations concerning, or provide any confidential or non-public information or data to, or have any discussions with, any person relating to any inquiry, proposal, offer or other action that constitutes, or could reasonably be expected to lead to, as applicable, a NorthStar I acquisition proposal or NorthStar II acquisition proposal (each as defined in the section entitled “The Combination Agreement—Covenants and Agreements—No Solicitation or Negotiation of Acquisition Proposals” beginning on page 286 of this joint proxy statement/prospectus);

 

  enter into or engage in, continue or otherwise participate in any discussions or negotiations regarding or otherwise in furtherance of, or furnish to any other person any information in connection with or for the purpose of encouraging or facilitating, any inquiry, proposal, offer or other action that constitutes, or could reasonably be expected to lead to or otherwise obtain, as applicable, a NorthStar I acquisition proposal or NorthStar II acquisition proposal;

 

  release any person from or fail to enforce any confidentiality, “standstill” or similar obligation to NorthStar I (or its subsidiaries) or NorthStar II (or its subsidiaries), as applicable; or

 

  approve, recommend or enter into any letter of intent or similar document, agreement, commitment, arrangement, understanding, contract or agreement in principle (whether binding or not) with respect to, as applicable, a NorthStar I acquisition proposal or NorthStar II acquisition proposal.

 

 

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Notwithstanding those restrictions, however, each of NorthStar I and NorthStar II will be permitted to waive or not to enforce any provision of any confidentiality, “standstill” or similar obligation to permit a person to make a confidential NorthStar I acquisition proposal or NorthStar II acquisition proposal, as applicable, directly to the NorthStar I special committee or the NorthStar II special committee, if the NorthStar I special committee or the NorthStar II special committee, as applicable, determines in good faith (after consultation with outside legal counsel) that any such failure to waive or to not enforce would be inconsistent with or otherwise result in a breach of its duties under applicable law.

Negotiation of Acquisition Proposals (Page 287)

Notwithstanding the restrictions described above, at any time after the expiration of the “go-shop” period and prior to receiving the NorthStar I stockholder approval or the NorthStar II stockholder approval, as applicable, NorthStar I or NorthStar II may, after providing notice to the other parties:

 

  provide information in response to a request by a person who has made a bona fide unsolicited written acquisition proposal that did not result from a material breach of the non-solicitation obligations described above if the party receiving such acquisition proposal receives from the person requesting such information an executed confidentiality agreement satisfying certain requirements, and discloses to the other parties to the combination agreement such written acquisition proposal and concurrently furnishes, makes available or provides access to any nonpublic information provided to such person or persons to the extent not already provided to such other party; and

 

  engage or participate in any discussions or negotiations with any person who has made an unsolicited bona fide written acquisition proposal, if the special committee of the board of directors of the party receiving such acquisition proposal has determined in good faith based on information then available and after consultation with outside legal counsel and outside financial advisors that such acquisition proposal either constitutes or could reasonably be expected to lead to a NorthStar I superior proposal or a NorthStar II superior proposal (each as defined in the section entitled “The Combination Agreement—Covenants and Agreements—No Solicitation or Negotiation of Acquisition Proposals” beginning on page 286 of this joint proxy statement/prospectus), as applicable.

No Change of Recommendation or Alternative Acquisition (Page 288)

Under the combination agreement, each of the NorthStar I board of directors and NorthStar II board of directors, or any committee thereof, generally may not take the following actions (any of which we refer to as a change of recommendation):

 

  change, withhold, withdraw, qualify or modify or publicly propose or announce or authorize or resolve to, or announce its intention to change, withhold, withdraw, qualify or modify, in each case in a manner adverse to the other parties, the NorthStar I board recommendation or the NorthStar II board recommendation (each as defined in the section entitled “The Combination Agreement—Covenants and Agreements—No Solicitation or Negotiation of Acquisition Proposals” beginning on page 286 of this joint proxy statement/prospectus), as applicable;

 

  authorize, approve, endorse, declare advisable, adopt or recommend or propose to publicly authorize, approve, endorse, declare advisable, adopt or recommend, any NorthStar I acquisition proposal or NorthStar II acquisition proposal, as applicable;

 

 

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  authorize, cause or permit its company (or any subsidiary of its company) to enter into any alternative acquisition agreement (as described in the section entitled “The Combination Agreement—Covenants and Agreements—No Solicitation and or Negotiation of Acquisition Proposals” beginning on page 286 of this joint proxy statement/prospectus) for any NorthStar I acquisition proposal or NorthStar II acquisition proposal, as applicable; or

 

  fail to make or include the NorthStar I board recommendation or the NorthStar II board recommendation in this joint proxy statement/prospectus.

Notwithstanding these restrictions, prior to receiving the NorthStar I stockholder approval or the NorthStar II stockholder approval, as applicable, and so long as NorthStar I or NorthStar II is in compliance with the non-solicitation obligations described above in all material respects, each of the NorthStar I board of directors and the NorthStar II board of directors (in each case based on the recommendation of its respective special committee) may effect a change of recommendation in response to an intervening event or a superior proposal that was not withdrawn at the time of the change of recommendation, if the NorthStar I special committee or the NorthStar II special committee determines in good faith after consultation with outside legal counsel that to do otherwise would be inconsistent with its duties under applicable law. Prior to any such action being taken, the party who intends to effect a change of recommendation must provide written notice to the other parties advising such parties of its intention and the reasons therefor and take the other actions described in the section entitled “The Combination Agreement—Covenants and Agreements—No Solicitation or Negotiation of Acquisition Proposals” beginning on page 286 of this joint proxy statement/prospectus, including engaging in negotiation, in good faith, with the other parties to determine whether any revisions to the terms of the combination agreement would make the applicable proposal received no longer a “superior proposal.”

Termination (Page 292)

The combination agreement may be terminated:

 

  by mutual consent of NorthStar I, NorthStar II, the Company and CLNS OP in a written instrument at any time prior to the closing of the CLNS OP Contribution;

 

  by any of NorthStar I, NorthStar II, the Company or CLNS OP at any time prior to the closing of the CLNS OP Contribution:

 

    if the closing of the transactions contemplated by the combination agreement has not occurred by the close of business on the date that is the nine-month anniversary of the later of the receipt of the NorthStar I stockholder approval and receipt of the NorthStar II stockholder approval, which we refer to as the outside date, provided that the right to terminate will not be available to any party whose failure to comply with any provision of the combination agreement has been the cause of, or materially contributed to, the failure of the closing to occur on or before such date (we refer to a termination of the combination agreement for this reason as an outside date termination);

 

    if (a) the NorthStar I stockholder approval or the NorthStar II stockholder approval is not obtained (we refer to a termination of the combination agreement for this reason as a stockholder no-vote termination), or (b) the NorthStar I special meeting or the NorthStar II special meeting has not been held by the earlier of March 31, 2018 and the date that is 30 days after the date originally scheduled for such special meeting or more than 120 days from the record date for such special meeting, whichever occurs first (we refer to a termination of the combination agreement for this reason as a failure to hold special meeting termination);

 

 

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    if any required regulatory approval is denied by final, non-appealable action or if any injunction prohibiting the Combination becomes final and non-appealable, provided that the right to terminate for this reason will not be available to any party whose failure to comply with any provision of the combination agreement has been the cause of, or materially contributed to, such action;

 

  at any time prior to the closing of the CLNS OP Contribution:

 

    by any of NorthStar I, NorthStar II or CLNS OP, as applicable, if, subject to cure rights, either of the other two parties has breached any of its representations, warranties, covenants or agreements under the combination agreement or any representations and warranties become untrue after the date of the combination agreement, in each case such that the conditions to the other parties’ obligations to complete the Combination would not be satisfied (we refer to a termination of the combination agreement for this reason as a termination for non-curable breach);

 

    by NorthStar II or CLNS OP, if the NorthStar I board of directors has made a change of recommendation, or by NorthStar I or CLNS OP, if the NorthStar II board of directors has made a change of recommendation (we refer to a termination of the combination agreement for this reason as a termination for change of recommendation);

 

    by NorthStar II or CLNS OP, if NorthStar I has breached its no solicitation obligations under the combination agreement, or by NorthStar II or CLNS OP, if NorthStar I has breached its no solicitation obligations under the combination agreement (we refer to termination of the combination agreement for this reason as a termination for breach of non-solicitation covenants); or

 

    by NorthStar I, prior to the NorthStar I stockholder approval being obtained, or by NorthStar II, prior to the NorthStar II stockholder approval being obtained, in order to enter into a definitive agreement with respect to a superior proposal in compliance with the terms of the combination agreement (we refer to a termination of the combination agreement for this reason as a termination for superior proposal).

Notwithstanding the foregoing, the CLNS parties and the Company (i) may not rely on the failure of the condition to closing that the representations and warranties of the NorthStar I parties or the NorthStar II parties are true and correct to be satisfied if, on or before August 25, 2017, CLNS, CLNS OP or the CLNS OP subsidiary serving as the external manager of NorthStar I or NorthStar II, as applicable, had actual knowledge of the failure of such representations and warranties to be true and correct, and (ii) may not rely on the failure of the condition to closing that the covenants and other agreements required by the combination to be complied with by the NorthStar I parties or the NorthStar II parties prior to the closing to be satisfied, or assert any other claim or right in respect of the failure by the NorthStar I parties or the NorthStar II parties, as applicable, to comply with and perform their respective covenants and agreements required by the combination agreement, if and to the extent such failure results from any action or omission taken or made by the applicable CLNS OP subsidiary in the performance of its duties or obligations as external manager of NorthStar I or NorthStar II, as applicable, with the actual knowledge of such CLNS OP subsidiary that such action or omission would, or would reasonably be expected to, cause such covenants and agreements required of the NorthStar I parties or the NorthStar II parties, as applicable, not to have been duly complied with and performed in all material respects, unless such action or omission was taken or made by the applicable CLNS OP subsidiary with the prior written consent of the NorthStar I special committee or the NorthStar II special committee, as applicable.

 

 

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Termination Fees and Transaction Expenses (Page 294)

The combination agreement provides that, in connection with the termination of the combination agreement under specified circumstances as described below, NorthStar I may be required to pay a termination fee, which we refer to as the NorthStar I termination fee, of either:

 

  approximately $21.7 million (in the event the termination fee becomes payable in connection with a NorthStar I termination for superior proposal or NorthStar I termination for change of recommendation, in each case in connection with NorthStar I entering into or recommending a NorthStar I superior proposal with a NorthStar I go-shop bidder (as defined in the section entitled “The Combination Agreement—Covenants and Agreements—No Solicitation or Negotiation of Acquisition Proposals” beginning on page 286 of this joint proxy statement/prospectus) on or before October 19, 2017); or

 

  approximately $43.4 million (in the event the termination fee becomes payable under any other circumstance pursuant to the combination agreement).

The combination agreement provides that, in connection with the termination of the combination agreement under specified circumstances, NorthStar II may be required to pay a termination fee, which we refer to as the NorthStar II termination fee, of either:

 

  approximately $20.8 million (in the event the termination fee becomes payable in connection with a NorthStar II termination for superior proposal or NorthStar II termination for change of recommendation, in each case in connection with NorthStar II entering into or recommending a NorthStar II superior proposal with a NorthStar II go-shop bidder (as defined in the section entitled “The Combination Agreement—Covenants and Agreements—No Solicitation or Negotiation of Acquisition Proposals” beginning on page 286 of this joint proxy statement/prospectus) on or before October 19, 2017); or

 

  approximately $41.6 million (in the event the termination fee becomes payable under any other circumstance pursuant to the combination agreement).

In the event of a termination for superior proposal or a termination for change of recommendation, NorthStar I will pay 45.95% of the NorthStar I termination fee to NorthStar II and 54.05% of the NorthStar I termination fee to CLNS OP, or NorthStar II will pay 47.03% of the NorthStar II termination fee to NorthStar I and 52.97% of the NorthStar II termination fee to CLNS OP, as applicable.

The combination agreement also provides that if: (i) after August 25, 2017, an acquisition proposal is publicly proposed or disclosed or, other than in the case of a stockholder no-vote termination, otherwise communicated to the NorthStar I board of directors or NorthStar II board of directors, as applicable, and any of (A) a stockholder no-vote termination or a failure to hold special meeting termination has occurred, (B) an outside date termination has occurred, (C) a termination for non-curable breach has occurred, or (D) a termination for breach of non-solicitation covenants has occurred; and (ii) within 12 months of such termination, the party causing such termination enters into an agreement with respect to a business combination with a third party, then the party involved in such business combination will be required to pay its termination fee to the other two parties (with each such party receiving its proportionate share of the termination fee paid), less any transaction expenses that were already paid by such party to the other two parties pursuant to the terms of the combination agreement, as outlined in the sections entitled “The Combination Agreement—Termination of the Combination Agreement—Termination Fees” beginning on page 294 of this joint proxy statement/prospectus and “The Combination Agreement—Termination of the Combination Agreement—Payment of Transaction Expenses Upon Termination” beginning on page 296 of this joint proxy statement/prospectus.

 

 

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The combination agreement further provides that if: (i) any of (A) a stockholder no-vote termination or a failure to hold special meeting termination has occurred; (B) a termination for non-curable breach has occurred; (C) a termination for breach of non-solicitation covenants has occurred; or (D) in a business combination involving CLNS OP, an outside date termination has occurred in a circumstance in which CLNS OP is not entitled to terminate for such event; and (ii) within 12 months of such termination, the party causing such termination enters into an agreement with respect to a business combination with either of the other two entities (NorthStar I, NorthStar II or CLNS OP, as applicable), directly or through subsidiaries, then the two parties who are involved in such business combination will each be required to pay a termination fee to the third party, less any transaction expenses that were already paid by them to the third party pursuant to the terms of the combination agreement, as outlined in the sections entitled “The Combination agreement—Termination of the Combination agreement— Termination Fees” beginning on page 294 of this joint proxy statement/prospectus and “The Combination agreement—Termination of the Combination agreement—Payment of Transaction Expenses Upon Termination” beginning on page 296 of this joint proxy statement/prospectus.

Each party would be required to reimburse the other parties their transaction expenses of up to $10 million per party if either: (i) a failure to hold special meeting termination has occurred; (ii) a termination for non-curable breach by such party has occurred; or (iii) a termination for breach of non-solicitation covenants by such party has occurred. This amount would be deducted from any payment of a full termination fee as described in the two paragraphs immediately above.

For additional information regarding termination fees, refer to the sections entitled “The Combination Agreement—Termination of the Combination Agreement—Termination Fees” and “The Combination agreement—Termination of the Combination agreement—Payment of Transaction Expenses Upon Termination” beginning on page 296 of this joint proxy statement/prospectus.

Specific Performance (Page 297)

Each party is entitled to seek specific performance and injunctive relief to prevent breaches of the combination agreement and to enforce the terms of the combination agreement in addition to any other remedy to which the parties are entitled at law or in equity.

U.S. Federal Income Tax Consequences (Page 223)

The parties intend for (i) the CLNS OP Contribution to qualify as a tax-free transaction pursuant to Section 351 of the Code, (ii) each of the NorthStar I merger and the NorthStar II merger to qualify as a reorganization under Section 368(a)(1) of the Code, and (iii) the RED REIT Contribution to be treated as a tax-free transaction pursuant to Section 721 of the Code. It is a condition to the closing of the Combination that: (i) Alston & Bird, or other counsel reasonably acceptable to the parties, deliver to NorthStar I an opinion that the NorthStar I merger will qualify as a reorganization under Section 368(a)(1) of the Code; (ii) Greenberg Traurig, or other counsel reasonably acceptable to the parties, deliver to NorthStar II an opinion that the NorthStar II merger will qualify as a reorganization under Section 368(a)(1) of the Code; and (iii) Hogan Lovells US LLP, or other counsel reasonably acceptable to the parties, deliver to CLNS OP an opinion that the CLNS OP Contribution should qualify as a tax-free transaction under Section 351 of the Code. On the basis of the foregoing opinions, a U.S. holder (as defined on page 224 of this joint proxy statement/prospectus) of NorthStar I common stock or NorthStar II common stock will generally not recognize any gain or loss for U.S. federal income tax purposes as a result of the Mergers, except with respect to cash received in lieu of fractional shares in connection with the Mergers.

 

 

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Any unsold portion of the NorthStar I excluded asset will be transferred to a liquidating trust and beneficial interests in such liquidating trust will be distributed to the NorthStar I stockholders. Holders of liquidating trust units will be subject to tax on their share of the income or gain of the liquidating trust without regard to the amount, if any, of distributions they receive from the liquidating trust.

Stockholders of NorthStar I and NorthStar II may be subject to tax on any special distributions prior to the Mergers, which may include cash or, in the case of NorthStar I stockholders, units representing beneficial interests in the liquidating trust. The tax consequences of the stockholders’ receipt of the special distributions will depend on, among other things, the amount of the paying corporation’s current and accumulated earnings and profits.

The particular consequences of the Mergers and related transactions to each stockholder depend on such holder’s particular facts and circumstances. Stockholders are urged to consult their tax advisors to understand fully the consequences to them of the Mergers and related transactions in their specific circumstances.

Accounting Treatment of the Combination (Page 184)

The Combination will be accounted for under the acquisition method for business combinations pursuant to Accounting Standards Codification Topic 805, Business Combinations. In the Combination, the Company, and its accounting predecessor, the CLNS Investment Entities, is considered to be the accounting acquirer.

The Company succeeded to substantially all of the operations of the CLNS Investment Entities and did not have material assets or substantial operations prior to the contribution of assets and liabilities from CLNS, with such contribution treated as a common control transaction. Accordingly, all of the assets and liabilities of the CLNS Investment Entities received by the Company were recorded in the Company’s books at their carryover basis. As both the Company and the CLNS Investment Entities were controlled by CLNS prior to the Combination, actions taken by CLNS prior to the Combination were attributed to the Company in determining the accounting acquirer in the Combination.

In a transaction involving the exchange of equity interests, ASC 805 provides that the entity issuing the equity interests is usually the acquirer; however, all pertinent facts and circumstances must be considered in identifying the acquirer for accounting purposes. In identifying the Company as the accounting acquirer, factors considered included the following: (i) CLNS initiated the Combination transaction; (ii) the Company will issue its equity to consummate the Combination; (iii) subsidiaries and affiliates of CLNS will have the largest portion of voting interest in the Company based on initial ownership interests immediately following the Combination; (iv) CLNS executives will serve as management of the Company through a management agreement to be executed between the Company and a subsidiary of CLNS; and (v) in terms of relative size, CLNS, through the CLNS Investment Entities, will constitute the largest portion of net assets and net income of the combining entities.

Accordingly, the Combination will establish a new accounting basis for the assets acquired, liabilities assumed and noncontrolling interests of NorthStar I and NorthStar II, which will be measured at their respective fair values on the closing date of the Combination. As the Combination is a stock-for-stock exchange, the value of consideration transferred will depend upon the fair value of the Company common stock at the closing date of the Combination. To the extent that fair value of the consideration transferred exceeds fair value of the net assets acquired, any such excess will represent goodwill. Alternatively, if fair value of the net assets acquired exceeds fair value of the consideration transferred, the transaction could result in a bargain purchase gain that will be recognized immediately in earnings. The final fair values of assets acquired, liabilities assumed and

 

 

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non-controlling interests will be determined upon completion of the Combination, with the allocation to be finalized as soon as practicable within the measurement period of no later than one year following the closing date of the Combination.

Comparison of Rights of Stockholders of NorthStar I and NorthStar II with the Rights of Stockholders of the Company (Page 326)

Upon completion of the Mergers, the rights of former NorthStar I and NorthStar II stockholders who become the Company stockholders will be governed by the Company charter and the Company bylaws and the MGCL. The rights associated with NorthStar I common stock and NorthStar II common stock are different from the rights to be associated with the Company common stock after the Mergers. For additional information regarding the comparison of the rights of stockholders, refer to the section entitled “Comparison of Rights of Stockholders of NorthStar I and NorthStar II with the Rights of Stockholders of the Company” beginning on page 326 of this joint proxy statement/prospectus.

 

 

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SELECTED HISTORICAL FINANCIAL INFORMATION OF NORTHSTAR I

The following selected consolidated financial information as of and for the years ended December 31, 2012 through December 31, 2016 is derived from the audited consolidated financial statements of NorthStar I. The following selected consolidated financial information as of and for the nine months ended September 30, 2017 and 2016 as well as for each quarterly period from 2015 through September 30, 2017 is derived from the unaudited consolidated financial statements of NorthStar I and, in the opinion of management, contains all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of this financial information at or for those dates. The financial condition and results of operations as of and for the nine months ended September 30, 2017 are not necessarily indicative of the financial condition and results of operations that may be expected for the full year ending December 31, 2017 or for any future periods. You should not assume that the results for any past periods are indicative of results for any future period. You should read this information in conjunction with NorthStar I’s consolidated financial statements and related notes thereto included in NorthStar I’s Annual Report on Form 10-K for the year ended December 31, 2016 and in NorthStar I’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017, which are attached to this joint proxy statement/prospectus as Annex F-1 and Annex F-2, respectively.

 

     Nine Months Ended
September 30,
    Year Ended December 31,  
(In thousands, except per share data)   2017     2016     2016     2015    

2014

   

2013

   

2012

 

Statements of Operations Data:

             

Interest income(1)

  $ 63,303     $ 59,006     $ 77,657     $ 96,471     $ 102,697     $ 77,553     $ 24,601  

Rental and other income

    66,827       58,330       78,602       60,394       29,342       1,970        

Total revenues

    130,130       117,336       156,259       156,865       132,039       79,523       24,601  

Interest expense—loans receivable(2)

    23,246       13,150       16,674       21,339       21,100       15,179       3,299  

Interest expense—real estate(2)

    14,160       12,895       17,519       14,832       7,763       583        

Property operating expense

    30,294       27,478       36,950       31,135       15,433       823        

Net income

    10,819       24,168       32,207       45,591       88,953       61,017       15,304  

Net income attributable to stockholders

    10,739       24,079       31,952       45,614       89,124       61,271       15,304  

Share Data:

             

Earnings per share:

             

Basic

  $ 0.09     $ 0.20     $ 0.26     $ 0.38     $ 0.77     $ 0.63     $ 0.44  

Diluted

  $ 0.09     $ 0.20     $ 0.26     $ 0.38     $ 0.77     $ 0.63     $ 0.44  

 

 

 

      September 30,
2017
     December 31,  
(In thousands)       2016      2015      2014      2013      2012  
             

Balance Sheet Data:

                 

Total assets

   $ 2,444,660      $ 1,768,480      $ 1,947,516      $ 2,188,021      $ 1,831,104      $ 859,938  

Total debt(3)

     604,039        705,589        819,716        996,178        637,752        250,812  

Total liabilities

     1,542,321        799,355        915,505        1,125,324        825,879        342,192  

Total stockholders’ equity

     885,029        950,087        1,014,324        1,043,340        1,000,651        517,742  

Total equity

     902,339        969,125        1,032,011        1,062,697        1,005,225        517,746  

 

 

 

 

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For the three months ended   2017     2016     2015  
(In thousands, except per
share data)
  September 30     June 30     March 31     December 31     September 30     June 30     March 31     December 31     September 30     June 30     March 31  

Statements of Operations Data

                     

Total revenues

  $ 49,650     $ 41,488     $ 38,992     $ 38,923     $ 40,492     $ 39,843     $ 37,001     $ 37,362     $ 39,258     $ 39,625     $ 40,620  

Net income (loss)

    (2,527     4,768       8,578       8,035       7,297       9,102       7,773       8,808       5,365       14,195       17,223  

Net income (loss) attributable to stockholders

    (2,282     4,617       8,404       7,869       7,491       8,904       7,688       8,753       5,773       13,943       17,145  

Share Data

                     

Earnings (Loss) per share:

                     

Basic

  $ (0.02   $ 0.04     $ 0.07     $ 0.07     $ 0.06     $ 0.07     $ 0.06     $ 0.07     $ 0.05     $ 0.12     $ 0.14  

Diluted

  $ (0.02   $ 0.04     $ 0.07     $ 0.07     $ 0.06     $ 0.07     $ 0.06     $ 0.07     $ 0.05     $ 0.12     $ 0.14  

 

 

 

(1)   Interest income includes interest income and interest income on mortgage loans held in a securitization trust, as historically presented by NorthStar I.

 

(2)   Interest expense—loans receivable and interest expense—real estate in the aggregate represent interest expense, interest expense on mortgage obligations issued by a securitization trust, and mortgage notes interest expense, as historically presented by NorthStar I.

 

(3)   Total debt consists of securitization bonds payable, mortgage notes payable, credit facilities, and loan collateral payable, related party, as historically presented by NorthStar I.

 

 

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SELECTED HISTORICAL FINANCIAL INFORMATION OF NORTHSTAR II

The following selected consolidated financial information as of and for the years ended December 31, 2013 (from commencement of operations on September 18, 2013) through December 31, 2016 is derived from the audited consolidated financial statements of NorthStar II. The following selected consolidated financial information as of and for the nine months ended September 30, 2017 and 2016 as well as for each quarterly period from 2015 through September 30, 2017 is derived from the unaudited consolidated financial statements of NorthStar II and, in the opinion of management, contains all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of this financial information at or for those dates. The financial condition and results of operations as of and for the nine months ended September 30, 2017 are not necessarily indicative of the financial condition and results of operations that may be expected for the full year ending December 31, 2017 or for any future periods. You should not assume that the results for any past periods are indicative of results for any future period. You should read this information in conjunction with NorthStar II’s consolidated financial statements and related notes thereto included in NorthStar II’s Annual Report on Form 10-K for the year ended December 31, 2016 and in NorthStar II’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017, which are attached to this joint proxy statement/prospectus as Annex G-1 and Annex G-2, respectively.

 

 

      Nine Months Ended
September 30,
     Year Ended December 31,  
(In thousands, except per share data)    2017      2016      2016      2015     2014      2013  

Statements of Operations Data:

                

Interest income

   $ 52,873      $ 46,033      $ 64,333      $ 35,555     $ 11,539      $ 137  

Rental and other income

     32,624        32,229        43,121        19,603               

Total revenues

     85,497        78,262        107,454        55,158       11,539        137  

Interest expense—loans receivable(1)

     15,904        11,249        15,475        10,001       3,231        42  

Interest expense—real estate(1)

     10,648        10,257        13,612        6,778               

Property operating expense

     9,534        10,247        13,557        5,860               

Net income (loss)

     23,777        12,165        22,449        (5,391     3,183        12  

Net income (loss) attributable to stockholders

     23,676        12,088        22,365        (5,337     3,183        12  

Share Data:

                

Earnings (Loss) per share:

                

Basic

   $ 0.21      $ 0.12      $ 0.22      $ (0.09   $ 0.21      $ 0.04  

Diluted

   $ 0.21      $ 0.12      $ 0.22      $ (0.09   $ 0.21      $ 0.04  

 

 

 

      September 30,
2017
     December 31,  
(In thousands)       2016      2015      2014      2013  
           

Balance Sheet Data:

              

Total assets

   $ 1,814,306      $ 1,807,000      $ 1,622,638      $ 576,418      $ 25,326  

Total debt(2)

     842,356        808,903        831,646        277,863         

Total liabilities

     924,676        895,609        907,556        310,276        538  

Total stockholders’ equity

     887,638        909,252        712,755        266,140        24,786  

Total equity

     889,630        911,391        715,082        266,142        24,788  

 

 

 

 

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For the three months
ended
  2017     2016     2015  
(In thousands, except
per share data)
  September 30     June 30     March 31     December 31     September 30     June 30     March 31     December 31     September 30     June 30     March 31  

Statements of Operations Data

                     

Total revenues

  $ 29,220     $ 28,351     $ 27,926     $ 29,192     $ 26,099     $ 22,519     $ 29,644     $ 20,880     $ 18,268     $ 8,545     $ 7,465  

Net income (loss)

    5,321       7,956       10,500       10,284       4,928       614       6,623       (4,674     2,030       (4,652     1,905  

Net income (loss) attributable to stockholders

    5,289       7,920       10,467       10,277       4,895       571       6,622       (4,646     2,056       (4,652     1,905  

Share Data

                     

Earnings (Loss) per share:

                     

Basic

  $ 0.05     $ 0.07     $ 0.09     $ 0.09     $ 0.05     $ 0.01     $ 0.07     $ (0.09   $ 0.03     $ (0.08   $ 0.05  

Diluted

  $ 0.05     $ 0.07     $ 0.09     $ 0.09     $ 0.05     $ 0.01     $ 0.07     $ (0.09   $ 0.03     $ (0.08   $ 0.05  

 

 

 

(1)   Interest expense—loans receivable and Interest expense—real estate in the aggregate represent interest expense and mortgage notes interest expense, as historically presented by NorthStar II.

 

(2)   Total debt consists of securitization bonds payable, mortgage and other notes payable and credit facilities, as historically presented by NorthStar II.

 

 

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SELECTED HISTORICAL FINANCIAL INFORMATION OF THE CLNS INVESTMENT ENTITIES

The following tables set forth selected historical combined financial information of the investment entities in which CLNS OP owns interests ranging from 38% to 100%, which interests we refer to as the CLNS Contributed Portfolio, and are intended to be contributed to the Company OP. The selected historical combined financial information also includes certain intercompany balances between those entities and CLNS OP or its subsidiaries. These entities and balances are collectively referred to as the “CLNS Investment Entities.” The assets, liabilities and noncontrolling interests of the CLNS Investment Entities have been carved out of the books and records of CLNS at their historical carrying amounts. The remaining interests in the CLNS Investment Entities that are owned by CLNS-sponsored investment vehicles or third parties will not be contributed to the Company. CLNS’s interests in the respective underlying assets and liabilities of the CLNS Investment Entities are presented as “CLNS Owner” and the remaining interests are presented as “Other Owners.”

The following selected combined financial information as of and for the years ended December 31, 2016 and 2015 is derived from the audited combined financial statements of the CLNS Investment Entities. The interim financial information as of and for the nine months ended September 30, 2017 and 2016 is derived from the unaudited combined financial statements of the CLNS Investment Entities and the interim financial information for each quarter of 2015 through September 30, 2017 is derived from the books and records of the CLNS Investment Entities, and in the opinion of management, contains all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of this financial information at or for those dates. The financial condition and results of operations as of and for the nine months ended September 30, 2017 are not necessarily indicative of the financial condition and results of operations that may be expected for the full year ending December 31, 2017 or for any future periods. You should not assume that the results for any past periods are indicative of results for any future period. You should read this information in conjunction with the combined financial statements and related notes thereto of the CLNS Investment Entities for the years ended December 31, 2016 and 2015 and for the nine months ended September 30, 2017, a copy of which is included in Annex H-1 to this joint proxy statement/prospectus.

 

      Nine Months
Ended September 30,
     Year Ended
December 31,
 
(In thousands)    2017      2016      2016      2015  

Statements of Operations Data:

           

Interest income

   $ 108,442      $ 105,203      $ 140,529      $ 112,326  

Property operating income

     17,207        866        1,138        99  

Total revenues

     126,308        106,501        142,203        112,712  

Interest expense—loans receivable

     16,445        20,166        26,031        18,949  

Interest expense—real estate

     3,759                       

Property operating expense

     5,707        689        905        67  

Net income

     95,829        82,554        109,021        81,608  

Net income attributable to owners

     95,313        81,953        108,285        80,554  

Net income attributable to CLNS Owner

     67,087        58,498        76,051        58,079  

 

 

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      September 30, 2017      December 31,  
(In thousands)       2016      2015  

Balance Sheet Data:

        

Total assets

   $ 2,119,897      $ 1,802,192      $ 2,056,974  

Total debt(1)

     486,417        502,413        826,132  

Total liabilities

     543,815        566,628        939,160  

Total equity attributable to CLNS Owner

     1,221,514        884,716        817,774  

Total equity attributable to Other Owners

     344,526        341,167        290,088  

Total equity

     1,576,082        1,235,564        1,117,814  

 

 

 

For the three months ended

(In thousands)

  2017     2016     2015  
  September 30     June 30     March 31     December 31     September 30     June 30     March 31     December 31     September 30     June 30     March 31  

Statements of Operations Data

                     

Total revenues

  $ 42,801     $ 43,061     $ 40,446     $ 35,702     $ 35,730     $ 36,562     $ 34,209     $ 31,580     $ 30,316     $ 26,371     $ 24,445  

Net income

    31,482       32,324       32,023       26,467       29,712       29,056       23,786       22,547       24,187       18,863       16,011  

Net income attributable to owners

    31,361       32,123       31,829       26,332       29,490       28,815       23,648       22,291       23,899       18,600       15,764  

Net income attributable to CLNS Owner

    21,252       22,949       22,886       17,553       20,479       21,080       16,939       15,739       17,663       14,063       10,614  

 

(1)   At September 30, 2017, total debt includes $50.8 million of secured financing related to a loan receivable previously sold to NorthStar I that did not qualify for sale accounting and is presented as due to affiliates within the historical balances in the unaudited pro forma condensed combined balance sheet.

 

 

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SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA

The following selected unaudited pro forma condensed combined financial data as of and for the nine months ended September 30, 2017 and for the year ended December 31, 2016 presents the pro forma effect of the Combination and related transactions on the results of operations and financial condition of the Company. The Combination is accounted for under the acquisition method of accounting, with the Company and its accounting predecessor, the CLNS Investment Entities, as the accounting acquirer. The selected unaudited pro forma condensed combined financial data assumes the Combination and related transactions had become effective on January 1, 2016, the beginning of the earliest period presented, with respect to statements of operations data, and on September 30, 2017 with respect to balance sheet data.

The selected unaudited pro forma condensed combined financial data should be read in conjunction with (1) the historical consolidated financial statements and notes thereto, and management’s discussion and analysis of financial condition and results of operations of NorthStar I (including quantitative and qualitative disclosures about market risk), included in NorthStar I’s Annual Report on Form 10-K for the year ended December 31, 2016 and NorthStar I’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, copies of which are included in Annex F-1 and Annex F-2, respectively, to this joint proxy statement/prospectus and are incorporated herein by reference, (2) the historical consolidated financial statements and notes thereto, and management’s discussion and analysis of financial condition and results of operations of NorthStar II (including quantitative and qualitative disclosures about market risk), included in NorthStar II’s Annual Report on Form 10-K for the year ended December 31, 2016 and NorthStar II’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, copies of which are included in Annex G-1 and Annex G-2, respectively, to this joint proxy statement/prospectus and are incorporated herein by reference, and (3) the historical combined financial statements and notes thereto of the CLNS Investment Entities as of and for the years ended December 31, 2016 and 2015 and as of and for the nine months ended September 30, 2017, and management’s discussion and analysis of financial condition and results of operations of the CLNS Investment Entities (including quantitative and qualitative disclosures about market risk), copies of which are included in Annex H-1 and Annex H-2, respectively, to this joint proxy statement/prospectus. Refer also to the sections entitled “Where You Can Find More Information” beginning on page 358 of this joint proxy statement/prospectus and “Index to Financial Statements” beginning on page F-1 of this joint proxy statement/prospectus.

 

 

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The selected unaudited pro forma condensed combined financial data is presented for illustrative purposes only and is not necessarily indicative of the results of operations or financial position of the Company had the Combination and related transactions been completed as of January 1, 2016 or September 30, 2017, as applicable, nor is it necessarily indicative of future financial position or future results of operations of the Company. The selected unaudited pro forma condensed combined financial data reflects management’s best estimate based on available information and may be revised as additional information becomes available and as additional analyses are performed.

 

(In thousands, except share and per share data)

  

Nine Months Ended
September 30, 2017

    

Year Ended
December 31, 2016

 

Pro Forma Combined Statement of Operations Data:

     

Interest income

   $ 250,682      $ 344,394  

Property operating income

     115,778        121,595  

Total revenues

     366,827        466,105  

Interest expense—loans receivable

     126,118        170,811  

Interest expense—real estate

     27,151        29,742  

Property operating expense

     45,535        51,412  

Net income

     101,954        107,055  

Net income attributable to Colony NorthStar Credit Real Estate, Inc.

     98,732        105,077  

Pro Forma Per Share Data:

     

Earnings per share:

     

Basic

   $ 0.78      $ 0.85  

Diluted

   $ 0.78      $ 0.85  

Weighted Average Number of Shares of Class A common stock outstanding:

     

Basic

     126,958        123,180  

Diluted

     126,958        123,180  

 

(In thousands)

  

September 30, 2017

 

Pro Forma Combined Balance Sheet Data:

  

Total assets

   $ 8,416,410  

Total debt

     4,830,444  

Total liabilities

     5,010,371  

Total stockholders’ equity

     3,213,741  

Total equity

     3,406,039  

 

 

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UNAUDITED COMPARATIVE PER SHARE DATA

The following tables set forth certain historical and pro forma combined and pro forma equivalent per share information. The pro forma combined and pro forma equivalent per share information are presented as if the Combination and related transactions had become effective on January 1, 2016, the beginning of the earliest period presented, with respect to net income per share and dividends per share, and on September 30, 2017 with respect to book value per share.

This information is derived from and should be read in conjunction with the historical consolidated financial statements and notes thereto of NorthStar I and NorthStar II, which are attached to this joint proxy statement/prospectus. Refer to the sections entitled “Where You Can Find More Information” beginning on page 358 of this joint proxy statement/prospectus and “Index to Financial Statements” beginning on page F-1 of this joint proxy statement/prospectus for additional information.

The pro forma combined per share data is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position of the Company had the Combination and related transactions been completed as of January 1, 2016 or September 30, 2017, as applicable, nor is it necessarily indicative of future operating results or financial position of the Company. The pro forma per share information represents management’s best estimate based upon information and assumptions at the time of the filing of this joint proxy statement/prospectus and may be revised as additional information becomes available and as additional analyses are performed.

 

     CLNS Investment Entities      NorthStar I      NorthStar II  
     Historical(1)      Pro Forma
Combined
     Historical      Pro Forma
Equivalent(2)
     Historical      Pro Forma
Equivalent(2)
 

At September 30, 2017

                

Book value per share of common stock

    NA      $ 25.32      $ 7.42      $ 8.94      $ 7.72      $ 8.89  

For the nine months ended September 30, 2017

                

Net income per share from continuing operations attributable to common stockholders:

                

Basic

    NA      $ 0.78      $ 0.09      $ 0.28      $ 0.21      $ 0.27  

Diluted

    NA      $ 0.78      $ 0.09      $ 0.28      $ 0.21      $ 0.27  

Dividends per share of common stock(3)

    NA        NA      $ 0.52        NA      $ 0.53        NA  

For the year ended December 31, 2016

                

Net income per share from continuing operations attributable to common stockholders:

                

Basic

    NA      $ 0.85      $ 0.26      $ 0.30      $ 0.22      $ 0.30  

Diluted

    NA      $ 0.85      $ 0.26      $ 0.30      $ 0.22      $ 0.30  

Dividends per share of common stock(3)

    NA        NA      $ 0.80        NA      $ 0.70        NA  

 

 

 

(1)   Historical per share data is not applicable to the CLNS Investment Entities as they represent a combination of limited liability companies in which CLNS owns interests to be contributed to the Company.

 

(2)   NorthStar I and NorthStar II pro forma equivalent per share data are calculated using the pro forma combined per share information and applying the share exchange ratios of 0.3532 for NorthStar I common stock and 0.3511 for NorthStar II common stock.

 

(3)   Pro forma dividends per share of common stock are not presented, as the dividend policy of the Company will be determined by the Company board of directors following completion of the Combination.

 

 

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RISK FACTORS

In addition to the other information included in this joint proxy statement/prospectus and in the annexes to this joint proxy statement/prospectus, including the matters addressed in the section entitled “Cautionary Statement Concerning Forward-Looking Statements” beginning on page 88 of this joint proxy statement/prospectus, you should consider carefully the following risks before deciding whether to vote for the proposals presented in this joint proxy statement/prospectus. By voting in favor of the merger proposals, NorthStar I and NorthStar II stockholders will be choosing to invest in the Company common stock following the completion of the Mergers. Accordingly, you should read and consider the risks associated with each of the businesses of NorthStar I and NorthStar II because these risks will also affect the Company. Risks related to NorthStar I can be found in NorthStar I’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and NorthStar I’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017, which Annual Report on Form 10-K and Quarterly Report on Form 10-Q are attached hereto as Annex F-1 and Annex F-2, respectively, and incorporated herein by reference, and risks related to NorthStar II can be found in NorthStar II’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and NorthStar II’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017, which Annual Report on Form 10-K and Quarterly Report on Form 10-Q are attached hereto as Annex G-1 and Annex G-2, respectively, and incorporated herein by reference. You should also read and consider the other information in this joint proxy statement/prospectus and the other documents incorporated by reference into this joint proxy statement/prospectus. Refer to the section entitled “Where You Can Find More Information” beginning on page 358 of this joint proxy statement/prospectus. In addition to the risks set forth below, new risks may emerge from time to time, and it is not possible to predict all risk factors nor can the Company, NorthStar I or NorthStar II assess the impact of all factors on the Combination and the Company following the Combination or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in or implied by any forward-looking statements.

Risks Relating to the Combination

NorthStar I and NorthStar II stockholders cannot be sure of the market price of the Company common stock they will receive as consideration.

Upon completion of the Mergers, NorthStar I and NorthStar II stockholders will receive, in the event of a Listing, shares of Company class A common stock, and in the event of an IPO, shares of Company class B common stock. Prior to the Combination, there has not been and will not be an established public trading market for Company common stock. The market price of the Company class A common stock following the Combination will be unknown until the commencement of trading of Company class A common stock upon the consummation of the Combination. The value of the Company class B common stock will be based on the market price of the Company class A common stock at the time that the applicable class of Company class B common stock converts to Company class A common stock. The IPO price of the Company class A common stock, if any, will be determined by negotiations between the Company and the representatives of the underwriters and may not be indicative of prices that will prevail in the open market following an IPO of the Company or listing of Company class A common stock on a national securities exchange, and any changes in such market price will affect the value of the consideration received by the NorthStar I and NorthStar II stockholders in the Combination. In addition, if the Company pursues an IPO at a price that is at a material discount to book value, then the Company’s book value per share would be diluted.

The exchange ratios are fixed and generally will not be adjusted for changes affecting the NorthStar Companies.

Each of the NorthStar I exchange ratio and NorthStar II exchange ratio is fixed and may be adjusted only under certain limited circumstances as set forth in the combination agreement and as described in this joint proxy

 

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statement/prospectus and will not be adjusted to reflect any changes in the value of NorthStar I common stock or NorthStar II common stock or assets and liabilities to be contributed by the CLNS parties between the signing of the combination agreement and the closing of the Mergers. However, immediately prior to the closing of the Combination, either NorthStar I or NorthStar II (whichever of the two companies has generated the least amount of cash leakage during the period July 1, 2017 through the day immediately preceding the closing date, excluding the dividend payment made on July 1, 2017) will declare a special dividend in order to true up the agreed contribution values of NorthStar I and NorthStar II in relation to each other. In addition, following the CLNS OP Contribution and the RED REIT Contribution, but prior to the effective time of the Mergers, the Company will, if necessary, declare a special distribution to CLNS OP in an amount that is intended to true up CLNS OP for the difference between (i) the sum of (a) the loss in value of NorthStar I and NorthStar II as a result of the distributions made by NorthStar I and NorthStar II in excess of funds from operations from July 1, 2017 through the day immediately preceding the closing date (excluding the dividend payment made on July 1, 2017), (b) funds from operations for the Contributed Entities from July 1, 2017 through the day immediately preceding the closing date, (c) cash contributions or contributions of certain intercompany receivables made to the Contributed Entities from July 1, 2017 through the day immediately preceding the closing date and (d) the expected present value of certain unreimbursed operating expenses of NorthStar I and NorthStar II paid on each NorthStar Company’s behalf by their respective advisors, and (ii) cash distributions made by the Contributed Entities from July 1, 2017 through the day immediately preceding the closing date, excluding the Goodwill Distribution.

Completion of the Combination is subject to many conditions and if these conditions are not satisfied or waived, the Combination will not be completed.

Completion of the Combination is subject to many conditions that must be satisfied or waived under the combination agreement in order for the Combination to be completed including, among others, receipt of each of the NorthStar I stockholder approval and the NorthStar II stockholder approval and the approval for listing of the Company class A common stock on a national securities exchange, in connection with either an IPO or a listing of such shares on such national securities exchange. CLNS OP has the discretion to determine whether to proceed with an IPO or, if it determines that market conditions are not favorable for an IPO, a listing (without an IPO) of the shares of Company class A common stock on a national securities exchange. However, CLNS OP is under no obligation to cause the Company to effect an IPO or a listing if it determines that market conditions are not favorable to effect either, in which case the condition to completion of the Combination would not be satisfied and any of NorthStar I, NorthStar II, CLNS OP and the Company may terminate the combination agreement if the Combination is not completed by the outside date. Refer to the section entitled “The Combination Agreement—Termination of the Combination Agreement” beginning on page 292 of this joint proxy statement/prospectus.

For a more complete summary of the conditions that must be satisfied or waived prior to completion of the Combination, refer to the section entitled “The Combination Agreement—Conditions to Completion of the Combination.”

There can be no assurance that the conditions to the closing of the Combination will be satisfied or waived. For example, the Company’s ability to qualify as a REIT depends, in part, on its acquisition of NorthStar I’s and NorthStar II’s qualifying REIT assets in the Mergers. Accordingly, in order for counsel to the Company to deliver the REIT qualification opinion that is a condition to the closing of the Combination, the Company must be able to project, and its counsel to reasonably assume, that the Company will satisfy the REIT income and asset tests for the entire taxable year in which the Mergers close.

Accordingly, there can be no assurance that the Combination, including the Mergers, will be completed.

 

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NorthStar I or NorthStar II may waive one or more of the closing conditions without re-soliciting stockholder approval.

NorthStar I or NorthStar II may determine to waive, in whole or in part, one or more of the conditions to their obligations to consummate the Combination, including with respect to the Mergers. NorthStar I and NorthStar II currently expect to evaluate the materiality of any waiver and its effect on NorthStar I stockholders or NorthStar II stockholders, as applicable, in light of the facts and circumstances at the time to determine whether any amendment of this joint proxy statement/prospectus or any re-solicitation of proxies or voting cards is required in light of such waiver. Any determination whether to waive any condition to the closing of the Combination and whether to re-solicit stockholder approval or amend this joint proxy statement/prospectus as a result of a waiver will be made by NorthStar I or NorthStar II, as applicable, at the time of such waiver based on the facts and circumstances as they exist at that time.

If the Combination does not occur, NorthStar I, NorthStar II or CLNS OP may incur payment obligations to the others.

If the combination agreement is terminated under certain circumstances, NorthStar I may be required to pay NorthStar II and CLNS OP the NorthStar I termination fee or transaction expenses of up to $10 million each (depending on the specific circumstances), NorthStar II may be required to pay NorthStar I and CLNS OP the NorthStar II termination fee or transaction expenses of up to $10 million each (depending on the specific circumstances) and CLNS OP may be required to pay NorthStar I or NorthStar II the NorthStar II Termination Fee or the NorthStar I Termination Fee, respectively and as applicable, or transaction expenses of up to $10 million each (depending on the specific circumstances). Refer to the section entitled “The Combination Agreement—Termination of the Combination Agreement—Termination Fees” and “The Combination Agreement—Termination of the Combination Agreement—Payment of Transaction Expenses Upon Termination” beginning on page 296 of this joint proxy statement/prospectus.

The Mergers and related transactions are subject to approval by the stockholders of both NorthStar I and NorthStar II.

The Combination cannot be completed unless (i) the NorthStar I stockholders approve the NorthStar I merger, the NorthStar I first charter amendment proposal and the NorthStar I second charter amendment proposal by the affirmative vote of the holders of a majority of the outstanding shares of NorthStar I common stock entitled to vote on such proposals, and (ii) the NorthStar II stockholders approve the NorthStar II merger and the NorthStar II charter amendment proposal by the affirmative vote of the holders of a majority of the outstanding shares of NorthStar II common stock entitled to vote on such proposals. If the stockholders of either of the NorthStar Companies do not approve the proposals, the Mergers and related transactions cannot be completed.

The stockholders of NorthStar I and NorthStar II, each as a group, will hold a significantly smaller share of the Company following the closing of the Combination, than they do as stockholders of each of the NorthStar Companies currently, and CLNS and its affiliates, given its share of the Company following the closing, will have the power to significantly influence the Company’s business and affairs.

Following the Combination, former NorthStar I stockholders and former NorthStar II stockholders are expected to hold approximately 32% and 31%, respectively, of the Company immediately after the completion of the Combination, on a fully diluted basis. Consequently, NorthStar I stockholders and NorthStar II stockholders, each as a group, will exercise less influence over the management and policies of the Company after the completion of the Combination than they currently exercise over the management and policies of NorthStar I and NorthStar II, as applicable. On the other hand, immediately following the closing of the Combination, CLNS and its affiliates will own approximately 37% of the Company on a fully diluted basis (without giving effect to an IPO, if any). By virtue of CLNS and its affiliates’ stock ownership and voting power, it will have the power to

 

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significantly influence the Company’s business and affairs and will be able to influence the outcome of matters required to be submitted to stockholders for approval, including the election of the Company’s directors, amendments to the Company charter, mergers or sales of assets. The influence exerted by CLNS and its affiliates over the Company’s business and affairs may not be consistent with the interest of some or all of the Company’s other stockholders. In addition, the NorthStar I charter and the NorthStar II charter include certain provisions (some of which are described in the sections entitled “Certain Provisions of Maryland Law and of the Company Charter and the Company Bylaws” beginning on page 319 of this joint proxy statement/prospectus and “Comparison of Rights of Stockholders of NorthStar I and NorthStar II with the Rights of Stockholders of the Company” beginning on page 326 of this joint proxy statement/prospectus) required by the Statement of Policy Regarding Real Estate Investment Trusts published by the North American Securities Administrators Association, or the NASAA REIT Guidelines, which apply to REITs with shares that are publicly registered with the SEC but are not listed on a national securities exchange, including certain director removal rights. The Company charter does not include provisions based on the NASAA REIT Guidelines and such guidelines would not apply to the Company.

The combination agreement contains provisions that could discourage a potential competing acquirer of NorthStar I or NorthStar II or could result in any competing proposal being at a lower price than it might be otherwise.

The combination agreement contains “no shop” provisions that, subject to limited exceptions, beginning at 11:59 p.m. (New York City time) on September 27, 2017, restrict each NorthStar Company’s ability to solicit, initiate, encourage, facilitate or discuss, or provide any confidential or non-public information with regard to, competing third-party proposals to acquire all, or a significant part, of NorthStar I or NorthStar II. In addition, any NorthStar Company that receives a potentially superior offer or proposal not in violation of the “no shop” provisions is required to give the other parties to the combination agreement the opportunity to match or exceed the competing proposal before the NorthStar Company is permitted to accept such potentially superior proposal. Upon termination of the combination agreement to accept a superior proposal, NorthStar I or NorthStar II may be required to pay a termination fee to NorthStar I or NorthStar II, as applicable, and CLNS OP. Refer to the sections entitled “The Combination Agreement—Covenants and Agreements—No Solicitation or Negotiation of Acquisition Proposals” beginning on page 286 of this joint proxy statement/prospectus and “The Combination Agreement—Termination of the Combination Agreement— Payment of Transaction Expenses Upon Termination” beginning on page 296 of this joint proxy statement/prospectus.

These provisions, among others described in this joint proxy statement/prospectus: (i) could discourage a potential competing acquirer that might have an interest in acquiring all, or a significant part, of NorthStar I or NorthStar II from considering or proposing an acquisition, even if it were prepared to pay consideration with a higher per share cash or market value than the market value proposed to be received or realized in the Mergers; or (ii) might result in a potential competing acquirer proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee or expense reimbursement that may become payable in certain circumstances.

If the Mergers are approved, the date on which NorthStar I and NorthStar II stockholders will receive Company common stock is uncertain.

Even if the Mergers are approved by the respective stockholders of the NorthStar Companies, the date on which the Mergers are consummated and NorthStar I and NorthStar II stockholders will receive Company common stock will remain uncertain, and may not occur at all. Although the NorthStar Companies expect that the Mergers will be consummated in the first quarter of 2018, the completion date of the Mergers might be later than expected due to delays in satisfying the conditions to closing (including the listing by the Company of Company class A common stock on a national securities exchange) or other unforeseen events. In addition, there can be no assurance that the Mergers will be completed even if the required stockholder approvals are

 

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obtained. Refer to the section entitled “The Combination Agreement—Conditions to Completion of the Combination” beginning on page 273 of this joint proxy statement/prospectus.

The combination agreement includes restrictions on the ability of each of the NorthStar Companies 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 combination agreement:

 

  NorthStar I is permitted to make its regular daily dividend distributions to its stockholders of up to $0.001917808 per share of NorthStar I prior to the closing of the Mergers. The NorthStar I board of directors may also declare a special dividend in cash in respect of NorthStar I common stock to the extent the cash leakage of NorthStar II exceeds any cash leakage of NorthStar I prior to the closing of the Mergers.

 

  NorthStar II is permitted to make its regular daily dividend distributions to its stockholders of up to $0.001917808 per share of NorthStar II prior to the closing of the Mergers. The NorthStar II board of directors may also declare a special dividend in cash in respect of NorthStar II common stock to the extent the cash leakage of NorthStar I exceeds any cash leakage of NorthStar II prior to the closing of the Mergers.

NorthStar I and NorthStar II are permitted under the combination agreement to make certain minimum distributions in excess of the above limits as needed in order to maintain their status as REITs. In the event the amounts of permitted dividends described above are exceeded, pursuant to a distribution necessary for NorthStar I or NorthStar II, as applicable, to qualify as a REIT or to avoid the incurrence of any income or excise tax, the exchange ratios, as applicable, will be adjusted.

Therefore, even if NorthStar I or NorthStar II has available net income or net cash to make distributions to its stockholders and satisfies any other conditions to make such distributions, the terms of the combination agreement could prohibit such action. Refer to the section entitled “The Combination Agreement—Covenants and Agreements—Conduct of Business Pending the Combination” beginning on page 279 of this joint proxy statement/prospectus.

The NorthStar Companies will be subject to business uncertainties and certain operation restrictions until consummation of the Combination.

Uncertainty about the effect of the Mergers may have an adverse effect on the NorthStar Companies or the Company following the Combination. These uncertainties could disrupt the business of the NorthStar Companies and cause investors and others that deal with the NorthStar Companies to seek to change existing business relationships, cease doing business with the NorthStar Companies or cause potential new business partners or investment counterparties to delay doing business with the NorthStar Companies until the Combination has been completed successfully. In addition, the combination agreement restricts the parties thereto from making certain acquisitions and investments and taking other specified actions without the consent of the other parties until the Combination occurs. These restrictions may prevent the NorthStar Companies from pursuing attractive business opportunities that may arise prior to the completion of the Combination, even if such actions would otherwise prove beneficial to such NorthStar Company’s stockholders. Those operating covenants will continue to apply until the Mergers occur, which Mergers are expected to be consummated in the first quarter of 2018. Refer to the section entitled “The Combination Agreement—Covenants and Agreements—Conduct of Business Pending the Combination” beginning on page 279 of this joint proxy statement/prospectus for a description of the restrictive covenants to which each of the NorthStar Companies is subject.

 

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The shares of the Company common stock to be received by NorthStar I and NorthStar II stockholders as a result of the Mergers will have rights different from the shares of NorthStar I common stock and NorthStar II common stock.

Upon completion of the Mergers, the rights of former NorthStar I and NorthStar II stockholders who become the Company stockholders will be governed by the Company charter, the Company bylaws and the MGCL. The rights associated with NorthStar I common stock and NorthStar II common stock are different from the rights to be associated with the Company common stock after the Mergers. Refer to the section entitled “Comparison of Rights of Stockholders of NorthStar I and NorthStar II with the Rights of Stockholders of the Company” beginning on page 326 of this joint proxy statement/prospectus for additional information.

If counterparties to certain agreements with NorthStar I, NorthStar II or CLNS affiliates do not consent to the Combination, change of control rights under those agreements may be triggered, which could cause the Company to lose the benefit of such agreements and incur liabilities or replacement costs.

Each of NorthStar I, NorthStar II and an affiliate of CLNS is a party to one or more agreements that will require NorthStar I, NorthStar II or an affiliate of CLNS, as applicable, to obtain consents from third parties in connection with the Combination. If these consents cannot be obtained, the counterparties to these contracts and other third parties with whom NorthStar I, NorthStar II and/or an affiliate of CLNS currently have relationships may have the ability to terminate, reduce the scope of or otherwise materially adversely alter their relationships with any or both of the parties in anticipation of the Combination, or with the Company following the Combination. The pursuit of such rights may result in NorthStar I, NorthStar II, a Contributed Entity or the Company suffering a loss of potential future revenue or incurring liabilities in connection with a breach of such agreements and may result in the loss of rights that are material to the Company’s business. Any such disruptions could limit the Company’s ability to achieve the anticipated benefits of the Combination. The adverse effect of such disruptions could also be exacerbated by a delay in the completion of the Combination or the termination of the combination agreement.

Some of the directors and executive officers of NorthStar I and NorthStar II have interests in seeing the Combination completed that are different from, or in addition to, those of the other NorthStar I and NorthStar II stockholders.

Some of the directors and executive officers of NorthStar I and NorthStar II have arrangements that provide them with interests in the Combination that are different from, or in addition to, the interests of stockholders of NorthStar I and NorthStar II generally. These interests include, among other things, certain rights to continuing indemnification, directors’ and officers’ liability insurance and other amounts and benefits that may become payable to them in connection with the Combination. These interests, among other things, may influence the directors and executive officers of NorthStar I and NorthStar II to support or approve the Combination. Refer to the sections entitled “The Combination and Related Transactions—Interests of NorthStar I’s Directors and Executive Officers in the Combination” beginning on page 180 of this joint proxy statement/prospectus and “The Combination and Related Transactions—Interests of NorthStar II’s Directors and Executive Officers in the Combination” beginning on page 182 of this joint proxy statement/prospectus.

In certain circumstances, CLNS OP, NorthStar I or NorthStar II may terminate the combination agreement.

CLNS OP, NorthStar I or NorthStar II may terminate the combination agreement if the Combination has not been consummated by the close of business on the date that is the nine-month anniversary of the later of the receipt of the NorthStar I stockholder approval and receipt of the NorthStar II stockholder approval. Also, the combination agreement may be terminated, for among other things, if a final and non-appealable order is entered permanently restraining, enjoining or otherwise prohibiting the consummation of any of the transactions contemplated under the combination agreement, upon a material uncured breach by any of the

 

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other parties that would cause the closing conditions not to be satisfied, or upon the failure to obtain receipt of the NorthStar I stockholder approval or the NorthStar II stockholder approval. Refer to the section entitled “The Combination Agreement—Termination of the Combination Agreement” beginning on page 292 of this joint proxy statement/prospectus.

Failure to complete the Combination could negatively affect the value and the future business and financial results of each of NorthStar I and NorthStar II.

If the combination agreement is terminated and the Combination is not completed for any reason, including as a result of NorthStar I or NorthStar II stockholders’ failing to approve the necessary proposals, each NorthStar Company’s ongoing business could be adversely affected and, without realizing any of the benefits of having completed the Combination, may be subject to several risks, including that:

 

  each NorthStar Company may experience negative reactions from their respective investors;

 

  each NorthStar Company will be required to pay certain costs relating to the Combination, whether or not the Combination is completed, and, depending on the circumstances relating to a termination, may be required to pay its applicable termination fee or transaction expenses; and

 

  management focus and resources of each NorthStar Company may be diverted from operational matters and other strategic opportunities while working to implement the Combination.

The holders of NorthStar I common stock may receive less than expected or nothing from the liquidating trust, and should consider this risk in evaluating the NorthStar I merger.

The value of each liquidating trust unit, the actual amount of principal and interest payments the liquidating trust will receive with respect to the NorthStar I retained asset, the net proceeds from the sale, transfer or other disposition of the NorthStar I retained asset and the amounts to be distributed to holders of liquidating trust units are subject to various and significant uncertainties, many of which are beyond NorthStar I’s or the liquidating trust’s control, and which could cause actual results to differ materially from current expectations. The NorthStar I retained asset will be an interest in a loan. The liquidating trust’s ability to make distributions to its unitholders depends on the amount, if any, and timing of payments received with respect to, the loan underlying the NorthStar I retained asset, including net proceeds from any sale, transfer or other disposition of the NorthStar I retained asset, in each case in excess of the expenses and other obligations of the liquidating trust. The liquidating trust will have a term of three years, which may be extended under certain circumstances. If the liquidating trust cannot sell the NorthStar I retained asset at a price the trustee(s) of the liquidating trust believe represents fair value, the liquidating trust may hold the NorthStar I retained asset until maturity of the loan underlying the NorthStar I retained asset. The loan has an initial maturity date of May 9, 2019, but is subject to two extensions of one year each, subject to the satisfaction of certain conditions. While the loan is not presently in default, it is also possible that the borrower group will default on its obligations under the loan and that the liquidating trust will have to pursue enforcement of the loan obligations or negotiate a work-out with the borrower group, the timing of which could be prolonged. Accordingly, the three-year term of the liquidating trust may have to be extended, and NorthStar I cannot say with certainty at this time how long it will take before a final distribution is made. Although NorthStar I believes that principal and interest payments received with respect to the NorthStar I retained asset and proceeds of any sale, transfer or other disposition of the NorthStar I retained asset will ultimately lead to additional distributions to holders of liquidating trust units, NorthStar I cannot assure you that the liquidating trust will be able to collect significant payments or sell, transfer or otherwise dispose of the NorthStar I retained asset for value.

 

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Subject to certain limited exceptions, the liquidating trust units are not transferable or assignable.

Subject to certain limited exceptions with regard to retirement accounts, the liquidating trust units are not transferable or assignable except by will, intestate succession or operation of law.

The liquidating trust will incur the expenses of complying with public company reporting requirements until the termination of the liquidating trust following the liquidation and distribution of the net proceeds from the sale of the NorthStar I retained asset.

Until the NorthStar I retained asset is sold or matures, the liquidating trust will have an obligation to continue to comply with the applicable reporting requirements of the Exchange Act, even if compliance with these reporting requirements is economically burdensome. In order to curtail expenses, NorthStar I intends to seek relief from the SEC from certain reporting requirements under the Exchange Act. NorthStar I anticipates that, if such relief is granted, the liquidating trust would continue to file an annual report under the cover of Form 10-K and current reports on Form 8-K to disclose material events relating to the liquidating trust, along with any other reports that the SEC might require, but would discontinue filing quarterly reports on Form 10-Q. However, the SEC may not grant any such relief. If the SEC does not grant such relief, the liquidating trust would be obligated to continue complying with the applicable reporting requirements of the Exchange Act. Even if the SEC does grant the requested reporting relief, the liquidating trust expects to incur substantial expenses associated with such reporting obligations and other expenses associated with the conduct of its operations, including the management fee payable to the liquidating trust’s advisor, costs of servicing the NorthStar I retained asset, and other matters. Any expenses the liquidating trust incurs will reduce the amount of distributions the liquidating trust is able to pay to its unitholders.

Current law is not clear with respect to the proper treatment for U.S. federal income tax purposes of the special distributions of cash and liquidating trust units, and counsel is not rendering an opinion regarding such treatment.

The proper U.S. federal income tax treatment of the special distributions of cash and, for NorthStar I stockholders, liquidating trust units is not entirely clear under current law, and counsel is not rendering an opinion regarding such treatment. Although NorthStar I and NorthStar II intend to treat the distributions as separate from the NorthStar I merger and the NorthStar II merger, respectively, it is possible that the IRS could treat the distributions as part of the merger consideration paid to stockholders who receive the distributions. Under this characterization, a stockholder receiving such a distribution could be treated as recognizing capital gain in the relevant merger, equal to the lesser of: (i) the fair market value of any cash and, for NorthStar I stockholders, liquidating trust units received in such distribution; and (ii) the amount, if any, by which the fair market value of the cash and, for NorthStar I stockholders, liquidating trust units and the fair market value of the Company common stock received by the stockholder in the merger exceed such stockholder’s tax basis in the shares of NorthStar I common stock or NorthStar II common stock surrendered in exchange therefor. NorthStar I and NorthStar II stockholders should consult with their tax advisor regarding the treatment of such distributions.

Holders of liquidating trust units will be required to report their respective shares of income or loss of the liquidating trust on their tax returns and may be required to pay taxes on trust income with funds from other sources.

Holders of liquidating trust units will be required to report on their tax returns their respective shares of the income, gain, loss and deductions of the liquidating trust without regard to the amount, if any, of the distributions they receive from the liquidating trust. In addition, the liquidating trust may generate ordinary income and certain expenses that may not be deductible and capital losses that generally cannot offset

 

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ordinary income. NorthStar I stockholders should consult with their tax advisors regarding the consequences of holding liquidating trust units.

Risks Relating to an Investment in the Company Following the Combination

The Company has no operating history and may not be able to operate its business successfully or generate sufficient revenue to make or sustain distributions to its stockholders.

The Company was organized in August 2017 and has no operating history. The Company cannot assure you that it will be able to operate its business successfully or implement its operating policies and strategies as described in this joint proxy statement/prospectus. The results of the Company’s operations will depend on several factors, including the availability of opportunities for the acquisition of its target assets, the level and volatility of interest rates, the availability of adequate short and long-term financing, conditions in the financial markets and economic conditions.

The Company may not realize the anticipated benefits of the Combination.

NorthStar I and NorthStar II entered into the combination agreement because each believes that the Combination will be beneficial to itself and its respective stockholders and that combining the businesses of the Contributed Entities, NorthStar I and NorthStar II will produce benefits and cost savings. If the Company is not able to combine successfully the businesses of the Contributed Entities, NorthStar I and NorthStar II in an efficient and effective manner, the anticipated benefits and cost savings of the Combination may not be realized fully, or at all, or may take longer to realize than expected, and the value of the Company common stock may be adversely affected.

An inability to realize the full extent of the anticipated benefits of the Combination and related transactions contemplated by the combination 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 Company, which may adversely affect the value of the Company common stock following the Combination.

The management of the Company will have to dedicate substantial effort to integrating the businesses of the Contributed Entities, NorthStar I and NorthStar II. These efforts may divert management’s focus and resources from the 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 Company expects and may take longer to achieve than anticipated. Difficulties associated with managing the Company’s larger and more complex portfolio could prevent the Company from realizing the anticipated benefits of the Combination and have a material adverse effect on its business. If the Company is not able to address integration challenges adequately, the Company may be unable to integrate successfully the operations of the Contributed Entities, NorthStar I and NorthStar II or to realize the anticipated benefits of the integration of the Contributed Entities, NorthStar I and NorthStar II.

 

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Following the completion of the Combination, the Company will face risks different from those previously faced by NorthStar I, NorthStar II and the Contributed Entities individually, which may affect the Company’s results of operations and the market price of the Company class A common stock.

The Company’s business will differ from that of NorthStar I, NorthStar II and the Contributed Entities, and, accordingly, the results of operations and financial condition of the Company after the Combination may be affected by factors different from those that affected NorthStar I’s, NorthStar II’s or the Contributed Entities’ results of operations and financial condition prior to the Combination.

 

No public trading market for shares of the Company class B common stock currently exists, and as a result, it will be difficult for stockholders to sell their shares.

In the event of an IPO, stockholders of NorthStar I and NorthStar II will receive shares of Company class B common stock as consideration in the Mergers. There is no public market for the Company class B common stock. Until the shares of Company class B common stock are converted to shares of Company class A common stock in accordance with the Company charter, stockholders may not sell their shares of Company class B common stock unless a valid exemption from registration under the Securities Act is available. In addition, the Company charter prohibits the ownership of more than 9.8% in value of the aggregate of the outstanding shares of the Company’s capital stock or more than 9.8% in value or number of shares, whichever is more restrictive, of the aggregate of the outstanding shares of the Company common stock, unless exempted by the Company board of directors, which may inhibit large investors from purchasing stockholders’ shares. Therefore, it will be difficult for stockholders to sell their shares of Company class B common stock promptly or at all. If stockholders are able to sell their shares, stockholders would likely have to sell them at a substantial discount to the price paid for those shares.

Each of the NorthStar Companies prior to the closing, and the Company following the closing of the Combination, expects to incur significant costs in connection with the consummation of the Combination and the integration of the Contributed Entities and the NorthStar Companies.

Each of the NorthStar Companies prior to the closing, and the Company following the closing, expects to incur significant costs in connection with consummating the Combination and integrating the portfolios of the Contributed Entities, NorthStar I and NorthStar II into the Company, including unanticipated costs and the assumption of known and unknown liabilities. While each of the NorthStar Companies and the Company have assumed that a certain level of transaction and integration expenses will be incurred, there are factors beyond each of the NorthStar Companies’ and the Company’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 NorthStar I and NorthStar II expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of their businesses, should allow the Company to offset these incremental expenses over time, the net benefit may not be achieved in the near term, or at all.

The Company has not established a minimum distribution payment level, and it cannot assure you of its ability to pay distributions in the future.

The Company is generally required to distribute to its stockholders at least 90% of its REIT taxable income each year for the Company to qualify as a REIT under the Code, which requirement the Company currently intends to satisfy through quarterly distributions of all or substantially all of its REIT taxable income in such year, subject to certain adjustments. The Company has not established a minimum distribution payment level, and the Company’s ability to make distributions may be materially and adversely affected by a number of factors, including the risk factors described in this joint proxy statement/prospectus. Distributions to the Company stockholders, if any, will be authorized by the Company board of directors in its sole discretion and declared by the Company out of funds legally available therefor and will be dependent upon a number of factors, including

 

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the Company’s targeted distribution rate, access to cash in the capital markets and other financing sources, historical and projected results of operations, cash flows and financial condition, the Company’s view of its ability to realize gains in the future through appreciation in the value of its assets, general economic conditions and economic conditions that more specifically impact the Company’s business or prospects, its financing covenants, maintenance of its REIT qualification, applicable provisions of the MGCL and such other factors as the Company board of directors deems relevant.

Under the MGCL, a corporation may not make a distribution on such corporation’s common stock if, after giving effect to the distribution, the corporation would not be able to pay its liabilities as the liabilities become due in the usual course of business or generally if the corporation’s total assets would be less than the sum of its total liabilities plus the amount that would be needed to satisfy the preferential rights upon dissolution of the holders of shares of any class or series of preferred stock then outstanding, if any, with preferences senior to those of such corporation’s common stock.

The Company believes that a change in any one of the following factors could adversely affect the Company’s results of operations and cash flows and impair its ability to make distributions to the Company stockholders:

 

  the Company’s ability to make attractive investments;

 

  margin calls or other expenses that reduce the Company’s cash flows;

 

  defaults or prepayments in the Company’s investment portfolio or decreases in the value of its investment portfolio; and

 

  the fact that anticipated operating expense levels may not prove accurate, as actual results may vary from estimates.

As a result, no assurance can be given that the Company will be able to make distributions to the Company stockholders at any time in the future or that the level of any distributions the Company does make to the Company stockholders will achieve a market yield or increase or even be maintained over time, any of which could materially and adversely affect the Company.

In addition, distributions that the Company makes to the Company stockholders will generally be taxable to the Company stockholders as ordinary income. However, a portion of the Company’s distributions may be designated by the Company as long-term capital gains to the extent that they are attributable to capital gain income recognized by the Company or may constitute a return of capital to the extent that they exceed the Company’s earnings and profits as determined for U.S. federal income tax purposes. A return of capital is not taxable, but has the effect of reducing the basis of a stockholder’s investment in the Company class A common stock.

The Company’s operating results after the Combination may differ materially from the pro forma information presented in this joint proxy statement/prospectus.

The unaudited pro forma condensed combined financial statements in this joint proxy statement/prospectus are presented for illustrative purposes only and are not necessarily indicative of what the Company’s actual financial condition or results of operations will be when the Combination is completed on the dates indicated. The unaudited pro forma condensed combined financial statements reflect adjustments based upon preliminary estimates that may change and assumptions about the Combination that may prove incorrect over time. Accordingly, the final acquisition accounting adjustments may differ materially from the pro forma adjustments reflected in this joint proxy statement/prospectus. The Company’s operating results after the Combination may be materially different from those shown in the pro forma information presented in this joint proxy statement/prospectus, which represents only a combination of the Contributed Entities’, NorthStar I’s and NorthStar II’s respective historical results. Refer to the section entitled “Index to Financial Statements” beginning on page F-1 of this joint proxy statement/prospectus.

 

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At the closing of the Combination, the Company will assume liabilities and obligations of the Contributed Entities, NorthStar I and NorthStar II.

Following and by virtue of completion of the Combination, the Company will have assumed the liabilities and obligations of the Contributed Entities, NorthStar I and NorthStar II. These liabilities could have a material adverse effect on the Company’s business to the extent the Contributed Entities, NorthStar I or NorthStar II have not identified such liabilities or have underestimated the nature, amount or significance, based on amount or otherwise, of such liabilities.

The Company has no established investment criteria limiting the geographic or industry concentration or investment type of its investments. If the Company’s investments are concentrated in a particular region or asset class that experiences adverse economic conditions, its investments may lose value and it may experience losses.

Certain of the Company’s investments may be secured by a single property or properties in one geographic location or asset class. Additionally, properties that it may acquire may be concentrated in a geographic location or in a particular asset class. These investments carry the risks associated with significant geographical or industry concentration. The Company has not established and does not plan to establish any investment criteria to limit its exposure to these risks for future investments. As a result, properties underlying the Company’s investments and/or its properties may be overly concentrated in certain geographic areas or industries or asset classes, and the Company may experience losses as a result. A worsening of economic conditions, a natural disaster or civil disruptions in a geographic area in which investments may be concentrated or economic upheaval with respect to a particular asset class could have an adverse effect on the Company’s business, including reducing the demand for new financings, limiting the ability of borrowers to pay financed amounts and impairing the value of the Company’s collateral or the properties the Company may acquire, which may in turn limit its ability to collect required payments under the Company’s CRE debt investments or make required payments under the Company’s financings or refinance such borrowings.

Leases at the properties underlying CRE debt investments or the properties held by the Company may not be relet or renewed on favorable terms, or at all, which may result in a reduction in the Company’s net income, and as a result the Company may be required to reduce or eliminate cash distributions to stockholders.

The Company’s investments in real estate will be pressured if economic conditions and rental markets continue to be challenging. For instance, upon expiration or early termination of leases for space located at the Company’s properties, the space may not be relet or, if relet, the terms of the renewal or reletting (including the cost of required renovations or concessions to tenants) may be less favorable than current lease terms. The Company may be receiving above market rental rates that will decrease upon renewal, which will adversely impact its income and could harm the Company’s ability to service its debt and operate successfully. Weak economic conditions would likely reduce tenants’ ability to make rent payments in accordance with the contractual terms of their leases and lead to early termination of leases. Furthermore, commercial space needs may contract, resulting in lower lease renewal rates and longer releasing periods when leases are not renewed. Any of these situations may result in extended periods where there is a significant decline in revenues or no revenues generated by a property. Additionally, to the extent that market rental rates are reduced, property-level cash flow would likely be negatively affected as existing leases renew at lower rates. If the Company is unable to relet or renew leases for all or substantially all of the space at these properties, if the rental rates upon such renewal or reletting are significantly lower than expected, or if the Company’s reserves for these purposes prove inadequate, the Company will experience a reduction in net income and may be required to reduce or eliminate cash distributions to stockholders.

 

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Some of the Company’s investments will be carried at estimated fair value as determined by the Company and, as a result, there may be uncertainty as to the value of these investments.

Some of the Company’s investments will be recorded at fair value but have limited liquidity or are not publicly traded. The fair value of these investments that have limited liquidity or are not publicly traded may not be readily determinable. The Company will estimate the fair value of these investments on a quarterly basis. Because such valuations are inherently uncertain, may fluctuate over short periods of time and may be based on numerous estimates and assumptions, the Company’s determinations of fair value may differ materially from the values that would have been used if a readily available market for these securities existed. If the Company’s determination regarding the fair value of these investments are materially different than the values that it ultimately realizes upon their disposal, this could have a material adverse effect on the Company’s business, financial condition and results of operations and its ability to make distributions to stockholders.

Prepayment rates may adversely affect the value of the Company’s portfolio of assets.

Generally, the Company’s borrowers may repay their loans prior to their stated final maturities. In periods of declining interest rates and/or credit spreads, prepayment rates on loans generally increase. If general interest rates or credit spreads decline at the same time, the proceeds of such prepayments received during such periods are likely to be reinvested by the Company in assets yielding less than the yields on the assets that were prepaid. In addition, the value of the Company’s assets may be affected by prepayment rates on loans. If the Company originates or acquires mortgage-related securities or a pool of mortgage securities, it anticipates that the underlying mortgages will prepay at a projected rate generating an expected yield. If the Company purchases assets at a premium to par value, when borrowers prepay their loans faster than expected, the corresponding prepayments on the mortgage-related securities may reduce the expected yield on such securities because the Company will have to amortize the related premium on an accelerated basis. Conversely, if the Company purchases assets at a discount to par value, when borrowers prepay their loans slower than expected, the decrease in corresponding prepayments on the mortgage-related securities may reduce the expected yield on such securities because the Company will not be able to accrete the related discount as quickly as originally anticipated. In addition, as a result of the risk of prepayment, the market value of the prepaid assets may benefit less than other fixed income securities from declining interest rates.

Prepayment rates on loans may be affected by a number of factors including, but not limited to, the then-current level of interest rates and credit spreads, fluctuations in asset values, the availability of mortgage credit, the relative economic vitality of the area in which the related properties are located, the servicing of the loans, possible changes in tax laws, other opportunities for investment, and other economic, social, geographic, demographic and legal factors and other factors beyond the Company’s control. Consequently, such prepayment rates cannot be predicted with certainty and no strategy can completely insulate the Company from prepayment or other such risks.

Difficulty in redeploying the proceeds from repayments of the Company’s existing loans and investments may cause the Company’s financial performance and returns to investors to suffer.

In light of the Company’s investment strategy and the need to be able to deploy capital quickly to capitalize on potential investment opportunities, the Company may from time to time maintain cash pending deployment into investments, which may at times be significant. Such cash may be held in an account of the Company’s for the benefit of stockholders or may be invested in money market accounts or other similar temporary investments. While the expected duration of such holding period is expected to be relatively short, in the event the Company is unable to find suitable investments, such cash positions may be maintained for longer periods. It is not anticipated that the temporary investment of such cash into money market accounts or other similar temporary investments pending deployment into investments will generate significant interest, and such low

 

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interest payments on the temporarily invested cash may adversely affect the Company’s financial performance and returns to investors.

The Company uses leverage in connection with its investments, which increases the risk of loss associated with its investments, could hinder the Company’s ability to make distributions and may significantly impact the Company’s liquidity position.

The Company uses a variety of structures to finance its investments. The Company expects to finance the origination and acquisition of a portion of its investments with its credit facilities, securitization financing transactions and other term borrowings, including repurchase agreements. The type and percentage of financing varies depending on the Company’s ability to obtain credit and the lender’s estimate of the stability of the portfolio’s cash flow. Although the use of leverage may enhance returns and increase the number of investments that the Company can make, it may also, particularly during difficult economic times, substantially increase the risk of loss and harm the Company’s liquidity. Moreover, the Company may have to incur more recourse borrowings, including recourse borrowings that are subject to mark-to-market risk, in order to obtain financing for the Company’s business.

The Company’s ability to execute its financing strategy depends on various conditions in the financing markets that are beyond the Company’s control, including liquidity and credit spreads. The Company may be unable to obtain financing on favorable terms or, with respect to its investments, on terms that parallel the maturities of the debt originated or acquired, if the Company is able to obtain additional financing at all. If the Company’s strategy is not viable, the Company will have to find alternative forms of long-term financing for its assets, as secured revolving credit facilities and repurchase agreements may not accommodate long-term financing. This could subject the Company to more restrictive recourse borrowings and the risk that debt service on less efficient forms of financing would require a larger portion of the Company’s cash flow, thereby reducing cash available for distribution to stockholders, for the Company’s operations and for future business opportunities.

The Company may also seek securitization financing transactions with respect to some of its investments, but the Company may be unable to do so on favorable terms, if at all. If alternative financing is not available on favorable terms, or at all, the Company may have to liquidate assets at unfavorable prices to pay off such financing. The Company’s return on its investments and cash available for distribution to stockholders may be reduced to the extent that changes in market conditions cause the cost of the Company’s financing to increase relative to the earnings that the Company can derive from the assets it originates or acquires.

Further, short-term borrowing through repurchase agreements, credit facilities and other borrowings may put the Company’s assets and financial condition at risk. Repurchase agreements economically resemble short-term, floating-rate financing and usually require the maintenance of specific loan-to-collateral value ratios. Posting additional collateral to support the Company’s financing arrangements could significantly reduce the Company’s liquidity and limit its ability to leverage its assets. In the event the Company does not have sufficient liquidity to meet such requirements, the Company’s lenders can accelerate its borrowings, which could have a material adverse effect on the Company’s business and operations.

Repurchase agreements involve the risk that the market value of the loans pledged or sold by the Company to the repurchase agreement counterparty or provider of the bank credit facility may decline in value, in which case the lender may require the Company to provide additional collateral or to repay all or a portion of the funds advanced. The Company may not have the funds available to repay the Company’s debt at that time, which would likely result in defaults unless the Company is able to raise the funds from alternative sources, which the Company may not be able to achieve on favorable terms or at all. Posting additional collateral would reduce the Company’s liquidity and limit the Company’s ability to leverage its assets. If the Company cannot meet these requirements, the lender could accelerate the Company’s indebtedness, increase the interest rate

 

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on advanced funds and terminate the Company’s ability to borrow funds from them, which could materially and adversely affect the Company’s financial condition and ability to implement the Company’s business plan. In addition, in the event that the lender files for bankruptcy or becomes insolvent, the Company’s loans may become subject to bankruptcy or insolvency proceedings, thus depriving the Company, at least temporarily, of the benefit of these assets. Such an event could restrict the Company’s access to bank credit facilities and increase the Company’s cost of capital. The providers of repurchase agreement financing and bank credit facilities may also require the Company to maintain a certain amount of cash or set aside assets sufficient to maintain a specified liquidity position that would allow the Company to satisfy its collateral obligations. As a result, the Company may not be able to leverage its assets as fully as the Company would choose, which could reduce the Company’s return on assets. In the event that the Company is unable to meet these collateral obligations, the Company’s financial condition and prospects could deteriorate rapidly.

The Company may not successfully align the maturities of its liabilities with the maturities on its assets, which could harm operating results, liquidity and financial condition of the Company.

The Company’s general financing strategy is focused on the use of “match-funded” structures. This means that it will seek to align the maturities of its liabilities with the maturities on its assets in order to manage the risks of being forced to refinance liabilities prior to the maturities of its assets. In addition, the Company plans to match interest rates on its 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. The Company may fail to appropriately employ match-funded structures on favorable terms, or at all. The Company may also determine not to pursue a fully match-funded strategy with respect to a portion of its financings for a variety of reasons. If the Company fails to appropriately employ match-funded strategies or determines not to pursue such a strategy, the Company’s exposure to interest rate volatility and exposure to matching liabilities prior to the maturity of the corresponding asset may increase substantially, which could harm the Company’s operating results, liquidity and financial condition.

Fluctuations in interest rates could reduce the Company’s ability to generate income on its loans and other investments, which could lead to a significant decrease in the Company’s results of operations.

The Company’s financial performance may be influenced by changes in interest rates, in particular, as such changes may affect its CRE securities, floating-rate borrowings and CRE debt to the extent such debt does not float as a result of floors or otherwise. Changes in interest rates, including changes in expected interest rates or “yield curves,” may affect the Company’s business in a number of ways. Changes in the general level of interest rates could affect the Company’s net interest income, which is the difference between the interest income earned on its interest-earning assets and the interest expense incurred in connection with its interest-bearing borrowings and hedges. Changes in the level of interest rates also could affect, among other things, the Company’s ability to acquire CRE securities, acquire or originate CRE debt at attractive prices and enter into hedging transactions and may also affect borrower default rates. Also, if market interest rates increase, the interest rate on any variable rate borrowings will increase and will create higher debt service requirements, which would adversely affect the Company’s cash flow and could adversely impact its results of operations. Income from the Company’s assets may respond more slowly to interest rate fluctuations than the cost of the Company’s borrowings. Consequently, changes in interest rates, particularly short-term interest rates, may adversely influence the Company’s net income. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political conditions and other factors beyond the Company’s control.

 

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Interest rate changes may also impact the Company’s net book value as its CRE securities and hedge derivatives are recorded at fair value each quarter. Generally, as interest rates increase, the value of the Company’s fixed rate securities decreases, which will decrease the book value of the Company’s equity.

Furthermore, shifts in the U.S. Treasury yield curve reflecting an increase in interest rates would also affect the yield required on the Company’s CRE securities and therefore their value. For instance, increasing interest rates would reduce the value of the fixed rate assets that the Company holds at the time because the higher yields required by increased interest rates result in lower market prices on existing fixed rate assets in order to adjust the yield upward to meet the market and vice versa. This would have similar effects on the Company’s CRE securities portfolio and its financial position and operations as would a change in interest rates generally.

The Company has broad authority to use leverage, and high levels of leverage could hinder its ability to make distributions and decrease the value of stockholders’ investment.

The Company charter does not limit it from utilizing financing. High leverage levels could cause the Company to incur higher interest charges and higher debt service payments and the agreements governing the Company’s borrowings may also include restrictive covenants. These factors could limit the amount of cash the Company has available to distribute to stockholders and could hinder the Company’s ability to make distributions and decrease the value of stockholders’ investment.

The Company may be unable to complete additional securitization financing transactions due to, among other things, a decrease in liquidity in the CRE market.

The Company intends to access the securitization markets to finance its CRE debt investments with non-recourse, non-mark-to-market, permanent financing, which are structured as a commercial mortgage backed securities, which we refer to as CMBS. If the Company is unsuccessful in accessing this market, it may be exposed to less favorable financing terms, if any, which could adversely affect its business.

Because the Company is dependent upon the Manager and its affiliates, including CLNS, to conduct the Company’s operations, any adverse changes in the financial health of these entities or the Company’s relationship with them could hinder the Company’s operating performance and the return on stockholders’ investment.

The Company will engage CLNC Manager, LLC, a subsidiary of CLNS OP, to serve as its external manager, which we refer to as the Manager, and its affiliates to manage its operations and its portfolio. The Company’s ability to achieve its investment objectives and to pay distributions is dependent upon the performance of CLNS and its affiliates, as well as CLNS’s investment professionals in the identification and origination or acquisition of investments, the determination of any financing arrangements, the management of the Company’s assets and the operation of the Company’s day-to-day activities. The Manager and its affiliates depend in part upon the fees and other compensation or reimbursement of costs that they receive from the Company and other Managed Companies (as defined in “Description of the Company—Conflicts of Interest” beginning on page 207 of this joint proxy statement/prospectus) in connection with the management of assets to conduct their operations.

Because CLNS is a publicly traded company, any negative reaction by the stock market reflected in its stock price or deterioration in the public perception of CLNS or other Managed Companies, including those that are publicly traded, such as NorthStar Realty Europe Corp. (NYSE: NRE), could result in an adverse effect on the Company’s ability to acquire assets and obtain financing from third parties on favorable terms or at all. Any adverse changes in the financial condition of the Manager or its affiliates, including CLNS, or the Company’s relationship with them could hinder their ability to successfully support the Company’s business and growth, which could have a material adverse effect on the Company’s financial condition, results of operations and ability to make distributions to stockholders.

 

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The Company’s executive officers and the Manager’s and its affiliates’ key investment professionals who perform services for the Company face conflicts of interest related to their positions and interests in the Manager and its affiliates, which could hinder the Company’s ability to implement its business strategy and to generate returns to Company stockholders.

The Company’s executive officers and the key investment professionals of the Manager and its affiliates, including members of the Manager’s investment committee, who perform services for the Company, may also be executive officers, directors and managers of the Manager and its affiliates, including the Managed Companies. As a result, they owe duties to each of these entities, their members and limited partners and investors, which duties may from time to time conflict with the duties that they owe to the Company. In addition, CLNS may grant equity interests in the Manager to certain management personnel performing services for the Manager. The loyalties of these individuals to other entities and investors could result in action or inaction that is detrimental to the Company’s business, which could harm the implementation of the Company’s business strategy and its investment opportunities.

The Manager faces conflicts of interest relating to performing services on the Company’s behalf and such conflicts may not be resolved in the Company’s favor, meaning that the Company could invest in less attractive assets, which could limit the Company’s ability to make distributions and reduce stockholders’ overall investment.

The Company is subject to conflicts of interest arising out of its relationship with the Manager, CLNS and their affiliates. The Company relies on the Manager’s or its affiliates’ investment professionals to identify suitable investment opportunities for the Company as well as CLNS and the other Managed Companies. The Company’s investment strategy may be similar to that of, and may overlap with, the investment strategies of CLNS and/or the other Managed Companies. Therefore, investment opportunities sourced by the Manager or its affiliates that are suitable for the Company may also be suitable for CLNS and/or other Managed Companies. In addition, the activities of other Managed Companies or CLNS or its affiliates could restrict the Company’s ability to pursue certain asset acquisitions or take other actions related to its business. Further, at times when there are turbulent conditions in the mortgage markets or distress in the credit markets or other times when the Company will need focused support and assistance from the Manager and its key personnel, CLNS’s other clients may likewise require greater focus and attention, placing CLNS’s resources in high demand. In such situations, the Company may not receive the level of support and assistance that it may receive if it were internally managed or if the Manager’s key personnel did not have investment management responsibilities for other entities. As of September 30, 2017, there were four other Managed Companies with investment objectives or guidelines that overlapped in part with the Company’s and remain in their investment stage, with approximately $470 million of uncommitted capital availability in the aggregate as of September 30, 2017. Two of those Managed Companies are continuing to raise additional capital.

Furthermore, the Manager’s associated persons who are responsible for allocating investment opportunities among clients must ensure that allocations comply with the requirements of the investment allocation policy, the Advisers Act, and other applicable laws and regulations, any exemptive relief provided to the Manager or its affiliates or clients, and the terms of each relevant client operating agreement or constituent documents, offering materials, and/or advisory agreements, which we refer to as the Allocation Principles.

When making investment allocation decisions regarding a suitable investment for the Company, CLNS and the Managed Companies, the Manager will take into account the Allocation Principles applicable to such clients and will consider, without limitation, the following factors:

 

  investment objectives, dedicated mandates, strategy and criteria;

 

  current and future cash requirements of the investment and each client;

 

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  effect of the investment on the diversification of the portfolio, including by geography, size of investment, type of investment and risk of investment;

 

  leverage policy and the availability of financing for the investment by each client;

 

  anticipated cash flow of the investment to be acquired;

 

  income tax effects of the investment;

 

  the size of the investment;

 

  the amount of funds available for investment;

 

  ramp-up or draw-down periods;

 

  cost of capital;

 

  risk return profiles;

 

  targeted distribution rates;

 

  anticipated future pipeline of suitable investments;

 

  the expected holding period of the investment and the remaining term of the client, if applicable;

 

  legal, regulatory or tax considerations, including any conditions of an exemptive order;

 

  affiliate and/or related party considerations; and

 

  whether a client has other sources of investment opportunities outside of the Manager.

A dedicated mandate may cause certain Managed Companies to have priority over other Managed Companies (including the Company) with respect to specific investment opportunities. A preference for such a dedicated mandate may result in fewer of such investment opportunities being made available to the Company to the extent they are within its investment strategy.

If it is determined that an investment is most suitable for a particular client, the investment will be allocated to such client. If it is determined that an investment is equally suitable for two or more clients, then the Manager may allocate the investment among such clients on a rotational basis. In general, a rotational allocation methodology means that if a client has been previously allocated an investment as a result of the rotational process, it may be skipped in the rotation until all other clients for which a particular investment is equally suitable have been allocated an investment. Subject to regulatory restrictions, SEC guidance and any exemptive orders obtained by one or more Managed Companies (as applicable), the Manager may deem it appropriate for the Company and one or more other Managed Companies to co-invest in an investment opportunity (based on available capital, among other relevant factors, to the extent required). To the extent that a Managed Company has significant available capital, the likelihood that the Company may co-invest in a particular asset with such fund could increase significantly. To the extent that the Company acquires assets with the Managed Companies, its ability to invest the proceeds from an IPO, if any in revenue-generating assets in the near term may be hindered, which would have a material adverse effect on the Company’s results of operations and ability to make distributions to its stockholders. In addition, because affiliates of CLNS also manage the Managed Companies, and fees payable to such affiliates by the Managed Companies may be more advantageous than fees payable to the Manager, the Company’s interests in such investments may conflict with the interests of the Managed Companies, and the Manager or its affiliates may take actions that may not be most favorable to the Company, including in the event of a default or restructuring of assets subject to co-investment rights.

 

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CLNS and/or the Manager may revise the Company’s investment allocation policy and may in the future change then-existing, or adopt additional, conflicts of interest resolution policies and procedures designed to support the fair and equitable allocation of investments and to prevent the preferential allocation of investment opportunities among entities with overlapping investment objectives. The result of such a revision to the investment allocation policy may, among other things, be to increase the number of parties who have the right to participate in investment opportunities sourced by the Manager and its affiliates and/or its partners, thereby reducing the number of investment opportunities available to the Company. The investment allocation policy may not be materially amended in any manner that is reasonably likely to be adverse to the Company unless such amendment has been approved by a majority of the Company’s independent directors. Material changes to the investment allocation policy will be disclosed to clients and in public filings with the SEC, as appropriate. The Company’s independent directors will periodically review the Manager’s and CLNS’s compliance with these conflicts of interest and allocation provisions.

The decision of how any potential investment should be allocated among clients in many cases may be a matter of highly subjective judgment, which will be made by the Manager in its sole discretion. Stockholders may not agree with the determination, and such determination could have an adverse effect on the Company’s investment strategy. The Company’s right to participate in the investment allocation process described above will terminate once it is no longer advised by the Manager or its affiliates.

In addition, subject to compliance with the Advisers Act, and the rules promulgated thereunder, the Company may enter into principal transactions with the Manager or its affiliates or cross-transactions with other Managed Companies. For certain cross-transactions, the Manager may receive a fee from the Company or another Managed Company and conflicts may exist. There is no guarantee that any such transactions will be favorable to the Company. Because the Company’s interests and the interests of CLNS and the Manager may not be aligned, the Company may face conflicts of interest that result in action or inaction that is detrimental to it.

Further, there are conflicts of interest that arise when the Manager makes expense allocation determinations, as well as in connection with any fees payable between the Company and the Manager. These fees and allocation determinations are sometimes based on estimates or judgments, which may not be correct and could result in the Manager’s failure to allocate certain fees and costs to the Company appropriately.

In addition, as certain Managed Companies are, and other co-investment funds managed by CLNS and its affiliates in the future likely will be, closed-end funds with finite lives, such funds are expected to dispose of substantially all of the assets in their respective portfolios prior to dissolution. As a result, prior to such dissolutions, the Company may need to sell its interests in the co-investment assets before it otherwise would in order to avoid a potential conflict. The Company’s decision to sell such interests will depend, among other things, on the Company’s ability to sell the interests at favorable prices or at all. It is also possible that the Manager or its affiliates, who also manage such funds, may sell such co-investment assets at times or prices that are not in the best interests of the Company or the Company stockholders. In addition, to the extent that such funds dispose of co-investment assets that are qualifying assets, the Company may be required to purchase additional qualifying assets (subject to the availability of capital at favorable prices or at all) or sell non-qualifying assets at inopportune times or prices in order to maintain its qualification as a REIT and its exclusion from registration under the Investment Company Act. Even if the Company’s interests are not in conflict with those of funds with co-investment rights, it will not realize the full economic benefits of the investment. If any of the foregoing were to occur, the Manager’s ability to operate the Company’s business in a manner consistent with the Company’s business strategy could be hindered materially, which could have a material adverse effect on the Company’s results of operations and its ability to make distributions to its stockholders.

 

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If the Manager’s portfolio management systems are ineffective, the Company may be exposed to material unanticipated losses.

The Manager and its affiliates may refine their portfolio management techniques, strategies and assessment methods. However, the Manager’s portfolio management techniques and strategies may not fully mitigate the risk exposure of the Company’s operations in all economic or market environments, or against all types of risk, including risks that it might fail to identify or anticipate. Any failures in such portfolio management techniques and strategies to accurately quantify such risk exposure could limit the Company’s ability to manage risks in its operations or to seek adequate risk adjusted returns and could result in material unanticipated losses.

The use of estimates and valuations may be different from actual results, which could have a material adverse effect on the Company’s consolidated financial statements.

The Company will make various estimates that affect reported amounts and disclosures. Broadly, those estimates are used in measuring the fair value of certain financial instruments, establishing provision for loan losses and potential litigation liability. Market volatility may make it difficult to determine the fair value for certain of its assets and liabilities. Subsequent valuations, in light of factors then prevailing, may result in significant changes in the values of these financial instruments in future periods. In addition, at the time of any sales and settlements of these assets and liabilities, the price the Company ultimately realizes will depend on the demand and liquidity in the market at that time for that particular type of asset or liability and may be materially lower than the Company’s estimate of their current fair value. Estimates are based on available information and judgment. Therefore, actual values and results could differ from the Company’s estimates and that difference could have a material adverse effect on its consolidated financial statements.

Stockholders have limited control over changes in the Company’s policies and operations, which increases the uncertainty and risks that stockholders face.

The Company board of directors will determine the major policies of the Company, including its policies regarding growth, REIT qualification and distributions. The Company board of directors may amend or revise these and other policies without a vote of the stockholders. The Company may change its targeted assets and investment policies, and CLNS may change its investment allocation policy, without stockholder notice or consent, which could result in investments that are riskier or different than, or in different proportion than, those described in this joint proxy statement/prospectus. Under the MGCL and the Company charter, stockholders have a right to vote only on limited matters. Additionally, the Company board of directors, with the approval of a majority of the entire Company board of directors and without stockholder approval, may amend the Company charter to increase or decrease the aggregate number of authorized shares of Company capital stock or the number of shares of Company capital stock of any class or series that the Company is authorized to issue. The Company board of directors’ broad discretion in setting policies and stockholders’ inability to exert control over those policies increases the uncertainty and risks the stockholders face.

Certain provisions of Maryland law may limit the ability of a third party to acquire control of the Company.

Certain provisions of the MGCL may have the effect of inhibiting a third party from acquiring the Company or of impeding a change of control under circumstances that otherwise could provide the Company’s stockholders with the opportunity to realize a premium over the then-prevailing market price of the Company class A common stock, including:

 

 

“business combination” provisions that, subject to limitations, prohibit certain business combinations between an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of the Company’s outstanding shares of voting stock or an affiliate or associate of the corporation who, at any time within the two-year period immediately prior to the date in question, was the

 

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beneficial owner of 10% or more of the voting power of the then outstanding stock of the corporation) or an affiliate of any interested stockholder and the Company for five years after the most recent date on which the stockholder becomes an interested stockholder and thereafter imposes two super-majority stockholder voting requirements on these combinations; and

 

  “control share” provisions that provide that holders of “control shares” of the Company (defined as outstanding voting shares of stock that, if aggregated with all other shares of stock owned by the acquirer or in respect of which the acquirer is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquirer to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the acquisition of issued and outstanding “control shares”) have no voting rights except to the extent approved by the affirmative vote of the holders entitled to cast two-thirds of the votes entitled to be cast on the matter, excluding all interested shares.

In accordance with the Maryland Business Combination Act, the Company board of directors has exempted any business combinations between the Company and any person, provided that any such business combination is first approved by the Company board of directors. Consequently, the five-year prohibition and the super-majority vote requirements will not apply to any future business combinations between the Company and any of its interested stockholders (or their affiliates) that are first approved by the Company board of directors, including any future business combination with CLNS OP or any current or future affiliates of CLNS OP. The Company bylaws contain a provision exempting the Company from the Maryland Control Share Acquisition Act. There can be no assurance that these resolutions or exemptions will not be amended or eliminated at any time in the future.

Additionally, Title 3, Subtitle 8 of the MGCL permits the Company board of directors, without stockholder approval and regardless of what currently is provided in the Company charter and the Company bylaws, to implement certain takeover defenses, such as a classified board, some of which the Company does not have.

Stockholders’ interest in the Company will be diluted if the Company issues additional shares, which could reduce the overall value of stockholders’ investment.

Stockholders do not have preemptive rights to any shares the Company may issue in the future. The Company charter authorizes the Company to issue a total of 1,000,000,000 shares of capital stock, of which 950,000,000 shares are classified as common stock and 50,000,000 shares are classified as preferred stock. The Company board of directors, with the approval of a majority of the entire Company board of directors and without stockholder approval, may amend the Company charter to increase or decrease the aggregate number of authorized shares of Company capital stock or the number of shares of Company capital stock of any class or series that the Company is authorized to issue. The Company board of directors may elect to: (i) sell additional shares in one or more future public offerings; (ii) issue equity interests in private offerings; (iii) issue shares to the Manager, or its successors or assigns, in payment of an outstanding fee obligation; (iv) issue shares of Company common stock to sellers of assets the Company acquires in connection with an exchange of limited partnership interests of the Company OP; or (v) issue shares of Company common stock to pay distributions to existing stockholders. To the extent the Company issues additional equity interests, stockholders’ percentage ownership interest in the Company will be diluted, unless they participate in these stock issuances. In addition, depending upon the terms and pricing of any additional offerings and the value of its investments, stockholders may also experience dilution in the book value and fair value of their shares.

Further, the completion of the Combination is conditioned on, among other things, the approval for listing on a national securities exchange of shares of the Company class A common stock in connection with either an IPO or a listing of such shares on such national securities exchange. An IPO will result in the ownership percentages derived from the consideration to be received by each of CLNS and its affiliates, the NorthStar I stockholders

 

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and the NorthStar II stockholders being diluted. In addition, if the Company pursues an IPO at a price that is at a material discount to book value, then the Company’s book value per share would be further diluted.

The Company charter permits the Company board of directors to issue stock with terms that may subordinate the rights of the holders of Company common stock or discourage a third party from acquiring the Company in a manner that could result in a premium price to stockholders.

The Company board of directors may classify or reclassify any unissued shares of Company common stock, classify any unissued shares of Company preferred stock and reclassify any previously classified but unissued shares of Company preferred stock into other classes or series of stock and set the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms and conditions of redemption of any such stock. Thus, the Company board of directors could authorize the issuance of preferred stock with priority as to distributions and amounts payable upon liquidation over the rights of the holders of the Company common stock. Such preferred stock could also have the effect of delaying, deferring or preventing a change in control of the Company, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of the Company’s assets) that might provide a premium price to holders of Company common stock. The Company board of directors may determine to issue different classes or series of stock that have different fees and commissions from those being paid with respect to the shares sold in an IPO.

The Company’s umbrella partnership real estate investment trust, which we refer to as UPREIT, structure may result in potential conflicts of interest with members of the Company OP, whose interests may not be aligned with those of stockholders.

Members of the Company OP have the right to vote on certain amendments to the limited liability company agreement, as well as on certain other matters. Persons holding such voting rights may exercise them in a manner that conflicts with the interests of Company stockholders. As managing member of the Company OP, the Company is obligated to act in a manner that is in the best interest of the Company OP. Circumstances may arise in the future when the interests of members in the Company OP may conflict with the interests of Company stockholders. These conflicts may be resolved in a manner stockholders do not believe are in their best interests.

Payment of fees to the Manager and its affiliates reduces cash available for investment and distribution and increases the risk that stockholders will not be able to recover the amount of their investment in the Company’s shares.

The Manager, CLNS and their affiliates will perform services for the Company in connection with the selection, acquisition, origination, management and administration of the Company’s investments. The Company will pay them substantial fees for these services, which will result in immediate dilution to the value of stockholders’ investment and reduces the amount of cash available for investment or distribution to stockholders. The Company may increase the compensation it pays to the Manager subject to approval by the Company board of directors, which would further dilute stockholders’ investment and the amount of cash available for investment or distribution to stockholders.

If the Company terminates the management agreement with the Manager, the Company may be required to pay significant fees to an affiliate of CLNS, which will reduce cash available for distribution to stockholders.

Termination of the management agreement without cause will be difficult and costly. The Company may elect not to renew the management agreement upon the expiration of the initial three-year term or any subsequent renewal term by providing at least 180 days’ prior written notice to the Manager only if there has been an affirmative vote of at least two-thirds of the independent directors then serving on the Company board of

 

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directors that (i) there has been unsatisfactory performance by the Manager that is materially detrimental to the Company or (ii) the compensation the Company pays to the Manager, in the form of base management fees and incentive fees, or the amount thereof, is unfair to the Company, subject to the Manager’s right to prevent any termination due to unfair fees by accepting a reduction of management and/or incentive fees agreed to by at least two-thirds of the independent directors of the Company board of directors. Upon such a termination, or if the Company materially breaches the management agreement and the Manager terminates the management agreement, the management agreement provides that the Company will be required to pay the Manager a termination fee, which is equal to three times the sum of (x) the average annual base management fee and (y) the average annual incentive fee, in each case earned by the Manager during the 24-month period immediately preceding the most recently completed calendar quarter prior to the date of termination. Additionally, upon termination of the management agreement for any reason, including for cause, the Company will be required to pay the Manager all accrued and unpaid fees and expense reimbursements earned prior to the date of termination.

The obligations associated with being a public company will require significant resources and attention from the Manager’s senior management team.

As discussed in the section entitled “The Combination Agreement—Conditions to Completion of the Combination” beginning on page 273 of this joint proxy statement/prospectus, it is a condition to completion of the Combination that the shares of Company class A common stock have been approved for listing on a national securities exchange, in connection with either an IPO or a Listing. As a public company with listed equity securities, the Company will need to comply with certain laws, regulations and requirements, including the requirements of the Exchange Act, certain corporate governance provisions of the Sarbanes-Oxley Act of 2002, which we refer to as the Sarbanes-Oxley Act, related regulations of the SEC and requirements of the applicable national securities exchange. The Exchange Act requires that the Company file annual, quarterly and current reports with respect to its business and financial condition. The Sarbanes-Oxley Act requires, among other things, that the Company establish and maintain effective internal controls and procedures for financial reporting. These reporting and other obligations will place significant demands on the Manager’s senior management team, administrative, operational and accounting resources and will cause the Company to incur significant expenses. The Company may need to upgrade its systems or create new systems, implement additional financial and other controls, reporting systems and procedures, and create or outsource an internal audit function. If the Company is unable to accomplish these objectives in a timely and effective fashion, its ability to comply with the financial reporting requirements and other rules that apply to reporting companies could be impaired, could negatively impact the Company’s operations, cash flows or financial condition, impose additional costs on the Company, intensify the regulatory supervision of the Company or otherwise negatively affect the Company’s business.

If the Company is unable to implement and maintain effective internal controls over financial reporting in the future, investors may lose confidence in the accuracy and completeness of the Company’s financial reports and the market price of Company common stock could be negatively affected.

As discussed in the section entitled “The Combination Agreement—Conditions to Completion of the Combination” beginning on page 273 of this joint proxy statement/prospectus, it is a condition to completion of the Combination that the shares of Company class A common stock have been approved for listing on a national securities exchange, in connection with either an IPO or a Listing. As a public company, the Company will be required to maintain internal controls over financial reporting and to report any material weaknesses in such internal controls. In addition, beginning with the Company’s second annual report on Form 10-K, the Company will be required to furnish a report by management on the effectiveness of its internal controls over financial reporting, pursuant to Section 404 of the Sarbanes-Oxley Act. Once the Company is no longer an emerging growth company, the Company’s independent registered public accounting firm will be required to formally

 

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attest to the effectiveness of the Company’s internal controls over financial reporting on an annual basis. The process of designing, implementing and testing the internal controls over financial reporting required to comply with this obligation is time consuming, costly and complicated. If the Company identifies material weaknesses in its internal controls over financial reporting, if it is unable to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner or to assert that its internal controls over financial reporting are effective or if, once the Company is no longer an emerging growth company, its independent registered public accounting firm is unable to express an opinion as to the effectiveness of the Company’s internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of the Company’s financial reports, and the market price of Company common stock could be negatively affected. The Company could also become subject to investigations by the stock exchange on which its securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.

The Company is an “emerging growth company,” and it cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make Company common stock less attractive to investors.

The Company is an “emerging growth company” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart our Business Startups Act of 2012, as amended, which we refer to as the JOBS Act. The Company may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. The Company could be an emerging growth company for up to five years, although circumstances could cause it to lose that status earlier, including if the Company has more than $1.07 billion in annual revenues as of the end of its fiscal year, the Company has more than $700 million in market value of Company stock held by non-affiliates as of the end of its second fiscal quarter or the Company issues more than $1.0 billion of non-convertible debt over a three-year period. The Company cannot predict if investors will find Company common stock less attractive because the Company may rely on these exemptions. If some investors find the Company common stock less attractive as a result, there may be a less active trading market for Company common stock and the Company’s per share trading price may be adversely affected and become more volatile.

There is no public market for the Company common stock and a market may never develop, which could cause the Company common stock to trade at a discount and make it difficult for holders of the Company common stock to sell their shares.

Shares of the Company common stock are newly issued securities for which there is no established trading market. The Company intends to apply to list the Company class A common stock on a national securities exchange under the trading symbol “CLNC.” However, there can be no assurance that an active trading market for Company common stock will develop, or if one develops, be maintained. If an active trading market does not develop, you may have difficulty selling any of your shares of Company common stock, and the value of those shares might be materially impaired. The IPO price for Company class A common stock, if any, will be determined by negotiations between the Company and the representatives of the underwriters and may not be indicative of prices that will prevail in the open market following an IPO or Listing. Accordingly, no assurance can be given as to the ability of the Company’s stockholders to sell their shares of Company common stock or the price that the Company’s stockholders may obtain for their shares of Company common stock.

 

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Some of the factors that could negatively affect the market price of the Company common stock include:

 

  the Company’s actual or projected operating results, financial condition, cash flows and liquidity, or changes in business strategy or prospects;

 

  actual or perceived conflicts of interest with the Manager or other affiliates of CLNS and individuals, including the Company’s executives;

 

  equity issuances by the Company, or share resales by its stockholders, or the perception that such issuances or resales may occur;

 

  loss of a major funding source;

 

  actual or anticipated accounting problems;

 

  publication of research reports about the Company or the real estate industry;

 

  changes in market valuations of similar companies;

 

  adverse market reaction to the level of leverage employed by the Company;

 

  additions to or departures of the Manager’s and/or CLNS’s key personnel;

 

  speculation in the press or investment community;

 

  the Company’s failure to meet, or the lowering of, its earnings estimates or those of any securities analysts;

 

  increases in market interest rates, which may lead investors to demand a higher distribution yield for the Company common stock and would result in increased interest expenses on debt of the Company;

 

  a compression of the yield on the Company’s investments and an increase in the cost of its liabilities;

 

  failure to operate in a manner consistent with the Company’s intention to qualify as a REIT or exclusion from registration under the Investment Company Act of 1940, as amended, which we refer to as the Investment Company Act;

 

  price and volume fluctuations in the overall stock market from time to time;

 

  general market and economic conditions and trends including inflationary concerns, and the current state of the credit and capital markets;

 

  significant volatility in the market price and trading volume of securities of publicly traded REITs or other companies in the Company’s sector, which is not necessarily related to the operating performance of these companies;

 

  changes in law, regulatory policies or tax guidelines, or interpretations thereof, particularly with respect to REITs;

 

  changes in the value of the Company’s portfolio;

 

  any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts;

 

  operating performance of companies comparable to the Company;

 

  short-selling pressure with respect to shares of Company common stock or REITs generally; and

 

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  uncertainty surrounding the strength of the U.S. economic recovery, particularly in light of the recent debt ceiling and budget deficit concerns, and other U.S. and international political and economic affairs.

As noted above, market factors unrelated to the Company’s performance could also negatively impact the market price of Company common stock. One of the factors that investors may consider in deciding whether to buy or sell Company common stock is the Company’s distribution rate as a percentage of its stock price relative to market interest rates. If market interest rates increase, prospective investors may demand a higher distribution rate or seek alternative investments paying higher dividends or interest. As a result, interest rate fluctuations and conditions in the capital markets may affect the market value of Company common stock.

If the Company sells additional shares of Company common stock after the Combination and any IPO consummated in connection with the closing of the Combination, the market price of Company common stock could decline.

The sale of substantial amounts of shares of Company common stock in the public market, or the perception that such sales could occur, could harm the prevailing market price of shares of Company common stock. These sales, or the possibility that these sales may occur, also might make it more difficult for the Company to sell equity securities in the future at a time and at a price that it deems appropriate.

Pursuant to the stockholders agreement, CLNS OP will agree to enter into customary lock-up agreements with the underwriters in connection with an offering of shares of the Company for a term not to extend beyond the one-year anniversary of the closing of the Combination. The Company also expects, in the case of an IPO of the Company, that the Company and the Company’s executive officers, directors and director nominees will be subject to lock-up agreements with the underwriters that, subject to certain customary exceptions, restrict the sale of the shares of Company common stock held by them for a customary period of time following the date of the final prospectus in connection with an IPO.

Upon the expiration of the lock-up agreements described above, all of such shares will be eligible for resale in a public market, subject, in the case of shares held by the Company’s affiliates, to volume, manner of sale and other limitations under Rule 144. In addition, CLNS will have certain rights under a registration rights agreement to sell shares of Company common stock owned by CLNS, including through an underwritten public offering.

The Company intends to file a registration statement on Form S-8 under the Securities Act to register shares of Company common stock or securities convertible into or exchangeable for shares of Company common stock issued pursuant to an equity incentive plan. Any such Form S-8 registration statement will automatically become effective upon filing. Accordingly, shares issued under such registration statement will be available for sale in the open market (subject to any vesting or other restrictions that may apply to such shares).

As restrictions on resale end, the market price of the shares of the Company common stock could drop significantly if the holders of these restricted shares sell them or are perceived by the market as intending to sell them. These factors could also make it more difficult for the Company to raise additional funds through future offerings of the shares of the Company common stock or other securities.

Future offerings of debt or equity securities, which would rank senior to Company common stock, may adversely affect the market price of Company common stock.

If the Company decides to issue debt or equity securities in the future, which would rank senior to Company common stock, it is likely that they will be governed by an indenture or other instrument containing covenants restricting the Company’s operating flexibility. Additionally, any convertible or exchangeable securities that the Company issues in the future may have rights, preferences and privileges more favorable than those of

 

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Company common stock and may result in dilution to owners of Company common stock. The Company and, indirectly, the Company’s stockholders, will bear the cost of issuing and servicing such securities. Because the Company’s decision to issue debt or equity securities in any future offering will depend on market conditions and other factors beyond the Company’s control, the Company cannot predict or estimate the amount, timing or nature of the Company’s future offerings. Thus holders of Company common stock will bear the risk of the Company’s future offerings reducing the market price of Company common stock and diluting the value of their stock holdings in the Company.

The Company faces other risks.

The risks listed above are not exhaustive, and you should be aware that following the Combination the Company will face various other risks, including those discussed in reports filed by the Company with the SEC. Also refer to the section entitled “Where You Can Find More Information” beginning on page 358 of this joint proxy statement/prospectus.

Risks Relating to Regulatory Matters

The Company is subject to substantial regulation, numerous contractual obligations and extensive internal policies and failure to comply with these matters could have a material adverse effect on the Company’s business, financial condition and results of operations.

The Company and its subsidiaries are subject to substantial regulation, numerous contractual obligations and extensive internal policies. Given the Company’s organizational structure, it is subject to regulation by the SEC, Financial Industry Regulatory Authority, Inc., the Internal Revenue Service, which we refer to as the IRS, and other federal, state and local governmental bodies and agencies and state blue sky laws. These regulations are extensive, complex and require substantial management time and attention. If the Company fails to comply with any of the regulations that apply to its business, the Company could be subjected to extensive investigations, as well as substantial penalties, and its business and operations could be materially adversely affected. The Company’s lack of compliance with applicable law could result in, among other penalties, its ineligibility to contract with and receive revenue from the federal government or other governmental authorities and agencies. The Company also expects to have numerous contractual obligations to which it must adhere on a continuous basis to operate its business, the default of which could have a material adverse effect on the Company’s business and financial condition. The Company’s internal policies may not be effective in all regards and, further, if the Company fails to comply with its internal policies, it could be subjected to additional risk and liability.

Maintenance of the Company’s Investment Company Act exemption imposes limits on its operations.

Neither the Company, nor the Company OP, nor any of the subsidiaries of the Company OP intend to register as an investment company under the Investment Company Act. The Company intends to make investments and conduct its operations so that it is not required to register as an investment company. If the Company were obligated to register as an investment company, it would have to comply with a variety of substantive requirements under the Investment Company Act that impose, among other things:

 

  limitations on capital structure (including its ability to use leverage);

 

  restrictions on specified investments;

 

  prohibitions on transactions with affiliates; and

 

  compliance with reporting, recordkeeping, voting, proxy disclosure and other rules and regulations that would significantly increase the Company’s operating expenses.

 

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Section 3(a)(1)(A) of the Investment Company Act defines an investment company as any issuer that is or holds itself out as being engaged primarily in the business of investing, reinvesting or trading in securities. Section 3(a)(1)(C) of the Investment Company Act defines an investment company as any issuer that is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire investment securities having a value exceeding 40% of the value of the issuer’s total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis, which we refer to as the 40% test. Excluded from the term “investment securities,” among other things, are U.S. government securities and securities issued by majority-owned subsidiaries that are not themselves investment companies and are not relying on the exception from the definition of investment company set forth in Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act for certain privately-held investment companies. Moreover, the Company takes the position that general partnership interests in joint ventures structured as general partnerships are not considered securities at all and thus are not investment securities.

Because the Company is a holding company that conducts its businesses through subsidiaries, its interest in the securities issued by its subsidiaries that rely on the exception from the definition of “investment company” in Section 3(c)(1) or 3(c)(7) of the Investment Company Act, together with any other investment securities the Company may own directly, may not have a combined value in excess of 40% of the value of the Company’s total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. This requirement limits the types of assets which the Company may hold through these subsidiaries.

The Company must monitor its holdings and those of the Company OP to ensure that they comply with the 40% test. Through the Company OP’s wholly owned or majority-owned subsidiaries, the Company and the Company OP will be primarily engaged in the non-investment company businesses of these subsidiaries, namely the business of purchasing real estate properties or otherwise originating or acquiring mortgages and other interests in real estate.

Most of these subsidiaries will rely on the exclusion from the definition of an investment company under Section 3(c)(5)(C) of the Investment Company Act, which is available for entities “primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.” This exclusion generally requires that at least 55% of a subsidiary’s portfolio must be comprised of qualifying real estate assets and at least 80% of its portfolio must be comprised of qualifying real estate assets and real estate-related assets (and no more than 20% comprised of miscellaneous assets). Qualification for exclusion from registration under the Investment Company Act will limit the Company’s ability to acquire or sell certain assets and also could restrict the time at which the Company may acquire or sell assets. For purposes of the exclusion provided by Section 3(c)(5)(C), the Company will classify its investments based in large measure on no-action letters issued by the SEC staff and other SEC interpretive guidance and, in the absence of SEC guidance, on its view of what constitutes a qualifying real estate asset and a real estate related asset. These no-action positions were issued in accordance with factual situations that may be substantially different from the factual situations the Company may face and a number of these no-action positions were issued more than twenty years ago. In August 2011, the SEC issued a concept release in which it asked for comments on various aspects of Section 3(c)(5)(C), and, accordingly, the SEC or its staff may issue further guidance in the future. Future revisions to the Investment Company Act or further guidance from the SEC or its staff may force the Company to re-evaluate its portfolio and its investment strategy.

The Company may in the future organize special purpose subsidiaries of the Company OP that will borrow under or participate in government sponsored incentive programs to the extent they exist. The Company expects that some of these subsidiaries will rely on Section 3(c)(7) for their Investment Company Act exclusion and, therefore, the Company OP’s interest in each of these subsidiaries would constitute an “investment security” for purposes of determining whether the Company OP satisfies the 40% test. Also, the Company may in the future organize one or more subsidiaries that seek to rely on the Investment Company Act exclusion provided to

 

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certain structured financing vehicles by Rule 3a-7. Any such subsidiary would need to be structured to comply with any guidance that may be issued by the SEC staff on the restrictions contained in Rule 3a-7.

The loss of the Company’s Investment Company Act exclusion could require the Company to register as an investment company or substantially change the way the Company conducts its business, either of which may have an adverse effect on the Company and the value of the Company common stock.

On August 31, 2011, the SEC published a concept release (Release No. 29778, File No. S7-34-11, Companies Engaged in the Business of Acquiring Mortgages and Mortgage Related Instruments), pursuant to which it is reviewing whether certain companies that invest in mortgage-backed securities and rely on the exclusion from registration under Section 3(c)(5)(C) of the Investment Company Act, such as the Company, should continue to be allowed to rely on such an exclusion from registration. If the SEC or its staff takes action with respect to this exclusion, these changes could mean that certain of the Company’s subsidiaries could no longer rely on the Section 3(c)(5)(C) exclusion, and would have to rely on Section 3(c)(1) or 3(c)(7), which would mean that the Company’s investment in those subsidiaries would be investment securities. This could result in the Company’s failure to maintain its exclusion from registration as an investment company.

If the Company fails to maintain an exclusion from registration as an investment company, either because of SEC interpretational changes or otherwise, the Company could, among other things, be required either: (i) to substantially change the manner in which it conducts its operations to avoid being required to register as an investment company; or (ii) to register as an investment company, either of which could have an adverse effect on the Company and the value of the Company common stock. If the Company is required to register as an investment company under the Investment Company Act, it would become subject to substantial regulation with respect to the Company’s capital structure (including its ability to use leverage), management, operations, transactions with affiliated persons (as defined in the Investment Company Act), portfolio composition, including restrictions with respect to diversification and industry concentration and other matters.

Rapid changes in the values of the Company’s real estate-related investments may make it more difficult for the Company to maintain its qualification as a REIT for U.S. federal income tax purposes or its exclusion from registration under the Investment Company Act.

If the market value or income potential of the Company’s real estate-related investments declines as a result of increased interest rates, prepayment rates or other factors, the Company may need to increase its real estate investments and income and/or liquidate its non-qualifying assets in order to maintain its qualification as a REIT for U.S. federal income tax purposes or its exclusion from registration as an investment company under the Investment Company Act. Given the illiquid nature of certain real estate investments, the Company can provide no assurances that it would be able to liquidate its non-qualifying assets at opportune times or prices, if at all, in order to maintain its qualification as a REIT or its exclusion from registration under the Investment Company Act. Similarly, the Company can provide no assurances that it would have sufficient capital or access to capital at favorable prices, if at all, if it were required to increase its qualifying real estate assets in order to maintain its qualification as a REIT or its exclusion from registration under the Investment Company Act. If the value of the Company’s assets fluctuates significantly, the Company’s ability to maintain its qualification as a REIT or its exclusion from registration under the Investment Company Act may become particularly difficult, which may cause it to make investment decisions that the Company otherwise would not make absent the REIT and Investment Company Act considerations.

 

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Tax Risks Relating to the Combination

If either of the NorthStar I merger or the NorthStar II merger does not qualify as a “reorganization” within the meaning of Section 368(a) of 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 NorthStar I merger and the NorthStar II merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code, it is possible that the IRS, could assert that one or both 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. For additional information, refer to the section entitled “U.S. Federal Income Tax Consequences” beginning on page 223 of this joint proxy statement/prospectus.

REITs are subject to a range of complex organizational and operational requirements.

To qualify as a REIT, the Company 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 the Company 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, the Company could be subject to potentially significant tax liabilities. Unless entitled to relief under certain statutory provisions, the Company would also be disqualified from treatment as a REIT for the four taxable years following the year in which it lost its qualification. If the Company were to fail to qualify as a REIT, the market price of the Company common stock could decline, and the Company could need to reduce substantially the amount of distributions to its stockholders as a result of any increased tax liability.

The Company may incur adverse tax consequences if NorthStar I or NorthStar II 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 NorthStar I and NorthStar II receives 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 NorthStar I nor NorthStar II, 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 NorthStar I and NorthStar II). The determination of various factual matters and circumstances not entirely within the control of NorthStar I or NorthStar II may have affected their ability to qualify as a REIT.

If, notwithstanding the opinions described above, NorthStar I’s or NorthStar II’s REIT status prior to the Mergers were successfully challenged, the Company would face serious tax consequences that would substantially reduce its core funds from operations, which we refer to as Core FFO, and cash available for distribution, which we refer to as CAD, including cash available to pay dividends to its stockholders, because:

 

  NorthStar I or NorthStar II, 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 the Company would succeed to the liability for such taxes;

 

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  if the Company 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;

 

  the Company, 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 NorthStar I or NorthStar II, as applicable, existing at the time of the Mergers if the Company were to dispose of such asset for up to 5 years following the Mergers; and

 

  the Company would succeed to any earnings and profits accumulated by NorthStar I or NorthStar II, as applicable, for tax periods that such entity did not qualify as a REIT and the Company 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 NorthStar I’s or NorthStar II’s taxable income or dividends paid deductions, the Company could elect to use the deficiency dividend procedure to maintain NorthStar I’s or NorthStar II’s, as applicable, REIT status. That deficiency dividend procedure could require the Company to make significant distributions to its stockholders and to pay significant interest to the IRS.

As a result of these factors, NorthStar I’s or NorthStar II’s failure to qualify as a REIT prior to the Mergers could impair the Company’s ability after the Mergers to expand its business and raise capital and could materially adversely affect the value of the Company common stock.

Risks Related to NorthStar I’s Qualification as a REIT.

You should read and consider the risk factors specific to NorthStar I’s qualification as a REIT, which will also affect the Company, as the combined Company, after the Combination. These risks are described in Part I, Item 1A of NorthStar I’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 under the heading “Risks Related to Regulatory Matters and Our REIT Tax Status,” which Annual Report on Form 10-K is attached hereto as Annex F-1 and incorporated herein by reference.

Risks Related to NorthStar II’s Qualification as a REIT.

You should read and consider the risk factors specific to NorthStar II’s qualification as a REIT, which will also affect the Company, as the combined Company, after the Combination. These risks are described in Part I, Item 1A of NorthStar II’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 under the heading “Risks Related to Regulatory Matters and Our REIT Tax Status,” which Annual Report on Form 10-K is attached hereto as Annex G-1 and incorporated herein by reference.

Risks Related to the Company’s Qualification as a REIT.

You should read and consider the risks relating to the Company’s ability to qualify as a REIT, both as a condition to the closing of the Combination and on an ongoing basis. Refer to the section entitled “U.S. Federal Income Tax Consequences—Taxation of the Company” beginning on page 231 of this joint proxy statement/prospectus. As noted in that section, the opinion of Hogan Lovells (or other counsel reasonably satisfactory to the parties) regarding the Company’s ability to qualify as a REIT for its taxable year in which the Mergers close (and any prior taxable year as to which the Company has elected to be taxed as a REIT) will only be filed with this registration statement prior to the closing of the Combination, by post-effective amendment. Refer also to the section entitled “U.S. Federal Income Tax Consequences—Taxation of the Company—Failure to Qualify” beginning on page 254 of this joint proxy statement/prospectus for a discussion of tax consequences were the Company to fail to qualify as a REIT following the closing of the Combination.

 

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This joint proxy statement/prospectus, including information included in, or incorporated by reference into, this joint proxy statement/prospectus, may contain certain forecasts and other forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts” or “potential” or the negative of these words and phrases or similar words or phrases that are predictions of or indicate future events or trends and that do not relate solely to historical matters. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and contingencies, many of which are beyond the control of NorthStar I, NorthStar II, the Company and CLNS, and may cause actual results to differ significantly from those expressed in any forward-looking statement. Any statements regarding the benefits of the Combination or NorthStar I’s, NorthStar II’s, the Contributed Entities’ or the Company’s future financial condition, results of operations and business are also forward-looking statements. Without limiting the generality of the preceding sentence, certain statements contained in the sections “The Combination and Related Transactions—Background of the Combination,” “The Combination and Related Transactions—Certain Unaudited Prospective Financial Information of NorthStar I,” “The Combination and Related Transactions—Certain Unaudited Prospective Financial Information of NorthStar II” and “The Combination and Related Transactions—Certain Unaudited Prospective Financial Information of the Contributed Entities” constitute forward-looking statements.

These forward-looking statements are subject to a number of risks, uncertainties and assumptions, most of which are difficult to predict and many of which are beyond the control of NorthStar I, NorthStar II, the Company and CLNS. These include the factors described above in “Risk Factors” and under the caption “Risk Factors” in NorthStar I’s Annual Report on Form 10-K for the year ended December 31, 2016 and NorthStar I’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, copies of which are included in Annex F-1 and Annex F-2, respectively, to this joint proxy statement/prospectus and are incorporated herein by reference, and NorthStar II’s Annual Report on Form 10-K for the year ended December 31, 2016 and NorthStar II’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, copies of which are included in Annex G-1 and Annex G-2, respectively, to this joint proxy statement/prospectus and are incorporated herein by reference, as well as:

 

  the failure to receive, on a timely basis or otherwise, the required approvals by each of the NorthStar I and NorthStar II stockholders, governmental or regulatory agencies and third parties;

 

  the risk that a condition to the closing of the Combination may not be satisfied (including the listing by the Company of Company class A common stock on a national securities exchange);

 

  each party’s ability to consummate the Combination;

 

  operating costs and business disruption may be greater than expected;

 

  the ability to realize substantial efficiencies as well as anticipated strategic and financial benefits, and the impact of legislative, regulatory and competitive changes; and

 

  the occurrence of any event, change or other circumstances that could give rise to the termination of the combination agreement.

Should one or more of the risks or uncertainties described above or elsewhere in reports incorporated by reference herein occur, or should underlying assumptions prove incorrect, actual results and plans could differ

 

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materially from those expressed in any forward-looking statements. You are cautioned not to place undue reliance on these statements, which speak only as of the date of this joint proxy statement/prospectus or the date of any document incorporated by reference in this joint proxy statement/prospectus, as applicable.

All forward-looking statements, expressed or implied, included in this joint proxy statement/prospectus are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that NorthStar I, NorthStar II, the Company or CLNS or persons acting on their behalf may issue.

Except as otherwise required by applicable law, NorthStar I, NorthStar II, CLNS and the Company disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section. Also refer to the section entitled “Where You Can Find More Information” beginning on page 358 of this joint proxy statement/prospectus.

 

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PARTIES TO THE COMBINATION AGREEMENT

CLNS Parties

Colony Capital Operating Company, LLC

CLNS OP, a Delaware limited liability company, is the operating company of CLNS. CLNS is a leading global real estate and investment management firm. CLNS has significant property holdings in the healthcare, industrial and hospitality sectors, other equity and debt investments, as well as an embedded institutional and retail investment management business. CLNS manages capital on behalf of its stockholders, as well as institutional and retail investors in private funds, non-traded and traded REITs and registered investment companies. CLNS also owns NorthStar Securities, LLC, a captive broker-dealer platform that raises capital in the retail market.

CLNS is organized as a Maryland corporation, was incorporated in May 2016, and intends to elect to be taxed as a REIT under the Code for U.S. federal income tax purposes beginning with its taxable year ending December 31, 2017. CLNS common stock is traded on the NYSE under the symbol “CLNS.”

CLNS conducts all of its activities and holds substantially all of its assets and liabilities through its operating subsidiary, CLNS OP. At September 30, 2017, CLNS owned approximately 94.4% of CLNS OP, as its sole managing member. The remaining 5.6% is owned primarily by certain employees of CLNS as noncontrolling interests.

CLNS OP’s principal executive office is located at 515 S. Flower Street, 44th Floor, Los Angeles, California 90071 and its phone number is (310) 282-8820.

NRF RED REIT Corp.

RED REIT, a Maryland corporation, is an indirect wholly owned subsidiary of CLNS OP.

RED REIT’s principal executive office is located at 515 S. Flower Street, 44th Floor, Los Angeles, California 90071 and its phone number is (310) 282-8820.

NorthStar I Parties

NorthStar Real Estate Income Trust, Inc.

NorthStar I originates, acquires and asset manages a diversified portfolio of CRE debt, select equity and securities investments, predominantly in the United States. NorthStar I may also invest in CRE investments internationally. NorthStar I’s CRE debt investments include first mortgage loans, subordinate mortgage and mezzanine loans and participations in such loans and preferred equity interests. NorthStar I’s real estate equity investments include direct ownership in properties, which may be structurally senior to a third-party partner’s equity, as well as indirect interests in real estate through real estate private equity funds. NorthStar I’s CRE securities primarily consist of commercial mortgage-backed securities and may in the future include unsecured REIT debt, collateralized debt obligation notes and other securities. In addition, NorthStar I may own investments through joint ventures. NorthStar I was formed in January 2009 as a Maryland corporation and commenced operations in October 2010. It elected to be taxed as a REIT commencing with the taxable year ended December 31, 2010.

NorthStar I is externally managed by CNI NSI Advisors, LLC (formerly NSAM J-NSI Ltd), a subsidiary of CLNS, which we refer to as the NorthStar I advisor, pursuant to an advisory agreement, which we refer to as the NorthStar I advisory agreement, and has no employees.

 

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NorthStar I initially registered to offer up to 100,000,000 shares of NorthStar I common stock pursuant to its primary offering to the public, which we refer to as the NorthStar I Primary Offering, and up to 10,526,315 shares of NorthStar I common stock pursuant to its distribution reinvestment plan, which we refer to as the NorthStar I DRP, which we collectively refer to as the NorthStar I Public Offering. The NorthStar I Primary Offering was completed on July 1, 2013 and all of the shares initially registered for the NorthStar I Public Offering were issued, including 7.6 million shares of NorthStar I common stock reallocated from the NorthStar I DRP. Until the NorthStar I DRP was suspended, which suspension went into effect prior to the monthly distributions to be paid on or about October 1, 2017, NorthStar I continued to offer NorthStar I DRP shares pursuant to an additional registration statement to offer up to 10.0 million shares.

From inception through November 8, 2017, NorthStar I raised total gross proceeds of $1.3 billion in the NorthStar I Public Offering, including gross proceeds of $0.2 billion pursuant to the NorthStar I DRP.

Substantially all of NorthStar I’s assets, directly or indirectly, are held by NorthStar I OP, a Delaware limited partnership and the operating partnership of NorthStar I. NorthStar I conducts its operations, directly or indirectly, through NorthStar I OP.

NorthStar I’s principal executive office is located at 590 Madison Avenue, 34th Floor, New York, New York 10022 and its phone number is (212) 547-2600.

NorthStar Real Estate Income Trust Operating Partnership, LP

NorthStar I conducts its operations, directly or indirectly, through NorthStar I OP, a Delaware limited partnership and the operating partnership of NorthStar I. NorthStar I OP holds, directly or indirectly, substantially all of NorthStar I’s assets. NorthStar I is the sole general partner and a limited partner of NorthStar I OP. The other limited partners of NorthStar I OP are NS Real Estate Income Trust Advisor, LLC, and NorthStar OP Holdings, LLC, each of which is an affiliate of CLNS. NS Real Estate Income Trust Advisor, LLC invested $1,000 in NorthStar I OP in exchange for common units and NorthStar OP Holdings, LLC invested $1,000 in NorthStar I OP and was issued a separate class of limited partnership units. As NorthStar I accepted subscriptions for shares in its continuous, public offering, which closed in July 2013, it contributed substantially all of the net proceeds to NorthStar I OP as a capital contribution. As of September 30, 2017, NorthStar I’s limited partnership interest in the NorthStar I OP was 99.98%.

As a subsidiary of NorthStar I, NorthStar I OP’s principal executive office is located at 590 Madison Avenue, 34th Floor, New York, New York 10022 and its phone number is (212) 547-2600.

NorthStar II Parties

NorthStar Real Estate Income II, Inc.

NorthStar II originates, acquires and asset manages a diversified portfolio of CRE debt, select equity and securities investments, predominantly in the United States. NorthStar II may also invest in CRE investments internationally. NorthStar II’s CRE debt investments include first mortgage loans, subordinate mortgage and mezzanine loans and participations in such loans and preferred equity interests. NorthStar II’s real estate equity investments include direct ownership in properties, which may be structurally senior to a third-party partner’s equity, as well as indirect interests in real estate through real estate private equity funds. NorthStar II’s CRE securities primarily consist of commercial mortgage-backed securities and may in the future include unsecured REIT debt, collateralized debt obligation notes and other securities. In addition, NorthStar II owns investments through joint ventures. NorthStar II was formed in December 2012 as a Maryland corporation and commenced operations in September 2013. It elected to be taxed as a REIT commencing with the taxable year ended December 31, 2013.

 

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NorthStar II is externally managed by CNI NSII Advisors, LLC (formerly NSAM J-NSII Ltd), a subsidiary of CLNS, which we refer to as the NorthStar II advisor, pursuant to an advisory agreement, which we refer to as the NorthStar II advisory agreement, and has no employees.

NorthStar II initially registered up to $1.65 billion in shares of NorthStar II common stock, which included up to $1.5 billion of shares pursuant to its primary offering to the public, which we refer to as the NorthStar II Primary Offering, and up to $150.0 million of shares pursuant to its distribution reinvestment plan, which we refer to as the NorthStar II DRP, which we collectively refer to as the NorthStar II Public Offering. The NorthStar II Primary Offering closed effective November 9, 2016. Prior to the closing, $150.0 million of the unsold shares of NorthStar II common stock remaining from the NorthStar II Primary Offering were reallocated to the NorthStar II DRP, for a total of $300.0 million in shares of NorthStar II common stock offered pursuant to the NorthStar II DRP. The NorthStar II DRP has been suspended, which suspension went into effect prior to the monthly distributions to be paid on or about October 1, 2017.

From inception through November 8, 2017, NorthStar II raised total gross proceeds of $1.2 billion pursuant to the NorthStar II Public Offering, including gross proceeds of $81.7 million pursuant to the NorthStar II DRP.

Substantially all of NorthStar II’s assets, directly or indirectly, are held by NorthStar II OP, a Delaware limited partnership and the operating partnership of NorthStar II. NorthStar II conducts its operations, directly or indirectly, through NorthStar II OP.

NorthStar II’s principal executive office is located at 590 Madison Avenue, 34th Floor, New York, New York 10022 and its phone number is (212) 547-2600.

NorthStar Real Estate Income Operating Partnership II, LP

NorthStar II conducts its operations, directly or indirectly, through NorthStar II OP, a Delaware limited partnership and the operating partnership of NorthStar II. NorthStar II OP holds, directly or indirectly, substantially all of NorthStar II’s assets. NorthStar II is the sole general partner and a limited partner of NorthStar II OP. The other limited partners of NorthStar II OP are NS Real Estate Income Advisor II, LLC, and NorthStar OP Holdings II, LLC, each of which is an affiliate of CLNS. NS Real Estate Income Advisor II, LLC invested $1,000 in NorthStar II OP in exchange for common units and NorthStar OP Holdings II, LLC invested $1,000 in NorthStar II OP and was issued a separate class of limited partnership units. As NorthStar II accepted subscriptions for shares in the NorthStar II Public Offering, it contributed substantially all of the net proceeds to NorthStar II OP as a capital contribution. As of September 30, 2017, NorthStar II’s limited partnership interest in NorthStar II OP was 99.98%.

As a subsidiary of NorthStar II, NorthStar II OP’s principal executive office is located at 590 Madison Avenue, 34th Floor, New York, New York 10022 and its phone number is (212) 547-2600.

The Company Parties

Colony NorthStar Credit Real Estate, Inc.

The Company, a Maryland corporation and a wholly owned subsidiary of CLNS, was formed in August 2017 solely for the purpose of facilitating the Combination and related transactions contemplated by the combination agreement. The Company intends to elect and qualify to be taxed as a REIT and will be externally managed and advised by a subsidiary of CLNS. The Company has not carried on any activities or operations to date, except for those activities incidental to its formation and undertaken in connection with the transactions contemplated by the combination agreement. Pursuant to the combination agreement, upon completion of the Combination, the Company will be the publicly traded entity for the combined entities and contributions.

 

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It is expected that, following the completion of the Combination, substantially all of the Company’s assets, directly or indirectly, will be held by the Company OP, a Delaware limited liability company and the operating company of the Company. The Company expects to conduct its operations, directly or indirectly, through the Company OP.

Pursuant to the combination agreement, it is a condition to the closing of the Combination that the Company class A common stock be listed on a national securities exchange. It is expected that the Company class A common stock will trade on a national securities exchange under the symbol “CLNC.” The Company’s principal executive office is located at 515 S. Flower Street, 44th Floor, Los Angeles, California 90071 and its phone number is (310) 282-8820.

Credit RE Operating Company, LLC

The Company OP, a Delaware limited liability company, is the operating company of the Company. It is expected that, following the completion of the Combination, the Company OP will hold, directly or indirectly, substantially all of the Company’s assets and the Company will conduct its operations, directly or indirectly, through the Company OP.

As a subsidiary of the Company, the Company OP’s principal executive office is located at 515 S. Flower Street, 44th Floor, Los Angeles, California 90071 and its phone number is (310) 282-8820.

 

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THE NORTHSTAR I SPECIAL MEETING

Date, Time, Place and Purpose of the NorthStar I Special Meeting

The NorthStar I special meeting will be held at the offices of J.P. Morgan, located at 270 Park Avenue, 11th Floor, New York, New York 10017, on January 18, 2018 commencing at 9:00 a.m. (Eastern Time). The NorthStar I special meeting is being held in order for NorthStar I stockholders to consider and vote on:

 

    the NorthStar I merger proposal;
    the NorthStar I first charter amendment proposal;
    the NorthStar I second charter amendment proposal; and
    the NorthStar I adjournment proposal.

Recommendation of the NorthStar I Board of Directors

The NorthStar I special committee has unanimously: (i) determined that each of the combination agreement and the transactions contemplated by the combination agreement, including the NorthStar I merger, the NorthStar I first charter amendment and the NorthStar I second charter amendment, are fair and reasonable to NorthStar I, and the terms, conditions and procedures set forth in the combination agreement ensure that the price and other terms of the NorthStar I merger and the other transactions contemplated by the combination agreement are no less favorable to NorthStar I than those available from unaffiliated third parties; (ii) recommended that the NorthStar I board of directors determine that the combination agreement, the NorthStar I merger, the NorthStar I first charter amendment, the NorthStar I second charter amendment and the other transactions contemplated by the combination agreement are fair, reasonable, advisable and in the best interests of NorthStar I and authorize, approve, adopt and declare advisable the same, subject to any stockholder approval required by law; (iii) recommended that the NorthStar I board of directors submit for consideration and adoption or approval by NorthStar I stockholders at the NorthStar I special meeting the NorthStar I merger, the NorthStar I first charter amendment and the NorthStar I second charter amendment; and (iv) recommended that the NorthStar I board of directors recommend to NorthStar I stockholders that they vote in favor of the adoption or approval of such matters.

The NorthStar I board of directors, following the unanimous recommendation of the NorthStar I special committee, has unanimously: (i) determined that the combination agreement, the NorthStar I merger, the NorthStar I first charter amendment, the NorthStar I second charter amendment and the other transactions contemplated by the combination agreement are fair, reasonable, advisable and in the best interests of NorthStar I and its stockholders; (ii) authorized, approved, adopted and declared advisable the combination agreement, the NorthStar I merger, the NorthStar I first charter amendment, the NorthStar I second charter amendment and the other transactions contemplated by the combination agreement; (iii) directed that the NorthStar I merger, the NorthStar I first charter amendment and the NorthStar I second charter amendment be submitted for consideration at a special meeting of NorthStar I stockholders; and (iv) resolved to recommend to NorthStar I stockholders that they vote in favor of the adoption or approval of the NorthStar I merger, the NorthStar I first charter amendment and the NorthStar I second charter amendment.

Accordingly, the NorthStar I board of directors, following the unanimous recommendation of the NorthStar I special committee, unanimously recommends that you vote “FOR” the NorthStar I merger proposal, “FOR” the NorthStar I first charter amendment proposal, “FOR” the NorthStar I second charter amendment proposal and “FOR” the NorthStar I adjournment proposal. For a more complete description of the recommendation of the NorthStar I board of directors, refer to the section entitled “The Combination and Related Transactions—Reasons for the NorthStar I Merger and Recommendation of the NorthStar I Board of Directors” beginning on page 132 of this joint proxy statement/prospectus.

 

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Record Date; Who Can Vote at the NorthStar I Special Meeting

The NorthStar I board of directors has fixed the close of business on November 28, 2017 as the record date for determination of NorthStar I stockholders entitled to receive notice of, and to vote at, the NorthStar I special meeting and any postponements or adjournments of the NorthStar I special meeting, which we refer to as the NorthStar I record date. Only holders of record of NorthStar I common stock at the close of business on the NorthStar I record date are entitled to receive notice of, and to vote at, the NorthStar I special meeting. As of the NorthStar I record date, there were 119,333,203.167 shares of NorthStar I common stock outstanding and entitled to be voted at the NorthStar I special meeting, held by approximately 23,157 holders of record.

Except as set forth below with respect to the NorthStar I merger, each outstanding share of NorthStar I common stock entitles its holder to one vote on each of the NorthStar I merger proposal, the NorthStar I first charter amendment proposal, the NorthStar I second charter amendment proposal and the NorthStar I adjournment proposal. The NorthStar I charter provides that, with respect to shares of NorthStar I common stock owned by the NorthStar I advisor or any director of NorthStar I, or any of their respective affiliates, none of the NorthStar I advisor and the directors of NorthStar I, or any of their respective affiliates (including NorthStar II, CLNS and any of the directors of NorthStar II), may vote or consent on matters submitted to the NorthStar I stockholders regarding any transaction between NorthStar I and any of them. Thus, such persons are not entitled to vote on the NorthStar I merger. On the NorthStar I record date, the directors and executive officers of NorthStar I and their affiliates held 99,374 shares of NorthStar I common stock, collectively representing less than 1% of all of the shares of NorthStar I common stock outstanding and entitled to vote (except, as noted above, on the NorthStar I merger). In addition, as of the NorthStar I record date, Daniel R. Gilbert, Jonathan T. Albro, Vernon B. Schwartz, Jack F. Smith, Jr., James J. Thomas, Frank V. Saracino and Jenny B. Neslin, all of whom are directors or officers of NorthStar I, held 0, 32,096, 17,591, 32,096, 17,591, 0 and 0 shares of NorthStar I common stock, respectively. See “Certain Beneficial Ownership of NorthStar I Common Stock” beginning on page 351 of this joint proxy statement/prospectus.

Stockholders of Record and Beneficial Owners

If your shares of NorthStar I common stock are registered directly in your name with NorthStar I’s transfer agent, DST Systems, Inc., you are considered, with respect to those shares of NorthStar I common stock, the “stockholder of record.” This joint proxy statement/prospectus and proxy card have been sent to you directly by NorthStar I.

If your shares of NorthStar I common stock are held through a broker or other nominee, you are considered the “beneficial owner” of shares of NorthStar I common stock held in “street name.” In that case, this joint proxy statement/prospectus has been forwarded to you by your broker or other nominee who is considered, with respect to those shares of NorthStar I common stock, the stockholder of record. As the beneficial owner, you have the right to direct your broker or other nominee how to vote your shares by following their instructions for voting. Brokers or other nominees who hold shares in “street name” for customers generally have the authority to vote on “routine” proposals when they have not received instructions from beneficial owners. However, brokers and other nominees are precluded from exercising their voting discretion with respect to approving non-routine matters such as the NorthStar I merger proposal, the NorthStar I first charter amendment proposal, the NorthStar I second charter amendment proposal and the NorthStar I adjournment proposal and, as a result, absent specific instructions from the beneficial owner of such shares of NorthStar I common stock, brokers or other nominees are not empowered to vote those shares of NorthStar I common stock on such non-routine matters. A broker non-vote occurs when a nominee holds shares for a beneficial owner but cannot vote on a proposal because the nominee does not have the discretionary power to do so and has not received instructions from the beneficial owner.

 

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Quorum

A quorum will be present if stockholders entitled to cast at least 50% of all the votes entitled to be cast at the special meeting are present, in person or represented by proxy. All shares of NorthStar I common stock, represented in person or by proxy, including abstentions and broker non-votes, will be treated as present for purposes of determining the presence or absence of a quorum for all matters voted on at the NorthStar I special meeting. On the NorthStar I record date, there were 119,333,203.167 shares of NorthStar I common stock outstanding and entitled to vote; provided, however, that as noted above, pursuant to the NorthStar I charter, certain shares of NorthStar I common stock may not be voted on the NorthStar I merger.

Under NorthStar I’s bylaws, in the event that a quorum is not present or represented by proxy at the NorthStar I special meeting, in addition to an adjournment pursuant to the NorthStar I adjournment proposal, the chairperson of the NorthStar I special meeting has the power to adjourn or recess the meeting to a date not more than 120 days after the original record date without notice other than announcement at the special meeting.

Attendance

Only NorthStar I stockholders of record, their duly authorized proxy holders, beneficial stockholders with proof of ownership and NorthStar I’s guests may attend the NorthStar I special meeting. A government-issued picture identification will be required to enter the NorthStar I special meeting. If you are the representative of a corporate or institutional stockholder, you must present valid photo identification along with proof that you are the representative of such stockholder. If your shares of NorthStar I common stock are held through a broker or other nominee, you must bring evidence of your ownership of shares, which you can obtain from your broker or other nominee. NorthStar I stockholders may obtain directions to the NorthStar I special meeting by writing to NorthStar Real Estate Income Trust, Inc., Attention: Corporate Secretary, at 590 Madison Avenue, 34th Floor, New York, New York 10022. Please note that cameras, recording devices and other electronic devices will not be permitted at the NorthStar I special meeting.

Vote Required for Approval; Effect of Failure to Vote, Broker Non-Votes and Abstention

For the NorthStar I merger proposal, the NorthStar I first charter amendment proposal and the NorthStar I second charter amendment proposal, you may vote “FOR,” “AGAINST” or “ABSTAIN.” Approval of the NorthStar I merger proposal, approval of the NorthStar I first charter amendment proposal and approval of the NorthStar I second charter amendment proposal requires the affirmative vote of the holders of a majority of the outstanding shares of NorthStar I common stock entitled to vote on such proposals. Consequently, abstentions, failures to submit a proxy or to vote in person at the NorthStar I special meeting and broker non-votes will have the same effect as votes “AGAINST” the NorthStar I merger proposal, the NorthStar I first charter amendment proposal and the NorthStar I second charter amendment proposal.

For the NorthStar I adjournment proposal, you may vote “FOR,” “AGAINST” or “ABSTAIN.” Approval of the NorthStar I adjournment proposal requires the affirmative vote of a majority of the votes cast on the proposal at the NorthStar I special meeting. Any shares not voted (whether by abstention, broker non-vote, or otherwise) will not be counted as votes cast and will have no effect on the result of the vote, although abstentions will be considered present for the purpose of determining the presence of a quorum.

 

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How to Vote Your Shares

If you are a NorthStar I stockholder of record, you may have your shares of NorthStar I common stock voted on matters presented at the NorthStar I special meeting in any of the following ways:

 

  by proxy—you have a choice of submitting a proxy to vote your shares:

 

    through the Internet by visiting the website indicated on the enclosed proxy card and following the prompts using the control number located on the proxy card; or

 

    by telephone using the toll-free telephone numbers listed on the enclosed proxy card; or

 

    by signing, dating and returning the enclosed proxy card in the enclosed postage-paid return envelope; or

 

  in person—you may attend the NorthStar I special meeting and cast your vote there provided that you bring an admission ticket and government-issued picture identification. For instructions on obtaining an admission ticket, refer above to the section entitled “The NorthStar I Special Meeting—Attendance” beginning on page 96 of this joint proxy statement/prospectus.

If you are a beneficial owner of NorthStar I common stock, you should receive instructions from your broker or other nominee that you must follow in order to have your shares of NorthStar I common stock voted. Those instructions will identify which of the above choices are available to you in order to have your shares voted. Please note that if you are a beneficial owner and wish to vote in person at the NorthStar I special meeting, you must provide a legal proxy from your broker or other nominee at the special meeting. Obtaining a legal proxy may take several days and must be obtained prior to your attending the NorthStar I special meeting in order to vote your shares at that meeting.

Proxies submitted by the Internet or telephone must be received by 11:59 p.m. (Eastern Time) on the business day prior to the date of the NorthStar I special meeting. If you choose to submit a proxy by mailing a proxy card, your proxy card should be mailed in the enclosed postage-paid return envelope, and your proxy card must be received by NorthStar I’s Corporate Secretary by the time the NorthStar I special meeting begins.

If you authorize a proxy to vote your shares, regardless of the method you choose to authorize such proxy, the individuals named on the enclosed proxy card, and each of them, with full power of substitution, will vote your shares of NorthStar I common stock in the way that you indicate. When completing the Internet or telephone processes or the proxy card, you may specify whether your shares of NorthStar I common stock should be voted for or against, or to abstain from voting on all or, some or none of the specific items of business to come before the NorthStar I special meeting.

If you properly sign your proxy card but do not mark the boxes showing how your shares of NorthStar I common stock should be voted on a matter, the shares of NorthStar I common stock represented by your properly signed proxy will be voted “FOR” the NorthStar I merger proposal, “FOR” the NorthStar I first charter amendment proposal, “FOR” the NorthStar I second charter amendment proposal and “FOR” the NorthStar I adjournment proposal.

If you have any questions or need assistance voting your shares, please contact D.F. King & Co., Inc., NorthStar I’s proxy solicitor, by calling toll-free (800) 967-0261.

IT IS IMPORTANT THAT YOU VOTE YOUR SHARES OF NORTHSTAR I COMMON STOCK PROMPTLY. WHETHER OR NOT YOU PLAN TO ATTEND THE NORTHSTAR I SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN, AS PROMPTLY AS POSSIBLE, THE ACCOMPANYING PROXY CARD IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE, OR SUBMIT YOUR PROXY BY THE INTERNET OR TELEPHONE. STOCKHOLDERS WHO ATTEND THE NORTHSTAR I SPECIAL MEETING MAY REVOKE THEIR PROXIES BY VOTING IN PERSON.

 

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Revocation of Proxies or Voting Instructions

Any NorthStar I stockholder has the right to revoke a proxy, whether delivered over the Internet, by telephone or by mail, at any time before it is exercised, by voting by proxy again at a later date through any of the methods available to you, by giving written notice of revocation to NorthStar I’s Corporate Secretary, which notice, to ensure effective revocation, must be received by 11:59 p.m. (Eastern Time) on the business day prior to the date of the NorthStar I special meeting, or by attending the NorthStar I special meeting and voting in person. Your attendance at the NorthStar I special meeting will not by itself revoke your proxy. Written notice of revocation should be mailed to: NorthStar Real Estate Income Trust, Inc., Attention: Corporate Secretary, at 590 Madison Avenue, 34th Floor, New York, New York 10022.

If you hold shares of NorthStar I common stock in “street name,” you should contact your broker or other nominee for instructions on how to change your vote.

Adjournment

In addition to the NorthStar I merger, the NorthStar I first charter amendment and the NorthStar I second charter amendment, NorthStar I stockholders are also being asked to approve a proposal that will give the chairperson of the NorthStar I special meeting authority to adjourn the NorthStar I special meeting, as determined in the sole discretion of the chairperson of the NorthStar I special meeting, to solicit additional proxies in favor of the NorthStar I merger, the NorthStar I first charter amendment and the NorthStar I second charter amendment if there are not sufficient votes at the time of such adjournment to approve such proposals. If the adjournment proposal is approved, the NorthStar I special meeting may be successively adjourned without notice other than announcement at the meeting to any date, not more than 120 days after the record date for the NorthStar I special meeting. In addition, the NorthStar I board of directors could postpone the NorthStar I special meeting before it commences, whether for the purpose of soliciting additional proxies or for other reasons. If the NorthStar I special meeting is adjourned for the purpose of soliciting additional proxies, stockholders who have already submitted their proxies will be able to revoke them at any time prior to their exercise.

At such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified. Under NorthStar I’s bylaws, in the event that a quorum is not present or represented by proxy at the NorthStar I special meeting, in addition to an adjournment pursuant to the NorthStar I adjournment proposal, the chairperson of the NorthStar I special meeting has the power to adjourn or recess the meeting to a date not more than 120 days after the original record date without notice other than announcement at the special meeting.

Tabulation of the Votes

NorthStar I will appoint an Inspector of Election for the NorthStar I special meeting to tabulate affirmative and negative votes and abstentions.

 

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Solicitation of Proxies

The enclosed proxy is solicited by and on behalf of the NorthStar I board of directors. Directors and officers of NorthStar I may solicit proxies on behalf of NorthStar I in person or by telephone, facsimile or other means, for which they will not receive any additional compensation. NorthStar I has engaged D.F. King & Co., Inc. to assist it in the solicitation of proxies. NorthStar I has agreed to pay D.F. King & Co., Inc. an amount initially not expected to exceed $25,000, which includes the payment of certain fees and expenses for its services to solicit proxies, plus reasonable out-of-pocket expenses incurred in connection with their services. In accordance with the regulations of the SEC, NorthStar I also will reimburse brokerage firms and other custodians, nominees and fiduciaries for their expenses incurred in sending proxies and proxy materials to beneficial owners of shares of NorthStar I common stock.

 

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PROPOSALS SUBMITTED TO NORTHSTAR I STOCKHOLDERS

Proposal 1—The NorthStar I Merger Proposal

(Item 1 on the NorthStar I Proxy Card)

In proposal 1, NorthStar I stockholders are being asked to consider and vote on the approval of the merger of NorthStar I with and into the Company, with the Company surviving the NorthStar I merger pursuant to the combination agreement. Approval of the NorthStar I merger proposal requires the affirmative vote of the holders of a majority of outstanding shares of NorthStar I common stock entitled to vote on such proposal. If you abstain or fail to vote your shares, including shares held by a broker or other nominee, in favor of the NorthStar I merger proposal, this will have the same effect as a vote “AGAINST the NorthStar I merger proposal. The combination agreement is attached as Annex A to this joint proxy statement/prospectus.

The NorthStar I board of directors, following the unanimous recommendation of the NorthStar I special committee, unanimously recommends that NorthStar I stockholders vote “FOR” the NorthStar I merger proposal.

Proposal 2—The NorthStar I First Charter Amendment Proposal

(Item 2 on the NorthStar I Proxy Card)

In proposal 2, NorthStar I stockholders are being asked to consider and vote on the approval of the NorthStar I first charter amendment that, if adopted, would permit distributions in kind of beneficial interests in a liquidating trust that is established to own and liquidate the remaining assets of NorthStar I in connection with a merger of NorthStar I approved in accordance with the NorthStar I charter, including the NorthStar I merger if such merger is approved by NorthStar I’s stockholders at the NorthStar I special meeting.

Section 5.5 of the NorthStar I charter currently provides that distributions in kind (which are non-cash distributions) to stockholders will not be permitted except, among other exceptions, distributions of beneficial interests in the liquidating trust established for the dissolution of NorthStar I and the liquidation of its assets in accordance with the terms of its charter. Prior to the completion of the NorthStar I merger, NorthStar I will transfer interests in the NorthStar I retained asset to the liquidating trust and liquidating trust units will be distributed to NorthStar I stockholders at the time of such distribution. NorthStar I is asking the NorthStar I stockholders to approve the NorthStar I first charter amendment in order to facilitate this distribution. The NorthStar I first charter amendment will permit NorthStar I to distribute the liquidating trust units to the NorthStar I stockholders at the time of such distribution and permit the liquidating trust to subsequently sell, transfer or otherwise dispose of the NorthStar I retained asset, the net proceeds of which will be distributed to NorthStar I stockholders as holders of the liquidating trust units. (For more information on the liquidating trust and NorthStar I retained asset, refer to the section entitled “The Liquidating Trust” beginning on page 298 of this joint proxy statement/prospectus.)

If approved, the NorthStar I first charter amendment would amend the last sentence of Section 5.5 of NorthStar I’s charter as follows (text that would be added as a result of the NorthStar I second charter amendment is underlined below):

Section 5.5 Dividends and Distributions. *** Distributions in kind shall not be permitted, except for (i) distributions of readily marketable securities, (ii) distributions of beneficial interests in a liquidating trust (X) established for the dissolution of the Corporation and the liquidation of its assets in accordance with the terms of the Charter or (Y) established to own and liquidate the Assets of the Corporation that are required to be contributed to such a trust prior to the completion of a merger of the Corporation that is

 

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approved by the Stockholders in accordance with the terms of the Charter, or (iii) distributions in which (a) the Board advises each Stockholder of the risks associated with direct ownership of the property, (b) the Board offers each Stockholder the election of receiving such in-kind distributions, and (c) in-kind distributions are made only to those Stockholders that accept such offer.

Pursuant to the combination agreement, approval of the NorthStar I first charter amendment proposal is a condition to completing the Combination. If the NorthStar I first charter amendment proposal is not approved, the Combination will not be completed even if the NorthStar I merger proposal and the NorthStar I second charter amendment proposal are approved. Likewise, the effectiveness of the NorthStar I first charter amendment is conditioned on approval of the NorthStar I merger proposal and the NorthStar I second charter amendment proposal, and the closing of the Combination. If NorthStar I stockholders do not approve the NorthStar I merger proposal and the NorthStar I second charter amendment proposal, or for any reason the Combination does not close, then the NorthStar I first charter amendment will not become effective, even if the NorthStar I first charter amendment proposal is approved.

Approval of the NorthStar I first charter amendment proposal requires the affirmative vote of the holders of a majority of outstanding shares of NorthStar I common stock entitled to vote on such proposal. If you abstain or fail to vote your shares, including shares held by a broker or other nominee, in favor of the NorthStar I first charter amendment proposal, this will have the same effect as a vote “AGAINST” the NorthStar I first charter amendment proposal.

The NorthStar I board of directors, following the unanimous recommendation of the NorthStar I special committee, unanimously recommends that NorthStar I stockholders vote “FOR” the NorthStar I first charter amendment proposal.

Proposal 3—The NorthStar I Second Charter Amendment Proposal

(Item 3 on the NorthStar I Proxy Card)

In proposal 3, NorthStar I stockholders are being asked to consider and vote on the approval of the NorthStar I second charter amendment that, if adopted, would delete Article XIV related to Roll-Up Transactions (and the associated definitions, all as defined in the NorthStar I charter) from the NorthStar I charter. Article XIV imposes substantive and procedural requirements relating to Roll-Up Transactions, none of which will be applicable if the NorthStar I second charter amendment proposal is approved. Pursuant to the combination agreement, approval of the NorthStar I second charter amendment proposal is a condition to completing the Combination. If the NorthStar I second charter amendment proposal is not approved, the Combination will not be completed even if the NorthStar I merger proposal and the NorthStar I first charter amendment proposal are approved. Likewise, the effectiveness of the NorthStar I second charter amendment is conditioned on approval of the NorthStar I merger proposal and the NorthStar I first charter amendment proposal, and the closing of the Combination. If NorthStar I stockholders do not approve the NorthStar I merger proposal and the NorthStar I first charter amendment proposal, or for any reason the Combination does not close, then the NorthStar I second charter amendment will not become effective, even if the NorthStar I second charter amendment proposal is approved.

The NorthStar I charter defines a Roll-Up Transaction as a transaction involving the acquisition, merger, conversion or consolidation, either directly or indirectly, of NorthStar I and the issuance of securities of a Roll-Up Entity (as defined in the NorthStar I charter) to the holders of NorthStar I common stock. This definition does not include (1) a transaction involving securities of the Roll-Up Entity that have been listed on a national securities exchange for at least 12 months or (2) a transaction involving the conversion to corporate, trust or association form of only NorthStar I, if, as a consequence of the transaction, there will be no significant adverse

 

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change in stockholder voting rights, the term of NorthStar I’s existence, compensation to the NorthStar I advisor or sponsor or NorthStar I’s investment objectives. The NorthStar I merger and the issuance of securities of the Company may be considered a Roll-Up Transaction.

In connection with any Roll-Up Transaction, the NorthStar I charter would require NorthStar I to obtain an appraisal of its assets from a competent independent appraiser. If the appraisal will be included in a prospectus used to offer the securities of a Roll-Up Entity, the appraisal must be filed with the SEC and the states as an exhibit to the registration statement for the offering, and a summary of the appraisal, indicating all material assumptions underlying the appraisal, must be included in a report to stockholders in connection with any proposed Roll-Up Transaction. In addition, in connection with a proposed Roll-Up Transaction, the NorthStar I charter would require the person sponsoring the Roll-Up Transaction to offer to NorthStar I stockholders who vote against the proposed Roll-Up Transaction the choice of: (1) accepting the securities of the Roll-Up Entity offered in the proposed Roll-Up Transaction; or (2) one of the following: (a) remaining as holders of NorthStar I common stock and preserving their interests therein on the same terms and conditions as existed previously; or (b) receiving cash in an amount equal to the stockholder’s pro rata share of the appraised value of NorthStar I’s net assets. Under the NorthStar I charter, NorthStar I is prohibited from participating in any Roll-Up Transaction: (1) that would result in the NorthStar I stockholders having voting rights in a Roll-Up Entity that are less than those provided in the NorthStar I charter; (2) that includes provisions that would operate to materially impede or frustrate the accumulation of shares by any purchaser of the securities of the Roll-Up Entity (except to the minimum extent necessary to preserve the tax status of the Roll-Up Entity), or which would limit the ability of an investor to exercise the voting rights of its securities of the Roll-Up Entity on the basis of the number of shares held by that investor; (3) in which an investor’s rights to access of records of the Roll-Up Entity would be less than those provided in the NorthStar I charter; or (4) in which any of the costs of the Roll-Up Transaction would be borne by NorthStar I if the Roll-Up Transaction is rejected by the NorthStar I stockholders.

NorthStar I does not intend to comply with the provisions of the NorthStar I charter applicable to Roll-Up Transactions. NorthStar I believes that it would not be practical to complete the Combination if it were required to comply with the provisions of its charter applicable to Roll-Up Transactions and the NorthStar I merger is specifically conditioned on the NorthStar I first charter amendment becoming effective.

The Company charter, a form of which is attached as Annex B to this joint proxy statement/prospectus, will govern the surviving entity following completion of the Combination.

Approval of the NorthStar I second charter amendment proposal requires the affirmative vote of the holders of a majority of outstanding shares of NorthStar I common stock entitled to vote on such proposal. If you abstain or fail to vote your shares, including shares held by a broker or other nominee, in favor of the NorthStar I second charter amendment proposal, this will have the same effect as a vote “AGAINST” the NorthStar I second charter amendment proposal.

The NorthStar I board of directors, following the unanimous recommendation of the NorthStar I special committee, unanimously recommends that NorthStar I stockholders vote “FOR” the NorthStar I second charter amendment proposal.

Proposal 4—The NorthStar I Adjournment Proposal

(Item 4 on the NorthStar I Proxy Card)

The NorthStar I special meeting may be adjourned to another time or place, if necessary or appropriate, as determined by NorthStar I, to permit further solicitation of proxies to obtain additional votes in favor of the

 

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NorthStar I merger proposal, the NorthStar I first charter amendment proposal and the NorthStar I second charter amendment proposal.

If, at the NorthStar I special meeting, the number of shares of NorthStar I common stock present in person or represented by proxy and voting in favor of the NorthStar I merger proposal, the NorthStar I first charter amendment proposal and/or the NorthStar I second charter amendment proposal is insufficient to approve such proposals, NorthStar I intends to move to adjourn the NorthStar I special meeting in order to enable the NorthStar I board of directors to solicit additional proxies for approval of such proposals.

NorthStar I is asking NorthStar I stockholders to approve the adjournment of the NorthStar I special meeting, if necessary or appropriate, as determined by NorthStar I, to solicit additional proxies in favor of the NorthStar I merger proposal, the NorthStar I first charter amendment proposal and the NorthStar I second charter amendment proposal.

Approval of the proposal to adjourn the NorthStar I special meeting, if necessary or appropriate, as determined by NorthStar I, to solicit additional proxies requires the affirmative vote of the holders of a majority of the votes cast on the proposal at the special meeting. Any shares not voted (whether by abstention, broker non-vote, or otherwise) will not be counted as votes cast and will have no effect on the result of the vote, although abstentions will be considered present for the purpose of determining the presence of a quorum.

The NorthStar I board of directors, following the unanimous recommendation of the NorthStar I special committee, unanimously recommends that NorthStar I stockholders vote “FOR” the NorthStar I adjournment proposal.

 

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THE NORTHSTAR II SPECIAL MEETING

Date, Time, Place and Purpose of the NorthStar II Special Meeting

The NorthStar II special meeting will be held at the offices of J.P. Morgan, located at 270 Park Avenue, 11th Floor, New York, New York 10017, on January 18, 2018 commencing at 10:00 a.m. (Eastern Time). The NorthStar II special meeting is being held in order for NorthStar II stockholders to consider and vote on:

 

  the NorthStar II merger proposal;
  the NorthStar II charter amendment proposal; and
  the NorthStar II adjournment proposal.

Recommendation of the NorthStar II Board of Directors

The NorthStar II special committee has unanimously: (i) determined that the combination agreement, the NorthStar II merger, the NorthStar II charter amendment and the other transactions contemplated by the combination agreement, to the extent such other transactions are applicable to the NorthStar II parties (which we refer to as the NorthStar II Transactions), are fair and reasonable to NorthStar II and advisable and in the best interests of NorthStar II and the NorthStar II stockholders; (ii) recommended that the NorthStar II board of directors determine that the combination agreement, the NorthStar II merger, the NorthStar II charter amendment and the other NorthStar II Transactions are fair and reasonable to NorthStar II and advisable and in the best interests of NorthStar II and the NorthStar II stockholders and authorize and approve the same, subject to any stockholder approval required by law; (iii) recommended that the NorthStar II board of directors submit for consideration and approval by NorthStar II stockholders at the NorthStar II special meeting the NorthStar II merger and the NorthStar II charter amendment; and (iv) recommended that the NorthStar II board of directors recommend to NorthStar II stockholders that they approve the NorthStar II merger and the NorthStar II charter amendment.

The NorthStar II board of directors, following the unanimous recommendation of the NorthStar II special committee, has unanimously: (i) determined that the combination agreement, the NorthStar II merger, the NorthStar II charter amendment and the other NorthStar II Transactions, are fair and reasonable to NorthStar II and are advisable and in the best interests of NorthStar II and its stockholders; (ii) authorized and approved the combination agreement, the NorthStar II merger, the NorthStar II charter amendment and the other NorthStar II Transactions; (iii) directed that the NorthStar II merger and the NorthStar II charter amendment be submitted for consideration at a special meeting of NorthStar II stockholders; and (iv) recommended that NorthStar II stockholders approve the NorthStar II merger and the NorthStar II charter amendment.

Accordingly, the NorthStar II board of directors, following the unanimous recommendation of the NorthStar II special committee, unanimously recommends that you vote “FOR” the NorthStar II merger proposal, “FOR” the NorthStar II charter amendment proposal and “FOR” the NorthStar II adjournment proposal. For a more complete description of the recommendation of the NorthStar II board of directors, refer to the section entitled “The Combination and Related Transactions—Reasons for the NorthStar II Merger and Recommendation of the NorthStar II Board of Directors” beginning on page 138 of this joint proxy statement/prospectus.

Record Date; Who Can Vote at the NorthStar II Special Meeting

The NorthStar II board of directors has fixed the close of business on November 28, 2017 as the record date for determination of NorthStar II stockholders entitled to receive notice of, and to vote at, the NorthStar II special meeting and any postponements or adjournments of the NorthStar II special meeting, which we refer to as the NorthStar II record date. Only holders of record of NorthStar II common stock at the close of business on the

 

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NorthStar II record date are entitled to receive notice of, and to vote at, the NorthStar II special meeting. As of the NorthStar II record date, there were 114,942,838.318 shares of NorthStar II common stock outstanding and entitled to be voted at the NorthStar II special meeting, held by approximately 23,265 holders of record.

Except as set forth below with respect to the NorthStar II merger, each outstanding share of NorthStar II common stock entitles its holder to one vote on each of the NorthStar II merger proposal, the NorthStar II charter amendment proposal and the NorthStar II adjournment proposal. The NorthStar II charter provides that, with respect to shares of NorthStar II common stock owned by the NorthStar II advisor, any director of NorthStar II or any of their respective affiliates, none of the NorthStar II advisor, the directors of NorthStar II or their respective affiliates (including NorthStar I, CLNS and any of the directors of NorthStar I) may vote or consent on matters submitted to the NorthStar II stockholders regarding any transaction between NorthStar II and any of them. Thus, such persons are not entitled to vote on the NorthStar II merger. On the NorthStar II record date, the directors and executive officers of NorthStar II and their affiliates held 66,943 shares of NorthStar II common stock, collectively representing approximately less than 1% of all of the shares of NorthStar II common stock outstanding and entitled to vote (except, as noted above, on the NorthStar II merger). In addition, as of the NorthStar II record date, Daniel R. Gilbert, Jonathan T. Albro, Justin P. Meagher, Chris S. Westfahl, Winston W. Wilson, Frank V. Saracino and Jenny B. Neslin, all of whom are directors or officers of NorthStar II, held 0, 19,842, 13,499, 13,760, 19,842, 0 and 0 shares of NorthStar II common stock, respectively. See “Certain Beneficial Ownership of NorthStar II Common Stock” beginning on page 352 of this joint proxy statement/prospectus.

Stockholders of Record and Beneficial Owners

If your shares of NorthStar II common stock are registered directly in your name with NorthStar II’s transfer agent, DST Systems, Inc., you are considered, with respect to those shares of NorthStar II common stock, the “stockholder of record.” This joint proxy statement/prospectus and proxy card have been sent to you directly by NorthStar II.

If your shares of NorthStar II common stock are held through a broker or other nominee, you are considered the “beneficial owner” of shares of NorthStar II common stock held in “street name.” In that case, this joint proxy statement/prospectus has been forwarded to you by your broker or other nominee who is considered, with respect to those shares of NorthStar II common stock, the stockholder of record. As the beneficial owner, you have the right to direct your broker or other nominee how to vote your shares by following their instructions for voting. Brokers or other nominees who hold shares in “street name” for customers generally have the authority to vote on “routine” proposals when they have not received instructions from beneficial owners. However, brokers and other nominees are precluded from exercising their voting discretion with respect to approving non-routine matters such as the NorthStar II merger proposal, the NorthStar II charter amendment proposal and the NorthStar II adjournment proposal and, as a result, absent specific instructions from the beneficial owner of such shares of NorthStar II common stock, brokers or other nominees are not empowered to vote those shares of NorthStar II common stock on such non-routine matters. A broker non-vote occurs when a nominee holds shares for a beneficial owner but cannot vote on a proposal because the nominee does not have the discretionary power to do so and has not received instructions from the beneficial owner.

Quorum

A quorum will be present if stockholders entitled to cast at least 50% of all the votes entitled to be cast at the special meeting are present, in person or represented by proxy. All shares of NorthStar II common stock, represented in person or by proxy, including abstentions and broker non-votes, will be treated as present for purposes of determining the presence or absence of a quorum for all matters voted on at the NorthStar II

 

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special meeting. On the NorthStar II record date, there were 114,942,838.318 shares of NorthStar II common stock outstanding and entitled to vote; provided, however, that as noted above, pursuant to the NorthStar II charter, certain shares of NorthStar II common stock may not be voted on the NorthStar II merger.

Under NorthStar II’s bylaws, in the event that a quorum is not present or represented by proxy at the NorthStar II special meeting, in addition to an adjournment pursuant to the NorthStar II adjournment proposal, the chairperson of the NorthStar II special meeting has the power to adjourn or recess the meeting to a date not more than 120 days after the original record date without notice other than announcement at the special meeting.

Attendance

Only NorthStar II stockholders of record, their duly authorized proxy holders, beneficial stockholders with proof of ownership and NorthStar II’s guests may attend the NorthStar II special meeting. A government-issued picture identification will be required to enter the NorthStar II special meeting. If you are the representative of a corporate or institutional stockholder, you must present valid photo identification along with proof that you are the representative of such stockholder. If your shares of NorthStar II common stock are held through a broker or other nominee, you must bring evidence of your ownership of shares, which you can obtain from your broker or other nominee. NorthStar II stockholders may obtain directions to the NorthStar II special meeting by writing to NorthStar Real Estate Income II, Inc., Attention: Corporate Secretary, at 590 Madison Avenue, 34th Floor, New York, New York 10022. Please note that cameras, recording devices and other electronic devices will not be permitted at the NorthStar II special meeting.

Vote Required for Approval; Effect of Failure to Vote, Broker Non-Votes and Abstention

For the NorthStar II merger proposal and the NorthStar II charter amendment proposal, you may vote “FOR,” “AGAINST” or “ABSTAIN.” Approval of the NorthStar II merger proposal and approval of the NorthStar II charter amendment proposal requires the affirmative vote of the holders of a majority of the outstanding shares of NorthStar II common stock entitled to vote on such proposals. Consequently, abstentions, failures to submit a proxy or to vote in person at the NorthStar II special meeting and broker non-votes will have the same effect as votes “AGAINST” the NorthStar II merger proposal and the NorthStar II charter amendment proposal.

For the NorthStar II adjournment proposal, you may vote FOR, AGAINST or ABSTAIN. Approval of the NorthStar II adjournment proposal requires the affirmative vote of a majority of the votes cast on the proposal at the NorthStar II special meeting. Any shares not voted (whether by abstention, broker non-vote, or otherwise) will not be counted as votes cast and will have no effect on the result of the vote, although abstentions will be considered present for the purpose of determining the presence of a quorum.

How to Vote Your Shares

If you are a NorthStar II stockholder of record, you may have your shares of NorthStar II common stock voted on matters presented at the NorthStar II special meeting in any of the following ways:

 

  by proxy—you have a choice of submitting a proxy to vote your shares:

 

    through the Internet by visiting the website indicated on the enclosed proxy card and following the prompts using the control number located on the proxy card;

 

    by telephone using the toll-free telephone numbers listed on the enclosed proxy card; or

 

    by signing, dating and returning the enclosed proxy card in the enclosed postage-paid return envelope; or

 

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  in person—you may attend the NorthStar II special meeting and cast your vote there provided that you bring an admission ticket and government-issued picture identification. For instructions on obtaining an admission ticket, refer above to the section entitled “The NorthStar II Special Meeting—Attendance” beginning on page 106 of this joint proxy statement/prospectus.

If you are a beneficial owner of NorthStar II common stock, you should receive instructions from your broker or other nominee that you must follow in order to have your shares of NorthStar II common stock voted. Those instructions will identify which of the above choices are available to you in order to have your shares voted. Please note that if you are a beneficial owner and wish to vote in person at the NorthStar II special meeting, you must provide a legal proxy from your broker or other nominee at the special meeting. Obtaining a legal proxy may take several days and must be obtained prior to your attending the NorthStar II special meeting in order to vote your shares at that meeting.

Proxies submitted by the Internet or telephone must be received by 11:59 p.m. (Eastern Time) on the business day prior to the date of the NorthStar II special meeting. If you choose to submit a proxy by mailing a proxy card, your proxy card should be mailed in the enclosed postage-paid return envelope, and your proxy card must be received by NorthStar II’s Corporate Secretary by the time the NorthStar II special meeting begins.

If you authorize a proxy to vote your shares, regardless of the method you choose to authorize such proxy, the individuals named on the enclosed proxy card, and each of them, with full power of substitution, will vote your shares of NorthStar II common stock in the way that you indicate. When completing the Internet or telephone processes or the proxy card, you may specify whether your shares of NorthStar II common stock should be voted for or against, or to abstain from voting on all or, some or none of the specific items of business to come before the NorthStar II special meeting.

If you properly sign your proxy card but do not mark the boxes showing how your shares of NorthStar II common stock should be voted on a matter, the shares of NorthStar II common stock represented by your properly signed proxy will be voted “FOR” the NorthStar II merger proposal, “FOR” the NorthStar II charter amendment proposal and “FOR” the NorthStar II adjournment proposal.

If you have any questions or need assistance voting your shares, please contact D.F. King & Co., Inc., NorthStar II’s proxy solicitor, by calling toll-free (800) 755-7250.

IT IS IMPORTANT THAT YOU VOTE YOUR SHARES OF NORTHSTAR II COMMON STOCK PROMPTLY. WHETHER OR NOT YOU PLAN TO ATTEND THE NORTHSTAR II SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN, AS PROMPTLY AS POSSIBLE, THE ACCOMPANYING PROXY CARD IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE, OR SUBMIT YOUR PROXY BY THE INTERNET OR TELEPHONE. STOCKHOLDERS WHO ATTEND THE NORTHSTAR II SPECIAL MEETING MAY REVOKE THEIR PROXIES BY VOTING IN PERSON.

Revocation of Proxies or Voting Instructions

Any NorthStar II stockholder has the right to revoke a proxy, whether delivered over the Internet, by telephone or by mail, at any time before it is exercised, by voting by proxy again at a later date through any of the methods available to you, by giving written notice of revocation to NorthStar II’s Corporate Secretary, which notice, to ensure effective revocation, must be received by 11:59 p.m. (Eastern Time) on the business day prior to the date of the NorthStar II special meeting, or by attending the NorthStar II special meeting and voting in person. Your attendance at the NorthStar II special meeting will not by itself revoke your proxy. Written notice of revocation should be mailed to: NorthStar Real Estate Income II, Inc., Attention: Corporate Secretary, at 590 Madison Avenue, 34th Floor, New York, New York 10022.

If you hold shares of NorthStar II common stock in “street name,” you should contact your broker or other nominee for instructions on how to change your vote.

 

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Adjournment

In addition to the NorthStar II merger and the NorthStar II charter amendment, NorthStar II stockholders are also being asked to approve a proposal that will give the chairperson of the NorthStar II special meeting authority to adjourn the NorthStar II special meeting, as determined in the sole discretion of the chairperson of the NorthStar II special meeting, to solicit additional proxies in favor of the NorthStar II merger and the NorthStar II charter amendment if there are not sufficient votes at the time of such adjournment to approve such proposals. If the adjournment proposal is approved, the NorthStar II special meeting may be successively adjourned without notice other than announcement at the meeting to any date, not more than 120 days after the record date for the NorthStar II special meeting. In addition, the NorthStar II board of directors could postpone the NorthStar II special meeting before it commences, whether for the purpose of soliciting additional proxies or for other reasons. If the NorthStar II special meeting is adjourned for the purpose of soliciting additional proxies, stockholders who have already submitted their proxies will be able to revoke them at any time prior to their exercise.

At such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified. Under NorthStar II’s bylaws, in the event that a quorum is not present or represented by proxy at the NorthStar II special meeting, in addition to an adjournment pursuant to the NorthStar II adjournment proposal, the chairperson of the NorthStar II special meeting has the power to adjourn or recess the meeting to a date not more than 120 days after the original record date without notice other than announcement at the special meeting.

Tabulation of the Votes

NorthStar II will appoint an Inspector of Election for the NorthStar II special meeting to tabulate affirmative and negative votes and abstentions.

Solicitation of Proxies

The enclosed proxy is solicited by and on behalf of the NorthStar II board of directors. Directors and officers of NorthStar II may solicit proxies on behalf of NorthStar II in person or by telephone, facsimile or other means, for which they will not receive any additional compensation. NorthStar II has engaged D.F. King & Co., Inc. to assist it in the solicitation of proxies. NorthStar II has agreed to pay D.F. King & Co., Inc. an amount initially not expected to exceed $25,000, which includes the payment of certain fees and expenses for its services to solicit proxies, plus reasonable out-of-pocket expenses incurred in connection with their services. In accordance with the regulations of the SEC, NorthStar II also will reimburse brokerage firms and other custodians, nominees and fiduciaries for their expenses incurred in sending proxies and proxy materials to beneficial owners of shares of NorthStar II common stock.

 

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PROPOSALS SUBMITTED TO NORTHSTAR II STOCKHOLDERS

Proposal 1—The NorthStar II Merger Proposal

(Item 1 on the NorthStar II Proxy Card)

In proposal 1, NorthStar II stockholders are being asked to consider and vote on the approval of the merger of NorthStar II with and into the Company, with the Company surviving the NorthStar II merger pursuant to the combination agreement. Approval of the NorthStar II merger proposal requires the affirmative vote of the holders of a majority of outstanding shares of NorthStar II common stock entitled to vote on such proposal. If you abstain or fail to vote your shares, including shares held by a broker or other nominee, in favor of the NorthStar II merger proposal, this will have the same effect as a vote “AGAINST” the NorthStar II merger proposal. The combination agreement is attached as Annex A to this joint proxy statement/prospectus.

The NorthStar II board of directors, following the unanimous recommendation of the NorthStar II special committee, unanimously recommends that NorthStar II stockholders vote “FOR” the NorthStar II merger proposal.

Proposal 2—The NorthStar II Charter Amendment Proposal

(Item 2 on the NorthStar II Proxy Card)

In proposal 2, NorthStar II stockholders are being asked to consider and vote on the approval of the NorthStar II charter amendment that, if adopted, would delete Article XIV related to Roll-Up Transactions (and the associated definitions, all as defined in the NorthStar II charter) from the NorthStar II charter. Article XIV imposes substantive and procedural requirements relating to Roll-Up Transactions, none of which will be applicable if the NorthStar II charter amendment proposal is approved. Pursuant to the combination agreement, approval of the NorthStar II charter amendment proposal is a condition to completing the Combination. If the NorthStar II charter amendment proposal is not approved, the Combination will not be completed even if the NorthStar II merger proposal is approved. Likewise, the effectiveness of the NorthStar II charter amendment proposal is conditioned on approval of the NorthStar II merger and the closing of the Combination. If NorthStar II stockholders do not approve the NorthStar II merger proposal or for any reason the Combination does not close, then the NorthStar II charter amendment will not become effective.

The NorthStar II charter defines a Roll-Up Transaction as a transaction involving the acquisition, merger, conversion or consolidation, either directly or indirectly, of NorthStar II and the issuance of securities of a Roll-Up Entity (as defined in the NorthStar II charter) to the holders of NorthStar II common stock. This definition does not include (1) a transaction involving securities of the Roll-Up Entity that have been listed on a national securities exchange for at least 12 months or (2) a transaction involving the conversion to corporate, trust or association form of only NorthStar II, if, as a consequence of the transaction, there will be no significant adverse change in stockholder voting rights, the term of NorthStar II’s existence, compensation to the NorthStar II advisor or sponsor or NorthStar II’s investment objectives. The NorthStar II merger and the issuance of securities of the Company may be considered a Roll-Up Transaction.

In connection with any Roll-Up Transaction, the NorthStar II charter would require NorthStar II to obtain an appraisal of its assets from a competent independent appraiser. If the appraisal will be included in a prospectus used to offer the securities of a Roll-Up Entity, the appraisal must be filed with the SEC and the states as an exhibit to the registration statement for the offering, and a summary of the appraisal, indicating all material assumptions underlying the appraisal, must be included in a report to stockholders in connection with any proposed Roll-Up Transaction. In addition, in connection with a proposed Roll-Up Transaction, the NorthStar II

 

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charter would require the person sponsoring the Roll-Up Transaction to offer to NorthStar II stockholders who vote against the proposed Roll-Up Transaction the choice of: (1) accepting the securities of the Roll-Up Entity offered in the proposed Roll-Up Transaction; or (2) one of the following: (a) remaining as holders of NorthStar II common stock and preserving their interests therein on the same terms and conditions as existed previously; or (b) receiving cash in an amount equal to the stockholder’s pro rata share of the appraised value of NorthStar II’s net assets. Under the NorthStar II charter, NorthStar II is prohibited from participating in any Roll-Up Transaction: (1) that would result in the NorthStar II stockholders having voting rights in a Roll-Up Entity that are less than those provided in the NorthStar II charter; (2) that includes provisions that would operate to materially impede or frustrate the accumulation of shares by any purchaser of the securities of the Roll-Up Entity (except to the minimum extent necessary to preserve the tax status of the Roll-Up Entity), or which would limit the ability of an investor to exercise the voting rights of its securities of the Roll-Up Entity on the basis of the number of shares held by that investor; (3) in which an investor’s rights to access of records of the Roll-Up Entity would be less than those provided in the NorthStar II charter; or (4) in which any of the costs of the Roll-Up Transaction would be borne by NorthStar II if the Roll-Up Transaction is rejected by the NorthStar II stockholders.

NorthStar II does not intend to comply with the provisions of the NorthStar II charter applicable to Roll-Up Transactions. NorthStar II believes that it would not be practical to complete the Combination if it were required to comply with the provisions of its charter applicable to Roll-Up Transactions and the NorthStar II merger is specifically conditioned on the NorthStar II charter amendment becoming effective.

The Company charter, a form of which is attached as Annex B to this joint proxy statement/prospectus, will govern the surviving entity following completion of the Combination.

Approval of the NorthStar II charter amendment proposal requires the affirmative vote of the holders of a majority of outstanding shares of NorthStar II common stock entitled to vote on such proposal. If you abstain or fail to vote your shares, including shares held by a broker or other nominee, in favor of the NorthStar II charter amendment proposal, this will have the same effect as a vote “AGAINST” the NorthStar II charter amendment proposal.

The NorthStar II board of directors, following the unanimous recommendation of the NorthStar II special committee, unanimously recommends that NorthStar II stockholders vote “FOR” the NorthStar II charter amendment proposal.

Proposal 3 —The NorthStar II Adjournment Proposal

(Item 3 on the NorthStar II Proxy Card)

The NorthStar II special meeting may be adjourned to another time or place, if necessary or appropriate, as determined by NorthStar II, to permit further solicitation of proxies to obtain additional votes in favor of the NorthStar II merger proposal and the NorthStar II charter amendment proposal.

If, at the NorthStar II special meeting, the number of shares of NorthStar II common stock present in person or represented by proxy and voting in favor of the NorthStar II merger proposal and/or the NorthStar II charter amendment proposal is insufficient to approve such proposals, NorthStar II intends to move to adjourn the NorthStar II special meeting in order to enable the NorthStar II board of directors to solicit additional proxies for approval of such proposals.

NorthStar II is asking NorthStar II stockholders to approve the adjournment of the NorthStar II special meeting, if necessary or appropriate, as determined by NorthStar II, to solicit additional proxies in favor of the NorthStar II merger proposal and the NorthStar II charter amendment proposal.

 

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Approval of the proposal to adjourn the NorthStar II special meeting, if necessary or appropriate, as determined by NorthStar II, to solicit additional proxies requires the affirmative vote of the holders of a majority of the votes cast on the proposal at the special meeting. Any shares not voted (whether by abstention, broker non-vote, or otherwise) will not be counted as votes cast and will have no effect on the result of the vote, although abstentions will be considered present for the purpose of determining the presence of a quorum.

The NorthStar II board of directors, following the unanimous recommendation of the NorthStar II special committee, unanimously recommends that NorthStar II stockholders vote “FOR” the NorthStar II adjournment proposal.

 

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THE COMBINATION AND RELATED TRANSACTIONS

The following is a description of the material aspects of the Combination. While the Company, NorthStar I and NorthStar II believe that the following description covers the material terms of the Combination, the description may not contain all of the information that is important to NorthStar I stockholders and NorthStar II stockholders. The Company, NorthStar I and NorthStar II encourage NorthStar I stockholders and NorthStar II stockholders to carefully read this entire joint proxy statement/prospectus, including the combination agreement attached to this joint proxy statement/prospectus as Annex A and incorporated herein by reference, for a more complete understanding of the Combination.

General

Pursuant to the combination agreement, immediately prior to the Mergers, CLNS OP will contribute and convey to the Company, and the Company will accept from CLNS OP, certain entities owning a select portfolio of assets and liabilities (the “CLNS OP Contributed Entities”) in exchange for 44,399,444 shares of Company class A common stock in the event of an IPO, or, in the event of a Listing, 44,399,444 shares of Company class B-3 common stock. Then, immediately following the CLNS OP Contribution, RED REIT will contribute and convey to the Company OP, and the Company OP will accept from RED REIT, certain entities that own a select portfolio of assets and liabilities (the “RED REIT Contributed Entities”) in exchange for 3,075,623 Company OP Units.

Pursuant to the combination agreement, immediately following the RED REIT Contribution, NorthStar I and NorthStar II will merge with and into the Company, with the Company surviving as the combined company. As a result of the Mergers: (i) for NorthStar I stockholders, each share of NorthStar I common stock will be converted into the right to receive 0.3532 shares of Company common stock, classified as follows: (a) in the event of a Listing, 100% as Company class A common stock; and (b) in the event of an IPO, (x) 0.0530 shares as Company class B-1 common stock, and (y) 0.3002 shares as Company class B-2 common stock; and (ii) for NorthStar II stockholders, each share of NorthStar II common stock will be converted into the right to receive 0.3511 shares of Company common stock, classified as follows: (a) in the event of a Listing, 100% as Company class A common stock; and (b) in the event of an IPO, (x) 0.0527 shares as Company class B-1 common stock, and (y) 0.2984 shares as Company class B-2 common stock.

After giving effect to the Combination, it is currently expected that CLNS and its affiliates will receive approximately 37%, NorthStar I stockholders will receive approximately 32% and NorthStar II stockholders will receive approximately 31% of the total consideration issued in the Combination on a fully diluted basis, subject to certain adjustments as set forth in the combination agreement. In addition, as noted above, the exchange ratios may be adjusted only under certain limited circumstances as set forth in the combination agreement, which would adjust these percentages. In the event the Company pursues an IPO, the amount of such dilution will be dependent on the terms of the IPO, including the price per share and the amount of the offering. For every $100 million of equity raised in such initial public offering, assuming an IPO price of $25.00, the Company currently estimates that the approximate ownership of each of CLNS and its affiliates, NorthStar I stockholders and NorthStar II stockholders of the Company would be reduced by approximately 1% on a fully diluted basis.

Background of the Combination

NorthStar I was formed in January 2009 to originate, acquire and asset manage a diversified portfolio of CRE debt, select equity and securities investments, predominantly in the United States. The NorthStar I advisor manages NorthStar I’s day-to-day operations pursuant to an advisory agreement. The NorthStar I Primary Offering was completed on July 1, 2013. From inception through August 4, 2017, NorthStar I raised total gross

 

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proceeds of $1.3 billion in the NorthStar I Public Offering, including gross proceeds of $0.2 billion pursuant to the NorthStar I DRP. NorthStar I previously disclosed that, subject to then-existing market conditions, NorthStar I expected to consider alternatives for providing liquidity to its stockholders beginning five years from the completion of the NorthStar I Public Offering. However, there is no definitive date by which NorthStar I must consider alternative liquidity events, and the NorthStar I board of directors has the discretion to consider a liquidity transaction at any time if it determines that such event is in the best interests of NorthStar I.

NorthStar II was formed in December 2012 to originate, acquire and asset manage a diversified portfolio of CRE debt, select equity and securities investments, predominantly in the United States. The NorthStar II advisor manages NorthStar II’s day-to-day operations pursuant to an advisory agreement. The NorthStar II Primary Offering was completed on November 9, 2016. From inception through August 4, 2017, NorthStar II raised total gross proceeds of $1.2 billion pursuant to the NorthStar II Public Offering, including gross proceeds of $78.8 million pursuant to the NorthStar II DRP. NorthStar II was formed with the expectation that, subject to then-existing market conditions, NorthStar II would consider alternatives for providing liquidity to the NorthStar II stockholders beginning five years from the completion of its offering stage. However, there is no definitive date by which NorthStar II must consider alternative liquidity events, and the NorthStar II board of directors has the discretion to consider a liquidity transaction at any time if it determines that such event is in the best interests of NorthStar II.

During April 2017, the NorthStar I advisor began conferring with members of the NorthStar I board of directors about reviewing possible liquidity alternatives for NorthStar I. On or about April 26, 2017, the NorthStar I advisor disclosed to the independent directors of NorthStar I, or the NorthStar I independent directors, that management of CLNS was considering a potential strategic transaction involving NorthStar I, NorthStar II and CLNS, which we refer to as the potential transaction. Upon receipt of such disclosure and through early May 2017 in anticipation of the potential transaction, the NorthStar I independent directors, who would subsequently compose the NorthStar I special committee, commenced the process of interviewing potential legal and financial advisors to the then to-be-formed NorthStar I special committee.

Also during April 2017, the NorthStar II advisor disclosed to the independent directors of NorthStar II, or the NorthStar II independent directors, that management of CLNS was considering the potential transaction. Upon receipt of such disclosure and through early May 2017, in anticipation of the potential transaction, the NorthStar II independent directors, who would subsequently compose the NorthStar II special committee, commenced the process of interviewing potential legal and financial advisors to the then to-be-formed NorthStar II special committee, including an interview of Moelis on May 2, 2017 at which Moelis discussed process recommendations, identified benefits and challenges of a combination and discussed overall industry dynamics.

On April 17, 2017, CLNS senior management held a meeting at which representatives from J.P. Morgan Securities, LLC, or JPM, CLNS’s financial advisor, participated telephonically. At the meeting, CLNS senior management and JPM discussed the current market backdrop for externally managed CRE mortgage REITs and potential merits of combining NorthStar I and NorthStar II with selected assets and liabilities from CLNS.

On May 11, 2017, the NorthStar I board of directors held a meeting at which members of NorthStar I’s management and representatives of JPM were present. At the meeting, the NorthStar I board of directors reviewed and discussed a letter, draft non-binding term sheet, which we refer to as the term sheet, and related materials prepared and delivered by CLNS describing the potential transaction, pursuant to which (i) NorthStar I and NorthStar II would merge with and into the Company, (ii) CLNS would contribute selected assets and liabilities to the Company, with each party or its stockholders receiving equity in the Company in proportion to the parties’ respective net asset values as determined based on a net asset value analysis performed by an independent third-party valuation firm, and (iii) the Company would then pursue a listing of the Company common stock on a national securities exchange, either with or without a simultaneous underwritten public

 

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offering. Daniel R. Gilbert, NorthStar I’s Chairman, President and Chief Executive Officer, and a managing director of CLNS, discussed with the NorthStar I board of directors the potential market opportunity for the Company and the liquidity and other potential benefits of such a transaction to NorthStar I stockholders. Representatives of JPM also discussed with the NorthStar I board of directors additional detail as to the potential benefits of the potential transaction. The NorthStar I board of directors and management then discussed the formation of a special committee of the NorthStar I board of directors consisting solely of the NorthStar I independent directors. At the conclusion of the meeting, the NorthStar I board of directors adopted resolutions forming the NorthStar I special committee, consisting of Vernon B. Schwartz, Jack F. Smith and James J. Thomas, who were together all of the NorthStar I independent directors at that time. None of the members of the NorthStar I special committee were directors of NorthStar II. The NorthStar I board of directors delegated to the NorthStar I special committee the authority to (i) review, evaluate and negotiate the terms and conditions, and determine the advisability of, and make a recommendation regarding, a potential strategic transaction, including a strategic transaction with NorthStar II and CLNS, and (ii) establish, approve, modify, monitor and direct the process and procedures related to the review, evaluation and negotiation of a potential strategic transaction. Between the date of its formation and date of announcement of the transaction, the NorthStar I special committee met formally on numerous occasions, as described below, and also had many conference calls and other communications.

Also on May 11, 2017, the NorthStar I special committee held its initial meeting. At the meeting, the NorthStar I special committee (i) appointed Mr. Schwartz as Chairman of the NorthStar I special committee, (ii) selected Alston & Bird to serve as legal counsel to the NorthStar I special committee, (iii) selected Credit Suisse to serve as financial advisor to the NorthStar I special committee (after interviewing and reviewing proposals from, and disclosure of material relationships of, four potential financial advisors, including Credit Suisse), and (iv) engaged in a preliminary discussion regarding the initial term sheet and the potential transaction, including the NorthStar I special committee’s evaluation of potential strategic alternatives to such a transaction and the potential need for a “go-shop” in connection with any potential transaction with NorthStar II and CLNS. Alston & Bird and Credit Suisse were subsequently engaged as the NorthStar I special committee’s legal and financial advisors, respectively.

Also on May 11, 2017, following a meeting attended only by the NorthStar II independent directors and representatives of Greenberg Traurig, NorthStar II’s securities and tax legal counsel, the NorthStar II board of directors held a meeting at which members of NorthStar II’s management and representatives of JPM were present. At the meeting, the NorthStar II board of directors reviewed and discussed a presentation, letter and the same term sheet presented to the NorthStar I board of directors. Daniel R. Gilbert, NorthStar II’s Chairman, President and Chief Executive Officer, and a managing director of CLNS, discussed with the NorthStar II board of directors the potential market opportunity for the Company and the liquidity and other potential benefits of such a transaction to NorthStar II stockholders. Representatives of JPM also discussed with the NorthStar II board of directors additional detail on the potential benefits of the potential transaction. The NorthStar II board of directors and management then discussed the formation of a special committee of the NorthStar II board of directors consisting solely of the NorthStar II independent directors. At the conclusion of the meeting, the NorthStar II board of directors formed the NorthStar II special committee consisting of Justin P. Meagher, Chris S. Westfahl and Winston W. Wilson, who were together all of the NorthStar II independent directors at that time. None of the members of the NorthStar II special committee were directors of NorthStar I. The NorthStar II board of directors delegated to the NorthStar II special committee the power to (i) review, evaluate and negotiate the terms and conditions of the potential transaction and determine whether such potential transaction is in the best interests of NorthStar II and whether it is fair and reasonable to NorthStar II and on terms and conditions no less favorable to NorthStar II than those available from unaffiliated third parties, (ii) recommend that the NorthStar II board of directors approve the potential transaction, (iii) determine that pursuing the potential transaction is not advisable and (iv) determine whether it is advisable and in the best

 

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interests of NorthStar II to consider other strategic alternatives other than the potential transaction. Between the date of its formation and date of announcement of the transaction, the NorthStar II special committee met formally on numerous occasions, as described below, and also had many conference calls and other communications.

Also on May 11, 2017, the NorthStar II special committee held its initial meeting. At the meeting, the NorthStar II special committee (i) appointed Mr. Wilson as Chairman of the NorthStar II special committee, and (ii) selected Venable LLP, or Venable, to serve as legal counsel to the NorthStar II special committee. In addition, during such meeting, representatives of Venable reviewed the NorthStar II special committee’s role and authority and provided an overview of the duties of directors under Maryland law, including when acting as a member of a special committee in connection with a potential interested transaction. The NorthStar II special committee discussed the interviews it had conducted with each of Moelis and another potential financial advisor, including the proposed fees and the qualifications and independence from CLNS of each of the potential financial advisors.

Also on May 11, 2017, NorthStar I, NorthStar II and CLNS entered into a confidentiality agreement governing the exchange of information among NorthStar I, NorthStar II and CLNS in connection with the potential transaction.

On May 16, 2017 and May 17, 2017, conference calls were held between representatives of Alston & Bird and representatives of Venable for the purpose of discussing the process by which NorthStar I and NorthStar II might coordinate their evaluation and negotiation of a potential transaction with CLNS in order to enhance the negotiating leverage of NorthStar I and NorthStar II by presenting, where appropriate, a unified position as well as provide economic efficiencies for both NorthStar I and NorthStar II.

On May 17, 2017, the NorthStar II special committee held a meeting at which representatives of Venable and Greenberg Traurig were present. At the meeting, the NorthStar II special committee reviewed and discussed (i) the term sheet, including the advisability of a “go-shop” in connection with any potential transaction, and (ii) the potential engagement of Moelis as financial advisor to the NorthStar II special committee, including the terms of the draft engagement letter proposed by Moelis, or the Moelis engagement letter. Following discussion, the NorthStar II special committee resolved to engage Moelis as financial advisor to the NorthStar II special committee, subject to the negotiation of the Moelis engagement letter. Moelis was subsequently engaged as the NorthStar II special committee’s financial advisor.

Also on May 17, 2017, NorthStar I, NorthStar II and CLNS began the process of conducting due diligence reviews on each other as parties to the potential transaction through the creation of “virtual data rooms” containing certain information about, among other things, each party’s business, operations, investments and financial condition.

Also on May 17, 2017, representatives of CLNS’s counsel, Hogan Lovells US LLP, or Hogan Lovells, Venable and Alston & Bird held a conference call to discuss, among other matters, CLNS’s request that the proposed term sheet be signed by NorthStar I, NorthStar II and CLNS OP, and the desire of the NorthStar I special committee and the NorthStar II special committee for the inclusion of “go-shop” provisions in any definitive agreement with respect to the potential transaction.

On May 18, 2017, a conference call was held among Mr. Schwartz and representatives of CLNS’s management, together with Alston & Bird and Credit Suisse, to discuss, among other things, preliminary financial matters relating to NorthStar II and the types of assets and liabilities proposed to be contributed by CLNS in the potential transaction.

Also on May 18, 2017, a conference call was held among Mr. Wilson, representatives of CLNS’s management, Moelis, Venable and Greenberg Traurig to discuss, among other things, preliminary financial matters relating to

 

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NorthStar I and the types of assets and liabilities proposed to be contributed by CLNS in the potential transaction.

On May 19, 2017, the NorthStar I special committee held a meeting at which representatives of Alston & Bird and Credit Suisse were present. At the meeting, representatives of Alston & Bird led a discussion of (i) the NorthStar I special committee’s duties under Maryland law in the context of a potential strategic transaction and (ii) certain provisions of NorthStar I’s charter and advisory agreement that were relevant to a potential transaction. The NorthStar I special committee also discussed the merits of coordinating negotiations of the potential transaction with the NorthStar II special committee and its legal and financial advisors. Credit Suisse provided the NorthStar I special committee with a preliminary overview of the asset class composition of NorthStar I and NorthStar II and the types of assets and liabilities proposed to be contributed by CLNS in the potential transaction.

On May 22, 2017, the NorthStar I special committee held a meeting at which representatives of Alston & Bird and management of NorthStar I were present. At the meeting, representatives of NorthStar I management discussed with the NorthStar I special committee potential compensation of members of the NorthStar I special committee in connection with their service on the NorthStar I special committee. The representatives of management of NorthStar I then left the meeting and the NorthStar I special committee continued the discussion of compensation of its members. At the conclusion of the meeting, the NorthStar I special committee adopted resolutions providing for compensation of its members as follows: (i) a lump sum of $60,000 to each member of the NorthStar I special committee other than the Chairman; and (ii) a lump sum of $75,000 to the Chairman. In addition, the NorthStar I special committee resolved that if the potential transaction was not consummated by December 31, 2017, then each member of the NorthStar I special committee would be entitled to additional compensation in amounts not materially inconsistent with the fees paid to members of committees of boards of directors of other companies in their evaluation of strategic alternatives.

On May 23, 2017, an affiliate of CLNS engaged Duff & Phelps, LLC, a nationally recognized third-party independent valuation and consulting firm, which we refer to as the third-party firm, to perform certain valuation services with respect to a select portfolio of assets and liabilities of CLNS in connection with the potential transaction.

On May 24, 2017, the NorthStar II special committee held a meeting at which representatives of Venable, Greenberg Traurig and Moelis were in attendance. The NorthStar II special committee discussed the term sheet delivered by CLNS to the NorthStar II board of directors on May 11, 2017. Representatives of Moelis led a discussion of the pro-forma ownership of the Company and the then-contemplated assets and liabilities of each party expected to be included in the potential transaction. The NorthStar II special committee discussed the advisability of conducting a market check for NorthStar II either before or after entering into any definitive agreement with respect to the potential transaction. The NorthStar II special committee, after such discussion, concluded that a post-signing market check was preferable and that any term sheet and definitive agreement regarding the potential transaction should include a “go-shop” period. Representatives of NorthStar II management joined the meeting to discuss with the NorthStar II special committee potential compensation of members of the NorthStar II special committee in connection with their service on the NorthStar II special committee. The representatives of management of NorthStar II then left the meeting and the NorthStar II special committee continued the discussion of compensation of its members.

On May 25, 2017, the NorthStar I special committee held a meeting at which representatives of Alston & Bird and Credit Suisse were present. At the meeting, the NorthStar I special committee reviewed and discussed the draft term sheet delivered by CLNS to the NorthStar I board of directors on May 11, 2017. Credit Suisse also discussed with the NorthStar I special committee, among other things, preliminary observations regarding the public trading market for certain commercial mortgage REITs, potential strategic alternatives for NorthStar I and certain considerations in respect of the potential transaction, a preliminary financial overview of the

 

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respective portfolios proposed to be contributed by each of NorthStar I and NorthStar II and the types of assets and liabilities proposed to be contributed by CLNS in the potential transaction, the status of NorthStar I’s due diligence review, and potential next steps. Among the potential strategic alternatives for NorthStar I that were discussed were a cash sale or liquidation of NorthStar I, an underwritten initial public offering of only NorthStar I, and a sale or merger of NorthStar I to or with other third parties. After such discussion, and based on the NorthStar I special committee’s knowledge of NorthStar I’s business and financial condition, and its understanding of the benefits and risks of the potential transaction and such potential strategic alternatives, the NorthStar I special committee determined that continuing to negotiate the term sheet regarding the potential transaction represented the best liquidity option for NorthStar I at the time. The NorthStar I special committee also discussed whether it would be advisable to conduct a market check for NorthStar I prior to entering into a definitive agreement with respect to the potential transaction or to require a “go-shop” period following execution of such definitive agreement. The NorthStar I special committee, after such discussion, concluded that a post-signing market check was preferable and that any term sheet and definitive agreement regarding the potential transaction should include a “go-shop” period.

On May 26, 2017, JPM provided to Credit Suisse and Moelis CLNS management’s preliminary combination model with proposed equity allocations and projected consolidated financials of the Company.

Also on May 26, 2017, the NorthStar II special committee held a meeting at which representatives of Venable, Greenberg Traurig and Moelis were in attendance. At the meeting, the NorthStar II special committee discussed (i) the negotiation of the term sheet, (ii) the status of Moelis’ financial analysis of the potential transaction, (iii) the due diligence review being conducted on NorthStar I and the select portfolio of proposed assets and liabilities of CLNS and (iv) the compensation of its members. At the conclusion of the meeting, the NorthStar II special committee adopted resolutions providing for compensation of its members as follows: (i) a lump sum of $60,000 to each member of the NorthStar II special committee other than the Chairman; and (ii) a lump sum of $75,000 to the Chairman; provided that such compensation would be for services rendered until December 31, 2017 and that compensation to the NorthStar II special committee for services rendered after December 31, 2017 would be considered at such time.

Between May 28, 2017 and May 30, 2017, representatives of Venable, Greenberg Traurig and Alston & Bird discussed and exchanged revised drafts of the term sheet. During that time, (i) Alston & Bird and Credit Suisse also conferred regarding revisions to the term sheet on behalf of NorthStar I and (ii) Venable, Greenberg Traurig and Moelis also conferred regarding revisions to the term sheet on behalf of NorthStar II.

On May 30, 2017, in accordance with the NorthStar II special committee’s directives, representatives of Moelis participated in a conference call with members of CLNS management and representatives of JPM to review the consolidated model and assumptions provided by CLNS.

On May 31, 2017, in accordance with the NorthStar I special committee’s directives, representatives of Credit Suisse participated in a conference call with members of CLNS management and representatives of JPM to review the consolidated model and assumptions provided by CLNS.

Also on May 31, 2017, the NorthStar I special committee held a meeting at which representatives of Alston & Bird and Credit Suisse were present. At the meeting, the NorthStar I special committee reviewed and discussed with Credit Suisse, among other things, a preliminary financial overview of the respective portfolios of assets and liabilities proposed to be contributed by each of NorthStar I, NorthStar II and CLNS in the potential transaction and certain process and governance matters relating to the potential transaction. The NorthStar I special committee also reviewed and discussed proposed revisions to the term sheet, which discussion resulted in the NorthStar I special committee proposing additional term sheet revisions to be communicated to CLNS, including the addition of a “go-shop” period, the proposed terms of a management agreement between the

 

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Company and an external manager affiliated with CLNS, and the methods by which consideration payable to NorthStar I stockholders in the potential transaction would be determined. The NorthStar I special committee also directed Alston & Bird to discuss such proposed revisions with Venable.

Also on May 31, 2017, the NorthStar II special committee held a meeting at which representatives of Venable, Greenberg Traurig and Moelis were present. At the meeting, the NorthStar II special committee reviewed and discussed potential revisions to the term sheet (including the addition of a “go-shop” period and the proposed terms of the management agreement), negotiation strategy and the potential risk of NorthStar I and CLNS entering into a transaction without NorthStar II.

On June 1, 2017, the NorthStar II special committee held a meeting at which representatives of Venable, Greenberg Traurig and Moelis were present. At the meeting, representatives of Moelis discussed with the NorthStar II special committee the commercial mortgage REIT market in general, strategic alternatives potentially available to NorthStar II, and benefits and considerations with respect to the potential transaction. The NorthStar II special committee discussed the proposed application of the respective net asset values of each of the NorthStar I, NorthStar II and the select portfolio of assets and liabilities to be contributed by CLNS, which values would be based, in part, on a net asset value analysis performed by an independent third-party valuation firm, to allocate ownership of the Company among NorthStar I, NorthStar II and CLNS. The NorthStar II special committee also discussed NorthStar II’s and NorthStar I’s potential combined comments to the term sheet, including revisions to CLNS’s proposed outside date, initial public offering terms, breakup fees and governance provisions and the addition of a 45-day “go-shop” provision, and authorized Venable to send the revised term sheet to CLNS.

Also on June 1, 2017, after discussions between Alston & Bird and Venable, NorthStar I and NorthStar II sent a revised term sheet to CLNS.

On June 3, 2017, representatives of Hogan Lovells, Venable and Alston & Bird held conference calls regarding the revised term sheet.

On June 7, 2017, the NorthStar II special committee held a meeting to discuss (i) initial public offering or listing mechanics with respect to the Company and (ii) the status of the legal and financial due diligence review being performed on NorthStar I and the select portfolio of assets and liabilities of CLNS. Representatives of Venable, Greenberg Traurig and Moelis were in attendance.

On June 8, 2017, Hogan Lovells sent a revised term sheet to Venable and Alston & Bird that, among other changes, proposed a 30-day “go-shop” period and an outside date of 12 months following receipt of the NorthStar I stockholder approval and the NorthStar II stockholder approval of the potential transaction, as well as provided CLNS OP the flexibility to pursue an initial public offering or listing of the Company within six months after receipt of the NorthStar I stockholder approval and the NorthStar II stockholder approval so long as the terms of the initial public offering or listing are within certain agreed-upon parameters.

On June 9, 2017, the NorthStar II special committee held a meeting at which representatives of Venable, Greenberg Traurig and Moelis were present. At the meeting, the NorthStar II special committee discussed the engagement by NorthStar II of the third-party firm to perform certain valuation services with respect to the assets and liabilities of NorthStar II. As noted above, an affiliate of CLNS had already engaged the third-party firm to perform certain valuation services with respect to its assets and liabilities in connection with the potential transaction and, as noted below, the third-party firm was also to be engaged by NorthStar I to perform certain valuation services with respect to the assets and liabilities of NorthStar I. The NorthStar II special committee also discussed the revised draft of the term sheet received from CLNS on June 8, 2017, which discussion resulted in the NorthStar II special committee proposing additional term sheet revisions and

 

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