Great News - Northstar Realty Finance To Be Dropped From Mortgage REIT Index

Often, a publicly traded company being dropped out of a major index such as the FTSE NAREIT Mortgage REIT Index might be viewed in a negative light by investors. However, in this case, shareholders of Northstar Realty Finance

and its external manager Northstar Asset Management Group, Inc.

should be quite pleased.

Why This Is Great News FBR & Co. analyst Daniel Altscher, in a note released on Friday, December 05, 2014 confirmed that Northstar Realty Finance will be added into two FTSE NAREIT indices as an "Equity Diversified REIT." These moves are a formal recognition that the Dec. 3, 2014 closing of the $4 billion M&A Griffin-American Healthcare REIT II deal is a milestone which has completed the transition of Northstar Realty from a mREIT to a REIT which is more than 75 percent invested in a portfolio of hard real estate assets. • http://www.benzinga.com/real-estate/reit/14/09/4863846/northstar-realty-finance-corp-continues-to-grow

Source: NRF November Presentation The Griffin-American Healthcare REIT II portfolio is comprised of 289 buildings diversified across 32 states, the United Kingdom and all four clinical asset classes: medical office buildings, senior housing, skilled nursing facilities and hospitals. Notably, the Northstar management team includes James Flaherty III, the former CEO and Chairman of $20 billion healthcare REIT stalwart HCP, Inc.

. NRF Is Still A Complex Story However, Northstar Realty Finance is still not an easy company for most equity REIT investors to understand at a glance. This is underscored by the current ~9 percent NRF dividend yield, and indication of some perceived uncertainty or risk associated with the dividend.

Source: NRF November Presentation The Northstar real estate portfolio includes: hotels, healthcare, manufactured housing, triple-net lease office/industrial, as well as multi-family apartments. In addition to the real estate portfolio, Northstar Realty still owns a significant portfolio of real estate securities and non-traded real estate investments. International Investments

Northstar is clearly geographically, industry and sector agnostic as it pursues a vast array of opportunistic real estate investments. Unfortunately, most REIT investors typically prefer: simple, internally managed, sector pure-play REITs. Northstar May Not Be Fully Valued

Source: NRF November Presentation Based on multiples of cash available for distribution (CAD), and a ~9 percent yield, Northstar Realty despite recent gains, may still be undervalued by as much as 50 percent due to its relatively high leverage, complexity and external management. Potential Headwinds - Recent Headlines The recent implosion of American Realty Capital Properties

share prices over accounting issues and potential conflicts of interest involving an aborted sale of Cole Capital -- its non-traded REIT advisory business -- will serve to reinforce the "keep it simple" REIT investor bias. While the litigation surrounding that specific deal has recently been settled, (and had absolutely nothing to do with Northstar Realty or its external manage NSAM), the resulting "headline hangover" will certainly not help the valuation of complex equity REITs. • http://www.benzinga.com/news/earnings/14/11/5009833/the-saga-shaking-the-reit-world However, Northstar Realty could always choose to create transparency and potentially enhance shareholder value in the future by spin-outs of one or more pure-play REITs if Mr. Market continues to discount NRF's diversified portfolio. Investor Takeaway Northstar Realty will be added to both the FTSE NAREIT All Equity REITs Index and FTSE NAREIT Equity REITs Index on Dec. 19, 2014. This could be a step along the way to eventual inclusion into the MSCI REIT Index (RMZ), (which does not allow mortgage REITs). This in turn would lead to more institutional buying of NRF shares. Regardless, investors interested in high-yield equity REITs, (and willing to undertake the due diligence required to understand this investment), may want to consider taking a long look at Northstar Realty Finance.