Keefe, Bruyette & Woods Elevates High-Yield Northstar Realty Finance To Outperform

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On March 5, Keefe, Bruyette & Woods issued a report on diversified REIT Northstar Realty Finance Corp

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(NYSE: NRF), raising its rating from Market Perform to Outperform. Additionally, in a separate update, KB&W reiterated its Outperform rating on NRF's external manager NorthStar Asset Management Group Inc (NYSE: NSAM), and raised its NSAM price target from $24 to $27 per share.

Tale Of The Tape

Northstar Asset Management was spun out of NRF on June 30, 2014 and pays a separate dividend, (thus reducing the NRF dividend by a comparable amount at the time of the spin).

NRF: Evolution Into Diversified Equity REIT

Northstar asset classes include: Healthcare, Hotel, Manufactured Housing, Net Lease, Multi-Family Apts, Office/Industrial, Real Estate Securities/PE Investments and recently acquired European Office Assets.

NRF: February 2015 European Asset Spin-Out Plan

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KB&W - NRF Outperform, $21 PT

The KB&W new PT is based on "roughly an 8.3% dividend yield on [its] 2016E dividend of $1.75," and represents a ~16 percent upside in price based on a close of $18.11 on Friday March 6.

Cash Available For Distribution (CAD)

KB&W noted that it had raised its "CAD estimates on capital deployment from NRF off its recent capital raise."

1Q15 CAD estimate increases to $0.46 from $0.45 "as we fine-tune our model."
Increase 2015 CAD estimate to $1.86 from $1.84
Raise 2016 CAD estimate to $1.96 from $1.92.

NRF - 4Q14 Earnings Highlights

NorthStar reported "4Q14 GAAP EPS of ($0.47) and CAD of $0.44," a penny increase over 3Q14.
"NRF had declared a dividend of $0.40, flat from $0.40 for 3Q. This equates to a CAD payout ratio of 91%."
"CAD adjusts for several items including the add-back of $82.9 million of depreciation and $39.6 million of realized and unrealized losses."

KB&W noted, "NRF made specific mention of its goal to become included in the MSCI US REIT Index (ticker: RMZ). The next rebalancing date is in May… the spin of NRF Europe was a signal to the market that management is willing to act more aggressively if valuations do not improve."

NRF Investment Update - Q4 Earnings Call

The company reported the following investment activity:

Health Care Assets: "As announced earlier, the company closed an agreement to acquire Griffin-American for $4 billion."
Hotel Portfolio: NRF closed on the previously announced acquisition of a $1.1 billion hotel portfolio.
Net Lease: "As previously announced, NRF entered into an agreement to acquire a €1.1 billion European office portfolio. The company also entered into an agreement to acquire €500 million of additional European office properties."
Limited Partnership Interests: "NRF invested $152 million to acquire limited partnership interests with an initial NAV of $160 million. The yield is expected to be 15%."

Exhibit 1 "shows the company's assets under management pro forma for the acquisitions announced after quarter end that have not yet closed."