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Neuberger Berman Real Estate Se Message Board

  • sunshine_invn sunshine_invn Sep 17, 2008 12:33 PM Flag

    Deleveraging of NRO..end of the Line.

    This is getting very dangerous. Remember that NRO has $473m in leverage and 71.8m shares outstanding.

    If the NAV gets to $6.58, this fund will be forced to de-lever as per the 1940 Act.

    They cannot have over 50% leverage, so an NAV of $473m or lower will force a de-leveraging of this fund.

    Once de-levered, not only is the dividend cut or eliminated, but the fund is forced to reduce / eliminate holdings.

    Buying this now is risky business----not to mention that commercial real estate is the next shoe to fall.

    NRO could be a $2-$3 stock if this occurs.

    I am not trying to spread panic, but remember this fund operates like a margin account----friend or foe.

    Buyer beware on this one, but I would not want to be leveraged in commercial real estate at this time.

    There are no choices but to de-lever if (and possibly before) NAV gets to these levels.

    If they are prudent, they are probably selling now as compared to being forced to sell.

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    • 1spc Sep 18, 2008 10:20 AM Flag

      Check their website. NB will have redeemed 50% of their auction rate preferreds, at par, with full interest paid, by October 1, 2008. No one is going to lose a penny.

    • You are half correct. If NAV falls to $472 million, NRO is bankrupt. Assets = Debt. There is no more book value. This is a problem with leveraging on a down market. Assets keep decreasing while debt stays the same. I told you guys a few months ago, NRO should not be leveraging in this down market anymore. Guess lehman people can't live without leveraging even in a down market.

    • Why don't they pay down some debt down instead of having such large distributions?

    • Current NRO NAV is around $8.35. This is still around 3% higher than the July low despite three dividend payments and a big market correction.

      However, you should sell your shares if you are really concerned about your "what if" scenario.

      • 2 Replies to Python_71
      • NRO Assets = $1.041 Billion

        From what I understand, preferred stock is equity. Seems we are talking about $236.5 million in actual DEBT as a result of the ARS refinancing arrangement. I don’t think NRO would be given a Triple-A rating if it had too much debt. You may need to take that up with Fitch if you don’t agree.

        Debt is not bad if used prudently to generate extra income at economical rates. I like the 1940 Act since I agree that no fund should be allowed to borrow more than 33 1/3% of their total assets. Many of the financial problems we see today are the result of EXCESSIVE leverage taken by financial institutions that operated without this limitation - NRO is not part of that camp.

        Sorry, still not going to sell my NRO shares at a discount ;)

      • You can say what you want, but I would like one person to give me one statement that I am factually wrong on. I am open to hearing all of it, but what am I wrong on?

        I hope the NAV doesnt go to $6.58, but am I incorrect to conclude that liquidation occurs at this point?

        By the way, I am not long nor am I short NRO....I have been long it in the past, but currently hold no position.

        I am merely relaying the comments from the head honcho at Newberger. Call him directly if you want...I welcome any intelligent comments...but as far as the random commetns about my bashing, they hold no merit.

        Intelligent / well thought out comments can reply..

    • Question:

      But does the NAV lie? By that doesn't the daily NAV take into account all known liabilities? If so, how could this end up a $2-$3 stock if leverage goes away? This thing has a NAV over $8 as of yesterday. That says to me if they could do an orderly sale they could close this fund and send me a check for more then it was selling for at close yesterday.

      I will listen to someone who wants to make the case my logic is worng, but I am not seeing your point.

      • 2 Replies to kahe_us
      • Another way to explain this is suppose you did a 2% cash advance on your credit card to buy a REIT that pays 12%.

        Your yield would be 24% on your money (supposing you bought 2x), right....?

        But what happens when you sell half of it to pay the credit card back?

        Your yeild gets cut in half, right?

      • The NAV was $8 and change yesterday. What I am saying is that if the NAV falls below $6.58 (473m), then the leverage is at 50%--and they have to liquidate per the Securities Act of 1940.

        The leverage has been and will always be $473m---this will not change--it how much money was borrowed to start the fund.

        The whole idea behind a REIT is that they borrow money at a daily rate of 3-4%, buy REITS that yield 7-12%, and can offer shareholder a high return----they margin it up...aka leverage.

        The problem is what happens if they are forced to sell at the lows?

        All of a sudden, there is no more leverage and you dont get a juicy monthly return anymore.

        So, the share price has to drop to attract new investors....

        If they no longer borrow money, then the return will at least get cut in half (if not more) and the share price would get cut in half also.

        Let me know if this makes sense.....Python can probably chime in on this, but I got this information after talking to the specialist at Newberger.

    • One other point is that "yields don't lie" and if it sounds too good to be true, it probably is.

      Unwinding of LEH and uncertainty around NB is not helping.

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