NSAM was tax deferred. NRE is fully taxable. First, NRF recognizes tax gain to the extent the fmv of nre stock exceeds the tax basis in nrf's hands. This gain will be short term capital gain in nrf's hands which converts to ordinary income in the dividend paid to shareholders. It also increases the percentage of nrf''s dividend which is taxable to shareholders.
Second, the fair market value of NRE stock (paper value) received by shareholders is treated for tax purposes the same as a cash dividend.
On a 1 for 1 basis, I think you can expect the fmv of nre stock to be from 2.60 to 3.40 per share. Add to this at least 1.60 for the cash dividend and you are looking at a total dividend per nrf (pre reverse split) share of 4.20 to 5.00 per share.
You own 10,000 shares? You could be looking at 50,000 of taxable ordinary (non-qualifying) dividend this year when you got 16,000 of cash. That significant for you?
I HOPE that a big percentage of the total dividend is tax deferred return of capital. The roc portion reduced tax basis in nrf stock, first to zero, and then is taxed as a long term capital gain if your stock has been held for more than one year. But I have no way of reasonably estimating this percentage.
The good news is the tax basis of the nre stock in the receiver's hands is the same fmv per share used to calculate the dividend. Let's say to illustrate that fmv is 3.00 (on a 1 for 1 basis) and you sell nre for 3.40.
Your short term gain is 40 cents as you collect 3.40 in cash. I suspect there may be heavy selling of nre to raise cash to pay the income taxes.
This is on a 1 for 1 basis. Actual will be 1/6th the shares at 6 times the value, but the dollar amount of your distribution will be the same. We now know nrf expects 377.9 million shares will be outstanding on the record date. This is before the 1 for 2 reverse split which will happen immediately after the distribution of nre stock.
Book value nre equity in latest prospectus is 876 million / 377.9 million shares = 2.318 per share.
For every 100 million of gain recognized by nrf / 377.9 = add 26.5 cents.
Thus, for example, if the unrealized gain is 300 million add .795 to 2.318 resulting in 3.113 per 1 for 1 share.
I don't think the gain will be less than 100 million or more than 400 million with 300 million as the midpoint.
Thus, the 1 for 1 per share value could range from 2.583 to 3.378 with 3.113 as the midpoint.
Copy & paste:
"After the Distribution, we will be an independent, publicly traded company. Immediately after the Distribution date, we expect that approximately 63.0 million shares of our Common Stock will be issued and outstanding, based upon the 377.9 million shares of NorthStar Realty common stock expected to be outstanding on the record date (based on the total shares outstanding on September 30, 2015 plus additional shares expected to be issued pursuant to NorthStar Realty’s forward sale agreement prior to the record date). The actual number of shares of our Common Stock to be distributed will be determined based on the number of shares of NorthStar Realty common stock outstanding as of the record date."
Fewer than I expected. That's good.
Filing was 4 minutes after 4:00, so they could have issued a press release. But immediately after the close on Friday most desks are empty......many skip out early. Press releases then don't get much bang for the buck.
SEC filings get even less which is why nrf files bad news like robber shares, insider sales and the stockholders' compensation vote results on Friday nights.
I suspect a press release Monday morning between 8 and 8:30 am when it will be noticed by a lot more people. If they have half a PR brain, they will also state what they expect (not promise), dividend wise. They could say that nre will not pay a Nov dividend, but nrf expects to pay 42 cents on a pre-reverse split basis.
Then they say that because nre was part of nrf for October, it expects to pay a partial quarter dividend in Feb, but NRF expects the total dividend in Feb on a pre-split basis will, when combined, total at least 42 cents on a pre-reverse split basis. Then add the usual words about subject to bod declaration in all cases.
The market hates uncertainty. An announcement about dividend intentions (not promises), even if there is to be no aggregate increase, takes away the uncertainty because once they say what they expect or intend, it becomes a promise to the market. The companies would move mountains to do what they say they expect because they know the price punishment for not doing so would be very severe.
Here's the official word straight from the amended prospectus:
"Shares of our Common Stock will be distributed to holders of shares of NorthStar Realty common stock of record as of the close of business, Eastern Time, on October 22 , 2015, which will be the record date. Each such holder will receive one share of our Common Stock for every six shares of NorthStar Realty common stock held on the record date. No fractional shares of the Company will be issued in connection with the distribution. Holders of NorthStar Realty common stock that would otherwise be entitled to fractional shares of the Company as a result of the Distribution will receive a check for the cash value thereof. In connection with, and immediately following, the Distribution, NorthStar Realty expects to effect a 1-for-2 reverse stock split of NorthStar Realty common stock, or the NRF Reverse Stock Split. No fractional shares of NorthStar Realty common stock will be issued in the NRF Reverse Stock Split. Holders of NorthStar Realty common stock that would otherwise be entitled to fractional shares as a result of the NRF Reverse Stock Split will receive cash in lieu thereof, which will generally be taxable. The Distribution will be effective at 11:59 p.m. Eastern Time on October 31 , 2015 and the NRF Reverse Stock Split will be effective at 12:01 p.m. Eastern Time on November 1, 2015 ."
All these estimations of nre's value per share assume a 1 for 1 spin ratio, which is what nrf used in its presentation slides on the proposed spinoff.
The actual spin ratio has not been announced yet and all the registration statements and amended registration statements are still in fill-in-the-blank form when it comes to spin ratio and date of distribution.
Nevertheless, nrf is not going to let nre go public 1 for 1 with 20 cents per share of cad because even if it trades at 25 times that's only a 5 dollar stock. If it trades at 10 times it's 2 bucks in the penny stock class.
My guess is the spin ratio will be 1 nre share for every 4 nrf shares held. That will result in about 100 million nre shares outstanding with a cad per share estimated last Feb of 80 cents.
I would not be too surprised with 1 for 5, but my guess is 1 for 4. While the per share nre amounts will be 4 times what we have talked about, the dollar amount recognized by nrf shareholders will be the same. To illustrate, if you own 400 nrf, instead of getting 400 nre shares worth 3 each, you will get 100 worth 12 each. Either way the distribution is 1200 bucks.
I think they only had 1 day to buy last Q. The buyback was announced after the close on 9/29 and I believe their blackout began on 10/1 (and it will not end until ??? business days after earnings are announced) so that leaves one trading day, 9/30, after the public got notice but before this Q's blackout period began.
Yes, this looks like a VERY significant taxable event. The company in the past has consistently refused to provide ANY tax guidance. You wait until the end of Feb to find out what last year is all about, but then it is too late to do anything about it. That's why I did a Roth conversion in 2014. If my income is lower than planned, I let the conversion stand. If my income is too high, I recharacterize the roth conversion to a regular ira rollover. I created income which I can undo after the year is closed (until 10/15/15 for 2014 conversion).
We should all ping the company and especially the analysts to press for tax guidance this year. They may not have a precise number/percentage taxable, but they know the ballpark (plus or minus 15%) as I type. By mid November they will know plus or minus 5%. Why won't they share that with us?
Mine was the midpoint on between 200 and 400 million gain recognized on the distribution of nre stock on 400 million shares. Thus my number could be plus or minus 25 cents resulting in a range of 2.90 to 3.40. I hope the low end or lower is the actual.
Actually, what they are hoping for is much higher multiples post spin. Using the numbers from the nre spin presentation slides, nrf has 1.76 of cad pre spin. At 12.50, price is 7.10 times cad, a worse than horrible multiple.
1.76 becomes 1.50 for nrf and 20 cents for nre post spin. 6 cents is lost to the cost of another public company.
Suppose 1.50 post spin trades at 10 times (a dismal multiple for an equity reit). That's 15.00 for ex-nre NRF.
They hope nre trades at 25 times 20 cents, which results in a 5.00 price.
Thus, 12.50 becomes 20.00 (15 + 5), they and I hope.
Ah, now I got it thanks to a private email tip. It's my first grade math teacher's fault because she didn't teach me how to subtract (had to look that up too) 3 from 12.
Still don't know. Tipster told me it was 9.
Hmmmmm, that's really a tough question. My schooling leaves me struggling to arrive at an answer.
Somebody help me out. If NRF is trading at 12 and they get rid of NRE worth 3, how much is NRF worth after they distribute (big word....I had to look it up) NRE? Try as I might, I just can't figure it out.
I guess I flunked this question. BUT, it's not my fault (never take individual responsibility). It's always somebody else's fault. Poster didn't ask the question simple enough for me, so it's poster's fault.
Of course you can cite it.......it's in the public domain. At IV you can use message number. Here, I suppose it's by date and title.
I have no objection to a COMPLETE copy & paste, as some parts of my posts need the context (or prefix) of other parts.
I ask that you NOT attempt to paraphrase my posts as I am precise in my language, frequently using terms of art. An attempt at translation by a layperson may screw it up royally.
Help yourself. The methodology is valid. Just change taxable income, hence e&p, without the gain on nre distribution, add various gains....200, 300, 400 million for example, subtract preferred dividends and the balance is taxable to common. Then, taxable / total distributions to common = pct ordinary income. The balance is roc.
Since the properties are so new (and the best evidence of fmv is an arms length transaction between unrelated parties) I think all can agree that the fair market value of the properties was the purchase price at the time the P&S contracts were signed.
We are trying to measure the fmv of the stock distributed, not the real estate. However the dominant indicator of the value of the stock will be the fair market value of the properties (and other assets) minus total liabilities.
The fmv of the properties will be determined principally by dividing current noi by todays cap rates. Cap rates are influenced by a multitude of factors including, but not limited to, the vacancy rate, length of leases in place, financial strength of tenants, etc, etc.
The properties cost roughly 2.6 billion with roughly 1.6 billion in debt leaving stockholders' equity at 1 billion (960 million in s-11a). That's book value which I suspect approximates tax basis of the stock in nrf's hands. Absent demonstrable changes in market factors, I think we can safely assume no appreciation over cost of the iconic tower......it's just too new. Do that leaves us with appreciation on about 2 billion of older assets. If it's 10%, then 200 million of unrealized appreciation, 15% = 300 million and 20% = 400 million. I doubt it's less than 200 or more than 400. Thus, I think 300 is a reasonable guess.
960 of book value equity plus 300 of unrealized appreciation = 1.260 billion fair market value of 100% of the equity (net asset value). I think there will be closer to 400 million shares outstanding by the time nre gets distributed, so per share = 3.15.
Treasury shares do not get dividends. So another way of looking at it is 12 saves paying out 1.60 per year.
1.60 / 12.00 = 13.33% return on equity used to buyback one share.
BTW, if the stock price recovers to, say, 17, they can sell the treasury shares in the open market and the gain is not taxable. 5/ 12 = 41.66% tax free profit in this illustration.
A possible downside to treasury stock holdings is the payout required to eliminate income tax at the corporate level......100% of taxable income (90% to maintain reit status). These are aggregates, not per share. For a company whose payouts are under the thresholds, fewer shares outstanding call for more payout per share. This is not a problem for nrf since they are paying out return of capital dividends which, by definition, are in excess of taxable income (actually current e&p, a modifed form of taxable income).
As to the company buyback, I found no sec rules requiring a waiting period after announcement.
As to insiders (and I suppose the company buyback) all public companies have "closed windows" aka blackout periods, where insider trading is prohibited by the company. One bigshot in a small public company (not nrf or nsam) told me (about 15 years ago) that he could not trade from the first day of the last month of each quarter until the 4th business day after earnings were released. IF, notice I say IF, nrf/nsam had an identical rule and 3Q earnings are to be released on 11/5, then no insider could trade from 9/1/15 through 11/10/15. Trading would reopen on 11/11/15.
If that were the case, how did Hess get to sell nrf shares on 12/23/14, by which date she surely knew what 4Q cad per share would be? Beats the hell outta me.
I suggest you send that question to NRF/NSAM. As of a few minutes ago NOT ONE Form 4 has been filed reporting an insider purchase. Form 4 filing requirement is 2 business days after event. As of a minute ago, not one Form 4 has been filed for either company. Not one officer or director has purchased ANY shares of EITHER company. Yet they try to convince the outside world that the stock is undervalued by the market.
Money talks. Bullfeathers walk. (yahoo will censor real word I want to use).
It's an absolute outrage that Hamo, Tylis (especially), Gilbert and Hess, the chief looters and sellers of then high FREE, giveaway robber shares have not used ANY of their ill-gotten cash to show public support for the stock. Millions upon millions of cashed-in, excessive robber shares, and not one penny buying what they try to tell us is underpriced stock. Greed has no bounds.