I suggest not selling nsam because the market just does not understand it. Too lazy, too dumb, waiting to be spoonfed.....all of the preceding? Don't know how much of which but can see market change today does not comprehend effect this offering has on nsam cad.
We been told estimated annualized cad = 66 cents and each billion of equity issued by nrf = another 6 cents.
So, before this offering was announced nsam closed at 18.72 on 66 cents plus maybe 6.6 cents in calendar 2015 from griffin deal if it closes at end of 2014 (drop dead date = 1/31/15). So, 18.72 / 66 cents = 28.36 timed estimated annualized cad.
Today's deal provides a minimum of 405 million of new equity which is 40.5% of a billion so 40.5% x 6 cents = 2.43 more cad per share beginning on 9/10/14. This is hard cad starting now. So, 2.43 cents x 28.36 multiple = 68.9 cents added to yesterday's price all other things being equal. Whadda we get today? 37 cents against a hard, immediate 2.43 cents. We got a 15.23 multiple on the increment from a 28 multiple stock.
PLUS, this deal has a high likelihood nrf will sell another 22.5 million shares at something like 17.80 to DB so DB can cover its short position. 22.5 x 17.80 = another 400 million of equity within 6 months which = another 2.4 cents of annualized cad beginning no later than March 2015. This calls for maybe a 20 multiple which = 48 cents.
How high the likelihood? Very. 405 million doesn't even cover the 481 million loan due this month. There is nothing left for the hotels and London office building. Hamo WILL issue the stock.
So, 69 + 48 = 1.17 nsam should have increased today. We got 37 cents. Just be patient. A slow, dumb market will eventually catch on, probably after Hamo hands them the info on a silver platter in Nov.
On July 9, 2012, two years ago today, in a small IRA, I bought 1,742 shares of NRF for 9,275 (cause that's all the cash I had at the time) and set the position to drip dividends. 8 drips have been posted. Other than dripping, the original position is untouched.....no trading whatsoever, so this is a theoretically correct total return dripping the Fidelity way.
Today, nrf and nsam combined closed at 37,951, up 309.18% in exactly two years. Thank you, Hamo.
I don't usually teach history, but we need to reflect on it to appreciate where we are today.
NRF stopped doing new business in 2Q, 2008. Hamo saw it coming and went into survival mode. Probably the best thing he has done for NRF is survive the financial crisis and the deep recession which came with it. For 3 years NRF was in caretaker, slow liquidation mode. In 3Q, 2011, they started doing new business with a pivot to equity reit assets and started building an asset management business.
On 9/30/11, before the world knew new business restarted, the price closed at 3.30. Now we are at 17.53 plus 2.02 of dividends, which totals 19.55. Soooo, 3.30 to 19.55 in 2 3/4 years = 492% profit.
At June 30, 2012, NRF closed at 5.22. Now we are at 17.53 plus 1.61 of dividends which totals 19.14. So, in 2 years, 5.22 has grown to 19.14 including dividends, = 267% profit.
On June 30, 2013, NRF closed at 9.10. If we close today at 17.53 plus 91 cents in dividends = 18.44 from 9.10 one year ago, a profit of 102.6%.
None of us (except the shorts) has any legitimate complaint about the performance of this stock over the past 2 3/4 years. And, imo, it ain't over. The rate of total return will probably slow because coming back from a deathbed is pretty spectacular, but as long as the growth ball keeps rolling, NRF and NSAM are keepers.......NSAM for faster price appreciation and NRF for yield plus smaller rate of growth.
My very overweight core position ain't going anywhere soon. Flippers are different. As long as the market gives me opportunities, I'll take 'em. I just have to learn how separate companies trade. May take me a while as the dust of the spin settles.
BTW, this morning's sale puts me over 200,000 shares of nrf sold ytd and I still own a lot more than I did at the beginning of the year. Every single share was sold at a profit. NRF flipping has been good for my belly to grow and my kids at Christmas. Wife says she is falling in love with Hamo for buying us dinner so often.
At the spin the insiders owned the same percentage of nrf as nsam. 1.00 out of the left pocket = 1.00 (pre-tax) into the right pocket.
Just to illustrate, assume nrf and nsam each had 200 million shares outstanding at the spin and Hamo owned 2 million or 1% of each. 1.00 from left pocket = 1.00 into right pocket.
Now let's issue the Griffin shares. Max = 68.8 million and min = 54.6 million, depending on the price of nrf. So let's say 60 million are issued. Now nrf has 260 million outstanding. Hamo still owns 2 million, so now Hamo owns .7692 of 1% in nrf while he owns 1% of nsam. So now, 1.00 going into nsam's right pocket costs Hamo 76.92 cents out of his left pocket.
Gee, nrf's cad doesn't increase the first year after buying griffin. Hamo gets no free "performance shares" in nrf.
BUT, nsam's cad increases by 10%, so the nsam board lavishes Hamo with 300,000 free shares because he did such a good job. Now Hamo owns 2.3 million nsam out of 200.3 million outstanding or 1.148% of nsam. Now 76.92 cents out of his left pocket (nrf) turns into 1.15 (rounded) into his right pocket.
If Hamo allowed himself to be influenced by his own financial interest, guess which way the wind would blow.
Wish SA would publish a transcript of CC. My audio feed had a lot of breaks in it, so I did not hear the whole thing clearly.
NRF was selling at about 10 times estimated first year cad of midpoint 1.64. There were several mentions that NRF expects that multiple to be higher before the closing on Griffin. Thus the collar on shares to be issued is very much in NRF's favor. The target is to deliver 3.75 worth of nrf stock per share of griffin. So, if the price of nrf (determined in accordance with the merger agreement) is between 16.00 and 20.17, each share of griffin gets whatever fraction of a nrf share which will yield 3.75.
BUT, if nrf's price is below 16.00, then the biggest fraction is .2344 nrf share (.2344 x 16 = 3.75). The presentation materials say griffin has 293.7 million shares outstanding. Thus, the most shares of nrf than can be issued (largest risk of dilution) is 68.843 million (.2344 x 193.7).
The least number of shares to be issued is 54.599 million (.1859 x 193.7) which will happen if the price of nrf is 20.17 or higher. (20.17 x .1859 = 3.75).
So, the higher the nrf price between 16.00 and 20.17, the fewer nrf shares issued, which reduces the risk of dilution.
There were several mentions of expectations/plans to "expand the multiple". They expect griffin will be cad neutral, so that does not change 1.64 estimated cad. It's the multiple they are after. 10 = 16.40, 11 = 18.04, 12 = 19.68, 13 = 21.32 (collar kicks in at 20.17), 14 = 22.96 and 15 = 24.60.
They also said the size of this deal will not impair nrf's other pipeline business. I expect some "multiple expansion" news with earnings and the CC. I also expect a follow on offering to fund the equity portion of the other business they are doing.
I believe Hamo is pulling his hair out and spitting nails over NRF's yield at over 9% when a blend of peer companies in different sectors indicates a yield of 6%. 1.60 at 6% = a price of 26.667, and here we are at less than 18. Hamo wants to split the dividend by assets......75% equity and 25% mortgage. I think it is more appropriate to split the dividend by sector cad.....I'm guessing at 60% equity reit cad vs 40% mreit.
If I am in the ballpark with 60-40, then 96 cents of the dividend comes from equity reit operations. Capitalize that at 5% and you get 19.20 for the equity reit dividend. 40% x 1.60 from mreit cad = 64 cents. Capitalize that at 10% = 6.40 for the mreit dividend. Thus 19.20 + 6.40 = 25.60 combined price. And here we are at less than 18....more than a 30% discount to where it should be.
If the 5-year rule prevents a tax free spinoff of healthcare or the mreit business is too small to stand alone, Hamo can issue tracking stock. Internally (which is already done) separate NRF into two divisions......equity reit and mortgage reit. Then issue a tracking stock for each division. NRFE = equity reit division. NRFM = mortgage reit division. One share of NRF is surrendered in exchange for 1 share of NRFE and 1/3 share of NRFM. The dividend for each tracking stock is determined solely by the cad generated by each division.
This can also be done by just issuing E and M stock. Then NRF = sum of both divisions, E = equity reit division and M = mortgage reit division. Then the price of NRF will trade at only a tiny discount or premium to the sum of the prices of NRFE and NRFM......the arbitrage people would see to that.
So Hamo has more than one way to skin the cat. Trust me. Hamo HATES the current price of NRF. He WILL do something about it.
For those not overloaded already, I suggest buying nsam for relatively short (4 mos at the outside) trading gain.
Yeah, yeah, I know the "Buy the rumor-sell the news" routine, but the market reaction in nsam to the Griffin deal baffles me. I think it is wrong and will correct when the market sees it in the rearview mirror and/or Hamo spoonfeeds the info down lazy throats.
Financial times broke the griffin rumor on 7/8.
NRF closed at 16.72 on 7/7 and 16.53 on 7.8.....down 1.14%.
NSAM closed at 18.90 on 7/7 and 19.46 on 7/8....up 2.96%
So now we have the fact of a deal which NRF says will not be accretive to cad in the first year after closing.
Rather, the immediate benefits are size, scale, connections, diversity, opportunities for more deals. A good deal, imo, but no immediate increase in cad.
NRF closed at 16.14 on 8/4 and is 17.33 at this typing.....up 7.37%......the opposite of down 1.14% on the rumor.
I think 17.33 is still too low for a multitude of reasons.
Even a market novice can figure out that NRF will issue 1.1 billion in new common equity to close this deal which means at least 16.5 million of new nsam revenue and a 6.6 cent increase in annualized cad over the May midpoint of 66 cents. That's a 10% increase in the bottom line for nsam in one shot.
NSAM closed at 17.72 on 8/4 and was 17.99 before I started typing this.....up 1.52%.
Just does not make sense to me. Look at 5-day chart of nrf and nsam. Does not make sense to me.
I attribute it to a slow, lazy and this time stupid market.
Ya got a hint yesterday.......nrf is cad neutral with an 11.5% return on leveraged equity while nsam grows cad nicely on equity issued by nrf to fund leveraged growth in assets. Don't wait for the 2 x 4 to hit you on the head.
The real money is made before the market figures it out.
Lots of detailed financial info. I have only just skimmed, but have seen nothing to change my opinion that this is a great, though expensive, deal for NRF and a very great deal for NSAM.
The threshold question is are you willing to risk your money on NRF management? If the answer is "yes" and your expected holding period is more than 3 years, IMO, you are nuts to buy nrf preferred instead of common.
Your preferred dividend will NEVER increase. The price of preferred is capped by the call provision at about where it is now. You have next to no upside. You have no inflation protection. Eventually inflation will erode the purchasing power of both the dividend and the principal. Yet the long term risk of nrf going broke is almost the same for preferred as common. I'm not talking about market gyrations....common will certainly be much more volatile than preferred....a valid concern for short term investors. Very long term is risk of failure. I have worked with over 100 guys like Hamo. They do not go broke a little bit which would advantage preferred substantially over common. When guys like Hamo go broke, it is a colossal, spectacular failure......there is not enough left for unsecured creditors. All stockholders get wiped out.
NRF preferred is weaker now than before the NSAM spinoff. A source of revenue (nontraded reits and brokerage)is gone, 158 million of cash equity is gone, and NRF has burdened itself with a net management expense of in the neighborhood of 80 million a year. All done without the consent of preferred because none was required by law or the terms of the preferred. The same could happen to preferred with the next spinoff.
If you are going to risk your money on NRF you should buy the stock with upside which is common, IMO.
I suspect lots of trading errors will be made Friday. That's because NRF will trade pre reverse split with nsam attached. Let's just say the closing price on Thursday is 17.......and to rational minds that means 9 for nrf post-spin and 8 for nsam. So Friday NRF will start trading around 17.
Then there is NRF without nsam attached (NRF WI). In addition to no nsam, that will trade on a post reverse split basis.....so you have half the shares at double the price. NRF WI, using the example above, will start trading at about 18 (double 9).
NSAM WI will also trade post reverse split. Again, half the shares at double the price. It will start trading at about 16 if my illustration holds true (double 8).
I just know NRF at 17, NRF WI at 18 and NSAM at 16 all at the same time is going to blow a lot of minds.
Lets say you want to overweight NSAM and you bought an extra 1,000 nrf contemplating keeping the nsam portion and selling the nrf portion, post spin. Your brokerage account will show you own those 1,000 nrf shares on Friday and Monday. To sell the NRF portion as soon as you can, sell NRF WI Friday, but you only have 500 to sell.
Get it straight in your mind before trading any "nrf group" on Friday or Monday.
Lemmings believe this junk, just like the Pablo article on seeking alpo. Fine. Those who know this is fecal matter because they know the truth can just make money off the lemmings who don't do the work to know better.
That's the story of my career.....make money off those who are not as well prepared as I am. I win, they lose.
I am willing to bet that three years from now the total return (dividends plus price appreciation) on NSAM will be at least double the total return on NRF. I expect this because the deck is stacked in NSAM's favor, the new honey pot from which the bigshots will take incredibly outrageous compensation in the form of free shares.
Yield investors....NRF is the place to be.
People who want price appreciation at the cost of current yield, NSAM is the stock to overweight.
The prospectus for this offering with the blanks filled in was filed last night. NRF sold 15 million shares to the underwriters for 17.95 per share, netting 269.25 million before offering expenses of 3.05 million for the entire deal including the forward sale contract. So, applying the offering expenses against just this part of the deal, net net was 266.20 / 15 = 17.74667 per share. Let's round this to 17.75 per share (from 18.85 close before offering announced). 1.10 total discount and cost / 18.85 = 5.836%, on the expensive side for nrf.
NRF also sold 30 million shares short against the box using DB as its proxy. DB borrowed 30 million shares and sold them to the underwriters for 17.95 per share. DB collected 538.5 million of proceeds from its short sale. Of course it will pay down debt or otherwise earn interest on these proceeds until the proceeds are needed to buy 30 million shares from NRF to cover its short position. The initial forward sale price is 17.95 per share, BUT that price gets adjusted daily by an interest factor. The interest factor is the federal funds rate minus the "loan rate", which was not disclosed because the forward sales contract has not (yet) been filed with the sec. As long as the loan rate is higher than the federal funds rate, the forward sales price goes down a miniscule amount every day.
To illustrate how this interest factor works, suppose DB has to pay the lenders of these shares an average of 50 basis points per year (1/2 of 1%). Now suppose the "loan rate" negotiated with NRF is 75 basis points. Also suppose the federal funds rate is 10 basis points. The adjustment factor on this day is -65 basis points (10 minus 75). So, since 1% of 17.95 is 17.95 cents, 65 basis points is 11.6675 cents for a whole year. If these interest rates stayed constant for exactly six months and the forward sales contract were settled at exactly 6 months, then 5.83375 cents would be subtracted from 17.95 per share. NRF sells 30 million to DB for 17.8917
Geeze, this market is slow. NRF said in its May presentation that NSAM cad midpoint is 66 cents (split adjusted).
It also says that for every 1 billion of nrf equity issued, nsam cad increases 6 cents (split adjusted).
So, yesterday's close was a stinko 17.72 which is 26.85 times estimated midpoint cad. NRF just told the world it will issue 1.1 billion of equity in the griffin deal.....so that means 6.6 cents added to nsam's cad. Even at the stinko multiple of 26.85, 6.6 cents adds 1.77 to the price.
So here we have nsam selling at 18.12, up all of 40 cents.....less than 25% of the increase called for by a lousy multiple.
Yesterday = 17.72 / 66 cents = 26.85 multiple. Now 18.12 / 72.6 cents = 24.96 multiple. Griffin deal grows nsam cad per share by more than 10% and the multiple goes down. Hint, hint....slow, lazy, sometimes stupid market.
Another all time intraday and closing high for nrf. 18.50 held today, but I am not convinced the profit-takers at or over 18.50 are anyway near finished.
I watched level 2 and the tape for about the last 45 minutes. 18.54 was just a flash, gone in an instant. Most of the late trading was 52-53, 51-52 and at the end, 50-51. Generally, buying slowed and selling increased at 52-53 and the other way around at 51-52, except at the very end when bid-ask was 50-51.
At least today sellers did not do their usual race to the bottom to beat the other guy out the door. There was no leapfrogging the ask down chasing a falling bid. So profit-takers showed restraint today holding out for a bid of 50 or over. BUT, volume on the ask was usually much bigger than displayed volume on the bid. I have the feeling there are lots and lots of shares waiting to be sold at a little better than 18.50. Have no idea how many, but do know about 100 million new shares issued in past two years are deeply green. Every penny into new, uncharted territory will find previously unwilling longs suddenly willing sellers.
So, those waiting for a dip may get it. Don't know when or how deep. I just know Hamo hates this yield and will not be satisfied until it is near or at 7% which calls for a 22.86 price at 1.60 annualized dividend.
I still predict a combined price of between 40 and 50 by year end. NSAM in a price funk (understandably) now but I think that will change when they publish 9/30 results and new presentation slides. I have plenty of time to wait it out.
A secondary offering (SO) is when a SHAREHOLDER registers for a public offering of a company's stock that is already outstanding. The company does not sell (issue) any new shares nor does the company receive any proceeds. Also, the company does not pay any underwriter fees. Total shares outstanding do not change as a result of a secondary.
A follow-on offering is any public offering of new shares to be issued by a company subsequent to an initial public offering. The company gets the proceeds, net of fees to the underwriters and total shares outstanding increases by the newly issued shares sold by the company.
Both types of offering will cause a market discount (public price drops) because the offer price has to be lower than a tute can buy in the open market in order to induce the tutes to buy large blocks. The market discount can be 1% to 5%, depending on the strength of the company and proposed use of the money. NRF has been around 2.5%. BUT, the market discount can be increased by dilution freaks who sell whether or not the issuance will actually be dilutive to eps. OR, the market may not like what the company is going to do with the proceeds. Then, the trading price on offer day will go below the public offering price. I like to buy follow-ons at 1% or more below the offer price.
In addition, the company must pay the underwriters. In an underwritten offering, the underwriters buy the shares from the company , net of an offering discount ranging from 1.25% to 5%. NRF pays around 2.5%. Here, the underwriters bear the risk of selling to the public. If it does not sell well, the underwriters have to lower their price to unload the shares.
In a best efforts offering, the company bears the risk of selling to the public. The underwriters get a commission on whatever they sell. If it does not sell out, that's the company's problem.
When I "eyeball" a NRF offering, I use 95.5% of the pre-announcement closing price as net, net to the company and have been close.
Don't take it personally. I don't suffer any fool (or lazy moocher) lightly, a habit I established many years ago, long before I started stock investing. Staff knew they were going to get beat up when they came into my office. They also knew it was training on how to be an expert witness before they got beat up by an opposing attorney when they were on the witness stand. When they got out of my office without a beating, they knew they had it right.
It's better to get beat up here, on a message board, than get beat up financially by the pros in the market for something you don't understand correctly. Harsh, blunt, brutal, I plead guilty. The other side ain't gunna give you a second chance. Get it right or lose.
No need to apologize. We all make mistakes. Yours happened to be more thick-headed than most, so you got slapped around. That's just me.
NRF ex nsam midpoint cad ex spin = 1.64 and they will pay out at least 90% = 1.476 which is 8.68% of 17.
NRF-WI at any price under 17 means a yield of more than 8.68% and most, if not all, will be tax deferred return of capital.
A yield investor's dream.
It's really very simple. Hamo is not going to reduce the dividend.
NSAM was included in nrf consolidated for all of 1Q and 2Q. NRF paid a split-adjusted 50 cent dividend in May. Why anyone could imagine a reduction in August is beyond me. It ain't gunna happen.