Lack of trust in management -- period. Otherwise, fundamentals are solid. Heck, even during the drop in share price, institutional ownership actually increased a few percent. But management's greed took it down. Look at how the stock price started falling at the end of February 2014, then look at the S-4 SEC forms filed at the same time showing how many shares each insider was given. Add to this the fact that short selling increased from about 4 million share at the end of February to over 28 million within two weeks. This timing and that of the S-4 forms is no coincidence. :-(
The only good news on this is that compensation going forward (for the immediate future at least) cannot possibly be as much. Nevertheless insiders' greed is a real risk.
The other good news is that because the fundamentals are on solid ground (pending no black swan stuff), it's really hard to see much more downside. Tax selling (an almost constant chant) may not apply as much to NRF. (There will be some selling, but common sense says that buyers will be waiting to get in at a little lower.)
Just a guess, but some explanations might include:
1) It is categorized as an mREIT. Not many trading at a premium to BV, which is about $12.18.
2) Mortgage servicing is not risk free and I've see NRZ drop almost every time the yield on the 10Y Treasury drops. If mortgage rates went south, we could see higher prepayments. On the other hand, defaults hit differently -- the mortgage service has to pay bond holders until there is either a sale or some kind or resolution.
3) Government regulation, or as with OCN, the risk that some state's Attorney General decides to target FIG or NSM for political reasons.
4) Market is skeptical that the dividend is going to be sustainable for many years. Stuff happens. Look at some of the Oil & gas MLP drillers -- the stock price there went from boom to bust pretty quickly. Remember 2007 and a few years earlier how the shipping industry was paying fat dividends. That was another case where people though they could not build ships fast enough.
5) Related to #4 (stuff happens): Investors are getting tired of someone dangling a carrot in front of them.
6) Fear that if the price traded enough above BV that FIG would do another offering.
7) There are more, but I think I got the more significant risks.
I am long here and have been since buying NCT a few years ago at under $6. Except for this one, I sold all the spin offs, as well as NCT. All my NRZ is "free" plus I have good profits locked in. I'll continue to hold this, but I do keep an eye on things.
If by "Don't try to rationalize this price action" you mean don't judge the stability and/or sustainability of the dividend by the price action, I agree. NRZ has been moving up or down with the 10Y US Treasury -- and in the down markets, it's almost as if we are supposed to believe that the next wave of mortgage refinancing is just around the corner. Obviously there is a lot of market manipulation going on. In fact, NRZ was one of the top 5 or 10 funds that were hit the hardest because of hedge fund ownership. Knowing that, other hedge funds may have shorted it -- and the apparent "there must be something wrong" has not worn off yet.
Maybe Dar can address this: NRF sold some stock via that forward purchases at higher prices. Would a share buyback, at least up to the same number of shares, at a lower cost be considered short-term capital gains from the IRS' perspective?
The first $500 million? I think you need to come down from that kind of expectation. $100 million should not be a problem, but $500 million within a short period is too much.
Your CAD estimate overlooks the fact that the $500 million would be from borrowed money. The use of a credit facility is cheap, but those come with covenants. You DO NOT want to risk triggering a default and be force to liquidate anything. In addition, the CAD benefit from a buyback, which I admit is the best use of money from my perspective, does not consider the income that it could generate, as well as potential gains in the future.
So far, we saw only two insiders buy. I'd be more comfortable if both the CEO (Jonathan Langer) and, especially, the CFO (Debra Hess) bought a sizable amount. Seeing both Hamo and Tylis is good (we know Hamo is really in control at NRF), but I think seeing the CFO buy would help -- she is the one who signs off on the financial reports. JMO
If that were true, hedge funds would short this big time and then have someone publish what the "bad" is. They would also follow up with getting lawyers to file law suits. Nope. That's not it. If there were something wrong, they would have done all that at a much higher price -- and made far more money by shorting at much higher prices.
NRF was the #1 hardest hit by hedge funds liquidating. That started the selling momentum. Another "down" day for the market. Buyers are on the side lines and sellers have to accept less. Market "short-term memory" is pretty much all that is going on here.
Writing down the value of assets won't affect earnings, but it will increase the leverage ratio. The immediate impact to earnings is the cost of the short-term borrowing and any hedges that may need to be replaced.
Other assets such as real estate and bonds will generally fall in value because the "risk free" interest rate is increased, so to compensate the price of the assets usually fall. Same can be said of any other income investment. But there are too many variables that come into play -- so some assets fall harder than others.
Talking about NRF specifically, not all assets are financed with fixed-rate mortgages There will be some hit to earnings, but it's only a few percent. Long term, depends on other things. Rents will increase, as will the cost of booking a room at a hotel. That works well as long as occupancy does not fall -- which would be the real risk in a recession. As for health care, you have to look at who pays the bills. Something like medicaid or medicare may not get paid what it expects. Add to that the fact that NRF uses very high leverage (only about 25% equity) is yet one more risk. IMO: NRF's safest assets are the manufactured housing lots. Health care is a little more risky and the hotel stuff has the most risk. None of this would be a real problem if the had closer to 50% equity -- in which case they could weather pretty much any economic cycle. But if a recession took hold, they'd have to slash the dividend to pay bills -- i.e. free cash flow would drop significantly.
Long NRF with a modest position, but it's not risk free. :-(
Dividend cut? No, there was nothing in the CC that suggested that. If anything, comments such as "strong cash flow" suggested that the dividend was solid.
I anything the "throwing money out the door" could be interpreted as the effect it would have on AUM. If the "market" stiff did not push up the price such that could sell more stock, then from the management's fee perspective they are throwing money out the door. But that kind of thinking is very short sighted. NRF needs to rebuild shareholder confidence. They don't need to buyback anything close to $500 million, but if prices remain where they are for the next several weeks, then they really need to buyback at least $50 million worth. Apparently the "market" is demanding that they show their true colors. Okay, show me.
Frankly, Tylis should be more careful when speaking. His explanation about the market not appreciating the dividend was a lame attempt to sidestep what he said. It's not as if the question was unexpected, so he had plenty of time to think about how he was going to answer it. Had his and others' remarks been more shareholder friendly the price would have bounced back from being down about $1.00. Instead...
That bad smell won't wash off quickly, but they can start scrubbing down with a significant share buyback.
Another thing I'd like to see is some insider buying. Don't just use shareholder's money to buy stock. I want to see management have more "skin in the game" here.
Put another way: No decrease in dividend.
Regardless, it's nice to have the announcement -- which is at least two days earlier than normal. Now we only need to wait for the earning report to see that nothing else has changed -- which should be the case.
No the NRE is not there. This is not the first time I've had a spin or slit. In the past, the spun off stock did not show up for at least a week after the supposed distribution date. So tomorrow my account balance will appear as if some money simply disappeared. In fact, right now the number of NRF shares shows 1/2 of what I had, but the price is still $12.01. The account balance already looks like money disappeared. I'm not worried about it but I do want to check that there were no mistakes. If there are errors, it will be easy to get them "fixed." I'll check it again in about a week.
The time to really check this stuff is when you get the 1099 DIV. Let's just say that brokers have been known to make mistakes. This kind of mistake needs to be corrected ASAP. That is something that I would call about immediately to make sure I get an the 1099 DIV corrected accurately before I need to file. (I have had to do this about two years ago and it took the broker almost three weeks to finally get right.. (Why this is often a problem is beyond me. EDI has been around for many years now.)
Capital One (previously ShareBuilder) only shows the close or $11.95 and the volume of 422.11K.
Were you expecting variances between brokers? Possible to make money disappear from someone's account on Monday?
This is not the first time Toll has tried to sue FSC; he already tried to bring one class-action lawsuit against FSC, et al in 2011 related to FSC's IPO.
That and the flood of so many law firms is enough to start connecting the dots. Now the chances of dismissal are looking better -- much better.
Your valuation estimates are based on the same price to CAD for both (post-spin) NRF and NRE. Assocding the NRF's Feb 2015 presentation (available on their Web site).: Post-spin the CAD for NRF would be about $1.50 and that of NRE would be about $0.20. The numbers are based on pre-spin CAD but it did take into account that you will receive 1/6 share NRE for each NRF share.
Post spin off, NRF and NRE will be very differnet. First, about 75% of NRF's CAD comes from real estate, but 100% of NRE's CAD will be from real estate. Second, according to the presentation, real estate in Europe trades at SIGNIFICANTLY higher cash flow multiples than real estate in the US.
Post Spin, 75% of NRF's roughtly $1.50 per year (pre 2-for-1 reverse split) will trade at lower multiples than other US based, real estate. Nevertheless, a multiple of 10 would be, in my opinion, at the low end. That values NRF today at $15 -- not counting the NRE portion.
The NRE, per the presentation would trade at a multiple of 15-20. Trading at $3 is the low end.
Adding it up: today NRF should be closer to $18. But NRF does not have years and years of history... so obviously there is some doubt in the market about the dividend's sustainability.
Why would the entire FMV of NRE be treated for tax purposes the same as a cash dividend? What is different about this than any other spinoff of assets?
I get that capital gains on the FMV will be taxable becasue NRF did not own this asset long enough. But isn't it always the case that the (adjusted) cost basis of NRE would be ROC? (I need to check the IRS Web site to see how they treat a spinoff where the parent had not held assets of the spinCo for more than X years.)
It would be helpful if NRF were to give estimates regarding the amount that is taxable and ROC. That is relatively standard and I've never seen a spinoff where this was not provided prior to the x-div date for the spinoff.
Oops, my bad. I own both and got a little too careless with picking the 3-symbol ticker from my watch list...
Hedge funds bought own (owned?) lot of NRF. According to an article titled "Hedge Funds Love These 3 REITs." Combined, three hedge funds held over $1 billion in NRF!! Hedge funds are not interested in holding something long term. They are also well know for using a lot of leverage and when they need to raise cash -- they sell both the bad and the good stuff.
Cannot complain about that. :-)
In this low-rate environment, which may be here for many years, I'm hoping my other CEFs and dividend stocks can maintain their dividends without taking additional risks.