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Investor19

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  • Northstar Realty Finance: A House Of Cards [View article]
    Why did you get “stoned to death?” Most of your short thesis was based on innuendo. You didn’t look to see that the insider sales were primarily options-related. You made a grossly misleading statement in that you equated EBITDA with Income from Operations. You referenced outdated financial statements. I could continue, but I think you get the point.

    However, I am impressed that you figured out that NRF had a large, uninformed shareholder base that would panic and sell.
    May 17 01:03 AM | 6 Likes Like |Link to Comment
  • Northstar Realty Finance: A House Of Cards [View article]
    Dividend Monkey, thank you for driving down NRF’s stock price. You have allowed me to buy more shares at a good price. I completely disagree with your analysis, but it has helped me nonetheless. I agree with the points made by Traverse1 and Tack, as well as JohnWayne and others.

    One of the glaring flaws in your article is when you state that NRF has a large Debt/EBITDA ratio. You then compare $4 billion of debt vs. $100 - $120 million of income from operations. “Income from Operations” is different than EBITDA. EBITDA is the income before, among other things, interest expense. I’m not sure where you got your “Income from Operations” number. I think you got it from the 10Q, which shows a number of $23.7 million. That’s not quite $100 million annualized, but I can’t find any other way to get close to your number. Note that the $23.7 million is AFTER interest expense. You are making a misleading comparison.

    Also, in your article you mention that NRF is “very proficient” at raising capital. Your implication is that there is something nefarious going on. Raising common equity on its own is neither good nor bad. The determination is based on what management does with the money – note that NRF seems to have done quite well with the money it raises.

    You also attack preferred shares by stating that they “are senior to common shareholders.” That’s why they are called preferred shares. They are senior in terms of dividends and in bankruptcy/liquidation. Issuing preferred shares is one of the smartest things NRF has done. If you understood preferred shares, you would know that they are like having a fixed rate, interest-only mortgage on your home, and you only have to pay the interest when you make enough money, and you never have to repay the principal. Furthermore, if interest rates go down, you can refi your home at a lower rate. It’s a great deal!

    If you think I’m wrong, look at Public Storage (PSA). That common stock has been a wildly successful long-term investment. PSA has about 10 different classes of preferred shares outstanding. PSA understands how to use preferred shares, and I suspect NRF management does as well. I think that as NRF continues to post good numbers and increase its holdings of equity real estate investments, the capital markets will allow the company to issue preferred with significantly lower coupons than the current preferred shares carry, which will mean more income to common shareholders.

    You state the NRF’s net income has been “dramatically negative.” However, net income is not the same as the cash available for distribution. If NRF was losing tons of money, as you state, they wouldn’t have any money left to pay a dividend, let alone increase it. Look at the Statement of Cash Flows. Net cash provided by operating activities was positive in 1Q13, and was positive for each of the last 3 calendar years. Note that “Net cash provided by operating activities” does not include money from selling additional common and preferred shares. It is a figure that essentially answers the question, “How much cash does the company generate from its actual operating business?”

    Could you ultimately be correct and NRF’s earnings suffer? Yes, but not for any of the reasons you mention. I see the main risk as the company making bad investments. Given management’s record for the past few years, I think the risk is minor while the potential rewards are great.
    May 14 12:25 PM | 7 Likes Like |Link to Comment
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