Author Topic: NRE - NorthStar Realty Europe Corp  (Read 2068 times)

writser

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NRE - NorthStar Realty Europe Corp
« on: December 03, 2018, 07:40:57 AM »
NRE is a US-listed REIT invested in European office buildings with a somewhat sketchy history (spinoff from Northstar finance). Two write-ups were released about this name during the past few days.

http://clarkstreetvalue.blogspot.com/2018/11/northstar-realty-europe-clny-out.html
http://yetanothervalueblog.com/2018/12/nre-limited-downside-decent-upside-tight-timeframe.html

The thesis is very simple: pro forma ~$7 / share in cash, if you value that at face value real estate is trading at a ~30% discount to appraised NAV. Management is looking at strategic alternatives and has already reached an agreement to terminate the external management agreement with Colony/Northstar for $70m when they sell the company. If so sale is imminent on April, 30 NRE wants to internalize management. Looks like it is likely they'll either sell the whole company or sell the remaining real estate and wind down.

Results should be very satisfactory if they manage to find a buyer for the whole company in the next ~4 months. Looks like a decent investment if they internalize management and sell all the real estate themselves during 2019. Looks like a mediocre investment if the strategic review yields no results and they decide to stay independent. Senvest, a hedge fund discussed on this board, has a ~10% stake and has been pushing for action.

Read the blogs for more information - those guys did all the hard work.

The whole situation looks tempting to me. However, I'm a bit skeptical of the outcome in case they don't find a buyer. Selling their portfolio buildings individually and liquidating might take a while and could be costly - and that's even assuming that new management wants to liquidate.  Also there's the risk that appraised NAV is a bit too optimistic - management fees depend on it. On the flipside they've been selling assets around EPRA NAV the past few years. For now I'm letting the idea percolate a bit in my head. No position. Any thoughts?
« Last Edit: December 03, 2018, 07:51:21 AM by writser »
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Foreign Tuffett

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Re: NRE - NorthStar Realty Europe Corp
« Reply #1 on: December 03, 2018, 10:04:31 AM »
NRE is a US-listed REIT invested in European office buildings with a somewhat sketchy history (spinoff from Northstar finance). Two write-ups were released about this name during the past few days.

http://clarkstreetvalue.blogspot.com/2018/11/northstar-realty-europe-clny-out.html
http://yetanothervalueblog.com/2018/12/nre-limited-downside-decent-upside-tight-timeframe.html

The thesis is very simple: pro forma ~$7 / share in cash, if you value that at face value real estate is trading at a ~30% discount to appraised NAV. Management is looking at strategic alternatives and has already reached an agreement to terminate the external management agreement with Colony/Northstar for $70m when they sell the company. If so sale is imminent on April, 30 NRE wants to internalize management. Looks like it is likely they'll either sell the whole company or sell the remaining real estate and wind down.

Results should be very satisfactory if they manage to find a buyer for the whole company in the next ~4 months. Looks like a decent investment if they internalize management and sell all the real estate themselves during 2019. Looks like a mediocre investment if the strategic review yields no results and they decide to stay independent. Senvest, a hedge fund discussed on this board, has a ~10% stake and has been pushing for action.

Read the blogs for more information - those guys did all the hard work.

The whole situation looks tempting to me. However, I'm a bit skeptical of the outcome in case they don't find a buyer. Selling their portfolio buildings individually and liquidating might take a while and could be costly - and that's even assuming that new management wants to liquidate.  Also there's the risk that appraised NAV is a bit too optimistic - management fees depend on it. On the flipside they've been selling assets around EPRA NAV the past few years. For now I'm letting the idea percolate a bit in my head. No position. Any thoughts?

Setup is reminiscent of $NYRT. So f***** hard to know how firm the NAV #s are.

writser

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Re: NRE - NorthStar Realty Europe Corp
« Reply #2 on: December 03, 2018, 12:49:50 PM »
Yes, obviously that's the key question. I've been looking at this a bit more. The last few years they've consistently been selling at or around EPRA NAV (see some snippets below from calls and filings). It could be the case that they've sold the prime and liquid real estate and are left with the bad stuff but so far the independent appraisals don't seem ridiculous. Currently the portfolio has a 97% occupancy rate with a ~6 year average lease term. Largest pro-forma tenants are BNP Paribas, Invesco, Cushman & Wakefield (if we don't like your appraisals your rent will escalate!) and Moelis & Co. Most of their real estate is in big cities, i.e. London, Paris, Berlin, Hamburg and they have invested in property improvement over the past few years. The portfolio doesn't seem like total trash and I'm willing to believe that the independent valuation is a closer proxy of fair value than book value.

However, EPRA NAV was $20.85 last quarter. NRE should have roughly ~$350m or $7 per share in cash after paying the management termination fee and selling Trianon Tower. Assuming Trianon Tower was sold at appraised value the remainder is worth $12.45 and priced by the market at $9.25, i.e. a ~$160m discount on a real estate portfolio that was appraised at ~$1300m. So a ~12% discount to EPRA NAV. Probably a decent bet if they can sell the whole company at once in a few months but the margin of safety is a bit too thin for me. Also, currency movements have been slightly unfavorable the past few weeks.

Quote
Earlier today, we signed a definitive sale and purchase agreement to sell the Trianon Tower in Frankfurt for approximately $760 million, in line with the midyear valuation by Cushman & Wakefield but $86 million above the midyear 2017 valuation, which preceded the completion of certain value-enhancing asset management initiatives.

Quote
On September 24, 2018, NRE completed the sale of Office 123 in Lisbon, Portugal for $15 million, 6% above the mid-year Valuation, releasing $15 million of net equity to NRE and resulting in NRE’s exit from the Portuguese market.

Quote
On April 30, 2018, we completed the disposal of the Maastoren property in Rotterdam, our largest remaining noncore asset, for $195 million, 2% above the year-end valuation and a 20% premium to the midyear valuation, which preceded lease extensions with the main tenants Deloitte and AKD.

Quote
Couple of questions for me, if I may. The first was just a little more color on the 19 sales, $445 million, 2% above book value. Could you give us an idea of the range of disposals above and below book value? And particularly, how many were there needed to take a loss on and what premiums are achieved at the other end of the spectrum?

Hi, Mike. It's Mahbod here. So the sales happened throughout the course of last year and at a premium of about 2% above the independent valuation.
« Last Edit: December 03, 2018, 02:22:14 PM by writser »
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writser

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Re: NRE - NorthStar Realty Europe Corp
« Reply #3 on: December 21, 2018, 10:52:28 AM »
Shares down ~9% since last post. Eur/usd basically unchanged. Pro forma a ~$350m net debt position and the remaining portfolio is trading at a larger discount. Market is a bit panicky so chances of a deal have probably decreased a bit (portfolio value itself might have decreased too). Still, a ~$70m drop on a ~$1300m portfolio in a few weeks seems steep. I bought a tiny starter position.
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Foreign Tuffett

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Re: NRE - NorthStar Realty Europe Corp
« Reply #4 on: January 10, 2019, 07:26:06 AM »
3 more properties sold, with an additional 3 under contract. Transactions are additive to NAV.


https://www.businesswire.com/news/home/20190110005290/en/NorthStar-Realty-Europe-Completes-Sale-U.K.-Assets

writser

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Re: NRE - NorthStar Realty Europe Corp
« Reply #5 on: January 10, 2019, 09:27:56 AM »
On the one hand it seems like good news. However, if they keep selling properties it seems to get more and more unlikely that they will sell the whole company? Or is that too pessimistic and are they simply divesting some non-essential holdings for a nice price.
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Foreign Tuffett

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Re: NRE - NorthStar Realty Europe Corp
« Reply #6 on: January 10, 2019, 11:16:05 AM »
On the one hand it seems like good news. However, if they keep selling properties it seems to get more and more unlikely that they will sell the whole company? Or is that too pessimistic and are they simply divesting some non-essential holdings for a nice price.

No clue on the probability the entire company is sold in a single transaction. Also no clue on whether today's announcement makes that more or less likely.

I think they are down to only 17 properties. They might be able to liquidate all of them relatively quickly given (1) none of the remaining properties are large "trophy" type properties (2) all (almost all?) the properties are located in major European cities.

The worst outcome would be their continuing as a going concern after management is internalized. I think the more properties they sell the less likely this becomes. Now that Colony is on the way out as the external manager, its ~11% ownership should give them a big incentive to do the smart thing.

Foreign Tuffett

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Re: NRE - NorthStar Realty Europe Corp
« Reply #7 on: January 30, 2019, 07:35:15 AM »
Trimmed this a little @ $16.50 as discount to NAV has narrowed.

writser

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Re: NRE - NorthStar Realty Europe Corp
« Reply #8 on: February 08, 2019, 06:44:21 AM »
Trimmed this a little @ $16.50 as discount to NAV has narrowed.

Yeah. Two months down the road it looks more unlikely to me that they will sell the company wholesale as they keep selling individual properties. Also no news regarding any interest. Yet shares are trading close to an all-time high of ~$17, compared to a low of ~$14 in december. The discount to EPRA NAV has shrunk significantly. I only have a tiny tracker position left.
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writser

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Re: NRE - NorthStar Realty Europe Corp
« Reply #9 on: February 11, 2019, 05:09:50 AM »
Quote
NorthStar Realty Europe (NYSE:NRE) is up 5.2% after hours on word that it's moving into the S&P SmallCap 600.

Worst timing ever.
When you are dead, you do not know you are dead. It's only painful and difficult for others. The same applies when you are stupid.