NEW YORK (TheStreet) -- Northstar Realty Finance Corp (NRF) was soaring on the news it plans to separate its asset management business to form an individual publicly listed entity. The company's core business involves structuring and acquiring commercial real estate and related debt, although a branch of the business concerned with managing those assets has blossomed.
The spinoff will take the form of a tax-free distribution and is expected to reach completion in the second quarter of 2014. The company noted the newly formed NorthStar Asset Management Corp will most likely be listed on the New York Stock Exchange.
Since it announced the split after the bell Tuesday, shares have added 19% to $11.82, contributing more than $400 million to its market capitalization. By late afternoon, the commercial real estate investment trust was worth $2.84 billion.
"This transaction represents a fully aligned, long-term opportunity to unlock value for NRF shareholders through the creation of a leading asset-manager. NorthStar Asset Management will have a scalable operating platform with limited capital needs and a proven ability to grow," said CEO and Chairman David Hamamoto in a statement.
Deutsche Bank reiterated its "buy" rating on the New York-based business following the announcement.
"The separation of the asset management business will create value for shareholders, as the management company will trade at higher multiples than the traditional mortgage REIT and real estate business. While our target is $12.50 per share, we believe it represents a conservative valuation of the combined business," wrote analyst Stephen Laws in a report.
However, Laws noted a number of risk factors still exist, including credit deterioration, poor liquidity, and access to additional financing. Also, should the company fail to succeed in its planned spin-off, its valuation will suffer.
TheStreet Ratings team rates Northstar Realty Finance Corp as a Hold with a ratings score of C. The team has this to say about their recommendation:
"We rate Northstar Realty Finance Corp (NRF) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance and impressive record of earnings per share growth. However, as a counter to these strengths, we find that the growth in the company's net income has been quite unimpressive."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- NRF's very impressive revenue growth greatly exceeded the industry average of 9.5%. Since the same quarter one year prior, revenues leaped by 50.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Powered by its strong earnings growth of 38.73% and other important driving factors, this stock has surged by 48.87% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
- The gross profit margin for NORTHSTAR REALTY FINANCE CP is rather high; currently it is at 61.93%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -71.54% is in-line with the industry average.
- The company, on the basis of net income growth from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry average. The net income increased by 5.2% when compared to the same quarter one year prior, going from -$142.91 million to -$135.44 million.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, NORTHSTAR REALTY FINANCE CP's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: NRF Ratings Report