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Analyst Blog

Riding on a steady growth momentum, shares of NorthStar Realty Finance Corp. (NRF - Snapshot Report) reached a new 52-week high of $16.16 on Mar 12. This commercial real estate investment and service provider witnessed a jump of about 21.4% since the beginning of 2014.

Moreover, the encouraging momentum of NorthStar is fueled by strategic initiatives to re-align business and a robust investment pipeline, thereby enhancing its real estate portfolio.

Yesterday’s closing price represents a robust one-year return of about 76.4% against a return of 20.4% clocked by the S&P 500 index. Average volume of shares traded over the last three months stands at approximately 10.08 million.

Earnings Review

On Feb 27, NorthStar reported fourth-quarter 2013 operating earnings per share of 32 cents, in line with the Zacks Consensus Estimate but declined from the year-ago number of 75 cents.

Results reflected robust growth in total revenue driven by higher asset management fee and rental income. However, the positives were more than offset by higher interest and operating expenses, which resulted in a reduced bottom line. Conversely, an appreciated cash and asset base along with reduction in liabilities at the end of 2013 reflect a strong capital position.

Rationale

While NorthStar boasts of a healthy investment portfolio, the company is on track to spin off its asset management business into an independent publicly-traded company — NorthStar Asset Management Group Inc. (NSAM) — by mid-2014.

NorthStar aims to accelerate its non-traded REIT business through NSAM and diversify latter’s fee streams, further propelling long-term growth opportunities. NSAM is extremely well positioned to drive value at NorthStar with its unique asset base and one-of-a-kind structure.

Concurrently, NorthStar has showcased prudent capital management by refinancing debt on improved terms recently, in order to remain sufficiently liquid and lower the borrowing costs. This, in turn, leaves ample scope for pursuing capital deployment strategies.We believe the upcoming quarters should benefit from these operating and capital actions, as reflected in the market’s positive reaction.

Some better-ranked insurers that warrant a look are Reis Inc. (REIS - Snapshot Report), Jones Lang LaSalle Inc. (JLL - Analyst Report) and FirstService Corp. (FSRV - Snapshot Report). All these stocks carry a Zacks Rank #2 (Buy). NorthStar carries a Zacks Rank #4 (Sell).

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