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Sell NRF by 5bcY1j3


									• Originates and invests in real estate debt, real
  estate securities, and net lease properties
• Real estate securities: We invest in, create and
  manage portfolios of primarily investment grade
  commercial real estate debt securities
• acquire, originate and structure senior and
  subordinate debt investments generally secured by
  commercial properties
• Net lease strategy: invest primarily in office,
  industrial, retail and healthcare-related properties
  across the United States that are net leased to
  corporate tenants. Typically long term leases
  (about 15 years).
                    2007      2006     2005
Income            292,125   134,847   40,043
related parties    13,516    11,671    8,374
Rental and
income             95,755    37,546   11,403
Advisory and
fee income          7,658     5,906    4,813
Other Revenue       6,249     5,874      464
Total revenues    415,313   195,844   65,097
• Neither Google Finance nor Yahoo Finance explicitly
  lists Total Current Assets or Current Liabilities.
• However, according to Google Finance there are at
  most $1.37B Total Current Assets, at least $1.57B
  Current Liabilities.
• According to Yahoo Finance there are $314M in
  Current Assets and 71M in Current Liabilities.
• NRF holds 80% of its market cap in cash.
• Shareholder Equity is $1.30B
• NRF has an estimated $3.7B in long-term assets.
• If long-term assets are 30% overvalued,
  Shareholder Equity is instead $52M
• If long-term assets are 40% overvalued, then
  liabilities outnumber assets by $217M
• Hence NRF’s true valuation is highly
  dependent on the accuracy of the valuation of
  its commercial real estate debt, real estate
  securities and net lease properties.
• Entered into agreement to borrow 50.4 million
  from JP Morgan Chase at 1.25% to 1.80% over
• Represents 55%-80% of the collateral value
• Pro: Demonstrates ability to obtain funding even
  though credit markets have seized up
• Con: Have to rely on banks since corporate debt is
  too expensive
• When Level 2 and 3 assets and liabilities are
  accounted for at fair value…
• $439 million in assets
• $1.2 billion in liabilities ($956 million Level 3)
• Balance Sheet Data From 10-Q
   •   Total assets (9-2008) 4,120 vs (12-2007) 4,792
   •   Total liabilities (9-2008) 2,680 vs (12-2007) 4,152
   •   Total liabilities and stockholders’ equity- $4,120
       vs. $4,792
• Net income climbed from 13 to 238 million over
  same nine month period due to an increase in the
  value of unrealized investments
• Severe drop in amount of cash used in investment
• 82 million for in Q3 as opposed to 2.5 billion 9
  months prior
   Residential sector capital markets issues spread
    into commercial real estate, although NRF has no
    direct subprime exposure
   Factors have led to severe contraction in available
   Rising LIBOR spread adversely impacting
    commercial real estate values
   Higher interest rates result in a greater discount
    rate applied to underlying real estate cash flows,
    generate lower implied values for loans
   Responded to these issues by decreasing
    investment activity
• Risk- “Approximately $756 million of our funded
  loan commitments have their initial maturity date
  in 2009; however, most of the loans contain
  extension options of at least nine months (many
  subject to performance criteria) so it is difficult to
  estimate how much capital, if any, from initial
  maturities or prepayments may be recycled into
  higher earning investments for 2009.”
• Believe that in longer term liquidity could return
  to commercial real estate market, but that in near-
  term new financing sources must be developed
• “We rely on the normal functioning of credit and equity
  markets to finance and grow our business.”

  • 2H07: “severe credit and liquidity issues in the subprime
    residential lending and single family housing sectors
    negatively impacted the asset-backed and corporate fixed
    income markets, as well as the equity securities of financial
    institutions, homebuilders and real estate companies.”
  • most commercial real estate finance and financial services
    industry participants, including us, have curtailed new
    investment activity until the capital markets become more
    stable, the macroeconomic outlook becomes clearer and
    market liquidity increases.
  • In this environment we are focused on actively managing
    portfolio credit, generating and recycling liquidity from
    existing assets and optimizing corporate overhead.
•   The recent downturn in the credit markets has increased
    the cost of borrowing and has made financing difficult to
    obtain, which has negatively impacted our business, and
    may have a material adverse effect on us.
•   Liquidity in the capital markets is essential to our
    businesses and future growth and we rely on external
    sources to finance a significant portion of our operations.
•   Our liquidity position could be adversely affected if we
    were unable to complete additional term debt
    transactions on favorable terms or at all.
•   If we are unable to generate sufficient funds or obtain
    financing for future capital commitments, we may not be
    able to repay indebtedness or fund our other liquidity
    needs, which could have a material adverse effect on us.
• We retain the subordinate classes of bonds in the
  term debt transactions that we have issued, which
  entails certain risks.
• If we are unable to extend or renew our existing
  warehouse and secured facilities, our results of
  operations, financial condition and business could be
  significantly harmed.
• The mortgage loans we originate and invest in and
  the commercial mortgage loans underlying the
  mortgage-backed securities we invest in are subject
  to risks of delinquency, foreclosure, loss and
  bankruptcy of the borrower under the loan. If the
  borrower defaults, it may result in losses to us.
• Can’t use traditional Free Cash Flow method
   • extremely high Capital Expenditures
• Have to use different valuation instead of FCF like
  Adjusted Funds From Operations (AFFO) or Cash
  Available for Distribution (CAD)
   •   these are useful measures because they show what a
       company does with cash from investors and how
       much is available for distribution
   •   lack of knowledge about these techniques is one of
       the reasons we should consider selling NRF
• Discount rate of 10%
• major risk factor with this company is that they
  won’t have access to capital or financing and their
  properties won’t bring in the revenue they’ve
  historically earned
• 5% growth in 2008, -80% next year, slow recovery
  in the following years
• Fair value comes out to about 7.5
• Reasons to sell:
   •   Extremely risky company
   •   Will likely see many formerly profitable business
       segments turn into liabilities
   •   Reliable valuation nearly impossible
   •   Expects to see profits affected by lower LIBOR
   •   Vulnerable to defaults on mortgage loans
   •   Has increased loan watch list to $205M
   •   S&P expects loan losses in 2009
• Reasons to hold:
  • Extremely low valuation metrics
  • Holds 80% of its market cap in cash
  • S&P has a $7 1 year price target (11/07/08)
  • DCF analysis gives a share value of $7.5
  • Bankruptcy risk perhaps rather low

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