NorthStar Realty Hires UBS to Aid on Possible Recombination

Updated on
  • Shares jump most since mortgage REIT's spinoff in 2014
  • Litt urging return to an internally managed structure

NorthStar Realty Finance Corp., a U.S. mortgage real estate investment trust, hired a division of UBS Group AG to advise on a potential recombination with NorthStar Asset Management Group Inc., the company from which it was spun off in 2014.

The REIT’s board formed a special committee that will be composed of independent directors who aren’t also on the board of NorthStar Asset Management, including a new director to be appointed shortly, according to a statement Thursday.

NorthStar Realty shares jumped 16 percent, the most on record, to close at $12.47. They tumbled 37 percent this year through yesterday, the second-worst performance in a Bloomberg index of 41 mortgage REITs. The company has seen some its biggest hedge fund owners reduce their stakes and is under pressure by activist investor Jonathan Litt of Land & Buildings Investment Management LLC. Litt nominated six directors for election to the management company’s board and expressed interest in the REIT selling assets and returning to an internally managed structure.

Management Contract

Because the REIT is externally managed, NorthStar Asset Management gets a flat fee regardless of the company’s performance. NorthStar Realty and its manager have an interminable 20-year contract, which could limit the upside for investors, Jade Rahmani, a Keefe Bruyette & Woods Inc. analyst, said in a report earlier this month.

“We believe the strategic initiatives take precedence and view the hiring of a separate adviser to NRF positively,” Rahmani wrote in a note to clients Thursday, referring to the REIT by its stock symbol.

Litt said his firm is encouraged by the moves announced by the REIT on Thursday and that the management company is “substantially undervalued.” Land & Buildings looks forward to NorthStar Asset Management providing an update on its earnings call Friday on the strategic review announced last month, which included the hiring of Goldman Sachs Group Inc. to evaluate options to maximize shareholder value, Litt said in an e-mailed statement.

NorthStar Realty shares have been a favorite among hedge funds, which owned 27.94 percent of the company as of Jan. 21. Hedge funds are having the worst start to a year since 2008, and some of the firms have been selling investments. Steadfast Capital Management and Maverick Capital, NorthStar’s two biggest hedge fund stockholders in the third quarter, reduced their stakes by 90 percent and 33 percent, respectively, in the three months ended Dec. 31.

(Updates with closing share price in third paragraph.)
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