tag:blogger.com,1999:blog-2080506270244832638.post5734156737209012506..comments2024-03-28T07:17:13.573-05:00Comments on Clark Street Value: iStar: Non-Dividend Paying REIT with Significant Development AssetsMDChttp://www.blogger.com/profile/10679835609782815537noreply@blogger.comBlogger38125tag:blogger.com,1999:blog-2080506270244832638.post-74195763544829792992018-01-05T15:38:05.421-06:002018-01-05T15:38:05.421-06:00Yes, I agree that one of the biggest risks is that...Yes, I agree that one of the biggest risks is that they simply never get back to being a boring REIT and always have a big G&A cash drag. That would prevent any large dividend that would likely force the share price up via brute force. <br /><br />Another concern I have is that this may the wrong time in the cycle to be trying to "recycle" large amounts of capital. Shrinking the balance sheet may make better sense, but then they also need to shrink G&A.KJPnoreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-31219459517927951842018-01-05T12:16:54.846-06:002018-01-05T12:16:54.846-06:00The L&D and Operating Properties G&A would...The L&D and Operating Properties G&A would presumably go away, they've shifted their strategy in net lease and much of the expense going forward will be on third parties like SAFE or the SWF. My bigger concern with STAR is Sugarman likes being a developer, its a sexier business (the parties and salaries are better), and he never fully returns to being a boring CRE credit REIT. You're putting a negative value on that in a roundabout way, probably the right thing to do.MDChttps://www.blogger.com/profile/10679835609782815537noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-54655834289880618652018-01-05T10:57:37.936-06:002018-01-05T10:57:37.936-06:00Why only the capitalize the unallocated corporate?...Why only the capitalize the unallocated corporate? For example, as I understand it, the NOI you used (and how I understand the term) does not include the G&A allocated to the Net Lease segment. I was also the "Unknown" poster below, and my $114 million NOI for Net Lease does not include the G&A allocated to that segment.KJPnoreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-80296138185313296652018-01-04T11:04:29.635-06:002018-01-04T11:04:29.635-06:00Back of the envelope, sounds about right. That...Back of the envelope, sounds about right. That's fairly significant considering the current market cap, but obviously they have a long way to go to get there.MDChttps://www.blogger.com/profile/10679835609782815537noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-70967512614276395542018-01-04T10:57:13.503-06:002018-01-04T10:57:13.503-06:00Yes, you could capitalize that, G&A at the cor...Yes, you could capitalize that, G&A at the corporate (unallocated level) is more like $20MM annually. I'd also point out the interest expense has come down considerably since this post, that's worth something on the positive end. I didn't try to nail down an exact valuation, just pretty obvious to me that it's cheap. I'd also say they're in pseudo-slow motion liquidation, they've reduced their balance sheet significantly in the last year, have a few more big chunky assets being sold in early 2018. They've mentioned cutting costs as a new initiative on previous calls, hopefully they're getting some traction on it going into 2018. Thanks for the questions.MDChttps://www.blogger.com/profile/10679835609782815537noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-46467776068427621952018-01-02T12:50:24.888-06:002018-01-02T12:50:24.888-06:00Sorry to bombard you with questions, but I was won...Sorry to bombard you with questions, but I was wondering if the following was how you were thinking about the future of the business:<br /><br />As of Q3 2017, in round numbers Gross Book and NOI are:<br />Real Estate Finance ("REF"): $1.1 billion/$104 million<br />Net Lease: $1.4 billion/$114 million<br />Stabilized Operating: $400/$30 million<br /><br />So, pre-tax, pre-interest, pre-G&A, these segments produce about $250 million in cash flow. Annual interest on debt and preferreds under the new cap structure is about $180 million and annual G&A is about $75 million, for a total of $255 million, which is essentially equal to the cash flow of the "stabilized" segments.<br /><br />There's also about $1.86 billion in capital that needs to be "recycled" -- $500 million cash, $160 million transitions operating, and $1.2 billion land (which includes some expected gains not yet included in gross book value). If $1 billion of that capital is reinvested in REF segment at 9% yields (100 bps lower than current portfolio), that would $90 million of additional cash flow. If the remaining $860 million is reinvested in triple net leases at 6.5% yield, that's another $56 million in cash flow.<br /><br />This assumed capital recycling would leave about $140 million in annual, pre-tax cash flow for the common less whatever additional G&A is required to service the larger REF and Net Lease businesses. <br /><br /><br />Unknownhttps://www.blogger.com/profile/18210316005314807384noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-19971499707613639062018-01-01T20:56:42.831-06:002018-01-01T20:56:42.831-06:00Thanks for continuing to post your thoughts on iSt...Thanks for continuing to post your thoughts on iStar as the situation has developed. I have one question: How have you accounted for corporate overhead (G&A) in your valuation? Your FFO analysis of the REIT assets would pick up the portions of G&A allocated to the Real Estate Finance and Net Lease segments, but not the rest. If I understand it correctly, your NAV calculation based on NOI and book value doesn't take into account any of the G&A.<br /><br />Companywide G&A is about ~$70-$75 million per year. There don't appear to be any plans to liquidate the business. So, why shouldn't this G&A be capitalized at some multiple and subtracted from the NAV to get a going-concern value?KJPnoreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-42005307268056219432017-09-27T08:03:18.757-05:002017-09-27T08:03:18.757-05:00Love it. You're right, it is a game changer, ...Love it. You're right, it is a game changer, saves them quite a bit of money in interest and dividend expense annually as well. Sugarman discussed some chunky asset sales coming out of the land and development portfolio soon, so we're not done yet for 2017. Sounds like the share repurchase was a way to counteract the converts from shorting the stock out in the public? I guess it doesn't matter in the end, same effect of shrinking the float. I added a little more recently.MDChttps://www.blogger.com/profile/10679835609782815537noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-87836070946463066062017-09-26T17:34:19.604-05:002017-09-26T17:34:19.604-05:00Any thoughts on the big recap announced last week?...Any thoughts on the big recap announced last week? <br /><br />This pushes out nearest maturity till 07/2019. This is a major game changer, imo, as it should allow mgmt to focus on ops rather than asset funding. Seems the next big maturity was always 6 months away now for years. Also buried in the press release was the disclosure that 4 million shares were repurchased as well. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-83639594399968766762017-08-21T14:17:58.962-05:002017-08-21T14:17:58.962-05:00I haven't done the math recently, but clearly ...I haven't done the math recently, but clearly they'll take a good chunk of it down this year with the SAFE transaction and hinting at some other asset sales in the back half of the year. I'm guessing Sugarman is in no rush to pay a dividend. iStar doesn't really generate operating earnings, their income is going to be from capital gains, and real estate companies can employ other tax strategies to minimize the impact of those like 1031 exchanges. Long way of saying, a dividend isn't likely soon, SAFE might be the clean dividend paying vehicle going forward and STAR more the opportunistic vehicle.MDChttps://www.blogger.com/profile/10679835609782815537noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-89024237538414987022017-08-12T08:10:26.088-05:002017-08-12T08:10:26.088-05:00Curious about your thoughts on when the NOLs will ...Curious about your thoughts on when the NOLs will run out versus the earnings projections, and therefore when they will begin paying a common dividend.Anonymoushttps://www.blogger.com/profile/08721358134432177445noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-19845283747460504932017-04-12T11:00:23.951-05:002017-04-12T11:00:23.951-05:00Yes, I believe STAR's are almost all triple ne...Yes, I believe STAR's are almost all triple net lease. But based on the characteristics of the portfolio, the rent per square foot seems fairly low? A lot of these might be industrial/warehouse or B/C office space, there isn't a ton of disclosure, so 6.5% cap rate still seems pretty fair to me.MDChttps://www.blogger.com/profile/10679835609782815537noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-10930449237238774492017-04-12T10:08:09.341-05:002017-04-12T10:08:09.341-05:00Aren't a lot of the net leases more typical tr...Aren't a lot of the net leases more typical triple net leases that merit higher cap rates?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-85390080423929414112017-04-11T12:32:36.300-05:002017-04-11T12:32:36.300-05:00Haha yeah awful name for sure. I actually like the...Haha yeah awful name for sure. I actually like the low AM fee and 1-yr terms - would assume that lets SFTY trade closer to NAV despite being externally managed. With LT leases in place, no capex, etc. the cost to "manage" will be quite low anyways. And incentives would've been for getting market returns basically (I think? Not much in the control of manager). <br /><br />Exiting at a 5% cap, with potentially more sales, really confirms how cheap STAR is - net lease portfolio probably should be valued at less than 6.50% based on this, no? At minimum gives a cushion from future rate hikes. <br /><br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-33340114791095743292017-04-11T11:16:49.279-05:002017-04-11T11:16:49.279-05:00"Safety, Income and Growth Inc" -- I won..."Safety, Income and Growth Inc" -- I wonder who they're marketing this entity to? Ha, that's awful, curious if the SEC says something.<br /><br />But interesting deal, STAR receiving 20x EBITDA or $340MM for the initial portfolio, could use that cash to delever and/or buyback shares. The management fee is strangely generous too? No termination or incentive fee, base management fee is 1% with a tier down to 0.75% after $2.5B, all paid in stock.<br /><br />I could see this working out well, it's an easy sales pitch to retail investors.<br /><br />Going to noodle on it a bit more, but might come back with additional thoughts.MDChttps://www.blogger.com/profile/10679835609782815537noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-67538372372966517332017-04-10T19:31:10.715-05:002017-04-10T19:31:10.715-05:00FYI (plus interested in your thoughts once you get...FYI (plus interested in your thoughts once you get a chance to review) - <br /><br />https://www.sec.gov/Archives/edgar/data/1688852/000104746917002452/a2231718zs-11.htm#cy49301_description_of_the_initial_portfolio_financing<br /><br />-KH<br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-16506749861650436022017-03-22T10:42:56.967-05:002017-03-22T10:42:56.967-05:00Right. Here's the explanation from the 10-K:
...Right. Here's the explanation from the 10-K:<br /><br />The Company's Board of Directors has not established any minimum distribution level. In order to maintain its qualification as a REIT, the Company intends to pay dividends to its shareholders that, on an annual basis, will represent at least 90% of its taxable income (which may not necessarily equal net income as calculated in accordance with accounting principles generally accepted in the United States ("GAAP")), determined without regard to the deduction for dividends paid and excluding any net capital gains. The Company has recorded net operating losses ("NOLs") and may record NOLs in the future, which may reduce its taxable income in future periods and lower or eliminate entirely the Company's obligation to pay dividends for such periods in order to maintain its REIT qualification.MDChttps://www.blogger.com/profile/10679835609782815537noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-52851861596817896982017-03-22T10:01:40.622-05:002017-03-22T10:01:40.622-05:00Got it, so is your point that they don't have ...Got it, so is your point that they don't have taxable income to pay out so they can be classified as a REIT still? Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-49082925562393128372016-11-10T13:33:59.447-06:002016-11-10T13:33:59.447-06:00They are a REIT. The requirement is to pay out 90...They are a REIT. The requirement is to pay out 90% of their taxable income as a dividend, most REITs don't have a lot of taxable income because of the depreciation shield and end up paying out well in excess of the requirement as dividends. iStar also has the net operating loss carryforwards remaining that provide an additional tax shield. There aren't many REITs that don't pay dividends, the only other that jumps to mind is EQC (Sam Zell controlled) and that might worth investigating too. Thanks for reading.MDChttps://www.blogger.com/profile/10679835609782815537noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-25850646682775053232016-11-10T13:19:30.347-06:002016-11-10T13:19:30.347-06:00If they are not paying a dividend, technically can...If they are not paying a dividend, technically can't we not classify STAR as a REIT? Their operations mirror that of a REIT, but in the tax code, is that how they are really classified? Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-53890027406742894602016-11-08T08:47:01.596-06:002016-11-08T08:47:01.596-06:00Yes, I agree. I'm pleased that the new CFO is...Yes, I agree. I'm pleased that the new CFO is taking some steps to make the financials and reporting clearer, although more detailed asset level disclosure would be even better. I need to do more work on the one NPL, I don't know much about that asset, so I can't completely brush that under the rug. Otherwise hopefully we see a resolution soon to the Lennar litigation and good to hear the Oriental Mandarin property in Chicago is now resolved, that's a prime piece of real estate just north of Millennium Park. The convertibles come due in a few days, looks like they'll finish out of the money which is good, although if the one did finish in the money iStar could just repurchase shares in the same amount and offset the dilution since they have the cash set aside. Thought the comments around the three "acts", their focus on costs in 2017, and less cash drag were all positives. I hope they return to repurchasing stock after the convertibles are paid off, aside from the big NPL, that was my only semi-issue with the quarter.MDChttps://www.blogger.com/profile/10679835609782815537noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-53668446799716880342016-11-07T23:59:09.614-06:002016-11-07T23:59:09.614-06:00Thanks for this - thoughts on the quarter? Looks l...Thanks for this - thoughts on the quarter? Looks like they're making decent progress - looks even more attractive now. Thanks.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-45973739737877344322016-09-01T19:44:09.822-05:002016-09-01T19:44:09.822-05:00You've laid out the risks better than I did. ...You've laid out the risks better than I did. iStar's loan book is mostly development loans, one example that some readers might be familiar with is the new 20 Times Square building, the same asset at the center of the FUR liquidation. iStar needs the capital markets to be open, both to refinance debt as you mention and for those buying their assets to have access to credit. We're always fighting the last crisis, I don't believe the next bear market is going to be focused on real estate or the credit cycle, so these are less of a concerns of mine, but they're still clearly risks worth considering. Thanks for reading and the thoughtful comment.MDChttps://www.blogger.com/profile/10679835609782815537noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-29099268514452790672016-09-01T17:29:55.780-05:002016-09-01T17:29:55.780-05:00This is an exciting mix of assets that are 2/3rd e...This is an exciting mix of assets that are 2/3rd easy to understand to an extent value while the other 1/3 is extremely opaque and difficult to value. I agree the current valuation provides a margin of safety as you are essentially receiving these assets for free. <br /><br /> What concerns me is the maturity waterfall of their debt through YE 2020. It averages about $700 million per year and with so much capital tied up in development it may be likely the company faces a squeeze on liquidity. Further, it is unclear what % of their loan book is tied to real estate development but it may be a large % given the weighted average maturity of the book is just 2 years. <br /><br />Any insight would be appreciated. Thanks for sharing your analysis. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-17329849613432051602016-09-01T11:37:47.837-05:002016-09-01T11:37:47.837-05:00Thanks, it certainly was a home run. I'd like...Thanks, it certainly was a home run. I'd like to think some of that was because the market recognized how cheap LDOS was (along with the dividend playing some role in that), problem is I don't see that same dynamic in COTY. Consumer staples are generally overvalued as people love the low volatility theme. I'll likely participate in the exchange offer, but don't think I'll have much value to add above that.MDChttps://www.blogger.com/profile/10679835609782815537noreply@blogger.com