iStar Inc. (STAR) Q4 2022 Earnings Call Transcript

iStar Inc. (NYSE:STAR) Q4 2022 Results Conference Call February 21, 2023 10:00 AM ET

Company Participants

Pearse Hoffmann - Senior Vice President of Capital Market and Investor Relations

Jay Sugarman - Chairman and Chief Executive Officer

Marcos Alvarado - President and Chief Investment Officer

Brett Asnas - Chief Financial Officer

Conference Call Participants

Stephen Laws - Raymond James

Jade Rahmani - KBW

Operator

Good morning. And invited to iStar's Fourth Quarter and Fiscal Year 2022 Earnings convention telephone [Operator Instructions]. As a reminder, today's convention is being recorded.

At this time, for opening remarks and introductions, I would for illustration to move nan convention complete to Pearse Hoffmann, Senior Vice President of Capital Market and Investor Relations. Please spell ahead, sir.

Pearse Hoffmann

Good morning, everyone. And convey you for joining america coming to reappraisal iStar's 4th fourth and fiscal twelvemonth 2022 earnings. With maine coming are Jay Sugarman, Chairman and Chief Executive Officer; Marcos Alvarado, President and Chief Investment Officer; and Brett Asnas, our Chief Financial Officer. This morning, we published an net position highlighting our results and our telephone will mention to these slides, which tin beryllium recovered connected our Web tract astatine istar.com successful nan Investors section. There will beryllium a replay of nan telephone opening astatine 2:00 PM. Eastern Time today. And nan replay is accessible connected our Web tract aliases by dialing (877)481-4010 pinch nan confirmation codification of 47582. Before I move nan telephone complete to Jay, I'd for illustration to punctual everyone that, statements successful this net call, which are not humanities facts whitethorn beryllium forward-looking. iStar's existent results whitethorn disagree materially from these forward-looking statements and nan consequence factors that could origin these differences are elaborate successful our SEC reports. iStar disclaims immoderate intent aliases responsibility to update these forward-looking statements isolated from arsenic expressly required by law.

Now, I'd for illustration to move nan telephone complete to iStar's Chairman and CEO, Jay Sugarman. Jay?

Jay Sugarman

Thanks Pierce. And acknowledgment to each of you for joining america today. 2022 was an important modulation twelvemonth for iStar. Monetizing bequest assets and positioning Safehold to unlock its afloat imaginable has been nan premier attraction for immoderate clip now, and nan merger announcement successful August was nan culmination of that strategy. Since that time, we've continued to make advancement and moving difficult to scope nan decorativeness line, scheduling nan ballot for early adjacent month, and ideally closing by nan extremity of nan quarter. Letting spell of nan past and embracing nan early is ever difficult and we've had to make immoderate reliable decisions on nan way, but nan payoff should beryllium good worthy nan effort. We stay convinced our modern crushed lease building has go a powerful caller root of superior for nan existent property industry, and we are pleased to person firmly established Safehold arsenic nan innovative leader of this important caller plus class. With overmuch of iStar's ample holdings successful Safehold being delivered to shareholders either straight aliases indirectly, nan benefits of what we're building station merger should accrue successful ample portion to iStar shareholders complete nan coming years. Much difficult activity remains to recognize nan afloat committedness of our crushed lease strategy and to spot its worth afloat reflected successful our stock price. But we person a very clear imagination of really to unlock that worth erstwhile we tin put nan existent merger and marketplace disruptions down us.

Okay, let's move it complete to Marcos and Brett to recap nan 4th and nan year. Marcos?

Marcos Alvarado

Thank you, Jay, and bully morning, everyone. Let's statesman connected Slide 3 to talk nan quarter's highlights. We've made meaningful advancement monetizing assets successful nan 4th fourth and done nan early portion of 2023, generating astir $150 cardinal successful nett proceeds. We presently estimate an further $110 cardinal of proceeds are required to scope our monetization target successful relationship pinch nan merger. As antecedently disclosed, we person agreed to repay our preferred banal and unsecured notes arsenic portion of nan merger. Special meetings of nan SAFE and STAR shareholders person been scheduled for March 9th. Key remaining conditions to adjacent are obtaining shareholder approvals, completing nan SEC reappraisal and NASDAQ listing process for nan spinoff, and gathering our plus monetization goals. Based connected wherever we beryllium today, we judge location is simply a imaginable pathway to an approximate March 31st closing date. Also, connected December 7th, iStar returned astir $192 cardinal to shareholders successful nan shape of a typical dividend of 6.6 cardinal Safehold shares. Safehold continues to standard its position arsenic nan leader of nan modern crushed lease manufacture and 2022 was different beardown twelvemonth for nan business. The institution continued to turn its portfolio pinch precocious value investments supported by a beardown equilibrium sheet, and we expect that equilibrium expanse to fortify arsenic Safehold has been put connected affirmative outlook by some Moody's and Fitch complete nan past six months. While nan broader existent property markets person seen a slowdown and we expect adjacent word transaction measurement to stay spotty, we judge SAFE is good positioned for nan inevitable marketplace rebound pinch ample liquidity to money caller crushed lease investments arsenic opportunities arise. As iStar's largest and astir valuable asset, Safehold’s occurrence will yet accrue to nan use of iStar's shareholders.

Slide 4 specifications our net for nan 4th and nan year. For nan 4th quarter, nett income was a nonaccomplishment of $86.7 cardinal aliases a nonaccomplishment of a $1 per diluted communal share, and adjusted net were a nonaccomplishment of $79.9 cardinal aliases a nonaccomplishment of $0.92 per diluted communal share. For nan afloat year, nett income was $397.8 cardinal and net per stock was $4.92. Adjusted net was $522 cardinal aliases $6.25 per share. Slide 5 is an overview of nan business pinch a simplified position of our equilibrium sheet. At nan extremity of nan 4th quarter, we had astir $1.4 cardinal of unrestricted cash, a carrying worth of Safehold stock, crushed lease positive and leasehold indebtedness investments of $1.3 cardinal and $483 cardinal of bequest and different non-core assets, getting to a full assets connected nan equilibrium expanse of astir $3.3 billion. On nan correct broadside of nan equilibrium sheet, we person $1.7 cardinal of remaining debt, $305 cardinal of preferred equity and $162 cardinal of different liabilities and non-controlling interests, including nan accrued equilibrium of iPIP, leaving america pinch communal equity of astir $1.1 billion. When adjusting for SAFE SMART to marketplace worth and our estimate of nan incremental unaccrued iPIP amounts, our communal equity is $909 cardinal aliases $10.48 per share. The alteration successful this equilibrium from past 4th is chiefly owed to nan typical dividend of $6.6 cardinal SAFE shares distributed to STAR shareholders connected December 7th. At nan clip of nan typical dividend, SAFE was trading astatine $28.95 versus a $32.11 arsenic of adjacent past Friday. Additionally, we've provided a sensitivity study connected nan adjusted communal equity worth per stock should SAFE banal spell up aliases down by $10.

And pinch that, fto maine move it complete to Brett to spell done nan portfolio successful much detail. Brett?

Brett Asnas

Thank you, Marcos, and bully morning, everyone. Let's locomotion done our portfolio's business lines opening pinch Safehold connected Slide 6. During nan 4th quarter, Safehold originated 3 caller crushed leases for $79 cardinal and for nan afloat year, Safehold originated 26 caller crushed leases for $1.4 billion. These caller originations are good diversified by spot type and location and included crushed leases successful 15 unsocial markets, including 4 organization life subject assets successful markets specified arsenic Boston and nan Bay Area and 15 multi-family assets and markets including New York, Los Angeles, Nashville, Denver and Miami. Unrealized superior appreciation for nan estimated worth of nan building sitting supra SAFE’s crushed lease spaces accrued twelvemonth complete twelvemonth by $2.4 cardinal and presently stands astatine $10.5 cardinal for nan portfolio. Safeholds’ equilibrium expanse and liquidity floor plan remains beardown and consequent to 4th extremity Safehold closed an further $500 cardinal unsecured revolving in installments facility, expanding nan company's full unsecured in installments lines to $1.85 billion. Including nan caller revolver, Safehold ended nan 4th pinch astir $1.2 cardinal of liquidity. While Safehold’s financial performance, portfolio metrics and equilibrium expanse person each been positive, nan unfavorable marketplace backdrop and liking complaint volatility person been a antagonistic for nan stock, which you tin spot reflected successful nan people to marketplace carrying value. We do not judge existent prices decently seizure Safehold’s sum of nan [parts] worth proposition and are optimistic for what nan early holds arsenic nan merger concludes and markets stabilized.

On Slide 7, we item our investments successful nan crushed lease ecosystem. As we antecedently discussed, iStar has 2 abstracted costs that alteration america to prosecute further crushed lease opportunities successful nan broader crushed lease ecosystem. One provides pre-development crushed leases and nan different provides leasehold loans that are mixed pinch our halfway Safehold crushed leases. The nett carrying worth for nan 7 investments successful these costs is $91 cardinal pinch targeted returns betwixt 9% and 12%. There are astir $147 cardinal of unfunded commitments associated pinch these crushed lease related investments. Slide 8 highlights nan remaining non-ground lease assets, including income advancement during nan 4th fourth positive first 4th to date. In nan existent property finance portfolio, we received $69 cardinal of repayments during nan quarter. There are 4 loans remaining successful this portfolio pinch a carrying worth of $86 million, a 51% alteration from past quarter. In nan existent property and strategical plus portfolios, we received $60 cardinal of proceeds and distributions from plus income during nan quarter, which generated nett gains of $15 million. At 4th end, existent property and strategical assets totaled $345 cardinal of carrying worth of which Asbury Park and Magnolia Green represented $269 cardinal aliases 78%. The 9 short word assets totaled $76 million.

Subsequent to 4th end, we received an further $21 cardinal of proceeds from continued existent property and strategical plus sales, which included nan waste of 1 spot for $17 cardinal of proceeds and regular measurement batch income successful our onshore portfolio for $4 million. At this juncture, we estimate that astir $110 cardinal of further proceeds are needed to scope our monetization target. As antecedently disclosed, we person agreed to repay our preferred banal and unsecured notes successful relationship pinch nan merger. Slide 9 shows an overview of our firm debt, which remains mostly fixed from past quarter. At 4th end, location was astir $1.7 cardinal of full indebtedness outstanding pinch a weighted mean maturity of 2.9 years. In conclusion, we proceed to make important advancement towards finalizing nan business operation pinch Safehold and look guardant to nan benefits of nan translator of our business. And pinch that, fto maine move it backmost to Jay.

Jay Sugarman

Thanks, Brett. I've been asked successful nan past really to champion summarize what we are doing astatine Safehold and really ample nan crushed lease opportunity is. And nan reply is, arsenic elemental arsenic it is powerful. We are providing a little costs and little consequence measurement for commercialized spot owners and developers to capitalize their properties. And we are providing a faster increasing and much valuable measurement for investors to participate successful an plus people that has historically proven to beryllium nan root of awesome wealth. As a result, we deliberation nan imaginable opportunity up of america is very large, very breathtaking and very achievable. And connected that statement operator, let's unfastened it up for questions.

Question-And-Answer Session

Operator

[Operator Instructions] Your first mobility is coming from Stephen Laws of Raymond James.

Stephen Laws

First, I want to touch connected nan remaining plus sales. I deliberation $110 cardinal that you mentioned successful nan remarks. And will that travel from nan indebtedness book, and I conjecture strategical bequest assets, benignant of wherever will we spot that? And past to necktie that successful and connected nan impairment and reserve build during nan 4th quarter, tin you talk astir those and is that to people a reserve assets benignant of wherever you expect trading those successful nan adjacent six aliases 8 weeks?

Jay Sugarman

Yes, we person sewage a fistful of assets, we’re getting to nan decorativeness line. We've had immoderate gains connected some. We will astir apt return immoderate marks arsenic we showed successful nan 4th fourth to get free of immoderate of nan different ones. But we are search nicely to get to nan decorativeness line. And location will beryllium small spot of a flux, we can't foretell precisely which assets. But we consciousness beautiful confident, we've sewage a grip connected which ones are successful nan market, which ones are nether contract, which ones are going to get repaid. So we consciousness for illustration nary matter what happens, we should beryllium capable to fig it retired present beautiful shortly.

Stephen Laws

And past arsenic we move to closing present what transaction related expenses will beryllium incurred astatine iStar? I know, we talked past week astir nan SAFE broadside of things. Curious astir immoderate transaction related expenses we should tally through, deliberation astir successful our numbers?

Marcos Alvarado

I think, what we've accrued to day successful ‘22 is astir $10 million. I think, going guardant everything related to advisors, legal, accounting, taxation structuring will each beryllium accounted for astatine merger closing. And obviously, there's costs to repay our liabilities. So we tin activity done a precise number. As Jay alluded to connected nan gains and losses, there's tons of expenses and there's tons of changes successful proceeds for different plus sales. And conscionable to springiness you immoderate discourse to that earlier question, and we booked complete $30 cardinal of gains to day since nan merger announcement connected those sales. So we'll person to see, I think, wide net-net, Jay mentioned immoderate winners and immoderate different assets wherever we request to see that will -- each nan expenses will beryllium flushed astatine and hopefully it'll beryllium a nett wash.

Operator

Your adjacent mobility is coming from Jade Rahmani from KBW.

Jade Rahmani

Given iStar's humanities magnitude of acquisition done existent property cycles, I wanted to ask, what are your expectations regarding nan magnitude of immoderate in installments downturn successful nan marketplace this cycle. And do you expect that benignant of business to make outsized finance opportunities for caller SAFE, is that transmission going to beryllium a meaningful root of finance activity do you think, aliases not really?

Jay Sugarman

I'll fto Marco's measurement successful connected immoderate of nan opportunities we expect to see. But you asked a awesome question, which is we've been done many, galore cycles. The 1 point we ever spot is simply a small spot of a imaginative demolition process. Higher rates evidently are not bully for existent property overall, conscionable successful position of wide values but they thin to choke disconnected supply, which past creates nan conditions for rebound. This could return immoderate time. There's immoderate accent successful nan marketplace arsenic you tin astir apt tell, peculiarly connected immoderate of nan plus classes for illustration agency and unit that, that transition's going to return rather a spot of clip and rather a spot of effort. But what we've seen complete longer periods of clip is higher rates, reliable marketplace conditions do commencement to create nan instauration for a rebound successful nan future. And that mostly has been a awesome spot to deploy capital. So, I'll fto Marcos locomotion done really we're reasoning astir that.

Marcos Alvarado

So to echo what Jay conscionable said. It's been a absorbing benignant of ark, I'd opportunity nan extremity of nan past year, it was a liquidity desert, location wasn't a batch of opportunity. We're starting to spot immoderate greenshoots successful our halfway business astatine SAFE. So group are engaged, we're seeing caller transactions. But arsenic we've alluded to connected some nan SAFE and nan STAR calls successful nan short term, I think, we deliberation transaction volume's going to beryllium somewhat muted. But we stay optimistic that nan 2nd half of nan twelvemonth we'll beryllium capable to deploy superior arsenic buyers and sellers benignant of travel to this equilibrium impasse that they're astatine today.

Jade Rahmani

And do you deliberation that recapitalization of deals that person problem will beryllium a meaningful excavation to play in? And successful position of nan money business that you're launching, is that an area successful which to raise capital?

Marcos Alvarado

Yes, I deliberation successful nan short term, Jade, a batch of nan things that we're seeing successful our pipeline are these, quote unquote, benignant of recap distressed opportunities that whitethorn person been somewhat [over-levered] but there's still an statement connected value. So deliberation astir nan multi-family broadside connected 1 plus connected 1 broadside of nan spectrum. I deliberation connected nan agency side, arsenic Jay alluded to, there's a longer word benignant of imaginative demolition going connected and we haven't seen that benignant of ft out. And past arsenic it relates to our money guidance business that yet will beryllium astatine SAFE. Yes, we're excited astir watching that station merger and taking advantage of nan opportunity. But again, I think, we're going to beryllium chiefly focused connected nan halfway business, which is existing crushed leases.

Jade Rahmani

Are location immoderate imaginable changes you envision happening pinch respect to nan merger, possibly related to iStar's superior building aliases immoderate different dynamics, aliases is your baseline anticipation it'll conscionable adjacent arsenic primitively structured?

Jay Sugarman

Yes, thing material, Jade. We're getting to nan short strokes here, truthful we'll move a fewer things astir if we request to, conscionable to get this done arsenic soon arsenic possible. It has been a awesome distraction for nan firm. And so, we'd for illustration to get backmost to business and get retired of benignant of nan merger restrictions we've been surviving nether for six, seven, 8 months now. So everything feels for illustration it's search wrong each nan guardrails we group out.

Operator

[Operator Instructions] Mr. Hoffmann, we person nary further questions.

Pearse Hoffmann

Thank you. If you should person immoderate further questions connected today's release, please consciousness free to interaction maine directly. Jenny, would you mind giving nan convention replay instructions erstwhile again? Thanks.

Operator

There will beryllium a replay of nan telephone opening astatine 2:00 PM Eastern Time today. The replay is accessible connected our Web tract aliases by dialing (877)481-4010 pinch a confirmation codification of 47582. Thank you everyone. This does reason today's convention call. You whitethorn disconnect your lines and person a awesome day. Thank you for your participation.