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STAR - iStar Inc.


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iStar is a non-dividend paying REIT that's using NOLs to avoid taxes.  I mentioned it on one of the general discussion threads, but wanted to give it its own thread here.


There's a long writeup here:  http://clarkstreetvalue.blogspot.com/2016/08/istar-non-dividend-paying-reit-with.html


Update here:  http://clarkstreetvalue.blogspot.com/2017/04/safety-income-growth-inc-istars-ground.html


It's also been written up on VIC.  I don't want to regurgitate everything that's been said in the prior writeups, so I'll just get right to the high level, back of the envelope potential future I posted in the comments to the Clark Street Value blog post:


As of Q3 2017, in round numbers Gross Book and NOI are:

Real Estate Finance ("REF"): $1.1 billion/$104 million

Net Lease: $1.4 billion/$114 million

Stabilized Operating: $400/$30 million


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.


There's also about $1.86 billion in capital that needs to be "recycled" -- $500 million cash, $160 million :transitional" operating assets, 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.


This assumed capital recycling would leave about $140 million in annual, pre-tax cash flow for the common plus whatever G&A can be cut out from no longer having to deal with the transitional and development assets less whatever additional G&A is required to service the larger REF and Net Lease businesses.


~$140 million in REIT cash flow would be very attractive given that the current market cap is ~$720 million.  What has prevented me from buying this are the following concerns:


1) Is now the right time in the cycle to be trying to deploy ~$1.5 billion - $2 billion in capital?

2) Is this the right management team to be doing that?  Indeed, will they do it, or will they pursue sexier development projects, etc.?

3) This thesis has been around for years.  Is the full capital recycling ever going to happen?


I would appreciate any thoughts from anyone who's looked at iStar specifically or can comment more generally and the background rates of success of companies pursuing the capital recycling efforts discussed above.


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