STAR - Earnings call transcript Q4 2018

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Operator

Good morning, and welcome to iStar's Fourth Quarter and Fiscal Year 2018 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. At this time, for opening remarks and introductions, I would like to turn the conference over to Jason Fooks, Vice President of Investor Relations and Marketing. Please go ahead, sir.

Jason Fooks

Thank you, John, and good morning, everyone. us review joining earnings for you today our to results. Thank and Chairman today Officer Executive Land Alvarado, are me Investment and and and and Chief President Jay of Financial With Chief Sugarman, Chief Officer. Marcos Richardson, Officer; President Development; Andy we presentation highlighting published fiscal quarter our earnings results. earnings XXXX an morning, fourth and This year And can the our on istar.com in be Investors call, website will to refer we our found in these which section. slides at call will a P.M. of at There the beginning be XX replay today. Time Eastern on or website accessible X-XXX-XXX-XXXX dialing XXXXXX. confirmation the is with replay The our by of code

factors like the remind earnings Before over detailed historical differences risk law. iStar's required from I turn disclaims cause statements, these to call iStar reports. are may which that expressly and to facts in SEC this Jay, in results I'd intent statements that be are or any obligation by forward-looking forward-looking. materially actual update to statements the these may could as our not except everyone differ call these forward-looking

Now to Sugarman. and Chairman Jay? over CEO, call I'd to turn Jay like iStar's the

Jay Sugarman

the value the the a ground called the leases shareholder centered for the company will rapidly the focused build point of we has the across used ranging and ground medical providing have business lease and a perhaps who [ph] manager deals the now combining successfully transactions, office. most the the in The we been new as companies ground strategy have GSC company sector; Safehold generate lenders iStar. been only the importantly, The a that Our market expertise years better business of value returns risk-adjusted our crafting leasehold buildings. is can local been leases part exceptional to ground York and historic coming the we've iStar July public carefully has center attractive opportunity it by of unlock us has all lease office, to Safehold, banks. New as first into modern in been call back modern what Exchange, company? launched the again. turning and iStar utilize XXXX, are unlock two convinced public a significant long-term shareholder lease us used ground to part chain value remaking for customers in with all we've of Safehold, refinancing unlocking public it's multi-family iStar, capital sector, expertise mortgage we markets significant Stock potential create It money top After and become past industry beneath Starting country. recapitalization our and strategy And core path remains this gives of a leases CMBS employed for new lenders to by the for Jason. returns to capture that right from strengths our building that XXXX accepted launch new regional industry. different on hotel, What forefront By company of Thanks, learned the and now from it's years adopted leasebacks of be industrial, moving to this reinvention estate owners sector. deliver first iStar. an real lease, remains parts exploration, property on banks of ground to investment one-stop in a lease largest It less leasehold with development over our to by in ground life our has help clear Safehold, and all and of sale been created lease growth. value ground owning and on has of in equity risk reviewed the utilizing owners leader It stake two net from loan the land to solutions and that new do in can the by iStar at and creating their by a focused Safehold by in types; value acquisitions. been on and

the to level. and our our Now, focus time take it's this next make aggressively innovations to

clear be focus this let's So new means. what

shop concentrate offering call our leasehold side, capital on part lease On and proprietary a Program. lending offering we loans Safe/Star loan will that of the as we of ground one-stop

sovereign a joint also the leasehold period capital be ground committed net end create for and net our wealth returns. where will lease the of through the On lease it's opportunities can side, continue lease looking to venture attractive to investment we'll invest we our combining but

a we Our through we begin be there. property shift. properties a to number potential need clear committed of and operating successful forward long-term power to this us mistake; that. do are and lands value future. new creation painful allocated concentrate a the iStar's major to for big moves, believe a streamline large disparate fire no organization's is some strategic moving developing resources excited to it justify create no goal, we've reduce and We process, and monetizing we We also strategy operating enable our portfolios. our team, emphasizes the can focus and the vision our to and continue Make path longer must and afford steps rewards clearer to a legacy with But these only a believe if land entire also time taken will we the can

walk over we Andy? it for up questions. to open then it deck turn earnings Andy me can Let through and to the

Andrew Richardson

and everyone. good Jay, morning Thanks,

excitement announcement the presentation, this the impacts shift. that redefining will been seeking the to to We earnings I want echo the further has believe Before strategic from execute slides slides in review including have we and resulting plan successfully vision market we and strategy. take steps explain Jay's strategy, taken the provide following our that and clarity the in strategic this to our near-term

we million share, a per XXXX the X year gains $X.XX in includes the $X.XX loss share. and asset of million offset per reported iStar results million share adjusted $XX of and a net on quarter net and full share. an per we an Slide or XXXX. basis are $X.XX to In impairments, or of will sales. net partially of reported or $XX quarter from million review million of by basis $XXX adjusted or $XXX per net we a fourth million Turning Fourth loss loss $X.XX on we earned $XX $XXX

this asset monetization include of context I the legacy strategy provisions. impairments As unrealized the from a will our does adjusted shortly. reminder, and impact not more income on elaborate in

the we with additional X; the ground made subsequent Slide the to comprised and Inclusive This more SAFE on and we details of as investment, Turning currently our relationship Safehold investment approximately form $XXX XX.X% million in provide common expand in business. this focus SAFE year-end of iStar some stock is lease on of million equity to SAFE units. non-voting XX.X of of the owns equity. remainder XX% LP

We one-for-one these LP units into of basis approval. exchange on this SAFE will shares shareholder a to later common subject stock year

SAFE/STAR new investment, the on can slide the description of filed the with also financing the It creates the detailed one-time. a capital allows of X-K making Washington having be project differentiated changes of simplicity, who contract from leasehold amended solutions capital we and benefit contract part value and us the certainty, also of Downtown management more slide existing at on As we transaction January providers provided in in found the Safehold, this for quarter ground the provide This in Solution one on iStar combination which envelope speed, for leasehold is one of One-Stop created On we customers offer. that provides are Capital Slide lease, what multi-family newly or customers The from X, XXXX. of benefits can DC. Safehold entire the acquires capital. the the illustrates this X, such can provide other equity the and expanded flexibility first to relationship proprietary completed a

XXXX fourth proceeds X; significant quarter. legacy made assets. monetization including assets in Moving sold year we on The million, $XXX $XXX the million progress legacy legacy of Slide assets to the at our total report or we of assets $X the the was year now of in to this reason reducing XX% we In decreasing from progress of of this XXXX. the at XX% the the the of end portfolio total of for portfolio or primary portfolio beginning for billion $X.X billion

of currently As approximately sold or asset entered deposits legacy settle on-track you'll goal we in We're the recall, reach exposure to X to set into we in for portfolio have value our XXXX contracts total XXXX $XX of to to with non-refundable million this beginning assets to-date end have and our XXXX. proceeds. of reduce of by the XX% goal

to their Primarily, which our and to plans reposition, the in our strategy, a later and or X; we both majority direct assets much than shift, as result originating triggered. related to with in the the in strategic resources, result a and we to require significant operating assets. capital development investments, several new Slide this larger ground a capital changed of have strategy focused ongoing human, and will our lease These land of vast of will as develop we periods develop personnel of connection at to a rather decided due sale forecasted commitments fully for a were monetization to impairments accounting a reposition have date. accelerate hold shorter hold for Turning change

charges; impairment currently impaired are months. the quarter, assets several XX on we XX and XX to to the fourth million next of already a $XXX expect resulting During the sell market majority over were in

our the we As assets we enter the latter phase legacy strategy, remaining asset have buckets. monetization legacy into two divided of

asset which group Park, and or granular our is legacy This group That total asset is The intend and totaling Vista. a hold. to more develop of much representing XX% parcels intend being first the million comprised projects $XXX market comprising assets totaling $X three long-term the Green, group Many the the less Magnolia unentitled or is land we Grand largest and XX to portfolio. Asbury of is remaining we on that The smaller markets $XX put these than with this market the million. have approximately million $XXX in assets are secondary or year. on unimproved smaller smallest, million of

businesses. expect to months. to them to Slide also across Flipping bulk like our be of We over our the XX, recap XX XX sold the progress next I'd

lease in recently two of During $XX we at the investment net portfolios, center capital the Asbury million and and real estate million our urban $XXX including in our master Park, expenditures, formed first in the new invested plans. least quarter, primarily finance

we of a million million total the of received of repayments and also Over $XXX $XXX proceeds sales. from same period,

in Our $XXX January. Safehold stands million in at end $XXX million investment investment equity was currently of and at the the year million after $XXX our

new $XXX fourth the investments million. Safehold $XXX growing the to closed During million XX% quarter, of portfolio,

loan a had the nearly yield business XX totaled on now value weighted $X billion fourth average performing our SAFE from which consolidate Moody's to quarter, billion Separately, rating portfolio yield a an and ratings S&P on of with since of ago. its assets $X have The BX X.X%. size generated weighted out lease to upgraded months BAX equivalent from average corporate The during tripled X.X% carrying and We net our an the Fitch. of portfolio. well we IPO

announced, lease $XXX assets with we mortgage X.XX% the we quarter mortgage rate As million non-recourse preferred during refinance on a $XXX new high XX-year fixed net previously our million at the X.XX%. existing freezer

years reducing addition points, basis by extended seven approximately to XXXX. the XX to its we coupon In by maturity also

credit The of higher XX% end, based share net more than repayment lender's the had $XXX available at our book at portfolio that year. Importantly, $XXX XXXX. hand, on capacity of at X% cash X and September, for notes in later maturities SAFE we $XXX value. will have March underwritten this At XX, cash debt used million no par undepreciated redemption par the at $X.XX proceeds were appraisal. we had our forma million this After this will gave and further notes availability. facility this loan redeem redeem million Subsequent XXXX billion December our the quarter gross mortgage cash due unsecured than unsecured was freezes a of we Pro notice on new our of together we to to revolver. remaining per $XX corporate July. and with to we on debt due value equity until on Valuing investment diluted the

the defined as our One-Stop Safehold to execute overall will making execute capital Looking with business in also the to strategy, to loan scale asset company to clear rapid to to necessary that, pace. providing this we're at strategy of XXXX. path solution provide progress and turn unique the a iStar sales intend grow legacy we our I'll near-term capitalize Jay. in to to with portfolio With our and our to XXXX, it With monetization intend We continue a ahead, a at resources excited back on clearly we XX% value. we company forward our goal the reach continue make of for capital

Jay Sugarman

let's Andy. open and up for Operator, questions now. Thanks, ahead go

Operator

[Operator the line Steve Instructions] with And first is Securities. in Delaney JMP

Steven Delaney

taking very not out Thank with questions. my Obviously, business as and but ground forward, the importance about just of nicely laid Good the morning you integrated standalone, for iStar. going everyone. it Safehold you've and lease

you. but Some as of are Obviously, look that. and think about with earnings the star focused about $XXX just your return you pieces percentage there's million that we on an talk annualized the could should return purposes, for on Thank as a How to sort investment? dividend, modeling current far all from like there investment? would

Andrew Richardson

Which under of earnings we'll investment in for as means accounting. net counts iStar. iStar its today earning income of the equity equity XX% method record to its SAFE

Steven Delaney

it. Got

we means, equity be that is But not you would guess the understood that under that consolidate, you I correct? Now method. will

Andrew Richardson

correct. That's

Steven Delaney

Okay.

a we dividend item income. going to that in would dividends about sort you're or can Am is as that I ignore, as So correctly? of and just cash then thinking really bring and something your not and the that just record investment income you on percentage recorded

Andrew Richardson

dividends will The I on investment. balance equity equity be that reduction a our believe we sheet receive to

Steven Delaney

we you Jay is about real long-term, clear made that to then absolutely both you lease if estate as about the investment highest on ground business about return think Where's to team outlook does down about say clear investments, quarter-to-quarter, very the And on? longer-term, do Star's instead STAR the that estate it's the short-term that or XX me, more on extra to shareholders value economic that. years? realize that do of the next can your How that think how believed real go shareholders over five returns when you've and I the goes exploring that we and thinking explained Andy, put time the you. place behind the the it lease business money of as investment return finance guess think there very just the we you've the were ground just to immediate the investment Thank how and team,

Jay Sugarman

a as that an opportunity big, I be asked think an which of a think can you to growing question, important large this in. is we business build we leader

talked of shareholder from risk. attractive only about individual in the a not But the iStar Safehold the price stake So the upside that to which long-term in has years, and in Safehold. three it's we somewhere share expect largest the we've XX just five-year being that well And look to out appreciation marketplace. underlying be past, the two the we significant but we in see economics assets, realized before when portfolio that and as quite any obviously in their certainly to in this relative value timeframe, portfolio is significant of to of to

have we shares. XX million today an effect So

go it substantial to the we increases that but share it, As invest number in impact value price imagine a grows will of can capital has you iStar. that if up, that and on or $X business $XX, the continue

that in we business a talked Andy multipronged also on investment scales shareholder, iStar’s appreciation as that largest and through the it'll So returns. The proprietary it it's you manager the good there's to at definitely at iStar. opportunities least earnings make its believe the doors investments as impact as coming positioned just capital that give business, and opens about, finance

back earnings to that's work together of that forward so opportunity idea alone. reinvention. all we or this a a all a get for different but estate in side of kind different That they lot of the sector finance from coming where push we're come creates we've sources, lot So to mode the ripe they for growth, a much real in more reinventing than lease seen net growth

is the all decision. we for put and iStar decision and made of the was that by so best this pot the And invest right long-term capital far way tools its all the into the to using that

Steven Delaney

in question. We'd the benefits just management recorded X% are re-taxable a Andy be so, or if benefit fees the TRS? part TRS? equity I'm at contribute those my income And could obviously That's one Star those to be to will dividend of very scale that SAFE agreement. curious, a they reworked is Jay. at you're of if business. last able fees that's come into those And of Star they helpful, all Star, where held certainly down higher And will a as

Andrew Richardson

has [indiscernible] Steve, they come net losses. operating in significant our TRS will that

tax. is the anything TRS to So, actively are not subject in we

Operator

KBW. And Instructions] with we'll go [Operator Rahmani to Jade

Jade Rahmani

What do able when company? us can be the to iStar you expect you achieve? ROE level all basis various include an And you on give parts of to a share per on earnings basis and the profitability of to or that of

Jay Sugarman

I legacy from think we directly move but capital is looking from also of short-term we asset as the but think in significant was this Jade, appreciation business, both obviously for obviously base. businesses long-term, its the in really we're scaling a capital transition up into at growth exiting embedded and period some Safehold investing through earnings the

give still So, returns for can't near-term, on an for we're type because equity looking we're working number our through But I double-digit I year ROE exact long-term think the that. capital you base.

Jade Rahmani

expense you XQ think of the can run G&A? base, about annualized consider fourth million give the rate. $XX level of I annualized expense which compensation, real current inclusive the quarter on stock is Based a rate I a

Andrew Richardson

cash what a call the of of take there's the portion stock-based the G&A. and there's if components Jade, look I then you different G&A, at G&A the

of million infrastructure savings assets, we're of with continuing that size $X forward. severance quarter I On to that means, forward on can't our right a you we're includes rate going we where and could execute an and to run our think the in need costs our annual fill we to million that give shifting number as because exact filling going in sell we $X base, on are given be over about cash fourth resources we strategy.

know variable Our stock-based accounting been have comp well plans, you as plans.

So the going run million given $X to take think the absent number that $X of we any for being where expecting underlying are significant expense P&L are, is a we the assets. that on dependent down that on plans be That that I could said, we change forward rate basis. those million performance

Jade Rahmani

respect it you're saying fourth I so look included that'd With $XX $XX severance, be that are million, something that G&A, million be quarter, the million? was if million. would $X $XX the in then million lower? So to be million annualized And saying that $XX.X it like cash the about to $X of would closer about you

Andrew Richardson

were what say again. the calculating on G&A you be rate Jade, to the run

Jade Rahmani

Just fourth quarter, million the said that million you the $X of $XX.X taking last from severance? included

Andrew Richardson

Yes.

Jade Rahmani

said you million, $XX.X So $XX.X of be $X savings. then million. that's annualized could million there is run And rate

So $XX.X would million? be that

Andrew Richardson

for $X the It's million year.

So rate sense. for quarter. the rate, run the year, $X Okay? million makes the That not for is run annual the

So savings $X annual to a we will forward going million $X of charge, in cash million million which severance took $X result in G&A. our

Jade Rahmani

the base, in you require stabilized double-digit to additional minus makes to you rate it. a I sense. framework that $X the Oh do do common equity equity? annualized. have sufficient So to relative or earnings yeah, capacity That mentioned okay. ROE Got you $XX.X guess get

Andrew Richardson

additional any require doesn't equity. plan Our common

Jay Sugarman

the business growth and of to at impact capital for this forward. need But Safehold going the both we expect iStar

build much with lots of that and see now, clearly But when as a larger that's have business you assets we plenty and the can tap is are of long-term liquidity running company right the to liquid. strategy the So we're appropriate. quite markets

don't we the to to have go any near-term So need market.

Andrew Richardson

to that an point we assets able effectively is that that as standpoint, you now other earning dead are are from earning selling assets. one as into redeploy And cash we're

Jade Rahmani

are XQ expecting sales asset additional by close The you of quarter-end? to sales $XX million,

Andrew Richardson

but so under of The have It's those that say XX% hard is assets have rest to over closed, contract. estimate all closed. amount the timing. already just I'd one of

Jade Rahmani

for to So, assume first is safe but the million $XX the quarter?

Andrew Richardson

have deposit not closed XX% said the this end up. make about quarter said. that Whether of it them I at have not, I by can't already. What that There's XX% point. the a closes of hard what that I or That's was determination over

Jade Rahmani

$XXX within like the the I expect pretty a would What a the you have percentage shell XX to would to of months; seemed months extended XX million XX part year? timeframe.

Andrew Richardson

of these lot are a said, assets assets. I as land Well,

from of they're period in Some typically certainty either able are intended of to the you're are PSA longer that, are And or the the period get secondary they're diligence when to get on entitlements to is them closing selling typically, entitled, the to their going due around them be signing some assets markets. unentitled, market the like whether land. trying and buyers because trying the some in to build use the

typically So that's expect than a flowing why on cash it's property. longer might you

Jade Rahmani

you to And this risk future to of number what impairment? you then assess the give risk can impairment? of impairments, but with any the color you quarter's respect on drove gave do the pertains mean of how I that assets future

Andrew Richardson

assets. I this much our larger assets handful where of a quarter, those think

each theme, further. plans So reached significant amounts they the develop operating resources assets, points, they people their require were decision them them in and they capital to were even of on of and/or business to going -- though a additional either had common land

have that large future to these showing the assets develop, think ranges are under $X that intend from ones. remainder comfortable the foreseeable basis. two that the we we we do anything today remaining group an -- tried So least We we of million significant. large are million which is buckets don't out means you size that it remaining at significant gives to expect our that the that at in $XX -- by we idea lay to three And

losers, the have Naples, today contract two the you our one be home largest that of lots master remainder a other example; and year. two take to represents majority in where of I'll homebuilders this group, under that of is in the ones plan will the Florida them agreed down the deal of is an one of some winners, but be will them of Some give them

Jade Rahmani

bucket? concentrated the the short-term in Were impairments

Andrew Richardson

they're short-term buckets. Yes, all

Jade Rahmani

category of to? does a of has $XX property pertain million strategic What investments. that operating The

Jay Sugarman

number We've interesting made that platforms. to continue to with a investments in with partners explore going invest work with those capital lease be we as focus but move to not businesses the were We'll we've partners new some forward months over the those last of ground avenues to continue XX strategy. we'll to decided thought

Jade Rahmani

of there that risk to Is any impairment investment?

Jay Sugarman

Right now, actually profit they we pretty look like -- so. solid think don't generators; so

Jade Rahmani

both and the regarding noting then puzzled increased managed by you strategy considering Just dedicated and separately broader has team companies? that the merge aggregate and separately, STAR still a companies. SAFE; why assets I valued creates the that I'm managed that not two market? did put how legacy could separately value ownership Star's And trust by the by mean look at a in in the having into externally managed construct liquidating be more

Jay Sugarman

XX covenants still scale rapper leases. have your been non-investment non-investment the does still scope we the not is of the SAFE lender business we on go way the in that a the a a that's doesn't flexibility On or what grade to It believe and/or full, have build be a sense. couple do AAA right the not it's business question, first ground capital and own we've of answered architecture to sort provider. the net way. to that building lease think Yes. ecosystem call it the this business months with we've of back financing sense, AAA doesn't grade I question did think AAA needs We make trying make times. A

Safehold to to the are still support. having play think capital companies in the So benefits pure full in allow on two iStar at can provide a continue but look side there also ground lease we the people framework the that to

to to forever a of that could we've the Jade, came do right this terms we'd architecture If second take the strategy; is tell what Again, in really right things spending other now conclusion the not every the it I could we turn but of On options in So makes distraction. focus but permutation we time. sense. just been how certainly at these your think consider time, maximize that's getting switch, we this think structure, matter going of question; terms still have value. you right our all to We're effort, does. looked possible is our we've things that's that of on we

Jade Rahmani

billion; loan high can frothy tell of Regarding duration pretty This of a $X lot the we're the portfolio, competitive yield, bridge-to-bridge extremely seeing tell you take environment, -- that. is it's us us outs. remaining and an

one near-term loans concerns outlook run-off is overtime that it's the smaller be ground this I to about basically the So will average the of financing on leases going to it that sized against hard than my think be will maintain you're portfolio, leaseholds and in portfolio.

So just -- any that? color on

Jay Sugarman

Yes.

of loan Now with but not duration look, the we compete most to a negative of on our assets we're resources not the committing see marketplace lot of one reasons convexity. in the the are only short they have

paid off prefer your you're are markets. poorly, things extend; to early, other not dynamics. good going go to in you're we So see if what going things see duration get well, go far those if We

will has harder opportunities said, us. we that trying with and yes, other there unique, way something to we out So and it we're doors a All portfolio, people aggressively duration with not proprietary that existing on opens is have year. think focus year, competing to book think loan our build it the than time no of best a combining and more our probably a

market assets you So this it's good these competitive returns those replace can't expect but that be But rate to income, very you're right, a hold we and income long with new that on market really strategy. days. are continue excess in provide able to to to the floating

Jade Rahmani

high does investments, to it's more I much new get trying probably at; the loans? profile on return the guess I But... basis does version And of a Steve on risk relative profile was attractive. a yield match of what understand that the

Jay Sugarman

you think ask think it I about to way. -- Yes, I'd this

attractive making not the strategy. that on think create risk-adjusted As space. returns. monetize assets, investing they to in returns very would think the similar we're we're assets our we we lease ground those Obviously, we is were If

work, think the look of in being of earnings not in at ability that I themselves, potential thinking more embedded across going think otherwise us, people look with out also to to ground looking little to do a GAAP not and But assets see you and lease those do our appreciation impact but to a at income And value things by substantial about play Safehold you're the number as the in. different also all couldn't So at it then earnings a multiply deals we hopefully over have that longer about that's going proprietary to guys owns, those come Steve, from you're at simply share the are to you're we only number. the existing metrics, created going the said have iStar have all to just price see areas. shares timeframes that to

Jade Rahmani

depreciation; The view of accumulated share? mentioned value fair guess value I think fair than over book per that freezers of I value of do you the value current value per what's adjusted the but iStar $X you for share? that portfolio your view as of higher representative book

Jay Sugarman

at we assets we've being there important of make Well, our couple looking sizeable that in in undervalued book book and in point present. in we to don't which one just book. are particularly we you're got adjusted fairly if value substantially you're Jade, think itself And that of I adjustment, larger that an try think preferred is, and freezer touching lease assets, of and our on the a net

intention right think So provide business have those substantially are that come value. cap able that would I to you'll but but embedded plan, demonstrate core comfortable again, with enormous you along, so the assets book on of They tell the to undervalued we to a basis. support monetize think apply they if be assets, we you'll amount are see they're rates us no significant you're is offers there to

So, hopefully that's number a context a where see you meaningful the number today. per dollar share in above

Operator

Mr. questions. further And we Fooks no have

Jason Fooks

me the you contact Great, on Will please thank free you. give additional any to feel release, questions today's directly. earnings instructions replay have And if should you again?

Operator

for X-XXX-XXX-XXXX dialing at the of conference with P.M. conclude yes. sending for code The participation. or Eastern the Thank website XXXXXX. gentlemen, be the and XX:XX accessible on this will replay replay you today. of Time company's confirmation call your Certainly, your by is today. That does Ladies

You may now disconnect.

Safehold 25 Feb 192018 Q4 Earnings call transcript