Aug 01, 2008 iStar Financial Inc. (SFI): 2Q08: Forward looking comments
after earnings pre-announcement
WHAT'S CHANGED: Following the recent earnings pre-announcement, iStar
management used the 2Q08 earnings call to provide investors with significant details
about recent credit developments in the portfolio, the company’s liquidity position, and
guidance for the remainder of the year. The market conditions are challenging and
uncertainty is still high. Remain Neutral. (1) iStar forecasts an adjusted EPS loss for the
full year 2008 in the $1.00 to $1.75 range. Management anticipates $300-$400 mn in
additional reserves over the next two quarters. This guidance assumes that difficult
market conditions prevail through the end of the year. (2) Management currently
estimates that the 3Q2008 dividend will be between $0.30 and $0.40 per share (down
from $0.87 in 2Q0208). The 4Q2008 dividend will be based on the amount necessary
to distribute 100% of the taxable income for the year. In addition, the Board of
Directors authorized a $50 mn common stock repurchase program. (3) Assuming no
new obligations, management anticipates that iStar will not need to access the debt or
equity markets through the end of 2009. This forecast does not account for potential
NPL resolutions or asset sales.
IMPLICATIONS: iStar reported a 2Q2008 adjusted EPS loss of $1.46, relative to a
pre-announced range of -$1.45 to -$1.50. We lower our 2008 estimate to a loss of $1.70
(from +$0.70) and lower our forecast to $1.50 in 2009 (from $2.70) and $2.25 in 2010
(from $3.15) mostly due to higher provisions than previously anticipated.
VALUATION: We lower our 12-month EVA-derived price target to $9 (from $10).
KEY RISKS: Unforeseen credit deterioration poses the key risk to our EPS forecasts.