So, what's the analysis of the quarterly report? Is this what you expected? Better, worse, confusing?
I would like to know what those with some experience in the sector think about this latest report.
Very comprehensive, and much appreciated. I'll hope for another Euro panic in the markets and try to take some of the preferreds. The bid-ask spread is madness when I checked today, looks like getting a bid to close is some work.
Wish I'd held onto the preferreds I bought during the spring of 1990, but . . . those were different times, and of course I put the profits to good use.
Here's some math if you want to put numbers to it:
+217MM of cash on 9/30
+196MM of Oak Hill Proceeds
+50 MM of Loan Repayments in Q4 2011 (971.8MM disclosed 2011 Perf loan Maturities - 1069.3 Repayments Q1-Q3 + 150MM One Madison Park Loan repayment which was not a performing Loan)
+818MM of disclosed Perf Loan Maturities in 2012
+37MM from the Red Lion CTL sale
+50MM in OREO Sales in Q4 2011 (basically current run rate)
+200MM in OREO Sales in 2012 (current run rate)
+100MM from NPL sales/resolutions for cash in 2012 (an estimate, based on historical experience)
-290MM March Bond
-102MM June Bond
-243.7MM June unsecured bank maturity
-21MM left on June A-1 Bank debt amortization requirments
-787.75MM Convert maturity in October
-300MM A-1 bank debt amortization requirement in December 2012
Get you to a deficit of $78.5MM that they would need to plug with secured financings on unencumbered assets. This number is probably light because they will have investments to make, and capex on the REHI, so if you hit them for another $100MM for these then one could say $200MM shortfall.
They had excess unencumbered Assets (versus the UA/UD test) of $971MM. Paying off $1.423MM of unsecured debt will free up another $285MM of unencumbered assets, bringing the excess to $1.256 billion.
As an example, $720MM of their unencumbered assets are CTL properties (i.e. have cash flow). The pre-depreciated number is more like $900MM of market value. At a 65% LTV they would have to encumber ~$300MM or 1/3 of these unencumbered CTLs to raise $200MM (if that is the number).
Seems manageable. They could also sell CTLs, sell REHI assets, sell other investments, sell longer maturity performing loans, and/or sell Non-performing loans to meet their cash needs. All this assumes that the capital markets are not open to refinance the converts or the bank debt.
As an aside, the bank debt is a closed deal, so the collateral coverage is building as the loan gets paid down. At this point the overcollateralization of the bank debt is $100MM above the starting 1.25x (i.e. it is 1.29x). If they refinance the bank debt next fall (which they can without penalty at that point) they could potentially access this excess collateral as well).
Another point is that as the leverage continues to come down materially, their equity to assets will continue to look better making capital markets access easier.
Finally, I don't think Sugarman would blow $77MM buying stock in the middle of the financial crisis if he thought he didn't have flex to get through his 2012 maturities.
2013 is again loaded with bond and bank debt maturities but there is nothing in the first half of the year, profitability should be on the horizon if they haven't reached it by then, their total leverage will be much less, and I would expect them to extend the bank maturities through a bank debt refinance (1/2 what will be left as collateral in the bank deal will be CTLs which should be reasonable to refinance).
It's a slog, but the Gains and earnings from turning the NPLs into earning assets will make it worthwhile...
Thanks. Similar to the answer they've given before, they still have assets unencumbered they could liquidate or tie up. Of course that assumes the assets really have value, in another serious downturn not only would the credit markets be closed to them, it would difficult to find buyers, especially for real estate to be developed. I see their point though.
" So, how the heck to they pay those notes back? "
Similar to question GS Analyst asked on last CC...
Amanda Lynam – Goldman Sachs Group
I was just hoping you could address the maturities in a bit more detail- specifically year-on-year term maturities.
Is that your preference to perhaps conserve cash on the balance sheet and repay those upon maturity? or are you looking to refinance in the market?, and for the longer-term maturities that you have in – later in 2012, - what current options are you considering for addressing those upcoming debt payments?
Amanda, I guess a similar answer we’ve given over the years, ... it’s certainly our preference if the capital markets are able to provide I mean, on either secured or unsecured basis, attractively price capital.
We’d like to continue to take advantage of that.
But we’re using our internal balance sheet to really plan around, not assuming there is outside capital. And we’ve got a very large unsecured asset base that we continue to tap to be well ahead of our maturities.
That is the base plan and anything we can do to enhance that through third-party capital is going to be a plus to that plan.
We certainly have enough capital on the balance sheet today to take care most of the maturities through June.
We have an extensive list of assets that people have expressed an interest in, on reverse enquiry, that we can certainly reach out and try to tap further monetizations ahead of time.
And as we get towards the end of 2012, we believe the overall leverage of the balance sheet will be declining enough that we can look at a whole host of things - in terms of thinking about what’s the optimum mix of debt and secured and unsecured debt on the balance sheet.
So, I wouldn’t tell you we’re sitting today focused exclusively on October.
We solved certainly the near term liquidity issues that we wanted to have in place for the fourth quarter and the first quarter next year.
We're beginning the work to make sure we have the liquidity for the second quarter and third quarter and then, that fourth quarter maturity will be one we’ll start focusing on early next year.
They have a maturity coming up next year of $290M, but they project cash of $350 this fall. They mentioned they expect to be able to refi (I believe they said "will"), and obviously had sufficient liquidity to buy stock.
So, is the traffic accident over here? Is there some other bridge out ahead coming up? I ask because I note the preferreds have dropped way below par, and if the credit market wasn't concerned about liquidity, you'd wouldn't expect that.
I'm not interested in the common, no cash flow, but if the preferreds keep dropping in the next market dip, well, the combination of yield and appreciation potential, that does interest me.
>>I'm not interested in the common, no cash flow, but if the preferreds keep dropping in the next market dip,<<
Where is Jim when we need him to explain his covered call plays?
Ruby, I agree that the preferreds are interesting. But just FYI - RSO and the SFI covered calls are the two positions that have made me the most money so far this year.
They don't project, but say they have 350mm at the end of Oct. The difference between the expectation of a refi and the reality of a refi is why the yields are good. Based on past performance as far as maintaining liquidity goes, your money is probably safe, but as they say, past performance is not a guarantee of future performance.
>>So, what's the analysis of the quarterly report? Is this what you expected? Better, worse, confusing?<<
The number of shares bought back is better than I expected. I’m surprised we haven’t seen a new repurchase program announced. We knew from the various news stories on individual condos that the condo assets and loans have been doing well – so that is good, but really as expected.
The drag on cash flow from the REO & REHI is similar to what I've expressed previously will be a continuing drag. $39 million used on these assets compared to $8 million generated by these assets is the sort of negative cash flow that we are going to have to live with for quite some time.
The fact that there are continuing provisions for loan losses is not really surprising. However, my hope is that at some point these become de minimus and that write-ups on dispositions actually out-weight the write-downs.
The post-quarter Oak Hill sale is evidence that there is validity or perhaps understatement to the book values reported.
The ordinary course loan repayments were encouraging. The liquidity events regarding REO show that there is true value in these assets.
It is very interesting to see SFI take title to a single property with a carry value of $694 million. This is more than the entire market cap of SFI. If you cared to, you could look at this one property as being half the book value or the entire market value of the company.
SFI is still a swampy mess, but there is a lot of value in that swamp. The bottom line is that SFI appears to be in control of its own destiny at this point. A couple of years ago, it was in a much worse situation. Now it has good liquidity and an easier-to-manage balance sheet. I’d say SFI is out of intensive care and in the recovery room.
As I’ve said before, it should get to $15 at some point and start to pay a dividend. Perhaps it takes a little longer than I’d hoped to reach these levels . . . but this report and this conference call were very positive, IMHO.
>It is very interesting to see SFI take title to a single property with a carry value of $694 million.<
Pimm corrected to 69.4 million in different thread. It was the Glendale property. You scared me, I thought we lost 694 million of assets over the quarter.
Sugarman pretty much laid it out by implication. Operating losses through the end of 2012, hopefully diminishing each quarter due to lower interest costs and some gains as time goes by on OREO sales, followed by cash register ringing in 2013 and 2014. Sounds to me like dividend will start up again in 2013 or 2014. Late 2012, or by June of 2013, SFI will do a major recap of its debt structure. By 2015, SFI will than be the "new" SFI ready to grow in what will hopefully be a solid and long up-cycle for all USA real estate. In terms of share count, BV per share, total equity and leverage, SFI by 2015 will sort of look like the SFI of 1999-2001. SFI franchise will be intact, and actually expanded, because SFI will have now have serious expertise and track record and contacts in land lending, land development, construction lending, and turnaround/development of assets.
I think the report was mostly as expected - an especially pleasant share buyback number.
From the CC:
1. Sugarman sees economic (adjusted) book value at $15/share;
2. When asked about additional share buybacks he said the board is constantly looking at all options for resource allocation (non-answer);
3. When asked about the timing of REO, OREO & REHI turning to cash and showing up in the income stream - he said he'd guess 2014 would be the year - with a bit of a ramp up occurring in 2013.
4. He reiterated that iStar can't really report decent earnings until its non-(current) income producing assets are converted into income producers. That doesn't mean that iStar isn't presently creating value with those buckets - it's just the fact that such value doesn't make it into the income stream;
5. It appeared that liquidity and all the balance sheet stuff is manageable and that iStar has a number of assets attractive to other parties should it elect to sell them. Reverse inquiries, he called them.
So - iStar is a value/asset play for a couple more years (give or take the discounting/chicken game) before we see how well Sugarman has positioned the company to produce earnings.
While this outlook may not be the most exciting story around, I'm okay with iStar doubling or tripling in the next few years and then collecting increasing dividends as the earnings ramp up (if that's what the Fates have in store for us).