On "Note 10 - Debt Obligations" in the Q3 10Q 2007
If one were to look here one would see that the average cost of funding would be 6.0%-6.5% ... in an environment where the cost of funding has risen to about 8.0%-10% due to the credit crunch. The majority of iStar's funding does not come off (come due) until 2009 and beyond, which means they shouldn't have to borrow/refinance/roll-over their funding/debt in this current environment.
Debt obligations due:
2007 = 128M
2008 = 635M
2009 = 1215M
2010 = 1,105M
2011 = 2,464M
2012 = 1,744M
Thereafter = 2,648M
And under "Lending Business Maturities" in 10K 2006, you would see that on the asset side the lending assets come off thus so:
2007 = 1,211M
2008 = 1,093M
2009 = 1,323M
2010 = 492M
2011 = 716M
2012 = 418M
Which means that iStar will have ample liquidity in this credit crisis.
Katie Rice, CFO in 10Q earnings transcript:
"So, for the remainder of 2007 and through the end of 2008, our combined unfunded commitments total approximately $4.8
billion. During the same period, our asset maturities total approximately $5.4 billion. So this part of our portfolio is effectively self-funding, and in fact will generate some additional liquidity."
- higher net finance margins should come through due to SFI lending out at higher rates due to credit crisis, as 60-70% of it's loan ASSETS are variable rates, while its funding (LIABILITIES) are mostly fixed, at a cost of funding of about 6.5% throughout 2008 and 2009
- high quality assets w/ 85% senior mortgages
- average loan-to-value ratio of about 67%
- well diversified between asset class and geographies (no more than 20% of loan assets are concentrated in any or either)
- ROE of 14-20%
- no liquidity problems
- no subprime
- no securitization/SIVs/CDOs
- competitors are falling over b/c of securitization, SFI will take market share
- conservative balance sheet with 3.2B in equity, and an equity to tangible asset ratio of 20-25% ... and leverage at only 75% debt to capital
- some of the smartest managers in commercial real estate (Harvard, Wharton, Goldman Sachs etc.)
Will definitely survive, if not thrive in this environment.
Historically, according to the Federal Reserve (see Fed Reserve website for statistics on commercial loan defaults), no more than 10% of non-performing loans get charged off (i.e. principal loss) in bad times. In normal times charge off rate is 2-5%. The worst that has ever happened was in the 1992 real estate recession where 25% of non-performing loans were charged off. Now 2-5% x iStar's current NPLs of 640M = 16M-32M.
iStar's management are projecting MAX/Worst-case-scenario charge off of only 180M (see Q3 earnings transcript).
iStar generates earning power of at least 350M-400M per year in cash income. A 180M loss should easily be covered, and iStar should AT LEAST break even in the event of a "worst-case scenario" 1932 depression.
In addition, iStar has a 20-25% equity to assets ratio, with equity at 3.2B. Most banks have an equity to asset ratio of 5-7% ... (e.g. see Citigroup right now)
iStar should easily survive the credit crunch, and a recession and things should return to trend thereafter.
Shorts in trouble. Pay longs dividends please.
So what does the stock market know that we don't? The market has taken away SFI's ability to raise money with equity and no one is lending. They are not paying a Q3 dividend and may not pay one in Q4 if no taxable income. I am very long this stock and keep wondering, what does the market know that I don't. We can't ignore it. Does anyone long the stock have any ideas? The shorts can kiss my a$$.
Based on the NO DIV this quarter and possibility of no div next qtr..Current value is 2.00. On the otherhand the fair value of the pref series is way under valued
In a July report fair value of common was thought to be 22.00
Anyone know what happened in 1993 ?
Looks like SFI had a few hard years but came back again.
Some hard years then a 1 : 6 Stock Split in 1998.But SFI is still here and history may just repeat itself.I'm so far in the hole whats another buck or two ?
Best of luck to all.
I want to thank you for that post. this is the kind of information that someone like myself...obviously a relative newbie...needs to have. we can use it not only to reinforce our investment decisions, but to help us in the future. thanks again.