I would strongly prefer no stock repurchase plan. I prefer to see the $50M go to the bottom line and toward dividends. Stock repurchase plans - as used by SFI and most corps - principally benefit holders of stock options by canceling dilution caused by options, disguising the cost of the stock options granted to management and (temporarily) boosting stock price to make the exercise of previously granted options more profitable. If the Directors believes that management should be paid more, I prefer if it is done in a direct manner by simply raising annual salary. If management wants to own stock, it can purchase the stock on the market like the other owners do. Such action would create more of a harmony of interests of shareholders and management. Use of the $50M toward dividends - and requiring that those members of management who wish to be owners (because they believe in SFI & have confidence in their own management skills) purchase at market - would do more to increase the stock price than offsetting prior and anticipated stock option grants with a repurchase program. Of course, investing the $50M in real estate assets would probably do more to increase SFI's enterprise value in the medium and long term than a stock repurchase that is offsetting option grants. (Yes. I know that the exercise price is paid to SFI, that there are more adverse tax consequences to salary increase then option grant, etc. I still think other considerations, summarized above, outweigh the usually cited advantages of option grants.) Just my two cents.
I would appreciate the response of Quad, Golden, Pimmoban - whom I admit are more sophisticated than I - and any of the other thoughtful longs that have been so helpful / constructive on this board.
Disclosure: I am long SFI since June 2001 and have added common and preferred subsequent to that date.
In common, I like the repurchase for SFI, but...
I will prefer if they use instead ANY possibility to reduce their HUGE long-term debt. Not sure any other REIT company has such a big debt-to-market value ratio.
They are (successfully) managing the debt so far, but what if - let say in a year or two or sooner - the debt environment will became worse? Of course they can always sell some assets - but the forced sell is not the best thing usually.
This is big risk for us - both for common and preferred shares.
Good Luck to everybody!
Bob, I agree with most of what you say. Management has gorged on shares at the expense of shareholders. But the issue is the granting of options, not the repurchase. The repurchase is okay if the discount to book value makes it accretive to your shares. The problem is the unbelievably gross amount of share-based "compensation" that management receives, which eviscerates the repurchase benefits.
bob - I think you're really addressing two separate issues - stock based compensation and the buyback - which have different elements.
As to the compensation size and type there are many differing opinions. To the extent that share awards are in excess of what might have been paid in cash - free money, as it were - I think there's a tenable argument against that method. However - if stock compensation differs only in kind and not in quantity from cash compensation then I don't think there's a problem.
As to the buyback generally - I think it's been a terrific tool for iStar. Over the last few years they've retired a significant percentage of the share float at huge discounts to BV - thus enabling them to moderate the impact of operating losses and writedowns on per share book. It's clear that Jay regards the acquisition of shares to be an investment decision which competes with alternative asset allocation but about which iStar has greater underwriting insight - perfect knowledge as it were - than outside investments.
In the current case I think it's prudent to reload the authorization in case opportunity presents itself.
As to dividend - I'm prepared to wait a few more years as I think iStar has tremendous reinvestment options within its book.