iStar Inc. (NYSE:STAR) Q2 2020 Earnings Conference Call - Final Transcript

Aug 06, 2020 • 10:00 am ET

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iStar Inc. (NYSE:STAR) Q2 2020 Earnings Conference Call - Final Transcript

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Presentation
Executive
Jay Sugarman

value beyond its current market value. Two, the longer COVID negatively impacts the economy, the more stress certain real estate sectors will feel. While we see the negative impacts on parts of our portfolio being more than offset by the positive value created by lower rates, we are watching hotel and entertainment markets carefully for signs of recovery, and working to understand the runway cushion borrowers and tenants have created for themselves.

Most seem to be fine for the near term, but if COVID shutdowns extend into the fourth quarter and into 2021, we can expect further pressure on those asset areas. Fortunately, our pivot to ground leases is creating significant value and balance sheet flexibility, and we have plenty of opportunities ahead of us to deploy capital at attractive rates. As real estate transaction activity picks up during the second half of the year, we'll remain focused on growing the ground lease ecosystem, recycling legacy dollars into that space to strengthen the balance sheet, and helping shareholders understand the sizable value building up inside of iStar.

With that let me turn it over to Jeremy now to go through the details. Jeremy.

Executive
Jeremy Fox-Geen

Thank you, Jay. My comments will refer to the earnings deck that we published this morning. I'll begin on slide three with a brief overview of the activity during the quarter. When we continue to make progress against our strategy during a quarter dominated by the economic slowdown due to COVID-19 and scaling Safehold. Despite a significant reduction in real estate transactions, we closed four transactions within Safehold for $61 million. Our post-COVID pipeline continues to build, and our investment's team is focused on generating new opportunities for continued growth. Our investment in Safehold today has an unrealized gain of $840 million strengthening our balance sheet.

As of yesterday, we have $422 million of cash and undrawn revolver capacity, and no corporate debt maturities for 2.2 years. This liquidity position enables us to be patient and thoughtful as we continue to scale Safehold and work to maximize the value embedded within our existing portfolio and simplify our business. We sold legacy assets worth $16 million during the quarter primarily at Asbury Ocean Club and Magnolia Green. And this legacy asset portfolio now represents 14% of our total books.

To slide four with more on Safehold. Safehold collected 100% of its ground rent demonstrating the safety of its cash flows, and it saw 39% year-over-year EPS growth reflecting our success in scaling the business. Its ground lease portfolio is now $2.9 billion and it has approximately $900 million of purchasing power to continue its growth assuming a 2:1 leverage. As Jay mentioned, our investment in Safehold today is worth approximately $1.7 billion, a $1.1 billion increase in value year-over-year.

Slide five details how we meaningfully strengthened our balance sheet over the past year and improved our credit metrics. Our unencumbered asset base increased by approximately $900 million to $4.3 billion. Unencumbered assets to unsecured debt remains at a