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iStar: Below Book Value And A 3.5% Yield

Published Sat, 27 Jun 2020 14:37:10 -0400 on Seeking Alpha

Seeking AlphaREITsiStar: Below Book Value And A 3.5% YieldJun. 27, 2020 2:37 PM ET|| About: iStar Inc. (STAR)by: Josh ArnoldJosh Arnold Long/short equitySummaryiStar shares are priced below book value.
With Safehold performing extremely well, and the trust having just raised the dividend, iStar looks attractive.
The 3.5% dividend yield makes iStar a much better choice for income investors than Safehold.

Image source
iStar Inc. (STAR) is one of the more interesting REITs in the market today. The trust was formerly a commercial property lender, but after the financial crisis saw significant credit quality deterioration, iStar became primarily a landlord, not a lender. Since then, it has transformed into a vehicle that owns an enormous percentage of a much larger stock, Safehold (SAFE), and is literally betting its future on Safehold. However, it appears that may be the best course of action for iStar, and as a result, the stock appears to be somewhat undervalued, and with an attractive yield to boot.

Understanding iStar
iStar is certainly an unusual REIT. I mentioned briefly its somewhat forced journey from lender to landlord, and now, it owns about two-thirds of a stock that has a market capitalization that is ~3X its own.

Source: Investor presentation
Apart from iStar’s interest in Safehold, which I calculate at just over $1.8 billion based on Friday’s closing price for Safehold of $54.94, iStar owns a further ~$4 billion in other assets. These assets are concentrated in the Northeast and Western parts of the US, with ground leases making up 36% of the portfolio, office and industrial 23%, and the balance from a variety of other subsectors. The net lease portfolio is about the same size as the trust’s investment in Safehold, so both are highly significant and provide some level of diversification for iStar shareholders.
Since Safehold is a ground lease platform, iStar’s total portfolio is certainly highly leveraged to... Read more