iSTAR Inc. (NYSE: STAR) investment winner?
With rising interest rates could iSTAR Inc. (NYSE: STAR) be an investment winner? This TabStocks in-depth article investigates.
Stock Name and Trading Stock Exchange Platform
iSTAR Inc. – New York Stock Exchange (NYSE: STAR)
The Stock Sector
iStar, Inc. is a real estate investment trust that engages in the financing, renovation, and development of real estate and related projects.
It is majorly involved and seeks to disrupt the ground leasing sector together with its business partner Safehold, of which it owns two-thirds of the total shares.
It operates through the segments: Real estate financing, Net Lease, Capital Program, Development assets, and Corporate.
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The company focuses on bringing ground-breaking solutions to the trillion-dollar real estate market. It also looks to drive innovation in the capital markets.
iSTAR Inc was founded in 1993 by jay Sugarman and has its headquarters in New York, USA.
Recent Most Important News about iSTAR Inc
The company receives little attention from mainstream media, considering it takes time to hit major milestones.
iSTAR Inc has been rather calm in the year despite market chaos.
It announced at the beginning of June, the adjustment of the conversion rates of its 3.125% convertible notes due in 2022.
This was a result of the dividends that were to be paid out in mid-June.
STAR declared a quarterly common dividend and Preferred stock dividend in May this year, which was approved by its board of directors.
Fitch ratings recently released its analysis of the company and affirmed it had a stable outlook. It rated the stock as a B and long-term debt at ‘BB’.
STAR had earlier announced its Corporate credit rating had been upgraded to Ba2 by Moody’s. It was additionally upgraded to B1 from the previous speculative SGL-2.
The company also completed the sale of its Net Lease Assets in March for an estimated $3.07B. This put the company in a great financial position to cut down on debt.
They also announced Exchanges with holders of $194M of convertible notes. The deal was privately negotiated and an aggregate of 13.75 million with $14M cash was to be exchanged.
The Chairman and CEO, Jay Sugarman, reaffirmed that the deal would further strengthen and simplify their balance sheet thus very beneficial to the company.
STAR released its first quarter earnings via webcast in May, beating the consensus by a mile.
Current Position of STAR
STAR and Safehold (NYSE: $SAFE) are in the business of revolutionizing real estate investment. SAFE is slightly larger than STAR but the latter owns 65% of the former company.
Star now stands at a market cap of $1.27B, declining from its significant highs. The year has hammered the markets with many losing more than half of their value.
Rising interest rates and inflationary fears have been the catalyst of the fall.
However, for REITS like STAR, the shifting trend towards a high-interest rate environment is a plus since the underlying real estate increases in value as well.
The danger of a recession has caused a crash and many fear the housing market will be hit hard if the economy takes a downturn.
Hedge funds have realized this and are gearing more towards high-interest rate performers. Star is held by hedge funds, knowing the value of REITs in such periods.
The company has improved its cash position with the recent net lease sale to Carlyle Group and made it more attractive to smart money.
STAR will have about $1.1B net cash after repaying its mortgage debt. This high liquidity gives it greater leverage, especially in the prevailing chaos.
They pay their investors handsomely through dividends. This alone is a magnet for investors as inflation soars.
The federal reserve’s effort to taper inflation shows little signs of success as rising interest rates still fall below the percentage of inflation.
While the overall market has plummeted, tech stocks and other high fliers were particularly pounded.
Real estate stocks have emerged as top picks in the panic due to higher yields, better growth rates, solid profitability, and others.
REITs are naturally considered a hedge against inflation and tend to outperform the market during high inflation as rents and property value rise, which in turn leads to higher returns.
Aristotle’s capital management has taken interest in STAR for these reasons and sees remarkable insights in the company. In an investor letter, they stated:
We believe the recent sale of the company’s net lease asset portfolio will allow management to focus on continued investments in its SAFE ground lease business and also paves the way for management to acquire the remaining portion of SAFE that it does not already own.
Although STAR is the parent company of SAFE, experts believe that SAFE is highly overvalued and STAR is undervalued.
The notion is that SAFE’s valuation is driven primarily by an extremely bearish on ten-year treasury notes.
While SAFE has valuation issues STAR is too cheap to ignore after the markets tanked.
SAFE enjoys leverage of access to fixed long-term debt and depreciation.
REITs are expected to pay at least 90% of their profits immediately as dividends and this gives provides a high income to combat high inflationary prices.
STAR is a haven that will compound significant growth in the long haul.
STAR Stock Price Chart
Ask of the 13th of July 2022, the stock closed the market at $13.90, up by (+0.72%). The stock is trading at a day range of $13.48 – $14.14.
STAR has plummeted from the beginning of the year and is now at its lows. The sell-off in the market has been a large contributor, as we face unprecedented times.
It has lost nearly 50% of its value since February.
The average volume of shares traded is currently at 1.13M. It has traded at a yearly high of and a low of.
The stock is at its bottom this year and the recent crash made it very affordable.
Traders are buying the dip following this and see strong upsides for the stock to rebound or even shoot.
The stock is very undervalued with a P/E ratio of 1.35 and is below its intrinsic value. It is looking very bullish in the coming years.
Sentiment on STAR
With the rising interest rate environment, experts foresee huge wins for the sector.
A new economic cycle could be unveiled and rates could remain high for years even decades to come.
Data suggests that analysts see a bullish outlook on the stock. Many traders are impressed by the great financial position it recently attained.
The Old Wise Oracle, Warren buffet recommends REITs over rental property stating affirmatively that the latter cannot compete and does not stand a chance.
A great financial position is every investor’s aspiration in recessions. It is a chance to pick up great assets at a throwaway price.
STAR is aligning itself for such an occurrence.
Despite being strongly solid with the panic, the thriving real estate sector is an allurement.
Pros of STAR based on Investors Outlook
- Fantastic returns – STAR is generous to investors paying out a 3.55% dividend. This is typical for REITS and thus dividend investors will be particularly pleased.
- Inflation Protection – The company enjoys the benefit of increased income with rising inflation. Considering the record high inflation at the moment, STAR is a good idea to consider in one’s portfolio.
- Cheap price – The stock is undervalued and has room for massive growth. Forecasts show SAFE could rally which in turn can lead STAR to skyrocket.
- Impressive balance sheet – The company has strengthened its balance sheet with the recent improvement and restrictions. Additionally, they have crushed the metrics in the last quarter.
Cons of STAR based on Investors Outlook
- High property prices – The high property prices fueled by asset inflation deter the majority from affording them. Home purchases are declining and are at two-year lows, matching the pandemic period, this could pose a challenge for stakeholders.
- Recessionary fears – STAR has seen increasing short interest up to 8% following fears of a real estate bubble. If a recession hits, the house of the card comes crashing down and has a chain reaction in the market.
Profits for STAR
STAR is remarkably profitable and has solid returns for its shareholders. It announced its Q1 results on the 3rd of May 2022. The stellar results show promising prospects.
Earnings per share beat analyst estimates by +53%, exploding by +2496% from the previous year, coming in at 7.79.
The net profit margin skyrocketed by a mind-blowing +14,103%, registered at 1,082.27%. The net income witnessed a similar boom, recorded at $616.73M.
Unfortunately, revenue was a slight bummer that ruined the party, missing the consensus by 26%. It similarly decreased by -20%over the year, estimated at $56.99M.
The company is in great shape and repaid $1.2B of its consolidated secured debt within the quarter. Their total liabilities declined by -38.57% and now stand at $2.3B.
The company has a lot of free cash flow, valued at $1.15B, rising by +495 over the year.
This put it in a great position to leverage and take advantage of a falling market.
It could also improve its operations, buy back shares, pay dividends and make acquisitions.
EBITDA was valued at $39.13M, an uptick of 0.56% over the year. Operating expenses went down by -84.80%, coming in at $3.66M.
Profits are rising and this can be majorly accredited to their net lease sales and increased rates.
This has grated the company excellent earnings, liquidity, and increased assets.
STAR has decent financials and stands to benefit whichever direction of the market. It has eased back and offered a nice entry point.
Stakeholders are pleased by the company and know it is reliable in these trying times.
Pros for Investing in STAR based on the General Outlook
- Huge upside potential – Even former pessimists like Fitch ratings are now optimistic about the stock and have upgraded it. It has an estimated 56% upside potential.
- ‘SAFE’ NET – The company does not operate on its own but is the parent company of SAFE. It could merge or acquire SAFE later which will catapult it even further.
- Value – The company has solid tangible value and the advantage of increasing its income. This is necessary in times of economic uncertainty.
- Essential service – STAR has the vision to revolutionize the real estate sector. The demand for housing will always be strong and is on the rise, as there is a significant housing shortage.
Cons for Investing in STAR based on the General Outlook
- Backlash in demand – If the market gets deflationary and prices fall, people will prefer to purchase a house as compared to leasing. This could hurt renters and developers in the space.
- Peg to financial instruments – REITS are tired of the performance of other high-yield assets. This includes treasuries and if demand falls, it could in turn have a negative effect. The US treasury yield curve is just inverted which spells danger.
Growth likelihood and Potential for STAR
STAR is a unique position and an excellent company to consider. It has liquidity, great operations, and management.
The company is still undervalued compared to its peers and delivers high returns. It is a great option at this moment and is recession-proof.
It has financial leverage, income leverage, and minimal variance due to the novelty of Real estate as an asset class.
It could utilize not only its assets but also its liabilities to its advantage through depreciation, amortization, and many more tricks available to them.
STAR is a great company that is overlooked and could be an assured 10x return in the next decade.
iSTAR Inc. (NYSE: STAR) investment winner?
Unlike the more speculative assets, real estate offers control and does not see the insane volatility.
STAR is a strong buy for a patient investor who is in it for the long haul.
Oscillators indicate the stock is a buy, even though the markets are crazy.
The stock could likely fall with the overall market in a recession but will be quick to recover and head for the moon afterward.
Due diligence should be done to consider an entry, although now is a great time, the best time is during or after a crash.
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