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iStar Exploring Disposition of Up to $1.7 Billion in Legacy Assets

Non-Performing Loans, Operating Properties, Development Land on the Block
February 26, 2018
CRE lender and net lease investor iStar (NYSE: STAR) has hired J.P. Morgan Securities LLC to explore alternatives for the balance of its "legacy asset" portfolio, consisting primarily of land and development, operating properties and non-performing loans.

As part of the review, iStar said it wants to consider accelerated sales of individual assets or groups of assets, and structural alternatives such as a spinoff or joint venture. The investment firm also said it will look to trim general and administrative expenses.

"Our focus now is growing our investment pace and our share price and we have taken several steps to accelerate our momentum in 2018," said Jay Sugarman, iStar's chairman and CEO.

Since 2012, the company has generated $2.5 billion in proceeds from selling various legacy assets and recorded net gains of approximately $700 million. Today, the non-core, legacy portfolio has been reduced to $1.7 billion.

As of year-end iStar's consolidate asset portfolio totaled $4.9 billion.

iStar's land and development portfolio totaled $933 million, including eight master planned communities, six waterfront projects and 14 urban/infill developments. These projects are collectively entitled for approximately 12,500 lots and units.

iStar's operating property portfolio totaled $629 million, gross of $55 million of accumulated depreciation. The portfolio consists of $580 million of commercial property and $49 million of residential real estate properties.

The company said its commercial operating properties consist of a diverse pool of different types and markets, including office, entertainment and hotel properties. The properties generated $25.4 million of revenue offset by $21.1 million of operating expenses during the quarter.

iStar's real estate finance business provides financial alternatives ranging from full envelope senior loans to customized mezzanine and preferred equity capital positions. As of year-end, the company's real estate finance portfolio totaled $1.3 billion. Legacy loans, which were all made prior to Dec. 31, 2007, make up $197 million of that portfolio.

During the quarter, the company closed on $457 million of loan originations and funded $405 million associated with these deals and prior financing commitments.

Meanwhile, iStar said it is continuing to grow its net lease investments. At year-end, the book value of iStar's net lease portfolio totaled $1.3 billion. Since 2014, iStar has invested in new net lease investments primarily through its net lease joint venture with a sovereign wealth fund, in which it holds a 52% interest. At the end of the quarter, the venture's balance sheet had $691 million of assets. The investment period for that fund is expiring at the end of next month.

For 2018, the company is looking to generate over $400 million of proceeds from the disposition of the legacy assets in those groups.

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