Long-time investors in iStar probably have to agree, given the stock's 70% decline over the past year. But is there any downside for new investors?
The dividend yield is over 24%, so obviously the market is betting the dividend will be cut in the future. Over the long-term, iStar does face some headwinds given the sour market, but in the short-term, the Company has a significant amount of unrealized gains in its portfolio, so asset sales will generate plenty of taxable gains that can be used to support the dividend. Capital gain dividends aren't really a long-term solution, but iStar will be able to maintain the dividend at least through 2008 despite a slowdown in loan origination activity.
iStar carries a significant debt load, but $12 billion of the total $12.4 billion is unsecured. Therefore, iStar has funds available to it if it wants to go to the secured debt market and encumber its corporate tenant lease portfolio. There are no repurchase agreements to raise margin calls, and if iStar can limit loan loss reserve charges going forward, it should be able to satisfy its covenants and maintain its investment grade rating.
It does appear that it will take iStar some time to achieve full value from the purchase of the Fremont commercial platform. As commercial originations slow during the weakening economy, iStar net asset growth may be slim to none. Therefore, a wider gap between taxable income (from gains on asset sales) and iStar's organic earnings is to be expected going forward.
Bottom line: iStar's not going anywhere for a while. The stock is fairly priced in this environment, but income-oriented investors will enjoy that juicy dividend for some time to come.