Good day and welcome to iStar's Second Quarter 2015 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. At this time for opening remarks and introductions, I would like to turn the conference over to Jason Fooks, Vice President of Investor Relations and Marketing. Please go ahead, sir.

Thank you, John, and good morning everyone. Thank you for joining us today to review iStar's second quarter 2015 earnings report. With me today are Jay Sugarman, Chairman and Chief Executive Officer, and David DiStaso, our Chief Financial Officer. This morning's call is being webcast on our Web-site at istar.com in the Investor section. There will be a replay of the call beginning at 12.30 PM Eastern Time today. Dial-in for the replay is 1-800-475-6701 with a confirmation code of 365176. Before I turn the call over to Jay, I'd like to remind everyone that statements in this earnings call which are not historical facts will be forward looking. iStar's actual results may differ materially from these forward-looking statements and the risk factors that could cause these differences are detailed in our SEC reports. iStar disclaims any intent or obligation to update these forward-looking statements except as expressly required by law. In addition, we refer you to our June 10, 2015 Investor Presentation which can be found on the Investors section of our Web-site for the reconciliation and assumptions underlying forward-looking non-GAAP metrics. Now, I'd like to turn the call over to iStar's Chairman and CEO, Jay Sugarman. Jay?

Thanks, Jason, and appreciate everyone joining us today. During the second quarter, we took a conservative approach to the market while laying out the foundations of the strategy we think will differentiate our Company and help us find attractive investments in the coming years. With global risk factors escalating, we retained large cash balances while assessing new possible areas of interest. Our adaptive investment platform is built upon interesting opportunities and we expect to make certain smaller investments in the coming quarters to give us a toehold in sectors we think have the potential for larger scale investment. Our cautious stance is reflected in the quarter's investment activity, with the successful layoff of two large participation interests and several assets being put on the market for potential monetization in the latter half of the year. We also took additional reserves against an asset in litigation that has likely seen its value diminish while the court sorted through conflicting claims between our borrowers. In addition, we moved to simplify our balance sheet and enhance our earnings profile like tendering for all outstanding High-Performance Units or HPUs. These units were issued over a decade ago and have economics that closely mirror the economics of our shares but are liquid. The tender offers holders cash and/or iStar shares, and based on binding tender agreements received to date, we expect a substantial majority of the units will be tendered and we won't know the cash/share split until the tender closes on August 12. Moving over to earnings for the quarter, our adjusted income came in at $0.11 per share, impacted by the still sizable portion of non-contributing assets and cash on the balance sheet. We think this is an issue that will shrink over time and should see a corresponding bump in earnings as more non-contributing assets get in position to provide positive earnings. Despite the high cash balances, we are still maintaining an internal adjusted income goal of $0.75 per share for the full calendar year. Breaking it down further, the Finance, Net Lease and Operating Properties segments all remain solidly profitable with segment profits of $17 million, $19 million and $10 million respectively, versus a $34 million, $10 million and $7 million for the prior year. The Land and Corporate segments remained a drag on earnings but we are getting closer to having Land become a contributor to segment earnings as sales of portions of our holdings become more visible. We should have some additional news on that front in the upcoming quarters. Segment profits for Land were a loss of $11 million and a loss of $12 million for the Corporate segment, versus a loss of $17 million and a profit of $8 million last year, and we still have a lot of work to do in these areas. With that quick summary, let me turn it over to Dave for the numbers. Dave?

Thanks, Jay, and good morning everyone. Let me begin by discussing our financial results for the second quarter of 2015 before moving on to investment activity and the performance of our business segments. Finally, I'll finish with an update on recent capital markets activity. For the quarter, our adjusted income allocable to common shareholders was $10 million or $0.11 per diluted common share compared to $29 million or $0.26 per diluted common share for the same quarter last year. There were several factors that drove the year-over-year change. Other income decreased by $17 million, primarily due to gains on the sale of two NPLs in the second quarter of last year. In addition, earnings from equity method investments decreased by $15 million as the prior-year quarter included a significant gain associated with the sale of properties within one of our strategic investments. Lastly, general and administrative expense decreased $6 million as the prior-year quarter included incremental performance based compensation expense. Our net income allocable to common shareholders for the quarter was a loss of $31 million compared to a loss of $16 million for the same period last year. In addition to the year-over-year changes just discussed, the prior-year quarter included a $24 million loss on the early extinguishment of our 2012 secured credit facility, largely offset by a $19 million provision for loan losses recognized this quarter. Let me now turn to investment activity in our real estate and loan portfolios. During the quarter, we committed to $255 million of new investments and funded a total of $126 million associated with new investments as well as prior financing commitments and ongoing development activity. We generated $249 million of proceeds from our portfolio this quarter which included $178 million from repayments and sales of loans in our Real Estate Finance…

Thanks, Dave. Just touching on that tender once more, that represents about 2% to 3% of our outstanding shares that we should be able to bring in at a discount. Now we don't know the breakdown yet between how many people take cash or shares, but certainly we have the opportunity to bring back a number of shares in-house and that's something we think is quite attractive at the prices offered. So let's turn over to the operator. Operator?

[Operator Instructions] Our first question will be from Jade Rahmani with KBW. Please go ahead.

I was wondering if you could give some color around the potential new investment areas that you cited.

So, Jade, a couple of things we're focused on, demographics, the whole aging longevity issue inside the demographic trends, we'd like to get out ahead of that in some new areas we see where Real Estate and the Operating businesses are costing over. We see a couple of niches in there that could be quite interesting. We'll start small. If they perform, we'll likely try to take them bigger. But still toehold kind of thought processes but definitely some long-term macro trends we want to be involved in. Clearly home ownership versus household formation is creating some interesting dynamics. We see that in our Land book. We may have a chance to do some stuff on the commercial side on land we own but we're watching those trends. We'll make some small investments in that sector to try to figure out some of the new stuff that's trying to be responsive to those trends. We're just seeing a lot of things that suggest to us if we can get our foot in the door at the right basis and the right places, there's a lot more to do, but we want to test those waters first in a relatively small size.

And are these going to be owned equity investments, owned real estate where you are taking control over the development process or are these debt investments?

You know us, it's going to be where the best risk returns are. We think we'll probably end up playing a debt role and an equity role. If we like the businesses, we're going to want to own some of the equity, but certainly the capability of doing it all in-house, building those capital structures ourselves gives us the speed and responsiveness particularly with our operating partners who are looking for that kind of capital partner, I wouldn't be surprised if we're across the capital structure of these opportunities.

Can you also on the lending side discuss the syndication strategy and what the driver for that was? Is that conservatism with respect to concentration risk or is that due to having other areas to deploy capital that are more attractive?

I'd say this quarter was probably more of the former. In one case we were able to take risk down very materially, in the other case we were able to boost yields without really taking on any more risk. We laid off about the senior 25% of the capital structure. So we don't think we changed the risk profile at all, we're pleased we retained, but we materially changed its earnings profile. So we use that to do both, increase reward and decrease risk when we think it's appropriate. Other quarters and other situations might be more of the latter but this quarter was much more about re-jiggering the risk-reward profile on those deals in a more favorable way.

Switching to the Land side, can you maybe give a sense of which projects are most likely to go into production next and over what timeframe?

I want to caution you, it's not just about going into production. Some of these things have gone through years and years and years of re-entitlement and so they are now at a point where we have to decide what is the highest and best return for us, whether it's pre-tax, post-tax, selling bulk, develop internally, develop externally with partners, and we just see a number of assets getting to that position. And so they may never get to production, they may be assets we can monetize as opposed to have to go into production and take the tax consequences sometimes that creates. So we do see a number of things in the Northern California market reaching fruition. We're starting to ramp-up I think in Southern Florida, a project we have high hopes for. So we're seeing some things just get to the point where we're going to see real activity or real choices be made available to us either to monetize in bulk, monetize in phases or go for the full lifecycle with these assets. We haven't had that choice on a whole lot of assets but I think you're going to see stuff coming through the pipeline that gives us that choice in more abundance going forward.

And when we think about the earnings goals that you set forth at the Investor Meeting specifically for 2016, is Land the primary walk to get from the $0.75 in 2015 to $1.75 in 2016 or is it across the board?

Land is a meaningful component but so is putting $600 million, $700 million of cash to work and turning some of the assets that we have good leasing progress on into either core assets in the book or monetization. So, yes, we've got a couple of drivers that we're expecting to start pushing earnings next year. Hopefully we'll see some part of that happen in the latter half of this year, but those are the things that we'll term. You guys know the numbers, it's almost $2 billion of assets that are dragging, not pushing. So hopefully a good portion of those will start pushing next year.

And just regarding the overall state of the commercial real estate market, following this earnings season there's been sort of a mix of views, some characterizing the environment as 'keep it rational', some noting asset bubbles in certain areas. Can you give an update on your view?

I think as you heard from our comments, we're probably on the more cautious side. We're seeing some of the dynamics you don't like to see. We always kind of bracket it as, there are good deals at good prices, there's good deals at prices you don't love, and then there's not good deals at not good prices. I think we're seeing more of the middle and starting to get a little worried that things are moving towards the latter bucket. But there is still plenty of stuff to do in the market, we think there are ways to play that kind of market. Certainly we're going to try to monetize some assets where we think the prices will reach points where it makes sense to, but we're also going to try to find places where we think we can [indiscernible] that kind of market. So it's not an easy market to play in but it's a big market. We play across all parts of the capital structure. There should be things to do. But I would definitely put us on a more cautious side of that camp.

Thanks for taking my questions.

[Operator Instructions] We'll go to the line of [Sean] [ph] [indiscernible] with [indiscernible] Capital. Please go ahead.

Can we just talk about, two questions, just on Land portfolio what you guys are hearing from builders in terms of taking down developed lots versus undeveloped overall land, and I guess progression with you guys and how you guys are thinking about entitlement and development of your lots?

Look builders want to have things they can build on sooner rather than later, but we definitely have seen that with price discount for long-lived assets where they are going to be sitting on that land for long time is not favorable. The favorable part of the trade is to deliver on something they can make money on quickly. So we've got that kind of relationships and we're seeing those homebuilders be reasonably aggressive for near-term lots, less aggressive for way out lots. I think the household formation numbers still give us comfort that there's a wind at our back, that the builders will want lots, they just don't want to sit on them forever or make long-lived assets they don't need to right now. And so we're not trying to provide them something that's going to be developable five, six, seven years from now, we're trying to provide them more just in time stuff that they can see over the next 12 to 24 months horizon a profitable execution of their business plan. We still think homeownership is a drag right now but longer-term we don't see it going a ton lower. So we think the combination of household formation and more stable homeownership rates, if not even, turning around some time out in the next 24 to 36 months will be another leg to the stool that we can take advantage of from our Land book.

Perfect. And then just talking about, two questions, as per the new NPL that you guys had during the quarter, can you guys give some disclosure behind that?

Can't go into a ton of details, we talked about it in our presentation. We have some legacy assets in litigation. A couple of them are going well, one of them would not. We just don't see a reverse of that trend, the likelihood of the asset's value being harmed and therefore position being harmed, just seems to be going in that direction. So we took appropriate reserves. We've moved some of the danger of that loan although I can't tell you we're entirely out of the woods because it's still sitting in a courtroom, it's not in our hands to work with. But those are some of the legacy issues. We're going to have some good outcomes, we're going to have some not great outcomes, but moving past those, hopefully we can shrink that part of the story relatively soon and get on to the future.

And what kind of asset was that and what was it written down to, can you guys disclose that?

It was, I think in our presentation we talked to a hotel credit line. It was a combo loan to an individual borrower and to a corporate holder of hotels and they are having a little bit of a fight.

Okay, perfect. And then just talking about the reasoning, can you guys just disclose a little bit more about the decision to buy back the HPUs? I mean given the recent stock performance, do you guys think cash could be better used elsewhere?

I'm sort of surprised with that characterization. I mean, look, we've said in the past we'd like to buy in stock, we think the discount still reflect an attractive place to deploy some of the cash that we're sitting on, and when we think cash is better deployed in our own capital structure versus the external market, we are going to do that. But as we looked at the opportunity to do that in the past, we've struggled to buy any meaningful amount of shares without impacting the marketplace. We're finding ourselves in a blackout situation. I think HPUs, they do…

Do the same thing.

Yes but they complicate the story. People still ask us, what is this line item, they have to go back and research 10 years why is it, who is it. The truth is, it's the near-stock equivalent, it claims about 2% to 3% of our earnings and we'll claim 2% to 3% of our earnings going forward if we don't retire them. So relative to share repurchases, the price is lower, it cleans up a lot of the accounting and reporting anomalies that new people to our name probably don't need to go back and learn about, and we think it's just a more effective way to deploy cash than a share repurchase right now.

Okay. Thanks guys.

Mr. Fooks, there are no further questions in queue.

Great. Thanks, John, and thanks to everyone for joining us this morning. If you should have any additional questions on today's earnings release, please feel free to contact me directly. John, would you give the conference call replay instructions once again, please?

Certainly. Ladies and gentlemen, this conference is available for replay. It starts today at 12.30 PM Eastern Time. It will last until August 18th at midnight. You may access the replay at any time by dialing 800-475-6701 or 320-365-3844. The access code is 365176. Those numbers again, 800-475-6701 or 320-365-3844, the access code 365176. That does conclude your conference for today. Thank you for your participation. You may now disconnect.