Welcome to iStar's Third Quarter 2016 Earnings Conference Call. [Operator Instructions]. At this time for opening remarks and introductions I would like to turn the conference over to Mr. 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 third quarter 2016 earnings report. With me today are Jay Sugarman, Chairman and Chief Executive Officer and Geoff Jervis, our Chief Operating Officer and Chief Financial Officer. This morning's call is being webcast on our website at iStar.com in the investors section. There will be a replay of the call beginning at 12:30 p.m. Eastern Time today. Dial-in for the replay is 1-800-475-6701 with the confirmation code of 403997. 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 and in our investor presentation which is posted on our website. iStar disclaims any intent or obligation to update these forward-looking statements except as especially required by law. Now I'd like to turn the call over to iStar's Chairman and CEO Jay Sugarman. Jay?

Thanks, Jason and thanks everyone for being with us this morning. The third quarter was an active one for us as we continued to seek attractive new investments and realize on the value of assets we have worked hard to redevelop and position for sale. This increased activity in the legacy book should continue into 2017 and we've provided some additional information in the press release to try to organize some of the moving pieces and highlight areas of success and areas still of concern. Keys for the quarter included monetizing a number of legacy assets, adding new assets to our net lease JV portfolio, expanding our capital available for new investments and generating strong returns on assets that have reached stabilization. This led to strong earnings and substantial liquidity and positions us to retire two convertible debt issues in November to further reduce our diluted share count. Leading the quarter's positive outcomes was the lease-up and refinancing of 1000 South Clark Street in Chicago, a 469 unit ground-up Class A multifamily asset that we developed in a joint venture on land we had previously foreclosed on. Built over the last 18 months, the asset was refinanced as it nears stabilization, generating a $16 million gain to iStar while leaving us with a valuable 50% interest in the equity that now has zero basis on our books. It was also a strong quarter for net lease investments with two new commitments totaling $218 million going into our JV with our sovereign wealth fund partner. One of these was $168 million off-market build to suit with an investment grade tenant that will be brought online over the next 24 months while the other is a headquarters complex outside San Francisco that has the potential to grow larger over time. We also…

Thank you, Jay and good morning everyone. Since joining iStar in June I've had the opportunity to speak with a number of debt and equity investors and have discussed our disclosures and ways that we can clarify and simplify the iStar story. To that end, last quarter we made several changes to our earnings release based in large part upon these conversations and in this morning's announcement we further enhanced our disclosures in ways that we think investors will find helpful. We recognize that our portfolio is complicated and rest assured that we're by no means done. We will continue our regular dialogue with stakeholders and will strive to continuously improve our communications. In two weeks Teresa, Jason and I will be at NAREIT in Phoenix and we look forward to seeing many of you in person and receiving direct feedback on our efforts. With that let's jump into the quarter's results. Results for the quarter was strong with net income and adjusted income coming in at $0.44 and $0.47 per share respectively. As was the case last quarter and consistent with our stated business plan to monetize these assets, results were driven by gains from the sale of operating properties and land and development assets. In total, with these two segments we realized $59 million of gains this quarter. On an administrative note, last quarter we modified the definition of adjusted income to include charge-offs on previously impaired loans. This quarter the impact of the definitional change was a reduction of $8 million as compared to adjusted income under the old definition. It is important to note that these charge-offs have already been realized in our GAAP financial statements in prior periods and are specific to our legacy loan portfolio. More about that later. Before these charge-offs this quarter's…

Thanks, Geoff. Just a final comment on the markets. There's an interesting tug-of-war going on in the real estate markets. There's concerns about global volatility, interest rates and the election all temper enthusiasm to deploy capital while the hard asset inflation-friendly nature of real estate cash flows continue to drive more money to look at the sector as an attractive alternative. We like a market with conflicting viewpoints but things are becoming a little more interesting across most of our disciplines and we look forward to finding some interesting places to invest in the next few quarters. With that, operator, let's go ahead and open it up for questions.

[Operator Instructions]. And first we will go to Jade Rahmani with KBW. Please go ahead.

As a follow-up to your view on the market, do you think the markets are overly frothy right now or there is a healthy degree of caution in terms of underwriting? We've seen the pace of transaction volumes slow, for example and I think that we're hearing about fewer participants on bid lists for deals. Just want to get your view on the current state of the market and also if you think 2017 is likely to be more of the same sort stability or if you anticipate increasing pockets of frothiness or concern?

It's interesting, I will tell you the overarching sense we have is people want to invest but they are being held back by things, the uncertainty around the rates, uncertainty around the election. I think if there is no untoward surprises I think 2017 you will see more money flow into real estate. Yes, there is a couple of frothy areas that are going to cool down. But overall I think the nature of the cash flows, again as I said the hard asset inflation-friendly nature of them, is actually a great place on a relative value basis to invest right now. So I don't see a wholesale pullback. I just see some temporal uncertainty that has to go away, but there's a lot of money on the sidelines that still wants yield, there's a lot of money that still wants inflation protected cash flows. And when you stack it up against a lot of other things, real estate in most places still looks pretty attractive.

And can you put some specifics around where you are seeing the most attractive incremental investment opportunities and maybe how those compare with your internal investment opportunities on CapEx?

Look, the big secular trends are the banks are pulling back to the things they are best at and they are leaving big parts of the market open for new players. We've always focused on more custom tailored bespoke-type opportunities. Those are clearly going to be where we spend most of our time. And that market I think, frankly, is getting bigger, not smaller. But there's more people trying to play in that market, so there's still competition but we certainly think we're going to get our fair share and we think the market opportunity is actually growing, not shrinking. Relative to what we see in our own book, there's a little bit of push and pull, the stuff in our own book is obviously 100% probability, so we can be very efficient with resources. We control most of the variables around it. We have better, obviously, insight into the dynamics because we've worked those assets for a long time. I would say at the beginning of the year and through the middle of the year some of the legacy stuff was the highest and best use of our capital. As Geoff said I think we're beginning to turn more towards investing some of our cash outside the existing portfolio and we're starting to see some interesting things in the net lease market again. So I'm hopeful that while we still see some really interesting proprietary opportunities in our own book we think the external environment has gotten better over the last quarter and we see some, obviously, longer term dynamics with risk retention rules and some other systemic reasons why the finance market should be and remain interesting to us.

And are there any new investment strategies or asset classes you're exploring, for example on the lending side perhaps using secured financing to do more senior first mortgages or anything in that vein?

Always, Jade. You know we're always coming up with new stuff. We're seeing some pockets that are intriguing to us that we're going to try to see if there is real opportunity can they be scaled. We're not going to tell you about it, that right now. But we're actively working on things that we think are very interesting risk reward sectors of the market.

In terms of 2017 I know you said that next quarter you'd probably provide guidance, but just directionally with the converts if at least one of them settles in cash or perhaps both that will materially reduce diluted share count, would you anticipate meaningful earnings growth next year?

I think you point out one of the things we focus on which is a lower share count will magnify the value of some of the things we hope to be able to achieve next year. I don't think we're quite ready to give you guidance but, obviously, we think the benefits that are being worked on inside the portfolio could have a nice impact on earnings. But let us have a little more clarity before we come to you with a number.

In terms of loan repayments what do you expect for the fourth quarter and 2017? Amongst some of the other finance REITs that have reported we have seen a trend of elevated loan repayments.

That is something that's going on. You can see from the yield on our performing loan portfolio in the 3.0 category they are pretty attractive. So when borrowers achieve their business plans they will go back to market, try to tap a more commodity-like capital. But we don't really have a firm number that we're focused on. We know it is going to be in the hundreds of millions probably for each of the next couple of quarters.

In terms of liquidity, assuming you do repay the November convert maturities, how would you characterize your liquidity post that event and sources of capital available to you? Do you anticipate enough loan repayments and proceeds from asset sales to still be in a strong cash position?

So with respect to liquidity, right now we have $900 million of cash and availability under the revolver. And so if we take out the converts with roughly $400 million of cash obviously we will still have significant liquidity. As a matter of fact, as I alluded to in my script, I think we're looking for ways to increase our revolving capability as well as ways to get money out the door so that we now that we've passed through the storm, so to speak, that we don't live with such high cash balances. But for the time being we're flush with cash and I think that some of the stuff we're working on today, as well as our capital markets plan for next year, is something we're very comfortable with in addressing unfunded commitments as well as maturities.

And just finally on CapEx, can you say how much you think would be reasonable to expect you to spend in 2017 on the land and operating property side or perhaps provide a range?

We don't have a bad number right in front of us. I think in the land portfolio we're looking at somewhere in the range of $200 million with half of that in Asbury and then in the operating portfolio about half that.

There's some assumptions in there about projects we go vertical on and how we finance them or don't finance them. So we're refining that in our business plan process that we're going through right now.

And next will go to Steve DeLaney with JMP Securities. Please go ahead.

Picking up on the debt side as far as new opportunities, as we look at the market it seems like there are a dozen people lined up to make senior floating rate bridge loans on transitional properties whether it's institutional or middle-market. It just seems like a lot of capital there. Are you looking to be maybe more opportunistic and try to fill in where there are real gaps in the financing market to be more of a solutions provider? And I'm specifically referring to construction loans, because that's where we're hearing that there are gaps and with your development experience it seems like that would be a logical place for you to put some money to work. Thanks.

I think you've kind of nailed it Steve. There is plenty of money looking to provide transitional short term bridge loans which can be a very good business. We think there has been a little bit of a pullback in some of the aggressiveness, so those loans are looking fairly priced right now and in some cases attractively priced. The construction market is a whole different kettle of fish. Different market, different skillsets needed, different efficiency profile about how the dollars go out the door. And certainly we have been a meaningful player in that market for a long time, continue to have our toes and fingers in that market. We do see, again, a little bit of a separation between the people who have been in the business and are trustworthy and have really served their borrowers and their customers well. That's becoming more important. That's becoming more important than 50 basis point difference in pricing. People want to know you're going to be there, people want to know that you are problem-solving, people want to know that you are going to be with them from the beginning all the way to the end. And so the ability to provide that kind of capital, provide that kind of relationship is a big competitive advantage that we do try to exploit. That market definitely has gotten more interesting and more favorably priced both in terms of just coupons but also just the structure and the dynamic. We're seeing borrowers who absolutely are picking their lenders based on what they know reputationally about how they act and how they perform. And so we've been really pointing to our long history of helping find ways to create value both inside the existing envelope and when new opportunities come up. As an on-balance sheet lender that really does everything in-house we can be very flexible, very nimble and really help them capture more of the value chain than some of the lenders who don't have those capabilities.

And just one more if I may. The stock has done well here recently. I think STAR is up about 10% since June 30. But I look back, it's still down 10% year to date. So how are you thinking these days about share buybacks as you look to allocate capital into new investments or existing? Where do buybacks stack up in your view of your capital allocation?

Look, I think you've seen us be fairly aggressive in the past. When we've had capital and we look across the choices it often was the best relative value. But certainly not long term what we think the growth path of the Company will be based on. We're starting to see the markets open up and get more interesting for new investments. So I'm hoping that opportunity set getting bigger will give us some interesting choices. But by retiring the converts we take a big chunk out of the diluted share count and when the stock is undervalued we have shown in the past that we're an aggressive buyer.

Mr. Fooks, we have no further questions in queue.

Thanks, John. 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 please get the conference call replay instructions once again? Thanks.

Certainly. Once again, Ladies and gentlemen, this conference is available for replay. It starts today at 12 p.m. Eastern, will last until November 17 at midnight. You can access the replay at any time by dialing 800-475-6701 and entering the access code 403997. That number again, 800-475-6701, access code 403997. That does conclude your conference for today. Thank you for your participation. You may now disconnect.