Star Holdings (NASDAQ: STHO) halves its margin loan but posts a $45.1 million loss

What happened

Star Holdings (NASDAQ: STHO) paid its margin loan down to $46.5 million from $94.5 million but still lost $45.1 million in the third quarter.

That works out to a loss of $3.74 per share. Star Holdings said the result reflects a non-cash adjustment of $53.1 million, which cut earnings per share by $4.40. The adjustment marks to market, at quarter end, the company's investment in about 13.5 million shares of Safehold Inc. (NYSE: SAFE).

The company announced the results on Nov. 6 and said it had filed its Form 10-Q for the quarter ended Sept. 30. The release also lists two asset sales and the margin loan paydown.

Key numbers

Metric	Latest	Change	Source
Third-quarter net loss attributable to common shareholders	-$45.1 million		SEC 8-K, Exhibit 99.1
Loss per share	-$3.74		SEC 8-K, Exhibit 99.1
Non-cash SAFE mark-to-market adjustment	-$53.1 million		SEC 8-K, Exhibit 99.1
Margin loan balance after paydown (from $94.5 million)	$46.5 million	-50.8%	Calculated from SEC 8-K
Municipal debt securities sale proceeds	$50.2 million		SEC 8-K, Exhibit 99.1
Coney Island land parcel sale price	$20.0 million		SEC 8-K, Exhibit 99.1

Read more: Star (STHO) company research

How the sales and the paydown fit

During the third quarter, Star Holdings sold its portfolio of municipal debt securities for $50.2 million and realized a gain of $4.5 million. It also sold a land parcel in Coney Island for $20.0 million and recognized a profit of $4.7 million.

The two sales brought in $70.2 million combined. The margin loan paydown, which the company described as voluntary, was $48.0 million by OptimistFi's calculation, or 50.8% of the prior balance.

Each gain comes from a single sale, so neither shows a change in operating results.

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Why it matters

OptimistFi has argued that Star Holdings is an asset-conversion bet. In that view, value depends on selling or refinancing legacy property assets at acceptable prices before liabilities and cash burn consume book value. Halving the margin loan removes a large liability, and the two sales show assets turning into cash. On those points the quarter supports the case.

The SAFE adjustment cuts the other way. It is larger than the quarter's net loss, so a non-cash markdown on one holding outweighed the sale gains. Because the SAFE stake is marked to market at quarter end, its value flows straight into reported results. Monetization progress has not yet shown up as reported profit.

The remaining portfolio is made up primarily of interests in the Asbury Park Waterfront and the Magnolia Green residential development projects. It also holds other commercial real estate properties and loans that are for sale or planned for monetization. The company says it expects to focus on realizing value by maximizing cash flows through active asset management and asset sales.

What's next

The Form 10-Q for the quarter ended Sept. 30 carries further detail on results, assets and activities, according to the release.

The next quarterly report will show whether more asset sales and the lower margin loan balance improve reported results and book value. A lower SAFE mark at that quarter end would work against that.

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