iStar Announces Third Quarter 2015 Results

Adjusted income allocable to common shareholders was $28 million, or $0.25 per diluted common share.

Repurchased 3.2 million shares, net, of common stock and common stock equivalents for $30 million in cash; authorization for additional repurchases increased to $50 million.

Nov 03, 2015, 07:00 ET from iStar

NEW YORK, Nov. 3, 2015 /PRNewswire/ -- iStar (NYSE: STAR) today reported results for the third quarter ended September 30, 2015.

Third Quarter 2015 Results

iStar reported adjusted income allocable to common shareholders for the third quarter of $27.8 million, or $0.25 per diluted common share, compared to $57.7 million, or $0.48 per diluted common share for the third quarter 2014. The largest driver of the year-over-year difference was the recognition of $33.4 million of additional equity method earnings in the third quarter of last year associated with the sale of one investment.

Adjusted income represents net income computed in accordance with GAAP, prior to the effects of certain non-cash items. Please see the financial tables that follow the text of this press release for the Company's calculations of adjusted income and reconciliation to GAAP net income (loss).

Net income (loss) allocable to common shareholders for the third quarter was $(6.1) million, or $(0.07) per diluted common share, compared to $22.3 million, or $0.21 per diluted common share for the third quarter 2014.

Investment Activity

iStar funded a total of $219.2 million during the quarter associated with new investments, prior financing commitments and ongoing development.

iStar generated $283.2 million of total proceeds from repayments and sales during the third quarter, ending the quarter with $656.7 million of available cash.

Portfolio Overview

At September 30, 2015, the Company's portfolio totaled $5.17 billion, which is gross of $478.6 million of accumulated depreciation and $33.0 million of general loan loss reserves.

Real Estate Finance

At September 30, 2015, the Company's real estate finance portfolio totaled $1.62 billion, gross of general loan loss reserves.  The portfolio included $1.54 billion of performing loans with a weighted average maturity of 2.5 years. The performing loans were comprised of $823.5 million of first mortgages / senior loans and $712.3 million of mezzanine / subordinated debt. The performing loans had a weighted average last dollar loan-to-value ratio of 67% and generated an 8.7% yield for the quarter. During the quarter, the Company invested $168.5 million and received $164.5 million of proceeds within its real estate finance portfolio.

At September 30, 2015, the Company's non-performing loans (NPLs) had a carrying value of $82.6 million, which was essentially flat from the second quarter. The Company recorded a $7.5 million provision for loan losses during the quarter, primarily associated with general reserves related to new loan originations. At September 30, 2015, loan loss reserves totaled $128.6 million, comprised of $33.0 million of general reserves and $95.5 million of asset specific reserves.

Net Lease

At the end of the quarter, iStar's net lease portfolio totaled $1.61 billion, gross of $386.2 million of accumulated depreciation. During the quarter, the Company received $15.2 million of sales proceeds from its net lease portfolio and recorded a $6.9 million gain associated with these sales.

The Company's net lease portfolio totaled 18 million square feet across 33 states. Occupancy for the portfolio was 96% at the end of the quarter, with a weighted average remaining lease term of 14.8 years. The total net lease portfolio generated an unleveraged yield of 7.8% for the quarter.

Operating Properties

At the end of the quarter, iStar's operating properties portfolio totaled $706.0 million, gross of $82.8 million of accumulated depreciation, and was comprised of $573.1 million of commercial and $132.8 million of residential real estate properties. During the quarter, the Company invested $21.6 million within its operating properties portfolio and received $79.9 million of proceeds from sales.

Commercial Operating Properties

The Company's commercial operating properties represent a diverse pool of assets across a broad range of geographies and collateral types including office, retail and hotel properties. These properties generated $25.4 million of revenue offset by $19.5 million of expenses during the quarter. iStar generally seeks to reposition or redevelop these assets with the objective of maximizing their values through the infusion of capital and/or intensive asset management efforts.

At the end of the quarter, the Company had $111.8 million of stabilized commercial operating properties that were 87% leased and generated an unleveraged yield of 7.8% for the quarter. The remainder of the commercial operating portfolio was comprised of $461.3 million of transitional properties that were 59% leased and generated an unleveraged yield of 2.7% for the quarter. iStar is actively working to lease up and stabilize these properties.

During the quarter, the Company executed commercial operating property leases covering approximately 350,000 square feet. In addition, the Company sold a transitional commercial operating property for $68.5 million to a venture in which the Company owns a 50% interest and recorded a $13.6 million gain on the 50% interest sold. The venture partner will utilize its local expertise to further build on iStar's leasing efforts and operate the property.

Residential Operating Properties

At the end of the quarter, the residential operating portfolio was comprised of condominium units generally located within luxury projects in major U.S. cities. During the quarter, iStar sold 23 condominium units, resulting in $24.6 million of proceeds and recorded $6.8 million of income, offset by $2.9 million of expenses.

Land & Development

At the end of the quarter, the Company's land & development portfolio totaled $1.15 billion and was comprised of 11 master planned community projects, 15 urban infill land parcels and six waterfront land parcels located throughout the United States.

Master planned communities represent large-scale residential projects that the Company will entitle, plan and/or develop. These projects are currently entitled for approximately 24,000 lots and residential/hotel units. The remainder of the Company's land includes infill and waterfront parcels located in and around major cities that the Company intends to sell itself or in partnership with commercial real estate developers. These projects are currently entitled for over 7,000 lots and residential/hotel units, and select projects include commercial, retail and office uses.

At September 30, 2015, the Company had seven land projects in production, 12 in development and 13 in the pre-development phase. During the quarter, the Company invested $25.5 million in its land portfolio.

Land activity expanded in the third quarter as sales at projects in production increased and several new developments were announced. For the quarter, the Company's land and development portfolio generated gross margin and earnings from equity method investments totaling $10.3 million. This included $14.3 million of revenues, offset by $10.7 million of cost of sales, and $6.7 million from land development equity method investments. For the same period last year, the Company's gross margin and earnings from equity method investments totaled $0.7 million.

The Company also announced the next three new developments in Asbury Park, NJ. The first of these projects is The Asbury, a 110-key boutique hotel designed by Stonehill & Taylor Architects. Currently under construction and scheduled to open in early summer 2016,  The Asbury will be the first new hotel in Asbury Park in more than 30 years.  iStar's next residential development is Monroe, a 34-unit condominium project designed by Miami  architect Chad Oppenheim and expected to open in the summer of 2016. Lastly, the Company will develop 1101 Ocean, a landmark mixed-use hotel/condominium/retail project, currently being designed by New York's Handel Architects. This 16-story tower will include a 56-key luxury boutique hotel, 128 residential condominiums and nearly 22,000 square feet of street-front retail space.

Capital Markets

The Company repurchased 100% of its outstanding high performance units (HPUs), which represent 2.8 million common stock equivalents, through an exchange offer for total consideration of $9.8 million in cash and 1.2 million newly issued shares of common stock. The HPUs previously accounted for approximately 3% of common equity and were allocated approximately 3% of the Company's earnings.

Subsequently, the Company repurchased 1.6 million shares of common stock during the quarter for $19.7 million, at an average price of $12.15 per share through the Company's stock repurchase program. On September 18, the Board of Directors approved an increase in the stock repurchase program to $50.0 million. The repurchase program authorizes the Company to repurchase its common stock from time to time in the open market, through privately negotiated transactions and through one or more trading plans.

In total, during the quarter the Company reduced its common stock and common stock equivalents by 3.2 million shares for $29.5 million in cash.

The Company's weighted average cost of debt for the third quarter was 5.4%, down from 5.5% for the third quarter of last year. The Company's leverage remained at 2.0x at September 30, 2015, at the low end of the Company's targeted range of 2.0x – 2.5x. Please see the financial tables that follow the text of this press release for a calculation of the Company's leverage.

*          *          *

iStar (NYSE: STAR) finances, invests in and develops real estate and real estate related projects as part of its fully-integrated investment platform. Building on over two decades of experience and more than $35 billion of transactions, iStar brings uncommon capabilities and new ways of thinking to commercial real estate and adapts its investment strategy to changing market conditions. The Company is structured as a real estate investment trust ("REIT"), with a diversified portfolio focused on larger assets located in major metropolitan markets.

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iStar will hold a quarterly earnings conference call at 10:00 a.m. ET today, November 3, 2015. This conference call will be broadcast live over the internet and can be accessed by all interested parties through iStar's website, www.istar.com. To listen to the live call, please go to the website's "Investor" section at least 15 minutes prior to the start of the call to register, download and install any necessary audio software. For those who are not available to listen to the live broadcast, a replay will be available shortly after the call on iStar's website.

Note: Statements in this press release which are not historical fact may be deemed forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although iStar believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, the Company can give no assurance that its expectations will be attained. Factors that could cause actual results to differ materially from iStar's expectations include general economic conditions and conditions in the commercial real estate and credit markets, the Company's ability to generate liquidity and to repay indebtedness as it comes due, additional loan loss provisions, the amount and timing of asset sales, changes in NPLs, repayment levels, the Company's ability to make new investments, the Company's ability to maintain compliance with its debt covenants, actual results of condominium sales meeting our expectations, the Company's ability to generate income and gains from operating properties and land and other risks detailed from time to time in iStar SEC reports.

 

iStar Consolidated Statements of Operations (In thousands) (unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2015

2014

2015

2014

REVENUES

Operating lease income

$

55,699

$

60,691

$

170,990

$

183,766

Interest income

33,599

31,098

102,224

94,139

Other income

16,888

18,407

40,214

62,253

Land development revenue

14,301

3,290

29,101

11,920

Total revenues

$

120,487

$

113,486

$

342,529

$

352,078

COST AND EXPENSES

Interest expense

$

56,880

$

55,424

$

167,336

$

169,410

Real estate expense

35,154

41,285

111,143

124,452

Land development cost of sales

10,686

2,763

22,828

10,028

Depreciation and amortization

15,787

17,722

49,804

55,157

General and administrative(1)

21,181

23,377

62,520

69,788

Provision for (recovery of) loan losses

7,500

(673)

30,944

(6,865)

Impairment of assets

3,916

15,462

5,590

21,741

Other expense (income)

3,334

(285)

6,345

4,626

Total costs and expenses

$

154,438

$

155,075

$

456,510

$

448,337

Income (loss) before earnings from equity method investments and other items

$

(33,951)

$

(41,589)

$

(113,981)

$

(96,259)

Loss on early extinguishment of debt

(67)

(186)

(279)

(24,953)

Earnings from equity method investments

10,572

49,578

25,904

76,848

Income (loss) from continuing operations before income taxes

$

(23,446)

$

7,803

$

(88,356)

$

(44,364)

Income tax (expense) benefit

2,893

(103)

(3,796)

619

Income (loss) from continuing operations

$

(20,553)

$

7,700

$

(92,152)

$

(43,745)

Income from sales of real estate

26,511

27,791

66,021

61,465

Net income (loss)

$

5,958

$

35,491

$

(26,131)

$

17,720

Net (income) loss attributable to noncontrolling interests

706

412

3,176

(367)

Net income (loss) attributable to iStar

$

6,664

$

35,903

$

(22,955)

$

17,353

Preferred dividends

(12,830)

(12,830)

(38,490)

(38,490)

Net (income) loss allocable to HPU holders and Participating Security holders(2)

94

(746)

1,627

683

Net income (loss) allocable to common shareholders

$

(6,072)

$

22,327

$

(59,818)

$

(20,454)

(1) For the three months ended September 30, 2015 and 2014, includes $2,881 and $3,273 of stock-based compensation expense, respectively.  For the nine months ended September 30, 2015 and 2014, includes $10,066 and $8,544 of stock-based compensation expense, respectively.

(2) HPU Holders are current and former Company employees who purchased high performance common stock units under the Company's High Performance Unit Program. During the three months ended September 30, 2015, the Company repurchased and retired 100% of the outstanding HPU shares through an exchange offer. Participating Security holders are non-employee directors who hold common stock equivalents and restricted stock awards granted under the Company's LTIP who are eligible to participate in dividends.

 

 

iStar Earnings Per Share Information (In thousands, except per share data) (unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2015

2014

2015

2014

EPS INFORMATION FOR COMMON SHARES

Income (loss) from continuing operations attributable to iStar(1)

Basic

$

(0.07)

$

0.26

$

(0.70)

$

(0.24)

Diluted

$

(0.07)

$

0.21

$

(0.70)

$

(0.24)

Net income (loss)

Basic

$

(0.07)

$

0.26

$

(0.70)

$

(0.24)

Diluted

$

(0.07)

$

0.21

$

(0.70)

$

(0.24)

Adjusted income

Basic

$

0.32

$

0.68

$

0.54

$

0.95

Diluted

$

0.25

$

0.48

$

0.47

$

0.74

Weighted average shares outstanding

Basic

85,766

85,163

85,602

84,967

Diluted (for net income per share)

85,766

130,160

85,602

84,967

Diluted (for adjusted income per share)

130,368

130,160

130,200

129,981

Common shares outstanding at end of period

85,179

85,172

85,179

85,172

EPS INFORMATION FOR HPU SHARES(2)

Income (loss) from continuing operations attributable to iStar(1)

Basic

$

(13.41)

$

49.60

$

(132.19)

$

(45.53)

Diluted

$

(13.41)

$

40.13

$

(132.19)

$

(45.53)

Net income (loss)

Basic

$

(13.41)

$

49.60

$

(132.19)

$

(45.53)

Diluted

$

(13.41)

$

40.13

$

(132.19)

$

(45.53)

Weighted average shares outstanding

Basic

7

15

12

15

Diluted

7

15

12

15

(1) Including preferred dividends, net (income) loss attributable to noncontrolling interests and income from sales of real estate.

(2) During the three months ended September 30, 2015, the Company repurchased and retired 100% of the outstanding HPU shares through an exchange offer.

 

 

iStar Consolidated Balance Sheets (In thousands) (unaudited)

As of

As of

September 30, 2015

December 31, 2014

ASSETS

Real estate

Real estate, at cost

$

2,969,113

$

3,145,563

Less: accumulated depreciation

(478,575)

(468,849)

Real estate, net

$

2,490,538

$

2,676,714

Real estate available and held for sale

296,591

285,982

$

2,787,129

$

2,962,696

Loans receivable and other lending investments, net

1,585,399

1,377,843

Other investments

290,519

354,119

Cash and cash equivalents

656,742

472,061

Accrued interest and operating lease income receivable, net

15,533

16,367

Deferred operating lease income receivable

98,076

98,262

Deferred expenses and other assets, net

209,397

181,785

Total assets

$

5,642,795

$

5,463,133

LIABILITIES AND EQUITY

Accounts payable, accrued expenses and other liabilities

$

190,029

$

180,902

Loan participations payable, net

148,163

Debt obligations, net

4,144,817

4,022,684

Total liabilities

$

4,483,009

$

4,203,586

Redeemable noncontrolling interests

$

11,577

$

11,199

Total iStar shareholders' equity

$

1,102,402

$

1,197,092

Noncontrolling interests

45,807

51,256

Total equity

$

1,148,209

$

1,248,348

Total liabilities and equity

$

5,642,795

$

5,463,133

 

 

iStar Segment Analysis (In thousands) (unaudited)

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2015

Real Estate Finance

Net Lease

Operating Properties

Land & Dev

Corporate / Other

Total

Operating lease income

$

$

37,379

$

18,125

$

195

$

$

55,699

Interest income

33,599

33,599

Other income

7,988

8

7,602

376

914

16,888

Land development revenue

14,301

14,301

Earnings (loss) from equity method investments

971

469

6,647

2,485

10,572

Income from sales of real estate

6,931

19,580

26,511

Total revenue and other earnings

$

41,587

$

45,289

$

45,776

$

21,519

$

3,399

$

157,570

Real estate expense

(5,473)

(22,448)

(7,233)

(35,154)

Land development cost of sales

(10,686)

(10,686)

Other expense

(2,039)

(1,295)

(3,334)

Allocated interest expense

(14,030)

(16,358)

(6,724)

(8,265)

(11,503)

(56,880)

Allocated general and administrative(1)

(3,527)

(4,209)

(1,841)

(3,233)

(5,490)

(18,300)

Segment profit (loss)

$

21,991

$

19,249

$

14,763

$

(7,898)

$

(14,889)

$

33,216

(1) Excludes $2,881 of stock-based compensation expense.

AS OF SEPTEMBER 30, 2015

Real Estate Finance

Net Lease

Operating Properties

Land & Dev

Corporate / Other

Total

Real estate

Real estate, at cost

$

$

1,537,022

$

557,548

$

874,543

$

$

2,969,113

Less: accumulated depreciation

(386,225)

(82,821)

(9,529)

(478,575)

Real estate, net

$

$

1,150,797

$

474,727

$

865,014

$

$

2,490,538

Real estate available and held for sale

1,953

136,945

157,693

296,591

Total real estate

$

$

1,152,750

$

611,672

$

1,022,707

$

$

2,787,129

Loans receivable and other lending investments, net

1,585,399

1,585,399

Other investments

68,719

11,472

120,269

90,059

290,519

Total portfolio assets

$

1,585,399

$

1,221,469

$

623,144

$

1,142,976

$

90,059

$

4,663,047

Cash and other assets

979,748

Total assets

$

5,642,795

 

 

iStar Supplemental Information (In thousands) (unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2015

2014

2015

2014

ADJUSTED INCOME (1)

Reconciliation of Net Income to Adjusted Income

Net income (loss) allocable to common shareholders

$

(6,072)

$

22,327

$

(59,818)

$

(20,454)

Add: Depreciation and amortization

17,560

18,339

54,925

56,525

Add: Provision for (recovery of) loan losses

7,500

(673)

30,944

(6,865)

Add: Impairment of assets

6,398

15,462

12,409

21,741

Add: Stock-based compensation expense

2,881

3,273

10,066

8,544

Add: Loss on early extinguishment of debt

67

186

279

24,953

Less: HPU/Participating Security allocation

(525)

(1,183)

(2,876)

(3,390)

Adjusted income allocable to common shareholders

$

27,809

$

57,731

$

45,929

$

81,054

(1) Adjusted Income (loss) allocable to common shareholders should be examined in conjunction with net income (loss) as shown in the Consolidated Statements of Operations. This non-GAAP financial measure should not be considered as an alternative to net income (determined in accordance with GAAP) as an indicator of the Company's performance, or to cash flows from operating activities (determined in accordance with GAAP) as a measure of the Company's liquidity, nor is it indicative of funds available to fund the Company's cash needs or available for distribution to shareholders. It should be noted that the Company's manner of calculating this non-GAAP financial measure may differ from the calculations of similarly-titled measures by other companies. Management believes that it is useful to consider Adjusted Income because the adjustments are non-cash items that do not necessarily reflect an actual change in the long-term economic value or performance of our assets. Management considers this non-GAAP financial measure as supplemental information to net income in analyzing the performance of our underlying business. Depreciation and amortization includes our proportionate share of depreciation and amortization expense relating to equity method investments and excludes the portion of depreciation and amortization expense allocable to non-controlling interests. Impairment of assets includes impairments on cost and equity method investments recorded in other income and earnings from equity method investments, respectively.

 

 

iStar Supplemental Information (In thousands) (unaudited)

Nine Months Ended September 30, 2015

OPERATING STATISTICS

Expense Ratio

General and administrative expenses - annualized (A)

$

83,360

Average total assets (B)

$

5,607,968

Expense Ratio (A) / (B)

1.5

%

As of

9/30/2015

Leverage

Book debt

$

4,144,817

Less: Cash and cash equivalents

(656,742)

Net book debt (C)

$

3,488,075

Book equity

$

1,148,209

Add: Accumulated depreciation and amortization(1)

526,802

Add: General loan loss reserves

33,038

Sum of book equity, accumulated D&A and general loan loss reserves (D)

$

1,708,049

Leverage (C) / (D)

2.0x

(1) Accumulated depreciation and amortization includes iStar's proportionate share of accumulated depreciation and amortization relating to equity method investments.

 

 

iStar Supplemental Information (In thousands) (unaudited)

As of

September 30, 2015

UNFUNDED COMMITMENTS

Performance-based commitments

$

699,772

Strategic investments

45,890

Discretionary fundings

5,000

Total Unfunded Commitments

$

750,662

LOAN RECEIVABLE CREDIT STATISTICS

As of

September 30, 2015

December 31, 2014

Carrying value of NPLs /

As a percentage of total carrying value of loans

$

82,616

5.5

%

$

65,047

5.5

%

Asset specific reserves for loan losses /

As a percentage of gross carrying value of impaired

loans(1)

$

95,520

53.6

%

$

64,990

46.5

%

Total reserve for loan losses /

As a percentage of total gross carrying value of loans(1)

$

128,558

7.9

%

$

98,490

7.6

%

(1) Gross carrying value represents iStar's carrying value of loans, gross of loan loss reserves.

 

 

iStar Supplemental Information (In millions) (unaudited)

PORTFOLIO STATISTICS AS OF SEPTEMBER 30, 2015(1)

Property Type

Real Estate Finance

Net Lease

Operating Properties

Land & Dev

Total

% of

Total

Office / Industrial

$

152

$

900

$

141

$

$

1,193

23

%

Land & Development

28

1,153

1,181

23

%

Mixed Use / Collateral

511

252

763

15

%

Hotel

374

136

55

565

11

%

Entertainment / Leisure

505

505

10

%

Condominium

256

133

389

7

%

Retail

87

57

125

269

5

%

Other Property Types

210

10

220

4

%

Strategic Investments

90

2

%

Total

$

1,618

$

1,608

$

706

$

1,153

$

5,175

100

%

Geography

Real Estate Finance

Net Lease

Operating Properties

Land & Dev

Total

% of Total

Northeast

$

908

$

384

$

$

210

$

1,502

29

%

West

62

410

60

400

932

18

%

Southeast

146

235

280

172

833

16

%

Mid-Atlantic

226

140

141

201

708

14

%

Southwest

56

216

143

150

565

11

%

Central

150

80

55

7

292

6

%

Various

70

143

27

13

253

4

%

Strategic Investments

90

2

%

Total

$

1,618

$

1,608

$

706

$

1,153

$

5,175

100

%

(1) Based on carrying value of the Company's total investment portfolio, gross of accumulated depreciation and general loan loss reserves.

 

SOURCE iStar



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