iStar Financial Announces First Quarter 2012 Results

-- Net income (loss) allocable to common shareholders for the first quarter 2012 was ($55) million or ($0.66) per diluted common share.

-- Company completed new $880 million senior secured credit facilities.

-- Company retired $724 million of debt during the first quarter and had $610 million of cash, including cash reserved for debt repayment, at March 31, 2012.

Apr 27, 2012, 07:38 ET from iStar Financial Inc.

NEW YORK, April 27, 2012 /PRNewswire/ -- iStar Financial Inc. (NYSE: SFI) today reported results for the first quarter ended March 31, 2012.

First Quarter 2012 Results

iStar reported net income (loss) allocable to common shareholders for the first quarter of ($54.8) million, or ($0.66) per diluted common share, compared to $67.4 million, or $0.71 per diluted common share, for the first quarter 2011. The year-over-year decrease is primarily due to lower gains from early extinguishment of debt of $1.7 million versus $106.6 million for the same period last year, increased interest expense and higher provisions for loan losses and impairments. The decrease was partially offset by increased earnings from equity method investments and income from sales of residential property.

Prior to the effect of depreciation, loan loss provisions, impairments and gains on early extinguishment of debt, all of which are non-cash items, net income (loss) allocable to common shareholders for the first quarter was ($7.3) million, compared to ($5.0) million for the first quarter 2011. Please see the financial tables that follow the text of this press release for a reconciliation of these amounts to GAAP net income (loss) allocable to common shareholders.

Adjusted EBITDA for the quarter was $95.1 million, compared to $90.4 million for the same period last year. The year-over-year improvement was primarily due to increases in earnings from equity method investments and income from sales of residential property, partially offset by lower revenue from a smaller asset base. Please see the financial tables that follow the text of this press release for the Company's calculation of Adjusted EBITDA and a reconciliation to GAAP net income (loss).

During the first quarter, the Company generated $214.8 million of proceeds from its portfolio, comprised of $136.2 million in principal repayments, $51.4 million primarily from unit sales of other real estate owned (OREO) assets, $6.5 million from sales of net lease assets and $20.7 million from other investments. Additionally, the Company funded a total of $23.0 million of investments.

Capital Markets

As previously announced, during the quarter the Company entered into a new $880.0 million senior secured credit agreement comprised of a $410.0 million 2012 A-1 term loan tranche due March 2016 and a $470.0 million 2012 A-2 term loan tranche due March 2017. Proceeds from the new financing were used to repurchase $124.1 million of unsecured notes maturing in 2012 and to repay the $244.0 million remaining balance of its unsecured revolving credit facility due June 2012. The remaining debt proceeds will be used to refinance unsecured debt maturing in 2012.

In addition, during the quarter the Company repurchased $96.3 million of senior unsecured notes and repaid the remaining $169.7 million of its 5.15% senior unsecured notes due March 2012. Further, the Company repaid $89.8 million on the 2011 A-1 tranche of its secured credit facility, bringing the balance of the 2011 A-1 tranche to $871.8 million at the end of the quarter. Subsequent to quarter end, the Company repaid an additional $144.8 million on the 2011 A-1 tranche, thereby satisfying all minimum amortization requirements prior to the payment of any remaining balance at maturity in June 2013.

The Company's leverage was 2.7x at March 31, 2012, unchanged from the prior quarter. Please see the financial tables that follow the text of this press release for a calculation of the Company's leverage. The Company's weighted average effective cost of debt for the first quarter was 5.8%. At the end of the quarter, cash and cash equivalents, including cash reserved for repayment of indebtedness, totaled $609.7 million.

Portfolio Overview

At March 31, 2012, the Company's total portfolio had a carrying value of $6.82 billion, gross of general loan loss reserves. The portfolio was comprised of $2.67 billion of loans and other lending investments, $1.67 billion of net lease assets, $2.00 billion of owned real estate and $468.6 million of other investments.

At March 31, 2012, the Company's $2.01 billion of performing loans and other lending investments had a weighted average last dollar loan-to-value ratio of 76.0% and a weighted average maturity of 3.1 years. The performing loans consisted of 49.5% floating rate loans that generated a weighted average effective yield for the quarter of 5.8%, or approximately 550 basis points over the average one-month LIBOR rate for the quarter, and 50.5% fixed rate loans that generated a weighted average effective yield for the quarter of 8.3%. The weighted average risk rating of the Company's performing loans improved to 3.27, from 3.29 in the prior quarter. Included in the performing loan balance were $169.8 million of watch list assets, compared to $136.0 million in the prior quarter.

At March 31, 2012, the Company's non-performing loans (NPLs) had a carrying value of $662.7 million, net of $477.2 million of specific reserves. This compares to $771.2 million, net of $557.1 million of specific reserves, at the end of the prior quarter.

For the first quarter, the Company recorded $17.5 million in loan loss provision versus $16.0 million in the prior quarter. At March 31, 2012, loan loss reserves totaled $567.2 million or 18.0% of total gross carrying value of loans. This compares to loan loss reserves of $646.6 million or 18.5% of total gross carrying value of loans at December 31, 2011.

At the end of the quarter, the Company's $1.67 billion of net lease assets, net of $347.3 million of accumulated depreciation, were 91.2% leased with a weighted average remaining lease term of 12.4 years. The weighted average risk rating of the Company's net lease assets improved to 2.63, versus 2.67 in the prior quarter. The Company recorded $14.1 million of impairments within its net lease asset portfolio. During the quarter, the Company's occupied net lease assets generated a weighted average effective yield of 10.2% and the total net lease assets generated a weighted average effective yield of 9.1%.

At the end of the quarter, the Company's $2.00 billion owned real estate portfolio was comprised of $775.9 million of OREO and $1.23 billion of real estate held for investment (REHI). The Company's OREO assets are considered held for sale based on management's current intention to market and sell the assets in the near term, while management's current intent and strategy is to hold, operate or develop its REHI assets over a longer term.

During the quarter, the Company took title to properties with a carrying value of $140.4 million. The Company also recorded $2.5 million of impairments within its OREO portfolio. For the quarter, the Company recorded $14.4 million of revenue and $6.7 million of income from sales of residential property units within its owned real estate portfolio during the quarter, offset by $22.1 million of net expenses. In addition, the Company funded $10.8 million of capital expenditures associated with its owned real estate portfolio.

[Financial Tables to Follow]

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iStar Financial Inc. (NYSE: SFI) is a fully-integrated finance and investment company focused on the commercial real estate industry. The Company provides custom-tailored investment capital to high-end private and corporate owners of real estate and invests directly across a range of real estate sectors. The Company, which is taxed as a real estate investment trust ("REIT"), has invested more than $35 billion over the past two decades. Additional information on iStar Financial is available on the Company's website at www.istarfinancial.com.

iStar Financial will hold a quarterly earnings conference call at 10:00 a.m. ET today, April 27, 2012. This conference call will be broadcast live over the Internet and can be accessed by all interested parties through iStar Financial's website, www.istarfinancial.com, under the "Investor Relations" section. To listen to the live call, please go to the website's "Investor Relations" 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 the iStar Financial 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 Financial Inc. 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 Financial Inc.'s expectations include 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 (including OREO assets), increases in NPLs, repayment levels, the Company's ability to reduce its indebtedness, the Company's ability to maintain compliance with its debt covenants, economic conditions, the availability of liquidity for commercial real estate transactions and other risks detailed from time to time in iStar Financial Inc.'s SEC reports.)

  

iStar Financial Inc.

Consolidated Statements of Operations

(In thousands)

(unaudited)

Three Months Ended

March 31,

2012

2011

REVENUES

Interest income

$37,203

$60,768

Operating lease income   

41,211

40,799

Other income

16,286

8,675

     Total revenues

$94,700

$110,242

COSTS AND EXPENSES

Interest expense

$86,143

$69,344

Operating costs - net lease assets 

3,164

4,288

Operating costs - REHI and OREO

22,074

17,788

Depreciation and amortization

17,175

15,474

General and administrative(1)

22,845

24,400

Provision for loan losses

17,500

10,881

Impairment of assets

15,504

1,490

Other expense

453

2,722

     Total costs and expenses

$184,858

$146,387

Income (loss) before earnings from equity method investments 

     and other items

($90,158)

($36,145)

     Gain on early extinguishment of debt, net

1,704

106,604

     Earnings from equity method investments

34,786

24,932

Income (loss) from continuing operations before income taxes

($53,668)

$95,391

     Income tax expense

(1,271)

(11,052)

Income (loss) from continuing operations

($54,939)

$84,339

     Income (loss) from discontinued operations 

(248)

(437)

     Gain from discontinued operations

2,406

-

     Income from sales of residential property

6,733

-

Net income (loss)

($46,048)

$83,902

     Net (income) loss attributable to noncontrolling interests

(25)

(430)

Net income (loss) attributable to iStar Financial Inc.

($46,073)

$83,472

     Preferred dividends

(10,580)

(10,580)

      Net (income) loss allocable to HPUs and 

     Participating Security holders(2)

1,861

(5,472)

Net income (loss) allocable to common shareholders

($54,792)

$67,420

(1) For the three months ended March 31, 2012 and 2011, includes $4,666 and $4,155 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. Participating Security holders are Company employees and directors who hold unvested restricted stock units and common stock equivalents under the Company's LTIP that are currently eligible to receive dividends.

  

iStar Financial Inc.

Earnings Per Share Information

(In thousands, except per share amounts)

(unaudited)

Three Months Ended

March 31,

2012

2011

EPS INFORMATION FOR COMMON SHARES

Income (loss) attributable to iStar Financial Inc.

    from continuing operations(1) 

Basic

($0.69)

$0.73

Diluted

($0.69)

$0.71

Net income (loss) attributable to iStar Financial Inc.

Basic

($0.66)

$0.73

Diluted

($0.66)

$0.71

Weighted average shares outstanding

Basic

83,556

92,458

Diluted

83,556

94,609

Common shares outstanding at end of period

84,358

92,472

EPS INFORMATION FOR HPU SHARES

Income (loss) attributable to iStar Financial Inc. 

    from continuing operations(1) 

Basic

($128.81)

$138.80

Diluted

($128.81)

$135.87

Net income (loss) attributable to iStar Financial Inc. 

Basic

($124.07)

$138.00

Diluted

($124.07)

$135.07

Weighted average shares outstanding

      Basic and diluted

15

15

(1) Adjusted for preferred dividends, net (income) loss from noncontrolling interests and income from sales of residential property. 

  

iStar Financial Inc.

Consolidated Balance Sheets

(In thousands)

(unaudited)

As of

As of

March 31, 2012

December 31, 2011

ASSETS

Loans and other lending investments, net

$2,596,400

$2,860,762

Net lease assets, net

1,668,552

1,702,764

Real estate held for investment, net

1,228,733

1,228,134

Other real estate owned

775,899

677,458

Other investments

468,646

457,835

Assets held for sale

5,737

-

Cash and cash equivalents

126,859

356,826

Restricted cash

524,174

32,630

Accrued interest and operating lease income receivable, net

15,297

16,878

Deferred operating lease income receivable

74,338

72,074

Deferred expenses and other assets, net

105,263

112,476

Total assets

$7,589,898

$7,517,837

LIABILITIES AND EQUITY

Accounts payable, accrued expenses and other liabilities

$114,516

$106,693

Debt obligations, net:

   Secured credit facilities

3,156,772

2,393,240

   Unsecured senior notes

2,419,062

2,805,817

   Secured term loans

294,400

296,643

   Unsecured credit facility

-

243,650

   Other debt obligations

98,201

98,190

     Total debt obligations, net

5,968,435

5,837,540

     Total liabilities

$6,082,951

$5,944,233

Total iStar Financial Inc. shareholders' equity

1,462,099

1,528,356

Noncontrolling interests

44,848

45,248

Total equity

$1,506,947

$1,573,604

Total liabilities and equity

$7,589,898

$7,517,837

  

iStar Financial Inc.

Supplemental Information

(In thousands)

(unaudited)

Three Months Ended

March 31,

2012

2011

NON-GAAP FINANCIAL MEASURES

Reconciliation of Net Income to Adjusted EBITDA

Net income (loss) 

($46,048)

$83,902

Add: Interest expense 

86,143

69,634

Add: Income tax expense

1,271

11,052

Add: Depreciation and amortization

17,238

15,933

EBITDA

$58,604

$180,521

Add: Provision for loan losses

17,500

10,881

Add: Impairment of assets

16,024

1,464

Add: Stock-based compensation expense

4,666

4,155

Less: Gain on early extinguishment of debt, net

(1,704)

(106,604)

Adjusted EBITDA(1)

$95,090

$90,417

Reconciliation of Adjustments to Net Income Allocable to Common Shareholders

Net income (loss) allocable to common shareholders

($54,792)

$67,420

Add: Depreciation and amortization

17,238

15,933

Add: Provision for loan losses

17,500

10,881

Add: Impairment of assets

16,024

1,464

Less: Gain on early extinguishment of debt, net

(1,704)

(106,604)

Less: HPU/Participating Security allocation adjustment

(1,611)

5,880

Net income (loss) allocable to common shareholders, as adjusted(1)

($7,345)

($5,026)

(1) Adjusted EBITDA and net income (loss) allocable to common shareholders after giving effect to these adjustments should be examined in conjunction with net income (loss) as shown in the Consolidated Statements of Operations. These non-GAAP financial measures 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 are they 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 these non-GAAP financial measures may differ from the calculations of similarly-titled measures by other companies. Management believes that it is useful to consider EBITDA and net income excluding the adjustments shown above 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 these non-GAAP financial measures as supplemental information to net income in analyzing the performance of our underlying business. Depreciation and amortization and impairment of assets exclude adjustments from discontinued operations of $63 and $520, respectively, for the three months ended March 31, 2012. Interest expense, depreciation and amortization, and impairment of assets exclude adjustments from discontinued operations of $290, $459 and ($26), respectively, for the three months ended March 31, 2011.

  

iStar Financial Inc.

Supplemental Information

(In thousands)

(unaudited)

Three Months Ended

March 31, 2012

OPERATING STATISTICS

Return on Average Common Book Equity

Average total book equity

$1,495,228

Less: Average book value of preferred equity 

(506,176)

Average common book equity (A)

$989,052

Net income (loss) allocable to common shareholders, HPU holders and 

     Participating Security holders

($56,653)

     Annualized(B)

($226,612)

Return on Average Common Book Equity (B) / (A)

Neg

Expense Ratio

General and administrative expenses - annualized (C) 

$91,380

Average total assets (D) 

$7,553,868

Expense Ratio (C) / (D)

1.2%

Interest Coverage

Adjusted EBITDA(A)

$95,090

Interest expense and preferred dividends (B)

$96,723

Adjusted EBITDA / Interest Expense and Preferred Dividends (A) / (B)

1.0x

As of

March 31, 2012

Leverage

Book debt

$5,968,435

Less: Cash and cash equivalents, including cash reserved for repayment of indebtedness

(609,748)

Net book debt (E)

$5,358,687

Book equity

$1,506,947

Add: Accumulated depreciation

411,837

Add: General loan loss reserves

74,300

Sum of book equity, accumulated depreciation and general loan loss reserves (F)

$1,993,084

Leverage(E) / (F)

2.7x

  

iStar Financial Inc.

Supplemental Information

(In thousands)

(unaudited)

As of

March 31, 2012

UNFUNDED COMMITMENTS

Performance-based commitments

$64,673

Discretionary fundings

128,008

Strategic investments

25,375

Total Unfunded Commitments

$218,056

UNENCUMBERED ASSETS / UNSECURED DEBT

Unencumbered assets (A)

$3,855,103

Unsecured debt (B)

$2,535,675

Unencumbered Assets / Unsecured Debt (A) / (B)

1.5x

LOANS AND OTHER LENDING INVESTMENTS CREDIT STATISTICS

As of

March 31, 2012

December 31, 2011

Carrying value of NPLs /

   As a percentage of total carrying value of loans

$662,732

25.7 %

$771,196

27.1 %

NPL asset specific reserves for loan losses /

   As a percentage of gross carrying value of NPLs(1)

$477,179

41.9 %

$557,129

41.9 %

Total reserve for loan losses /

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

$567,179

18.0 %

$646,624

18.5 %

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

  

iStar Financial Inc.

Supplemental Information

(In millions)

(unaudited)

PORTFOLIO STATISTICS AS OF MARCH 31, 2012(1)

Asset Type

Total

% of Total

First Mortgages / Senior Loans

$2,125

31.2%

Net Lease Assets

1,674

24.5%

Real Estate Held for Investment

1,229

18.0%

Other Real Estate Owned

776

11.4%

Mezzanine / Subordinated Debt

545

8.0%

Other Investments

469

6.9%

Total

$6,818

100.0%

Geography

Total

% of Total

West

$1,631

23.9%

Northeast

1,222

17.9%

Southeast

1,021

15.0%

Southwest

845

12.4%

Mid-Atlantic

674

9.9%

Various

543

8.0%

Central

370

5.4%

International

282

4.1%

Northwest

230

3.4%

Total

$6,818

100.0%

Property Type

Performing Loans

Net Lease

Assets

NPLs

REHI

OREO

Total

% of Total

Land

$206

$56

$211

$803

$118

$1,394

20.4%

Apartment / Residential

458

-

142

25

491

1,116

16.4%

Retail

351

158

67

153

70

799

11.7%

Office

116

473

38

70

3

700

10.3%

Industrial / R&D

87

471

8

49

1

616

9.0%

Entertainment / Leisure

78

422

81

-

-

581

8.5%

Hotel

304

94

110

42

16

566

8.3%

Mixed Use / Mixed Collateral

237

-

-

87

77

401

5.9%

Other Property Types

170

-

6

-

-

176

2.6%

Other Investments

-

-

-

-

-

469

6.9%

Total

$2,007

$1,674

$663

$1,229

$776

$6,818

100.0%

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

 

SOURCE iStar Financial Inc.



RELATED LINKS

http://www.istarfinancial.com