iStar Financial Announces First Quarter 2013 Results -- Adjusted income (loss) allocable to common shareholders for the first quarter 2013 was ($0.3) million.

-- Net income (loss) allocable to common shareholders for the first quarter 2013 was ($41.3) million.

-- Company's current cash balance exceeds $700 million.

-- Non-performing loan balance reduced by approximately 30% during quarter.

NEW YORK, April 30, 2013 /PRNewswire/ -- iStar Financial Inc. (NYSE: SFI) today reported results for the first quarter ended March 31, 2013.

First Quarter 2013 Results

iStar reported net income (loss) allocable to common shareholders for the first quarter of ($41.3) million, or ($0.49) per diluted common share, compared to ($54.8) million, or ($0.66) per diluted common share, for the first quarter 2012. Adjusted income (loss) allocable to common shareholders for the first quarter was ($0.3) million, compared to ($2.8) million for the first quarter 2012.

Results for the quarter included $4.9 million of loss on early extinguishment of debt and $3.6 million of other expenses associated with the repricing of the Company's $1.71 billion senior secured credit facility. Excluding those charges, net income (loss) allocable to common shareholders for the quarter was ($33.0) million and adjusted income for the quarter was $3.2 million.

Adjusted income (loss) represents net income computed in accordance with GAAP, prior to the effects of certain non-cash items, including depreciation, loan loss provisions, impairments, stock-based compensation and gain/loss on early extinguishment of debt. Please see the financial tables that follow the text of this press release for the Company's calculations of adjusted income as well as reconciliations to GAAP net income (loss).

Capital Markets

During the quarter, the Company issued $200.0 million of its 4.5% Series J Cumulative Convertible Preferred Stock. The Series J Preferred Stock has an initial conversion price of approximately $12.79 per share. The Company intends to use the net proceeds from the offering primarily to fund new investment originations.

The Company also repriced the $1.71 billion outstanding balance on its senior secured credit facility. The term loan now bears interest at an annual rate of LIBOR + 3.50% with a 1.00% LIBOR floor, a reduction from the prior rate of LIBOR + 4.50% with a 1.25% LIBOR floor. Prior to the repricing, the Company had repaid $47.5 million on the facility and subsequent to the repricing the Company further repaid $33.6 million, bringing the remaining outstanding balance to $1.67 billion at the end of the quarter.

Separately, the Company repaid $108.9 million on the A-1 tranche of its $880 million secured credit facility during the quarter, bringing the remaining outstanding balance of the A-1 tranche to $60.3 million at March 31, 2013. The balance of the A-2 tranche at the end of the quarter was $470.0 million. Based on the total amount repaid, the Company has already exceeded all of the minimum cumulative amortization required to be paid through maturity in 2016.

The Company's leverage was 2.1x at March 31, 2013, down from 2.5x at the end of 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 6.2%, a decrease from 6.5% for the prior quarter.

Investment Activity

iStar funded a total of $39.9 million of investments during the first quarter.

In addition, the Company generated $355.2 million of proceeds from its portfolio during the quarter, comprised of $231.0 million from repayments and sales of loans in its real estate finance portfolio, $112.6 million from sales of operating properties and $11.6 million from land, net leasing and other investments.

On April 19, iStar completed the sale of its 24% ownership interest in LNR Property LLC, and received net proceeds of $220.3 million at closing. The Company intends to utilize these proceeds to fund its investment originations.

Portfolio Overview

At March 31, 2013, the Company's total portfolio had a gross carrying value of $5.81 billion, gross of $405.5 million of accumulated depreciation and $30.9 million of general loan loss reserves. Please see the tables in the back of this press release for a reconciliation of the Company's business lines to its consolidated balance sheet. Gross carrying value represents the Company's carrying value, gross of accumulated depreciation and general loan loss reserves.

Real Estate Finance

At March 31, 2013, the Company's real estate finance portfolio totaled $1.61 billion.

The portfolio included $1.25 billion of performing loans with a weighted average last dollar loan-to-value ratio of 72.1% and a weighted average maturity of 2.8 years. The performing loans included $834.0 million of first mortgages / senior loans and $420.8 million of mezzanine / subordinated debt.

The performing loans generated a weighted average effective yield for the quarter of 7.2%. The weighted average risk rating of the Company's performing loans improved to 3.00 from 3.01 in the prior quarter. Included in the performing loan balance were $41.7 million of watch list assets.

At March 31, 2013, the Company's non-performing loans (NPLs) had a carrying value of $358.8 million, net of $465.8 million of specific reserves. This represents an improvement from a balance of $503.1 million at the end of the prior quarter.

For the first quarter, the Company recorded $10.2 million in loan loss provision, down from $20.9 million in the prior quarter. At March 31, 2013, loan loss reserves totaled $521.8 million or 24.8% of total gross carrying value of loans. This compares to loan loss reserves of $524.5 million or 22.3% of total gross carrying value of loans at December 31, 2012.

Net Leasing

At the end of the quarter, the Company's net leasing portfolio had a gross carrying value of $1.65 billion, gross of $318.5 million of accumulated depreciation. These assets were 95.0% leased with a weighted average remaining lease term of 12.1 years. The weighted average risk rating of the Company's net lease assets improved to 2.43 from 2.46 in the prior quarter. The Company's occupied net lease assets generated an unleveraged weighted average effective yield of 7.9% on gross carrying value and the total net lease assets generated an unleveraged weighted average effective yield of 7.5% on gross carrying value for the quarter.

Operating Properties

At the end of the quarter, the Company's operating properties portfolio totaling $1.20 billion, gross of $84.5 million of accumulated depreciation, was comprised of commercial and residential real estate properties. During the quarter, the Company invested $13.7 million in its operating properties.

The Company's commercial operating properties total $841.1 million, gross of accumulated depreciation, and represent a diverse pool of assets across a broad range of geographies and collateral types such as office, retail and hotel properties. These properties generated $35.6 million of revenue offset by $20.3 million of expenses during the quarter. The Company 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 $193.3 million of stabilized commercial operating properties that were 88% leased and generated an unleveraged weighted average effective yield of 9.8% on gross carrying value for the quarter. The remaining commercial operating properties were 54% leased and generated an unleveraged weighted average effective yield of 2.9% on gross carrying value for the quarter. The Company is actively working to lease up and stabilize these properties. During the quarter, the Company generated $29.2 million of proceeds from the sale of stabilized commercial operating properties and recorded a $5.0 million gain.

The residential operating portfolio totaled $358.5 million and was comprised of 923 condominium units at the end of the quarter. These units are generally located within luxury condominium projects located in major U.S. cities. The Company's strategy is to continue selling its remaining condominium inventory and maximize net proceeds. During the quarter, the Company sold 116 condominium units, resulting in $83.4 million of proceeds and recorded $26.0 million of income, offset by $5.4 million of expenses.

Land

At the end of the quarter, the Company's land portfolio totaling $976.9 million, gross of accumulated depreciation, was comprised of 11 master planned community projects, seven urban infill land parcels and six waterfront land parcels located throughout the United States. At March 31, 2013, the Company had four land projects in production, nine in development and 11 in the pre-development phase.

Master planned communities represent large-scale residential projects that the Company will entitle, plan and/or develop. These projects are currently entitled for more than 25,000 lots. The remainder of the Company's land includes infill and waterfront parcels located in and around major cities that the Company will develop, sell to or partner with commercial real estate developers. These projects are currently entitled for approximately 6,000 residential units, and select projects which include commercial, retail and office uses.

During the quarter, the Company invested $7.6 million in its land portfolio through capital expenditures.

[Financial Tables to Follow]

*          *          *

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 30, 2013. 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 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, increases in NPLs, the Company's ability to reduce NPLs, repayment levels, the Company's ability to make new investments, the Company's ability to maintain compliance with its debt covenants 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,


2013

2012

REVENUES






Operating lease income   

$58,473

$53,123

Interest income

24,667

37,203

Other income

11,393

10,756

    Total revenues

$94,533

$101,082




COSTS AND EXPENSES






Interest expense

$71,566

$85,344

Real estate expense

37,916

35,068

Depreciation and amortization

17,389

16,168

General and administrative(1)

21,848

22,845

Provision for loan losses

10,206

17,500

Impairment of assets

-

749

Other expense

5,625

453

    Total costs and expenses

$164,550

$178,127




Income (loss) before earnings from equity method investments 



  and other items

($70,017)

($77,045)

  Gain (loss) on early extinguishment of debt, net

(9,541)

1,704

  Earnings from equity method investments

21,678

34,786

Income (loss) from continuing operations before income taxes

($57,880)

($40,555)

  Income tax (expense) benefit

(4,075)

(1,271)

Income (loss) from continuing operations

($61,955)

($41,826)

  Income (loss) from discontinued operations 

961

(13,361)

  Gain from discontinued operations

5,044

2,406

  Income from sales of residential property

23,697

6,733

Net income (loss)

($32,253)

($46,048)

  Net (income) loss attributable to noncontrolling interests

189

(25)

Net income (loss) attributable to iStar Financial Inc.

($32,064)

($46,073)

  Preferred dividends

(10,580)

(10,580)

Net (income) loss allocable to HPUs and 



  Participating Security holders(2)

1,381

1,861

Net income (loss) allocable to common shareholders

($41,263)

($54,792)







(1) For the three months ended March 31, 2013 and 2012, includes $5,202 and $4,666 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, restricted stock awards and common stock equivalents granted under the Company's LTIP that are eligible to participate in dividends.

 

iStar Financial Inc.

Earnings Per Share Information

(In thousands, except per share amounts)

(unaudited)





Three Months Ended


March 31,


2013

2012

ADJUSTED INCOME






Reconciliation of Net Income to Adjusted Income



Net income (loss) allocable to common shareholders

($41,263)

($54,792)

Add: Depreciation and amortization

17,454

17,239

Add: Provision for loan losses

10,206

17,500

Add: Impairment of assets

(32)

16,024

Add: Stock-based compensation expense

5,202

4,666

Less: (Gain)/loss on early extinguishment of debt, net

9,541

(1,704)

Less: HPU/Participating Security allocation

(1,372)

(1,765)

Adjusted income (loss) allocable to common shareholders(1)

($264)

($2,832)




EPS INFORMATION FOR COMMON SHARES






Income (loss) attributable to iStar Financial Inc. from continuing operations (2) 



Basic and Diluted

($0.56)

($0.54)

Net income (loss) attributable to iStar Financial Inc.



Basic and Diluted

($0.49)

($0.66)

Weighted average shares outstanding



Basic and Diluted

84,824

83,556




Common shares outstanding at end of period

85,052

83,782




EPS INFORMATION FOR HPU SHARES






Income (loss) attributable to iStar Financial Inc. from continuing operations (2) 



Basic and Diluted

($105.01)

($100.07)

Net income (loss) attributable to iStar Financial Inc. 



Basic and Diluted

($92.07)

($124.07)

Weighted average shares outstanding



Basic and diluted

15

15







(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 and impairment of assets exclude adjustments from discontinued operations of $65 and ($32), respectively, for the three months ended March 31, 2013. Depreciation and amortization and impairment of assets exclude adjustments from discontinued operations of $1,071 and $15,275, respectively, for the three months ended March 31, 2012. 

(2) 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, 2013


December 31, 2012

ASSETS








Real estate




Real estate, at cost

$3,190,343


$3,226,648

Less: accumulated depreciation

(405,539)


(427,625)

Real estate, net

$2,784,804


$2,799,023

Real estate available and held for sale

599,061


635,865


$3,383,865


$3,434,888

Loans receivable, net

1,582,656


1,829,985

Other investments

403,759


398,843

Cash and cash equivalents

468,394


256,344

Restricted cash

28,478


36,778

Accrued interest and operating lease income receivable, net

14,253


15,226

Deferred operating lease income receivable

87,414


84,735

Deferred expenses and other assets, net

108,299


93,990

Total assets

$6,077,118


$6,150,789





LIABILITIES AND EQUITY








Accounts payable, accrued expenses and other liabilities

$117,227


$132,460

Debt obligations, net

4,494,637


4,691,494

Total liabilities

$4,611,864


$4,823,954





Redeemable noncontrolling interests

13,162


13,681





Total iStar Financial Inc. shareholders' equity

1,383,096


1,238,944

Noncontrolling interests

68,996


74,210

Total equity

$1,452,092


$1,313,154





Total liabilities and equity

$6,077,118


$6,150,789

 

iStar Financial Inc.

Segment Analysis

(In thousands)

(unaudited)














FOR THE THREE MONTHS ENDED MARCH 31, 2013






















Segment Profit (Loss)


Real Estate
Finance


Net
Leasing


Operating
Properties


Land


Corporate
/ Other


Total

Operating lease income  


-


$37,109


$21,364


-


-


$58,473

Interest income  


$24,667


-


-


-


-


24,667

Other income  


2,208


-


8,112


$500


$573


11,393

     Revenue 


$26,875


$37,109


$29,476


$500


$573


$94,533

Earnings from equity method 













 investments 


-


$686


$2,657


($1,579)


$19,914


$21,678

Income from sales of residential 













 property 


-


-


23,697


-


-


23,697

Net operating income from  













discontinued operations (1)


-


289


5,749


-


-


6,038

    Revenue & other earnings 


$26,875


$38,084


$61,579


($1,079)


$20,487


$145,946

 Real estate expense 


-


($5,677)


($25,736)


($6,503)


-


($37,916)

 Other expense 


($1,444)


-


-


-


($4,181)


(5,625)

      Direct expenses 


($1,444)


($5,677)


($25,736)


($6,503)


($4,181)


($43,541)

 Direct segment profit / loss 


$25,431


$32,407


$35,843


($7,582)


$16,306


$102,405

 Allocated interest expense 


(19,952)


(20,745)


(14,622)


(9,288)


(6,959)


(71,566)

 Allocated general and  













administrative(2)


(3,074)


(3,052)


(2,231)


(1,849)


(6,440)


(16,646)

 Segment profit (loss) 


$2,405


$8,610


$18,990


($18,719)


$2,907


$14,193














AS OF MARCH 31, 2013













Total Assets


Real Estate
Finance


Net
Leasing


Operating
Properties


Land


Corporate
/ Other


Total

    Real estate













        Real estate, at cost


-


$1,627,279


$769,708


$793,356


-


$3,190,343

        Less: accumulated













           depreciation


-


(318,479)


(84,504)


(2,556)


-


(405,539)

        Real estate, net


-


$1,308,800


$685,204


$790,800


-


$2,784,804

        Real estate available and













           held for sale


-


9,766


409,579


179,716


-


599,061

    Total real estate


-


$1,318,566


$1,094,783


$970,516


-


$3,383,865

    Loans receivable, net


$1,582,656


-


-


-


-


1,582,656

    Other investments


-


16,397


20,308


3,854


$363,200


403,759

 Total portfolio assets


$1,582,656


$1,334,963


$1,115,091


$974,370


$363,200


$5,370,280

    Cash and other assets












706,838

 Total assets 












$6,077,118














(1) Includes revenue and real estate expense classified to discontinued operations.

(2) Excludes $5,202 of stock-based compensation expense.

 

iStar Financial Inc.

Supplemental Information

(In thousands)

(unaudited)


Three Months Ended


March 31, 2013

OPERATING STATISTICS




Expense Ratio


General and administrative expenses - annualized (A) 

$87,392

Average total assets (B) 

$6,113,954

Expense Ratio (A) / (B)

1.4%




As of


March 31, 2013

Leverage


Book debt

$4,494,637

Less: Cash and cash equivalents

(468,394)

Net book debt (E)

$4,026,243



Book equity

$1,452,093

Add: Accumulated depreciation

413,709

Add: General loan loss reserves

30,900

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

$1,896,702

Leverage (E) / (F)

2.1x



UNFUNDED COMMITMENTS




Performance-based commitments

$72,475

Strategic investments

47,040

Discretionary fundings

125

Total Unfunded Commitments

$119,640



UNENCUMBERED ASSETS / UNSECURED DEBT




Unencumbered assets (A) (1)

$3,573,225

Unsecured debt (B)

$2,087,745

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

1.7x




(1) Unencumbered assets is calculated in accordance with the indentures governing the Company's unsecured debt securities.

 

iStar Financial Inc.

Supplemental Information

(In thousands)

(unaudited)







LOANS RECEIVABLE CREDIT STATISTICS













As of


March 31, 2013


December 31, 2012

Carrying value of NPLs /






   As a percentage of total carrying value of loans

$358,805

22.7%


$503,112

27.5%







NPL asset specific reserves for loan losses /






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

$465,837

56.5%


$476,140

48.6%







Total reserve for loan losses /






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

$521,795

24.8%


$524,499

22.3%










(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, 2013(1) 














Property Type

Real Estate
Finance


Net
Leasing


Operating
Properties


Land


Total


% of
Total

Land

$274


-


-


$977


$1,251


21.5%

Office

59


$406


$308


-


773


13.3%

Industrial / R&D

95


559


59


-


713


12.3%

Entertainment / Leisure

75


484


-


-


559


9.6%

Hotel

296


136


91


-


523


9.0%

Condominium

159


-


359


-


518


8.9%

Retail

279


58


169


-


506


8.7%

Mixed Use / Mixed Collateral

240


-


189


-


429


7.4%

Other Property Types

137


10


25


-


172


3.0%

Strategic Investments

-


-


-


-


363


6.3%

Total

$1,614


$1,653


$1,200


$977


$5,807


100.0%














Geography

Real Estate
Finance


Net
Leasing


Operating
Properties


Land


Total


% of
Total

West

$272


$434


$262


$369


$1,337


23.0%

Northeast

376


385


188


185


1,134


19.5%

Southeast

297


241


243


91


872


15.0%

Southwest

193


228


218


119


758


13.1%

Mid-Atlantic

29


126


208


181


544


9.4%

Central

149


81


67


9


306


5.3%

International

230


-


-


-


230


4.0%

Northwest

68


81


14


23


186


3.1%

Various


-


77


-


-


77


1.3%

Strategic Investments

-


-


-


-


363


6.3%

Total

$1,614


$1,653


$1,200


$977


$5,807


100.0%














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

 

 

SOURCE iStar Financial Inc.



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