iStar Financial Announces First Quarter 2014 Results -- Adjusted income (loss) allocable to common shareholders for the first quarter 2014 was $(5.5) million, or $(0.07) per diluted common share.

-- Funded $229 million of investments during the quarter.

-- Achieved key milestones on certain land projects in Los Angeles, New York and Florida.

NEW YORK, April 29, 2014 /PRNewswire/ -- iStar Financial Inc. (NYSE: STAR) today reported results for the first quarter ended March 31, 2014.

First Quarter 2014 Results

iStar reported adjusted income (loss) allocable to common shareholders for the first quarter of $(5.5) million, or $(0.07) per diluted common share, compared to $(0.3) million, or $0.00 per diluted common share for the first quarter 2013.

Adjusted income (loss) represents net income (loss) computed in accordance with GAAP, prior to the effects of certain non-cash items, primarily 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 (loss) as well as reconciliations to GAAP net income (loss).

Net income (loss) allocable to common shareholders for the first quarter was $(26.6) million, or $(0.31) per diluted common share, compared to $(41.3) million, or $(0.49) per diluted common share for the first quarter 2013.

Capital Markets

During the quarter, the Company repaid $46.0 million on its 2013 Secured Credit Facility, reducing the remaining balance to $1.33 billion. At the end of the quarter, the Company's collateral coverage on the facility exceeded 1.375x. So long as coverage is above 1.375x, the Company retains 50% of proceeds from principal repayments and sales of collateral, in addition to retaining all interest and lease income. The Company also repaid $13.3 million on its 2012 Secured Credit Facility, bringing the remaining balance to $418.1 million at March 31, 2014.

The Company's weighted average effective cost of debt for the first quarter was 5.6%, a decrease from 5.7% for the fourth quarter of 2013. The Company's leverage was 2.1x at March 31, 2014, up slightly from 2.0x at December 31, 2013, and 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.

Investment Activity

During the first quarter, iStar funded $180.8 million of new investments. This includes the previously announced project in Times Square in which iStar committed to provide 50% of an $815 million debt financing for the development of a mixed-use project that will include a 40-story EDITION branded hotel, retail space and prominent signage. In addition, the Company invested $48.7 million associated with ongoing developments and prior commitments. 

iStar generated $267.7 million of proceeds from its portfolio during the first quarter, comprised of $102.9 million from repayments and sales of loans in its real estate finance portfolio, $76.0 million from sales of net lease assets, $47.7 million from sales of operating properties and $41.1 million of proceeds across other segments.

At the end of the quarter, iStar had $409.6 million of cash, which will be used primarily to fund future investment activity.

Portfolio Overview

At March 31, 2014, the Company's total portfolio had a gross carrying value of $5.19 billion, which represents the Company's carrying value, gross of $433.1 million of accumulated depreciation and $31.0 million of general loan loss reserves.

Real Estate Finance

At March 31, 2014, the Company's real estate finance portfolio totaled $1.51 billion, gross of general loan loss reserves.

The portfolio included $1.30 billion of performing loans with a weighted average last dollar loan-to-value ratio of 70% and a weighted average maturity of 2.8 years. The performing loans included $659.5 million of first mortgages / senior loans and $644.8 million of mezzanine / subordinated debt. The performing loans generated a weighted average effective yield for the quarter of 8.6%.

At March 31, 2014, the Company's non-performing loans (NPLs) had a carrying value of $203.2 million, consistent with the end of the prior quarter.

For the first quarter, the Company recorded a $3.4 million reversal of its loan loss provision, compared to a provision for loan losses of $10.2 million in the first quarter of 2013. At March 31, 2014, loan loss reserves totaled $370.1 million, or 21.9% of the total gross carrying value of loans.

Net Lease

At the end of the quarter, iStar's net lease portfolio had a gross carrying value of $1.64 billion, gross of $343.3 million of accumulated depreciation. The Company's net lease portfolio totaled 20 million square feet across 33 states.

Occupancy for the portfolio was 94.4% at the end of the quarter, with a weighted average remaining lease term of 11.4 years. The occupied assets generated an unleveraged weighted average effective yield of 8.0% on gross carrying value and the total net lease portfolio generated an unleveraged weighted average effective yield of 7.5% on gross carrying value for the quarter.

As previously announced, during the quarter the Company and a sovereign wealth fund entered into a venture to jointly invest in net lease assets. The net lease venture's first investment is a property net leased to AT&T, which was acquired by the venture during the first quarter.

Operating Properties

At the end of the quarter, the Company's operating properties portfolio totaled $946.8 million, gross of $86.2 million of accumulated depreciation, and was comprised of $746.9 million of commercial and $199.9 million of residential real estate properties.  During the quarter, the Company funded $16.4 million of capital expenditures on its operating properties.

Commercial Operating

The Company's commercial operating properties 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 $34.2 million of revenue offset by $22.3 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 $131.5 million of stabilized commercial operating properties that were 86% leased and generated an unleveraged weighted average effective yield of 8.3% on gross carrying value for the quarter.

The remaining commercial operating properties were 61% leased and generated an unleveraged weighted average effective yield of 3.1% on gross carrying value 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 184,000 square feet.

Residential Operating

At the end of the quarter, the residential operating portfolio was comprised of 521 condominium units, generally located within luxury condominium projects in major U.S. cities. The Company's strategy is to continue selling its remaining condominium inventory and to maximize net proceeds. During the quarter, the Company sold 96 condominium units, resulting in $47.7 million of proceeds and recorded $17.9 million of income, offset by $6.3 million of expenses. 

Land

At the end of the quarter, the Company's land portfolio totaling $972.9 million, gross of accumulated depreciation, was comprised of 11 master planned community projects, 10 urban infill land parcels and six waterfront land parcels located throughout the United States. During the quarter, the Company invested $15.1 million in its land portfolio through capital expenditures.

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 include commercial, retail and office uses.

At March 31, 2014, the Company had six land projects in production, 10 in development and 11 in the pre-development phase. Highlights of recent progress include:

  • Received final entitlement approval at Ponte Vista, a master planned community in San Pedro, CA. The project becomes one of only a handful of master planned communities in supply-constrained Los Angeles. The plans will transform the existing 61.5 acres into a high-quality lifestyle community with up to 700 new single-family homes, townhomes and condominiums including significant community amenities and green space.
  • Signed a lot purchase agreement with a national homebuilder, covering 300 of the 1,154 lots at Naples Reserve, a master planned community in Naples, FL. The community's centerpiece is a 50-acre recreational lake and extensive waterscape. Current expectations are to develop and deliver initial finished lots by early next year.
  • Successfully expanded the entitlements for Wayfarer, a waterfront high-rise multifamily tower in Long Beach, NY. The new plans will allow iStar to increase the total project size to 522 condominiums. This is the first development of this magnitude to be built on Long Island in over 30 years.
  • Began construction of the second phase of Sage, a condominium development consisting of 72 two- and three-bedroom units in Scottsdale, AZ. This follows iStar's successful sell-out of phase one's 50 units in mid-2012.

Annual Meeting

The Company will host its Annual Meeting of Shareholders at the Sofitel Hotel, located at 45 West 44th Street, 2nd Floor, Trocadero Room, New York, New York 10036 on Thursday, May 22, 2014 at 9:00 a.m. EDT. All shareholders are cordially invited to attend.

[Financial Tables to Follow]

*                   *                *

iStar Financial Inc. (NYSE: STAR) 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.

Logo - http://photos.prnewswire.com/prnh/20130708/NY43293LOGO

iStar Financial will hold a quarterly earnings conference call at 10:00 a.m. ET today, April 29, 2014. 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'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, actual results of condominium sales meeting our expectations, the Company's ability to generate income and gains from non-performing loans, operating properties and land 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,


2014


2013

REVENUES




Operating lease income

$

62,108


$

58,015

Interest income

27,914


24,667

Other income

14,584


11,393

Land sales revenue

4,143


Total revenues

$

108,749


$

94,075

COST AND EXPENSES




Interest expense

$

57,456


$

71,566

Real estate expense

42,613


37,808

Land cost of sales

3,654


Depreciation and amortization

18,613


17,324

General and administrative(1)

19,788


21,848

Provision for (recovery of) loan losses

(3,400)


10,206

Impairment of assets

2,979


Other expense

221


5,625

Total costs and expenses

$

141,924


$

164,377

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

$

(33,175)


$

(70,302)

Loss on early extinguishment of debt

(1,180)


(9,541)

Earnings from equity method investments

3,177


21,678

Income (loss) from continuing operations before income taxes

$

(31,178)


$

(58,165)

Income tax (expense) benefit

507


(4,075)

Income (loss) from continuing operations

$

(30,671)


$

(62,240)

Income (loss) from discontinued operations


1,246

Gain from discontinued operations


5,044

Income from sales of residential property

16,494


23,697

Net income (loss)

$

(14,177)


$

(32,253)

Net (income) loss attributable to noncontrolling interests

(454)


189

Net income (loss) attributable to iStar Financial Inc.

$

(14,631)


$

(32,064)

Preferred dividends

(12,830)


(10,580)

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

889


1,381

Net income (loss) allocable to common shareholders

$

(26,572)


$

(41,263)





(1) For the three months ended March 31, 2014 and 2013, includes $2,075 and $5,202 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 who are eligible to participate in dividends.

 

 



iStar Financial Inc.

Earnings Per Share Information

(In thousands, except per share data)

(unaudited)



Three Months Ended
March 31,



2014


2013

EPS INFORMATION FOR COMMON SHARES




Income (loss) attributable to iStar Financial Inc. from continuing operations(1)






Basic and diluted

$

(0.31)


$

(0.56)

Net income (loss) attributable to iStar Financial Inc.




Basic and diluted

$

(0.31)


$

(0.49)

Adjusted income (loss)




Basic and diluted

$

(0.07)


$

Weighted average shares outstanding




Basic and diluted

84,819


84,824

Common shares outstanding at end of period

84,855


85,052





EPS INFORMATION FOR HPU SHARES




Income (loss) attributable to iStar Financial Inc. from continuing operations(1)






Basic and diluted

$

(59.27)


$

(105.61)

Net income (loss) attributable to iStar Financial Inc.




Basic and diluted

$

(59.27)


$

(92.07)

Weighted average shares outstanding




Basic and diluted

15


15






(1) Including 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, 2014


December 31, 2013

ASSETS








Real estate




Real estate, at cost

$

3,147,119


$

3,220,634

Less: accumulated depreciation

(433,149)


(424,453)

Real estate, net

$

2,713,970


$

2,796,181

Real estate available and held for sale

334,691


360,517


$

3,048,661


$

3,156,698

Loans receivable and other lending investments, net

1,476,490


1,370,109

Other investments

205,097


207,209

Cash and cash equivalents

409,598


513,568

Restricted cash

50,593


48,769

Accrued interest and operating lease income receivable, net

15,745


14,941

Deferred operating lease income receivable

94,911


92,737

Deferred expenses and other assets, net

186,620


237,980

Total assets

$

5,487,715


$

5,642,011





LIABILITIES AND EQUITY








Accounts payable, accrued expenses and other liabilities

$

112,195


$

170,831

Debt obligations, net

4,102,050


4,158,125

Total liabilities

$

4,214,245


$

4,328,956





Redeemable noncontrolling interests

$

11,353


$

11,590





Total iStar Financial Inc. shareholders' equity

$

1,205,569


$

1,243,260

Noncontrolling interests

56,548


58,205

Total equity

$

1,262,117


$

1,301,465





Total liabilities and equity

$

5,487,715


$

5,642,011

 

 


iStar Financial Inc.

Segment Analysis

(In thousands)

(unaudited)


FOR THE THREE MONTHS ENDED MARCH 31, 2014











Real Estate
Finance


Net
Lease


Operating Properties


Land


Corporate / Other



Total

Operating lease income

$



$

38,881



$

23,001



$

226



$



$

62,108


Interest income

27,914











27,914


Other income

399



214



12,666



226



1,079



14,584


Land sales revenues







4,143





4,143


Total revenue

$

28,313



$

39,095



$

35,667



$

4,595



$

1,079



$

108,749


Earnings (loss) from equity
method investments



286



217



(258)



2,932



3,177


Income from sales of residential
property





16,494







16,494


Revenue and other earnings

$

28,313



$

39,381



$

52,378



$

4,337



$

4,011



$

128,420


Real estate expense



(5,674)



(28,614)



(8,325)





(42,613)


Land cost of sales







(3,654)





(3,654)


Other expense

(430)









209



(221)


Allocated interest expense

(15,452)



(18,610)



(10,259)



(7,159)



(5,976)



(57,456)


Allocated general and
administrative(1)

(3,090)



(3,799)



(2,189)



(3,049)



(5,586)



(17,713)


Segment profit (loss)

$

9,341



$

11,298



$

11,316



$

(17,850)



$

(7,342)



$

6,763


 

AS OF MARCH 31, 2014



















Real Estate
Finance


Net
Lease


Operating Properties


Land


Corporate / Other



Total

Real estate












Real estate, at cost

$



$

1,611,246



$

726,356



$

809,517



$



$

3,147,119


Less: accumulated
depreciation



(343,294)



(86,173)



(3,682)





(433,149)


Real estate, net

$



$

1,267,952



$

640,183



$

805,835



$



$

2,713,970


Real estate available and
held for sale





204,653



130,038





334,691


Total real estate

$



$

1,267,952



$

844,836



$

935,873



$



$

3,048,661


Loans receivable and other
lending investments, net

1,476,490











1,476,490


Other investments



33,441



15,794



33,312



122,550



205,097


Total portfolio assets

$

1,476,490



$

1,301,393



$

860,630



$

969,185



$

122,550



$

4,730,248


Cash and other assets
















757,467


Total assets
















$

5,487,715













(1) Excludes $2,075 of stock-based compensation expense.

 

 

 

iStar Financial Inc.

Supplemental Information

(In thousands)

(unaudited)



Three Months Ended
March 31,


2014


2013

ADJUSTED INCOME




Reconciliation of Net Income to Adjusted Income




Net income (loss) allocable to common shareholders

$

(26,572)


$

(41,263)

Add: Depreciation and amortization

18,895


17,454

Add: Provision for loan losses

(3,400)


10,206

Add: Impairment of assets

2,979


(32)

Add: Stock-based compensation expense

2,075


5,202

Add: Loss on early extinguishment of debt

1,180


9,541

Less: HPU/Participating Security allocation

(703)


(1,372)

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

$

(5,546)


$

(264)





(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 $130 and $(32), respectively, for the three months ended March 31, 2013. 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.

 

 

iStar Financial Inc.

Supplemental Information

(In thousands)

(unaudited)



Three Months Ended
March 31, 2014

OPERATING STATISTICS




Expense Ratio


General and administrative expenses - annualized (A)

$

79,152

Average total assets (B)

$

5,564,863

Expense Ratio (A) / (B)

1.4 %




As of


March 31, 2014

Leverage


Book debt

$

4,102,050

Less: Cash and cash equivalents

(409,598)

Net book debt (C)

$

3,692,452



Book equity

$

1,262,117

Add: Accumulated depreciation and amortization

479,896

Add: General loan loss reserves

31,000

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

$

1,773,013

Leverage (C) / (D)

2.1x



UNENCUMBERED ASSETS / UNSECURED DEBT




Unencumbered assets (E)(1)

$

3,221,573

Unsecured debt (F)

$

2,106,890

Unencumbered Assets / Unsecured Debt (E) / (F)

1.5x



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

 

 

iStar Financial Inc.

Supplemental Information

(In thousands)

(unaudited)








As of







March 31, 2014

UNFUNDED COMMITMENTS




















Performance-based commitments






$

284,774


Strategic investments






46,382


Total Unfunded Commitments






$

331,156












LOAN RECEIVABLE CREDIT STATISTICS

As of


March 31, 2014


December 31, 2013











Carrying value of NPLs /










As a percentage of total carrying value of loans

$

203,174


15.4

%


$

203,604


16.6

%











Impaired loan asset specific reserves for loan losses /










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

$

339,076


49.3

%


$

348,004


46.3

%











Total reserve for loan losses /










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

$

370,076


21.9

%


$

377,204


23.5

%





(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, 2014(1)




















Property Type


Real Estate Finance


Net Lease


Operating Properties


Land


Total


% of

Total

Land


$

96



$



$



$

973



$

1,069



20.6

%

Office


10



432



296





738



14.2

%

Industrial / R&D


105



534



52





691



13.3

%

Mixed Use / Mixed Collateral


417





169





586



11.3

%

Entertainment / Leisure


78



475







553



10.6

%

Hotel


250



136



100





486



9.4

%

Retail


196



57



130





383



7.4

%

Condominium


98





200





298



5.7

%

Other Property Types


257



10







267



5.1

%

Strategic Investments










123



2.4

%

Total


$

1,507



$

1,644



$

947



$

973



$

5,194



100.0

%




















Geography


Real Estate Finance


Net Lease


Operating Properties


Land


Total


% of
Total

Northeast


$

579



$

374



$

154



$

194



$

1,301



25.0

%

West


141



412



182



352



1,087



20.9

%

Southeast


263



237



224



90



814



15.7

%

Mid-Atlantic


172



177



154



182



685



13.2

%

Southwest


119



220



181



127



647



12.5

%

Central


88



67



48



10



213



4.1

%

Northwest


24



81



4



18



127



2.4

%

International


111









111



2.1

%

Various


10



76







86



1.7

%

Strategic Investments










123



2.4

%

Total


$

1,507



$

1,644



$

947



$

973



$

5,194



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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