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iStar Financial Announces Second Quarter 2012 Results

-- Net income (loss) allocable to common shareholders for the second quarter 2012 was ($59) million or ($0.70) per diluted common share.

-- During the quarter, the Company issued $275 million of 9.0% senior unsecured notes due 2017.

-- Company retired $640 million of debt during the second quarter and had $707 million of cash, including cash reserved for debt repayment, at June 30, 2012.

-- During the quarter, the Company sold a portfolio of 12 net lease assets for $130 million in net proceeds and recorded a gain of $25 million from the transaction.

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NEW YORK, July 27, 2012 /PRNewswire/-- iStar Financial Inc. (NYSE: SFI) today reported results for the second quarter ended June 30, 2012.

Second Quarter 2012 Results

iStar reported net income (loss) allocable to common shareholders for the second quarter of ($59.0) million, or ($0.70) per diluted common share, compared to ($35.5) million, or ($0.38) per diluted common share, for the second quarter 2011.

Adjusted income (loss) allocable to common shareholders for the second quarter was ($1.4) million, compared to ($1.9) million for the second quarter 2011. 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 and impairments.

Adjusted EBITDA for the quarter was $106.6 million, compared to $102.7 million for the same period last year. Please see the financial tables that follow the text of this press release for the Company's calculation of adjusted EBITDA and adjusted income, as well as a reconciliation to GAAP net income (loss).

During the second quarter, the Company generated $555.4 million of proceeds from its portfolio, comprised of $185.8 million in principal repayments, $117.0 million primarily from residential unit sales of other real estate owned (OREO) assets, $136.2 million from sales of net lease assets, $57.0 million from loan sales and $59.4 million from other investments. Additionally, the Company funded a total of $39.7 million of investments and capital expenditures.

Capital Markets

As previously announced, during the quarter the Company issued $275.0 million of 9.0% senior unsecured notes due 2017. Proceeds from the new issuance will be used to refinance unsecured debt maturing in 2012. During the quarter, the Company repaid $90.3 million of its 5.5% senior unsecured notes due June 2012 and repurchased $191.5 million of its senior convertible unsecured notes due October 2012.

The Company repaid $225.7 million on the A-1 tranche of its 2011 secured credit facility, bringing the remaining outstanding balance to $646.1 million at the end of the quarter. The Company has satisfied all minimum amortization requirements on the A-1 tranche of its 2011 secured credit facility prior to the payment of any remaining balance at maturity in June 2013.

The Company also repaid $81.4 million on the A-1 tranche of its 2012 secured credit facility, bringing the remaining outstanding balance to $328.6 million at the end of the quarter. Based on the total amount repaid, the Company has exceeded the minimum cumulative amortization on the A-1 tranche of its 2012 secured credit facility of $41.0 million required to be paid before December 31, 2012.

In addition, the Company repurchased 809,720 shares of its outstanding common stock during the quarter for an average price of $5.69 per share. At the end of the quarter, the Company had remaining authority to repurchase up to $16.0 million of shares under its share repurchase program.

The Company's leverage was 2.5x at June 30, 2012, an improvement from 2.7x in 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 second quarter was 6.5%. At the end of the quarter, cash and cash equivalents, including cash reserved for repayment of indebtedness, totaled $706.9 million.

Portfolio Overview

At June 30, 2012, the Company's total portfolio had a carrying value of $6.31 billion, gross of general loan loss reserves. The portfolio was comprised of $2.36 billion of loans and other lending investments, $1.55 billion of net lease assets, $1.97 billion of owned real estate and $427.5 million of other investments.

At June 30, 2012, the Company's $1.72 billion of performing loans and other lending investments had a weighted average last dollar loan-to-value ratio of 74.1% and a weighted average maturity of 2.7 years. The performing loans consisted of 50.9% floating rate loans that generated a weighted average effective yield for the quarter of 6.7%, or approximately 668 basis points over the average one-month LIBOR rate for the quarter, and 49.1% fixed rate loans that generated a weighted average effective yield for the quarter of 8.6%. The weighted average risk rating of the Company's performing loans improved to 3.16, from 3.27 in the prior quarter. Included in the performing loan balance were $75.0 million of watch list assets, compared to $169.8 million in the prior quarter.

At June 30, 2012, the Company's non-performing loans (NPLs) had a carrying value of $639.0 million, net of $491.3 million of specific reserves. This compares to $662.7 million, net of $477.2 million of specific reserves, at the end of the prior quarter.

For the second quarter, the Company recorded $26.5 million in loan loss provision versus $17.5 million in the prior quarter. At June 30, 2012, loan loss reserves totaled $563.8 million or 19.8% of total gross carrying value of loans. This compares to loan loss reserves of $567.2 million or 18.0% of total gross carrying value of loans at March 31, 2012.

At the end of the quarter, the Company's $1.55 billion of net lease assets, net of $342.2 million of accumulated depreciation, were 91.0% leased with a weighted average remaining lease term of 12.2 years. The weighted average risk rating of the Company's net lease assets was 2.70, versus 2.63 in the prior quarter. During the quarter, the Company sold a portfolio of 12 net lease assets for $130.5 million in net proceeds and recorded a gain of $24.8 million from the transaction.  Certain of the properties were subject to a $50.8 million secured term loan that was repaid in full at closing with a portion of the net sales proceeds. During the quarter, the Company recorded $6.2 million of impairments within its net lease asset portfolio. The Company's occupied net lease assets generated a weighted average effective yield of 9.3% and the total net lease assets generated a weighted average effective yield of 8.4% for the quarter.

At the end of the quarter, the Company's $1.97 billion owned real estate portfolio was comprised of $722.2 million of OREO and $1.25 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 $45.4 million. The Company's owned real estate portfolio generated $28.1 million of combined revenue and income from sales of residential property units, offset by $22.4 million of net expenses for the quarter. In addition, the Company funded $18.9 million of capital expenditures associated with its owned real estate portfolio.

[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, July 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


Six Months Ended


June 30,


June 30,


2012

2011


2012

2011

REVENUES












Interest income

$36,448

$80,185


$73,651

$140,953

Operating lease income   

37,928

37,642


76,408

75,755

Other income

22,345

7,599


38,631

16,273

Total revenues

$96,721

$125,426


$188,690

$232,981







COSTS AND EXPENSES












Interest expense

$94,474

$95,753


$179,818

$164,846

Operating costs - net lease assets 

4,965

4,384


8,128

8,670

Operating costs - REHI and OREO

22,424

18,002


44,498

35,789

Depreciation and amortization

16,960

15,011


33,475

29,824

General and administrative(1)

19,792

25,699


42,637

50,099

Provision for loan losses

26,531

10,350


44,031

21,230

Impairment of assets

7,496

2,764


23,000

4,254

Other expense

3,907

459


4,360

3,181

Total costs and expenses

$196,549

$172,422


$379,947

$317,893







Income (loss) before earnings from equity method investments 






and other items

($99,828)

($46,996)


($191,257)

($84,912)

Gain (loss) on early extinguishment of debt, net

(4,868)

(1,047)


(3,164)

105,556

Earnings from equity method investments

18,420

19,131


53,206

44,064

Income (loss) from continuing operations before income taxes

($86,276)

($28,912)


($141,215)

$64,708

Income tax (expense) benefit

(3,477)

2,675


(4,748)

(8,377)

Income (loss) from continuing operations

($89,753)

($26,237)


($145,963)

$56,331

Income from discontinued operations 

507

217


1,530

1,553

Gain from discontinued operations

24,851

-


27,257

-

Income from sales of residential property

13,266

-


19,999

-

Net income (loss)

($51,129)

($26,020)


($97,177)

$57,884

Net (income) loss attributable to noncontrolling interests

722

(14)


696

(444)

Net income (loss) attributable to iStar Financial Inc.

($50,407)

($26,034)


($96,481)

$57,440

Preferred dividends

(10,580)

(10,580)


(21,160)

(21,160)

   Net (income) loss allocable to HPUs and 






Participating Security holders(2)

1,991

1,089


3,852

(2,640)

Net income (loss) allocable to common shareholders

($58,996)

($35,525)


($113,789)

$33,640













(1) For the three months ended June 30, 2012 and 2011, includes $3,447 and $4,314 of stock-based compensation expense, respectively. For the six months ended June 30, 2012 and 2011, includes $8,113 and $8,469 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


Six Months Ended


June,


June,


2012

2011


2012

2011

EPS INFORMATION FOR COMMON SHARES












Income (loss) attributable to iStar Financial Inc.






    from continuing operations(1) 






Basic

($1.00)

($0.38)


($1.69)

$0.34

Diluted

($1.00)

($0.38)


($1.69)

$0.34

Net income (loss) attributable to iStar Financial Inc.






Basic

($0.70)

($0.38)


($1.36)

$0.36

Diluted

($0.70)

($0.38)


($1.36)

$0.36

Weighted average shares outstanding






Basic

84,113

92,621


83,834

92,580

Diluted

84,113

92,621


83,834

94,758







Common shares outstanding at end of period

83,610

92,573


83,610

92,573







EPS INFORMATION FOR HPU SHARES












Income (loss) attributable to iStar Financial Inc. 






    from continuing operations(1) 






Basic

($187.93)

($73.00)


($319.66)

$65.80

Diluted

($187.93)

($73.00)


($319.66)

$64.40

Net income (loss) attributable to iStar Financial Inc. 






Basic

($132.73)

($72.60)


($256.80)

$68.73

Diluted

($132.73)

($72.60)


($256.80)

$67.27

Weighted average shares outstanding






Basic and diluted

15

15


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


June 30, 2012


December 31, 2011

ASSETS








Loans and other lending investments, net

$2,300,810


$2,860,762

Net lease assets, net

1,550,113


1,702,764

Real estate held for investment, net

1,249,681


1,228,134

Other real estate owned

722,167


677,458

Other investments

427,501


457,835

Cash and cash equivalents

243,843


356,826

Restricted cash

492,973


32,630

Accrued interest and operating lease income receivable, net

15,055


20,208

Deferred operating lease income receivable

78,769


73,368

Deferred expenses and other assets, net

105,300


107,852

Total assets

$7,186,212


$7,517,837





LIABILITIES AND EQUITY








Accounts payable, accrued expenses and other liabilities

$111,494


$106,693





Debt obligations, net:




Secured credit facilities

2,857,233


2,393,240

Unsecured senior notes

2,406,828


2,805,817

Secured term loans

241,666


296,643

Unsecured credit facility

-


243,650

Other debt obligations

98,212


98,190

Total debt obligations, net

5,603,939


5,837,540





Total liabilities

$5,715,433


$5,944,233





Total iStar Financial Inc. shareholders' equity

1,399,437


1,528,356

Noncontrolling interests

71,342


45,248

Total equity

$1,470,779


$1,573,604





Total liabilities and equity

$7,186,212


$7,517,837

 

iStar Financial Inc.

Supplemental Information

(In thousands)

(unaudited)



Three Months Ended


Six Months Ended


June 30,


June 30,


2012

2011


2012

2011

NON-GAAP FINANCIAL MEASURES












Reconciliation of Net Income to Adjusted EBITDA






Net income (loss) 

($51,129)

($26,020)


($97,177)

$57,884

Add: Interest expense 

94,739

96,772


180,882

166,406

Add: Income tax expense (benefit)

3,477

(2,675)


4,748

8,377

Add: Depreciation and amortization

17,180

16,133


34,418

32,065

EBITDA

$64,267

$84,210


$122,871

$264,732

Add: Provision for loan losses

26,531

10,350


44,031

21,230

Add: Impairment of assets

7,496

2,764


23,520

4,228

Add: Stock-based compensation expense

3,447

4,314


8,113

8,469

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

4,868

1,047


3,164

(105,556)

Adjusted EBITDA(1)

$106,609

$102,685


$201,699

$193,103







Reconciliation of Net Income to Adjusted Income





Net income (loss) allocable to common shareholders

($58,996)

($35,525)


($113,789)

$33,640

Add: Depreciation and amortization

17,180

16,133


34,418

32,065

Add: Provision for loan losses

26,531

10,350


44,031

21,230

Add: Impairment of assets

7,496

2,764


23,520

4,228

Add: Stock-based compensation expense

3,447

4,314


8,113

8,469

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

4,868

1,047


3,164

(105,556)

Less: HPU/Participating Security allocation

($1,943)

($1,029)


($3,708)

$2,879

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

($1,417)

($1,946)


($4,251)

($3,045)













(1) Adjusted EBITDA and adjusted income (loss) allocable to common shareholders 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 adjusted EBITDA and 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 these non-GAAP financial measures as supplemental information to net income in analyzing the performance of our underlying business. Interest expense and depreciation and amortization exclude adjustments from discontinued operations of $265 and $220, respectively, for the three months ended June 30, 2012 and $1,019 and $1,122, respectively, for the three months ended June 30, 2011.  Interest expense, depreciation and amortization, and impairment of assets exclude adjustments from discontinued operations of $1,064, $943, and $520, respectively, for the six months ended June 30, 2012 and $1,560, $2,241 and ($26), respectively, for the six months ended June 30, 2011.

iStar Financial Inc.

Supplemental Information

(In thousands)

(unaudited)


Three Months Ended


June 30, 2012

OPERATING STATISTICS




Return on Average Common Book Equity


Average total book equity

$1,430,768

Less: Average book value of preferred equity 

(506,176)

Average common book equity (A)

$924,592



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


Participating Security holders

($60,987)

Annualized (B)

($243,948)

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

Neg



Expense Ratio 


General and administrative expenses - annualized (C) 

$79,168

Average total assets (D) 

$7,388,055

Expense Ratio (C) / (D)

1.1%



Interest Coverage


Adjusted EBITDA (E)

$106,609

Interest expense and preferred dividends (F)

$105,319

Adjusted EBITDA / Interest Expense and Preferred Dividends (E) / (F)

1.0x




As of


June 30, 2012

Leverage


Book debt

$5,603,939

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

(706,859)

Net book debt (G)

$4,897,080



Book equity

$1,470,779

Add: Accumulated depreciation

410,618

Add: General loan loss reserves

56,800

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

$1,938,197

Leverage (G) / (H)

2.5x

 

iStar Financial Inc.

Supplemental Information

(In thousands)

(unaudited)










As of









June 30, 2012

UNFUNDED COMMITMENTS


















Performance-based commitments








$61,297

Discretionary fundings








127,948

Strategic investments








25,090

Total Unfunded Commitments








$214,335










UNENCUMBERED ASSETS / UNSECURED DEBT


















Unencumbered assets (A)








$3,788,602

Unsecured debt (B)








$2,528,866

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








1.5x



















LOANS AND OTHER LENDING INVESTMENTS CREDIT STATISTICS


















As of





June 30, 2012


December 31, 2011

Carrying value of NPLs /









   As a percentage of total carrying value of loans




$638,970

28.0 %


$771,196

27.1 %










NPL asset specific reserves for loan losses /









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




$491,286

43.5 %


$557,129

41.9 %










Total reserve for loan losses /









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



$563,786

19.8 %


$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 JUNE 30, 2012(1) 


























Asset Type












Total


% of Total

First Mortgages / Senior Loans










$1,840


29.2%

Net Lease Assets












1,550


24.6%

Real Estate Held for Investment










1,250


19.8%

Other Real Estate Owned












722


11.4%

Mezzanine / Subordinated Debt










517


8.2%

Other Investments












428


6.8%

Total












$6,307


100.0%
















Geography












Total


% of Total

West












$1,534


24.3%

Northeast












1,162


18.4%

Southeast












899


14.3%

Southwest












798


12.7%

Mid-Atlantic












624


9.9%

Various












405


6.4%

International












352


5.6%

Central












330


5.2%

Northwest












203


3.2%

Total












$6,307


100.0%
















Property Type


Performing
Loans


Net Lease Assets


NPLs


REHI


OREO


Total


% of Total

Land


$200


$56


$196


$815


$107


$1,374


21.8%

Apartment / Residential


384


-


84


30


465


963


15.3%

Office


115


465


36


68


3


687


10.9%

Industrial / R&D


87


463


8


49


-


607


9.6%

Retail


250


53


136


82


62


583


9.2%

Entertainment / Leisure


40


420


79


-


-


539


8.6%

Hotel


243


93


94


34


24


488


7.7%

Mixed Use / Mixed Collateral

235


-


-


172


61


468


7.4%

Other Property Types


164


-


6


-


-


170


2.7%

Other Investments


-


-


-


-


-


428


6.8%

Total


$1,718


$1,550


$639


$1,250


$722


$6,307


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

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