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02/28/2012

iStar Financial Announces Fourth Quarter and Fiscal Year 2011 Results

 

- Net income (loss) allocable to common shareholders for the fourth quarter and fiscal year 2011 was ($35) million and ($62) million, respectively, or ($0.43) and ($0.70) per diluted common share, respectively.
- Company recorded $24 million and $69 million of loan loss provisions and impairments for the fourth quarter and fiscal year 2011, respectively, versus $58 million and $354 million for the fourth quarter and fiscal year 2010, respectively.
- Company launches syndication of up to $900 million in new senior secured credit facilities to refinance 2012 unsecured debt maturities.

NEW YORK, Feb. 28, 2012 /PRNewswire/ -- iStar Financial Inc. (NYSE: SFI) today reported results for the fourth quarter and fiscal year ended December 31, 2011.

Fourth Quarter 2011 Results

iStar reported net income (loss) allocable to common shareholders for the fourth quarter of ($35.2) million, or ($0.43) per diluted common share, compared to ($67.1) million, or ($0.73) per diluted common share, for the fourth quarter 2010. The year-over-year improvement is primarily due to lower provision for loan losses of $16.0 million versus $54.2 million for the same period last year, as well as increased earnings from equity method investments as a result of the sale of the Company's interest in Oak Hill Advisors. This was partially offset by lower revenues from a smaller overall asset base and increased interest expense.

Adjusted EBITDA for the quarter was $100.3 million, compared to $103.4 million for the same period last year. The year-over-year results included lower revenue from a smaller asset base, offset by increased earnings from equity method investments as discussed above, and lower general and administrative costs. Please see the financial tables that follow the text of this press release for details regarding the Company's calculation of Adjusted EBITDA.

During the fourth quarter, the Company generated $243.7 million of proceeds from its portfolio, comprised of $138.4 million in principal repayments, $39.3 million from sales of other real estate owned (OREO) assets, primarily comprised of unit sales, $36.7 million from sales of net lease assets, $11.2 million from loan sales and $18.1 million from other investments. Additionally, the Company funded a total of $80.4 million of investments.

As previously announced, during the fourth quarter the Company also sold substantially all of its interests in Oak Hill Advisors, while retaining certain limited partnerships in various Oak Hill Funds. The Company recorded a $30.3 million gain in the fourth quarter associated with the transaction.

Fiscal Year 2011 Results

Net income (loss) allocable to common shareholders for the year ended December 31, 2011, was ($62.4) million, or ($0.70) per diluted common share. This compares to net income of $36.3 million or $0.39 per diluted common share for the year ended December 31, 2010. Results for the prior year include $270.4 million of gains primarily associated with the sale of a large net lease asset portfolio, as compared to $25.1 million of such gains in the current year. In addition, the year-over-year decrease is due to lower revenues from a smaller overall asset base, partially offset by lower provision for loan losses of $46.4 million versus $331.5 million in the prior year.

Adjusted EBITDA for the year was $376.5 million, compared to $768.8 million for the year ended December 31, 2010. The year-over-year decrease is primarily due to lower gains from discontinued operations of $25.1 million versus $270.4 million in the prior year, and lower revenues from a smaller overall asset base, partially offset by increased earnings from equity method investments.

For the year, the Company generated $1.74 billion of proceeds from its portfolio, comprised of $1.21 billion in loan principal repayments and $534.6 million from asset sales. Additionally, the Company funded a total of $216.3 million of investments.

Capital Markets

During the quarter, the Company repurchased $37.6 million of its senior unsecured notes. In addition, the Company repaid $109.8 million on the 2011 A-1 Tranche of its secured credit facility. The cumulative amount repaid on the 2011 A-1 Tranche is $538.4 million, exceeding the minimum cumulative amortization of $200.0 million required by December 31, 2011. Based on the total amount repaid, the Company has also exceeded the minimum cumulative amortization of $450.0 million required to be paid before June 30, 2012. The Company's weighted average effective cost of debt for the fourth quarter was 5.8%.

The Company's net leverage was 2.7x at December 31, 2011, a decrease from 2.8x from the prior quarter. After adding back specific reserves, the Company's gross leverage was 2.1x at the end of the quarter. Please see the financial tables that follow the text of this press release for calculations of the Company's leverage.

The Company has launched the syndication of up to $900.0 million in new senior secured credit facilities, with Barclays Capital acting as lead arranger. The proposed new facilities would be comprised of a 2012 A-1 tranche due March 2016 and 2012 A-2 tranche due March 2017. The two tranches are expected to have differing interest rates. Amortization payments will be applied first to the 2012 A-1 tranche and then to the 2012 A-2 tranche. The proceeds from the new credit facilities will be used to refinance the Company's 2012 unsecured debt maturities. Outstanding borrowings under the facilities will be collateralized by a $1.125 billion pool of diversified collateral of loans, net lease assets and other real estate assets, including assets net leased to Hilton Hotels and Preferred Freezer. See the Company's website, http://www.istarfinancial.com/, under "Selected Transactions" in the "Return on Ideas" section, for more information on these two assets.

"This new financing will allow us to better align our asset and liability profile, positioning iStar on stronger footing and creating positive momentum for the coming year," said Jay Sugarman, iStar's chairman and chief executive officer.

The Company is in the process of syndicating the new facilities and there can be no assurance that it will be successful in its efforts to complete the syndication.

Portfolio Overview

At December 31, 2011, the Company's total portfolio had a carrying value of $7.0 billion, gross of general loan loss reserves. The portfolio was comprised of $2.93 billion of loans and other lending investments, $1.70 billion of net lease assets, $1.91 billion of owned real estate and $457.8 million of other investments.

At December 31, 2011, the Company's $2.16 billion of performing loans and other lending investments had a weighted average last dollar loan-to-value ratio of 77.0% and a weighted average maturity of 3.2 years. The performing loans consisted of 51.3% floating rate loans that generated a weighted average effective yield for the quarter of 5.8%, or approximately 555 basis points over the average one-month LIBOR rate for the quarter, and 48.7% fixed rate loans that generated a weighted average effective yield for the quarter of 8.1%. The weighted average risk rating of the Company's performing loans was 3.29, an improvement from 3.35 in the prior quarter. Included in the performing loan balance were $136.0 million of watch list assets, an increase from $41.8 million in the prior quarter.

At December 31, 2011, the Company's non-performing loans (NPLs) had a carrying value of $771.2 million, net of $557.1 million of specific reserves. This compares to $1.02 billion, net of $613.2 million of specific reserves, at the end of the prior quarter, and $1.35 billion, net of $667.8 million of specific reserves, at December 31, 2010.

For the fourth quarter, the Company recorded $16.0 million in loan loss provision versus $9.2 million in the prior quarter. At December 31, 2011, loan loss reserves totaled $646.6 million or 18.5% of total gross carrying value of loans. This compares to loan loss reserves of $710.1 million or 17.9% of total gross carrying value of loans at September 30, 2011.

At the end of the quarter, the Company's $1.70 billion of net lease assets, net of $346.3 million of accumulated depreciation, were 92.0% leased with a weighted average remaining lease term of 12.3 years. The weighted average risk rating of the Company's net lease assets was 2.67, versus 2.70 in the prior quarter. For the quarter, the Company's occupied net lease assets generated a weighted average effective yield of 9.8% and the total net lease assets generated a weighted average effective yield of 8.4%.

At the end of the quarter, the Company's $1.91 billion owned real estate portfolio was comprised of $677.5 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 $310.0 million. The Company also recorded $8.2 million of impairments within its OREO portfolio. For the quarter, the Company recorded $13.0 million of revenue, offset by $21.7 million of expenses and funded $17.1 million of capital expenditures associated with its owned real estate portfolio. In addition, the Company recorded $5.7 million of income from sales of residential property units within the OREO portfolio during the quarter.

   

[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 http://www.istarfinancial.com/.

iStar Financial will hold a quarterly earnings conference call at 10:00 a.m. ET today, February 28, 2012. This conference call will be broadcast live over the Internet and can be accessed by all interested parties through iStar Financial's website, http://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 complete the new $900 million senior secured credit facilities, 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

 

Twelve Months Ended

 
 

December 31,

 

December 31,

 
 

2011

2010

 

2011

2010

 

REVENUES

           
             

Interest income

$40,066

$76,799

 

$226,871

$364,094

 

Operating lease income  

41,948

41,160

 

165,040

164,681

 

Other income

14,466

18,076

 

40,878

40,943

 

Total revenues

$96,480

$136,035

 

$432,789

$569,718

 
             

COSTS AND EXPENSES

           
             

Interest expense

$87,486

$68,709

 

$344,788

$314,868

 

Operating costs - net lease assets

4,757

3,467

 

18,439

14,566

 

Operating costs - REHI and OREO

21,700

19,528

 

77,282

64,694

 

Depreciation and amortization

16,583

15,365

 

62,619

61,663

 

General and administrative (1)

27,962

32,957

 

105,039

109,526

 

Provision for loan losses

15,950

54,245

 

46,412

331,487

 

Impairment of assets

8,203

3,479

 

22,368

16,319

 

Other expense

3,916

2,735

 

11,070

16,055

 

Total costs and expenses

$186,557

$200,485

 

$688,017

$929,178

 
             

Income (loss) before earnings from equity method investments

           

and other items

($90,077)

($64,450)

 

($255,228)

($359,460)

 

Gain (loss) on early extinguishment of debt, net

(882)

(9,381)

 

101,466

108,923

 

Earnings from equity method investments

40,210

20,205

 

95,091

51,908

 

Income (loss) from continuing operations before income taxes

($50,749)

($53,626)

 

($58,671)

($198,629)

 

Income tax (expense) benefit

14,450

(4,465)

 

4,719

(7,023)

 

Income (loss) from continuing operations

($36,299)

($58,091)

 

($53,952)

($205,652)

 

Income (loss) from discontinued operations

(1,249)

(774)

 

(2,572)

15,476

 

Gain from discontinued operations

2,912

-

 

25,110

270,382

 

Income from sales of residential property

5,721

-

 

5,721

-

 

Net income (loss)

($28,915)

($58,865)

 

($25,693)

$80,206

 

Net (income) loss attributable to noncontrolling interests

3,071

334

 

3,629

(523)

 

Net income (loss) attributable to iStar Financial Inc.

($25,844)

($58,531)

 

($22,064)

$79,683

 

Preferred dividends

(10,580)

(10,580)

 

(42,320)

(42,320)

 

Net (income) loss allocable to HPUs and

           

Participating Security holders (2)

1,222

2,061

 

1,997

(1,084)

 

Net income (loss) allocable to common shareholders

($35,202)

($67,050)

 

($62,387)

$36,279

 
             

(1) For the three months ended December 31, 2011 and 2010, includes $14,080 and $5,758 of stock-based compensation expense, respectively. For the twelve months ended December 31, 2011 and 2010, includes $29,702 and $19,355 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

 

Twelve Months Ended

 
 

December 31,

 

December 31,

 
 

2011

2010

 

2011

2010

 

EPS INFORMATION FOR COMMON SHARES

           
             

Income (loss) attributable to iStar Financial Inc.

           

   from continuing operations (1)

           

Basic and diluted

($0.45)

($0.72)

 

($0.94)

($2.58)

 

Net income (loss) attributable to iStar Financial Inc.

           

Basic and diluted

($0.43)

($0.73)

 

($0.70)

$0.39

 

Weighted average shares outstanding

           

Basic and diluted

81,769

92,319

 

88,688

93,244

 
             

Common shares outstanding at end of period

81,920

92,336

 

81,920

92,336

 
             

EPS INFORMATION FOR HPU SHARES

           
             

Income (loss) attributable to iStar Financial Inc.

           

   from continuing operations (1)

           

Basic and diluted

($85.20)

($135.87)

 

($179.73)

($490.67)

 

Net income (loss) attributable to iStar Financial Inc.

           

Basic and diluted

($81.47)

($137.40)

 

($133.13)

$72.27

 

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

 
 

December 31, 2011

 

December 31, 2010

 

ASSETS

       
         

Loans and other lending investments, net

$2,860,762

 

$4,587,352

 

Net lease assets, net

1,702,764

 

1,784,509

 

Real estate held for investment, net

1,228,134

 

833,060

 

Other real estate owned

677,458

 

746,081

 

Other investments

457,835

 

532,358

 

Cash and cash equivalents

356,826

 

504,865

 

Restricted cash

32,630

 

13,784

 

Accrued interest and operating lease income receivable, net

16,878

 

24,408

 

Deferred operating lease income receivable

72,074

 

62,569

 

Deferred expenses and other assets, net

112,476

 

85,528

 

Total assets

$7,517,837

 

$9,174,514

 
         

LIABILITIES AND EQUITY

       
         

Accounts payable, accrued expenses and other liabilities

$106,693

 

$134,422

 
         

Debt obligations, net:

       

Unsecured senior notes

2,805,817

 

3,265,845

 

Secured credit facilities

2,393,240

 

-

 

Secured term loans

296,643

 

1,861,314

 

Unsecured credit facilities

243,650

 

745,224

 

Other debt obligations

98,190

 

98,150

 

Secured notes

-

 

421,837

 

Secured revolving credit facilities

-

 

953,063

 

Total debt obligations, net

5,837,540

 

7,345,433

 
         

Total liabilities

$5,944,233

 

$7,479,855

 
         

Total iStar Financial Inc. shareholders' equity

1,528,356

 

1,648,135

 

Noncontrolling interests

45,248

 

46,524

 

Total equity

$1,573,604

 

$1,694,659

 
         

Total liabilities and equity

$7,517,837

 

$9,174,514

 
         
       

 

iStar Financial Inc.

 

Supplemental Information

 

(In thousands)

 

(unaudited)

 
 

Three Months Ended

 

Twelve Months Ended

 
 

December 31,

 

December 31,

 
 

2011

2010

 

2011

2010

 

ADJUSTED EBITDA (1)

           
             

Reconciliation of Net Income to Adjusted EBITDA

           

Net income (loss)

($28,915)

($58,865)

 

($25,693)

$80,206

 

Add: Interest expense

87,731

69,170

 

345,914

346,500

 

Add: Income tax expense (benefit)

(14,450)

4,465

 

(4,719)

7,023

 

Add: Depreciation and amortization

16,786

15,734

 

63,928

70,786

 

Add: Provision for loan losses

15,950

54,245

 

46,412

331,487

 

Add: Impairment of assets

8,203

3,479

 

22,386

22,381

 

Add: Stock-based compensation expense

14,080

5,758

 

29,702

19,355

 

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

882

9,381

 

(101,466)

(108,923)

 

Adjusted EBITDA

$100,267

$103,367

 

$376,464

$768,815

 
             
       

Three Months Ended

 
       

December 31, 2011

 

Interest Coverage

           

Adjusted EBITDA (A)

       

$100,267

 

Interest expense and preferred dividends (B)

       

$98,311

 

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

       

1.0x

 
             

(1) Adjusted EBITDA should be examined in conjunction with net income (loss) as shown in the Consolidated Statements of Operations. Adjusted EBITDA 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 this measure 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 Adjusted EBITDA may differ from the calculations of similarly-titled measures by other companies. Interest expense, depreciation and amortization and impairment of assets exclude adjustments from discontinued operations of $245, $202, and $43, respectively, for the three months ended December 31, 2011. Interest expense and depreciation and amortization exclude adjustments from discontinued operations of $461 and $369, respectively, for the three months ended December 31, 2010. Interest expense, depreciation and amortization and impairment of assets exclude adjustments from discontinued operations of $1,126, $1,309 and $18 respectively, for the twelve months ended December 31, 2011. Interest expense, depreciation and amortization and impairment of assets exclude adjustments from discontinued operations of $31,632, $9,122, and $6,063, respectively, for the twelve months ended December 31, 2010.

 
           

 

iStar Financial Inc.

 

Supplemental Information

 

(In thousands)

 

(unaudited)

 
 

Three Months Ended

 
 

December 31, 2011

 

OPERATING STATISTICS

   
     

Return on Average Common Book Equity

   

Average total book equity

$1,543,151

 

Less: Average book value of preferred equity

(506,176)

 

Average common book equity (A)

$1,036,975

 
     

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

   

Participating Security holders

($36,424)

 

Annualized (B)

($145,696)

 

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

Neg   

 
     

Expense Ratio

   

General and administrative expenses - annualized (C)

$111,848

 

Average total assets (D)

$7,635,845

 

Expense Ratio (C) / (D)

1.5%

 
     
 

As of

 
 

December 31, 2011

 

Leverage

   

Book debt, net of unrestricted cash and cash equivalents (E)

$5,480,714

 
     

Book equity

$1,573,604

 

Add: Accumulated depreciation

403,149

 

Add: General loan loss reserves

73,500

 

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

$2,050,253

 

Net Leverage (E) / (F)

2.7x    

 
     

Add: Specific loan loss reserves

573,124

 

Sum of book equity, accumulated depreciation and total loan loss reserves (G)

$2,623,377

 

Gross Leverage (E) / (G)

2.1x    

 
   
   

 

iStar Financial Inc.

 

Supplemental Information

 

(In thousands)

 

(unaudited)

 
         

As of

 
         

December 31, 2011

 

UNFUNDED COMMITMENTS

             
               

Performance-based commitments

         

$67,320

 

Discretionary fundings

         

128,029

 

Strategic investments

         

24,340

 

Total Unfunded Commitments

         

$219,689

 
               

UNENCUMBERED ASSETS / UNSECURED DEBT

             
               

Unencumbered assets (A)

         

$4,678,966

 

Unsecured debt (B)

         

$3,169,411

 

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

         

1.5x

 
               

LOANS AND OTHER LENDING INVESTMENTS CREDIT STATISTICS

             
               
   

As of

 
   

December 31, 2011

 

December 31, 2010

 

Carrying value of NPLs /

             

  As a percentage of total carrying value of loans

 

$771,196

27.1 %

 

$1,351,410

29.6 %

 
               

NPL asset specific reserves for loan losses /

             

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

 

$557,129

41.9 %

 

$667,779

33.1 %

 
               

Total reserve for loan losses /

             

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

 

$646,624

18.5 %

 

$814,625

15.1 %

 
               

(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 DECEMBER 31, 2011 (1)

                       
                               

Asset Type

                     

Total

 

% of Total

 

First Mortgages / Senior Loans

                     

$2,387

 

34.2%

 

Net Lease Assets

                     

1,703

 

24.3%

 

Real Estate Held for Investment

                     

1,228

 

17.5%

 

Other Real Estate Owned

                     

677

 

9.7%

 

Mezzanine / Subordinated Debt

                     

547

 

7.8%

 

Other Investments

                     

458

 

6.5%

 

Total

                     

$7,000

 

100.0%

 
                               

Geography

                     

Total

 

% of Total

 

West

                     

$1,658

 

23.7%

 

Northeast

                     

1,304

 

18.6%

 

Southeast

                     

1,052

 

15.0%

 

Southwest

                     

847

 

12.1%

 

Mid-Atlantic

                     

695

 

9.9%

 

Various

                     

545

 

7.8%

 

Central

                     

376

 

5.4%

 

International

                     

279

 

4.0%

 

Northwest

                     

244

 

3.5%

 

Total

                     

$7,000

 

100.0%

 
                               

Property Type

 

Performing
Loans

 

Net Lease
Assets

 

NPLs

 

REHI

 

OREO

 

Total

 

% of Total

 

Land

 

$207

 

$56

 

$211

 

$783

 

$119

 

$1,376

 

19.7%

 

Apartment / Residential

 

549

 

-

 

293

 

41

 

403

 

1,286

 

18.4%

 

Retail

 

357

 

159

 

68

 

154

 

58

 

796

 

11.4%

 

Office

 

116

 

490

 

37

 

71

 

3

 

717

 

10.2%

 

Industrial / R&D

 

88

 

478

 

8

 

49

 

1

 

624

 

8.9%

 

Entertainment / Leisure

 

78

 

425

 

80

 

-

 

-

 

583

 

8.3%

 

Hotel

 

353

 

95

 

68

 

42

 

16

 

574

 

8.2%

 

Mixed Use / Mixed Collateral

 

239

 

-

 

-

 

88

 

77

 

404

 

5.8%

 

Other Property Types

 

176

 

-

 

6

 

-

 

-

 

182

 

2.6%

 

Other Investments

 

-

 

-

 

-

 

-

 

-

 

458

 

6.5%

 

Total

 

$2,163

 

$1,703

 

$771

 

$1,228

 

$677

 

$7,000

 

100.0%

 
                               

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

 
                             

 

SOURCE iStar Financial Inc.

David M. DiStaso, Chief Financial Officer, or Jason Fooks, Vice President - Investor Relations, both of iStar Financial Inc., +1-212-930-9400