Open Search Panel
Toggle Menu
<< Back to News
10/27/2011

iStar Financial Announces Third Quarter 2011 Results

 


- Net income (loss) allocable to common shareholders for the third quarter 2011 was ($62.2) million or ($0.71) per diluted common share.
- Company repurchased 12.1 million shares of its common stock during the quarter, reducing total common shares outstanding by 13.0% from the end of the prior quarter.
- Company recorded $19.1 million of loan loss provision and impairments for the quarter versus $83.8 million for the same period last year.
- Subsequent to quarter end, Company sold a substantial portion of its interests in Oak Hill Advisors and related entities; expects to record a pre-tax gain of approximately $30 million in fourth quarter.

NEW YORK, Oct. 27, 2011 /PRNewswire via COMTEX/ --

iStar Financial Inc. (NYSE: SFI) today reported results for the third quarter ended September 30, 2011.

 

iStar reported net income (loss) allocable to common shareholders for the third quarter of ($62.2) million, or ($0.71) per diluted common share, compared to ($83.5) million, or ($0.89) per diluted common share, for the third quarter 2010. The year-over-year improvement is due to lower loan loss provision and impairments of $19.1 million versus $83.8 million in the same period last year, as well as a $22.2 million gain from discontinued operations previously deferred as part of the June 2010 sale of a portfolio of 32 net lease assets. This increase was partially offset by lower revenue of $97.4 million versus $133.3 million in the same period last year, as well as higher interest expense.

Adjusted EBITDA for the third quarter was $83.1 million, compared to $97.4 million for the same period last year. The year-over-year decrease is due to lower revenues from a smaller overall asset base, partially offset by an increase in gains from discontinued operations versus the same period last year. 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 third quarter, the Company generated $318.2 million of proceeds from its portfolio, comprised of $271.8 million in principal repayments and $46.4 million from sales of other real estate owned (OREO) assets, primarily comprised of unit sales. Additionally, the Company funded a total of $55.1 million of investments.

Subsequent to quarter end, the Company sold a substantial portion of its interests in Oak Hill Advisors and related entities and expects to record a pre-tax gain in the fourth quarter of approximately $30 million on the carrying value of the investment. The Company continues to retain an interest in certain Oak Hill funds as well as certain fee streams.

"We have built a strong relationship with Oak Hill over the past six years and will continue to share ideas regarding the corporate credit and real estate finance markets," said Jay Sugarman, iStar's chairman and chief executive officer.

Capital Markets

During the quarter, the Company repaid the remaining $170.4 million of its 5.65% senior unsecured notes due September 2011 and repurchased $48.3 million par value of its senior unsecured notes. In addition, the Company repaid $183.8 million on the A-1 Tranche of its secured credit facility during the quarter. The cumulative amount repaid on the A-1 Tranche is $428.7 million, exceeding the minimum amortization required as of December 30, 2011. The Company's weighted average effective cost of debt for the quarter was 5.7%, and leverage was 2.1x at September 30, 2011, unchanged from the prior quarter. Please see the financial tables that follow the text of this press release for a calculation of the Company's leverage.

During the quarter, the Company repurchased approximately 12.1 million shares of its common stock for $77.0 million, utilizing virtually all of the Company's previously authorized share repurchase capacity. At the end of the quarter, the Company had 80.5 million common shares outstanding, a reduction of 13.0% from the end of the prior quarter.

Portfolio Overview

At September 30, 2011, the Company's total portfolio had a carrying value of $7.37 billion, gross of general loan loss reserves. The portfolio was comprised of $3.36 billion of loans and other lending investments, $1.76 billion of net lease assets, $1.62 billion of owned real estate and $621.2 million of other investments.

At September 30, 2011, the Company's $2.34 billion of performing loans and other lending investments had a weighted average last dollar loan-to-value ratio of 77.6% and maturity of 3.4 years. The performing loans consisted of 53.1% floating rate loans that generated a weighted average effective yield for the quarter of 6.3%, or approximately 605 basis points over the average one-month LIBOR rate for the quarter, and 46.9% fixed rate loans that generated a weighted average effective yield for the quarter of 7.8%. The weighted average risk rating of the Company's performing loans was 3.35, unchanged from the prior quarter. Included in the performing loan balance were $41.8 million of watch list assets, a decrease from $74.3 million in the prior quarter.

At September 30, 2011, the Company's non-performing loans (NPLs) had a carrying value of $1.02 billion, net of $613.2 million of specific reserves. This compares to $1.07 billion, net of $589.0 million of specific reserves, at the end of the prior quarter.

At the end of the quarter, the Company's $1.76 billion of net lease assets, net of $355.2 million of accumulated depreciation, were 88.7% 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 2.70, versus 2.69 in the prior quarter. For the quarter, the Company's occupied net lease assets generated a weighted average effective yield of 9.9% and the total net lease assets generated a weighted average effective yield of 8.5%.

At the end of the quarter, the Company's $1.62 billion owned real estate portfolio was comprised of $669.3 million of OREO and $954.6 million 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 a property with a carrying value of $69.4 million. The Company also recorded $9.3 million of impairments within its OREO portfolio. For the quarter, the Company recorded $8.2 million of revenue, offset by $19.8 million of expenses and funded $18.9 million of capital expenditures associated with its owned real estate portfolio.

For the third quarter, the Company recorded $9.2 million in loan loss provision versus $10.4 million in the prior quarter. At September 30, 2011, loan loss reserves totaled $710.1 million or 17.9% of total gross carrying value of loans. This compares to loan loss reserves of $701.2 million or 16.3% of total gross carrying value of loans at June 30, 2011.

   

[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, October 27, 2011. 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 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

 

Nine Months Ended

 
 

September 30,

 

September 30,

 
 

2011

2010

 

2011

2010

 

REVENUES

           
             

Interest income

$45,851

$84,210

 

$186,805

$287,295

 

Operating lease income

41,369

40,471

 

123,090

124,760

 

Other income

10,140

8,616

 

26,413

22,869

 

Total revenues

$97,360

$133,297

 

$336,308

$434,924

 
             

COSTS AND EXPENSES

           
             

Interest expense

$91,777

$77,286

 

$258,183

$246,815

 

Operating costs - net lease assets

5,048

5,226

 

14,303

11,279

 

Operating costs - REHI and OREO

19,792

19,111

 

55,582

45,166

 

Depreciation and amortization

14,814

15,246

 

46,354

46,722

 

General and administrative (1)

26,978

24,239

 

77,077

76,569

 

Provision for loan losses

9,232

78,414

 

30,462

277,242

 

Impairment of assets

9,912

3,832

 

14,165

17,041

 

Other expense

3,974

4,219

 

7,156

13,321

 

Total costs and expenses

$181,527

$227,573

 

$503,282

$734,155

 
             

Income (loss) before earnings from equity method investments

           

and other items

($84,167)

($94,276)

 

($166,974)

($299,231)

 

Gain (loss) on early extinguishment of debt, net

(3,207)

9,525

 

102,348

118,305

 

Earnings from equity method investments

10,817

6,523

 

54,881

31,703

 

Income (loss) from continuing operations before income taxes

($76,557)

($78,228)

 

($9,745)

($149,223)

 

Income tax expense

(1,354)

(722)

 

(9,731)

(2,557)

 

Income (loss) from continuing operations

($77,911)

($78,950)

 

($19,476)

($151,780)

 

Income (loss) from discontinued operations

1,052

(104)

 

498

20,473

 

Gain from discontinued operations

22,198

4,422

 

22,198

270,382

 

Net income (loss)

($54,661)

($74,632)

 

$3,220

$139,075

 

Net income (loss) attributable to noncontrolling interests

1,002

(858)

 

558

(857)

 

Net income (loss) attributable to iStar Financial Inc.

($53,659)

($75,490)

 

$3,778

$138,218

 

Preferred dividends

(10,580)

(10,580)

 

(31,740)

(31,740)

 

Net (income) loss allocable to HPUs and

           

Participating Securities (2)

2,008

2,539

 

845

(3,145)

 

Net income (loss) allocable to common shareholders

($62,231)

($83,531)

 

($27,117)

$103,333

 
             

(1) For the three months ended September 30, 2011 and 2010, includes $7,153 and $3,883 of stock-based compensation expense, respectively. For the nine months ended September 30, 2011 and 2010, includes $15,622 and $13,597 of stock-based compensation expensive, 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

 

Nine Months Ended

 
 

September 30,

 

September 30,

 
 

2011

2010

 

2011

2010

 

EPS INFORMATION FOR COMMON SHARES

           
             

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

           

Basic and diluted

($0.96)

($0.94)

 

($0.55)

($1.91)

 

Net income (loss) attributable to iStar Financial Inc.

           

Basic and diluted

($0.71)

($0.89)

 

($0.30)

$1.10

 

Weighted average shares outstanding

           

Basic and diluted

87,951

93,370

 

91,020

93,556

 
             

Common shares outstanding at end of period

80,509

92,319

 

80,509

92,319

 
             

EPS INFORMATION FOR HPU SHARES

           
             

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

           

Basic and diluted

($182.34)

($177.74)

 

($102.06)

($361.26)

 

Net income (loss) attributable to iStar Financial Inc. (1)

           

Basic and diluted

($133.87)

($169.27)

 

($56.33)

$209.67

 

Weighted average shares outstanding

           

Basic and diluted

15

15

 

15

15

 
             

(1) Excludes preferred dividends and net (income) loss from noncontrolling interests.

 
           

iStar Financial Inc.

 

Consolidated Balance Sheets

 

(In thousands)

 

(unaudited)

 
 

As of

 

As of

 
 

September 30, 2011

 

December 31, 2010

 

ASSETS

       
         

Loans and other lending investments, net

$3,283,725

 

$4,587,352

 

Net lease assets, net

1,726,922

 

1,784,509

 

Real estate held for investment, net

954,646

 

833,060

 

Other real estate owned

669,331

 

746,081

 

Other investments

621,167

 

532,358

 

Assets held for sale

33,759

 

-

 

Cash and cash equivalents

217,015

 

504,865

 

Restricted cash

39,316

 

13,784

 

Accrued interest and operating lease income receivable, net

15,924

 

24,408

 

Deferred operating lease income receivable

69,417

 

62,569

 

Deferred expenses and other assets, net

122,630

 

85,528

 

Total assets

$7,753,852

 

$9,174,514

 
         

LIABILITIES AND EQUITY

       
         

Accounts payable, accrued expenses and other liabilities

$154,095

 

$134,422

 
         

Debt obligations, net:

       

Unsecured senior notes

2,840,149

 

3,265,845

 

Secured credit facilities

2,499,921

 

-

 

Secured term loans

313,092

 

1,861,314

 

Unsecured credit facilities

243,708

 

745,224

 

Other debt obligations

98,180

 

98,150

 

Secured notes

-

 

421,837

 

Secured revolving credit facilities

-

 

953,063

 

Total debt obligations, net

5,995,050

 

7,345,433

 
         

Total liabilities

$6,149,145

 

$7,479,855

 
         

Total iStar Financial Inc. shareholders' equity

1,557,946

 

1,648,135

 

Noncontrolling interests

46,761

 

46,524

 

Total equity

$1,604,707

 

$1,694,659

 
         

Total liabilities and equity

$7,753,852

 

$9,174,514

 
       

iStar Financial Inc.

 

Supplemental Information

 

(In thousands)

 

(unaudited)

 
 

Three Months Ended

 

Nine Months Ended

 
 

September 30,

 

September 30,

 
 

2011

2010

 

2011

2010

 

ADJUSTED EBITDA (1)

           
             

Reconciliation of Net Income to Adjusted EBITDA

           

Net income (loss)

($54,661)

($74,632)

 

$3,220

$139,075

 

Add: Interest expense

91,777

77,286

 

258,183

277,330

 

Add: Income tax expense

1,354

722

 

9,731

2,557

 

Add: Depreciation and amortization

15,077

15,915

 

47,142

55,051

 

Add: Provision for loan losses

9,232

78,414

 

30,462

277,242

 

Add: Impairment of assets

9,912

5,375

 

14,140

18,902

 

Add: Stock-based compensation expense

7,153

3,883

 

15,622

13,597

 

Add: Loss (gain) on early extinguishment of debt, net

3,207

(9,525)

 

(102,348)

(118,305)

 

Adjusted EBITDA

$83,051

$97,438

 

$276,152

$665,449

 
             
       

Three Months Ended

 
       

September 30, 2011

 

Interest Coverage

           

Adjusted EBITDA(A)

       

$83,051

 

Interest expense and preferred dividends (B)

       

$102,357

 

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

       

0.8x

 
             

(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. Depreciation and amortization excludes adjustments from discontinued operations of $263 for the three months ended September 30, 2011. Depreciation and amortization and impairment of assets exclude adjustments from discontinued operations of $669 and $1,543, respectively, for the three months ended September 30, 2010. Depreciation and amortization and impairment of assets exclude adjustments from discontinued operations of $789 and ($25), respectively, for the nine months ended September 30, 2011. Interest expense, depreciation and amortization and impairment of assets exclude adjustments from discontinued operations of $30,515, $8,329, and $1,861, respectively, for the nine months ended September 30, 2010.

 
           

iStar Financial Inc.

 

Supplemental Information

 

(In thousands)

 

(unaudited)

 
 

Three Months Ended

 
 

September 30, 2011

 

OPERATING STATISTICS

   
     

Return on Average Common Book Equity

   

Average total book equity

$1,625,952

 

Less: Average book value of preferred equity

(506,176)

 

Average common book equity (A)

$1,119,776

 
     

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

   

Participating Security holders

($64,239)

 

Annualized(B)

($256,956)

 

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

Neg

 
     

Expense Ratio

   

General and administrative expenses - annualized (C)

$107,912

 

Average total assets (D)

$8,022,638

 

Expense Ratio (C) / (D)

1.3%

 
     

Leverage

   

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

$5,778,035

 

Sum of book equity, accumulated depreciation and loan loss reserves (1) (F)

$2,721,534

 

Leverage(E) / (F)

2.1x

 
     

(1) Calculation includes $406,710 of accumulated depreciation, $76,700 of general loan loss reserves and $633,417 of specific loan loss reserves, as stated.

 
   

iStar Financial Inc.

 

Supplemental Information

 

(In thousands)

 

(unaudited)

 
 

As of

 
 

September 30, 2011

 

UNFUNDED COMMITMENTS

   
     

Performance-based commitments

$67,448

 

Discretionary fundings

155,574

 

Strategic investments

30,493

 

Total Unfunded Commitments

$253,515

 
     

UNENCUMBERED ASSETS / UNSECURED DEBT

   
     

Unencumbered assets (A)

$4,829,431

 

Unsecured debt (B)

$3,207,025

 

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

1.5x

 
   

iStar Financial Inc.

 

Supplemental Information

 

(In thousands)

 

(unaudited)

 
             

LOANS AND OTHER LENDING INVESTMENTS CREDIT STATISTICS

 
             
 

As of

 
 

September 30, 2011

 

December 31, 2010

 

Carrying value of NPLs /

           

As a percentage of total carrying value of loans

$1,024,142

31.3 %

 

$1,351,410

29.6 %

 
             

NPL asset specific reserves for loan losses /

           

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

$613,185

37.5 %

 

$667,779

33.1 %

 
             

Total reserve for loan losses /

           

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

$710,117

17.9 %

 

$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 SEPTEMBER 30, 2011 (1)

 
                             

Asset Type

                   

Total

 

% of Total

 

First Mortgages / Senior Loans

                   

$2,808

 

38.1%

 

Net Lease Assets

                   

1,761

 

23.9%

 

Real Estate Held for Investment

                   

955

 

13.0%

 

Other Real Estate Owned

                   

669

 

9.1%

 

Other Investments

                   

621

 

8.4%

 

Mezzanine / Subordinated Debt

                   

552

 

7.5%

 

Total

                   

$7,366

 

100.0%

 
                             

Geography

                   

Total

 

% of Total

 

West

                   

$1,699

 

23.0%

 

Northeast

                   

1,349

 

18.3%

 

Southeast

                   

1,094

 

14.9%

 

Southwest

                   

794

 

10.8%

 

Various

                   

712

 

9.7%

 

Mid-Atlantic

                   

705

 

9.6%

 

Central

                   

422

 

5.7%

 

International

                   

302

 

4.1%

 

Northwest

                   

289

 

3.9%

 

Total

                   

$7,366

 

100.0%

 
                             

Property Type

Performing
Loans

 

Net Lease
Assets

 

NPLs

 

REHI

 

OREO

 

Total

 

% of Total

 

Land

$211

 

$56

 

$346

 

$661

 

$106

 

$1,380

 

18.7%

 

Apartment / Residential

618

 

-

 

264

 

37

 

429

 

1,348

 

18.3%

 

Retail

384

 

160

 

188

 

60

 

31

 

823

 

11.2%

 

Office

174

 

494

 

52

 

17

 

6

 

743

 

10.1%

 

Industrial / R&D

88

 

495

 

21

 

49

 

1

 

654

 

8.9%

 

Hotel

356

 

129

 

74

 

43

 

16

 

618

 

8.4%

 

Entertainment / Leisure

78

 

427

 

79

 

-

 

1

 

585

 

7.9%

 

Mixed Use / Mixed Collateral

242

 

-

 

-

 

88

 

79

 

409

 

5.6%

 

Other Property Types

185

 

-

 

-

 

-

 

-

 

185

 

2.5%

 

Other Investments

-

 

-

 

-

 

-

 

-

 

621

 

8.4%

 

Total

$2,336

 

$1,761

 

$1,024

 

$955

 

$669

 

$7,366

 

100.0%

 
                             

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

 
                           

SOURCE iStar Financial Inc.