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07/25/2000

iStar Financial Announces 35% Earnings Increase

NEW YORK, July 25 /PRNewswire/ -- iStar Financial Inc. (NYSE: SFI) reported that adjusted earnings for the quarter ended June 30, 2000 increased 35% to $0.66 per diluted common share, from $0.49 per diluted share for the quarter ended June 30, 1999. Adjusted earnings for the second quarter 2000 totaled $57.1 million, up 108% from $27.5 million for second quarter 1999. Adjusted earnings represent GAAP net income before depreciation and amortization. Net income allocable to common shareholders for the second quarter grew to $44.6 million, or $0.52 per diluted common share, compared with $24.6 million, or $0.43 per diluted share, in the same period of 1999.

iStar Financial announced that during the second quarter, it closed five new financing commitments totaling $241.2 million, $238.2 million of which was funded during the quarter. In addition, the Company funded $14.2 million under five pre-existing commitments and received $41.4 million in principal repayments. iStar Financial's recent transactions continue to reflect the Company's core business strategy of originating and acquiring large-balance, structured financing transactions secured by high-quality commercial real estate assets in major metropolitan markets across the United States.

Selected Income Statement Data

(In thousands, except per share amounts)

(unaudited)

                                                        Three Months Ended
                                                             June 30,
                                                      2000            1999

    Net investment income                            $68,358        $35,174
    Other income                                       3,827          3,525
    Non-interest expense                             (18,756)        (8,816)
    Net income before minority
      interest and gain on sale                      $53,429        $29,883
    Minority interest                                    (41)            --
    Gain on sale of net lease assets                     441             --
    Preferred dividends                               (9,227)        (5,308)

    Net income allocable to common shareholders      $44,602        $24,575
    Per basic share(A)                                 $0.52          $0.46
    Per diluted share                                  $0.52          $0.43

    Adjusted earnings allocable to common
      shareholders(B)                                $57,144        $27,488
    Per basic share                                    $0.67          $0.52
    Per diluted share                                  $0.66          $0.49

    Dividends                                          $0.60          $0.43

(A) For the quarter ended June 30, 1999, net income per basic common share excludes 1% of net income allocable to iStar Financial's class B shares. On November 4, 1999, the class B shares were exchanged for common shares in connection with the Company's acquisition of TriNet Corporate Realty Trust and related transactions. As a result, the Company now has a single class of common shares outstanding.

(B) Adjusted earnings excludes gain on sale of net lease assets.

Selected Balance Sheet Data

(In thousands)

                                             As of                  As of
                                         June 30, 2000          Dec. 31, 1999
                                          (unaudited)

    Loans and other lending
      investments, net                    $2,253,655             $2,003,506
    Real estate subject to operating
      leases, net                          1,653,512              1,714,284
    Total assets                           4,041,585              3,813,552
    Debt obligations                       2,138,060              1,901,204
    Total liabilities                      2,195,904              2,009,644
    Total shareholders' equity             1,843,116              1,801,343

Transaction Volume

In the second quarter of 2000, iStar Financial generated $241.2 million in new financing commitments in five separate transactions. The Company also funded an additional $14.2 million under five pre-existing financing commitments. Jay Sugarman, iStar Financial's chairman and chief executive officer, stated, "This quarter, we continued to generate strong earnings growth with no credit losses. With over $80 million of new credit tenant lease (CTL) transactions, we are beginning to see the fruits of our acquisition of the ACRE Partners credit lease investment platform, which we completed in the first quarter of this year. We look forward to benefiting from an increasing pipeline of CTL transactions, which provides us with a growth engine that is complementary to our core lending businesses."

Credit Tenant Leasing

During the second quarter of 2000, the Company executed seven new leases, lease extensions and early lease renewals on 1,043,091 square feet of office and industrial facilities. Of these transactions, three leases (totaling 463,242 square feet) represented renewals of leases expiring in 2000, and two leases (totaling 467,939 square feet) represented early renewals of existing leases expiring in 2001 and thereafter.

Mr. Sugarman commented, "Our team continues to proactively manage the credit tenant lease portfolio to create value and reduce real estate risk. By extending lease maturities on the existing asset base and focusing our origination efforts on long-term net lease transactions, we play to our strengths in corporate credit underwriting and reduce our exposure to real estate market conditions." The combined weighted average lease term for second quarter CTL investment and leasing transactions was 13.8 years.

Since announcing in June 1999 its agreement to acquire TriNet, the Company has increased the weighted average term of the combined net lease portfolio to 8.3 years through new long-term leasing transactions and early lease renewals. As of June 30, 2000, the net lease portfolio was 96.4% leased. Excluding a vacant facility which is currently under contract for sale, the portfolio was 98.6% leased.

Non-Core Asset Dispositions

During the second quarter, the Company made further progress on its previously announced plan to sell approximately $200 million of non-core net lease assets acquired in conjunction with the TriNet transaction. Since announcing the TriNet transaction, the Company has sold or contracted to sell approximately $170 million of such assets. Consistent with its focus on long-term, corporate lease financing transactions, the weighted average remaining lease term on the non-core assets sold or under contract was 1.9 years.

The Company used the net proceeds from the sales to reduce the balance on its revolving credit facilities. Assets sold in the second quarter included:

  • A 420,000 square foot office building located in New Jersey ($50 million).

  • Two industrial/R&D and one office building, totaling 442,000 square feet, located in Massachusetts ($47 million).

  • A 251,850 square foot industrial building located in Texas ($5.5 million).

Funding Activities

In May, the Company completed the inaugural offering under its proprietary matched funding program, iStar Asset Receivables ("STARS"), Series 2000-1. The Company issued $896 million of investment grade bonds collateralized by approximately $1.2 billion of its first mortgage, second mortgage and mezzanine loan assets. The maturities of the bonds issued match fund the maturities of the loan assets financed under the program. The weighted average interest rate on the investment grade bonds was LIBOR + 0.92%.

The STARS transaction was accounted for as an on-balance sheet financing, resulting in the underlying assets remaining on the Company's books and the issued bonds recorded as debt. A portion of the proceeds was used to reduce the outstanding balances under iStar Financial's credit facilities and repay approximately $200 million of term loans. The STARS securitization structure provides the Company with the ability to issue future series of bonds upon the contribution of additional collateral to the program.

In June, the Company closed a $60 million term loan secured by a corporate lending investment it originated in the first quarter of 2000. This new debt replaces a $30 million interim facility, and effectively match funds the expected weighted average maturity of the underlying corporate loan asset.

Subsequent to quarter end, iStar Financial also successfully upsized one of its unsecured credit facilities to $100 million by syndicating $50 million to a major commercial bank. This facility has a two-year primary term and a one-year extension at the Company's option, and bears interest at LIBOR plus 2.00% to 2.25%, depending upon certain conditions.

Spencer B. Haber, iStar Financial's executive vice president -- finance and chief financial officer, commented, "With the completion of this quarter's financing transactions, we have match funded the majority of our structured finance business, addressed our remaining 2000 debt maturities, and taken the next step forward in optimizing the right side of our balance sheet to drive future earnings growth. The Company's balance sheet is also highly match funded in terms of interest rate risk, and we have substantial excess liquidity available to fund future new business originations."

Mr. Haber continued, "STARS represents an important milestone for iStar Financial, providing us with a replenishable source of attractively-priced capital with which to match fund our lending business. In addition, this quarter, we added two leading money-center banks to the Company's growing group of term lenders and credit facility participants. Our funding initiatives now turn to refinancing 2001 debt maturities and further educating the rating agencies as to the strength of our corporate credit."

During the second quarter of 2000, iStar Financial funded its origination and acquisition activities with operating cash flow, excess liquidity generated by the STARS transaction, new term loans, and borrowings under all four of its revolving credit facilities. At June 30, the Company had $452.5 million outstanding under more than $1.6 billion of total credit facilities. iStar Financial's consolidated ratio of book value debt to shareholders' equity was 1.2x as of June 30, 2000, based on debt obligations of $2.1 billion and shareholders' equity of $1.8 billion.

Other Developments

On July 3, 2000, iStar Financial declared a regular quarterly cash dividend of $0.60 per common share for the quarter ended June 30, 2000. This dividend represents a 40% increase over the $0.43 dividend paid for second quarter 1999. The second quarter 2000 dividend, which is payable on July 31, 2000 to holders of record as of July 17, 2000, represents approximately 90% of basic adjusted earnings per share for the second quarter. In addition, on July 21, 2000, iStar Financial's Board of Directors elected H. Cabot Lodge as a director, consistent with the previously announced terms of the Company's acquisition of ACRE Partners.

iStar Financial is the leading publicly traded finance company focused on the commercial real estate industry. The Company, which is taxed as a real estate investment trust, provides structured mortgage, mezzanine and lease financing through its origination, acquisition and servicing platform. The Company's mission is to maximize risk-adjusted returns on equity by providing innovative and value-added financing solutions to private and corporate owners of real estate nationwide.

iStar Financial will hold a conference call for investment professionals at 11:00 a.m. Eastern time today, July 25, 2000. This conference call will be broadcast live over the Internet and can be accessed by all interested parties through iStar Financial's Web site, www.istarfinancial.com, under the "investor information" section. To listen to the live call, please go to the Web site's "investor information" 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 Web site.

Note: Statements in this press release which are not historical fact may
be deemed forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. 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 completion
of pending investments, continued ability to originate new investments, the
availability and cost of capital for future investments, competition within
the finance and real estate industries, economic conditions, and other risks
detailed from time to time in iStar Financial Inc.'s SEC reports.)

iStar Financial Inc.

Consolidated Income Statements

(In thousands, except per share amounts)

(unaudited)

                                                Three Months    Three Months
                                                   Ended               Ended
                                                  June 30,           June 30,
                                                    2000                1999
    Revenue:
      Interest income                             $66,864            $52,007
      Operating lease income                       47,223              3,723
      Other income                                  3,827              3,525
        Total revenue                             117,914             59,255
    Costs and expenses:
      Interest expense                             42,770             20,556
      Property operating costs                      2,959                 --
      Depreciation and amortization                 8,862              1,365
      General and administrative                    7,808              1,185
      Provision for possible credit losses          1,500              1,250
      Stock option compensation expense               586                 --
      Advisory fees                                    --              5,016
        Total costs and expenses                   64,485             29,372

    Net income before minority interest
     and gain on sale                              53,429             29,883
      Minority interest                               (41)                --
      Gain on sale of net lease assets                441                 --
    Net income                                    $53,829            $29,883

    Preferred dividends                            (9,227)            (5,308)
    Net income allocable to common shareholders   $44,602            $24,575

    Net income per common share:
      Basic(A)                                      $0.52              $0.46
      Diluted                                       $0.52              $0.43
    Weighted average common shares outstanding:
      Basic                                        85,281             52,471
      Diluted                                      85,990             56,602

(A) For the quarter ended June 30, 1999, net income per basic common share excludes 1% of net income allocable to iStar Financial's class B shares. On November 4, 1999, the class B shares were exchanged for common shares in connection with the Company's acquisition of TriNet and related transactions. As a result, the Company now has a single class of common shares outstanding.

iStar Financial Inc.

Consolidated Income Statements

(In thousands, except per share amounts)

(unaudited)

                                     Three Months Ended  Three Months Ended
                                          June 30, 2000       June 30, 1999

    ADJUSTED EARNINGS PER SHARE:
    Net income before gain on sale(A)           $53,388             $29,883
    Real estate depreciation                      8,862               1,365
    Joint venture depreciation                      832                 169
    Amortization                                  3,054               1,379
    Preferred dividends                          (9,227)             (5,308)
    Net income allocable to Class B shares (B)       --                (275)
    Adjusted earnings allocable to common
     shareholders:
      Basic(B)                                  $56,909             $27,213
      Diluted                                   $57,144             $27,488

    Adjusted earnings per common share:
      Basic                                       $0.67               $0.52
      Diluted                                     $0.66               $0.49

    Weighted average common shares outstanding:
      Basic                                      85,281              52,471
       Diluted                                   86,363              56,602

(A) Net income before gain on sale of net lease assets.

(B) For the quarter ended June 30, 1999, net income allocable to class B shares represents 1% of net income allocable to iStar Financial's class B shares. On November 4, 1999, the class B shares were exchanged for common shares in connection with the Company's acquisition of TriNet and related transactions. As a result, the Company now has a single class of common shares outstanding.

                             iStar Financial Inc.
                         Consolidated Balance Sheets
                                (In thousands)

                                               As of                As of
                                           June 30, 2000        Dec. 31, 1999
                                            (unaudited)
    ASSETS
    Loans and other lending
     investments, net                        $2,253,655          $2,003,506
    Real estate subject to operating
     leases, net                              1,653,512           1,714,284
    Cash and cash equivalents                    32,718              34,408
    Restricted cash                              16,138              10,195
    Marketable securities                            95               4,344
    Accrued interest and operating lease
     income receivable                           18,392              16,211
    Deferred operating lease income
     receivable                                   5,637               1,147
    Other assets                                 61,438              29,457
        Total assets                         $4,041,585           $3,813,55

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Accounts payable and other liabilities      $52,619             $54,773
    Dividends payable                             5,225              53,667
    Debt obligations:
      Unsecured senior notes                    354,983             353,520
      Unsecured revolving credit facilities     121,700             186,700
      Secured revolving credit facilities       330,809             762,936
      Secured term loans                        409,204             559,288
      iStar Asset Receivables secured notes     857,015                  --
      Other debt obligations                     64,349              38,760
        Total liabilities                    $2,195,904          $2,009,644
    Minority interest                             2,565               2,565
    Shareholders' equity                      1,843,116           1,801,343
        Total liabilities and shareholders'
          equity                             $4,041,585          $3,813,552


                             iStar Financial Inc.
                           Supplemental Information
          (as of and for the three-month period ended June 30, 2000)
                                (In thousands)
                                 (unaudited)

    SECOND QUARTER 2000 PERFORMANCE STATISTICS

    Return on Average Book Assets                              6.7%
    Return on Average Book Equity                             15.5%
    Efficiency Ratio (Corporate Overhead/Revenues)             7.1%

    SECOND QUARTER CREDIT STATISTICS
    EBITDA/GAAP Interest                                       2.6x
    EBITDA/Fixed Charges (A)                                   2.1x
    Debt/Book Equity                                           1.2x

(A) Fixed charges include interest expense and preferred dividends.

SECOND QUARTER 2000 FINANCING VOLUME SUMMARY STATISTICS

                                  LOAN ORIGINATIONS
                                                           Total/      CREDIT
                                              Floating   Weighted      TENANT
                                Fixed Rate        Rate    Average     LEASING

    Amount Committed                $7,000    $152,573   $159,573     $81,598
    Amount Funded                  $11,248    $159,592   $170,840     $81,598
    Weighted Average
     GAAP Yield                     16.14%       9.29%      9.74%      11.77%

    Weighted Average
     All-In Spread/Margin
     (basis points) (A)               +987        +284         --        +577

    Weighted Average
     Maturity (years)                  3.7         3.6        3.6        20.0

    First $ Loan-to-Value
     Ratio                            0.0%        2.5%       2.4%         N/A

    Last $ Loan-to-Value
     Ratio                           54.7%       65.4%      64.6%         N/A

(A) Based on average one-month LIBOR and average interpolated U.S. Treasury rates during the quarter.

    UNFUNDED COMMITMENTS

    Number of Loans with
     Unfunded Commitments                6

    Discretionary Commitments      $11,153
    Non-Discretionary Commitments   29,021
    Total Unfunded Commitments     $40,174

    Estimated Funding Period       Approx.
                                   3 years


                             iStar Financial Inc.
                           Supplemental Information
          (as of and for the three-month period ended June 30, 2000)
                                (In thousands)
                                 (unaudited)

    PORTFOLIO STATISTICS AS OF JUNE 30, 2000

    Security Type                                        $             %
    First Mortgages                                   $1,007          25.7%
    Second Mortgages                                     513          13.1%
    Corporate/Partnership Loans/Other                    744          19.0%
    Net Leases                                         1,653          42.2%
        Total                                         $3,917         100.0%

    Collateral Type                                      $              %
    Office                                            $1,936          49.5%
    Industrial/R&D                                       374           9.5%
    Retail                                               285           7.3%
    Hotel                                                651          16.6%
    Mixed Use                                            151           3.8%
    Apartment/Residential                                196           5.0%
    Homebuilder/Land                                     145           3.7%
    Resort/Entertainment                                 179           4.6%
        Total                                         $3,917         100.0%

    Product Line                                         $              %
    Structured Finance                                $1,034          26.4%
    Portfolio Finance                                    366           9.4%
    Loan Acquisition                                     535          13.6%
    Corporate Lending                                    329           8.4%
    Credit Tenant Leasing                              1,653          42.2%
        Total                                         $3,917         100.0%

    Collateral Location                                  $              %
    West                                              $1,377          35.2%
    Southwest                                             72           1.8%
    South                                                644          16.6%
    Central                                              238           6.1%
    North Central                                         75           1.9%
    Northeast                                            663          16.9%
    Mid-Atlantic                                         256           6.5%
    Southeast                                            417          10.7%
    Northwest                                            175           4.5%
        Total                                         $3,917         100.0%

SOURCE iStar Financial Inc.

CONTACT: Spencer B. Haber, Exec. Vice President and CFO, 212-930-9400, or Lianne A. Merchant, Vice Presidnet, Investor Relations, 212-930-9400, both of iStar Financial Inc./

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