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iStar Financial Announces 31% Increase in Adjusted EPS
NEW YORK, Oct. 26 /PRNewswire/ -- iStar Financial Inc. (NYSE: SFI) reported that adjusted earnings for the quarter ended September 30, 2000 increased 31% to $0.68 per diluted common share, from $0.52 per diluted share for the quarter ended September 30, 1999. Adjusted earnings for the third quarter 2000 totaled $58.9 million on a diluted basis, up 104% from $28.9 million for third quarter 1999. Adjusted earnings represent GAAP net income before depreciation and amortization. Net income allocable to common shareholders for the third quarter grew to $46.4 million, or $0.54 per diluted common share, compared with $26.0 million, or $0.47 per diluted share, in the same period of 1999.
In the third quarter of 2000, iStar Financial achieved returns on average book assets and average common book equity of 6.7% and 16.1%, respectively, while leverage remained at a conservative 1.2x book equity. Net investment income for the quarter ended September 30, 2000 increased 85% to $66.7 million, from $36.1 million for the third quarter of 1999. Net investment income represents interest and operating lease revenue less interest expense and operating costs for corporate tenant lease assets. Third quarter 2000 total revenue increased 99% to $120.7 million, from $60.6 million for the 1999 period.
Adjusted earnings for the nine months ended September 30, 2000 were $170.7 million, or $1.98 per diluted share, compared to $81.0 million, or $1.44 per diluted share for the same period in 1999. Net income allocable to common shareholders for the nine months ended September 30, 2000 was $133.7 million, or $1.55 per diluted share, compared to $73.4 million, or $1.31 per diluted share for the same period in 1999. Net investment income and total revenue increased to $200.3 million and $349.5 million for the nine months ended September 30, 2000, respectively, from $105.2 million and $175.3 million, respectively, for the 1999 period.
iStar Financial announced that during the third quarter, it closed six new financing commitments totaling $266.7 million, $227.7 million of which was funded during the quarter. In addition, the Company funded $11.7 million under four pre-existing commitments and received $208.0 million in principal repayments. The Company's recent transactions continue to reflect its core business strategy of originating and acquiring large-balance, structured lending and corporate leasing 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 September 30, 2000 1999 Net investment income $66,721 $36,088 Other income 4,208 3,448 Non-interest expense (16,883) (8,265) Net income before minority interest $54,046 $31,271 Minority interest (41) -- Gain on sale of corporate tenant lease assets 1,974 -- Extraordinary loss - early extinguishment of debt (388) -- Preferred dividends (9,227) (5,308) Net income allocable to common shareholders $46,364 $25,963 Per basic share(A) $0.54 $0.49 Per diluted share $0.54 $0.47 Adjusted earnings allocable to common shareholders(B) $58,909 $28,876 Per basic share $0.68 $0.54 Per diluted share $0.68 $0.52 Dividends $0.60 $0.44
(A) For the quarter ended September 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 represent GAAP net income before depreciation and
amortization, and exclude gain on sale of corporate tenant lease assets and extraordinary loss on early extinguishment of debt.
Selected Balance Sheet Data (In thousands) As of As of September 30, December 31, 2000 1999 (unaudited) Loans and other lending investments, net $2,269,957 $2,003,506 Real estate subject to operating leases, net 1,654,633 1,714,284 Total assets 4,074,760 3,813,552 Debt obligations 2,169,969 1,901,204 Total liabilities 2,228,365 2,009,644 Total shareholders' equity 1,843,830 1,801,343
In the third quarter of 2000, iStar Financial generated $266.7 million in new financing commitments in six separate transactions. The Company also funded an additional $11.7 million under four pre-existing financing commitments and received $208.0 million in loan repayments. Jay Sugarman, iStar Financial's chairman and chief executive officer, stated, "We have been keeping a cautious eye on the markets over the past six months, and have been emphasizing transactions that minimize our principal risk. Most of our investments this quarter have strong credit statistics and/or corporate guarantees which significantly reduce capital risk, and we continue to believe the market will reward us for our sound underwriting and disciplined risk management. This is precisely the market environment where our risk mitigation, diversified investment pipeline, significant liquidity, consistent earnings growth and high dividend yield should prove appealing to a wide range of investors."
During the quarter, the weighted average first dollar and last dollar loan-to-value ratio on new lending commitments was 6.3% and 61.6%, respectively. This ratio represents the average beginning and ending points for the Company's lending exposure in the aggregate capitalization of the underlying properties it finances. In its corporate leasing business, the Company's new investment this quarter is backed by a 15-year lease which is fully recourse to a BBB rated corporate credit.
Mr. Sugarman commented, "We remain pleased with the asset quality and credit trends within our portfolio. Our continuing emphasis on risk mitigation is reflected in the steady performance of our assets despite the current turmoil in the capital markets." Based on loan repayments during and subsequent to the third quarter, iStar Financial has now surpassed $1 billion in "round trip" lending activities (i.e., repayments and prepayments on lending investments), while maintaining its seven-year track record of never having had a principal loss on any loan.
At September 30, first mortgage assets and corporate tenant lease assets comprised 31% and 42% of the Company's asset base, respectively. The weighted average first and last dollar loan-to-value ratio for all structured finance assets (senior and junior) was 23.4% and 70.5%, respectively. In addition, approximately 55% of the Company's operating lease investments are with corporate tenants which have explicit or implied investment grade credit ratings.
Mr. Sugarman continued, "We have worked hard to build a portfolio of credits which is diversified by asset type, property type, obligor and geography. With over 160 individual investment transactions and approximately 700 underlying properties as collateral, we believe this diversity minimizes the impact of any single external event in the real estate markets."
During the third quarter of 2000, the Company executed new leases totaling 524,000 square feet of corporate office and industrial facilities, at a weighted average GAAP lease rate of $12.41 per square foot. Of these new leases, 330,000 square feet replaced leases expiring in 2000 and beyond, which had a weighted average GAAP lease rate of $10.49 per square foot. Mr. Sugarman commented, "Underlying fundamentals in our collateral markets remain strong, and we are actively engaging all of our corporate tenants to explore creative ways to increase the value of our holdings. Under the leadership of our Chief Operating Officer, Tim O'Connor, and Barbara Rubin, head of iStar Asset Services, our rated loan servicing business, our 50-person team of asset management and loan servicing professionals deserves much of the credit for the Company's continued success in preserving and building value in our existing asset base. Lease extensions, lease buyouts and tenant upgrades have all played a part in helping us enhance our corporate tenant lease portfolio. This quarter, we were pleased to be able to welcome Cisco Systems Inc., FedEx Corp. and Avaya Inc. as three of our most recent corporate customers."
As of September 30, 2000, the weighted average lease term of the Company's corporate leasing portfolio was 7.8 years, and the portfolio was 95.9% leased.
Non-Core Asset Dispositions
During the third quarter, the Company made further progress on its previously announced plan to sell certain non-core corporate tenant lease assets acquired in conjunction with the TriNet transaction. Since announcing the TriNet transaction, the Company has sold approximately $261 million of such assets.
The Company used the net proceeds from the sales to reduce the balance on its revolving credit facilities. Assets sold in the third quarter included:
During the third quarter, the Company continued to make progress on expanding its sources of short- and long-term capital, and arranged approximately $48 million in new term loan financings secured by certain of its structured lending and corporate leasing assets. Spencer B. Haber, iStar Financial's executive vice president -- finance and chief financial officer, stated, "With the substantial excess liquidity we created in the first half of 2000, we are now focused on further extending the Company's debt maturities and continuing our quest for improved corporate credit ratings."
Mr. Haber continued, "We also remain highly match funded to minimize interest rate risk. Our corporate policy is to manage our net exposure to short-term interest rate fluctuations such that a 100 basis point change in rates impacts adjusted earnings per share by no more than 2.5%. Based on current match funding in place, a 100 basis point move in short-term interest rates should impact adjusted earnings per share by less than 1.0%."
During the third quarter of 2000, iStar Financial funded its investment activities with operating cash flow, excess liquidity generated by the Company's May 2000 "STARS" securitization transaction, new term loans, and borrowings under its revolving credit facilities. At September 30, the Company had $607 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 September 30, 2000, based on debt obligations of $2.2 billion and shareholders' equity of $1.8 billion.
Credit Risk Management
The Company establishes loss reserves based on a quarterly bottom-up review of each of its structured finance assets, as well as using top-down guidance from industry-wide loss data and market trends. On a quarterly basis, the Company conducts a comprehensive credit review, resulting in an individual risk rating assigned to each loan. Directed by Messrs. Sugarman and O'Connor, attendance at the quarterly review sessions is mandatory for each of the Company's professional employees. The quarterly meetings are designed to enable management to evaluate and proactively manage asset-specific credit issues and identify credit trends on a portfolio-wide basis as an "early warning system."
Each loan is evaluated on seven primary risk attributes, including: (i) trailing and projected collateral operating performance and debt service coverage ratios; (ii) current and estimated loan-to-value ratios and borrower capital commitment to the collateral; (iii) collateral condition, location and marketability; (iv) local and regional economic and real estate market trends; (v) borrower financial strength and quality of sponsorship; (vi) loan structure; and (vii) borrower's source of repayment funds or ability to refinance or sell the collateral.
During the risk ratings review, each loan is assigned a risk rating from "one" to "five," with a "one" indicating superior credit quality, a "two" signifying better than average credit quality, "three" as an average rating, a "four" indicating that management time and attention is required, and a "five" denoting a problem asset with potential principal risk to the Company. In addition to the ratings system, the Company maintains a "watch list" of loans which are typically rated "four," but which require highly proactive asset management to preserve their current ratings. Each newly originated loan is typically assigned an initial rating of "three" (or average).
Based upon the Company's third quarter 2000 review, the weighted average risk rating of the Company's structured finance assets was 2.59. The Company has no loans rated in its "five" (problem asset) category, and has one loan, with a book value of $4.3 million, on its "watch" list as of September 30, 2000.
On October 2, 2000, iStar Financial declared a regular quarterly cash dividend of $0.60 per common share for the quarter ended September 30, 2000. This dividend represents a 36% increase over the $0.44 dividend paid for third quarter 1999. The third quarter 2000 dividend, which is payable on October 30, 2000 to holders of record as of October 16, 2000, represents approximately 88% of basic adjusted earnings per share for the third quarter.
iStar Financial is the leading publicly traded finance company focused on the commercial real estate industry. The Company provides structured financing to private and corporate owners of real estate nationwide, including senior and junior mortgage debt, corporate and mezzanine lending, and corporate net lease financing. The Company, which is taxed as a real estate investment trust, seeks to deliver superior risk-adjusted returns on equity to shareholders by providing innovative and value-added financing solutions to its customers.
iStar Financial will hold a quarterly earnings conference call at 11:00 a.m. Eastern time today, October 26, 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 and will remain available for the next thirty days.
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 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 Sepember 30, September 30, 2000 1999 Revenue: Interest income $70,148 $52,911 Operating lease income 46,327 4,276 Other income 4,208 3,448 Total revenue 120,683 60,635 Costs and expenses: Interest expense 46,470 21,099 Operating costs - corporate tenant lease assets 3,284 -- Depreciation and amortization 8,705 1,365 General and administrative 5,859 717 Provision for possible credit losses 1,750 1,250 Stock option compensation expense 569 -- Advisory fees -- 4,933 Total costs and expenses 66,637 29,364 Net income before minority interest 54,046 31,271 Minority interest (41) -- Gain on sale of corporate tenant lease assets 1,974 -- Extraordinary loss - early extinguishment of debt (388) -- Net income $55,591 $31,271 Preferred dividends (9,227) (5,308) Net income allocable to common shareholders $46,364 $25,963 Net income per common share: Basic(A) $0.54 $0.49 Diluted $0.54 $0.47 Weighted average common shares outstanding: Basic 85,662 52,471 Diluted 86,644 55,327
(A) For the quarter ended September 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 Three Months Ended Ended September 30, September 30, 2000 1999 ADJUSTED EARNINGS PER SHARE: Net income $55,591 $31,271 Add: Real estate depreciation 8,705 1,365 Add: Joint venture depreciation 1,148 169 Add: Amortization 4,042 1,379 Less: Preferred dividends (9,227) (5,308) Less: Net income allocable to Class B shares -- (288) Less: Gain on sale of corporate tenant lease assets (1,974) -- Add: Extraordinary loss - early extinguishment of debt 388 -- Adjusted earnings allocable to common shareholders: Basic $58,673 $28,588 Diluted $58,909 $28,876 Adjusted earnings per common share: Basic (A) $0.68 $0.54 Diluted $0.68 $0.52 Weighted average common shares outstanding: Basic 85,662 52,471 Diluted 87,017 55,326
(A) For the quarter ended September 30, 1999, adjusted earnings per basic
common share exclude 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 September 30, December 31, 2000 1999 (unaudited) ASSETS Loans and other lending investments, net $2,269,957 $2,003,506 Real estate subject to operating leases, net 1,654,633 1,714,284 Cash and cash equivalents 47,585 34,408 Restricted cash 16,316 10,195 Marketable securities 96 4,344 Accrued interest and operating lease income receivable 17,994 16,211 Deferred operating lease income receivable 7,986 1,147 Other assets 60,193 29,457 Total assets $4,074,760 $3,813,552 LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable and other liabilities $53,171 $54,773 Dividends payable 5,225 53,667 Debt obligations: Unsecured senior notes 355,738 353,520 Unsecured revolving credit facilities 107,600 186,700 Secured revolving credit facilities 499,497 762,936 Secured term loans 404,588 559,288 iStar Asset Receivables secured notes 741,570 -- Other debt obligations 60,976 38,760 Total liabilities $2,228,365 $2,009,644 Minority interest 2,565 2,565 Shareholders' equity 1,843,830 1,801,343 Total liabilities and shareholders' equity $4,074,760 $3,813,552 iStar Financial Inc. Supplemental Information (as of and for the three-month period ended September 30, 2000) (In thousands) (unaudited)
THIRD QUARTER 2000 PERFORMANCE STATISTICS
Return on Average Book Assets Adjusted Basic Earnings to Common- 3rd Quarter $58,673 Plus: Preferred Dividends 9,227 Adjusted Basic Earnings before Preferred Dividends - 3rd Quarter $67,900 Adjusted Basic Earnings before Preferred Dividends - Annualized (A) $271,600 Average Total Book Assets for the Quarter (B) $4,041,269 Return on Average Book Assets (A)/(B) 6.7% Return on Average Common Book Equity Adjusted Basic Earnings to Common - 3rd Quarter $58,673 Adjusted Basic Earnings to Common - Annualized (C) $234,692 Average Total Book Equity $1,843,357 Less: Book Value of Preferred Equity (382,000) Average Common Book Equity (D) $1,461,357 Return on Average Common Book Equity (C)/(D) 16.1% Efficiency Ratio General & Administrative Expenses $5,859 Plus: Stock Option Compensation Expense 569 Total Corporate Overhead (E) $6,428 Total Revenue (F) $120,683 Efficiency Ratio (E)/(F) 5.3% THIRD QUARTER CREDIT STATISTICS Book Debt / Equity Book Debt (A) $2,169,969 Total Book Equity (B) 1,843,830 Book Debt / Book Equity (A)/(B) 1.2x Interest Coverage EBITDA (1) (A) $109,221 GAAP Interest Expense (B) $46,470 EBITDA / GAAP Interest Expense (A)/(B) 2.4x Fixed Charge Coverage EBITDA (1) (C) $109,221 GAAP Interest Expense $46,470 Plus: Preferred Dividends 9,227 Total Fixed Charges (D) $55,697 EBITDA / Fixed Charges (C)/(D) 2.0x
(1) EBITDA is calculated as total revenue minus the sum of general and
administrative expenses, provision for possible credit losses, stock option compensation expense and operating costs on corporate tenant lease assets.
THIRD QUARTER 2000 FINANCING VOLUME SUMMARY STATISTICS
LOAN ORIGINATIONS Total/ Floating Weighted CORPORATE Fixed Rate Rate Average(A) LEASING Amount Committed $133,330 $118,527 $251,857 $14,816 Amount Funded $128,330 $96,357 $224,687 $2,994 Weighted Average GAAP Yield 9.50% 11.74% 10.55% 10.14% Weighted Average All-In Spread/Margin (basis points) (B) +391 +512 -- +454 Weighted Average Maturity / Lease Term (years) 12.2 2.7 7.7 15.0 First $ Loan-to-Value Ratio 0.0% 13.4% 6.3% N/A Last $ Loan-to-Value Ratio 78.0% 43.1% 61.6% N/A
(A)Weighted average based on amount committed.
(B) Based on average quarterly one-month LIBOR of 6.62% (floating rate
loans), an average interpolated 12.2-year U.S. Treasury rate of 5.59% (fixed rate loans), and an average interpolated 15-year U.S. Treasury rate of 5.61% (corporate leasing assets).
UNFUNDED COMMITMENTS Number of Loans with Unfunded Commitments 8 Discretionary Commitments $9,835 Non-Discretionary Commitments 47,060 Total Unfunded Commitments $56,895 Estimated Funding Period Approx. 4 years iStar Financial Inc. Supplemental Information (as of and for the three-month period ended September 30, 2000) (In thousands) (unaudited)
PORTFOLIO STATISTICS AS OF SEPTEMBER 30, 2000 (A) Security Type $ % First Mortgages $1,230 31.2% Second Mortgages 350 8.9% Corporate/Partnership Loans/Other 703 17.9% Corporate Leases 1,654 42.0% Total $3,937 100.0% Collateral Type $ % Office $1,926 49.0% Industrial/R&D 374 9.5% Retail 167 4.2% Hotel 778 19.8% Mixed Use 151 3.8% Apartment/Residential 216 5.5% Homebuilder/Land 146 3.7% Resort/Entertainment 179 4.5% Total $3,937 100.0% Product Line $ % Structured Finance $1,022 26.0% Portfolio Finance 363 9.2% Loan Acquisition 526 13.4% Corporate Lending 372 9.4% Corporate Leasing 1,654 42.0% Total $3,937 100.0% Collateral Location $ % West $1,254 31.8% Southwest 76 1.9% South 648 16.5% Central 252 6.4% North Central 75 1.9% Northeast 664 16.9% Mid-Atlantic 359 9.1% Southeast 436 11.1% Northwest 173 4.4% Total $3,937 100.0%
(A) Figures presented prior to loan loss reserves. SOURCE iStar Financial Inc.
CONTACT: Spencer B. Haber, Exec. Vice President and CFO, 212-930-9400, or Lianne A. Merchant, Vice President, Investor Relations, 212-930-9400, both of iStar Financial Inc./
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