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10/26/2000

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

Transaction Volume

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."

Corporate Leasing

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:

  • A 247,254 square foot office facility located in Texas, 50% owned by the Company ($41.9 million).

  • A 310,353 square foot office/R&D facility located in California, 50% owned by the Company ($66.0 million).

Funding Activities

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.

Other Developments

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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