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04/28/2011

iStar Financial Announces First Quarter 2011 Results

Earnings Report


- Net income allocable to common shareholders for the first quarter 2011 was $67.4 million or $0.71 per diluted common share.
- Company completed new $2.95 billion senior secured credit facilities to refinance secured bank debt due in June 2011 and 2012 and repay a portion of unsecured debt.
- Company recorded $12.3 million of loan loss provisions and impairments for the quarter versus $95.4 million for the same period last year.

NEW YORK, April 28, 2011 /PRNewswire via COMTEX/ --

iStar Financial Inc. (NYSE: SFI) today reported results for the first quarter ended March 31, 2011.

First Quarter 2011 Results

iStar reported net income allocable to common shareholders for the first quarter of $67.4 million, or $0.71 per diluted common share, compared to a loss of ($25.4) million, or ($0.27) per diluted common share, for the first quarter 2010. Results this quarter include $106.6 million of net gains on early extinguishment of debt compared to $38.7 million recorded in the first quarter last year. In addition, the Company recorded $12.3 million of loan loss provisions and impairments, a decrease from $95.4 million for the same period last year.

Adjusted EBITDA for the first quarter was $94.9 million, compared to $173.2 million for the same period last year. The year-over-year decrease is primarily due to lower revenues from a smaller overall asset base, resulting from loan repayments and sales, as well as the sale of a portfolio of net lease assets during the second quarter of 2010. The decrease was partially offset by increased earnings from equity method investments. 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 first quarter, the Company generated $260.4 million of proceeds from its portfolio, primarily comprised of $213.4 million in principal repayments, $20.6 million from loan sales and $25.7 million from sales of other real estate owned (OREO) assets. Additionally, the Company funded a total of $43.9 million of investments.

Capital Markets

As previously announced, during the quarter the Company entered into a new $2.95 billion senior secured credit agreement including a $1.50 billion A-1 term loan tranche due June 28, 2013 and a $1.45 billion A-2 term loan tranche due June 30, 2014. Proceeds from the new financing were primarily used to refinance the Company's secured bank facilities due in June 2011 and 2012 and to repay $175.0 million of the Company's unsecured credit facility due in June 2011.

"While our focus on streamlining the portfolio and paring leverage will continue, the successful refinancing of our credit facilities means we can now also begin looking forward and taking advantage of our depth of experience and the scale of the portfolio," said Jay Sugarman, iStar's chairman and chief executive officer.

Additionally, as previously announced, during the quarter the Company redeemed its remaining $312.3 million principal amount of its 10% Senior Secured Notes due 2014 and recognized a gain on early extinguishment of debt of $109.0 million. The Company also repaid the remaining $107.8 million of its 5.8% senior unsecured notes due March 2011. The Company's weighted average effective cost of debt for the quarter was 4.01%, while leverage was 2.2x at March 31, 2011, versus 2.4x at the end of the prior quarter. Please see the financial tables that follow the text of this press release for a calculation of the Company's leverage.

Portfolio Overview

At March 31, 2011, the Company's total portfolio had a carrying value of $8.40 billion, gross of general loan loss reserves. The portfolio was comprised of $4.41 billion of loans and other lending investments, $1.77 billion of net lease assets, $1.65 billion of owned real estate and $557.0 million of other investments.

At March 31, 2011, the Company's $3.11 billion of performing loans and other lending investments had a weighted average last dollar loan-to-value ratio of 79.7% and a maturity of 3.4 years. The performing loans consisted of 54.7% floating rate loans that generated a weighted average effective yield for the quarter of 6.4%, or approximately 615 basis points over the average one-month LIBOR rate for the quarter, and 45.3% fixed rate loans that generated a weighted average effective yield for the quarter of 8.9%. The weighted average risk rating of the Company's performing loans was 3.37, an improvement from 3.51 in the prior quarter. Included in the performing loan balance was $146.2 million of watch list assets, a decrease from $190.6 million in the prior quarter.

At March 31, 2011, the Company's non-performing loans (NPLs) had a carrying value of $1.30 billion, net of $676.5 million of specific reserves. This was a decrease from $1.35 billion, net of $667.8 million of specific reserves, at the end of the prior quarter.

At the end of the quarter, the Company's $1.77 billion of net lease assets, net of $331.7 million of accumulated depreciation, were 89.1% leased with a weighted average remaining lease term of 12.4 years. The weighted average risk rating of the Company's net lease assets was 2.69, an improvement from 2.72 in the prior quarter. For the quarter, the Company's occupied net lease assets generated a weighted average effective yield of 9.6% and the total net lease assets generated a weighted average effective yield of 8.4%.

At the end of the quarter, the Company's $1.65 billion owned real estate portfolio was comprised of $790.6 million of OREO and $862.9 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 properties with a carrying value of $96.1 million. This resulted in $14.7 million of charge-offs against the Company's reserve for loan losses on the $110.8 million gross carrying value of the loans these assets collateralized prior to foreclosure. For the quarter, the Company generated $7.5 million of revenue, incurred $17.8 million of net expenses and funded $7.0 million of capital expenditures associated with its owned real estate portfolio.

For the first quarter, the Company recorded $10.9 million in loan loss provisions versus $54.2 million in the prior quarter. At March 31, 2011, loan loss reserves totaled $804.1 million or 15.8% of total gross carrying value of loans. This compares to loan loss reserves of $814.6 million or 15.1% of total gross carrying value of loans at December 31, 2010.

Annual Meeting

The Company will host its Annual Meeting of Shareholders at The Harvard Club of New York City, located at 35 West 44th Street, New York, New York 10036 on Wednesday, June 1, 2011 at 9:00 a.m. ET. All shareholders are cordially invited to attend.


[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, April 28, 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


March 31,


2011

2010




REVENUES






Interest income

$60,768

$116,616

Operating lease income

42,139

43,505

Other income

8,675

13,199

Total revenues

$111,582

$173,320




COSTS AND EXPENSES






Interest expense

$69,634

$87,216

Operating costs - net lease assets

4,560

3,701

Operating costs - REHI and OREO

17,788

12,778

Depreciation and amortization

15,933

15,747

General and administrative (1)

24,400

27,216

Provision for loan losses

10,881

89,469

Impairment of assets

1,490

5,921

Other expense

13,774

4,905

Total costs and expenses

$158,460

$246,953




Income (loss) from continuing operations before other items

($46,878)

($73,633)

Gain on early extinguishment of debt, net

106,604

38,728

Earnings from equity method investments

24,932

11,430

Income (loss) from continuing operations

$84,658

($23,475)

Income (loss) from discontinued operations

(756)

7,333

Net income (loss)

$83,902

($16,142)




Net (income) loss attributable to noncontrolling interests

(430)

546

Net income (loss) attributable to iStar Financial Inc.

$83,472

($15,596)




Preferred dividends

(10,580)

(10,580)

Net (income) loss allocable to HPUs and Participating Securities (2)

(5,472)

768

Net income (loss) allocable to common shareholders

$67,420

($25,408)




(1) For the three months ended March 31, 2011 and 2010, includes $4,155 and $4,730 of stock-based compensation expense, respectively.

(2) HPU holders are current and former Company employees who purchased high performance common stock units under the Company's High Performance Unit Program. Participating Security holders are Company employees and directors who hold unvested restricted stock units and common stock equivalents under the Company's Long Term Incentive Plans.

iStar Financial Inc.

Earnings Per Share Information

(In thousands, except per share amounts)

(unaudited)



Three Months Ended



March 31,



2011

2010





EPS INFORMATION FOR COMMON SHARES








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




Basic


$0.74

($0.35)

Diluted


$0.72

($0.35)

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




Basic


$0.73

($0.27)

Diluted


$0.71

($0.27)

Weighted average shares outstanding




Basic


92,458

93,923

Diluted


94,609

93,923





EPS INFORMATION FOR HPU SHARES








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




Basic


$139.40

($65.53)

Diluted


$136.47

($65.53)

Net income (loss) attributable to iStar Financial Inc. (1) (2)




Basic


$138.00

($51.20)

Diluted


$135.07

($51.20)

Weighted average shares outstanding




Basic and Diluted


15

15





(1) Excludes preferred dividends and net (income) loss from noncontrolling interests. For the three months ended March 31, 2011, also excludes income from continuing operations allocable to Participating Security holders of $3,438 and $3,366 on a basic and dilutive basis, respectively, and net income allocable to Participating Security holders of $3,402 and $3,331, on a basic and dilutive basis, respectively.

(2) For the three months ended March 31, 2011, net income allocable to HPU holders was $2,070 and $2,026, on a basic and dilutive basis, respectively. For the three months ended March 31, 2010, net income (loss) allocable to HPU holders was ($768) on both a basic and dilutive basis.

iStar Financial Inc.

Consolidated Balance Sheets

(In thousands)

(unaudited)


As of


As of


March 31, 2011


December 31, 2010





ASSETS








Loans and other lending investments, net

$4,314,170


$4,587,352

Net lease assets, net

1,774,989


1,784,509

Real estate held for investment, net

862,930


833,060

Other real estate owned

790,643


746,081

Other investments

556,966


532,358

Cash and cash equivalents

318,426


504,865

Restricted cash

61,116


13,784

Accrued interest and operating lease income receivable, net

22,619


24,408

Deferred operating lease income receivable

65,173


62,569

Deferred expenses and other assets, net

119,531


85,528

Total assets

$8,886,563


$9,174,514





LIABILITIES AND EQUITY








Accounts payable, accrued expenses and other liabilities

$172,709


$134,422





Debt obligations, net:




Unsecured senior notes

3,160,996


3,265,845

Secured credit facilities

2,913,739


-

Unsecured credit facilities

574,282


745,224

Secured term loans

192,233


1,861,314

Other debt obligations

98,160


98,150

Secured notes

-


421,837

Secured revolving credit facilities

-


953,063

Total debt obligations, net

$6,939,410


$7,345,433





Total liabilities

$7,112,119


$7,479,855





Total iStar Financial Inc. shareholders' equity

1,726,713


1,648,135

Noncontrolling interests

47,731


46,524

Total equity

$1,774,444


$1,694,659





Total liabilities and equity

$8,886,563


$9,174,514









iStar Financial Inc.

Supplemental Information

(In thousands)

(unaudited)



Three Months Ended



March 31,

ADJUSTED EBITDA (1)


2011

2010





Reconciliation of Net Income to Adjusted EBITDA




Net income


$83,902

($16,142)

Add: Interest expense


69,634

103,265

Add: Income taxes


11,052

1,042

Add: Depreciation and amortization


15,726

21,753

Add: Joint venture depreciation and amortization


4,688

1,883

Add: Provision for loan losses


10,881

89,469

Add: Impairment of assets


1,464

5,942

Add: Stock-based compensation expense


4,155

4,730

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


(106,604)

(38,728)

Adjusted EBITDA


$94,898

$173,214







Three Months Ended



March 31, 2011

Interest Coverage




Adjusted EBITDA (D)



$94,898

Interest expense and preferred dividends (E)



80,214

Adjusted EBITDA / Interest Expense and Preferred Dividends (D) / (E)



1.2x





(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. Impairment of assets excludes adjustments from discontinued operations of ($26) for the three months ended March 31, 2011. Interest expense, depreciation and amortization and impairment of assets excludes adjustments from discontinued operations of $16,049, $6,245 and $21, respectively, for the three months ended March 31, 2010.

iStar Financial Inc.

Supplemental Information

(In thousands)

(unaudited)


Three Months Ended

OPERATING STATISTICS

March 31, 2011



Return on Average Common Book Equity


Average total book equity

$1,687,424

Less: Average book value of preferred equity

(506,176)

Average common book equity (A)

$1,181,248



Net income allocable to common shareholders, HPU holders and


Participating Security holders

$72,892

Annualized (B)

$291,568

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

24.7%



Expense Ratio


General and administrative expenses - annualized (C)

$97,600

Average total assets (D)

$9,030,539

Expense Ratio (C) / (D)

1.1%



Leverage


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

$6,620,984

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

$2,953,944

Leverage (A) / (B)

2.2x



(1) Calculations include $375,430 of accumulated depreciation, $97,300 of general loan loss reserves and $706,770 of specific loan loss reserves, as stated.

iStar Financial Inc.

Supplemental Information

(In thousands)

(unaudited)


As of

UNFUNDED COMMITMENTS

March 31, 2011



Performance-based commitments

$128,370

Discretionary fundings

157,218

Strategic investments

37,102

Total Unfunded Commitments

$322,690



UNENCUMBERED ASSETS / UNSECURED DEBT




Unencumbered assets (A)

$5,816,459

Unsecured debt (B)

$3,864,592

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

1.5x


LOANS AND OTHER LENDING INVESTMENTS CREDIT STATISTICS



As of


March 31, 2011


December 31, 2010

Carrying value of NPLs /






As a percentage of total carrying value of loans

$1,304,836

30.4 %


$1,351,410

29.6 %







NPL asset specific reserves for loan losses /






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

$676,543

34.1 %


$667,779

33.1 %







Total reserve for loan losses /






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

$804,070

15.8 %


$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 MARCH 31, 2011 (1)


























Asset Type












Total


% of Total

First Mortgages / Senior Loans











$3,829


45.6%

Net Lease Assets











1,775


21.2%

Real Estate Held for Investment











863


10.3%

Other Real Estate Owned











791


9.4%

Mezzanine / Subordinated Debt











582


6.9%

Other Investments











557


6.6%

Total











$8,397


100.0%















Geography












Total


% of Total

West











$1,911


22.8%

Northeast











1,708


20.3%

Southeast











1,236


14.7%

Various











873


10.4%

Southwest











801


9.5%

Mid-Atlantic











763


9.1%

Central











434


5.2%

International











356


4.2%

Northwest











315


3.8%

Total











$8,397


100.0%















Property Type


Performing
Loans & Other


Net Lease
Assets


NPLs


REHI


OREO


Total


% of Total

Apartment / Residential

$918


$-


$519


$11


$528


$1,976


23.6%

Land

336


56


268


669


108


1,437


17.1%

Retail

584


161


198


48


44


1,035


12.3%

Office

215


441


52


17


17


742


8.8%

Industrial / R&D (2)

113


503


21


50


6


693


8.3%

Entertainment / Leisure

159


431


78


-


1


669


8.0%

Hotel

352


131


75


43


15


616


7.3%

Mixed Use / Mixed Collateral

241


32


94


25


72


464


5.5%

Other (3)

745


20


-


-


-


765


9.1%

Total

$3,663


$1,775


$1,305


$863


$791


$8,397


100.0%















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

(2) Performing loans and other includes $16 million of other investments.

(3) Performing loans and other includes $541 million of other investments.

SOURCE iStar Financial Inc.

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