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10/27/2011

iStar Financial Announces Third Quarter 2011 Results

Earnings Report


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

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

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

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

Adjusted EBITDA for the third quarter was $83.1 million, compared to $97.4 million for the same period last year. The year-over-year decrease is due to lower revenues from a smaller overall asset base, partially offset by an increase in gains from discontinued operations versus the same period last year. Please see the financial tables that follow the text of this press release for details regarding the Company's calculation of Adjusted EBITDA.

During the third quarter, the Company generated $318.2 million of proceeds from its portfolio, comprised of $271.8 million in principal repayments and $46.4 million from sales of other real estate owned (OREO) assets, primarily comprised of unit sales. Additionally, the Company funded a total of $55.1 million of investments.

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

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

Capital Markets

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

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

Portfolio Overview

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

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

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

At the end of the quarter, the Company's $1.76 billion of net lease assets, net of $355.2 million of accumulated depreciation, were 88.7% leased with a weighted average remaining lease term of 12.3 years. The weighted average risk rating of the Company's net lease assets was 2.70, versus 2.69 in the prior quarter. For the quarter, the Company's occupied net lease assets generated a weighted average effective yield of 9.9% and the total net lease assets generated a weighted average effective yield of 8.5%.

At the end of the quarter, the Company's $1.62 billion owned real estate portfolio was comprised of $669.3 million of OREO and $954.6 million of real estate held for investment (REHI). The Company's OREO assets are considered held for sale based on management's current intention to market and sell the assets in the near term, while management's current intent and strategy is to hold, operate or develop its REHI assets over a longer term. During the quarter, the Company took title to a property with a carrying value of $69.4 million. The Company also recorded $9.3 million of impairments within its OREO portfolio. For the quarter, the Company recorded $8.2 million of revenue, offset by $19.8 million of expenses and funded $18.9 million of capital expenditures associated with its owned real estate portfolio.

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


[Financial Tables to Follow]

* * *


iStar Financial Inc. (NYSE: SFI) is a fully-integrated finance and investment company focused on the commercial real estate industry. The Company provides custom-tailored investment capital to high-end private and corporate owners of real estate and invests directly across a range of real estate sectors. The Company, which is taxed as a real estate investment trust ("REIT"), has invested more than $35 billion over the past two decades. Additional information on iStar Financial is available on the Company's website at http://www.istarfinancial.com/.

iStar Financial will hold a quarterly earnings conference call at 10:00 a.m. ET today, October 27, 2011. This conference call will be broadcast live over the Internet and can be accessed by all interested parties through iStar Financial's website, http://www.istarfinancial.com/, under the "Investor Relations" section. To listen to the live call, please go to the website's "Investor Relations" section at least 15 minutes prior to the start of the call to register, download and install any necessary audio software. For those who are not available to listen to the live broadcast, a replay will be available shortly after the call on the iStar Financial website.

(Note: Statements in this press release which are not historical fact may be deemed forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although iStar Financial Inc. believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, the Company can give no assurance that its expectations will be attained. Factors that could cause actual results to differ materially from iStar Financial Inc.'s expectations include the Company's ability to generate liquidity and to repay indebtedness as it comes due, additional loan loss provisions, the amount and timing of asset sales (including OREO assets), increases in NPLs, repayment levels, the Company's ability to reduce its indebtedness, the Company's ability to maintain compliance with its debt covenants, economic conditions, the availability of liquidity for commercial real estate transactions and other risks detailed from time to time in iStar Financial Inc.'s SEC reports.)

iStar Financial Inc.

Consolidated Statements of Operations

(In thousands)

(unaudited)


Three Months Ended


Nine Months Ended


September 30,


September 30,


2011

2010


2011

2010

REVENUES












Interest income

$45,851

$84,210


$186,805

$287,295

Operating lease income

41,369

40,471


123,090

124,760

Other income

10,140

8,616


26,413

22,869

Total revenues

$97,360

$133,297


$336,308

$434,924







COSTS AND EXPENSES












Interest expense

$91,777

$77,286


$258,183

$246,815

Operating costs - net lease assets

5,048

5,226


14,303

11,279

Operating costs - REHI and OREO

19,792

19,111


55,582

45,166

Depreciation and amortization

14,814

15,246


46,354

46,722

General and administrative (1)

26,978

24,239


77,077

76,569

Provision for loan losses

9,232

78,414


30,462

277,242

Impairment of assets

9,912

3,832


14,165

17,041

Other expense

3,974

4,219


7,156

13,321

Total costs and expenses

$181,527

$227,573


$503,282

$734,155







Income (loss) before earnings from equity method investments






and other items

($84,167)

($94,276)


($166,974)

($299,231)

Gain (loss) on early extinguishment of debt, net

(3,207)

9,525


102,348

118,305

Earnings from equity method investments

10,817

6,523


54,881

31,703

Income (loss) from continuing operations before income taxes

($76,557)

($78,228)


($9,745)

($149,223)

Income tax expense

(1,354)

(722)


(9,731)

(2,557)

Income (loss) from continuing operations

($77,911)

($78,950)


($19,476)

($151,780)

Income (loss) from discontinued operations

1,052

(104)


498

20,473

Gain from discontinued operations

22,198

4,422


22,198

270,382

Net income (loss)

($54,661)

($74,632)


$3,220

$139,075

Net income (loss) attributable to noncontrolling interests

1,002

(858)


558

(857)

Net income (loss) attributable to iStar Financial Inc.

($53,659)

($75,490)


$3,778

$138,218

Preferred dividends

(10,580)

(10,580)


(31,740)

(31,740)

Net (income) loss allocable to HPUs and






Participating Securities (2)

2,008

2,539


845

(3,145)

Net income (loss) allocable to common shareholders

($62,231)

($83,531)


($27,117)

$103,333







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

(2) HPU holders are current and former Company employees who purchased high performance common stock units under the Company's High Performance Unit Program. Participating Security holders are Company employees and directors who hold unvested restricted stock units and common stock equivalents under the Company's LTIP that are currently eligible to receive dividends.

iStar Financial Inc.

Earnings Per Share Information

(In thousands, except per share amounts)

(unaudited)


Three Months Ended


Nine Months Ended


September 30,


September 30,


2011

2010


2011

2010

EPS INFORMATION FOR COMMON SHARES












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






Basic and diluted

($0.96)

($0.94)


($0.55)

($1.91)

Net income (loss) attributable to iStar Financial Inc.






Basic and diluted

($0.71)

($0.89)


($0.30)

$1.10

Weighted average shares outstanding






Basic and diluted

87,951

93,370


91,020

93,556







Common shares outstanding at end of period

80,509

92,319


80,509

92,319







EPS INFORMATION FOR HPU SHARES












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






Basic and diluted

($182.34)

($177.74)


($102.06)

($361.26)

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






Basic and diluted

($133.87)

($169.27)


($56.33)

$209.67

Weighted average shares outstanding






Basic and diluted

15

15


15

15







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

iStar Financial Inc.

Consolidated Balance Sheets

(In thousands)

(unaudited)


As of


As of


September 30, 2011


December 31, 2010

ASSETS








Loans and other lending investments, net

$3,283,725


$4,587,352

Net lease assets, net

1,726,922


1,784,509

Real estate held for investment, net

954,646


833,060

Other real estate owned

669,331


746,081

Other investments

621,167


532,358

Assets held for sale

33,759


-

Cash and cash equivalents

217,015


504,865

Restricted cash

39,316


13,784

Accrued interest and operating lease income receivable, net

15,924


24,408

Deferred operating lease income receivable

69,417


62,569

Deferred expenses and other assets, net

122,630


85,528

Total assets

$7,753,852


$9,174,514





LIABILITIES AND EQUITY








Accounts payable, accrued expenses and other liabilities

$154,095


$134,422





Debt obligations, net:




Unsecured senior notes

2,840,149


3,265,845

Secured credit facilities

2,499,921


-

Secured term loans

313,092


1,861,314

Unsecured credit facilities

243,708


745,224

Other debt obligations

98,180


98,150

Secured notes

-


421,837

Secured revolving credit facilities

-


953,063

Total debt obligations, net

5,995,050


7,345,433





Total liabilities

$6,149,145


$7,479,855





Total iStar Financial Inc. shareholders' equity

1,557,946


1,648,135

Noncontrolling interests

46,761


46,524

Total equity

$1,604,707


$1,694,659





Total liabilities and equity

$7,753,852


$9,174,514

iStar Financial Inc.

Supplemental Information

(In thousands)

(unaudited)


Three Months Ended


Nine Months Ended


September 30,


September 30,


2011

2010


2011

2010

ADJUSTED EBITDA (1)












Reconciliation of Net Income to Adjusted EBITDA






Net income (loss)

($54,661)

($74,632)


$3,220

$139,075

Add: Interest expense

91,777

77,286


258,183

277,330

Add: Income tax expense

1,354

722


9,731

2,557

Add: Depreciation and amortization

15,077

15,915


47,142

55,051

Add: Provision for loan losses

9,232

78,414


30,462

277,242

Add: Impairment of assets

9,912

5,375


14,140

18,902

Add: Stock-based compensation expense

7,153

3,883


15,622

13,597

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

3,207

(9,525)


(102,348)

(118,305)

Adjusted EBITDA

$83,051

$97,438


$276,152

$665,449











Three Months Ended





September 30, 2011

Interest Coverage






Adjusted EBITDA(A)





$83,051

Interest expense and preferred dividends (B)





$102,357

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





0.8x







(1) Adjusted EBITDA should be examined in conjunction with net income (loss) as shown in the Consolidated Statements of Operations. Adjusted EBITDA should not be considered as an alternative to net income (determined in accordance with GAAP) as an indicator of the Company's performance, or to cash flows from operating activities (determined in accordance with GAAP) as a measure of the Company's liquidity, nor is this measure indicative of funds available to fund the Company's cash needs or available for distribution to shareholders. It should be noted that the Company's manner of calculating Adjusted EBITDA may differ from the calculations of similarly-titled measures by other companies. Depreciation and amortization excludes adjustments from discontinued operations of $263 for the three months ended September 30, 2011. Depreciation and amortization and impairment of assets exclude adjustments from discontinued operations of $669 and $1,543, respectively, for the three months ended September 30, 2010. Depreciation and amortization and impairment of assets exclude adjustments from discontinued operations of $789 and ($25), respectively, for the nine months ended September 30, 2011. Interest expense, depreciation and amortization and impairment of assets exclude adjustments from discontinued operations of $30,515, $8,329, and $1,861, respectively, for the nine months ended September 30, 2010.

iStar Financial Inc.

Supplemental Information

(In thousands)

(unaudited)


Three Months Ended


September 30, 2011

OPERATING STATISTICS




Return on Average Common Book Equity


Average total book equity

$1,625,952

Less: Average book value of preferred equity

(506,176)

Average common book equity (A)

$1,119,776



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


Participating Security holders

($64,239)

Annualized(B)

($256,956)

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

Neg



Expense Ratio


General and administrative expenses - annualized (C)

$107,912

Average total assets (D)

$8,022,638

Expense Ratio (C) / (D)

1.3%



Leverage


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

$5,778,035

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

$2,721,534

Leverage(E) / (F)

2.1x



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

iStar Financial Inc.

Supplemental Information

(In thousands)

(unaudited)


As of


September 30, 2011

UNFUNDED COMMITMENTS




Performance-based commitments

$67,448

Discretionary fundings

155,574

Strategic investments

30,493

Total Unfunded Commitments

$253,515



UNENCUMBERED ASSETS / UNSECURED DEBT




Unencumbered assets (A)

$4,829,431

Unsecured debt (B)

$3,207,025

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

1.5x

iStar Financial Inc.

Supplemental Information

(In thousands)

(unaudited)







LOANS AND OTHER LENDING INVESTMENTS CREDIT STATISTICS








As of


September 30, 2011


December 31, 2010

Carrying value of NPLs /






As a percentage of total carrying value of loans

$1,024,142

31.3 %


$1,351,410

29.6 %







NPL asset specific reserves for loan losses /






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

$613,185

37.5 %


$667,779

33.1 %







Total reserve for loan losses /






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

$710,117

17.9 %


$814,625

15.1 %







(1) Gross carrying value represents iStar's carrying value of loans, gross of loan loss reserves.

iStar Financial Inc.

Supplemental Information

(In millions)

(unaudited)















PORTFOLIO STATISTICS AS OF SEPTEMBER 30, 2011 (1)















Asset Type











Total


% of Total

First Mortgages / Senior Loans











$2,808


38.1%

Net Lease Assets











1,761


23.9%

Real Estate Held for Investment











955


13.0%

Other Real Estate Owned











669


9.1%

Other Investments











621


8.4%

Mezzanine / Subordinated Debt











552


7.5%

Total











$7,366


100.0%















Geography











Total


% of Total

West











$1,699


23.0%

Northeast











1,349


18.3%

Southeast











1,094


14.9%

Southwest











794


10.8%

Various











712


9.7%

Mid-Atlantic











705


9.6%

Central











422


5.7%

International











302


4.1%

Northwest











289


3.9%

Total











$7,366


100.0%















Property Type

Performing
Loans


Net Lease
Assets


NPLs


REHI


OREO


Total


% of Total

Land

$211


$56


$346


$661


$106


$1,380


18.7%

Apartment / Residential

618


-


264


37


429


1,348


18.3%

Retail

384


160


188


60


31


823


11.2%

Office

174


494


52


17


6


743


10.1%

Industrial / R&D

88


495


21


49


1


654


8.9%

Hotel

356


129


74


43


16


618


8.4%

Entertainment / Leisure

78


427


79


-


1


585


7.9%

Mixed Use / Mixed Collateral

242


-


-


88


79


409


5.6%

Other Property Types

185


-


-


-


-


185


2.5%

Other Investments

-


-


-


-


-


621


8.4%

Total

$2,336


$1,761


$1,024


$955


$669


$7,366


100.0%















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

SOURCE iStar Financial Inc.

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