Skip to content
Open Search Panel
Toggle Menu
<< Back to News
04/25/2001

iStar Financial Announces Record Earnings

NEW YORK, April 25 /PRNewswire/ -- iStar Financial Inc. (NYSE: SFI) reported adjusted earnings for the quarter ended March 31, 2001 of $0.71 per diluted common share, up 10.9% from $0.64 per diluted share for the quarter ended March 31, 2000. Adjusted earnings for the first quarter 2001 increased 13.5% to $61.7 million on a diluted basis, from $54.4 million for first quarter 2000. Adjusted earnings represent GAAP net income before depreciation and amortization.

Net income allocable to common shareholders for the first quarter grew to $45.4 million, or $0.52 per diluted common share, compared with $42.8 million, or $0.50 per diluted share, in first quarter 2000. First quarter 2001 total revenue increased 10.6% to $122.6 million, from $110.9 million for the first quarter 2000.

In the first quarter of 2001, iStar Financial achieved returns on average book assets and average common book equity of 7.0% and 17.3%, respectively, while leverage remained at 1.2x book equity. Net investment income for the quarter ended March 31, 2001 increased to $66.8 million. Net investment income represents interest and operating lease revenue less interest expense and operating costs for corporate tenant lease assets.

During the first quarter of 2001, iStar Financial closed and funded five new financing commitments totaling $204.0 million. In addition, the Company funded $52.1 million under five pre-existing commitments and received $244.8 million in principal repayments. The Company's recent transactions continue to reflect its core business strategy of originating large-balance, structured financing transactions secured by high-quality commercial real estate assets in major metropolitan markets across the United States.

    Selected Income Statement Data
    (In thousands, except per share amounts)
    (unaudited)
                                                       Three Months Ended
                                                           March 31,
                                                      2001            2000

    Net investment income                            $66,840        $65,241
    Other income                                       6,183          4,533
    Non-interest expense                             (17,520)       (17,960)
    Net income before minority interest              $55,503        $51,814
    Minority interest                                    (95)           (41)
    Gain on sale of corporate tenant
     lease assets                                        555            533
    One-time effect of change in accounting
     principle                                          (282)            --
    Extraordinary loss -- early extinguishment
     of debt                                          (1,037)          (317)
    Preferred dividends                               (9,227)        (9,227)
    Net income allocable to common shareholders      $45,417        $42,762
    Per basic share                                    $0.53          $0.50
    Per diluted share                                  $0.52          $0.50

    Adjusted earnings allocable to common
     shareholders(a)                                 $61,722        $54,399
    Per basic share                                    $0.72          $0.64
    Per diluted share                                  $0.71          $0.64

    Dividends                                        $0.6125        $0.6000

        (a) Adjusted earnings represent GAAP net income before depreciation
            and amortization, and exclude gain on sale of corporate tenant
            ease assets, one-time effect of change in accounting principle and
            extraordinary loss on early extinguishment of debt.

    Selected Balance Sheet Data
    (In thousands)
                                                    As of          As of
                                                  March 31,     December 31,
                                                     2001           2000
                                                 (unaudited)

    Loans and other lending investments, net      $2,236,030     $2,225,183
    Real estate subject to operating leases, net   1,638,017      1,670,169
    Total assets                                   4,013,892      4,034,775
    Debt obligations                               2,120,834      2,131,967
    Total liabilities                              2,190,532      2,240,666
    Total shareholders' equity                     1,820,711      1,787,885

Transaction Volume

In the first quarter of 2001, iStar Financial generated $204.0 million in new financing commitments in five separate transactions. The Company also funded an additional $52.1 million under five pre-existing financing commitments and received $244.8 million in loan repayments. Jay Sugarman, iStar Financial's chairman and chief executive officer, stated, "As we saw the economy slowing last year, we focused our investment strategy on originating first mortgages and corporate financing and leasing transactions backed by diversified corporate credits. In the first quarter of 2001, we extended this cautious approach by again focusing on first mortgage and corporate finance transactions, which represented 67% of the Company's total fundings during the quarter."

During the quarter, the weighted average first dollar and last dollar loan-to-value ratio on new loan fundings was 33.6% and 68.7%, respectively. This ratio represents the average beginning and ending points for the Company's lending exposure in the aggregate capitalization of the underlying properties or companies it finances.

Mr. Sugarman commented, "As deteriorating economic conditions begin to reduce available liquidity in the real estate and corporate credit markets, iStar Financial is well positioned to create attractive risk-adjusted returns on the excess liquidity the Company possesses. We are beginning to see borrowers' pricing expectations adjust to the realities of a more capital constrained environment, and believe the rest of 2001 should produce some compelling corporate lending and leasing opportunities."

At end of first quarter 2001, first mortgages, corporate tenant leases and corporate financing transactions collectively comprised 81% of the Company's asset base. The weighted average first and last dollar loan-to-value ratio for all structured finance assets (senior and junior loans) was 25.9% and 72.0%, respectively.

Corporate Tenant Leasing

During the first quarter of 2001, the Company continued to extend lease terms in its corporate tenant leasing business. Mr. Sugarman stated, "Given our orientation as a finance company and not as a real estate investor, we have consistently favored longer lease terms over larger lease rate increases. This discipline serves us well in times of declining demand for office and industrial facilities, such as the current environment, when our revenue stream is essentially unimpacted, and our asset base remains fully leased."

As of March 31, 2001, the weighted average lease term of the Company's corporate tenant leasing portfolio is 8.4 years. This portfolio was 96.6% leased at the end of the first quarter 2001 (98.6% excluding a vacant facility currently being marketed for sale). Remaining lease expirations for 2001 and 2002 represent 0.8% and 2.7% of annualized total GAAP revenue, respectively.

Capital Markets

During the first quarter of 2001, iStar Financial closed a new $700 million secured revolving credit facility with a major commercial bank. Interest rates under the new facility range from LIBOR + 1.40% to LIBOR + 2.15%, depending upon the collateral contributed to the borrowing base. The new facility accepts a broad range of structured finance assets and has a final maturity of January 2005. In addition, the Company exercised its option to extend for an additional year a $350 million unsecured credit facility.

During the first quarter of 2001, Moody's Investors Service upgraded iStar Financial's senior unsecured credit rating to Ba1 from Ba2, and the rating on the Company's perpetual preferred stock to Ba3 from B1. In addition, subsequent to quarter end, Standard & Poor's upgraded iStar Financial's senior unsecured credit rating to BB+ from BB, and the Company's preferred stock rating to B+ from B. Spencer B. Haber, iStar Financial's executive vice president-finance and CFO, stated, "We are pleased with the Moody's and Standard & Poor's upgrades, and believe the ratings actions affirm the strength of our business strategy and risk management skills. Our objective is to continue to demonstrate the consistent performance which has characterized our business in the past, and which will help us to achieve investment grade status."

Also during the first quarter, Moody's Investors Service and Fitch Inc. upgraded the ratings of the bonds outstanding under iStar Financial's proprietary match funding program, iStar Asset Receivables ("STARS"). The STARS Class B bonds were upgraded to Aaa and AAA from Aa2 and AA by Moody's and Fitch, respectively. The STARS Class C bonds were upgraded to Aa3 and AA- from A2 and A+, respectively. In addition, Fitch also upgraded the STARS Class D, E and F bonds to A+, BBB+ and BBB, respectively.

Mr. Haber commented, "With $2.4 billion of committed credit facilities, our recent corporate credit upgrades and the continuing success of the STARS program, iStar Financial has the depth and breadth of capital resources to capitalize on the current unsettled macro environment. Our focus over the next six months is the elimination of all significant remaining debt maturities for both 2001 and 2002, for which specific refinancing initiatives are now underway."

Mr. Haber stated, "Once again, our balance sheet continues to be 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 1.4%."

Mr. Haber continued, "Consistent with the Securities and Exchange Commission's Regulation FD, iStar Financial will comment on earnings expectations within the context of its regular earnings press releases. Accordingly, we currently expect diluted adjusted EPS of $0.72 to $0.73 for the second quarter of 2001 and full-year diluted adjusted EPS of $2.92 to $2.95, depending primarily on the timing of new investment activity, net of loan repayments."

Credit Risk Management

The Company establishes loss reserves based on a quarterly bottom-up review of each of its 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 asset. Attendance at the quarterly review sessions, directed by Mr. Sugarman and Timothy O'Connor, iStar Financial's executive vice president and chief operating officer, 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."

During the risk ratings review, each asset 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 assets which are generally rated "four," but which require highly proactive asset management to preserve their current ratings. Each newly originated asset is typically assigned an initial rating of "three" (or average).

Based upon the Company's first quarter 2001 review, the weighted average risk rating of the Company's structured finance assets was 2.53, slightly higher than the year-end rating of 2.50. The weighted average risk rating for corporate tenant lease assets at the end of the first quarter was 2.78, essentially unchanged from the year-end rating of 2.77. The Company has one loan and one corporate tenant lease asset currently on its "watch list," with a combined book value of $39.3 million as of March 31, 2001. The Company remains comfortable that it has adequate collateral to support its book value in both instances.

At quarter end, accumulated loss reserves and depreciation represented approximately 1.81% of the gross book value of the Company's investments (loans and operating leases).

Other Developments

On April 2, 2001, iStar Financial increased its regular quarterly cash dividend to $0.6125 per common share for the quarter ended March 31, 2001. The first quarter 2001 dividend, which will be paid on April 30, 2001 to holders of record as of April 16, 2001, represents approximately 85.5% of basic adjusted earnings per share for the first quarter.

The Company will host its annual shareholders' meeting at the Sheraton New York Hotel & Towers, 811 Seventh Avenue, New York, New York 10019 on May 17, 2001 at 9:00 a.m. EDT. All shareholders are cordially invited to attend.

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 mezzanine and subordinated capital, 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, April 25, 2001. 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 60 days.

(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 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 Ended
                                                            March 31,
                                                      2001           2000
    Revenue:
      Interest income                                $66,913        $60,083
      Operating lease income                          49,523         46,272
      Other income                                     6,183          4,533
        Total revenue                                122,619        110,888

    Costs and expenses:
      Interest expense                                46,360         37,789
      Operating costs -- corporate tenant
       lease assets                                    3,236          3,325
      Depreciation and amortization                    8,808          9,009
      General and administrative                       6,102          6,903
      Provision for possible credit losses             1,750          1,500
      Stock option compensation expense                  860            548
        Total costs and expenses                      67,116         59,074

    Net income before minority interest               55,503         51,814
      Minority interest                                  (95)           (41)
      One-time effect of change in accounting
       principle (a)                                    (282)            --
      Gain on sale of corporate tenant lease
       assets                                            555            533
      Extraordinary loss -- early extinguishment
       of debt                                        (1,037)          (317)
    Net income                                       $54,644        $51,989

    Preferred dividends                               (9,227)        (9,227)
    Net income allocable to common shareholders      $45,417        $42,762

    Net income per common share:
      Basic                                            $0.53          $0.50
      Diluted                                          $0.52          $0.50

    Weighted average common shares outstanding:
      Basic                                           85,833         85,087
      Diluted                                         87,149         85,449

        (a) Reflects one-time effect of adoption of Statement of Financial
            Accounting Standards No. 133, "Accounting for Derivative
            Instruments and Hedging Activities" as of January 1, 2001.

                             iStar Financial Inc.
                        Consolidated Income Statements
                   (In thousands, except per share amounts)
                                 (unaudited)

                                                       Three Months Ended
                                                            March 31,
                                                      2001           2000

    ADJUSTED EARNINGS PER SHARE:
    Net income                                       $54,644        $51,989
    Add:  Depreciation                                 8,808          9,009
    Add:  Joint venture depreciation                     951            610
    Add:  Amortization                                 5,542          2,234
    Less:  Preferred dividends                        (9,227)        (9,227)
    Add:  One-time effect of change in
     accounting principle                                282             --
    Less:  Gain on sale of corporate
     tenant lease assets                                (555)          (533)
    Add:  Extraordinary loss -- early
     extinguishment of debt                            1,037            317
    Adjusted earnings allocable to common
     shareholders:
      Basic                                          $61,482        $54,399
      Diluted                                        $61,722        $54,399

    Adjusted earnings per common share:
      Basic                                            $0.72          $0.64
      Diluted                                          $0.71          $0.64

    Weighted average common shares outstanding:
      Basic                                           85,833         85,087
      Diluted                                         87,522         85,449

                             iStar Financial Inc.
                         Consolidated Balance Sheets
                                (In thousands)

                                                    As of           As of
                                                  March 31,     December 31,
                                                     2001           2000
                                                 (unaudited)

    ASSETS

    Loans and other lending investments, net      $2,236,030     $2,225,183
    Real estate subject to operating leases,
     net                                           1,638,017      1,670,169
    Cash and cash equivalents                         22,301         22,752
    Restricted cash                                   13,225         20,441
    Marketable securities                                 41             41
    Accrued interest and operating lease
     income receivable                                18,606         20,167
    Deferred operating lease income receivable        12,812         10,236
    Other assets                                      72,860         65,786
            Total assets                          $4,013,892     $4,034,775

    LIABILITIES AND SHAREHOLDERS' EQUITY

    Accounts payable and other liabilities           $64,473        $52,038
    Dividends payable                                  5,225         56,661

    Debt obligations:
      Unsecured senior notes                         357,298        356,509
      Unsecured revolving credit facilities           68,700        173,450
      Secured revolving credit facilities            738,259        592,349
      Secured term loans                             328,928        349,060
      iStar Asset Receivables secured notes          586,345        588,334
      Other debt obligations                          41,304         72,265
        Total liabilities                         $2,190,532     $2,240,666
    Minority interest                                  2,649          6,224
    Shareholders' equity                           1,820,711      1,787,885
        Total liabilities and shareholders'
         equity                                   $4,013,892     $4,034,775

                             iStar Financial Inc.
                           Supplemental Information
         (as of and for the three-month period ended March 31, 2001)
                                (In thousands)
                                 (unaudited)

FIRST QUARTER 2001 PERFORMANCE STATISTICS

    Return on Average Book Assets

    Adjusted Basic Earnings to Common Shareholders                  $61,482
    Plus:  Preferred Dividends                                        9,227
    Adjusted Basic Earnings before Preferred Dividends              $70,709
    Adjusted Basic Earnings before Preferred Dividends
     -- Annualized (A)                                             $282,836

    Average Total Book Assets (B)                                $4,024,334

    Return on Average Book Assets (A)/(B)                              7.0%

    Return on Average Common Book Equity

    Adjusted Basic Earnings to Common Shareholders                  $61,482
    Adjusted Basic Earnings to Common -- Annualized (C)            $245,928

    Average Total Book Equity                                    $1,804,298
    Less: Book Value of Preferred Equity                           (382,000)
    Average Common Book Equity (D)                               $1,422,298

    Return on Average Common Book Equity (C)/(D)                      17.3%

    Efficiency Ratio

    General & Administrative Expenses                                $6,102
    Plus: Stock Option Compensation Expense                             860
    Total Corporate Overhead (E)                                     $6,962

    Total Revenue (F)                                              $122,619

    Efficiency Ratio (E)/(F)                                           5.7%

FIRST QUARTER 2001 CREDIT STATISTICS

    Book Debt/Equity

    Book Debt (A)                                                $2,120,834

    Total Book Equity (B)                                        $1,820,711

    Book Debt / Book Equity (A)/(B)                                    1.2x

                             iStar Financial Inc.
                           Supplemental Information
         (as of and for the three-month period ended March 31, 2001)
                                (In thousands)
                                 (unaudited)

FIRST QUARTER CREDIT STATISTICS

    Interest Coverage

    EBITDA (1) (A)                                  $110,671

    GAAP Interest Expense (B)                        $46,360

    EBITDA/GAAP Interest Expense (A)/(B)                2.4x

    Fixed Charge Coverage

    EBITDA (1) (C)                                  $110,671

    GAAP Interest Expense                            $46,360
    Plus:  Preferred Dividends                         9,227
    Total Fixed Charges (D)                          $55,587

    EBITDA/Fixed Charges (C)/(D)                        2.0x

FIRST QUARTER FINANCING VOLUME SUMMARY STATISTICS

LOAN ORIGINATIONS

                                                          Total/
                                             Floating    Weighted   CORPORATE
                                Fixed Rate     Rate      Average     LEASING

    Amount Funded                 $77,495    $168,249   $245,744    $10,352
    Weighted Average GAAP Yield    15.14%      10.92%     12.25%     10.34%
    Weighted Average All-In
     Spread/Margin
     (basis points) (2)            +1,001        +541         --       +520
    First $ Loan-to-Value Ratio     58.8%       22.0%      33.6%         --
    Last $ Loan-to-Value Ratio      75.4%       65.7%      68.7%         --

    UNFUNDED COMMITMENTS

    Number of Loans with Unfunded Commitments                              7

    Discretionary Commitments                                        $10,202
    Non-Discretionary Commitments                                     89,286
    Total Unfunded Commitments                                       $99,488

    Estimated Weighted Average Funding Period          Approximately 2 years

        (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.
        (2) Based on average quarterly one-month LIBOR (floating rate loans)
            and U.S. Treasury rates (fixed rate loans and corporate leasing
            transactions) during the quarter.

                             iStar Financial Inc.
                           Supplemental Information
         (as of and for the three-month period ended March 31, 2001)
                                (In millions)
                                 (unaudited)

    PORTFOLIO STATISTICS AS OF MARCH 31, 2001 (a)
    Security Type                                          $              %
      First Mortgages                                 $1,170          29.6%
      Second Mortgages                                   340           8.6%
      Corporate/Partnership Loans/Other                  712          18.1%
      Corporate Tenant Leases                          1,725          43.7%
        Total                                         $3,947         100.0%

    Collateral Type                                        $              %
      Office                                          $1,906          48.3%
      Industrial/R&D                                     400          10.1%
      Retail                                             115           2.9%
      Hotel                                              830          21.0%
      Mixed Use                                          147           3.7%
      Apartment/Residential                              209           5.3%
      Homebuilder/Land                                    49           1.3%
      Resort/Entertainment                               291           7.4%
        Total                                         $3,947         100.0%

    Product Line                                           $              %
      Structured Finance                                $944          23.9%
      Portfolio Finance                                  379           9.6%
      Loan Acquisition                                   511          12.9%
      Corporate Finance                                  388           9.9%
      Corporate Tenant Leasing                         1,725          43.7%
        Total                                         $3,947         100.0%

    Collateral Location                                    $              %
      West                                            $1,217          30.8%
      Southwest                                           78           2.0%
      South                                              708          17.9%
      Central                                            276           7.0%
      North Central                                       71           1.8%
      Northeast                                          750          19.0%
      Mid-Atlantic                                       335           8.5%
      Southeast                                          331           8.4%
      Northwest                                          181           4.6%
        Total                                         $3,947         100.0%

        (a) Figures presented prior to loan loss reserves and accumulated
            depreciation.

                     MAKE YOUR OPINION COUNT - Click Here
               http://tbutton.prnewswire.com/prn/11690X84459427

SOURCE iStar Financial Inc.

CONTACT: Spencer B. Haber, Exec. Vice President and CFO, or Lianne A. Merchant, Vice President, Investor Relations, or Erin C. Hart, Associate, Investor Relations, all of iStar Financial Inc., 212-930-9400/

<< Back to News