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07/23/2001

iStar Financial Announces Record Earnings

NEW YORK, Jul 23, 2001 /PRNewswire/ --

-- Adjusted earnings per diluted share increases to $0.72 for second quarter 2001 from $0.66 for second quarter 2000. -- Return on equity reaches 17.5%. -- Financing volume totals $370.9 million. -- iStar Financial appoints Spencer Haber President.

iStar Financial Inc. (NYSE: SFI) reported adjusted earnings for the quarter ended June 30, 2001 of $0.72 per diluted common share, up from $0.66 per diluted share for the quarter ended June 30, 2000. Adjusted earnings for second quarter 2001 increased 11.2% to $63.5 million on a diluted basis, from $57.1 million for second quarter 2000. Adjusted earnings represent GAAP net income before depreciation and amortization.

Net income allocable to common shareholders for the second quarter grew to $49.7 million, or $0.56 per diluted common share, compared with $44.6 million, or $0.52 per diluted share, in second quarter 2000. Second quarter 2001 total revenue increased to $120.8 million from $117.9 million for the second quarter 2000.

In the second quarter of 2001, iStar Financial achieved returns on average book assets and average common book equity of 7.2% and 17.5%, respectively, while leverage remained at 1.2x book equity. Net investment income for the quarter ended June 30, 2001 increased to $68.5 million. Net investment income represents interest and operating lease revenue less interest expense and operating costs for corporate tenant lease assets.

During the second quarter of 2001, iStar Financial closed 11 new financing commitments totaling $358.1 million, of which $308.1 million was funded during the quarter. In addition, the Company funded $12.8 million under three pre-existing commitments and received $304.0 million in principal repayments. The Company's recent transactions continue to reflect its core business strategy of originating large-balance, structured financing transactions for owners of high-quality commercial real estate assets and leading corporations across the United States.

Jay Sugarman, iStar Financial's chairman and chief executive officer, commented, "Over the past several quarters, we have remained cautious in our view of the markets in which we operate. Recently, however, we have begun to see an increase in the number of opportunities that meet our investment goals, and during the second quarter, we expanded our investment activity to capture these opportunities. In particular, we were again able to identify several attractive corporate lending opportunities. These transactions continue to provide us with compelling risk/return dynamics in which we look to the performance of a diversified underlying pool of real estate collateral as well as the corporate credit of the borrower."

The Company also announced two senior management appointments during the quarter. In recognition of his strategic leadership and significant contributions to the firm, Spencer B. Haber was appointed president in addition to his continued responsibilities as the Company's chief financial officer and a director. In addition, the Company welcomed Chase J. Curtis as senior vice president -- credit. Mr. Curtis joins iStar Financial from Bank of America, and brings 16 years of extensive corporate credit experience to the Company.

    Selected Income Statement Data
    (In thousands, except per share amounts)
    (unaudited)
                                                        Three Months Ended
                                                             June 30,
                                                      2001            2000

    Net investment income                            $68,505        $68,358
    Other income                                       7,678          3,827
    Non-interest expense                            (18,226)       (18,756)
    Net income before minority interest              $57,957        $53,429
    Minority interest                                   (41)           (41)
    Gain on sale of corporate tenant lease assets      1,044            441
    Preferred dividends                              (9,227)        (9,227)
    Net income allocable to common shareholders      $49,733        $44,602
    Per basic share                                    $0.58          $0.52
    Per diluted share                                  $0.56          $0.52

    Adjusted earnings allocable to common
     shareholders (A)                                $63,545        $57,144
    Per basic share                                    $0.74          $0.67
    Per diluted share                                  $0.72          $0.66

    Dividends                                        $0.6125        $0.6000

     (A) Adjusted earnings represent GAAP net income before depreciation and
    amortization, and exclude gain onsale of corporate tenant lease assets.

    Selected Balance Sheet Data
    (In thousands)
                                                    As of           As of
                                                   June 30,     December 31,
                                                     2001           2000
                                                 (unaudited)

    Loans and other lending investments, net      $2,252,255     $2,225,183
    Real estate subject to operating
     leases, net                                   1,634,524      1,670,169
    Total assets                                   4,053,350      4,034,775
    Debt obligations                               2,153,031      2,131,967
    Total liabilities                              2,219,576      2,240,666
    Total shareholders' equity                     1,831,125      1,787,885
Transaction Volume

In the second quarter of 2001, iStar Financial generated $358.1 million in new financing commitments in 11 separate transactions. The Company also funded an additional $12.8 million under three pre-existing financing commitments and received $304.0 million in loan repayments. Mr. Sugarman stated, "While prepayments continued at above-average levels in the second quarter because of lower interest rates, we are beginning to see early refinancing activity abate. As we mentioned in our last quarterly earnings release, we continue to expect prepayment levels to subside in the second half of the year."

During the second quarter of 2001, the weighted average first dollar and last dollar loan-to-value ratio on new loan commitments was 34.8% and 74.9%, 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, "Our overall asset quality remains healthy in the face of a slowing economy. While the top-line performance of some real estate collateral has softened somewhat, our focus on supply-constrained markets and large cross-collateralized portfolios continues to serve us well. In addition, our emphasis on senior secured and diversified corporate lending mitigates the impact of downturns in real estate market conditions on our Company."

At June 30, 2001, first mortgages, corporate tenant leases and corporate financing transactions collectively comprised 78.3% 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 31.8% and 71.4%, respectively.

Also as of June 30, 2001, the weighted average lease term of the Company's corporate tenant leasing portfolio was 8.6 years. This portfolio was 96.7% leased at the end of second quarter 2001 (99.2% excluding a vacant facility currently under contract for sale). Remaining lease expirations for 2001 and 2002 represent 0.5% and 2.3% of annualized total GAAP revenue, respectively.

Capital Markets

During the second quarter of 2001, iStar Financial extended the maturity of a $350 million unsecured credit facility until May 2002. In addition, the Company extended the maturity of a $500 million secured credit facility until August 2003. Both facilities were extended at their pre-existing terms. Also during the quarter, iStar Financial executed a $193 million secured debt transaction backed by a pool of corporate tenant lease assets, the proceeds of which were primarily used to repay short-term secured debt. Subsequent to the quarter end, iStar Financial also match funded its recent putable preferred investment in The Mills Corporation under iStar Financial's debt facility for corporate finance investments.

Spencer B. Haber, iStar Financial's president and chief financial officer, stated, "Following our recent capital markets transactions, we now have just one meaningful debt maturity remaining until 2003, which we expect to refinance in the third quarter of this year. In addition, we continue to have significant excess capacity with which to fund asset growth."

Mr. Haber added, "Our balance sheet remains 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%."

During the second quarter, the Company launched trading of options on its common shares on the American Stock Exchange. iStar Financial Inc. options opened with strike prices of $20.00, $22.50 and $25.00 and position limits of 13,500 contracts. The options are trading on the January expiration cycle with initial expirations in June, July, October and January.

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 $0.73 to $0.74 for the third quarter of 2001 and full-year diluted adjusted EPS of $2.92 to $2.93, 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 is mandatory for each of the Company's professional employees. These 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 second quarter 2001 review, the weighted average risk rating of the Company's structured finance assets was 2.68, somewhat higher than last quarter's rating of 2.53. The weighted average risk rating for corporate tenant lease assets at the end of the second quarter was 2.79, essentially unchanged from the prior quarter rating of 2.78. The Company continues to have one loan and one corporate tenant lease asset currently on its "watch list," with a combined book value of $39.2 million as of June 30, 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 2.05% of the gross book value of the Company's investments (loans and operating leases).

Other Developments

On July 2, 2001, iStar Financial declared a regular quarterly cash dividend of $0.6125 per common share for the quarter ended June 30, 2001. The second quarter 2001 dividend, which will be paid on July 30, 2001 to holders of record as of July 16, 2001, represents approximately 83.3% of basic adjusted earnings per share for the second quarter.

During the second quarter, the Company designed and launched a new Web site. The new Web site can be accessed through www.istarfinancial.com.

iStar Financial is the largest publicly traded finance company focused exclusively 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, July 23, 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 relations" section. To listen to the live call, please go to the Web site'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 Web site and will remain available for the next 30 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
                                                             June 30,
                                                      2001            2000
    Revenue:
     Interest income                                 $63,903        $66,864
     Operating lease income                           49,244         47,223
     Other income                                      7,678          3,827
      Total revenue                                  120,825        117,914

    Costs and expenses:
     Interest expense                                 41,368         42,770
     Operating costs - corporate tenant lease assets   3,274          2,959
     Depreciation and amortization                     8,778          8,862
     General and administrative                        6,498          7,808
     Provision for possible credit losses              1,750          1,500
     Stock-based compensation expense                  1,200            586
      Total costs and expenses                        62,868         64,485

    Net income before minority interest               57,957         53,429
     Minority interest                                  (41)           (41)
     Gain on sale of corporate tenant lease assets     1,044            441
    Net income                                       $58,960        $53,829

    Preferred dividends                              (9,227)        (9,227)
    Net income allocable to common shareholders      $49,733        $44,602

    Net income per common share:
     Basic                                             $0.58          $0.52
     Diluted                                           $0.56          $0.52

    Weighted average common shares outstanding:
     Basic                                            86,081         85,281
     Diluted                                          88,142         85,990

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

                                                       Three Months Ended
                                                            June 30,
                                                      2001            2000

    ADJUSTED EARNINGS PER SHARE:
    Net income                                       $58,960        $53,829

    Add: Depreciation                                  8,778          8,862

    Add: Joint venture depreciation                      954            832

    Add: Amortization                                  4,890          3,054

    Less: Preferred dividends                        (9,227)        (9,227)

    Less: Gain on sale of corporate tenant
     lease assets                                    (1,044)          (441)

    Adjusted earnings allocable to common
     shareholders:
      Basic                                          $63,311        $56,909

      Diluted                                        $63,545        $57,144


    Adjusted earnings per common share:
      Basic                                            $0.74          $0.67

      Diluted                                          $0.72          $0.66


    Weighted average common shares outstanding:
      Basic                                           86,081         85,281

      Diluted                                         88,440         86,363

                             iStar Financial Inc.
                         Consolidated Balance Sheets
                                (In thousands)

                                                    As of            As of
                                                   June 30,     December 31,
                                                     2001            2000
                                                 (unaudited)

    ASSETS

    Loans and other lending investments, net      $2,252,255     $2,225,183
    Real estate subject to operating leases, net   1,634,524      1,670,169
    Cash and cash equivalents                         26,301         22,752
    Restricted cash                                   27,800         20,441
    Marketable securities                                 41             41
    Accrued interest and operating lease
     income receivable                                17,353         20,167
    Deferred operating lease income receivable        15,220         10,236
    Other assets                                      79,856         65,786
          Total assets                            $4,053,350     $4,034,775

    LIABILITIES AND SHAREHOLDERS' EQUITY

    Accounts payable and other liabilities           $61,320        $52,038
    Dividends payable                                  5,225         56,661

    Debt obligations:
     Unsecured senior notes                          257,909        356,509
     Unsecured revolving credit facilities           159,000        173,450
     Secured revolving credit facilities             789,851        592,349
     Secured term loans                              443,212        349,060
     iStar Asset Receivables secured notes           486,437        588,334
     Other debt obligations                           16,622         72,265
         Total liabilities                        $2,219,576     $2,240,666
    Minority interest                                  2,649          6,224
    Shareholders' equity                           1,831,125      1,787,885
         Total liabilities and
          shareholders' equity                    $4,053,350     $4,034,775

                             iStar Financial Inc.
                           Supplemental Information
          (as of and for the three-month period ended June 30, 2001)
                                (In thousands)
                                 (unaudited)

    SECOND QUARTER 2001 PERFORMANCE STATISTICS

    Return on Average Book Assets

    Adjusted Basic Earnings to Common Shareholders   $63,311
    Plus: Preferred Dividends                          9,227
    Adjusted Basic Earnings before Preferred
     Dividends                                       $72,538
    Adjusted Basic Earnings before Preferred
     Dividends - Annualized (A)                     $290,152

    Average Total Book Assets (B)                 $4,033,621

    Return on Average Book Assets (A) / (B)             7.2%

    Return on Average Common Book Equity

    Adjusted Basic Earnings to Common
     Shareholders                                    $63,311
    Adjusted Basic Earnings to Common
     - Annualized (C)                               $253,244

    Average Total Book Equity                     $1,825,918
    Less: Book Value of Preferred Equity           (382,000)
    Average Common Book Equity (D)                $1,443,918

    Return on Average Common Book Equity (C) / (D)     17.5%

    Efficiency Ratio

    General & Administrative Expenses                 $6,498
    Plus: Stock-Based Compensation Expense             1,200
    Total Corporate Overhead (E)                      $7,698

    Total Revenue (F)                               $120,825

    Efficiency Ratio (E) / (F)                          6.4%

    SECOND QUARTER 2001 CREDIT STATISTICS

    Book Debt / Equity

    Book Debt (A)                                 $2,153,031

    Total Book Equity (B)                         $1,831,125

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



                             iStar Financial Inc.
                           Supplemental Information
          (as of and for the three-month period ended June 30, 2001)
                                (In thousands)

    SECOND QUARTER CREDIT STATISTICS (cont.)

    Interest Coverage

    EBITDA (1) (A)                                  $108,103

    GAAP Interest Expense (B)                        $41,368

    EBITDA / GAAP Interest Expense (A) / (B)            2.6x

    Fixed Charge Coverage

    EBITDA (1) (C)                                  $108,103

    GAAP Interest Expense                            $41,368
    Plus: Preferred Dividends                          9,227
    Total Fixed Charges (D)                          $50,595

    EBITDA / Fixed Charges (C) / (D)                    2.1x

    SECOND QUARTER FINANCING VOLUME SUMMARY STATISTICS

                                               LOAN ORIGINATIONS
                                                         Total/
                                            Floating    Weighted    CORPORATE
                             Fixed Rate        Rate      Average     LEASING

    Amount Committed          $246,582      $113,303    $359,885    $10,949

    Weighted Average GAAP
     Yield                      12.26%         9.76%      11.47%     10.34%

    Weighted Average All-In
     Spread/Margin
     (basis points) (2)           +717          +548          --       +497

    First $ Loan-to-Value Ratio  41.4%         26.2%       36.6%         --

    Last $ Loan-to-Value Ratio   86.6%         62.2%       78.9%         --

    UNFUNDED COMMITMENTS

    Number of Loans with Unfunded
     Commitments                                   9

    Discretionary Commitments                $53,367
    Non-Discretionary Commitments             74,002
    Total Unfunded Commitments              $127,369

    Estimated Weighted Average
     Funding Period                   Approximately 1.6 years

     (1) EBITDA is calculated as total revenue minus the sum of general and
    administrative expenses, provision for possible credit losses, stock-based
    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 June 30, 2001)
                                (In millions)
                                 (unaudited)

    PORTFOLIO STATISTICS AS OF JUNE 30, 2001 (A)

    Security Type                                        $              %
    First Mortgages                                   $1,013          25.5%
    Second Mortgages                                     354           8.9%
    Corporate/Partnership Loans/Other                    866          21.8%
    Corporate Tenant Leases                            1,739          43.8%
             Total                                    $3,972         100.0%

    Collateral Type                                      $              %
    Office                                            $1,902          47.9%
    Industrial/R&D                                       399          10.0%
    Retail                                               193           4.9%
    Hotel                                                799          20.1%
    Mixed Use                                            147           3.7%
    Apartment/Residential                                178           4.5%
    Homebuilder/Land                                      40           1.0%
    Resort/Entertainment                                 310           7.8%
    Various                                                4           0.1%
             Total                                    $3,972         100.0%

    Product Line                                         $              %
    Structured Finance                                  $983          24.7%
    Portfolio Finance                                    365           9.2%
    Loan Acquisition                                     360           9.1%
    Corporate Finance                                    525          13.2%
    Corporate Tenant Leasing                           1,739          43.8%
             Total                                    $3,972         100.0%

    Collateral Location                                  $              %
    West                                              $1,228          30.9%
    Southwest                                             90           2.3%
    South                                                635          16.0%
    Central                                              292           7.3%
    North Central                                         80           2.0%
    Northeast                                            818          20.6%
    Mid-Atlantic                                         282           7.1%
    Southeast                                            353           8.9%
    Northwest                                            188           4.7%
    Various                                                6           0.2%
             Total                                    $3,972         100.0%

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

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SOURCE iStar Financial Inc.

CONTACT:          Spencer B. Haber, President & Chief Financial Officer, or
                  Lianne A. Merchant, Vice President, Investor Relations, or Erin C. Hart,
                  Associate, Investor Relations, all of iStar Financial Inc., +1-212-930-9400

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