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10/28/2014

iStar Financial Announces Third Quarter 2014 Results

Earnings Report

- Adjusted income allocable to common shareholders grew to $58 million, versus a $(7) million loss for the third quarter of 2013.
- Net income allocable to common shareholders was $22 million, versus a $(31) million loss for the third quarter of 2013.
- Funded $206 million of investments during the quarter.

NEW YORK, Oct. 28, 2014 /PRNewswire/ -- iStar Financial Inc. (NYSE: STAR) today reported results for the third quarter ended September 30, 2014.

Third Quarter 2014 Results

iStar reported adjusted income allocable to common shareholders for the third quarter of $57.7 million, or $0.48 per diluted common share, compared to a loss of $(7.3) million, or $(0.09) per diluted common share for the third quarter 2013.

Adjusted income represents net income computed in accordance with GAAP, prior to the effects of certain non-cash items, primarily including depreciation, loan loss provisions, impairments, stock-based compensation and gain/loss on early extinguishment of debt. Please see the financial tables that follow the text of this press release for the Company's calculations of adjusted income (loss) as well as reconciliations to GAAP net income (loss).

Net income allocable to common shareholders for the third quarter was $22.3 million, or $0.21 per diluted common share, compared to a loss of $(30.6) million, or $(0.36) per diluted common share for the third quarter 2013.

Investment Activity

During the third quarter, iStar funded a total of $205.6 million of investments, comprised of $138.6 million of new originations and $67.0 million associated with ongoing developments and prior financing commitments.

Included in these investments is iStar's $104 million share of a $200 million net lease transaction with Bowlmor AMF, which was comprised of a portfolio of 58 bowling centers subject to a 20-year master lease. The transaction helped Bowlmor AMF finance its acquisition of Brunswick Bowling. The investment was completed through iStar's net lease joint venture, with iStar funding 52% and its venture partner funding the remainder.

iStar generated $512.7 million of total proceeds from repayments and sales during the quarter, comprised of $307.8 million from real estate finance, $5.0 million from net lease, $105.3 million from operating properties, $3.3 million  from land and $91.3 million from other investments. During the quarter, the Company generated $27.8 million of gains from sales of operating properties as well as $32.9 million of earnings from equity method investments associated with the sale of several properties.

The Company had $652.8 million of available cash at the end of the quarter.

Portfolio Overview

At September 30, 2014, the Company's portfolio totaled $5.0 billion, which is gross of $455.3 million of accumulated depreciation and $30.8 million of general loan loss reserves.

Real Estate Finance

At September 30, 2014, the Company's real estate finance portfolio totaled $1.22 billion, gross of general loan loss reserves.  The portfolio included $1.13 billion of performing loans with a weighted average last dollar loan-to-value ratio of 78% and a weighted average maturity of 2.9 years. The performing loans included $463.0 million of first mortgages / senior loans and $665.3 million of mezzanine / subordinated debt. The performing loans generated a yield for the quarter of 9.4%.

At September 30, 2014, the Company's non-performing loans (NPLs) had a carrying value of $93.2 million, remaining flat relative to the prior quarter. For the third quarter, the Company recorded a $0.7 million reversal of its loan loss provision, compared to a reversal of $9.8 million in the third quarter of 2013. At September 30, 2014, loan loss reserves totaled $119.9 million, or 10.6% of the total value of loans.

Net Lease

At the end of the quarter, iStar's net lease portfolio totaled $1.70 billion, gross of $360.8 million of accumulated depreciation.

The Company's net lease portfolio totaled 19 million square feet across 33 states. Occupancy for the portfolio was 94.1% at the end of the quarter, with a weighted average remaining lease term of 11.4 years. The occupied assets generated an unleveraged yield of 8.4% and the total net lease portfolio generated an unleveraged yield of 7.8% for the quarter.

Operating Properties

At the end of the quarter, the Company's operating properties portfolio totaled $927.5 million, gross of $90.0 million of accumulated depreciation, and was comprised of $736.7 million of commercial and $190.8 million of residential real estate properties. During the quarter, the Company invested $18.6 million in its operating properties.

Commercial Operating

The Company's commercial operating properties represent a diverse pool of assets across a broad range of geographies and collateral types such as office, retail and hotel properties. These properties generated $30.8 million of revenue offset by $22.2 million of expenses during the quarter. iStar generally seeks to reposition or redevelop these assets with the objective of maximizing their values through the infusion of capital and/or intensive asset management efforts.

At the end of the quarter, the Company had $107.4 million of stabilized commercial operating properties that were 85% leased and generated an unleveraged yield of 8.9% for the quarter. During the quarter, the Company sold commercial operating property for $34.2 million, generating $4.6 million of income.

The remaining commercial operating properties were 64% leased and generated an unleveraged yield of 2.9% for the quarter. iStar is actively working to lease up and stabilize these properties. During the quarter, the Company executed commercial operating property leases covering approximately 120,000 square feet, net of the leases expired during the quarter. 

Residential Operating

At the end of the quarter, the residential operating portfolio was comprised of 459 condominium units, generally located within luxury condominium projects in major U.S. cities. The Company's strategy is to continue selling its remaining condominium inventory and to maximize net proceeds. During the quarter, the Company sold 124 condominium units, resulting in $70.8 million of proceeds and recorded $27.9 million of income, offset by $6.6 million of expenses. Proceeds this quarter included $16.6 million, which was primarily associated with the sale of a parking garage located within a condominium building, resulting in $5.2 million of  income.

Land

At the end of the quarter, the Company's land portfolio totaled $1.03 billion, gross of accumulated depreciation, and was comprised of 11 master planned community projects, 12 urban infill land parcels and six waterfront land parcels located throughout the United States. During the quarter, the Company invested $39.4 million in its land portfolio.

Master planned communities represent large-scale residential projects that the Company will entitle, plan and/or develop. These projects are currently entitled for approximately 25,000 lots.

During the third quarter, iStar began selling lots at two additional master planned communities. Ashton Woods closed on its first purchases of lots at Naples Reserve in Naples, FL. The project is expected to commence sales to homebuyers by the first quarter of next year. At Spring Mountain Ranch in Riverside, CA, where iStar and KB Home have partnered on the first phase of the project, KB Home purchased its first lots during the third quarter and in October opened the community for sales to homebuyers. Net earnings at Spring Mountain Ranch are recorded in earnings from equity method investments. Along with Magnolia Green in Chesterfield County, VA and Tetherow in Bend, OR, the total master planned communities actively selling lots increased to four.

The remainder of the Company's land includes infill and waterfront parcels located in and around major cities that the Company will develop, sell to or partner with commercial real estate developers. These projects are currently entitled for approximately 6,000 residential units, and select projects include commercial, retail and office uses.

At September 30, 2014, the Company had six land projects in production, 10 in development and 13 in the pre-development phase.

Capital Markets

During the quarter, the Company repaid $9.7 million on its 2012 Secured Credit Facility, bringing the remaining balance to $382.2 million at September 30, 2014.

The Company's weighted average cost of debt for the third quarter was 5.5%, flat from the second quarter of 2014 and down from 5.7% for the third quarter of last year. The Company's leverage was 1.9x at September 30, 2014, a decrease from 2.1x at the end of the second quarter and below the Company's targeted range of 2.0x – 2.5x. Please see the financial tables that follow the text of this press release for a calculation of the Company's leverage.

[Financial Tables to Follow]

*                   *                *

iStar Financial Inc. (NYSE: STAR) 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 www.istarfinancial.com.

iStar Financial Inc.

Logo - http://photos.prnewswire.com/prnh/20130708/NY43293LOGO

iStar Financial will hold a quarterly earnings conference call at 10:00 a.m. ET today, October 28, 2014. This conference call will be broadcast live over the Internet and can be accessed by all interested parties through iStar Financial's website, 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's expectations include general economic conditions and conditions in the commercial real estate and credit markets, 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, increases in NPLs, the Company's ability to reduce NPLs, repayment levels, the Company's ability to make new investments, the Company's ability to maintain compliance with its debt covenants, actual results of condominium sales meeting our expectations, the Company's ability to generate income and gains from non-performing loans, operating properties and land 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 September 30,


Nine Months
Ended September 30,


2014


2013


2014


2013

REVENUES








Operating lease income

$

60,691


$

60,227


$

183,766


$

175,354

Interest income

31,098


24,235


94,139


78,584

Other income

18,407


11,234


62,253


35,778

Land sales revenue

3,290



11,920


Total revenues

$

113,486


$

95,696


$

352,078


$

289,716

COST AND EXPENSES








Interest expense

$

55,424


$

63,793


$

169,410


$

204,516

Real estate expense

41,285


37,546


124,452


112,362

Land cost of sales

2,763



10,028


Depreciation and amortization

17,722


18,962


55,157


53,615

General and administrative(1)

23,377


24,285


69,788


67,008

Provision for (recovery of) loan losses

(673)


(9,834)


(6,865)


5,392

Impairment of assets

15,462


6,261


21,741


6,261

Other expense

(285)


1,495


4,626


7,266

Total costs and expenses

$

155,075


$

142,508


$

448,337


$

456,420

Income (loss) before earnings from equity method investments and other items

$

(41,589)


$

(46,812)


$

(96,259)


$

(166,704)

Loss on early extinguishment of debt

(186)


(3,498)


(24,953)


(28,282)

Earnings from equity method investments

49,578


4,345


76,848


34,346

Income (loss) from continuing operations before income taxes

$

7,803


$

(45,965)


$

(44,364)


$

(160,640)

Income tax (expense) benefit

(103)


3,879


619


(625)

Income (loss) from continuing operations

$

7,700


$

(42,086)


$

(43,745)


$

(161,265)

Income from discontinued operations


255



1,441

Gain from discontinued operations


9,166



22,488

Income from sales of real estate

27,791


14,075


61,465


72,092

Net income (loss)

$

35,491


$

(18,590)


$

17,720


$

(65,244)

Net (income) loss attributable to noncontrolling interests

412


(167)


(367)


332

Net income (loss) attributable to iStar Financial Inc.

$

35,903


$

(18,757)


$

17,353


$

(64,912)

Preferred dividends

(12,830)


(12,830)


(38,490)


(36,190)

Net (income) loss allocable to HPU holders and Participating Security holders(2)

(746)


1,016


683


3,263

Net income (loss) allocable to common shareholders

$

22,327


$

(30,571)


$

(20,454)


$

(97,839)





(1) For the three months ended September 30, 2014 and 2013, includes $3,273 and $4,563 of stock-based compensation expense, respectively. For the nine months ended September 30, 2014 and 2013, includes $8,544 and $14,484 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 non-employee directors who hold unvested common stock equivalents granted under the Company's LTIP who are eligible to participate in dividends.

 

 


iStar Financial Inc.
Earnings Per Share Information
(In thousands, except per share data)
(unaudited)



Three Months
Ended September 30,


Nine Months
Ended September 30,


2014


2013


2014


2013

EPS INFORMATION FOR COMMON SHARES








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

Basic

$

0.26


$

(0.46)


$

(0.24)


$

(1.43)

Diluted

$

0.21


$

(0.46)


$

(0.24)


$

(1.43)

Net income (loss) attributable to iStar Financial Inc.








Basic

$

0.26


$

(0.36)


$

(0.24)


$

(1.15)

Diluted

$

0.21


$

(0.36)


$

(0.24)


$

(1.15)

Adjusted income (loss)








Basic

$

0.68


$

(0.09)


$

0.95


$

(0.04)

Diluted

$

0.48


$

(0.09)


$

0.74


$

(0.04)

Weighted average shares outstanding








Basic

85,163


85,392


84,967


85,116

Diluted (for net income per share)

130,160


85,392


84,967


85,116

Diluted (for adjusted income per share)

130,160


85,392


129,981


85,116

Common shares outstanding at end of period

85,172


85,402


85,172


85,402









EPS INFORMATION FOR HPU SHARES








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

Basic

$

49.60


$

(87.93)


$

(45.53)


$

(269.07)

Diluted

$

40.13


$

(87.93)


$

(45.53)


$

(269.07)

Net income (loss) attributable to iStar Financial Inc.








Basic

$

49.60


$

(67.73)


$

(45.53)


$

(217.54)

Diluted

$

40.13


$

(67.73)


$

(45.53)


$

(217.54)

Weighted average shares outstanding








Basic

15


15


15


15

Diluted

15


15


15


15





(1) Including preferred dividends, net (income) loss from noncontrolling interests and income from sales of residential property.

 

 


iStar Financial Inc.
Consolidated Balance Sheets
(In thousands)
(unaudited)



As of


As of


September 30, 2014


December 31, 2013

ASSETS








Real estate




Real estate, at cost

$

3,138,151


$

3,220,634

Less: accumulated depreciation

(455,325)


(424,453)

Real estate, net

$

2,682,826


$

2,796,181

Real estate available and held for sale

317,964


360,517


$

3,000,790


$

3,156,698

Loans receivable and other lending investments, net

1,190,746


1,370,109

Other investments

314,275


207,209

Cash and cash equivalents

652,788


513,568

Restricted cash

21,774


48,769

Accrued interest and operating lease income receivable, net

13,752


14,941

Deferred operating lease income receivable

98,029


92,737

Deferred expenses and other assets, net

188,471


237,980

Total assets

$

5,480,625


$

5,642,011





LIABILITIES AND EQUITY








Accounts payable, accrued expenses and other liabilities

$

159,979


$

170,831

Debt obligations, net

4,047,016


4,158,125

Total liabilities

$

4,206,995


$

4,328,956





Redeemable noncontrolling interests

$

11,355


$

11,590





Total iStar Financial Inc. shareholders' equity

$

1,210,574


$

1,243,260

Noncontrolling interests

51,701


58,205

Total equity

$

1,262,275


$

1,301,465





Total liabilities and equity

$

5,480,625


$

5,642,011

 

 


iStar Financial Inc.
Segment Analysis
(In thousands)
(unaudited)


FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2014



Real Estate
Finance


Net
Lease


Operating
Properties


Land


Corporate /
Other



Total

Operating lease income

$


$

36,947


$

23,513


$

231


$


$

60,691

Interest income

31,098






31,098

Other income

885


3,573


11,795


496


1,658


18,407

Land sales revenues




3,290



3,290

Total revenue

$

31,983


$

40,520


$

35,308


$

4,017


$

1,658


$

113,486

Earnings (loss) from equity method investments


349


177


123


48,929


49,578

Income from sales of real estate



27,791




27,791

Revenue and other earnings

$

31,983


$

40,869


$

63,276


$

4,140


$

50,587


$

190,855

Real estate expense


(6,059)


(28,795)


(6,431)



(41,285)

Land cost of sales




(2,763)



(2,763)

Other expense

(283)





568


285

Allocated interest expense

(14,187)


(18,156)


(10,169)


(7,490)


(5,422)


(55,424)

Allocated general and administrative(1)

(3,492)


(4,610)


(2,699)


(3,566)


(5,737)


(20,104)

Segment profit (loss)

$

14,021


$

12,044


$

21,613


$

(16,110)


$

39,996


$

71,564













AS OF SEPTEMBER 30, 2014

























Real Estate
Finance


Net
Lease


Operating
Properties


Land


Corporate /
Other



Total

Real estate












Real estate, at cost

$


$

1,575,850


$

716,687


$

845,614


$


$

3,138,151

Less: accumulated depreciation


(360,816)


(89,974)


(4,535)



(455,325)

Real estate, net

$


$

1,215,034


$

626,713


$

841,079


$


$

2,682,826

Real estate available and held for sale



196,597


121,367



317,964

Total real estate

$


$

1,215,034


$

823,310


$

962,446


$


$

3,000,790

Loans receivable and other lending investments, net

1,190,746






1,190,746

Other investments


127,070


14,223


65,949


107,033


314,275

Total portfolio assets

$

1,190,746


$

1,342,104


$

837,533


$

1,028,395


$

107,033


$

4,505,811

Cash and other assets











974,814

Total assets











$

5,480,625















(1) Excludes $3,273 of stock-based compensation expense.

 

 


iStar Financial Inc.
Supplemental Information
(In thousands)
(unaudited)



Three Months
Ended September 30,


Nine Months
Ended September 30,


2014


2013


2014


2013

ADJUSTED INCOME








Reconciliation of Net Income to Adjusted Income








Net income (loss) allocable to common shareholders

$

22,327


$

(30,571)


$

(20,454)


$

(97,839)

Add: Depreciation and amortization

18,339


19,019


56,525


53,873

Add: Provision for (recovery of) loan losses

(673)


(9,834)


(6,865)


5,392

Add: Impairment of assets

15,462


6,785


21,741


7,181

Add: Stock-based compensation expense

3,273


4,563


8,544


14,484

Add: Loss on early extinguishment of debt

186


3,498


24,953


16,768

Less: HPU/Participating Security allocation

(1,183)


(773)


(3,390)


(3,153)

Adjusted income (loss) allocable to common shareholders(1)

$

57,731


$

(7,313)


$

81,054


$

(3,294)





(1) Adjusted Income (loss) allocable to common shareholders should be examined in conjunction with net income (loss) as shown in the Consolidated Statements of Operations. This non-GAAP financial measure 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 it 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 this non-GAAP financial measure may differ from the calculations of similarly-titled measures by other companies. Management believes that it is useful to consider Adjusted Income because the adjustments are non-cash items that do not necessarily reflect an actual change in the long-term economic value or performance of our assets. Management considers this non-GAAP financial measure as supplemental information to net income in analyzing the performance of our underlying business. Depreciation and amortization and impairment of assets exclude adjustments from discontinued operations of $57 and $524, respectively, for the three months ended September 30, 2013 and $258 and $920, respectively, for the nine months ended September 30, 2013. Depreciation and amortization includes our proportionate share of depreciation and amortization expense relating to equity method investments and excludes the portion of depreciation and amortization expense allocable to non-controlling interests. For the three and nine months ended September 30, 2013, loss on early extinguishment of debt excludes the portion of losses paid in cash of $11,514.

 

 

iStar Financial Inc.
Supplemental Information
(In thousands)
(unaudited)



Three Months Ended
September 30, 2014

OPERATING STATISTICS




Expense Ratio


General and administrative expenses - annualized (A)

$

93,508

Average total assets (B)

$

5,477,055

Expense Ratio (A) / (B)

1.7%




As of


September 30, 2014

Leverage


Book debt

$

4,047,016

Less: Cash and cash equivalents

(652,788)

Net book debt (C)

$

3,394,228



Book equity

$

1,262,275

Add: Accumulated depreciation and amortization

499,891

Add: General loan loss reserves

30,800

Sum of book equity, accumulated depreciation and general loan loss reserves (D)

$

1,792,966

Leverage (C) / (D)

1.9x



UNENCUMBERED ASSETS / UNSECURED DEBT




Unencumbered assets (E)(1)

$

5,130,194

Unsecured debt (F)

$

3,426,890

Unencumbered Assets / Unsecured Debt (E) / (F)

1.5x





(1) Unencumbered assets are calculated in accordance with the indentures governing the Company's unsecured debt securities.

 

 


iStar Financial Inc.
Supplemental Information
(In thousands)
(unaudited)








As of







September 30, 2014

UNFUNDED COMMITMENTS




















Performance-based commitments






$

398,038


Strategic investments






45,756


Discretionary fundings






5,000


Total Unfunded Commitments






$

448,794












LOAN RECEIVABLE CREDIT STATISTICS

As of


September 30, 2014


December 31, 2013











Carrying value of NPLs /










As a percentage of total carrying value of loans

$

93,235


9.3

%


$

203,604


16.6

%











Impaired loan asset specific reserves for loan losses /










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

$

89,107


42.1

%


$

348,004


46.3

%











Total reserve for loan losses /










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

$

119,907


10.6

%


$

377,204


23.5

%





(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, 2014(1)




















Property Type


Real Estate
Finance


Net Lease


Operating
Properties


Land


Total


% of

Total

Office / Industrial


$

19



$

920



$

322



$



$

1,261



25.3

%

Land


60







1,033



1,093



21.9

%

Entertainment / Leisure




580







580



11.6

%

Mixed Use / Mixed Collateral


330





242





572



11.5

%

Hotel


251



136



54





441



8.8

%

Retail


164



58



119





341



6.8

%

Condominium


116





191





307



6.2

%

Other Property Types


282



9







291



5.8

%

Strategic Investments










106



2.1

%

Total


$

1,222



$

1,703



$

928



$

1,033



$

4,992



100.0

%




















Geography


Real Estate
Finance


Net Lease


Operating
Properties


Land


Total


% of
Total

Northeast


$

537



$

388



$

144



$

201



$

1,270



25.4

%

West


105



438



128



356



1,027



20.6

%

Southeast


79



257



288



120



744



14.9

%

Southwest


122



236



184



139



681



13.6

%

Mid-Atlantic


177



145



133



191



646



13.0

%

Central


95



94



49



10



248



5.0

%

Various


30



143



2



16



191



3.8

%

International


77



2







79



1.6

%

Strategic Investments










106



2.1

%

Total


$

1,222



$

1,703



$

928



$

1,033



$

4,992



100.0

%





















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

 

SOURCE iStar Financial Inc.

David M. DiStaso, Chief Financial Officer or Jason Fooks, Investor Relations, (212) 930-9400, investors@istarfinancial.com

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