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iStar Financial Announces Third Quarter Results
|* Net investment income hits record high of $79.3 million, up 20% from third quarter 2001. * 2002 year-to-date net asset growth reaches $1.0 billion. * First mortgages comprise 77% of third quarter financing commitments. * Adjusted earnings per diluted share increases to $0.77, excluding non-cash charge. * Company receives investment-grade senior unsecured credit rating from Fitch Ratings. * Standard & Poor's and Moody's Investor Service raise iStar Financial's ratings outlook to "positive" for a move to investment grade. * iStar Financial closes new $500 million revolving credit facility.
NEW YORK, Oct 24, 2002 /PRNewswire-FirstCall via COMTEX/ -- iStar Financial Inc. (NYSE: SFI) reported that adjusted earnings for the quarter ended September 30, 2002 were $0.77 per diluted share, excluding an $8.9 million non-cash charge related to performance-based vesting of restricted shares granted under its long-term incentive plan. The Company previously announced the charge in April 2002. After the non-cash charge, adjusted earnings were $0.67 per diluted share. For the quarter ended September 30, 2001, adjusted earnings were $0.73 per diluted share.
Adjusted earnings for third quarter 2002 were $71.3 million on a diluted basis excluding the non-cash charge and $62.5 million after the charge, compared to $64.9 million for third quarter 2001. Adjusted earnings represents net income computed in accordance with GAAP, before gain (loss) from discontinued operations, extraordinary items and cumulative effect of change in accounting principle, plus depreciation and amortization, less preferred stock dividends.
Net income allocable to common shareholders for the quarter was $43.4 million, or $0.47 per diluted share, compared with $48.3 million, or $0.54 per diluted share, in third quarter 2001. Please see the financial tables which follow the text of this press release for a detailed reconciliation of adjusted earnings to GAAP net income.
Net investment income for the quarter ended September 30, 2002 increased to a record $79.3 million, up 20.2% from $66.0 million for the third quarter of 2001. Net investment income represents interest income, operating lease revenue and equity in earnings from joint ventures and unconsolidated subsidiaries less interest expense and operating costs for corporate tenant lease assets.
In the third quarter of 2002, iStar Financial achieved a return on average book assets of 6.1% and a return on average common book equity of 19.0% prior to the non-cash charge, while leverage increased slightly to 1.8x book equity. Returns on average book assets and equity were 5.4% and 16.6%, respectively, after the non-cash charge.
iStar Financial announced that during the third quarter, it closed eight new financing commitments for a total of $334.5 million, of which $329.5 million was funded during the quarter. In addition, the Company funded $2.5 million under five pre-existing commitments and received $233.7 million in principal repayments. The Company's recent transactions continue to reflect its core business strategy of originating 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, stated, "Given the unprecedented weakness in the macro environment, iStar Financial's investment and funding strategies continue to emphasize risk mitigation and capital preservation. Those who have followed our Company know that we have been bearish on the economy and commercial real estate fundamentals since mid-2000. Consistent with our outlook, between December 1999 and September 2001, we grew net assets by just $400 million. This conservative posture has served us well in the current environment as our asset quality and balance sheet remain strong."
Mr. Sugarman continued, "Following the market dislocations in late 2001, we have utilized our substantial liquidity to capitalize on opportunities in the senior mortgage financing and investment-grade sale/leaseback markets. In the 12 months since September 30, 2001, we have grown net assets by $1.1 billion. Of our new financing commitments during this period, 83% represented first mortgages and investment-grade sale/leasebacks."
In the third quarter of 2002, iStar Financial generated $334.5 million in new financing commitments in eight separate transactions. The Company also funded an additional $2.5 million under five pre-existing financing commitments and received $233.7 million in loan repayments. Of the Company's third quarter financing commitments, 77% represented first mortgages. The third quarter originations bring iStar Financial's net asset growth to $981.5 million for the nine months ended September 30, 2002.
Mr. Sugarman commented, "Relative to alternative asset classes, we continue to see very attractive risk-adjusted returns in our core real estate finance business, and our investment pipeline remains robust. However, as U.S. Treasury rates and LIBOR base rates have fallen to record lows, absolute rates of return have declined. Looking ahead for 2003, we will continue to alter our investment mix in favor of safer assets until such time as we see demonstrable signs of improvement in economic, geopolitical and commercial real estate market conditions. While this may produce more moderate earnings growth in 2003, the safety of our earnings stream and our substantial free cash flow will continue to provide a rock solid foundation for our dividend."
During the quarter, the weighted average first dollar and last dollar loan-to-value ratio on new loan commitments was 0.9% and 74.6%, 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.
During the third quarter of 2002, Fitch Ratings upgraded iStar Financial's senior unsecured credit rating to BBB- from BB+. In addition, Standard & Poor's and Moody's Investors Service raised their ratings outlooks for the Company's senior unsecured credit rating to BB+ "positive" and Ba1 "positive," respectively.
On September 30, 2002, the Company closed a new $500 million secured revolving credit facility with a leading financial institution, bringing the Company's total committed credit facilities to $2.7 billion. The facility accepts a broad range of structured finance and corporate tenant lease assets, and has a final maturity date of September 2005. At September 30, 2002, the Company had $1.3 billion outstanding under its five primary credit facilities.
Spencer B. Haber, iStar Financial's president, stated, "This quarter, we are pleased to report another series of positive credit ratings moves and additional balance sheet firepower. The rating agencies' acknowledgement of our continued strong performance stands out in a difficult economic and credit environment. Achieving investment-grade status at Fitch is an important milestone for iStar Financial, and our goal is to convert Moody's and S&P's positive outlooks into similar ratings within the next nine to 15 months."
Consistent with the Securities and Exchange Commission's Regulation FD, iStar Financial comments on earnings expectations within the context of its regular earnings press releases. The Company currently expects diluted adjusted EPS for fiscal year 2002 of $3.02 per share, excluding the $0.16 per share previously-announced non-cash charge. For fiscal year 2003, the Company currently expects diluted adjusted EPS of $3.22-$3.28 per share. The Company's 2003 earnings guidance assumes approximately $950 million of net asset growth.
For the first quarter of fiscal year 2003, the Company currently expects to increase its dividend by 5.2%, from $0.63 per share to $0.6625 per share. This expectation is based upon the Company's current forecast for its results of operations for that period. Actual results may differ due to the factors discussed elsewhere in this press release, and dividends are only payable upon declaration by the Company's Board of Directors. For fiscal 2003, the Company's dividend payout ratio should range from approximately 78%-80%, based on expected basic adjusted EPS of $3.32-$3.38 per share and assuming the increased dividend is paid for each quarter.
Mr. Haber commented, "Despite low base rates and an even more conservative posture regarding investment mix going into next year, we still expect steady growth in both the dividend and earnings. At the same time, our dividend payout ratio should further improve as earnings growth continues to exceed dividend growth. The safety margin created by substantial earnings and free cash flow coverage of our dividend should provide investors with a reliable current yield as a foundation for our stock's total rate of return potential."
Mr. Haber added, "Our 2003 guidance assumes net asset growth of approximately $950 million for the full year, which is less than what we have already generated in the first nine months of 2002. We have also been appropriately conservative with respect to net investment margins and releasing assumptions for the relatively small number of CTL leases which rollover in 2003."
At September 30, 2002, first mortgages, corporate tenant leases and corporate financing transactions collectively comprised 87.7% 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 24.9% and 68.1%, respectively. The weighted average debt service coverage for all structured finance assets, based on 2002 budgeted cash flow and current interest rates, was 2.1x at September 30, 2002.
At quarter end, the Company's corporate tenant lease assets were 97.3% leased with a weighted average remaining lease term of 9.1 years. Corporate tenant lease expirations for the remainder of 2002 and 2003 represent 0.9% and 2.5% of annualized total revenue for third quarter 2002. At quarter end, 85.5% of the Company's corporate lease customers were public companies (or subsidiaries of public companies).
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. In addition to the ratings system, the Company maintains a "watch list" of assets which require highly proactive asset management to preserve their current ratings.
Based upon the Company's third quarter 2002 review, the weighted average risk rating of the Company's structured finance assets increased slightly, to 2.81 from last quarter's rating of 2.74. The weighted average risk rating for corporate tenant lease assets at the end of the third quarter also rose slightly, to 2.80 from the prior quarter's rating of 2.76.
For the third quarter, the Company added one loan and one corporate tenant lease asset to its credit watch list. The Company now has two loans and three corporate tenant lease assets on the list, with a combined book value of $137.3 million as of September 30, 2002, as compared to $134.2 million at June 30, 2002. The Company is currently comfortable that it has adequate collateral to support the book value for each of the watch list assets.
At quarter end, accumulated loan loss reserves and other asset-specific credit protection represented an aggregate of approximately 5.67% of the gross book value of the Company's loans. In addition, cash deposits, letters of credit and accumulated depreciation relating to corporate tenant lease assets represented 9.36% of the gross book value of the Company's corporate tenant lease assets at quarter end. As of September 30, 2002, the Company continued to have just two assets on non-accrual status with an aggregate gross book value of $5.5 million, or 0.1% of the gross book value of the Company's investments, down from $5.6 million at June 30, 2002. Each of the Company's two non-accrual assets continues to pay as agreed.
Timothy J. O'Connor, iStar Financial's chief operating officer, stated, "Asset quality remains strong, even in the face of weaker economic and commercial real estate fundamentals. This is evidenced by continued healthy debt service coverage on our loans and minimal changes to overall risk ratings and watch list assets during the quarter. As in the past, we have successfully identified potential credit issues early in the cycle, and proactively worked to reduce our exposure before weaker asset or customer performance resulted in credit trouble."
On October 1, 2002, iStar Financial declared a regular quarterly cash dividend of $0.63 per common share for the quarter ended September 30, 2002. The third quarter 2002 dividend, which is payable on October 29, 2002 to holders of record as of October 15, 2002, represents approximately 78.8% of basic adjusted earnings per share for the third quarter, excluding the non-cash incentive compensation charge.
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 10:00 a.m. ET today, October 24, 2002. This conference call will be broadcast live over the Internet and can be accessed by all interested parties through iStar Financial's Web site, http://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.
(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.)
CONTACT: Spencer B. Haber, President & Chief Financial Officer, or Andrew C. Richardson, Senior Vice President, Capital Markets, or Erin C. Gatewood, Associate, Investor Relations, +1-212-930-9400, all of iStar Financial Inc.
URL: http://www.istarfinancial.com http://www.prnewswire.com
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