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iStar Financial Announces 39% Increase In Adjusted EPS
NEW YORK, May 3 /PRNewswire/ -- iStar Financial Inc. (NYSE: SFI), formerly named Starwood Financial Inc., reported that adjusted earnings for the quarter ended March 31, 2000 increased 39% to $0.64 per diluted common share, from $0.46 per diluted share for the quarter ended March 31, 1999. Adjusted earnings for first quarter 2000 totaled $54.4 million, up 109% from $26.0 million for first quarter 1999. Adjusted earnings represent GAAP net income before depreciation and amortization.
Net income allocable to common shareholders for the first quarter grew to $42.8 million, or $0.50 per diluted common share, compared with $22.9 million, or $0.41 per diluted share, in the 1999 period. Funds from operations for the quarter ended March 31, 2000 increased 42% to $0.61 per diluted common share, from $0.43 per diluted share for the 1999 period. First quarter 2000 total funds from operations and total revenues increased to $52.1 million and $110.9 million, respectively, from $24.4 million and $55.4 million for the first quarter of 1999.
iStar Financial announced that during the first quarter, it closed and funded five new financing commitments totaling $216.9 million. In addition, the Company funded $16.5 million under nine pre-existing commitments and received $115.9 million in principal repayments. iStar Financial's recent transactions continue to reflect the Company's core business strategy of originating and acquiring 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, 2000 1999 Net investment income $65,241 $33,953 Other income 4,533 1,778 Non-interest expense (17,960) (7,514) ------ ------ Net income before minority interest, gain on sale and extraordinary item $51,814 $28,217 Minority interest (41) -- Gain on sale of net lease assets 533 -- Extraordinary loss - early extinguishment of debt (317) -- Preferred dividends (9,227) (5,308) ------ ------ Net income allocable to common shareholders $42,762 $22,909 Per basic share(1) $0.50 $0.43 Per diluted share $0.50 $0.41 Adjusted earnings allocable to common shareholders $54,399 $25,983 Per basic share $0.64 $0.49 Per diluted share $0.64 $0.46 Dividends $0.60 $0.42 (1) For the quarter ended March 31, 1999, net income per basic common share excludes 1% of net income allocable to iStar Financial's class B shares. On November 4, 1999, the class B shares were exchanged for common shares in connection with the Company's acquisition of TriNet and related transactions. As a result, the Company now has a single class of common shares outstanding. Selected Balance Sheet Data (In thousands) As of As of March 31, 2000 December 31, 1999 (unaudited) Real estate loans and related investments, net $2,120,744 $2,003,506 Real estate subject to operating leases, net 1,664,350 1,714,284 Total assets 3,896,540 3,813,552 Debt obligations 1,987,394 1,901,204 Total liabilities 2,044,773 2,009,644 Total shareholders' equity 1,849,202 1,801,343
In the first quarter of 2000, iStar Financial generated $216.9 million in new financing commitments, in five separate transactions. The Company also funded an additional $16.5 million under nine pre-existing financing commitments. The quarter's transactions primarily consisted of corporate lending transactions for leading private institutional investment advisors in connection with the privatizations of public real estate companies in the multifamily and hotel sectors.
Jay Sugarman, iStar Financial's chairman and chief executive officer, commented, "This quarter, we focused on two strategic areas: taking a leading role in financing REIT privatizations and building our net lease investment platform. With respect to REIT privatizations, these investments represent large, highly-structured corporate lending transactions for which iStar Financial is uniquely qualified because of our expertise and size. We have actively evaluated financing opportunities in nearly all of the REIT leveraged buyouts announced in the past 18 months -- this quarter's transactions reflect the fruits of that effort. During the quarter, we provided $145 million in mezzanine capital to Olympus Real Estate Corporation, the real estate investment arm of Hicks, Muse, Tate & Furst, in their $1.7 billion purchase of Walden Residential Properties, Inc. We also assisted Westbrook Partners in its $900 million acquisition of Sunstone Hotel Investors, Inc. by structuring a $70 million junior tranche of a first mortgage portfolio financing with PW Real Estate Investments Inc., a unit of PaineWebber Inc."
Mr. Sugarman added, "These financings create strong returns for iStar Financial supported by large equity investments from leading investment advisors such as Olympus and Westbrook, while also providing our customers with flexible, custom-tailored financings which help them to maximize the value of their investments over time. In recognition of our continuing focus on such transactions, we have created a Leveraged Transactions Group which will specialize in identifying and structuring additional privatization financings."
Mr. Sugarman continued, "In our other key strategic area, we announced the addition of ACRE Partners' industry-leading net lease investment team to iStar Financial's credit tenant leasing platform. We now have in place a deep and experienced senior management team to lead the Company going forward. We welcome our new colleagues to iStar Financial, and look forward to increased credit tenant lease investment activity."
ACRE Partners Transaction
In the first quarter of 2000, the Company acquired American Corporate Real Estate, L.L.C. and its affiliate, American Corporate Real Estate, Inc. (together, "ACRE Partners"), a privately-held firm focused on providing public and private corporations with highly-structured, value-added financing solutions for their real estate facilities. As consideration for the ACRE Partners acquisition, the Company issued 220,652 common shares to ACRE Partners' principals and minority owners, with an additional 279,348 shares reserved for future issuance on or before December 2001 to the extent growth targets for capital under management are achieved.
ACRE Partners' three principals have approximately 50 years of combined experience in the credit tenant leasing business. ACRE Partners professionals located in New York and Dallas have joined iStar Financial's existing offices in those cities, and the Company has established a new Boston office in connection with the transaction.
Credit Tenant Leasing
During the first quarter of 2000, the Company executed 13 new leases, lease extensions and/or early lease renewals on 714,733 square feet of office and industrial facilities with a weighted average lease term of 7.9 years. Four leases totaling 97,314 square feet represented renewals or extensions of leases expiring in 2000, and four leases totaling 328,886 square feet represented early renewals of existing leases expiring in 2001 and thereafter. Weighted average net effective lease rates on renewed/extended leases increased by 60.4% from $9.65 to $15.48 per square foot. This increase is primarily attributable to the strong Northern California/Silicon Valley market in which a number of the Company's facilities are located.
First quarter leasing transactions included:
Since announcing its agreement to acquire TriNet Corporate Realty Trust, Inc. in June 1999, the Company has increased the weighted average term of the combined net lease portfolio to 7.1 years through new long-term leasing transactions and early lease renewals. At March 31, 2000, the net lease portfolio was 96.4% leased. Excluding a vacant facility currently being marketed for sale, the portfolio was 99.1% leased.
During the first quarter, iStar Financial successfully closed a new unsecured revolving credit facility. The facility is led by a major commercial bank, which has committed $50 million of the facility amount and is seeking to upsize the facility to $100 million through syndication. The new facility has a two-year primary term and a one-year extension at the Company's option, and bears interest at LIBOR plus 2.00% to 2.25%, depending upon certain conditions.
Also during the first quarter, the Company extended the term of an existing $500 million secured credit facility. iStar Financial extended the original August 2000 maturity date to August 2002, through a one-year extension to the facility's draw period and an additional one-year "term out" period during which outstanding principal amortizes 25% per quarter. In connection with the extension, iStar Financial and the facility lender also expanded the range of assets that the lender would accept as collateral under the facility. In exchange for the extension and expansion, the Company agreed to increase the facility's interest rate from LIBOR plus 1.25% to 1.50%, to a revised rate of LIBOR plus 1.50% to 1.75%, depending upon certain conditions.
Subsequent to quarter end, iStar Financial began marketing the inaugural offering under its proprietary matched funding program, Starwood Asset Receivables, Series 2000-1 ("STARS"). In the initial transaction, a wholly-owned subsidiary of the Company is offering for sale approximately $900 million of investment grade asset-backed bonds. The maturity of the bonds match funds the maturity of the Company's underlying assets financed under the program. The Company expects the initial STARS transaction to close in May 2000.
Spencer B. Haber, iStar Financial's executive vice president - finance and chief financial officer, commented, "This quarter, we made substantial headway in extending our competitive advantage on the right side of our balance sheet. With over $1.8 billion in tangible book equity capital, our liability structure has been our primary focus over the past 12 months." Mr. Haber added, "We have now expanded our committed credit facilities to $1.6 billion, representing a diverse mix of leading financial institutions on both an unsecured and secured basis. Our STARS program should provide a long-term, match-funded source of financing for our structured finance assets at a competitive cost to our shorter-term facilities. We also expect STARS to produce excess liquidity, and we intend to use the proceeds to reduce the outstanding balances under our $1.6 billion of committed credit facilities to approximately $450 million."
During the first quarter of 2000, iStar Financial funded its origination and acquisition activities with operating cash flow and borrowings under its revolving credit facilities. iStar Financial's consolidated ratio of book value debt to shareholders' equity was 1.1x as of March 31, 2000, based on debt of $2.0 billion and shareholders' equity of $1.8 billion.
Non-Core Asset Dispositions
During the first quarter, iStar Financial realized a $0.5 million gain on a total of $45.3 million of dispositions of non-core net lease assets acquired in connection with its 1999 acquisition of TriNet. Since announcing the TriNet acquisition and its intention to dispose of approximately $200 million of non-core net lease assets, the Company has sold or contracted to sell approximately $152 million of such assets. Consistent with its focus on long-term, corporate lease financing transactions, the weighted average remaining lease term on the non-core assets sold or under contract was 2.0 years. The Company used the net proceeds from the sales to reduce the balance on its revolving credit facilities.
On April 14, 2000, iStar Financial announced that its Board of Directors appointed Jay Sugarman, president and chief executive officer, to the added post of chairman of the board. In connection with the appointment, Barry S. Sternlicht stepped down as chairman, but remains a board member. In addition, effective April 30, 2000, the Company changed its name from Starwood Financial Inc. to iStar Financial Inc. iStar Financial's common shares continue to be listed on the New York Stock Exchange under the symbol "SFI."
On April 3, 2000, iStar Financial declared a regular quarterly cash dividend of $0.60 per common share for the quarter ended March 31, 2000. This dividend represented a 43% increase over the $0.42 dividend paid for first quarter 1999. The first quarter 2000 dividend, which was paid on April 28, 2000 to holders of record as of April 14, 2000, represented approximately 94% of basic adjusted earnings per share for the first quarter.
iStar Financial is the leading publicly traded finance company focused on the commercial real estate industry. The Company, which is taxed as a real estate investment trust, provides structured mortgage, mezzanine and lease financing through its origination, acquisition and servicing platform. The Company's mission is to maximize risk-adjusted returns on equity by providing innovative and value-added financing solutions to private and corporate owners of real estate nationwide.
iStar Financial will hold a conference call for investment professionals at 11:00 a.m. Eastern time today, May 3, 2000. This conference call will be broadcast live over the Internet and can be accessed by all interested parties through Investor Broadcast Network's Vcall Web site at http://www.vcall.com. To listen to the live call, please go to the Web site 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 Vcall site.
(Note: Statements in this press release which are not historical fact may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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.)
Financial Tables Follow
iStar Financial Inc. Consolidated Income Statements (In thousands, except per share amounts) (unaudited) Three Months Ended Three Months Ended March 31, 2000 March 31, 1999 Revenue: Interest income $ 60,083 $ 49,919 Operating lease income 46,272 3,727 Other income 4,533 1,778 ------- ------- Total revenue $110,888 $ 55,424 Costs and expenses: Interest expense 37,789 19,693 Depreciation and amortization 9,009 1,365 General and administrative 6,903 484 Property operating costs 3,325 -- Provisions for possible credit losses 1,500 1,000 Stock option compensation expense 548 -- Advisory fees -- 4,665 ------- ------- Total costs and expenses $ 59,074 $ 27,207 Net income before minority interest, gain on sale and extraordinary item $ 51,814 $ 28,217 Minority interest (41) -- Gain on sale of net lease assets 533 -- ------- ------- Net income before extraordinary item 52,306 28,217 Extraordinary loss - early extinguishment of debt (317) -- ------- ------- Net income $ 51,989 $ 28,217 Preferred dividends (9,227) (5,308) ------- ------- Net income allocable to common shareholders $ 42,762 $ 22,909 ======= ======= Net income per common share: Basic(1) $0.50 $0.43 Diluted $0.50 $0.41 Weighted average common shares outstanding: Basic 85,087 52,447 Diluted 85,449 56,546 (1) For the quarter ended March 31, 1999, net income per basic common share excludes 1% of net income allocable to iStar Financial's class B shares. On November 4, 1999, the class B shares were exchanged for common shares in connection with the Company's acquisition of TriNet and related transactions. As a result, the Company now has a single class of common shares outstanding. iStar Financial Inc. Consolidated Income Statements (In thousands, except per share amounts) (unaudited) Three Months Ended Three Months Ended March 31, 2000 March 31, 1999 Adjusted earnings per share: Net income(1) $ 51,773 $ 28,217 Real estate depreciation 9,009 1,365 Joint venture depreciation 610 169 Amortization 2,234 1,540 Preferred dividends (9,227) (5,308) Net income allocable to Class B shares (2) -- (260) ------- ------- Adjusted earnings allocable to common shareholders: Basic $ 54,399 $ 25,723 Diluted $ 54,399 $ 25,983 Adjusted earnings per common share: Basic $0.64 $0.49 Diluted $0.64 $0.46 Weighted average common shares outstanding: Basic 85,087 52,447 Diluted 85,449 56,546 (1) Net income before gain on sale of net lease assets and extraordinary loss on early extinguishment of debt. (2) For the quarter ended March 31, 1999, net income allocable to class B shares represents 1% of net income allocable to iStar Financial's class B shares. On November 4, 1999, the class B shares were exchanged for common shares in connection with the Company's acquisition of TriNet and related transactions. As a result, the Company now has a single class of common shares outstanding. iStar Financial Inc. Consolidated Balance Sheets (In thousands) As of As of March 31, 2000 December 31, 1999 (unaudited) ASSETS Loans and other investments, net $2,120,744 $2,003,506 Real estate subject to operating leases, net 1,664,350 1,714,284 Cash and cash equivalents 44,879 34,408 Restricted cash 8,087 10,195 Marketable securities 95 4,344 Accrued interest receivable 17,624 16,211 Deferred rent receivable 3,429 1,147 Other assets 37,332 29,457 --------- --------- Total assets $3,896,540 $3,813,552 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable and other liabilities $ 52,154 $ 54,773 Dividends payable 5,225 53,667 Debt obligations: Unsecured senior notes 354,244 353,520 Unsecured revolving credit facilities 161,600 186,700 Secured revolving credit 853,213 762,936 Secured term loans 579,696 559,288 Other debt obligations 38,641 38,760 --------- --------- Total liabilities $2,044,773 $2,009,644 Minority interest 2,565 2,565 Shareholders' equity 1,849,202 1,801,343 --------- --------- Total liabilities and shareholders' equity $3,896,540 $3,813,552 ========= ========= iStar Financial Inc. Supplemental Information (as of and for the three month period ended March 31, 2000) (In thousands) (unaudited) FIRST QUARTER 2000 PERFORMANCE STATISTICS Return on Average Book Assets 6.6% Return on Average Book Equity 15.1% Efficiency Ratio (Corporate Overhead/Revenues) 6.7% FIRST QUARTER 2000 CREDIT STATISTICS EBITDA/GAAP Interest 2.6x EBITDA/Fixed Charges (1) 2.1x Debt/Book Equity 1.1x (1) Fixed charges include interest expense and preferred dividends. FIRST QUARTER 2000 LOAN ORIGINATION SUMMARY STATISTICS Total/ Fixed Floating Weighted Rate Rate Average -------- -------- -------- Amount Committed $120,000 $ 95,000 $215,000 Amount Funded $120,000 $ 95,000 $215,000 Weighted Average GAAP Yield 15.29% 14.65% 15.01% Weighted Average All-In Spread/Margin (basis points) (1) +873 +873 -- Weighted Average Maturity (years) 4.9 4.8 4.9 First $ Loan-to-Value Ratio 71.6% 51.5% 62.7% Last $ Loan-to-Value Ratio 78.6% 59.7% 70.2% (1) Based on average one-month LIBOR of 5.92% and average interpolated 4.9-year U.S. Treasury rate of 6.56% during the quarter. UNFUNDED COMMITMENTS Number of Loans with Unfunded Commitments 7 Discretionary Commitments $11,339 Non-Discretionary Commitments 34,613 ------ Total Unfunded Commitments $45,952 Estimated Funding Period Approx. three years iStar Financial Inc. Supplemental Information (as of and for the three month period ended March 31, 2000) (In thousands) (unaudited) PORTFOLIO STATISTICS AS OF MARCH 31, 2000 Security Type $ % --------- ---- First Mortgages $ 880,904 23.2% Second Mortgages 514,313 13.5% Corporate/Partnership Loans/Other 734,527 19.4% Net Leases 1,664,350 43.9% --------- ---- Total $3,794,094 100.0% Collateral Type $ % --------- ---- Office $1,916,661 50.5% Industrial/R&D 403,987 10.7% Retail 286,629 7.6% Hotel 498,731 13.1% Mixed Use 150,256 4.0% Apartment/Residential 206,230 5.4% Homebuilder/Land 151,385 4.0% Resort/Entertainment 180,215 4.7% --------- ---- Total $3,794,094 100.0% Product Line $ % --------- ---- Structured Finance $ 989,463 26.1% Portfolio Finance 380,811 10.0% Loan Acquisition 427,971 11.3% Corporate Lending 331,499 8.7% Credit Tenant Leasing 1,664,350 43.9% --------- ---- Total $3,794,094 100.0% Collateral Location $ % --------- ---- West $1,264,089 33.3% Southwest 72,066 1.9% South 631,021 16.7% Central 228,153 6.0% North Central 65,253 1.7% Northeast 660,730 17.4% Mid-Atlantic 301,055 7.9% Southeast 426,595 11.3% Northwest 145,132 3.8% --------- ---- Total $3,794,094 100.0%
SOURCE iStar Financial Inc.
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