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05/03/2000

iStar Financial Announces 39% Increase In Adjusted EPS

First Quarter Financing Volume Totals $233 Million

* First quarter 2000 adjusted earnings per diluted share increased 39% to $0.64 from $0.46 for first quarter 1999.

* First quarter net investment income grew 92% over first quarter 1999 to $65.2 million.

* Financing volume for first quarter 2000 totaled $233.4 million.

* Company announces formation of Leveraged Transactions Group.

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

Transaction Volume

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:

  • Digital Microwave signed a ten-year lease renewal on 133,173 square feet of space in three buildings located in the Corporate Technology Centre in San Jose, California. The new lease will become effective January 1, 2001.
  • Aristasoft signed a ten-year lease on 93,210 square feet of space in a single building located in the Corporate Technology Centre. The new lease will become effective on August 1, 2000.

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.

Funding Activities

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.

Other Developments

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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