iStar Financial Announces Record Earnings
-- Adjusted earnings per diluted share increases to $0.72 for second quarter 2001 from $0.66 for second quarter 2000. -- Return on equity reaches 17.5%. -- Financing volume totals $370.9 million. -- iStar Financial appoints Spencer Haber President.iStar Financial Inc. (NYSE: SFI) reported adjusted earnings for the quarter ended June 30, 2001 of $0.72 per diluted common share, up from $0.66 per diluted share for the quarter ended June 30, 2000. Adjusted earnings for second quarter 2001 increased 11.2% to $63.5 million on a diluted basis, from $57.1 million for second quarter 2000. Adjusted earnings represent GAAP net income before depreciation and amortization.
Net income allocable to common shareholders for the second quarter grew to $49.7 million, or $0.56 per diluted common share, compared with $44.6 million, or $0.52 per diluted share, in second quarter 2000. Second quarter 2001 total revenue increased to $120.8 million from $117.9 million for the second quarter 2000.
In the second quarter of 2001, iStar Financial achieved returns on average book assets and average common book equity of 7.2% and 17.5%, respectively, while leverage remained at 1.2x book equity. Net investment income for the quarter ended June 30, 2001 increased to $68.5 million. Net investment income represents interest and operating lease revenue less interest expense and operating costs for corporate tenant lease assets.
During the second quarter of 2001, iStar Financial closed 11 new financing commitments totaling $358.1 million, of which $308.1 million was funded during the quarter. In addition, the Company funded $12.8 million under three pre-existing commitments and received $304.0 million in principal repayments. The Company's recent transactions continue to reflect its core business strategy of originating large-balance, structured financing transactions for owners of high-quality commercial real estate assets and leading corporations across the United States.
Jay Sugarman, iStar Financial's chairman and chief executive officer, commented, "Over the past several quarters, we have remained cautious in our view of the markets in which we operate. Recently, however, we have begun to see an increase in the number of opportunities that meet our investment goals, and during the second quarter, we expanded our investment activity to capture these opportunities. In particular, we were again able to identify several attractive corporate lending opportunities. These transactions continue to provide us with compelling risk/return dynamics in which we look to the performance of a diversified underlying pool of real estate collateral as well as the corporate credit of the borrower."
The Company also announced two senior management appointments during the quarter. In recognition of his strategic leadership and significant contributions to the firm, Spencer B. Haber was appointed president in addition to his continued responsibilities as the Company's chief financial officer and a director. In addition, the Company welcomed Chase J. Curtis as senior vice president -- credit. Mr. Curtis joins iStar Financial from Bank of America, and brings 16 years of extensive corporate credit experience to the Company.
Selected Income Statement Data (In thousands, except per share amounts) (unaudited) Three Months Ended June 30, 2001 2000 Net investment income $68,505 $68,358 Other income 7,678 3,827 Non-interest expense (18,226) (18,756) Net income before minority interest $57,957 $53,429 Minority interest (41) (41) Gain on sale of corporate tenant lease assets 1,044 441 Preferred dividends (9,227) (9,227) Net income allocable to common shareholders $49,733 $44,602 Per basic share $0.58 $0.52 Per diluted share $0.56 $0.52 Adjusted earnings allocable to common shareholders (A) $63,545 $57,144 Per basic share $0.74 $0.67 Per diluted share $0.72 $0.66 Dividends $0.6125 $0.6000 (A) Adjusted earnings represent GAAP net income before depreciation and amortization, and exclude gain onsale of corporate tenant lease assets. Selected Balance Sheet Data (In thousands) As of As of June 30, December 31, 2001 2000 (unaudited) Loans and other lending investments, net $2,252,255 $2,225,183 Real estate subject to operating leases, net 1,634,524 1,670,169 Total assets 4,053,350 4,034,775 Debt obligations 2,153,031 2,131,967 Total liabilities 2,219,576 2,240,666 Total shareholders' equity 1,831,125 1,787,885Transaction Volume
In the second quarter of 2001, iStar Financial generated $358.1 million in new financing commitments in 11 separate transactions. The Company also funded an additional $12.8 million under three pre-existing financing commitments and received $304.0 million in loan repayments. Mr. Sugarman stated, "While prepayments continued at above-average levels in the second quarter because of lower interest rates, we are beginning to see early refinancing activity abate. As we mentioned in our last quarterly earnings release, we continue to expect prepayment levels to subside in the second half of the year."
During the second quarter of 2001, the weighted average first dollar and last dollar loan-to-value ratio on new loan commitments was 34.8% and 74.9%, respectively. This ratio represents the average beginning and ending points for the Company's lending exposure in the aggregate capitalization of the underlying properties or companies it finances.
Mr. Sugarman commented, "Our overall asset quality remains healthy in the face of a slowing economy. While the top-line performance of some real estate collateral has softened somewhat, our focus on supply-constrained markets and large cross-collateralized portfolios continues to serve us well. In addition, our emphasis on senior secured and diversified corporate lending mitigates the impact of downturns in real estate market conditions on our Company."
At June 30, 2001, first mortgages, corporate tenant leases and corporate financing transactions collectively comprised 78.3% of the Company's asset base. The weighted average first and last dollar loan-to-value ratio for all structured finance assets (senior and junior loans) was 31.8% and 71.4%, respectively.
Also as of June 30, 2001, the weighted average lease term of the Company's corporate tenant leasing portfolio was 8.6 years. This portfolio was 96.7% leased at the end of second quarter 2001 (99.2% excluding a vacant facility currently under contract for sale). Remaining lease expirations for 2001 and 2002 represent 0.5% and 2.3% of annualized total GAAP revenue, respectively.
During the second quarter of 2001, iStar Financial extended the maturity of a $350 million unsecured credit facility until May 2002. In addition, the Company extended the maturity of a $500 million secured credit facility until August 2003. Both facilities were extended at their pre-existing terms. Also during the quarter, iStar Financial executed a $193 million secured debt transaction backed by a pool of corporate tenant lease assets, the proceeds of which were primarily used to repay short-term secured debt. Subsequent to the quarter end, iStar Financial also match funded its recent putable preferred investment in The Mills Corporation under iStar Financial's debt facility for corporate finance investments.
Spencer B. Haber, iStar Financial's president and chief financial officer, stated, "Following our recent capital markets transactions, we now have just one meaningful debt maturity remaining until 2003, which we expect to refinance in the third quarter of this year. In addition, we continue to have significant excess capacity with which to fund asset growth."
Mr. Haber added, "Our balance sheet remains highly match funded to minimize interest rate risk. Our corporate policy is to manage our net exposure to short-term interest rate fluctuations such that a 100 basis point change in rates impacts adjusted earnings per share by no more than 2.5%. Based on current match funding in place, a 100 basis point move in short-term interest rates should impact adjusted earnings per share by less than 1.4%."
During the second quarter, the Company launched trading of options on its common shares on the American Stock Exchange. iStar Financial Inc. options opened with strike prices of $20.00, $22.50 and $25.00 and position limits of 13,500 contracts. The options are trading on the January expiration cycle with initial expirations in June, July, October and January.
Mr. Haber continued, "Consistent with the Securities and Exchange Commission's Regulation FD, iStar Financial will comment on earnings expectations within the context of its regular earnings press releases. Accordingly, we currently expect diluted adjusted EPS of $0.73 to $0.74 for the third quarter of 2001 and full-year diluted adjusted EPS of $2.92 to $2.93, depending primarily on the timing of new investment activity, net of loan repayments."
Credit Risk Management
The Company establishes loss reserves based on a quarterly bottom-up review of each of its assets, as well as using top-down guidance from industry-wide loss data and market trends. On a quarterly basis, the Company conducts a comprehensive credit review, resulting in an individual risk rating assigned to each asset. Attendance at the quarterly review sessions is mandatory for each of the Company's professional employees. These quarterly meetings are designed to enable management to evaluate and proactively manage asset-specific credit issues and identify credit trends on a portfolio-wide basis as an "early warning system."
During the risk ratings review, each asset is assigned a risk rating from "one" to "five," with a "one" indicating superior credit quality, a "two" signifying better than average credit quality, "three" as an average rating, a "four" indicating that management time and attention is required, and a "five" denoting a problem asset with potential principal risk to the Company. In addition to the ratings system, the Company maintains a "watch list" of assets which are generally rated "four," but which require highly proactive asset management to preserve their current ratings. Each newly-originated asset is typically assigned an initial rating of "three" (or average).
Based upon the Company's second quarter 2001 review, the weighted average risk rating of the Company's structured finance assets was 2.68, somewhat higher than last quarter's rating of 2.53. The weighted average risk rating for corporate tenant lease assets at the end of the second quarter was 2.79, essentially unchanged from the prior quarter rating of 2.78. The Company continues to have one loan and one corporate tenant lease asset currently on its "watch list," with a combined book value of $39.2 million as of June 30, 2001. The Company remains comfortable that it has adequate collateral to support its book value in both instances.
At quarter end, accumulated loss reserves and depreciation represented approximately 2.05% of the gross book value of the Company's investments (loans and operating leases).
On July 2, 2001, iStar Financial declared a regular quarterly cash dividend of $0.6125 per common share for the quarter ended June 30, 2001. The second quarter 2001 dividend, which will be paid on July 30, 2001 to holders of record as of July 16, 2001, represents approximately 83.3% of basic adjusted earnings per share for the second quarter.
During the second quarter, the Company designed and launched a new Web site. The new Web site can be accessed through www.istarfinancial.com.
iStar Financial is the largest publicly traded finance company focused exclusively on the commercial real estate industry. The Company provides structured financing to private and corporate owners of real estate nationwide, including senior and junior mortgage debt, corporate mezzanine and subordinated capital, and corporate net lease financing. The Company, which is taxed as a real estate investment trust, seeks to deliver superior risk-adjusted returns on equity to shareholders by providing innovative and value-added financing solutions to its customers.
iStar Financial will hold a quarterly earnings conference call at 11:00 a.m. Eastern time today, July 23, 2001. This conference call will be broadcast live over the Internet and can be accessed by all interested parties through iStar Financial's Web site, www.istarfinancial.com, under the "investor relations" section. To listen to the live call, please go to the Web site's "investor relations" section at least 15 minutes prior to the start of the call to register, download and install any necessary audio software. For those who are not available to listen to the live broadcast, a replay will be available shortly after the call on the iStar Financial Web site and will remain available for the next 30 days.
(Note: Statements in this press release which are not historical fact may be deemed forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although iStar Financial Inc. believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, the Company can give no assurance that its expectations will be attained. Factors that could cause actual results to differ materially from iStar Financial Inc.'s expectations include completion of pending investments, continued ability to originate new investments, the availability and cost of capital for future investments, competition within the finance and real estate industries, economic conditions, and other risks detailed from time to time in iStar Financial Inc.'s SEC reports.)
iStar Financial Inc. Consolidated Income Statements (In thousands, except per share amounts) (unaudited) Three Months Ended June 30, 2001 2000 Revenue: Interest income $63,903 $66,864 Operating lease income 49,244 47,223 Other income 7,678 3,827 Total revenue 120,825 117,914 Costs and expenses: Interest expense 41,368 42,770 Operating costs - corporate tenant lease assets 3,274 2,959 Depreciation and amortization 8,778 8,862 General and administrative 6,498 7,808 Provision for possible credit losses 1,750 1,500 Stock-based compensation expense 1,200 586 Total costs and expenses 62,868 64,485 Net income before minority interest 57,957 53,429 Minority interest (41) (41) Gain on sale of corporate tenant lease assets 1,044 441 Net income $58,960 $53,829 Preferred dividends (9,227) (9,227) Net income allocable to common shareholders $49,733 $44,602 Net income per common share: Basic $0.58 $0.52 Diluted $0.56 $0.52 Weighted average common shares outstanding: Basic 86,081 85,281 Diluted 88,142 85,990 iStar Financial Inc. Consolidated Income Statements (In thousands, except per share amounts) (unaudited) Three Months Ended June 30, 2001 2000 ADJUSTED EARNINGS PER SHARE: Net income $58,960 $53,829 Add: Depreciation 8,778 8,862 Add: Joint venture depreciation 954 832 Add: Amortization 4,890 3,054 Less: Preferred dividends (9,227) (9,227) Less: Gain on sale of corporate tenant lease assets (1,044) (441) Adjusted earnings allocable to common shareholders: Basic $63,311 $56,909 Diluted $63,545 $57,144 Adjusted earnings per common share: Basic $0.74 $0.67 Diluted $0.72 $0.66 Weighted average common shares outstanding: Basic 86,081 85,281 Diluted 88,440 86,363 iStar Financial Inc. Consolidated Balance Sheets (In thousands) As of As of June 30, December 31, 2001 2000 (unaudited) ASSETS Loans and other lending investments, net $2,252,255 $2,225,183 Real estate subject to operating leases, net 1,634,524 1,670,169 Cash and cash equivalents 26,301 22,752 Restricted cash 27,800 20,441 Marketable securities 41 41 Accrued interest and operating lease income receivable 17,353 20,167 Deferred operating lease income receivable 15,220 10,236 Other assets 79,856 65,786 Total assets $4,053,350 $4,034,775 LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable and other liabilities $61,320 $52,038 Dividends payable 5,225 56,661 Debt obligations: Unsecured senior notes 257,909 356,509 Unsecured revolving credit facilities 159,000 173,450 Secured revolving credit facilities 789,851 592,349 Secured term loans 443,212 349,060 iStar Asset Receivables secured notes 486,437 588,334 Other debt obligations 16,622 72,265 Total liabilities $2,219,576 $2,240,666 Minority interest 2,649 6,224 Shareholders' equity 1,831,125 1,787,885 Total liabilities and shareholders' equity $4,053,350 $4,034,775 iStar Financial Inc. Supplemental Information (as of and for the three-month period ended June 30, 2001) (In thousands) (unaudited) SECOND QUARTER 2001 PERFORMANCE STATISTICS Return on Average Book Assets Adjusted Basic Earnings to Common Shareholders $63,311 Plus: Preferred Dividends 9,227 Adjusted Basic Earnings before Preferred Dividends $72,538 Adjusted Basic Earnings before Preferred Dividends - Annualized (A) $290,152 Average Total Book Assets (B) $4,033,621 Return on Average Book Assets (A) / (B) 7.2% Return on Average Common Book Equity Adjusted Basic Earnings to Common Shareholders $63,311 Adjusted Basic Earnings to Common - Annualized (C) $253,244 Average Total Book Equity $1,825,918 Less: Book Value of Preferred Equity (382,000) Average Common Book Equity (D) $1,443,918 Return on Average Common Book Equity (C) / (D) 17.5% Efficiency Ratio General & Administrative Expenses $6,498 Plus: Stock-Based Compensation Expense 1,200 Total Corporate Overhead (E) $7,698 Total Revenue (F) $120,825 Efficiency Ratio (E) / (F) 6.4% SECOND QUARTER 2001 CREDIT STATISTICS Book Debt / Equity Book Debt (A) $2,153,031 Total Book Equity (B) $1,831,125 Book Debt / Book Equity (A) / (B) 1.2x iStar Financial Inc. Supplemental Information (as of and for the three-month period ended June 30, 2001) (In thousands) SECOND QUARTER CREDIT STATISTICS (cont.) Interest Coverage EBITDA (1) (A) $108,103 GAAP Interest Expense (B) $41,368 EBITDA / GAAP Interest Expense (A) / (B) 2.6x Fixed Charge Coverage EBITDA (1) (C) $108,103 GAAP Interest Expense $41,368 Plus: Preferred Dividends 9,227 Total Fixed Charges (D) $50,595 EBITDA / Fixed Charges (C) / (D) 2.1x SECOND QUARTER FINANCING VOLUME SUMMARY STATISTICS LOAN ORIGINATIONS Total/ Floating Weighted CORPORATE Fixed Rate Rate Average LEASING Amount Committed $246,582 $113,303 $359,885 $10,949 Weighted Average GAAP Yield 12.26% 9.76% 11.47% 10.34% Weighted Average All-In Spread/Margin (basis points) (2) +717 +548 -- +497 First $ Loan-to-Value Ratio 41.4% 26.2% 36.6% -- Last $ Loan-to-Value Ratio 86.6% 62.2% 78.9% -- UNFUNDED COMMITMENTS Number of Loans with Unfunded Commitments 9 Discretionary Commitments $53,367 Non-Discretionary Commitments 74,002 Total Unfunded Commitments $127,369 Estimated Weighted Average Funding Period Approximately 1.6 years (1) EBITDA is calculated as total revenue minus the sum of general and administrative expenses, provision for possible credit losses, stock-based compensation expense and operating costs on corporate tenant lease assets. (2) Based on average quarterly one-month LIBOR (floating rate loans) and U.S. Treasury rates (fixed rate loans and corporate leasing transactions) during the quarter. iStar Financial Inc. Supplemental Information (as of and for the three-month period ended June 30, 2001) (In millions) (unaudited) PORTFOLIO STATISTICS AS OF JUNE 30, 2001 (A) Security Type $ % First Mortgages $1,013 25.5% Second Mortgages 354 8.9% Corporate/Partnership Loans/Other 866 21.8% Corporate Tenant Leases 1,739 43.8% Total $3,972 100.0% Collateral Type $ % Office $1,902 47.9% Industrial/R&D 399 10.0% Retail 193 4.9% Hotel 799 20.1% Mixed Use 147 3.7% Apartment/Residential 178 4.5% Homebuilder/Land 40 1.0% Resort/Entertainment 310 7.8% Various 4 0.1% Total $3,972 100.0% Product Line $ % Structured Finance $983 24.7% Portfolio Finance 365 9.2% Loan Acquisition 360 9.1% Corporate Finance 525 13.2% Corporate Tenant Leasing 1,739 43.8% Total $3,972 100.0% Collateral Location $ % West $1,228 30.9% Southwest 90 2.3% South 635 16.0% Central 292 7.3% North Central 80 2.0% Northeast 818 20.6% Mid-Atlantic 282 7.1% Southeast 353 8.9% Northwest 188 4.7% Various 6 0.2% Total $3,972 100.0% (A) Figures presented prior to loan loss reserves and accumulated depreciation. MAKE YOUR OPINION COUNT - Click Here http://tbutton.prnewswire.com/prn/11690X74546839SOURCE iStar Financial Inc.
CONTACT: Spencer B. Haber, President & Chief Financial Officer, or Lianne A. Merchant, Vice President, Investor Relations, or Erin C. Hart, Associate, Investor Relations, all of iStar Financial Inc., +1-212-930-9400