iStar Financial Announces Record Earnings
NEW YORK, April 25 /PRNewswire/ -- iStar Financial Inc. (NYSE: SFI) reported adjusted earnings for the quarter ended March 31, 2001 of $0.71 per diluted common share, up 10.9% from $0.64 per diluted share for the quarter ended March 31, 2000. Adjusted earnings for the first quarter 2001 increased 13.5% to $61.7 million on a diluted basis, from $54.4 million for first quarter 2000. Adjusted earnings represent GAAP net income before depreciation and amortization.
Net income allocable to common shareholders for the first quarter grew to $45.4 million, or $0.52 per diluted common share, compared with $42.8 million, or $0.50 per diluted share, in first quarter 2000. First quarter 2001 total revenue increased 10.6% to $122.6 million, from $110.9 million for the first quarter 2000.
In the first quarter of 2001, iStar Financial achieved returns on average book assets and average common book equity of 7.0% and 17.3%, respectively, while leverage remained at 1.2x book equity. Net investment income for the quarter ended March 31, 2001 increased to $66.8 million. Net investment income represents interest and operating lease revenue less interest expense and operating costs for corporate tenant lease assets.
During the first quarter of 2001, iStar Financial closed and funded five new financing commitments totaling $204.0 million. In addition, the Company funded $52.1 million under five pre-existing commitments and received $244.8 million in principal repayments. The Company's recent transactions continue to reflect its core business strategy of originating 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, 2001 2000 Net investment income $66,840 $65,241 Other income 6,183 4,533 Non-interest expense (17,520) (17,960) Net income before minority interest $55,503 $51,814 Minority interest (95) (41) Gain on sale of corporate tenant lease assets 555 533 One-time effect of change in accounting principle (282) -- Extraordinary loss -- early extinguishment of debt (1,037) (317) Preferred dividends (9,227) (9,227) Net income allocable to common shareholders $45,417 $42,762 Per basic share $0.53 $0.50 Per diluted share $0.52 $0.50 Adjusted earnings allocable to common shareholders(a) $61,722 $54,399 Per basic share $0.72 $0.64 Per diluted share $0.71 $0.64 Dividends $0.6125 $0.6000 (a) Adjusted earnings represent GAAP net income before depreciation and amortization, and exclude gain on sale of corporate tenant ease assets, one-time effect of change in accounting principle and extraordinary loss on early extinguishment of debt.
Selected Balance Sheet Data (In thousands) As of As of March 31, December 31, 2001 2000 (unaudited) Loans and other lending investments, net $2,236,030 $2,225,183 Real estate subject to operating leases, net 1,638,017 1,670,169 Total assets 4,013,892 4,034,775 Debt obligations 2,120,834 2,131,967 Total liabilities 2,190,532 2,240,666 Total shareholders' equity 1,820,711 1,787,885
In the first quarter of 2001, iStar Financial generated $204.0 million in new financing commitments in five separate transactions. The Company also funded an additional $52.1 million under five pre-existing financing commitments and received $244.8 million in loan repayments. Jay Sugarman, iStar Financial's chairman and chief executive officer, stated, "As we saw the economy slowing last year, we focused our investment strategy on originating first mortgages and corporate financing and leasing transactions backed by diversified corporate credits. In the first quarter of 2001, we extended this cautious approach by again focusing on first mortgage and corporate finance transactions, which represented 67% of the Company's total fundings during the quarter."
During the quarter, the weighted average first dollar and last dollar loan-to-value ratio on new loan fundings was 33.6% and 68.7%, 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, "As deteriorating economic conditions begin to reduce available liquidity in the real estate and corporate credit markets, iStar Financial is well positioned to create attractive risk-adjusted returns on the excess liquidity the Company possesses. We are beginning to see borrowers' pricing expectations adjust to the realities of a more capital constrained environment, and believe the rest of 2001 should produce some compelling corporate lending and leasing opportunities."
At end of first quarter 2001, first mortgages, corporate tenant leases and corporate financing transactions collectively comprised 81% 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 25.9% and 72.0%, respectively.
Corporate Tenant Leasing
During the first quarter of 2001, the Company continued to extend lease terms in its corporate tenant leasing business. Mr. Sugarman stated, "Given our orientation as a finance company and not as a real estate investor, we have consistently favored longer lease terms over larger lease rate increases. This discipline serves us well in times of declining demand for office and industrial facilities, such as the current environment, when our revenue stream is essentially unimpacted, and our asset base remains fully leased."
As of March 31, 2001, the weighted average lease term of the Company's corporate tenant leasing portfolio is 8.4 years. This portfolio was 96.6% leased at the end of the first quarter 2001 (98.6% excluding a vacant facility currently being marketed for sale). Remaining lease expirations for 2001 and 2002 represent 0.8% and 2.7% of annualized total GAAP revenue, respectively.
During the first quarter of 2001, iStar Financial closed a new $700 million secured revolving credit facility with a major commercial bank. Interest rates under the new facility range from LIBOR + 1.40% to LIBOR + 2.15%, depending upon the collateral contributed to the borrowing base. The new facility accepts a broad range of structured finance assets and has a final maturity of January 2005. In addition, the Company exercised its option to extend for an additional year a $350 million unsecured credit facility.
During the first quarter of 2001, Moody's Investors Service upgraded iStar Financial's senior unsecured credit rating to Ba1 from Ba2, and the rating on the Company's perpetual preferred stock to Ba3 from B1. In addition, subsequent to quarter end, Standard & Poor's upgraded iStar Financial's senior unsecured credit rating to BB+ from BB, and the Company's preferred stock rating to B+ from B. Spencer B. Haber, iStar Financial's executive vice president-finance and CFO, stated, "We are pleased with the Moody's and Standard & Poor's upgrades, and believe the ratings actions affirm the strength of our business strategy and risk management skills. Our objective is to continue to demonstrate the consistent performance which has characterized our business in the past, and which will help us to achieve investment grade status."
Also during the first quarter, Moody's Investors Service and Fitch Inc. upgraded the ratings of the bonds outstanding under iStar Financial's proprietary match funding program, iStar Asset Receivables ("STARS"). The STARS Class B bonds were upgraded to Aaa and AAA from Aa2 and AA by Moody's and Fitch, respectively. The STARS Class C bonds were upgraded to Aa3 and AA- from A2 and A+, respectively. In addition, Fitch also upgraded the STARS Class D, E and F bonds to A+, BBB+ and BBB, respectively.
Mr. Haber commented, "With $2.4 billion of committed credit facilities, our recent corporate credit upgrades and the continuing success of the STARS program, iStar Financial has the depth and breadth of capital resources to capitalize on the current unsettled macro environment. Our focus over the next six months is the elimination of all significant remaining debt maturities for both 2001 and 2002, for which specific refinancing initiatives are now underway."
Mr. Haber stated, "Once again, our balance sheet continues to be 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%."
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 $0.72 to $0.73 for the second quarter of 2001 and full-year diluted adjusted EPS of $2.92 to $2.95, 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, directed by Mr. Sugarman and Timothy O'Connor, iStar Financial's executive vice president and chief operating officer, is mandatory for each of the Company's professional employees. The 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 first quarter 2001 review, the weighted average risk rating of the Company's structured finance assets was 2.53, slightly higher than the year-end rating of 2.50. The weighted average risk rating for corporate tenant lease assets at the end of the first quarter was 2.78, essentially unchanged from the year-end rating of 2.77. The Company has one loan and one corporate tenant lease asset currently on its "watch list," with a combined book value of $39.3 million as of March 31, 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 1.81% of the gross book value of the Company's investments (loans and operating leases).
On April 2, 2001, iStar Financial increased its regular quarterly cash dividend to $0.6125 per common share for the quarter ended March 31, 2001. The first quarter 2001 dividend, which will be paid on April 30, 2001 to holders of record as of April 16, 2001, represents approximately 85.5% of basic adjusted earnings per share for the first quarter.
The Company will host its annual shareholders' meeting at the Sheraton New York Hotel & Towers, 811 Seventh Avenue, New York, New York 10019 on May 17, 2001 at 9:00 a.m. EDT. All shareholders are cordially invited to attend.
iStar Financial is the leading publicly traded finance company focused 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, April 25, 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 information" section. To listen to the live call, please go to the Web site's "investor information" 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 60 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 March 31, 2001 2000 Revenue: Interest income $66,913 $60,083 Operating lease income 49,523 46,272 Other income 6,183 4,533 Total revenue 122,619 110,888 Costs and expenses: Interest expense 46,360 37,789 Operating costs -- corporate tenant lease assets 3,236 3,325 Depreciation and amortization 8,808 9,009 General and administrative 6,102 6,903 Provision for possible credit losses 1,750 1,500 Stock option compensation expense 860 548 Total costs and expenses 67,116 59,074 Net income before minority interest 55,503 51,814 Minority interest (95) (41) One-time effect of change in accounting principle (a) (282) -- Gain on sale of corporate tenant lease assets 555 533 Extraordinary loss -- early extinguishment of debt (1,037) (317) Net income $54,644 $51,989 Preferred dividends (9,227) (9,227) Net income allocable to common shareholders $45,417 $42,762 Net income per common share: Basic $0.53 $0.50 Diluted $0.52 $0.50 Weighted average common shares outstanding: Basic 85,833 85,087 Diluted 87,149 85,449 (a) Reflects one-time effect of adoption of Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" as of January 1, 2001. iStar Financial Inc. Consolidated Income Statements (In thousands, except per share amounts) (unaudited)
Three Months Ended March 31, 2001 2000 ADJUSTED EARNINGS PER SHARE: Net income $54,644 $51,989 Add: Depreciation 8,808 9,009 Add: Joint venture depreciation 951 610 Add: Amortization 5,542 2,234 Less: Preferred dividends (9,227) (9,227) Add: One-time effect of change in accounting principle 282 -- Less: Gain on sale of corporate tenant lease assets (555) (533) Add: Extraordinary loss -- early extinguishment of debt 1,037 317 Adjusted earnings allocable to common shareholders: Basic $61,482 $54,399 Diluted $61,722 $54,399 Adjusted earnings per common share: Basic $0.72 $0.64 Diluted $0.71 $0.64 Weighted average common shares outstanding: Basic 85,833 85,087 Diluted 87,522 85,449 iStar Financial Inc. Consolidated Balance Sheets (In thousands)
As of As of March 31, December 31, 2001 2000 (unaudited)
ASSETS Loans and other lending investments, net $2,236,030 $2,225,183 Real estate subject to operating leases, net 1,638,017 1,670,169 Cash and cash equivalents 22,301 22,752 Restricted cash 13,225 20,441 Marketable securities 41 41 Accrued interest and operating lease income receivable 18,606 20,167 Deferred operating lease income receivable 12,812 10,236 Other assets 72,860 65,786 Total assets $4,013,892 $4,034,775 LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable and other liabilities $64,473 $52,038 Dividends payable 5,225 56,661 Debt obligations: Unsecured senior notes 357,298 356,509 Unsecured revolving credit facilities 68,700 173,450 Secured revolving credit facilities 738,259 592,349 Secured term loans 328,928 349,060 iStar Asset Receivables secured notes 586,345 588,334 Other debt obligations 41,304 72,265 Total liabilities $2,190,532 $2,240,666 Minority interest 2,649 6,224 Shareholders' equity 1,820,711 1,787,885 Total liabilities and shareholders' equity $4,013,892 $4,034,775 iStar Financial Inc. Supplemental Information (as of and for the three-month period ended March 31, 2001) (In thousands) (unaudited)
FIRST QUARTER 2001 PERFORMANCE STATISTICS
Return on Average Book Assets Adjusted Basic Earnings to Common Shareholders $61,482 Plus: Preferred Dividends 9,227 Adjusted Basic Earnings before Preferred Dividends $70,709 Adjusted Basic Earnings before Preferred Dividends -- Annualized (A) $282,836 Average Total Book Assets (B) $4,024,334 Return on Average Book Assets (A)/(B) 7.0% Return on Average Common Book Equity Adjusted Basic Earnings to Common Shareholders $61,482 Adjusted Basic Earnings to Common -- Annualized (C) $245,928 Average Total Book Equity $1,804,298 Less: Book Value of Preferred Equity (382,000) Average Common Book Equity (D) $1,422,298 Return on Average Common Book Equity (C)/(D) 17.3% Efficiency Ratio General & Administrative Expenses $6,102 Plus: Stock Option Compensation Expense 860 Total Corporate Overhead (E) $6,962 Total Revenue (F) $122,619 Efficiency Ratio (E)/(F) 5.7%
FIRST QUARTER 2001 CREDIT STATISTICS
Book Debt/Equity Book Debt (A) $2,120,834 Total Book Equity (B) $1,820,711 Book Debt / Book Equity (A)/(B) 1.2x iStar Financial Inc. Supplemental Information (as of and for the three-month period ended March 31, 2001) (In thousands) (unaudited)
FIRST QUARTER CREDIT STATISTICS
Interest Coverage EBITDA (1) (A) $110,671 GAAP Interest Expense (B) $46,360 EBITDA/GAAP Interest Expense (A)/(B) 2.4x Fixed Charge Coverage EBITDA (1) (C) $110,671 GAAP Interest Expense $46,360 Plus: Preferred Dividends 9,227 Total Fixed Charges (D) $55,587 EBITDA/Fixed Charges (C)/(D) 2.0x
FIRST QUARTER FINANCING VOLUME SUMMARY STATISTICS
Total/ Floating Weighted CORPORATE Fixed Rate Rate Average LEASING Amount Funded $77,495 $168,249 $245,744 $10,352 Weighted Average GAAP Yield 15.14% 10.92% 12.25% 10.34% Weighted Average All-In Spread/Margin (basis points) (2) +1,001 +541 -- +520 First $ Loan-to-Value Ratio 58.8% 22.0% 33.6% -- Last $ Loan-to-Value Ratio 75.4% 65.7% 68.7% -- UNFUNDED COMMITMENTS Number of Loans with Unfunded Commitments 7 Discretionary Commitments $10,202 Non-Discretionary Commitments 89,286 Total Unfunded Commitments $99,488 Estimated Weighted Average Funding Period Approximately 2 years (1) EBITDA is calculated as total revenue minus the sum of general and administrative expenses, provision for possible credit losses, stock option 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 March 31, 2001) (In millions) (unaudited) PORTFOLIO STATISTICS AS OF MARCH 31, 2001 (a) Security Type $ % First Mortgages $1,170 29.6% Second Mortgages 340 8.6% Corporate/Partnership Loans/Other 712 18.1% Corporate Tenant Leases 1,725 43.7% Total $3,947 100.0% Collateral Type $ % Office $1,906 48.3% Industrial/R&D 400 10.1% Retail 115 2.9% Hotel 830 21.0% Mixed Use 147 3.7% Apartment/Residential 209 5.3% Homebuilder/Land 49 1.3% Resort/Entertainment 291 7.4% Total $3,947 100.0% Product Line $ % Structured Finance $944 23.9% Portfolio Finance 379 9.6% Loan Acquisition 511 12.9% Corporate Finance 388 9.9% Corporate Tenant Leasing 1,725 43.7% Total $3,947 100.0% Collateral Location $ % West $1,217 30.8% Southwest 78 2.0% South 708 17.9% Central 276 7.0% North Central 71 1.8% Northeast 750 19.0% Mid-Atlantic 335 8.5% Southeast 331 8.4% Northwest 181 4.6% Total $3,947 100.0% (a) Figures presented prior to loan loss reserves and accumulated depreciation. MAKE YOUR OPINION COUNT - Click Here http://tbutton.prnewswire.com/prn/11690X84459427
SOURCE iStar Financial Inc.
CONTACT: Spencer B. Haber, Exec. Vice President and CFO, or Lianne A. Merchant, Vice President, Investor Relations, or Erin C. Hart, Associate, Investor Relations, all of iStar Financial Inc., 212-930-9400/