Starwood Financial Announces Record Quarterly Results
Fourth Quarter Adjusted Earnings Per Share Increase 33%
Fourth Quarter 1999 Adjusted Earnings Per Diluted Share Increased 33% to $0.60 From $0.45 for Fourth Quarter 1998
Fourth Quarter Net Investment Income Grew 87% Over 1998 to $53.4 Million
Financing Volume for Fourth Quarter 1999 Totaled $319.3 Million
Tangible Book Equity Capital Surpassed $1.8 Billion
NEW YORK, Feb. 9 /PRNewswire/ -- Starwood Financial Inc. (NYSE: SFI) reported that adjusted earnings for the quarter ended December 31, 1999 increased 33% to $0.60 per diluted common share, from $0.45 per diluted share for the quarter ended December 31, 1998. Adjusted earnings for fourth quarter 1999 totaled $45.3 million, up 83% from $24.8 million for fourth quarter 1998. Adjusted earnings represent GAAP net income before depreciation and amortization and, for purposes of fourth quarter 1999, exclude the one-time charge described below. Starwood Financial's fourth quarter results include the operations of TriNet Corporate Realty Trust for the period since its acquisition by Starwood Financial on November 4, 1999.
Excluding a $94.5 million one-time charge associated with Starwood Financial's acquisition of its external advisor, net income allocable to common shareholders for the fourth quarter grew to $36.1 million, or approximately $0.49 per diluted common share, compared with $22.0 million, or $0.40 per diluted share, in the 1998 period. After the one-time charge, the company recorded a net loss of $58.4 million, or $0.80 per common share. The one-time charge reflects the company's issuance of 4.0 million common shares in acquiring its external advisor in connection with the TriNet transaction on November 4, 1999, as well as the assumption of the advisor's net working capital. The market value of the common shares issued in excess of the fair value of the net tangible assets acquired was charged to operating income.
Funds from operations for the quarter ended December 31, 1999 increased 38% to $0.58 per diluted common share, from $0.42 per diluted share for the 1998 period. Fourth quarter 1999 total funds from operations and total revenue increased to $43.4 million and $89.5 million, respectively, from $23.4 million and $48.3 million for the fourth quarter of 1998.
Adjusted earnings for the year ended December 31, 1999 were $2.07 per diluted common share, or $127.8 million, up 35% from $1.53 per diluted common share, or $66.6 million, for 1998.
Funds from operations for full-year 1999 were $121.7 million, or $1.97 per diluted common share, compared with $63.3 million, or $1.46 per diluted common share, for 1998. Total revenue for 1999 increased 107% to $264.8 million, from $128.1 million in 1998. Including the fourth quarter advisor charge, net income allocable to common shareholders for the year ended December 31, 1999, was $15.0 million, or $0.25 per diluted common share, compared with $59.0 million, or $1.36 per diluted common share, for the prior year. The company's 1998 results reflect a partial period from the recapitalization transactions completed on March 18, 1998 through December 31, 1998.
Starwood Financial announced that during the fourth quarter, it closed six new financing commitments totaling $283.2 million. Of the $283.2 million committed, $266.2 million has been funded to date. In addition, the company funded $36.1 million under five pre-existing commitments and received $204.3 million in principal repayments. Starwood 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.
In the Starwood Financial/TriNet Corporate Realty Trust merger proxy, Starwood Financial announced its intention to repurchase up to 5.0 million shares of common stock upon the completion of the merger. Since the November 4, 1999 completion of the merger, Starwood Financial has repurchased 2.3 million shares of its common stock for approximately $40.3 million at an average price of $17.66. The company's share repurchases brought its common shares outstanding to 85.0 million as of December 31, 1999.
Jay Sugarman, Starwood Financial's chief executive officer, commented, "The fourth quarter represented another milestone for Starwood Financial, with the completion of the $1.5 billion TriNet acquisition and over $280 million in additional financing commitments. We have largely integrated TriNet's operational platform into Starwood Financial's, and are exploring ways to re-energize its credit tenant lease investment business."
Mr. Sugarman continued, "We have made further progress in building state-of-the-art capital resources on the right side of the balance sheet. We continue to differentiate Starwood Financial's business model from that of earlier generation commercial finance companies in several key ways:
- We offer larger, more highly structured financial solutions for customers who value our superior flexibility and execution capabilities.
- We have a more efficient, lower-cost infrastructure with highly centralized credit decisions.
- Our tax efficient structure allows us to achieve attractive returns on equity with significantly lower leverage than that of taxable commercial finance companies.
- Our larger tangible book equity capital base supports a diversified asset base at lower leverage levels than other commercial finance companies.
Selected Operating Results
(Amounts in thousands, except per share data)
Year Ended Three Months Ended December 31, December 31, 1999 1998 1999 1998 (unaudited) (unaudited) (unaudited) Net investment income $158,604 $80,595 $53,389 $28,533 Other income 12,763 2,804 4,012 591 Non-interest expense (37,964) (23,442) (13,369) (6,170) Net income (before non-recurring advisor charge and minority interest) $133,403 $59,957 $44,032 $22,954 Non-recurring advisor charge (94,476) -- (94,476) -- Minority interest (41) (54) (41) -- Preferred dividends (23,843) (944) (7,920) (944) Net income allocable to common shareholders $15,043 $58,959 $(58,405) $22,010 Per basic share (a) $0.25 $1.40 ($0.80) $0.42 Per diluted share $0.25 $1.36 ($0.80) $0.40 Adjusted earnings allocable to common shareholders (b) $127,798 $66,615 $45,303 $24,796 Per basic share $2.19 $1.59 $0.61 $0.47 Per diluted share $2.07 $1.53 $0.60 $0.45 Dividends $1.86 $1.14 $0.57 $0.41 (a) Net income per basic share excludes 1% of net income allocable to Starwood Financial's Class B shares prior to November 4, 1999. These Class B shares were exchanged for common shares in connection with the TriNet acquisition and related transactions on November 4, 1999. As a result, the company now has a single class of common shares outstanding. (b) Excludes non-recurring advisor charge. Selected Balance Sheet Data (Amounts in thousands) As of As of December 31, 1999 December 31, 1998 (unaudited) Real estate loans and related investments, net $2,003,506 $1,823,761 Real estate subject to operating leases, net 1,714,284 189,942 Total assets 3,813,552 2,059,616 Debt obligations 1,901,204 1,055,719 Total liabilities 2,009,644 1,088,888 Total shareholders' equity 1,801,343 970,728 Transaction Volume
Since the beginning of the fourth quarter of 1999, Starwood Financial generated $283.2 million in new financing commitments, $266.2 million of which have been funded, in six separate transactions. The company also funded an additional $36.1 million under five pre-existing financing commitments. With these fourth quarter transactions, the company's 1999 financing commitments totaled $663.4 million, $641.8 million of which have been funded. The company also funded a total of $46.4 million under pre-existing commitments during 1999. The year's transactions included a broad mix of mortgage, mezzanine and credit tenant lease financings primarily backed by office, residential and hotel properties.
Credit Tenant Leasing
During the fourth quarter of 1999, the company executed eight new leases, lease extensions and/or early lease renewals on 632,850 square feet of net leased office and industrial facilities. Fourth quarter leasing transactions included:
- A seven-year, triple net lease signed by a new tenant, Polycom, Inc., on a 102,240 square foot research and development facility located in Milpitas, Calif. The new lease became effective February 1, 2000. As reported earlier, Starwood Financial's net lease subsidiary had received a lease termination fee from the previous lessee in exchange for granting that lessee's request to terminate its lease effective September 1, 1999.
- A 9.5-year lease renewal signed by Primerica Life Insurance on a 190,000 square foot worldwide communications center located in Atlanta, Ga. The new lease became effective January 1, 2000.
In addition, the company's joint venture with Menlo Equities LLC executed leases on four of the office buildings in Phase One and one of the buildings in Phase Two of its Corporate Technology Centre office park in San Jose, Calif. The five Class A office buildings are each 100% leased to a single tenant under long-term leases:
- Enterprise Networking Systems will commence its eight-year lease on a 46,070 square foot building January 15, 2000.
- Redback Networks' eight-year lease on a 99,800 square foot building begins January 1, 2000.
- Redback Networks' nine-year lease on a 96,710 square foot building begins March 1, 2000.
- Digital Island has signed an 11-year lease commencing March 17, 2000, for 56,410 square feet of a 76,410 square foot building. In addition, Digital Island has signed a letter of intent for the remaining 20,000 square feet of the building.
- California Department of Transportation's 6.5-year lease on a 19,550 square foot building commences November 1, 1999.
Subsequent to quarter end, Starwood 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 intends 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 since quarter end, the company extended the term of an existing $500 million secured credit facility. Starwood 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, Starwood 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.
During the fourth quarter, Starwood Financial also successfully obtained required bank consents to maintain TriNet's $350 million unsecured credit facility following Starwood Financial's acquisition of TriNet. That facility, which is syndicated among 13 leading commercial banks, matures in May 2001, with a one-year extension at the company's option. The facility bears interest at LIBOR plus 1.55%.
Spencer B. Haber, Starwood Financial's Executive Vice President -- Finance and Chief Financial Officer, commented, "We continue to make significant progress in expanding and extending our sources of liquidity. With the new unsecured revolver, our committed credit facilities now total $1.6 billion."
Mr. Haber continued, "Our credit facilities now represent a strong mix of secured and unsecured borrowing capacity from a diverse group of leading financial institutions. Our only significant remaining debt maturities in 2000 include approximately $250 million of term loans, which are either match funded against loan assets maturing this year or are scheduled to be refinanced in our upcoming Starwood Asset Receivables (STARS) securitization."
During the fourth quarter of 1999, Starwood Financial funded its origination and acquisition activities with cash on hand and borrowings under its revolving credit facilities. At quarter end, $949.6 million was outstanding under the company's committed credit facilities.
Starwood Financial's consolidated ratio of book value debt to shareholders' equity was 1.1x as of December 31, 1999, based on debt of $1.9 billion and shareholders' equity of $1.8 billion.
On November 3, 1999, Starwood Financial and TriNet Corporate Realty Trust, Inc. each held a special shareholders meeting to approve their proposed merger announced on June 16, 1999. After receiving shareholder approval and satisfying the other conditions to closing, Starwood Financial and TriNet closed the merger on November 4, 1999. TriNet stockholders received 1.15 shares of Starwood Financial common stock for each share of TriNet common stock they had held. Year-end financial results for 1999 reflect the combined performance of Starwood Financial and TriNet (as a wholly-owned subsidiary) for the period from November 4 through December 31, 1999.
During the fourth quarter, prior to its acquisition by Starwood Financial, TriNet realized a $0.5 million gain on the $5.0 million sale of a research and development facility located in King of Prussia, Penn. The company used the net proceeds from the sale to reduce the balance on its unsecured revolving credit facility.
On November 29, 1999, Starwood Financial announced an increase in its regular quarterly cash dividend to $0.57 per common share for the quarter ended December 31, 1999. This dividend represented a 39% increase over the $0.41 dividend paid for fourth quarter 1998. The 1999 fourth quarter dividend, which was paid on January 28, 2000 to holders of record as of December 31, 1999, represented approximately 93% of basic adjusted earnings per share for the fourth quarter.
Starwood 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 proprietary 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 the real estate industry.
Starwood Financial will hold a conference call for investment professionals at 11:00 a.m. Eastern time today, February 9, 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 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.
Statements in this press release that are not historical fact may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although Starwood 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 Starwood Financial Inc.'s expectations include completion of pending investments, continued availability 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 Starwood Financial Inc.'s SEC reports.)
Starwood Financial Inc. Consolidated Statements of Operations (In thousands, except per share amounts) Year Ended Three Months Ended December 31, December 31, 1999 1998 1999 1998 (unaudited) (unaudited) (unaudited) REVENUES: Interest income $209,848 $112,914 $55,011 $44,004 Operating lease income 42,186 12,378 30,460 3,754 Other income 12,763 2,804 4,012 591 Total revenues 264,797 128,096 89,483 48,349 Expenses: Interest expense 91,184 44,697 29,836 19,225 Property operating costs 2,246 -- 2,246 -- General and administrative 6,681 2,583 4,295 806 Depreciation and amortization 10,340 4,287 6,245 1,344 Provision for possible credit losses 4,750 2,750 1,250 1,000 Advisory fees 16,193 7,837 1,579 3,020 Stock option compensation expense -- 5,985 -- -- Costs incurred in acquiring external advisor 94,476 -- 94,476 -- Total expenses 225,870 68,139 139,927 25,395 Income before minority interest 38,927 59,957 (50,444) 22,954 Minority interest (41) (54) (41) -- Net income/(loss) 38,886 59,903 (50,485) 22,954 Preferred dividends (23,843) (944) (7,920) (944) Net income allocable to common shareholders $15,043 $58,959 $(58,405) $22,010 Net income per common share: Basic (a) $0.25 $1.40 $(0.80) $0.42 Diluted $0.25 $1.36 $(0.80) $0.40 Weighted average common shares outstanding: Basic 57,749 41,607 73,427 52,408 Diluted 60,393 43,460 73,427 55,203 (a) Net income per basic share excludes 1% of net income allocable to Starwood Financial's Class B shares prior to November 4, 1999. These Class B shares were exchanged for common shares in connection with the TriNet acquisition and related transactions on November 4, 1999. As a result, the company now has a single class of common shares outstanding. Starwood Financial Inc. Consolidated Statements of Operations (In thousands, except per share amounts) Year Ended Three Months Ended December 31, December 31, 1999 1998 1999 1998 (unaudited) (unaudited)(unaudited) ADJUSTED EARNINGS PER SHARE: Net income/(loss) $38,886 $59,903 $(50,485) $22,954 Real estate depreciation 10,340 4,287 6,245 1,344 Joint venture depreciation 1,041 15 534 15 Amortization 6,121 3,354 1,857 1,427 Costs incurred in acquiring external advisor 94,476 -- 94,476 -- Preferred dividends (23,843) (944) (7,920) (944) Net income allocable to Class B shares (a) (826) (666) (91) (248) Adjusted earnings allocable to common shareholders: Basic $126,195 $65,949 $44,616 $24,548 Diluted $127,798 $66,615 $45,303 $24,796 Adjusted earnings per common share: Basic $2.19 $1.59 $0.61 $0.47 Diluted $2.07 $1.53 $0.60 $0.45 Weighted average common shares outstanding: Basic 57,749 41,607 73,427 52,408 Diluted 61,750 43,460 75,348 55,203 (a) Represents 1% of net income allocable to Starwood Financial's Class B shares prior to November 4, 1999. These Class B shares were exchanged for common shares in connection with the TriNet acquisition and related transactions on November 4, 1999. As a result, the company now has a single class of common shares outstanding. Starwood Financial Inc. Consolidated Balance Sheets (In thousands) As of As of December 31, 1999 December 31, 1998 (unaudited) ASSETS Loans and other investments, net $2,003,506 $1,823,761 Real estate subject to operating leases, net 1,714,284 189,942 Cash and cash equivalents 34,408 10,110 Restricted cash 10,195 5,699 Marketable securities 4,344 5,406 Accrued interest and rent receivable 17,358 13,122 Other assets 29,457 11,576 Total assets $3,813,552 $2,059,616 LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable and other liabilities $54,773 $10,536 Dividends payable 53,667 22,633 Debt obligations: Unsecured senior notes 353,520 -- Unsecured revolving credit facility 186,700 -- Secured revolving credit facilities 762,936 640,945 Secured term loans 559,288 368,683 Other debt obligations 38,760 46,091 Total liabilities 2,009,644 1,088,888 Minority interest 2,565 -- Shareholders' equity 1,801,343 970,728 Total liabilities and shareholders' equity $3,813,552 $2,059,616 SOURCE Starwood Financial Inc.
CONTACT: Spencer Haber, Exec. Vice President and CFO, 212-930-9400, or Elizabeth Drucker, Vice President, Corp. Communications, 415-391-4300, both of Starwood Financial Inc.; or Adam Weiner of Kekst and Company, 212-521-4800, for Starwood Financial Inc.