UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

(Mark One)

x                              QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007

OR

o                                 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to           

Commission File No. 1-15371


iSTAR FINANCIAL INC.

(Exact name of registrant as specified in its charter)

Maryland

 

95-6881527

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification Number)

1114 Avenue of the Americas, 39th Floor

 

10036

New York, NY

 

(Zip code)

(Address of principal executive offices)

 

 

 

Registrant’s telephone number, including area code: (212) 930-9400


Indicate by check mark whether the registrant: (i) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (ii) has been subject to such filing requirements for the past 90 days. Yes  x  No  o

Indicate by check mark whether the registrant is a large accelerated filer, or a non-accelerated filer, see definition of “accelerated filer” and “large accelerated filer” in Rule 12-b-2 of the Exchange Act.

Large accelerated filer x

Accelerated filer o

Non-accelerated filer o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o  No  x

As of July 31, 2007 there were 128,215,548 shares of common stock, $0.001/par value per share of iStar Financial Inc., (“Common Stock”) outstanding.

 




iStar Financial Inc.
Index to Form 10-Q

 

 

 

Page

Part I.

 

Consolidated Financial Information

 

3

Item 1.

 

Financial Statements:

 

3

 

 

Consolidated Balance Sheets (unaudited) as of June 30, 2007 and December 31,
2006

 

3

 

 

Consolidated Statements of Operations (unaudited)—For each of the three and six months ended June 30, 2007 and 2006

 

4

 

 

Consolidated Statement of Changes in Shareholders’ Equity (unaudited)—For the six months ended June 30, 2007

 

5

 

 

Consolidated Statements of Cash Flows (unaudited)—For the six months ended June 30, 2007 and 2006

 

6

 

 

Notes to Consolidated Financial Statements

 

7

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

32

Item 4.

 

Controls and Procedures

 

43

Part II.

 

Other Information

 

45

Item 1.

 

Legal Proceedings

 

45

Item 1a.

 

Risk Factors

 

45

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

45

Item 3.

 

Defaults Upon Senior Securities

 

45

Item 4.

 

Submission of Matters to a Vote of Security Holders

 

45

Item 5.

 

Other Information

 

46

Item 6.

 

Exhibits

 

46

SIGNATURES

 

48

 

2




PART I. CONSOLIDATED FINANCIAL INFORMATION

Item 1.                        Financial Statements

iStar Financial Inc.
Consolidated Balance Sheets
(In thousands, except per share data)
(unaudited)

 

 

As of
June 30,

 

As of
December 31,

 

 

 

2007

 

2006

 

ASSETS

 

 

 

 

 

 

 

Loans and other lending investments, net

 

$

7,694,183

 

 

$

6,799,850

 

 

Corporate tenant lease assets, net

 

3,324,186

 

 

3,084,794

 

 

Other investments

 

490,741

 

 

407,617

 

 

Investments in joint ventures

 

391,798

 

 

382,030

 

 

Assets held for sale

 

15,985

 

 

9,398

 

 

Cash and cash equivalents

 

88,019

 

 

105,951

 

 

Restricted cash

 

33,901

 

 

28,986

 

 

Accrued interest and operating lease income receivable

 

97,696

 

 

72,954

 

 

Deferred operating lease income receivable

 

89,634

 

 

79,498

 

 

Deferred expenses and other assets

 

78,063

 

 

71,181

 

 

Goodwill

 

18,124

 

 

17,736

 

 

Total assets

 

$

12,322,330

 

 

$

11,059,995

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Accounts payable, accrued expenses and other liabilities

 

$

232,835

 

 

$

200,957

 

 

Debt obligations

 

8,987,059

 

 

7,833,437

 

 

Total liabilities

 

9,219,894

 

 

8,034,394

 

 

Commitments and contingencies

 

 

 

 

 

Minority interest in consolidated entities

 

30,602

 

 

38,738

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

Series D Preferred Stock, $0.001 par value, liquidation preference $25.00 per share, 4,000 shares issued and outstanding at June 30, 2007 and December 31, 2006

 

4

 

 

4

 

 

Series E Preferred Stock, $0.001 par value, liquidation preference $25.00 per share, 5,600 shares issued and outstanding at June 30, 2007 and December 31, 2006

 

6

 

 

6

 

 

Series F Preferred Stock, $0.001 par value, liquidation preference $25.00 per share, 4,000 shares issued and outstanding at June 30, 2007 and December 31, 2006

 

4

 

 

4

 

 

Series G Preferred Stock, $0.001 par value, liquidation preference $25.00 per share, 3,200 shares issued and outstanding at June 30, 2007 and December 31, 2006

 

3

 

 

3

 

 

Series I Preferred Stock, $0.001 par value, liquidation preference $25.00 per share, 5,000 shares issued and outstanding at June 30, 2007 and December 31, 2006

 

5

 

 

5

 

 

High Performance Units

 

9,800

 

 

9,800

 

 

Common Stock, $0.001 par value, 200,000 shares authorized, 126,786 and 126,565 shares issued and outstanding at June 30, 2007 and December 31, 2006, respectively

 

127

 

 

127

 

 

Options

 

1,537

 

 

1,696

 

 

Additional paid-in capital

 

3,469,240

 

 

3,464,229

 

 

Retained earnings (deficit)

 

(405,104

)

 

(479,695

)

 

Accumulated other comprehensive income (See Note 14)

 

22,484

 

 

16,956

 

 

Treasury stock (at cost)

 

(26,272

)

 

(26,272

)

 

Total shareholders’ equity

 

3,071,834

 

 

2,986,863

 

 

Total liabilities and shareholders’ equity

 

$

12,322,330

 

 

$

11,059,995

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.

3




iStar Financial Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
(unaudited)

 

 

For the
Three Months Ended
June 30,

 

For the
Six Months Ended
June 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

Revenue:

 

 

 

 

 

 

 

 

 

Interest income

 

$

192,165

 

$

135,075

 

$

373,025

 

$

261,124

 

Operating lease income

 

86,382

 

81,336

 

167,694

 

162,991

 

Other income

 

38,801

 

21,676

 

67,276

 

35,145

 

Total revenue

 

317,348

 

238,087

 

607,995

 

459,260

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Interest expense

 

139,174

 

101,302

 

267,701

 

194,785

 

Operating costs—corporate tenant lease assets

 

7,433

 

10,722

 

14,244

 

16,121

 

Depreciation and amortization

 

22,827

 

18,877

 

42,869

 

37,502

 

General and administrative

 

39,423

 

20,424

 

76,972

 

39,556

 

Provision for loan losses

 

5,000

 

2,000

 

10,000

 

3,000

 

Total costs and expenses

 

213,857

 

153,325

 

411,786

 

290,964

 

Income before equity in (loss)/earnings from joint ventures, minority interest and other items

 

103,491

 

84,762

 

196,209

 

168,296

 

Equity in (loss)/earnings from joint ventures

 

(102

)

767

 

(1,453

)

1,053

 

Minority interest in consolidated entities

 

15

 

(821

)

579

 

(1,069

)

Income from continuing operations

 

103,404

 

84,708

 

195,335

 

168,280

 

Income from discontinued operations

 

296

 

3,438

 

1,048

 

5,670

 

Gain from discontinued operations, net

 

5,362

 

2,353

 

6,778

 

4,536

 

Net income

 

109,062

 

90,499

 

203,161

 

178,486

 

Preferred dividend requirements

 

(10,580

)

(10,580

)

(21,160

)

(21,160

)

Net income allocable to common shareholders and HPU holders(1)

 

$

98,482

 

$

79,919

 

$

182,001

 

$

157,326

 

Per common share data(2):

 

 

 

 

 

 

 

 

 

Income from continuing operations per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.72

 

$

0.64

 

$

1.34

 

$

1.27

 

Diluted

 

$

0.71

 

$

0.63

 

$

1.33

 

$

1.26

 

Net income per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.76

 

$

0.69

 

$

1.40

 

$

1.36

 

Diluted

 

$

0.75

 

$

0.68

 

$

1.39

 

$

1.34

 

Weighted average number of common shares—basic

 

126,753

 

113,282

 

126,723

 

113,263

 

Weighted average number of common shares—diluted

 

127,963

 

114,404

 

127,915

 

114,381

 

Per HPU share data(2):

 

 

 

 

 

 

 

 

 

Income from continuing operations per HPU share:

 

 

 

 

 

 

 

 

 

Basic

 

$

135.60

 

$

120.73

 

$

254.40

 

$

239.73

 

Diluted

 

$

134.40

 

$

119.67

 

$

252.13

 

$

237.60

 

Net income per HPU share:

 

 

 

 

 

 

 

 

 

Basic

 

$

143.80

 

$

130.20

 

$

265.80

 

$

256.40

 

Diluted

 

$

142.53

 

$

129.00

 

$

263.47

 

$

254.07

 

Weighted average number of HPU shares—basic

 

15

 

15

 

15

 

15

 

Weighted average number of HPU shares—diluted

 

15

 

15

 

15

 

15

 

 

Explanatory Notes:


(1)              HPU holders are Company employees who purchased high performance common stock units under the Company’s High Performance Unit Program (see Note 12).

(2)              See Note 13—Earnings Per Share for additional information.

The accompanying notes are an integral part of the consolidated financial statements.

4




iStar Financial Inc.
Consolidated Statement of Changes in Shareholders’ Equity
(In thousands)
(unaudited)

 

 

Series D
Preferred
Stock

 

Series E
Preferred
Stock

 

Series F
Preferred
Stock

 

Series G
Preferred
Stock

 

Series I
Preferred
Stock

 

HPU’s

 

Common
Stock at
Par

 

Options

 

Additional
Paid-In
Capital

 

Retained
Earnings
(Deficit)

 

Accumulated
Other
Comprehensive
Income

 

Treasury
Stock

 

 

Total

 

Balance at December 31, 2006

 

$4

 

$6

 

$4

 

$3

 

$5

 

$9,800

 

$127

 

$1,696

 

 

$3,464,229

 

$

(479,695

)

$16,956

 

$(26,272

)

 

 

$

2,986,863

 

Exercise of options

 

 

 

 

 

 

 

 

(159

)

 

1,700

 

 

 

 

 

 

1,541

 

Dividends declared—preferred

 

 

 

 

 

 

 

 

 

 

 

(21,160

)

 

 

 

 

(21,160

)

Dividends declared—common

 

 

 

 

 

 

 

 

 

 

 

(105,085

)

 

 

 

 

(105,085

)

Dividends declared—HPU

 

 

 

 

 

 

 

 

 

 

 

(2,325

)

 

 

 

 

(2,325

)

Issuance of stock—vested restricted stock units

 

 

 

 

 

 

 

 

 

 

2,363

 

 

 

 

 

 

2,363

 

Issuance of stock—DRIP/stock purchase plan

 

 

 

 

 

 

 

 

 

 

 

948

 

 

 

 

 

 

948

 

Net income for the period

 

 

 

 

 

 

 

 

 

 

 

203,161

 

 

 

 

 

203,161

 

Change in accumulated other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

5,528

 

 

 

 

5,528

 

Balance at June 30, 2007

 

$4

 

$6

 

$4

 

$3

 

$5

 

$9,800

 

$127

 

$1,537

 

 

$3,469,240

 

$

(405,104

)

$22,484

 

$(26,272

)

 

 

$

3,071,834

 

 

The accompanying notes are an integral part of the consolidated financial statements.

5




iStar Financial Inc.
Consolidated Statements of Cash Flows
(In thousands)
(unaudited)

 

 

For the Six Months Ended
June 30,

 

 

 

2007

 

2006

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

203,161

 

$

178,486

 

Adjustments to reconcile net income to cash flows from operating activities:

 

 

 

 

 

Minority interest in consolidated entities

 

(579

)

1,069

 

Non-cash expense for stock-based compensation

 

8,521

 

3,208

 

Shares withheld for employee taxes on stock based compensation arrangements

 

(3,005

)

(439

)

Depreciation, depletion and amortization

 

45,395

 

41,564

 

Amortization of deferred financing costs

 

12,433

 

12,268

 

Amortization of discounts/premiums, deferred interest and costs on lending investments

 

(47,166

)

(37,952

)

Discounts, loan fees and deferred interest received

 

26,626

 

32,009

 

Equity in earnings of unconsolidated entities

 

(3,329

)

(1,053

)

Distributions from operations of unconsolidated entities

 

23,512

 

6,496

 

Deferred operating lease income receivable

 

(11,327

)

730

 

Gain from discontinued operations, net

 

(6,778

)

3,045

 

Provision for loan losses

 

10,000

 

3,000

 

Provision for deferred taxes

 

1,104

 

 

Other non-cash adjustments

 

(2,562

)

 

Changes in assets and liabilities:

 

 

 

 

 

Changes in accrued interest and operating lease income receivable

 

(24,868

)

(20,928

)

Changes in deferred expenses and other assets

 

4,804

 

(27,074

)

Changes in accounts payable, accrued expenses and other liabilities

 

16,431

 

10,115

 

Cash flows from operating activities

 

252,373

 

204,544

 

Cash flows from investing activities:

 

 

 

 

 

New investment originations

 

(1,872,684

)

(1,346,638

)

Add-on fundings under existing loan commitments

 

(765,295

)

(317,015

)

Net proceeds from sales of corporate tenant lease assets

 

64,676

 

21,874

 

Repayments of and principal collections on loans and other lending investments

 

1,390,837

 

971,104

 

Contributions to unconsolidated entities

 

(53,483

)

(9,781

)

Distributions from unconsolidated entities

 

14,451

 

1,089

 

Capital improvements for build-to-suit facilities

 

(28,650

)

(32,904

)

Capital improvement projects on corporate tenant lease assets

 

(4,478

)

(4,910

)

Other capital expenditures on corporate tenant lease assets

 

(13,302

)

(4,239

)

Other investing activities, net

 

(2,417

)

 

Cash flows from investing activities

 

(1,270,345

)

(721,420

)

Cash flows from financing activities:

 

 

 

 

 

Borrowings under secured revolving credit facility

 

135,000

 

181,073

 

Repayments under secured revolving credit facility

 

(135,000

)

(181,073

)

Borrowings under unsecured revolving credit facilities

 

13,828,580

 

3,578,157

 

Repayments under unsecured revolving credit facilities

 

(13,464,023

)

(3,915,000

)

Borrowings under secured term loans

 

8,218

 

38,161

 

Repayments under secured term loans

 

(71,700

)

(19,138

)

Borrowings under unsecured notes

 

1,034,973

 

991,489

 

Repayments under unsecured notes

 

(200,000

)

(50,000

)

Borrowings under foreign lines of credit

 

 

146,950

 

Repayments under foreign lines of credit

 

 

(155,181

)

Contributions from minority interest partners

 

1,429

 

11,025

 

Distributions to minority interest partners

 

(3,123

)

(1,071

)

Changes in restricted cash held in connection with debt obligations

 

(9,069

)

(22,897

)

Payments for deferred financing costs/proceeds from hedge settlements, net

 

624

 

(15,065

)

Common dividends paid

 

(105,085

)

(87,523

)

Preferred dividends paid

 

(21,160

)

(21,160

)

HPU dividends paid

 

(2,325

)

(2,171

)

HPUs issued/(redeemed)

 

(11

)

1,033

 

Proceeds from exercise of options and issuance of DRIP/Stock purchase shares

 

2,712

 

2,068

 

Cash flows from financing activities

 

1,000,040

 

479,677

 

Changes in cash and cash equivalents

 

(17,932

)

(37,199

)

Cash and cash equivalents at beginning of period

 

105,951

 

115,370

 

Cash and cash equivalents at end of period

 

$

88,019

 

$

78,171

 

 

The accompanying notes are an integral part of the consolidated financial statements.

6




iStar Financial Inc.
Notes to Consolidated Financial Statements

Note 1—Business and Organization

Business—iStar Financial Inc. (the “Company”) is a leading publicly-traded finance company focused on the commercial real estate industry. The Company provides custom-tailored financing to high-end private and corporate owners of real estate, including senior and mezzanine real estate debt, senior and mezzanine corporate capital, corporate net lease financing and equity. The Company, which is taxed as a real estate investment trust (“REIT”), seeks to deliver strong dividends and superior risk-adjusted returns on equity to shareholders by providing innovative and value added financing solutions to its customers. The Company’s two primary lines of business are lending and corporate tenant leasing.

The lending business is primarily comprised of senior and mezzanine real estate loans that typically range in size from $20 million to $150 million and have maturities generally ranging from three to ten years. These loans may be either fixed rate (based on the U.S. Treasury rate plus a spread) or variable rate (based on LIBOR plus a spread) and are structured to meet the specific financing needs of the borrowers. The Company also provides senior and mezzanine capital to corporations, particularly those engaged in real estate or real estate related businesses. These financings may be either secured or unsecured, typically range in size from $20 million to $150 million and have maturities generally ranging from three to ten years. As part of the lending business, the Company also acquires whole loans and loan participations which present attractive risk-reward opportunities.

The Company’s corporate tenant leasing business provides capital to corporations and other owners who control facilities leased primarily to single creditworthy customers. The Company’s net leased assets are generally mission critical headquarters or distribution facilities that are subject to long-term leases with public companies, many of which are rated corporate credits, and many of which provide for most expenses at the facility to be paid by the corporate customer on a triple net lease basis. Corporate tenant lease, or CTL, transactions have initial terms generally ranging from 15 to 20 years and typically range in size from $20 million to $150 million.

Organization—The Company began its business in 1993 through private investment funds formed to capitalize on inefficiencies in the real estate finance market. In March 1998, these funds contributed their assets to the Company’s predecessor in exchange for a controlling interest in that company. The Company later acquired its former external advisor in exchange for shares of the Company’s common stock (‘‘Common Stock’’) and converted its organizational form to a Maryland corporation. As part of the conversion to a Maryland corporation, the Company replaced its former dual class common share structure with a single class of Common Stock. The Company’s Common Stock began trading on the New York Stock Exchange on November 4, 1999. Prior to this date, the Company’s Common Stock was traded on the American Stock Exchange. Since that time, the Company has grown through the origination of new lending and leasing transactions, as well as through corporate acquisitions, including the acquisition in 1999 of TriNet Corporate Realty Trust, Inc., the acquisition in 2005 of Falcon Financial Investment Trust and the acquisition in 2005 of a significant non-controlling interest in Oak Hill Advisors, L.P. and affiliates.

Note 2—Basis of Presentation

The accompanying unaudited Consolidated Financial Statements have been prepared in conformity with the instructions to Form 10-Q and Article 10-01 of Regulation S-X for interim financial statements. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States of America (“GAAP”) for complete financial statements. These unaudited Consolidated Financial Statements and related Notes should be read in conjunction with the Consolidated Financial Statements and related Notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006. The Consolidated Financial Statements include the

7




iStar Financial Inc.
Notes to Consolidated Financial Statements (Continued)

Note 2—Basis of Presentation (Continued)

accounts of the Company, its qualified REIT subsidiaries, its majority-owned and controlled partnerships and other entities that are consolidated under the provisions of FASB Interpretation No. 46, “Consolidation of Variable Interest Entities,” an interpretation of ARB 51 (“FIN 46R”) (see Note 6). All significant intercompany balances and transactions have been eliminated in consolidation. Certain investments in joint ventures or other entities which the Company does not control are accounted for under the equity method (see Note 6 and Note 7).

In the opinion of management, the accompanying Consolidated Financial Statements contain all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the Company’s consolidated financial position at June 30, 2007 and December 31, 2006 and the results of its operations for the three and six months ended June 30, 2007 and 2006, respectively, and its changes in shareholders’ equity and its cash flows for the six months ended June 30, 2007. Such operating results may not be indicative of the expected results for any other interim periods or the entire year.

As of June 30, 2007, the Company’s significant accounting policies, which are detailed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, have not changed materially.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Certain prior year amounts have been reclassified in the Consolidated Financial Statements and the related notes to conform to the 2007 presentation.

Note 3—Recent Accounting Pronouncements

In February 2007, the FASB released Statement of Financial Accounting Standards No. 159 (“SFAS No. 159”), “The Fair Value Option for Financial Assets and Liabilities Including an Amendment of FASB Statement No. 115.” SFAS No. 159 permits entities to choose to measure certain financial assets and liabilities at fair value and is effective for the first fiscal year beginning after November 15, 2007. The Company will adopt SFAS No. 159 on January 1, 2008, as required, and management is still evaluating the impact on the Company’s Consolidated Financial Statements.

In September 2006, the FASB released Statement of Financial Accounting Standards No. 157 (“SFAS No. 157”), “Fair Value Measurements.” This statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 clarifies the exchange price notion in the fair value definition to mean the price that would be received to sell the asset or paid to transfer the liability (an exit price), not the price that would be paid to acquire the asset or received to assume the liability (an entry price). This statement also clarifies that market participant assumptions should include assumptions about risk, should include assumptions about the effect of a restriction on the sale or use of an asset and should reflect its nonperformance risk (the risk that the obligation will not be fulfilled). Nonperformance risk should include the reporting entity’s credit risk. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company will adopt SFAS No. 157 on January 1, 2008, as required, and management is still evaluating the impact on the Company’s Consolidated Financial Statements.

In July 2006, the FASB released Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement 109.” FIN 48 prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its financial statements uncertain tax

8




iStar Financial Inc.
Notes to Consolidated Financial Statements (Continued)

Note 3—Recent Accounting Pronouncements (Continued)

positions that the company has taken or expects to take on a tax return. A tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable, based on its technical merits. The tax benefit is the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company adopted FIN 48 on January 1, 2007, as required. As a result of the implementation of FIN 48, the Company did not have any unrecognized tax benefits or any additional tax liabilities as of January 1, 2007 or as of June 30, 2007. The Company’s policy is to recognize interest expense and penalties related to uncertain tax positions, if any, as income tax expense, which is included in “General and administrative” costs on the Company’s Consolidated Statements of Operations.

In March 2006, the FASB released Statement of Financial Accounting Standards No. 156 (“SFAS No. 156”), “Accounting for Servicing of Financial Assets.” SFAS No. 156 was issued to simplify the accounting for servicing rights and to reduce the volatility that results from the use of different measurement attributes for servicing rights and the related financial instruments used to economically hedge risks associated with those servicing rights. SFAS No. 156 modifies the accounting for servicing rights by: (1) clarifying when a separate asset or servicing liability should be recognized; (2) requiring a separately recognized servicing asset or servicing liability to be measured at fair value; (3) allowing entities to subsequently measure servicing rights either at fair value or under the amortization method for each class of a separately recognized servicing asset or servicing liability; (4) permitting a one-time reclassification of available-for-sale securities to trading securities; and (5) requiring separate presentation of servicing assets and servicing liabilities subsequently measured at fair value. SFAS No. 156 is effective in annual periods beginning after September 15, 2006. The Company adopted SFAS No. 156 on January 1, 2007, as required, and it did not have a significant impact on the Company’s Consolidated Financial Statements.

In February 2006, the FASB released Statement of Financial Accounting Standards No. 155 (“SFAS No. 155”), “Accounting for Certain Hybrid Financial Instruments.” The key provisions of SFAS No. 155 include: (1) a fair value measurement option for certain hybrid financial instruments that contain an embedded derivative that would otherwise require bifurcation; (2) clarification that only the simplest separations of interest payments and principal payments qualify for the exception afforded to interest-only strips (IOs) and principal-only strips (POs) from derivative accounting under paragraph 14 of Statement of Financial Accounting Standards No. 133 (“SFAS No. 133”), “Accounting for Derivative Instruments and Hedging Activities,” (thereby narrowing such exception); (3) a requirement that beneficial interests in securitized financial assets be analyzed to determine whether they are freestanding derivatives or whether they are hybrid instruments that contain embedded derivatives requiring bifurcation; (4) clarification that concentrations of credit risk in the form of subordination are not embedded derivatives; and (5) elimination of the prohibition on a qualifying special-purpose entity (QSPE) holding passive derivative financial instruments that pertain to beneficial interests that are or contain a derivative financial instrument. SFAS No. 155 is effective for annual periods beginning after September 15, 2006. The Company adopted SFAS No. 155 on January 1, 2007, as required, and it did not have a significant impact on the Company’s Consolidated Financial Statements.

9




iStar Financial Inc.
Notes to Consolidated Financial Statements (Continued)

Note 4—Loans and Other Lending Investments

The following is a summary description of the Company’s loans and other lending investments ($ in thousands)(1):

 

 

 

# of

 

Principal

 

Carrying Value as of

 

Effective

 

 

 

 

 

Type of Investment

 

 

 

Underlying
Property Type

 

Borrowers
In Class

 

Balances
Outstanding

 

June 30,
2007

 

December 31,
2006

 

Maturity
Dates

 

Contractual Interest
Payment Rates(2)

 

Contractual Interest
Accrual Rates(2)

 

Senior Mortgages(3)(4)(6)

 

Office/Residential/
Retail/Industrial,
R&D/Mixed
Use/Hotel/
Entertainment,
Leisure/Other

 

 

143

 

 

 

$ 5,123,927

 

 

$ 5,080,490

 

 

$ 3,999,093

 

 

2007 to 2026

 

Fixed: 6.5% to 30%
Variable:
LIBOR + 1.6%
to LIBOR + 7%

 

Fixed: 6.5% to 30%
Variable:
LIBOR + 1.6%
to LIBOR + 7%

 

Subordinate Mortgages(3)(4)(5)(6)

 

Office/Residential/
Retail/Mixed
Use/Hotel/
Entertainment,
Leisure/Other

 

 

21

 

 

 

592,269

 

 

586,776

 

 

615,031

 

 

2007 to 2017

 

Fixed: 5% to 10.5%
Variable:
LIBOR + 2.05%
to LIBOR +7.75%

 

Fixed: 7.32% to 25%
Variable:
LIBOR + 2.05%
to LIBOR + 10%

 

Corporate/ Partnership
Loans(3)(5)(6)

 

Office/Residential/

 

 

40

 

 

 

1,506,285

 

 

1,498,782

 

 

1,347,249

 

 

2007 to 2046

 

Fixed: 8.98% to 17.5%

 

Fixed: 8.98% to 17.5%

 

 

Retail/Industrial,
R&D/Mixed
Use/Hotel/
Entertainment,
Leisure/Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable:
LIBOR + 0.86%
to LIBOR +7%

 

Variable:
LIBOR + 0.86%
to LIBOR + 14%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Loans

 

 

 

 

 

 

 

 

 

 

 

7,166,048

 

 

5,961,373

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reserve for Loan Losses

 

 

 

 

 

 

 

 

 

 

 

(62,201

)

 

(52,201

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Loans, net

 

 

 

 

 

 

 

 

 

 

 

7,103,847

 

 

5,909,172

 

 

 

 

 

 

 

 

Other Lending Investments—Securities(3)(5)(6)(7)

 

Residential/Retail/

 

 

9

 

 

 

616,479

 

 

590,336

 

 

890,678

 

 

2010 to 2023

 

Fixed: 6% to 9.25%

 

Fixed: 6% to 17%

 

 

Industrial, R&D/
Entertainment,
Leisure/Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable:
LIBOR + 2%
to LIBOR + 5.63%

 

Variable:
LIBOR + 2%
to LIBOR + 5.63%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Loans and Other Lending Investments, net

 

 

 

 

 

 

 

 

 

 

 

$ 7,694,183

 

 

$ 6,799,850

 

 

 

 

 

 

 

 

 

Explanatory Notes:


(1)                Details (other than carrying values) are for loans outstanding as of June 30, 2007.

(2)                Substantially all variable-rate loans are based on 30-day LIBOR and reprice monthly. The 30-day LIBOR on June 30, 2007 was 5.32%. As of June 30, 2007, nine loans with a combined carrying value of $259.7 million have a stated accrual rate that exceeds the stated pay rate.

(3)                Certain loans require fixed payments of principal resulting in partial principal amortization over the term of the loan with the remaining principal due at maturity.

(4)                As of June 30, 2007, seven loans with a combined carrying value of $213.1 million are on non-accrual status. As of December 31, 2006, two loans with a combined carrying value of $61.5 million were on non-accrual status.

(5)                As of June 30, 2007, four loans with a combined carrying value of $84.7 million have stated accrual rates of up to 25%, however, no interest is due until their scheduled maturities ranging from 2009 to 2014. One Corporate/Partnership loan, with a carrying value of $54.5 million, has a stated accrual rate of 12.8% and no interest is due until its scheduled maturity in 2046.

(6)                As of June 30, 2007, includes foreign denominated loans with combined carrying values of approximately £153.6 million, 247.2 million, CAD 23.8 million and SEK 240.1 million. Amounts in table have been converted to U.S. dollars based on exchange rates in effect at June 30, 2007.

(7)                Included in Other Lending Investments-Securities are $249.2 million of securities that mature in one to five years and $336.1 million of securities that mature in five to ten years.

10




iStar Financial Inc.
Notes to Consolidated Financial Statements (Continued)

Note 4—Loans and Other Lending Investments (Continued)

During the six months ended June 30, 2007 and 2006, respectively, the Company originated or acquired an aggregate of approximately $1.65 billion and $1.32 billion in loans and other lending investments, funded $765.3 million and $317.0 million under existing loan commitments, and received principal repayments of $1.39 billion and $971.1 million.

As of June 30, 2007, the Company had 97 loans with unfunded commitments. The total unfunded commitment amount was approximately $3.43 billion, of which $3.41 billion was non-discretionary.

The Company reflected provisions for loan losses of $5.0 million and $2.0 million in its results of operations during the three months ended June 30, 2007 and 2006, respectively, and $10.0 million and $3.0 million during the six months ended June 30, 2007 and 2006. These provisions represent increases in loan loss reserves based on management’s evaluation of general market conditions, the Company’s internal risk management policies and credit risk ratings system, industry loss experience, the likelihood of delinquencies or defaults, the credit quality of the underlying collateral and changes in the size of the loan portfolio. The Company does not have any specific reserves identified in accordance with Statement of Financial Accounting Standards No. 114, “Accounting by Creditors for Impairment of a Loan.” During the year ended December 31, 2006, the Company recorded total charge-offs of $8.7 million, related to three separate loans. No additional charge-offs have been recorded as of June 30, 2007.

In April 2007, under a consensual agreement with the borrower, the Company received title to property that served as collateral for a senior mortgage loan with a carrying value of $5.6 million. The loan was placed on NPL status in the fourth quarter of 2006, at which time, the Company assessed the loan for impairment and took a $3.0 million charge-off to write the loan down to the estimated fair value of the collateral. Upon receiving title to the property, the Company determined that the carrying value of the loan approximated the net recoverable value of the property and no further impairment or gain was recorded as a result of the transaction. The Company determined it will dispose of the property and has recorded its carrying value in “Assets held for sale,” in the Company’s Consolidated Balance Sheets.

In March 2007, under a consensual agreement with the borrower, the Company received title to property that served as the sole collateral for a senior mortgage loan with a carrying value of $157.0 million. The Company intends to hold the asset for use and has recorded the fair value of the property in “Corporate tenant lease assets, net” on the Company’s Consolidated Balance Sheet (see Note 5 for further detail). The Company determined that the fair value of the property and other net assets received approximated the net carrying value of the loan and no impairment or gain was recorded as a result of the transaction. In addition, the Company determined that a portion of the fair value of the building was attributable to intangible assets that were separately recorded in “Other investments,” on the Company’s Consolidated Balance Sheet (see Note 7 for further detail).

Changes in the Company’s reserve for loan losses were as follows (in thousands):

Reserve for loan losses, December 31, 2005

 

$

46,876

 

Additional provision for loan losses

 

14,000

 

Charge-offs

 

(8,675

)

Reserve for loan losses, December 31, 2006

 

52,201

 

Additional provision for loan losses

 

10,000

 

Reserve for loan losses, June 30, 2007

 

$

62,201

 

 

11




iStar Financial Inc.
Notes to Consolidated Financial Statements (Continued)

Note 4—Loans and Other Lending Investments (Continued)

The carrying value of Other Lending Investment-Securities, as of June 30, 2007 includes $586.9 million of held to maturity investments with an aggregate fair value of $576.6 million and gross unrealized gains and losses of $27.2 million and $37.5 million, respectively. The carrying value also includes $3.4 million of available-for-sale securities recorded at fair value with an unrealized loss of $0.1 million recorded in accumulated other comprehensive income.

Note 5—Corporate Tenant Lease Assets

During the six months ended June 30, 2007 and 2006, respectively, the Company acquired an aggregate of approximately $168.7 million and $17.2 million in CTL assets and disposed of CTL assets for net proceeds of approximately $64.7 million and $21.9 million. In addition, in March 2007, the Company received title to property with a fair value of $156.8 million that served as collateral for a senior mortgage loan. The Company allocated $120.4 million of this fair value to CTL assets and the remainder was allocated to CTL intangibles (see Note 4 and Note 7 for further discussion). As of June 30, 2007 and December 31, 2006, the Company had unamortized intangible assets related to CTL purchases of approximately $74.8 million and $41.4 million, respectively, and included these in “Other investments” on the Company’s Consolidated Balance Sheets.

During the three months ended June 30, 2007, the Company sold four CTL assets for net proceeds of approximately $29.8 million and realized gains of approximately $5.4 million. During the three months ended June 30, 2006, the Company sold one CTL asset for net proceeds of $12.8 million and realized a gain of approximately $2.4 million. During the six months ended June 30, 2007, the Company disposed of six CTL assets for net proceeds of $64.7 million and recognized gains of approximately $6.8 million. During the six months ended June 30, 2006, the Company disposed of three CTL assets for net proceeds of $21.9 million and recognized gains of approximately $4.5 million.

The Company’s investments in CTL assets, at cost, were as follows (in thousands):

 

 

As of
June 30,
2007

 

As of
December 31,
2006

 

Facilities and improvements

 

$

2,926,077

 

 

$

2,670,424

 

 

Land and land improvements

 

776,463

 

 

762,530

 

 

Less: accumulated depreciation

 

(378,354

)

 

(348,160

)

 

Corporate tenant lease assets, net

 

$

3,324,186

 

 

$

3,084,794

 

 

 

Under certain leases, the Company receives reimbursements from customers for certain facility operating expenses including common area costs, insurance and real estate taxes. Customer expense reimbursements for the three months ended June 30, 2007 and 2006 were approximately $9.4 million and $6.5 million, respectively, and $16.3 million and $13.2 million for the six months ended June 30, 2007 and 2006, respectively, and are included as a reduction of “Operating costs—corporate tenant lease assets” on the Company’s Consolidated Statements of Operations.

The Company is subject to expansion option agreements with three existing customers which could require the Company to fund and to construct up to 171,000 square feet of additional adjacent space on which the Company would receive additional operating lease income under the terms of the option agreements. In addition, upon exercise of such expansion option agreements, the corporate customers

12




iStar Financial Inc.
Notes to Consolidated Financial Statements (Continued)

Note 5—Corporate Tenant Lease Assets (Continued)

would be required to simultaneously extend their existing lease terms for additional periods ranging from six to ten years.

As of June 30, 2007, the Company had $36.8 million of non-discretionary unfunded commitments related to seven CTL investments. These commitments generally fall into two categories: (1) pre-approved capital improvement projects; and (2) new or additional construction costs. Upon completion of the improvements or construction, the Company will receive additional operating lease income from the customers. In addition, the Company had $15.6 million of non-discretionary unfunded commitments related to 15 existing customers in the form of tenant improvements which were negotiated between the Company and the customers at the commencement of the leases.

The Company capitalized interest on build-to-suit CTL assets of approximately $0.5 million for the three months ended June 30, 2007 and 2006, and $1.2 million and $0.8 million for the six months ended June 30, 2007 and 2006, respectively.

As of June 30, 2007, there were four CTL assets with an aggregate book value of $10.4 million classified as “Assets held for sale” on the Company’s Consolidated Balance Sheet. The Company sold one facility with a book value of $1.7 million on July 9, 2007 for net proceeds of approximately $2.8 million and realized a gain of approximately $1.1 million.

On April 13, 2006, the Company signed a lease termination agreement with a customer that occupied 12 facilities that were subject to separate cross-defaulted leases. Due to the termination, the Company cashed a $20.0 million letter of credit from the tenant and allocated it among each of the leases as a lease termination fee. Upon termination, the Company initially determined it would sell six of the facilities with terminated leases and designated those facilities as “Assets held for sale” on the Company’s Consolidated Balance Sheets as of June 30, 2006. In addition, the Company determined that the six facilities held for sale were impaired and recorded a $7.6 million charge.

The Company subsequently reclassified three of the facilities to “Corporate tenant lease assets, net” on the Company’s Consolidated Balance Sheets after it was determined they would not be sold. The operating results of the three facilities subsequently moved out of held for sale are presented within income from continuing operations, including an impairment charge of $4.9 million in “Operating costs—corporate tenant lease assets,” and termination fees of $4.0 million in “Other income,” on the Company’s Consolidated Statements of Operations for the three and six months ended June 30, 2006.

The operating results of three facilities still held for sale and one facility that was sold, including an impairment charge of $2.7 million and a net termination fee of $4.7 million, are included in “Income from discontinued operations” on the Company’s Consolidated Statements of Operations for the three and six months ended June 30, 2006.

Note 6—Joint Ventures and Minority Interest

Investments in unconsolidated joint ventures—Income or loss generated from the Company’s joint venture investments is included in “Equity in (loss) earnings from joint ventures” on the Company’s Consolidated Statements of Operations.

The Company has a 50% investment in Corporate Technology Centre Associates, LLC (“CTC”), whose external member is Corporate Technology Centre Partners, LLC. The Company’s carrying value in

13




iStar Financial Inc.
Notes to Consolidated Financial Statements (Continued)

Note 6—Joint Ventures and Minority Interest (Continued)

this joint venture at June 30, 2007 was $4.5 million. The Company accounts for this investment under the equity method because the Company’s joint venture partner has certain participating rights that give it shared control over the joint venture.

The Company has 47.5% investments in Oak Hill Advisors, L.P. and Oak Hill Credit Alpha MGP, 48.1% investments in OHSF GP Partners II LLC and OHSF GP Partners, LLC, and a 45.5% investment in Oak Hill Credit Opportunities MGP, LLC (collectively, “Oak Hill”). The Company’s carrying value in these ventures at June 30, 2007 was $186.9 million. The Company has determined that all of these entities are variable interest entities and that an external member is the primary beneficiary. As such, the Company accounts for these ventures under the equity method. Upon acquisition of the interests in Oak Hill there was a difference between the Company’s book value of the equity investments and the underlying equity in the net assets of Oak Hill of approximately $200.2 million. The Company allocated this value to identifiable intangible assets of approximately $81.8 million and goodwill of $118.4 million. As of June 30, 2007, the unamortized balance related to intangible assets for these investments was approximately $61.5 million.

The Company, through its majority owned subsidiary TimberStar Operating Partnership, L.P. (“TimberStar”), has a 46.7% investment in TimberStar Southwest Holdco LLC (“TimberStar Southwest”). The Company’s carrying value in this joint venture at June 30, 2007 was $164.8 million. The joint venture’s carrying value for the timberlands owned at June 30, 2007 was $1.09 billion. The joint venture had total assets of $1.96 billion and total liabilities of $1.62 billion as of June 30, 2007 and a net loss of $18.1 million for the period ended June 30, 2007. Included in the liabilities is $1.60 billion of debt that is non-recourse to the Company. The Company accounts for this investment under the equity method because the Company’s joint venture partners have certain participating rights giving them shared control over the venture.

In June of 2007, the Company, through its Moor Park consolidated subsidiary (see minority interest below), closed on a 33% investment in Moor Park Newday Holdings Luxembourg S.a.r.l. (“Newday”). The Company’s carrying value in this venture at June 30, 2007 was $0.5 million. In addition to the equity, the Company made two loans to the joint venture totaling $36.2 million. These loans are recorded in “Other Investments” on the Company’s Consolidated Balance Sheets. The joint venture was created for a sale-leaseback acquisition of hotels in Germany and Holland. The Company has determined that this entity is a variable interest entity and that an external member is the primary beneficiary. As such, the Company accounts for this investment under the equity method.

During the three months ended June 30, 2007, the Company also invested in two new joint ventures which it accounts for under the equity method. The Company’s carrying value in these ventures is $35.2 million as of June 30, 2007. In connection with one of these ventures, the Company has committed to funding an additional $85.0 million as of June 30, 2007.

Minority Interest—Income or loss allocable to external partners in consolidated entities is included in “Minority interest in consolidated entities” on the Company’s Consolidated Statements of Operations.

In April 2007, the Company closed on a 100 million commitment in Moor Park Real Estate Partners II, L.P. Incorporated (“Moor Park”). Moor Park is a fund, managed by Moor Park Capital Partners LLP, that was created to invest in pan-European sale-leaseback, property company/operating company and other structured real estate transactions as a 33% owner along-side another fund. The Company determined that Moor Park is a variable interest entity and that the Company is the primary beneficiary,

14




iStar Financial Inc.
Notes to Consolidated Financial Statements (Continued)

Note 6—Joint Ventures and Minority Interest (Continued)

due to it owning 94% of the fund as of June 30, 2007. As such, the Company consolidates this entity for financial statement purposes and records the minority interest of the external partner in “Minority interest in consolidated entities” on the Company’s Consolidated Balance Sheets.

As of June 30, 2007, the Company consolidates nine entities in which it either holds a majority interest or where it is a primary beneficiary under FIN 46R, and records the minority interest of the external partner(s) in “Minority interest in consolidated entities” on the Company’s Consolidated Balance Sheets.

Note 7—Other Investments

Other investments consist of the following items (in thousands):

 

 

As of
June 30,
2007

 

As of
December 31,
2006

 

Strategic investments

 

$

269,503

 

 

$

213,348

 

 

Timber and timberlands, net of accumulated depletion

 

144,224

 

 

146,910

 

 

CTL intangibles, net of accumulated amortization

 

74,824

 

 

41,358

 

 

Marketable securities

 

2,190

 

 

6,001

 

 

Other investments

 

$

490,741

 

 

$

407,617

 

 

 

In March 2007, the Company received title to property that served as collateral for a senior mortgage loan and recorded CTL intangibles of approximately $36.4 million related to this property (see Note 4 for further detail).

As of June 30, 2007, the Company has $269.5 million invested in 32 separate real estate related funds or other strategic investment opportunities within niche markets. Of these 32 investments, 17 or $143.9 million, are accounted for under the cost method. The remaining 15 investments, totaling $125.6 million, are accounted for under the equity method. As of June 30, 2007, the Company had $43.2 million of non-discretionary unfunded commitments related to eight strategic investments.

Note 8—Other Assets and Other Liabilities

Deferred expenses and other assets consist of the following items (in thousands):

 

 

As of
June 30,

 

As of
December 31,

 

 

 

2007

 

2006

 

Deferred financing fees, net

 

$

16,326

 

 

$

14,217

 

 

Leasing costs, net

 

14,284

 

 

13,294

 

 

Intangible assets, net

 

9,668

 

 

10,673

 

 

Derivative assets

 

12,270

 

 

9,333

 

 

Corporate furniture, fixtures, and equipment, net

 

10,581

 

 

5,644

 

 

Other assets

 

14,934

 

 

18,020

 

 

Deferred expenses and other assets

 

$

78,063

 

 

$

71,181

 

 

 

15




iStar Financial Inc.
Notes to Consolidated Financial Statements (Continued)

Note 8—Other Assets and Other Liabilities (Continued)

Accounts payable, accrued expenses and other liabilities consist of the following items (in thousands):

 

 

As of
June 30,

 

As of
December 31,

 

 

 

2007

 

2006

 

Accrued interest payable

 

$

86,636

 

 

$

84,954

 

 

Accrued expenses

 

36,919

 

 

39,420

 

 

Security deposits from customers

 

19,497

 

 

23,581

 

 

Derivative liabilities

 

34,334

 

 

23,286

 

 

Unearned operating lease payments

 

11,363

 

 

11,465

 

 

Other liabilities

 

44,086

 

 

18,251

 

 

Accounts payable, accrued expenses and other liabilities

 

$

232,835

 

 

$

200,957

 

 

 

16




iStar Financial Inc.
Notes to Consolidated Financial Statements (Continued)

Note 9—Debt Obligations (Continued)

As of June 30, 2007 and December 31, 2006, the Company has debt obligations under various arrangements with financial institutions as follows (in thousands):

 

 

Maximum

 

Carrying Value as of

 

Stated

 

Scheduled

 

 

 

Amount
Available

 

June 30,
2007

 

December 31,
2006

 

Interest
Rates(1)

 

Maturity
Date(1)

 

Secured revolving credit facility:

 

 

 

 

 

 

 

 

 

 

 

 

 

Line of credit

 

$

500,000

 

$

 

 

$

 

 

LIBOR + 1%—2%(2)

 

January 2009(3)

 

Unsecured revolving credit facilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Line of credit(4)

 

2,200,000

 

1,305,718

 

 

923,068

 

 

LIBOR + 0.525%(5)

 

June 2011

 

Line of credit(6)

 

1,200,000

 

 

 

 

 

LIBOR + 0.525%(5)

 

June 2012

 

Total revolving credit facilities

 

$3,900,000

 

1,305,718

 

 

923,068

 

 

 

 

 

 

Secured term loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Collateralized by CTL asset

 

 

 

125,202

 

 

127,648

 

 

7.44%

 

April 2009

 

Collateralized by CTL assets

 

 

 

137,946

 

 

141,978

 

 

6.8%—8.8%

 

Various through 2026

 

Collateralized by CTL asset

 

 

 

58,202

 

 

58,634

 

 

6.41%

 

January 2013

 

Collateralized by investments in corporate bonds

 

 

 

171,196

 

 

227,768

 

 

LIBOR + 0.22%—0.65%

 

August 2007

 

Total secured term loans

 

 

 

492,546

 

 

556,028

 

 

 

 

 

 

Debt premium

 

 

 

5,814

 

 

6,088

 

 

 

 

 

 

Total secured term loans

 

 

 

498,360

 

 

562,116

 

 

 

 

 

 

Unsecured notes:

 

 

 

 

 

 

 

 

 

 

 

 

 

LIBOR + 0.34% Senior Notes

 

 

 

500,000

 

 

500,000

 

 

LIBOR + 0.34%

 

September 2009

 

LIBOR + 0.35% Senior Notes(7)

 

 

 

500,000

 

 

 

 

LIBOR + 0.35%

 

March 2010

 

LIBOR + 0.39% Senior Notes

 

 

 

400,000

 

 

400,000

 

 

LIBOR + 0.39%

 

March 2008

 

LIBOR + 0.55% Senior Notes

 

 

 

225,000

 

 

225,000

 

 

LIBOR + 0.55%

 

March 2009

 

LIBOR + 1.25% Senior Notes

 

 

 

 

 

200,000

 

 

LIBOR + 1.25%

 

March 2007

 

4.875% Senior Notes

 

 

 

350,000

 

 

350,000

 

 

4.875%

 

January 2009

 

5.125% Senior Notes

 

 

 

250,000

 

 

250,000

 

 

5.125%

 

April 2011

 

5.15% Senior Notes

 

 

 

700,000

 

 

700,000

 

 

5.15%

 

March 2012

 

5.375% Senior Notes

 

 

 

250,000

 

 

250,000

 

 

5.375%

 

April 2010

 

5.5% Senior Notes(7)

 

 

 

300,000

 

 

 

 

5.5%

 

June 2012

 

5.65% Senior Notes

 

 

 

500,000

 

 

500,000

 

 

5.65%

 

September 2011

 

5.7% Senior Notes

 

 

 

367,022

 

 

367,022

 

 

5.7%

 

March 2014

 

5.8% Senior Notes

 

 

 

250,000

 

 

250,000

 

 

5.8%

 

March 2011

 

5.85% Senior Notes(7)

 

 

 

250,000

 

 

 

 

5.85%

 

March 2017

 

5.875% Senior Notes

 

 

 

500,000

 

 

500,000

 

 

5.875%

 

March 2016

 

5.95% Senior Notes

 

 

 

889,669

 

 

889,669

 

 

5.95%

 

October 2013

 

6% Senior Notes

 

 

 

350,000

 

 

350,000

 

 

6%

 

December 2010

 

6.05% Senior Notes

 

 

 

250,000

 

 

250,000

 

 

6.05%

 

April 2015

 

6.5% Senior Notes

 

 

 

150,000

 

 

150,000

 

 

6.5%

 

December 2013

 

7% Senior Notes

 

 

 

185,000

 

 

185,000

 

 

7%

 

March 2008

 

8.75% Notes

 

 

 

50,331

 

 

50,331

 

 

8.75%

 

August 2008

 

Total unsecured notes

 

 

 

7,217,022

 

 

6,367,022

 

 

 

 

 

 

Debt discount

 

 

 

(97,780

)

 

(93,636

)

 

 

 

 

 

Fair value adjustment to hedged items (see Note 11)

 

 

 

(34,281

)

 

(23,137

)

 

 

 

 

 

Total unsecured notes

 

 

 

7,084,961

 

 

6,250,249

 

 

 

 

 

 

Other debt obligations

 

 

 

100,000

 

 

100,000

 

 

LIBOR + 1.5%

 

October 2035

 

Debt discount

 

 

 

(1,980

)

 

(1,996

)

 

 

 

 

 

Total other debt obligations

 

 

 

98,020

 

 

98,004

 

 

 

 

 

 

Total debt obligations

 

 

 

$

8,987,059

 

 

$

7,833,437

 

 

 

 

 

 

 

17




iStar Financial Inc.
Notes to Consolidated Financial Statements (Continued)

Note 9—Debt Obligations (Continued)

Explanatory Notes:


(1)              All interest rates and maturity dates are for debt outstanding as of June 30, 2007. Some variable-rate debt obligations are based on 30-day LIBOR and reprice monthly. Foreign variable-rate debt obligations are based on 30-day UK LIBOR for British pound borrowing, 30-day EURIBOR for euro borrowing and 30-day Canadian LIBOR for Canadian dollar borrowing. The 30-day LIBOR rate on June 30, 2007 was 5.32%. The 30-day UK LIBOR, EURIBOR and Canadian LIBOR rates on June 30, 2007 were 5.92%, 4.12% and 4.48%, respectively. Other variable-rate debt obligations are based on 90-day LIBOR and reprice every three months. The 90-day LIBOR rate on June 30, 2007 was 5.36%.

(2)              This facility has an unused commitment fee of 0.25% on any undrawn amounts.

(3)              Maturity date reflects one-year “term-out” extension at the Company’s option.

(4)              As of June 30, 2007, the line of credit included foreign borrowings of £126.5 million, 309.5 million, and CAD 24.2 million. Amounts in the table have been converted to U.S. dollars based on exchange rates in effect at June 30, 2007.

(5)              This facility has an annual commitment fee of 0.125%.

(6)              On June 26, 2007, the Company closed on an additional unsecured revolving credit facility with a maximum capacity of $1.20 billion.

(7)              On March 9, 2007, the Company issued $300 million of 5.5% Senior Notes due 2012, $250 million of 5.85% Senior Notes due 2017 and $500 million of three-month LIBOR + 0.35% Senior Notes due 2010.

The Company’s primary source of short-term funds is an aggregate of $3.40 billion of available credit under its two committed unsecured revolving credit facilities, which includes the existing $2.20 billion facility, maturing in June 2011, as well as the new $1.20 billion facility, maturing in June 2012, entered into during the second quarter, as described further below.  As of June 30, 2007, there was approximately $2.05 billion which was immediately available to draw under these facilities at the Company’s discretion.  Both facilities remain fully available throughout their respective terms so long as the Company complies with certain financial covenants, all of which the Company was in compliance with as of June 30, 2007.  In addition, the company has one $500.0 million secured revolving credit facility for which availability is based on percentage borrowing base calculations.

On June 26, 2007, the Company completed an unsecured revolving credit facility with leading financial institutions having a maximum capacity of $1.20 billion. Commitments under this facility will mature on June 26, 2012. Borrowings under this credit agreement, which may be made in multiple currencies, will bear interest at a floating rate based upon one of several base rates which will vary depending upon the currency of the borrowing, plus a margin which adjusts upward or downward based upon the Company’s corporate credit rating. Non-US dollar borrowings under the facility will be initially guaranteed by subsidiaries of the Company that hold exclusively foreign assets. As of June 30, 2007, there were no outstanding borrowings under this facility and all $1.20 billion was immediately available to be drawn at the Company’s discretion.

On June 26, 2007, the Company also amended and restated its $2.20 billion revolving credit agreement to conform various covenants and provisions to those in the new $1.20 billion revolving credit agreement. Non-US dollar borrowings under the amended and restated $2.20 billion revolving credit agreement will be initially guaranteed by subsidiaries of the Company that hold exclusively foreign assets.

Also on June 26, 2007, the Company closed on a $2.0 billion short-term interim financing facility which will be used to fund a portion of the costs for the Company’s acquisition of the commercial real estate lending business and existing portfolio of Fremont General Corporation (see Note 17 for further detail). The company had no borrowings under this facility as of June 30, 2007.

The Company’s debt obligations contain covenants that are both financial and non-financial in nature. Significant financial covenants include limitations on the Company’s ability to incur indebtedness beyond specified levels and a requirement to maintain specified ratios of unsecured indebtedness compared to

18




iStar Financial Inc.
Notes to Consolidated Financial Statements (Continued)

Note 9—Debt Obligations (Continued)

unencumbered assets. Based on the Company’s current credit ratings, the financial covenants in some series of the Company’s publicly held debt securities are not operative.

On January 9, 2007, in connection with a consent solicitation of the holders of the respective notes, the Company amended certain covenants in its 7% Senior Notes due 2008, 4.875% Senior Notes due 2009, 6% Senior Notes due 2010, 5.125% Senior Notes due 2011, 6.5% Senior Notes due 2013, and 5.7% Senior Notes due 2014 (collectively, the “Modified Notes”). Holders of approximately 95.43% of the aggregate principal amount of the Modified Notes consented to the solicitation. The purpose of the amendments was to conform most of the covenants to the covenants contained in the indentures governing the senior notes issued by the Company since it achieved an investment grade rating from S&P, Moody’s and Fitch. In connection with the consent solicitation the Company paid an aggregate fee of $6.5 million to the consenting note holders, which will be amortized into interest expense over the remaining term of the Modified Notes. In addition, the Company incurred advisory and professional fees aggregating $2.4 million, which were recorded as expenses and included in “General and administrative” on the Company’s Consolidated Statement of Operations for the six months ended June 30, 2007.

Significant non-financial covenants include a requirement in some series of its publicly-held debt securities that the Company offer to repurchase those securities at a premium if the Company undergoes a change of control. As of June 30, 2007, the Company believes it is in compliance with all financial and non-financial covenants on its debt obligations.

Capital Markets Activity—During the six months ended June 30, 2007, the Company issued $300 million and $250 million aggregate principal amounts of fixed-rate Senior Notes bearing interest at annual rates of 5.5% and 5.85% and maturing in 2012 and 2017, respectively, and $500 million of variable-rate Senior Notes bearing interest at three-month LIBOR + 0.35% maturing in 2010. The Company primarily used the proceeds from the issuance of these securities to repay outstanding indebtedness under its unsecured revolving credit facility. In connection with this issuance, the Company settled forward starting interest rate swap agreements with notional amounts totaling $200 million and ten-year terms matching that of the $250 million Senior Notes due in 2017. The Company also entered into interest rate swap agreements to swap the fixed interest rate on the $300 million Senior Notes due in 2012 for a variable interest rate (see Note 11 for further detail on all hedging activity). In addition, the Company’s $200 million of LIBOR + 1.25% Senior Notes matured in March 2007.

Other Financing Activity—On August 1, 2007, the Company’s term financing that was collateralized by corporate bonds matured and was extended for one month to September 4, 2007 and the rate on the loan was increased to LIBOR + 0.55% to 0.85% from LIBOR + 0.22% to 0.65%. The carrying value of corporate bonds securing the borrowing totaled $139.8 million on August 1, 2007.

19




iStar Financial Inc.
Notes to Consolidated Financial Statements (Continued)

Note 9—Debt Obligations (Continued)

As of June 30, 2007, future scheduled maturities of outstanding long-term debt obligations are as follows (in thousands)(1):

2007 (remaining six months)

 

$

171,196

 

2008

 

635,331

 

2009

 

1,216,754

 

2010

 

1,105,607

 

2011

 

2,336,859

 

2012

 

1,000,000

 

Thereafter

 

2,649,539

 

Total principal maturities

 

9,115,286

 

Unamortized debt discounts/premiums, net

 

(93,946

)

Fair value adjustment to hedged items (see Note 11)

 

(34,281

)

Total debt obligations

 

$8,987,059

 

 

Explanatory Note:


(1)    Assumes exercise of extensions to the extent such extensions are at the Company’s option.

Note 10—Shareholders’ Equity

DRIP/Stock Purchase PlanDuring the three months ended June 30, 2007 and 2006, the Company issued a total of approximately 12,400 and 19,000 shares of its Common Stock, respectively, and during the six months ended June 30, 2007 and 2006, the Company issued a total of approximately 19,800 and 31,000 shares of its Common Stock, respectively, through the dividend reinvestment and direct stock purchase plans. Net proceeds during the three months ended June 30, 2007 and 2006 were approximately $0.6 million and $0.7 million, respectively, and $0.9 million and $1.2 million during the six months ended June 30, 2007 and 2006, respectively. There are approximately 2.1 million shares available for issuance under the plan as of June 30, 2007.

Stock Repurchase Program—The Company did not repurchase any shares under the stock repurchase program during the six months ended June 30, 2007 and 2006. Subsequent to June 30, 2007, the Company repurchased 300,000 of its outstanding Common stock for $10.0 million at an average cost per share of $33.47.

Note 11—Risk Management and Derivatives

Risk management—In the normal course of its on-going business operations, the Company encounters economic risk. There are three main components of economic risk: interest rate risk, credit risk and market risk. The Company is subject to interest rate risk to the degree that its interest-bearing liabilities mature or reprice at different points in time and potentially at different bases, than its interest-earning assets. Credit risk is the risk of default on the Company’s lending investments that results from a property’s, borrower’s or corporate tenant’s inability or unwillingness to make contractually required payments. Market risk reflects changes in the value of loans and other lending investments due to changes in interest rates or other market factors, including the rate of prepayments of principal and the value of the collateral underlying loans, the valuation of CTL facilities held by the Company and changes in foreign currency exchange rates.

20




iStar Financial Inc.
Notes to Consolidated Financial Statements (Continued)

Note 11—Risk Management and Derivatives (Continued)

Use of derivative financial instrumentsAs of June 30, 2007, the Company has forward-starting interest rate swaps to hedge variability in cash flows on $250.0 million of debt forecasted to be issued in 2008.  The Company also has interest rate swaps that hedge the change in fair value associated with $1.25 billion of existing fixed-rate debt.  The effect of these hedges is reflected on the Company’s Consolidated Balance Sheet as a $34.3 million adjustment to the hedged debt obligations.  The Company also has a foreign currency derivative to hedge the exposure to foreign exchange rate movements related to a loan originated in Swedish Krona.  This derivative was not designated as a hedge under SFAS No. 133, therefore, changes in fair value are recorded in the Company’s Consolidated Statements of Operations.

The following table represents the notional principal amounts and fair values of interest rate swaps by class (in thousands):

 

 

Notional Amount
as of
June 30,
2007

 

Notional Amount
as of
December 31,
2006

 

Fair Value
as of
June 30,
2007

 

Fair Value
as of
December 31,
2006

 

Cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward-starting interest rate swaps

 

 

$

250,000

 

 

 

$

450,000

 

 

$

12,270

 

 

$

9,180

 

 

Fair value hedges

 

 

1,250,000

 

 

 

950,000

 

 

(34,281

)

 

(23,137

)

 

Total interest rate swaps

 

 

$

1,500,000

 

 

 

$

1,400,000

 

 

$

(22,011

)

 

$

(13,957

)

 

 

The following table presents the Company’s foreign currency derivatives outstanding as of June 30, 2007 (in thousands):

Derivative Type

 

 

 

Notional
Amount

 

Notional
Currency

 

Notional
(USD
Equivalent)

 

Maturity

 

Sell SEK forward

 

SEK 246,677

 

Swedish Krona

 

 

$

36,072

 

 

July 16, 2007

 

 

During the six months ended June 30, 2007, the Company settled three forward starting interest rate swap agreements, which were designated as cash-flow hedges, with notional amounts totaling $200 million, ten-year terms and rates from 4.740% to 4.745% in connection with the Company’s issuance of $250 million of Senior Notes due in 2017. The $4.5 million settlement value received for these forward starting swaps is being amortized as a reduction to “Interest expense” on the Company’s Consolidated Statements of Operations through the maturity of the Senior Notes due in 2017. Additionally, the Company entered into interest rate swap agreements, designated as fair-value hedges, with notional amounts totaling $300 million and variable interest rates that reset quarterly based on three-month LIBOR. These swap agreements exchanged the 5.5% fixed-rate interest payments on the Company’s $300 million Senior Notes due in 2012 for variable-rate interest payments based on three-month LIBOR + 0.5365%.

At June 30, 2007, derivatives with a fair value of $12.3 million were included in other assets and derivatives with a fair value of $34.3 million were included in other liabilities.

Credit risk concentrations—Concentrations of credit risks arise when a number of borrowers or customers related to the Company’s investments are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet

21




iStar Financial Inc.
Notes to Consolidated Financial Statements (Continued)

Note 11—Risk Management and Derivatives (Continued)

contractual obligations, including those to the Company, to be similarly affected by changes in economic conditions. The Company regularly monitors various segments of its portfolio to assess potential concentrations of credit risks. Management believes the current portfolio is reasonably well diversified and does not contain any unusual concentration of credit risks.

Substantially all of the Company’s CTL assets (including those held by joint ventures) and loans and other lending investments are collateralized by facilities located in the United States, with California (14.4%) and Florida (10.4%) representing the only significant concentration (greater than 10.0%) as of June 30, 2007. The Company’s investments also contain significant concentrations in the following asset types as of June 30, 2007: apartment/residential (21.7%), office-CTL (14.5%), retail (13.0%) and industrial/R&D (11.1%).

The Company underwrites the credit of prospective borrowers and customers and often requires them to provide some form of credit support such as corporate guarantees, letters of credit and/or cash security deposits. Although the Company’s loans and other lending investments and corporate customer lease assets are geographically diverse and the borrowers and customers operate in a variety of industries, to the extent the Company has a significant concentration of interest or operating lease revenues from any single borrower or customer, the inability of that borrower or customer to make its payment could have an adverse effect on the Company.

Note 12—Stock-Based Compensation Plans and Employee Benefits

The Company’s 2006 Long-Term Incentive Plan (the “Plan”) is designed to provide equity-based incentive compensation for officers, key employees, directors, consultants and advisers of the Company. This Plan was effective May 31, 2006 and replaces the original 1996 Long-Term Incentive Plan. At June 30, 2007, options to purchase approximately 1.0 million shares of Common Stock were outstanding and approximately 774,000 shares of restricted stock were outstanding. Many of these options and restricted stock units were issued under the original 1996 Long-Term Incentive Plan and, therefore, a total of approximately 4.0 million shares remain available for awards under the Plan as of June 30, 2007. The Company recorded $3.9 million and $1.7 million of stock based compensation expense in “General and administrative” costs on the Company’s Consolidated Statements of Operations for the three months ended June 30, 2007 and 2006, respectively, and $8.3 million and $3.0 million for the six months ended June 30, 2007 and 2006, respectively.

Changes in options outstanding during the six months ended June 30, 2007, are as follows (shares and aggregate intrinsic value in thousands, except for weighted average strike price):

 

 

Number of Shares

 

Weighted

 

Aggregate

 

 

 

Employees

 

Non-Employee
Directors

 

Other

 

Average
Strike Price

 

Intrinsic
Value

 

Options Outstanding, December 31, 2006

 

 

798

 

 

 

90

 

 

 

214

 

 

 

$

17.62

 

 

 

 

 

 

Exercised in 2007

 

 

(39

)

 

 

 

 

 

(37

)

 

 

$

18.90

 

 

 

 

 

 

Options Outstanding, June 30, 2007

 

 

759

 

 

 

90

 

 

 

177

 

 

 

$

17.42

 

 

 

$

27,674           

 

 

 

22




iStar Financial Inc.
Notes to Consolidated Financial Statements (Continued)

Note 12—Stock-Based Compensation Plans and Employee Benefits (Continued)

The following table summarizes information concerning outstanding and exercisable options as of June 30, 2007 (in thousands):

Exercise
Price

 

 

 

Options
Outstanding
and Exercisable

 

Remaining
Contractual
Life

 

$14.72

 

 

462

 

 

 

1.56

 

 

$16.88

 

 

373

 

 

 

2.51

 

 

$17.38

 

 

17

 

 

 

2.71

 

 

$19.69

 

 

59

 

 

 

3.51

 

 

$24.94

 

 

40

 

 

 

3.88

 

 

$26.97

 

 

2

 

 

 

3.96

 

 

$27.00

 

 

17

 

 

 

3.99

 

 

$28.54

 

 

3

 

 

 

0.85

 

 

$29.82

 

 

48

 

 

 

4.92

 

 

$55.39

 

 

5

 

 

 

1.92

 

 

 

 

 

1,026

 

 

 

2.33

 

 

 

The Company has not issued any options since 2003. Cash received from option exercises during the three and six months ended June 30, 2007 was approximately $1.2 million and $1.5 million, respectively. The intrinsic value of options exercised during the three and six months ended June 30, 2007 was $1.9 million and $2.1 million, respectively. Future charges may be taken to the extent of additional option grants, which are at the discretion of the Board of Directors.

Changes in non-vested restricted stock units during the six months ended June 30, 2007, are as follows (shares and aggregate intrinsic value in thousands):

Non-Vested Shares

 

 

 

Number
of Shares

 

Weighted Average
Grant Date
Fair Value
Per Share

 

Aggregate
Intrinsic
Value

 

Non-vested at December 31, 2006

 

 

471

 

 

 

$

37.27

 

 

 

 

 

 

Granted

 

 

535

 

 

 

49.10

 

 

 

 

 

 

Vested

 

 

(187

)

 

 

38.71

 

 

 

 

 

 

Forfeited

 

 

(45

)

 

 

43.43

 

 

 

 

 

 

Non-vested at June 30, 2007

 

 

774

 

 

 

$44.73

 

 

 

$

34,290

 

 

 

During the six months ended June 30, 2007, the Company granted 535,286 restricted stock units to employees that vest proportionately over three years on the anniversary date of the initial grant of which 487,566 units remain outstanding as of June 30, 2007. During the years ended December 31, 2006, 2005 and 2004, the Company granted restricted stock units to employees that vest proportionately over three years on the anniversary date of the initial grant of which 254,608 units, 30,451 units, and 882 units, respectively, remain outstanding as of June 30, 2007. The unvested restricted stock units granted after January 1, 2006, are paid dividends as dividends are paid on shares of the Company’s Common Stock and these dividends are accounted for in a manner consistent with the Company’s Common Stock dividends, as a reduction to retained earnings.

23




iStar Financial Inc.
Notes to Consolidated Financial Statements (Continued)

Note 12—Stock-Based Compensation Plans and Employee Benefits (Continued)

For accounting purposes, the Company measures compensation costs for these units as of the date of the grant and expenses such amounts against earnings, either at the grant date (if no vesting period exists) or ratably over the respective vesting/service period. Such amounts appear on the Company’s Consolidated Statements of Operations in “General and administrative.” As of June 30, 2007, there was $28.7 million of total unrecognized compensation cost related to non-vested restricted stock units. That cost is expected to be recognized over the remaining vesting/service period for the respective grants.

High Performance Unit Program

The Company’s High Performance Unit (HPU) program and Senior Executive HPU program are performance-based employee compensation plans that have significant value to the participants only if the Company provides superior returns to its shareholders. The programs are more fully described in the Company’s annual proxy statement and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006. As of June 30, 2007, the 2007 and 2008 plans under both the HPU Program and Senior Executive HPU Program have valuation dates that have not yet occurred. If at the end of the three-year valuation periods ending on December 31, 2007 and December 31, 2008, the total rate of shareholder return on the Company’s common stock exceeds certain performance thresholds, the HPU participants and Senior Executive HPU participants will receive cash distributions in the nature of dividends payable on a calculated equivalent amount of our common stock, as defined by the plan documents, after the respective valuation dates. However, if the total rate of shareholder return for the relevant valuation period does not exceed these performance thresholds, then the HPU shares only have a nominal value.

The 2007 and 2008 plans under the HPU Program each have 5,000 shares of High Performance Common Stock and had aggregate initial purchase prices of $0.6 million and $0.8 million, respectively. As of June 30, 2007, the Company had received net contributions of $0.5 million and $0.7 million under the 2007 and 2008 plans, respectively.

The 2007 and 2008 plans under the Senior Executive HPU Program each have 5,000 shares of High Performance Common Stock and had aggregate initial purchase prices of $0.4 million and $0.5 million, respectively. As of June 30, 2007, the Company had received net contributions of $0.4 million and $0.5 million under the 2007 and 2008 plans, respectively.

The Company has discontinued further issuances under its HPU and Senior Executive HPU programs.

24




iStar Financial Inc.
Notes to Consolidated Financial Statements (Continued)

Note 12—Stock-Based Compensation Plans and Employee Benefits (Continued)

401(k) Plan

The Company made gross contributions to the savings and retirement plan (the “401(k) Plan”) of approximately $0.1 million for each of the three months ended June 30, 2007 and 2006, and $0.7 million and $0.5 million for the six months ended June 30, 2007 and 2006, respectively.

Note 13—Earnings Per Share

EPS is calculated using the two-class method, pursuant to EITF 03-6. The two-class method is required as the Company’s HPU shares each have the right to receive dividends should dividends be declared on the Company’s Common Stock. HPU holders are Company employees who purchased high performance common stock units under the Company’s High Performance Unit Program.

25




iStar Financial Inc.
Notes to Consolidated Financial Statements (Continued)

Note 13—Earnings Per Share (Continued)

The following table presents a reconciliation of the numerators and denominators of the basic and diluted EPS calculations for the three and six months ended June 30, 2007 and 2006, for common shares, respectively (in thousands, except per share data):

 

 

For the

 

For the

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

Income from continuing operations.

 

$

103,404

 

$

84,708

 

$

195,335

 

$

168,280

 

Preferred dividend requirements

 

(10,580

)

(10,580

)

(21,160

)

(21,160

)

Net income allocable to common shareholders and HPU holders before income from discontinued operations and gain from discontinued operations, net

 

$

92,824

 

$

74,128

 

$

174,175

 

$

147,120

 

Earnings allocable to common shares:

 

 

 

 

 

 

 

 

 

Numerator for basic earnings per share:

 

 

 

 

 

 

 

 

 

Income allocable to common shareholders before income from discontinued operations and gain from discontinued operations, net

 

$

90,790

 

$

72,317