ISTAR INC. NEW YORK, Oct. 28, 2014 /PRNewswire/ -- iStar Financial Inc. (NYSE: STAR) today reported results for the third quarter ended September 30, 2014.
Third Quarter 2014 Results
iStar reported adjusted income allocable to common shareholders for the third quarter of $57.7 million, or $0.48 per diluted common share, compared to a loss of $(7.3) million, or $(0.09) per diluted common share for the third quarter 2013.
Adjusted income represents net income computed in accordance with GAAP, prior to the effects of certain non-cash items, primarily including depreciation, loan loss provisions, impairments, stock-based compensation and gain/loss on early extinguishment of debt. Please see the financial tables that follow the text of this press release for the Company's calculations of adjusted income (loss) as well as reconciliations to GAAP net income (loss).
Net income allocable to common shareholders for the third quarter was $22.3 million, or $0.21 per diluted common share, compared to a loss of $(30.6) million, or $(0.36) per diluted common share for the third quarter 2013.
Investment Activity
During the third quarter, iStar funded a total of $205.6 million of investments, comprised of $138.6 million of new originations and $67.0 million associated with ongoing developments and prior financing commitments.
Included in these investments is iStar's $104 million share of a $200 million net lease transaction with Bowlmor AMF, which was comprised of a portfolio of 58 bowling centers subject to a 20-year master lease. The transaction helped Bowlmor AMF finance its acquisition of Brunswick Bowling. The investment was completed through iStar's net lease joint venture, with iStar funding 52% and its venture partner funding the remainder.
iStar generated $512.7 million of total proceeds from repayments and sales during the quarter, comprised of $307.8 million from real estate finance, $5.0 million from net lease, $105.3 million from operating properties, $3.3 million from land and $91.3 million from other investments. During the quarter, the Company generated $27.8 million of gains from sales of operating properties as well as $32.9 million of earnings from equity method investments associated with the sale of several properties.
The Company had $652.8 million of available cash at the end of the quarter.
Portfolio Overview
At September 30, 2014, the Company's portfolio totaled $5.0 billion, which is gross of $455.3 million of accumulated depreciation and $30.8 million of general loan loss reserves.
Real Estate Finance
At September 30, 2014, the Company's real estate finance portfolio totaled $1.22 billion, gross of general loan loss reserves. The portfolio included $1.13 billion of performing loans with a weighted average last dollar loan-to-value ratio of 78% and a weighted average maturity of 2.9 years. The performing loans included $463.0 million of first mortgages / senior loans and $665.3 million of mezzanine / subordinated debt. The performing loans generated a yield for the quarter of 9.4%.
At September 30, 2014, the Company's non-performing loans (NPLs) had a carrying value of $93.2 million, remaining flat relative to the prior quarter. For the third quarter, the Company recorded a $0.7 million reversal of its loan loss provision, compared to a reversal of $9.8 million in the third quarter of 2013. At September 30, 2014, loan loss reserves totaled $119.9 million, or 10.6% of the total value of loans.
Net Lease
At the end of the quarter, iStar's net lease portfolio totaled $1.70 billion, gross of $360.8 million of accumulated depreciation.
The Company's net lease portfolio totaled 19 million square feet across 33 states. Occupancy for the portfolio was 94.1% at the end of the quarter, with a weighted average remaining lease term of 11.4 years. The occupied assets generated an unleveraged yield of 8.4% and the total net lease portfolio generated an unleveraged yield of 7.8% for the quarter.
Operating Properties
At the end of the quarter, the Company's operating properties portfolio totaled $927.5 million, gross of $90.0 million of accumulated depreciation, and was comprised of $736.7 million of commercial and $190.8 million of residential real estate properties. During the quarter, the Company invested $18.6 million in its operating properties.
Commercial Operating
The Company's commercial operating properties represent a diverse pool of assets across a broad range of geographies and collateral types such as office, retail and hotel properties. These properties generated $30.8 million of revenue offset by $22.2 million of expenses during the quarter. iStar generally seeks to reposition or redevelop these assets with the objective of maximizing their values through the infusion of capital and/or intensive asset management efforts.
At the end of the quarter, the Company had $107.4 million of stabilized commercial operating properties that were 85% leased and generated an unleveraged yield of 8.9% for the quarter. During the quarter, the Company sold commercial operating property for $34.2 million, generating $4.6 million of income.
The remaining commercial operating properties were 64% leased and generated an unleveraged yield of 2.9% for the quarter. iStar is actively working to lease up and stabilize these properties. During the quarter, the Company executed commercial operating property leases covering approximately 120,000 square feet, net of the leases expired during the quarter.
Residential Operating
At the end of the quarter, the residential operating portfolio was comprised of 459 condominium units, generally located within luxury condominium projects in major U.S. cities. The Company's strategy is to continue selling its remaining condominium inventory and to maximize net proceeds. During the quarter, the Company sold 124 condominium units, resulting in $70.8 million of proceeds and recorded $27.9 million of income, offset by $6.6 million of expenses. Proceeds this quarter included $16.6 million, which was primarily associated with the sale of a parking garage located within a condominium building, resulting in $5.2 million of income.
Land
At the end of the quarter, the Company's land portfolio totaled $1.03 billion, gross of accumulated depreciation, and was comprised of 11 master planned community projects, 12 urban infill land parcels and six waterfront land parcels located throughout the United States. During the quarter, the Company invested $39.4 million in its land portfolio.
Master planned communities represent large-scale residential projects that the Company will entitle, plan and/or develop. These projects are currently entitled for approximately 25,000 lots.
During the third quarter, iStar began selling lots at two additional master planned communities. Ashton Woods closed on its first purchases of lots at Naples Reserve in Naples, FL. The project is expected to commence sales to homebuyers by the first quarter of next year. At Spring Mountain Ranch in Riverside, CA, where iStar and KB Home have partnered on the first phase of the project, KB Home purchased its first lots during the third quarter and in October opened the community for sales to homebuyers. Net earnings at Spring Mountain Ranch are recorded in earnings from equity method investments. Along with Magnolia Green in Chesterfield County, VA and Tetherow in Bend, OR, the total master planned communities actively selling lots increased to four.
The remainder of the Company's land includes infill and waterfront parcels located in and around major cities that the Company will develop, sell to or partner with commercial real estate developers. These projects are currently entitled for approximately 6,000 residential units, and select projects include commercial, retail and office uses.
At September 30, 2014, the Company had six land projects in production, 10 in development and 13 in the pre-development phase.
Capital Markets
During the quarter, the Company repaid $9.7 million on its 2012 Secured Credit Facility, bringing the remaining balance to $382.2 million at September 30, 2014.
The Company's weighted average cost of debt for the third quarter was 5.5%, flat from the second quarter of 2014 and down from 5.7% for the third quarter of last year. The Company's leverage was 1.9x at September 30, 2014, a decrease from 2.1x at the end of the second quarter and below the Company's targeted range of 2.0x - 2.5x. Please see the financial tables that follow the text of this press release for a calculation of the Company's leverage.
[Financial Tables to Follow]
* * *
iStar Financial Inc. (NYSE: STAR) is a fully-integrated finance and investment company focused on the commercial real estate industry. The Company provides custom-tailored investment capital to high-end private and corporate owners of real estate and invests directly across a range of real estate sectors. The Company, which is taxed as a real estate investment trust ("REIT"), has invested more than $35 billion over the past two decades. Additional information on iStar Financial is available on the Company's website at www.istarfinancial.com.
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iStar Financial will hold a quarterly earnings conference call at 10:00 a.m. ET today, October 28, 2014. This conference call will be broadcast live over the Internet and can be accessed by all interested parties through iStar Financial's website, www.istarfinancial.com, under the "Investor Relations" section. To listen to the live call, please go to the website's "Investor Relations" section at least 15 minutes prior to the start of the call to register, download and install any necessary audio software. For those who are not available to listen to the live broadcast, a replay will be available shortly after the call on the iStar Financial website.
Note: Statements in this press release which are not historical fact may be deemed forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although iStar Financial Inc. believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, the Company can give no assurance that its expectations will be attained. Factors that could cause actual results to differ materially from iStar Financial's expectations include general economic conditions and conditions in the commercial real estate and credit markets, the Company's ability to generate liquidity and to repay indebtedness as it comes due, additional loan loss provisions, the amount and timing of asset sales, increases in NPLs, the Company's ability to reduce NPLs, repayment levels, the Company's ability to make new investments, the Company's ability to maintain compliance with its debt covenants, actual results of condominium sales meeting our expectations, the Company's ability to generate income and gains from non-performing loans, operating properties and land and other risks detailed from time to time in iStar Financial Inc.'s SEC reports.
iStar Financial Inc.
Consolidated Statements of Operations
(In thousands)
(unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2014 2013 2014 2013
---- ---- ---- ----
REVENUES
Operating lease income $60,691 $60,227 $183,766 $175,354
Interest income 31,098 24,235 94,139 78,584
Other income 18,407 11,234 62,253 35,778
Land sales revenue 3,290 - 11,920 -
----- --- ------ ---
Total revenues $113,486 $95,696 $352,078 $289,716
-------- ------- -------- --------
COST AND EXPENSES
Interest expense $55,424 $63,793 $169,410 $204,516
Real estate expense 41,285 37,546 124,452 112,362
Land cost of sales 2,763 - 10,028 -
Depreciation and amortization 17,722 18,962 55,157 53,615
General and administrative(1) 23,377 24,285 69,788 67,008
Provision for (recovery of) loan losses (673) (9,834) (6,865) 5,392
Impairment of assets 15,462 6,261 21,741 6,261
Other expense (285) 1,495 4,626 7,266
---- ----- ----- -----
Total costs and expenses $155,075 $142,508 $448,337 $456,420
Income (loss) before earnings from equity method investments and other
items $(41,589) $(46,812) $(96,259) $(166,704)
Loss on early extinguishment of debt (186) (3,498) (24,953) (28,282)
Earnings from equity method investments 49,578 4,345 76,848 34,346
Income (loss) from continuing operations before income taxes $7,803 $(45,965) $(44,364) $(160,640)
Income tax (expense) benefit (103) 3,879 619 (625)
Income (loss) from continuing operations $7,700 $(42,086) $(43,745) $(161,265)
Income from discontinued operations - 255 - 1,441
Gain from discontinued operations - 9,166 - 22,488
Income from sales of real estate 27,791 14,075 61,465 72,092
Net income (loss) $35,491 $(18,590) $17,720 $(65,244)
Net (income) loss attributable to noncontrolling interests 412 (167) (367) 332
--- ---- ---- ---
Net income (loss) attributable to iStar Financial Inc. $35,903 $(18,757) $17,353 $(64,912)
Preferred dividends (12,830) (12,830) (38,490) (36,190)
Net (income) loss allocable to HPU holders and Participating Security
holders(2) (746) 1,016 683 3,263
Net income (loss) allocable to common shareholders $22,327 $(30,571) $(20,454) $(97,839)
======= ======== ======== ========
(1) For the three months ended
September 30, 2014 and 2013,
includes $3,273 and $4,563 of
stock-based compensation expense,
respectively. For the nine months
ended September 30, 2014 and 2013,
includes $8,544 and $14,484 of
stock-based compensation expense,
respectively.
(2) HPU Holders are current and
former Company employees who
purchased high performance common
stock units under the Company's
High Performance Unit Program.
Participating Security holders are
non-employee directors who hold
unvested common stock equivalents
granted under the Company's LTIP
who are eligible to participate in
dividends.
iStar Financial Inc.
Earnings Per Share Information
(In thousands, except per share data)
(unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2014 2013 2014 2013
---- ---- ---- ----
EPS INFORMATION FOR COMMON SHARES
Income (loss) attributable to iStar Financial Inc. from continuing operations(1)
Basic $0.26 $(0.46) $(0.24) $(1.43)
Diluted $0.21 $(0.46) $(0.24) $(1.43)
Net income (loss) attributable to iStar Financial Inc.
Basic $0.26 $(0.36) $(0.24) $(1.15)
Diluted $0.21 $(0.36) $(0.24) $(1.15)
Adjusted income (loss)
Basic $0.68 $(0.09) $0.95 $(0.04)
Diluted $0.48 $(0.09) $0.74 $(0.04)
Weighted average shares outstanding
Basic 85,163 85,392 84,967 85,116
Diluted (for net income per share) 130,160 85,392 84,967 85,116
Diluted (for adjusted income per share) 130,160 85,392 129,981 85,116
Common shares outstanding at end of period 85,172 85,402 85,172 85,402
EPS INFORMATION FOR HPU SHARES
Income (loss) attributable to iStar Financial Inc. from continuing operations(1)
Basic $49.60 $(87.93) $(45.53) $(269.07)
Diluted $40.13 $(87.93) $(45.53) $(269.07)
Net income (loss) attributable to iStar Financial Inc.
Basic $49.60 $(67.73) $(45.53) $(217.54)
Diluted $40.13 $(67.73) $(45.53) $(217.54)
Weighted average shares outstanding
Basic 15 15 15 15
Diluted 15 15 15 15
(1) Including preferred dividends,
net (income) loss from
noncontrolling interests and
income from sales of residential
property.
iStar Financial Inc.
Consolidated Balance Sheets
(In thousands)
(unaudited)
As of As of
September 30, December 31,
2014 2013
-------------- -------------
ASSETS
Real estate
Real estate,
at cost $3,138,151 $3,220,634
Less:
accumulated
depreciation (455,325) (424,453)
-------- --------
Real estate,
net $2,682,826 $2,796,181
Real estate
available
and held
for sale 317,964 360,517
------- -------
$3,000,790 $3,156,698
Loans
receivable
and other
lending
investments,
net 1,190,746 1,370,109
Other
investments 314,275 207,209
Cash and
cash
equivalents 652,788 513,568
Restricted
cash 21,774 48,769
Accrued
interest
and
operating
lease
income
receivable,
net 13,752 14,941
Deferred
operating
lease
income
receivable 98,029 92,737
Deferred
expenses
and other
assets, net 188,471 237,980
------- -------
Total assets $5,480,625 $5,642,011
LIABILITIES AND EQUITY
Accounts
payable,
accrued
expenses
and other
liabilities $159,979 $170,831
Debt
obligations,
net 4,047,016 4,158,125
Total
liabilities $4,206,995 $4,328,956
Redeemable
noncontrolling
interests $11,355 $11,590
Total iStar
Financial
Inc.
shareholders'
equity $1,210,574 $1,243,260
Noncontrolling
interests 51,701 58,205
Total equity $1,262,275 $1,301,465
Total
liabilities
and equity $5,480,625 $5,642,011
========== ==========
iStar Financial Inc.
Segment Analysis
(In thousands)
(unaudited)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2014
Real Estate Net Operating Land Corporate /
Finance Lease Properties Other Total
------- ----- ---------- ----- -----
Operating lease income $ - $36,947 $23,513 $231 $ - $60,691
Interest income 31,098 - - - - 31,098
Other income 885 3,573 11,795 496 1,658 18,407
Land sales revenues - - - 3,290 - 3,290
--- --- --- ----- --- -----
Total revenue $31,983 $40,520 $35,308 $4,017 $1,658 $113,486
Earnings (loss) from equity method investments - 349 177 123 48,929 49,578
Income from sales of real estate - - 27,791 - - 27,791
Revenue and other earnings $31,983 $40,869 $63,276 $4,140 $50,587 $190,855
Real estate expense - (6,059) (28,795) (6,431) - (41,285)
Land cost of sales - - - (2,763) - (2,763)
Other expense (283) - - - 568 285
Allocated interest expense (14,187) (18,156) (10,169) (7,490) (5,422) (55,424)
Allocated general and administrative(1) (3,492) (4,610) (2,699) (3,566) (5,737) (20,104)
Segment profit (loss) $14,021 $12,044 $21,613 $(16,110) $39,996 $71,564
======= ======= ======= ======== ======= =======
AS OF SEPTEMBER 30, 2014
Real Estate Net Operating Land Corporate /
Finance Lease Properties Other Total
------- ----- ---------- ----- -----
Real estate
Real estate, at cost $ - $1,575,850 $716,687 $845,614 $ - $3,138,151
Less: accumulated depreciation - (360,816) (89,974) (4,535) - (455,325)
--- -------- ------- ------ --- --------
Real estate, net $ - $1,215,034 $626,713 $841,079 $ - $2,682,826
Real estate available and held for sale - - 196,597 121,367 - 317,964
--- --- ------- ------- --- -------
Total real estate $ - $1,215,034 $823,310 $962,446 $ - $3,000,790
Loans receivable and other lending investments, net 1,190,746 - - - - 1,190,746
Other investments - 127,070 14,223 65,949 107,033 314,275
--- ------- ------ ------ ------- -------
Total portfolio assets $1,190,746 $1,342,104 $837,533 $1,028,395 $107,033 $4,505,811
========== ========== ======== ========== ========
Cash and other assets 974,814
-------
Total assets $5,480,625
==========
(1) Excludes $3,273 of stock-
based compensation expense.
iStar Financial Inc.
Supplemental Information
(In thousands)
(unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2014 2013 2014 2013
---- ---- ---- ----
ADJUSTED INCOME
Reconciliation of Net Income to Adjusted Income
-----------------------------------------------
Net income (loss) allocable to common shareholders $22,327 $(30,571) $(20,454) $(97,839)
Add: Depreciation and amortization 18,339 19,019 56,525 53,873
Add: Provision for (recovery of) loan losses (673) (9,834) (6,865) 5,392
Add: Impairment of assets 15,462 6,785 21,741 7,181
Add: Stock-based compensation expense 3,273 4,563 8,544 14,484
Add: Loss on early extinguishment of debt 186 3,498 24,953 16,768
Less: HPU/Participating Security allocation (1,183) (773) (3,390) (3,153)
------ ---- ------ ------
Adjusted income (loss) allocable to common shareholders(1) $57,731 $(7,313) $81,054 $(3,294)
======= ======= ======= =======
(1) Adjusted Income (loss) allocable
to common shareholders should be
examined in conjunction with net
income (loss) as shown in the
Consolidated Statements of
Operations. This non-GAAP
financial measure should not be
considered as an alternative to net
income (determined in accordance
with GAAP) as an indicator of the
Company's performance, or to cash
iStar Financial Inc.
Supplemental Information
(In thousands)
(unaudited)
Three Months Ended
September 30, 2014
OPERATING STATISTICS
Expense Ratio
-------------
General and administrative expenses -
annualized (A) $93,508
Average total assets (B) $5,477,055
Expense Ratio (A) / (B) 1.7%
As of
September 30, 2014
------------------
Leverage
--------
Book debt $4,047,016
Less: Cash and cash equivalents (652,788)
--------
Net book debt (C) $3,394,228
Book equity $1,262,275
Add: Accumulated depreciation and
amortization 499,891
Add: General loan loss reserves 30,800
------
Sum of book equity, accumulated
depreciation and general loan loss
reserves (D) $1,792,966
Leverage (C) / (D) 1.9x
UNENCUMBERED ASSETS / UNSECURED DEBT
Unencumbered assets (E)(1) $5,130,194
Unsecured debt (F) $3,426,890
Unencumbered Assets /Unsecured Debt (E) /
(F) 1.5x
(1) Unencumbered assets are
calculated in accordance with the
indentures governing the Company's
unsecured debt securities.
iStar Financial Inc.
Supplemental Information
(In thousands)
(unaudited)
As of
September 30, 2014
------------------
UNFUNDED COMMITMENTS
Performance-based commitments $398,038
Strategic investments 45,756
Discretionary fundings 5,000
-----
Total Unfunded Commitments $448,794
LOAN RECEIVABLE CREDIT STATISTICS As of
-----
September 30, 2014 December 31, 2013
------------------ -----------------
Carrying value of NPLs /
As a percentage of total carrying value of loans $93,235 9.3% $203,604 16.6%
Impaired loan asset specific reserves for loan losses /
As a percentage of gross carrying value of impaired loans(1) $89,107 42.1% $348,004 46.3%
Total reserve for loan losses /
As a percentage of total gross carrying value of loans(1) $119,907 10.6% $377,204 23.5%
(1) Gross carrying value
represents iStar's carrying
value of loans, gross of
loan loss reserves.
iStar Financial Inc.
Supplemental Information
(In millions)
(unaudited)
PORTFOLIO STATISTICS AS OF SEPTEMBER 30, 2014(1)
Property Type Real Estate Net Lease Operating Land Total % of
Finance Properties
Total
--- -----
Office / Industrial $19 $920 $322 $ - $1,261 25.3%
Land 60 - - 1,033 1,093 21.9%
Entertainment / Leisure - 580 - - 580 11.6%
Mixed Use / Mixed Collateral 330 - 242 - 572 11.5%
Hotel 251 136 54 - 441 8.8%
Retail 164 58 119 - 341 6.8%
Condominium 116 - 191 - 307 6.2%
Other Property Types 282 9 - - 291 5.8%
Strategic Investments - - - - 106 2.1%
--- --- --- --- ---
Total $1,222 $1,703 $928 $1,033 $4,992 100.0%
====== ====== ==== ====== ====== =====
Geography Real Estate Net Lease Operating Land Total % of
Finance Properties Total
--- ------- ---------- -----
Northeast $537 $388 $144 $201 $1,270 25.4%
West 105 438 128 356 1,027 20.6%
Southeast 79 257 288 120 744 14.9%
Southwest 122 236 184 139 681 13.6%
Mid-Atlantic 177 145 133 191 646 13.0%
Central 95 94 49 10 248 5.0%
Various 30 143 2 16 191 3.8%
International 77 2 - - 79 1.6%
Strategic Investments - - - - 106 2.1%
--- --- --- --- ---
Total $1,222 $1,703 $928 $1,033 $4,992 100.0%
====== ====== ==== ====== ====== =====
(1) Based on carrying value of
the Company's total investment
portfolio, gross of accumulated
depreciation and general loan
loss reserves.
SOURCE iStar Financial Inc.
