iStar Financial Inc. : iStar Financial Announces First Quarter 2012 Results
04/27/2012| 07:40am US/Eastern
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NEW YORK, April 27, 2012 /PRNewswire/ -- iStar Financial Inc. (NYSE: SFI) today reported results for the first quarter ended March 31, 2012.
First Quarter 2012 Results
iStar reported net income (loss) allocable to common shareholders for the first quarter of ($54.8) million, or ($0.66) per diluted common share, compared to $67.4 million, or $0.71 per diluted common share, for the first quarter 2011. The year-over-year decrease is primarily due to lower gains from early extinguishment of debt of $1.7 million versus $106.6 million for the same period last year, increased interest expense and higher provisions for loan losses and impairments. The decrease was partially offset by increased earnings from equity method investments and income from sales of residential property.
Prior to the effect of depreciation, loan loss provisions, impairments and gains on early extinguishment of debt, all of which are non-cash items, net income (loss) allocable to common shareholders for the first quarter was ($7.3) million, compared to ($5.0) million for the first quarter 2011. Please see the financial tables that follow the text of this press release for a reconciliation of these amounts to GAAP net income (loss) allocable to common shareholders.
Adjusted EBITDA for the quarter was $95.1 million, compared to $90.4 million for the same period last year. The year-over-year improvement was primarily due to increases in earnings from equity method investments and income from sales of residential property, partially offset by lower revenue from a smaller asset base. Please see the financial tables that follow the text of this press release for the Company's calculation of Adjusted EBITDA and a reconciliation to GAAP net income (loss).
During the first quarter, the Company generated $214.8 million of proceeds from its portfolio, comprised of $136.2 million in principal repayments, $51.4 million primarily from unit sales of other real estate owned (OREO) assets, $6.5 million from sales of net lease assets and $20.7 million from other investments. Additionally, the Company funded a total of $23.0 million of investments.
Capital Markets
As previously announced, during the quarter the Company entered into a new $880.0 million senior secured credit agreement comprised of a $410.0 million 2012 A-1 term loan tranche due March 2016 and a $470.0 million 2012 A-2 term loan tranche due March 2017. Proceeds from the new financing were used to repurchase $124.1 million of unsecured notes maturing in 2012 and to repay the $244.0 million remaining balance of its unsecured revolving credit facility due June 2012. The remaining debt proceeds will be used to refinance unsecured debt maturing in 2012.
In addition, during the quarter the Company repurchased $96.3 million of senior unsecured notes and repaid the remaining $169.7 million of its 5.15% senior unsecured notes due March 2012. Further, the Company repaid $89.8 million on the 2011 A-1 tranche of its secured credit facility, bringing the balance of the 2011 A-1 tranche to $871.8 million at the end of the quarter. Subsequent to quarter end, the Company repaid an additional $144.8 million on the 2011 A-1 tranche, thereby satisfying all minimum amortization requirements prior to the payment of any remaining balance at maturity in June 2013.
The Company's leverage was 2.7x at March 31, 2012, unchanged from the prior quarter. Please see the financial tables that follow the text of this press release for a calculation of the Company's leverage. The Company's weighted average effective cost of debt for the first quarter was 5.8%. At the end of the quarter, cash and cash equivalents, including cash reserved for repayment of indebtedness, totaled $609.7 million.
Portfolio Overview
At March 31, 2012, the Company's total portfolio had a carrying value of $6.82 billion, gross of general loan loss reserves. The portfolio was comprised of $2.67 billion of loans and other lending investments, $1.67 billion of net lease assets, $2.00 billion of owned real estate and $468.6 million of other investments.
At March 31, 2012, the Company's $2.01 billion of performing loans and other lending investments had a weighted average last dollar loan-to-value ratio of 76.0% and a weighted average maturity of 3.1 years. The performing loans consisted of 49.5% floating rate loans that generated a weighted average effective yield for the quarter of 5.8%, or approximately 550 basis points over the average one-month LIBOR rate for the quarter, and 50.5% fixed rate loans that generated a weighted average effective yield for the quarter of 8.3%. The weighted average risk rating of the Company's performing loans improved to 3.27, from 3.29 in the prior quarter. Included in the performing loan balance were $169.8 million of watch list assets, compared to $136.0 million in the prior quarter.
At March 31, 2012, the Company's non-performing loans (NPLs) had a carrying value of $662.7 million, net of $477.2 million of specific reserves. This compares to $771.2 million, net of $557.1 million of specific reserves, at the end of the prior quarter.
For the first quarter, the Company recorded $17.5 million in loan loss provision versus $16.0 million in the prior quarter. At March 31, 2012, loan loss reserves totaled $567.2 million or 18.0% of total gross carrying value of loans. This compares to loan loss reserves of $646.6 million or 18.5% of total gross carrying value of loans at December 31, 2011.
At the end of the quarter, the Company's $1.67 billion of net lease assets, net of $347.3 million of accumulated depreciation, were 91.2% leased with a weighted average remaining lease term of 12.4 years. The weighted average risk rating of the Company's net lease assets improved to 2.63, versus 2.67 in the prior quarter. The Company recorded $14.1 million of impairments within its net lease asset portfolio. During the quarter, the Company's occupied net lease assets generated a weighted average effective yield of 10.2% and the total net lease assets generated a weighted average effective yield of 9.1%.
At the end of the quarter, the Company's $2.00 billion owned real estate portfolio was comprised of $775.9 million of OREO and $1.23 billion of real estate held for investment (REHI). The Company's OREO assets are considered held for sale based on management's current intention to market and sell the assets in the near term, while management's current intent and strategy is to hold, operate or develop its REHI assets over a longer term.
During the quarter, the Company took title to properties with a carrying value of $140.4 million. The Company also recorded $2.5 million of impairments within its OREO portfolio. For the quarter, the Company recorded $14.4 million of revenue and $6.7 million of income from sales of residential property units within its owned real estate portfolio during the quarter, offset by $22.1 million of net expenses. In addition, the Company funded $10.8 million of capital expenditures associated with its owned real estate portfolio.
[Financial Tables to Follow]
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iStar Financial Inc. (NYSE: SFI) 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.
iStar Financial will hold a quarterly earnings conference call at 10:00 a.m. ET today, April 27, 2012. 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 Inc.'s expectations include 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 (including OREO assets), increases in NPLs, repayment levels, the Company's ability to reduce its indebtedness, the Company's ability to maintain compliance with its debt covenants, economic conditions, the availability of liquidity for commercial real estate transactions 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 Ended
March 31,
2012 2011
---- ----
REVENUES
Interest income $37,203 $60,768
Operating lease income 41,211 40,799
Other income 16,286 8,675
Total revenues $94,700 $110,242
------- --------
COSTS AND EXPENSES
Interest expense $86,143 $69,344
Operating costs - net lease assets 3,164 4,288
Operating costs - REHI and OREO 22,074 17,788
Depreciation and amortization 17,175 15,474
General and administrative(1) 22,845 24,400
Provision for loan losses 17,500 10,881
Impairment of assets 15,504 1,490
Other expense 453 2,722
Total costs and expenses $184,858 $146,387
-------- --------
Income (loss) before earnings from equity method investments
and other items ($90,158) ($36,145)
Gain on early extinguishment of debt, net 1,704 106,604
Earnings from equity method investments 34,786 24,932
------ ------
Income (loss) from continuing operations before
income taxes ($53,668) $95,391
Income tax expense (1,271) (11,052)
Income (loss) from continuing operations ($54,939) $84,339
Income (loss) from discontinued operations (248) (437)
Gain from discontinued operations 2,406 -
Income from sales of residential property 6,733 -
Net income (loss) ($46,048) $83,902
Net (income) loss attributable to noncontrolling
interests (25) (430)
Net income (loss) attributable to iStar Financial
Inc. ($46,073) $83,472
Preferred dividends (10,580) (10,580)
Net (income) loss allocable to HPUs and
Participating Security holders(2) 1,861 (5,472)
Net income (loss) allocable to common shareholders ($54,792) $67,420
======== =======
(1) For the three months ended March 31, 2012 and 2011, includes $4,666 and $4,155 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 Company employees and
directors who hold unvested restricted stock units and common stock equivalents under the Company's LTIP
that are currently eligible to receive dividends.
iStar Financial Inc.
Earnings Per Share Information
(In thousands, except per share amounts)
(unaudited)
Three Months Ended
March 31,
2012 2011
---- ----
EPS INFORMATION FOR COMMON SHARES
Income (loss) attributable to iStar Financial Inc.
from continuing operations(1)
Basic ($0.69) $0.73
Diluted ($0.69) $0.71
Net income (loss) attributable to iStar Financial Inc.
Basic ($0.66) $0.73
Diluted ($0.66) $0.71
Weighted average shares outstanding
Basic 83,556 92,458
Diluted 83,556 94,609
Common shares outstanding at end of period 84,358 92,472
EPS INFORMATION FOR HPU SHARES
Income (loss) attributable to iStar Financial Inc.
from continuing operations(1)
Basic ($128.81) $138.80
Diluted ($128.81) $135.87
Net income (loss) attributable to iStar Financial Inc.
Basic ($124.07) $138.00
Diluted ($124.07) $135.07
Weighted average shares outstanding
Basic and diluted 15 15
(1) Adjusted for 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
March 31, 2012 December 31, 2011
-------------- -----------------
ASSETS
Loans and other
lending
investments, net $2,596,400 $2,860,762
Net lease assets,
net 1,668,552 1,702,764
Real estate held
for investment,
net 1,228,733 1,228,134
Other real estate
owned 775,899 677,458
Other investments 468,646 457,835
Assets held for
sale 5,737 -
Cash and cash
equivalents 126,859 356,826
Restricted cash 524,174 32,630
Accrued interest
and operating
lease income
receivable, net 15,297 16,878
Deferred operating
lease income
receivable 74,338 72,074
Deferred expenses
and other assets,
net 105,263 112,476
Total assets $7,589,898 $7,517,837
========== ==========
LIABILITIES AND EQUITY
Accounts payable,
accrued expenses
and other
liabilities $114,516 $106,693
Debt obligations, net:
Secured credit
facilities 3,156,772 2,393,240
Unsecured senior
notes 2,419,062 2,805,817
Secured term loans 294,400 296,643
Unsecured credit
facility - 243,650
Other debt
obligations 98,201 98,190
Total debt
obligations, net 5,968,435 5,837,540
Total liabilities $6,082,951 $5,944,233
Total iStar
Financial Inc.
shareholders'
equity 1,462,099 1,528,356
Noncontrolling
interests 44,848 45,248
Total equity $1,506,947 $1,573,604
Total liabilities
and equity $7,589,898 $7,517,837
========== ==========
iStar Financial Inc.
Supplemental Information
(In thousands)
(unaudited)
Three Months Ended
March 31,
2012 2011
---- ----
NON-GAAP FINANCIAL MEASURES
Reconciliation of Net Income to Adjusted
EBITDA
----------------------------------------
Net income (loss) ($46,048) $83,902
Add: Interest expense 86,143 69,634
Add: Income tax expense 1,271 11,052
Add: Depreciation and amortization 17,238 15,933
------ ------
EBITDA $58,604 $180,521
Add: Provision for loan losses 17,500 10,881
Add: Impairment of assets 16,024 1,464
Add: Stock-based compensation expense 4,666 4,155
Less: Gain on early extinguishment of debt,
net (1,704) (106,604)
Adjusted EBITDA(1) $95,090 $90,417
======= =======
Reconciliation of Adjustments to Net Income Allocable to Common
Shareholders
---------------------------------------------------------------
Net income (loss) allocable to common
shareholders ($54,792) $67,420
Add: Depreciation and amortization 17,238 15,933
Add: Provision for loan losses 17,500 10,881
Add: Impairment of assets 16,024 1,464
Less: Gain on early extinguishment of debt,
net (1,704) (106,604)
Less: HPU/Participating Security allocation
adjustment (1,611) 5,880
Net income (loss) allocable to common
shareholders, as adjusted(1) ($7,345) ($5,026)
======= =======
(1) Adjusted EBITDA and net income (loss) allocable to common shareholders after giving effect to
these adjustments should be examined in conjunction with net income (loss) as shown in the
Consolidated Statements of Operations. These non-GAAP financial measures 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 flows from operating activities (determined in accordance with
GAAP) as a measure of the Company's liquidity, nor are they indicative of funds available to fund
the Company's cash needs or available for distribution to shareholders. It should be noted that the
Company's manner of calculating these non-GAAP financial measures may differ from the calculations
of similarly-titled measures by other companies. Management believes that it is useful to consider
EBITDA and net income excluding the adjustments shown above because the adjustments are non-cash
items that do not necessarily reflect an actual change in the long-term economic value or
iStar Financial Inc.
Supplemental Information
(In thousands)
(unaudited)
Three Months Ended
March 31, 2012
--------------
OPERATING STATISTICS
Return on Average Common Book Equity
------------------------------------
Average total book equity $1,495,228
Less: Average book value of
preferred equity (506,176)
--------
Average common book equity (A) $989,052
Net income (loss) allocable to common shareholders, HPU holders
and
Participating Security holders ($56,653)
Annualized(B) ($226,612)
Return on Average Common Book
Equity (B) /(A) Neg
Expense Ratio
-------------
General and administrative
expenses -annualized (C) $91,380
Average total assets (D) $7,553,868
Expense Ratio (C) / (D) 1.2%
Interest Coverage
-----------------
Adjusted EBITDA(A) $95,090
Interest expense and preferred
dividends (B) $96,723
Adjusted EBITDA /Interest
Expense and Preferred Dividends
(A) /(B) 1.0x
As of
March 31, 2012
--------------
Leverage
--------
Book debt $5,968,435
Less: Cash and cash equivalents,
including cash reserved for
repayment of indebtedness (609,748)
Net book debt (E) $5,358,687
Book equity $1,506,947
Add: Accumulated depreciation 411,837
Add: General loan loss reserves 74,300
Sum of book equity, accumulated
depreciation and general loan
loss reserves (F) $1,993,084
Leverage(E) / (F) 2.7x
iStar Financial Inc.
Supplemental Information
(In thousands)
(unaudited)
As of
March 31, 2012
--------------
UNFUNDED COMMITMENTS
Performance-based commitments $64,673
Discretionary fundings 128,008
Strategic investments 25,375
------
Total Unfunded Commitments $218,056
UNENCUMBERED ASSETS / UNSECURED DEBT
Unencumbered assets (A) $3,855,103
Unsecured debt (B) $2,535,675
Unencumbered Assets /Unsecured Debt
(A) /(B) 1.5x
LOANS AND OTHER LENDING INVESTMENTS CREDIT STATISTICS
As of
-----
March 31, 2012 December 31, 2011
-------------- -----------------
Carrying value of NPLs /
As a percentage of total carrying value of loans $662,732 25.7 % $771,196 27.1 %
NPL asset specific reserves for loan losses /
As a percentage of gross carrying value of NPLs(1) $477,179 41.9 % $557,129 41.9 %
Total reserve for loan losses /
As a percentage of total gross carrying value of loans(1) $567,179 18.0 % $646,624 18.5 %
(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 MARCH 31, 2012(1)
Asset Type Total % of Total
---------- ----- ----------
First Mortgages / Senior Loans $2,125 31.2%
Net Lease Assets 1,674 24.5%
Real Estate Held for Investment 1,229 18.0%
Other Real Estate Owned 776 11.4%
Mezzanine / Subordinated Debt 545 8.0%
Other Investments 469 6.9%
Total $6,818 100.0%
====== =====
Geography Total % of Total
--------- ----- ----------
West $1,631 23.9%
Northeast 1,222 17.9%
Southeast 1,021 15.0%
Southwest 845 12.4%
Mid-Atlantic 674 9.9%
Various 543 8.0%
Central 370 5.4%
International 282 4.1%
Northwest 230 3.4%
Total $6,818 100.0%
====== =====
Property Type Performing Net Lease NPLs REHI OREO Total % of Total
Loans Assets
--- ----- ------
Land $206 $56 $211 $803 $118 $1,394 20.4%
Apartment / Residential 458 - 142 25 491 1,116 16.4%
Retail 351 158 67 153 70 799 11.7%
Office 116 473 38 70 3 700 10.3%
Industrial / R&D 87 471 8 49 1 616 9.0%
Entertainment / Leisure 78 422 81 - - 581 8.5%
Hotel 304 94 110 42 16 566 8.3%
Mixed Use / Mixed Collateral 237 - - 87 77 401 5.9%
Other Property Types 170 - 6 - - 176 2.6%
Other Investments - - - - - 469 6.9%
--- --- --- --- --- --- ---
Total $2,007 $1,674 $663 $1,229 $776 $6,818 100.0%
====== ====== ==== ====== ==== ====== =====
(1) Based on carrying value of the Company's total investment portfolio, gross of general loan loss reserves.
SOURCE iStar Financial Inc.
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