iStar Financial Inc. : iStar Financial Announces Fourth Quarter and Fiscal Year 2011 Results
02/28/2012| 07:35am US/Eastern
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NEW YORK, Feb. 28, 2012 /PRNewswire/ -- iStar Financial Inc. (NYSE: SFI) today reported results for the fourth quarter and fiscal year ended December 31, 2011.
Fourth Quarter 2011 Results
iStar reported net income (loss) allocable to common shareholders for the fourth quarter of ($35.2) million, or ($0.43) per diluted common share, compared to ($67.1) million, or ($0.73) per diluted common share, for the fourth quarter 2010. The year-over-year improvement is primarily due to lower provision for loan losses of $16.0 million versus $54.2 million for the same period last year, as well as increased earnings from equity method investments as a result of the sale of the Company's interest in Oak Hill Advisors. This was partially offset by lower revenues from a smaller overall asset base and increased interest expense.
Adjusted EBITDA for the quarter was $100.3 million, compared to $103.4 million for the same period last year. The year-over-year results included lower revenue from a smaller asset base, offset by increased earnings from equity method investments as discussed above, and lower general and administrative costs. Please see the financial tables that follow the text of this press release for details regarding the Company's calculation of Adjusted EBITDA.
During the fourth quarter, the Company generated $243.7 million of proceeds from its portfolio, comprised of $138.4 million in principal repayments, $39.3 million from sales of other real estate owned (OREO) assets, primarily comprised of unit sales, $36.7 million from sales of net lease assets, $11.2 million from loan sales and $18.1 million from other investments. Additionally, the Company funded a total of $80.4 million of investments.
As previously announced, during the fourth quarter the Company also sold substantially all of its interests in Oak Hill Advisors, while retaining certain limited partnerships in various Oak Hill Funds. The Company recorded a $30.3 million gain in the fourth quarter associated with the transaction.
Fiscal Year 2011 Results
Net income (loss) allocable to common shareholders for the year ended December 31, 2011, was ($62.4) million, or ($0.70) per diluted common share. This compares to net income of $36.3 million or $0.39 per diluted common share for the year ended December 31, 2010. Results for the prior year include $270.4 million of gains primarily associated with the sale of a large net lease asset portfolio, as compared to $25.1 million of such gains in the current year. In addition, the year-over-year decrease is due to lower revenues from a smaller overall asset base, partially offset by lower provision for loan losses of $46.4 million versus $331.5 million in the prior year.
Adjusted EBITDA for the year was $376.5 million, compared to $768.8 million for the year ended December 31, 2010. The year-over-year decrease is primarily due to lower gains from discontinued operations of $25.1 million versus $270.4 million in the prior year, and lower revenues from a smaller overall asset base, partially offset by increased earnings from equity method investments.
For the year, the Company generated $1.74 billion of proceeds from its portfolio, comprised of $1.21 billion in loan principal repayments and $534.6 million from asset sales. Additionally, the Company funded a total of $216.3 million of investments.
Capital Markets
During the quarter, the Company repurchased $37.6 million of its senior unsecured notes. In addition, the Company repaid $109.8 million on the 2011 A-1 Tranche of its secured credit facility. The cumulative amount repaid on the 2011 A-1 Tranche is $538.4 million, exceeding the minimum cumulative amortization of $200.0 million required by December 31, 2011. Based on the total amount repaid, the Company has also exceeded the minimum cumulative amortization of $450.0 million required to be paid before June 30, 2012. The Company's weighted average effective cost of debt for the fourth quarter was 5.8%.
The Company's net leverage was 2.7x at December 31, 2011, a decrease from 2.8x from the prior quarter. After adding back specific reserves, the Company's gross leverage was 2.1x at the end of the quarter. Please see the financial tables that follow the text of this press release for calculations of the Company's leverage.
The Company has launched the syndication of up to $900.0 million in new senior secured credit facilities, with Barclays Capital acting as lead arranger. The proposed new facilities would be comprised of a 2012 A-1 tranche due March 2016 and 2012 A-2 tranche due March 2017. The two tranches are expected to have differing interest rates. Amortization payments will be applied first to the 2012 A-1 tranche and then to the 2012 A-2 tranche. The proceeds from the new credit facilities will be used to refinance the Company's 2012 unsecured debt maturities. Outstanding borrowings under the facilities will be collateralized by a $1.125 billion pool of diversified collateral of loans, net lease assets and other real estate assets, including assets net leased to Hilton Hotels and Preferred Freezer. See the Company's website, www.istarfinancial.com, under "Selected Transactions" in the "Return on Ideas" section, for more information on these two assets.
"This new financing will allow us to better align our asset and liability profile, positioning iStar on stronger footing and creating positive momentum for the coming year," said Jay Sugarman, iStar's chairman and chief executive officer.
The Company is in the process of syndicating the new facilities and there can be no assurance that it will be successful in its efforts to complete the syndication.
Portfolio Overview
At December 31, 2011, the Company's total portfolio had a carrying value of $7.0 billion, gross of general loan loss reserves. The portfolio was comprised of $2.93 billion of loans and other lending investments, $1.70 billion of net lease assets, $1.91 billion of owned real estate and $457.8 million of other investments.
At December 31, 2011, the Company's $2.16 billion of performing loans and other lending investments had a weighted average last dollar loan-to-value ratio of 77.0% and a weighted average maturity of 3.2 years. The performing loans consisted of 51.3% floating rate loans that generated a weighted average effective yield for the quarter of 5.8%, or approximately 555 basis points over the average one-month LIBOR rate for the quarter, and 48.7% fixed rate loans that generated a weighted average effective yield for the quarter of 8.1%. The weighted average risk rating of the Company's performing loans was 3.29, an improvement from 3.35 in the prior quarter. Included in the performing loan balance were $136.0 million of watch list assets, an increase from $41.8 million in the prior quarter.
At December 31, 2011, the Company's non-performing loans (NPLs) had a carrying value of $771.2 million, net of $557.1 million of specific reserves. This compares to $1.02 billion, net of $613.2 million of specific reserves, at the end of the prior quarter, and $1.35 billion, net of $667.8 million of specific reserves, at December 31, 2010.
For the fourth quarter, the Company recorded $16.0 million in loan loss provision versus $9.2 million in the prior quarter. At December 31, 2011, loan loss reserves totaled $646.6 million or 18.5% of total gross carrying value of loans. This compares to loan loss reserves of $710.1 million or 17.9% of total gross carrying value of loans at September 30, 2011.
At the end of the quarter, the Company's $1.70 billion of net lease assets, net of $346.3 million of accumulated depreciation, were 92.0% leased with a weighted average remaining lease term of 12.3 years. The weighted average risk rating of the Company's net lease assets was 2.67, versus 2.70 in the prior quarter. For the quarter, the Company's occupied net lease assets generated a weighted average effective yield of 9.8% and the total net lease assets generated a weighted average effective yield of 8.4%.
At the end of the quarter, the Company's $1.91 billion owned real estate portfolio was comprised of $677.5 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 $310.0 million. The Company also recorded $8.2 million of impairments within its OREO portfolio. For the quarter, the Company recorded $13.0 million of revenue, offset by $21.7 million of expenses and funded $17.1 million of capital expenditures associated with its owned real estate portfolio. In addition, the Company recorded $5.7 million of income from sales of residential property units within the OREO portfolio during the quarter.
[Financial Tables to Follow]
* * *
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, February 28, 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 complete the new $900 million senior secured credit facilities, 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 Twelve Months Ended
December 31, December 31,
2011 2010 2011 2010
---- ---- ---- ----
REVENUES
Interest
income $40,066 $76,799 $226,871 $364,094
Operating
lease income 41,948 41,160 165,040 164,681
Other income 14,466 18,076 40,878 40,943
------
Total revenues $96,480 $136,035 $432,789 $569,718
------- -------- -------- --------
COSTS AND EXPENSES
Interest
expense $87,486 $68,709 $344,788 $314,868
Operating
costs -net
lease assets 4,757 3,467 18,439 14,566
Operating
costs -REHI
and OREO 21,700 19,528 77,282 64,694
Depreciation
and
amortization 16,583 15,365 62,619 61,663
General and
administrative
(1) 27,962 32,957 105,039 109,526
Provision for
loan losses 15,950 54,245 46,412 331,487
Impairment of
assets 8,203 3,479 22,368 16,319
Other expense 3,916 2,735 11,070 16,055
------
Total costs
and expenses $186,557 $200,485 $688,017 $929,178
-------- -------- -------- --------
Income (loss) before
earnings from equity
method investments
and other
items ($90,077) ($64,450) ($255,228) ($359,460)
Gain (loss) on
early
extinguishment
of debt, net (882) (9,381) 101,466 108,923
Earnings from
equity method
investments 40,210 20,205 95,091 51,908
------ ------ ------ ------
Income (loss)
from
continuing
operations
before income
taxes ($50,749) ($53,626) ($58,671) ($198,629)
Income tax
(expense)
benefit 14,450 (4,465) 4,719 (7,023)
-----
Income (loss)
from
continuing
operations ($36,299) ($58,091) ($53,952) ($205,652)
Income (loss)
from
discontinued
operations (1,249) (774) (2,572) 15,476
Gain from
discontinued
operations 2,912 - 25,110 270,382
Income from
sales of
residential
property 5,721 - 5,721 -
---
Net income
(loss) ($28,915) ($58,865) ($25,693) $80,206
Net (income)
loss
attributable
to
noncontrolling
interests 3,071 334 3,629 (523)
----- --- ----
Net income
(loss)
attributable
to iStar
Financial
Inc. ($25,844) ($58,531) ($22,064) $79,683
Preferred
dividends (10,580) (10,580) (42,320) (42,320)
Net (income) loss
allocable to HPUs and
Participating
Security
holders (2) 1,222 2,061 1,997 (1,084)
-----
Net income
(loss)
allocable to
common
shareholders ($35,202) ($67,050) ($62,387) $36,279
======== ======== ======== =======
(1) For the three months ended December 31, 2011 and 2010,
includes $14,080 and $5,758 of stock-based compensation
expense, respectively. For the twelve months ended
December 31, 2011 and 2010, includes $29,702 and $19,355
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 Twelve Months Ended
December 31, December 31,
2011 2010 2011 2010
---- ---- ---- ----
EPS INFORMATION
FOR COMMON
SHARES
Income (loss)
attributable to
iStar Financial
Inc.
from continuing
operations (1)
Basic and
diluted ($0.45) ($0.72) ($0.94) ($2.58)
Net income
(loss)
attributable to
iStar Financial
Inc.
Basic and
diluted ($0.43) ($0.73) ($0.70) $0.39
Weighted average
shares
outstanding
Basic and
diluted 81,769 92,319 88,688 93,244
Common shares
outstanding at
end of period 81,920 92,336 81,920 92,336
EPS INFORMATION
FOR HPU SHARES
Income (loss)
attributable to
iStar Financial
Inc.
from continuing
operations (1)
Basic and
diluted ($85.20) ($135.87) ($179.73) ($490.67)
Net income
(loss)
attributable to
iStar Financial
Inc.
Basic and
diluted ($81.47) ($137.40) ($133.13) $72.27
Weighted average
shares
outstanding
Basic and
diluted 15 15 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
December 31, 2011 December 31, 2010
----------------- -----------------
ASSETS
Loans and other lending
investments, net $2,860,762 $4,587,352
Net lease assets, net 1,702,764 1,784,509
Real estate held for
investment, net 1,228,134 833,060
Other real estate owned 677,458 746,081
Other investments 457,835 532,358
Cash and cash equivalents 356,826 504,865
Restricted cash 32,630 13,784
Accrued interest and
operating lease income
receivable, net 16,878 24,408
Deferred operating lease
income receivable 72,074 62,569
Deferred expenses and
other assets, net 112,476 85,528
------
Total assets $7,517,837 $9,174,514
========== ==========
LIABILITIES AND EQUITY
Accounts payable, accrued
expenses and other
liabilities $106,693 $134,422
Debt obligations, net:
Unsecured senior notes 2,805,817 3,265,845
Secured credit facilities 2,393,240 -
Secured term loans 296,643 1,861,314
Unsecured credit
facilities 243,650 745,224
Other debt obligations 98,190 98,150
Secured notes - 421,837
Secured revolving credit
facilities - 953,063
-------
Total debt obligations,
net 5,837,540 7,345,433
Total liabilities $5,944,233 $7,479,855
Total iStar Financial Inc.
shareholders' equity 1,528,356 1,648,135
Noncontrolling interests 45,248 46,524
------
Total equity $1,573,604 $1,694,659
Total liabilities and
equity $7,517,837 $9,174,514
========== ==========
iStar Financial Inc.
Supplemental Information
(In thousands)
(unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
2011 2010 2011 2010
---- ---- ---- ----
ADJUSTED EBITDA
(1)
Reconciliation of
Net Income to
Adjusted EBITDA
-----------------
Net income (loss) ($28,915) ($58,865) ($25,693) $80,206
Add: Interest
expense 87,731 69,170 345,914 346,500
Add: Income tax
expense (benefit) (14,450) 4,465 (4,719) 7,023
Add: Depreciation
and amortization 16,786 15,734 63,928 70,786
Add: Provision for
loan losses 15,950 54,245 46,412 331,487
Add: Impairment of
assets 8,203 3,479 22,386 22,381
Add: Stock-based
compensation
expense 14,080 5,758 29,702 19,355
Less: (Gain) loss
on early
extinguishment of
debt, net 882 9,381 (101,466) (108,923)
--------
Adjusted EBITDA $100,267 $103,367 $376,464 $768,815
======== ======== ======== ========
Three Months Ended
December 31, 2011
-----------------
Interest Coverage
-----------------
Adjusted EBITDA
(A) $100,267
Interest expense
and preferred
dividends (B) $98,311
Adjusted EBITDA /
Interest Expense
and Preferred
Dividends (A) /
(B) 1.0x
(1) Adjusted EBITDA should be examined in conjunction with
net income (loss) as shown in the Consolidated Statements
of Operations. Adjusted EBITDA 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 is this measure 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 Adjusted EBITDA may
differ from the calculations of similarly-titled measures
by other companies. Interest expense, depreciation and
amortization and impairment of assets exclude adjustments
from discontinued operations of $245, $202, and $43,
respectively, for the three months ended December 31,
2011. Interest expense and depreciation and amortization
exclude adjustments from discontinued operations of $461
and $369, respectively, for the three months ended
December 31, 2010. Interest expense, depreciation and
amortization and impairment of assets exclude adjustments
from discontinued operations of $1,126, $1,309 and $18
respectively, for the twelve months ended December 31,
2011. Interest expense, depreciation and amortization and
impairment of assets exclude adjustments from discontinued
operations of $31,632, $9,122, and $6,063, respectively,
for the twelve months ended December 31, 2010.
iStar Financial Inc.
Supplemental Information
(In thousands)
(unaudited)
Three Months Ended
December 31, 2011
-----------------
OPERATING STATISTICS
Return on Average Common Book Equity
------------------------------------
Average total book equity $1,543,151
Less: Average book value of preferred equity (506,176)
--------
Average common book equity (A) $1,036,975
Net income (loss) allocable to common
shareholders, HPU holders and
Participating Security holders ($36,424)
Annualized (B) ($145,696)
Return on Average Common Book Equity (B) / (A) Neg
Expense Ratio
-------------
General and administrative expenses -
annualized (C) $111,848
Average total assets (D) $7,635,845
Expense Ratio (C) / (D) 1.5%
As of
December 31, 2011
-----------------
Leverage
--------
Book debt, net of unrestricted cash and cash
equivalents (E) $5,480,714
Book equity $1,573,604
Add: Accumulated depreciation 403,149
Add: General loan loss reserves 73,500
------
Sum of book equity, accumulated depreciation
and general loan loss reserves (F) $2,050,253
Net Leverage (E) / (F) 2.7x
Add: Specific loan loss reserves 573,124
-------
Sum of book equity, accumulated depreciation
and total loan loss reserves (G) $2,623,377
Gross Leverage (E) / (G) 2.1x
iStar Financial Inc.
Supplemental Information
(In thousands)
(unaudited)
As of
December 31, 2011
-----------------
UNFUNDED COMMITMENTS
Performance-based commitments $67,320
Discretionary fundings 128,029
Strategic investments 24,340
------
Total Unfunded Commitments $219,689
UNENCUMBERED ASSETS / UNSECURED DEBT
Unencumbered assets (A) $4,678,966
Unsecured debt (B) $3,169,411
Unencumbered Assets /Unsecured Debt
(A) /(B) 1.5x
LOANS AND OTHER LENDING INVESTMENTS
CREDIT STATISTICS
As of
-----
December 31,
2011 December 31, 2010
------------- -----------------
Carrying value of NPLs /
As a percentage of total carrying
value of loans $771,196 27.1 % $1,351,410 29.6 %
NPL asset specific reserves for loan
losses /
As a percentage of gross carrying
value of NPLs (1) $557,129 41.9 % $667,779 33.1 %
Total reserve for loan losses /
As a percentage of total gross
carrying value of loans (1) $646,624 18.5 % $814,625 15.1 %
(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
DECEMBER 31, 2011 (1)
% of
Asset Type Total Total
---------- ----- -----
First
Mortgages /
Senior
Loans $2,387 34.2%
Net Lease
Assets 1,703 24.3%
Real Estate
Held for
Investment 1,228 17.5%
Other Real
Estate
Owned 677 9.7%
Mezzanine /
Subordinated
Debt 547 7.8%
Other
Investments 458 6.5%
---
Total $7,000 100.0%
====== =====
% of
Geography Total Total
--------- ----- -----
West $1,658 23.7%
Northeast 1,304 18.6%
Southeast 1,052 15.0%
Southwest 847 12.1%
Mid-Atlantic 695 9.9%
Various 545 7.8%
Central 376 5.4%
International 279 4.0%
Northwest 244 3.5%
---
Total $7,000 100.0%
====== =====
Property Net % of
Type Performing Lease NPLs REHI OREO Total Total
-------- Loans Assets ---- ---- ---- ----- -----
----- ------
Land $207 $56 $211 $783 $119 $1,376 19.7%
Apartment /
Residential 549 - 293 41 403 1,286 18.4%
Retail 357 159 68 154 58 796 11.4%
Office 116 490 37 71 3 717 10.2%
Industrial /
R&D 88 478 8 49 1 624 8.9%
Entertainment
/Leisure 78 425 80 - - 583 8.3%
Hotel 353 95 68 42 16 574 8.2%
Mixed Use /
Mixed
Collateral 239 - - 88 77 404 5.8%
Other
Property
Types 176 - 6 - - 182 2.6%
Other
Investments - - - - - 458 6.5%
---
Total $2,163 $1,703 $771 $1,228 $677 $7,000 100.0%
====== ====== ==== ====== ==== ====== =====
(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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