iStar Financial Announces Second Quarter 2014 Results

- Adjusted income grew to $28.9 million, or $0.34 per diluted common share.
- Refinanced $1.3 billion of secured debt with longer term unsecured bonds, unencumbering $2.0 billion of high quality assets and enhancing the Company's liquidity profile.
- Funded $167 million of investments during the quarter.

PR Newswire

NEW YORK, July 29, 2014 /PRNewswire/ -- iStar Financial Inc. (STAR) today reported results for the second quarter ended June 30, 2014.

Second Quarter 2014 Results

iStar reported adjusted income allocable to common shareholders for the second quarter of $28.9 million, or $0.34 per diluted common share, compared to $4.4 million, or $0.05 per diluted common share for the second quarter 2013.

Adjusted income (loss) represents net income (loss) 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 (loss) allocable to common shareholders for the second quarter was $(16.2) million, or $(0.19) per diluted common share, compared to $(26.0) million, or $(0.31) per diluted common share for the second quarter 2013.

Capital Markets

During the quarter, the Company issued at par $1.32 billion of unsecured notes comprised of $550 million of 4.00% Senior Notes due November 2017 and $770 million of 5.00% Senior Notes due July 2019. Proceeds from the offering, together with cash on hand, were used to fully extinguish  the Company's 2013 Secured Credit Facility.  As a result, the Company expensed previously incurred costs associated with the secured facility, recording a $22.8 million loss on early extinguishment of debt for the quarter.

"This transaction supports our long-term strategy of becoming primarily an unsecured borrower, which provides us added financial flexibility," said iStar chief financial officer David DiStaso. "Secured debt now represents only 16% of our total debt, down from 49% prior to this refinancing."

The transaction allowed iStar to unencumber $2.0 billion of collateral, primarily comprised of net lease assets and performing loans. Further, it enhances the Company's liquidity profile by enabling iStar to retain 100% of proceeds from asset repayments and sales associated with these previously encumbered assets.

The Company's only remaining secured credit facility is its 2012 Secured Credit Facility. During the quarter, the Company repaid $26.2 million on this facility, bringing the remaining balance to $391.9 million at June 30, 2014.

The Company's weighted average cost of debt for the second quarter was 5.5%, an improvement from 5.6% for the first quarter of 2014. The Company's leverage was 2.1x at June 30, 2014, unchanged from the prior quarter and at the low end of 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.

Investment Activity

During the second quarter, iStar funded a total of $167.1 million of investments, comprised of $117.0 million of new originations and $50.1 million  associated with ongoing developments and prior financing commitments. 

iStar generated $170.2 million of proceeds from its portfolio during the second quarter, which included $115.5 million from repayments and sales of loans within its real estate finance portfolio, $48.0 million from sales of operating properties and $6.7 million of proceeds across other segments.

In addition, the Company recognized $23.4 million of earnings from equity method investments during the second quarter from one of its strategic investments.

At the end of the second quarter, iStar had $356.5 million of cash, which will be used primarily to fund future investment activity.

Portfolio Overview

At June 30, 2014, the Company's portfolio totaled $5.27 billion, which is gross of $443.4 million of accumulated depreciation and $30.6 million of general loan loss reserves.

Real Estate Finance

At June 30, 2014, the Company's real estate finance portfolio totaled $1.49 billion, gross of general loan loss reserves.

The portfolio included $1.39 billion of performing loans with a weighted average last dollar loan-to-value ratio of 71% and a weighted average maturity of 2.4 years. The performing loans included $726.9 million of first mortgages / senior loans and $666.2 million of mezzanine / subordinated debt. The performing loans generated a weighted average effective yield for the quarter of 8.5%, which excludes $5.0 million of income recognized in the second quarter related to the amortization of a discount associated with the pending payoff of a loan.

At June 30, 2014, the Company's non-performing loans (NPLs) had a carrying value of $94.0 million, which represents a 54% reduction from $203.2 million at the end of the first quarter. Resolutions during the quarter included the sales of NPLs for which the Company recognized $19.0 million of gains relative to their carrying value, as well as receipt of title to certain properties. 

For the second quarter, the Company recorded a $2.8 million reversal of its loan loss provision, compared to a provision for loan losses of $5.0 million in the second quarter of 2013. At June 30, 2014, loan loss reserves totaled $137.9 million, or 9.8% of the total value of loans.

Net Lease

At the end of the quarter, iStar's net lease portfolio totaled $1.65 billion, gross of $352.4 million of accumulated depreciation. The Company's net lease portfolio totaled 20 million square feet across 33 states. Occupancy for the portfolio was 94.4% at the end of the quarter, with a weighted average remaining lease term of 11.2 years. The occupied assets generated an unleveraged yield of 8.2% and the total net lease portfolio generated an unleveraged yield of 7.7% for the quarter.

Operating Properties

At the end of the quarter, the Company's operating properties portfolio totaled $992.1 million, gross of $86.7 million of accumulated depreciation, and was comprised of $764.9 million of commercial and $227.2 million of residential real estate properties.  During the quarter, the Company funded $12.8 million of capital expenditures on 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 $28.8 million of revenue offset by $21.1 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 $132.9 million of stabilized commercial operating properties that were 82% leased and generated an unleveraged weighted average yield of 9.0% for the quarter.

The remaining commercial operating properties were 62% leased and generated an unleveraged weighted average yield of 3.1% 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 32,000 square feet.

Residential Operating

At the end of the quarter, the residential operating portfolio was comprised of 584 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 112 condominium units, resulting in $48.0 million of proceeds and recorded $19.7 million of income, offset by $7.8 million of expenses.

Land

At the end of the quarter, the Company's land portfolio totaled $1.00 billion, gross of accumulated depreciation, and was comprised of 11 master planned community projects, 11 urban infill land parcels and six waterfront land parcels located throughout the United States. During the quarter, the Company invested $25.2 million in its land portfolio through capital expenditures.

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. 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 June 30, 2014, the Company had six land projects in production, 10 in development and 12 in the pre-development phase.

During the quarter, the Company contributed a land parcel to a newly formed venture with a Chicago-based developer for the development of 1000 South Clark Street, a new luxury multifamily project in the South Loop of Chicago.  The 469-unit building's convenient location will offer residents access to a wide array of shopping, restaurants, cultural attractions and Chicago's central business district, while at the same time providing a highly-amenitized resort lifestyle.

In Asbury Park, the Company announced that it has received final approval for the K. Hovnanian® project, "South Grand." The project will consist of 28 luxury townhomes, situated directly between the City's urban downtown and the beach. South Grand is the newest residential project in the Asbury Park  Waterfront, and marks another step forward in the rebuilding of this iconic beachfront community along the Jersey shore. iStar has already begun general infrastructure work around the project site, and is expected to start delivering finished townhome lots in the fall.

[Financial Tables to Follow]

*                   *                *

iStar Financial Inc. (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 Inc.

Logo - http://photos.prnewswire.com/prnh/20130708/NY43293LOGO

iStar Financial will hold a quarterly earnings conference call at 10:00 a.m. ET today, July 29, 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
Ended June 30,


Six Months
Ended June 30,


2014



2013



2014



2013


REVENUES












Operating lease income

$

60,967



$

57,112



$

123,075



$

115,128


Interest income

35,127



29,682



63,041



54,349


Other income

29,262



13,125



43,846



24,544


Land sales revenue

4,487





8,630




Total revenues

$

129,843



$

99,919



$

238,592



$

194,021


COST AND EXPENSES












Interest expense

$

56,530



$

69,157



$

113,986



$

140,723


Real estate expense

40,554



36,981



83,167



74,815


Land cost of sales

3,611





7,265




Depreciation and amortization

18,822



17,330



37,435



34,653


General and administrative(1)

26,623



20,876



46,411



42,723


Provision for (recovery of) loan losses

(2,792)



5,020



(6,192)



15,226


Impairment of assets

3,300





6,279




Other expense

4,690



146



4,911



5,770


Total costs and expenses

$

151,338



$

149,510



$

293,262



$

313,910


Income (loss) before earnings from equity method investments and other items

$

(21,495)



$

(49,591)



$

(54,670)



$

(119,889)


Loss on early extinguishment of debt

(23,587)



(15,242)



(24,767)



(24,784)


Earnings from equity method investments

24,093



8,323



27,270



30,001


Income (loss) from continuing operations before income taxes

$

(20,989)



$

(56,510)



$

(52,167)



$

(114,672)


Income tax (expense) benefit

215



(429)



722



(4,504)


Income (loss) from continuing operations

$

(20,774)



$

(56,939)



$

(51,445)



$

(119,176)


Income (loss) from discontinued operations



(57)





1,186


Gain from discontinued operations



8,279





13,323


Income from sales of residential property

17,180



34,319



33,674



58,016


Net income (loss)

$

(3,594)



$

(14,398)



$

(17,771)



$

(46,651)


Net (income) loss attributable to noncontrolling interests

(325)



311



(779)



500


Net income (loss) attributable to iStar Financial Inc.

$

(3,919)



$

(14,087)



$

(18,550)



$

(46,151)


Preferred dividends

(12,830)



(12,780)



(25,660)



(23,360)


Net (income) loss allocable to HPU holders and Participating Security holders(2)

542



866



1,431



2,247


Net income (loss) allocable to common shareholders

$

(16,207)



$

(26,001)



$

(42,779)



$

(67,264)



















(1) For the three months ended June 30, 2014 and 2013, includes $3,196 and $4,719 of stock-based compensation expense, respectively. For the six months ended June 30, 2014 and 2013, includes $5,271 and $9,921 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, restricted stock awards and 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
Ended June 30,


Six Months
Ended June 30,


2014



2013



2014



2013


EPS INFORMATION FOR COMMON SHARES












Income (loss) attributable to iStar Financial Inc. from continuing operations(1)

Basic and diluted

$

(0.19)



$

(0.40)



$

(0.50)



$

(0.95)


Net income (loss) attributable to iStar Financial Inc.












Basic and diluted

$

(0.19)



$

(0.31)



$

(0.50)



$

(0.79)


Adjusted income (loss)












Basic and diluted

$

0.34



$

0.05



$

0.27



$

0.05


Weighted average shares outstanding












Basic and diluted

84,916



85,125



84,868



84,975


Common shares outstanding at end of period

85,153



85,373



85,153



85,373














EPS INFORMATION FOR HPU SHARES












Income (loss) attributable to iStar Financial Inc. from continuing operations(1)

Basic and diluted

$

(36.13)



$

(75.41)



$

(95.40)



$

(181.07)


Net income (loss) attributable to iStar Financial Inc.












Basic and diluted

$

(36.13)



$

(57.74)



$

(95.40)



$

(149.81)


Weighted average shares outstanding












Basic and 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


June 30, 2014


December 31, 2013

ASSETS












Real estate






Real estate, at cost

$

3,184,770



$

3,220,634


Less: accumulated depreciation

(443,380)



(424,453)


Real estate, net

$

2,741,390



$

2,796,181


Real estate available and held for sale

354,814



360,517



$

3,096,204



$

3,156,698


Loans receivable and other lending investments, net

1,456,407



1,370,109


Other investments

241,561



207,209


Cash and cash equivalents

356,513



513,568


Restricted cash

24,147



48,769


Accrued interest and operating lease income receivable, net

14,335



14,941


Deferred operating lease income receivable

97,170



92,737


Deferred expenses and other assets, net

187,148



237,980


Total assets

$

5,473,485



$

5,642,011








LIABILITIES AND EQUITY












Accounts payable, accrued expenses and other liabilities

$

136,850



$

170,831


Debt obligations, net

4,082,511



4,158,125


Total liabilities

$

4,219,361



$

4,328,956








Redeemable noncontrolling interests

$

11,433



$

11,590








Total iStar Financial Inc. shareholders' equity

$

1,186,905



$

1,243,260


Noncontrolling interests

55,786



58,205


Total equity

$

1,242,691



$

1,301,465








Total liabilities and equity

$

5,473,485



$

5,642,011


 

 

 

iStar Financial Inc.






Segment Analysis






(In thousands)






(unaudited)












FOR THE THREE MONTHS ENDED JUNE 30, 2014











Real Estate
Finance


Net
Lease


Operating Properties


Land


Corporate / Other



Total

Operating lease income

$



$

37,674



$

23,117



$

176



$



$

60,967


Interest income

35,127











35,127


Other income

19,043



519



7,874



143



1,683



29,262


Land sales revenues







4,487





4,487


Total revenue

$

54,170



$

38,193



$

30,991



$

4,806



$

1,683



$

129,843


Earnings (loss) from equity method investments



862



731



(151)



22,651



24,093


Income from sales of residential property





17,180







17,180


Revenue and other earnings

$

54,170



$

39,055



$

48,902



$

4,655



$

24,334



$

171,116


Real estate expense



(5,520)



(28,929)



(6,105)





(40,554)


Land cost of sales







(3,611)





(3,611)


Other expense

(303)









(4,387)



(4,690)


Allocated interest expense

(15,858)



(18,009)



(10,229)



(7,294)



(5,140)



(56,530)


Allocated general and administrative(1)

(4,444)



(5,183)



(3,078)



(4,224)



(6,498)



(23,427)


Segment profit (loss)

$

33,565



$

10,343



$

6,666



$

(16,579)



$

8,309



$

42,304


 

AS OF JUNE 30, 2014



















Real Estate
Finance


Net
Lease


Operating Properties


Land


Corporate / Other



Total

Real estate


















Real estate, at cost

$



$

1,611,446



$

744,212



$

829,112



$



$

3,184,770


Less: accumulated depreciation



(352,418)



(86,747)



(4,215)





(443,380)


Real estate, net

$



$

1,259,028



$

657,465



$

824,897



$



$

2,741,390


Real estate available and held for sale





232,771



122,043





354,814


Total real estate

$



$

1,259,028



$

890,236



$

946,940



$



$

3,096,204


Loans receivable and other lending 

investments, net

1,456,407











1,456,407


Other investments



33,740



15,097



49,367



143,357



241,561


Total portfolio assets

$

1,456,407



$

1,292,768



$

905,333



$

996,307



$

143,357



$

4,794,172


Cash and other assets
















679,313


Total assets
















$

5,473,485





















(1) Excludes $3,196 of stock-based compensation expense.

 

 

iStar Financial Inc.

Supplemental Information

(In thousands)

(unaudited)



Three Months
Ended June 30,


Six Months
Ended June 30,


2014



2013



2014



2013


ADJUSTED INCOME












Reconciliation of Net Income to Adjusted Income












Net income (loss) allocable to common shareholders

$

(16,207)



$

(26,001)



$

(42,779)



$

(67,264)


Add: Depreciation and amortization

19,291



17,400



38,187



34,854


Add: Provision for loan losses

(2,792)



5,020



(6,192)



15,226


Add: Impairment of assets

3,300



550



6,279



518


Add: Stock-based compensation expense

3,196



4,719



5,271



9,921


Add: Loss on early extinguishment of debt

23,587



3,728



24,767



13,270


Less: HPU/Participating Security allocation

(1,507)



(1,013)



(2,211)



(2,385)


Adjusted income (loss) allocable to common shareholders(1)

$

28,868



$

4,403



$

23,322



$

4,140


















(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 flows from operating activities (determined in accordance with GAAP) as a measure of the Company's liquidity, nor is it 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 this non-GAAP financial measure may differ from the calculations of similarly-titled measures by other companies. Management believes that it is useful to consider Adjusted Income because the adjustments are non-cash items that do not necessarily reflect an actual change in the long-term economic value or performance of our assets. Management considers this non-GAAP financial measure as supplemental information to net income in analyzing the performance of our underlying business. Depreciation and amortization and impairment of assets exclude adjustments from discontinued operations of $70 and $427, respectively, for the three months ended June 30, 2013 and $201 and $395, respectively, for the six months ended June 30, 2013. Depreciation and amortization includes our proportionate share of depreciation and amortization expense relating to equity method investments and excludes the portion of depreciation and amortization expense allocable to non-controlling interests. For the three and six months ended June 30, 2013, loss on early extinguishment of debt excludes the portion of losses paid in cash of $11,514.

 

 

 

iStar Financial Inc.

Supplemental Information

(In thousands)

(unaudited)



Six Months Ended June

30, 2014

OPERATING STATISTICS






Expense Ratio



General and administrative expenses - annualized (A)

$

92,822


Average total assets (B)

$

5,534,404


Expense Ratio (A) / (B)

1.7

%





As of


June 30, 2014

Leverage



Book debt

$

4,082,511


Less: Cash and cash equivalents

(356,513)


Net book debt (C)

$

3,725,998





Book equity

$

1,242,691


Add: Accumulated depreciation and amortization

494,378


Add: General loan loss reserves

30,600


Sum of book equity, accumulated depreciation and general loan loss reserves (D)

$

1,767,669


Leverage (C) / (D)

2.1x





UNENCUMBERED ASSETS / UNSECURED DEBT






Unencumbered assets (E)(1)

$

5,085,370


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







June 30, 2014

UNFUNDED COMMITMENTS




















Performance-based commitments






$

304,526


Strategic investments






46,362


Discretionary fundings






5,000


Total Unfunded Commitments






$

355,888












LOAN RECEIVABLE CREDIT STATISTICS

As of


June 30, 2014


December 31, 2013











Carrying value of NPLs /










As a percentage of total carrying value of loans

$

93,960


7.4

%


$

203,604


16.6

%











Impaired loan asset specific reserves for loan losses /










As a percentage of gross carrying value of impaired loans(1)

$

107,304


33.3

%


$

348,004


46.3

%











Total reserve for loan losses /










As a percentage of total gross carrying value of loans(1)

$

137,904


9.8

%


$

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 JUNE 30, 2014(1)




















Property Type


Real Estate Finance


Net Lease


Operating Properties


Land


Total


% of

Total

Office / Industrial


$

109



$

967



$

351



$



$

1,427



27.1

%

Land


66







1,000



1,066



20.3

%

Mixed Use / Mixed Collateral


502





242





744



14.1

%

Entertainment / Leisure




475







475



9.0

%

Hotel


254



136



54





444



8.4

%

Retail


176



57



118





351



6.7

%

Condominium


120





227





347



6.6

%

Other Property Types


260



10







270



5.1

%

Strategic Investments










144



2.7

%

Total


$

1,487



$

1,645



$

992



$

1,000



$

5,268



100.0

%




















Geography


Real Estate Finance


Net Lease


Operating Properties


Land


Total


% of
Total

Northeast


$

607



$

375



$

155



$

197



$

1,334



25.4

%

West


89



412



173



359



1,033



19.6

%

Southeast


281



237



287



99



904



17.2

%

Mid-Atlantic


174



177



142



186



679



12.9

%

Southwest


121



220



183



134



658



12.5

%

Central


90



67



49



9



215



4.1

%

Northwest


23



81



3



16



123



2.3

%

International


92









92



1.7

%

Various


10



76







86



1.6

%

Strategic Investments










144



2.7

%

Total


$

1,487



$

1,645



$

992



$

1,000



$

5,268



100.0

%




















(1) Based on carrying value of the Company's total investment portfolio, gross of accumulated depreciation and general loan loss reserves.

 

 

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