iStar Financial Announces First Quarter 2014 Results

-- Adjusted income (loss) allocable to common shareholders for the first quarter 2014 was $(5.5) million, or $(0.07) per diluted common share.

-- Funded $229 million of investments during the quarter.

-- Achieved key milestones on certain land projects in Los Angeles, New York and Florida.

News provided by

iStar Financial Inc.

Apr 29, 2014, 07:00 ET

NEW YORK, April 29, 2014 /PRNewswire/ -- iStar Financial Inc. (NYSE: STAR) today reported results for the first quarter ended March 31, 2014.

First Quarter 2014 Results

iStar reported adjusted income (loss) allocable to common shareholders for the first quarter of $(5.5) million, or $(0.07) per diluted common share, compared to $(0.3) million, or $0.00 per diluted common share for the first 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 first quarter was $(26.6) million, or $(0.31) per diluted common share, compared to $(41.3) million, or $(0.49) per diluted common share for the first quarter 2013.

Capital Markets

During the quarter, the Company repaid $46.0 million on its 2013 Secured Credit Facility, reducing the remaining balance to $1.33 billion. At the end of the quarter, the Company's collateral coverage on the facility exceeded 1.375x. So long as coverage is above 1.375x, the Company retains 50% of proceeds from principal repayments and sales of collateral, in addition to retaining all interest and lease income. The Company also repaid $13.3 million on its 2012 Secured Credit Facility, bringing the remaining balance to $418.1 million at March 31, 2014.

The Company's weighted average effective cost of debt for the first quarter was 5.6%, a decrease from 5.7% for the fourth quarter of 2013. The Company's leverage was 2.1x at March 31, 2014, up slightly from 2.0x at December 31, 2013, 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 first quarter, iStar funded $180.8 million of new investments. This includes the previously announced project in Times Square in which iStar committed to provide 50% of an $815 million debt financing for the development of a mixed-use project that will include a 40-story EDITION branded hotel, retail space and prominent signage. In addition, the Company invested $48.7 million associated with ongoing developments and prior commitments. 

iStar generated $267.7 million of proceeds from its portfolio during the first quarter, comprised of $102.9 million from repayments and sales of loans in its real estate finance portfolio, $76.0 million from sales of net lease assets, $47.7 million from sales of operating properties and $41.1 million of proceeds across other segments.

At the end of the quarter, iStar had $409.6 million of cash, which will be used primarily to fund future investment activity.

Portfolio Overview

At March 31, 2014, the Company's total portfolio had a gross carrying value of $5.19 billion, which represents the Company's carrying value, gross of $433.1 million of accumulated depreciation and $31.0 million of general loan loss reserves.

Real Estate Finance

At March 31, 2014, the Company's real estate finance portfolio totaled $1.51 billion, gross of general loan loss reserves.

The portfolio included $1.30 billion of performing loans with a weighted average last dollar loan-to-value ratio of 70% and a weighted average maturity of 2.8 years. The performing loans included $659.5 million of first mortgages / senior loans and $644.8 million of mezzanine / subordinated debt. The performing loans generated a weighted average effective yield for the quarter of 8.6%.

At March 31, 2014, the Company's non-performing loans (NPLs) had a carrying value of $203.2 million, consistent with the end of the prior quarter.

For the first quarter, the Company recorded a $3.4 million reversal of its loan loss provision, compared to a provision for loan losses of $10.2 million in the first quarter of 2013. At March 31, 2014, loan loss reserves totaled $370.1 million, or 21.9% of the total gross carrying value of loans.

Net Lease

At the end of the quarter, iStar's net lease portfolio had a gross carrying value of $1.64 billion, gross of $343.3 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 11.4 years. The occupied assets generated an unleveraged weighted average effective yield of 8.0% on gross carrying value and the total net lease portfolio generated an unleveraged weighted average effective yield of 7.5% on gross carrying value for the quarter.

As previously announced, during the quarter the Company and a sovereign wealth fund entered into a venture to jointly invest in net lease assets. The net lease venture's first investment is a property net leased to AT&T, which was acquired by the venture during the first quarter.

Operating Properties

At the end of the quarter, the Company's operating properties portfolio totaled $946.8 million, gross of $86.2 million of accumulated depreciation, and was comprised of $746.9 million of commercial and $199.9 million of residential real estate properties.  During the quarter, the Company funded $16.4 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 $34.2 million of revenue offset by $22.3 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 $131.5 million of stabilized commercial operating properties that were 86% leased and generated an unleveraged weighted average effective yield of 8.3% on gross carrying value for the quarter.

The remaining commercial operating properties were 61% leased and generated an unleveraged weighted average effective yield of 3.1% on gross carrying value 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 184,000 square feet.

Residential Operating

At the end of the quarter, the residential operating portfolio was comprised of 521 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 96 condominium units, resulting in $47.7 million of proceeds and recorded $17.9 million of income, offset by $6.3 million of expenses. 

Land

At the end of the quarter, the Company's land portfolio totaling $972.9 million, gross of accumulated depreciation, was comprised of 11 master planned community projects, 10 urban infill land parcels and six waterfront land parcels located throughout the United States. During the quarter, the Company invested $15.1 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 more than 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 March 31, 2014, the Company had six land projects in production, 10 in development and 11 in the pre-development phase. Highlights of recent progress include:

  • Received final entitlement approval at Ponte Vista, a master planned community in San Pedro, CA. The project becomes one of only a handful of master planned communities in supply-constrained Los Angeles. The plans will transform the existing 61.5 acres into a high-quality lifestyle community with up to 700 new single-family homes, townhomes and condominiums including significant community amenities and green space.
  • Signed a lot purchase agreement with a national homebuilder, covering 300 of the 1,154 lots at Naples Reserve, a master planned community in Naples, FL. The community's centerpiece is a 50-acre recreational lake and extensive waterscape. Current expectations are to develop and deliver initial finished lots by early next year.
  • Successfully expanded the entitlements for Wayfarer, a waterfront high-rise multifamily tower in Long Beach, NY. The new plans will allow iStar to increase the total project size to 522 condominiums. This is the first development of this magnitude to be built on Long Island in over 30 years.
  • Began construction of the second phase of Sage, a condominium development consisting of 72 two- and three-bedroom units in Scottsdale, AZ. This follows iStar's successful sell-out of phase one's 50 units in mid-2012.

Annual Meeting

The Company will host its Annual Meeting of Shareholders at the Sofitel Hotel, located at 45 West 44th Street, 2nd Floor, Trocadero Room, New York, New York 10036 on Thursday, May 22, 2014 at 9:00 a.m. EDT. All shareholders are cordially invited to attend.

[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.

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

iStar Financial will hold a quarterly earnings conference call at 10:00 a.m. ET today, April 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
March 31,

2014

2013

REVENUES


Operating lease income

$

62,108

$

58,015

Interest income

27,914

24,667

Other income

14,584

11,393

Land sales revenue

4,143

—

Total revenues

$

108,749

$

94,075

COST AND EXPENSES


Interest expense

$

57,456

$

71,566

Real estate expense

42,613

37,808

Land cost of sales

3,654

—

Depreciation and amortization

18,613

17,324

General and administrative(1)

19,788

21,848

Provision for (recovery of) loan losses

(3,400)

10,206

Impairment of assets

2,979

—

Other expense

221

5,625

Total costs and expenses

$

141,924

$

164,377

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

$

(33,175)

$

(70,302)

Loss on early extinguishment of debt

(1,180)

(9,541)

Earnings from equity method investments

3,177

21,678

Income (loss) from continuing operations before income taxes

$

(31,178)

$

(58,165)

Income tax (expense) benefit

507

(4,075)

Income (loss) from continuing operations

$

(30,671)

$

(62,240)

Income (loss) from discontinued operations

—

1,246

Gain from discontinued operations

—

5,044

Income from sales of residential property

16,494

23,697

Net income (loss)

$

(14,177)

$

(32,253)

Net (income) loss attributable to noncontrolling interests

(454)

189

Net income (loss) attributable to iStar Financial Inc.

$

(14,631)

$

(32,064)

Preferred dividends

(12,830)

(10,580)

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

889

1,381

Net income (loss) allocable to common shareholders

$

(26,572)

$

(41,263)




(1) For the three months ended March 31, 2014 and 2013, includes $2,075 and $5,202 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
March 31,

2014

2013

EPS INFORMATION FOR COMMON SHARES


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




Basic and diluted

$

(0.31)

$

(0.56)

Net income (loss) attributable to iStar Financial Inc.


Basic and diluted

$

(0.31)

$

(0.49)

Adjusted income (loss)


Basic and diluted

$

(0.07)

$

—

Weighted average shares outstanding


Basic and diluted

84,819

84,824

Common shares outstanding at end of period

84,855

85,052




EPS INFORMATION FOR HPU SHARES


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




Basic and diluted

$

(59.27)

$

(105.61)

Net income (loss) attributable to iStar Financial Inc.


Basic and diluted

$

(59.27)

$

(92.07)

Weighted average shares outstanding


Basic and diluted

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

March 31, 2014

December 31, 2013

ASSETS






Real estate


Real estate, at cost

$

3,147,119

$

3,220,634

Less: accumulated depreciation

(433,149)

(424,453)

Real estate, net

$

2,713,970

$

2,796,181

Real estate available and held for sale

334,691

360,517

$

3,048,661

$

3,156,698

Loans receivable and other lending investments, net

1,476,490

1,370,109

Other investments

205,097

207,209

Cash and cash equivalents

409,598

513,568

Restricted cash

50,593

48,769

Accrued interest and operating lease income receivable, net

15,745

14,941

Deferred operating lease income receivable

94,911

92,737

Deferred expenses and other assets, net

186,620

237,980

Total assets

$

5,487,715

$

5,642,011




LIABILITIES AND EQUITY






Accounts payable, accrued expenses and other liabilities

$

112,195

$

170,831

Debt obligations, net

4,102,050

4,158,125

Total liabilities

$

4,214,245

$

4,328,956




Redeemable noncontrolling interests

$

11,353

$

11,590




Total iStar Financial Inc. shareholders' equity

$

1,205,569

$

1,243,260

Noncontrolling interests

56,548

58,205

Total equity

$

1,262,117

$

1,301,465




Total liabilities and equity

$

5,487,715

$

5,642,011

iStar Financial Inc.

Segment Analysis

(In thousands)

(unaudited)

FOR THE THREE MONTHS ENDED MARCH 31, 2014









Real Estate
Finance

Net
Lease

Operating Properties

Land

Corporate / Other


Total

Operating lease income

$

—

$

38,881

$

23,001

$

226

$

—

$

62,108

Interest income

27,914

—

—

—

—

27,914

Other income

399

214

12,666

226

1,079

14,584

Land sales revenues

—

—

—

4,143

—

4,143

Total revenue

$

28,313

$

39,095

$

35,667

$

4,595

$

1,079

$

108,749

Earnings (loss) from equity
method investments

—

286

217

(258)

2,932

3,177

Income from sales of residential
property

—

—

16,494

—

—

16,494

Revenue and other earnings

$

28,313

$

39,381

$

52,378

$

4,337

$

4,011

$

128,420

Real estate expense

—

(5,674)

(28,614)

(8,325)

—

(42,613)

Land cost of sales

—

—

—

(3,654)

—

(3,654)

Other expense

(430)

—

—

—

209

(221)

Allocated interest expense

(15,452)

(18,610)

(10,259)

(7,159)

(5,976)

(57,456)

Allocated general and
administrative(1)

(3,090)

(3,799)

(2,189)

(3,049)

(5,586)

(17,713)

Segment profit (loss)

$

9,341

$

11,298

$

11,316

$

(17,850)

$

(7,342)

$

6,763

AS OF MARCH 31, 2014

















Real Estate
Finance

Net
Lease

Operating Properties

Land

Corporate / Other


Total

Real estate










Real estate, at cost

$

—

$

1,611,246

$

726,356

$

809,517

$

—

$

3,147,119

Less: accumulated
depreciation

—

(343,294)

(86,173)

(3,682)

—

(433,149)

Real estate, net

$

—

$

1,267,952

$

640,183

$

805,835

$

—

$

2,713,970

Real estate available and
held for sale

—

—

204,653

130,038

—

334,691

Total real estate

$

—

$

1,267,952

$

844,836

$

935,873

$

—

$

3,048,661

Loans receivable and other
lending investments, net

1,476,490

—

—

—

—

1,476,490

Other investments

—

33,441

15,794

33,312

122,550

205,097

Total portfolio assets

$

1,476,490

$

1,301,393

$

860,630

$

969,185

$

122,550

$

4,730,248

Cash and other assets














757,467

Total assets














$

5,487,715











(1) Excludes $2,075 of stock-based compensation expense.

iStar Financial Inc.

Supplemental Information

(In thousands)

(unaudited)


Three Months Ended
March 31,

2014

2013

ADJUSTED INCOME


Reconciliation of Net Income to Adjusted Income


Net income (loss) allocable to common shareholders

$

(26,572)

$

(41,263)

Add: Depreciation and amortization

18,895

17,454

Add: Provision for loan losses

(3,400)

10,206

Add: Impairment of assets

2,979

(32)

Add: Stock-based compensation expense

2,075

5,202

Add: Loss on early extinguishment of debt

1,180

9,541

Less: HPU/Participating Security allocation

(703)

(1,372)

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

$

(5,546)

$

(264)




(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 $130 and $(32), respectively, for the three months ended March 31, 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.

iStar Financial Inc.

Supplemental Information

(In thousands)

(unaudited)


Three Months Ended
March 31, 2014

OPERATING STATISTICS


Expense Ratio

General and administrative expenses - annualized (A)

$

79,152

Average total assets (B)

$

5,564,863

Expense Ratio (A) / (B)

1.4 %



As of

March 31, 2014

Leverage

Book debt

$

4,102,050

Less: Cash and cash equivalents

(409,598)

Net book debt (C)

$

3,692,452


Book equity

$

1,262,117

Add: Accumulated depreciation and amortization

479,896

Add: General loan loss reserves

31,000

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

$

1,773,013

Leverage (C) / (D)

2.1x


UNENCUMBERED ASSETS / UNSECURED DEBT


Unencumbered assets (E)(1)

$

3,221,573

Unsecured debt (F)

$

2,106,890

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






March 31, 2014

UNFUNDED COMMITMENTS


















Performance-based commitments




$

284,774

Strategic investments




46,382

Total Unfunded Commitments




$

331,156










LOAN RECEIVABLE CREDIT STATISTICS

As of

March 31, 2014

December 31, 2013










Carrying value of NPLs /








As a percentage of total carrying value of loans

$

203,174

15.4

%

$

203,604

16.6

%










Impaired loan asset specific reserves for loan losses /








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

$

339,076

49.3

%

$

348,004

46.3

%










Total reserve for loan losses /








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

$

370,076

21.9

%

$

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 MARCH 31, 2014(1)



















Property Type

Real Estate Finance

Net Lease

Operating Properties

Land

Total

% of

Total

Land

$

96

$

—

$

—

$

973

$

1,069

20.6

%

Office

10

432

296

—

738

14.2

%

Industrial / R&D

105

534

52

—

691

13.3

%

Mixed Use / Mixed Collateral

417

—

169

—

586

11.3

%

Entertainment / Leisure

78

475

—

—

553

10.6

%

Hotel

250

136

100

—

486

9.4

%

Retail

196

57

130

—

383

7.4

%

Condominium

98

—

200

—

298

5.7

%

Other Property Types

257

10

—

—

267

5.1

%

Strategic Investments

—

—

—

—

123

2.4

%

Total

$

1,507

$

1,644

$

947

$

973

$

5,194

100.0

%



















Geography

Real Estate Finance

Net Lease

Operating Properties

Land

Total

% of
Total

Northeast

$

579

$

374

$

154

$

194

$

1,301

25.0

%

West

141

412

182

352

1,087

20.9

%

Southeast

263

237

224

90

814

15.7

%

Mid-Atlantic

172

177

154

182

685

13.2

%

Southwest

119

220

181

127

647

12.5

%

Central

88

67

48

10

213

4.1

%

Northwest

24

81

4

18

127

2.4

%

International

111

—

—

—

111

2.1

%

Various

10

76

—

—

86

1.7

%

Strategic Investments

—

—

—

—

123

2.4

%

Total

$

1,507

$

1,644

$

947

$

973

$

5,194

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.

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