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 NEW YORK, July29, 2014 /PRNewswire/ --iStar Financial Inc. (NYSE: STAR) today reported results for the second quarter ended June30, 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 June30, 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 June30, 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 June30, 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 June30, 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 June30, 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 June30, 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 June30, 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. (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. 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, July29, 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 Six Months Ended June 30, 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 18,822 17,330 37,435 34,653 amortization General and 26,623 20,876 46,411 42,723 administrative^(1) Provision for (recovery of) loan (2,792) 5,020 (6,192) 15,226 losses Impairment of assets 3,300 — 6,279 — Other expense 4,690 146 4,911 5,770 Total costs and $ 151,338 $ 149,510 $ 293,262 $ 313,910 expenses Income (loss) before earnings from equity $ (21,495) $ (49,591) $ (54,670) $ (119,889) method investments and other items Loss on early (23,587) (15,242) (24,767) (24,784) extinguishment of debt Earnings from equity 24,093 8,323 27,270 30,001 method investments Income (loss) from continuing operations $ (20,989) $ (56,510) $ (52,167) $ (114,672) before income taxes Income tax (expense) 215 (429) 722 (4,504) benefit Income (loss) from $ (20,774) $ (56,939) $ (51,445) $ (119,176) continuing operations Income (loss) from discontinued — (57) — 1,186 operations Gain from discontinued — 8,279 — 13,323 operations Income from sales of 17,180 34,319 33,674 58,016 residential property Net income (loss) $ (3,594) $ (14,398) $ (17,771) $ (46,651) Net (income) loss attributable to (325) 311 (779) 500 noncontrolling interests Net income (loss) attributable to iStar $ (3,919) $ (14,087) $ (18,550) $ (46,151) FinancialInc. Preferred dividends (12,830) (12,780) (25,660) (23,360) Net (income) loss allocable to HPU holders and 542 866 1,431 2,247 Participating Security holders^(2) Net income (loss) allocable to common $ (16,207) $ (26,001) $ (42,779) $ (67,264) shareholders (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 Six Months Ended June 30, 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 85,153 85,373 85,153 85,373 period 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 1,456,407 1,370,109 investments, net 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 14,335 14,941 receivable, net 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 $ 136,850 $ 170,831 liabilities 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 FinancialInc. shareholders' $ 1,186,905 $ 1,243,260 equity 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 Net Operating Corporate Estate Lease Properties Land / Other Total Finance Operating lease $ — $ 37,674 $ 23,117 $ 176 $ — $ 60,967 income Interest income 35,127 — — — — 35,127 Other income 19,043 519 7,874 143 1,683 29,262 Land sales — — — 4,487 — 4,487 revenues Total revenue $ 54,170 $ 38,193 $ 30,991 $ 4,806 $ 1,683 $ 129,843 Earnings (loss) from equity method — 862 731 (151) 22,651 24,093 investments Income from sales of residential — — 17,180 — — 17,180 property Revenue and other $ 54,170 $ 39,055 $ 48,902 $ 4,655 $ 24,334 $ 171,116 earnings Real estate — (5,520) (28,929) (6,105) — (40,554) expense Land cost of sales — — — (3,611) — (3,611) Other expense (303) — — — (4,387) (4,690) Allocated interest (15,858) (18,009) (10,229) (7,294) (5,140) (56,530) expense Allocated general and (4,444) (5,183) (3,078) (4,224) (6,498) (23,427) administrative^(1) Segment profit $ 33,565 $ 10,343 $ 6,666 $ (16,579) $ 8,309 $ 42,304 (loss) AS OF JUNE 30, 2014 Real Estate Net Operating Land Corporate Total Finance Lease Properties / Other Real estate Real estate, $ — $ 1,611,446 $ 744,212 $ 829,112 $ — $ 3,184,770 at cost Less: accumulated — (352,418) (86,747) (4,215) — (443,380) depreciation Real estate, $ — $ 1,259,028 $ 657,465 $ 824,897 $ — $ 2,741,390 net Real estate available — — 232,771 122,043 — 354,814 and held for sale Total real $ — $ 1,259,028 $ 890,236 $ 946,940 $ — $ 3,096,204 estate Loans receivable and other lending 1,456,407 — — — — 1,456,407 investments, net Other — 33,740 15,097 49,367 143,357 241,561 investments Total portfolio $ 1,456,407 $ 1,292,768 $ 905,333 $ 996,307 $ 143,357 $ 4,794,172 assets Cash and 679,313 other assets Total assets $ 5,473,485 (1) Excludes $3,196 of stock-based compensation expense. iStar Financial Inc. Supplemental Information (In thousands) (unaudited) Three Months Six Months Ended June 30, Ended June 30, 2014 2013 2014 2013 ADJUSTED INCOME Reconciliation of Net Income to Adjusted Income Net income (loss) allocable to common $ (16,207) $ (26,001) $ (42,779) $ (67,264) shareholders Add: Depreciation 19,291 17,400 38,187 34,854 and amortization Add: Provision for (2,792) 5,020 (6,192) 15,226 loan losses Add: Impairment of 3,300 550 6,279 518 assets Add: Stock-based compensation 3,196 4,719 5,271 9,921 expense Add: Loss on early extinguishment of 23,587 3,728 24,767 13,270 debt Less: HPU/Participating (1,507) (1,013) (2,211) (2,385) Security allocation Adjusted income (loss) allocable to $ 28,868 $ 4,403 $ 23,322 $ 4,140 common shareholders^(1) (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 $ 92,822 (A) 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 $ 1,767,669 general loan loss reserves (D) 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 $ 93,960 7.4 % $ 203,604 16.6 % of loans Impaired loan asset specific reserves for loan losses / As a percentage of gross carrying value $ 107,304 33.3 % $ 348,004 46.3 % of impaired loans^(1) Total reserve for loan losses / As a percentage of total gross carrying $ 137,904 9.8 % $ 377,204 23.5 % value of loans^(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 JUNE 30, 2014^(1) Real Net Operating % of Property Type Estate Lease Properties Land Total Finance Total Office / $ 109 $ 967 $ 351 $ — $ 1,427 27.1 % Industrial Land 66 — — 1,000 1,066 20.3 % Mixed Use / Mixed 502 — 242 — 744 14.1 % Collateral Entertainment / — 475 — — 475 9.0 % Leisure Hotel 254 136 54 — 444 8.4 % Retail 176 57 118 — 351 6.7 % Condominium 120 — 227 — 347 6.6 % Other Property 260 10 — — 270 5.1 % Types Strategic — — — — 144 2.7 % Investments Total $ 1,487 $ 1,645 $ 992 $ 1,000 $ 5,268 100.0 % Real Net Operating % of Geography Estate Lease Properties Land Total Total Finance 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 — — — — 144 2.7 % Investments 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. SOURCE iStar Financial Inc. Website: http://www.istarfinancial.com Contact: David M. DiStaso, Chief Financial Officer, or Jason Fooks, Investor Relations, (212) 930-9400, firstname.lastname@example.org
iStar Financial Announces Second Quarter 2014 Results
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