SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 


 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

 


 

July 22, 2004

(Date of Report (Date of Earliest Event Reported))

 

iSTAR FINANCIAL INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Maryland

 

1-15371

 

95-6881527

(State or Other Jurisdiction
of Incorporation)

 

(Commission
File Number)

 

(IRS Employer
Identification Number)

 

1114 Avenue of the Americas, 27th Floor

 

 

New York, New York

 

10036

(Address of Principal Executive Offices)

 

(Zip Code)

 

(212) 930-9400

(Registrant’s Telephone Number, Including Area Code)

 

 



 

ITEM 7.

Financial Statements, Pro Forma Financial Information and Exhibits

 

 

 

 

99.1

Earnings Release.

 

 

 

ITEM 12.

Results of Operations and Financial Condition

 

The information in this Current Report, including the exhibit hereto, is being furnished and shall not be deemed “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section.  The information in this Current Report shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended.

 

On July 22, 2004, iStar Financial Inc. issued an earnings release announcing its financial results for the quarter ended June 30, 2004.  A copy of the earnings release is attached as Exhibit 99.1.

 

2



 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

 

iSTAR FINANCIAL INC.

 

 

 

 

 

 

 

Date:  July 22, 2004

 

By:

/s/ Jay Sugarman

 

 

 

 

Jay Sugarman

 

 

 

Chairman and Chief Executive Officer

 

 

 

 

 

 

 

 

Date:  July 22, 2004

 

By:

/s/ Catherine D. Rice

 

 

 

 

Catherine D. Rice

 

 

 

Chief Financial Officer

 

3


 

 

 

iStar Financial Inc.

 

1114 Avenue of the Americas

 

New York, NY 10036

News Release

(212) 930-9400

 

COMPANY CONTACTS

 

[NYSE: SFI]

 

Catherine D. Rice

 

Andrew C. Richardson

 

Heather A. Rauch

Chief Financial Officer

 

Executive Vice President – Capital Markets

 

Analyst – Investor Relations

 

 

iStar Financial Announces Record Second Quarter Results

 

 

                  Adjusted earnings per diluted common share increases to $0.87 for second quarter 2004.

 

                  New financing activity during second quarter totals $742.0 million in 17 separate transactions.

 

                  First mortgage and first mortgage participation transactions comprise 74.8% of second quarter financing commitments.

 

                  Cumulative repeat customer volume now exceeds $6 billion.

 

 

NEW YORK July 22, 2004 – iStar Financial Inc. (NYSE: SFI) reported that adjusted earnings for the quarter ended June 30, 2004 were $0.87 per diluted common share, up from $0.80 per diluted common share for the quarter ended June 30, 2003. Adjusted earnings allocable to common shareholders for second quarter 2004 were $97.3 million on a diluted basis, compared to $81.8 million for second quarter 2003. Adjusted earnings represents net income computed in accordance with GAAP, adjusted for joint venture income, preferred dividends, depreciation, amortization and gain (loss) from discontinued operations.

 

Net income allocable to common shareholders for the second quarter was $71.3 million, or $0.64 per diluted common share, compared with $60.0 million, or $0.59 per diluted common share, in the second quarter of 2003. Please see the financial tables which follow the text of this press release for a detailed reconciliation of adjusted earnings to GAAP net income.

 



 

Net investment income for the quarter ended June 30, 2004 increased to a record $105.4 million, up 23.0% from $85.7 million for the second quarter of 2003. Net investment income represents interest income, operating lease income and equity in earnings from joint ventures and unconsolidated subsidiaries, less interest expense and operating costs for corporate tenant lease assets and loss on early extinguishment of debt, in each case as computed in accordance with GAAP.

 

For the quarter ended June 30, 2004, iStar Financial generated returns on average book assets and average common book equity of 5.9% and 19.9%, respectively, while leverage was 1.8x debt to book equity plus accumulated depreciation and loan loss reserves, all as determined in accordance with GAAP.

 

iStar Financial announced that during the second quarter, it closed 17 new financing commitments for a total of $742.0 million, of which $614.3 million was funded during the quarter. In addition, the Company funded $68.6 million under 16 pre-existing commitments and received $394.2 million in principal repayments. The Company’s recent transactions continue to reflect its core business strategy of originating custom-tailored financing transactions for leading corporations and private owners of high-quality commercial real estate assets across the United States.

 

Jay Sugarman, iStar Financial’s chairman and chief executive officer, stated, “During the first six months of 2004, we closed a record $1.7 billion of financing commitments, continuing to lead the commercial real estate finance markets in providing customized and flexible capital to high-end private and corporate owners of real estate. Our eleven year track record of consistently serving our customers with a higher level of expertise and integrity and providing one-call responsiveness throughout the relationship has earned iStar Financial broad recognition as the leading franchise in this market.”

 

Mr. Sugarman continued, “As we discussed last quarter, the commercial real estate sector is experiencing large capital inflows for several reasons, including anticipated continued improvement in macroeconomic and commercial real estate fundamentals, the very strong credit performance of real estate finance through the recent economic recession, and the lack of attractive alternative investment opportunities in other sectors.  In our view, this capital is starting to become overly aggressive in certain markets. Since our investment philosophy has always been to invest our capital where returns are most attractive, we will seek to take capital out of mispriced markets either by negotiating the early repayment of loans, together with significant prepayment penalties, or by selective sales of non-core sale/leaseback facilities.  Because of our leading franchise position and large footprint in most major markets in the U.S., we continue to find attractive opportunities to invest our capital; however, as in the year 2000, asset growth may temporarily slow as we take capital out of what we believe to be overheated markets.”

 

-more-

 

2



 

Selected Income Statement Data

(In thousands)

(unaudited)

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2004

 

2003

 

2004

 

2003

 

 

 

 

 

 

 

 

 

 

 

Net investment income (1)

 

$

105,353

 

$

85,679

 

$

198,469

 

$

171,580

 

Other income

 

9,910

 

8,440

 

21,851

 

12,769

 

Non- interest expense (2)

 

(32,242

)

(25,112

)

(172,185

)

(48,396

)

Net income before minority interest

 

$

83,021

 

$

69,007

 

$

48,135

 

$

135,953

 

 

 

 

 

 

 

 

 

 

 

Minority interest in consolidated entities

 

(128

)

(40

)

(261

)

(79

)

Income from discontinued operations

 

126

 

779

 

(107

)

1,561

 

Gain from discontinued operations

 

 

 

136

 

264

 

Preferred dividend requirements (3)

 

(10,580

)

(9,227

)

(30,180

)

(18,454

)

Net income allocable to common shareholders and HPU holders (4)

 

$

72,439

 

$

60,519

 

$

17,723

 

$

119,245

 

 


(1)          Net investment income for the six months ended June 30, 2004 includes an $11.5 million charge relating to redemption of $110 million of the Company’s 8.75% Senior Notes due 2008.

(2)          Non-interest expense for the six months ended June 30, 2004 includes the Q1’04 CEO, CFO and ACRE Partners compensation charges of $106.9 million.

(3)          Preferred dividend requirements for the six months ended June 30, 2004 includes $9.0 million related to the redemption of the Company’s 9.375% Series B and 9.20% Series C Cumulative Redeemable Preferred Stock.

(4)          HPU holders are Company employees who purchased high performance common stock units under the Company’s High Performance Unit Program.

 

Selected Balance Sheet Data

(In thousands)

 

 

 

As of
June 30, 2004

 

As of
December 31, 2003

 

 

 

(unaudited)

 

 

 

 

 

 

 

 

 

Loans and other lending investments, net

 

$

4,255,005

 

$

3,702,674

 

Corporate tenant lease assets, net

 

2,854,967

 

2,535,885

 

Total assets

 

7,606,431

 

6,660,590

 

Debt obligations

 

4,942,568

 

4,113,732

 

Total liabilities

 

5,099,955

 

4,240,256

 

Total shareholders’ equity

 

2,493,904

 

2,415,228

 

 

3



 

Transaction Volume

 

In the second quarter of 2004, iStar Financial generated $742.0 million in new financing commitments in 17 separate transactions. The Company also funded an additional $68.6 million under 16 pre-existing financing commitments and received $394.2 million in loan repayments. Of the Company’s second quarter financing commitments, 74.8% represented first mortgage and first mortgage participation transactions.

 

During the quarter, the weighted average first dollar and last dollar loan-to-value ratio on new loan commitments was 18.6% and 66.5%, respectively. This ratio represents the average beginning and ending points for the Company’s lending exposure in the aggregate capitalization of the underlying properties or companies it finances. Cumulative repeat customer transactions total $6.1 billion as of June 30, 2004.

 

Mr. Sugarman commented, “This quarter we committed over $742.0 million of capital in a record 17 transactions demonstrating the strength of our franchise.  Increasingly, high-end real estate owners are seeing the value that a flexible balance sheet lender brings to their investments. For the first six months of 2004, we have grown our net assets by $868.5 million, increasing diversification in our nearly $8 billion asset base and building a secure foundation for future growth.”

 

4



 

Capital Markets

 

On July 20, 2004, iStar Financial completed a one-year extension of its $500 million secured revolving credit facility which had an effective maturity date in August 2004. As part of the extension, total capacity under the facility was reduced to $350 million and pricing for certain collateral types was reduced.  Pro forma for the extension, iStar Financial has $2.7 billion of committed credit capacity under its credit facilities, and had $1.1 billion outstanding under its facilities at June 30, 2004.

 

Catherine D. Rice, iStar Financial’s chief financial officer, stated, “This quarter we made significant progress in transitioning our short and intermediate debt capital sources from secured to unsecured.  With the previously-announced completion of an $850 million unsecured credit facility in April, we focused on reducing excess capacity in our secured credit lines. We are funding all of our new origination volume with the unsecured facility and excess working capital while maintaining a prudent level of secured capacity as a backup source of debt capital in the event there are disruptions in the corporate credit markets.”

 

Ms. Rice continued, “By funding new originations on an unsecured basis, we are no longer sharing proprietary information about our investments with our secured lenders. This enables us to more effectively protect intellectual capital from those lenders with whom we compete in certain markets. In addition, our unencumbered asset base is now $4.6 billion, nearly three times larger than the unencumbered base at the beginning of fourth quarter 2003 when we began our transition from secured to unsecured debt funding.”

 

Consistent with the Securities and Exchange Commission’s Regulation FD and Regulation G, iStar Financial comments on earnings expectations within the context of its regular earnings press releases.  Before giving effect to the $127.4 million of first quarter compensation, senior notes and preferred stock redemption charges, the Company reiterates its previously-communicated diluted adjusted earning per share guidance for fiscal year 2004 of $3.40-$3.48 and expects diluted earnings per share of $2.50-$2.60. iStar Financial also expects diluted adjusted and earnings per share for third quarter 2004 of $0.86-$0.88 and $0.63-$0.66, respectively. After giving effect to the first quarter $127.4 million compensation, senior notes and preferred stock redemption charges, iStar Financial expects diluted adjusted and earnings per share of $2.30-$2.38 and $1.40-$1.50 for full year 2004, respectively.

 

Ms. Rice commented, “There continues to be a large supply of inexpensive capital in the commercial real estate markets, and we consequently expect to generate a higher level of prepayments for the remainder of 2004 if the capital markets environment remains the same.  We therefore are forecasting minimal to no net asset growth for the third quarter and are taking advantage of this environment by selectively marketing non-core sale/leaseback assets.  Funds for additional prepayments will come from initial public offerings, asset sales and refinancings. In several cases, our borrowers will owe us substantial prepayment penalties resulting in higher other income offsetting reduced interest income from the repayments. Fourth quarter net asset growth outlook will be largely dependent upon what we see during the next few months.  We will continue to be selective in the transactions that we do, and will maintain lots of “dry powder” for the period when current market excesses will inevitably be reversed.”

 

5



 

Ms. Rice continued, “Our conservative investment discipline and match funding policies are hallmarks of our Company. This has enabled iStar Financial to consistently deliver strong returns to its shareholders and to insulate earnings as much as possible from changes in short- and long-term interest rates. At June 30, 2004, a 100 basis point increase in interest rates would decrease our adjusted earnings by just 1.25% and the weighted average maturity of our assets and liabilities was 6.4 years and 5.3 years, respectively.”

 

As of June 30, 2004, the Company’s loan portfolio consisted of 66% floating rate and 34% fixed rate loans. Approximately 60% of the Company’s floating rate loans have LIBOR floors with a weighted average LIBOR floor of 1.93%. The weighted average GAAP LIBOR margin, inclusive of LIBOR floors, was 5.57%. The weighted average GAAP margin of the Company’s fixed rate loans was 8.26% on a term-adjusted basis.

 

6



 

Risk Management

 

At June 30, 2004, first mortgages, participations in first mortgages, corporate tenant leases and corporate financing transactions collectively comprised 90.4% of the Company’s asset base. The weighted average first and last dollar loan-to-value ratio for all structured finance assets (senior and junior loans) was 23.7% and 67.3%, respectively. As of June 30, 2004 the weighted average debt service coverage for all structured finance assets, based on either actual cash flow or trailing 12-month cash flow through March 31, 2004, was 2.0x.

 

At quarter end, the Company’s corporate tenant lease assets were 95.3% leased with a weighted average remaining lease term of 10.9 years. Corporate tenant lease expirations for the remainder of 2004 represent 1.4% of annualized total revenue for second quarter 2004. At quarter end, 77.2% of the Company’s corporate lease customers were public companies (or subsidiaries of public companies).

 

At June 30, 2004, the weighted average risk ratings of the Company’s structured finance assets was 2.59 for risk of principal loss, compared to last quarter’s rating of 2.62, and 3.15 for performance compared to original underwriting, compared to last quarter’s rating of 3.16. The weighted average risk rating for corporate tenant lease assets was 2.50 at the end of the second quarter, an improvement from the prior quarter’s rating of 2.52.

 

At quarter end, accumulated loan loss reserves and other asset-specific credit protection represented an aggregate of approximately 6.18% of the gross book value of the Company’s loans. In addition, cash deposits, letters of credit, allowances for doubtful accounts and accumulated depreciation relating to corporate tenant lease assets represented 9.81% of the gross book value of the Company’s corporate tenant lease assets at quarter end. At June 30, 2004, the Company’s non-accrual assets represented 0.36% of total assets, compared to 0.55% at March 31, 2004.  At June 30 2004, watch list assets represented 1.00% of total assets, compared to 1.59% at March 31, 2004.

 

Timothy J. O’Connor, iStar Financial’s chief operating officer, stated, “The credit quality of our asset base remains strong and we continue to see improving leasing activity in most markets.  We are taking advantage of aggressively priced commercial real estate capital to selectively sell some non-strategic assets in our sale/leaseback portfolio and redeploy the proceeds into more attractive investment opportunities.”

 

Other Developments

 

On July 1, 2004, iStar Financial declared a regular quarterly cash dividend of $0.6975 per common share for the quarter ended June 30, 2004.  The second quarter 2004 dividend is payable on July 29, 2004 to holders of record on July 15, 2004.

 

*                                              *                                              *

 

7



 

iStar Financial is the leading publicly traded finance company focused on the commercial real estate industry. The Company provides custom-tailored financing to high-end private and corporate owners of real estate nationwide, including senior and junior mortgage debt, senior and mezzanine corporate capital, and corporate net lease financing. The Company, which is taxed as a real estate investment trust, seeks to deliver a strong dividend and superior risk-adjusted returns on equity to shareholders by providing the highest quality financing solutions to its customers.

 

iStar Financial will hold a quarterly earnings conference call at 10:00 a.m. ET today, July 22, 2004. 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 completion of pending investments, continued ability to originate new investments, the mix of originations between structured finance and corporate tenant lease assets, repayment levels, the availability and cost of capital for future investments, competition within the finance and real estate industries, economic conditions, loss experience and other risks detailed from time to time in iStar Financial Inc.’s SEC reports.)

 

Financial Tables to Follow

 

8



 

iStar Financial Inc.

Consolidated Statements of Operations

(In thousands, except per share amounts)

(unaudited)

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2004

 

2003

 

2004

 

2003

 

Revenue:

 

 

 

 

 

 

 

 

 

Interest income

 

$

92,195

 

$

74,079

 

$

175,252

 

$

147,506

 

Operating lease income

 

79,985

 

65,584

 

154,413

 

129,748

 

Other income

 

9,910

 

8,440

 

21,851

 

12,769

 

Total revenue

 

182,090

 

148,103

 

351,516

 

290,023

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Interest expense

 

59,121

 

50,191

 

111,687

 

98,171

 

Operating costs - corporate tenant lease assets

 

5,845

 

3,693

 

11,724

 

7,345

 

Depreciation and amortization

 

17,163

 

13,458

 

33,206

 

26,488

 

General and administrative

 

12,511

 

9,038

 

25,870

 

16,719

 

General and administrative - stock-based compensation expense

 

568

 

866

 

108,109

 

1,689

 

Provision for loan losses

 

2,000

 

1,750

 

5,000

 

3,500

 

Loss on early extinguishment of debt

 

1,006

 

 

13,178

 

 

Total costs and expenses

 

98,214

 

78,996

 

308,774

 

153,912

 

 

 

 

 

 

 

 

 

 

 

Net income before other items

 

83,876

 

69,107

 

42,742

 

136,111

 

Equity in earnings (loss) from joint ventures and unconsolidated subsidiaries

 

(855

)

(100

)

5,393

 

(158

)

Minority interest in consolidated entities

 

(128

)

(40

)

(261

)

(79

)

Income (loss) from discontinued operations

 

126

 

779

 

(107

)

1,561

 

Gain from discontinued operations

 

 

 

136

 

264

 

Net income

 

83,019

 

69,746

 

47,903

 

137,699

 

 

 

 

 

 

 

 

 

 

 

Preferred dividends

 

(10,580

)

(9,227

)

(30,180

)

(18,454

)

 

 

 

 

 

 

 

 

 

 

Net income allocable to common shareholders and HPU holders

 

$

72,439

 

$

60,519

 

$

17,723

 

$

119,245

 

 

 

 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 

 

 

Basic (1)

 

$

0.64

 

$

0.60

 

$

0.16

 

$

1.20

 

Diluted (2) (3)

 

$

0.64

 

$

0.59

 

$

0.16

 

$

1.16

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

110,695

 

99,445

 

109,081

 

98,784

 

Diluted

 

112,246

 

102,389

 

109,793

 

101,647

 

 


(1)          For the three months ended June 30, 2004, and June 30, 2003, excludes $1,163 and $494 of net income allocable to HPU holders, respectively. For the six months ended June 30, 2004 and June 30, 2003, excludes $259 and $979 of net income allocable to HPU holders, respectively.

(2)          For the three months ended June 30, 2004 and June 30, 2003, excludes $1,148 and $481 of net income allocable to HPU holders, respectively. For the six months ended June 30, 2004 and June 30, 2003, excludes $243 and $952 of net income allocable to HPU holders, respectively.

(3)          For the three months ended June 30, 2004 and June 30, 2003, includes $41 and $40 of joint venture income, respectively. For the six months ended June 30, 2004 and June 30, 2003, includes $41 and $79 of joint venture income, respectively.

 

9



 

iStar Financial Inc.

Reconciliation of Adjusted Earnings to GAAP Net Income

(In thousands, except per share amounts)

(unaudited)

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2004

 

2003

 

2004

 

2003

 

 

 

 

 

 

 

 

 

 

 

ADJUSTED EARNINGS: (1)

 

 

 

 

 

 

 

 

 

Net income (2)

 

$

83,019

 

$

69,746

 

$

47,903

 

$

137,699

 

Add: Joint venture income

 

41

 

251

 

41

 

500

 

Add: Depreciation

 

17,081

 

13,711

 

33,019

 

26,983

 

Add: Joint venture depreciation and amortization

 

490

 

982

 

2,022

 

1,994

 

Add: Amortization

 

8,859

 

6,957

 

19,171

 

13,408

 

Less: Preferred dividends (3)

 

(10,580

)

(9,227

)

(30,180

)

(18,454

)

Less: Gain from discontinued operations

 

 

 

(136

)

(264

)

Adjusted earnings allocable to common shareholders and HPU holders:

 

 

 

 

 

 

 

 

 

Basic

 

$

98,869

 

$

82,169

 

$

71,799

 

$

161,366

 

Diluted

 

$

98,910

 

$

82,420

 

$

71,840

 

$

161,866

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted earnings per common share:

 

 

 

 

 

 

 

 

 

Basic: (4)

 

$

0.88

 

$

0.82

 

$

0.65

 

$

1.62

 

Diluted: (5)

 

$

0.87

 

$

0.80

 

$

0.64

 

$

1.58

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

110,695

 

99,445

 

109,081

 

98,784

 

Diluted

 

112,246

 

102,687

 

109,793

 

101,945

 

 

 

 

 

 

 

 

 

 

 

Common shares outstanding at end of period:

 

 

 

 

 

 

 

 

 

Basic

 

111,167

 

100,300

 

111,167

 

100,300

 

Diluted

 

113,019

 

103,541

 

113,019

 

103,541

 

 


(1)          Adjusted earnings should be examined in conjunction with net income as shown in the Consolidated Statements of Operations. Adjusted earnings 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. Rather, adjusted earnings is an additional measure the Company uses to analyze how its business is performing. It should be noted that the Company’s manner of calculating adjusted earnings may differ from the calculations of similarly-titled measures by other companies.

(2)          For the six months ended June 30, 2004, includes the Q1’04 CEO, CFO, and ACRE Partners compensation charges of $106.9 million and the 8.75% Senior Notes due 2008 redemption charge of $11.5 million.

(3)          For the six months ended June 30, 2004, includes $9.0 million relating to redemption of the 9.375% Series B and 9.20% Series C Cumulative Redeemable Preferred Stock in Q1’04.

(4)          For the three months ended June 30, 2004 and June 30, 2003, excludes $1,588 and $671 of net income allocable to HPU holders, respectively.  For the six months ended June 30, 2004 and June 30, 2003, excludes $1,140 and $1,324 of net income allocable to HPU holders, respectively.

(5)          For the three months ended June 30, 2004 and June 30, 2003, excludes $1,567 and $652 of net income allocable to HPU holders, respectively. For the six months ended June 30, 2004 and June 30, 2004 and June 30, 2003, excludes $1,119 and 1,288 of net income allocable to HPU holders, respectively.

 

10



 

iStar Financial Inc.

Consolidated Balance Sheets

(In thousands)

 

 

 

As of
June 30, 2004

 

As of
December 31, 2003

 

 

 

(unaudited)

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Loans and other lending investments, net

 

$

4,255,005

 

$

3,702,674

 

Corporate tenant lease assets, net

 

2,854,967

 

2,535,885

 

Investments in and advances to joint ventures and unconsolidated subsidiaries

 

18,380

 

25,019

 

Assets held for sale

 

51,692

 

24,800

 

Cash and cash equivalents

 

96,073

 

80,090

 

Restricted cash

 

82,625

 

57,665

 

Accrued interest and operating lease income receivable

 

26,689

 

26,076

 

Deferred operating lease income receivable

 

63,412

 

51,447

 

Deferred expenses and other assets

 

157,588

 

156,934

 

Total assets

 

$

7,606,431

 

$

6,660,590

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Accounts payable, accrued expenses and other liabilities

 

$

157,387

 

$

126,524

 

 

 

 

 

 

 

Debt obligations:

 

 

 

 

 

Unsecured senior notes

 

2,042,011

 

1,137,769

 

Unsecured revolving credit facilities

 

783,000

 

130,000

 

Secured revolving credit facilities

 

277,446

 

696,591

 

Secured term loans

 

744,750

 

808,000

 

iStar Asset Receivables secured notes

 

1,095,361

 

1,307,224

 

Other debt obligations

 

 

34,148

 

Total liabilities

 

$

5,099,955

 

$

4,240,256

 

Minority interest in consolidated entities

 

12,572

 

5,106

 

Shareholders’ equity

 

2,493,904

 

2,415,228

 

Total liabilities and shareholders’ equity

 

$

7,606,431

 

$

6,660,590

 

 

11



 

iStar Financial Inc.

Supplemental Information

(In thousands)

 

PERFORMANCE STATISTICS

 

 

 

Three Months Ended
June 30, 2004

 

Return on Average Book Assets

 

 

 

Adjusted basic earnings allocable to common shareholders and HPU holders (1)

 

$

98,869

 

Plus: Preferred dividends

 

10,580

 

Adjusted basic earnings before preferred dividends

 

$

109,449

 

 

 

 

 

Adjusted basic earnings before preferred dividends - Annualized (A)

 

$

437,796

 

Average total book assets (B)

 

$

7,455,639

 

 

 

 

 

Return on average book assets (A) / (B)

 

5.9

%

 

 

 

 

Return on Average Common Book Equity

 

 

 

Adjusted basic earnings allocable to common shareholders and HPU holders (1)

 

$

98,869

 

Adjusted basic earnings allocable to common shareholders and HPU holders - Annualized (C)

 

$

395,476

 

Average total book equity

 

$

2,489,052

 

Less: Average book value of preferred equity

 

(506,176

)

Average common book equity (D)

 

$

1,982,876

 

 

 

 

 

Return on average common book equity (C) / (D)

 

19.9

%

 

 

 

 

Efficiency Ratio

 

 

 

General & administrative expenses

 

$

12,511

 

Plus: General and administrative - stock-based compensation

 

568

 

Total corporate overhead (E)

 

$

13,079

 

 

 

 

 

Total revenue (F)

 

$

182,090

 

 

 

 

 

Efficiency ratio (E) / (F)

 

7.2

%

 

 

 

 

CREDIT STATISTICS

 

 

 

 

 

 

 

Book Debt (A)

 

$

4,942,568

 

 

 

 

 

Book Equity (B)

 

$

2,493,904

 

Plus: Accumulated Depreciation and Loan Loss Reserves

 

253,761

 

 

 

$

2,747,665

 

Sum of Book Equity, Accumulated Depreciation and Loan Loss Reserves (B)

 

 

 

 

 

 

 

Book Debt / Sum of Book Equity, Accumulated Depreciation and Loan Loss Reserves (A)/(B)

 

1.8

x

 

 

 

 

Ratio of earnings to fixed charges

 

2.4

x

 

 

 

 

Ratio of earnings to fixed charges and preferred stock dividends

 

2.0

x

 


(1)          Adjusted earnings should be examined in conjunction with net income as shown in the Consolidated Statements of Operations. Adjusted earnings 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. Rather, adjusted earnings is an additional measure the Company uses to analyze how its business is performing. It should be noted that the Company’s manner of calculating adjusted earnings may differ from the calculations of similarly-titled measures by other companies.

 

12



 

iStar Financial Inc.

Supplemental Information

(In thousands)

(unaudited)

 

CREDIT STATISTICS (cont.)

 

 

 

Three Months Ended
June 30, 2004

 

Interest Coverage

 

 

 

EBITDA (1)  (C)

 

$

159,303

 

GAAP interest expense (D)

 

$

59,121

 

 

 

 

 

EBITDA / GAAP interest expense (C) / (D)

 

2.7

x

 

 

 

 

Fixed Charge Coverage

 

 

 

EBITDA (1)  (C)

 

$

159,303

 

GAAP interest expense

 

$

59,121

 

Plus: Preferred dividends

 

10,580

 

Total GAAP interest expense and preferred dividends (E)

 

$

69,701

 

 

 

 

 

EBITDA / GAAP interest expense and preferred dividends (C) / (E)

 

2.3

x

 

 

 

 

Unencumbered assets

 

$

4,553,995

 

 

 

 

 

RECONCILIATION OF NET INCOME TO EBITDA

 

 

 

 

 

 

 

Net Income

 

$

83,019

 

Add: Interest expense

 

59,121

 

Add: Depreciation and amortization

 

17,163

 

EBITDA (1)

 

$

159,303

 

 


(1)          EBITDA should be examined in conjunction with net income as shown in the Consolidated Statements of Operations. 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 EBITDA may differ from the calculations of similarly-titled measures by other companies.

 

13



 

FINANCING VOLUME SUMMARY STATISTICS

 

 

 

LOAN ORIGINATIONS

 

 

 

Three Months Ended June 30, 2004

 

Fixed Rate

 

Floating
Rate

 

Total/
Weighted
Average

 

CORPORATE
LEASING

 

Amount funded

 

$

90,043

 

$

524,229

 

$

614,273

 

 

Weighted average GAAP yield

 

10.57

%

6.89

%

7.43

%

 

Weighted average all-in spread/margin (basis points) (1)

 

+ 681

 

+ 574

 

 

 

Weighted average first $ loan-to-value ratio

 

10.3

%

20.4

%

18.9

%

 

Weighted average last $ loan-to-value ratio

 

71.8

%

67.1

%

67.8

%

 

 

 

 

 

 

 

 

 

 

 

UNFUNDED COMMITMENTS

 

 

 

 

 

 

 

 

 

Number of loans with unfunded commitments

 

 

 

 

 

 

 

27

 

Discretionary commitments

 

 

 

 

 

 

 

$

265,069

 

Non-discretionary commitments

 

 

 

 

 

 

 

202,505

 

Total unfunded commitments

 

 

 

 

 

 

 

$

467,574

 

Estimated weighted average funding period

 

 

 

 

 

Approximately 1.9 years

 

 


(1)          Based on average quarterly one-month LIBOR (floating-rate loans) and U.S. Treasury rates (fixed-rate loans and corporate leasing transactions) during the quarter.

 

14



 

LOANS AND OTHER LENDING INVESTMENTS CREDIT STATISTICS

 

 

 

Three Months Ended

 

 

 

June 30, 2004

 

March 31, 2004

 

 

 

$

 

%

 

$

 

%

 

Carrying value of loans past due 60 days or more /

 

 

 

 

 

 

 

 

 

As a percentage of loans and other lending investments

 

$

27,526

 

0.64

%

$

27,526

 

0.68

%

 

 

 

 

 

 

 

 

 

 

Reserve for loan losses /

 

 

 

 

 

 

 

 

 

As a percentage of loans and other lending investments

 

$

38,436

 

0.90

%

$

36,436

 

0.91

%

As a percentage of past due 60 days or more

 

 

 

140

%

 

 

132

%

 

RECONCILIATION OF DILUTED ADJUSTED EPS

GUIDANCE TO GAAP DILUTED EPS GUIDANCE (1)

 

Three Months Ended September 30, 2004

 

 

 

GAAP earnings per diluted common share guidance

 

$0.63 - $0.66

 

Add: Depreciation and amortization per diluted common share

 

$0.20 - $0.25

 

Adjusted earnings per diluted common share guidance

 

$0.86 - $0.88

 

 

Year Ended December 31, 2004

 

Before Compensation,
Preferred Stock
and Senior Note
Redemption Charges

 

After Compensation,
Preferred Stock
and Senior Note
Redemption Charges

 

Earnings per diluted common share guidance

 

$2.50 - $2.60

 

$1.40 - $1.50

 

Add: Depreciation and amortization per diluted common share

 

$0.80 - $0.98

 

$0.80 - $0.98

 

Adjusted earnings per diluted common share guidance

 

$3.40 - $3.48

 

$2.30 - $2.38

 

 


(1) Adjusted earnings should be examined in conjunction with net income as shown in the Consolidated Statements of Operations.

Adjusted earnings 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. Rather, adjusted earnings is an additional measure the Company uses to analyze how its business is performing. It should be noted that the Company’s manner of calculating adjusted earnings may differ from the calculations of similarly-titled measures by other companies.

 

15



 

iStar Financial Inc.

Supplemental Information

(In millions)

(unaudited)

 

PORTFOLIO STATISTICS AS OF JUNE 30, 2004 (1)

 

Security Type

 

$

 

%

 

First Mortgages (2)

 

$

3,183

 

42.6

%

Corporate Tenant Leases

 

3,173

 

42.5

 

Corporate/Partnership Loans/Other

 

987

 

13.2

 

Second Mortgages

 

124

 

1.7

 

Total

 

$

7,467

 

100.0

%

 

 

 

 

 

 

Collateral Type

 

$

 

%

 

Office (CTL)

 

$

1,885

 

25.3

%

Industrial/R&D

 

1,175

 

15.7

 

Office (Lending)

 

1,107

 

14.8

 

Hotel (Lending)

 

822

 

11.0

 

Entertainment/Leisure

 

731

 

9.8

 

Mixed Use/Mixed Collateral

 

582

 

7.8

 

Apartment/Residential

 

470

 

6.3

 

Hotel (Investment-Grade CTL)

 

270

 

3.6

 

Retail

 

228

 

3.1

 

Other

 

122

 

1.6

 

Conference Center

 

75

 

1.0

 

Total

 

$

7,467

 

100.0

%

 

 

 

 

 

 

Product Line

 

$

 

%

 

Corporate Tenant Leasing

 

$

3,173

 

42.5

%

Structured Finance

 

2,080

 

27.9

 

Portfolio Finance

 

924

 

12.4

 

Corporate Finance

 

787

 

10.5

 

Loan Acquisition

 

503

 

6.7

 

Total

 

$

7,467

 

100.0

%

 

 

 

 

 

 

Collateral Location

 

$

 

%

 

Northeast

 

$

1,785

 

23.9

%

West

 

1,767

 

23.7

 

Southeast

 

1,018

 

13.6

 

Mid Atlantic

 

799

 

10.7

 

South

 

677

 

9.1

 

Central

 

666

 

8.9

 

North Central

 

261

 

3.5

 

Various

 

199

 

2.7

 

Northwest

 

184

 

2.5

 

Southwest

 

111

 

1.4

 

Total

 

$

7,467

 

100.0

%

 


(1)          Figures presented prior to loan loss reserves, accumulated depreciation and impact of statement of Financial Accounting Standards No. 141 (“SFAS No. 141”) “Business Combinations”.

(2)          Includes $644 million of junior participation interests in first mortgages.

 

-end-

 

16