UNITED STATES
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
Date of Report (Date of earliest event reported): October 30, 2008
iStar Financial Inc.
(Exact name of registrant as specified in its charter)
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Maryland |
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1-15371 |
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95-6881527 |
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(State or other
jurisdiction of |
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(Commission File |
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(IRS Employer |
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1114
Avenue of the Americas, 39th Floor |
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10036 |
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(Address of principal executive offices) |
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(Zip Code) |
Registrant’s telephone number, including area code: (212) 930-9400
N/A
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
ITEM 2.02 Results of Operations and Financial Condition.
On October 30, 2008, iStar Financial Inc. issued an earnings release announcing its financial results for the third quarter ended September 30, 2008. A copy of the earnings release is attached as Exhibit 99.1 hereto and incorporated herein by reference.
The information in this Current Report, including the exhibit hereto, is being furnished and shall not be deemed “filed” for purposes 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, unless it is specifically incorporated by reference therein.
ITEM 9.01 Financial Statements and Exhibits.
Exhibit 99.1 Earnings Release.
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.
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iSTAR FINANCIAL INC. |
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Date: October 30, 2008 |
By: |
/s/ Jay Sugarman |
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Jay Sugarman |
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Chairman and Chief Executive Officer |
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Date: October 30, 2008 |
By: |
/s/ Catherine D. Rice |
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Catherine D. Rice |
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Chief Financial Officer |
3
EXHIBIT INDEX
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Exhibit |
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Description |
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99.1 |
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Earnings Release. |
4
Exhibit 99.1
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iStar Financial Inc. |
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1114 Avenue of the Americas |
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News Release |
New York, NY 10036 |
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(212) 930-9400 |
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COMPANY CONTACTS |
[NYSE: SFI] |
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Catherine D. Rice |
Andrew G. Backman |
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Chief Financial Officer |
Senior Vice President – Investor Relations |
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iStar Financial Announces Third Quarter 2008 Results
· Total revenues were $341 million; up 5.3% from the prior quarter.
· Company records $411 million of loan loss provision during the quarter.
· Adjusted earnings (loss) for the quarter was ($285.9) million for common shareholders or ($2.15) per diluted common share.
· Net income (loss) allocable to common shareholders was ($305.8) million or ($2.30) per diluted common share for the quarter.
· Company updates full year 2008 adjusted earnings per diluted common share guidance to ($3.50) - ($3.00) and diluted GAAP earnings per share of ($2.50) - ($2.00).
NEW YORK - October 30, 2008 - iStar Financial Inc. (NYSE: SFI), a leading publicly traded finance company focused on the commercial real estate industry, today reported results for the third quarter ended September 30, 2008.
iStar reported adjusted earnings (loss) for the quarter of ($2.15) per diluted common share, compared with $1.07 for the third quarter 2007. Adjusted earnings (loss) allocable to common shareholders for the third quarter 2008 were ($285.9) million, compared with $135.7 million for the third quarter 2007. Adjusted earnings (loss) represent net income computed in accordance with GAAP, adjusted primarily for preferred dividends, depreciation, depletion, amortization, impairments of goodwill and intangible assets, and gain (loss) from discontinued operations.
Net income (loss) allocable to common shareholders for the third quarter was ($305.8) million, or ($2.30) per diluted common share, compared to $93.0 million, or $0.73 per diluted common share for the third quarter 2007. Please see the financial tables that follow the text of this press release for a detailed reconciliation of adjusted earnings to GAAP net income.
Results this quarter included $411.1 million of loan loss provisions, $88.1 million of impairments, $68.3 million of gains associated with the early extinguishment of debt and $20.0 million of gains from the sale of four corporate tenant lease (CTL) assets. Gains on the sale of CTLs are excluded from adjusted earnings, but included in net income.
Net investment income for the quarter was $215.0 million, compared to $220.2 million for the third quarter 2007. Net investment income represents interest income, operating lease income, earnings (loss) from equity method investments and gain (loss) on early extinguishment of debt, less interest expense and operating costs for corporate tenant lease assets.
During the quarter, the Company funded a total of $737.0 million under new and pre-existing commitments and received $678.8 million in gross principal repayments. Of the gross principal repayments, $283.0 million was utilized to pay down the A-participation interest associated with the Fremont portfolio. During the quarter, the Company closed four new financing commitments for a total of $60.8 million, of which it funded $8.6 million.
The
Company’s equity represented 23.4% of total capitalization at quarter end
versus 24.1%
at the end of the prior quarter. The Company’s leverage, calculated as book
debt net of unrestricted cash and cash equivalents, divided by the sum of book
equity, accumulated depreciation and loan loss reserves, each as determined in
accordance with GAAP, was 3.3x at September 30, 2008 versus 3.1x at June 30,
2008.
The Company’s net finance margin, calculated as the rate of return on assets less the cost of debt, was 2.99% for the quarter. Excluding the impact of the amortization of the Fremont portfolio purchase discount, the Company’s net finance margin was 2.74% for the quarter, versus 2.75% in the prior quarter.
As of September 30, 2008, a one percentage point increase in short-term rates, excluding the impact of interest floors in certain loan assets, would have increased the Company’s adjusted earnings by 0.27%, which is consistent with its match funding policy.
Capital Markets
As of September 30, 2008, the Company had $877.7 million of cash and available capacity under $3.7 billion in revolving credit facilities versus $1.4 billion at the end of the prior quarter. The Company is currently in compliance with all of its bank and bond covenants.
During the quarter, the Company repurchased approximately 2.4 million shares of its common stock pursuant to its existing repurchase program. The Company currently has remaining authority to repurchase up to $44.2 million of shares under the previously authorized $50 million share repurchase program.
2
Risk Management
At September 30, 2008, first mortgages, participations in first mortgages, senior loans and corporate tenant lease investments collectively comprised 90.7% of the Company’s asset base, versus 89.2% in the prior quarter. The Company’s loan portfolio consisted of 79.2% floating rate and 20.8% fixed rate loans, with a weighted average maturity of 2.6 years.
The weighted average last dollar loan-to-value ratio for all structured finance assets was 75.0%. At quarter end, the Company’s corporate tenant lease assets were 94.8% leased with a weighted average remaining lease term of 12.0 years. At September 30, 2008, the weighted average risk ratings of the Company’s structured finance and corporate tenant lease assets were 3.41 and 2.55, respectively, versus 3.28 and 2.55, respectively, in the prior quarter.
As of September 30, 2008, 51 of the Company’s 377 total loans were on non-performing loan (NPL) status. These loans represent $2.5 billion or 19.4% of total managed loans, compared to 39 loans representing $1.3 billion or 10.5% of total managed loans in the prior quarter. Managed asset and loan values represent iStar’s book value plus the A-participation interest associated with the Fremont portfolio. The Company’s total managed loan value at quarter end was $12.8 billion. The Company’s policy is to stop the accrual of interest on loans placed on NPL status.
During the quarter, the Company resolved three NPLs with a managed asset value of $71.1 million and sold two NPLs for $38.7 million. The three resolved NPLs are currently performing assets.
At the end of the third quarter, the Company had 29 loans on its watch list representing $1.3 billion or 10.2% of total managed loans, compared to 30 loans representing $1.5 billion or 11.4% of total managed loans in the prior quarter. Assets on the Company’s watch list are all performing loans.
At the end of the third quarter, the Company had 10 assets classified as other real estate owned (OREO) with a book value of $277.2 million. The Company recorded $36.2 million of non-cash impairment charges on five OREO assets. During the quarter, the Company took title to three properties that served as collateral on its loans, resulting in $25.1 million of charge-offs against the Company’s reserve for loan losses. All of the loans were previously on NPL status and had a managed asset value of $81.1 million prior to the Company receiving title to the properties. Of the three assets added to OREO, one asset was sold during the quarter for total net proceeds of $11.5 million, which represented a slight premium to book value.
During the quarter, the Company recorded $51.9 million of non-cash impairment charges associated with five credits in its Corporate Loan and Debt portfolio and its Other Investments.
At September 30, 2008, the Company had $832.7 million in loan loss reserves versus $460.1 million at June 30, 2008. During the third quarter, the Company recorded $411.1 million in loan loss provision, reflecting the severe deterioration in the overall credit markets and its impact on the portfolio as determined in the Company’s regular quarterly risk ratings review process performed following the end of the quarter.
3
The Company’s total loss coverage, defined as the combination of loan loss reserves of $832.7 million and remaining unamortized purchase discount from the Fremont acquisition of $75.6 million, was $908.2 million or 7.1% of total managed loans at the end of the third quarter. This compares to total loss coverage of $554.3 million or 4.3% of total managed loans in the prior quarter.
Summary of Fremont Contributions to Quarterly Results
At the end of the third quarter, the Fremont portfolio, including additional fundings made during the quarter, had a managed asset value of $4.3 billion consisting of 152 loans versus $4.5 billion consisting of 178 loans at the end of the second quarter 2008.
At the end of the third quarter, the value of the A-participation interest in the portfolio was $1.6 billion versus $1.9 billion on June 30, 2008. The book value of iStar’s B-participation interest at the end of the third quarter was $2.7 billion versus $2.6 billion on June 30, 2008. During the quarter, iStar received $404.2 million in principal repayments, of which the Company retained 30%. The balance of principal repayments was paid to the A-participation interest. The weighted average maturity of the Fremont portfolio is nine months.
During the third quarter, iStar funded $275.1 million of commitments related to the portfolio. Unfunded commitments at the end of the third quarter were $0.9 billion, of which the Company expects to fund approximately $0.7 billion based upon its comprehensive review of the portfolio. This compares to unfunded commitments of $1.2 billion at the end of the prior quarter.
At September 30, 2008, there were 29 Fremont loans on NPL status with a managed asset value of $777.8 million versus 26 loans at the prior quarter end, with $683.0 million of managed asset value. In addition, there were 14 loans on the Company’s watch list with a managed asset value of $578.1 million versus 14 loans at the prior quarter end, with $411.8 million of managed asset value.
Earnings Guidance and Dividend Expectations
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.
For fiscal year 2008, the Company expects diluted adjusted earnings per common share of ($3.50) - ($3.00), and diluted GAAP earnings per common share of ($2.50) - ($2.00).
As announced earlier in the quarter, the Company said that it would not pay a third quarter dividend. The Board of Directors will meet at the end of the fourth quarter to consider whether any dividend will be paid for the fourth quarter. Based upon current estimates for taxable income for the full-year 2008, the Company does not expect to pay a dividend for the fourth quarter 2008.
4
[Financial Tables to Follow]
* * *
iStar Financial Inc. is a leading publicly traded finance company focused on the commercial real estate industry. The Company primarily provides custom-tailored investment capital to high-end private and corporate owners of real estate, including senior and mezzanine real estate debt, senior and mezzanine corporate capital, as well as corporate net lease financing and equity. The Company, which is taxed as a real estate investment trust (“REIT”), seeks to deliver strong dividends and superior risk-adjusted returns on equity to shareholders by providing innovative and value added financing solutions to its customers.
iStar Financial will hold a quarterly earnings conference call at 10:00 a.m. ET today, October 30, 2008. 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 timing of receipt of prepayment penalties, 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.)
5
Selected Income Statement Data
(In thousands)
(unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2008 |
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2007 |
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2008 |
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2007 |
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Net investment income (1) |
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$ |
214,985 |
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$ |
220,164 |
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$ |
551,047 |
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$ |
466,306 |
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Other income |
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22,922 |
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19,271 |
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88,707 |
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84,855 |
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Non-interest expense (2) |
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(560,808 |
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(139,439 |
) |
(1,166,776 |
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(266,188 |
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Minority interest in consolidated entities |
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502 |
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(277 |
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1,069 |
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302 |
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Gain on sale of joint venture interest, net of minority interest |
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— |
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— |
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261,659 |
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— |
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Income (loss) from continuing operations |
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(322,399 |
) |
99,719 |
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(264,294 |
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285,275 |
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Income from discontinued operations |
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688 |
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4,880 |
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11,222 |
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15,705 |
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Gain from discontinued operations, net of minority interest |
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19,955 |
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1,045 |
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68,798 |
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7,823 |
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Preferred dividends |
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(10,580 |
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(10,580 |
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(31,740 |
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(31,740 |
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Net income (loss) allocable to common shareholders and HPU holders (3) |
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$ |
(312,336 |
) |
$ |
95,064 |
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$ |
(216,014 |
) |
$ |
277,063 |
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(1) |
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Includes interest income, operating lease income and earnings (loss) from equity method investments, less interest expense, operating costs for corporate tenant lease assets and gain (loss) on early extinguishment of debt. |
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(2) |
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Includes depreciation and amortization, general and administrative expenses, provision for loan losses, impairments and other expenses. |
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(3) |
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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)
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As of |
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As of |
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September 30, 2008 |
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December 31, 2007 |
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(unaudited) |
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Loans and other lending investments, net |
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$ |
10,744,047 |
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$ |
10,949,354 |
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Corporate tenant lease assets, net |
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$ |
3,143,697 |
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$ |
3,309,866 |
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Other investments |
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$ |
527,760 |
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$ |
856,609 |
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Total assets |
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$ |
15,923,976 |
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$ |
15,848,298 |
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Debt obligations |
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$ |
13,060,499 |
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$ |
12,399,558 |
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Total liabilities |
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$ |
13,408,688 |
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$ |
12,894,869 |
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Total shareholders’ equity |
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$ |
2,454,082 |
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$ |
2,899,481 |
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6
iStar Financial Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)
(unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2008 |
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2007 |
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2008 |
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2007 |
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REVENUES |
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Interest income |
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$ |
237,006 |
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$ |
316,829 |
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$ |
748,460 |
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$ |
689,836 |
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Operating lease income |
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81,440 |
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81,859 |
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242,008 |
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237,975 |
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Other income |
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22,922 |
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19,271 |
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88,707 |
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84,855 |
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Total revenues |
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341,368 |
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417,959 |
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1,079,175 |
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1,012,666 |
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COSTS AND EXPENSES |
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Interest expense |
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168,040 |
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173,376 |
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499,131 |
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441,095 |
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Operating costs - corporate tenant lease assets |
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5,647 |
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7,746 |
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15,583 |
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21,555 |
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Depreciation and amortization |
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24,827 |
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23,244 |
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73,973 |
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63,061 |
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General and administrative (1) |
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37,736 |
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51,246 |
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124,516 |
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128,178 |
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Provision for loan losses |
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411,142 |
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62,000 |
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777,302 |
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72,000 |
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Impairments of goodwill |
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— |
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— |
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39,092 |
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— |
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Impairments of other assets |
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88,075 |
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— |
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145,766 |
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— |
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Other expense |
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(972 |
) |
2,949 |
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6,127 |
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2,949 |
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Total costs and expenses |
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734,495 |
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320,561 |
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1,681,490 |
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728,838 |
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Income (loss) from continuing operations before other items |
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(393,127 |
) |
97,398 |
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(602,315 |
) |
283,828 |
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Gain on early extinguishment of debt |
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68,321 |
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— |
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69,916 |
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— |
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Gain on sale of joint venture interest, net of minority interest |
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— |
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— |
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261,659 |
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— |
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Earnings (loss) from equity method investments |
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1,905 |
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2,598 |
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5,377 |
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1,145 |
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Minority interest in consolidated entities |
|
502 |
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(277 |
) |
1,069 |
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302 |
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Income (loss) from continuing operations |
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(322,399 |
) |
99,719 |
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(264,294 |
) |
285,275 |
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Income from discontinued operations |
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688 |
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4,880 |
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11,222 |
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15,705 |
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Gain from discontinued operations, net of minority interest |
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19,955 |
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1,045 |
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68,798 |
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7,823 |
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Net income (loss) |
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(301,756 |
) |
105,644 |
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(184,274 |
) |
308,803 |
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Preferred dividend requirements |
|
(10,580 |
) |
(10,580 |
) |
(31,740 |
) |
(31,740 |
) |
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Net income (loss) allocable to common shareholders and HPU holders |
|
$ |
(312,336 |
) |
$ |
95,064 |
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$ |
(216,014 |
) |
$ |
277,063 |
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Net income (loss) per common share |
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Basic |
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$ |
(2.30 |
) |
$ |
0.74 |
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$ |
(1.58 |
) |
$ |
2.14 |
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Diluted (2) |
|
$ |
(2.30 |
) |
$ |
0.73 |
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$ |
(1.58 |
) |
$ |
2.12 |
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Net income (loss) per HPU share |
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|
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||||
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Basic (3) |
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$ |
(434.47 |
) |
$ |
139.07 |
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$ |
(301.53 |
) |
$ |
404.87 |
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Diluted (2) (4) |
|
$ |
(434.47 |
) |
$ |
138.07 |
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$ |
(301.53 |
) |
$ |
401.47 |
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(1) |
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For the three months ended September 30, 2008 and 2007, includes $4,884 and $3,786 of stock-based compensation expense, respectively. For the nine months ended September 30, 2008 and 2007, includes $17,725 and $12,051 of stock-based compensation expense, respectively. |
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(2) |
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For the three months ended September 30, 2007, includes the allocable share of $29 of joint venture income. For the nine months ended September 30, 2007, includes the allocable share of $85 of joint venture income. |
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(3) |
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For the three months ended September 30, 2008 and 2007, ($6,517) and $2,086 of net income (loss) is allocable to HPU holders, respectively. For the nine months ended September 30, 2008 and 2007, ($4,523) and $6,073 of net income (loss) is allocable to HPU holders, respectively. |
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(4) |
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For the three months ended September 30, 2008 and 2007, ($6,517) and $2,071 of net income (loss) is allocable to HPU holders, respectively. For the nine months ended September 30, 2008 and 2007, ($4,523) and $6,022 of net income (loss) is allocable to HPU holders, respectively. |
7
iStar Financial Inc.
Earnings Per Share Information
(In thousands, except per share amounts)
(unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2008 |
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2007 |
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2008 |
|
2007 |
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EPS INFORMATION FOR COMMON SHARES |
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Income (loss) from continuing operations per common share (1) |
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|
||||
|
Basic |
|
$ |
(2.46 |
) |
$ |
0.69 |
|
$ |
(2.16 |
) |
$ |
1.96 |
|
|
Diluted (2) |
|
$ |
(2.46 |
) |
$ |
0.68 |
|
$ |
(2.16 |
) |
$ |
1.94 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net income (loss) per common share |
|
|
|
|
|
|
|
|
|
||||
|
Basic |
|
$ |
(2.30 |
) |
$ |
0.74 |
|
$ |
(1.58 |
) |
$ |
2.14 |
|
|
Diluted (2) |
|
$ |
(2.30 |
) |
$ |
0.73 |
|
$ |
(1.58 |
) |
$ |
2.12 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
||||
|
Basic |
|
133,199 |
|
126,488 |
|
133,955 |
|
126,644 |
|
||||
|
Diluted |
|
133,199 |
|
127,508 |
|
133,955 |
|
127,782 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
EPS INFORMATION FOR HPU SHARES |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Income (loss) from continuing operations per HPU share (1) |
|
|
|
|
|
|
|
|
|
||||
|
Basic |
|
$ |
(463.13 |
) |
$ |
130.41 |
|
$ |
(412.19 |
) |
$ |
370.54 |
|
|
Diluted (2) |
|
$ |
(463.13 |
) |
$ |
129.47 |
|
$ |
(412.19 |
) |
$ |
367.41 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net income (loss) per HPU share (3) |
|
|
|
|
|
|
|
|
|
||||
|
Basic |
|
$ |
(434.47 |
) |
$ |
139.07 |
|
$ |
(301.53 |
) |
$ |
404.87 |
|
|
Diluted (2) |
|
$ |
(434.47 |
) |
$ |
138.07 |
|
$ |
(301.53 |
) |
$ |
401.47 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Weighted average HPU shares outstanding |
|
|
|
|
|
|
|
|
|
||||
|
Basic |
|
15 |
|
15 |
|
15 |
|
15 |
|
||||
|
Diluted |
|
15 |
|
15 |
|
15 |
|
15 |
|
||||
|
(1) |
|
For the three months ended September 30, 2008 and 2007, excludes preferred dividends of $10,580. For the nine months ended September 30, 2008 and 2007, excludes preferred dividends of $31,740. |
|
|
|
|
|
(2) |
|
For the three months ended September 30, 2007, includes the allocable share of $29 of joint venture income. For the nine months ended September 30, 2007, includes the allocable share of $85 of joint venture income. |
|
|
|
|
|
(3) |
|
As more fully explained in the Company’s quarterly SEC filings, three plans of the Company’s HPU program vested in December 2002, December 2003 and December 2004. Each of the respective plans contain 5 HPU shares. Cumulatively, these 15 shares were entitled to ($6,517) and $2,086 of net income (loss) for the three months ended September 30, 2008 and 2007, respectively, and ($4,523) and $6,073 for the nine months ended September 30, 2008 and 2007, respectively. On a diluted basis, these cumulative 15 shares were entitled to ($6,517) and $2,071 of net income (loss) for the three months ended September 30, 2008 and 2007, respectively, and ($4,523) and $6,022 of net income (loss) for the nine months ended September 30, 2008 and 2007, respectively. |
8
iStar Financial Inc.
Reconciliation of Adjusted Earnings to GAAP Net Income
(In thousands, except per share amounts)
(unaudited)
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
September 30, |
|
September 30, |
|
||||||||
|
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
||||
|
ADJUSTED EARNINGS (1) |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net income (loss) |
|
$ |
(301,756 |
) |
$ |
105,644 |
|
$ |
(184,274 |
) |
$ |
308,803 |
|
|
Add: Depreciation, depletion and amortization |
|
24,448 |
|
25,928 |
|
78,149 |
|
71,172 |
|
||||
|
Add: Joint venture income |
|
— |
|
31 |
|
— |
|
92 |
|
||||
|
Add: Joint venture depreciation, depletion and amortization |
|
1,943 |
|
10,407 |
|
12,513 |
|
30,992 |
|
||||
|
Add: Amortization of deferred financing costs |
|
15,120 |
|
7,065 |
|
33,893 |
|
20,222 |
|
||||
|
Add: Impairments of goodwill and intangible assets |
|
— |
|
— |
|
51,549 |
|
— |
|
||||
|
Less: Hedge ineffectiveness, net |
|
(1,256 |
) |
2,944 |
|
(2,106 |
) |
2,944 |
|
||||
|
Less: Preferred dividends |
|
(10,580 |
) |
(10,580 |
) |
(31,740 |
) |
(31,740 |
) |
||||
|
Less: Gain from discontinued operations, net of minority interest |
|
(19,955 |
) |
(1,045 |
) |
(68,798 |
) |
(7,823 |
) |
||||
|
Less: Gain on sale of joint venture interest, net of minority interest |
|
— |
|
(1,572 |
) |
(261,659 |
) |
(1,572 |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Adjusted earnings (loss) allocable to
common shareholders |
|
|
|
|
|
|
|
|
|
||||
|
Basic |
|
$ |
(292,036 |
) |
$ |
138,791 |
|
$ |
(372,473 |
) |
$ |
392,998 |
|
|
Diluted |
|
$ |
(292,036 |
) |
$ |
138,822 |
|
$ |
(372,473 |
) |
$ |
393,090 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Adjusted earnings (loss) per common share: |
|
|
|
|
|
|
|
|
|
||||
|
Basic (2) |
|
$ |
(2.15 |
) |
$ |
1.07 |
|
$ |
(2.72 |
) |
$ |
3.04 |
|
|
Diluted (3) |
|
$ |
(2.15 |
) |
$ |
1.07 |
|
$ |
(2.72 |
) |
$ |
3.01 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
||||
|
Basic |
|
133,199 |
|
126,488 |
|
133,955 |
|
126,644 |
|
||||
|
Diluted |
|
133,199 |
|
127,508 |
|
133,955 |
|
127,782 |
|
||||
|
Common shares outstanding at end of period: |
|
|
|
|
|
|
|
|
|
||||
|
Basic |
|
132,043 |
|
126,272 |
|
132,043 |
|
126,272 |
|
||||
|
Diluted |
|
132,043 |
|
127,282 |
|
132,043 |
|
127,282 |
|
||||
|
(1) |
Adjusted earnings should be examined in conjunction with net income (loss) as shown in the Consolidated Statements of Operations. Adjusted earnings should not be considered as an alternative to net income (loss) (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 three months ended September 30, 2008 and 2007, excludes ($6,093) and $3,046 of net income (loss) allocable to HPU holders, respectively. For the nine months ended September 30, 2008 and 2007, excludes ($7,754) and $8,615 of net income (loss) allocable to HPU holders, respectively. |
|
|
|
|
(3) |
For the three months ended September 30, 2008 and 2007, excludes ($6,093) and $3,023 of net income (loss) allocable to HPU holders, respectively. For the nine months ended September 30, 2008 and 2007, excludes ($7,754) and $8,542 of net income (loss) allocable to HPU holders, respectively. |
9
iStar Financial Inc.
Consolidated Balance Sheets
(In thousands)
|
|
|
As of |
|
As of |
|
||
|
|
|
September 30, 2008 |
|
December 31, 2007 |
|
||
|
|
|
(unaudited) |
|
|
|
||
|
ASSETS |
|
|
|
|
|
||
|
|
|
|
|
|
|
||
|
Loans and other lending investments, net |
|
$ |
10,744,047 |
|
$ |
10,949,354 |
|
|
Corporate tenant lease assets, net |
|
3,143,697 |
|
3,309,866 |
|
||
|
Other investments |
|
527,760 |
|
856,609 |
|
||
|
Other real estate owned |
|
277,232 |
|
128,558 |
|
||
|
Assets held for sale |
|
3,657 |
|
74,335 |
|
||
|
Cash and cash equivalents |
|
779,472 |
|
104,507 |
|
||
|
Restricted cash |
|
59,329 |
|
32,977 |
|
||
|
Accrued interest and operating lease income receivable |
|
89,200 |
|
121,405 |
|
||
|
Deferred operating lease income receivable |
|
114,748 |
|
102,135 |
|
||
|
Deferred expenses and other assets |
|
180,648 |
|
125,274 |
|
||
|
Goodwill |
|
4,186 |
|
43,278 |
|
||
|
Total assets |
|
$ |
15,923,976 |
|
$ |
15,848,298 |
|
|
|
|
|
|
|
|
||
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
||
|
|
|
|
|
|
|
||
|
Accounts payable, accrued expenses and other liabilities |
|
$ |
348,189 |
|
$ |
495,311 |
|
|
|
|
|
|
|
|
||
|
Debt obligations: |
|
|
|
|
|
||
|
Unsecured senior notes |
|
7,788,210 |
|
7,916,853 |
|
||
|
Unsecured revolving credit facilities |
|
3,184,448 |
|
2,681,174 |
|
||
|
Secured revolving credit facility |
|
350,000 |
|
— |
|
||
|
Interim financing facility |
|
— |
|
1,289,811 |
|
||
|
Secured term loans |
|
1,639,777 |
|
413,682 |
|
||
|
Other debt obligations |
|
98,064 |
|
98,038 |
|
||
|
Total liabilities |
|
13,408,688 |
|
12,894,869 |
|
||
|
|
|
|
|
|
|
||
|
Minority interest in consolidated entities |
|
61,206 |
|
53,948 |
|
||
|
Shareholders’ equity |
|
2,454,082 |
|
2,899,481 |
|
||
|
Total liabilities and shareholders’ equity |
|
$ |
15,923,976 |
|
$ |
15,848,298 |
|
10
iStar Financial Inc.
Supplemental Information
(In thousands)
(unaudited)
PERFORMANCE STATISTICS
|
|
|
Three Months Ended |
|
|
|
|
|
September 30, 2008 |
|
|
|
Net Finance Margin |
|
|
|
|
|
|
|
|
|
|
|
Weighted average GAAP yield of loan and CTL investments |
|
8.44 |
% |
|
|
Less: Cost of debt |
|
5.45 |
% |
|
|
Net Finance Margin (1) |
|
2.99 |
% |
|
|
|
|
|
|
|
|
Net Finance Margin Excluding Amortization of Discount on Fremont Loans |
|
2.74 |
% |
|
|
|
|
|
|
|
|
Return on Average Common Book Equity |
|
|
|
|
|
|
|
|
|
|
|
Average total book equity |
|
$ |
2,675,728 |
|
|
Less: Average book value of preferred equity |
|
(506,176 |
) |
|
|
Average common book equity (A) |
|
$ |
2,169,552 |
|
|
|
|
|
|
|
|
Net income (loss) allocable to common shareholders and HPU holders |
|
$ |
(312,336 |
) |
|
Net income (loss) allocable to common shareholders and HPU holders - Annualized (B) |
|
$ |
(1,249,344 |
) |
|
|
|
|
|
|
|
Return on Average Common Book Equity (B) / (A) |
|
(57.6 |
)% |
|
|
|
|
|
|
|
|
Adjusted basic earnings (loss) allocable to common shareholders and HPU holders (2) |
|
$ |
(292,036 |
) |
|
Adjusted basic earnings (loss) allocable to common shareholders and HPU holders - Annualized (C) |
|
$ |
(1,168,144 |
) |
|
|
|
|
|
|
|
Adjusted Return on Average Common Book Equity (C) / (A) |
|
(53.8 |
)% |
|
|
|
|
|
|
|
|
Expense Ratio |
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses (D) |
|
$ |
37,736 |
|
|
Total revenue (E) |
|
$ |
341,368 |
|
|
|
|
|
|
|
|
Expense Ratio (D) / (E) |
|
11.1 |
% |
|
|
(1) |
Weighted average GAAP yield is the annualized sum of interest income and operating lease income, divided by the sum of average gross corporate tenant lease assets, average loans and other lending investments, average SFAS No. 141 purchase intangibles and average assets held for sale over the period. Cost of debt is the annualized sum of interest expense and operating costs–corporate tenant lease assets, divided by the average gross debt obligations over the period. Operating lease income and operating costs–corporate tenant lease assets exclude SFAS No. 144 adjustments from discontinued operations of $870 and $54, respectively. The Company does not consider net finance margin to be a measure of the Company’s liquidity or cash flows. It is one of several measures that management considers to be an indicator of the profitability of its operations. |
|
|
|
|
(2) |
Adjusted earnings should be examined in conjunction with net income (loss) as shown in the Consolidated Statements of Operations. Adjusted earnings should not be considered as an alternative to net income (loss) (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. |
11
iStar Financial Inc.
Supplemental Information
(In thousands)
(unaudited)
|
|
|
Three Months Ended |
|
|
|
CREDIT STATISTICS |
|
September 30, 2008 |
|
|
|
Book debt, net of unrestricted cash (A) |
|
$ |
12,281,027 |
|
|
|
|
|
|
|
|
Book equity |
|
$ |
2,454,082 |
|
|
Add: Accumulated depreciation and loan loss reserves |
|
1,305,761 |
|
|
|
Sum of book equity, accumulated depreciation and loan loss reserves (B) |
|
$ |
3,759,843 |
|
|
|
|
|
|
|
|
Leverage (1) (A) / (B) |
|
3.3x |
|
|
|
|
|
|
|
|
|
Ratio of Earnings (Loss) to Fixed Charges |
|
(0.9 |
)x |
|
|
|
|
|
|
|
|
Ratio of Earnings (Loss) to Fixed Charges and Preferred Stock Dividends |
|
(0.8 |
)x |
|
|
|
|
|
|
|
|
Interest Coverage |
|
|
|
|
|
|
|
|
|
|
|
EBITDA (2) (C) |
|
$ |
(107,325 |
) |
|
GAAP interest expense (D) |
|
$ |
168,040 |
|
|
|
|
|
|
|
|
EBITDA / GAAP Interest Expense (2) (C) / (D) |
|
(0.6 |
)x |
|
|
|
|
|
|
|
|
Covenant Calculation of Fixed Charge Coverage Ratio (3) |
|
2.4 |
x |
|
|
|
|
|
|
|
|
RECONCILIATION OF NET INCOME TO EBITDA (2) |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(301,756 |
) |
|
Add: GAAP interest expense |
|
168,040 |
|
|
|
Add: Depreciation, depletion and amortization |
|
24,448 |
|
|
|
Add: Joint venture depreciation, depletion and amortization |
|
1,943 |
|
|
|
EBITDA (2) |
|
$ |
(107,325 |
) |
|
(1) |
Leverage is calculated by dividing book debt net of unrestricted cash by the sum of book equity, accumulated depreciation and loan loss reserves. |
|
|
|
|
(2) |
EBITDA should be examined in conjunction with net income (loss) as shown in the Consolidated Statements of Operations. EBITDA should not be considered as an alternative to net income (loss) (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. |
|
|
|
|
(3) |
This measure, which is a trailing twelve-month calculation and excludes the effect of impairment charges and other non-cash items, is consistent with covenant calculations included in the Company’s unsecured credit facilities; therefore, we believe it is a useful measure for investors to consider. |
12
iStar Financial Inc.
Supplemental Information
(In thousands)
(unaudited)
Three Months Ended September 30, 2008
|
|
|
LOANS |
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
Total/ |
|
CORPORATE |
|
|
|
|||||
|
|
|
|
|
Floating |
|
Weighted |
|
TENANT |
|
OTHER |
|
|||||
|
|
|
Fixed Rate |
|
Rate |
|
Average |
|
LEASING |
|
INVESTMENTS |
|
|||||
|
Amount funded |
|
$ |
35,800 |
|
$ |
680,353 |
|
$ |
716,153 |
|
$ |
11,231 |
|
$ |
9,657 |
|
|
Weighted average yield |
|
10.73 |
% |
7.73 |
% |
7.88 |
% |
11.26 |
% |
N/A |
|
|||||
|
Weighted average all-in spread/margin (bps) (1) |
|
843 |
|
408 |
|
429 |
|
N/A |
|
N/A |
|
|||||
|
Weighted average first $ loan-to-value ratio |
|
50.28 |
% |
1.14 |
% |
3.60 |
% |
N/A |
|
N/A |
|
|||||
|
Weighted average last $ loan-to-value ratio |
|
84.46 |
% |
78.13 |
% |
78.44 |
% |
N/A |
|
N/A |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
UNFUNDED COMMITMENTS |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Number of assets with unfunded commitments |
|
|
|
|
|
|
|
|
|
216 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Discretionary commitments |
|
|
|
|
|
|
|
|
|
$ |
423,251 |
|
||||
|
Non-discretionary commitments |
|
|
|
|
|
|
|
|
|
2,866,172 |
|
|||||
|
Total unfunded commitments |
|
|
|
|
|
|
|
|
|
$ |
3,289,423 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Estimated weighted average funding period |
|
|
|
|
|
|
|
Approximately 2.0 years |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
UNENCUMBERED ASSETS / UNSECURED DEBT |
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Unencumbered assets (A) |
|
|
|
|
|
|
|
|
|
$ |
14,041,706 |
|
||||
|
Unsecured debt (B) |
|
|
|
|
|
|
|
|
|
$ |
11,151,264 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Unencumbered Assets / Unsecured Debt (A) / (B) |
|
|
|
|
|
|
|
1.3 |
x |
|||||||
RISK MANAGEMENT STATISTICS
|
|
|
2008 |
|
2007 |
|
||||||
|
(weighted average risk rating) |
|
September 30, |
|
June 30, |
|
March 31, |
|
December 31, |
|
September 30, |
|
|
Structured finance assets (principal risk) |
|
3.41 |
|
3.28 |
|
3.12 |
|
3.07 |
|
2.92 |
|
|
Corporate tenant lease assets |
|
2.55 |
|
2.55 |
|
2.51 |
|
2.50 |
|
2.48 |
|
|
(1) |
Represents spread over base rate LIBOR (floating-rate loans) and interpolated U.S. Treasury rates (fixed-rate loans) during the quarter. |
13
iStar Financial Inc.
Supplemental Information
(In thousands, except per share amounts)
(unaudited)
LOANS AND OTHER LENDING INVESTMENTS CREDIT STATISTICS
|
|
|
As of |
|
||||||||
|
|
|
September 30, 2008 |
|
December 31, 2007 |
|
||||||
|
Value of non-performing loans (1) / |
|
|
|
|
|
|
|
|
|
||
|
As a percentage of total managed loans |
|
$ |
2,477,888 |
|
19.35 |
% |
$ |
1,193,669 |
|
8.71 |
% |
|
Reserve for loan losses / |
|
|
|
|
|
|
|
|
|
||
|
As a percentage of total managed loans |
|
$ |
832,663 |
|
6.50 |
% |
$ |
217,910 |
|
1.59 |
% |
|
As a percentage of non-performing loans (1) |
|
|
|
33.60 |
% |
|
|
18.26 |
% |
||
RECONCILIATION OF DILUTED GAAP EPS GUIDANCE
TO DILUTED ADJUSTED EPS GUIDANCE (2)
|
|
|
Year Ending |
|
|
|
|
December 31, 2008 |
|
|
|
|
|
|
|
Earnings per diluted common share guidance |
|
($2.50) - ($2.00) |
|
|
Less: Gains, depreciation and other adjustments, net |
|
$0.50 - $1.50 |
|
|
Adjusted earnings per diluted common share guidance |
|
($3.50) - ($3.00) |
|
|
(1) |
Non-performing loans include iStar’s book value and the Fremont A-participation interest on the associated assets. |
|
|
|
|
(2) |
Adjusted earnings should be examined in conjunction with net income (loss) as shown in the Consolidated Statements of Operations. Adjusted earnings should not be considered as an alternative to net income (loss) (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. |
14
iStar Financial Inc.
Supplemental Information
(In millions)
(unaudited)
PORTFOLIO STATISTICS September 30, 2008 (1)
|
Security Type |
|
|
|
|
|
|
|
First Mortgages / Senior Loans |
|
$ |
10,644 |
|
67.3 |
% |
|
Corporate Tenant Leases |
|
3,701 |
|
23.4 |
|
|
|
Mezzanine / Subordinated Debt |
|
933 |
|
5.9 |
|
|
|
Other Investments |
|
548 |
|
3.4 |
|
|
|
Total |
|
$ |
15,826 |
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
Collateral Type |
|
|
|
|
|
|
|
Apartment / Residential |
|
$ |
3,893 |
|
24.6 |
% |
|
Land |
|
2,239 |
|
14.1 |
|
|
|
Office (CTL) |
|
1,746 |
|
11.0 |
|
|
|
Industrial / R&D |
|
1,470 |
|
9.3 |
|
|
|
Retail |
|
1,414 |
|
8.9 |
|
|
|
Corporate - Real Estate |
|
1,041 |
|
6.6 |
|
|
|
Entertainment / Leisure |
|
979 |
|
6.2 |
|
|
|
Hotel |
|
949 |
|
6.0 |
|
|
|
Other |
|
861 |
|
5.4 |
|
|
|
Mixed Use / Mixed Collateral |
|
614 |
|
3.9 |
|
|
|
Corporate - Non-Real Estate |
|
372 |
|
2.4 |
|
|
|
Office (Lending) |
|
248 |
|
1.6 |
|
|
|
Total |
|
$ |
15,826 |
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
Collateral Location |
|
|
|
|
|
|
|
West |
|
$ |
3,520 |
|
22.2 |
% |
|
Northeast |
|
2,822 |
|
17.8 |
|
|
|
Southeast |
|
2,717 |
|
17.2 |
|
|
|
Mid-Atlantic |
|
1,672 |
|
10.6 |
|
|
|
Various |
|
1,067 |
|
6.7 |
|
|
|
Central |
|
948 |
|
6.0 |
|
|
|
Southwest |
|
916 |
|
5.8 |
|
|
|
International |
|
867 |
|
5.5 |
|
|
|
South |
|
541 |
|
3.4 |
|
|
|
Northcentral |
|
439 |
|
2.8 |
|
|
|
Northwest |
|
317 |
|
2.0 |
|
|
|
Total |
|
$ |
15,826 |
|
100.0 |
% |
|
(1) |
Figures presented prior to loan loss reserves, accumulated depreciation and impact of Statement of Financial Accounting Standards No. 141, “Business Combinations.” |
15