iStar Financial Inc. (SFI)

Q2 2010 Earnings Call

August 03, 2010 10:00 am ET

Executives

Andrew Backman - SVP of IR and Marketing

Jay Sugerman - Chairman and CEO

David DiStaso - CAO

Analysts

Don Fandetti - Citigroup

Michael Kim - CRT

James Shanahan - Wells Fargo

Joshua Barber - Stifel Nicolaus

Presentation

Operator

Good day and welcome to iStar Financial Second Quarter 2010 Earnings Conference Call. (Operator Instructions), as a reminder today's conference is being recorded. At this time for opening remarks and introductions, I would now like to turn the conference over to iStar Financial's Senior Vice President of Investor Relations and Marketing, Mr. Andrew Backman please go ahead sir.

Andrew Backman

Thank you Rochelle and good morning everyone. Thank you for joining us today to review, iStar Financial's Second Quarter 2010 earnings report. With me today are Jay Sugerman, Chairman and Chief Executive Officer; and David DiStaso our Chief Accounting Officer.

This morning’s call is being webcast on our website at istarfinancial.com in the Investor Relations section. There will be a replay of the call beginning at 12:30 pm Eastern Time today. The dial-in for the replay is 1-800-475-6701 with a confirmation code of 164196.

Before I turn the call over to Jay, I would like to remind everyone that statements in this earnings call, which are not historical fact's, will be forward-looking. iStar Financial's actual results may differ materially from these forward-looking statements and the risk factors that could cause these differences are detailed in our SEC reports.

In addition, as stated more fully in our SEC reports, iStar disclaims any intent or obligation to update these forward-looking statements except as expressly required by law.

Now, I’d like to turn the call over to iStar’s Chairman and CEO, Jay Sugarman. Jay?

Jay Sugarman

Thanks Andy, our second quarter was another one of hard work and steady progress on a number of fronts, offset by a less than robust macro economy challenging asset workouts and a continued need to realign asset and liability maturities more appropriately.

We made good progress in our ongoing efforts to create a stronger balance sheet and a more flexible operating profile, with the closing of a $1.35 billion sale of a diversified portfolio credit tenant lease asset.

The sale in conjunction with continued loan repayments from borrowers, individual asset sales and fewer funding commitments allowed us to pay down debt, reduce leverage, solidify book value and improve many of our operating metrics.

Progress on the asset side was more mix, with the macro economic pause, we saw in the latter parts of the second quarter slowing some of the asset resolutions we expected following the first quarter.

Our real estate capital markets continue to recover, we remain cautions on a speed at which values uncertain of our more difficult assets will recover and many asset resolutions will continue to take material amounts of time and effort with less than certain outcomes.

Let me touch quickly on the second quarter results. Earnings continued to be impacted by increased provisions and continued high levels of non-performing assets, partially offset by gains on debt repurchases.

Adjusted earnings per share were negative $0.89 per share, primarily due to provisions that remain stubbornly high. Leverage came down nicely as we repaid almost $1.8 billion in debt and increased our book value by several $100 million. Tangible net worth, UAUD and other operating metrics all improved as well.

And our operating profile continued to be solid with repayments easily exceeding funding and unrestricted cash at quarter end in excess of $0.5 billion. However, the debt maturities in 2011 and 2012 remain an obvious concern that we are focused on. And I’ll give a brief update on that after Dave gives you all the numbers. Dave.

Dave DiStaso

Thanks Jay and good morning everyone. I’ll begin by discussing our financial results for the second quarter before moving to credit quality and liquidity. For the quarter we reported net income of $212 million or $2.27 per common share. Earnings this quarter included $250 million gain associated with our previously announced portfolio sale of 32 corporate tenant lease, or CTL properties.

Adjusted earnings, which excludes gains from the portfolio sale and other discontinued operations was a loss of $83 million for the quarter, or a loss of $0.89 cents per common share.

Revenues for the second quarter were $137 million versus $193 million for the same period last year. The year-over-year decrease is primarily due to a reduction of interest income, as a result of performing loans moving to non-performing status and to a lesser extent of smaller asset base resulting from loan repayments and sales.

Net investment income for the quarter was $130 million versus $276 million for the second quarter 2009. The year-over-year decrease is primarily due to smaller gains associated with the early extinguishment of debt as well as the lower interest income I previously mentioned somewhat offset by a decrease in interest expense and increased earnings from equity method investments.

You may recall that in the second quarter last year we completed a bond exchange that generated $108 million of net gains upon closing of the transaction. During the second quarter we funded a $131 million under preexisting commitments in addition as part of the CTL portfolio sale we provided a $106 million mezzanine loan to the buyer, of which $25 million was repaid subsequent to quarter end.

During the quarter we received $1.3 billion of proceeds from the CTL portfolio sale, $592 million in gross proceeds from loan repayments and loan sales and we generated a $144 million of proceeds from OREO as well as other CTL sales.

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