iStar Financial, Inc. ( SFI)

Q4 2010 Earnings Call

February 24, 2011 10:00 AM ET

Executives

Jason Fooks – IR

Jay Sugarman – Chairman and CEO

David DiStaso – CFO

Analysts

Michael Kim – CRT

Joshua Barber – Stifel Nicolaus

Presentation

Operator

Ladies and gentlemen, good day and welcome to iStar Financial’s Fourth Quarter and Fiscal Year 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 like to turn the conference over to Jason Fooks of iStar Financial Investor Relations and Marketing. Please go ahead, sir.

Jason Fooks

Thank you, John and good morning everyone. Thank you for joining us today to review iStar Financial’s fourth quarter and fiscal year 2010 earnings report. With me today are Jay Sugarman, Chairman and Chief Executive Officer and David DiStaso, our Chief Financial 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 p.m. Eastern Time today. The dial-in for the replay is 1800-475-6701 with a confirmation code of 192269.

Before I turn the call over to Jay, I’d like to remind everyone that statements in this earnings call, which are not historical facts, 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 more fully stated 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, Jason. Overall, the fourth quarter finished up the year in which iStar made good progress towards its goal of simplifying its capital structure, streamlining its portfolio and moving past many of the challenges of the real estate downturn by retiring large amounts of debt while protecting shareholder equity, we brought leverage down to a relatively comfortable level, enhanced our balance sheet strength and set ourselves up to refinance our 2011 and 2012 debt maturities prior to the end of the first quarter. And that process is now underway, and Dave and I will give an update later in this call.

First, let me recap where the fourth quarter and full year results came in. The fourth quarter adjusted earnings were negative $0.42 per share, primarily due to provisions and the large number of assets that have no GAAP income associated with them yet. We continue to work hard to try to get those investments back in a position where they can contribute positively to earnings and have begun to see some success in this area, though much more work remains to be done.

Full year earnings included gains and losses were positive, but adjusted earnings per share excluding the gains remained negative at a $2.33 per share loss. We expect the impact of gains and loss provisions to decline throughout 2011 relative to prior years but to remain a part of the story for the next several quarters.

On the liquidity front, principal and proceeds inflows were steady and added to the significant repayment and monetizations completed earlier in the year. For the full year, we generated just under $5 billion in capital from the portfolio and used the bulk of that capital for debt reduction and a smaller amount to fund new and existing investments.

This capped a 3.5 year period, in which iStar paid off almost $22 billion in obligations and demonstrated the strength and flexibility inherent in its diversified portfolio during the worst of the downturn.

The $22 billion in obligations retired included some $6 billion related to the Fremont transaction, $8 billion in other secured and unsecured debt and over $8 billion in funding obligations related to the portfolio.

On the credit front, we saw positive movements in the commercial real estate market reflected in a better trend in our risk ratings with the numbers modestly improving after an extended of generally worsening metrics. We also saw a number of watch-list loans become safer and exit the watch-list. One important note is that this quarter we will be giving risk ratings on both a gross basis and a net basis for those loans where we have taken a specific reserve.

In many cases, net of the specific reserves already charged to the P&L and balance sheet, these loans represent attractive investments at significant discounts to their initial values and should enjoy increasing values as the markets recover.

And with that update, let me turn it over to Dave for more of the details. Dave?

David DiStaso

Thanks, Jay, and good morning, everyone. I’ll begin by discussing our financial results for the fourth quarter and fiscal year before moving to investment activity and credit quality, and I’ll end with an update on liquidity.

For the quarter, we reported a net loss of $67 million or $0.73 per common share compared to a loss of $159 million or $1.65 per common share for the fourth quarter 2009.

Adjusted earnings were a loss of $38 million for the quarter or $0.42 per common share compared to a loss of $142 million or $1.47 per common share for the fourth quarter 2009. Results included a significantly lower provision for loan losses and impairment of assets during the fourth quarter of $58 million versus $281 million for the same period last year.

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