IStar Financial CEO Discusses Q1 2011 Results - Earnings Call Transcript

iStar Financial Inc. ( SFI)

Q1 2011 Earnings Call

April 28, 2011 10:00 am ET

Executives

Jason Fooks – Investor Relations

Jay Sugarman – Chairman and Chief Executive Officer

David M. DiStaso – Chief Financial Officer

Analysts

Michael Kim – CRT Capital Group

Joshua A. Barber – Stifel Nicolaus

Timothy Davis – Knight Capital

David Chiaverini – BMO Capital Markets

Presentation

Operator

Good day, ladies and gentlemen and welcome to the iStar Financial’s First Quarter 2011 Earnings Conference Call. (Operator instructions) As a reminder, today’s conference is being recorded.

At this time for opening remarks and introductions, I’d 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 First Quarter 2011 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 Web site 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 199117.

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 Financials 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 obligations to update these forward-looking statements except as expressly or 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. The first quarter was an important one for iStar, continued progress and streamlining the portfolio and deleveraging the balance sheet enabled us to successfully refinance our 2011 and 2012 secured bank loans, enhance our tangible book value and position us to focus on maximizing the value of our multi-strategy platform, an $8 billion portfolio.

We also saw continued improvement in various credit measures, though the overall market primary recovery remained uneven. With the refinancing complete and the stabilized parts of our portfolio performing well, we are working diligently to resolve and reposition our underperforming assets and find new appropriate ways to maximize their value. This will be a major focus for the foreseeable future.

Taking a quick look at first quarter results. Net income of $67 million or $0.71 per share for the quarter was boosted by a large one-time gain and helped position our book equity up about $13 per share. The increased cost of the new financing facility will have an impact on earnings going forward. And we hope as we demonstrate the strength and repayment profile of secured portfolio that we can bring that cost down in the future. On the capital flow front, we limited discretionary monetizations with cash on hand and the refinancing taking care of the bulk of the near-term secured maturities.

During 2011, we expect to pursue lower levels of assets and note sales unless we believe values can be fully realized through these sales. Repayments are still like with outpaced new investments by a good margin and we use those excess proceeds to continue strengthening the balance sheet from further deleveraging.

On the credit front, we saw lower provisions and better ratings on the performing loan portfolio as positive trends outweighed isolated negative events. The provision numbers are trended better for a while now and while we expect some bumpiness the trend should remain better than last year. With that quick update, let me turn it over to Dave for more of the details. Dave?

David M. DiStaso

Thanks Jay, and good morning everyone. I'll begin by discussing our financial results for the first quarter 2011 before moving to investment activity and credit quality, and I’ll end with an update on liquidity.

For the quarter, we reported net income of $67.4 million or $0.71 per diluted common share compared to a loss of $25.4 million or $0.27 per diluted common share for the first quarter of 2010. Results this quarter included the recognition of a $107 million net gain on early extinguishment of debt, primarily resulting from the redemption of the remaining $312 million, principal amount of 10% senior secured notes due 2014. This compares to a $39 million net gain for the same period last year.

We also recorded lower provisions for loan losses and impairment of assets during the first quarter of $12.3 million versus $95.4 million for the same period last year. Also as we previously announced, during the quarter we completed a new $2.95 billion secured credit facility to refinance the secured debt that was due in 2011 and 2012, as well as paid down our unsecured credit facility due in June by $175 million. I'll discuss this transaction in more detail shortly.

Adjusted EBITDA for the first quarter was $94.9 million compared to $173.2 million for the same period last year. The year-over-year decrease is primarily due to low revenues from a small overall asset base resulting from loan payments and sales, as well as the sale of the portfolio of net REHI assets during the second quarter last year. The decrease was partially offset by increased earnings from equity method investments.

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