iStar Financial Inc. ( SFI)

Q3 2011 Earnings Call

October 27, 2011 10:00 am ET

Executives

Jason Fooks – Investor Relations and Marketing

Jay Sugarman – Chairman of the Board, Chief Executive Officer

David M. DiStaso – Chief Financial Officer

Analysts

Joshua Barber – Stifel Nicolaus & Company, Inc.

Michael Kim – CRT Capital Group LLC

Amanda Lynam – Goldman Sachs Group

Usman Waheed – PSAM

Ryan Butkus – Citigroup, Inc.

Presentation

Operator

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

Jason Fooks

Thanks, John, and good morning everyone. Thank you for joining us today to review iStar Financial’s Third 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 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 220031.

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 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 and thanks to those of you joining us on our call this morning. The third quarter results were impacted by both the weakening in the macroeconomic environment and our continued efforts to reposition the portfolio and streamline the balance sheet. We continue to pay down debt at a steady pace and we took advantage of week market conditions to repurchase approximately 13% of our outstanding shares during the quarter. And while the net effect of those actions help build our adjusted book value, we continue to see losses on the income statement from increased interest cost, ongoing provisions and impairments and a large number of assets not yet generating reportable income.

So for the third quarter, earnings came in at a negative $62 million and adjusted EBITDA came in at a positive $83 million. Provisions and impairments were mostly offset by our previously deferred gains with a lack of income from the $2.6 billion of OREO and NPL assets. We continue to make it difficult to boost those numbers until a meaningful percentage of those assets start contributing.

Liquidity remains solid with over $200 million in cash at the end of the quarter and approximately $350 million projected at the end of October. This projected cash balance was helped by the recently announced sale of most of our interests, the general partner of Oak Hill Advisors, the large corporate credit manager, which we have partnered with in 2005. With a strong relationship with Oak Hill in place in an ongoing investment and several Oak Hill fund, we look forward to continuing to benefit from their strong presence and expertise in the credit market while being able to redeploy the capital we’ve had invested in the parent company. We also saw a steady repayments in the rest of the loan portfolio with approximately $270 million coming in during the quarter.

On the other side of the ledger, we have been adding investments in our existing portfolio, situations where the returns seem attractive, funding a little over $50 million using primarily recycle proceeds from sales in our OREO book. On the credit metrics, we saw an overall risk ratings and credit provisions remain in the similar range to the last quarter, though a weakening economy during the third quarter gives us some pause that the refinancing prospects of some of our borrowers in the near-term.

Lastly on the balance sheet; we’ve got our total debt down below $6 billion, split pretty evenly between secured and unsecured debt, and it’s continued to try to protect book value. As I mentioned, we were pleased to able to acquire a significant portion of the outstanding shares of our company at a price below $6.50 per share, a significant discount to the $15 adjusted book value at quarter-end, which adds back general reserves and depreciation since January of 2010.

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 third quarter 2011 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 $62 million or a loss of $0.71 per diluted common share compared to a net loss of $84 million or a loss of $0.89 per diluted common share for the third quarter of 2010. The year-over-year improvement was due to a lower loan loss provision and impairments of $19 million versus $84 million in the same period last year, as well as a $22 million gain from discontinued operations, which we previously deferred as part of our net lease portfolio sale in the second quarter of last year. This was partially offset by decrease in revenue from $133.3 million in the same period last year to $97 million in this quarter and also higher interest expenses.

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