iStar Financial, Inc. (SFI)

F2Q12 Earnings Call

July 27, 2012 10:00 am ET


Jason Fooks – Vice President of Investor Relations & Marketing

Jay Sugarman – Chairman of the Board & Chief Executive Officer

David DiStaso – Chief Financial Officer


Michael Kim – CRT Capital Group

Joshua Barber – Stifel Nicolaus & Company, Inc.

Amanda Lynam – Goldman Sachs

[Jonathan Fleman – Numerist Securities]



Welcome to iStar Financial’s second quarter 2012 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, Vice President of Investor Relations and Marketing.

Jason Fooks

Thank you for joining us today to review iStar Financial’s second quarter 2012 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 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 254611.

Before I turn the call over to Jay, I’d like to remind everyone that statements in this earnings call that 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 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 Sugarman

During the second quarter we delivered on two of our main objectives: continuing to pay down significant amounts of debt; and accessing the unsecured markets for the new issue while continuing to work on the portfolio. Successful sales in the net lease and residential portfolio were offset by increased provisions in Europe and impairments of vacant office assets that are proving difficult to release to single tenants.

We continue to make slow progress in transitioning non-earning assets into a position where they can be more productive but this remains a key challenge as we move forward. Our earnings reflected these trends with a net loss of just under $60 million. For the quarter excluding primarily depreciation and provisions impairments, adjusted net income for the quarter was closer to breakeven coming in at a $2 million loss or a little under $0.02 a share.

Liquidities remain solid with sales, repayments, and our return to the unsecured market enabling us to end the quarter with over $700 million in cash and in good shape to repay our remaining 2012 debt maturities. Repayment of our two secured facilities have both exceeded projections and as a result each of the 2011 and 2012 secured facilities have delevered nicely.

With respect to the asset side of the balance sheet we continue to evaluate opportunities to deploy capital in the portfolio while simultaneously looking to take advantage of the strong bid for many of our assets when it makes since. But standing on the availability and cost of our capital, we should be able to ramp up our investment activity once our leverage levels reach our long term target levels.

With that quick update, let me turn it over to Dave for more of the details.

David DiStaso

I’ll begin by discussing our financial results for the second quarter 2012 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 $59 million or a loss of $0.70 per diluted common share compared to a net loss of $36 million or $0.38 per diluted common share for the second quarter 2011. Results in the prior year included the benefit of $26 million of interest income associated with the favorable resolutions of two NPLs.

The year-over-year decrease was also due to lower revenue from a smaller overall asset base and higher provisions for loan losses and impairments. This was partially offset by increased gains from discontinued operations and income from sales of residential property as well as a reduction in general administrative costs.

Adjusted income for the quarter was approximately breakeven with the loss of $1 million compared to a loss of $2 million for the same quarter last year. Adjusted income represents net income calculated in accordance with GAAP prior to the effects of depreciation, long loss provisions and impairments, stock based compensations, and gains on our early extinguishment of debt, all of which are non-cash items.

Adjusted EBITDA for the second quarter was $107 million compared to $103 million for the same period last year. The year-over-year improvement was due to increased gains from discontinued operations and income from sales of residential property as well as a reduction in general and administrative costs partially offset by lower revenue from a smaller asset base.

As we previously announced, during the quarter we issued $275 million of 9% senior unsecured notes due 2017. Proceeds from the new issuance will be used to refinance unsecured debt maturing in 2012. During the second quarter we retired a total of $640 million of debt, specifically we repaid $90 million of our 5.5% senior unsecured notes due June 2012 and repurchased $192 million of our senior convertible notes due October 2012 at a small discount.

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