Oct. 30, 2009 (PR Newswire) --

NEW YORK, Oct. 30 /PRNewswire-FirstCall/ -- iStar Financial Inc. (NYSE: SFI), a leading publicly traded finance company focused on the commercial real estate industry, today reported results for the third quarter ended September 30, 2009.

iStar reported adjusted earnings (loss) allocable to common shareholders for the third quarter of ($234.2) million or ($2.37) per diluted common share, compared with ($287.2) million or ($2.16) per diluted common share for the third quarter 2008. Adjusted earnings (loss) represents net income (loss) computed in accordance with GAAP, adjusted primarily for preferred dividends, depreciation, depletion, amortization, impairments of goodwill and intangible assets, gain (loss) from discontinued operations, and gain on sale of joint venture interest.

Net income (loss) allocable to common shareholders for the third quarter was ($251.3) million, or ($2.55) per diluted common share, compared to ($308.7) million or ($2.32) per diluted common share for the third quarter 2008. Please see the financial tables that follow the text of this press release for a detailed reconciliation of adjusted earnings (loss) to GAAP net income (loss).

Revenues for the third quarter 2009 were $210.2 million versus $337.3 million for the third quarter 2008. The year-over-year decrease is primarily due to a reduction of interest income resulting from an increase in non-performing loans (NPLs), an overall smaller asset base and lower interest rates.

Net investment income for the quarter was $180.2 million compared to $209.7 million for the third quarter 2008. The year-over-year decrease is primarily due to lower interest income as discussed above, offset by lower interest expense and increased gains on early extinguishment of debt. Net investment income represents interest income, operating lease income, earnings (loss) from equity method investments and gain on early extinguishment of debt, less interest expense and operating costs for corporate tenant lease assets.

During the quarter, the Company received $403.6 million in gross principal repayments. Additionally, the Company generated proceeds of $182.4 million from loan sales; $22.0 million of net proceeds from the sale of three corporate tenant lease (CTL) assets; and $25.9 million of net proceeds from other real estate owned (OREO) asset sales. Of the gross principal repayments and asset sales, $192.0 million was utilized to pay down the A-participation interest associated with the Fremont portfolio. Additionally during the quarter, the Company funded a total of $283.1 million under pre-existing commitments.

The Company's leverage, calculated as book debt net of unrestricted cash and cash equivalents, divided by the sum of book equity, accumulated depreciation and loan loss reserves, each as determined in accordance with GAAP, was 2.9x at September 30, 2009, versus 2.8x at June 30, 2009. The Company's net finance margin, calculated as the rate of return on assets less the cost of debt, was 1.51% for the quarter, versus 1.48% in the prior quarter.

Capital Markets

As of September 30, 2009, the Company had $187.1 million of unrestricted cash and available capacity on its credit facilities versus $417.4 million at the end of the prior quarter. At September 30, 2009, the Company was in compliance with all of its bank and bond covenants.

During the quarter, the Company repaid its LIBOR + 0.34% senior unsecured notes due September 2009.

During the quarter, the Company repurchased $255.5 million par value of its senior unsecured notes, resulting in a net gain on early extinguishment of debt of $91.7 million. The Company also repurchased 2.2 million shares of its common stock during the quarter. The Company currently has remaining authority to repurchase up to $29.5 million of shares under its share repurchase programs.

Risk Management

At September 30, 2009, first mortgages, participations in first mortgages, senior loans and corporate tenant lease investments collectively comprised 87.0% of the Company's asset base, versus 91.0% in the prior quarter. The Company's loan portfolio consisted of 78.3% floating rate loans and 21.7% fixed rate loans, with a weighted average maturity of 2.0 years.

At the end of the quarter, the weighted average last dollar loan-to-value ratio for all structured finance assets was 83.6%. The Company's corporate tenant lease assets were 94.1% leased with a weighted average remaining lease term of 11.2 years. At September 30, 2009, the weighted average risk ratings of the Company's structured finance and corporate tenant lease assets were 3.91 and 2.60, versus 3.90 and 2.59, respectively, in the prior quarter.

As of September 30, 2009, the Company had 26 loans on its watch list representing $1.2 billion or 11.3% of total managed loans, compared to 28 loans representing $1.2 billion or 10.4% of total managed loans in the prior quarter. Assets on the Company's watch list were all performing loans at September 30, 2009. Managed asset and loan values represent iStar's book value plus the A-participation interest associated with the Fremont portfolio. The Company's total managed loan value at quarter end was $10.5 billion.

At the end of the third quarter, 85 of the Company's 260 total loans were on NPL status. These loans represent $4.4 billion or 42.0% of total managed loans, compared to 90 loans representing $4.6 billion or 39.6% of total managed loans in the prior quarter.

Additionally, during the quarter the Company took title to 15 properties that had an aggregate gross loan value of $826.5 million prior to foreclosure, resulting in $266.3 million of charge-offs against the Company's reserve for loan losses and recorded $8.0 million of additional impairments on its OREO and REHI portfolios.

At the end of the quarter, the Company held 29 assets, representing a book value of $920.1 million, which had previously served as collateral on its loans. Of these assets, $584.5 million were classified as OREO and considered held for sale based on management's current intention to market and sell the assets in the near term. The remaining $335.6 million were classified as Real Estate Held for Investment (REHI) based on management's current strategy to hold, operate or develop these assets over a longer period.

During the quarter, the Company also charged-off $58.8 million against its reserve for loan losses associated with restructurings, loan sales and repayments during the quarter. Additionally, the Company recorded $8.9 million of non-cash impairment charges associated with the sales and pending sales of CTL assets, as well as $9.3 million of non-cash impairment charges associated with other assets.

During the third quarter, the Company recorded $345.9 million in loan loss provisions. Provisions in the quarter reflect the continued deterioration in the overall credit markets and its impact on the portfolio as determined in the Company's regular quarterly risk ratings review process. At September 30, 2009, the Company had loan loss reserves of $1.5 billion or 14.2% of total managed loans. This compares to loan loss reserves of $1.5 billion or 12.6% of total managed loans at June 30, 2009.

Summary of Fremont Contributions to Quarterly Results

At the end of the third quarter, the Fremont portfolio, including additional fundings made during the quarter, had a managed loan value of $3.1 billion consisting of 103 loans, versus $3.6 billion consisting of 122 loans at the end of the prior quarter. In addition, there were 10 OREO assets with a managed asset value of $182.4 million and six REHI assets with a managed asset value of $170.7 million associated with the Fremont portfolio at the end of the quarter.

At the end of the third quarter, the value of the A-participation interest in the portfolio was $672.9 million versus $865.6 million at the end of the prior quarter. The book value of iStar's B-participation interest was $2.4 billion versus $2.7 billion at the end of the prior quarter. During the quarter, iStar received $274.1 million in principal repayments and proceeds from asset sales in respect of Fremont assets, of which the Company retained $82.1 million. The balance of principal repayments was paid to the A-participation interest. The weighted average maturity of the Fremont portfolio is six months.

During the third quarter, iStar funded $70.2 million of commitments related to the portfolio. Unfunded commitments at the end of the third quarter were $0.3 billion, of which the Company expects to fund approximately $0.1 billion based upon its comprehensive review of the portfolio.

At September 30, 2009, there were 45 Fremont loans on NPL status with a managed loan value of $1.8 billion versus 51 loans at the prior quarter end, with $2.0 billion of managed loan value. In addition, there were nine Fremont loans on the Company's watch list with a managed loan value of $213.5 million versus 12 loans at the prior quarter end, with $347.2 million of managed loan value.

[Financial Tables to Follow]
*                   *                *

iStar Financial Inc. is a leading publicly traded finance company focused on the commercial real estate industry. The Company primarily provides custom-tailored investment capital to high-end private and corporate owners of real estate, including senior and mezzanine real estate debt, senior and mezzanine corporate capital, as well as corporate net lease financing and equity. The Company, which is taxed as a real estate investment trust ("REIT"), provides innovative and value added financing solutions to its customers.

iStar Financial will hold a quarterly earnings conference call at 10:00 a.m. ET today, October 30, 2009. This conference call will be broadcast live over the Internet and can be accessed by all interested parties through iStar Financial's website, www.istarfinancial.com, under the "Investor Relations" section. To listen to the live call, please go to the website's "Investor Relations" section at least 15 minutes prior to the start of the call to register, download and install any necessary audio software. For those who are not available to listen to the live broadcast, a replay will be available shortly after the call on the iStar Financial website.

(Note: Statements in this press release which are not historical fact may be deemed forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although iStar Financial Inc. believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, the Company can give no assurance that its expectations will be attained.