iStar Financial active in capital markets in 2013, reduces cost of debt and leverage

By Lisa Kerner

Charlotte, N.C., Feb. 20 - iStar Financial Inc. closed five capital markets transactions in 2013, including repricing its larger secured credit facility, according to chief financial officer Dave DiStaso.

"During the fourth quarter, we issued at par $200 million of 1.5% convertible senior notes due November 2016, which convert into shares of iStar common stock at an initial conversion price of $17.29," DiStaso said during the company's fourth-quarter earnings conference call on Thursday.

Net proceeds from the offering, along with cash on hand, were used to redeem the remaining $201 million of iStar's 5.7% senior unsecured notes due March 2014 and to pay a $2 million prepayment fee.

Concurrent with the offering, iStar repurchased 1.7 million shares of its common stock with cash on hand at the prevailing market price of $12.35 per share, DiStaso said.

At Dec. 31, iStar had $29 million remaining under its share repurchase program.

"Throughout 2013, we demonstrated robust access to the capital markets as we raised secured, unsecured and convertible debt as well as preferred equity, while also expanding our outreach to both equity and fixed-income investors," said DiStaso.

"Additionally, we repaid $97 million on our 2013 secured credit facility during the quarter, bringing the remaining balance to $1.4 billion at the end of the quarter."

iStar also repaid $8 million on its 2012 secured credit facility, bringing the remaining balance to $432 million at year end.

According to DiStaso, iStar's weighted average effective cost of debt for the fourth quarter decreased to 5.7%, from 6.5% for the year-ago period. iStar's leverage was reduced to two times at year-end, from 2.5 times at the end of 2012, and at the low end of the company's targeted range of two times to 2.5 times.

iStar ended 2013 with cash and cash equivalents of about $514 million, compared to about $256 million at the end of 2012. Net debt at Dec. 31 was $3.64 billion.

During the fourth quarter, iStar's "capital strength continued to grow with lower-cost refinancing and ongoing deleveraging, enabling us to sit at the low end of our leverage targets with overall debt costs well below prior quarters," chief executive officer Jay Sugarman said on the call.

Investments

iStar funded about $218 million of investments in the fourth quarter, including $159 million of new investments originated during the quarter and about $60 million under prior commitments and through capital expenditures.

Subsequent to year end in January, iStar closed on its 50% interest in an $815 million debt financing commitment for the development of a mixed-use project in the heart of Times Square, New York City, according to the earnings news release.

The company initially funded $173 million at closing and expects to fund additional draw requests as the project progresses.

Also in early 2014, iStar partnered with a sovereign wealth fund to form a venture in which the partners plan to contribute up to a total of $500 million of equity to acquire and develop up to $1.25 billion of net lease assets.

iStar generated $164.4 million of proceeds from its portfolio during the fourth quarter and ended the quarter with $400 million of cash which it said will be used primarily to fund future investment activity.

Portfolio results

iStar's total portfolio had a gross carrying value of $5.19 billion at year end, which represents the company's carrying value, gross of $424.5 million of accumulated depreciation and $29.2 million of general loan loss reserves, the release stated.

The company's real estate finance portfolio totaled $1.4 billion, its net lease portfolio had a gross carrying value of $1.71 billion and its operating properties portfolio totaled $964.9 million at year end.

Commercial operating properties generated $29.6 million of revenue offset by $21 million of expenses during the quarter.

The residential operating portfolio was comprised of 616 condominium units. During the quarter, the company sold 88 condominium units, resulting in $47.4 million of proceeds and recorded $14.1 million of income, offset by $4.4 million of expenses.

iStar's land portfolio totaled $965.2 million at quarter-end.

Financial highlights

The New York-based finance company reported an adjusted loss allocable to common shareholders for the year of $21.7 million, or a loss of $0.26 per diluted common share. This compares to a loss of $53.8 million, or a loss of $0.64 per diluted common share, for the year ended Dec. 31, 2012.

Net loss allocable to common shareholders for the year was $155.8 million, or a loss of $1.83 per diluted common share, compared to a net loss of $273.0 million, or a loss of $3.26 per diluted common share for the prior year.

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