Safehold Inc. — Filing identity warning
The supplied filing is iStar Inc.’s Form 10-Q, not a Safehold Inc. filing. It covers the quarter ended June 30, 2016, and was signed August 4, 2016. The figures below therefore describe iStar Inc.; verify the issuer before relying on them as a Safehold summary.
Business context and reporting period
iStar finances, invests in and develops real estate through four segments: real estate finance, net lease, operating properties, and land and development. The unaudited filing presents second-quarter and first-half 2016 results, compared with the same periods in 2015. Unless stated otherwise, financial figures below are in millions of dollars.
Key financial results and position
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Total revenue | $126.9 | $109.2 | $241.5 | $222.0 |
| Net income (loss) | $59.8 | $(19.8) | $50.5 | $(32.1) |
| Net income (loss) allocable to common shareholders | $38.1 | $(31.0) | $16.9 | $(53.5) |
| Interest expense | $56.0 | $55.8 | $113.1 | $110.5 |
| Cash from (used in) operating activities | Not presented quarterly | $(1.1) | $(63.8) |
Q2 basic and diluted earnings per common share were $0.52 and $0.37, respectively, versus a loss of $0.36 per share in Q2 2015. For the first half, basic and diluted earnings per share were each $0.22, versus a loss of $0.63.
Q2 adjusted income allocable to common shareholders, a company-defined non-GAAP measure, was $61.1 million versus $9.1 million. First-half adjusted income was $60.8 million versus $15.2 million. The company cautions that this measure is not a substitute for GAAP earnings or operating cash flow.
At June 30, 2016, total assets were $5.21 billion, cash and cash equivalents $521.4 million, debt obligations net $3.77 billion, and total equity $1.03 billion. Net loans and other lending investments were $1.57 billion; land and development assets were $1.05 billion. Cash declined from $711.1 million at year-end 2015.
Material changes versus comparable periods
- First-half revenue rose 9%, with land development revenue increasing to $42.8 million from $14.8 million. Q2 land development revenue was $27.9 million versus $6.5 million.
- First-half net income improved to $50.5 million from a $32.1 million loss. The improvement included higher equity-method earnings ($47.7 million versus $15.3 million) and real estate sale income ($53.9 million versus $39.5 million); these are material contributors to reported results.
- First-half loan-loss provision declined to $2.2 million from $23.4 million. However, non-performing loans net of specific reserves increased to $79.5 million, or 5.3% of net loan carrying value, from $60.3 million, or 3.9%, at year-end.
- Operating lease income declined 5% for the first half, partly reflecting property dispositions; interest income declined 1% as lower loan yields offset growth in average performing loan balances.
- Debt net of discounts fell from $4.12 billion at year-end 2015 to $3.77 billion. The company issued a $450 million secured facility, repaid the $323.2 million 2012 secured tranche, and refinanced or repaid unsecured notes due in 2016, including issuance of $275 million of 6.50% notes due 2021.
- iStar repurchased 9.5 million common shares for $91.8 million in the first half, at an average $9.71 per share. The share count reported on the balance sheet fell to 71.9 million from 81.1 million at year-end.
Outlook, liquidity, risks and unusual items
Management said it continued originating real estate finance and net lease investments and investing in development and repositioning assets, with the aim of maximizing value and supporting future earnings. It gave no specific earnings or revenue guidance. Expected cash uses over the next 12 months include investments, debt repayment, capital expenditures and operations. Management estimated portfolio capital expenditures of approximately $175 million to $250 million over that period, including about $85 million for vertical construction, and expected to fund most of approximately $537 million in maximum unfunded commitments over two years, subject to milestones and other conditions.
Management reported $774.7 million of unsecured notes due before June 30, 2017, and $787.6 million of total principal maturities due within one year in its contractual-obligations schedule. Expected funding sources include cash, portfolio income, loan repayments, asset sales, the revolving facility and capital-market transactions; management noted it cannot predict specific transactions needed to meet obligations. The new $450 million facility bears floating interest at LIBOR plus 4.50% with a 1.00% floor and is secured by a fixed asset pool. Debt covenants include collateral coverage and fixed-charge requirements; the filing says additional borrowing capacity under one unsecured debt covenant is currently limited.
Q2 results included $25.1 million of gains from commercial operating property sales and significant equity-method gains associated primarily with the sale of an investment. First-half property dispositions included three commercial properties sold for $158.9 million net proceeds and $25.9 million gains. A $3.0 million impairment was recorded on a residential operating property due to a local condominium market slowdown. Refinancing generated $1.8 million of third-party expense and $1.5 million of Q2 early debt-extinguishment loss.
Credit and market risks include five loans more than 90 days delinquent, in various resolution stages; loan loss reserves of $110.4 million; exposure to commercial real estate values and development execution; and sensitivity to interest rates. The company estimated that a 100-basis-point rate increase would raise annual net income by $13.2 million, assuming no change in assets or liabilities. A shareholder appeal remained pending. In a separate land-sale dispute, a court judgment for iStar included a $114 million purchase price plus 12% simple annual interest and other amounts, but the judgment was stayed pending appeal; timing and collection were uncertain. The filing states there were no material changes to previously reported risk factors.
Most important facts for investors to verify
- Confirm the issuer: this source is iStar Inc., not Safehold Inc.
- Assess how much of the earnings improvement is recurring versus gains from property and equity-investment sales.
- Review near-term maturities, refinancing access, covenants and liquidity, including the $787.6 million of principal due within one year.
- Track non-performing loans, reserve adequacy, and the five loans more than 90 days delinquent.
- Validate planned development spending and unfunded commitments against available cash and proceeds from expected repayments or asset sales.
- Monitor the pending Lennar appeal and shareholder litigation; the filing does not establish when, or whether, the Lennar judgment proceeds will be received.