iStar likely to require asset sales to meet its funding commitments

By Jennifer Lanning Drey

Portland, Ore., July 31 - iStar Financial Inc. plans to fund its upcoming commitments and debt maturities using available cash and loan repayments but expects it will also need to monetize some assets to meet its obligations in the balance of 2009 and in 2010, James Burns, chief financial officer of iStar, said Friday during the company's second-quarter earnings conference call.

"Liquidity will be tight, but we have $15 billion of assets, and we have demonstrated our ability to monetize a sufficient number of assets to meet any gaps as a result of repayments being slower or borrowers being unable to pay us down," Burns said.

iStar's projected uses of cash in the balance of 2009 include $525 million of unfunded commitments, excluding interest holdback fundings, $290 million of unsecured notes maturing in September and $75 million of preferred dividends and miscellaneous cash flow.

Obligations in 2010 include $500 million of unsecured bonds maturing in March and April and $300 million of unsecured bonds maturing in December.

At June 30, iStar had $417 million of unrestricted cash and available capacity under its credit facilities, an amount that primarily consisted of cash, Burns said.

The amount was down from $1 billion at the end of the first quarter.

Debt repayment

During the second quarter, iStar repurchased $371.9 million par value of its senior unsecured notes, including $155.6 million of its senior unsecured notes due in September.

Also during the second quarter, iStar completed a bond exchange under which it issued $155 million of 8% secured notes due 2011 in exchange for $163 million of March and April 2010 unsecured bonds.

The company also issued $480 million of 10% secured notes due 2014 in exchange for $851 million of bonds with maturities ranging from December 2010 through March 2017.

Under the terms of its credit facilities, iStar can issue up to $1 billion of second-priority secured notes in exchange or refinancing transactions. As a result, the company has $365 million of remaining capacity.

iStar plans to continue looking to reduce debt and the overall size of its balance sheet, Burns said.

Covenant compliance

iStar was in compliance with all of its bank and bond covenants at the end of the second quarter, Burns also reported Friday.

At quarter end, the company's tangible net worth as calculated under its secured bank facilities was $2.1 billion, compared to a minimum of $1.5 billion.

The fixed charge coverage, calculated on a trailing 12-month basis, was 2.6 times versus a minimum of at least 1.0 times. The unencumbered asset to unsecured debt ratio was 1.4 times, compared to a required ratio of at least 1.2 times.

Revenues drop

The company posted $224.6 million in revenues for the second quarter, versus revenues of $320.4 million in the same period of 2008. iStar said the year-over-year decrease was primarily due to a reduction of interest income resulting from an increase in non-performing loans, lower interest rates and an overall lower asset base.

The second-quarter net loss allocable to common shareholders was $284.2 million, compared to net income of $18.5 million in the same period of 2008.

"While we have seen other parts of the credit markets begin to recover, a healing of the commercial real estate market will likely be slow and painful, and our focus continues to be working through the many challenges in the portfolio," Jay Sugarman, chief executive officer of iStar, said during the call.

iStar is a New York-based finance company focused on the commercial real estate industry.

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